Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's First Quarter Fiscal Year 2020 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through May 18, 2020. I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi, 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 Dr. Sue Cheung, Chief Financial Officer. In line with social distancing practices, management is doing this call from different locations today. 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 its customers' products; schedule changes and 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 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 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, 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. 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. 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 the 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. I would now like to turn the call over to Brian.

Thank you, Jim. Good afternoon, everyone, and thank you all for joining our first quarter fiscal 2020 financial results conference call. These are extraordinary times for all of us. There is no question that COVID-19 has brought about a significantly more challenging business environment as well as increased uncertainty. Our thoughts are with those directly affected by the pandemic and the many people fighting it on the frontlines. Our company has been facing this human health crisis head-on since day one. Based in Silicon Valley, we were one of the initial areas that went under shelter-in-place orders. Since we do serve the U.S. Military market, our designation as an essential business has allowed us to continue limited operations during the crisis. The remainder, and vast majority, of the QuickLogic team have been working remotely going on, nine weeks now. And we will continue to do so, until we are cleared to return to the office, by the various government agencies. While we continue to push ahead with the initiatives, I discussed in our last call, we are seeing some COVID-19 related impacts to our customers’ product introductions, as many of them are also working under the more restrictive, shelter-in-place orders. Without the ability to work onsite, many of our customers’ engineering developments, that typically need to take place in a lab with their own hardware has been delayed. This has resulted in the push-out of some projects ranging from a few weeks to months. With these COVID-19 related changes, we currently believe fiscal 2020 revenue will be impacted by approximately 20% from what our expectations were when we talked in February. While there is still a great deal of uncertainty in the global economy, we are doing everything we can to maintain a path to profitability, as soon as possible.…

Thank you, Brian. Good afternoon and thanks to everyone for joining us. For the first quarter of fiscal 2020, revenue was $2.2 million, which was within the guidance range we provided. This compares with revenue of $3.2 million in the first quarter of 2019. Within our Q1 '20 revenue, sales of new products were $540,000. This compares with $690,000 in the first quarter of 2019. The lower new product revenue from the prior year was primarily due to the continued decline in display bridge sales. Our mature product revenue was $1.7 million, compared with $2.5 million in Q1 of last year. The decline from last year was due primarily to changes in demand from selected aerospace and avionics customers. In the first quarter of 2020, we had five customers who each accounted for 10% or greater of our sales. Non-GAAP gross margin in Q1 was 52.2%, compared with 62.8% in the same quarter last year. The lower gross margin in Q1 was primarily due to product mix and some higher margin mature product revenue moving into Q2. We expect our gross margin to rebound to the low 60% range in the second quarter. Non-GAAP operating expenses for Q1 were approximately $4.1 million, down from $4.8 million in the first quarter of last year. The changes are the result of several cost containment measures enacted over the last year. As I mentioned in our last call, we expect to see operating expense to decline to approximately $3.5 million starting in the second quarter of 2020, resulting from the restructuring effort announced in January. Within our Q1 operating expenses, R&D was $2.3 million and SG&A was $1.8 million. This compares with R&D and SG&A of $2.6 million and $2.2 million, respectively, in Q1 last year. The net total for other income, expenses,…

Thank you, Sue. While we work through the challenges the COVID-19 pandemic has created, we are executing on all of our product advancements and extending our customer reach and market opportunities. We have created a nimble and lean organization focused on ensuring QuickLogic moves to a path to sustainable profitability. In closing, I would like to thank all of our stakeholders, including customers, suppliers, and shareholders for their support and partnership. After protecting our employees and their families, my highest priority is ensuring we do everything we can to help our customers, both in supply of products today and continuing to execute on new product programs to ensure both of our success in the future. That completes our prepared remarks. Operator, I'd now like to open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Sujeeva Desilva of ROTH Capital. Please go ahead.

Hi, Brian. Hi, Sue. So guidance, the guidance the new products segment recovering from 500,000 to 1.1 million, can you talk about what the drivers are there? Is that mostly key is there are there other large buckets of revenue that are helping them recover?

The majority -- not the majority, more than half of that is Kyocera along with some of the other items that we talked about around the IP licensing and then some smaller volume, new product deals that we have, but Kyocera is definitely the big driver of that.

Okay. And then looking ahead for Kyocera, you just you said I believe there's limited impact. What's the linearity expectation for Kyocera ramped linearly throughout the year? And really was there no changes to the forecast because the COVID even post the quarter close?

Yes, we haven't seen any real change in their forecast. And I think that -- so from a linearity point of view, Japanese smartphone manufacturers typically launch around spring and in the late fall. And so, the first three phones that I talked about were effectively not fall launched last year. The fourth one would be categorized as like a spring launch of this year. And then we are anticipating those additional phones to come online, probably in the later summer timeframe for us to ship so that they can launch those in the fall timeframe. So, by that point, we'll have several phones can currently shipping, which is why we think the revenue for that's going to continue to be strong for this year. But yes, we haven't seen any downside effects from COVID-19 with respect to their shipping pattern.

Okay. I was hoping think Brian, you could clarify on the SmartTV remote control, I believe you said they fell back on an older design unlikely or just a redesign where you weren't designing, and if you could find some color there and what -- they did and how they were able to make that switch? That would be helpful to know.

Yeah, so basically, the way they test their products, they get these things out into, sort of, residential test environments to do user experience testing before they push product out. And the fact that boards are having to be shipped all over the world to get those tests in place and the boards to an appropriate level of quality to ship to them. All those were delayed and so that basically caused them to miss the window to include that in the big box bundle watch that they were going to do for the holiday season this year, and as such, they're not going to have always on voice in that. They're going to go back to a different version that doesn't support always on-voice for that launch. So unfortunately, that means that because we're enabling that feature, we're not going to be included in that remote now. There are the customers that working with us, so we're going to reuse the engineering work that we put into that. But, obviously, it's very disappointing from 2020 revenue impacting us.

Yeah, absolutely. Brian, I’m just trying to understand with an older version of the remote, they fall back on?

Yes, it's a previous version that does not have always on-voice.

Okay. I understood the dynamic. And then lastly, a quick question on Amazon, what is the timing achieving that certification?

Every time I say something like this, I think it gets pushed out. But this time, we've estimate some pretty mature milestone advancements in that area. We've submitted some national documentation and we're in the process of scheduling lab time now with them to get that certification. So I'm hopeful that it will be done by the end of the quarter, this quarter. But some of that just depends on making sure that we actually get a slot in the lab to do that. And as you can imagine, there's social distancing going on. So reduce number of resources to do those tests in the lab, but we're working really closely with them and trying to make sure we get an allocated spot and get in to do the testing, and however we're going to pass, because we have a lab replicated here on site. And we've added our solution with all of the right test criteria to pass, so it's really just a matter of getting into the lab now and getting the paperwork done.

Okay. I'll jump back in the queue. Nice execution in a very tough environment guys.

Thank you.

The next question is from Rick Neaton of Rivershore. Please go ahead.

Hi, Brian. Hi, Sue. Congratulations on some pretty good execution and tough times here. Are you having any issues at your fab like global foundries that are COVID-related in order that could impact your ability to have enough products to ship?

Not from a wafer fab point of view. I think they’ve execute very well. And I think with wafer starts we're basically starting now to keep up with the forecasted demand. I think we'll be fine for that. The issues I was alluding to in my part of the script were related to assembly. We do assemble one of our packages on ESF-3 in the Philippines and they went on very strict transportation policy to the point where our assembly partner there had to basically put up temporary dormitories to have people on site, so they wouldn't have to take transportation, but they're still operating on a very reduced capacity. I think they've done an amazing job, as I said in the script, and are getting back to normal. And so it's really been an assembly crunch to get through -- not a way for that.

Thanks for that color. The volume shipments of QuickFeather consistent with what your expectations were through this point in time?

Well, we are getting ready to ship those. We did the press release launch in March just to make people aware of it. We've got a lot of people wanting boards that we have not shipped yet with very limited marketing on our part so far. I think once we do actually do this launch in the coming few weeks here, we're going to start to see a lot of influx of interesting orders. I think that -- I said in the script several hundred or a few hundred boards this quarter, I think we've got a chance to exceed that, a good chance of exceeding that and getting closer to the thousand or so that we'd like to get out there in the coming couple of months.

And when you said that the second product is ready to go live and an announcement in the next few weeks -- in the coming weeks, I think were your words -- is that for additional boards or is that a different kind of product and is that something that will happen this quarter or will that happen in the second half?

Yeah, I'm glad that you asked the question, so I can probably have more clarity now that we're in the QA section. So QuickFeather is – has just started the starting point of this whole initiative with this mega-cap company. It's one board where there are some tools that we talked about in the press release. All of that is going to become very clear that this is a very large and strategic initiative between us and this mega-cap company and we will announce in the coming weeks along with the additional tools that come out of this, that you also in the future see potentially a second board coming out that we haven't announced yet, that'll be a little bit in the future. That'll address a certain different set of users or use cases than the first one. So again, this whole thing when it's finally announced is going to be clear that this is a pretty major undertaking in terms of strategic initiatives cause much further than just that one development kit.

Some of your other strategic partnerships that you've talked about in the past are those being effected by COVID, like SiFive or other partnerships like that or are those remaining on track for later this year, early next year?

I think some of the really impactful ones, as far as the outbound marketing go is with Infineon and Flextronics because there was a whole series of IoT road shows that were going to take place and these are going to be in person seminars and those are basically put on pause and now everything's being done through ZOOM those types of meetings. So that's definitely impacted getting out the message and getting designed started with people. I think once we start relaxing and getting back to this point where we can actually go to face to face meetings and we'll start to reinvigorate that, that go to market plan with both of those large companies. Those are probably the biggest of impacted ones this year.

Okay. One last question, when you talked about, your view of how much your full year revenue might be impacted through all of the COVID effect, your original outlook was mid-to-high teens in terms of revenue. If I do some quick cocktail napkin calculations here, mid-teens seems to still be in play here. Is that how I should look at it?

Yeah. I think from a teens point of view, it's more like the lower to mid-teens, where mid-teens are sort of the ceiling of that. And that would be an appropriate way to look at from a revenue for the year.

Okay. Thanks, Brian. Appreciate your information.

Thank you.

The next question is from Richard Shannon of Craig-Hallum. Please go ahead.

Thanks, Brian and Sue for taking my questions as well. Just on the, you talked about the Rick’s question about the military market the opportunity there, it sounded like that's one of the fears that hasn't been affected by COVID. Is it? Is that something where your expectations have actually improved since last, Brian?

Yeah. We've seen some pretty steady that your former military customers. They don't seem to have any budgets affected by this, because a lot of the revenue we have today are basically designs are already done. Previously, we're not having a situation where design teams aren't available to get on the hardware. So yeah, from that standpoint, it's going on really well. We have the embedded eFPGA license, which you can imagine is for a military like application, because it's radiation hardened. And that's a good thing that I think hopefully will lead to others. What we are seeing, from a military point of view some of the customers that work in secure projects that are on – they have to go home and work now. They can access some of the systems through VPN that they would normally be able to access when they're on premises and so some of those have pushed out conversations around IP licensing. And I think once they're back online, which should be hopefully in the next month or two, those will start progressing again. But those – for the most part, those weren't part of our revenue plan for this year. Those were longer term engagement.

Okay. Maybe a second off with one of those – one of those comments in there, Brian, regarding embedded FPGA, how would you characterize the impact of from COVID to your podcast? I'm going through my notes and see a mentioned that. Is your outlook for embedded FPGA lower than what it was or still largely intact?

That's within the rate changes by product line related to COVID. It was more of a company overall, but I can say that the eFPGA part of the forecast is largely unchanged from pre-COVID to now. The bigger changes run to the other categories of products, Specifically, with the –

Right. Okay. If I characterize, how many have embedded FPGA licenses you're expected to find this year, maybe a range, I know you can't predict the exact number, but how many should we think about here that we can announce the identity or at least that you've signed something that's something and get to a half dozen, or is that they'll just let you answer the question.

I think if we got half of this and I'd be – I'd be happy. I was going to say, it's probably going to be ones that I can count with fingers and a thumb on one hand. If we can do that, I think that's a good, good place for us to end up for the year.

Okay. That's helpful. Opportunity with Earbud sounds interesting. But as you've alluded to in your comments it's a market dominated by one large, very large company and you identified a couple of those are coming to the market. They're also large companies. Is it fair to think of your potential customer bases kind of being ODM serving in Tier 2 and potentially lower market or do you have opportunities with in a company who can get you to what you might consider a Tier 1 type of an opportunity?

We don't want to engagement that would be classified as a Tier 1. Most of these are Tier 2. Some of which would be done directly or through an ODM. The interesting thing right now, I think, that's been brought on by this whole pandemic is, so many people are doing -- telecommuting and working from home and that's actually driving more earbud sales, I think, because they want to connect and not have to have the over-the-head speaker or not use the Polycom. So we do see an increased interest and demand. But for the majority of our funnel, we're talking about Tier 2 guys. There's one Tier 1.

Thank you. Okay. That's helpful. One last quick question for Sue, maybe, kind of a two-parter here. On the guidance for the quarter, I'd missed your gross margin number. What was that, please?

Hi, Richard.

Hi, Sue.

Thanks for the question. Hi. For Q2, we've set our non-GAAP gross margin to be at 61% plus or minus 8%.

Okay. And the follow that up to the kind of the breakeven model, I think, you said $6 million or more, does that still look at gross margins kind of the low to mid 60s or has it changed?

It's rather low to mid 60. Yeah. So it's a $6 million revenue. Okay. That’s the breakeven profit goal.

Okay. Perfect. I think that's all the questions for me. Thank you, guys.

So, hey, Richard, just, while you're there. I just saw those comments. When I was playing dice, I'm rolling for that day to come for Q2. And moving forward, I believe, I -- unlike you're going the say the 8,000 is today $800,000 per tier to gain that.

I think I did get that. But thanks for reiterating.

Sure. Thank you.

Your next question is from Martin Yang of Oppenheimer. Please go ahead.

Hi, Brian. Hi, Sue. Can you hear me all right?

Yes, we can, Martin.

Perfect. So regarding your business in wireless space -- wireless headset space? How much do you think those business -- potential business are related to Amazon AVS and how much expose to other white label opportunities?

So the majority of the opportunities by number would be related to Amazon AVS for the headset specifically, because a lot of those are U.S. or European Tier 2 companies. By volume, there's probably more opportunity for us still in Asia non-AVS, because they have or they tend to have local way – or other local services like in China that they'd like to do these headsets for that are not Amazon. They do not connect AVS. That’s sort of the breakdown of it in our funnel today.

Today you have a distinct difference in the time to market; do you think that AVS will be start showing up on your revenues sooner than the rest? Or there's no distinct difference between the two.

We're forecasting both will have revenue in the second half for us. The steepness of the ramp for the Chinese ones will the higher, just because they do more volume of some of these earbuds or a stick type products. For the for the Western countries, the U.S. like the AVS ones, even if it was through an ODM, it would probably be a little bit slower to market, just because I think they tend to be a little bit more methodical in their test processes. But certainly once we do get the certification and that becomes basically an ODM type product. For us, it should help us be more efficient in how we get to revenue because the product essentially is done at that point. Whereas a lot of these engagements in China was just they do need a custom wake word that our provider or software partners can do. They still have to go through that creation and validation process, whereas on the AVS pilot, it's basically done and ready to go once we passed certification. There's no more changing.

And next question, so regarding an impacts -- on regarding COVID-19, is there impact on your next generation product design in that?

Not really. We're largely able to do most of our work remote. I think our engineering team has done an amazing job at getting set up promoting and continuing to work on things. So they're progressing on all those initiatives. The things that I alluded to on the call that haven't been asked about yet in the Q&A section is, is what we can do related to COVID-19 was SensiML. And that's one of the values of having a software business is that we don't really need to be in the office per se to get worked on that and enable people. So even though everybody's working remote SensiML is teams put together this way of doing crowdsourcing of cost data, getting those models, those baseline models to a point where we either was at least comfortable with mentioning it on the call. And we're going to put that site public this evening for everybody and anybody to come in and start contributing to that, so we can all be part of that solution. So those types of things I think is we can do that just fine without being in the office. And in fact, that wasn't even part of our scope on the last call to new opportunity that came up from this, so we're driving on I think will bear fruit.

Okay. Last question for me, then I'll jump back in the queue. So when you talk -- when we look at the opportunity with the mega-cap company, I think QuickFeather is a very catchy name. And can you help us frame how that solution will be marketed to the broader developer community? Are they going to highlight quick better and your company's name as well?

Yeah, I think without spilling all the beans right now, they are going to be referring to our name in QuickFeather. They're going to be taking several of those units and helping get those out to their community both internal to that company and focus in their ecosystem. That's what they're going to do. What we are going to do in parallel, because this is not an exclusive development kit. We are going to be getting it out to our channel partners that we currently have. There's also several open source hardware, guys, gals, folks, communities that we're going to be seeding these boards with. I think we’ll hopefully have a very positive experience and then start some level of viral marketing with that. And so those are sort of the three avenues that we're looking at to get the word out about this Board to mega-cap company, our traditional distribution channels and then a more viral marketing approach that people that are really big on open source hardware.

Thank you.

Okay.

This concludes the question-and-answer session. I would like to turn the floor back to Brian Faith for closing comments.

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

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.