Lattice Semiconductor Reports Third Quarter 2017 Results

Estimates of future revenue are inherently uncertain due to, among other things, the high percentage of quarterly “turns” business. In addition, revenue is affected by such factors as global economic conditions, which may affect customer demand, pricing pressures, competitive actions, the demand for our Mature, Mainstream and New products, and in particular our iCE40™ and MachXO3L™ devices, the ability to supply products to customers in a timely manner, changes in our distribution relationships, or the volatility of our consumer business. Actual gross margin percentage and operating expenses could vary from the estimates on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly, test and other costs, including commodity costs, variations in manufacturing yields, the failure to sustain operational improvements, the actual amount of compensation charges due to stock price changes. Any unanticipated declines in revenue or gross margin, any unanticipated increases in our operating expenses or unanticipated charges could adversely affect our profitability.

In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements in this press release include global economic uncertainty, overall semiconductor market conditions, market acceptance and demand for our new products, the Company's dependencies on its silicon wafer suppliers, the impact of competitive products and pricing, technological and product development risks, the failure to achieve the anticipated benefits and synergies of the Silicon Image transaction. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those risks more fully described in Lattice’s filings with the SEC including its annual report on Form 10-K for the fiscal year ended December 31, 2016, and Lattice’s quarterly reports filed on Form 10-Q.

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, impairment of intangible assets, purchase accounting adjustments, gain on sale of building, gain or loss on sale of business unit, and the estimated tax effect of these items. These charges and adjustments may be 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 in calculating the annual excess cash flow debt payment. 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 Corporation:

Lattice Semiconductor Corporation (NASDAQ:LSCC) is a leader in smart connectivity solutions at the network edge, where the “things” of IoT live. Our low power FPGA, 60 GHz millimeter wave, video ASSP and IP products deliver edge intelligence, edge connectivity, and control solutions to the consumer, communications, industrial, compute, and automotive markets. Our unwavering commitment to our global customers enables them to accelerate their innovation, creating an ever better and more connected world.

For more information about Lattice please visit  www.latticesemi.com

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   Nine Months Ended
   

September 30,
2017

 

July 1,
2017

 

October 1,
2016

 

September 30,
2017

 

October 1,
2016

Revenue   $ 91,971     $ 94,137     $ 113,225     $ 290,695     $ 308,946  
Costs and expenses:                    
Cost of sales   38,649     42,928     45,801     125,332     125,992  
Research and development   25,648     26,820     27,747     79,857     91,270  
Selling, general, and administrative   21,290     21,938     29,244     67,133     75,857  
Amortization of acquired intangible assets   8,526     8,737     8,260     25,777     25,292  
Restructuring   3,071     1,576     317     4,713     8,316  
Acquisition related charges   681     867         3,208     94  
Impairment of acquired intangible assets   36,198         7,866     36,198     7,866  
Gain on sale of building   (4,624 )           (4,624 )    
    129,439     102,866     119,235     337,594     334,687  
Loss from operations   (37,468 )   (8,729 )   (6,010 )   (46,899 )   (25,741 )
Interest expense   (3,888 )   (4,656 )   (5,235 )   (14,112 )   (15,257 )
Other (expense) income, net   (1,828 )   564     209     (1,412 )   3,558  
Loss before income taxes and equity in net loss of an unconsolidated affiliate   (43,184 )   (12,821 )   (11,036 )   (62,423 )   (37,440 )
Income tax (benefit) expense   (331 )   47     971     234     7,410  
Equity in net loss of an unconsolidated affiliate, net of tax   (199 )   (154 )   (407 )   (692 )   (1,085 )
Net loss   $ (43,052 )   $ (13,022 )   $ (12,414 )   $ (63,349 )   $ (45,935 )
                     
Net loss per share, basic and diluted   $ (0.35 )   $ (0.11 )   $ (0.10 )   $ (0.52 )   $ (0.38 )
                     
Shares used in per share calculations, basic and diluted   122,990     122,390     120,584     122,393     119,596  
                               
 
Lattice Semiconductor Corporation
Consolidated Balance Sheets
(in thousands)
(unaudited)
 
   

September 30,
2017

 

December 31,
2016

Assets        
Current assets:        
Cash, cash equivalents and short-term marketable securities   $ 107,977     $ 116,860
Accounts receivable, net   79,030     99,637
Inventories   77,482     79,168
Other current assets   19,913     19,035
Total current assets   284,402     314,700
         
Property and equipment, net   43,236     49,481
Intangible assets, net of amortization   52,966     118,863
Goodwill   267,514     269,758
Deferred income taxes   242     372
Other long-term assets   13,137     13,709
    $ 661,497     $ 766,883
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable and other accrued liabilities   $ 70,542     $ 90,798
Current portion of long-term debt   22,243     33,767
Deferred income and allowances on sales to sell-through distributors and deferred license revenue   36,197     32,985
Total current liabilities   128,982     157,550
         
Long-term debt   280,381     300,855
Other long-term liabilities   33,842     38,048
Total liabilities   443,205     496,453
         
Stockholders' equity   218,292     270,430
    $ 661,497     $ 766,883
               
 
Lattice Semiconductor Corporation
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
   

Nine Months Ended

   

September 30,
2017

 

October 1,
2016

Cash flows from operating activities:        
Net loss   $ (63,349 )   $ (45,935 )
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization   45,591     47,908  
Impairment of acquired intangible assets   36,198     7,866  
Amortization of debt issuance costs and discount   1,680     1,212  
Loss on sale or maturity of marketable securities   237     72  
Gain on forward contracts   (72 )    
Stock-based compensation expense   9,286     12,107  
(Gain) loss on disposal of fixed assets   (197 )   263  
Gain on sale of building   (4,624 )    
Loss (gain) on sale of business unit   1,496     (2,646 )
Equity in net loss of an unconsolidated affiliate, net of tax   692     1,085  
Changes in assets and liabilities:        
Accounts receivable, net   20,687     (5,728 )
Inventories   1,519     (4,644 )
Prepaid expenses and other assets   3,839     (2,227 )
Accounts payable and accrued expenses (includes restructuring)   (17,901 )   6,295  
Accrued payroll obligations   (2,002 )   (454 )
Income taxes payable   (711 )   1,335  
Deferred income and allowances on sales to sell-through distributors   3,862     3,067  
Deferred licensing and services revenue   (485 )   (258 )
Net cash provided by operating activities   35,746     19,318  
Cash flows from investing activities:        
Proceeds from sales of and maturities of short-term marketable securities   9,689     11,977  
Purchases of marketable securities   (7,420 )   (5,961 )
Proceeds from sale of building   7,895      
Cash paid for costs of sale of building   (1,004 )    
Capital expenditures   (12,325 )   (13,991 )
Proceeds from sale of business unit, net of cash sold   967     1,972  
Cash paid for a non-marketable equity method investment   (2,000 )   (1,000 )
Cash paid for software licenses   (6,472 )   (7,370 )
Net cash used in investing activities   (10,670 )   (14,373 )
Cash flows from financing activities:        
Restricted stock unit withholdings   (2,787 )   (2,883 )
Proceeds from issuance of common stock   3,452     5,353  
Repayment of debt   (33,679 )   (4,279 )
Net cash used in financing activities   (33,014 )   (1,809 )
         
 
Lattice Semiconductor Corporation
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
 
   

Nine Months Ended

   

September 30,
2017

 

October 1,
2016

Effect of exchange rate change on cash   1,381     (579 )
Net (decrease) increase in cash and cash equivalents   (6,557 )   2,557  
Beginning cash and cash equivalents   106,552     84,606  
Ending cash and cash equivalents   $ 99,995     $ 87,163  
         
Supplemental cash flow information:        
Change in unrealized loss related to marketable securities, net of tax, included in Accumulated other comprehensive loss   $ 72     $ 50  
Income taxes paid, net of refunds   $ 2,308     $ 7,250  
Interest paid   $ 16,379     $ 13,849  
Accrued purchases of plant and equipment   $ 51     $ 1,678  
Note receivable resulting from sale of business unit   $ 3,050     $  
                 
 
Lattice Semiconductor Corporation
- Supplemental Historical Financial Information -
(unaudited)
 
    Three Months Ended   Nine Months Ended
   

September 30,
2017

 

July 1,
2017

 

October 1,
2016

 

September 30,
2017

 

October 1,
2016

Operations and Cash Flow Information                    
Percent of Revenue                    
Gross Margin   58.0 %   54.4 %   59.5 %   56.9 %   59.2 %
R&D Expense   27.9 %   28.5 %   24.5 %   27.5 %   29.5 %
SG&A Expense   23.1 %   23.3 %   25.8 %   23.1 %   24.6 %
Depreciation and amortization (in thousands)   15,094     15,201     15,556     45,591     47,908  
Stock-based compensation expense (in thousands)   2,514     2,929     4,309     9,286     12,107  
Restructuring and severance related charges (in thousands)   3,071     1,576     317     4,713     8,316  
Net cash provided by (used in) operating activities (thousands)   24,232     3,849     (13,339 )   35,746     19,318  
Capital expenditures (in thousands)   5,290     3,661     3,889     12,325     13,991  
Repayment of debt (in thousands)       22,899     875     33,679     4,279  
Interest paid (in thousands)   4,285     7,069     4,585     16,379     13,849  
Taxes paid (cash, in thousands)   1,332     754     2,386     2,308     7,250  
                     
Balance Sheet Information                    
Current Ratio   2.2     2.3     2.2          
A/R Days Revenue Outstanding   78     84     76          
Inventory Months   6.0     5.5     5.3          
                     
Revenue% (by Geography)                    
Asia   75 %   69 %   74 %   71 %   70 %
Europe (incl. Africa)   12 %   11 %   12 %   11 %   14 %
Americas   13 %   20 %   14 %   18 %   16 %
                     
Revenue% (by End Market)                    
Communications and Computing   30 %   29 %   27 %   29 %   30 %
Mobile and Consumer   28 %   27 %   31 %   29 %   27 %
Industrial and Automotive   37 %   32 %   33 %   33 %   34 %
Licensing and Services   5 %   12 %   9 %   9 %   9 %
                     
Revenue% (by Channel)                    
Sell-through distribution   68 %   66 %   62 %   65 %   58 %
Direct   32 %   34 %   38 %   35 %   42 %
                               

 

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