Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to QuickLogic Corporation's Second Quarter Fiscal 2024 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through August 20, 2024. I would now like to turn the conference over to Ms. Alison Ziegler of Darrow Associates. Ms. Ziegler, 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. 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, including the expected timing of such revenue; statements regarding our future profitability and cash flows; statements regarding the timing, milestones and payments related to QuickLogic’s government contracts; statements pertaining to QuickLogic's future performance, design activity and its ability to convert new design opportunities into production shipments; timing and market acceptance of its customers' products; schedule changes and production start dates that could impact the timing of shipments; the company’s future evaluation systems; broadening the number of our ecosystem partners; and expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash. Actual results or trends may differ materially from those discussed today. For more detailed discussions of the risks, uncertainties and assumptions that could result in those differences, please refer to the risk factors discussed in QuickLogic's most recently filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information, which speak as of the respective dates of any new information or future events. In today’s call, we will be reporting non-GAAP financial measures. You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR web page that provides current and historical non-GAAP data. Please note, QuickLogic uses its website, the company blog, corporate Twitter account, Facebook page, and LinkedIn page as channels of distribution of information about its business. 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 the prepared remarks made on today’s call will be posted on QuickLogic's IR web page shortly after the conclusion of today’s earnings call. I would now like to turn the call over to Brian.

Thank you, Alison. Good afternoon everyone and thank you all for joining our second quarter 2024 conference call. We have made tremendous progress during the first seven months of 2024. Unfortunately, that progress is overshadowed by some scheduling push-outs that cause us to lower our full-year growth projection to 15%. As Elias will cover in detail, we anticipate revenue in Q3 will be up slightly from Q2 followed by a very sharp rebound in Q4 to realize our revised full-year growth projection. I will step you through the status of our major contracts, but first I want to make a few things absolutely clear. We did not lose any of the contracts to competitors that we expected would contribute to the 30% growth. And none of the push outs were due to delays caused by QuickLogic. We are performing on or ahead of schedule on all contracts and pending proposals. We also have deliverables scheduled to support the majority of the implied revenue outlook for Q4. Only one of the push-outs involves a significant contract that we’ve discussed in our quarterly conference calls. I will cover that to the extent I can as I update you on the status of major contracts. The balance of the push-outs are smaller deals that we believe will generate revenue beginning in early 2025. I say beginning in 2025 because most of the IP contracts have the potential to generate revenue for years beyond the IP deliverables phase. As I’ve noted in past calls, the IP deliverables phase, which has driven high growth and record profit margins, is actually the foundation for our larger business model. We expect IP revenue will rebound sharply in Q4 of this year and that demand, from an expanding base of customers, will accelerate revenue growth going forward. In…

Thank you, Brian and good afternoon, everyone. Our second quarter revenue rose 41% from the second quarter of 2023 to $4.1 million, but was down 31% compared to Q1 and was at the lower end of our guidance. The primary reasons for this were the timing of certain contracts and lower Connectivity revenue, which is also why new product revenue was below our outlook. New product revenue in Q2 was $3.1 million, up 37% from Q2 last year, but down 37% compared to Q1. Mature product revenue was $1.1 million, up 56% from Q2 last year and essentially flat with Q1. Non-GAAP gross margin in Q2 was 53.1% compared with 44.2% in Q2 last year and 70.3% in Q1, and below our outlook for the quarter. The primary reasons our non-GAAP gross profit margin was below our outlook include lower than expected IP revenue and a higher allocation of what we modeled as R&D expenses to COGS. Our Non-GAAP operating expenses in Q2 were approximately $2.9 million. This compares with non-GAAP operating expenses of $2.9 million in the second quarter last year and $2.5 million in the first quarter. Operating expenses were below our outlook because a larger portion of R&D than we expected was attributed to COGS. It will be an ongoing challenge to correctly project how much of our R&D investments will be allocated to operating expenses and how much will be allocated to COGS. However, at the operating line on our income statement, the two will balance out. Non-GAAP net loss was $0.7 million, or $0.05 cents per share. This compares to a non-GAAP net loss of $1.7 million, or $0.12 per share, in last year’s second quarter, and non-GAAP net income of $1.7 million, or $0.11 per diluted share, in the first quarter of fiscal 2024.…

Thank you, Elias. I would like to take a moment to summarize what we have accomplished so far, where we are today and where I believe we are going. We were the first and are still the only company to integrate Open-Source components into our eFPGA IP and to fully leverage Open-Source technology in our eFPGA User Tools. We are also the only eFPGA IP company that has over three decades of experience in delivering discrete FPGAs and integrated devices that include embedded or eFPGA. These devices continue to win new designs. While these merchant silicon solutions are not the thrust of our business model, our unique experience in managing everything from fabrication to finished goods enables us to leverage existing resources to provide storefront services for our customers. This capability drives more IP business and opens unique opportunities for revenue and profit. The foundation of our business model is the eFPGA IP. We leverage this foundation with software tools to create process-specific and customer-specific eFPGA Hard IP much more quickly than our competition. With our proprietary and Open-Source software tools, we will have process- specific eFPGA Hard IP for six different fabrication processes by the end of 2024. In addition to these, we believe we are on schedule to be a leading provider of eFPGA Hard IP for Intel 18A. With our proprietary Australis eFPGA IP Generator, we can quickly leverage our process-specific Hard IP to create customer-specific Hard IP. We are the only eFPGA IP company that leverages this customer-specific Hard IP strategy. Australis also enables us to port our eFPGA Hard IP to new process technologies in about half the time it takes our competition. This IP business model has driven significant growth during the last four years. With proposals now addressing a much wider and more diverse customer base, we expect this growth will accelerate and continue to scale very favorably relative to our operating costs. In addition to the anticipated growth of our eFPGA IP foundation, we believe revenues from Storefront and Chiplet will begin layering on in late 2025 and accelerate our rate of growth and profitability. In short, the more our foundation of IP customers grows, the more leverage we have above it. All in all, the things that are most important for our long-term success are going extremely well and even with a lower growth outlook for 2024, our four-year CAGR is 30%. We believe we are well positioned to maintain or exceed that rate of growth during the coming years. With that, I will turn the call over for questions.

[Operator Instructions] Our first question comes from Rick Neaton with Rivershore Investment Research. Please go ahead.

Hi, Brian. Hello, Elias.

Hello, Rick.

So you have about $3 million of revenue being pushed into next year because of pushouts not under your control at certain customers. Is that what you're telling us?

That is correct.

Okay. You called out your situation or your status at the new Intel 18A node that's supposed to enter mass production late next year. Are you going to be the first eFPGA company to offer Hard eFPGA IP on that node?

That is our target, and yes, I believe we will be.

In terms of storefront revenue now, you talk about the deals in the sales funnel that have grown to $189 million. What percentage of that are potential storefront deals?

I don't have that percentage right in front of me, Rick, but I would say that of that total funnel, more than half of that are related to storefront deals. When I say that, remember the way we look at our funnel is a two-year funnel. So the funnel value that we're talking about in these calls would be just representative of the development of those designs. The actual storefront revenue is significantly higher and it falls sort of starting at the end of next year but really contributing outside of that two-year window. So the funnel value of the storefront devices themselves outside that tier would be significantly higher, perhaps even an order of magnitude higher.

One other question. You talked about, I think you used the number $40 million in terms of chiplet potential deals. Is that entire number reflected in the $189 million?

No, it's not. And those are -- firstly, those are for two specific chiplet proposals that we've put forth. Not all of that is in that $189 million funnel, because at least one of those is a three-year development project, and so the third year is outside of that $189 million. It's not inside the two-year window yet. And I think hopefully that gives you some sense that there's -- as we march through time, as things come inside that two-year window, you start to see an acceleration factor of that funnel value going up.

One final question on the Strategic Rad Hard deal. You've been in a development phase in these first three tranches. Conceptually, how is this deal going to change after the third tranche when you talk about all of the possible future revenues that are possible if other tranches are awarded to a QuickLogic. How does this particular deal change in terms of concept? Are you talking about something moving into production at that point or some other type of development?

Great question. So what we've always talked about, and when we talk about the contract and it's $72 million over four years that they execute other options, that's just for the development of the chip. And what I'm allowed to say publicly is that contemplate having two chips being taken out, manufactured and tested, a test chip and a final chip. And that's across that roughly four years and roughly $72 million. After that, our goal is to become the storefront supplier of that resulting device, that final chip, to the defense industrial base for strategic and space applications. And none of that storefront device revenue or storefront potential is actually part of the $72 million that we talked about. $72 million is just the development contract. I think I've shared in several forums that my view of the market potential for that device once it's done is probably on the order of several hundred million dollars, if not even more than that. And that's because there are several programs that are public programs, the programs that are going through redesigns and new developments at the direction of our government that I think would have very good use for what we're designing with this chip. They're essentially driving the specs for what we're designing. And so that would be this next wave of storefront after the device is designed. And it would be who of us, obviously, if we're engaged with potential end users of this device before that is finished being completed, so that the transition from development to program insertion is smooth and we don't miss a beat in doing so. And I can guarantee you that we are absolutely looking at that so that we can ensure that that happens.

Okay. In the original four-year timeframe for that program, you're about halfway through it now. So, if this goes as expected, you're expecting revenues to accelerate in ‘25 and ‘26 from this program significantly above what they have been. Is that a correct assumption?

Yeah, it is. And I think that follows what would normally happen in any chip design cycle. You have your initial design work. When you start manufacturing things, that's when the cost starts increasing and we haven't talked about tipping out a test chip yet for this program. So you can imagine when that starts happening, we start doing some really detailed testing and cycles of learning on that chip for the final chip that the cost will increase and therefore the revenue will also increase. So yes, it is a fair assumption that that will happen.

Okay. Thanks, Brian. Thanks for providing that information. And I'll step out of the queue right now.

Thanks, Rick. Thank you.

And the next question comes from Richard Shannon with Craig-Hallum. Please go ahead.

Well, hi, Brian, Elias, how are you guys doing?

Hello, Richard. How are you?

Good.

Not too bad. Not too bad. Thanks. I'm going to follow up on the first question here just talking about the pushouts for the year. A lot of detail in your prepared remarks, Brian. I probably missed some things here, but I think you mentioned in response to the last question here, largely from IP deals and I think connectivity. And did I catch it correctly that there's largely two IP deals that were part of that? And then in the connectivity space, what exactly does that mean? Is that revenue you expect to improve or is this a lower level of revenues expected going forward?

So let me address the connectivity one first. The connectivity are essentially some of the FPGA technologies that we've been selling for some time. They're devices. The primary markets that we sell it to are industrial and aerospace and defense. And there were definitely some push-outs from Q2 from our forecast that we used on the last call for guidance for Q2 to what actually transpired with some of those customers looking for their funding vehicles, especially on the defense side, to make those orders happen and take product this year. So we've moved some of that out to the second half based on that feedback, but that was definitely a downside hit to the Q2 revenue number. For the IP deals, there were a smattering of smaller deals, as I mentioned in the preparatory marks, that were the reasons for the lower revenue, some of which we think are going to push into 2025 now. The biggest one that was something we'd already talked about previously was the 2022 November takeout customer and them pushing some of the needs of what they need from us into 2025 because of a subcontractor to them and some delays that that subcontractor is having that sort of slowdown that’s impact everything from the programmatic perspective, which ultimately means the revenue that we had assumed in 2024 second half will be pushing out to 2025 for that specific project.

Okay, that's helpful. And just to follow up on this, it sounds like the November 2022 customers’ unique in some manner to the other deals. Is there a consistency or consistent reason for these? Are they kind of program specific?

In some cases, they love it. They have the [vocals] (ph) from us. They just need to lock up the funding that they need in place in order to move forward. Because obviously, Hard IP is not something on the order of a USB cord. It's quite a bit more valuable than that. In other cases, they're just shifting their project schedules for resource reasons into 2025. And if they're shifting program needs, then they're not going to need the IP this year. That'll get pushed out to next year. So it largely falls into those two buckets. And as far as market sector goes, if you're interested in that, it's primarily aerospace and defense and some industrial as far as the markets go that basically comprise most of those opportunities.

Okay. I'm probably not going to specify too much, but it would be safe to say that kind of an equal contribution in terms of the difference in the guidance here? 30% to 15%, is it roughly half and half in dollar terms or is it leaning one way or the other?

It's probably close enough to half-half, so let's go with that.

Okay, fair enough then. Let's see here. I guess maybe looking farther out here, made an interesting comment a couple times here about acceleration as we get into the latter half of, or kind of late next year related to the chiplets and storefront. Maybe if you can maybe provide a little bit more detail here and how many opportunities are contributing to this sort of inflection?

I'd say about 25% of our IP-based opportunities now are coming in and actually asking us to quote not just the IP but the development of the device and because of our intimate knowledge in any manufacturing tests, FPGA devices, also the storefront responsibility. You probably heard in my prepared remarks my mentioning of just in the last month alone, $8 million in deals coming in. Some of those are development of what I'll call custom FPGAs, not just IP and also the storefront responsibility for that. And again that $8 million number I used, that's just the development again, that's not the actual storefront revenue. But we're seeing a really increased clip in how people are looking at doing these things. Maybe not just -- they don't want to do the whole SoC design if it's primarily FPGA, work with a company that knows how to do that and do the device development around the storefront. So we've definitely seen an increase in the percentage of designs that are coming through that are more storefront oriented. And the great thing about our development and our business model is, A, from a business perspective, we can handle that because we have an operations team in supply chain management. And, B, the whole notion of Australis is that we can do customer-specific iterations of our IP. And so we're seeing a lot of interest now coming in for that which I also think is related to the fact that the more IP process -- the more IPs we have on different process technologies, the sort of accelerating factor you have because now you already have IP ready on those process nodes. So when customers come in and they want to do a chip at 22FDX or [indiscernible] or TSMC12 or whatever it may be, we have good coverage of that. So we can respond really quickly and I think with good value in providing a vote for that sort of full turnkey device and storefront as well.

Okay, very interesting comments there, Brian. I'll look at those a little later and probably get back to you on that, some good stuff there. Maybe my last question, kind of big picture. One of the questions I get somewhat consistently from investors is, I always like to see announcements of deals here. You had a couple nice ones in the first quarter this year. Other than the Strategic Rad Hard, I'm not sure there's a lot last quarter. So maybe if you can help people have a perspective here of how many proposals you've got in the funnel and how do we think about how many they get across the finish line and even thinking about a win rate here to think about the number of contracts you might be able to announce in the second half of the year?

Again I'll answer the last one first there that I don't have the exact number in front of me on the win rate, but I can tell you with certainty that the win rate is increasing. As we're refining how we present our IP, to my earlier point, the more time, the more process technologies we already have support for, it speeds up and lowers the cost of development of IP that it becomes customer specific off those existing nodes. And so as a result of that, the hit rate also is increasing. And I think we're getting smarter about how we target and pick the customers to do deep dives with on this custom eFPGA approach. We're getting, I think, much better at doing that. I think in addition to that, just in general, if you rewind now to the beginning of the year, we have talked about, yeah, we'd like to have, you know, 10 IP contracts won this year. We can do 10. We're going to be in a good spot to hitting our revenue goals. And you're right, in the beginning of year, rapid fire right in the beginning, we got the third tranche of the government contract, but we're still in the process of closing the ones that would get us much closer to that 10 goal for the year. So I would say just from people listening to the call and reading the transcript, still keep your eye on these upcoming wins that we hope they're going to be locking in and announcing those so that you get some sense that we are increasing the hit rate, especially for ones of notable magnitude in terms of dollars. And again, I'll remind everybody, this is also why we're investing in doing our EFPGA at foundries…

That does. Very fulsome commentary, Brian. I will jump off the line. Thanks a lot guys.

Great, thanks for your time, Richard.

And the next question comes from Martin Yang with Oppenheimer. Please go ahead.

Hi, good afternoon. Thank you for taking my question. My First question is on CTG and its impact, potential impact on your sales funnel. It looks like CTG is more than just a distributor, maybe is doing some fulfillment functions. Can you give us more details on what CTG actually do to help you with IT licensing business? And should we expect the funnel size increase to accelerate with the CTG partnership?

So the short answer to your last question is yes, we should expect that. They're going to help accelerate that. More importantly, I think they're going to help us accelerate qualified opportunities to the funnel because they're going to be doing a lot of pre-qualification work before we even assign our own resources to that. CTG is involved in both demand fulfillment and demand creation. And one part of their business actually puts them in a very strong position with the Defense Industrial Base, and that is sourcing technically obsolete devices. As a matter of fact, we work with CTG to stock some mature devices that we wanted to obsolete before. And by doing this, we didn't have to force customers to buy lifetime supply through an end of life announcement. So it was really a smooth transition from us to optimize what we're supporting directly with our resources. It also gives customers in the Defense Industrial Base that sort of assurance that these parts are going to be available for the lifetime of their program. And so with that as sort of a backbone reputation, I would say, and this is my opinion, but I think the Defense Industrial Base feels secure working with CTG on new designs. They know they're going to maintain sourcing devices through the life cycle of the design. So if I was them and I'm looking to do my own SoC or buy a custom device from a storefront, knowing that they have that stocking plan and that assurance plan and that they're fully focused on Defense Industrial Base needs, I think they're a great partner for this. They're going to maintain that sourcing all the way through and that's absolutely critical when you're talking about these programs [of record] (ph) that literally run decades. They've got a great reputation and so I think they're going to again, do sort of dual for us, demand fulfillment and demand creation on both storefront and IP.

Thank you. A question on margin profiles. So for the year, can you remind us, how should we think about the cadence for different OpEx items? Is there any, is it pretty even between 3Q and 4Q?

You're asking about the gross margin, right?

OpEx, sorry, not gross margin, OpEx.

OpEx, okay. Well, I mean, it's simple. It's more, like for example, this quarter, we had, like in Q2, we had a specific payment going out to vendors that kind of just happened. And it wasn’t -- we were counting on it, but it just all came together and was -- it kind of resulted in more cash usage, but still, OpEx was about $2.9 million, same like last time, only $400,000 in addition. We think it's going to be flat. I think even if we hire two or more people, It's still going to be flat quarter after quarter, so I'm counting on it being flat through the end of the year.

Got it. Thank you, Elias. That's it for me.

This concludes our question-and-answer session. I would like to turn the conference back to Brian Faith for any closing remarks.

Thanks, David, and thanks again for joining us today everybody. Hopefully we will connect with some of you at one of our upcoming investor events including the Oppenheimer Technology, Internet & Communications Conference this Wednesday, August 14th; Needham Virtual Semiconductor & SemiCap next week or at the HC Wainwright Global Investment Conference in early September. Thank you again for your participation and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.