Lattice Semiconductor Corporation — Form 10-Q Summary
Period clarification: The request identifies 2022 Q1, but the filing covers the 13 weeks ended April 1, 2023 (fiscal Q1 2023), with comparison to the 13 weeks ended April 2, 2022. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise stated.
Business context and results
Lattice develops programmable logic semiconductors, silicon-enabling products, system solutions, design services, and licenses. It focuses on low-power solutions for communications and computing, industrial and automotive, and consumer markets.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $184.3M | $150.5M | +22.5% |
| Gross profit / margin | $128.6M / 69.8% | $100.8M / 66.9% | Margin +2.9 percentage points |
| Operating income / margin | $59.1M / 32.1% | $37.8M / 25.1% | +56.6% |
| Net income | $55.9M | $36.1M | +55.0% |
| Diluted EPS | $0.40 | $0.26 | +$0.14 |
| Operating cash flow | $44.9M | $43.2M | +$1.7M |
Revenue, costs, and operating trends
- Industrial and Automotive revenue rose 55% to $108.3M, led by industrial automation, robotics, and new ADAS and infotainment designs. Communications and Computing rose 3% to $66.3M. Consumer declined 42% to $9.7M, which management attributed primarily to macroeconomic weakness.
- By geography, Asia represented 57% of revenue versus 72% a year earlier; Americas represented 23% versus 14%, and Europe 20% versus 13%. China revenue was $55.7M, or 30% of total, compared with $75.4M, or 50%.
- Distributors generated 88% of revenue, compared with 90% in the prior-year quarter. The two largest distributors accounted for 39% and 35% of net accounts receivable at April 1, 2023.
- R&D increased 10.5% to $36.0M and SG&A increased 13.2% to $32.6M, while both declined as a percentage of revenue. Management cited investment in the product roadmap and demand creation. It expects R&D investment to continue increasing.
- Income tax expense increased to $2.6M from $1.0M, primarily due to increased U.S. tax on foreign operations. Net interest expense declined to $0.6M from $0.7M.
Cash, debt, and liquidity
- Cash and cash equivalents were $112.1M at April 1, down $33.6M from year-end. Operating cash flow was $44.9M; investing activities used $11.0M, including $8.4M of capital expenditures; financing activities used $67.6M.
- At April 1, current assets were $348.9M and current liabilities were $97.2M. Long-term debt was $103.8M net of issuance costs ($105.0M principal); the revolving facility provides up to $350M and matures September 1, 2027. The effective borrowing rate was 6.05%.
- The company repaid $25M of revolving debt during the quarter and disclosed a further discretionary $60M payment after quarter-end. The filing does not provide the resulting post-payment cash or debt balances.
- Inventory increased 6.1% to $117.1M; days of inventory rose to 192 from 187. Management attributed the increase to customer demand and new product ramps. Receivables fell 3.4% to $90.8M; days sales outstanding improved to 45 from 49.
- Management believes cash, operating cash flow, and credit facilities are sufficient for liquidity and working capital needs for at least the next 12 months. Cash held by foreign subsidiaries was approximately $21.6M.
Outlook, risks, and unusual items
- The filing provides no quantitative revenue or earnings guidance. Management cited growth opportunities in edge AI, 5G infrastructure, platform security, and factory automation, and expects to keep increasing R&D investment.
- Management warned of possible effects from market volatility, inflation, rising interest rates, recession concerns, geopolitical tensions, trade restrictions, and pandemic-related disruption to labor markets and supply chains. It also identified foreign-exchange and interest-rate exposure; no material change in disclosed market risks was reported.
- A pending Oregon lawsuit relates to products sold around 2008. Plaintiffs seek $155M–$268M, treble damages, and other remedies. Lattice says it believes the claims are without merit and intends to defend them; it cannot estimate the likelihood or amount of potential exposure.
- The company repurchased 119,162 shares for $10.0M at an average $83.95 per share under a $150M authorization running through December 2023; approximately $119.7M remained authorized at quarter-end. Restricted-stock-unit tax withholdings used $33.8M of cash during the quarter.
- Management reported disclosure controls were effective and no material changes in internal control over financial reporting. The filing states there were no material changes to the risk factors in the 2022 Form 10-K.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is fiscal Q1 2023, not Q1 2022.
- Track whether industrial and automotive growth offsets consumer weakness, and monitor distributor concentration and regional revenue mix.
- Assess inventory levels and subsequent demand, particularly given 192 days of inventory on hand.
- Verify cash and debt balances after the disclosed post-quarter $60M repayment and the continuing cost of borrowing.
- Follow developments in the Oregon litigation; the potential claim amount is significant and exposure is currently not estimable.
- Monitor execution of the repurchase authorization, cash use for equity-award tax withholdings, and the effect of rising R&D spending on margins and cash generation.