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Lattice Semiconductor Reports Second Quarter 2015 Results

Second Quarter 2015 Financial Highlights*:

* 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) — July 30, 2015 — Lattice Semiconductor Corporation (NASDAQ: LSCC), the global leader in smart connectivity solutions, announced financial results today for the fiscal second quarter ended July 4, 2015.

The Company reported record quarterly revenues on a GAAP basis of $106.5 million, which was up 20% sequentially, as compared to the first quarter 2015 revenue of $88.6 million, and was up 7%, as compared to the second quarter 2014 revenue of $99.3 million. Revenue for the second quarter 2015 was $109.4 million on a non-GAAP basis. Gross margin on a GAAP basis was 54.6% for the second quarter of 2015, as compared to first quarter 2015 gross margin of 54% and 55.4% for the second quarter of 2014. Gross margin for the second quarter 2015 was 56.9% on a non-GAAP basis. Total operating expenses for the second quarter 2015 were $63.2 million on a non-GAAP basis.

Financial results for the prior quarter included the financial results of Silicon Image only for the period subsequent to the closing of the acquisition of Silicon Image by the company on March 10, 2015.

Net loss for the second quarter on a GAAP basis was $35.6 million ($0.30 per basic and diluted share), with second quarter net loss on a non-GAAP basis of $8.6 million ($0.07 per basic and diluted share). GAAP results for the second quarter of 2015 reflect $4.1 million in restructuring costs, $3.3 million in acquisition related charges, a $4.1 million tax provision, $8.9 million in amortization of acquired intangible assets and $5.0 million in stock-based compensation expense. This compares to a net loss on a GAAP basis in the prior quarter of $53.3 million ($0.46 per basic and diluted share), and net income of $3.9 million ($0.03 per basic and diluted share) on a non-GAAP basis; and compares to net income on a GAAP basis in the year ago period of $11.8 million ($0.10 per basic and diluted share), or $17.6 million ($0.15 per basic and diluted share) on a non-GAAP basis. GAAP results for the first quarter of 2015 reflect $4.9 million in restructuring costs, $18.2 million in acquisition related charges, a $24.7 million tax provision, $2.9 million in amortization of acquired intangible assets and $3.4 million in stock-based compensation expense.

Darin G. Billerbeck, President and Chief Executive Officer, said, "Revenue in the second quarter 2015 was the highest for the Company in almost 15 years. While this was below our expectations for the quarter, we remain on track to achieve double-digit revenue growth for the full year 2015, consistent with the double digit growth rate we have delivered since diversifying into the consumer market a few years ago. Q2 was an anomaly as we were hit with a series of macro-related customer issues, which are not a reflection of our ongoing business or the many high potential growth opportunities we already have in place. While we expect headwinds in Q3 from lingering macro weakness worldwide, we are executing against a robust sales pipeline and remain focused on winning increased share in each of our end markets. Importantly, we continue to control the many variables under our power as we leverage our scale to drive non-GAAP operating income to our 20% target."

Joe Bedewi, Corporate Vice President and Chief Financial Officer, added, "We achieved our gross margin target as efficiencies in our cost structure more than offset pressure on our revenue. Total operating expenses were $63.2 million on a non-GAAP basis for the second quarter, which compares to our guidance of approximately $65.2 million plus or minus 2% on a non-GAAP basis. The sequential increase compared to Q1 was primarily due to the full quarter inclusion of our acquisition of Silicon Image. Restructuring and acquisition related charges, including amortization of acquired intangible assets, were $4.1 million and $12.2 million, respectively, for the second quarter. We have already achieved $33 million in synergies and are on track to meet our current synergies goal of $42 million. We are also adjusting our current and 2016 operating expense model to reflect the expected lower near-term revenue. These actions are consistent with our focus on driving free cash flow and actively reducing debt."

Recent Business Highlights

Business Outlook - Third Quarter and Full Year 2015:

Investor Conference Call / Webcast Details:

Lattice Semiconductor will review the Company's financial results for the second quarter of 2015 and business outlook for the third quarter and full year 2015 on Thursday, July 30, 2015 at 5:00 p.m. Eastern Time. The conference call-in number is 1-888-286-6281 or 1-706-643-3761 with conference identification number 86389650. A 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 August 13, 2015, by telephone at 1-404-537-3406. To access the replay, use conference identification number 86389650. 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. Such forward-looking statements include statements relating to: our expectation that we remain on track to achieve double-digit revenue growth for the full year 2015; that we will be able to leverage our scale to drive non-GAAP operating income to our 20% target; and those statements under the heading “Business Outlook - Third Quarter and Full Year 2015” relating to expected revenue, gross margin, total operating expenses, synergies and acquisition charges, including amortization of acquired intangible assets. Other forward-looking statements may be indicated by words such as “will,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology. 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 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, our results could vary due to our acquisition of Silicon Image. We have not had experience operating Silicon Image or projecting its operating results. The acquisition of another company carries inherent risks, including our discovering unknown liabilities or encountering unanticipated issues relating to integrating the business with ours. Any unanticipated declines in revenue or gross margin, any unanticipated increases in our operating expenses or unanticipated charges, including without limitation, restructuring charges, or issues with integrating Silicon Image, 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, and the other risks that are described in this press release and that are otherwise described from time to time in our filings with the Securities and Exchange Commission. 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 under GAAP. 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 measures provide a more meaningful representation of the Company’s ongoing financial performance than GAAP measures alone. 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) is the global leader in smart connectivity solutions, providing market leading intellectual property and low-power, small form-factor devices that enable more than 8,000 global customers to quickly deliver innovative and differentiated cost and power efficient products. The Company’s broad end-market exposure extends from consumer electronics to industrial equipment, communications infrastructure and licensing.

Lattice was founded in 1983 and is headquartered in Portland, Oregon. The Company acquired Silicon Image in March 2015, which is a leader in setting industry standards including the highly successful HDMI®, DVI™, MHL® and WirelessHD® standards.

For more information, visit www.latticesemi.com. You can also follow us via LinkedIn, Twitter, Facebook, 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 4,

 

April 4,

 

June 28,

July 4,

 

June 28,

2015

2015

2014

2015

2014

Revenue $ 106,460   $ 88,597   $ 99,320   $ 195,057   $ 195,957  
Costs and expenses:
Cost of sales 48,334 40,765 44,345 89,099 86,844
Research and development 39,552 27,642 22,302 67,194 43,541
Selling, general and administrative 28,189 21,088 18,832 49,277 37,581
Acquisition related charges 3,270 18,198 — 21,468 —
Restructuring 4,068 4,894 3 8,962 14
Amortization of acquired intangible assets 8,941   2,942   737   11,883   1,474  
132,354   115,529   86,219   247,883   169,454  
(Loss) income from operations (25,894 ) (26,932 ) 13,101 (52,826 ) 26,503
Interest expense (5,505 ) (1,611 ) — (7,116 ) (48 )
Other (expense) income, net (201 ) (154 ) 906   (355 ) 1,263  
(Loss) income before income taxes (31,600 ) (28,697 ) 14,007 (60,297 ) 27,718
Income tax expense 4,056   24,665   2,236   28,721   3,963  
Net (loss) income (35,656 ) (53,362 ) 11,771 (89,018 ) 23,755
Net loss attributable to non-controlling interest 86   15   —   101   —  
Net (loss) income attributable to common stockholders $ (35,570 ) $ (53,347 ) $ 11,771   $ (88,917 ) $ 23,755  
 
Net (loss) income per share:
Basic $ (0.30 ) $ (0.46 ) $ 0.10   $ (0.76 ) $ 0.20  
Diluted $ (0.30 ) $ (0.46 ) $ 0.10   $ (0.76 ) $ 0.20  
 
Shares used in per share calculations:
Basic 116,903   116,863   117,904   116,883   117,170  
Diluted 116,903   116,863   120,944   116,883   120,041  
 

Lattice Semiconductor Corporation

Consolidated Balance Sheets

(in thousands)

(unaudited)

 
 

July 4,

 

January 3,

2015

2015

Assets
Current assets:
Cash, cash equivalents and short-term marketable securities $ 138,135 $

254,844

 

Accounts receivable, net 76,873 62,372
Inventories 80,796 64,925
Other current assets 20,527   16,281  
Total current assets 316,331 398,422
 
Property and equipment, net 50,182 27,796
Other long-term assets 11,619 9,862
Intangible assets, net of amortization 189,449 9,537
Goodwill 270,083 44,808
Deferred income taxes 3,941   20,105  
$ 841,605   $ 510,530  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 90,903 $ 45,800
Current portion of long-term debt 242 —
Deferred income and allowances on sales to sell-through distributors and deferred license revenue 21,150   14,946  
Total current liabilities 112,295 60,746
 
Long-term debt 338,206 —
Other long-term liabilities 24,316   8,809  
Total liabilities 474,817 69,555
 
Redeemable non-controlling interest 7,366 —
 
Stockholders' equity 359,422   440,975  
$ 841,605   $ 510,530  
 

Lattice Semiconductor Corporation

- Supplemental Historical Financial Information -

(unaudited)

 
  Three Months Ended   Six Months Ended

July 4,

 

April 4,

 

June 28,

July 4,

 

June 28,

2015

2015

2014

2015

2014

Operations Information
Percent of Revenue
Gross Margin 54.6 % 54.0 % 55.4 % 54.3 % 55.7 %
R&D Expense 37.2 % 31.2 % 22.5 % 34.4 % 22.2 %
SG&A Expense 26.5 % 23.8 % 19.0 % 25.3 % 19.2 %
Depreciation and amortization (in thousands) 17,055 7,904 5,773 24,959 11,633
Capital expenditures (in thousands) 4,155 2,878 2,480 7,033 4,875
Stock-based compensation (in thousands) 4,979 3,384 3,320 8,363 6,410
Stock-based compensation included in acquisition related charges (in thousands) — 3,891 — 3,891 —
Restructuring and severance related charges (in thousands) 4,068 4,894 403 8,962 493
Severance costs included in acquisition related charges (in thousands) — 4,017 — 4,017 —
Taxes paid (cash, in thousands) 2,049 1,063 418 3,112 798
Balance Sheet Information
Current Ratio 2.8 2.9 5.4
A/R Days Revenue Outstanding 66 82 60
Inventory Months 5.0 5.9 4.0
Revenue% (by Geography)
Asia 78 % 70 % 74 % 75 % 75 %
Europe (incl. Africa) 13 % 19 % 16 % 15 % 15 %
Americas 9 % 11 % 10 % 10 % 10 %
Revenue% (by End Market) (1)
Communications 23 % 37 % 44 % 29 % 43 %
Consumer 37 % 22 % 26 % 30 % 28 %
Industrial 31 % 38 % 30 % 34 % 29 %
Licensing 9 % 3 % — % 7 % — %
Revenue% (by Channel)
Sell-through distribution 43 % 48 % 42 % 45 % 40 %
Direct 57 % 52 % 58 % 55 % 60 %
(1)   During the second quarter of fiscal 2014, the Company condensed its End Market categories. All periods presented have been revised accordingly.
 

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 4,

 

April 4,

 

June 28,

July 4,

 

June 28,

2015

2015

2014

2015

2014

 
GAAP Revenue $ 106,460 $ 88,597 $ 99,320 $ 195,057 $ 195,957
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 2,921   1,809   —   4,730     —  
Non-GAAP Revenue $ 109,381 $ 90,406 $ 99,320 $ 199,787 $ 195,957
 
GAAP Cost of Products Sold $ 48,334 $ 40,765 $ 44,345 $ 89,099 $ 86,844
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 805 644 — 1,449 —
Inventory Step-Up Expense (1,605 ) (3,041 ) — (4,646 ) —
Stock-Based Compensation - Gross Margin (398 ) (240 ) (211 ) (638 )   (376 )
Non-GAAP Cost of Products Sold $ 47,136 $ 38,128 $ 44,134 $ 85,264 $ 86,468
 
GAAP Gross Margin $ 58,126 $ 47,832 $ 54,975 $ 105,958 $ 109,113
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 2,116 1,165 — 3,281 —
Inventory Step-Up Expense 1,605 3,041 — 4,646 —
Stock-Based Compensation - Gross Margin 398   240   211   638     376  
Non-GAAP Gross Margin $ 62,245 $ 52,278 $ 55,186 $ 114,523 $ 109,489
Non-GAAP Gross Margin % 56.9% 57.8% 55.6% 57.3% 55.9%
 
GAAP Operating Expenses $ 84,020 $ 74,764 $ 41,874 $ 158,784 $ 82,610
Restructuring (4,068 ) (4,894 ) (3 ) (8,962 ) (14 )
Acquisition Related Charges (1) (3,270 ) (18,198 ) — (21,468 ) —
Amortization of Acquired Intangible Assets (8,941 ) (2,942 ) (737 ) (11,883 ) (1,474 )
Stock-Based Compensation - Operations (4,581 ) (3,144 ) (3,109 ) (7,725 )   (6,033 )
Non-GAAP Operating Expenses $ 63,160 $ 45,586 $ 38,025 $ 108,746 $ 75,089
 
GAAP (Loss) Income from Operations $ (25,894 ) $ (26,932 ) $ 13,101 $ (52,826 ) $ 26,503
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 2,116 1,165 — 3,281 —
Inventory Step-Up Expense 1,605 3,041 — 4,646 —
Stock-Based Compensation - Gross Margin 398 240 211 638 376
Restructuring 4,068 4,894 3 8,962 14
Acquisition Related Charges (1) 3,270 18,198 — 21,468 —
Amortization of Acquired Intangible Assets 8,941 2,942 737 11,883 1,474
Stock-Based Compensation - Operations 4,581   3,144   3,109   7,725     6,033  
Non-GAAP (Loss) Income from Operations $ (915 ) $ 6,692 $ 17,161 $ 5,777 $ 34,400
 

(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 4,

 

April 4,

 

June 28,

July 4,

 

June 28,

2015

2015

2014

2015

2014

 
GAAP (Loss) Income before Income Taxes $ (31,600 ) $ (28,697 ) $ 14,007 $ (60,297 ) $ 27,718
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 2,116 1,165 — 3,281 —
Inventory Step-Up Expense 1,605 3,041 — 4,646 —
Stock-Based Compensation - Gross Margin 398 240 211 638 376
Restructuring 4,068 4,894 3 8,962 14
Acquisition Related Charges (1) 3,270 18,198 — 21,468 —
Amortization of Acquired Intangible Assets 8,941 2,942 737 11,883 1,474
Stock-Based Compensation - Operations 4,581   3,144   3,109   7,725     6,033  
Non-GAAP (Loss) Income before Income Taxes $ (6,621 ) $ 4,927 $ 18,067 $ (1,694 ) $ 35,615
 
GAAP Income Tax Expense $ 4,056 $ 24,665 $ 2,236 $ 28,721 $ 3,963
Non-cash Income Tax Expense (2,007 ) (23,602 ) (1,818 ) (25,609 )   (3,165 )
Non-GAAP Income Tax Expense $ 2,049 $ 1,063 $ 418 $ 3,112 $ 798
 
GAAP Net (Loss) Income Attributable to Common Stockholders $ (35,570 ) $ (53,347 ) $ 11,771 $ (88,917 ) $ 23,755
Fair Value Adjustment To Deferred Revenue From Purchase Accounting 2,116 1,165 — 3,281 —
Inventory Step-Up Expense 1,605 3,041 — 4,646 —
Stock-Based Compensation - Gross Margin 398 240 211 638 376
Restructuring 4,068 4,894 3 8,962 14
Acquisition Related Charges (1) 3,270 18,198 — 21,468 —
Amortization of Acquired Intangible Assets 8,941 2,942 737 11,883 1,474
Stock-Based Compensation - Operations 4,581 3,144 3,109 7,725 6,033
Non-cash Income Tax Expense 2,007   23,602   1,818   25,609     3,165  
Non-GAAP Net (Loss) Income Attributable to Common Stockholders $ (8,584 ) $ 3,879 $ 17,649 $ (4,705 ) $ 34,817
 
GAAP Net (Loss) Income per Share - Basic $ (0.30 ) $ (0.46 ) $ 0.10 $ (0.76 ) $ 0.20
Cumulative Effect of Non-GAAP Adjustments 0.23   0.49   0.05   0.72   0.10  
Non-GAAP Net (Loss) Income per Share - Basic $ (0.07 ) $ 0.03 $ 0.15 $ (0.04 ) $ 0.30
 
GAAP Net (Loss) Income per Share - Diluted $ (0.30 ) $ (0.46 ) $ 0.10 $ (0.76 ) $ 0.20
Cumulative Effect of Non-GAAP Adjustments 0.23   0.49   0.05   0.72   0.09  
Non-GAAP Net (Loss) Income per Share - Diluted $ (0.07 ) $ 0.03 $ 0.15 $ (0.04 ) $ 0.29
 
Shares Used In Per Share Calculations:
Basic 116,903 116,863 117,904 116,883 117,170
Diluted - GAAP 116,903 116,863 120,944 116,883 120,041
Diluted - Non-GAAP 116,903 120,049 120,944 116,883 120,041

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


Contact:

Lattice Semiconductor Corporation
Joe Bedewi, 503-268-8000
Chief Financial Officer
or
Global IR Partners
David Pasquale, 914-337-8801
Email Contact