Lattice Semiconductor Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months of 2023, ended July 1, 2023; comparisons are to periods ended July 2, 2022. The request metadata says 2022 Q2, but the filing itself reports Q2 2023.
Business context and results
Lattice develops programmable logic semiconductors and related products, software, services, and licenses. Its markets include communications and computing, industrial and automotive, and consumer applications. Unless otherwise noted, amounts below are in millions of dollars.
| Metric | Q2 2023 | Q2 2022 | First six months 2023 | First six months 2022 |
|---|---|---|---|---|
| Revenue | $190.1 | $161.4 | $374.4 | $311.9 |
| Gross margin | $132.6; 69.7% | $110.5; 68.5% | $261.2; 69.8% | $211.3; 67.7% |
| Operating income | $53.1 | $46.8 | $112.2 | $84.5 |
| Net income | $50.6 | $44.5 | $106.6 | $80.6 |
| Diluted EPS | $0.36 | $0.32 | $0.76 | $0.57 |
| Operating cash flow | Not separately provided | Not separately provided | $115.5 | $92.9 |
Financial position, cash flow, and material changes
- Q2 revenue rose about 18% year over year; first-half revenue rose about 20%. Q2 net income increased about 14%, while first-half net income increased about 32%.
- Gross margin improved 1.2 percentage points in Q2 and 2.1 points in the first half; management attributed the expansion to its gross-margin strategy.
- Q2 end-market mix shifted: Industrial and Automotive revenue increased 55% to $115.5 million, while Communications and Computing fell 11% to $64.2 million and Consumer fell 28% to $10.4 million. Management cited strength in industrial automation, robotics, ADAS and infotainment; softer communications infrastructure demand and consumer macroeconomic weakness; and strong datacenter demand as a partial offset in communications and computing.
- First-half operating cash flow was $115.5 million, versus $92.9 million a year earlier. Investing used $17.7 million, primarily for capital expenditures and software/IP licenses. Financing used $139.4 million, including $85.0 million of debt repayment, $20.0 million of share repurchases, and $39.2 million for restricted-stock tax withholdings.
- Cash and equivalents were $103.8 million at July 1, down from $145.7 million at year-end. Current assets were $344.6 million and current liabilities $92.0 million. Inventory was $111.5 million; days of inventory on hand declined to 177 from 187. Days sales outstanding improved to 46 from 49.
- Long-term debt was $43.9 million net of debt costs ($45.0 million principal) at July 1, compared with $128.8 million net at year-end. The revolving facility permits up to $350 million and matures in September 2027; its effective interest rate was 6.49%. The company reported making an additional $45 million discretionary repayment after quarter-end.
- Total liabilities were $184.3 million and stockholders’ equity was $574.8 million at July 1. The filing reported no significant long-term capital expenditure commitments.
Outlook, risks, and unusual items
- Management said cash, operating cash flows, and credit facilities should meet liquidity and working-capital needs for at least the next 12 months. No quantified revenue or earnings guidance is provided in the supplied filing text. Management expects research and development investment to continue increasing.
- Management cited uncertainty from market volatility, inflation, rising interest rates, recession concerns, banking-sector uncertainty, geopolitical tensions, and possible effects on supply chains, labor markets, demand, costs, margins, and liquidity.
- Distributor sales represented 89% of Q2 revenue. The two largest distributors accounted for 34% and 28% of accounts receivable at July 1. Asia represented approximately 63% of Q2 revenue; China accounted for 30%.
- An Oregon lawsuit alleges claims relating to products sold in approximately 2008 and seeks $180 million in damages, punitive damages, and other remedies. The company said it cannot estimate the likelihood or amount of exposure, considers the claims without merit, and intends to defend itself.
- The company agreed to a $185,000 SEC civil penalty over late Section 16(a) filings and related disclosure failures, without admitting or denying the findings. The settlement was subject to Commission approval; the company said it did not expect a material business or financial impact.
- Stock-based compensation was $21.5 million in Q2 and $35.7 million in the first half. The company repurchased $20.0 million of shares in the first half under a $150 million program running through December 2023; approximately $109.7 million remained authorized at July 1.
- Disclosure controls were concluded effective at period-end, and the company reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether end-market trends, especially industrial and automotive growth and weaker consumer and communications demand, persisted after the reporting period.
- The effect of the post-quarter $45 million debt repayment on debt outstanding, cash, interest expense, and borrowing capacity.
- Distributor and customer concentration, accounts-receivable exposure, and the company’s significant Asia and China revenue exposure.
- Developments in the $180 million lawsuit and final status of the SEC settlement.
- Future cash generation and capital allocation, including R&D spending, share repurchases, and the remaining revolving-facility capacity.