Lattice Semiconductor Corporation — Form 10-Q Summary
Period: The filing covers the 13 weeks and 26 weeks ended July 2, 2022, compared with periods ended July 3, 2021. The request labels this “2021 Q2,” but the filing is for fiscal 2022 second quarter.
Business: Lattice develops programmable logic semiconductors and related products, solutions, services, and licenses, with applications across communications and computing, industrial and automotive, and consumer markets.
Financial performance
Amounts below are in millions of dollars except per-share data. Percentages are year-over-year.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $161.4 | $125.9 | $311.9 | $241.6 |
| Gross margin | $110.5; 68.5% | $77.2; 61.3% | $211.3; 67.7% | $147.8; 61.2% |
| Operating income | $46.8 | $23.3 | $84.5 | $44.0 |
| Net income | $44.5 | $21.8 | $80.6 | $40.7 |
| Diluted EPS | $0.32 | $0.15 | $0.57 | $0.29 |
| Operating cash flow | Not separately presented | Not separately presented | $92.9 | $70.7 |
- Quarterly revenue increased about 28%; net income more than doubled. For the first half, revenue grew about 29% and net income about 98%.
- Gross margin expanded 720 basis points in Q2 and 650 basis points for the first half. Management attributed improvement primarily to pricing optimization and its gross-margin expansion strategy. Product gross margin was 67.7% in Q2 versus 60.2% a year earlier.
- First-half investing cash outflow was $14.3 million, including $8.9 million of capital expenditures and $5.4 million for software and IP licenses. Operating cash flow less capital expenditures was approximately $84.0 million; this measure excludes other investing outlays.
- Cash and cash equivalents were $117.9 million at July 2, down $13.7 million from January 1, 2022. Current assets were $314.5 million and current liabilities $106.4 million (current ratio approximately 3.0).
- Debt principal was $150.0 million, including $17.2 million current; reported debt net of unamortized costs was $149.4 million. The term-loan and revolving-loan effective rates were 3.13% and 2.92%, respectively. The filing reports $75 million of revolving facility capacity but does not clearly state the amount available to draw.
Business mix and material changes
- Q2 growth was broad across key end markets: Communications and Computing revenue rose 35% to $70.8 million; Industrial and Automotive rose 30% to $74.5 million. Consumer revenue declined 1% to $12.4 million, which management attributed to macroeconomic weakness. Licensing and services revenue rose 12% to $3.8 million; royalty variability affected comparisons.
- Distributors generated 89% of Q2 revenue. Weikeng accounted for 32.5% and Arrow Electronics for 28.7%. Asia represented 73.6% of revenue, including 50% from China.
- Operating expenses rose as investment and support costs increased: Q2 R&D rose 22% to $33.6 million, while SG&A rose 13% to $29.0 million. Both declined as a share of revenue. Management said it expects to continue increasing R&D investment, particularly in software solutions.
- First-half cash flow from operations increased $22.2 million year over year, reflecting improved operating performance, partly offset by working-capital use, primarily higher receivables and inventory. Receivables increased 17% from year-end and inventory 15%; days sales outstanding rose to 53 from 51 and inventory days to 139 from 122.
Outlook, risks, and unusual items
- The filing gives no numerical revenue, earnings, or margin guidance. Management said financial resources, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least the next 12 months.
- Management cautioned that COVID-19, supply-chain disruptions, inflation, labor constraints, and macroeconomic uncertainty could affect demand, sourcing, costs, margins, and results. It also cited Russia-Ukraine-related geopolitical and trade risks, potential supply disruption, and heightened cyberattack risk.
- A $100 million repurchase program runs through December 2022. Lattice repurchased 734,292 shares for $35.2 million in Q2 and 978,355 shares for $50.2 million in the first half; approximately $39.7 million remained authorized at quarter-end.
- A lawsuit related to products sold in or around 2008 seeks $155 million to $268 million, treble damages, and other remedies. The company considers the claims without merit and intends to defend them; it cannot estimate the likelihood or amount of potential exposure.
- The company maintained a full valuation allowance against U.S. federal and state deferred tax assets. The liability for uncertain tax positions, including penalties and interest, was $21.3 million.
- Remaining restructuring accruals were $6.5 million, primarily lease-related. Management estimates total cost under the June 2017 plan of $22.0 million to $23.5 million over time.
- Management reported disclosure controls were effective and no material changes to internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the period: despite the request metadata, this filing reports fiscal Q2 2022, ended July 2, 2022.
- Assess the durability of margin expansion and revenue growth, including pricing effects and demand across end markets.
- Monitor distributor and geographic concentration, especially the two large distributors and China exposure.
- Review inventory, receivables, and supply-chain conditions for potential working-capital or demand risks.
- Track debt repayments, revolving-credit availability, cash use for repurchases, and remaining program authorization.
- Follow developments in the lawsuit and uncertain tax positions; potential litigation exposure is unquantified by the company.