Q4 2024 QuickLogic Corp Earnings Call
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As a reminder, today's call is being recorded for replay purposes.
Speaker Change: I would now like to turn the conference over to MS. Alison Ziegler of Darrow Associates. Please go ahead.
Thank you operator, 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.
Speaker Change: A reminder, some of the comments quick logic makes today are forward looking statements and involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products, including the expected timing of such revenue.
Speaker Change: Regarding our future profitability and cash flow statements regarding the timing milestones and payments related to quick logics government contracts.
Speaker Change: Let's pretend to quick logics future performance design activity and its ability to convert new design opportunities into production shipments timing and market acceptance of its customers' products.
Speaker Change: 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 unexpected results and financial expectations for revenue gross margin operating expenses profitability and cash.
Speaker Change: Actual results or trends may differ materially from those discussed today, including as a result of the company's audit, which is still under way for more detailed discussions of the risks uncertainties and assumptions that could result in those differences. Please refer to the rest of factors discussed in quick logics. Most recently filed periodic reports with the SEC the closet.
Speaker Change: Assumes no obligation to update any forward looking statements or information, which speak as of their respective dates and then any new information or future events.
Speaker Change: In today's call wheels, Youre 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. We have also posted an updated financial table on our IR webpage that provides current and historical non-GAAP data.
Speaker Change: Please note quick logic uses its website the company blog corporate Twitter account Facebook page and Linkedin page as channels of distribution of information about its business such information may be deemed material information and quick logic may use these channels to comply with its disclosure obligations under Reg FD.
Speaker Change: A copy of the prepared remarks made on today's call will be posted on quick logics IR web page. Shortly after the conclusion of today's earnings call I'd now like to turn the call over to Brian go ahead, Brian.
Brian: Thank you Alison and good afternoon, everyone and thank you all for joining our fourth quarter 2024 conference call.
Brian: Due to external delays that pushed out of certain contract awards. We reported Q4 2024 revenue slightly below the midpoint of our guidance and we won't forecast lower Q1 2025 revenue than we previously anticipated.
Brian: The good news is the contract log jam that had delayed some key awards by a little over a quarter has now lucent.
Brian: With two new E FPGA hard IP contracts now in the books and several more expected in the very near term, we anticipate a significant rebound in revenue and profitability beginning in Q2, and solid revenue growth non-GAAP profitability and positive cash flow for full year 2012.
Brian: Five.
Brian: Last week, we finalized a 1.1 million dollar E. S. P. G. A hard IP contract with a new defense industrial base or dead customer that will use the 12 L. P fabrication process at global foundries or GFS.
Brian: Due to the fact, we already have E. S. P. G. A hard IP established for that process.
Brian: Cash flow will begin in Q1, 2025 and revenue recognition will be in Q2 2025.
Brian: Last week, we were also awarded the first phase of what we expect will be a seven figure direct to storefront E. S. P. G. A hard IP contract with another new customer.
Brian: This application, which enables low power processing of changing algorithms is perfectly suited for our FPGA solution.
Brian: We expect to be awarded the balance of this contract in the second half of 2025.
Brian: We anticipate design services and IP revenue recognition could begin in Q3 and carry into 2026.
Brian: Following that we expect storefront revenue could begin as early as 2027.
Brian: While some of our existing contracts have good storefront potential that may materialize earlier. This is the first of what we believe will be several direct to storefront contracts. During the next couple of years.
Brian: Earlier this month, we want an E. S. P. G. A hard IP design with another new customer in.
Brian: In addition to using our fabrication process for which we have already established our E FPGA hard IP.
Brian: This design will also use an off the shelf part IP core.
Brian: For a data converter and a wireless application that we previously developed using our proprietary australis IP generation tool.
Brian: Okay.
Brian: The ability to benefit from the work we've completed is a big deal.
Brian: Having developed IP for fabrication processes and hard IP core designs lowers customer risks shortens, our development and revenue recognition cycles and provides us with favorable financial leverage in the form of improved margins.
Brian: We anticipate these benefits will start to become meaningful this year.
Brian: In addition to these recent wins, we announced the award of the fourth tranche of the strategic radiation hardened FPGA government contract valued at approximately $6 $6 million on December 23rd.
Brian: This brings the total of our awards through four tranches to roughly $34 million.
Brian: The total potential for this contract, including future options is currently $72 million.
Brian: We are seeking permission to share more details on the expanded scope of the program and test chip timeline.
Brian: Turning to Intel a TNA.
Brian: We expect to be awarded the first two E. S. P. G. A hard IP contracts within weeks and the second one very shortly thereafter.
Brian: The combined value of these contracts is anticipated to be mid seven figures.
Brian: If the contracts are both awarded and the time frames outlined by our customer we expect to recognize all of the revenue in Q2 2025.
Brian: Due to the N D A's and the formal process for press release approval there may be delays in the announcements of these contracts.
Brian: Please keep in mind as it stands today quick logic is the only company that has E. S. P. G. J Hart IP that is optimized for until a TNA.
Brian: We believe the significant investments we made during 2024 ahead of contract awards to realize this unique position will provide us with solid returns on that investment going forward.
Brian: Okay.
Brian: Turning to the competitive landscape last November analog devices announced the acquisition of our most capable competitor flex logics.
Brian: This is a clear testament that large semiconductor companies are embracing the value of incorporating FPGA into their standard products.
Brian: Following this acquisition, we announced the appointment of <unk>, former VP of sales Andy Gyros as the new quick logic VP of IP sales.
Brian: Since <unk> E. S. P. G AIP will no longer be available for licensing.
Brian: There is a notable void in the market that we can fill.
Brian: This is particularly true for customers that now need to secure a new long term partner.
Brian: Andy is working closely with the former <unk> customers that have multi year E. F. PGA roadmaps to introduce the benefits of moving to a quick logic.
Brian: Now, let me take a moment to update our progress on existing contracts that are scheduled to contribute to our 2025 FPGA hard IP revenue.
Brian: A number of these contracts have achieved significant milestones during the last several months.
Brian: These include tape out and in several cases test chips that have been completed and are in validation.
Brian: This is important because in some cases test chip validation will lead to an IP production license and then a few cases new designs for our FPGA hard IP.
Brian: These are also a good illustration is that a long tail of revenue is commonly attached to our FPGA hard IP contracts and following that a stream of royalties our storefront revenue that can extend for years and in some cases more than a decade.
Brian: During the first quarter of 2024, we announced two contracts that target 12 nanometer processes.
Brian: The first contract is with the defense industrial base customer and includes two quarters that will be fabricated on the GF 12 O P process.
Brian: We completed our initial deliverables for the first quarter during Q3 and the second core during Q4.
Brian: With our IP deliverables complete we anticipate nominal revenue recognition during Q1 and Q2 2025 in support of customer test chip development.
Brian: Yeah.
Brian: We will leverage the E. S. P. G. A hard IP, we developed for this contract to accelerate revenue recognition for the new 12 O P contract I mentioned earlier.
Brian: The second contract is with a large well known international company.
Brian: This design is for a new ultra low power Soc based on Tsmc's 12 nanometer process that is targeting a variety of commercial and industrial Iot AI applications.
Brian: We completed our deliverables on this contract and recognize the associated revenue during Q3.
Brian: Their test chip has been manufactured and is currently being evaluated by the customer.
Brian: We expect the evaluation to be completed in early Q2 at which point the customer will make a decision regarding a second design.
Yeah.
Brian: In November 2022, I shared that we taped out a new device for a customer that incorporates our E. S PGA hard IP.
Brian: While we are in a holding pattern due to a delay with one of the customers subcontractors. We continue to believe we will resume work during the second half of 2025 and that this design has very substantial storefront potential starting in a couple of years.
Brian: Since our last conference call, we have engaged with this customer on multiple new a sick and shiplett design opportunities that incorporate our E. S. P. G a hard IP.
Brian: These designs target other foundries and fabrication notes for which we have already developed FPGA hard IP.
Brian: This means we will be able to recognize revenue fairly quickly. If we are successful in winning these engagements.
Brian: In September 2023, we announced a leading technology company chose our FPGA hard IP for design that will be fabricated using GFS 22 F Dx platform.
Brian: The customer has completed its design and tape out and test chips are currently in fabrication.
Brian: If all goes as planned we anticipate revenue recognition of a production license during the second half of 2025.
Brian: In November 2023, we announced a global semiconductor leader chose R. E. S. PGA hard IP for a design that will be fabricated on Umc's 22 nanometer process.
Brian: The customer now has a test chip back from fabrication and their evaluations are going very well.
Brian: Yeah.
Brian: We anticipate continued involvement in their marketing efforts during the first half of 2025 and.
Brian: And expect the design will generate production IP revenues for quick logic this year in royalty revenue beyond.
Brian: A quick update on <unk>.
Brian: We attended the annual chip with summit in January with your chip.
Brian: There was a definite uptick in interest this year.
Brian: Your chips CEO cash Joe Hall is right and is forecast at 2026 will be the year of the triplet, which should coincide well with your chips introduction schedules for merchant chip led solutions.
Brian: This also dovetails well with the elevated interest we are seeing in AI inferencing at the edge as.
Brian: As a matter of fact, one of our existing E. FPGA heart IP customers that I previously mentioned is already leveraging our technology for an edge AI inferencing application.
While the market for merchant chip with solutions develops we are continuing to work with various companies that are targeting internal ASIC chip lit solutions using our FPGA hard IP.
Brian: We already have existing contracts that may evolve to include a six ship lit solutions.
Brian: In line with our forecasts, we released the Aurora $2 nine in Q4.
<unk> includes some very significant enhancements that you can read about on our website.
Brian: Following this we released Aurora pro $2, nine which integrates synopsys is simplify FPGA synthesis software.
Brian: The integration of simplify it was driven by large strategic customers, who works closely with us during beta testing.
Brian: This integration has already helped us win one of the new contracts I mentioned earlier and we believe many more will follow.
Brian: We are on pace to include further updates for Aurora with the release of version three Dato later this quarter.
Brian: The new distributors that we've discussed in some detail during our last two conference calls are executing very well.
Brian: In total they have more than doubled the value of quick logic design opportunities they are addressing.
While the bulk of this value is for new E. FPGA heart IP designs. They are also advancing the new E. S. S III and discrete FPGA opportunities I mentioned last quarter.
Brian: In line with our forecast as I shared last quarter shipments of U S. S. III increased sequentially in Q4 of 2024, and we are forecasting a modest sequential increase in Q1 2025.
Brian: While our primary smartphone customer is scheduled to continue using E. S. S three and new designs that extend to 2026.
Brian: The demand for older designs will likely decrease in 2025.
Brian: Turning now to sensible.
Brian: Last month, we announced that our board of directors is actively exploring options for sensor mall and there were preliminary discussions regarding the possible sale of the company or its assets.
Brian: Due diligence is ongoing so I cannot comment other than we expect a conclusion before our next earnings call and that our full year outlook for solid growth and profitability does not include any contributions from sensible.
Brian: 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 last please go ahead.
Brian: Yeah.
Elias: Thank you, Brian and good afternoon, everyone.
Elias: Total fourth quarter revenue was $5 7 million within our guidance range.
Elias: Total revenue was down 24%.
Elias: From Q4 2023.
Elias: But up 34% compared to Q3 2024.
Elias: New product revenue in Q4 was $4 7 million.
Elias: Down 32% from Q4 2023.
Elias: Up 32% compared to Q3 2024.
Elias: Mature product revenue was $1 million.
Elias: Hum.
Elias: One 7 million in both Q4 2023 on Q3 2024.
Elias: The decreases in total revenue on new products revenue from the same period a year ago.
Elias: Mostly due to the timing of certain large FPGA IP contracts.
Elias: non-GAAP gross margin in Q4 was 62%.
Elias: In line with our outlook range.
Elias: This compared with non-GAAP gross margin of 78, 3% in Q4 2023.
Elias: 60% in Q3.
Elias: non-GAAP operating expenses in Q4.
Elias: Proximately $2 9 million.
Elias: Just below the low end of our outlook range.
This compares with non-GAAP operating expenses of $3 1 million in the fourth quarter of 2023, and $3 3 million in the third quarter of 2024.
Elias: non-GAAP net income was zero point $6 million.
Elias: <unk> per diluted share.
This compares to non-GAAP net income of $2 6 million.
Elias: Our <unk> per diluted share in Q4, 2023 on a non-GAAP net loss of <unk> 9 million or six cents per share in the third quarter of fiscal 2024.
Elias: The difference between a gap.
Elias: non-GAAP results is related to non cash stock based compensation expenses.
Elias: Stock based compensation for Q4 was $0 9 million.
Elias: For the fourth quarter, two customers accounted for 10% or more of our revenue.
Elias: At the close of Q4 total cash was $21 9 million inclusive.
Elias: Our fund $18 million credit facility.
Elias: This compared with $22 4 million inclusive of a $20 million credit facility.
Elias: At the close of Q3.
The timing of payments accounts receivable.
Elias: Contract assets, which resulted in a $2 1 million increase for the combined accounts impacted our cash usage during Q4.
Elias: Cash usage. During Q4 was also impacted by continued development of Intel <unk> IP.
Elias: Integration of Synopsys simplify ahead of orders.
Elias: We are anticipating significant IP contract awards.
Elias: It will leverage these investments in 2025 and beyond.
Elias: Going forward we.
Elias: We do not anticipate developing <unk> IP for new fabrication processes.
Elias: Ed of orders.
Elias: Now moving to our guidance on the outlook for the first quarter of fiscal 2025.
Elias: Which will end on March 31.
Elias: Revenue guidance for Q1, 2025 is approximately $4 million.
Elias: Plus or minus 10%.
Elias: First quarter revenues expected to be comprised of approximately $3 4 million in new products.
Elias: Zero point $6 million and natural products.
Brian: As Brian stated in his remarks.
Brian: Our lower than anticipated Q1 revenue guidance.
Speaker Change: Is that attributable to the delay of such a lot of IP contracts that we thought we would be awarded late in Q4 2024.
Speaker Change: With the recent wins and significant contracts.
Speaker Change: We expect to close in the very near term that Brian also noted.
Speaker Change: Anticipates, a significant rebound in revenue and profitability beginning in Q2.
Speaker Change: And solid revenue growth non-GAAP profitability and positive cash flow for full year 2025.
Speaker Change: Based on the anticipated Q1 revenue mix.
Speaker Change: non-GAAP gross margin for the first quarter is expected to be approximately 50%.
Speaker Change: So minus five percentage points.
Speaker Change: This is mostly attributable to our lower revenue outlook.
Speaker Change: We are modeling our full year non-GAAP gross profit margin to be.
Speaker Change: And the mid 60% range.
Speaker Change: Yeah.
Speaker Change: non-GAAP operating expenses are expected to be approximately $3 2 million.
Speaker Change: So minus 5%.
Speaker Change: We are modeling non-GAAP opex to be approximately $3 3 million per quarter during 2025.
Speaker Change: Please note that given the nature of the industry will be occasionally need to classify certain expenses to cogs versus opex capitalize certain costs.
Speaker Change: The classifications are mainly related to labor on tooling for IP contracts with customers.
Speaker Change: Such capitalization may reduce opex.
Speaker Change: And also the timing for a recognized and the corresponding expenses in Cogs.
Speaker Change: This may cause.
Speaker Change: Ability in our quarterly gross margins and operating results.
Speaker Change: We usually balance out the operating lines.
Speaker Change: After interest and other income.
Currently forecasted our Q1 non-GAAP net loss will be approximately $1 2 billion to $1 4 million or seven cents to <unk> <unk> per share.
Speaker Change: The difference between GAAP and non-GAAP results is related to noncash.
Speaker Change: Stock based compensation expenses in.
Speaker Change: In Q1, we expect this compensation will be approximately zero point <unk> 9 million.
Speaker Change: This is the same as Q4 2024 and down 42% from Q1 2024.
Speaker Change: As a reminder, there will be movements in our stock based compensation during the year.
Speaker Change: It may vary quarter.
Speaker Change: Maybe every each quarter based on the timing of grants to employees.
Speaker Change: Cash flow for Q1, 2025 is highly dependent on the timing of certain large contracts, we anticipate finalizing this quarter.
Speaker Change: Setting that aside we are confident that that will be cash flow positive in Q2.
Speaker Change: For the full year of 2025.
Speaker Change: Yeah.
Speaker Change: Looking back to 2024, we invested heavily ahead of contract awards to become the first.
Speaker Change: And as it stands today only supplier <unk> IP for until HED.
Speaker Change: We will also invest it integrates synopsys simplified on the Aurora head up being able to charge our customers for its use.
Speaker Change: To provide us with the flexibility to manage the expanding scope of a large government contract.
Speaker Change: And the timing on cash flow from large contracts.
Speaker Change: Excuse me from large contracts we anticipate.
Speaker Change: Finalizing later this quarter.
Speaker Change: We will put an ATM in place following this call.
Speaker Change: The details of the AGM will be covered.
Speaker Change: And if pro shop, which is a prospective study.
Speaker Change: <unk> and an 8-K filing with the SEC that will be available before the market opens tomorrow.
With this improved flexibility, we're very well positioned to leverage the benefits of the aforementioned investments as we recognize revenue.
Speaker Change: Recently awarded and pending contracts begin in Q2.
Speaker Change: Thank you with that let me now turn the call back over to Brian for his closing remarks.
Brian: Thank you Elias and thank you and your team for tight management of our finances that helped us realize our second straight year of non-GAAP profitability.
Brian: We are very excited about our unique positioning as the only company currently offering <unk> FPGA hard IP that is optimized for until a TNA.
Brian: We believe the investments we have made during the last nine months to achieve this unique position ahead of contracts will deliver solid ROI beginning this year.
Brian: <unk>, we have established FPGA hard IP for six unique fabrication process technologies.
Brian: We anticipate expanding this to nine or possibly 10 during 2025 with all new processes being funded by customer contracts.
Brian: We expect this expansion to be weighted towards TSMC fabrication processes.
Brian: In addition to these we expect to win new contracts for fabrication processes, where we have already established FPGA hard IP.
Brian: This means with those investments in our rearview mirror, new contracts will generate higher profit margins and higher positive cash flow and.
Brian: An example of this is the new contract targeting GFS 12 O P that I mentioned earlier.
Brian: We anticipate our first direct to storefront contract that I also mentioned, we will leverage this benefit too.
Brian: We have extended this benefit in a recent win to include the leverage of off the shelf hard IP core designs we've developed.
Brian: In this case the customer will use our FPGA hard IP core that we previously developed.
Brian: In short we are beginning to see the momentum and leverage provided by our past developments.
Brian: These benefits will become more evident as we move forward.
Brian: While the defense industrial base will continue to be a very important element of our short and long term growth.
Brian: We expect to further diversify our end markets during 2025.
Brian: In addition to expanding our fabrication process coverage signing contracts with new customers and broadening the end markets. We serve we believe we will also win new designs with our existing customers.
Brian: Several of these opportunities were highlighted earlier in my prepared remarks, and several others are a bit too early in the process to discuss today.
In short.
Brian: Once customers adopt a specific suppliers programmable logic and user tools and a design they become sticky and are used in future designs.
Brian: We are already seeing evidence of this benefiting quick logic.
With that I would now like to open the call for questions.
Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad in.
Brian: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like.
Brian: To remove your question from the queue.
Brian: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Brian: One moment please poll for questions.
Brian: And first question comes from the line of Richard Shannon with Craig Hallum. Please proceed.
Hi, Brian how are you guys doing.
Brian: Hello, how are you how are you.
Brian: Doing fine thank you.
Well, let's see here, obviously, you've given US a guide here for the first quarter.
Brian: But I think it's more interesting to think about.
Brian: What you have in mind for the second quarter, you are talking about a sizeable increase here and then just want to make sure I've got the kind of the parameters for thinking about kind of breakeven and profitability levels. You are expecting for the year and then probably a couple of follow ups on that.
Richard Shannon: So I can definitely take the first question Richard.
Brian: On the Q1 to Q2 transition so.
Brian: The IP design pushes that we had talked about in the call starting from the late part of Q4.
Brian: One of those is that $1 $1 billion. One that was the first bullet of our earnings release today and what we went over and brief detail in the opening remarks that one we expect in Q2 and four.
Brian: To be recognized the second one is this one related to <unk>, we have been public that we felt like this is sort of a mid seven figure deal and that would all be in Q2.
Brian: And so when you add those two up and you look at sort of the baseline of revenue today being in that.
Brian: Sort of two ish and up time or dollar value.
Brian: Hence the picture of Q2 being north of six which is I think coinciding with.
Brian: The non-GAAP profitability and cash flow positive in the model for moving forward.
Brian: Okay.
Brian: Okay does that answer your question.
Brian: Yes, yes, very high level of probably thinking about that in a follow up some other here.
Brian: Brian I didn't hear you talk about the funnel, which you've talked about for this year and a half year.
Brian: Not sure if that's something you're going to continue to do or not but how do we think about that.
Brian: And whether you continue to use that that metric as a way to judge how things are progressing.
Brian: Yes, Im glad you asked that question because we intentionally did not talk about the funnel in terms of quantitative numbers today I will say quantitatively. It is up on a net basis, primarily from new FPGA opportunities coming into the funnel. Given this is the first call of the year and given the feedback that we had been receiving over the last year from.
Brian: Investors and other folks in that community, we decided that we're going to try to get away from actually putting out the actual number for that and focusing more now on these hard IP contracts that we're talking about these development contracts, because that's really where the rubber hits the road, but qualitatively I will say that the funnel did grow.
Brian: From where it ended.
Brian: On our Q3 call till.
Brian: Till now and most of that growth was in the FPGA part of the business.
Brian: Okay.
Brian: Alright fair enough here, maybe let's touch on until <unk>.
Brian: An increasing amount of focus over the last few quarters on this seems very interesting I guess, Mike. My question is twofold, how do we see the opportunities from this node and how many how many different customers might we see develop over this year here and as I get questions related Intel generally across more than one of them.
Brian: Coverage companies here everyone's worried about.
Brian: Potentially intel getting broken up in some manner, which obviously hasn't been announced here.
Speaker Change: What do you what's your response to People's worries about.
Brian: Risks from from that situation.
Brian: Yes, I mean, firstly, let's talk about my view of what I've.
Brian: I felt for a while but away from others just on the overall demand for <unk> I.
Brian: I think that if you look at.
Brian: Really advanced process technology, that's done onshore in the U S.
Brian: The established foundries, especially the U S on foundries.
Brian: There are sort of end of the line is 12 nanometer or 14 nanometer depending on how you want to talk about process technology.
Brian: There are more aggressive ones, but thereby.
Brian: Foundries that have foreign ownership.
Brian: So Intel being U S owned.
Brian: <unk> is clearly more advanced than a 12 or 14 nanometer node and I think there's a lot of interest from the government and the defense industrial base to have that sort of capability.
Brian: <unk> onshore and operated by U S operated our own foundry so.
Brian: For those reasons I think theres a lot of promise for the demand for <unk> and I think there are several companies that Intel has talked about with respect to adopting <unk>, if you sort of parse that into two.
Brian: The defense and then Theres, the nondefense side or the government oriented in the non government oriented side.
Brian: And I think that there are a lot of it.
Brian: Interest within the U S government or in the U S defense space for <unk> because of the power of the performance in the area of gains of some advanced process like this for that reason I think regardless of whether.
Brian: Until remains as Intel or is in different parts I think that theres still going to be the strategic interest in that particular process node.
Brian: And I think very recently I think it was even last week until foundry announced that they are now ready for production tape outs on <unk>. So my hope is that we'll start to see more companies publicly acknowledging that they're interested or designing for HMA.
Brian: And should they be needing are watching are exploring adding programmability to those asics, then we're going to stand ready to be the first and only IP provider for FPGA to enable that.
Brian: And if you think about it the more expensive it is to design a chip from an NII perspective from IP acquisition from mass sets and so on the more value E. P. J actually has to that ASIC, because you don't want to redo a very expensive Asa very often you want to have it serve a lot of use cases, a lot of end markets and in fact FPGA is exactly how you do that.
Brian: At the silicon level.
Brian: So I.
Brian: I believe until 18 isn't any successful I think we will be successful with it.
Brian: You have more than one customer in our opportunity funnel and I think the fact that we did make that investment.
Brian: Speaks to that conviction that it's going to be a successful node for us and that if they want FPGA IP for those Asics, then we're going to be that guy, we're going to be that supplier and we're going to see more than one win this year on that.
Brian: Okay.
Brian: Maybe two questions from me and I'll jump out of line in the first one is related to.
Brian: Flex logics I think your commentary was that the recently I heard VP of IP sales as is working hard to work with.
Brian: License fees or maybe those who are in process here, what kind of a timeframe do you expect to.
Brian: Convert those or get subsequent designs.
Brian: To see that pop up in your funnel and bookings and then ultimate revenues.
Brian: So would you call. This a shorter period of time or longer wonder how would you characterize that.
Brian: Yes.
Brian: I'd definitely say, it's shorter than the $1 1 million dollar win that we just talked about in the first bullet of our earnings release is actually one that Andy helps close and I would say accelerates faster than maybe what it what it may have just naturally.
Brian: There's a lot of efficiencies that we can get from an organization when you have.
Brian: Somebody in sales that knows where the fish are and being in flight projects. He clearly knows the parts of the pond to drop the line.
Brian: He understands the technology very well having sold it for eight years and Thats really helping from an efficiency standpoint, and also just the communication of the value proposition standpoint.
Brian: So I think that combined with those long term relationships he has.
Brian: Speaks well for the future and.
Brian: I don't have to trust me on that because that first order was with his order.
Speaker Change: Okay that sounds it sounds great. My last question for you Brian before I jump order here is trying to find my notes on your commentary at the very end of the call here talking about kind of diversifying and market share while defense industrial base EBITDA growth drivers talking about diversifying here.
Speaker Change: You can talk about where this is where this is coming from.
Speaker Change: How this overlaps with the with the nodes Youre working on maybe just expand on that I'm not sure. We're I mean, it's obviously great to see diversification, but wondering if you can.
Speaker Change: Give us any more detail as to how that develops over time.
Speaker Change: Yes.
Speaker Change: We had already started to see some opportunities last year that were outside of the areas of aerospace and defense, which has obviously been our mainstay market.
Speaker Change: And I would say that that part of the funnel has grown even faster with.
Speaker Change: With Andy coming on board, because a lot of the engagements that I think flex logic side was also outside of the areas of aerospace and defense and if you go back in time, you can see that where we have been.
Speaker Change: Proactively investing in process technology ports.
Speaker Change: Sort of.
Speaker Change: Essentially not trying to directly overlap with flex logistics right. We don't want to go some place where somebody or it is because that becomes more of a price war than anything else.
Speaker Change: With the acquisition by analog devices now we can more purposely go after those other nodes like the TSMC one as I mentioned earlier, knowing that there is more of a greenfield there.
Speaker Change: And so again, we will start to see that this year and thats done in concert with opportunities outside of aerospace and defense. So we have industrial now coming in we have some communications in our funnel now we even have some consumer ones believe it or not.
Speaker Change: And so I think that.
Speaker Change: I think we're going to close some of those and those will drive new process technology ports that we haven't done so far.
Speaker Change: And we want that balance.
Speaker Change: But like I've said, many times I don't see that aerospace and defense is ever going to be less than 50% of our revenue just because that is such a prevalent market for programmable logic technology in general.
Speaker Change: And the other thing I'd say and this ties back to.
Speaker Change: Andy for a second.
Speaker Change: He is coming in and he is knowing where the likely targets are or where we should focus our energy to help convert over if theyre interested too quick logic.
Speaker Change: He also understands how to leverage his team really well because after all as a team sell bringing in the architects and the technical team and those are resources that are very scarce and our company and we do need to be very mindful of.
When we bring them in and then how much time, we do to really focus on efficiency and I think he's got that mindset that speaks well for this $1 $1 million, one and I think youre going to see that efficiency and this notion of selling cost that we already have done as opposed to needing to do custom work for our customer faster time to revenue better better use of resources.
Speaker Change: Okay excellent and we look forward to seeing more of that I will jump out of line. Thanks Library.
Richard Shannon: Thanks Richard.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: As a reminder.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: And the next question comes from the line of Martin Yang with Oppenheimer <unk> Company. Please proceed.
Martin Yang: Alright. Thank you for taking my question first question.
Martin Yang: U S and the benefit you get from.
Martin Yang: Distributors into new regions.
Martin Yang: Do you think that the revenue ramp you see there could continue throughout 2025.
Maura: Apollo's Maura.
Martin Yang: Through normal seasonality.
Martin Yang: Could you repeat the last part of your question Martin.
Martin Yang: Yes.
Speaker Change: <unk> revenue or with US, yes, 25% revenue.
Speaker Change: The benefit you get from having the additional distributor would that help your U S. A three family revenue to continue to go.
Speaker Change: Up in the sequential quarters.
They definitely well I mean the.
Speaker Change: So really good external sales partners, whether their reps are distributors offload our direct resources to really spend time on more strategic accounts or.
Speaker Change: Pre filtering designs before they come into the funnel and consume resources. So I do think we will be generating revenue. This year, both from an IP hard IP licensing as well as <unk> III.
Speaker Change: In fact, I was just on the phone with one of our guys today talking about our new DSS three opportunity from a distributor so to continue to command, even though it's a mature product, it's a great product for distributors to sell being GSS three because it's very.
Speaker Change: It's stable and all the support infrastructure software silicon boards et cetera. So they can run with it and then just bring our guys and when they need to do.
Speaker Change: Closing on the IP side, it actually frees up to.
Speaker Change: The sales folks to focus on the more strategic sales that.
Speaker Change: In some cases need more evangelizing before we get to a deal.
Speaker Change: Sure.
Speaker Change: Bottom line is we'll see I think revenue contribution this year from the distributors and the reps.
Speaker Change: That will also help accelerate more from our direct guys strictly.
Speaker Change: Got it thank you.
Speaker Change: And then one question.
Speaker Change: All of the potential broader use of.
Speaker Change: FPGA.
Speaker Change: In prison you referenced one customer can you maybe elaborate on.
Speaker Change: That customer is utilizing PGE.
Speaker Change: Our applications and what verticals already.
Speaker Change: Yeah, I'm happy to do that.
Speaker Change: If you go back in time and I'm talking a few years now.
Speaker Change: We collaborated with the University in Europe called Eth Zurich.
Speaker Change: In Switzerland.
Speaker Change: There is a group there that does a lot of research around parallel ultra low power processing and semiconductors.
Speaker Change: And so a lot of what they were looking at is how do I reduce the computational energy required to do AI inferencing using risk five processors and some risk highest processors actually came out of that research and then how can I minimize that power energy consumption even further.
Speaker Change: By augmenting that with embedded FPGA and.
Speaker Change: And so we did this joint research project with them and we actually published that research together in a joint paper and it showed that the energy consumption. If you use an embedded FPGA.
Speaker Change: To offload computationally intensive convolution.
Speaker Change: Algorithms.
Speaker Change: You can reduce energy value like 20 X.
Speaker Change: Now in a battery powered system 20 ex energy savings is a big deal right. It's a big deal in the data center, it's a big deal when youre doing dealing with batteries.
Speaker Change: So that paper it became the basis of how we would talk about the benefits of the FPGA with other prospective customers not just this university.
Speaker Change: And the 12 nanometer TSMC he FPGA wins that we talked about last year.
Speaker Change: With sort of inspired by.
Speaker Change: The outputs of that paper.
Speaker Change: And so that's the one that has the silicon back and Theyre going through the silicon validation.
Speaker Change: And I am hopeful that that will turn into another FPGA when after they've gone through that.
Speaker Change: Clearly there theyre.
Speaker Change: Their validation is going to involve running algorithms and measuring power consumption, both with and without the FPGA contributing to the workload.
Speaker Change: And see if theres, a net gain there but based on what we've found is that paper.
Speaker Change: To me the published results speak for themselves and I'm pretty pretty bullish about that.
Speaker Change: Clearly, we wanted to get beyond just that one customer, but I think the more.
Speaker Change: More demonstrable numbers, we have coming for like from this customer to supplement that with Eth Zurich will be used for sales collateral with other customers as well.
Speaker Change: It's to be clear, it's not like the.
Speaker Change: It's not the training the heavy duty.
Speaker Change: Sort of iron that you see today that people are doing the gpus were talking about it much further out he is just the inferencing part.
Speaker Change: Where batteries entire matter.
Speaker Change: Got it and just to clarify so that the customer is that the larger well known international customer.
Speaker Change: That is correct.
Speaker Change: Got it thank you.
Speaker Change: And then my my last question is on <unk>.
Speaker Change: Revenue facing this year. So you expect a very significant step up for <unk>.
Speaker Change: And what are the can you maybe talk about some of the puts and takes.
Speaker Change: The quarterly revenue pattern.
Speaker Change: In the second half.
Speaker Change: So like like what were mentioning qualitatively for Q2, it's going to be driven from embedded FPGA IP contracts.
Speaker Change: We are clearly.
Speaker Change: Planning on the continued investment by the U S government and the strategic Rad hard FPGA.
Speaker Change: Throughout the year.
Speaker Change: And then layering into that now more of these embedded FPGA IP design. So we talked about the two big ones here.
Speaker Change: Contributing to Q2, we have several more of these seven figure ones layering in from an opportunity timing for Q3 and Q4 revenue recognition all of the ones that are looking into our financial planning on the revenue side are ones that we already have in the funnel that we've engaged with for some time.
Speaker Change: And again these are ones that we are targeting for these newer IP cores that we develop which are on more advanced process technology, which are higher average selling price, which means we don't need as many licenses to have significant revenue contributions in those quarters. Moreover.
Speaker Change: The fact that we have already reported to a node.
Speaker Change: And or designed in actual core for our customer means.
Speaker Change: It means that our operating expenses to do customer specific derivatives for those new opportunities is much less and Thats why were.
Speaker Change: I think really pleased with those developments and how we should see better gross profit margin.
Speaker Change: Cash flow in that second half because a lot of that investment has already taken place.
Speaker Change: A lot of leverage there in the model.
Ryan: Does that help answer your question Ryan.
Speaker Change: Yes.
Speaker Change: Alright, that's it for me thank you.
Speaker Change: And as a thank you.
Speaker Change: And the next question will come again from the line of Richard Shannon with Craig Hallum. Please proceed.
Speaker Change: Thanks, guys. Let me ask two more questions first one is just regarding the strategic opportunity here.
Speaker Change: How do we think about the revenue opportunity here versus past years, I know theres not a complete overlap between the kind of the phases here.
Speaker Change: The.
Speaker Change: We're going on with one or more foundries here I'm not sure. If you elaborate a clarity on exactly what that looks like for this year, but maybe just trying to get to the to the conclusion that you ought to think about the revenue contribution this year versus last year last few years on this on this project.
Speaker Change: Sure.
Speaker Change: So from a revenue contribution perspective, I think we're modeling sort of at the same level.
Speaker Change: Remind us a little bit as last year.
Speaker Change: There is some pretty interesting things I'd like to share about the latest contract, but I as I put in the script, we are still seeking permission to talk in more detail and openly about those.
Speaker Change: Sure I can do so publicly.
Speaker Change: But I am really excited about the things that we're doing this year for that.
Speaker Change: Like I said the revenues should be.
Speaker Change: Plus or minus sort of in that same range as last year.
Speaker Change: From a revenue perspective, probably could be a little bit less but I think what youll see from the output will be quite pleased.
Speaker Change: Okay, I will look forward to seeing that.
Speaker Change: And related to strategic Rad hard here is it sounds like things are mostly on track in terms of timing I'm wondering if you agree to that and then if that's the case what kind of timeframe do we think about for getting the start of and or even material or noticeable storefront revenues out of that.
Speaker Change: That is a question that I'm going to need to patent until they get permission to talk about this stuff I'd like to talk about if that's okay with you.
Speaker Change: Well since the government says so I guess, we'll have to both be satisfied with that answer.
Speaker Change: Maybe I'll ask another one is my last one and then Brian here, which has used the phrase that maybe I have missed out on her.
Speaker Change: I'm not sure I quite understand you talked about direct to storefront, what exactly does that mean.
Speaker Change: Yes. This is the first time we've introduced.
Speaker Change: Direct to prelude preamble.
Speaker Change: So when we talk about store front in the past. This has been where we are not just doing an IP core for our customer we're actually doing a.
Speaker Change: Chip design for our customer.
Speaker Change: Some of which must include embedded FPGA the intention being that if we do the chip design not only do we get to you on a rate for that but more importantly, I want to do the storefront sales in support of that to that customer.
Speaker Change: So as an example, like the strategic <unk> falls into that category right.
Speaker Change: Development revenue is great. We're doing this designed for the government ultimately we want to do that so that we can be the storefront for that chip.
Speaker Change: So in a direct the storefront concept this is where from the get go with the customer is not evaluating whether they wanted to do and he FPGA core.
Speaker Change: They are doing a deal with us we're the first phase of the contract is clearly about specifying what this device looks like and from day. One they would want this to be a storefront deal with quick logics. So the direct assortment is sort of saying that were circumventing a lot of this drawn out.
Speaker Change: <unk> back and forth. So I want you to do the design and do I want to work with third party.
Speaker Change: We're engaged with them on this whole path from day, one that is direct assortment. So.
Speaker Change: That's good the customers, putting some skin in the game right now we're working closely from an engineering perspective too.
Speaker Change: Make sure that the spec is meeting the Mark and then we can move into a contract for implementation like I said hopefully starting in Q3.
Speaker Change: Okay Fair.
Speaker Change: Fair enough and Thats all from me guys. Thank you.
Richard Shannon: Thanks Richard.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would like.
Brian Faith: To turn the call back to Brian Faith for closing remarks.
Brian Faith: Yeah, and I know that some of our other analysts are having some maybe planned or unplanned connection issue. So we'll make sure that we connect with them offline after the call at some point.
Brian Faith: So thank you everybody for attending the call today.
Brian Faith: I'd like to update on some events and actually a lot of events in this next quarter, we're going to be quite busy with.
Brian Faith: External events. So tomorrow, we have the Oppenheimer 10th annual emerging conference that's a virtual conference.
Brian Faith: And that contactor Oppenheimer Rep.
March six we'll be at the starting five virtual conference March 11th.
Brian Faith: In Washington D C. The Entel public sector Summit March 17 to 20 will be a go Mac in Pasadena.
Brian Faith: If the government microelectronics work, that's a great show to go to.
Brian Faith: We'll be at heart and Monterey April 7th to 11th again very oriented around radiation hardened semiconductor technology April 19th and saw foundry Forum and we've been talking about <unk>, we will be at the Intel Foundry farm in San Jose and then lastly April 29th we'll be at the Andes risk five conference in San Jose.
Brian Faith: As always thank you for your time and support and we will talk to you next time. Thank you.
Brian Faith: Yeah.
Brian Faith: Thank you. This concludes today's conference you may disconnect your lines at this time and enjoy the rest of your day.
Brian Faith: Hum.
Brian Faith: [music].
Brian Faith: Hum.
Brian Faith: [music].
Brian Faith: Yeah.
Brian Faith: [music].
Brian Faith: Uh-huh.
Brian Faith: Hmm.
Brian Faith: [music].
Brian Faith: Yeah.
Brian Faith:
Brian Faith: [music].
Brian Faith: Okay.
Brian Faith: Okay.
Brian Faith: Mhm.
Brian Faith: Hum.