Lattice Semiconductor Reports Second Quarter 2016 Results

You should not unduly rely on forward-looking statements because actual results could differ materially from those expressed in any forward-looking statements. In addition, any forward-looking statement applies only as of the date on which it is made. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures:

Included within this press release and the accompanying tables and notes are non-GAAP financial measures that supplement the Company's consolidated financial information prepared in accordance with U.S. GAAP. The non-GAAP measures presented exclude charges and adjustments primarily related to stock-based compensation, restructuring charges, acquisition-related charges, amortization of acquired intangible assets, purchase accounting adjustments, and the estimated tax effect of these items. These charges and adjustments may or may not be infrequent or nonrecurring in nature but are a result of periodic or non-core operating activities of the Company. The Company describes these non-GAAP financial measures and reconciles them to the most directly comparable GAAP measures in the tables and notes attached to this press release.

The Company's management believes that these non-GAAP financial measures provide an additional and useful way of viewing aspects of our performance that, when viewed in conjunction with our GAAP results, provide a more comprehensive understanding of the various factors and trends affecting our ongoing financial performance and operating results than GAAP measures alone. In particular, investors may find the non-GAAP measures useful in reviewing our operating performance without the significant accounting charges resulting from the Silicon Image acquisition, alongside the comparably adjusted prior year results. Management also uses these non-GAAP measures for strategic and business decision-making, internal budgeting, forecasting, and resource allocation processes and believes that investors should have access to similar data when making their investment decisions.

In addition, the Company uses Adjusted EBITDA to measure compliance with certain of its debt covenants. These non-GAAP measures are included solely for informational and comparative purposes and are not meant as a substitute for GAAP and should be considered together with the consolidated financial information located in the tables attached to this press release.

About Lattice Semiconductor:

Lattice Semiconductor (NASDAQ: LSCC) provides smart connectivity solutions powered by our low power FPGA, video ASSP, 60 GHz millimeter wave, and IP products to the consumer, communications, industrial, computing, and automotive markets worldwide. Our unwavering commitment to our customers enables them to accelerate their innovation, creating an ever better and more connected world.

For more information, visit www.latticesemi.com. You can also follow us via LinkedIn, Twitter, Facebook, YouTube or RSS.

Lattice Semiconductor Corporation, Lattice (& design), L (& design), iCE40 and MachXO3L, and specific product designations are either registered trademarks or trademarks of Lattice Semiconductor Corporation or its subsidiaries in the United States and/or other countries.

GENERAL NOTICE: Other product names used in this publication are for identification purposes only and may be trademarks of their respective holders.

   
Lattice Semiconductor Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
Three Months Ended Six Months Ended
July 2,
2016
  April 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
Revenue $ 99,209   $ 96,512   $ 106,460   $ 195,721   $ 195,057  
Costs and expenses:
Cost of sales 40,783 39,408 48,334 80,191 89,099
Research and development 30,915 32,608 39,552 63,523 67,194
Selling, general and administrative 23,005 23,608 28,189 46,613 49,277
Amortization of acquired intangible assets 8,311 8,721 8,941 17,032 11,883
Restructuring charges 2,568 5,431 4,068 7,999 8,962
Acquisition related charges   94   3,270   94   21,468  
105,582   109,870   132,354   215,452   247,883  
Loss from operations (6,373 ) (13,358 ) (25,894 ) (19,731 ) (52,826 )
Interest expense (5,062 ) (4,960 ) (5,505 ) (10,022 ) (7,116 )
Other income (expense), net 2,532   817   (115 ) 3,349   (254 )
Loss before income taxes and equity in net loss of an unconsolidated affiliate (8,903 ) (17,501 ) (31,514 ) (26,404 ) (60,196 )
Income tax expense 4,539 1,900 4,056 6,439 28,721
Equity in net loss of an unconsolidated affiliate, net of tax (368 ) (310 )   (678 )  
Net loss $ (13,810 ) $ (19,711 ) $ (35,570 ) $ (33,521 ) $ (88,917 )
 
 
Net loss per share, basic and diluted $ (0.12 ) $ (0.17 ) $ (0.30 ) $ (0.28 ) $ (0.76 )
 
Shares used in per share calculations, basic and diluted 119,445   118,833   116,903   119,125   116,883  
 
   
Lattice Semiconductor Corporation
Consolidated Balance Sheets
(in thousands)
(unaudited)
 
July 2,
2016
January 2,
2016
Assets
Current assets:
Cash, cash equivalents and short-term marketable securities $ 119,345 $ 102,574
Accounts receivable, net 84,694 88,471
Inventories 86,743 75,896
Other current assets 16,784   18,922
Total current assets 307,566 285,863
 
Property and equipment, net 52,072 51,852
Intangible assets, net of amortization 143,644 162,583
Goodwill 269,766 267,549
Deferred income taxes 473 578
Other long-term assets 16,011   17,495
$ 789,532   $ 785,920
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 103,640 $ 83,761
Current portion of long-term debt 20,530 7,557

Deferred income and allowances on sales to sell-through distributors and deferred
licensing and services revenue

28,815   19,859
Total current liabilities 152,985 111,177
 
Long-term debt 315,152 330,870
Other long-term liabilities 39,988   38,353
Total liabilities 508,125 480,400
 
Stockholders' equity 281,407   305,520
$ 789,532   $ 785,920
 
   
Lattice Semiconductor Corporation
- Supplemental Historical Financial Information -
(unaudited)
 
Three Months Ended Six Months Ended
July 2,
2016
  April 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
Operations Information
Percent of Revenue
Gross Margin 58.9 % 59.2 % 54.6 % 59.0 % 54.3 %
R&D Expense 31.2 % 33.8 % 37.2 % 32.5 % 34.4 %
SG&A Expense 23.2 % 24.5 % 26.5 % 23.8 % 25.3 %
Depreciation and amortization (in thousands) 15,021 17,331 17,459 32,352 25,363
Capital expenditures (in thousands) 4,402 5,700 4,154 10,102 7,032
Stock-based compensation (in thousands) 3,242 4,556 4,979 7,798 8,363
Restructuring and severance related charges (in thousands) 2,568 5,431 4,068 7,999 8,962
Taxes paid (cash, in thousands) 2,368 2,496 2,049 4,864 3,112
 
 
Balance Sheet Information
Current Ratio 2.0 2.4 2.8
A/R Days Revenue Outstanding 78 80 66
Inventory Months 6.4 6.3 5.0
 
 
Revenue% (by Geography)
Asia 68 % 68 % 78 % 68 % 75 %
Europe (incl. Africa) 15 % 17 % 13 % 16 % 15 %
Americas 17 % 15 % 9 % 16 % 10 %
 
 
Revenue% (by End Market) (1)
Communications and Computing 29 % 34 % 31 % 31 % 37 %
Mobile and Consumer 24 % 26 % 37 % 25 % 30 %
Industrial and Automotive 37 % 31 % 23 % 35 % 26 %
Licensing and Services 10 % 9 % 9 % 9 % 7 %
 
 
Revenue% (by Channel)
Sell-through distribution 59 % 53 % 43 % 56 % 45 %
Direct 41 % 47 % 57 % 44 % 55 %
 

(1) During the first quarter of fiscal 2016, the Company realigned its End Market categories; prior periods have been reclassified to match current period presentation.

 
 
Lattice Semiconductor Corporation
- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -
(in thousands, except per share data)
(unaudited)
                   
Three Months Ended Six Months Ended
July 2,
2016
  April 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
 
GAAP Revenue $ 99,209 $ 96,512 $ 106,460 $ 195,721 $ 195,057
Fair value adjustment to deferred revenue from purchase accounting     2,921       4,730  
Non-GAAP Revenue $ 99,209 $ 96,512 $ 109,381 $ 195,721 $ 199,787
 
 
GAAP Gross margin $ 58,426 $ 57,104 $ 58,126 $ 115,530 $ 105,958
Fair value adjustment to deferred revenue from purchase accounting 2,116 3,281
Inventory step-up expense 523 1,605 523 4,646
Stock-based compensation - gross margin 166   259   398   425     638  
Non-GAAP Gross margin $ 58,592 $ 57,886 $ 62,245 $ 116,478 $ 114,523
 
 
GAAP Gross margin % 58.9 % 59.2 % 54.6 % 59.0 % 54.3 %
Cumulative effect of non-GAAP Gross Margin adjustments 0.2 % 0.8 % 2.3 % 0.5 % 3.0 %
Non-GAAP Gross margin % 59.1 % 60.0 % 56.9 % 59.5 % 57.3 %
 
 
GAAP Operating expenses $ 64,799 $ 70,462 $ 84,020 $ 135,261 $ 158,784
Amortization of acquired intangible assets (8,311 ) (8,721 ) (8,941 ) (17,032 ) (11,883 )
Restructuring charges (2,568 ) (5,431 ) (4,068 ) (7,999 ) (8,962 )
Acquisition related charges (1) (94 ) (3,270 ) (94 ) (21,468 )
Stock-based compensation - operations (3,076 ) (4,297 ) (4,581 ) (7,373 )   (7,725 )
Non-GAAP Operating expenses $ 50,844 $ 51,919 $ 63,160 $ 102,763 $ 108,746
 
 
(1) Includes stock-based compensation and severance costs related to change in control.
 
 
Lattice Semiconductor Corporation
- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -
(in thousands, except per share data)
(unaudited)
                   
Three Months Ended Six Months Ended
July 2,
2016
  April 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
 
GAAP Loss from operations $ (6,373 ) $ (13,358 ) $ (25,894 ) $ (19,731 ) $ (52,826 )
Fair value adjustment to deferred revenue from purchase accounting 2,116 3,281
Inventory step-up expense 523 1,605 523 4,646
Stock-based compensation - gross margin 166 259 398 425 638
Amortization of acquired intangible assets 8,311 8,721 8,941 17,032 11,883
Restructuring charges 2,568 5,431 4,068 7,999 8,962
Acquisition related charges (1) 94 3,270 94 21,468
Stock-based compensation - operations 3,076   4,297   4,581   7,373     7,725  
Non-GAAP Income (loss) from operations $ 7,748 $ 5,967 $ (915 ) $ 13,715 $ 5,777
 
 
GAAP Loss from operations % (6.4 )% (13.8 )% (24.3 )% (10.1 )% (27.1 )%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments 14.2 % 20.0 % 23.5 % 17.1 % 30.0 %
Non-GAAP Income (loss) from operations % 7.8 % 6.2 % (0.8 )% 7.0 % 2.9 %
 
 
GAAP Income tax expense $ 4,539 $ 1,900 $ 4,056 $ 6,439 $ 28,721
Estimated tax effect of non-GAAP adjustments (2) (2,499 ) 548   1,326   (1,951 )   (22,123 )
Non-GAAP Income tax expense $ 2,040 $ 2,448 $ 5,382 $ 4,488 $ 6,598
 
 

(1)

Includes stock-based compensation and severance costs related to change in control.

(2)

During the second quarter of fiscal 2016, we refined our calculation of non-GAAP tax expense by applying our tax provision model to year-to-date and projected income after adjusting for non-GAAP items. The difference between calculated values for GAAP and non-GAAP tax expense has been included as the “Estimated tax effect of non-GAAP adjustments.” Prior periods have been similarly recalculated to conform to the current presentation.

 

 
- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -
(in thousands, except per share data)
(unaudited)
                   
Three Months Ended Six Months Ended
July 2,
2016
  April 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
 
GAAP Net Loss $ (13,810 ) $ (19,711 ) $ (35,570 ) $ (33,521 ) $ (88,917 )
Fair value adjustment to deferred revenue from purchase accounting 2,116 3,281
Inventory step-up expense 523 1,605 523 4,646
Stock-based compensation - gross margin 166 259 398 425 638
Amortization of acquired intangible assets 8,311 8,721 8,941 17,032 11,883
Restructuring charges 2,568 5,431 4,068 7,999 8,962
Acquisition related charges (1) 94 3,270 94 21,468
Stock-based compensation - operations 3,076 4,297 4,581 7,373 7,725
Gain on sale of Qterics (2,646 ) (2,646 )
Estimated tax effect of non-GAAP adjustments (2) 2,499   (548 ) (1,326 ) 1,951     22,123  
Non-GAAP Net income (loss) $ 164 $ (934 ) $ (11,917 ) $ (770 ) $ (8,191 )
 
 
GAAP Net loss per share - basic and diluted $ (0.12 ) $ (0.17 ) $ (0.30 ) $ (0.28 ) $ (0.76 )
Cumulative effect of Non-GAAP adjustments 0.12   0.16   0.20   0.27   0.69  
Non-GAAP Net income (loss) per share - basic and diluted $ 0.00 $ (0.01 ) $ (0.10 ) $ (0.01 ) $ (0.07 )
 
 
Shares used in per share calculations:
Basic 119,445 118,833 116,903 119,125 116,883
Diluted - GAAP (3) 119,445 118,833 116,903 119,125 116,883
Diluted - Non-GAAP (3) 120,871 118,833 116,903 119,125 116,883
 
 

(1)

Includes stock-based compensation and severance costs related to change in control.

(2)

During the second quarter of fiscal 2016, we refined our calculation of non-GAAP tax expense by applying our tax provision model to year-to-date and projected income after adjusting for non-GAAP items. The difference between calculated values for GAAP and non-GAAP tax expense has been included as the “Estimated tax effect of non-GAAP adjustments.” Prior periods have been similarly recalculated to conform to the current presentation.

(3)

Diluted shares are calculated using the GAAP treasury stock. In a loss position, diluted shares equal basic shares.

 
 
Lattice Semiconductor Corporation
- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -
(in thousands, except per share data)
(unaudited)
           
Three Months Ended
October 29, 2016
   
Business Outlook - Third Quarter 2016 Low Midpoint High
 
GAAP & Non-GAAP Revenue $ 110,000 $ 113,000 $ 116,000
 
 
GAAP & Non-GAAP Gross margin % 50.0 % 52.0 % 54.0 %
 
 
GAAP Operating expenses $ 56,700 $ 57,900 $ 59,100
Amortization of acquired intangible assets (8,200 ) (8,300 ) (8,400 )
Restructuring charges (500 ) (600 ) (700 )
Stock-based compensation - operations (3,900 ) (4,000 ) (4,100 )
Non-GAAP Operating expenses $ 44,100 $ 45,000 $ 45,900
 

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