Lattice Semiconductor Reports Fourth Quarter and Full Year 2018

Lattice Semiconductor Reports Fourth Quarter and Full Year 2018 Results

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

	Three Months Ended									Twelve Months Ended
	December 29, 2018			September 29, 2018			December 30, 2017			December 29, 2018			December 30, 2017
Revenue	$	95,977		$	101,484		$	95,266		$	398,799		$	385,961
Costs and expenses:
Cost of sales	41,671			43,120			44,050			179,360			169,382
Research and development	19,296			19,131			23,500			82,449			103,357
Selling, general, and administrative	21,168			21,775			23,585			91,054			90,718
Amortization of acquired intangible assets	3,708			3,823			5,563			17,690			31,340
Restructuring	11,854			90			2,483			17,349			7,196
Acquisition related charges	—			—			573			1,531			3,781
Impairment of acquired intangible assets	—			586			(3,767		)	12,486			32,431
Gain on sale of building	—			—			—			—			(4,624		)
	97,697			88,525			95,987			401,919			433,581
(Loss) income from operations	(1,720		)	12,959			(721		)	(3,120		)	(47,620		)
Interest expense	(5,018		)	(5,500		)	(4,695		)	(20,600		)	(18,807		)
Other expense, net	(3		)	(452		)	(1,182		)	(249		)	(3,286		)
(Loss) income before income taxes	(6,741		)	7,007			(6,598		)	(23,969		)	(69,713		)
Income tax expense	380			33			615			2,353			849
Net (loss) income	$	(7,121	)	$	6,974		$	(7,213	)	$	(26,322	)	$	(70,562	)

Net (loss) income per share:
Basic	$	(0.05	)	$	0.05		$	(0.06	)	$	(0.21	)	$	(0.58	)
Diluted	$	(0.05	)	$	0.05		$	(0.06	)	$	(0.21	)	$	(0.58	)

Shares used in per share calculations:
Basic	129,521			127,816			123,541			126,564			122,677
Diluted	129,521			129,474			123,541			126,564			122,677

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

	December 29, 2018		December 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	119,051	$	106,815
Short-term marketable securities	9,624		4,982
Accounts receivable, net	60,890		55,104
Inventories	67,096		79,903
Other current assets	27,762		16,567
Total current assets	284,423		263,371

Property and equipment, net	34,883		40,423
Intangible assets, net	21,325		51,308
Goodwill	267,514		267,514
Deferred income taxes	215		198
Other long-term assets	15,327		13,147
	$	623,687	$	635,961

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	61,128	$	64,821
Current portion of long-term debt	8,290		1,508
Deferred income and allowances on sales to distributors and deferred license revenue	—		17,318
Total current liabilities	69,418		83,647

Long-term debt	251,357		299,667
Other long-term liabilities	44,455		34,954
Total liabilities	365,230		418,268

Stockholders' equity	258,457		217,693
	$	623,687	$	635,961

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

	Twelve Months Ended
	December 29,			December 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(26,322	)	$	(70,562	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	39,261			57,861
Impairment of acquired intangible assets	12,486			32,431
Amortization of debt issuance costs and discount	2,230			1,982
Change in deferred income tax provision	(96		)	(154		)
(Gain) loss on sale or maturity of marketable securities	(18		)	252
Gain on forward contracts	(53		)	(77		)
Stock-based compensation expense	13,646			12,543
Gain on disposal of fixed assets	(178		)	(75		)
Gain on sale of building	—			(4,624		)
Loss on sale of assets and business units	—			1,496
Impairment of cost-method investment	266			1,761
Changes in assets and liabilities:
Accounts receivable, net	(3,978		)	44,613
Inventories	13,177			(902		)
Prepaid expenses and other assets	(11,667		)	889
Accounts payable and accrued expenses (includes restructuring)	13,325			(23,588		)
Accrued payroll obligations	(1,051		)	726
Income taxes payable	498			(556		)
Deferred income and allowances on sales to distributors	—			(15,007		)
Deferred licensing and services revenue	(68		)	(495		)
Net cash provided by operating activities	51,458			38,514
Cash flows from investing activities:
Proceeds from sales of and maturities of short-term marketable securities	5,000			12,689
Purchases of marketable securities	(9,603		)	(7,420		)
Proceeds from sale of building	—			7,895
Cash paid for costs of sale of building	—			(1,004		)
Capital expenditures	(8,384		)	(12,855		)
Proceeds from sale of assets and business unit, net of cash sold	—			967
Repayment received on short-term loan to cost-method investee	—			2,000
Short-term loan to cost-method investee	—			(2,000		)
Cash paid for software licenses	(8,123		)	(8,532		)
Net cash used in investing activities	(21,110		)	(8,260		)
Cash flows from financing activities:
Restricted stock unit tax withholdings	(2,370		)	(3,267		)
Proceeds from issuance of common stock	29,288			6,085
Repayment of debt	(43,759		)	(35,429		)
Net cash used in financing activities	(16,841		)	(32,611		)
Effect of exchange rate change on cash	(1,271		)	2,620
Net increase in cash and cash equivalents	12,236			263
Beginning cash and cash equivalents	106,815			106,552
Ending cash and cash equivalents	$	119,051		$	106,815

Supplemental cash flow information:
Change in unrealized (gain) loss related to marketable securities, net of tax, included in Accumulated other comprehensive loss	$	(41	)	$	73
Income taxes paid, net of refunds	$	3,054		$	2,387
Interest paid	$	18,607		$	20,649
Accrued purchases of plant and equipment	$	110		$	588
Note receivable resulting from sale of assets and business units	$	—		$	3,050

Lattice Semiconductor Corporation - Supplemental Historical Financial Information - (unaudited)

	Three Months Ended									Twelve Months Ended
	December 29,			September 29,			December 30,			December 29,			December 30,
	2018			2018			2017			2018			2017
Operations and Cash Flow Information
Percent of Revenue
Gross Margin	56.6		%	57.5		%	53.8		%	55.0		%	56.1		%
R&D Expense	20.1		%	18.9		%	24.7		%	20.7		%	26.8		%
SG&A Expense	22.1		%	21.5		%	24.8		%	22.8		%	23.5		%
Depreciation and amortization (in thousands)	$	8,521		$	8,315		$	12,270		$	39,261		$	57,861
Stock-based compensation expense (in thousands)	$	3,738		$	2,708		$	3,257		$	13,646		$	12,543
Restructuring and severance related charges (in thousands)	$	11,854		$	90		$	2,483		$	17,349		$	7,196
Net cash provided by operating activities (thousands)	$	30,898		$	10,978		$	2,768		$	51,458		$	38,514
Capital expenditures (in thousands)	$	2,206		$	2,073		$	530		$	8,384		$	12,855
Repayment of debt (in thousands)	$	15,875		$	15,875		$	1,750		$	43,759		$	35,429
Interest paid (in thousands)	$	4,631		$	4,799		$	4,270		$	18,607		$	20,649
Taxes paid (cash, in thousands)	$	338		$	659		$	79		$	3,054		$	2,387

Balance Sheet Information
Current Ratio	4.1			4.0			3.1
A/R Days Revenue Outstanding	58			68			53
Inventory Months	4.8			4.6			5.4

Revenue% (by Geography)
Asia	74		%	76		%	74		%	75		%	72		%
Europe (incl. Africa)	10		%	12		%	13		%	11		%	12		%
Americas	16		%	12		%	13		%	14		%	16		%

Revenue% (by End Market)
Communications and Computing	34		%	32		%	30		%	31		%	29		%
Mobile and Consumer	22		%	27		%	27		%	25		%	28		%
Industrial and Automotive	37		%	37		%	41		%	39		%	35		%
Licensing and Services	7		%	4		%	2		%	5		%	8		%

Revenue% (by Channel) *
Distribution	76		%	82		%	83		%	83		%	77		%
Direct	24		%	18		%	17		%	17		%	23		%

*	During the first quarter of 2018, we updated our channel categories to group all forms of distribution into a single channel. Prior periods have been reclassified to match current period presentation.

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

	Three Months Ended									Twelve Months Ended
	December 29,			September 29,			December 30,			December 29,			December 30,
	2018			2018			2017			2018			2017

Gross Margin Reconciliation
GAAP Gross margin	$	54,306		$	58,364		$	51,216		$	219,439		$	216,579
Inventory adjustment related to restructured operations	(160		)	(288		)	—			7,829			—
Stock-based compensation - gross margin	288			219			226			940			788
Non-GAAP Gross margin	$	54,434		$	58,295		$	51,442		$	228,208		$	217,367

Gross Margin % Reconciliation
GAAP Gross margin %	56.6		%	57.5		%	53.8		%	55.0		%	56.1		%
Cumulative effect of non-GAAP Gross Margin adjustments	0.1		%	(0.1		)%	0.2		%	2.2		%	0.2		%
Non-GAAP Gross margin %	56.7		%	57.4		%	54.0		%	57.2		%	56.3		%

Operating Expenses Reconciliation
GAAP Operating expenses	$	56,026		$	45,405		$	51,937		$	222,559		$	264,199
Amortization of acquired intangible assets	(3,708		)	(3,823		)	(5,563		)	(17,690		)	(31,340		)
Restructuring charges	(11,854		)	(90		)	(2,483		)	(17,349		)	(7,196		)
Acquisition related charges (1)	—			—			(573		)	(1,531		)	(3,781		)
Impairment of acquired intangible assets	800			(586		)	3,767			(11,686		)	(32,431		)
Stock-based compensation - operations	(3,450		)	(2,489		)	(3,031		)	(12,706		)	(11,755		)
Gain on sale of building	—			—			—			—			4,624
Non-GAAP Operating expenses	$	37,814		$	38,417		$	44,054		$	161,597		$	182,320

(Loss) Income from Operations Reconciliation
GAAP (Loss) income from operations	$	(1,720	)	$	12,959		$	(721	)	$	(3,120	)	$	(47,620	)
Inventory adjustment related to restructured operations	(160		)	(288		)	—			7,829			—
Stock-based compensation - gross margin	288			219			226			940			788
Amortization of acquired intangible assets	3,708			3,823			5,563			17,690			31,340
Restructuring charges	11,854			90			2,483			17,349			7,196
Acquisition related charges (1)	—			—			573			1,531			3,781
Impairment of acquired intangible assets	(800		)	586			(3,767		)	11,686			32,431
Stock-based compensation - operations	3,450			2,489			3,031			12,706			11,755
Gain on sale of building	—			—			—			—			(4,624		)
Non-GAAP Income from operations	$	16,620		$	19,878		$	7,388		$	66,611		$	35,047

(Loss) Income from Operations % Reconciliation
GAAP (Loss) income from operations %	(1.8		)%	12.8		%	(0.8		)%	(0.8		)%	(12.3		)%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	19.1		%	6.8		%	8.6		%	17.5		%	21.4		%
Non-GAAP Income from operations %	17.3		%	19.6		%	7.8		%	16.7		%	9.1		%

(1) Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.

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

	Three Months Ended									Twelve Months Ended
	December 29,			September 29,			December 30,			December 29,			December 30,
	2018			2018			2017			2018			2017

Other Expense, Net Reconciliation
GAAP Other expense, net	$	(3	)	$	(452	)	$	(1,182	)	$	(249	)	$	(3,286	)
Loss on sale of assets and business units	—			—			—			—			1,496
Non-GAAP Other expense, net	$	(3	)	$	(452	)	$	(1,182	)	$	(249	)	$	(1,790	)

Income Tax Expense Reconciliation
GAAP Income tax expense	$	380		$	33		$	615		$	2,353		$	849
Estimated tax effect of non-GAAP adjustments (2)	88			108			(142		)	—			—
Non-GAAP Income tax expense	$	468		$	141		$	473		$	2,353		$	849

Net (Loss) Income Reconciliation
GAAP Net (loss) income	$	(7,121	)	$	6,974		$	(7,213	)	$	(26,322	)	$	(70,562	)
Inventory adjustment related to restructured operations	(160		)	(288		)	—			7,829			—
Stock-based compensation - gross margin	288			219			226			940			788
Amortization of acquired intangible assets	3,708			3,823			5,563			17,690			31,340
Restructuring charges	11,854			90			2,483			17,349			7,196
Acquisition related charges (1)	—			—			573			1,531			3,781
Impairment of acquired intangible assets	(800		)	586			(3,767		)	11,686			32,431
Stock-based compensation - operations	3,450			2,489			3,031			12,706			11,755
Gain on sale of building	—			—			—			—			(4,624		)
Loss on sale of assets and business unit	—			—			—			—			1,496
Estimated tax effect of non-GAAP adjustments (2)	(88		)	(108		)	142			—			—
Non-GAAP Net income	$	11,131		$	13,785		$	1,038		$	43,409		$	13,601

Net (Loss) Income Per Share Reconciliation
GAAP Net (loss) income per share - basic	$	(0.05	)	$	0.05		$	(0.06	)	$	(0.21	)	$	(0.58	)
Cumulative effect of Non-GAAP adjustments	0.14			0.06			0.07			0.55			0.69
Non-GAAP Net income per share - basic	$	0.09		$	0.11		$	0.01		$	0.34		$	0.11

GAAP Net (loss) income per share - diluted	$	(0.05	)	$	0.05		$	(0.06	)	$	(0.21	)	$	(0.58	)
Cumulative effect of Non-GAAP adjustments	0.13			0.06			0.07			0.54			0.69
Non-GAAP Net (loss) income per share - diluted	$	0.08		$	0.11		$	0.01		$	0.33		$	0.11

Shares used in per share calculations:
Basic	129,521			127,816			123,541			126,564			122,677
Diluted - GAAP (3)	129,521			129,474			123,541			126,564			122,677
Diluted - Non-GAAP (3)	132,471			129,474			124,370			129,766			124,499

(1)		Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.
(2)		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.”
(3)		Diluted shares are calculated using the GAAP treasury stock method. In a loss position, diluted shares equal basic shares.

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