Ladies and gentlemen, good afternoon. At this time, I’d like to welcome everyone to QuickLogic Corporation's Third Quarter 2016 Earnings Results conference call. During the presentation, all participants will be in a listen-only mode.[Operator Instructions]. I will repeat these instructions after management completes their prepared remarks. Today’s conference call is being recorded. With us today, from the company are Brian Faith, President and Chief Executive Officer, Sue Cheung, VP of Finance and CAO and Bob Schoenfield, VP of Worldwide Sales and Marketing. Before we begin our call with QuickLogic’s executives, I will read a short safe harbor statement. 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 its customers’ products, our future evaluation systems, broadening our ecosystem partners, expected results, and financial expectations for revenue, gross margin, operating expenses, profitability and cash. I'd like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in QuickLogic’s SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty, and that future events may differ materially from the statements made. For additional information, please refer to the company’s Securities and Exchange Commission filings, which are posted on its website or available from the company without charge. This conference call is open to all and is being webcast live. We will start today’s call with the company’s strategic update from QuickLogic’s CEO, Brian Faith, then Sue Cheung, its CAO, will review third quarter financial results and provide financial guidance for the fourth quarter before Brian’s closing remarks.

Thank you Andrew, and thank you all for joining our quarterly conference call. Our prepared remarks will be presented in a slightly different format today. I will start with a strategic update. Following that, Sue will provide an analysis of the financial data for Q3 and our forecast for Q4. I will close our prepared remarks with a brief summation of our strategic outlook and then open the call for your questions. At the close of the Q&A session I’ll provide a rundown of upcoming events, tradeshows and conferences. At the bottom line, I’m very pleased with the strategic and tactical progress we made on all fronts during the last quarter, and with that, my confidence in the revenue ramp we forecasted for next year has been bolstered. However, before I get into our strategic update, I will take a moment to share some unfortunate news. Due to a personal family matter, Bob Schoenfield will resign his position as VP of Worldwide Sales and Marketing at the end of this month. Bob intends to maintain a vested interest in QuickLogic stock, and continue to work with us as a consultant. Bob has been a tremendous asset for us and is committed to driving certain strategic initiatives that he will manage for us on an ongoing basis. However, since he will not be able to dedicate the time needed to fully manage the scope of his current position, we will initiate the process to hire a new VP of Worldwide Sales and Marketing during the coming months. Bob will be available for your questions following our prepared remarks. Last quarter Sue and I provided the outline for our strategic realignment. As we described it, this initiative was designed to lower operating costs, reduce cash consumption and better align our assets with…

Thank you, Brian. Good Afternoon and thanks to everyone for joining us today. For the third quarter of 2016, total revenue was $2.8 million, which was at the midpoint of our guidance range. Our new product revenue was approximately $1.3 million, and mature product revenue was approximately $1.5 million. Samsung accounted for 39% of total revenue during the third quarter, compared to 31% during the previous quarter. Our Q3 non-GAAP gross margin was 34%, which was slightly below our guidance range. This is primarily due to the product mix shipped during the quarter. Non-GAAP operating expenses for Q3 totaled $5.0 million, which was favorable to our guidance. The total for other income, expense and taxes was a charge of $55 thousand. This resulted in a non-GAAP loss of approximately $4.1 million or $0.06 per share, which was right at the midpoint of our guidance. Please note, our non-GAAP results included a $170 thousand severance charge associated with our strategic realignment initiated last quarter. Our Q3 GAAP net loss was approximately $4.6 million, or $0.07 per share. Our GAAP results included stock based compensation charges of $457 thousand and a non-cash fixed asset write-off of $39 thousand. For a detailed reconciliation of our GAAP to non-GAAP results and other financial statements, please see the press release we issued today. We have also posted an updated financial table on our IR web page that provides current and historical non-GAAP data. We ended the third quarter with approximately $17.8 million in cash, which exceeded our guidance. The cash usage during the third quarter was $1.2 million. This reflects the cost savings from our strategic realignment efforts and the timing of working capital requirements. The cash usage was partially offset by borrowing $1 million against our existing line of credit. For the 4th quarter…

We have released a new evaluation system that enables our customers to accomplish in weeks what has been taking months, and with that, move much more quickly and efficiently into the final design process. We will introduce a new evaluation system this month that combines the Cywee and Sensory evaluation systems into a single platform. This new evaluation system will enable smartphone OEMs to efficiently evaluate and verify our ability to enable new immersive voice enabled sensor fusion and clearly illustrate the substantial power consumption advantage we have over traditional design approaches. 14 out of the top 15 smartphone OEMs in the world have expressed sincere interest in our Sensor Processing Solutions. We are currently engaged with more than half of these OEMs. With our new evaluation systems in place we expect to increase the number of engagements this quarter, and shorten the cycle from evaluation to design win. With these accomplishments, and the progress we’ve made with our strategic engagements, we are rapidly nearing the time when our conference call presentations will focus mostly on design win activity versus what we are doing to win new designs. Please believe me when I say; no one is looking forward to that and the revenue ramp we anticipate for 2017 more than me. Operator, I will now turn the call over for questions.

[Operator Instructions] And our first question or comment comes from the line of Suji Desilva with ROTH Capital. Your line is now open.

Hi, Brian. Hi, Sue. Nice job on the progress here. The guidance for new product revenues increased sequentially. Could you talk about the factors driving that, is it seasonality? Some of the new display bridge customers ramping or what's driving that sequential growth there?

Suji, I think you hit it right on the head. This is the time of year that these consumer electronics companies are building ahead of the holiday season, and that's driving the mix shift from the previous quarter.

Okay, good. And then [inaudible] Cywee partnership here, what's the timeframe for some China smartphone customers to adopt your solution with the software? If they wanted to, would they have to wait for their new product launches or can they fit them into the existing ones, just to understand the way in which a smartphone customer would adopt your solution?

Suji, this is Bob Schoenfield. It's great question as well. I think there's two ways to look at it. It certainly is not going to go in to devices or smartphones that are already launched in the market, but we're looking at two things with our readiness now, we certainly will be able to secure new designs, but we're also looking to intercept the existing designs that are not fully developed, and provide them an increased performance in feature and functionality than what they currently have. As Brian said, this is trending in the smartphone business, so this is something we've seen in the past, both for new designs and also intercepting designs and process.

Okay, good. That color helps. And then on the OpEx in the fourth quarter is benefiting from the restructuring as well. Is that the run rate we should think about going forward, and into 2017, Sue?

Yes, Suji, we expect our core OpEx will stay flat as Q4, 2016. Going forth in 2017 we anticipate the development of our new product, next-generation telecom platform, but we haven't determined the timing of that yet.

Okay, got it. And one last question maybe. As you start to ramp up inventory for the customers, what are the lead times you get from the foundry to understand how far ahead you have to build product?

Our lead times from our suppliers [inaudible] is typically around 16 weeks, give or take. This is why [we can build up] [ph] inventory in anticipation of the customer demand.

Got it. All right, thanks guys. I'll get back in the queue.

Thank you, Suji.

And our next question or comment comes from the line of Gary Mobley with Benchmark. Your line is now open.

Hi guys. Brian, I want to start with some strategy questions for you. You'd mentioned in your prepared remarks a relationship and a soon-to-be-announced reference design relationship with a smartphone application oriented company, but I think you stopped short of saying whether it was silicon or a software oriented partner, and should we think about it, the relationship perhaps being more of a companion piece of silicon or supplement an application process for always-on type processes?

So Gary, the way to think about it is that the more value added software running on our low powered platform the better it is for these smartphone OEMs to deploy these immersive use cases, especially ones that are operating concurrently. And so moving forward, most of our ecosystem partner strategy will be around enabling software companies that have very unique or compliant algorithms or different use cases, like in the case of the voice running currently in our platform, that's a lot of the work that Bob is going to be driving force moving forward. I think there's a lot of leverage there for us in not necessarily working with other chip companies per se.

Okay. You mentioned on previous calls an attempt to focus on maybe just a handful of smartphone opportunities as I think it was just maybe cost prohibitive to support sort of a shotgun approach to the smartphone market. But you mentioned here today engagements with maybe six or seven different smartphone OEMs, and discussions and presentations to 14 smartphone OEMs. And you've talked as well about new evaluation tools to help streamline the design in process. And so I'm wondering if you're sort of straying away from that more targeted approach to the smartphone market or -- anything you can add there would be helpful.

Sure. So in the last call we talked about optimizing the funnel and focusing on OEMs that can drive volume that are strategic in nature for us. So that work is continuing. The funnel, as it is today, it's actually larger than it was on a net basis from the last call. It's still focused on guys that can drive significant volume for us, and we're talking about at least 500,000 units per project, and targeting more than [5 million] [ph] units per project. So we're still going to call on all the smartphone guys that we just talked about. And I think a lot of the work that's gone on since the last call has been to come up with these standard reference designs and evaluation systems that these OEMs can actually take and evaluate by themselves without a lot of hand holding from us. That's what's going to give us that leverage to engage with more of these at the same time.

Okay. Sue, I have a follow-up question for you. I did notice the drawn down amount for the line of credit move from long-term liabilities to current liabilities. Is that indicative of some principal repayment in the next year? And has the sort of covenants or different variables involved in that line of credit changed at all in the last quarter?

Hi, Gary. No, they haven't been any changes with our covenant, compliance, or -- we have a total of $6 million line of credit we're trying to draw full by end of this year, we are in full compliance of financial covenants.

Okay. All right, that's it from me. Thanks guys.

Thanks, Gary.

[Operator Instructions] And our next question or comment comes from the line of Rick Neaton with Rivershore Investments. Your line is now open.

Thank you. Hi, Brian. Hi, Sue. The phone cut out when you were giving the expected launch window for the tier 1 smartphone OEM wearable. Was that still December to March, around Mobile World Congress?

Yes, what I'd said, Rick, in the prepared remarks, were sometime between December and the end of February 2017 when Mobile World Congress occurs.

Okay, thanks. Sue, can you provide some sort of reference or guidance for the size of the inventory build in fourth quarter that we should expect.

We plan on building up our inventory in Q4. This is because of several factors. One is because we want to ramp up the inventory ahead of our customer commitment for EOS S3, that is because of the EOS S3 SOC is a unique and proprietary device, we're the sole provider of this device, so we want to build a buffer at least a quarter ahead of time. And the other is, we also need to increase the inventories to support [runway] [ph] ramp in the second half of next year.

Okay. But you're not able at this time to give a general estimate of what the size will be in the fourth quarter?

Yes, so what I provide the guidance on cash usage for Q4, you can see the majority of that cash usage will be used for inventory buildup.

Okay, thanks, Sue. I have a question for Bob. Since you'll be leaving your position as Vice President of Sales as of November 30, what sort of level of involvement and commitment to QuickLogic will you have going forward?

Yes, first of all it was a very, very difficult decision for me and my family, but ultimately the right decision for me and my family. Having said that, it's on the professional side, one of the challenge is for making this decision is, all the work that's gone into the product development and then preparing our teams around the world to execute on our growth strategy. Yes, I mean, I'll be handing that off for others to execute, but there are a whole host of other strategic initiatives that relate to next areas of growth as Brian referred to IoT and some other adjunct markets of us. And this is something that I've done quite a bit in the past. I worked in IoT [inaudible] for about ten years, building businesses around that. And it's something that I can help the company in a more time manageable situation given my personal situation to allow me to help develop and drive strategy in conjunction with Brian and management team.

So you're still strongly committed and have strong belief in the future of the company, is that?

Very much so, both as a shareholder and as a current executive and as one that expects to have a professional relationship with the firm going forward, continuing to add value because I am a strong believer in this part in the company going forward.

Okay, thank you, Bob. Brian in the past, the company has used a 50% gross margin in its breakeven calculations are breakeven general forecast to analysts and the public. How realistic is it to assume a 50% gross margin on large volume orders of the S2 and S3 going forward in 2017?

Good question. At the targeted breakeven revenue we do think 50% is realistic. And it’s based on several factors, one of the factors of course is that the customers themselves are responding well to the pricing that we're putting in front of them for the S3. So it gives us belief that the pricing is right. It make us believe our costs are right. Secondly, as the revenue growth and I think Sue alluded to this, as our revenue grows we're going to be able to absorb certain fixed costs much more favorably now and in the future than we have in the past and that's going to help the gross margin line, and those are the main drivers. As I said earlier, we are still anticipating some display bridge business in 2017 and I think we all know that the largest customer for that has driven some of the gross margin percentages down, but I think that with some of the new display bridge designs that we're seeing now with higher ASPs and higher gross margin from sensor processing we're going to see gross margins at that revenue level back up towards 50% by the end of next year.

Okay. Would you file a new shelf registration, are you saying that you're going to have to raise more capital in the near future?

No, in fact we don't have any plans for the shelf registration. As Sue mentioned it's just good business practice. We've always had one in the foreseeable past, and so we're going to continue to have that in that future.

Okay.

I was asked this question on the last call, so let me just reiterate this again that it is not a foregone conclusion that we need to raise money. I've been asked that a lot by investors, and we have several models into 2017 that shows that that’s definitely not needed. We have the revenue ramp towards the first couple of quarters blending into the second half of next year, getting us to that breakeven level. So yes, it's not a foregone conclusion that we need to go raise money, and I’ll go so far as to say that there's other options that we're looking at to boost the balance sheet without being a dilutive event for shareholders.

Okay, thank you. One last question, can you give -- you used the term immersive user experience, in talking about trends in smartphones and other Internet of things, wearable and things, what's an example of what you mean by that term?

I’ll tell you a specific example and this is related to me personally. So when I leave the office and I'm talking on the phone, it should know that I've left the office and immediately switch off WiFi, turn on Bluetooth, turn on GPS. I can speak to my phone and say to open ways and tell it to navigate me to my house with the appropriate traffic alerts. When I get home I can sit down on the living room and put my phone on the couch and it should know that it's not on me anymore and start powering things down that are consuming extra power. I should be able to speak to my phone and ask them to tune the channel to the Warrior's game. A more immersive experiences is where you're not having to muck around with your fingers to communicate with your device, but you're able to speak and think naturally and the device is able to respond not only to you, but also your context in that given situation. We're seeing a big desire now for more software applications that are getting installed on smartphones to be used in a more immersive way, and I think that we're going to see that come to fruition next year. That can only happen by the way if the processing that is done for that for a contextual awareness in that immersive experience is done in low power hardware and in always on fashion. So you're not having to push buttons to activate things, and we think that we're very uniquely positioned with S3 to enable that.

Okay. Thanks, Brian, I appreciate it.

Welcome. And at this time, I'm showing no further questions or comments. So with that said, I'd like to turn the conference back over to President and CEO, Mr. Brian Faith.

Thank you, Andrew. We will be participating in a number of industry events during the next three months. First Sue and I will be at the second annual ROTH Technology Corporate Access Day in New York City on November, 16. We'll also be attending the Benchmark Micro-Cap Discovery One-On-One Conference on December 1 in Chicago. We will have two quick project meeting suites at the Consumer Electronics Show in Las Vegas from January 5 to 8, 2017. I will be participating in a panel discussion titled, "Where are Consumer Electronics Taking the Sensor Industry" on January 5, 2017 at the MEMS and Sensors Track at CES. And lastly Sue and I will be at the 19 Annual Needham Growth Conferences from January 10 to 12, 2017, in New York City. Details will be included in our upcoming media alerts. I want to thank you for your participation in today's call. I also want to thank my QuickLogic colleagues for their hard work and commitment to our customers and business. We look forward to reporting our strategic progress on the next earnings call which is scheduled for Wednesday, February 15, 2017. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.