Lattice Semiconductor Reports Fourth Quarter and Full Year 2019

Lattice Semiconductor Reports Fourth Quarter and Full Year 2019 Results

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

	Three Months Ended									Twelve Months Ended
	December 28, 2019			September 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
Revenue	$	100,237		$	103,469		$	95,977		$	404,093		$	398,799
Cost of sales		40,944			42,030			41,671			165,671			179,360
Gross margin		59,293			61,439			54,306			238,422			219,439
Operating expenses:
Research and development		19,543			20,032			19,296			78,617			82,449
Selling, general, and administrative		20,924			21,078			21,168			82,542			91,054
Amortization of acquired intangible assets		3,390			3,389			3,708			13,558			17,690
Restructuring		(55	)		252			11,854			4,664			17,349
Impairment of acquired intangible assets	—			—			—			—				12,486
Acquisition related charges	—			—			—			—				1,531
Total operating expenses		43,802			44,751			56,026			179,381			222,559
Income (loss) from operations		15,491			16,688			(1,720	)		59,041			(3,120	)
Interest expense		(1,184	)		(2,022	)		(5,018	)		(11,731	)		(20,600	)
Other expense, net		(228	)		(61	)		(3	)		(2,245	)		(249	)
Income (loss) before income taxes		14,079			14,605			(6,741	)		45,065			(23,969	)
Income tax expense		92			1,066			380			1,572			2,353
Net income (loss)	$	13,987		$	13,539		$	(7,121	)	$	43,493		$	(26,322	)

Net income (loss) per share:
Basic	$	0.10		$	0.10		$	(0.05	)	$	0.33		$	(0.21	)
Diluted	$	0.10		$	0.10		$	(0.05	)	$	0.32		$	(0.21	)

Shares used in per share calculations:
Basic		133,691			132,997			129,521			132,471			126,564
Diluted		138,196			138,894			129,521			137,274			126,564


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

	December 28, 2019		December 29, 2018
Assets
Current assets:
Cash and cash equivalents	$	118,081	$	119,051
Short-term marketable securities	—			9,624
Accounts receivable, net		64,917		60,890
Inventories		54,980		67,096
Other current assets		24,452		27,762
Total current assets		262,430		284,423

Property and equipment, net		39,230		34,883
Operating lease right-of-use assets		23,591	—
Intangible assets, net		6,977		21,325
Goodwill		267,514		267,514
Deferred income taxes		478		215
Other long-term assets		11,796		15,327
	$	612,016	$	623,687

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	73,650	$	61,128
Current portion of long-term debt		21,474		8,290
Current portion of operating lease liabilities		4,686	—
Total current liabilities		99,810		69,418

Long-term debt, net of current portion		125,072		251,357
Long-term operating lease liabilities, net of current portion		21,438	—
Other long-term liabilities		38,028		44,455
Total liabilities		284,348		365,230

Stockholders' equity		327,668		258,457
	$	612,016	$	623,687


Lattice Semiconductor Corporation Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Twelve Months Ended
	December 28, 2019			December 29, 2018
Cash flows from operating activities:
Net income (loss)	$	43,493		$	(26,322	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		33,056			39,261
Impairment of acquired intangible assets	—				12,486
Stock-based compensation expense		18,899			13,646
Other non-cash adjustments		10,294			2,151
Net changes in assets and liabilities		18,395			10,236
Net cash provided by operating activities		124,137			51,458
Cash flows from investing activities:
Capital expenditures		(15,590	)		(8,384	)
Other investing activities		54			(12,726	)
Net cash used in investing activities		(15,536	)		(21,110	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		206,500		—
Original issue discount and debt issuance costs		(2,086	)	—
Repayment of long-term debt		(321,408	)		(43,759	)
Net cash flows related to stock compensation exercises		7,082			26,918
Net cash used in financing activities		(109,912	)		(16,841	)
Effect of exchange rate change on cash		341			(1,271	)
Net (decrease) increase in cash and cash equivalents		(970	)		12,236
Beginning cash and cash equivalents		119,051			106,815
Ending cash and cash equivalents	$	118,081		$	119,051

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	10,995		$	18,607
Income taxes paid, net of refunds	$	3,393		$	3,054


Lattice Semiconductor Corporation Supplemental Historical Financial Information (unaudited)

	Three Months Ended			Twelve Months Ended
	December 28, 2019	September 28, 2019	December 29, 2018	December 28, 2019	December 29, 2018
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)	59	42	58
Inventory Days (DIO)	123	130	147

Revenue% (by Geography)
Asia	73%	77%	74%	74%	75%
Europe (incl. Africa)	11%	11%	10%	12%	11%
Americas	16%	12%	16%	14%	14%

Revenue% (by End Market)
Communications and Computing	38%	40%	34%	39%	31%
Industrial and Automotive	39%	36%	37%	37%	39%
Consumer	18%	18%	22%	19%	25%
Licensing and Services	5%	6%	7%	5%	5%

Revenue% (by Channel)
Distribution	84%	81%	76%	82%	83%
Direct	16%	19%	24%	18%	17%

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 28, 2019			September 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018

*Gross Margin Reconciliation*
GAAP Gross margin	$	59,293		$	61,439		$	54,306		$	238,422		$	219,439
Stock-based compensation - gross margin	440			453			288			1,422			940
Inventory adjustment related to restructured operations	—			—			(160		)	(338		)	7,829
Non-GAAP Gross margin	$	59,733		$	61,892		$	54,434		$	239,506		$	228,208

*Gross Margin % Reconciliation*
GAAP Gross margin %	59.2		%	59.4		%	56.6		%	59.0		%	55.0		%
Cumulative effect of non-GAAP Gross Margin adjustments	0.4		%	0.4		%	0.1		%	0.3		%	2.2		%
Non-GAAP Gross margin %	59.6		%	59.8		%	56.7		%	59.3		%	57.2		%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %	19.5		%	19.4		%	20.1		%	19.5		%	20.7		%
Stock-based compensation - R&D	(1.6		)%	(1.6		)%	(1.4		)%	(1.4		)%	(1.1		)%
Non-GAAP R&D Expense %	17.9		%	17.8		%	18.7		%	18.1		%	19.6		%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %	20.9		%	20.4		%	22.1		%	20.4		%	22.8		%
Stock-based compensation - SG&A	(3.5		)%	(3.5		)%	(2.2		)%	(2.9		)%	(2.1		)%
Non-GAAP SG&A Expense %	17.4		%	16.9		%	19.9		%	17.5		%	20.7		%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	43,802		$	44,751		$	56,026		$	179,381		$	222,559
Stock-based compensation - operations	(5,124		)	(5,227		)	(3,450		)	(17,477		)	(12,706		)
Amortization of acquired intangible assets	(3,390		)	(3,389		)	(3,708		)	(13,558		)	(17,690		)
Restructuring charges	55			(252		)	(11,854		)	(4,664		)	(17,349		)
Impairment of acquired intangible assets	—			—			800			1,023			(11,686		)
Acquisition related charges	—			—			—			—			(1,531		)
Non-GAAP Operating expenses	$	35,343		$	35,883		$	37,814		$	144,705		$	161,597

*Income from Operations Reconciliation*
GAAP Income (loss) from operations	$	15,491		$	16,688		$	(1,720	)	$	59,041		$	(3,120	)
Stock-based compensation - gross margin	440			453			288			1,422			940
Inventory adjustment related to restructured operations	—			—			(160		)	(338		)	7,829
Stock-based compensation - operations	5,124			5,227			3,450			17,477			12,706
Amortization of acquired intangible assets	3,390			3,389			3,708			13,558			17,690
Restructuring charges	(55		)	252			11,854			4,664			17,349
Impairment of acquired intangible assets	—			—			(800		)	(1,023		)	11,686
Acquisition related charges	—			—			—			—			1,531
Non-GAAP Income from operations	$	24,390		$	26,009		$	16,620		$	94,801		$	66,611

*Income from Operations % Reconciliation*
GAAP Income (loss) from operations %	15.5		%	16.1		%	(1.8		)%	14.6		%	(0.8		)%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	8.8		%	9.0		%	19.1		%	8.9		%	17.5		%
Non-GAAP Income from operations %	24.3		%	25.1		%	17.3		%	23.5		%	16.7		%

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 28, 2019			September 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018

*Other Expense, Net Reconciliation*
GAAP Other expense, net	$	(228	)	$	(61	)	$	(3	)	$	(2,245	)	$	(249	)
Loss on refinancing of long-term debt	—			—			—			2,235			—
Non-GAAP Other expense, net	$	(228	)	$	(61	)	$	(3	)	$	(10	)	$	(249	)

*Income Tax Expense Reconciliation*
GAAP Income tax expense	$	92		$	1,066		$	380		$	1,572		$	2,353
Estimated tax effect of non-GAAP adjustments (1)	(11		)	(83		)	88			—			—
Non-GAAP Income tax expense	$	81		$	983		$	468		$	1,572		$	2,353

*Net Income Reconciliation*
GAAP Net income (loss)	$	13,987		$	13,539		$	(7,121	)	$	43,493		$	(26,322	)
Stock-based compensation - gross margin	440			453			288			1,422			940
Inventory adjustment related to restructured operations	—			—			(160		)	(338		)	7,829
Stock-based compensation - operations	5,124			5,227			3,450			17,477			12,706
Amortization of acquired intangible assets	3,390			3,389			3,708			13,558			17,690
Restructuring charges	(55		)	252			11,854			4,664			17,349
Impairment of acquired intangible assets	—			—			(800		)	(1,023		)	11,686
Acquisition related charges	—			—			—			—			1,531
Loss on refinancing of long-term debt	—			—			—			2,235			—
Estimated tax effect of non-GAAP adjustments (1)	11			83			(88		)	—			—
Non-GAAP Net income	$	22,897		$	22,943		$	11,131		$	81,488		$	43,409

*Net Income Per Share Reconciliation*
GAAP Net income (loss) per share - basic	$	0.10		$	0.10		$	(0.05	)	$	0.33		$	(0.21	)
Cumulative effect of Non-GAAP adjustments	0.07			0.07			0.14			0.29			0.55
Non-GAAP Net income per share - basic	$	0.17		$	0.17		$	0.09		$	0.62		$	0.34

GAAP Net income (loss) per share - diluted	$	0.10		$	0.10		$	(0.05	)	$	0.32		$	(0.21	)
Cumulative effect of Non-GAAP adjustments	0.07			0.07			0.13			0.27			0.54
Non-GAAP Net income per share - diluted	$	0.17		$	0.17		$	0.08		$	0.59		$	0.33

Shares used in per share calculations:
Basic	133,691			132,997			129,521			132,471			126,564
Diluted - GAAP (2)	138,196			138,894			129,521			137,274			126,564
Diluted - Non-GAAP (2)	138,196			138,894			132,471			137,274			129,766

(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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