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Lattice Semiconductor Reports Fourth Quarter and Full Year 2017 Results

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Lattice Semiconductor Corporation (NASDAQ-NMS: LSCC), the leading provider of customizable smart connectivity solutions, announced financial results today for the fiscal fourth quarter and full year ended December 31, 2017.



The Company reported revenue for the fourth quarter of 2017 of $95.3 million, which increased 3.6% sequentially, as compared to the third quarter 2017 revenue of $92.0 million, and decreased 19.3% as compared to the fourth quarter 2016 revenue of $118.1 million.

Gross margin on a GAAP basis was 53.8% for the fourth quarter of 2017, as compared to the third quarter of 2017 gross margin of 58.0% and 53.7% for the fourth quarter of 2016. Gross margin in the fourth quarter of 2017 declined compared to the third quarter of 2017 largely as the result of a reduction in the Company's inventory valuation of lower wafer and overhead costs. On a non-GAAP basis, gross margin for the fourth quarter of 2017 was 54.0%, as compared to 58.1% for the third quarter of 2017 and 53.9% for the fourth quarter of 2016.

Total operating expenses for the fourth quarter of 2017 were $51.9 million on a GAAP basis, including an intangible asset impairment credit of $3.8 million, as compared to $90.8 million for the third quarter of 2017, including an intangible asset impairment charge of $36.2 million and the gain on sale of a building of $4.6 million, and $64.4 million for the fourth quarter of 2016, including $6.2 million in acquisition related expenses. On a non-GAAP basis, total operating expenses were $44.1 million for the fourth quarter of 2017, as compared to $44.6 million for the third quarter of 2017, and $45.1 million for the fourth quarter of 2016.

GAAP net loss for the fourth quarter of 2017 was $7.2 million ($0.06 per basic and diluted share), as compared to a net loss on a GAAP basis in the prior quarter of $43.1 million ($0.35 per basic and diluted share), and a net loss on a GAAP basis in the year ago period of $8.2 million ($0.07 per basic and diluted share). Non-GAAP net income for the fourth quarter of 2017 was $1.0 million ($0.01 per basic and diluted share), as compared to $5.3 million ($0.04 per basic and diluted share) in the prior quarter, and $11.8 million ($0.10 per basic and diluted share) in the year ago period. For a reconciliation of U.S. GAAP to Non-GAAP please see the table titled, “Reconciliation of U.S. GAAP to Non-GAAP Financial Measures” provided as part of this press release.

For the fiscal year 2017, revenue was $386.0 million, a decrease of 9.6% from $427.1 million in the fiscal year 2016. Revenue growth from the Computing, Industrial and Automotive end markets was offset by a non-recurrence of product demand related to the tin-lead and line item reduction program in 2016, a delay in the HDMI royalty sharing agreement, and year-over-year declines in DTV demand. Net loss on a GAAP basis for fiscal year 2017 was $70.6 million ($0.58 per basic and diluted share), compared to a net loss of $54.1 million ($0.45 per basic and diluted share) reported in fiscal year 2016. Total operating expenses for the fiscal year 2017 were $264.2 million on a GAAP basis, including a net intangible asset impairment charge of $32.4 million, as compared to $273.1 million for the fiscal year 2016, including intangible asset impairment of $7.9 million. On a non-GAAP basis, total operating expenses were $182.3 million for the fiscal year 2017, as compared to $200.8 million for the fiscal year 2016. On a non-GAAP Basis, net income for the fiscal year 2017 was $13.6 million ($0.11 per basic and diluted share), compared to net income of $17.0 million ($0.14 per basic and diluted share) for the fiscal year 2016. For a reconciliation of U.S. GAAP to Non-GAAP please see the table titled, “Reconciliation of U.S. GAAP to Non-GAAP Financial Measures” provided as part of this press release.

Darin G. Billerbeck, President and Chief Executive Officer, said, "Our results for the fourth quarter of 2017 were in-line with expectations as we both grew revenue and reduced our spending. At no time in history have we had a more extensive portfolio of products that align with key customer requirements such as low power and cost, small form factor, and overall performance. We are in a fundamentally stronger position today as we continue to execute on our primary goals – driving a return to revenue growth, further reducing operating expenses, increasing free cash flow, along with paying down corporate debt."

Max Downing, Chief Financial Officer, added, "Results in the fourth quarter of 2017 were led by our continued growth in the industrial and automotive end market, which increased to 41% of revenue in the quarter compared to 37% in the prior quarter and 31% in the year ago fourth quarter. Our operating expenses were in-line with guidance on a non-GAAP basis but do not yet fully reflect the benefits of the aggressive actions we have already taken. Our long-term target model is to achieve operating expenses on a non-GAAP basis at 35% of revenue, which we expect to reach in the second half of 2018. We ended the fourth quarter of 2017 with approximately $112 million in cash and short-term investments, giving us the continued balance sheet strength needed to pay down our corporate debt and to capture additional high potential growth opportunities in front of us."

Business Outlook - First Quarter 2018*:

  • Revenue for the first quarter of 2018 is expected to be between approximately $95 million and $100 million.
  • Gross margin percentage for the first quarter of 2018 is expected to be approximately 56% plus or minus 2% on both a GAAP and non-GAAP basis.
  • Total operating expenses are expected to be between approximately $52.7 million and $54.9 million on a GAAP basis and between approximately $42.6 million and $44.4 million on a non-GAAP basis.
  • Enactment of the 2017 Tax Cuts and Jobs Act is not expected to result in an increase in the U.S. cash tax paid given the offset of the Company's nearly $300 million in Net Operating Loss ("NOL") carryforwards.

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

Investor Conference Call / Webcast Details:

Lattice Semiconductor will review the Company's financial results for the fiscal fourth quarter and full 2017 and business outlook for the first quarter of 2018 on Tuesday, February 13 at 5:00 p.m. Eastern Time. The conference call-in number is 1-888-684-5603 or 1-918-398-4852 with conference identification number 9681558. An accompanying presentation and live webcast of the conference call will also be available on Lattice's website at www.latticesemi.com. The Company's financial guidance will be limited to the comments on its public quarterly earnings call and the public business outlook statements contained in this press release.

A replay of the call will be available approximately 2 hours after the conclusion of the live call through 11:59 p.m. Eastern Time on February 20, 2018, by telephone at 1-404-537-3406. To access the replay, use conference identification number 9681558. A webcast replay will also be available on the investor relations section of www.latticesemi.com.

Forward-Looking Statements Notice:

The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Such forward-looking statements include statements relating to: our expectation that we will continue to execute on our primary goals - driving a return to revenue growth, further reducing operating expenses, increasing free cash flow, along with paying down corporate debt; our expectation that we will achieve operating expenses on a non-GAAP basis at 35% of revenue, and that we will reach this in the second half of 2018; our belief that we possess the continued balance sheet strength needed to pay down our corporate debt and to capture additional high potential growth opportunities in front of us; and the statements under the heading “Business Outlook-First Quarter 2018.” Other forward-looking statements may be indicated by words such as “will,” “could,” “should,” “would,” “may,” “expect,” “plan,” “project,” “anticipate,” “intend,” “forecast,” “future,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology; and our expectation that we will remain focused on maximizing the leverage of our operating model and reduce our outstanding debt balance. Lattice believes the factors identified below could cause actual results to differ materially from the forward-looking statements.

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

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

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

Non-GAAP Financial Measures:

Included within this press release and the accompanying tables and notes are non-GAAP financial measures that supplement the Company's consolidated financial information prepared in accordance with U.S. GAAP. The non-GAAP measures presented exclude charges and adjustments primarily related to stock-based compensation, restructuring charges, acquisition-related charges, amortization of acquired intangible assets, impairment of intangible assets, purchase accounting adjustments, gain on sale of building, gain or loss on sale of business unit, and the estimated tax effect of these items. These charges and adjustments may be nonrecurring in nature but are a result of periodic or non-core operating activities of the Company. The Company describes these non-GAAP financial measures and reconciles them to the most directly comparable GAAP measures in the tables and notes attached to this press release.

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

In addition, the Company uses Adjusted EBITDA in calculating the annual excess cash flow debt payment. These non-GAAP measures are included solely for informational and comparative purposes and are not meant as a substitute for GAAP and should be considered together with the consolidated financial information located in the tables attached to this press release.

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