UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number
LATTICE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
| Number of shares of common stock outstanding as of October 24, 2023 |
LATTICE SEMICONDUCTOR CORPORATION
QUARTERLY REPORT ON FORM 10-Q
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| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
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Consolidated Balance Sheets – September 30, 2023 and December 31, 2022 (unaudited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| PART II. |
OTHER INFORMATION |
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| Item 1. |
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| Item 1A. | Risk Factors | 26 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| Item 5. | Other Information | 27 |
| Item 6. |
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Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains 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. We use words or phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” "possible," “predict,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,” “future,” “potential,” and similar words or phrases to identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements about: our target or expected financial performance and our ability to achieve those results; future impacts of the ongoing military conflicts between Ukraine and Russia, and in the Middle East, and the outbreak of new, or expansion of current, military conflicts or terrorism; the impact of any continuing trade or travel restrictions on the export and import of products between the U.S. and China; the impact of any deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia; the impact of tariffs, trade sanctions, license requirements or similar actions on our suppliers and customers; the impact of inflationary pressures; future impacts of global pandemics, epidemics, and other public health problems; our business strategy; our opportunities to increase our addressable market; our expectations and strategies regarding market trends and opportunities, including market segment drivers such as wireless and wireline communications infrastructure deployments, datacenter servers and networking equipment, client computing platforms, industrial Internet of Things, factory automation, robotics, automotive electronics, smart homes, prosumers, and other applications; our expectations regarding our customer base and the impacts of our customers’ actions on our business; our expectations regarding both new and existing product offerings; our gross margin growth and our strategies to achieve gross margin growth and other financial results; our future investments in research and development; future financial results or accounting treatments; our judgments involved in accounting matters, including revenue recognition, inventories and cost of revenue, and income taxes; actions we may take regarding the design and continued effectiveness of our internal controls over financial reporting; our use of cash; our beliefs regarding the adequacy of our liquidity, capital resources and facilities; whether we will consider and act upon acquisition opportunities to extend our product, technology and product offerings, and the impact of such opportunities on our business; our expectations regarding taxes, including unrecognized tax benefits, and tax adjustments and allowances; whether we will pursue future stock repurchases and how any future repurchases will be funded; our ability to prevent and respond to information technology system failures, security breaches and incidents, cyber-attacks or fraud; the impact of laws and regulations addressing privacy, data protection, and cybersecurity and our ability to comply with the same; and our beliefs regarding legal or administrative proceedings.
These forward-looking statements are based on estimates and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those statements expressed in the forward-looking statements. The key factors, among others, that could cause our actual results to differ materially from the forward-looking statements include global economic conditions and uncertainty, including as a result of trade-related restrictions or tariffs, inflationary pressures, or the effect of any downturn in the economy on capital markets and credit markets; the effects of global military conflicts, pandemics or widespread global health problems and the actions by governments, businesses, and individuals in response to the situation, the effects of which may give rise to or amplify the risks associated with many of these factors listed here; and other factors more fully described herein or that are otherwise described from time to time in our filings with the Securities and Exchange Commission ("SEC"), including, but not limited to, the items discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 17, 2023 and any additional or updated risk factors discussed in any subsequent Quarterly Report on Form 10-Q filed since that date.
You should not unduly rely on forward-looking statements because our actual results could differ materially from those expressed by us. In addition, any forward-looking statement applies only as of the date of this filing. We do not plan to, and undertake no obligation to, update any forward-looking statements to reflect new information or new events, circumstances or developments, or otherwise.
PART I. FINANCIAL INFORMATION
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands, except per share data) |
2023 |
2022 |
2023 |
2022 |
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| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of revenue |
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| Gross margin |
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| Operating expenses: |
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| Research and development |
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| Selling, general, and administrative |
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| Amortization of acquired intangible assets |
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| Restructuring |
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| Acquisition related |
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| Total operating expenses |
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| Income from operations |
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| Interest income (expense), net |
( |
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| Other income (expense), net |
( |
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| Income before income taxes |
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| Income tax expense |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Net income per share: |
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| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Shares used in per share calculations: |
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| Basic |
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| Diluted |
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See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
2023 |
2022 |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): |
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| Translation adjustment |
( |
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) | ( |
) | ( |
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| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
| September 30, | December 31, | |||||||
| (In thousands, except share and par value data) | 2023 | 2022 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, less accumulated depreciation of $ at September 30, 2023 and $ at December 31, 2022 | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued payroll obligations | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Long-term operating lease liabilities, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Contingencies (Note 12) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; shares issued and outstanding as of September 30, 2023 and shares issued and outstanding as of December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (Accumulated deficit) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended |
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| September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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| Depreciation and amortization |
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| Stock-based compensation expense |
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| Amortization of right-of-use assets |
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| Impairment of operating lease right-of-use asset |
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| Other non-cash adjustments |
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| Changes in assets and liabilities: |
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| Accounts receivable, net |
( |
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| Inventories, net |
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| Prepaid expenses and other assets |
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| Accounts payable |
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| Accrued liabilities |
( |
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| Accrued payroll obligations |
( |
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| Operating lease liabilities, current and long-term portions |
( |
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| Net cash provided by (used in) operating activities |
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| Cash flows from investing activities: |
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| Capital expenditures |
( |
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| Cash paid for software and intellectual property licenses |
( |
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| Net cash provided by (used in) investing activities |
( |
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| Cash flows from financing activities: |
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| Restricted stock unit tax withholdings |
( |
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| Proceeds from issuance of common stock |
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| Repurchase of common stock |
( |
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| Proceeds from long-term debt, net of issuance costs |
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| Repayment of long-term debt |
( |
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| Net cash provided by (used in) financing activities |
( |
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| Effect of exchange rate change on cash |
( |
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| Net increase (decrease) in cash and cash equivalents |
( |
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| Beginning cash and cash equivalents |
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| Ending cash and cash equivalents |
$ | $ | ||||||
| Supplemental disclosure of cash flow information and non-cash investing and financing activities: |
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| Interest paid |
$ | $ | ||||||
| Income taxes paid, net of refunds |
$ | $ | ||||||
| Operating lease payments |
$ | $ | ||||||
| Accrued purchases of plant and equipment |
$ | $ | ||||||
| Operating lease right-of-use assets obtained in exchange for lease obligations |
$ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
The following summarizes the changes in total equity for the nine-month period ended September 30, 2023:
| Common Stock ($.01 par value) |
Additional Paid-in |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
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| (In thousands, except par value data) |
Shares |
Amount |
Capital |
Deficit) |
Loss |
Total |
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| Balances, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Components of comprehensive income, net of tax: |
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| Net income for the nine months ended September 30, 2023 |
— | |||||||||||||||||||||||
| Other comprehensive income (loss) |
— | ( |
) | ( |
) | |||||||||||||||||||
| Total comprehensive income |
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| Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Balances, September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The following summarizes the changes in total equity for the nine-month period ended October 1, 2022:
| Common Stock ($.01 par value) |
Additional Paid-in |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
|||||||||||||||||||||
| (In thousands, except par value data) |
Shares |
Amount |
Capital |
Deficit) |
Loss |
Total |
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| Balances, January 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Components of comprehensive income, net of tax: |
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| Net income for the nine months ended October 1, 2022 |
— | |||||||||||||||||||||||
| Other comprehensive income (loss) |
— | ( |
) | ( |
) | |||||||||||||||||||
| Total comprehensive income |
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| Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Balances, October 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
(unaudited)
The following summarizes the changes in total equity for the three-month period ended September 30, 2023:
| Common Stock ($.01 par value) |
Additional Paid-in |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
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| (In thousands, except par value data) |
Shares |
Amount |
Capital |
Deficit) |
Loss |
Total |
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| Balances, July 1, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Components of comprehensive income, net of tax: |
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| Net income for the three months ended September 30, 2023 |
— | |||||||||||||||||||||||
| Other comprehensive income (loss) |
— | ( |
) | ( |
) | |||||||||||||||||||
| Total comprehensive income |
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| Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Balances, September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The following summarizes the changes in total equity for the three-month period ended October 1, 2022:
| Common Stock ($.01 par value) |
Additional Paid-in |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
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| (In thousands, except par value data) |
Shares |
Amount |
Capital |
Deficit) |
Loss |
Total |
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| Balances, July 2, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Components of comprehensive income, net of tax: |
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| Net income for the three months ended October 1, 2022 |
— | |||||||||||||||||||||||
| Other comprehensive income (loss) |
— | ( |
) | ( |
) | |||||||||||||||||||
| Total comprehensive income |
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| Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Balances, October 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation
Lattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, silicon-enabling products, system solutions, design services, and technology licenses.
Basis of Presentation and Use of Estimates
The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In our opinion, they include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the SEC's rules and regulations for interim reporting. These Consolidated Financial Statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 10-K").
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, the actual results that we experience may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.
We describe our accounting methods and practices in more detail in our 2022 10-K. There have been no changes to the significant accounting policies, procedures, or general information described in our 2022 10-K that have had a material impact on our consolidated financial statements and related notes. Certain prior year balances have been reclassified to conform to the current year’s presentation.
Fiscal Reporting Periods
We report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal 2023 will be a 52-week year and will end on December 30, 2023, and our fiscal 2022 was a 52-week year that ended December 31, 2022. Our third quarter of fiscal 2023 and third quarter of fiscal 2022 ended on September 30, 2023 and October 1, 2022, respectively. All references to quarterly financial results are references to the results for the relevant 13-week or 39-week fiscal period.
Concentrations of Risk
Potential exposure to concentrations of risk may impact revenue and accounts receivable. Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was
Our calculation of the diluted share count includes the number of shares from our equity awards with market conditions or performance conditions that would be issuable under the terms of such awards at the end of the reporting period. For equity awards with a market condition, the number of shares included in the diluted share count as of the end of each period presented is determined by measuring the achievement of the market condition as of the end of the respective reporting periods. For equity awards with a performance condition, the number of shares that qualified for vesting as of the end of each period presented are included in the diluted share count when the condition for their issuance was satisfied by the end of the respective reporting periods. See "Note 9 - Stock-Based Compensation" to our consolidated financial statements for further discussion of our equity awards with market conditions or performance conditions.
A summary of basic and diluted Net income per share is presented in the following table:
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands, except per share data) |
2023 |
2022 |
2023 |
2022 |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Shares used in basic Net income per share |
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| Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition |
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| Shares used in diluted Net income per share |
||||||||||||||||
| Basic Net income per share |
$ | $ | $ | $ | ||||||||||||
| Diluted Net income per share |
$ | $ | $ | $ | ||||||||||||
The computation of diluted Net income per share excludes the effects of stock options, restricted stock units ("RSUs"), Employee Stock Purchase Plan ("ESPP") shares, and equity awards with a market condition or performance condition that are antidilutive, aggregating approximately the following number of shares:
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
2023 |
2022 |
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| Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive |
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Note 3 - Revenue from Contracts with Customers
Disaggregation of revenue
The following tables provide information about revenue from contracts with customers disaggregated by channel and by geographical market, based on ship-to location of our customer:
| Three Months Ended |
Nine Months Ended |
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| Revenue by Channel |
September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
2023 |
2022 |
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| Distributors |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Direct |
% | % | % | % | ||||||||||||||||||||||||||||
| Total revenue |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Revenue by Geographical Market |
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| (In thousands) |
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| China |
% | % | % | % | ||||||||||||||||||||||||||||
| Japan |
% | % | % | % | ||||||||||||||||||||||||||||
| Other Asia |
% | % | % | % | ||||||||||||||||||||||||||||
| Asia |
% | % | % | % | ||||||||||||||||||||||||||||
| Americas |
% | % | % | % | ||||||||||||||||||||||||||||
| Europe |
% | % | % | % | ||||||||||||||||||||||||||||
| Total revenue |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
Contract balances
Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI Founders consortium. The balance results primarily from the amount of estimated revenue related to HDMI that we have recognized to date, but which has not yet been distributed to us by the HDMI licensing agent. Contract assets are included in Prepaid expenses and other current assets on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2023:
| (In thousands) |
||||
| Contract assets as of December 31, 2022 |
$ | |||
| Revenues recorded during the period |
||||
| Transferred to Accounts receivable or collected |
( |
) | ||
| Contract assets as of September 30, 2023 |
$ |
Contract liabilities are included in Accrued liabilities on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2023:
| (In thousands) |
||||
| Contract liabilities as of December 31, 2022 |
$ | |||
| Less: Product shipments from prepaid customer deposit |
( |
) | ||
| Accruals for estimated future stock rotation and scrap returns |
||||
| Less: Release of accruals for recognized stock rotation and scrap returns |
( |
) | ||
| Contract liabilities as of September 30, 2023 |
$ |
Note 4 - Balance Sheet Components
Accounts Receivable
Accounts receivable do not bear interest and are shown net of an allowance for expected lifetime credit losses, which reflects our best estimate of probable losses inherent in the accounts receivable balance, as described in our 2022 10-K.
| September 30, | December 31, | |||||||
| (In thousands) |
2023 |
2022 |
||||||
| Accounts receivable |
$ | $ | ||||||
| Less: Allowance for credit losses |
||||||||
| Accounts receivable, net of allowance for credit losses |
$ | $ | ||||||
Inventories
| September 30, | December 31, | |||||||
| (In thousands) |
2023 |
2022 |
||||||
| Work in progress |
$ | $ | ||||||
| Finished goods |
||||||||
| Total inventories, net |
$ | $ | ||||||
Property and Equipment – Geographic Information
Our Property and equipment, net by country at the end of each period was as follows:
| September 30, | December 31, | |||||||
| (In thousands) |
2023 |
2022 |
||||||
| United States |
$ | $ | ||||||
| Taiwan |
||||||||
| Philippines |
||||||||
| China |
||||||||
| Other |
||||||||
| Total foreign property and equipment, net |
||||||||
| Total property and equipment, net |
$ | $ | ||||||
Accrued Liabilities
Included in Accrued liabilities in the Consolidated Balance Sheets are the following balances:
| September 30, |
December 31, |
|||||||
| (In thousands) |
2023 |
2022 |
||||||
| Liability for non-cancelable contracts |
$ | $ | ||||||
| Current portion of operating lease liabilities |
||||||||
| Contract liabilities |
||||||||
| Liability for production materials |
||||||||
| Other accrued liabilities |
||||||||
| Total accrued liabilities |
$ | $ | ||||||
On September 1, 2022, we entered into an Amended and Restated Credit Agreement (the “2022 Credit Agreement”), which provides for a -year secured revolving loan facility with an aggregate principal amount of up to $
The revolving loans under the 2022 Credit Agreement may be repaid and reborrowed at our discretion, with any remaining outstanding principal amount due and payable on the maturity date of the revolving loan on September 1, 2027. During the first nine months of fiscal 2023, we made discretionary payments totaling $
The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:
| September 30, | December 31, | |||||||
| (In thousands) |
2023 |
2022 |
||||||
| Principal amount |
$ | $ | ||||||
| Unamortized original issuance discount and debt costs |
( |
) | ||||||
| Long-term debt, net of unamortized debt issue costs |
$ | $ | ||||||
We pay a quarterly commitment fee of
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Contractual interest |
$ | $ | $ | $ | ||||||||||||
| Amortization of original issuance discount and debt costs |
||||||||||||||||
| Total interest expense related to long-term debt |
$ | $ | $ | $ | ||||||||||||
In the third quarter of 2023, our management approved and executed an internal restructuring plan (the “Q3 2023 Plan”), which included a targeted workforce reduction intended to reorganize critical roles and focus skillsets in key growth markets. We incurred restructuring costs of approximately $
Under the Q2 2019 Sales Plan, which is described in the 2022 10-K, we incurred
Under the June 2017 Plan, which is described in the 2022 10-K, we incurred less than $
These costs, and adjustments on previous plans, are recorded to Restructuring on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accrued liabilities and in Other long-term liabilities on our Consolidated Balance Sheets. The following table displays the activity related to our restructuring plans:
| (In thousands) | Severance & Related (1) | Lease Termination & Fixed Assets | Other (2) | Total | ||||||||||||
| Accrued Restructuring at December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Restructuring | ||||||||||||||||
| Costs paid or otherwise settled | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accrued Restructuring at September 30, 2023 | $ | $ | $ | $ | ||||||||||||
| Accrued Restructuring at January 1, 2022 | $ | $ | $ | $ | ||||||||||||
| Restructuring | ||||||||||||||||
| Costs paid or otherwise settled | ( | ) | ( | ) | ( | ) | ||||||||||
| Accrued Restructuring at October 1, 2022 | $ | $ | $ | $ | ||||||||||||
| (1) | Includes employee relocation and outplacement costs | |||||||||||||||||||
| (2) | Includes termination fees on the cancellation of certain contracts | |||||||||||||||||||
We have operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center. All of our facilities are leased under operating leases, which expire at various times through 2028, with a weighted-average remaining lease term of
We recorded fixed operating lease expenses of $
The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during the first nine months of fiscal 2023:
| Operating lease right-of-use assets | (In thousands) | |||
| Balance as of December 31, 2022 | $ | |||
| Right-of-use assets obtained for new lease contracts during the period | ||||
| Amortization of right-of-use assets during the period | ( | ) | ||
| Adjustments for present value and foreign currency effects | ( | ) | ||
| Balance as of September 30, 2023 | $ | |||
| Operating lease liabilities | (In thousands) | |||
| Balance as of December 31, 2022 | $ | |||
| Lease liabilities incurred for new lease contracts during the period | ||||
| Accretion of lease liabilities | ||||
| Operating cash used for payments on lease liabilities | ( | ) | ||
| Adjustments for present value and foreign currency effects | ( | ) | ||
| Balance as of September 30, 2023 | ||||
| Less: Current portion of operating lease liabilities (included in Accrued liabilities) | ( | ) | ||
| Long-term operating lease liabilities, net of current portion | $ | |||
Maturities of operating lease liabilities as of September 30, 2023 are as follows:
| Fiscal year | (In thousands) | |||
| 2023 (Remaining quarter) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Total lease liabilities | $ | |||
Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $
In connection with our acquisition of Mirametrix, Inc. in November 2021, we recorded identifiable intangible assets during fiscal year 2021. On our Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, Intangible assets, net are shown net of accumulated amortization of $
We recorded amortization expense related to intangible assets on the Consolidated Statements of Operations as presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Research and development |
$ | $ | $ | $ | ||||||||||||
| Amortization of acquired intangible assets |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Note 9 - Stock-Based Compensation
Total stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Cost of revenue |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| Selling, general, and administrative |
||||||||||||||||
| Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
Market-Based and Performance-Based Stock Compensation
In the first and third quarters of fiscal 2023, we granted awards of RSUs with a market condition to certain executives. Under the terms of these grants, the RSUs with a market condition vest over a -year period based on the Company’s total shareholder return ("TSR") relative to the Russell 3000 index, which condition is measured for the grants on either the third anniversary of the grant date, or equally on the first, second, and third anniversary of the grant date, depending on the executive. The awards may vest at
In the first nine months of fiscal 2023, certain awards with a market condition or performance condition granted in prior fiscal years vested. During the first quarter of fiscal 2023, the market condition for awards granted to certain executives in the first quarter of fiscal 2020 exceeded the percentile of their TSR condition, and the second tranche of these awards vested at
For our awards with a market condition or a performance condition, we incurred stock compensation expense of approximately $
The following table summarizes the activity for our awards with a market condition or performance condition:
| (Shares in thousands) |
Total |
|||
| Balance, December 31, 2022 |
||||
| Granted |
||||
| Effect of vesting multiplier |
||||
| Vested |
( |
) | ||
| Balance, September 30, 2023 |
||||
Note 10 - Common Stock Repurchase Program
On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $
We are subject to federal and state income tax as well as income tax in the foreign jurisdictions in which we operate. For the third quarter of fiscal 2023 and 2022, we recorded income tax expense of approximately $
Our liability recorded for uncertain tax positions (including penalties and interest) was $
Legal Matters
On or about December 19, 2018, Steven A.W. De Jaray, Perienne De Jaray and Darrell R. Oswald (collectively, the “Plaintiffs”) commenced an action against the Company and several unnamed defendants in the Multnomah County Circuit Court of the State of Oregon, in connection with the sale of certain products by the Company to the Plaintiffs in or around 2008. The Plaintiffs alleged that we violated the Lanham Act, engaged in negligence, fraud, and breach of contract by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. In January 2019, we removed the action to the United States District Court for the District of Oregon. On May 24, 2023, the Plaintiffs filed a second amended complaint, which added Apex-Micro Manufacturing Corporation as a plaintiff and removed the violation of the Lanham Act claim. The Plaintiffs seek damages of $
From time to time, we are exposed to certain additional asserted and unasserted potential claims. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read along with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 10-K.
Overview
Lattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, silicon-enabling products, system solutions, design services, and technology licenses. Lattice is the low power programmable leader. We solve customer problems across the network, from the Edge to the Cloud, in the growing communications, computing, industrial, automotive, and consumer markets. Our technology, long-standing relationships, and commitment to world-class support helps our customers quickly and easily unleash their innovation to create a smart, secure, and connected world.
Lattice has focused its strategy on delivering programmable logic products and related solutions based on low power, small size, and ease of use. We also serve our customers with intellectual property ("IP") licensing and various other services. Our product development activities include new proprietary products, advanced packaging, existing product enhancements, software development tools, soft IP, and system solutions for high-growth applications such as Edge Artificial Intelligence, wireless and wireline infrastructure, platform security, and factory automation.
Critical Accounting Policies and Use of Estimates
Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results of operations, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 10-K.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, actual results may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.
Impact of Global Economic Activity on our Business
Increased financial market volatility, inflationary pressure, rising interest rates, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension continue to impact business globally and may impact our operations by causing disruption to our labor markets and supply chains. The extent to which increased financial market volatility, inflationary pressures, global pandemics, and related uncertainty will impact our business activities will depend on future developments that are highly uncertain and cannot be predicted at this time.
Results of Operations
Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||||||||||||||||||
| Revenue |
$ | 192,169 | 100.0 | % | $ | 172,509 | 100.0 | % | $ | 566,558 | 100.0 | % | $ | 484,396 | 100.0 | % | ||||||||||||||||
| Gross margin |
134,561 | 70.0 | 118,732 | 68.8 | 395,723 | 69.8 | 329,984 | 68.1 | ||||||||||||||||||||||||
| Research and development |
42,048 | 21.9 | 34,820 | 20.2 | 119,983 | 21.2 | 100,988 | 20.8 | ||||||||||||||||||||||||
| Selling, general and, administrative |
33,217 | 17.3 | 31,926 | 18.5 | 102,583 | 18.1 | 89,721 | 18.5 | ||||||||||||||||||||||||
| Amortization of acquired intangible assets |
870 | 0.5 | 869 | 0.5 | 2,609 | 0.5 | 2,908 | 0.6 | ||||||||||||||||||||||||
| Restructuring |
1,509 | 0.8 | 2,315 | 1.3 | 1,427 | 0.3 | 2,505 | 0.5 | ||||||||||||||||||||||||
| Acquisition related |
— | — | — | 0.0 | — | — | 511 | 0.1 | ||||||||||||||||||||||||
| Income from operations |
$ | 56,917 | 29.6 | % | $ | 48,802 | 28.3 | % | $ | 169,121 | 29.9 | % | $ | 133,351 | 27.5 | % | ||||||||||||||||
Revenue by End Market
We sell our products globally to a broad base of customers in three primary end market groups: Communications and Computing, Industrial and Automotive, and Consumer. We also provide IP licensing and services to these end markets.
Within these end markets, there are multiple segment drivers, including:
| • |
Communications and computing: datacenter servers and networking equipment, client computing platforms, and wireless and wireline communications infrastructure deployments, |
| • |
Industrial and automotive: factory automation, robotics, automotive electronics, and industrial Internet of Things ("IoT"), |
| • |
Consumer: smart home, prosumer, and other applications. |
The end market data we use is derived from data provided to us by our customers. With a diverse base of customers who may manufacture end products spanning multiple end markets, the assignment of revenue to a specific end market requires the use of judgment. We also recognize certain revenue for which end customers and end markets are not yet known. We assign this revenue first to a specific end market using historical and anticipated usage of the specific products, if possible, and allocate the remainder to the end markets based on either historical usage for each product family or industry application data for certain product types.
The following are examples of end market applications for the periods presented:
| Communications and Computing |
Industrial and Automotive |
Consumer |
| Wireless |
Security and Surveillance |
Cameras |
| Wireline |
Machine Vision |
Displays |
| Data Backhaul |
Industrial Automation |
Wearables |
| Server Computing |
Robotics |
Televisions |
| Client Computing |
Automotive |
Home Theater |
| Data Storage |
Drones |
|
The composition of our revenue by end market is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||||||||||||||||||
| Communications and Computing |
$ | 68,311 | 35.5 | % | $ | 73,040 | 42.3 | % | $ | 198,876 | 35.1 | % | $ | 209,720 | 43.3 | % | ||||||||||||||||
| Industrial and Automotive |
109,944 | 57.2 | 85,730 | 49.7 | 333,713 | 58.9 | 229,820 | 47.4 | ||||||||||||||||||||||||
| Consumer |
13,914 | 7.3 | 13,739 | 8.0 | 33,969 | 6.0 | 44,856 | 9.3 | ||||||||||||||||||||||||
| Total revenue |
$ | 192,169 | 100.0 | % | $ | 172,509 | 100.0 | % | $ | 566,558 | 100.0 | % | $ | 484,396 | 100.0 | % | ||||||||||||||||
Revenue from the Communications and Computing end market decreased by 6% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and decreased by 5% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to softer end market demand in both wireless and wireline communications infrastructure, partially offset by strong demand in datacenter applications.
Revenue from the Industrial and Automotive end market increased by 28% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and increased by 45% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to strong customer adoption in a broad range of applications, including industrial automation and robotics. Growth in Automotive was driven by the adoption of new designs in advanced driver assistance ("ADAS") and infotainment applications.
Revenue from the Consumer end market increased by 1% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 due to increased demand for our products in Consumer end market applications over the quarterly periods and decreased by 24% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to macroeconomic weakness in Consumer over the year-to-date periods.
Revenue by Geography
We have a diverse base of customers where distributors represent a significant portion of our total revenue. Our revenue by geographical market is based on the ship-to location of our customers, which can vary from time to time. Revenue from Asia decreased in the periods presented primarily due to the macroeconomic environment in the region, while revenue from the Americas and Europe increased due to increased demand in these regions.
The composition of our revenue by geography is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||||||||||||||||||
| Asia |
$ | 117,335 | 61.1 | % | $ | 122,860 | 71.2 | % | $ | 342,113 | 60.4 | % | $ | 350,332 | 72.3 | % | ||||||||||||||||
| Americas |
33,209 | 17.3 | 23,154 | 13.4 | 107,780 | 19.0 | 66,976 | 13.8 | ||||||||||||||||||||||||
| Europe |
41,625 | 21.6 | 26,495 | 15.4 | 116,665 | 20.6 | 67,088 | 13.9 | ||||||||||||||||||||||||
| Total revenue |
$ | 192,169 | 100.0 | % | $ | 172,509 | 100.0 | % | $ | 566,558 | 100.0 | % | $ | 484,396 | 100.0 | % | ||||||||||||||||
Revenue from Customers
We sell our products to independent distributors and directly to customers. Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was 90% for the third quarter of both fiscal 2023 and 2022, and 89% for both the nine months ended September 30, 2023 and October 1, 2022, respectively.
Gross Margin
The composition of our Gross margin, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||
| (In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Gross margin |
$ | 134,561 | $ | 118,732 | $ | 395,723 | $ | 329,984 | ||||||||
| Gross margin percentage |
70.0 | % | 68.8 | % | 69.8 | % | 68.1 | % | ||||||||
Gross margin, as a percentage of revenue, increased 120 basis points in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and increased by 170 basis points in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022. Improved margins were driven by benefits from our gross margin expansion strategy.
Operating Expenses
Research and Development Expense
The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
||||||||||||||||||
| Research and development |
$ | 42,048 | $ | 34,820 | 20.8 | % | $ | 119,983 | $ | 100,988 | 18.8 | % | ||||||||||||
| Percentage of revenue |
21.9 | % | 20.2 | % | 21.2 | % | 20.8 | % | ||||||||||||||||
Research and development expense includes costs for compensation and benefits, stock compensation, engineering wafers, depreciation and amortization, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions. The increase in Research and development expense for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was due primarily to increased headcount-related costs, including stock compensation, as we continue to invest in our long-term product roadmap, and depreciation and amortization related to our research and development equipment and tools. We believe that investing in research and development is important to delivering innovative products to our customers and, therefore, we expect to continue to increase our investment in research and development.
Selling, General, and Administrative Expense
The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
||||||||||||||||||
| Selling, general, and administrative |
$ | 33,217 | $ | 31,926 | 4.0 | % | $ | 102,583 | $ | 89,721 | 14.3 | % | ||||||||||||
| Percentage of revenue |
17.3 | % | 18.5 | % | 18.1 | % | 18.5 | % | ||||||||||||||||
Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses. The increase in Selling, general, and administrative expense for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was due primarily to increased headcount-related costs, including stock compensation and other costs, related to demand creation to support the growth of our business.
Amortization of Acquired Intangible Assets
The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
||||||||||||||||||
| Amortization of acquired intangible assets |
$ | 870 | $ | 869 | 0.1 | % | $ | 2,609 | $ | 2,908 | (10.3 | )% | ||||||||||||
| Percentage of revenue |
0.5 | % | 0.5 | % | 0.5 | % | 0.6 | % | ||||||||||||||||
Amortization of acquired intangible assets was flat between the third quarter of fiscal 2023 and the third quarter of fiscal 2022, and decreased for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 due to the end of the amortization period during the first quarter of fiscal 2022 for acquired intangible assets from previous acquisitions.
Restructuring
The composition of our Restructuring activity, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
| September 30, |
October 1, |
September 30, |
October 1, |
|||||||||||||||||||||
| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
||||||||||||||||||
| Restructuring |
$ | 1,509 | $ | 2,315 | (34.8 | )% | $ | 1,427 | $ | 2,505 | (43.0 | )% | ||||||||||||
| Percentage of revenue |
0.8 | % | 1.3 | % | 0.3 | % | 0.5 | % | ||||||||||||||||
Restructuring activity is generally comprised of expenses resulting from consolidation of our facilities, cancellation of contracts, and headcount reductions. Details of our restructuring plans and expenses incurred under them are discussed in "Note 6 - Restructuring" to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Restructuring costs decreased in the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 primarily due to lower costs in the current year periods for severance compared to higher costs in the prior year periods for lease right-of-use impairment and contract termination fees.
Acquisition Related
Acquisition related activity of $0.5 million, or 0.1% of revenue, for the first nine months of fiscal 2022 were attributable to our acquisition of Mirametrix in November 2021 and were comprised primarily of professional services including legal and accounting fees, as well as closing costs.
Interest Income (Expense), net
The composition of our Interest expense, net, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
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| Interest income (expense), net |
$ | 954 | $ | (1,267 | ) | (175.3 | )% | $ | 588 | $ | (2,866 | ) | (120.5 | )% | ||||||||||
| Percentage of revenue |
0.5 | % | (0.7 | )% | 0.1 | % | (0.6 | )% | ||||||||||||||||
The change in Interest income (expense) for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was driven by increased interest income, coupled with decreased interest expense as we paid off the outstanding balance of our long-term debt.
Other Income (Expense), net
The composition of our Other income (expense), net, including as a percentage of revenue, is presented in the following table:
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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2023 |
2022 |
% change |
2023 |
2022 |
% change |
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| Other income (expense), net |
$ | 14 | $ | (820 | ) | (101.7 | )% | $ | (257 | ) | $ | (1,085 | ) | (76.3 | )% | |||||||||
| Percentage of revenue |
0.0 | % | (0.5 | )% | (0.0 | )% | (0.2 | )% | ||||||||||||||||
The changes in Other income (expense) for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 were primarily due to the non-recurrence of the $0.7 million loss on refinancing of our long-term debt during the prior year period, and to foreign currency effects.
Income Tax Expense
The composition of our Income tax expense is presented in the following table:
| Three Months Ended |
Nine Months Ended |
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| September 30, |
October 1, |
September 30, |
October 1, |
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| (In thousands) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
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| Income tax expense |
$ | 4,097 | $ | 356 | 1,050.8 | % | $ | 9,097 | $ | 2,431 | 274.2 | % | ||||||||||||
Our Income tax expense is composed primarily of taxes on foreign income and withholding taxes, partially offset by benefits resulting from excess tax benefits from stock compensation. The increase in tax expense in the third quarter and first nine months of fiscal 2023 as compared to the third quarter and first nine months of fiscal 2022 is primarily due to increased worldwide income and U.S. tax on foreign operations.
Liquidity and Capital Resources
The following sections discuss material changes in our financial condition from the end of fiscal 2022, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. There continues to be uncertainty around the extent and duration of the disruption to our business, including from the effects of market volatility, inflationary pressures, rising interest rates, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension, which may impact our liquidity and working capital needs in future periods.
We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions. Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things.
We believe that our financial resources, including current cash and cash equivalents, cash flow from operating activities, and our credit facilities, will be sufficient to meet our liquidity and working capital needs through at least the next 12 months. On September 1, 2022, we entered into our 2022 Credit Agreement, as described in "Note 5 - Long-Term Debt" under Part I, Item 1 of this report. As of September 30, 2023, we did not have significant long-term commitments for capital expenditures. For further information on our cash commitments for operating lease liabilities, see "Note 7 - Leases" under Part I, Item 1 of this report.
In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing. We may also seek to obtain equity or additional debt financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than we anticipated when determining our current working capital needs.
Cash and cash equivalents
| (In thousands) |
September 30, 2023 |
December 31, 2022 |
$ Change |
% Change |
||||||||||||
| Cash and cash equivalents |
$ | 114,397 | $ | 145,722 | $ | (31,325 | ) | (21.5 | )% | |||||||
As of September 30, 2023, we had Cash and cash equivalents of $114.4 million, of which approximately $32.4 million was held by our foreign subsidiaries. We manage our global cash requirements considering, among other things, (i) available funds among our subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-US earnings may require us to withhold and pay foreign income tax on dividends. This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of September 30, 2023, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.
The net decrease in Cash and cash equivalents of $31.3 million between December 31, 2022 and September 30, 2023 was primarily driven by cash flows from the following activities:
Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities for the first nine months of fiscal 2023 was $197.6 million compared to $156.8 million for the first nine months of fiscal 2022. This increase of $40.8 million was primarily driven by an increase of $46.6 million provided by improved operating performance, partially offset by $5.8 million of net changes in working capital, primarily from cash used for Accounts payable, Accrued liabilities, and Accrued payroll obligations offset by cash provided by Inventories.
Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses. Net cash used by investing activities in the first nine months of fiscal 2023 was $25.3 million compared to $21.4 million in the first nine months of fiscal 2022. This increase of $3.9 million is primarily a result of increased capital expenditures.
Financing activities — Financing cash flows consist primarily of activity on our long-term debt, tax payments related to the net share settlement of restricted stock units, proceeds from the exercise of options to acquire common stock, and repurchases of common stock. Net cash used by financing activities in the first nine months of fiscal 2023 was $203.1 million compared to $146.0 million in the first nine months of fiscal 2022. This $57.1 million increase was due to the following mix of activities. During the first nine months of fiscal 2023, we made discretionary payments totaling $130.0 million on our revolving loans under the 2022 Credit Agreement. In September 2022, we entered into our 2022 Credit Agreement and drew down an initial $150.0 million revolving loan at closing, which we used to pay off the $150.0 million outstanding balance on our previous term and revolving loans. In connection with the 2022 Credit Agreement, we paid $1.4 million in debt issuance costs. In the first nine months of fiscal 2022 we paid required quarterly installments of $8.8 million on our long-term debt under our prior Credit Agreement, dated May 17, 2019. Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $43.1 million in the first nine months of fiscal 2023, a decrease of approximately $2.6 million from the net $45.7 million used in the first nine months of fiscal 2022. During the first nine months of fiscal 2023, we repurchased approximately 0.4 million shares of common stock for $30.0 million compared to repurchases in the first nine months of fiscal 2022 of approximately 1.7 million shares of common stock for $90.1 million.
Accounts receivable, net
| (In thousands) |
September 30, 2023 |
December 31, 2022 |
$ Change |
% Change |
||||||||||||
| Accounts receivable, net |
$ | 105,913 | $ | 94,018 | $ | 11,895 | 12.7 | % | ||||||||
| Days sales outstanding - Overall |
50 | 49 | 1 | |||||||||||||
Accounts receivable, net as of September 30, 2023 increased by approximately $11.9 million, or 13%, compared to December 31, 2022. This increase resulted primarily from higher revenue shipments in the third quarter of fiscal 2023 compared to the fourth quarter of fiscal 2022. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.
Inventories
| (In thousands) |
September 30, 2023 |
December 31, 2022 |
$ Change |
% Change |
||||||||||||
| Inventories |
$ | 104,019 | $ | 110,375 | $ | (6,356 | ) | (5.8 | )% | |||||||
| Days of inventory on hand |
165 | 187 | (22 | ) | ||||||||||||
Inventories as of September 30, 2023 decreased $6.4 million, or approximately 6%, compared to December 31, 2022 primarily as a result of increased product shipments to meet customer demand.
The Days of inventory on hand ratio compares the inventory balance at the end of a quarter to the cost of sales in that quarter. We calculate Days of inventory on hand on the basis of a 365-day year as Inventories at the end of the quarter divided by Cost of sales during the quarter annualized and then multiplied by 365.
Credit Arrangements
On September 1, 2022, we entered into our 2022 Credit Agreement. The details of this arrangement are described in "Note 5 - Long-Term Debt" in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
As of September 30, 2023, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 2022 Credit Agreement.
Share Repurchase Program
See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Quarterly Report on Form 10-Q for more information about the share repurchase program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures. There have been no material changes to either the foreign currency exchange rate risk or interest rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our 2022 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
In connection with the filing of this Quarterly Report on Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
On September 27, 2023, the SEC approved the settlement of an administrative proceeding, previously disclosed in the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2023, alleging that in certain instances the Company (i) failed to timely file public reports regarding reportable transactions by certain of the Company’s officers and directors primarily related to the granting, vesting and related tax withholding of RSUs and (ii) failed to comply with Section 13(a) of the Exchange Act and Item 405 of SEC Regulation S-K regarding the failure to disclose such late filings. Without admitting or denying the allegations, the Company agreed to pay a civil penalty of $185,000 and to cease and desist from future violations of the relevant securities law provisions. The Company fully cooperated with the SEC and all reportable transactions have been disclosed. The Company has taken certain remedial measures to ensure compliance with the applicable rules, including hiring of additional personnel responsible for such filings.
In addition to this matter, the information set forth above under "Note 12 - Contingencies - Legal Matters" contained in the Notes to Consolidated Financial Statements is incorporated herein by reference.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors associated with our business previously described in Part I, Item 1A, “Risk Factors,” in our 2022 10-K. There have been no material changes in the risk factors included in our 2022 10-K, and this report should be read in conjunction with the risk factors set forth in our 2022 10-K. These risk factors are not the only risks facing our company. Additional risks and uncertainties not presently known to us or that we may currently deem to be immaterial could materially adversely affect our business, financial condition, or operating results, including those related to adverse macroeconomic conditions, such as rising inflation and labor shortages, which may affect demand for our products or increase our product or labor costs, negatively impacting our revenues, gross margins, and overall financial results. If any of these risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected, and the trading price of our common stock could decline. These factors, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, should be carefully considered before making an investment decision relating to our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $150 million of outstanding common stock could be repurchased from time to time (the "2023 Repurchase Program"). The duration of the 2023 Repurchase Program is through the end of December 2023. During the third quarter of fiscal 2023, we repurchased 109,950 shares for $10.0 million, or an average price paid per share of $90.95. All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the 2023 Repurchase Program were retired by the end of the third quarter of fiscal 2023.
The following table contains information regarding our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the third quarter of fiscal 2023.
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($M) (b) |
||||||||||||
| July 2, 2023 through July 29, 2023 |
— | $ | — | — | $ | 109.7 | ||||||||||
| July 30, 2023 through August 26, 2023 |
70,894 | $ | 87.45 | 70,894 | $ | 103.5 | ||||||||||
| August 27, 2023 through September 30, 2023 |
39,056 | $ | 97.30 | 39,056 | $ | 99.7 | ||||||||||
| Total |
109,950 | $ | 90.95 | 109,950 | $ | 99.7 | ||||||||||
| (a) | All repurchases during the quarter were open-market transactions funded from available working capital made under the authorization from our Board of Directors to purchase up to $150.0 million of our common stock announced August 8, 2022. | |
| (b) | As of September 30, 2023, this amount consisted of the remaining portion of the $150.0 million program authorized through the end of December 2023 that was announced August 8, 2022. |
Rule 10b5-1 Trading Plans
On , Mark Nelson, Senior Vice President of Sales, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5-1(c), pursuant to which an estimated aggregate of
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Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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Inline XBRL Taxonomy Extension Schema Document |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File - formatted in Inline XBRL and included in Exhibit 101 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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LATTICE SEMICONDUCTOR CORPORATION |
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(Registrant) |
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/s/ Sherri Luther |
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Sherri Luther |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Date: October 31, 2023
Exhibit 31.1
CERTIFICATION
I, James Anderson, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Lattice Semiconductor Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: October 31, 2023
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/s/ James Anderson |
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James Anderson |
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Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION
I, Sherri Luther, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of Lattice Semiconductor Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: October 31, 2023
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/s/ Sherri Luther |
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Sherri Luther |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lattice Semiconductor Corporation (the Company) on Form 10-Q for the quarter ended September 30, 2023 (the Report), I, James Anderson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ James Anderson |
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James Anderson |
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Chief Executive Officer |
Date: October 31, 2023
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lattice Semiconductor Corporation (the Company) on Form 10-Q for the quarter ended September 30, 2023 (the Report), I, Sherri Luther, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ Sherri Luther |
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Sherri Luther |
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Chief Financial Officer |
Date: October 31, 2023