Lattice Semiconductor Reports Third Quarter 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									Nine Months Ended
	October 1,			July 2,			October 2,			October 1,			October 2,
	2022			2022			2021			2022			2021
Revenue	$	172,509		$	161,372		$	131,911		$	484,396		$	373,532
Cost of sales		53,777			50,887			49,086			154,412			142,937
Gross margin		118,732			110,485			82,825			329,984			230,595
Operating expenses:
Research and development		34,820			33,613			28,769			100,988			80,289
Selling, general, and administrative		31,926			29,024			26,272			89,721			76,971
Amortization of acquired intangible assets		869			870			603			2,908			1,809
Restructuring		2,315			136			166			2,505			546
Acquisition related charges		—			56			—			511			—
Total operating expenses		69,930			63,699			55,810			196,633			159,615
Income from operations		48,802			46,786			27,015			133,351			70,980
Interest expense		(1,267	)		(891	)		(661	)		(2,866	)		(2,081	)
Other (expense) income, net		(820	)		(243	)		(87	)		(1,085	)		(384	)
Income before income taxes		46,715			45,652			26,267			129,400			68,515
Income tax expense (benefit)		356			1,120			(472	)		2,431			1,125
Net income	$	46,359		$	44,532		$	26,739		$	126,969		$	67,390

Net income per share:
Basic	$	0.34		$	0.32		$	0.20		$	0.92		$	0.49
Diluted	$	0.33		$	0.32		$	0.19		$	0.90		$	0.47

Shares used in per share calculations:
Basic		137,267			137,424			136,638			137,397			136,476
Diluted		139,935			140,170			141,632			140,921			142,163

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

	October 1,		January 1,
	2022		2022
Assets
Current assets:
Cash and cash equivalents	$	118,766	$	131,570
Accounts receivable, net		100,446		79,859
Inventories, net		93,964		67,594
Other current assets		27,132		22,328
Total current assets		340,308		301,351

Property and equipment, net		45,217		38,094
Operating lease right-of-use assets		17,372		23,818
Intangible assets, net		26,085		29,782
Goodwill		315,358		315,358
Other long-term assets		14,605		18,091
	$	758,945	$	726,494

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	43,635	$	34,597
Accrued expenses		35,127		26,444
Accrued payroll obligations		31,516		27,967
Current portion of long-term debt		—		17,173
Total current liabilities		110,278		106,181

Long-term debt, net of current portion		148,685		140,760
Long-term operating lease liabilities, net of current portion		14,169		19,248
Other long-term liabilities		44,082		48,672
Total liabilities		317,214		314,861

Stockholders' equity		441,731		411,633
	$	758,945	$	726,494

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

	Nine Months Ended
	October 1,			October 2,
	2022			2021
Cash flows from operating activities:
Net income	$	126,969		$	67,390
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		41,207			32,624
Depreciation and amortization		21,498			17,839
Other non-cash adjustments		6,935			5,083
Net changes in assets and liabilities		(39,784	)		(6,873	)
Net cash provided by (used in) operating activities		156,825			116,063
Cash flows from investing activities:
Capital expenditures		(13,080	)		(7,118	)
Other investing activities		(8,322	)		(9,534	)
Net cash provided by (used in) investing activities		(21,402	)		(16,652	)
Cash flows from financing activities:
Proceeds from long-term debt, net of issuance costs		148,601			—
Repayment of long-term debt		(158,750	)		(8,750	)
Repurchase of common stock		(90,137	)		(55,126	)
Net cash flows related to stock compensation exercises		(45,726	)		(36,347	)
Net cash provided by (used in) financing activities		(146,012	)		(100,223	)
Effect of exchange rate change on cash		(2,215	)		(68	)
Net increase (decrease) in cash and cash equivalents		(12,804	)		(880	)
Beginning cash and cash equivalents		131,570			182,332
Ending cash and cash equivalents	$	118,766		$	181,452

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	2,203		$	1,755
Income taxes paid, net of refunds	$	4,115		$	2,842

Lattice Semiconductor Corporation Supplemental Historical Financial Information (unaudited)

	Three Months Ended
	October 1,			July 2,			October 2,
	2022			2022			2021
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)		53			53			55
Inventory Days (DIO)		159			139			123

Revenue% (by Geography)
Asia		72	%		73	%		75	%
Americas		13	%		14	%		15	%
Europe (incl. Africa)		15	%		13	%		10	%

Revenue% (by End Market)
Communications and Computing		41	%		44	%		42	%
Industrial and Automotive		50	%		46	%		45	%
Consumer		6	%		8	%		10	%
Licensing and Services		3	%		2	%		3	%

Revenue% (by Channel)
Distribution		90	%		89	%		90	%
Direct		10	%		11	%		10	%

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

	Three Months Ended
	October 1,		July 2,		October 2,
	2022		2022		2021
*Gross Margin Reconciliation*
GAAP Gross margin	$	118,732	$	110,485	$	82,825
Stock-based compensation - gross margin (1)		1,122		1,011		1,056
Non-GAAP Gross margin	$	119,854	$	111,496	$	83,881

*Gross Margin % Reconciliation*
GAAP Gross margin %	68.8	%	68.5	%	62.8	%
Cumulative effect of non-GAAP Gross Margin adjustments	0.7	%	0.6	%	0.8	%
Non-GAAP Gross margin %	69.5	%	69.1	%	63.6	%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %	20.2	%	20.8	%	21.8	%
Stock-based compensation - R&D (1)	(3.1	)%	(3.0	)%	(3.0	)%
Non-GAAP R&D Expense %	17.1	%	17.8	%	18.8	%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %	18.5	%	18.0	%	19.9	%
Stock-based compensation - SG&A (1)	(4.9	)%	(4.9	)%	(5.1	)%
Litigation expense (2)	(1.0	)%	—	%	—	%
Non-GAAP SG&A Expense %	12.6	%	13.1	%	14.8	%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	69,930		$	63,699		$	55,810
Stock-based compensation - operations (1)		(13,758	)		(12,694	)		(10,704	)
Litigation expense (2)		(1,646	)		—			—
Amortization of acquired intangible assets		(869	)		(870	)		(603	)
Restructuring and other charges		(2,315	)		(192	)		(701	)
Non-GAAP Operating expenses	$	51,342		$	49,943		$	43,802

*Income from Operations Reconciliation*
GAAP Income from operations	$	48,802	$	46,786	$	27,015
Stock-based compensation - gross margin (1)		1,122		1,011		1,056
Stock-based compensation - operations (1)		13,758		12,694		10,704
Litigation expense (2)		1,646		—		—
Amortization of acquired intangible assets		869		870		603
Restructuring and other charges		2,315		192		701
Non-GAAP Income from operations	$	68,512	$	61,553	$	40,079

*Income from Operations % Reconciliation*
GAAP Income from operations %	28.3	%	29.0	%	20.5	%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	11.4	%	9.1	%	9.9	%
Non-GAAP Income from operations %	39.7	%	38.1	%	30.4	%

(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.

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

	Three Months Ended
	October 1,			July 2,			October 2,
	2022			2022			2021
*Other (Expense) Income Reconciliation*
GAAP Other (expense) income, net	$	(820	)	$	(243	)	$	(87	)
Loss on re-financing of long-term debt		735			—			—
Non-GAAP Other (expense) income, net	$	(85	)	$	(243	)	$	(87	)

*Income Tax Expense (Benefit) Reconciliation*
GAAP Income tax expense (benefit)	$	356	$	1,120	$	(472	)
Estimated tax effect of non-GAAP adjustments (3)		312		175		183
Non-GAAP Income tax expense (benefit)	$	668	$	1,295	$	(289	)

*Net Income Reconciliation*
GAAP Net income	$	46,359		$	44,532		$	26,739
Stock-based compensation - gross margin (1)		1,122			1,011			1,056
Stock-based compensation - operations (1)		13,758			12,694			10,704
Litigation expense (2)		1,646			—			—
Amortization of acquired intangible assets		869			870			603
Restructuring and other charges		2,315			192			701
Loss on re-financing of long-term debt		735			—			—
Estimated tax effect of non-GAAP adjustments (3)		(312	)		(175	)		(183	)
Non-GAAP Net income	$	66,492		$	59,124		$	39,620

*Net Income Per Share Reconciliation*
GAAP Net income per share - basic	$	0.34	$	0.32	$	0.20
Cumulative effect of Non-GAAP adjustments		0.14		0.11		0.09
Non-GAAP Net income per share - basic	$	0.48	$	0.43	$	0.29

GAAP Net income per share - diluted	$	0.33	$	0.32	$	0.19
Cumulative effect of Non-GAAP adjustments		0.15		0.10		0.09
Non-GAAP Net income per share - diluted	$	0.48	$	0.42	$	0.28

Shares used in per share calculations:
Basic		137,267		137,424		136,638
Diluted		139,935		140,170		141,632

(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)		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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