Lattice Semiconductor Reports Third Quarter 2023 Results

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

	Three Months Ended								Nine Months Ended
	September 30,		July 1,			October 1,			September 30,			October 1,
	2023		2023			2022			2023			2022
Revenue	$	192,169	$	190,079		$	172,509		$	566,558		$	484,396
Cost of sales		57,608		57,518			53,777			170,835			154,412
Gross margin		134,561		132,561			118,732			395,723			329,984
Operating expenses:
Research and development		42,048		41,946			34,820			119,983			100,988
Selling, general, and administrative		33,217		36,788			31,926			102,583			89,721
Amortization of acquired intangible assets		870		869			869			2,609			2,908
Restructuring		1,509		(112	)		2,315			1,427			2,505
Acquisition related		—		—			—			—			511
Total operating expenses		77,644		79,491			69,930			226,602			196,633
Income from operations		56,917		53,070			48,802			169,121			133,351
Interest income (expense), net		954		189			(1,267	)		588			(2,866	)
Other income (expense), net		14		(176	)		(820	)		(257	)		(1,085	)
Income before income taxes		57,885		53,083			46,715			169,452			129,400
Income tax expense		4,097		2,439			356			9,097			2,431
Net income	$	53,788	$	50,644		$	46,359		$	160,355		$	126,969

Net income per share:
Basic	$	0.39	$	0.37		$	0.34		$	1.16		$	0.92
Diluted	$	0.38	$	0.36		$	0.33		$	1.15		$	0.90

Shares used in per share calculations:
Basic		137,948		137,735			137,267			137,697			137,397
Diluted		139,828		139,768			139,935			139,927			140,921

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

	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	114,397	$	145,722
Accounts receivable, net		105,913		94,018
Inventories, net		104,019		110,375
Other current assets		36,404		29,052
Total current assets		360,733		379,167

Property and equipment, net		50,164		47,614
Operating lease right-of-use assets		16,088		17,590
Intangible assets, net		21,951		25,070
Goodwill		315,358		315,358
Other long-term assets		15,328		13,914
	$	779,622	$	798,713

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	36,887	$	42,036
Accrued liabilities		36,305		48,467
Accrued payroll obligations		27,471		36,870
Total current liabilities		100,663		127,373

Long-term debt		—		128,752
Long-term operating lease liabilities, net of current portion		12,122		13,618
Other long-term liabilities		40,667		41,807
Total liabilities		153,452		311,550

Stockholders' equity		626,170		487,163
	$	779,622	$	798,713

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

	Nine Months Ended
	September 30,			October 1,
	2023			2022
Cash flows from operating activities:
Net income	$	160,355		$	126,969
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		52,408			41,207
Depreciation and amortization		25,279			21,498
Other non-cash adjustments		5,199			6,935
Net changes in assets and liabilities		(45,623	)		(39,784	)
Net cash provided by (used in) operating activities		197,618			156,825
Cash flows from investing activities:
Capital expenditures		(16,370	)		(13,080	)
Other investing activities		(8,917	)		(8,322	)
Net cash provided by (used in) investing activities		(25,287	)		(21,402	)
Cash flows from financing activities:
Proceeds from long-term debt, net of issuance costs		—			148,601
Repayment of long-term debt		(130,000	)		(158,750	)
Repurchase of common stock		(30,005	)		(90,137	)
Net cash flows related to stock compensation exercises		(43,114	)		(45,726	)
Net cash provided by (used in) financing activities		(203,119	)		(146,012	)
Effect of exchange rate change on cash		(537	)		(2,215	)
Net increase (decrease) in cash and cash equivalents		(31,325	)		(12,804	)
Beginning cash and cash equivalents		145,722			131,570
Ending cash and cash equivalents	$	114,397		$	118,766

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	3,240		$	2,203
Income taxes paid, net of refunds	$	11,229		$	4,115
Operating lease payments	$	6,179		$	5,500

Lattice Semiconductor Corporation
Supplemental Historical Financial Information
(unaudited)

	Three Months Ended
	September 30,			July 1,			October 1,
	2023			2023			2022
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)		50			46			53
Inventory Days (DIO)		165			177			159

Revenue % (by Geography)
Asia		61	%		63	%		72	%
Americas		17	%		17	%		13	%
Europe (incl. Africa)		22	%		20	%		15	%

Revenue % (by End Market) *
Communications and Computing		36	%		34	%		42	%
Industrial and Automotive		57	%		61	%		50	%
Consumer		7	%		5	%		8	%

Revenue $M (by End Market) *
Communications and Computing	$	68.4		$	64.2		$	73.0
Industrial and Automotive	$	109.9		$	115.5		$	85.7
Consumer	$	13.9		$	10.4		$	13.8

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

* During the first quarter of fiscal 2023, we realigned our end market categories. 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
	September 30,		July 1,		October 1,
	2023		2023		2022
*Gross Margin Reconciliation*
GAAP Gross margin	$	134,561	$	132,561	$	118,732
Stock-based compensation - gross margin (1)		1,053		1,425		1,122
Non-GAAP Gross margin	$	135,614	$	133,986	$	119,854

*Gross Margin % Reconciliation*
GAAP Gross margin %	70.0	%	69.7	%	68.8	%
Cumulative effect of non-GAAP Gross Margin adjustments	0.6	%	0.8	%	0.7	%
Non-GAAP Gross margin %	70.6	%	70.5	%	69.5	%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %	21.9	%	22.1	%	20.2	%
Stock-based compensation - R&D (1)	(3.7	)%	(4.1	)%	(3.1	)%
Non-GAAP R&D Expense %	18.2	%	18.0	%	17.1	%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %	17.3	%	19.4	%	18.5	%
Stock-based compensation - SG&A (1)	(4.6	)%	(6.7	)%	(4.9	)%
Litigation expense (2)	(0.6	)%	(0.2	)%	(1.0	)%
Non-GAAP SG&A Expense %	12.1	%	12.5	%	12.6	%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	77,644		$	79,491		$	69,930
Stock-based compensation - operations (1)		(15,956	)		(20,277	)		(13,758	)
Litigation expense (2)		(1,103	)		(439	)		(1,646	)
Amortization of acquired intangible assets		(870	)		(869	)		(869	)
Restructuring and other		(1,509	)		112			(2,315	)
Non-GAAP Operating expenses	$	58,206		$	58,018		$	51,342

*Income from Operations Reconciliation*
GAAP Income from operations	$	56,917	$	53,070		$	48,802
Stock-based compensation - gross margin (1)		1,053		1,425			1,122
Stock-based compensation - operations (1)		15,956		20,277			13,758
Litigation expense (2)		1,103		439			1,646
Amortization of acquired intangible assets		870		869			869
Restructuring and other		1,509		(112	)		2,315
Non-GAAP Income from operations	$	77,408	$	75,968		$	68,512

*Income from Operations % Reconciliation*
GAAP Income from operations %	29.6	%	27.9	%	28.3	%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	10.7	%	12.1	%	11.4	%
Non-GAAP Income from operations %	40.3	%	40.0	%	39.7	%

(1)		The non-GAAP adjustments for Stock-based compensation include related payroll 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
	September 30,		July 1,			October 1,
	2023		2023			2022
*Other Income (Expense) Reconciliation*
GAAP Other income (expense), net	$	14	$	(176	)	$	(820	)
Loss on re-financing of long-term debt		—		—			735
Non-GAAP Other income (expense), net	$	14	$	(176	)	$	(85	)

*Income Tax Expense Reconciliation*
GAAP Income tax expense	$	4,097		$	2,439		$	356
Estimated tax effect of non-GAAP adjustments		1,467			1,372			312
Change in tax law (3)		(766	)		(339	)		—
Non-GAAP Income tax expense	$	4,798		$	3,472		$	668

*Net Income Reconciliation*
GAAP Net income	$	53,788		$	50,644		$	46,359
Stock-based compensation - gross margin (1)		1,053			1,425			1,122
Stock-based compensation - operations (1)		15,956			20,277			13,758
Litigation expense (2)		1,103			439			1,646
Amortization of acquired intangible assets		870			869			869
Restructuring and other		1,509			(112	)		2,315
Loss on re-financing of long-term debt		—			—			735
Estimated tax effect of non-GAAP adjustments		(1,467	)		(1,372	)		(312	)
Change in tax law (3)		766			339			—
Non-GAAP Net income	$	73,578		$	72,509		$	66,492

*Net Income Per Share Reconciliation*
GAAP Net income per share - basic	$	0.39	$	0.37	$	0.34
Cumulative effect of Non-GAAP adjustments		0.14		0.16		0.14
Non-GAAP Net income per share - basic	$	0.53	$	0.53	$	0.48

GAAP Net income per share - diluted	$	0.38	$	0.36	$	0.33
Cumulative effect of Non-GAAP adjustments		0.15		0.16		0.15
Non-GAAP Net income per share - diluted	$	0.53	$	0.52	$	0.48

Shares used in per share calculations:
Basic		137,948		137,735		137,267
Diluted		139,828		139,768		139,935

(1)		The non-GAAP adjustments for Stock-based compensation include related payroll 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)		Adjustments for Change in tax law reflect an increase in our provision for U.S. tax on foreign operations resulting from The 2017 Tax Cuts and Jobs Act and is related to the capitalization and subsequent amortization of R&D costs for tax purposes.

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