Lattice Semiconductor Reports Third Quarter 2017 Results
[ Back ]   [ More News ]   [ Home ]
Lattice Semiconductor Reports Third Quarter 2017 Results

* GAAP represents U.S. Generally Accepted Accounting Principles. Non-GAAP represents GAAP excluding the impact of certain activities which the Company's management excludes in analyzing the Company's operating results and in understanding trends in the Company's earnings. For a reconciliation of GAAP to non-GAAP results, see accompanying tables "Reconciliation of U.S. GAAP to Non-GAAP Financial Measures."

PORTLAND, Ore.--(BUSINESS WIRE)--Nov. 7, 2017-- Lattice Semiconductor Corporation (NASDAQ:LSCC), the leading provider of customizable smart connectivity solutions, announced financial results today for the fiscal third quarter ended September 30, 2017.

The Company reported revenue for the third quarter of 2017 of $92.0 million, which decreased 2.3% sequentially, as compared to the second quarter 2017 revenue of $94.1 million, and decreased 18.8%, as compared to the third quarter 2016 revenue of $113.2 million.

Gross margin on a GAAP basis was 58.0% for the third quarter of 2017, as compared to the second quarter of 2017 gross margin of 54.4% and 59.5% for the third quarter of 2016. Gross margin for the third quarter of 2017 was 58.1% on a non-GAAP basis, as compared to 54.6% for the second quarter of 2017 and 59.8% for the third quarter of 2016.

Total operating expenses for the third quarter of 2017 were $90.8 million on a GAAP basis, including an intangible asset impairment charge of $36.2 million, as compared to $59.9 million for the second quarter of 2017 and $73.4 million for the third quarter of 2016. Total operating expenses were $44.6 million for the third quarter of 2017 on a non-GAAP basis, as compared to $46.0 million for the second quarter of 2017, and $52.9 million for the third quarter of 2016.

GAAP net loss for the third quarter of 2017 was $43.1 million ($0.35 per basic and diluted share), as compared to a net loss on a GAAP basis in the prior quarter of $13.0 million ($0.11 per basic and diluted share), and a net loss on a GAAP basis in the year ago period of $12.4 million ($0.10 per basic and diluted share). Non-GAAP net income for the third quarter of 2017 was $5.3 million ($0.04 per basic and diluted share), as compared to $0.1 million ($0.00 per basic and diluted share) in the prior quarter, and $5.9 million ($0.05 per basic and diluted share) in the year ago period. For a reconciliation of U.S. GAAP to Non-GAAP please see the table titled, “Reconciliation of U.S. GAAP to Non-GAAP Financial Measures” provided as part of this press release.

Darin G. Billerbeck, President and Chief Executive Officer, said, "Product revenue increased in our three core markets in the third quarter of 2017 as compared to the second quarter of 2017. Our core business continues to grow while we invest in new solutions for opportunities at the edge of the cloud -- opportunities that perfectly align to Lattice's technology and strategy. While our IP and services were down, growth in our silicon revenue offset a majority of this decline. We expect to exit the year leveraging our core business stability and new design wins to take advantage of the significant growth opportunities in front of us. We will continue to execute on our plan to drive OpEx lower as we focus on generating higher free cash flow to pay down our debt and invest into areas of strength."

Max Downing, Chief Financial Officer, added, "We are seeing positive results from the decisive actions we took to reduce operating expenses and to maximize profitability. In-line with our plan, we completed the sale of our Shanghai building in the quarter, which resulted in a gain on the sale of $4.6 million. We also took an intangible asset impairment charge of $36.2 million related to our previously announced strategic decision to cease future investment in wired application specific standard product development as we concentrate our resources on higher potential growth opportunities. In addition to the headcount and spin-out actions, we have a number of other cost structure improvements that are well underway and expected to benefit us in 2018, putting us on track to deliver additional improved financial results. We ended the third quarter of 2017 with approximately $108 million in cash and investments, up meaningfully from approximately $85 million in the second quarter of 2017."

Recent Business Highlights

Business Outlook - Fourth Quarter 2017*:

* For a reconciliation of GAAP to non-GAAP business outlook, see accompanying tables "Reconciliation of U.S. GAAP to Non-GAAP Financial Measures."

Investor Conference Call / Webcast Details:

Lattice Semiconductor will review the Company's financial results for the third quarter of 2017 and business outlook for the fourth quarter of 2017 on Tuesday, November 7 at 5:00 p.m. Eastern Time. The conference call-in number is 1-888-684-5603 or 1-918-398-4852 with conference identification number 51993386. An accompanying presentation and live webcast of the conference call will also be available on Lattice's website at  www.latticesemi.com. The Company's financial guidance will be limited to the comments on its public quarterly earnings call and the public business outlook statements contained in this press release.

A replay of the call will be available approximately 2 hours after the conclusion of the live call through 11:59 p.m. Eastern Time on November 21, 2017, by telephone at 1-404-537-3406. To access the replay, use conference identification number 5199386. A webcast replay will also be available on the investor relations section of  www.latticesemi.com.

Forward-Looking Statements Notice:

The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Such forward-looking statements include statements relating to: our expectation that we will deliver new solutions for opportunities at the edge of the cloud that will perfectly align to Lattice's technology and strategy; that we will exit the year leveraging our core business stability and new design wins to take advantage of the significant growth opportunities in front of us; that we will continue to execute on our plan to drive OpEx lower as we focus on generating higher free cash flow to pay down our debt and invest into areas of strength; that we have a number of other cost savings actions that are well underway and expect them to benefit us in 2018, putting us on track to deliver improved financial results; and the statements under the heading “Business Outlook-Fourth Quarter 2017.” Other forward-looking statements may be indicated by words such as “will,” “could,” “should,” “would,” “may,” “expect,” “plan,” “project,” “anticipate,” “intend,” “forecast,” “future,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology; and our expectation that we will remain focused on maximizing the leverage of our operating model and reduce our outstanding debt balance. Lattice believes the factors identified below could cause actual results to differ materially from the forward-looking statements.

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 %
                               

 

 

Lattice Semiconductor Corporation

- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -

(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
                     
Gross Margin Reconciliation    
GAAP Gross margin   $ 53,322     $ 51,209     $ 67,424     $ 165,363     $ 182,954  
Inventory step-up expense                   523  
Stock-based compensation - gross margin   154     180     231     562     656  
Non-GAAP Gross margin   $ 53,476     $ 51,389     $ 67,655     $ 165,925     $ 184,133  
     
Gross Margin % Reconciliation    
GAAP Gross margin %   58.0 %   54.4 %   59.5 %   56.9 %   59.2 %
Cumulative effect of non-GAAP Gross Margin adjustments   0.1 %   0.2 %   0.3 %   0.2 %   0.4 %
Non-GAAP Gross margin %   58.1 %   54.6 %   59.8 %   57.1 %   59.6 %
     
Operating Expenses Reconciliation    
GAAP Operating expenses   $ 90,790     $ 59,938     $ 73,434     $ 212,262     $ 208,695  
Amortization of acquired intangible assets   (8,526 )   (8,737 )   (8,260 )   (25,777 )   (25,292 )
Restructuring charges   (3,071 )   (1,576 )   (317 )   (4,713 )   (8,316 )
Acquisition related charges (1)   (681 )   (867 )       (3,208 )   (94 )
Impairment of acquired intangible assets   (36,198 )       (7,866 )   (36,198 )   (7,866 )
Stock-based compensation - operations   (2,360 )   (2,749 )   (4,078 )   (8,724 )   (11,451 )
Gain on sale of building   4,624             4,624      
Non-GAAP Operating expenses   $ 44,578     $ 46,009     $ 52,913     $ 138,266     $ 155,676  
     
(1) Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.
 

Lattice Semiconductor Corporation

- Reconciliation of U.S. GAAP to Non-GAAP Financial Measures -

(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
                     
Income (Loss) from Operations Reconciliation    
GAAP Loss from operations   $ (37,468 )   $ (8,729 )   $ (6,010 )   $ (46,899 )   $ (25,741 )
Inventory step-up expense                   523  
Stock-based compensation - gross margin   154     180     231     562     656  
Amortization of acquired intangible assets   8,526     8,737     8,260     25,777     25,292  
Restructuring charges   3,071     1,576     317     4,713     8,316  
Acquisition related charges (1)   681     867         3,208     94  
Impairment of acquired intangible assets   36,198         7,866     36,198     7,866  
Stock-based compensation - operations   2,360     2,749     4,078     8,724     11,451  
Gain on sale of building   (4,624 )           (4,624 )    
Non-GAAP Income from operations   $ 8,898     $ 5,380     $ 14,742     $ 27,659     $ 28,457  
     

Income (Loss) from Operations % Reconciliation

   
GAAP Loss from operations %   (40.7 )%   (9.3 )%   (5.3 )%   (16.1 )%   (8.3 )%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments   50.4 %   15.0 %   18.3 %   25.6 %   17.5 %
Non-GAAP Income from operations %   9.7 %   5.7 %   13.0 %   9.5 %   9.2 %
     
Other (Expense) Income, Net Reconciliation    
GAAP Other (expense) income, net   $ (1,828 )   $ 564     $ 209     $ (1,412 )   $ 3,558  
Loss (gain) on sale of business unit   1,796     (300 )       1,496     (2,646 )
Non-GAAP Other (expense) income, net   $ (32 )   $ 264     $ 209     $ 84     $ 912  
     
Income Tax (Benefit) Expense Reconciliation    
GAAP Income tax (benefit) expense   $ (331 )   $ 47     $ 971     $ 234     $ 7,410  
Estimated tax effect of non-GAAP adjustments (2)   (218 )   663     2,389     142     438  
Non-GAAP Income tax (benefit) expense   $ (549 )   $ 710     $ 3,360     $ 376     $ 7,848  
     
(1) Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.

(2) We calculate 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.”

 

Contact:

Global IR Partners
David Pasquale 
914-337-8801

Email Contact