Lattice Semiconductor Reports Fourth Quarter and Full Year 2022

Lattice Semiconductor Reports Fourth Quarter and Full Year 2022 Results

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. 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.

These non-GAAP measures are included solely for informational and comparative purposes and are not meant as a substitute for GAAP and should be considered together with the consolidated financial information located in the tables attached to this press release.

About Lattice Semiconductor Corporation:

Lattice Semiconductor (NASDAQ: LSCC) 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 let our customers quickly and easily unleash their innovation to create a smart, secure, and connected world.

For more information about Lattice, please visit www.latticesemi.com. You can also follow us via LinkedIn, Twitter, Facebook, YouTube, WeChat, Weibo or Youku.

Lattice Semiconductor Corporation Consolidated Statements of Operations (in thousands, except per share data) (unaudited)

	Three Months Ended									Year Ended
	December 31,			October 1,			January 1,			December 31,			January 1,
	2022			2022			2022			2022			2022
Revenue	$	175,960		$	172,509		$	141,795		$	660,356		$	515,327
Cost of sales		53,894			53,777			50,715			208,306			193,652
Gross margin		122,066			118,732			91,080			452,050			321,675
Operating expenses:
Research and development		34,779			34,820			30,229			135,767			110,518
Selling, general, and administrative		32,355			31,926			28,646			122,076			105,617
Amortization of acquired intangible assets		870			869			804			3,778			2,613
Restructuring		46			2,315			394			2,551			940
Acquisition related charges		—			—			1,171			511			1,171
Total operating expenses		68,050			69,930			61,244			264,683			220,859
Income from operations		54,016			48,802			29,836			187,367			100,816
Interest expense		(1,280	)		(1,267	)		(657	)		(4,146	)		(2,738	)
Other (expense) income, net		(24	)		(820	)		(68	)		(1,109	)		(452	)
Income before income taxes		52,712			46,715			29,111			182,112			97,626
Income tax expense (benefit)		799			356			579			3,230			1,704
Net income	$	51,913		$	46,359		$	28,532		$	178,882		$	95,922

Net income per share:
Basic	$	0.38		$	0.34		$	0.21		$	1.30		$	0.70
Diluted	$	0.37		$	0.33		$	0.20		$	1.27		$	0.67

Shares used in per share calculations:
Basic		137,095			137,267			137,048			137,321			136,619
Diluted		139,631			139,935			141,587			140,667			142,143

Lattice Semiconductor Corporation Condensed Consolidated Balance Sheets (in thousands) (unaudited)

	December 31,		January 1,
	2022		2022
Assets
Current assets:
Cash and cash equivalents	$	145,722	$	131,570
Accounts receivable, net		94,018		79,859
Inventories, net		110,375		67,594
Other current assets		29,052		22,328
Total current assets		379,167		301,351

Property and equipment, net		47,614		38,094
Operating lease right-of-use assets		17,590		23,818
Intangible assets, net		25,070		29,782
Goodwill		315,358		315,358
Other long-term assets		13,914		18,091
	$	798,713	$	726,494

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	42,036	$	34,597
Accrued expenses		48,467		26,444
Accrued payroll obligations		36,870		27,967
Current portion of long-term debt		—		17,173
Total current liabilities		127,373		106,181

Long-term debt, net of current portion		128,752		140,760
Long-term operating lease liabilities, net of current portion		13,618		19,248
Other long-term liabilities		41,807		48,672
Total liabilities		311,550		314,861

Stockholders' equity		487,163		411,633
	$	798,713	$	726,494

Lattice Semiconductor Corporation Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)

	Year Ended
	December 31,			January 1,
	2022			2022
Cash flows from operating activities:
Net income	$	178,882		$	95,922
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		55,530			46,475
Depreciation and amortization		29,323			24,429
Other non-cash adjustments		8,303			6,348
Net changes in assets and liabilities		(33,232	)		(5,452	)
Net cash provided by (used in) operating activities		238,806			167,722
Cash flows from investing activities:
Cash paid for business acquisition, net of cash acquired		—			(68,099	)
Capital expenditures		(23,338	)		(9,835	)
Other investing activities		(11,594	)		(11,862	)
Net cash provided by (used in) investing activities		(34,932	)		(89,796	)
Cash flows from financing activities:
Proceeds from long-term debt, net of issuance costs		148,597			—
Repayment of long-term debt		(178,750	)		(13,125	)
Repurchase of common stock		(110,132	)		(70,124	)
Net cash flows related to stock compensation exercises		(47,787	)		(45,364	)
Net cash provided by (used in) financing activities		(188,072	)		(128,613	)
Effect of exchange rate change on cash		(1,650	)		(75	)
Net increase (decrease) in cash and cash equivalents		14,152			(50,762	)
Beginning cash and cash equivalents		131,570			182,332
Ending cash and cash equivalents	$	145,722		$	131,570

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	3,973		$	2,313
Income taxes paid, net of refunds	$	4,621		$	3,304

Lattice Semiconductor Corporation Supplemental Historical Financial Information (unaudited)

	Three Months Ended									Year Ended
	December 31,			October 1,			January 1,			December 31,			January 1,
	2022			2022			2022			2022			2022
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)		49			53			51
Inventory Days (DIO)		187			159			122

Revenue% (by Geography)
Asia		65	%		72	%		71	%		71	%		74	%
Americas		19	%		13	%		19	%		15	%		16	%
Europe (incl. Africa)		16	%		15	%		10	%		14	%		10	%

Revenue% (by End Market)
Communications and Computing		40	%		41	%		43	%		42	%		42	%
Industrial and Automotive		51	%		50	%		42	%		48	%		44	%
Consumer		6	%		6	%		9	%		7	%		10	%
Licensing and Services		3	%		3	%		6	%		3	%		4	%

Revenue% (by Channel)
Distribution		89	%		90	%		86	%		89	%		87	%
Direct		11	%		10	%		14	%		11	%		13	%

Lattice Semiconductor Corporation Reconciliation of U.S. GAAP to Non-GAAP Financial Measures (in thousands, except per share data) (unaudited)

	Three Months Ended						Year Ended
	December 31,		October 1,		January 1,		December 31,		January 1,
	2022		2022		2022		2022		2022
*Gross Margin Reconciliation*
GAAP Gross margin	$	122,066	$	118,732	$	91,080	$	452,050	$	321,675
Stock-based compensation - gross margin (1)		1,056		1,122		1,281		4,310		4,105
Non-GAAP Gross margin	$	123,122	$	119,854	$	92,361	$	456,360	$	325,780

*Gross Margin % Reconciliation*
GAAP Gross margin %	69.4	%	68.8	%	64.2	%	68.5	%	62.4	%
Cumulative effect of non-GAAP Gross Margin adjustments	0.6	%	0.7	%	0.9	%	0.6	%	0.8	%
Non-GAAP Gross margin %	70.0	%	69.5	%	65.1	%	69.1	%	63.2	%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %	19.8	%	20.2	%	21.3	%	20.6	%	21.4	%
Stock-based compensation - R&D (1)	(3.0	)%	(3.1	)%	(3.3	)%	(3.2	)%	(3.0	)%
Non-GAAP R&D Expense %	16.8	%	17.1	%	18.0	%	17.4	%	18.4	%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %	18.4	%	18.5	%	20.2	%	18.5	%	20.5	%
Stock-based compensation - SG&A (1)	(4.7	)%	(4.9	)%	(6.3	)%	(5.1	)%	(5.9	)%
Litigation expense (2)	(0.6	)%	(1.0	)%	—	%	(0.4	)%	—	%
Non-GAAP SG&A Expense %	13.1	%	12.6	%	13.9	%	13.0	%	14.6	%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	68,050		$	69,930		$	61,244		$	264,683		$	220,859
Stock-based compensation - operations (1)		(13,584	)		(13,758	)		(13,658	)		(54,119	)		(46,113	)
Litigation expense (2)		(1,081	)		(1,646	)		—			(2,727	)		—
Amortization of acquired intangible assets		(870	)		(869	)		(804	)		(3,778	)		(2,613	)
Restructuring and other charges (3)		(46	)		(2,315	)		(1,030	)		(3,062	)		(2,111	)
Non-GAAP Operating expenses	$	52,469		$	51,342		$	45,752		$	200,997		$	170,022

*Income from Operations Reconciliation*
GAAP Income from operations	$	54,016	$	48,802	$	29,836	$	187,367	$	100,816
Stock-based compensation - gross margin (1)		1,056		1,122		1,281		4,310		4,105
Stock-based compensation - operations (1)		13,584		13,758		13,658		54,119		46,113
Litigation expense (2)		1,081		1,646		—		2,727		—
Amortization of acquired intangible assets		870		869		804		3,778		2,613
Restructuring and other charges (3)		46		2,315		1,030		3,062		2,111
Non-GAAP Income from operations	$	70,653	$	68,512	$	46,609	$	255,363	$	155,758

*Income from Operations % Reconciliation*
GAAP Income from operations %	30.7	%	28.3	%	21.0	%	28.4	%	19.6	%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	9.5	%	11.4	%	11.9	%	10.3	%	10.6	%
Non-GAAP Income from operations %	40.2	%	39.7	%	32.9	%	38.7	%	30.2	%

(1)		The non-GAAP adjustments for Stock-based compensation include related tax expenses.
(2)		Legal expenses associated with the defense of claims that are outside the ordinary course of business that were brought against the Company by Steven A.W. De Jaray, Perienne De Jaray and Darrell R. Oswalde.
(3)		Other charges includes Acquisition related charges in 2021 YTD of $1.2 million.

Lattice Semiconductor Corporation Reconciliation of U.S. GAAP to Non-GAAP Financial Measures (in thousands, except per share data) (unaudited)

	Three Months Ended									Year Ended
	December 31,			October 1,			January 1,			December 31,			January 1,
	2022			2022			2022			2022			2022
*Other (Expense) Income Reconciliation*
GAAP Other (expense) income, net	$	(24	)	$	(820	)	$	(68	)	$	(1,109	)	$	(452	)
Loss on re-financing of long-term debt		4			735			—			739			—
Non-GAAP Other (expense) income, net	$	(20	)	$	(85	)	$	(68	)	$	(370	)	$	(452	)

*Income Tax Expense (Benefit) Reconciliation*
GAAP Income tax expense (benefit)	$	799	$	356	$	579		$	3,230	$	1,704
Estimated tax effect of non-GAAP adjustments (4)		187		312		(40	)		938		—
Non-GAAP Income tax expense (benefit)	$	986	$	668	$	539		$	4,168	$	1,704

*Net Income Reconciliation*
GAAP Net income	$	51,913		$	46,359		$	28,532	$	178,882		$	95,922
Stock-based compensation - gross margin (1)		1,056			1,122			1,281		4,310			4,105
Stock-based compensation - operations (1)		13,584			13,758			13,658		54,119			46,113
Litigation expense (2)		1,081			1,646			—		2,727			—
Amortization of acquired intangible assets		870			869			804		3,778			2,613
Restructuring and other charges (3)		46			2,315			1,030		3,062			2,111
Loss on re-financing of long-term debt		4			735			—		739			—
Estimated tax effect of non-GAAP adjustments (4)		(187	)		(312	)		40		(938	)		—
Non-GAAP Net income	$	68,367		$	66,492		$	45,345	$	246,679		$	150,864

*Net Income Per Share Reconciliation*
GAAP Net income per share - basic	$	0.38	$	0.34	$	0.21	$	1.30	$	0.70
Cumulative effect of Non-GAAP adjustments		0.12		0.14		0.12		0.50		0.40
Non-GAAP Net income per share - basic	$	0.50	$	0.48	$	0.33	$	1.80	$	1.10

GAAP Net income per share - diluted	$	0.37	$	0.33	$	0.20	$	1.27	$	0.67
Cumulative effect of Non-GAAP adjustments		0.12		0.15		0.12		0.48		0.39
Non-GAAP Net income per share - diluted	$	0.49	$	0.48	$	0.32	$	1.75	$	1.06

Shares used in per share calculations:
Basic		137,095		137,267		137,048		137,321		136,619
Diluted		139,631		139,935		141,587		140,667		142,143

(1)		The non-GAAP adjustments for Stock-based compensation include related tax expenses.
(2)		Legal expenses associated with the defense of claims that are outside the ordinary course of business that were brought against the Company by Steven A.W. De Jaray, Perienne De Jaray and Darrell R. Oswalde.
(3)		Other charges includes Acquisition related charges in 2021 YTD of $1.2 million.
(4)		We calculate non-GAAP tax expense by applying our tax provision model to year-to-date and projected income after adjusting for non-GAAP items. The difference between calculated values for GAAP and non-GAAP tax expense has been included as the “Estimated tax effect of non-GAAP adjustments.”

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