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Edited Transcript of QUIK earnings conference call or presentation 12-Feb-20 10:30pm GMT

Q4 2019 QuickLogic Corp Earnings Call

SUNNYVALE Mar 3, 2020 (Thomson StreetEvents) -- Edited Transcript of QuickLogic Corp earnings conference call or presentation Wednesday, February 12, 2020 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian C. Faith

QuickLogic Corporation - President, CEO & Director

* Suping Cheung

QuickLogic Corporation - CFO & VP of Finance

* Jim Fanucchi

Darrow Associates Inc. - Head of Silicon Valley Operations

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Conference Call Participants

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* Richard Anthony Neaton

Rivershore Investment Research Inc. - President

* Richard Cutts Shannon

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Sujeeva DeSilva

ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning. At this time, I'd like to welcome everyone to QuickLogic Corporation's Fourth Quarter and Fiscal Year 2019 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through February 19, 2020. I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi, please go ahead.

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Jim Fanucchi, Darrow Associates Inc. - Head of Silicon Valley Operations [2]

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Thank you, operator, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer; and Dr. Sue Cheung, Chief Financial Officer. 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; statements pertaining to QuickLogic's future stock performance, design activity and its ability to convert new design opportunities into production shipments; timing and market acceptance of customers' products; risks associated with potential disruption caused by the coronavirus; schedule changes and product projected 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.

These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the SEC filings posted on its website and the SEC's website. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For more details of the risks, uncertainties and assumptions, please refer to those discussed under the heading Risk Factors in the most recent annual report on Form 10-K, the most recent quarterly report on Form 10-Q, recent Forms 8-K and other documents we periodically file with the SEC.

These forward-looking statements are made as of today, and management undertakes no obligation to revise or publicly release any revisions of the forward-looking statements in light of any new information or future events.

In today's call, we will be reporting non-GAAP financial measures. These non-GAAP measures should not be considered as a substitute for or superior to financials prepared in accordance with GAAP. 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 web page that provides current and historical non-GAAP data.

And 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 products, its planned financial and other announcements, its attendance at upcoming investor and industry conferences and other matters. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of prepared remarks made on today's call will be posted at QuickLogic's IR web page shortly after the conclusion of today's earnings call. And I would now like to turn the call over to Brian.

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [3]

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Thank you, Jim. Good afternoon, everyone, and thank you all for joining our fourth quarter and fiscal 2019 financial results conference call. Many positive developments have taken place since our last earnings call that set the stage for 2020 and will better define our long-term success. We announced design wins with large multinational companies, added more open-source software initiatives to increase our scale and reach and expanded the ecosystem of partners for our SensiML AI software platform business. We expect all of these will contribute to larger revenue opportunities later this year and into the future.

In addition, we took significant steps to streamline our organizational footprint through a restructuring. And while we remain excited about our prospects in 2020, admittedly, looking back at 2019, we were disappointed with our revenue performance. Many of these challenges we talked about in prior earning calls were due to factors beyond our control. While some issues will linger into the first quarter this year, I am as positive as ever about the fundamentals in our business and believe we will achieve profitability in 2020.

I want to first cover a few items that have happened in the last couple of months and then move into a more detailed discussion on the growth drivers for 2020 and beyond. Later, Sue will review our financial results and provide our near-term outlook.

In December, we announced the passing of Board Chairman, Tom Hart. Tom had a long history with QuickLogic, serving as the company's CEO for 15 years and a Board member for 25 years. His insight into the company and semiconductor industry were valuable to me and his presence is missed by all of us at QuickLogic. Current Board member, Dr. Michael Farese, was subsequently named as the Chairman of the Board of Directors. Mike has been immensely helpful to me and the company as we refine our long-term strategy.

Next, 2 weeks ago, we announced a significant restructuring of our business, which is scheduled to deliver about $4 million in annualized savings once fully implemented in the middle of our second quarter. There will also be a positive impact to our COGS, which will help the gross profit margin line. The decision to make these changes came as a result of our year-end strategic planning efforts. During the process, we reviewed our current product development plans and market position for the EOS S3 SoC and eFPGA technologies. Through the review, it became clear that the vast majority of the software development to support our announced EOS SoC design wins and near-term SoC growth strategy was completed. We believe the future expansion into new markets and applications for our SoC will be driven from engagements with our numerous voice software partners and recently announced relationship with Flextronics. In addition, our eFPGA products will leverage the open-source software initiative being developed in conjunction with a mega cap cloud service provider.

The headcount reductions were across all business functions. With the many partnerships we have in place, we believe we now have a more scalable business. In fact, we will be announcing a new authorized design partner, OptimusLogic, for the development of customer embedded system hardware and software in the coming days. This led to the conclusion that we don't need to take on engineering for everybody and can operate more efficiently with fewer personnel. As we continue to bring large multinational partners into our ecosystem, we are working with them on new product development and we'll use the platform that we have already developed to expand our reach.

One result of the restructuring and refined go-to-market strategy with partners is that we are able to streamline and reset our sales organization, including eliminating the role of Vice President of Sales. We felt the structure of the organization needed to reflect a deeper collaboration with ecosystem partners to drive our long-term growth. The bottom line result of these actions is that our leaner organization puts us on a trajectory to achieve our profitability goals, which is by far our highest priority this year. Sue will provide additional details on the restructuring later on the call.

With these items as a backdrop, I want to shift the discussion to review the growth drivers we see for 2020 to help everyone understand our plan for getting to profitability this year. The key drivers that we expect to lead our revenue growth in 2020 include the following: 1, continued strength in what we define as our mature product segment; 2, expansion of our SoC products with several multinational OEMs; and 3, expanded SensiML AI software SaaS and eFPGA IP sales. Starting with our largest revenue area, mature products, our military business remains strong. Pushouts that delayed spending in the second half of 2019 have been mostly resolved, and we are starting to see purchases come back. We expect to see most of the delayed orders, which in aggregate amounted to approximately $1 million come through in both Q2 and Q3. While the ramp is later than we originally expected, we have better visibility of a recovery, which gives us greater confidence in our revenue outlook for the year. We currently believe a little less than half of the 2020 total revenue will come from the mature product segment.

The other portion of revenue comes from what we define as new products. This includes primarily our EOS S3 SoC products, SensiML AI SaaS revenue and eFPGA IP licensing. After a challenging 2019 for our new product segment, we now have greater clarity on our outlook and expect sales in this category to grow significantly in 2020. The improvement will be led by a combination of items, including some of the programs with large multinational OEM customers we have discussed before, such as Kyocera and a well-known and fast-growing streaming and smart TV provider, joint programs with companies such as Flextronics and Infineon and the opportunity with the mega cap cloud service provider I mentioned last quarter.

On Kyocera, we recently announced a significant design win for QuickLogic's ultra-low-power EOS S3 voice and sensor processing SoC platform. Kyocera has chosen our platform for its Torque G04 smartphone. We are now designed into 3 released phones, up from 0 just 2 quarters ago. With our growing relationship, we could see Kyocera double the number of phones using QuickLogic's platform in 2020.

Our collaboration with Flextronics and Infineon was also highlighted last month. This relationship is important on several levels. We announced our inclusion in the FLEXino Sensor Fusion Development Kit from Flextronics. This can include the sensor fusion daughter board, which features our EOS S3 SoC along with Infineon sensors. Flextronics has developed a complementary tiny System-in-Package or SiP version of the development board, which can be integrated into existing IoT system architectures. IoT developers will now have access to a world-class prototyping to high-volume manufacturing solution for a wide range of applications.

In 2020, we expect to have several more proactive joint sales and marketing campaigns with Flextronics and Infineon, which will broaden our exposure to a wider universe of opportunities. Since our product is embedded in the Flextronics SiP, their broad sales channel should offer a more scalable growth path.

In the consumer market, always-on voice will drive the next-generation of almost every consumer device we use today. We are now engaged in a new platform with a well-known and fast-growing streaming and smart TV provider and are on track to ship to them in Q2 this year. We expect the market for wireless and hands-free remote controls will accelerate, giving us more opportunities to generate revenue in this developing market, potentially generating at least several hundred thousand dollars per quarter.

We are also engaging with several OEMs and ODMs to deploy the next-generation of wireless earbuds. While the largest player continues to dominate the market, Amazon recently entered with their own customized solution. This alternative is expected to spur additional demand for earbud-type devices. We are gaining acceptance with several white box ODMs for wireless earbuds and expect this market to contribute meaningful revenue later in 2020. That being said, speaking to the quality and breadth of our sales funnel, even with the coronavirus situation that's going on in China right now, we are planning on achieving our financial goals without needing to have those in place.

Moving to our QuickAI and SensiML business. SensiML continues to gain momentum as more companies explore how AI can be integrated into their suite of products. The growth in auto code-generating AI tools, such as those from SensiML, is enabling a broader range of companies to get products to market more quickly and efficiently. Last month, Nordic Semiconductor recognized the value SensiML brings to develop AI-enabled products. We look forward to broadening this relationship with Nordic.

We also announced SensiML joined the STMicroelectronics Partner Program and is now an ST Authorized Partner. By joining the select program, SensiML can better reach developers using the STM32 MCU with its analytics toolkit. SensiML closed Q4 with a total of 44 customers, 4 of which are global Fortune 500 companies. This total is up from 26 customers in Q3 and 3 going back to Q1. Currently, most are still using the evaluation version of the product, not yet the full SaaS product. Most of the 40-plus customers are affiliated with the industrial market segment. These types of customers tend to have much longer evaluation periods. While the ramp to conversion has been slower than we originally thought, the good news is that we continue to build momentum and are planning on this contributing to a significant percentage of our expected revenue growth in 2020.

Last quarter, I discussed the potential with a mega cap company I mentioned earlier. This company has the ability to deliver up to 100x more development kits than our current sales channel under our previous go-to-market strategy. As such, this could drive a correspondingly higher user base for the EOS S3 and SensiML AI software platform. We expect to launch the first of 2 IoT development systems being co-developed with this company in the quarter.

I have covered several areas that will serve as catalysts for revenue growth. And I know the natural question is, what does this mean in terms of an outlook for 2020? As I have mentioned before, given the variability in our customer base and timing of product launches, it is our policy to not discuss the financial outlook beyond one quarter at a time, which Sue will provide in her comments. However, I will offer the following context regarding our current outlook for 2020.

First, related to the coronavirus outbreak, we have a very limited presence in China, no direct manufacturing in the country and have a small footprint from a China supply chain point of view. However, it is apparent with travel restrictions still in place in many areas and the longer Lunar New Year holiday mandated by the government, the impact on the China economy could last longer than currently anticipated. The situation makes us believe that development schedules from our Chinese customers as well as sales for hearable and consumer electronics products into the China domestic market will be slower than expected. We are in constant contact with our suppliers and ODMs. And at this stage, we are taking the approach that the shutdown will have a lingering effect on at least our first quarter and possibly longer. Despite these challenges, we are confident in achieving our profitability milestone without a material contribution from these Chinese ODMs.

Given the fluid situation, we are taking a very conservative approach to our outlook for 2020. When factoring the impact this could have, we believe revenue growth this year will be in stair-step increases starting in Q2 and through the rest of 2020. Based on current expectations, we believe revenue for fiscal 2020 could end up in the mid- to high teens. With an expected product mix containing more SaaS and IP sales, we could see gross profit margin for the year in the mid-60s. When combined with our restructuring actions, we should be close to non-GAAP operating income breakeven or becoming profitable towards the end of the year.

And one other key point I want to stress: Through the combination of restructuring activities, expected higher revenue and improved gross margin, we expect cash usage to decline significantly throughout the year. As such, I am very confident we will not need to raise capital to achieve profitability. In summary, we have streamlined our operations, enhanced product development and refined our go-to-market strategy. When tying all of these items together, I am confident the foundation is in place to drive QuickLogic to profitability and improved overall financial performance in 2020.

I would now like to turn the call over to Sue for a discussion of our recent financial performance and full Q1 outlook. Sue?

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [4]

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Thank you, Brian. Good afternoon, and thanks to everyone for joining us. For the fourth quarter of 2019, revenue increased sequentially to $2.9 million, within the guidance range we provided. Our Q4 revenue compares with revenue of $3.2 million in the fourth quarter of 2018.

Within our Q4 revenue, sales of new products were $720,000. This compares with $1.3 million in the fourth quarter of 2018. The lower new product revenue from the prior year was mainly due to the ongoing decline in display bridge sales and approximately $500,000 in revenue from our large initial eFPGA license. Our mature product revenue was $2.2 million, an increase compared with $1.9 million in Q4 last year.

In the fourth quarter of 2019, we had 3 customers who each accounted for 10% or greater of our sales. Non-GAAP gross margin in Q4 was 65.6% compared with 52.6% in the same quarter last year. Increase was mostly due to the higher mix of mature product revenue and additional SaaS business. Non-GAAP operating expenses for Q4 were approximately $4.2 million, down slightly from $4.3 million in the fourth quarter of last year.

Within our Q4 operating expenses, R&D was $2.2 million and SG&A was $1.9 million. This compares with R&D and SG&A of $2.3 million and $2 million, respectively, in Q4 last year. The net total for other income, expense and taxes in Q4 was a charge of $135,000 compared with a charge of $13,000 in the fourth quarter last year. The increase was mainly due to interest expense and adjustments to tax attributes associated with SensiML at the end of 2019.

Non-GAAP net loss in Q4 was $2.4 million or $0.29 per share. This compares with a net loss of $2.6 million or $0.38 per share in the fourth quarter of last year. The per share calculation for both periods reflects 1-for-14 reverse split that went into effect at December 24, 2019. Total share count, used for calculation purposes in Q4 2019, was approximately 8.3 million compared with 6.8 million in the same quarter a year ago. The stock offering we completed in June 2019 accounts for most of the difference.

Finally, the total cash at the end of Q4 was $21.5 million compared with $24.8 million at the end of last quarter. Our cash balance also includes the full draw from our $15 million line of credit.

Before moving to our guidance, I would like to expand on the recently announced restructuring plan. We expect that approximately 30% headcount reduction and the closing of some facilities to generate about $4 million in annualized savings when compared with fiscal 2019. The restructuring should be completed in the May time frame. Within this $4 million, approximately $3.75 million will be in the operating expense line with the remainder in cost of goods sold.

We expect to incur approximately $600,000 of restructuring expenses, of which about $500,000 will be cash expenditures with the majority coming in the first quarter of 2020. While factoring these changes, we believe non-GAAP operating expenses will be at a quarter run rate of approximately $3.5 million starting in the second quarter of 2020.

Now turning to the full year fiscal 2019 results. Total revenue was $10.3 million, down from $12.6 million in fiscal 2018. New product revenue was $3.1 million compared with $5.7 million in the prior year. Lower display bridge revenue was the largest component of this decline. Mature product revenue was $7.2 million compared with $6.9 million in 2018.

For the year, we had 2 customers that each accounted for greater than 10% of our total revenue. Gross margin for 2019 was 58%, up from 51.2% in 2018. The higher gross margin in 2019 was primarily driven by revenue generated from sensor processing, SensiML AI SaaS, eFPGA IP licenses and the mature products. Even with the acquisition of SensiML at the beginning of 2019, our operating expenses for the year were $18.2 million, which were flat with the prior year. Our net loss for 2019 was $12.3 million or $1.60 per share compared with $11.9 million or $1.80 (sic) [$1.87] per share for 2018. The share count used to calculate EPS was 7.7 million for 2019 and 6.4 million for 2018.

Now moving to our forecast for the first quarter of 2020, which will end on March 29. Our revenue guidance for the first quarter is $2.3 million plus or minus 10%. As Brian already discussed, we're taking a conservative outlook based on the potential impact from the coronavirus. We believe total revenue will be comprised of approximately $600,000 of new product revenue and $1.7 million of mature product revenue. With a sales mix that includes increasing SaaS sales and a cost of savings from the restructuring, we expect our non-GAAP gross margin to be approximately 64% plus or minus 3%. We're forecasting that total non-GAAP operating expenses, excluding the one-time restructuring costs, will drop to approximately $3.9 million plus or minus $300,000.

Within operating expenses, we expect our R&D to be approximately $2.2 million and SG&A to be approximately $1.7 million. As a reminder, the full benefit of the savings from the restructuring will be realized in Q2, at which time R&D and SG&A will decline to $1.9 million and $1.6 million, respectively.

After interest expense, other income and taxes, at a midpoint we currently forecast our non-GAAP net loss will be approximately $2.4 million or $0.29 per share based on approximately 8.5 million shares outstanding. Most of the difference between our GAAP and non-GAAP results is our stock-based compensation expense, which we expect to be approximately $850,000. We expect this expense will remain in the mid-$800,000 range for the foreseeable future.

Finally, in Q1, we expect our cash usage to decline and be in the range of $2.3 million to $2.7 million. This includes both the approximately $500,000 restructuring costs and cash used for operations. With that, let me now turn the call back over to Brian for his closing remarks.

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [5]

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Thank you, Sue. With 2019 behind us, our focus is squarely on the future. We know revenue growth will be the key to delivering on our profitability goals. 2019 was a year when we made great strides in building the foundation for improved financial performance. I am confident 2020 will be the year we begin to see the benefits from the heavy lifting we did last year as we execute on our plans for creating a sustainably profitable business. Before opening the call for Q&A, I want to let everyone know we are scheduled to participate in the ROTH Conference in March in Newport Beach. We look forward to seeing some of you at that event.

That completes our prepared remarks. Operator, I'd now like to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We will now take our first question from Suji.

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Sujeeva DeSilva, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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So on the new product -- well, let's talk about the mature products first. What's the run rate to think about for the mature products as they recover here from your 1Q guidance of $1.7 million?

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [3]

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So Suji, I would model at about $1.7 million plus or minus 10%, each quarter.

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [4]

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That's a good run rate level. Okay, good.

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Sujeeva DeSilva, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5]

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And then if that's the case, then your kind of teens guidance, high-teens guidance, Brian, would indicate that new products would triple roughly year-over-year if I do the math, right? So can you talk about the 3 areas and which ones do you think will help it grow from the 700K per quarter it's seeing now across the eFPGA, SensiML and then the core EOS S3 opportunity?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [6]

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Yes. So the biggest growth area is going to be from the EOS S3 because that is a higher ASP, and we've been designing that in for some time. And again, for this outlook for 2020, we took a more conservative approach. We're looking primarily at multinational OEMs. So one's from Kyocera, from the streaming TV provider, from the -- what we're getting out of the Flex and Infineon deals that they've been pushing the modules and strips into the market. So we're really benefiting from their channel. That's the primary driver for new product.

Secondarily, we do see a lot of opportunity coming to fruition with SensiML now signing up these big partners. So that will be the second area. And then the third area will be the eFPGA. We didn't give a lot of airtime to those just because the script is long today. But those opportunities we talked about last time continue to move forward. I think one of them is going to tape out in March on one of their test strips. So we're thinking that those will also have a material contribution to revenue this year from new products.

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Sujeeva DeSilva, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [7]

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Okay. And then can you specifically size the Kyocera opportunity as best you can for us to understand the TAM and the contribution opportunity in 2020?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [8]

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Yes. So from a TAM point of view, I think they probably do somewhere between 10 million and 20 million phones per year. We're focusing on the domestic market with them. If we are successful in doubling the number of phones that we're in with them, that would put it somewhere between 6 and 8 phones this year. Typical phones for them are a few hundred thousand units up to 1 million units each. So I think we're modeling Kyocera for us this year somewhere between -- around $2 million worth of business, depending on when phones are launched throughout the year. It could be higher.

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Sujeeva DeSilva, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [9]

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Brian, so $2 million, is that right?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [10]

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Correct.

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Sujeeva DeSilva, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

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Okay. Great. And then last question, the gross margin very high here. A nice mix. Can you talk about how sustainable this 64% level you guided is and what the puts and takes might be there?

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [12]

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Suji, so we think we estimate at the mid-60% for 2020. So I would model at that range. So 64% is kind of a -- is right on the midpoint.

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Operator [13]

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We will now take our next question from Richard Shannon, Craig-Hallum.

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Richard Cutts Shannon, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [14]

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Maybe I'll follow up on the topic of kind of looking at the view of 2020 here, just following on Suji's question. I think you talked about EOS being the kind of the biggest driver for the year. Obviously, Kyocera would fit into that well. Maybe you could help us understand the contribution you're expecting from hearables? And how much of this -- did the kind of conservative view from China and the buyer stuff impact that outlook? And how would you compare that versus what you thought about maybe 2, 3 quarters ago when we started hearing about the Amazon compliance testing dynamics?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [15]

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A lot of questions. So if I forget to answer one of them just hit me on it. So in general -- so for the hearable space -- actually, let me step back. So for voice recognition, that's the dominant use case driving a lot of these outside of the Kyocera business for us this year. And I think that's probably on the order of a few million dollars of revenue that we think would be voice-enabled.

Previously to your question, we do think these hearables component of that, and a lot of that were Chinese ODM hearables, that was -- probably just in China alone is going to be more than $5 million, $6 million this year in revenue. As we said on this call, we've tempered that view back because of the uncertainty created by the coronavirus. I mean, there's still customers of ours that are not going back to the office for work yet. And so there's going to be some impact. We just haven't sized that yet. That being said, we do see some of the other hearables for export out of China into the U.S. and other markets are moving forward. And we're expecting that will be a couple of million dollars of revenue contribution to the new product side this year.

Well, by the way, I know you mentioned something with respect to Amazon. So our solution now is certified and qualified to match the specs for Amazon. We shared in our CES suite one of the headsets from a customer of ours called 1MORE. I clearly showed it connecting to my phone and accessing Alexa, and our solution does pass all the requirements that ABS dictates. That product is still not yet on the ODM page for Amazon. I think this is actually one of the challenges with the coronavirus is that 1MORE is located in China. That's pushed out some of their development for that. But we're still fully expecting that that will land on that page and that will drive revenue for us. But from a solution point of view that we put into the market, we are now certified and qualified to match the specs of Amazon.

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Richard Cutts Shannon, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [16]

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Okay. That's helpful. Maybe a question on SensiML. I think you talked about ending the year with 44 customers, if I remember correctly, most are still on the eval platform. Maybe you can kind of give us a sense of what you're expecting for this year in terms of the customer funnel. Is that -- do you think you can double or triple or even more of that customer base? And then, I guess, more importantly, how do you see converting some of these existing new customers into the full SaaS platform?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [17]

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Yes. So I'm going to give you a near-term answer and then an answer that I think will be reflective of what you'll see later in the year. So in the near term, we're putting a lot more emphasis on our current funnel, assigning a little bit of our data scientists to these customers because we're seeing some of them are getting lost in how to collect data correctly, which seems to be a common problem in the AI space right now. We are seeing when we do that, we have a higher hit rate. And in fact, we just got a signed full path agreement earlier this week from a customer, a really big one, in fact, in India, doing the wearable. And they needed to readjust for recognition for their wearable. So when we get our guys involved a little bit, we see it go much smoother. We're going to keep doing that in the near term.

That helps close things to fruition in the full path in the near term. What we want to do is build out a more scalable model from a SaaS business point of view. So we're actually going to be in the process of bringing in some web specialists to do work around SaaS to make sure we're getting better hit rates coming through lead gen and the web. And we'll see some of that results coming in later in the year.

The other thing I'll mention is that it's very different when we can get on other people's platform, other microcontrollers and have their sales force selling. So part of our thesis and plan for this year's revenue growth in SensiML is to make sure that these partners are trained very well in the solution like STMicro and Nordic. It's getting this word out to their sales force and leveraging them to be selling it. So that we're not having to do a lot of ourselves. And I think all those efforts are going to result in pretty significant revenue growth for that line this year.

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Richard Cutts Shannon, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [18]

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Okay, that's helpful as well, Brian. Maybe one fundamental question and I'll turn it over to Sue for a quick financial one. So this mega cap company or called service provider company, you talked about for the quarter and talked about at CES as well. I think you mentioned in your prepared remarks that you've moved it over to an open-source development platform, which has helped you to be able to shed some internal resources and cut costs here. I guess I want to make sure that I understand kind of the full strategic nature of this move. And ultimately, what do you expect from this customer this year and especially in context of all the other customers and dynamics you've talked about so far on the call?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [19]

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So let me start with the strategic value. Firstly, I think in the IoT space, it's a very fragmented market, and not everybody that's a developer in that market is hardware savvy to the extent that they can actually go make hardware changes to things like FPGAs. They want to start with a very easy-to-use development kit and design primarily in software. And what we're doing on the open-source tooling side with the help of this mega cap company is going to be to put open-source tooling in place that is more -- it's what these engineers are more accustomed to, this new generation of engineers. The result is that we should see a significant increase -- a couple of orders of magnitude increase in the people that can design in our product, that couldn't have done that otherwise. And so we see it as a TAM expansion.

The benefit of working with a company like this mega cap company is that they can help fund the development of all this. So that's happening. And then the last thing I'll say is that at some point in the near future, they're going to be putting us out through their channels. And I wouldn't say distributors because they're not a semiconductor company, but they're going to be getting these baskets out into channels. In fact, they've committed to take 2,000 of these systems and put them out in the hands of customers. And so we're planning on that increasing our sales funnel by virtue of their muscle and their reach. Hopefully, that answers your question.

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Richard Cutts Shannon, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [20]

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Yes. Yes, that's helpful. Last question, Sue, maybe just kind of detail what the breakeven model looks like. And you've given us some numbers on OpEx after the restructuring is completed. But just want to get your -- just trying to put the math together here, just to make sure I understand what breakeven point looks.

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [21]

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So model -- our breakeven point now is at the revenue level of about $6 million per quarter with a gross margin at about 60 -- the mid-60% level. And with OpEx at mid-$3 million. So we said, I think, on the call today is the $3.5 million. That's OpEx level. So we should be in a breakeven, and we can see that in our model. It's readily achievable.

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Operator [22]

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(Operator Instructions) We will take our next question from Rick Neaton from Rivershore Investment Research.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [23]

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In Q4, did you burn any cash paying back for fractional shares in the reverse split?

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [24]

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Rick, yes, we did. But that was like so minimal amount, not even around to a mature level. I can tell you, it's about like $2,000 or $3,000.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [25]

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Okay. In the restructuring that you announced at the end of last month, does it include already the cuts you announced to the QuickAI program back in August?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [26]

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I don't remember what cuts we had to QuickAI program back in August. Oh, you're talking about...

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [27]

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You said you were going to mothball the program, the module...

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [28]

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Yes. That was the module that we were going to do. That was already factored in earlier. So everything that we just talked about in the last month of reductions was in addition to what we had taken back in the middle of last year with QuickAI module.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [29]

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Okay. In Q4, what percentage of the new product revenue was SaaS?

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Suping Cheung, QuickLogic Corporation - CFO & VP of Finance [30]

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I would say close to 10%, not 10% yet, but close to.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [31]

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Okay. Do you know if the Board is going to appoint a replacement for Tom Hart?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [32]

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We don't currently have a plan to do that. We -- as I said in the prepared remarks, Mike Farese was elected to be Chairman of the Board. And I think we're appropriately sized and with the right experience levels for the Board to operate as a company that we need to have.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [33]

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Okay. I want to ask you some questions about the general outlook you -- revenue outlook you gave for 2020, where you targeted revenue in the mid- to high teens. In that outlook, are you assuming any revenue from Flextronics or Infineon for actual sales of S3s?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [34]

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Yes. We are.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [35]

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Okay. Are you assuming any revenue from the mega cap cloud service provider?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [36]

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Yes. Not a huge amount. But yes, we are.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [37]

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So you will get some revenue from the development kits?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [38]

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That's for sure that I'm counting on more than that, for the year that I think is...

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [39]

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Okay. Does the upper end of your revenue target for 2020 assume the revenue from the Chinese ODMs and OEMs that you said you're conservatively not counting on?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [40]

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The upper end of that range, that has been a little bit but not nearly as much as what we had forecasted last time that we spoke.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [41]

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Okay. What percentage of new product revenue in your 2020 target are you assuming to come from SensiML?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [42]

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If we get them to be at the 10% after this year, I think that would be a good target for them.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [43]

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Okay. When you talked about the product from the streaming service customer, is that the voice remote control product that you talked about in the past?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [44]

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Yes, it is, Rick. It's a remote control that's voice-enabled. That's correct.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [45]

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Okay. And in your outlook for 2020 in the general range that you said is a target, are you assuming any license revenue from your eFPGA initiative?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [46]

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For the year, yes we are, on the same order of magnitude as SensiML.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [47]

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Okay.

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [48]

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Around 10% product line.

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Richard Anthony Neaton, Rivershore Investment Research Inc. - President [49]

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Is the coronavirus having any effects on your relationship with Pingtou Ge or however you would properly pronounce Alibaba's semiconductor effort?

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [50]

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It doesn't impact the relationship with them. We're certainly -- we're in contact with folks via e-mail. It does reduce any of our face-to-face time that we spend with them. And I think that they have had extended time off. And in fact, I think the Hangzhou province, in fact, was even more restrictive about when people should be going back to the office to work, which is where C-SKY and Alibaba are located. So I'm sure from a scheduled point of view, it's impacting that. But as far as the relationship goes, no, I don't think so at all.

Operator, are there any more other questions?

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Operator [51]

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It appears there's no further questions at this time. Mr. Brian, I'd like to turn the conference back to you for any additional or closing remarks.

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Brian C. Faith, QuickLogic Corporation - President, CEO & Director [52]

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So thank you for your participation in today's call and continued support. We look forward to speaking with you again when we report our first fiscal quarter results in May. Thank you, and goodbye.

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Operator [53]

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This concludes today's call. Thank you for your participation. You may now disconnect.