Lattice Semiconductor Reports First Quarter 2021 Results

First Quarter 2021 Highlights

Revenue Growth: Revenue increased 19% in Q1 2021 compared to Q1 2020 and 8% in Q4 2020.
Profit Growth: Net income per diluted share expanded 117% on a GAAP basis and 47% on a non-GAAP basis compared to Q1 2020, with gross margin improving 190 basis points on both a GAAP and non-GAAP basis compared to Q1 2020.
Launched Lattice Crosslink™-NX for Automotive Applications: The new Crosslink-NX brings best-in-class low power, small form factor, high-performance I/O, and reliability to automotive applications.
Launched Lattice mVision™ 2.0: The latest solutions stack features multiple updates that further accelerate the design of embedded applications for industrial, automotive, and smart consumer systems.
Lattice Sentry™ and Lattice Supply Guard™ Win Gold: Lattice won a New Product-Service of the Year Gold Award from Cyber Security Global Excellence Awards®.
Lattice Joined S&P MidCap 400® Index: Lattice was added to the S&P MidCap 400® Index, effective April 20, 2021.
Lattice Investor Day 2021: Registration is now open to attend the virtual event on Tuesday, May 11, 2021 from 9-11 a.m. PDT / 12-2 p.m. EDT using link ir.latticesemi.com/investorday2021.

Business Outlook - Second Quarter of 2021:

Revenue for the second quarter of 2021 is expected to be between $116 million and $124 million.
Gross margin percentage for the second quarter of 2021 is expected to be 62% plus or minus 1% on a non-GAAP basis.
Total operating expenses for the second quarter of 2021 are expected to be between $40.5 million and $41.5 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 first quarter of 2021, 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 first quarter 2021, and business outlook on Tuesday, May 4 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 2619109. 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 that we are entering a new growth phase for the Company; and the statements under the heading “Business Outlook - Second Quarter of 2021.” 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 January 2, 2021, 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 January 2, 2021. 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 first quarter of fiscal 2021 and the fourth 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 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
	April 3,			January 2,			March 28,
	2021			2021			2020
Revenue	$	115,716		$	107,173		$	97,316
Cost of sales		45,130			42,312			39,754
Gross margin		70,586			64,861			57,562
Operating expenses:
Research and development		24,066			22,633			21,693
Selling, general, and administrative		25,092			24,534			22,551
Amortization of acquired intangible assets		603			603			2,640
Restructuring		176			(241	)		940
Total operating expenses		49,937			47,529			47,824
Income from operations		20,649			17,332			9,738
Interest expense		(718	)		(788	)		(1,077	)
Other expense, net		(162	)		(125	)		(50	)
Income before income taxes		19,769			16,419			8,611
Income tax expense		956			430			444
Net income	$	18,813		$	15,989		$	8,167

Net income per share:
Basic	$	0.14		$	0.12		$	0.06
Diluted	$	0.13		$	0.11		$	0.06

Shares used in per share calculations:
Basic		136,401			136,104			134,253
Diluted		141,674			141,713			138,044

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

	April 3,		January 2,
	2021		2021
Assets
Current assets:
Cash and cash equivalents	$	185,268	$	182,332
Accounts receivable, net		71,090		64,581
Inventories, net		59,456		64,599
Other current assets		21,066		22,331
Total current assets		336,880		333,843

Property and equipment, net		38,143		39,666
Operating lease right-of-use assets		28,006		22,178
Intangible assets, net		7,294		6,321
Goodwill		267,514		267,514
Deferred income taxes		566		577
Other long-term assets		9,181		9,968
	$	687,584	$	680,067

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	27,384	$	27,530
Accrued expenses		24,559		21,411
Accrued payroll obligations		11,592		18,028
Current portion of long-term debt		17,144		12,762
Total current liabilities		80,679		79,731

Long-term debt, net of current portion		153,644		157,934
Long-term operating lease liabilities, net of current portion		23,539		18,906
Other long-term liabilities		38,137		39,069
Total liabilities		295,999		295,640

Stockholders' equity		391,585		384,427
	$	687,584	$	680,067

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

	Three Months Ended
	April 3,			March 28,
	2021			2020
Cash flows from operating activities:
Net income	$	18,813		$	8,167
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		10,454			8,728
Depreciation and amortization		5,901			7,793
Other non-cash adjustments		1,679			1,509
Net changes in assets and liabilities		(7,476	)		(5,094	)
Net cash provided by (used in) operating activities		29,371			21,103
Cash flows from investing activities:
Capital expenditures		(1,270	)		(3,867	)
Other investing activities		(3,056	)		(2,775	)
Net cash provided by (used in) investing activities		(4,326	)		(6,642	)
Cash flows from financing activities:
Proceeds from long-term debt		—			50,000
Repayment of long-term debt		—			(4,375	)
Purchase of treasury stock		(15,002	)		—
Net cash flows related to stock compensation exercises		(6,870	)		(1,484	)
Net cash provided by (used in) financing activities		(21,872	)		44,141
Effect of exchange rate change on cash		(237	)		(111	)
Net increase in cash and cash equivalents		2,936			58,491
Beginning cash and cash equivalents		182,332			118,081
Ending cash and cash equivalents	$	185,268		$	176,572

Supplemental disclosure of cash flow information and non-cash investing and financing activities:
Interest paid	$	592		$	1,113
Income taxes paid, net of refunds	$	675		$	852

Lattice Semiconductor Corporation
Supplemental Historical Financial Information
(unaudited)

	Three Months Ended
	April 3,			January 2,			March 28,
	2021			2021			2020
Balance Sheet Information
A/R Days Revenue Outstanding (DSO)		56			55			64
Inventory Days (DIO)		120			139			112

Revenue% (by Geography)
Asia		76	%		77	%		71	%
Americas		14	%		15	%		17	%
Europe (incl. Africa)		10	%		8	%		12	%

Revenue% (by End Market)
Communications and Computing		43	%		43	%		39	%
Industrial and Automotive		43	%		43	%		43	%
Consumer		10	%		10	%		14	%
Licensing and Services		4	%		4	%		4	%

Revenue% (by Channel)
Distribution		85	%		88	%		78	%
Direct		15	%		12	%		22	%

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

	Three Months Ended
	April 3,			January 2,			March 28,
	2021			2021			2020

*Gross Margin Reconciliation*
GAAP Gross margin	$	70,586		$	64,861		$	57,562
Stock-based compensation - gross margin (1)		773			1,104			591
Non-GAAP Gross margin	$	71,359		$	65,965		$	58,153

*Gross Margin % Reconciliation*
GAAP Gross margin %		61.0	%		60.5	%		59.1	%
Cumulative effect of non-GAAP Gross Margin adjustments		0.7	%		1.1	%		0.7	%
Non-GAAP Gross margin %		61.7	%		61.6	%		59.8	%

*Research and Development Expense % (R&D Expense %) Reconciliation*
GAAP R&D Expense %		20.8	%		21.1	%		22.3	%
Stock-based compensation - R&D (1)		(2.5	)%		(2.6	)%		(2.7	)%
Non-GAAP R&D Expense %		18.3	%		18.5	%		19.6	%

*Selling, General, and Administrative Expense % (SG&A Expense %) Reconciliation*
GAAP SG&A Expense %		21.7	%		22.9	%		23.2	%
Stock-based compensation - SG&A (1)		(6.3	)%		(6.4	)%		(5.7	)%
Non-GAAP SG&A Expense %		15.4	%		16.5	%		17.5	%

*Operating Expenses Reconciliation*
GAAP Operating expenses	$	49,937		$	47,529		$	47,824
Stock-based compensation - operations (1)		(10,218	)		(9,692	)		(8,137	)
Amortization of acquired intangible assets		(603	)		(603	)		(2,640	)
Restructuring charges		(176	)		241			(940	)
Non-GAAP Operating expenses	$	38,940		$	37,475		$	36,107

*Income from Operations Reconciliation*
GAAP Income from operations	$	20,649		$	17,332		$	9,738
Stock-based compensation - gross margin (1)		773			1,104			591
Stock-based compensation - operations (1)		10,218			9,692			8,137
Amortization of acquired intangible assets		603			603			2,640
Restructuring charges		176			(241	)		940
Non-GAAP Income from operations	$	32,419		$	28,490		$	22,046

*Income from Operations % Reconciliation*
GAAP Income from operations %		17.8	%		16.2	%		10.0	%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments		10.2	%		10.4	%		12.7	%
Non-GAAP Income from operations %		28.0	%		26.6	%		22.7	%

(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
	April 3,			January 2,			March 28,
	2021			2021			2020

*Income Tax Expense (Benefit) Reconciliation*
GAAP Income tax expense (benefit)	$	956		$	430		$	444
Estimated tax effect of non-GAAP adjustments (2)		(110	)		(393	)		280
Non-GAAP Income tax expense (benefit)	$	846		$	37		$	724

*Net Income Reconciliation*
GAAP Net income	$	18,813		$	15,989		$	8,167
Stock-based compensation - gross margin (1)		773			1,104			591
Stock-based compensation - operations (1)		10,218			9,692			8,137
Amortization of acquired intangible assets		603			603			2,640
Restructuring charges		176			(241	)		940
Estimated tax effect of non-GAAP adjustments (2)		110			393			(280	)
Non-GAAP Net income	$	30,693		$	27,540		$	20,195

*Net Income Per Share Reconciliation*
GAAP Net income per share - basic	$	0.14		$	0.12		$	0.06
Cumulative effect of Non-GAAP adjustments		0.09			0.08			0.09
Non-GAAP Net income per share - basic	$	0.23		$	0.20		$	0.15

GAAP Net income per share - diluted	$	0.13		$	0.11		$	0.06
Cumulative effect of Non-GAAP adjustments		0.09			0.08			0.09
Non-GAAP Net income per share - diluted	$	0.22		$	0.19		$	0.15

Shares used in per share calculations:
Basic		136,401			136,104			134,253
Diluted		141,674			141,713			138,044

(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.”

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