Q3 2024 QuickLogic Corp Earnings Call
Thank you. Bye.
Speaker Change: Ladies and gentlemen, good afternoon. And at this time, I would like to welcome everyone to QuickLogic Corporation's third quarter fiscal 2024 earnings results conference call.
Speaker Change: As a reminder, today's call is being recorded for replay purposes through November 18, 2024. I would now like to turn the conference over to Ms. Allison Ziegler of Darrow Associates. Ms. Ziegler, please go ahead.
Allison Ziegler: Thank you, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer, and Elias Nader, Senior Vice President and Chief Financial Officer.
Allison Ziegler: As a reminder, some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products.
Allison Ziegler: including the expected timing of such revenue, statements regarding our future profitability and cash flows, statements regarding the timing, milestones, and payments related to QuickLogic's government's contracts.
Allison Ziegler: Statements pertaining to QuickLogic's future performance, design activity, and its ability to convert new design opportunities into production shipments.
Allison Ziegler: Schedule changes and production start dates that could impact the timing of shipments, the company's future evaluation systems, broadening the number of our ecosystem partners and expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash.
Allison Ziegler: Actual results or trends may differ materially from those discussed today. For more detailed discussions of the risks, uncertainties, and assumptions that could result in these differences, please refer to the risk factors discussed in QuickLogic's most recent defiled periodic reports with the SEC.
Allison Ziegler: QuickLogic assumes no obligation to update any forward-looking statements or information which speak as of the respective dates of any new information or future events.
Allison Ziegler: In today's call, we will be reporting non-GAAP financial measures. You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements.
Allison Ziegler: We have also posted an updated financial table on our IR webpage that provides current and historical non-GAAP data. Please note, QuickLogic uses its website, the company blog, corporate Twitter account, Facebook page, and LinkedIn page as channels of distribution of information about its business.
Allison Ziegler: Such information may be deemed material information, and Quiklogic may use these channels to comply with its disclosure obligations under Regulation FD.
Speaker Change: A copy of the prepared remarks made on today's call will be posted on QuixLogic's IR web page shortly after the conclusion of today's earnings call. I would now like to turn the call over to Brian. Go ahead, Brian.
Brian Faith: Thank you, Allison. Good afternoon, everyone, and thank you all for joining our third quarter 2024 conference call.
Brian Faith: We have made tremendous progress during the first 10 months of 2024, and we have a number of significant contracts in process that we believe we will win in the coming months.
Brian Faith: The most significant of these contracts that we expected to be awarded earlier this quarter has been delayed to later this quarter. The primary reason for this delay is its expanded scope.
Brian Faith: While this expansion is clearly good news, the delay will push the majority of the revenue recognition into Q1 2025. As a result, our revenue guidance for Q4 will be $6 million.
Brian Faith: Following my review of major contracts and other updates, Elias will cover our Q4 revenue guidance and other financial measures, which will include our forecasted return to non-GAAP profitability in Q4 and for full fiscal year 2024.
Brian Faith: Last Friday, EE Times published an article announcing that analog devices will acquire the assets and technical team from our primary EFPGA IP competitor, FlexLogix.
Brian Faith: According to the article, FlexLogic's eFPGA IP has been used by ADI for a long time and there is an intent to extend the use of eFPGA across ADI product lines.
Speaker Change: With EFPGA customers likely having advance notice of this news, we have seen an influx of inquiries from large companies for applications targeting fabrication processes for which we've already developed EFPGA Hard IP.
Speaker Change: Given these circumstances, we believe contract negotiations will be fast-tracked, and with eFPGA hard IP already established, we can deliver customer-specific IP quickly.
Speaker Change: Also very notable is the fact FlexLogix was the only other EFPGA company that was announced as a member of both the Intel Foundry's Accelerator IP and US Military Aerospace and Government or US MAG alliances.
Speaker Change: This bolsters our confidence that our new, our early investments to develop EFPGA hard IP for Intel 18a will pay off in a big way.
Speaker Change: On June 18th, we announced that we joined the Intel Foundry's Accelerator IP and USMAG alliances.
Speaker Change: Driven by customer demand and to capitalize on the already considerable interest from companies targeting Intel 18A for new designs, we initiated development of our EFPGA Hard IP in Q2.
Speaker Change: We believe this will position QuickLogic to be the first available source for EFPGA hard IP optimized for Intel 18a.
Speaker Change: We already have two outstanding proposals for Intel 18A designs in the defense industrial-based sector, one of which is very significant. We are also in discussions with a very large company in the compute IT sector that we believe will lead to a formal proposal in the near term.
Speaker Change: Due to our early investments to develop EFPGA hard IP and unique ability to quickly convert that to customer specific hard IP cores, we believe we are well positioned to win Intel 18a contracts and accelerate the schedule of our deliverables.
[inaudible]
Speaker Change: On July 8th, we announced the award of the third tranche of the Strategic Radiation-Hardened FPGA Government Contract.
Speaker Change: We anticipate the fourth tranche will be awarded this quarter and expand the scope of the long-term contract that was initiated in 2022.
Speaker Change: The total potential for this contract, including future options, is $72 million. If these options are exercised, we expect the funding rate will increase beginning in 2025.
Speaker Change: During the first quarter of 2024 we announced two contracts that will be fabricated using a 12 nanometer process.
Speaker Change: The first contract is with a defense industrial based customer and includes two cores that will be fabricated on Global Foundry's 12-LP process.
Speaker Change: As we forecasted last quarter, we completed our initial deliverables for the first core during Q3 and are on schedule to complete our work on the second core during Q4. We anticipate further revenue recognition in Q2 2025 as the customer does test chip preparation.
Speaker Change: The second contract is with a large, well-known international company. This design is for a new ultra-low power SoC that is targeting a variety of commercial and industrial IoT AI applications. This design will be fabricated by TSMC on its 12nm process.
Speaker Change: We completed our deliverables on this contract and recognize the associated revenue during Q3. We believe we'll have more clarity about the potential of a second design once the test ship for the first design is completed during Q1 2025.
Speaker Change: In November 2022, I shared that we taped out a new device for a customer that incorporates our EFPGA hard IP. This contract was announced in June 2022, with the stated expectation that revenue would extend to June 2025, with follow-on storefront revenue expected after the completion of the IP contract.
Speaker Change: In line with what I covered during our last conference call, due to a delay with one of the customer's subcontractors, we believe we will resume work on this design during the second half of 2025.
Speaker Change: This program is still a solid go and could represent tens of millions of dollars in storefront revenue starting in a couple of years.
Speaker Change: In September 2023, we announced the leading technology company chose our eFPGA hard IP for design that will be fabricated using Global Foundry's 22FDX platform.
Speaker Change: The customer has completed its design, expects to tape out later this quarter, and receive test chips from GlobalFoundries during the first half of 2025. If all goes as planned, that will lead to our revenue recognition of a production license during the second half of 2025.
Speaker Change: In November 2023, we announced a Global Semiconductor Leader chose our EFPGA Hard IP4 design that will be fabricated on UMC's 22nm process.
Speaker Change: We delivered our IP earlier this year and test chip evaluations are going very well.
Speaker Change: We anticipate being involved in their marketing efforts during Q4 2024 and Q1 2025. We expect these efforts will generate IP revenues for QuickLogic in 2025 and royalty revenue beyond.
Speaker Change: In addition to these awarded contracts, we have a number of large contract proposals pending, some valued in the mid-7 figures. These include proposals in a variety of critical infrastructure sectors and a proposal with a large semiconductor company.
Some of these proposals are potential storefront designs.
Speaker Change: In total, we have delivered our Astralis-generated EFPGA hard IP on five unique process technologies funded by customer contracts.
Speaker Change: These include GlobalFoundries 12LP, TSMC 12nm, GlobalFoundries 22FDX, UMC 22nm, and SkyWater RH90.
Speaker Change: Additionally, we believe we are on track to be the first company to offer EFPGA hard IP for Intel 18a.
Speaker Change: Given the fact these include some very popular high-volume process technologies, this is a big deal.
Speaker Change: Once we establish our eFPGA hard IP for a given process technology, our proprietary Astralis eFPGA hard IP generator can deliver customer-specific eFPGA hard IP rapidly, in some instances within days.
Thank you for joining us.
This positioning provides multiple advantages.
Speaker Change: First, it enabled us to further leverage the investments we've made to establish EFPGA hard IP for a given process technology.
Speaker Change: Second, it enables us to respond quickly to opportunities, and that lowers our costs associated with proposals. Third, it increases our market reach as potential customers know we have a proven solution that can be deployed in a very short period of time.
Speaker Change: We expect these benefits will accelerate our growth, profitability, and market penetration.
Speaker Change: To that point, I'm often asked what about the market sectors we are serving.
Speaker Change: As it stands today, we have active production IP contracts in the Defense Industrial Base, or DIB, communications and industrial sectors, and a test chip IP contract in the mass transportation sector.
Speaker Change: In addition to these, we have outstanding production IP proposals in the DIB, communications, industrial, compute, IT, and mass transportation sectors.
Speaker Change: These market sectors, which fall under the critical infrastructure umbrella, share common traits. They all have long design cycles, very long production life cycles, are pervasive users of programmable logic and ASICs, and are more focused on capabilities than cost.
Speaker Change: You will see examples of critical infrastructure applications we are targeting on our updated website that will go live later this month.
Speaker Change: The U.S. Department of Defense and Department of Commerce fund a variety of contracts to advance technology. The primary focus for the DoD is to fund product developments that will be used by its DIB contractors. The Department of Commerce has a broader agenda.
Speaker Change: We have three outstanding proposals for advanced technology initiatives that fit well in our core business strategy.
Speaker Change: In addition to our proposal for the fourth tranche of the strategic router contract that we won as the prime contractor in 2022, we also have two proposals pending where we partnered with very large companies that submitted the bids as the prime contractor.
Speaker Change: These proposals, while exciting, are too early in the process to expand upon.
Speaker Change: In past conference calls, I referenced two chiplet proposals as having a combined potential value of $40 million. We recently learned that we were not selected. As best we can tell, these proposals did not elect to incorporate FPGA technology.
Speaker Change: The value of these proposals has been removed from our funnel and only partially replaced with new opportunities as a result Our funnel value as of today is 164 million dollars
Speaker Change: The shiny side of this coin is that several of the new opportunities are inbound inquiries from very large companies for fully funded programs that have committed to using eFPGA and are targeting fabrication processes for which we already have eFPGA hard IP.
Speaker Change: Due to these factors, I believe our odds of winning are very high, and in at least one case, the contract could move forward quickly.
Speaker Change: We remain very optimistic about the future of merchant chiplet designs. Chiplets are already being used by large semiconductor companies like AMD, Intel, and NVIDIA in high volume, but for the most part, these are vertically integrated designs.
Speaker Change: In my recent communication with Cash Johal, CEO of YourChip, he stated that merchant chiplet designs will build traction in 2026 and he believes that together we are well positioned to be a leader in low power edge designs that require programmability.
Speaker Change: We anticipate the first jointly developed EFPGA chiplet integrating QuickLogic IP in the second half of 2025.
Speaker Change: Going forward, this EFPGA chiplet product line will be expanded to include devices ranging from 40,000 LUTs to over 1 million LUTs.
Speaker Change: All of these designs will use the industry-standard, high-speed UCIE chiplet interface, which is supported by most of the largest tech companies in the world.
Speaker Change: In line with our earlier forecasts, shipments of EOS S3 to our lead smartphone customer increased during the first half of 2024, and as we forecasted, Q3 should be a low point for the year.
Speaker Change: We anticipate shipments will sequentially increase in Q4 and again in Q1 2025.
Speaker Change: In a recent meeting at our headquarters, our customer identified new designs that could extend revenue into 2026.
Speaker Change: Consistent with our prior outlook, we are forecasting a modest increase in display bridge and mature product shipments for the full year 2024.
Speaker Change: In our last conference call, I discussed three new distribution agreements intended to expand our coverage internationally and enhance our coverage of the U.S. DIB.
Speaker Change: In October, we added magenta to broaden our coverage in Turkey and UAE.
Magenta specializes in customer-specific solutions for military and aerospace companies.
Speaker Change: The unique market focus and capabilities of these distributors is already yielding results.
Speaker Change: In the short time since they joined the QuickLogic team, they have collectively initiated several well-qualified eFPGA IP design opportunities with a combined value of approximately $2.5 million. They are also working with customers on new discrete FPGA and EOS S3 opportunities.
Speaker Change: Aurora is our comprehensive software tool suite comprised of open source and proprietary components that is used by our customers for eFPGA design. It provides seamless integration from customer RTL to eFPGA or FPGA bitstream.
Speaker Change: In line with our previous forecast, we released version 2.8 during Q3 and are on schedule to release version 2.9 during Q4.
Speaker Change: Driven by current strategic customer demand, we have entered into a contract with Synopsys to license its Simplify FPGA synthesis software.
Speaker Change: We will integrate Simplify in our Aurora tool suite for lead customer beta testing this quarter with full release expected in Q1 2025.
Speaker Change: Synopsys will enhance its Simplify tools to support our unique QuickLogic EFPGA architecture, which will enable customers that use Simplify to work in a familiar design flow environment.
Speaker Change: Simplify will also enable customers to further optimize QuickLogic EFPGA designs for power, performance, and area, broadly known as PPA.
Speaker Change: In some applications, these are critical factors, so integrating Simplify will expand our available markets.
[inaudible]
Turning now to Sensible.
Speaker Change: As we covered in our last conference call, Sensible has launched Piccolo AI, the first complete open-source AutoML solution for the development of Edge AI ML applications.
Speaker Change: Sensimo also launched its generative AI feature that enables developers to rapidly build ML training data sets for custom voice recognition, voice command and speaker identification applications.
Speaker Change: Through a close collaboration with Sensible, eFabless announced last month the launch of ChipIgnite ML, a new system-on-chip platform that is optimized for sensible software.
Speaker Change: The prototype run of this new SoC solution is scheduled for April 2025 with production to follow.
Speaker Change: On October 10th, Senseable announced its support for RISC-V. With RISC-V support, developers can now use Senseable's open-source Piccolo AI AutoML tool to create ultra-efficient machine learning models tailored to specific applications using open-source RISC-V hardware.
Speaker Change: So it's collaborating with two top tier microcontroller companies to enable its AI and ML development tools on their edge platforms and planned AI accelerator SOCs.
Speaker Change: With that, let me now turn the call over to Elias for a review of the financial results and I will rejoin for our closing remarks. Elias, please go ahead.
Thank you, Brian, and good afternoon, everyone.
Elias Nader: Total third quarter revenue was $4.3 million and slightly above the midpoints of our revenue guidance.
Total revenue was down 36% from Q3 2023.
and up 4% compared to Q2 2024.
New product revenue Q3 was $3.5 million.
Elias Nader: down 42% from Q3 last year and up 16% compared to Q2.
that your product revenue was
Elias Nader: The decreases in total revenue and new product revenue from the same period a year ago were mostly due to the timing of certain large EFPGA IP contracts.
The on-gap gross margin in Q3 was 60%.
under the top end of our Outlook range.
Elias Nader: This compares with non-GAAP gross margin of 78% in Q3 last year and 53.1% in Q2.
Thank you.
Non-GAAP operating expenses in Q3 were approximately $3.3 million.
and at the top end of our Outlook range.
Elias Nader: This compares with non-GAAP operating excesses of $3.3 million in the third quarter of last year and $2.9 million in the second quarter of 2024.
Elias Nader: The noted deviations from the midpoints of our outlook are merely attributable to the allocation of R&D between operating expenses and COGS.
Elias Nader: Accurately projecting the distribution of R&D costs between these two categories remains an ongoing challenge.
However,
Elias Nader: At the operating line on our income statement, these allocations ultimately balance out.
Elias Nader: Non-GAAP net loss was 0.9 million, or six cents per share.
Elias Nader: This compares to a non-GAAP net income of $1.8 million, or $0.13 per share, in last year's third quarter.
Elias Nader: and a non-GAAP net loss of $0.7 million of 5 shillings.
will share in the second quarter of fiscal 2024.
Elias Nader: For the third quarter, two customers accounted for 10% of our revenue.
Elias Nader: At the close of Q3, total cash was $22.4 million, compared to $23.3 million at the close of Q2.
These figures include a $20 million credit facility.
Elias Nader: Cash usage during Q3 was slightly higher than our outlook and is mostly attributable to the timing of our strategic radiation-hardened contract and payments to our subcontractors.
Please keep them in mind.
Elias Nader: Cash use during Q3 was impacted by the advanced investments we are making to establish EFPG hard IP for Intel 18a and Synopsys Simplify software ahead of contracts.
Elias Nader: We are anticipating significant IP contract awards that will leverage these investments later this quarter and in Q1 2025.
Thank you very much.
Elias Nader: Now, moving to our guidance and outlook for the fourth quarter of fiscal 2024, which will end on December 31, 2024.
Revenue guidance for Q4 2024 is approximately $6 million.
plus or minus 10 percent.
Elias Nader: Fourth quarter revenues are expected to be comprised of approximately $5 million in new products and $1 million in mature products.
Speaker Change: As Brian stated in his remarks, our lower-than-anticipated Q4 revenue guidance is attributable to the delay of certain IP contracts that we thought would be awarded earlier this quarter.
Speaker Change: The most significant of these contracts was delayed due to the scope of the contract being expanded.
Speaker Change: We anticipate it will be awarded later in Q4, which will push the majority of the revenue recognition into Q1 2025.
Speaker Change: Based on the anticipated Q4 revenue mix, non-GAAP gross margin for the fourth quarter is expected to be approximately 60 percent.
plus or minus 5 percentage points.
Speaker Change: Our non-GAAP operating expenses are expected to be approximately $3.3 million, plus or minus 10%.
Thank you for watching!
Please note that given the nature of our industry,
We may occasionally need to reclassify certain expenses to COGS.
I'll capitalize certain costs.
Speaker Change: The reclassifications are mainly related to labor and tooling for our revenue contracts with customers.
Speaker Change: Such capitalization may reduce OPEX and alter the timing for recognizing the corresponding expenses and costs.
Speaker Change: This may cause variability in our gross margins and operating results.
Speaker Change: Bearing these factors in mind, and based on our current full-year revenue outlook, we believe our full-year 2024 non-GAAP gross profit margin will be approximately 60%.
Speaker Change: After interest on other income, we currently forecast that at Q4, non-GAAP debt income will be approximately $0.35 million.
So $0.48 million or approximately $0.02 cents.
Speaker Change: to $0.03 per share based on roughly 14.8 million deleted shares.
Speaker Change: Based on our outlook for Q4, after interest, other income, and taxes, we expect full year 2024, non-GAAP net income will be approximately $0.33 million to $0.45 million, or $0.02 per share to $0.03 per share, based on an estimated $14.5 million diluted shares.
Speaker Change: The difference between our GAAP and non-GAAP results is related to non-cash stock-based compensation expenses.
Speaker Change: In Q4 we expect this compensation will be approximately $1.1 million similar to Q3.
Speaker Change: As a reminder, there'll be a movement, there'll be some movement in our stock-based compensation during the year, and it may vary each quarter based on the timing of grants to employees.
Speaker Change: At the midpoints of our outlook for Q4, we expect cash usage to be under $500,000.
Speaker Change: Based on our outlook for new contracts and our timing of forecasted deliverables, we believe Q4 will mark the low point for net cash and that Q1 2025 will be cash flow positive.
Speaker Change: Please note, we will continue to invest in developing EFPGA Hard IP for Intel 18a as well as with Synopsys for Simplify software in Q4.
Speaker Change: We believe this provides us with strategic advantages in winning contracts, some of which are pending and will shorten the time it takes us to recognize revenue once contracts are awarded.
Speaker Change: With that, let me now turn the call back over to Brian for his closing remarks and thank you very much.
Brian Faith: Thank you Elias, and thank you and your team for tight management of our finances that we believe will result in our second consecutive year of profitability.
Brian Faith: While the delays we've encountered in finalizing new contracts have reduced our revenue outlook for 2024, I believe that trend will change beginning this quarter and continue into 2025.
Brian Faith: In addition to the contracts we've had in the works for a number of months, we have also seen an influx of well-qualified inquiries during the last several weeks that are attributable to end customers learning about the acquisition of FlexLogix prior to the formal announcement.
Brian Faith: In some cases, we believe the customers would like to move forward quickly, and we have the resources in place to support that.
Brian Faith: As I noted earlier, we have EFPGA hard IP ready for five fabrication processes that were all funded by customer contracts.
Brian Faith: We are also on schedule to have our internally funded EFPGA hard IP for Intel 18A complete in Q1.
Brian Faith: With our hard IP already ported to these process nodes, we can develop customer-specific variants in a matter of weeks using our proprietary Astralis EFPGA IP generator. We are the only company in the world capable of executing this quickly and efficiently, and our track record of on-time delivery proves it.
Brian Faith: We are also the only EFPGA IP company in the world that has the resources, knowledge, and business relationships to provide our customers with a turnkey storefront solution.
Brian Faith: Managing the manufacturing and test flow for semiconductor devices is complex and seldom the core competency for our ASIC customers.
Brian Faith: With over three decades of experience in the merchant semiconductor device market, we offer these customers a unique, low-risk, and trusted solution.
Brian Faith: This is a huge deal that has the potential to exponentially expand the scope and size of QuickLogic.
Brian Faith: Before I turn the call over for Q&A, I would like to pause for a moment to pay respect to and express our gratitude for our veterans' dedicated and selfless service to our country. This includes several members of my own family, both past and present.
Brian Faith: With that, I would now like to open the call for questions. Back to you, Operator.
Thank you very much.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the queue. You may press star 2 to remove yourself from the queue.
Speaker Change: Now for participants using speaker equipment, it may be necessary to pick up the handset before pressing the start keys. One moment while we poll for questions.
Speaker Change: And our first question comes from Martin Yang, Oppenheimer & Company.
Martin Yang: Hi, thank you for taking my question. My first question is on the acquisition of PlexLogix.
Speaker Change: Brian, can you maybe give us more details of your thoughts regarding how this will change the competitive landscape for QuickLogic and, you know, what are the relevant impacts on your customers and potentially QuickLogic's customers?
Speaker Change: Yeah, I'd be happy to take over that, Martin. So I think firstly...
Speaker Change: If we look at the embedded FPGA landscape, as far as suppliers go, for hard IP, it's really QuickLogic and what is now formally FlexLogix.
Speaker Change: I think at one process node TSMC 7 nanometer and as far as I know there's nothing beyond that from a hard IP perspective.
Speaker Change: So, I think from a competitive perspective, it really does give us a tremendous opportunity to be the sole part IP provider for embedded FPGA.
Speaker Change: That's more or less on the supply side, right? We have the IP. It's been ported to many different process technologies.
Speaker Change: And I think especially on the higher value ones, the ones that are more leading edge process nodes like 12 nanometer.
and now 18A, we were intentionally investing in 18A.
Speaker Change: way ahead of the curve here because we knew this was going to be a really important process node. And I think that we're very glad that we actually kicked off that ahead of customer contract because now I think we can step in and be that supplier of that to anybody that is interested in EFPJ on 18A.
and again we have other nodes as well.
I think from a value creation...
Speaker Change: This is a tremendous opportunity because it really, I'd say, is the exemplar of what we've been preaching for so long that embedded FPGA clearly has value if a company like Analog Devices is going to acquire that and then commit to putting that across a broad spectrum of products.
Speaker Change: I think there are several other companies that would fall into the category of the way ADI builds products and the markets they serve, and it seems like ADI is no longer going to continue that IP business model. So I think it gives us very clear targets for who we should be talking with.
Speaker Change: and who we should continue to talk with as well from people that we've already been engaged with. So, I'm actually tremendously excited. I posted something on this on our MyLinkedIn.
Speaker Change: just over the weekend which is really again exciting that it's validating the technology value and also the opportunity in front of QuickLogic now to step in and be that EFPJ hard IP supplier too.
Speaker Change: Any and all these customers that are probably searching for an alternative now, since it will no longer be continuing as an IP model at Analog Devices.
Did that answer your question?
Yeah, let me take that one.
Speaker Change: So first I'll say that I obviously got ahead of my skis earlier this year.
Speaker Change: and the 30% revenue growth target. Trying to forecast the timing of these large contracts, particularly ones that are coming out of the defense industrial base, is challenging at best.
Speaker Change: Due to that and the fact that I think providing an accurate outlook is important for all of us, I'm going to be a lot more cautious at this juncture.
Speaker Change: And so based on what we have today, to your specific question, we had had a previous forecast for Q4 of about $10 million, now it's $6.
Speaker Change: So, we see about 4 million of that moving out into 2025, the biggest of which is contributing to this mid-seven-figure IP contract that we alluded to earlier in the call.
Speaker Change: So I think just some other comments I'll make related to that, it's I think I'm very comfortable that our business model is solid I think it's very clear there's value in the IP because of the earlier question related to FlexLogix
Speaker Change: and the number of qualified and funded inquiries has noticeably increased.
in the funnel, so it's very solid.
Speaker Change: And I think I can assure you we're performing on or ahead of schedule of every contract we've been awarded, including this work that we're doing ahead of time pre-contract on Intel 18a.
Speaker Change: And so now, as we're moving forward to contract execution, we can move very fast from contract to delivery of the IP, which is what triggers the revenue recognition for us.
Speaker Change: So hopefully that gives you a little bit better picture about the Q4 movement into next year, the reasons why. And also I think dovetailing in that with the whole FlexLogix conversation and what that means moving forward for qualified opportunities and how fast we can convert those to revenue.
Thank you. Thank you.
Got it. Thank you. That's it for me.
Speaker Change: Thanks Martin. Thank you. Our next question comes from Richard Shannon, Craig Cullen.
Thank you. Bye-bye.
Thank you.
Speaker Change: Hi Brian and Elias, thanks for taking my questions as well.
Speaker Change: Brian, I guess my first question here is about this large contract that was delayed due to an expanded scope. Is there any other detail you can offer as to why?
Speaker Change: any parallels you might see with this situation relative to other ones that you have? I think you refer to this as a DIB related contract, please correct me if I'm wrong there. So do you see any similarities here across any others in the potential industrial base that you're dealing with as well?
from a
Speaker Change: From a requirements perspective, we've definitely seen expansion on the technical side in terms of what they want to do with the technology and that expansion in technical scope has
Speaker Change: Extended the amount of time it's going to take us to actually create the IP that is fully implementing those uh...that scope change.The second I would say is that it's
Speaker Change: This in particular is also using a new process and so there's this combination of events of expanded scope that we need to do with new process technology
Speaker Change: And that combination is really what's pushing it out to the right.
Speaker Change: I would say on the value side of this, the interesting thing for us is that what we're seeing requirements-wise, I think is actually going to be very useful for other customers, both on this node, but also on other nodes that we already support, like GlobalFoundries12OP.
Speaker Change: and others. And once we have this built into our workflow with Astralis it's going to be fairly straightforward for us to backport, if you will, that capability to other process nodes and offer that as value-added upselling for the other cores that we've already done.
Speaker Change: Again, we're disappointing the revenue moving out, but I think what we're going to gain out of this in terms of capability, price of IP, and wins in this, more importantly than anything, I think is worth it in the net of it.
Thank you. Bye-bye.
Brian Faith: Thanks for all that detail, Brian. I guess the second question here is, you referenced a number of times today, and obviously the past couple of quarters, at least here on Intel's 18a foundry node.
Brian Faith: Intel looks like it's got a lot of things to figure out, I guess, to put it kindly there. And yet your confidence in the opportunity here seems to be vastly increased since the last quarter that we talked.
Brian Faith: Maybe you can talk to the confidence level you have here that this is going to go forward, go forward on time. There's a lot of commitment to the ecosystem to, you know, support that, that positivity. That'd be great to hear.
Speaker Change: Yeah, I'm happy to expand on that. And I think, you know, some of the prepared remarks we were talking about, the investments by the Department of Defense, by the Department of Commerce,
Speaker Change: There's a lot of overlap there where it comes to Intel 18A.
Speaker Change: So I think just for more color, Intel 18A is a very big deal. We felt like that since we really started committing to this in an engineering way from Q2 of this year. It's not only a leading fabrication technology, it's also US-based.
Speaker Change: And I think that means it's got a high degree of use or utility for the U.S. defense industrial base.
Speaker Change: And we already know that the DIB are pervasive users of FPGA technology period. They already have funded ASIC projects
Speaker Change: They are going to be, I think, looking for onshore foundry capabilities for that. And when it comes to looking at things that you're optimizing for performance, you're optimizing for power consumption, more advanced process nodes should yield that as far as capability goes.
Thank you.
Speaker Change: So as it stands today, I think, just to reiterate, we're not only on track to be the first company to offer EFPG Hard IP and Intel 18A, due to this acquisition of Plexlogix, we might be the only source for a long time.
Speaker Change: And I think that's a huge opportunity for us to be able to step in and be that trusted supplier to a set of customers that really want to avoid risk, and they don't want to have an IP license taken away from them in the future. We're here for the long term.
Speaker Change: So that, I think, means we have an opportunity to plan numerous contracts. I know there's been a lot of press around Intel, but, you know, one thing is clear to me is that they're fully committed to 18A. They're fully committed to being a foundry. And we're fully committed to having an IP core on 18A.
Speaker Change: And I know that everybody on this call knows that in terms of the bell curve of market share, you know what that looks like when you're the first company to the party versus the second company. And we are going to be that first company as far as EFTPIP goes on Equality Connect.
Speaker Change: Okay, great. I look forward to updates in the future here. Maybe a couple questions for either of you kind of financials and kind of near-term tactical thought process here.
Speaker Change: You've got a $6 million guide here for the quarter that's up a lot from the third. How do we think about the process as we go into next year? Should we see first quarter revenues of a similar level or was there a bit of a burst here that may come back down?
Speaker Change: I think your press release also referred to lower expenses that I didn't hear a follow-on comment there. How do we think about kind of on a go forward basis from here?
Speaker Change: So a couple of questions embedded in there. One is around the 2025 revenue outlook and then the other one is related to expenses on that.
Speaker Change: I think on the revenue side for next year, I'm going to go back to what I was first.
saying when Martin asked the question, I think that
Speaker Change: You know I definitely got ahead of my skis this year. I'm not going to make that same mistake for next year So we're not going to give a full year model at this point
will do something more.
Speaker Change: along the lines of talking about that in our February call.
Speaker Change: That being said, I do think with the opportunity now with
Speaker Change: One of our biggest competitors out of the picture, and us having good overlap in our EFPG IP process, and the fact that we do have these continuing contracts that we're talking about on the Strategic Brathard side.
Speaker Change: that we're comfortable that next year will be a growth year. We just don't know on a quarterly basis what that's going to look like yet.
Brian, on the expensive side...
Go ahead, Richard, please.
Richard Shannon: No, I was, you were getting to the second part of my question. I apologize for interrupting, please go ahead.
And always, always.
Richard Shannon: Yeah, you know, we invested, we were very smart, actually I feel very smart that we invested early on in this, in this, you know, buying of all these IPs.
Richard Shannon: with what's going on with the Intel 18e, but you know, OpEx is not going to go up at all in my book. I think it's going to be flat.
Richard Shannon: And, you know, we have invested in hiring the right engineers early on.
Richard Shannon: in the right purchase of IP and the right purchase of...
Thank you.
Speaker Change: Okay, fair enough. And I'll ask one quick question, jump out of line here. Brian, I think you made a remark to the Strategic Red Heart FPGA contract and expecting a higher run rate. Is that something that was going to happen in the fourth quarter or next year? And can you give us any sense of how higher it might be?
How much I'm not going to be able to say.
Speaker Change: until we have a contract. We are expecting that to be taking place this quarter.
Speaker Change: Okay, fair enough. I'll jump out of line, guys. Thank you.
Thanks, Richard.
Thank you.
Speaker Change: Thank you. And our last question comes from Rick Neaton, Rivershore Investment Research.
Rick Neaton: Thank you for letting me ask some questions. Hi, Brian. Hi, Elias.
Rick Neaton: In listening to you explain about Strategic Red Heart, I'm wondering if your IP business, your hard IP business, if you...
Rick Neaton: exclude your strategic RADHARD contract. How did that fare in 2024 versus 2023? Was there growth there? Were you satisfied with the growth? How did that do?
you're referring to within our EFPGA business
Rick Neaton: how that grew outside of the strategic radar contract? Right. Did that business grow? In other words, it was the only thing causing your
IT business to grow the strategic red heart.
I gotcha.
Speaker Change: Yeah, I'm glad you asked that because actually it's the opposite situation where with our year-to-date plus our forecast for Q4 we're expecting the non-strategic Red Heart component to be up like over 50% over last year.
Speaker Change: And I think if you rewind to the beginning of this year, when we were talking about the 30% revenue growth, we were also very specifically talking about growth coming from the non-strategic router project, because that really speaks to diversification. We wanted more customers.
Thank you. Bye-bye.
Speaker Change: Certainly within the DoD we wanted more customer contracts or defense-oriented business and then outside of that as well. So in that sense
Speaker Change: We have accomplished a lot of that which is a lot more revenue coming from non-strategic Red Heart Not as much as we wanted obviously, but I think we started to establish that there are clearly wins outside of the big
Strategic Route R1 that are buying into the value proposition.
Speaker Change: and contracting that with us. And we do foresee that to be a growth contributor next year as well. Yes, we think Strategic Red Heart will be up next year over this year. I think more importantly, we're gonna continue to see more diversification. And there again, I'll go back to the fact that with FlexLogix,
Speaker Change: No longer an IP competitor of ours. I think we have a lot of opportunity in front of us for that
Speaker Change: Okay, thanks for that caller. Another question I had, and in looking at your cash flow...
versus your non-GAAP profitability. Can you explain...
Speaker Change: how you can be profitable with negative cash flow on a non-gap basis.
Thank you.
Speaker Change: Yeah, if you take a look at Q4, for example, where, you know, you do the math the way you should because OPEX is going to be flat over a quarter of a quarter.
Speaker Change: and 60% gross margin, $6 million revenue, you come up to about $0.03 per EPS, okay?
Right.
Speaker Change: and so that's one side of the equation. The second side of the equation is the use of cash is still going to be estimated at under $500,000.
Speaker Change: So, it's possible I could beat that number, and so if you take a look at both sides of the equation, it balances out that you can have a cash flow that's negative, but yet make money.
Speaker Change: because of the fact that you're not burning 3 million or 2 million, you see what I'm saying? You're burning literally half a penny.
Speaker Change: Yeah, if I can expand on that, I think in Q3
Speaker Change: So in Q2, we already started to invest in the Intel 18a from an R&D perspective. In Q3 we started making that or continuing that and adding on to that the strategic decision to enhance the Aurora toolkit with adding the Synopsys simplified to that.
Speaker Change: And so, you know, we're going to have beta testing this quarter for those things, but those investments, I think, strengthens the product competitiveness.
Speaker Change: and that return on investment and the cash flow from that may not be...
That's clear outside of QuickLogic, Intel 18-A Investment in particular.
Speaker Change: But we envision that it was critically important to do that And if we also expect it's going to generate a positive ROI beginning in early 2025 Especially gets back to that timing of the EFPG IP deliveries and then therefore the cash coming from those associated licenses
not just the expense side and the investment of it.
Speaker Change: When you talked about the Synopsys deal, is your customer, is this just a tool integration deal or are Synopsys cores, core designs being involved in that? Can you get in?
to that sort of detail.
Speaker Change: Yeah, I can. So there's no Synopsys IP core. This is literally FPGA logic synthesis from Synopsys for a tool called Simplify.
Speaker Change: Backstory here, actually when Simplify was starting as a company, Simplicity, back in the, I think it was the late 90's, we were actually their very first FPGA company that wrote them their very first check to integrate their toolkit into our, what at the time was a proprietary toolkit from QuickLogic.
Speaker Change: Fast forward to today, we have not gone forward with synopsis synthesis in the last five years because of our big push around open source.
Speaker Change: But as we got further and further into these defense contractors, it became clear that all the defense folks use Simplify already. They trust the quality, they trust the fact that they have, you know, good language support.
Speaker Change: And so that was a pretty easy decision for us that if our biggest customers are already users of the tool, we should be back working with them again.
Speaker Change: And so based on the current revenue customers and some of these proposals with these large companies getting really close to the end,
Speaker Change: We felt it was appropriate to go back to Synopsys and and do this. It's called an OEM agreement
Speaker Change: and do that again, not for the proprietary QuickLogic tool, but now integrating Synopsys into the open source version of our tool called Aurora.
Speaker Change: So we're integrating that now. They are going to be doing some enhancements to their quality of results or the algorithms specifically for architecture and we'll be getting out that data kit to customers this quarter.
Speaker Change: But it was very, very customer-driven in the sense that the customers that we cared very deeply about, we wanted to make sure we had a familiar flow for them, and this accomplishes that.
you were pretty clear that you thought
Speaker Change: this year would be a growth year. In other words, at this point in 2023, you thought 2024 would be a growth year, and it isn't.
Speaker Change: Can you explain what, if anything, is different about your view of 2025 and your general comment that you think there'll be growth in 2025 versus 2024? What's different?
Speaker Change: Yeah, well, I would say that, firstly, I'll probably say for the third time I got ahead of my skis for this year, knowing where we were with the contracts now. But it doesn't change my...
Speaker Change: my confidence and optimism for next year, particularly because I think getting back to your first question, we have a lot more diversification now in our customer base.
Lumpy, very uneven and very difficult to truly forecast.
Speaker Change: But I think if you start looking at our funnel now and what we've booked, what we've seen moved out to 2025.
Speaker Change: That's what gives me a lot of excitement because we're very far along now with some of these that have pushed into 2025. And the value of those contracts on an IP basis goes up. The fact that our biggest competitor is no longer a competitor, you start looking at all those things.
Speaker Change: And the fact that you see a lot of these customers wanting to do custom ASICs and use programmable logic. I think it's a
Speaker Change: This is a positive confluence of events that is going to yield a good result for next year. And again, we're not going to give an exact number because I don't want to do that again, but I think we're in a really good spot compared to where we were last year, especially with customer diversification.
Speaker Change: Thanks for answering my questions, Brian and Elias, and I look forward to the next conference call.
Likewise. Thank you.
Speaker Change: Thanks again for everyone joining us today. Hopefully we'll connect with some of you at one of our upcoming events, including the Craig Hallam Alpha Select 101 Conference in New York on November 19th, or the Summit Conductor Focused Annual NYC Summit, also in New York, on December 17th.
With that again, thank you and have a good day.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.