President and CEO: Andrew Pease
WSA: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Andy Pease, the President and CEO of QuickLogic Corporation. The company trades on NASDAQ, ticker symbol QUIK. Thanks for joining us today, Andy.
Andy Pease: My pleasure, Juan.
WSA: Great. So starting off, please give us a history and overview of the company for some of our listeners that didn’t catch our previous interview.
Andy Pease: Okay, Juan. , QuickLogic is a 28-year-old fabless semiconductor company. I joined nine years ago to help lead the transition from a general purpose FPGA company to taking our programmable logic technology and applying it specifically to low-power applications in the mobile industry. Five years ago, we further refined our strategy.Using our programmable logic, coupled with other technologies that we invented, we have come up with solutions to extend battery life and enhance end user experiences when implementing sensor-oriented applications. As you well know, sensors are dominating the landscape in smartphones, wearable, and IoT applications. There are 18 different sensors in a Samsung Galaxy smartphone. What frustrates users is the resulting battery drain when using the immersive applications that make use of these sensors. Our solution, consisting of both silicon and software, enables OEMs to offload the application processor from the necessary sensor related mathematics, and always-on, real-time processing that create immersive experiences without sacrificing battery life.
WSA: Certainly. So can you bring us up to speed on some of your recent news? You recently introduced the EOS S3 sensor processing SoC and secured a recent contract with Gomtel, as well as just this morning you had a stock offering.
Andy Pease: Sure, I’d be happy to. We introduced our new sensor processing solutions to the general market in October of 2013. Mid 2014 we started shipping our second-generation solution which is now shipping in production to over _9___ customers, including the one you just mentioned. The majority of our customers are Chinese independent design houses and original design manufacturers. They are called IDHs and ODMs, for short. And we’ve had very good success in penetrating that market with our second-generation ArcticLink 3 S2 product. The really exciting product, however, is our third generation offering. We named the family “EOS Sensor Processing Platform.” EOS is the Goddess of Dawn, the new beginning; certainly this is a new exciting beginning for QuickLogic. EOS Sensor Processing Platform is a programmable multi-core system-on-a-chip. We took the key elements of the ArcticLink 3 S2 as a starting point, beginning with our Flexible Fusion Engine – a QuickLogic-invented micro-DSP core. This is our sensor-specific compute engine for always-on, very low-power sensor application mathematics. We added an M4 floating-point processor core from ARM, to expand our general purpose computing capability beyond what is available in the today’s sensor hubs.
Two days ago, we announced our comprehensive EOS S3 reference platform that will enable customers to accelerate their time-to-market. This is a clear indicator that the chip is fully-functional, meeting all of our power expectations and we believe will take the market by storm.
WSA: So, what are some of the key trends that you are focusing on right now in the sector and how has the company positioned itself to capitalize on those trends?
Andy Pease: We see more and more sensors integrated into mobile devices, resulting in a dramatic expansion of user experiences, all of which puts added pressure on battery life. Our focus is to offer the lowest power sensor processing solution in the market today PERIOD. Everything we do is with power in mind. It starts with hardware, making sure that we deliver the very lowest-power silicon possible in the industry. It also extends to software making sure that our algorithms are written in a very efficient way from a systems power perspective.
It is key to note that we have put together our own sensor algorithm software team. We did this about a year and a half ago, which from a shareholder point of view, means that we have a lot more QuickLogic-invented value inside our total solution. In addition, we partner with different companies for unique immersive algorithms like always-on, motion-compensated heart rate monitoring and pedestrian dead reckoning for use in indoor navigation. Both are areas of great interest as we build on top of our world-class activity tracking applications
WSA: Great, and what are some of the other factors that you feel make your solutions and company unique from some of the other players in the sector?
Andy Pease: Most market analysts that track our segment, refer to our type of solution as a sensor hub. Just as a quick aside, when Google introduced its Nexus phone last September, it was very interesting that they highlighted two different features in that phone. One is a camera which of course, everybody is very interested in getting the best camera possible. But they also introduced a sensor hub device, which in their own words, enables a phone to be more aware of its surroundings. Getting back to your question, what sets QuickLogic apart from everybody else is first, we have a patent pending micro-DSP sensor-processing architecture. We call it a Flexible Fusion Engine and it is at the heart of every product that we put into the market. This is an ultra-low-power, micro-DSP engine that was invented by QuickLogic, which really handles the algorithms that need to be always on and always working for the user, requiring very little battery power or battery life for the overall solution.
The second thing that really differentiates us is the fact that we have our patent pending, ultra-low-power programmable logic technology. Today, there are only three companies left in the entire semiconductor industry that are primarily programmable logic companies—the other two are Xilinx and Lattice. Programmable logic enables real hardware differentiation. As our customer base shifts to the top tier OEMs we are seeing that this class of customer really values the differentiation capabilities of our embedded mobile FPGA core.
And then the third thing is our patent-pending sensor software algorithms, which deliver highly-accurate immersive consumer experiences. Many of the sensor hub silicon solutions today provide solely the silicon, referring their customers to third parties for algorithm support. We offer the complete solution.
With the introduction of the new EOS S3 platform that we are sampling right now, we have also become the first semiconductor company to integrate a hard-logic, always-on voice solution through our partnership with Sensory. We believe that we offer customers a complete system solution, the very best sensor processing solution available in the market today.
WSA: Certainly. And what are some of the key goals and milestones that you are hoping to accomplish over the course of the next six to twelve months?
Andy Pease: , Since we have just completed a successful public fundraising, where we strengthened the balance sheet by $10 million, I can tell you what I told the investors. We anticipate very significant revenue growth over the second half of this year, and the first half of next year, and that would accelerate as we get further into 2017. We believe that wehave all of the tools in place to capitalize on what is now the strongest level of engagement activity and opportunities. We did talk about this in the last earnings call where I highlighted 16 different engagements with top-tier or highly recognizable main brand OEMs that are working with our engineering teams on designs which include EOS S3 Sensor Processing Platform. One-third of these engagements are in smartphones, two-thirds of them are in wearables. And those wearable activities are all with very recognizable companies that are in the wearable market right now. And the most interesting part, and I mentioned this before, is the fact that the majority of the top-tier OEMs are very interested in leveraging our embedded programmable logic, which is great news for us because, once again, there is no one else in the market who has this capabilityWSA: Well great. So in terms of investors and the financial community, Andy, what are some of the key drivers that you wish perhaps they better understood about QuickLogic?
Andy Pease: First, for your readers, most of the material we used during our recent public offering I presented at the Needdham Conference in January and is available on our website.
One of the things that investors look at is our revenue over the last few quarters. We are at a low point in our revenue and I’ve been very open with the investment community about that fact and that we are at the early stages of an inflection point. We believe that our cash flow break-even point for the company is roughly about $11 to 12 million a quarter, when we achieve 50 points gross margin. Right now, our guidance for Q1 of 2016 is $3.2M, so a lot of people say, “How are you going to do that?” I point them back to Q1 of 2014 where we were doing north of $11 million a quarter. That was driven by one single design in the Samsung Galaxy Tab 3 7-inch tablet. With that one design and one customer, we were able to grow our revenues to $11 million. Looking at our engagement activity right now, we are engaged in many top-tier OEMs and we think that the future is extraordinarily bright for us as we accelerate our growth to break even in the second quarter of 2017 and beyond, so that the company will be a company that’s known to always be generating a positive operating income.
WSA: Certainly. So once again, joining us today is Andy Pease, President and CEO for QuickLogic Corporation. The company trades on NASDAQ, ticker symbol QUIK, currently trading at $1.07 a share and the market cap is about $59 million. And before we conclude here, Andy, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Andy Pease: IPeople should consider the company as a great investment opportunity because we are going after one of the hottest markets in the industry today and that is this whole idea of sensor-oriented enhancement of user experiences. And the real key for our growth is t we are targeting the super-explosive new market called the Internet of Things (IoT.) And as you look at the Internet of Things, which is going to be a tremendously large market, having programmable logic at the heart of our silicon implementation is key in that we can change the personality of our solution by using programmable logic without having to go through the tremendous capital expense of doing different chips for different segments of the IoT market space. We are very excited that we’ve got the right solution for what is now the most significant growth market in the industry, and we have the vision to pursue the Internet of Things which we think will be the future fuel for the semiconductor industry for many years to come.
WSA: Well we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. And we’d like to thank you for taking the time to join us today, Andy, and update our investor audience on QuickLogic Corp. It’s always good to have you on.
Andy Pease: Great. Thank you for having us, Juan. We appreciate it.