Lattice Semiconductor Corporation — Form 10-Q Summary
Period: Fiscal third quarter ended October 1, 2022; nine months ended October 1, 2022. The filing covers fiscal 2022 Q3, not 2021 Q3 as indicated in the request metadata. Comparisons are to the periods ended October 2, 2021. Financial statements are unaudited; amounts below are USD millions except per-share data.
Business context and performance
Lattice develops programmable logic semiconductors, related system solutions, design services, and licenses, serving communications and computing, industrial and automotive, and consumer markets.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $172.5 | $131.9 | $484.4 | $373.5 |
| Gross margin | $118.7 (68.8%) | $82.8 (62.8%) | $330.0 (68.1%) | $230.6 (61.7%) |
| Operating income | $48.8 (28.3%) | $27.0 (20.5%) | $133.4 (27.5%) | $71.0 (19.0%) |
| Net income | $46.4 | $26.7 | $127.0 | $67.4 |
| Diluted EPS | $0.33 | $0.19 | $0.90 | $0.47 |
Financial position and cash flow
- Nine-month operating cash flow was $156.8, up from $116.1. Investing used $21.4, including $13.1 of capital expenditures and $8.3 for software and IP licenses. Financing used $146.0. Cash declined $12.8 to $118.8.
- Cash and cash equivalents were $118.8; current assets $340.3 and current liabilities $110.3 at October 1, 2022. Accounts receivable was $100.4 and inventory $94.0.
- Debt principal was $150.0, reported net of unamortized costs at $148.7. The company replaced its prior credit agreement with a five-year, $350 million secured revolving facility, maturing September 2027; $150 million was drawn, leaving approximately $200 million undrawn. The stated effective rate was 3.94% at quarter-end.
- Management said cash, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least the next 12 months.
Material changes and management commentary
- Q3 revenue grew approximately 31% year over year; nine-month revenue grew approximately 30%. Gross margin rose 6.0 percentage points in Q3 and 6.4 points year to date, which management attributed to pricing optimization and its margin-expansion strategy.
- Industrial and Automotive revenue grew 45% in Q3, supported by industrial automation, robotics, and automotive ADAS and infotainment. Communications and Computing grew 26%. Consumer revenue fell 13%, which management attributed primarily to macroeconomic weakness.
- China represented 44% of Q3 revenue and Asia 71%. Distributors accounted for about 90% of revenue; Weikeng and Arrow represented 31.1% and 24.7% of Q3 revenue, respectively.
- Inventory increased 39% from year-end to $94.0 million; days inventory rose from 122 to 159. Management said the increase was primarily to meet customer demand. Receivables rose 26%; days sales outstanding increased from 51 to 53.
- R&D expense increased 21% in Q3 as the company continued investment in its product roadmap; management expects R&D investment to continue increasing. SG&A rose 22%, reflecting headcount and legal expenses. Restructuring charges were $2.3 million in Q3, including lease impairment and contract-related costs.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management cited ongoing uncertainty from COVID-19, market volatility, inflation, labor and supply-chain disruption, and geopolitical tensions.
- Risk disclosures highlight the Russia-Ukraine conflict, Taiwan-China tensions, potential supply disruption, cyberattack exposure, and new U.S. semiconductor export controls affecting China. The company also cited potential demand and cost effects from macroeconomic conditions.
- A pending Oregon lawsuit alleges export-control disclosure failures involving products sold around 2008. Plaintiffs seek $155 million to $268 million, treble damages, and other remedies. The company says it believes the claims lack merit and intends to defend them; it cannot estimate likelihood or potential exposure.
- The company maintained a full valuation allowance against U.S. federal and state deferred tax assets. Uncertain tax positions, including penalties and interest, totaled $21.2 million.
- The company repurchased $90.1 million of shares during the first nine months. Its prior $100 million program was fully utilized; a new $150 million program had approximately $149.7 million remaining at quarter-end.
Important facts for investors to verify
- Confirm the intended reporting period: this filing is for fiscal 2022 Q3, despite the request metadata stating 2021 Q3.
- Track inventory growth, inventory days, and subsequent demand or inventory write-down disclosures.
- Assess the concentration in distributors and China, and the possible effects of export controls and regional supply disruptions.
- Review debt costs and availability under the revolving facility as rates change, alongside cash use for repurchases.
- Monitor developments in the lawsuit and any change in management’s assessment of potential exposure.