Company Quick10K Filing
Lattice Semiconductor
Price19.89 EPS0
Shares139 P/E123
MCap2,763 P/FCF33
Net Debt61 EBIT34
TEV2,823 TEV/EBIT82
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-06-27 Filed 2020-07-30
10-Q 2020-03-28 Filed 2020-04-30
10-K 2019-12-28 Filed 2020-02-24
10-Q 2019-09-28 Filed 2019-10-31
10-Q 2019-06-29 Filed 2019-08-02
10-Q 2019-03-30 Filed 2019-05-03
10-K 2018-12-29 Filed 2019-02-26
10-Q 2018-09-29 Filed 2018-10-29
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-08
10-K 2017-12-30 Filed 2018-03-14
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-07-01 Filed 2017-08-10
10-Q 2017-04-01 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-10-01 Filed 2016-11-10
10-Q 2016-07-02 Filed 2016-08-11
10-Q 2016-04-02 Filed 2016-05-12
10-K 2016-01-02 Filed 2016-03-02
10-Q 2015-10-03 Filed 2015-11-12
10-Q 2015-07-04 Filed 2015-08-13
10-Q 2015-04-04 Filed 2015-05-15
10-K 2015-01-03 Filed 2015-03-04
10-Q 2014-09-27 Filed 2014-11-05
10-Q 2014-06-28 Filed 2014-08-06
10-Q 2014-03-29 Filed 2014-05-07
10-K 2013-12-28 Filed 2014-03-11
10-Q 2013-09-28 Filed 2013-11-05
10-Q 2013-06-29 Filed 2013-08-06
10-Q 2013-03-30 Filed 2013-05-07
10-K 2012-12-29 Filed 2013-03-08
10-Q 2012-09-29 Filed 2012-11-06
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-12
10-Q 2011-10-01 Filed 2011-11-04
10-Q 2011-07-02 Filed 2011-08-05
10-Q 2011-04-02 Filed 2011-05-05
10-K 2011-01-01 Filed 2011-03-11
10-Q 2010-10-02 Filed 2010-11-05
10-Q 2010-07-03 Filed 2010-08-06
10-Q 2010-04-03 Filed 2010-05-05
10-K 2010-01-02 Filed 2010-03-10
8-K 2020-07-28 Earnings
8-K 2020-05-05
8-K 2020-05-05
8-K 2020-04-28
8-K 2020-04-15
8-K 2020-02-24
8-K 2020-02-11
8-K 2019-12-27
8-K 2019-12-10
8-K 2019-11-01
8-K 2019-10-29
8-K 2019-07-30
8-K 2019-05-20
8-K 2019-05-17
8-K 2019-05-03
8-K 2019-04-30
8-K 2019-02-12
8-K 2019-01-02
8-K 2018-10-25
8-K 2018-08-28
8-K 2018-08-21
8-K 2018-07-26
8-K 2018-07-18
8-K 2018-05-04
8-K 2018-04-26
8-K 2018-03-12
8-K 2018-03-07
8-K 2018-02-13
8-K 2018-02-03

LSCC 10Q Quarterly Report

EX-31.1 ex_187506.htm
EX-31.2 ex_187507.htm
EX-32.1 ex_187508.htm
EX-32.2 ex_187509.htm

Lattice Semiconductor Earnings 2020-06-27

Balance SheetIncome StatementCash Flow
0.90.70.50.40.20.02012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.40.20.1-0.1-0.2-0.42012201420172020
Ops, Inv, Fin

lscc20200331_10q.htm
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Table of Contents


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED June 27, 2020

 

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 000-18032

 

 

LATTICE SEMICONDUCTOR CORPORATION

(Exact name of Registrant as specified in its charter)

  

State of Delaware

93-0835214

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

5555 NE Moore Court, Hillsboro, OR

97124

(Address of principal executive offices)

(Zip Code)

(503) 268-8000

(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

Common Stock, $.01 par value

LSCC

Nasdaq Global Select Market

 

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.   Yes ☒  No ☐

 

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).   Yes ☒  No ☐

 

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. (Check one):

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

 

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   No ☒

 

Number of shares of common stock outstanding as of July 27, 2020135,309,247

 


 

 
 

LATTICE SEMICONDUCTOR CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

     

 

Note Regarding Forward-Looking Statements

- 3 -

 

 

 

PART I.

FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

- 4 -

 

 

 

 

Consolidated Statements of Operations – Three and Six Months Ended June 27, 2020 and June 29, 2019  (unaudited)

- 4 -

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 27, 2020 and June 29, 2019  (unaudited)

- 5 -

 

 

 

 

Consolidated Balance Sheets – June 27, 2020 and December 28, 2019  (unaudited)

- 6 -

 

 

 

 

Consolidated Statements of Cash Flows – Six Months Ended June 27, 2020 and June 29, 2019  (unaudited)

- 7 -

 

 

 

 

Consolidated Statements of Stockholders' Equity – Three and Six Months Ended June 27, 2020 and June 29, 2019  (unaudited)

- 8 -

 

 

 

 

Notes to Consolidated Financial Statements  (unaudited)

- 10 -

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

- 19 -

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

- 27 -

 

 

 

Item 4.

Controls and Procedures

- 27 -

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

- 28 -

 

 

 

Item 1A.

Risk Factors

- 28 -

 

 

 

Item 6.

Exhibits

- 30 -

 

 

 

 

Signatures

- 31 -

 

 

 

 

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 financial results or accounting treatments; the potential impact of the COVID-19 pandemic, including actions by governments, businesses, and individuals in response to the situation, on consumer, industrial, and financial markets, our business operations, supply chain and partners, financial performance, results of operations, financial position, and the achievement of our strategic objectives; our use of cash; our gross margin growth and our strategies to achieve gross margin growth and other financial results; our opportunities to increase our addressable market; our expectations and strategies regarding market trends and opportunities, including market segment drivers such as 5G infrastructure deployments, cloud and enterprise servers, client computing platforms, industrial Internet of Things, factory automation, automotive electronics, smart homes and prosumers; our judgments involved in accounting matters; actions we may take regarding the design of our internal control over financial reporting; our expectations regarding product offerings; our expectations regarding our customer base; our future investments in research and development and our research and development expense efficiency; the expected costs of our restructuring plans; our expectations regarding taxes, including unrecognized tax benefits, and tax adjustments and allowances; our beliefs regarding the adequacy of our liquidity, capital resources and facilities; whether we will offer and how we may fund share repurchases; and our beliefs regarding legal 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 the effects of the COVID-19 pandemic 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; global economic conditions and uncertainty; 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, 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 28, 2019 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


 

ITEM 1. FINANCIAL STATEMENTS

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


 

  

Three Months Ended

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(In thousands, except per share data)

 

2020

  

2019

  

2020

  

2019

 

Revenue

 $100,589  $102,296  $197,905  $200,387 

Cost of revenue

  40,012   42,258   79,766   82,697 

Gross margin

  60,577   60,038   118,139   117,690 

Operating expenses:

                

Research and development

  22,458   19,377   44,151   39,042 

Selling, general, and administrative

  24,488   19,759   47,039   40,540 

Amortization of acquired intangible assets

  603   3,390   3,243   6,779 

Restructuring charges

  546   3,126   1,486   4,467 

Total operating expenses

  48,095   45,652   95,919   90,828 

Income from operations

  12,482   14,386   22,220   26,862 

Interest expense

  (1,045)  (3,538)  (2,122)  (8,525)

Other income (expense), net

  37   (2,109)  (13)  (1,956)

Income before income taxes

  11,474   8,739   20,085   16,381 

Income tax expense

  845   180   1,289   414 

Net income

 $10,629  $8,559  $18,796  $15,967 
                 

Net income per share:

                

Basic

 $0.08  $0.06  $0.14  $0.12 

Diluted

 $0.08  $0.06  $0.14  $0.12 
                 

Shares used in per share calculations:

                

Basic

  134,857   132,206   134,555   131,599 

Diluted

  139,202   137,221   138,751   136,133 

 

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


 

   

Three Months Ended

   

Six Months Ended

 
   

June 27,

   

June 29,

   

June 27,

   

June 29,

 

(In thousands)

 

2020

   

2019

   

2020

   

2019

 

Net income

  $ 10,629     $ 8,559     $ 18,796     $ 15,967  

Other comprehensive income:

                               

Translation adjustment, net of tax

    151       39       40       86  

Unrealized gain related to marketable securities, net of tax

                      42  

Reclassification adjustment for gains related to marketable securities included in Other income (expense), net of tax

                      (53 )

Comprehensive income

  $ 10,780     $ 8,598     $ 18,836     $ 16,042  

 

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)


 

  

June 27,

  

December 28,

 

(In thousands, except share and par value data)

 

2020

  

2019

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $165,175  $118,081 

Accounts receivable, net of allowance for credit losses

  87,408   64,917 

Inventories

  54,061   54,980 

Prepaid expenses and other current assets

  24,354   24,452 

Total current assets

  330,998   262,430 

Property and equipment, less accumulated depreciation of $106,232 at June 27, 2020 and $125,990 at December 28, 2019

  40,268   39,230 

Operating lease right-of-use assets

  22,304   23,591 

Intangible assets, net

  3,707   6,977 

Goodwill

  267,514   267,514 

Deferred income taxes

  480   478 

Other long-term assets

  10,759   11,796 

Total assets

 $676,030  $612,016 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable and accrued expenses

 $66,266  $60,255 

Accrued payroll obligations

  15,273   13,404 

Current portion of long-term debt

  4,004   21,474 

Current portion of operating lease liabilities

  4,979   4,686 

Total current liabilities

  90,522   99,819 

Long-term debt, net of current portion

  166,501   125,072 

Long-term operating lease liabilities, net of current portion

  19,823   21,438 

Other long-term liabilities

  35,054   38,028 

Total liabilities

  311,900   284,357 

Contingencies (Note 11)

      

Stockholders' equity:

        

Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding

      

Common stock, $.01 par value, 300,000,000 shares authorized; 135,147,000 shares issued and outstanding as of June 27, 2020 and 133,883,000 shares issued and outstanding as of December 28, 2019

  1,351   1,339 

Additional paid-in capital

  779,836   762,213 

Accumulated deficit

  (414,494)  (433,290)

Accumulated other comprehensive loss

  (2,563)  (2,603)

Total stockholders' equity

  364,130   327,659 

Total liabilities and stockholders' equity

 $676,030  $612,016 

 

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


 

   

Six Months Ended

 
    June 27,     June 29,  

(In thousands)

 

2020

   

2019

 

Cash flows from operating activities:

               

Net income

  $ 18,796     $ 15,967  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    13,456       16,450  

Stock-based compensation expense

    19,740       7,655  

Reduction in the carrying amount of right-of-use assets

    2,976       2,907  

Amortization of debt issuance costs and discount

    208       1,215  

Impairment of operating lease right-of-use asset (recorded in Restructuring charges)

          977  
Loss on refinancing of long-term debt           2,235  

Other non-cash adjustments

    (60 )     (39 )

Changes in assets and liabilities:

               

Accounts receivable, net

    (22,491 )     22,997  

Inventories

    919       2,132  

Prepaid expenses and other assets

    (1,169 )     (5,097 )

Accounts payable and accrued expenses

    5,207       3,974  

Accrued payroll obligations

    1,869       (309 )

Operating lease liabilities, current and long-term portions

    (2,957 )     (3,975 )

Income taxes payable

    370       (593 )

Net cash provided by operating activities

    36,864       66,496  

Cash flows from investing activities:

               

Proceeds from sales of and maturities of short-term marketable securities

          9,655  

Capital expenditures

    (6,829 )     (8,459 )

Cash paid for software licenses

    (4,626 )     (3,597 )

Net cash used in investing activities

    (11,455 )     (2,401 )

Cash flows from financing activities:

               

Restricted stock unit tax withholdings

    (6,642 )     (1,014 )

Proceeds from issuance of common stock

    4,537       14,037  

Proceeds from issuance of long-term debt

    50,000       206,500  
Original issue discount and debt issuance costs           (2,086 )

Repayment of debt

    (26,250 )     (278,033 )

Net cash provided by (used in) financing activities

    21,645       (60,596 )

Effect of exchange rate change on cash

    40       86  

Net increase in cash and cash equivalents

    47,094       3,585  

Beginning cash and cash equivalents

    118,081       119,051  

Ending cash and cash equivalents

  $ 165,175     $ 122,636  
                 

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

 

Interest paid

  $ 2,193     $ 8,103  

Operating lease payments

  $ 3,812     $ 4,613  

Income taxes paid, net of refunds

  $ 1,579     $ 1,500  

Accrued purchases of plant and equipment

  $ 1,067     $ 1,627  

Operating lease right-of-use assets obtained in exchange for lease obligations

  $ 1,635     $ 298  

 

 

 

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 six month period ended June 27, 2020:

 

   

Common Stock ($.01 par value)

   

Additional Paid-in

   

Accumulated

   

Accumulated other comprehensive

         

(In thousands, except par value data)

 

Shares

   

Amount

   

capital

   

deficit

   

loss

   

Total

 

Balances, December 28, 2019

    133,883     $ 1,339     $ 762,213     $ (433,290 )   $ (2,603 )   $ 327,659  

Net income for the six months ended June 27, 2020

                      18,796             18,796  

Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs, net of shares withheld for employee taxes

    1,264       12       (2,117 )                 (2,105 )

Stock-based compensation related to stock options, ESPP and RSUs

                19,740                   19,740  

Translation adjustments, net of tax

                            40       40  

Balances, June 27, 2020

    135,147     $ 1,351     $ 779,836     $ (414,494 )   $ (2,563 )   $ 364,130  

 

 

 

The following summarizes the changes in total equity for the six month period ended June 29, 2019:

 

   

Common Stock($.01 par value)

   

Additional Paid-in

   

Accumulated

   

Accumulated other comprehensive

         

(In thousands, except par value data)

 

Shares

   

Amount

   

capital

   

deficit

   

loss

   

Total

 

Balances, December 29, 2018

    129,728     $ 1,297     $ 736,274     $ (476,783 )   $ (2,331 )   $ 258,457  

Net income for the six months ended June 29, 2019

                      15,967             15,967  

Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs, net of shares withheld for employee taxes

    2,808       28       12,995                   13,023  

Stock-based compensation related to stock options, ESPP and RSUs

                7,655                   7,655  

Translation adjustments, net of tax

                            86       86  

Unrealized loss related to marketable securities, net of tax

                            42       42  

Recognized gain on redemption of marketable securities, previously unrealized

                            (53 )     (53 )

Balances, June 29, 2019

    132,536     $ 1,325     $ 756,924     $ (460,816 )   $ (2,256 )   $ 295,177  

 

 

 

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 June 27, 2020:

 

   

Common Stock ($.01 par value)

   

Additional Paid-in

   

Accumulated

   

Accumulated other comprehensive

         

(In thousands, except par value data)

 

Shares

   

Amount

   

capital

   

deficit

   

loss

   

Total

 

Balances, March 28, 2020

    134,513     $ 1,345     $ 769,451     $ (425,123 )   $ (2,714 )   $ 342,959  

Net income for the three months ended June 27, 2020

                      10,629             10,629  

Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs, net of shares withheld for employee taxes

    634       6       (627 )                 (621 )

Stock-based compensation related to stock options, ESPP and RSUs

                11,012                   11,012  

Translation adjustments, net of tax

                            151       151  

Balances, June 27, 2020

    135,147     $ 1,351     $ 779,836     $ (414,494 )   $ (2,563 )   $ 364,130  

 

 

 

The following summarizes the changes in total equity for the three month period ended June 29, 2019:

 

   

Common Stock ($.01 par value)

   

Additional Paid-in

   

Accumulated

   

Accumulated other comprehensive

         

(In thousands, except par value data)

 

Shares

   

Amount

   

capital

   

deficit

   

loss

   

Total

 

Balances, March 30, 2019

    131,905     $ 1,319     $ 751,506     $ (469,375 )   $ (2,295 )   $ 281,155  

Net income for the three months ended June 29, 2019

                      8,559             8,559  

Common stock issued in connection with the exercise of stock options, ESPP and vested RSUs, net of shares withheld for employee taxes

    631       6       1,449                   1,455  

Stock-based compensation related to stock options, ESPP and RSUs

                3,969                   3,969  

Translation adjustments, net of tax

                            39       39  

Balances, June 29, 2019

    132,536     $ 1,325     $ 756,924     $ (460,816 )   $ (2,256 )   $ 295,177  

 

 

 

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, a Delaware corporation, and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, system solutions, design services, and licenses. Lattice was founded in 1983 and is headquartered in Hillsboro, Oregon.

 

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 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 28, 2019 ("2019 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. The actual results that we experience may differ materially from our estimates. As of June 27, 2020, the extent to which the COVID-19 pandemic will impact our business going forward depends on numerous dynamic factors which we cannot reliably predict. As a result, some of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As the events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.

 

We describe our accounting methods and practices in more detail in our 2019 10-K. There have been no changes to the significant accounting policies, procedures, or general information described in our 2019 10-K that have had a material impact on our consolidated financial statements and related notes.

 

Fiscal Reporting Periods

 

We report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal 2020 will be a 53-week year and will end on January 2, 2021, and our fiscal 2019 was a 52-week year that ended December 28, 2019. Our second quarter of fiscal 2020 and second quarter of fiscal 2019 ended on June 27, 2020 and June 29, 2019, respectively. All references to quarterly or six months ended financial results are references to the results for the relevant 13-week or 26-week fiscal period.

 

Concentrations of Risk

 

Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was 85% for the second quarter of both fiscal 2020 and 2019, respectively, and 81% and 82% for the six months ended June 27, 2020 and June 29, 2019, respectively. In the periods covered by this report, no end customer accounted for more than 10% of total revenue.

 

Distributors also account for a substantial portion of our net accounts receivable. Our two largest distributors accounted for 63% and 26% of net accounts receivable at June 27, 2020 and 40% and 38% of net accounts receivable at December 28, 2019. No other distributor or end customer accounted for more than 10% of net accounts receivable at these dates.

 

Recently Issued Accounting Standards

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which adds new guidance for accounting for tax law changes, year-to-date losses in interim periods, and determining how to apply the income tax guidance to franchise taxes that are partially based on income, as well as other changes to simplify accounting for income taxes. The ASU is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Entities may early adopt the ASU in any interim period for which financial statements have not yet been issued (or made available for issuance). We are currently assessing the impact of ASU 2019-12 on our consolidated financial statements and related disclosures.

 

 

 

Note 2 - Net Income per Share

 

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 June 27, 2020 is determined by measuring the achievement of the market condition as of the end of the reporting period. For equity awards with a performance condition, no shares are included in the diluted share count as of June 27, 2020, as vesting of future tranches of these awards is contingent upon achievement of the performance condition over two consecutive trailing four-quarter periods, which has not yet been achieved. 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

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(in thousands, except per share data)

 

2020

  

2019

  

2020

  

2019

 

Net income

 $10,629  $8,559  $18,796  $15,967 
                 

Shares used in basic Net income per share

  134,857   132,206   134,555   131,599 

Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition

  4,345   5,015   4,196   4,534 

Shares used in diluted Net income per share

  139,202   137,221   138,751   136,133 
                 

Basic Net income per share

 $0.08  $0.06  $0.14  $0.12 

Diluted Net income per share

 $0.08  $0.06  $0.14  $0.12 

 

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

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(in thousands)

 

2020

  

2019

  

2020

  

2019

 

Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive

  579   73   658   210 

 

 

 

Note 3 - Revenue from Contracts with Customers

 

Disaggregation of revenue

 

The following tables provide information about revenue from contracts with customers disaggregated by major class of revenue, revenue by channel, and by geographical market, based on ship-to location of the end customer, where available, and ship-to location of distributor otherwise:

 

Major Class of Revenue

 

Three Months Ended

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Product

 $95,996   96% $98,096   96% $189,221   96% $189,708   95%

Licensing and services

  4,593   4%  4,200   4%  8,684   4%  10,679   5%

Total revenue

 $100,589   100% $102,296   100% $197,905   100% $200,387   100%

 

 

 

 

Revenue by Channel

 

Three Months Ended

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Product revenue - Distributors

 $85,152   85% $86,627   85% $160,607   81% $164,099   82%

Product revenue - Direct

  10,844   11%  11,469   11%  28,614   15%  25,609   13%

Licensing and services revenue

  4,593   4%  4,200   4%  8,684   4%  10,679   5%

Total revenue

 $100,589   100% $102,296   100% $197,905   100% $200,387   100%

 

 

Revenue by Geographical Market

 

Three Months Ended

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

United States

 $9,860   10% $10,161   10% $23,179   12% $23,056   12%

Other Americas

  4,647   4%  2,705   2%  7,915   4%  6,680   3%

Americas

  14,507   14%  12,866   12%  31,094   16%  29,736   15%

China

  52,465   52%  52,042   51%  95,964   48%  100,347   50%

Taiwan

  7,593   8%  4,672   5%  17,452   9%  7,351   4%

Japan

  6,435   6%  9,415   9%  14,434   7%  21,272   11%

Other Asia

  8,067   8%  10,716   11%  15,403   8%  16,886   8%

Asia

  74,560   74%  76,845   76%  143,253   72%  145,856   73%

Europe

  11,522   12%  12,585   12%  23,558   12%  24,795   12%

Total revenue

 $100,589   100% $102,296   100% $197,905   100% $200,387   100%

 

 

Contract balances

 

Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI consortium, with collection dependent on events other than the passage of time, such as collection of licenses and royalties from customers by the HDMI licensing agent. 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 collected by the 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 six months of fiscal 2020:

 

(In thousands)

    

Contract assets as of December 28, 2019

 $5,569 

Revenues recorded during the period

  7,530 

Transferred to Accounts receivable or collected

  (7,313)

Contract assets as of June 27, 2020

 $5,786 

 

Contract liabilities are included in Accounts payable and accrued expenses on our Consolidated Balance Sheets. The following table summarizes activity during the first six months of fiscal 2020:

 

(In thousands)

    

Contract liabilities as of December 28, 2019

 $2,313 

Accruals for estimated future stock rotation and scrap returns

  2,790 

Less: Release of accruals for recognized stock rotation and scrap returns

  (2,318)
Prepayment for performance obligations expected to be satisfied within three months  199 

Contract liabilities as of June 27, 2020

 $2,984 

 

The impact to revenue from the release of accruals for recognized stock rotation and scrap returns was offset by the processing of return merchandise authorizations totaling approximately $2.7 million, yielding a net revenue reduction of approximately $0.4 million for the first six months of 2020.

 

 

 

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. We determine this allowance through an assessment of known troubled accounts, analysis of our accounts receivable aging, historical experience, expectations for future economic conditions, management judgment, and other available evidence.

 

  June 27,  December 28, 

(In thousands)

 

2020

  

2019

 

Accounts receivable

 $87,514  $65,023 

Less: Allowance for credit losses

  (106)  (106)

Accounts receivable, net of allowance for credit losses

 $87,408  $64,917 

 

 

Inventories

 

  June 27,  December 28, 

(In thousands)

 

2020

  

2019

 

Work in progress

 $40,020  $39,855 

Finished goods

  14,041   15,125 

Total inventories

 $54,061  $54,980 

 

 

Property and Equipment – Geographic Information

 

Our Property and equipment, net by country at the end of each period was as follows:

 

  June 27,  December 28, 

(In thousands)

 

2020

  

2019

 

United States

 $29,884  $32,313 
         

China

  1,459   1,683 

Philippines

  2,468   2,683 

Taiwan

  5,576   1,885 

Japan

  635   283 

Other

  246   383 

Total foreign property and equipment, net

  10,384   6,917 

Total property and equipment, net

 $40,268  $39,230 

 

 

Accounts Payable and Accrued Expenses

 

Included in Accounts payable and accrued expenses in the Consolidated Balance Sheets are the following balances:

 

  June 27,  December 28, 

(In thousands)

 

2020

  

2019

 

Trade accounts payable

 $48,759  $44,350 

Liability for non-cancelable contracts

  8,089   6,964 

Other accrued expenses

  9,418   8,941 

Total accounts payable and accrued expenses

 $66,266  $60,255 

 

 

Cloud Based Computing Implementation Costs

 

Under the guidance in ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), we are capitalizing the implementation costs for cloud computing arrangements, mainly for our new and integrated distributor accounting management systems. These cloud-based computing implementation costs are recorded in Prepaid expenses and other current assets and Other long-term assets on our Consolidated Balance Sheets. The following table summarizes activity during the first six months of fiscal 2020:

 

(In thousands)

    

Cloud based computing implementation costs as of December 28, 2019

 $2,543 

Costs capitalized during the period

  625 

Capitalized costs amortized during the period

  (230)

Cloud based computing implementation costs as of June 27, 2020

 $2,938 

 

 

Note 5 - Long-Term Debt

 

On May 17, 2019, we entered into a credit agreement (the “Current Credit Agreement”), which provides for a five-year secured term loan facility in an aggregate principal amount of $175.0 million and a five-year secured revolving loan facility in an aggregate principal amount of up to $75.0 million. Details of the term loan and the revolving loan (collectively, "long-term debt"), including the basis for interest, payment terms, and covenant compliance are more fully described in the Current Credit Agreement and our 2019 10-K.

 

During the second quarter of fiscal 2020, we made principal payments totaling $21.9 million, including $13.1 million in accelerated principal payments that fulfilled the required quarterly installments through the first quarter of fiscal 2021. We have made principal payments totaling $26.3 million in the first six months of fiscal 2020, and we drew $50.0 million on our revolving loan facility during the first quarter of fiscal 2020. The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:

 

  June 27,  December 28, 

(In thousands)

 

2020

  

2019

 

Principal amount

 $171,875  $148,125 

Unamortized original issue discount and debt costs

  (1,370)  (1,579)

Less: Current portion of long-term debt

  (4,004)  (21,474)

Long-term debt, net of current portion and unamortized debt issue costs

 $166,501  $125,072 

 

As of June 27, 2020, the effective interest rate on the term loan was 1.89%, and the effective interest rate on the revolving loan was 1.67%. We pay a commitment fee of 0.20% on the unused portion of the revolving loan. Interest expense related to our long-term debt was included in Interest expense on our Consolidated Statements of Operations as follows:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 27,

  

June 29,

  

June 27,

  

June 29,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Contractual interest

 $918  $2,989  $2,004  $7,305 

Amortization of debt issuance costs and discount

  105   528   208   1,215 

Total interest expense related to long-term debt

 $1,023  $3,517  $2,212  $8,520 

 

Expected future principal payments are based on the schedule of required quarterly installments, adjusted for known voluntary payments. With the accelerated principal payments we made during the first six months of fiscal 2020, our next required quarterly installment is due in the second quarter of fiscal 2021. As of June 27, 2020, expected future principal payments on our long-term debt were as follows:

 

Fiscal year

 

(in thousands)

 
     

2020 (remaining 6 months)

 $- 

2021

  13,125 

2022

  17,500 

2023

  13,125 

2024

  128,125 
  $171,875 

 

 

 

Note 6 - Restructuring

 

In March 2020, our management approved and executed an internal restructuring plan (the “Q1 2020 Plan”), which included a workforce reduction in order to reduce our operating cost structure by leveraging our low-cost regions as well as enhancing efficiency. Under the Q1 2020 Plan, we incurred restructuring expense of approximately $0.3 million during the second quarter of fiscal 2020 associated with additional headcount related costs, and a total $1.4 million has been incurred through June 27, 2020. We believe this amount approximates the total costs under the Q1 2020 Plan.

 

Under the Q2 2019 Sales Plan, which is more fully described in the 2019 10-K, we recorded additional contract termination costs of approximately $0.2 million during the second quarter of fiscal 2020, and have recorded a net credit adjustment of less than $0.1 million during the first six months of fiscal 2020 due to the final reconciliation of expenses incurred. We incurred approximately $2.4 million of restructuring expense during the second quarter of fiscal 2019. Approximately $2.0 million of net expense has been incurred through June 27, 2020 under the Q2 2019 Sales Plan. Substantially all actions planned under the Q2 2019 Sales Plan have been implemented.

 

Under the June 2017 Plan, which is more fully described in the 2019 10-K, we incurred approximately $0.1 million and approximately $0.7 million of expense during the second quarter of fiscal 2020 and fiscal 2019, respectively, and approximately $0.1 million and $2.0 million of expense during the six months ended June 27, 2020 and June 29, 2019, respectively. We have incurred approximately $19.2 million of total expense through June 27, 2020 under the June 2017 Plan, and all planned actions have been implemented. We expect the total cost of the June 2017 Plan to be approximately $20.0 million to $21.5 million as expenses related to our partially vacated facility in San Jose, California will be incurred over the remaining lease term.

 

These expenses were recorded to Restructuring charges on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accounts payable and accrued expenses 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

  

Software Contracts & Engineering Tools (2)

  

Other (3)

  

Total

 

Accrued Restructuring at December 28, 2019

 $160  $6,585  $  $865  $7,610 

Restructuring charges

  1,277   114      95   1,486 

Costs paid or otherwise settled

  (508)  (833)     (201)  (1,542)

Accrued Restructuring at June 27, 2020

 $929  $5,866  $  $759  $7,554 
                     

Accrued Restructuring at December 29, 2018

 $1,814  $8,630