Moriah Shilton - Investor Relations Brian Faith - President and Chief Executive Officer Sue Cheung - Chief Financial Officer.

Richard Shannon - Craig-Hallum Gary Mobley - Benchmark Rick Neaton - Rivershore Investment.

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to QuickLogic Corporation's Third Quarter 2017 Results Conference Call. [Operator Instructions] Today's conference call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Company's representative Ms.

Moriah Shilton of LHA. Ms. Shilton, please go ahead..

Thank you, Ashley. Welcome, everyone, and thank you for joining us today for QuickLogic's Third Quarter 2017 Results Conference Call. With us today are Brian Faith, President and Chief Executive Officer, and 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 and projected projection per date that could impact the timing of shipments; our future evaluation systems; broadening our 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 the heading Risk Factors in the Annual Report on Form 10-K for the fiscal year ended January 1, 2017, the Company filed with the SEC on March 9, 2017.

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 forward-looking statements in light of any new information or future events.

Please note, QuickLogic uses its website, the Company’s block QuickLogic HotSpot, the corporate Twitter account, it’s 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. The 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 CEO, Brian Faith.

And then CFO, Sue Cheung will provide financial results and guidance. Brian will deliver closing remarks and open the call for questions. At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian..

During the last year we have been working closely with a major Japanese Smartphone OEM that is targeting EOS S3 for new models scheduled to launch in 2018. We recently shipped prototype units to this OEM for a concept Smartphone that they are intending to showcase at Mobile World Congress in Barcelona during late February.

If their lead Japanese carrier mandates certain features enabled by EOS S3, the OEM will introduce a high-volume flagship Smartphone with that carrier during Q2 2018 that is based on the concept design.

We have continued to move forward with other Smartphone engagements that target models that are scheduled to move into production during the first half of 2018. While I believe we are well-positioned for success, there are still too many variables in the equation to forecast these as design wins.

Now I will turn the call to Sue and return for my closing remarks before we open for Q&A..

Our revenue guidance for Q4 is approximately $3.0 million, plus or minus 10%. Total revenue is expected to be comprised of approximately $1.2 million of new product revenue and $1.8 million of mature product revenue.

The expected sequential increase in mature product revenue is primarily due to strong demand from another customer in the military/defense sector. On a non-GAAP basis, we expect gross margin to be approximately 48% plus or minus 3 percent. The sequential increase in gross margin is expected to be driven mostly by the product mix.

We are currently forecasting non-GAAP operating expenses at approximately $4.6 million, plus or minus $300 thousand. We expect our non-GAAP R&D expenses to be approximately $2.3 million and non-GAAP SG&A expenses to be approximately $2.3 million. We expect our other income, expense and taxes will be a charge of approximately $60 thousand.

At the midpoint of our forecast, our non-GAAP loss is expected to be approximately $3.3 million, or $0.04 per share. As was the case in prior quarters, the main difference between our GAAP to non-GAAP results is our stock-based compensation expense, which we expect to be approximately $480 thousand for the 4th quarter.

In Q4, we expect to use between $2.8 million and $3.2 million in cash. The forecasted cash usage will be primarily driven by working capital needs and capital expenditure associated with our eFPGA and SoC development efforts.

Starting with fiscal year 2018, we are required to adopt the new revenue standard, ASC 606.We expect to adopt this standard using the Modified Retrospective Transition method. With this approach, we will not have to restate prior years’ financial statements. We do not expect this new standard to affect us materially, other than increased disclosures.

You will find more disclosures on this change in our Q3 2017 10-Q, which we plan to file tomorrow, November 9th. With that, let me now turn the call back over to Brian for his closing remarks..

Thank you, Sue. When voice interfaces were introduced in mainstream consumer products roughly ten years ago, they were buggy and frustrating to use. The primary problem then was poor voice recognition – in other words, the software did not correctly recognize what was being said.

Driven by software companies like our partner, Sensory, Inc., voice recognition has improved dramatically, and today financial institutions commonly use very high-resolution voice recognition to provide positive ID for customers. These improvements in voice recognition enabled the popularity of Siri, OK Google and more recently, Alexa.

As a result, we saw a flood of voice-enabled home automation or more broadly, IoT products at the 2017 Consumer Electronics Show in Las Vegas. In our conference call that followed CES 2017 I stated the theme of the show was “voice is the next interface.” Since then, this theme has built traction and become the dominant design trend.

While improved voice recognition was clearly the obvious enabling driver of this trend, it is important to note there was one other change that led to the successful commercialization of voice as the next interface. That change was the shift from push to talk to an always-on / always listening voice interface.

Early implementations of voice interfaces required users to push a button before saying, “OK Google” or asking Siri a question, and for the most part, push to talk was still a requirement for the battery powered devices shown at CES 2017.

However, push to talk was simply not an option for Alexa – she needed to be awake all the time; ready and waiting for you to ask questions and issue commands from your easy chair.

Just like you wouldn’t buy a TV without a remote control, you probably wouldn’t buy Alexa if you had to get up and push a button before asking a question or issuing a command. Amazon’s Alexa, and the host of similar products that followed, have changed the way consumers expect to interface with technology using voice commands.

With its success, Alexa proved the value of the immersive always-on / always listening use cases I described earlier this year. Delivering an immersive always-on / always listening experience was easy for AC powered devices like the Echo. However, to deliver these immersive use cases in battery powered devices presented new challenges.

The traditional MCU-based design approaches used to deliver push to talk cannot be economically adapted to deliver the always-on / always listening experiences consumers expect today without notably shortening battery life.

Our EOS S3 enables always-on / always listening without this penalty and that is the primary driver that has led to a significant increase in our flow of opportunities, engagements and design wins during the last several months.

I believe you will begin seeing tangible evidence of this success as customers start shipping new always-on / always listening products enabled by EOS S3 later this quarter. And, if you attend CES in January, I think you’ll be impressed by the number of new always-on / always listening designs that have QuickLogic inside.

Ashley, I’d now like to open the call for Q&A..

Thank you. [Operator Instructions] Our first question comes from Richard Shannon of Craig-Hallum. Your line is open..

Hi Brian and Sue, can you hear me all right?.

Yes we can, hi Richard..

Hi Richard..

Okay, I apologize for the background noise, I’m in the processing of boarding a plane here, so I’m going to ask a two part question and listen as long as I can before they close boards here.

So, you talked about your tier one customer maybe delaying its initial product but it sounds like the software developments is going to give you a little bit more certainty on follow-on orders. So I wanted to get a sense of the timeframe or the confidence level and kind of seeing that mid-year kind of rollout with some of those follow-on designs.

And the second part of the question is, how should we think about the volume opportunity with all the other customers that you talked about either ramping just before CES or sooner after including any of the Smartphone guys that might be in Mobile World Congress?.

Sure, I’ll take those. So, on the tier one delay, yes, it’s definitely a delay, obviously we don’t have that in Q4 guidance, but we still see a lot of work on the software side. And as you point that software will be leveraged into these other projects if we are successful in those.

The timing of those we indicated leaving the second quarter next year ending the first half, I think the timing of those is fairly accurate because those are based on product types that they’re already shipping in the market, these are not new product categories.

For the other wearable that we’ve been talking about for some time now it’s somewhat different, and I think that’s one of the reasons that they’re putting a lot of energy into optimizing this for the used case and the battery life, and that’s why I don’t think it pops up against that exact same timing of those other two because it is different, and that’s probably the extent of what I can say on that at this time.

Your second question was related to the volume of the other customers, particularly the ones that are going to be at CES. So as I said halfway through the script, we think that those are going to be more introduced in the late part of this – of the next month of this quarter leading into CES where they’re going to show them.

The volumes that they’ve indicated to us are all like six digit in net volumes in terms of number of units. How that actually ramps and rolls out I think is going to be dependent largely on how the reception of those products at CES.

So I can’t comment on that until I go to CES and see how well it’s received but I’ve seen the products, we’ve used that some of them here in our office in Sunnyvale and I get the user experience we’re trying to promote. And they’re primarily form factors that we’re already buying today as consumers, is just enabling voice features with that.

So, I think that’s going to be well received. But again I can’t put an exact volume just because I don’t know yet, but they’re all forecasting in the six digit kind of the volumes for each project..

Okay, that sounds about right. Since the doors haven’t closed here, I’ll throw another one real quick Brian.

You talked about in your embedded FPGA business maybe getting [Indiscernible] as many as three [inaudible] licensees exiting the year and it sounds like based on a push forward to a lower node this year, not necessarily going to happen but pushed out into next year, want to make sure I’m understanding the commentary relative to what you talked about before, [Indiscernible] details about how fast we might see those customers coming in [Indiscernible]..

Sure. So, one of the three reasons I mentioned for having the essentially [Indiscernible] guidance for Q4 was related to us, jointly deciding with one of the foundry partners not to do a trailing node, so it’s not a smaller node, it’s actually a trailing node and bring that up for the IoT space.

Jointly we decided let’s focus on what we have today, we’re seeing activity and opportunity there, let’s look at these and not worry about the lagging node. That would have been one of those.

For the other opportunities that we have in engagements in eFPGA, none of those are lost during the quarter, they’re essentially just pushed depending on the schedule of the OEM basically when they’re applying the resources, and when do they need to issue a license for us to integrate that into their SoC.

So pushed, I’m imagining it’s going to be in Q1 but we’ll see, I’m hopeful..

Okay, great, we’ll look forward to that. I actually should probably jump out of the line here, but thanks a lot guys. And Brian, appreciate all the detail in your prepared remarks..

Thank you, Richard..

Thanks..

[Operator Instructions] Our next question comes from Gary Mobley of Benchmark. Your line is now open..

Hi guys, thanks for taking my question..

Hi Gary..

I want to start out by picking up where you left off on the last line to questioning.

What specifically – what specific nodes are available for licensing between GLOBALFOUNDRIES and SMIC right now?.

Yeah, I’ll just walk right through them. So, for GLOBAL we have 65 nanometer, 40 nanometer and once qualified in Q1, 22 nanometer FD-SOI which is our 22FDX process. I wouldn’t preclude that somebody could sign a license before we go through the qualification but in most cases the way for that to be finished.

And then we have the SMIC 40 nanometer that we announced just a couple of months ago. But I also like to mention that, because we’ve been shipping our own devices with TSMC 65 previously with some of our other technologies, that’s also available for people to license.

So, I’m pretty proud of the fact we’re in three different foundries that across these different nodes, only a year into this initiative..

Okay.

Could you help me understand why you walked away from or decided to refocus away from the potential licensing agreement with some trailing edge technology with your foundry partner, were you not going to recoup your NRE on that and potentially not generate much licensing revenue or is this the resource constraint issue with your R&D staff?.

It’s not a resource issue. We actually – we can do two different developments at the same time with our current resources, two different ports if you will.

This is really just a joint decision with this particular foundry that it made more sense to focus on what we’ve already done and a potential future node that would be a smaller geometry and not bringing up a laggard node.

Just because, it takes about six to eight months for us to bring up a new node like this and you never know if the market is still going to be there in terms of actual design starts in that timeframe or people are going to be moving on to the next thing.

And with embedded flash coming up now soon like 40 nanometer, I think a lot of microcontroller designs are going to gravitate to that or to the FD-SOI, and not necessarily for something that’s a laggard node anymore. So, it was purely a business decision. We could have started had we decided we wanted to..

Maybe I heard this wrong, but I thought Brain and Sue you guys, said different with respect to the mix and contribution to the 4Q revenue.

I think initially you guys mentioned that you’re expecting some of the mature products to decline including some of the more [Indiscernible] stuff and Display Bridge and then seeing a ramp ahead of the CES with some of the newer EOS products, but Sue I think you mentioned that the mature products you’re expecting some growth sequentially in Q4.

Could you clarify that?.

Right. So, Gary, you’re right. So mature we do expect to grow in Q4 as we mentioned in the prepared remarks, it’s going to be $1.8 million which is much higher than we expected. And that trend will continue actually for the next few quarters, and this is from one specific customer so we don’t expect like overall growth..

Okay. All right, that’s it from me, I appreciate the answers. Thanks guys..

Thanks Gary..

Our next question comes from the line of Rick Neaton of Rivershore Investment. Your line is now open..

Thank you. Hi Brian and Sue..

Hi..

Do you – hi.

Do you expect eight or more products using the S3 will be at CES?.

Do I expect eight or more, is that what you – the question is?.

Yes..

It could be. I think it’s going to depend on when they actually finish up other fine tuning and everything but it could be in that range..

Okay. And so you have the four designs that you had mentioned before to Janyun and then the two App companies have definitely – the two App companies are definitely now forecasting production in the fourth quarter.

Is that correct?.

Yes, they’re forecasting production units in the fourth quarter, that’s correct..

And do you expect….

[Inaudible] late fourth quarter..

Do you – okay.

Do you expect all four of those companies will be showing their devices at CES?.

I think that they should. I don’t have confirmation with every single one of them but I think historically they would be there showing these products. I know the majority of them have stated, yes, they will be showing them at CES..

Okay. So then you’re expecting some other new design customers that you have not called out in the past to be also showing new products with S3 and – at CES..

Yes, that’s correct..

Is that also correct?.

That is correct, yeah..

Okay..

Several other ones in fact..

Okay. I heard you mentioned when talking about I think B to B IoT products or some of B to B use.

Can you provide some additional color or examples of what this type of product would be and how it would be used?.

Yeah, definitely. So just to clarify why B to B has been to this business, there is typically two ways that our wrist worn device could get on us as consumers, one way is we go down to our consumer electronics to buy it our self which has been the historical way of buying wearable products.

The other is that you could actually get the wearable product sent to you by a hospital or your insurance provider and they subsidize the majority of the cost of that, and you agree to wear it because you agree that they have being able to see how active you are for example, during the day.

That’s one business model that’s being guided by a lot of these insurance companies because they’re trying to promote wellbeing in the employee base for companies or their general [inaudible].

Another way that you could imagine as going to market is that you have some condition and you’re in a hospital and you’re going through treatment and the doctor would like to understand more about you and your activity, maybe your heart rate as you go through your treatment process away from the hospital.

And having his wearable devices allows them to do that, not necessarily it’s something you would go buy and go to Best Buy to buy but something that you would be dictated to wear by your doctor. So that’s what we mean by B to B.

And we’re seeing a lot of interest in that because having a sense of more wellbeing about us is a really good input for the doctor to modulate what they’re prescribing for you to do, and just get a sense of your activity.

So, the analogy we give, the car insurance companies today they’ll give you a lower rate if you take that little dongle and stick it in your car, same thing with insurance for people..

Right..

You wear this one thing, they’ll subsidize some of your insurance as long as you’re open to wearing the technology..

Do you have any estimates of the size of this particular market in terms of dollar volume as it stands within the entire wearable or hearable market?.

I don’t have a figure in front of me Rick, but I know just some of the volumes that these people are quoting, it’s definitely in the tens of millions because of all the people that are out there that are being insured.

One characteristic I’d say about this market in particular, it’s probably going to be more stable and have less churn and less lumpiness than the consumer market. Consumer market is always holiday driven, or at least it tends to be. Design change every year because consumer taste changes every year.

I don’t think the same thing is true for this other market. And it’s also worth noting that, I think there was an article published a couple of weeks ago but I think the FDA is actually listening some of the restrictions on getting products qualified through the FDA for use in these types of environment.

Historically FDA was really slowdown the innovation in this area but I think they realized that if they can leverage consumer product design in this environment as long as they go to a light weight qualification with FDA, everybody benefits by that. And I think prices [ph] and acknowledgement have been market potential..

Okay. Thank you Brian, that’s it. Thank you..

Thanks Rick..

And I’m showing no further questions. I’d like to turn the call back to Brian Faith for closing remarks..

So, thanks everyone for joining our call today.

We will be participating at the following events, the 3rd Annual ROTH Technology Corporate Access Day on November 15 in New York City, the 8th Annual Craig-Hallum Alpha Select Conference on November 16 in New York City, the Benchmark Micro Cap Discovery One-on-One Conference on December 14 in Chicago, the Reuse 2017 on December 14 where our CTO and SVP Engineering Dr.

Tim Sax will be presenting on the topic Slash the Cost and Time of SoC Design Reuse, CES 2018 on January 9 through January 12. Our next conference call is scheduled for Wednesday February 14 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 and you may all disconnect. Everyone have a great day..