Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Ms. Moriah Shilton with Investor Relations. Ms. Shilton, you may begin.

Thank you, Sherrie. Welcome everyone, and thank you for joining us today for QuickLogic's First Quarter Fiscal 2018 Results Conference Call. With us today are Brian Faith, President and Chief Executive Officer, and Dr. Sue Cheung, Chief Financial Officer. Before we begin, 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; schedule changes in projected projections start dates that could impact the timing of shipments; the Company's future evaluation systems; broadening the company's ecosystem partners, 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 Company's 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 assumption, please refer to those discussed under heading Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, the Company filed with the SEC on March 9, 2018. These forward-looking statements are made as of today, the day of the conference call, 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. Please note, QuickLogic uses its website, the Company blog QuickLogic HotSpot, it's 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. 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 CFO, Sue Cheung will provide financial results and guidance. The company’s CTO and SVP of Engineering, Dr. Tim Saxe, will join the Q&A portion of the call. Brian will deliver closing remarks and open the call to questions. At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.

Thank you, Moriah. And thank you all for joining our Q1 2018 conference call. Last Friday we unveiled our new QuickAI solution that extends the reach of our core IP to enable the next generation of artificial intelligence in endpoint applications. The trademarked QuickAI solution that we presented with our three ecosystem partners leverages our EOS S3 SoC, our ArcticPro embedded FPGA IP and is market-ready. I have several other exciting updates to share today that bolster my confidence in our ability to grow revenue by more than 50% this year. Among those is the release of a new smartwatch earlier this week by a major OEM that incorporates our EOS S3 SoC. However, before I present the significant progress we have realized during the last quarter, I want to take a minute to go over two items that will limit our revenue growth in Q2. First, Amazon has not released its “Close Talk” specification. Close Talk is the unofficial name for the specification that will cover all of the design wins we have that must be able to advertise compliance with Alexa Voice Services in conjunction with the product release. We have been engaged with Amazon since mid-2017 and I believe the specification will be done in time for our customers to release their products during Q3. Second, due to supply constraints of QFP packaged devices, we are anticipating a delayed shipment of devices from our test and package subcontractor that will negatively impact our Q2 revenue by a few hundred thousand dollars. While we have been assured these devices will be received in time to support our customer’s production schedule, we are forecasting the revenue for Q3. Even with these challenges that are outside of our control, we are forecasting enough growth from EOS S3 and other new…

Thank you, Brian. Good Afternoon and thanks to everyone for joining us today. Please note we are reporting our non-GAAP results. You may refer to the press 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. For the first quarter of 2018, total revenue was $2.8 million and within our guidance range. Our new product revenue was $1.3 million, and mature product revenue was $1.5 million. Samsung accounted for 10% of total revenue during the first quarter, consistent with the previous quarter, as we continue to diversify our customer base. Our Q1 2018 gross margin was 51.5%. This was above our forecasted range due to a favorable mix of new product revenue. Operating expenses for Q1 round up to $4.9 million and were within our forecasted range. R&D expenses were $2.5 million and SG&A expenses were $2.3 million. The increase in R&D was driven mostly by the launch of our AI initiative and software tools associated with embedded FPGA. The net total for other income, expense and taxes in Q1 2018 was a $99 thousand charge, which was above our forecast due to foreign tax expenses and currency exchange loss. This resulted in a net loss of approximately $3.5 million, or $0.04 per share, essentially at the midpoint of our forecasted EPS range. We ended the first quarter with approximately $12.6 million in cash. Net cash usage during the first quarter was $4 million and within the forecasted range. Turning to the second quarter 2018 outlook, our revenue guidance for Q2 is approximately $3.1 million, plus or minus 10%. Total revenue is expected to be comprised of approximately $1.7 million of…

I realize today’s call ran longer than usual, but our priority is to provide you with as much transparency as our NDAs will allow and the detail you deserve. It has been a long road; longer than I had imagined. However, we are poised to enter the second half of 2018 with numerous EOS S3 designs waiting only for Amazon’s approval before they move into mass production. The second half will also benefit from the push out of revenue caused by the delay from our test and packaging subcontractor. Much more important than the jumpstart these push-outs will give us for the second half is the fact the designs we’ve been working with large OEMs are beginning to move into production. Small Chinese companies are quick to take risk; they saw the value of EOS S3 and jumped in with both feet. However, large OEMs are very brand-conscience and often measure a dozen times before making a commitment to a new proprietary solution. Naver is well known and highly respected across Asia, and for it to use EOS S3 SoC at the heart of its first consumer product is a very strong validation for QuickLogic. Others, including the BBK design I mentioned earlier, are following close behind. In the world of semiconductor design wins, momentum is very important, and design validation by well-respected OEMs is what drives momentum for new solutions like EOS S3. With world-class embedded FPGA tools available now from EDA industry leaders, Mentor and Aldec, Inc., and the seamless integration of these tools with our Aurora development platform, I believe we are very close to establishing momentum for our ArcticPro embedded FPGA business too. QuickAI adds a very exciting new layer of opportunity for our EOS S3 SoC and our ArcticPro embedded FPGA IP on top of the momentum we are building in our core markets. We believe QuickAI has the potential to substantially expand the applications, use cases and customer base served by QuickLogic and through its leverage of our patented technologies, enable us to build a more diversified and sustainable high margin business. I’m sure you have a lot of questions about the new developments we covered today, so I’ll close now and turn the floor back to the operator.

Thank you. [Operator Instructions] Our first question comes from Suji Desilva with Roth Capital.

Hi Brian. Hi Sue. So a lot to ask about. Let me start maybe with the EOS S3, the constellation of products that are waiting the Amazon close talk. What's the size of that sort of the group of products in terms of the revenue opportunity for you guys when that turns on.

So the majority of the products that we had in our CES suites are ones that are waiting for this stress specification that you go through the approval process. I would say that individually each of those designs that they are going to be high tens of thousands or up to I would say high hundred of thousand depending on which ODM it is and how they bring that to market. And then for modeling purposes, I think we said publicly use $1.50 to midpoint for EOS S3 and those types of solutions. In certain cases we're more than two. In certain cases, we're under one, but if you use 1.5, you can get a good modeling for that revenue potential.

And Brian if I recalled about 10 roughly plus or minus design wins that we're in.

Yes we had nine at CES. They were here will base and so the majority of those are Amazon based. So our new ones that have come into the funnel since CES, so it actually is a higher number than what we had at CES, but that I would use that as a minimum number to model from.

Great. Very helpful color there and on the constraint that has been packaging sub cons, I wasn’t clear which segment that impacts, whether it's new mature products in the magnitude of the impact in the 2Q guidance?

Yes, so the packaging type is QFP which we have in both mature and new products. It tends to be more of a mature product for us, but in this case there is new product being affected by and I think it's on the order of a few hundred thousand dollars. To be clear by the way, this is not in any way affecting EOS S3 with a display rich products, which do not use QFP packaging. This is the other devices that we have.

Got it. Good to know that and then the Tier 1 smartphone opportunity, it feels like it's penalizing the close here. Can you help us size the opportunity and I guess not just as one opportunity, but it sounds like two or three opportunities you might be in as a kind of a platform into this tier 1 smartphone vendor. Any color there be very helpful. Thanks.

Yes, so all three of them would be in the -- would be over the million unit threshold. I would say probably all three are low single-digit millions of units. I won't say the ASP because you should just use the average that we've been talking about from a modeling point of view, but that's our views. Now a couple of these products are already existing products that there is OEM. So they have sort of an established track record of that. The one that we've been talking about for the longest amount of time this wearable design win that we're wrapping into this next stage of product position with them, that's a new category for this customer. So you have to think about it in those terms, new market for this customer, but it's I think the way they talk about it, it's still going to be in the millions of units range based on how their plan is to take it to market.

Okay. And then I had a bunch of question with the AI, but I'll just kind of stick to one for now. Which end markets do you think will be first ones to leverage this AI capability you have, thanks?

Yes, so let me address that question. Our CTO and SVP of engineering, Tim is in the room, but I think we'll save him for some more technical questions in that area. So for the initial market that we've launched with the ecosystem that we did in our webinar, that is initially going to go out through the IOT broadly that category, more narrowly industrial IOT because that's where a lot of the Intel core was used, that what sensible and have seen some traction and where they work with customers and that's also if you think about what [indiscernible] is talking about using a forward optical pattern of recognition and manufacturing for I think the closest revenue will be where they see opportunity today. That being said, AI is a very broad term and so even today Tim and I were meeting our customer here at QuickLogic. Their CEO came in and he is talking about wearables and hearables in consumer market and what they're trying to do from an AI point of view and you can see that we actually enable some of the core elements of AI with our embedded FPGA and S3 today in a consumer space. So it's actually, it's fairly broad. We can see maybe consumer revenue faster because the markets tend to move faster, but the real target behind that initiative that we put together with those particular ecosystem partners was more IOT and industrial IOT.

Okay. Great. Helpful. I will leave it at that. Thank you, guys.

Thanks Suji.

Thank you.

Thank you. Our next question comes from Richard Shannon with Craig-Hallum.

Hi Brian and Sue. Thanks for taking my questions as well. I thought I had a long list of questions prepared before the call and you certainly had a quite a bit to those. So I'll try to restrain myself at least the first time to the queue here. Maybe just a quick housekeeping question for Sue, anyway you can quantify or describe the S3 revenues in the first quarter as well as a display bridge revenues?

Okay. So we normally do not break down to that level of detail. So for the first quarter Q1, we'll say, I would say the 100,000 in terms of the EO. Display bridge will be under $1 million.

Okay. Well that is helpful. Wanted to ask quickly on the second quarter guidance. You had a lot of moving parts here I think Suji asked some questions kind of break down some of the pieces, wondering maybe Brian if you want to characterize how much lost revenues might be because of the various issues here, the Amazon Alexa delay and the qualification the packaging issue and other things there. Anyway you can quantify how much all that adds up to in any way?

Let if we look back to the last call that we had and where we thought we would be with Q2 revenue, we were assuming the Amazon spec would be out by then and these customers would actually be taking product from us in Q2. So I think if you add up the net of those two, I would say it's over $500,000 and probably slightly less than $1 million in terms of revenue impact, someone in that range from what we were thinking at the beginning of the year for Q2 yes.

Okay. Perfect. That's very helpful. Before we get to AI I just wanted to ask one question, I think you had mentioned that you are, I don’t want to put words in your mouth, so please correct me here, working with TSMC and embedded FPGA, can you talk a little bit about what's going on there? I think you said you're qualified at some older nodes and getting to more leading edge ones. I know that they have at least one older embedded FPGA partners. So maybe you can couch in terms of what they might be bringing you in for relative to what they already have?

Sure. So to be clear, we stated we're reporting our FPGA into TSMC process. How close we work with TSMC directly, we don’t really discuss and it's probably not be perfect for this call, given we have NDAs with our partners. That being said, we do want to report into TSMC for a more invested note because they are the largest founder in the world in terms of market share and it just makes sense that we would go do that, which just augments our what I feel is a nice offering and foundries where our competitors don’t really exist. You asked the question about where we run at TSMC today. So we actually have devices and architecture that runs with TSMC with our FPGA on 0.35 micron, we have the ability to do 0.25 micron. So this would be an additional note to those that's more recent than those.

Okay. Perfect. Let's here maybe one or two questions here on QuickAI. Maybe I'll just ask a very simple high-level question. Especially Brian relative to your commentary about using entry into market here, anyway you can discuss what timeframe you could expect to see revenues emerging here maybe discuss if you have any examples or early test cases of people or partners moving, trying to move through design and production. What could we expect there over the next few to several quarters?

Yeah it's a good question. So a lot of the knowledge that we have about these markets is coming from our ecosystem partners at this point as we just start to put together the go-to market strategy in detail with them. From what we know, these types of markets can generally do a design in around six months to get the point where you're actually have that data collection stage where you can start collecting data and building the models by which you're going to deploy AI. So I think from a revenue point of view perhaps, you can imagine that you can start to see design wins being announced from us towards the end of the year, if you look at that six month horizon and then it would be a revenue contributor starting from '19 and that's what we're planning on internally.

Okay. Do you do you design wins in process right now?

We don’t have design wins in process, but we do have some early engagements again on behalf of the partners that were already in the space that we are engaging with.

Okay. Maybe a last question for me and I'll jump out of line here, as I was doing research related to QuickAI after you announced it last Friday morning I noticed that General Vision has had partnered with to some degree with SG micros, obviously a very large microcontroller company. Looks like they have elected to work with you presumably having a lower power product to work there maybe if you can discuss the partnership and why you’ve restart all these players specifically and maybe why they’ve chosen you as well understanding kind of the fit to each other as well as to the end applications?

Sure, so first I won't speak directly for General Vision, but I'll just give you a sense of what the ecosystem in general has talked about what we see moving forward and I think I'll answer your question related to ST. So if you go back in time from before Friday, the way people would put together these types of end point applications as they would choose a microcontroller, they choose a software operating system and sensors and then they have to pick how they go to market with AI that could be from hiring data scientists. You can contract business to sense them over these type of people. What we know in the case of the General Vision neurons and in particular the implementation with the Nepes chip is that you need a programmable logic device to connect to Nepes chip into the system with the microcontroller. So that means if you want to deploy neurons, you also need to buy a microcontroller and an FPGA. So the other thing I will say is that and we found this out just by virtue of having these technical press briefings on our launch. One of the guys that we were talking to, said wow, this is amazing. You guys are actually doing this on the same chip because I just got done talking to NXP and their AI strategy is to run software on an MCU. You’ve actually got some hardware blocks that you can optimize for lower power to offload the MCU and accelerate the function and you are dead right. So if you think about now your question, why would somebody use QuickLogic or what value does the ecosystem see with QuickLogic, they can see that if you wanted to deploy hard neurons using that approach, you need FPGA, you need microcontroller. S3 gives you that in the same chip and because it's your lower power and we have hardware accelerators for certain functions like feature extraction or sensor, data acquisitions through our FPJ and through our FFD. So it's a really nice tie into our core value proposition that we can grow from together and the fact we have the M4 MCU, means that if people are used to writing software for general purpose microcontroller via NXP or ST or whoever, imagine some reporting that down into our S3, that's a very straightforward way to do that because it's leveraging all of the developments we've done in S3 with our open platform. So now we're starting to see the fruits of that labor where initially we were designing it for the consumer market. Now we can actually take that into other markets and have other people put their software in the platform as well. Hope that answers your question.

That was very helpful. That's enough questions I think, I will jump out of line, but thanks for all the detail. I appreciate Brian and Sue.

Thanks Richard.

[Operator Instructions] Our next question comes from Rick Neaton with Rivershore Investment.

Hi Brian. Hi Sue. I have one question. For the last two midyear conference calls, you stated confidence that you have a strong second half, what's different about this year? What data point can you again share with us and make your confidence in a strong second half and meeting or exceeding your CAGR goal more probable this year than in the past two, thank you?

Sure, so let's compare this quarter to a year ago to answer that question. If we look at where we were with mass production shipments of EOS S3, I think today is the first time that I can say that a brand company neighbor the Google and South Korea has actually shipped a product to an end consumer with an EOS S3, not only is that revenue that's validation from a big company, that their product on QuickLogic. And I think that once we gotten out over that threshold that the branding guys taking your product to market, not just a design win but actually shipping in production to the end consumer now we've arrived from EOS E3 point of view and we're building on that momentum and as far the funnel goes, we see our funnel now is way more diverse than it was a year ago. Last year it was very heavily concentrated on this Tier 1 smartphone doing the wearable and the couple of smartphone designs. This year it's very diverse to the extent that I don’t think there is a single opportunity that's close to 10% of that total revenue target. So it's way more diversified than it was in the past. The fact that we actually can talk now smartphone win in revenue with this MOU with this Japanese company, we weren’t talking with you that company last year, where it means we have that company in trying to prove that this actually does what we say it does and now we're there. And then the last thing I'll say is we've probably say about last year being this year of building out the tool and the infrastructure for the embedded FPGA field licensing, this year we have provided that field and we can take that discussion to the next level where they're actually evaluating to make a decision, not waiting for the tool to arrive. And then laying on top of all that, we talked about AI how it's probably going to be a revenue contributor in 2019 that's from a device point of view, but I can guarantee you that we learn more about the FPGA used cases from those systems, we can now take that as messaging back into some of these other companies that we're interested in MPJ and how that enable and bring more value to them. So it's a very fulfilling or virtuous cycle that we're now going through with these engagements and that all of that in total is what gives me this confident in the growth.

Okay. Thank you, Brian. I appreciate it.

Thanks Rick.

Thank you. Ladies and gentlemen, that concludes the question-and-answer portion of today's call. I would now like to turn the call back over to management for any closing remarks.

Thank you, operator. We will be participating at the following investor and industry events; the 15th Annual Craig Hallum Institutional Investor Conference in Minneapolis, Minnesota on May 30. Cowen' 46th Annual TMP Conference in New York on May 31. The Roth London Conference on June 20, the Design Automation Conference or DAC in San Francisco on June 24 to 28 and the Sensors Expo Conference in San Jose, June26 to 28. Our next conference call is scheduled for Wednesday, August 08 at 2:30 PM Pacific Time Thank you for your continued support and good bye.

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