Lattice Semiconductor Reports First Quarter 2020 Results

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 lets 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
	March 28,			December 28,			March 30,
	2020			2019			2019
Revenue	$	97,316		$	100,237		$	98,091
Cost of sales		39,754			40,944			40,439
Gross margin		57,562			59,293			57,652
Operating expenses:
Research and development		21,693			19,543			19,665
Selling, general, and administrative		22,551			20,924			20,781
Amortization of acquired intangible assets		2,640			3,390			3,389
Restructuring		940			(55	)		1,341
Total operating expenses		47,824			43,802			45,176
Income from operations		9,738			15,491			12,476
Interest expense		(1,077	)		(1,184	)		(4,987	)
Other (expense) income, net		(50	)		(228	)		153
Income before income taxes		8,611			14,079			7,642
Income tax expense		444			92			234
Net income	$	8,167		$	13,987		$	7,408

Net income per share:
Basic	$	0.06		$	0.10		$	0.06
Diluted	$	0.06		$	0.10		$	0.05

Shares used in per share calculations:
Basic		134,253			133,691			130,992
Diluted		138,044			138,196			134,810

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

	March 28,		December 28,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	176,572	$	118,081
Accounts receivable, net		68,643		64,917
Inventories		48,932		54,980
Other current assets		24,531		24,452
Total current assets		318,678		262,430

Property and equipment, net		39,933		39,230
Operating lease right-of-use assets		22,212		23,591
Intangible assets, net		4,323		6,977
Goodwill		267,514		267,514
Deferred income taxes		476		478
Other long-term assets		11,069		11,796
	$	664,205	$	612,016

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	67,679	$	73,650
Current portion of long-term debt		21,484		21,474
Current portion of operating lease liabilities		4,564		4,686
Total current liabilities		93,727		99,810

Long-term debt, net of current portion		170,791		125,072
Long-term operating lease liabilities, net of current portion		20,172		21,438
Other long-term liabilities		36,556		38,028
Total liabilities		321,246		284,348

Stockholders' equity		342,959		327,668
	$	664,205	$	612,016

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

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cash flows from operating activities:
Net income	$	8,167		$	7,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,793			8,403
Stock-based compensation expense		8,728			3,686
Other non-cash adjustments		1,509			2,801
Net changes in assets and liabilities		(5,094	)		(540	)
Net cash provided by operating activities		21,103			21,758
Cash flows from investing activities:
Capital expenditures		(3,867	)		(3,074	)
Other investing activities		(2,775	)		7,916
Net cash (used in) provided by investing activities		(6,642	)		4,842
Cash flows from financing activities:
Proceeds from issuance of long-term debt		50,000			—
Repayment of long-term debt		(4,375	)		(26,875	)
Net cash flows related to stock compensation exercises		(1,484	)		11,568
Net cash provided by (used in) financing activities		44,141			(15,307	)
Effect of exchange rate change on cash		(111	)		47
Net increase in cash and cash equivalents		58,491			11,340
Beginning cash and cash equivalents		118,081			119,051
Ending cash and cash equivalents	$	176,572		$	130,391

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	1,113		$	4,383
Income taxes paid, net of refunds	$	852		$	280

Lattice Semiconductor Corporation Supplemental Historical Financial Information (unaudited)

	Three Months Ended
	March 28,			December 28,			March 30,
	2020			2019			2019
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)		64			59			52
Inventory Days (DIO)		112			123			151

Revenue% (by Geography)
Asia		71	%		73	%		71	%
Europe (incl. Africa)		12	%		11	%		12	%
Americas		17	%		16	%		17	%

Revenue% (by End Market)
Communications and Computing		39	%		38	%		36	%
Industrial and Automotive		43	%		39	%		37	%
Consumer		14	%		18	%		20	%
Licensing and Services		4	%		5	%		7	%

Revenue% (by Channel)
Distribution		78	%		84	%		79	%
Direct		22	%		16	%		21	%

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

	Three Months Ended
	March 28,		December 28,		March 30,
	2020		2019		2019

*Gross Margin Reconciliation*
GAAP Gross margin	$	57,562	$	59,293	$	57,652
Stock-based compensation - gross margin		591		440		202
Inventory adjustment related to restructured operations		—		—		(338	)
Non-GAAP Gross margin	$	58,153	$	59,733	$	57,516

*Gross Margin % Reconciliation*
GAAP Gross margin %	59.1	%	59.2	%	58.8	%
Cumulative effect of non-GAAP Gross Margin adjustments	0.7	%	0.4	%	(0.2	)%
Non-GAAP Gross margin %	59.8	%	59.6	%	58.6	%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %	22.3	%	19.5	%	20.0	%
Stock-based compensation - R&D	(2.7	)%	(1.6	)%	(1.1	)%
Non-GAAP R&D Expense %	19.6	%	17.9	%	18.9	%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %	23.2	%	20.9	%	21.2	%
Stock-based compensation - SG&A	(5.7	)%	(3.5	)%	(2.4	)%
Non-GAAP SG&A Expense %	17.5	%	17.4	%	18.8	%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	47,824		$	43,802		$	45,176
Stock-based compensation - operations		(8,137	)		(5,124	)		(3,484	)
Amortization of acquired intangible assets		(2,640	)		(3,390	)		(3,389	)
Restructuring charges		(940	)		55			(1,341	)
Impairment of acquired intangible assets		—			—			1,023
Non-GAAP Operating expenses	$	36,107		$	35,343		$	37,985

*Income from Operations Reconciliation*
GAAP Income from operations	$	9,738	$	15,491		$	12,476
Stock-based compensation - gross margin		591		440			202
Inventory adjustment related to restructured operations		—		—			(338	)
Stock-based compensation - operations		8,137		5,124			3,484
Amortization of acquired intangible assets		2,640		3,390			3,389
Restructuring charges		940		(55	)		1,341
Impairment of acquired intangible assets		—		—			(1,023	)
Non-GAAP Income from operations	$	22,046	$	24,390		$	19,531

*Income from Operations % Reconciliation*
GAAP Income from operations %	10.0	%	15.5	%	12.7	%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	12.7	%	8.8	%	7.2	%
Non-GAAP Income from operations %	22.7	%	24.3	%	19.9	%

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

*Income Tax Expense Reconciliation*
GAAP Income tax expense	$	444	$	92		$	234
Estimated tax effect of non-GAAP adjustments (1)		280		(11	)		(98	)
Non-GAAP Income tax expense	$	724	$	81		$	136

*Net Income Reconciliation*
GAAP Net income	$	8,167		$	13,987		$	7,408
Stock-based compensation - gross margin		591			440			202
Inventory adjustment related to restructured operations		—			—			(338	)
Stock-based compensation - operations		8,137			5,124			3,484
Amortization of acquired intangible assets		2,640			3,390			3,389
Restructuring charges		940			(55	)		1,341
Impairment of acquired intangible assets		—			—			(1,023	)
Estimated tax effect of non-GAAP adjustments (1)		(280	)		11			98
Non-GAAP Net income	$	20,195		$	22,897		$	14,561

*Net Income Per Share Reconciliation*
GAAP Net income per share - basic	$	0.06	$	0.10	$	0.06
Cumulative effect of Non-GAAP adjustments		0.09		0.07		0.05
Non-GAAP Net income per share - basic	$	0.15	$	0.17	$	0.11

GAAP Net income per share - diluted	$	0.06	$	0.10	$	0.05
Cumulative effect of Non-GAAP adjustments		0.09		0.07		0.06
Non-GAAP Net income per share - diluted	$	0.15	$	0.17	$	0.11

Shares used in per share calculations:
Basic		134,253		133,691		130,992
Diluted - GAAP (2)		138,044		138,196		134,810
Diluted - Non-GAAP (2)		138,044		138,196		134,810

(1)		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.”
(2)		Diluted Shares are calculated using the GAAP treasury stock method. In a loss position, diluted shares equal basic shares.

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