Lattice Semiconductor Reports Third Quarter 2020 Results

* GAAP represents U.S. Generally Accepted Accounting Principles. Non-GAAP represents GAAP excluding the impact of certain activities which the Company's management excludes in analyzing the Company's operating results and in understanding trends in the Company's earnings. Additional information relating to these measures is included below in “Non-GAAP Financial Measures.” For a reconciliation of GAAP to non-GAAP results, see accompanying tables "Reconciliation of U.S. GAAP to Non-GAAP Financial Measures."

Third Quarter 2020 Highlights

  • Improved Financial Performance and Operating Profit Expansion: Operating profit of 12.4% on a GAAP basis and expansion to 26.5% on a non-GAAP basis in Q3 2020. Net income per diluted share was up 13% on a GAAP basis and up 12% on a non-GAAP basis in Q3 2020 compared to Q2 2020, with a 30 basis point improvement in gross margin on a GAAP basis and a 20 basis point improvement on a non-GAAP basis.
  • Launched Lattice Sentry™ Solutions Stack and the Lattice SupplyGuard™: Lattice Sentry solutions stack delivers a NIST-compliant, real-time, dynamic PFR software solution that reduces time-to-market. Lattice's SupplyGuard service preserves trust throughout unprotected supply chains by enhancing protection against counterfeiting and overbuilding.
  • Lattice CrossLink™-NX FPGA Named Embedded Solution Product of the Year: Lattice CrossLink™-NX FPGA was named Embedded Solution Product of the Year at the Electronics Industry Awards (EIA)
  • Lattice Added to PHLX Semiconductor Sector IndexSM: Lattice was added to the PHLX Semiconductor Sector Index, representing another milestone for the Company.

Business Outlook - Fourth Quarter of 2020:

  • Revenue for the fourth quarter of 2020 is expected to be between $99 million and $107 million.
  • Gross margin percentage for the fourth quarter of 2020 is expected to be 61.0% plus or minus 1% on a non-GAAP basis.
  • Total operating expenses for the fourth quarter of 2020 are expected to be between $36.5 million and $37.5 million on a non-GAAP basis.

Non-GAAP Financial Measures: In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release makes reference to non-GAAP financial measures. With respect to the outlook for the fourth quarter of 2020, certain items that affect GAAP measurement of financial measures are out of the Company’s control and/or cannot be reasonably predicted. Consequently, the Company is unable to provide a reasonable estimate of GAAP measurement for guidance or a corresponding reconciliation to GAAP for the quarter. Additional information regarding the reasons the Company uses non-GAAP measures, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these measures are included below, following the GAAP financial information.

Investor Conference Call / Webcast Details:

Lattice Semiconductor will review the Company's financial results for the fiscal third quarter 2020, and business outlook on Tuesday, October 27 at 5:00 p.m. Eastern Time. The dial-in number for the live audio call is 1-888-684-5603 or 1-918-398-4852 with conference identification number 6721419. A live webcast of the conference call will also be available on the investor relations section of www.latticesemi.com. The Company's financial guidance will be limited to the comments on its public quarterly earnings call and the public business outlook statements contained in this press release.

Forward-Looking Statements Notice:

The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Such forward-looking statements include, but are not limited to, statements relating to: our belief in the continued potential of the company as it accelerates its product roadmap leadership, expands customer engagements and drives toward our long-term financial goals; and the statements under the heading “Business Outlook - Fourth Quarter of 2020.” Other forward-looking statements may be indicated by words such as “will,” “could,” “should,” “would,” “may,” “expect,” “plan,” “project,” “anticipate,” “intend,” “forecast,” “future,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology.

Estimates of future revenue are inherently uncertain due to such factors such as global economic conditions which may affect customer demand, pricing pressures, competitive actions, and international trade disputes and sanctions. In addition, the COVID-19 pandemic has negatively impacted the overall economy and, as a result of the foregoing, may negatively impact our operating results for future periods. Actual gross margin percentage and operating expenses could vary from the estimates on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly, test and other costs, variations in manufacturing yields, the failure to sustain operational improvements, and the actual amount of compensation charges due to stock price changes. Actual results may differ materially from our expectations and are subject to risks and uncertainties that relate more broadly to our overall business, including those risks more fully described in Lattice’s filings with the SEC including its Annual Report on Form 10-K for the fiscal year ended December 28, 2019, and Lattice’s quarterly reports filed on Form 10-Q. COVID-19 may increase or change the severity of our other risks reported in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019. Lattice believes these and other risks and uncertainties could cause actual results to differ materially from the forward-looking statements. You should not unduly rely on forward-looking statements because actual results could differ materially from those expressed in any forward-looking statements. In addition, any forward-looking statement applies only as of the date on which it is made. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Measures:

Included within this press release and the accompanying tables and notes are certain non-GAAP financial measures that supplement the Company's consolidated financial information prepared in accordance with U.S. GAAP. The non-GAAP measures presented exclude charges and adjustments primarily related to stock-based compensation and related tax effects, restructuring plans and related charges, amortization of acquired intangible assets, and the estimated tax effect of these items. The non-GAAP net income for the third quarter of fiscal 2020 includes a change in the non-GAAP tax rate calculation to exclude profits from jurisdictions where there is a full valuation allowance on deferred tax assets to improve alignment of non-GAAP income tax expense to non-GAAP income before tax. These charges and adjustments are a result of periodic or non-core operating activities of the Company. The Company describes these non-GAAP financial measures and reconciles them to the most directly comparable GAAP measures in the tables and notes attached to this press release.

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 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

 

Nine Months Ended

 

 

September 26,

 

June 27,

 

September 28,

 

September 26,

 

September 28,

 

 

2020

 

2020

 

2019

 

2020

 

2019

Revenue

 

$

103,042

 

 

$

100,589

 

 

$

103,469

 

 

$

300,947

 

 

$

303,856

 

Cost of sales

 

 

40,736

 

 

 

40,012

 

 

 

42,030

 

 

 

120,502

 

 

 

124,727

 

Gross margin

 

 

62,306

 

 

 

60,577

 

 

 

61,439

 

 

 

180,445

 

 

 

179,129

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

22,439

 

 

 

22,458

 

 

 

20,032

 

 

 

66,590

 

 

 

59,074

 

Selling, general, and administrative

 

 

23,758

 

 

 

24,488

 

 

 

21,078

 

 

 

70,797

 

 

 

61,618

 

Amortization of acquired intangible assets

 

 

603

 

 

 

603

 

 

 

3,389

 

 

 

3,846

 

 

 

10,168

 

Restructuring

 

 

2,692

 

 

 

546

 

 

 

252

 

 

 

4,178

 

 

 

4,719

 

Total operating expenses

 

 

49,492

 

 

 

48,095

 

 

 

44,751

 

 

 

145,411

 

 

 

135,579

 

Income from operations

 

 

12,814

 

 

 

12,482

 

 

 

16,688

 

 

 

35,034

 

 

 

43,550

 

Interest expense

 

 

(792

)

 

 

(1,045

)

 

 

(2,022

)

 

 

(2,914

)

 

 

(10,547

)

Other (expense) income, net

 

 

(70

)

 

 

37

 

 

 

(61

)

 

 

(83

)

 

 

(2,017

)

Income before income taxes

 

 

11,952

 

 

 

11,474

 

 

 

14,605

 

 

 

32,037

 

 

 

30,986

 

Income tax (benefit) expense

 

 

(655

)

 

 

845

 

 

 

1,066

 

 

 

634

 

 

 

1,480

 

Net income

 

$

12,607

 

 

$

10,629

 

 

$

13,539

 

 

$

31,403

 

 

$

29,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.08

 

 

$

0.10

 

 

$

0.23

 

 

$

0.22

 

Diluted

 

$

0.09

 

 

$

0.08

 

 

$

0.10

 

 

$

0.22

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

135,598

 

 

 

134,857

 

 

 

132,997

 

 

 

134,903

 

 

 

132,065

 

Diluted

 

 

141,524

 

 

 

139,202

 

 

 

138,894

 

 

 

140,763

 

 

 

137,679

 

Lattice Semiconductor Corporation

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

September 26,

 

December 28,

 

 

2020

 

2019

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

182,268

 

 

$

118,081

 

Accounts receivable, net

 

 

72,989

 

 

 

64,917

 

Inventories

 

 

59,488

 

 

 

54,980

 

Other current assets

 

 

24,205

 

 

 

24,452

 

Total current assets

 

 

338,950

 

 

 

262,430

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

39,782

 

 

 

39,230

 

Operating lease right-of-use assets

 

 

21,614

 

 

 

23,591

 

Intangible assets, net

 

 

3,496

 

 

 

6,977

 

Goodwill

 

 

267,514

 

 

 

267,514

 

Deferred income taxes

 

 

483

 

 

 

478

 

Other long-term assets

 

 

10,592

 

 

 

11,796

 

 

 

$

682,431

 

 

$

612,016

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

74,890

 

 

$

73,659

 

Current portion of long-term debt

 

 

8,382

 

 

 

21,474

 

Current portion of operating lease liabilities

 

 

4,562

 

 

 

4,686

 

Total current liabilities

 

 

87,834

 

 

 

99,819

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

162,215

 

 

 

125,072

 

Long-term operating lease liabilities, net of current portion

 

 

19,505

 

 

 

21,438

 

Other long-term liabilities

 

 

35,984

 

 

 

38,028

 

Total liabilities

 

 

305,538

 

 

 

284,357

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

376,893

 

 

 

327,659

 

 

 

$

682,431

 

 

$

612,016

 

Lattice Semiconductor Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 26,

 

September 28,

 

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

31,403

 

 

$

29,506

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,263

 

 

 

24,682

 

Stock-based compensation expense

 

 

30,228

 

 

 

13,335

 

Other non-cash adjustments

 

 

4,663

 

 

 

9,060

 

Net changes in assets and liabilities

 

 

(16,599

)

 

 

8,234

 

Net cash provided by operating activities

 

 

68,958

 

 

 

84,817

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(9,781

)

 

 

(11,729

)

Other investing activities

 

 

(6,850

)

 

 

3,910

 

Net cash used in investing activities

 

 

(16,631

)

 

 

(7,819

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

50,000

 

 

 

206,500

 

Cash paid for debt issuance costs

 

 

 

 

 

(2,086

)

Repayment of long-term debt

 

 

(26,250

)

 

 

(311,408

)

Net cash flows related to stock compensation exercises

 

 

(12,789

)

 

 

8,365

 

Net cash provided by (used in) financing activities

 

 

10,961

 

 

 

(98,629

)

Effect of exchange rate change on cash

 

 

899

 

 

 

(7

)

Net increase in cash and cash equivalents

 

 

64,187

 

 

 

(21,638

)

Beginning cash and cash equivalents

 

 

118,081

 

 

 

119,051

 

Ending cash and cash equivalents

 

$

182,268

 

 

$

97,413

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Interest paid

 

$

2,849

 

 

$

9,932

 

Income taxes paid, net of refunds

 

$

2,317

 

 

$

1,922

 

Lattice Semiconductor Corporation

Supplemental Historical Financial Information

(unaudited)

 

 

 

Three Months Ended

 

 

 

September 26,

 

June 27,

 

September 28,

 

 

2020

 

2020

 

2019

Balance Sheet Information

 

 

 

 

 

 

 

 

 

 

 

 

A/R Days Revenue Outstanding (DSO)

 

 

65

 

 

 

79

 

 

 

42

 

Inventory Days (DIO)

 

 

133

 

 

 

123

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue% (by Geography)

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

 

77

%

 

 

74

%

 

 

77

%

Americas

 

 

15

%

 

 

14

%

 

 

12

%

Europe (incl. Africa)

 

 

8

%

 

 

12

%

 

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue% (by End Market)

 

 

 

 

 

 

 

 

 

 

 

 

Communications and Computing

 

 

43

%

 

 

46

%

 

 

40

%

Industrial and Automotive

 

 

41

%

 

 

39

%

 

 

36

%

Consumer

 

 

10

%

 

 

11

%

 

 

18

%

Licensing and Services

 

 

6

%

 

 

4

%

 

 

6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue% (by Channel)

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

 

82

%

 

 

85

%

 

 

81

%

Direct

 

 

18

%

 

 

15

%

 

 

19

%

Lattice Semiconductor Corporation

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

(in thousands, except per share data)

(unaudited)

 
Three Months Ended

September 26,

June 27,

September 28,

2020

2020

2019

 
Gross Margin Reconciliation
GAAP Gross margin $

62,306

$

60,577

$

61,439

Stock-based compensation - gross margin (1)

1,022

1,101

453

Non-GAAP Gross margin $

63,328

$

61,678

$

61,892

 
Gross Margin % Reconciliation
GAAP Gross margin %

60.5

%

60.2

%

59.4

%

Cumulative effect of non-GAAP Gross Margin adjustments

1

%

1.1

%

0.4

%

Non-GAAP Gross margin %

61.5

%

61.3

%

59.8

%

 
Research and Development Expene % (R&D Expense %) Reconciliation
GAAP R&D Expense %

21.8

%

22.3

%

19.4

%

Stock-based compensation - R&D (1)

(2.8

)%

(2.3

)%

(1.6

)%

Non-GAAP R&D Expense %

19

%

20

%

17.8

%

 
Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation
GAAP SG&A Expense %

23.1

%

24.3

%

20.4

%

Stock-based compensation - SG&A (1)

(7.1

)%

(7.8

)%

(3.5

)%

Non-GAAP SG&A Expense %

16

%

16.5

%

16.9

%

 
Operating Expenses Reconciliation
GAAP Operating expenses $

49,492

$

48,095

$

44,751

Stock-based compensation - operations (1)

(10,189

)

(10,306

)

(5,227

)

Amortization of acquired intangible assets

(603

)

(603

)

(3,389

)

Restructuring charges

(2,692

)

(546

)

(252

)

Non-GAAP Operating expenses $

36,008

$

36,640

$

35,883

 
Income from Operations Reconciliation
GAAP Income from operations $

12,814

$

12,482

$

16,688

Stock-based compensation - gross margin (1)

1,022

1,101

453

Stock-based compensation - operations (1)

10,189

10,306

5,227

Amortization of acquired intangible assets

603

603

3,389

Restructuring charges

2,692

546

252

Non-GAAP Income from operations $

27,320

$

25,038

$

26,009

 
Income from Operations % Reconciliation
GAAP Income from operations %

12.4

%

12.4

%

16.1

%

Cumulative effect of non-GAAP Gross Margin and Operating adjustments

14.1

%

12.5

%

9

%

Non-GAAP Income from operations %

26.5

%

24.9

%

25.1

%

(1)

 

The non-GAAP adjustments for Stock-based compensation include related tax expenses.

Lattice Semiconductor Corporation

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

(in thousands, except per share data)

(unaudited)

 
Three Months Ended

September 26,

June 27,

September 28,

2020

2020

2019

 
Income Tax (Benefit) Expense Reconciliation

 

GAAP Income tax (benefit) expense $

(655

)

$

845

$

1,066

Estimated tax effect of non-GAAP adjustments (2)

478

(365

)

(83

)

Non-GAAP Income tax (benefit) expense $

(177

)

$

480

$

983

 
Net Income Reconciliation
GAAP Net income $

12,607

$

10,629

$

13,539

Stock-based compensation - gross margin (1)

1,022

1,101

453

Stock-based compensation - operations (1)

10,189

10,306

5,227

Amortization of acquired intangible assets

603

603

3,389

Restructuring charges

2,692

546

252

Estimated tax effect of non-GAAP adjustments (2)

(478

)

365

83

Non-GAAP Net income $

26,635

$

23,550

$

22,943

 
Net Income Per Share Reconciliation
GAAP Net income per share - basic $

0.09

$

0.08

$

0.1

Cumulative effect of Non-GAAP adjustments

0.11

0.09

0.07

Non-GAAP Net income per share - basic $

0.2

$

0.17

$

0.17

 
GAAP Net income per share - diluted $

0.09

$

0.08

$

0.1

Cumulative effect of Non-GAAP adjustments

0.1

0.09

0.07

Non-GAAP Net income per share - diluted $

0.19

$

0.17

$

0.17

 
Shares used in per share calculations:
Basic

135,598

134,857

132,997

Diluted - GAAP (3)

141,524

139,202

138,894

Diluted - Non-GAAP (3)

141,524

139,202

138,894

(1)

 

The non-GAAP adjustments for Stock-based compensation include related tax expenses.

(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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