Lattice Semiconductor Corporation — Form 10-Q Summary
Period: The filing covers the 13 weeks ended March 28, 2020 (fiscal Q1 2020), compared mainly with the 13 weeks ended March 30, 2019. The request metadata says “2019 Q1,” which does not match the filing period.
Business context and key financial results
Lattice develops programmable logic semiconductor products, system solutions, design services, and licenses. Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $97.3 | $98.1 | Down 0.8% |
| Gross profit / margin | $57.6 / 59.1% | $57.7 / 58.8% | Margin up 0.3 percentage points |
| Operating income / margin | $9.7 / 10.0% | $12.5 / 12.7% | Operating income down 22% |
| Net income | $8.2 | $7.4 | Up 10% |
| Diluted EPS | $0.06 | $0.05 | Basic EPS was $0.06 in both periods |
| Operating cash flow | $21.1 | $21.8 | Down $0.7 |
Gross-margin improvement reflected product cost reductions and pricing optimization, partly offset by product mix. Operating expenses rose to $47.8 million from $45.2 million, including higher R&D and SG&A; stock-based compensation increased to $8.7 million from $3.7 million. Lower interest expense—$1.1 million versus $5.0 million—helped net income despite lower operating income.
Liquidity, debt, and cash flows
- Cash and cash equivalents were $176.6 million at March 28, 2020, up $58.5 million from year-end 2019. About $83.5 million was held by foreign subsidiaries.
- Long-term debt principal outstanding was $193.8 million, versus $148.1 million at December 28, 2019. The company drew $50 million on its revolving facility and made a required $4.4 million debt installment. The facility provides a $175 million term loan and up to $75 million in revolving credit.
- Net cash used in investing was $6.6 million, including $3.9 million of capital expenditures and $2.8 million for software licenses. Financing provided $44.1 million, primarily from the revolver draw.
- Management said resources should meet working-capital needs for at least 12 months. No material off-balance-sheet arrangements were reported.
Material changes, outlook, and risks
- Industrial and Automotive revenue rose 14% to $41.4 million, and Communications and Computing rose 8% to $38.5 million. Consumer revenue fell 32% to $13.3 million; Licensing and Services fell 37% to $4.1 million, reflecting variable HDMI royalties and fewer patent and asset sales.
- Asia accounted for 71% of revenue. Distributors represented 78% of revenue; Arrow was 25.1% and Weikeng 23.1%. No end customer exceeded 10% of revenue.
- COVID-19 had caused some supply-chain disruption. Management expected demand to be affected in Q2 and potentially beyond, but said the duration and financial effects were uncertain. Risks include weaker customer demand, manufacturing and logistics interruptions, product-development delays, and pressure on revenue, margins, and cash flows. The filing provides no numerical financial guidance and cautions that forecasting is especially difficult.
- Management approved a workforce restructuring in March 2020; about $1.1 million of expense had been incurred and was estimated to approximate the plan’s total cost. R&D investment was expected to continue, particularly in software.
- A $40 million share-repurchase program was authorized for 12 months; no shares were repurchased in the quarter. Management said it would be conservative on buybacks to preserve capital and invest in the business.
- A lawsuit seeks $138 million plus treble damages and other remedies over products sold around 2008. The company disputes the claims; potential exposure could not be estimated at this stage.
Important facts for investors to verify
- Whether COVID-19 materially affected Q2 and later demand, supply availability, customer shipments, and margins.
- Debt terms, covenant headroom, revolver availability, and the impact of borrowing on interest expense and liquidity.
- Distributor concentration and receivables exposure: the two largest distributors represented 38% and 36% of net receivables at quarter-end.
- Progress and realized costs of restructuring, and the effect of elevated stock-based compensation on reported earnings.
- Developments in the $138 million lawsuit and any resulting change in the company’s exposure assessment.