Lattice Semiconductor Corporation — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended April 2, 2022 (fiscal Q1 2022), compared with the 13 weeks ended April 3, 2021. This differs from the request metadata’s “2021 Q1”; the filing itself reports fiscal Q1 2022. Lattice develops programmable logic semiconductors and related products, services, and licenses for communications and computing, industrial and automotive, and consumer markets. Financial statements are unaudited.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $150.5 million | $115.7 million |
| Gross profit; gross margin | $100.8 million; 66.9% | $70.6 million; 61.0% |
| Operating income; operating margin | $37.8 million; 25.1% | $20.6 million; 17.8% |
| Net income | $36.1 million | $18.8 million |
| Diluted earnings per share | $0.26 | $0.13 |
| Operating cash flow | $43.2 million | $29.4 million |
| Capital expenditures | $4.4 million | $1.3 million |
- At April 2, 2022, cash and cash equivalents were $123.0 million, down $8.6 million from January 1, 2022. Total current assets were $299.2 million and current liabilities were $99.1 million.
- Debt principal was $154.4 million, including $17.2 million current; the company repaid $4.4 million during the quarter. The term-loan and revolver effective rates were 1.92% and 1.71%, respectively. The filing reports a $75 million revolving facility but does not clearly state its unused availability in this excerpt.
- Net cash used in investing activities was $7.1 million; net cash used in financing activities was $44.4 million. Financing included $25.6 million of restricted-stock tax withholdings, $15.0 million of share repurchases, and $4.4 million of debt repayment.
Material changes versus the prior comparable period
- Revenue rose 30%. Communications and computing revenue increased 27%, industrial and automotive 40%, and consumer 19%; licensing and services declined 14%.
- Industrial and automotive grew to 46.3% of revenue from 43.0%; communications and computing represented 41.5%, versus 42.6%. Licensing and services fell to 2.3% from 3.6%.
- Gross margin expanded 590 basis points. Management attributed improvement to pricing optimization and its gross-margin expansion strategy.
- Operating expenses increased to $63.0 million from $49.9 million. R&D rose 35% to $32.6 million, primarily due to headcount and product-development investment; SG&A increased 15% to $28.8 million.
- Operating cash flow increased $13.8 million, primarily reflecting improved operating performance, partly offset by working-capital use, especially inventory. Inventory increased 6% from year-end to $71.8 million; days of inventory on hand rose from 122 to 132.
Outlook, commentary, risks, and unusual items
- No quantified revenue, earnings, or margin guidance is provided. Management expects continued R&D investment, particularly in software solutions, and says available cash, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least the next 12 months.
- Management cites opportunities in data-center servers, client computing, 5G infrastructure, industrial automation, robotics, and automotive ADAS and infotainment. It describes ongoing uncertainty from COVID-19, potential supply-chain disruption, inflation, and resulting effects on sourcing, customer demand, and operations.
- Distributor concentration is high: distributors generated 90% of revenue, up from 85%; two named distributor groups accounted for 64% of revenue. China represented 50% of revenue and Asia 72%.
- A lawsuit related to products sold around 2008 seeks $138 million, treble damages, and other remedies. The company says it believes the claims are without merit and intends to defend them; it cannot estimate the likelihood or amount of exposure.
- The company maintained a full valuation allowance on U.S. federal and state deferred tax assets. Uncertain tax-position liabilities were $21.3 million at quarter-end.
- The company repurchased 244,063 shares for $15.0 million, averaging $61.46 per share; about $74.9 million remained under its authorization through December 2022. Fiscal Q1 also included $0.5 million of acquisition-related charges associated primarily with the Mirametrix acquisition.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing reports no material changes to previously disclosed risk factors, while noting potential risks including COVID-19 and the Russia-Ukraine conflict.
Important facts for investors to verify
- Confirm the period: the filing is for fiscal Q1 2022, not Q1 2021.
- Assess sustainability of revenue growth and margin expansion, including the contribution of pricing and demand across end markets.
- Monitor reliance on distributors and exposure to China and broader Asian markets, as well as distributor receivables concentration.
- Track inventory growth and supply-chain conditions, debt repayments and revolver availability, and planned R&D spending and share repurchases.
- Review developments in the $138 million legal claim and the realization outlook for U.S. deferred tax assets.