Lattice Semiconductor Corporation — Form 10-Q Summary
Period: Fiscal third quarter ended October 2, 2021 (13 weeks), with nine-month results through that date. The request metadata says “2020 Q3,” but the filing is for 2021 Q3; comparisons below use the filing’s 2020 periods. Financial statements are unaudited. Amounts are in U.S. dollars.
Business context
Lattice develops programmable logic semiconductors, system solutions, design services, and licenses. It serves communications and computing, industrial and automotive, and consumer markets. Product revenue represented 97% of Q3 revenue. China accounted for 58% of Q3 revenue; Asia overall accounted for 75%.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $131.9m | $103.0m | $373.5m | $300.9m |
| Gross margin | $82.8m; 62.8% | $62.3m; 60.5% | $230.6m; 61.7% | $180.4m; 60.0% |
| Operating income | $27.0m | $12.8m | $71.0m | $35.0m |
| Net income | $26.7m | $12.6m | $67.4m | $31.4m |
| Diluted EPS | $0.19 | $0.09 | $0.47 | $0.22 |
| Operating cash flow | Not separately stated | Not separately stated | $116.1m | $69.0m |
Q3 revenue rose 28% year over year and nine-month revenue rose 24%. Gross margin increased 230 basis points in Q3 and 170 basis points year to date; management attributed the improvement to pricing optimization and product cost reductions. Q3 operating margin was 20.5%, versus 12.4% a year earlier.
For the first nine months, investing cash outflow was $16.7m, including $7.1m of capital expenditures and $9.5m for software and IP licenses. Financing cash outflow was $100.2m, including $55.1m of share repurchases, $41.6m of RSU tax withholdings, and $8.8m of debt repayments. Cash decreased $0.9m from year-end to $181.5m.
Liquidity, debt, and balance sheet
At October 2, 2021, cash and cash equivalents were $181.5m, current assets $351.8m, and current liabilities $103.4m (about 3.4x current coverage). Long-term debt principal was $163.1m, including $17.2m classified as current; cash exceeded debt principal by approximately $18.3m. The company also had a secured revolving facility with capacity of up to $75m; the filing does not state a clear amount of unused capacity. Management said available cash, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least 12 months.
Material changes and management commentary
- Q3 growth was led by industrial and automotive revenue, up 40%, and communications and computing, up 26%; consumer revenue rose 25%. Licensing and services revenue declined 30%.
- Nine-month operating cash flow increased $47.1m year over year, which management attributed mainly to improved operating performance and working-capital changes.
- Research and development spending increased 28% in Q3, primarily due to higher headcount as the company expanded its product portfolio and product introductions. Management expects continued R&D investment, particularly in software solutions.
- The company repurchased about 1.1m shares for $55.1m in the first nine months under a $60m authorization; $4.9m remained authorized at quarter-end. Q3 purchases were about 251,000 shares at an average $59.77 per share.
Outlook, risks, and contingencies
The filing provides no specific revenue, earnings, or margin guidance. Management warned that COVID-19 effects and renewed supply-chain disruptions could affect product demand, sourcing, shipment timing, and results in Q4 and beyond. Suppliers face similar constraints; the duration and scale of disruption remain uncertain. The company also identifies global economic uncertainty, foreign-exchange movements, and distributor and geographic concentration as risks. Distributors generated about 90% of Q3 revenue; two distributor groups accounted for 74% combined.
A pending Oregon lawsuit seeks $138m in damages, treble damages, and other remedies over alleged nondisclosure of export-controlled product status. Lattice says it believes the claims are without merit and intends to defend them; it cannot estimate the likelihood or amount of potential exposure. U.S. deferred tax assets remain subject to a full valuation allowance. The company reported no material changes to previously disclosed risk factors and no off-balance-sheet arrangements of the specified type.
Important facts for investors to verify
- Confirm the period: this filing covers Q3 2021, not Q3 2020 as indicated in the request metadata.
- Monitor supply-chain availability, customer demand, and whether distributor concentration or China exposure changes.
- Review the $138m lawsuit and any updates to potential exposure, which is not currently estimable in the filing.
- Track debt repayments, share repurchases, and actual availability under the $75m revolving facility.
- Assess whether gross-margin gains and revenue growth persist alongside planned increases in R&D investment.