Lattice Semiconductor Reports Fourth Quarter and Full Year 2018 Results

  • Fourth Quarter Net Loss Per Share Reduced by $0.01 on a Year Over Year
    GAAP Basis; Net Income Per Share Increased $0.07 on a Year Over Year
    Non-GAAP Basis
  • 2018 Net Loss Per Share Reduced by 64% on a GAAP Basis, From $0.58 in
    2017 to $0.21 in 2018; Net Income Per Share Tripled to $0.33 in 2018
    from $0.11 in 2017 on a Non-GAAP Basis
  • Expanded Operating Cash Flow to $30.9 million in the Fourth Quarter
    from $11 million in the Third Quarter, and $51.5 Million for 2018
    Compared to $38.5 Million in 2017

* 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.
For a reconciliation of GAAP to non-GAAP results, see accompanying
tables “Reconciliation of U.S. GAAP to Non-GAAP Financial Measures.”

PORTLAND, Ore.–(BUSINESS WIRE)–Lattice Semiconductor Corporation (NASDAQ: LSCC), a leading provider of
programmable logic devices, announced financial results today for the
fiscal fourth quarter and full year ended December 29, 2018.

Jim Anderson, President and Chief Executive Officer, said, “We are
pleased to report that for the full year 2018, we substantially improved
Lattice’s profitability, earnings per share and operating cash flow. We
simplified the Company’s operating structure and have attracted an
experienced executive team to lead all critical business areas. Despite
uncertainty in the current macroeconomic climate, we are positioned to
benefit over the long term from multiple catalysts in our business,
including growth in computing, industrial and automotive, and the global
5G buildout. We are excited about 2019 as we unlock additional value for
the company and its shareholders.”

Sherri Luther, Chief Financial Officer, said, “The fourth quarter of
2018 demonstrated continued improvement in operations, with net loss per
share at $0.05 on a GAAP basis, and net income of $0.08 per share on a
non-GAAP basis. For the full year of 2018, we reduced our net loss per
share on a GAAP basis to $0.21 from a loss of $0.58, and tripled our net
income per share on a non-GAAP basis to $0.33 from $0.11. Importantly,
we improved operating cash flow to $51.5 million in 2018 from $38.5
million in 2017 and made a total of $40 million in discretionary debt
payments in 2018. We remain committed to delivering improved operating
leverage.”

Selected Fourth Quarter and Full Year 2018 Financial Results and
Comparisons (in thousands, except per share data)

  GAAP — Three Months Ended   Non-GAAP — Three Months Ended
December 29,
2018
  September 29,
2018
  December 30,
2017 †
December 29,
2018
  September 29,
2018
  December 30,
2017 †
Revenue $ 95,977 $ 101,484 $ 95,266 $ 95,977 $ 101,484 $ 95,266
Gross Margin % 56.6 % 57.5 % 53.8 % 56.7 % 57.4 % 54.0 %
Operating Expense $ 56,026 $ 45,405 $ 51,937 $ 37,814 $ 38,417 $ 44,054
Net (Loss) Income $ (7,121 ) $ 6,974 $ (7,213 ) $ 11,131 $ 13,785 $ 1,038
Net (Loss) Income per share – Basic $ (0.05 ) $ 0.05 $ (0.06 ) $ 0.09 $ 0.11 $ 0.01
Net (Loss) Income per share – Diluted $ (0.05 ) $ 0.05 $ (0.06 ) $ 0.08 $ 0.11 $ 0.01
  GAAP — Year Ended   Non-GAAP — Year Ended
December 29,
2018
  December 30,
2017 †
December 29,
2018
  December 30,
2017 †
Revenue $ 398,799 $ 385,961 $ 398,799 $ 385,961
Gross Margin % 55.0 % 56.1 % 57.2 % 56.3 %
Operating Expense $ 222,559 $ 264,199 $ 161,597 $ 182,320
Net (Loss) Income $ (26,322 ) $ (70,562 ) $ 43,409 $ 13,601
Net (Loss) Income per share – Basic $ (0.21 ) $ (0.58 ) $ 0.34 $ 0.11
Net (Loss) Income per share – Diluted $ (0.21 ) $ (0.58 ) $ 0.33 $ 0.11

Results for periods in 2017 are presented in accordance
with ASC 605, which was in effect during that fiscal year.

Full Year 2018 Highlights

  • Improved Financial Performance: Lattice exited 2018 in a
    stronger, more profitable position. We implemented initiatives to
    improve gross margin, reduce operating expenses, increase cash flow,
    and actively delever the balance sheet.
  • Strategic Repositioning: Lattice completed a strategic
    repositioning in 2018 to focus on its profitable programmable logic
    business, while also improving efficiencies across its global
    operations. Actions taken included discontinuing its non-core
    millimeter wave business to focus entirely on programmable solutions
    moving forward, as well as optimizing the R&D project list to focus
    investments on areas with the greatest potential return. These actions
    are in-line with management’s strategy to drive profitable growth and
    increase shareholder value.
  • New Management Team Added: Lattice strengthened its executive
    team with highly experienced, proven leaders with both broader
    semiconductor industry experience and deep FPGA knowledge. The new
    team and simplified structure is now in place across R&D, sales,
    marketing, operations and finance.
  • Jim Anderson joined Lattice in September from AMD as the Company’s
    President and Chief Executive Officer;
  • Steve Douglass joined Lattice in September from Xilinx, Inc. as
    Corporate Vice President, R&D
  • Esam Elashmawi joined Lattice in September from Microsemi Corporation
    as Chief Marketing and Strategy Officer;
  • Glenn O’Rourke joined Lattice in December from Xilinx, Inc. as
    Corporate Vice President, Global Operations;
  • Sherri Luther joined Lattice in January from Coherent, Inc. as Chief
    Financial Officer;
  • Mark Nelson joined Lattice in January from Intel Corporation’s
    Programmable Solutions Group (PSG) as Corporate Vice President of
    Worldwide Sales.
  • New Product Introductions in 2018: Lattice further built upon
    its strong product portfolio with notable 2018 developments including:
  • Introduction and expansion of the ultra-low power Lattice sensAITM
    solution stack with a full ecosystem to help speed time-to-market for
    developers of low-power machine learning applications;
  • Initial samples of Lattice’s new security solution for Platform
    Firmware Resilience delivered to top server manufacturers;
  • Expansion of Lattice’s FPGA based modular video interface platform to
    simplify video connectivity for embedded vision system designs;
  • Launch of Lattice’s RadiantTM next-generation FPGA software
    with enhanced ease-of-use for broad market low power applications.

Business Outlook – First Quarter of 2019:

  • Revenue for the first quarter of 2019 is expected to be between
    approximately $94 million and $98 million.
  • Gross margin percentage for the first quarter of 2019 is expected to
    be approximately 57.5% plus or minus 2% on a non-GAAP basis.
  • Total operating expenses for the first quarter of 2019 are expected to
    be between approximately $37 million and $39 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 measures. With
respect to the outlook for the first quarter of 2019, certain items that
affect GAAP measurement of
financial metrics 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 fourth quarter and full year 2018 and business outlook on
Tuesday, February 12 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 8287936. A live webcast and replay 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 statements
relating to: our belief that we are positioned to benefit over the long
term from multiple catalysts in our business, including growth in
computing, industrial and automotive, and the global 5G buildout; that
we will unlock additional value for the company and its shareholders;
and the statements under the heading “Business Outlook – First Quarter
of 2019.” 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; and our
expectation that we will remain focused on maximizing the leverage of
our operating model and reduce our outstanding debt balance. Lattice
believes the factors identified below could cause actual results to
differ materially from the forward-looking statements.

Estimates of future revenue are inherently uncertain due to such factors
as global economic conditions, which may affect customer demand, pricing
pressures, competitive actions, the demand for our Mature, Mainstream
and New products, and in particular our iCE40™ and MachXO3L™ devices,
international trade disputes and sanctions, the ability to supply
products to customers in a timely manner, changes in our distribution
relationships, or the volatility of our consumer business. 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, including commodity costs, variations in manufacturing yields,
the failure to sustain operational improvements, the actual amount of
compensation charges due to stock price changes. Any unanticipated
declines in revenue or gross margin, any unanticipated increases in our
operating expenses or unanticipated charges could adversely affect our
profitability.

In addition to the foregoing, other factors that may cause actual
results to differ materially from the forward-looking statements in this
press release include global economic uncertainty, overall semiconductor
market conditions, market acceptance and demand for our new products,
the Company’s dependencies on its silicon wafer suppliers, the impact of
competitive products and pricing, technological and product development
risks. In addition, actual results are subject to other 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 30, 2017, and Lattice’s quarterly reports filed on Form 10-Q.

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, restructuring plans and
related charges, acquisition-related charges, amortization of acquired
intangible assets, impairment of intangible assets, inventory
adjustments from the discontinuation of the Company’s millimeter wave
business, gain on sale of building, loss on sale of business unit, and
the estimated tax effect of these items. 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 a leader in low power, small
form factor programmable logic devices. Our FPGAs deliver intelligence,
connectivity, and control solutions to the industrial, compute,
communications, consumer, and automotive markets. Our unwavering
commitment to our global customers enables them to accelerate their
innovation, creating an even better and more connected world.

For more information about Lattice, please visit www.latticesemi.com.
You can also follow us via LinkedInTwitterFacebookYouTube,
WeChat,
Weibo or Youku.

Lattice Semiconductor Corporation

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

   
Three Months Ended Twelve Months Ended
December 29,
2018
  September 29,
2018
  December 30,
2017
December 29,
2018
  December 30,
2017
Revenue $ 95,977   $ 101,484   $ 95,266   $ 398,799   $ 385,961  
Costs and expenses:
Cost of sales 41,671 43,120 44,050 179,360 169,382
Research and development 19,296 19,131 23,500 82,449 103,357
Selling, general, and administrative 21,168 21,775 23,585 91,054 90,718
Amortization of acquired intangible assets 3,708 3,823 5,563 17,690 31,340
Restructuring 11,854 90 2,483 17,349 7,196
Acquisition related charges 573 1,531 3,781
Impairment of acquired intangible assets 586 (3,767 ) 12,486 32,431
Gain on sale of building         (4,624 )
97,697   88,525   95,987   401,919   433,581  
(Loss) income from operations (1,720 ) 12,959 (721 ) (3,120 ) (47,620 )
Interest expense (5,018 ) (5,500 ) (4,695 ) (20,600 ) (18,807 )
Other expense, net (3 ) (452 ) (1,182 ) (249 ) (3,286 )
(Loss) income before income taxes (6,741 ) 7,007 (6,598 ) (23,969 ) (69,713 )
Income tax expense 380   33   615   2,353   849  
Net (loss) income $ (7,121 ) $ 6,974   $ (7,213 ) $ (26,322 ) $ (70,562 )
 
Net (loss) income per share:
Basic $ (0.05 ) $ 0.05   $ (0.06 ) $ (0.21 ) $ (0.58 )
Diluted $ (0.05 ) $ 0.05   $ (0.06 ) $ (0.21 ) $ (0.58 )
 
Shares used in per share calculations:
Basic 129,521   127,816   123,541   126,564   122,677  
Diluted 129,521   129,474   123,541   126,564   122,677  
 

Lattice Semiconductor Corporation

Consolidated Balance Sheets

(in thousands)

(unaudited)

   
December 29,
2018
December 30,
2017
Assets
Current assets:
Cash and cash equivalents $ 119,051 $ 106,815
Short-term marketable securities 9,624 4,982
Accounts receivable, net 60,890 55,104
Inventories 67,096 79,903
Other current assets 27,762   16,567
Total current assets 284,423 263,371
 
Property and equipment, net 34,883 40,423
Intangible assets, net 21,325 51,308
Goodwill 267,514 267,514
Deferred income taxes 215 198
Other long-term assets 15,327   13,147
$ 623,687   $ 635,961
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 61,128 $ 64,821
Current portion of long-term debt 8,290 1,508
Deferred income and allowances on sales to distributors and deferred
license revenue
  17,318
Total current liabilities 69,418 83,647
 
Long-term debt 251,357 299,667
Other long-term liabilities 44,455   34,954
Total liabilities 365,230 418,268
 
Stockholders’ equity 258,457   217,693
$ 623,687   $ 635,961
 

Lattice Semiconductor Corporation

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
Twelve Months Ended
December 29,   December 30,
2018 2017
Cash flows from operating activities:
Net loss $ (26,322 ) $ (70,562 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 39,261 57,861
Impairment of acquired intangible assets 12,486 32,431
Amortization of debt issuance costs and discount 2,230 1,982
Change in deferred income tax provision (96 ) (154 )
(Gain) loss on sale or maturity of marketable securities (18 ) 252
Gain on forward contracts (53 ) (77 )
Stock-based compensation expense 13,646 12,543
Gain on disposal of fixed assets (178 ) (75 )
Gain on sale of building (4,624 )
Loss on sale of assets and business units 1,496
Impairment of cost-method investment 266 1,761
Changes in assets and liabilities:
Accounts receivable, net (3,978 ) 44,613
Inventories 13,177 (902 )
Prepaid expenses and other assets (11,667 ) 889
Accounts payable and accrued expenses (includes restructuring) 13,325 (23,588 )
Accrued payroll obligations (1,051 ) 726
Income taxes payable 498 (556 )
Deferred income and allowances on sales to distributors (15,007 )
Deferred licensing and services revenue (68 ) (495 )
Net cash provided by operating activities 51,458   38,514  
Cash flows from investing activities:
Proceeds from sales of and maturities of short-term marketable
securities
5,000 12,689
Purchases of marketable securities (9,603 ) (7,420 )
Proceeds from sale of building 7,895
Cash paid for costs of sale of building (1,004 )
Capital expenditures (8,384 ) (12,855 )
Proceeds from sale of assets and business unit, net of cash sold 967
Repayment received on short-term loan to cost-method investee 2,000
Short-term loan to cost-method investee (2,000 )
Cash paid for software licenses (8,123 ) (8,532 )
Net cash used in investing activities (21,110 ) (8,260 )
Cash flows from financing activities:
Restricted stock unit tax withholdings (2,370 ) (3,267 )
Proceeds from issuance of common stock 29,288 6,085
Repayment of debt (43,759 ) (35,429 )
Net cash used in financing activities (16,841 ) (32,611 )
Effect of exchange rate change on cash (1,271 ) 2,620  
Net increase in cash and cash equivalents 12,236 263
Beginning cash and cash equivalents 106,815   106,552  
Ending cash and cash equivalents $ 119,051   $ 106,815  
 
Supplemental cash flow information:
Change in unrealized (gain) loss related to marketable securities,
net of tax, included in Accumulated other comprehensive loss
$ (41 ) $ 73
Income taxes paid, net of refunds $ 3,054 $ 2,387
Interest paid $ 18,607 $ 20,649
Accrued purchases of plant and equipment $ 110 $ 588
Note receivable resulting from sale of assets and business units $ $ 3,050
 

Lattice Semiconductor Corporation

– Supplemental Historical Financial Information –

(unaudited)

   
Three Months Ended Twelve Months Ended
December 29,   September 29,   December 30, December 29,   December 30,
2018 2018 2017 2018 2017
Operations and Cash Flow Information
Percent of Revenue
Gross Margin 56.6 % 57.5 % 53.8 % 55.0 % 56.1 %
R&D Expense 20.1 % 18.9 % 24.7 % 20.7 % 26.8 %
SG&A Expense 22.1 % 21.5 % 24.8 % 22.8 % 23.5 %
Depreciation and amortization (in thousands) $ 8,521 $ 8,315 $ 12,270 $ 39,261 $ 57,861
Stock-based compensation expense (in thousands) $ 3,738 $ 2,708 $ 3,257 $ 13,646 $ 12,543
Restructuring and severance related charges (in thousands) $ 11,854 $ 90 $ 2,483 $ 17,349 $ 7,196
Net cash provided by operating activities (thousands) $ 30,898 $ 10,978 $ 2,768 $ 51,458 $ 38,514
Capital expenditures (in thousands) $ 2,206 $ 2,073 $ 530 $ 8,384 $ 12,855
Repayment of debt (in thousands) $ 15,875 $ 15,875 $ 1,750 $ 43,759 $ 35,429
Interest paid (in thousands) $ 4,631 $ 4,799 $ 4,270 $ 18,607 $ 20,649
Taxes paid (cash, in thousands) $ 338 $ 659 $ 79 $ 3,054 $ 2,387
 
Balance Sheet Information
Current Ratio 4.1 4.0 3.1
A/R Days Revenue Outstanding 58 68 53
Inventory Months 4.8 4.6 5.4
 
Revenue% (by Geography)
Asia 74 % 76 % 74 % 75 % 72 %
Europe (incl. Africa) 10 % 12 % 13 % 11 % 12 %
Americas 16 % 12 % 13 % 14 % 16 %
 
Revenue% (by End Market)
Communications and Computing 34 % 32 % 30 % 31 % 29 %
Mobile and Consumer 22 % 27 % 27 % 25 % 28 %
Industrial and Automotive 37 % 37 % 41 % 39 % 35 %
Licensing and Services 7 % 4 % 2 % 5 % 8 %
 
Revenue% (by Channel) *
Distribution 76 % 82 % 83 % 83 % 77 %
Direct 24 % 18 % 17 % 17 % 23 %
 
* During the first quarter of 2018, we updated our channel categories
to group all forms of distribution into a single channel. 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 Twelve Months Ended
December 29,   September 29,   December 30, December 29,   December 30,
2018 2018 2017 2018 2017
 
Gross Margin Reconciliation
GAAP Gross margin $ 54,306 $ 58,364 $ 51,216 $ 219,439 $ 216,579
Inventory adjustment related to restructured operations (160 ) (288 ) 7,829
Stock-based compensation – gross margin 288   219   226   940   788  
Non-GAAP Gross margin $ 54,434 $ 58,295 $ 51,442 $ 228,208 $ 217,367
 
Gross Margin % Reconciliation
GAAP Gross margin % 56.6 % 57.5 % 53.8 % 55.0 % 56.1 %
Cumulative effect of non-GAAP Gross Margin adjustments 0.1 % (0.1 )% 0.2 % 2.2 % 0.2 %
Non-GAAP Gross margin % 56.7 % 57.4 % 54.0 % 57.2 % 56.3 %
 
Operating Expenses Reconciliation
GAAP Operating expenses $ 56,026 $ 45,405 $ 51,937 $ 222,559 $ 264,199
Amortization of acquired intangible assets (3,708 ) (3,823 ) (5,563 ) (17,690 ) (31,340 )
Restructuring charges (11,854 ) (90 ) (2,483 ) (17,349 ) (7,196 )
Acquisition related charges (1) (573 ) (1,531 ) (3,781 )
Impairment of acquired intangible assets 800 (586 ) 3,767 (11,686 ) (32,431 )
Stock-based compensation – operations (3,450 ) (2,489 ) (3,031 ) (12,706 ) (11,755 )
Gain on sale of building         4,624  
Non-GAAP Operating expenses $ 37,814 $ 38,417 $ 44,054 $ 161,597 $ 182,320
 
(Loss) Income from Operations Reconciliation
GAAP (Loss) income from operations $ (1,720 ) $ 12,959 $ (721 ) $ (3,120 ) $ (47,620 )
Inventory adjustment related to restructured operations (160 ) (288 ) 7,829
Stock-based compensation – gross margin 288 219 226 940 788
Amortization of acquired intangible assets 3,708 3,823 5,563 17,690 31,340
Restructuring charges 11,854 90 2,483 17,349 7,196
Acquisition related charges (1) 573 1,531 3,781
Impairment of acquired intangible assets (800 ) 586 (3,767 ) 11,686 32,431
Stock-based compensation – operations 3,450 2,489 3,031 12,706 11,755
Gain on sale of building         (4,624 )
Non-GAAP Income from operations $ 16,620 $ 19,878 $ 7,388 $ 66,611 $ 35,047
 
(Loss) Income from Operations % Reconciliation
GAAP (Loss) income from operations % (1.8 )% 12.8 % (0.8 )% (0.8 )% (12.3 )%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments 19.1 % 6.8 % 8.6 % 17.5 % 21.4 %
Non-GAAP Income from operations % 17.3 % 19.6 % 7.8 % 16.7 % 9.1 %
 
(1) Legal fees and outside services that were related to our
proposed acquisition by Canyon Bridge Acquisition Company, Inc.
 

Contacts

MEDIA:
Lattice Semiconductor Corporation
Doug Hunter,
503.268.8512
[email protected]i.com

INVESTORS:
Global
IR Partners
David Pasquale, 914.337.8801
[email protected]

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