Lattice Semiconductor Reports Third Quarter of 2018 Results

Lattice Semiconductor Corporation
- Supplemental Historical Financial Information -
(unaudited)

	Three Months Ended						Nine Months Ended
	September 29, 2018		June 30, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Operations and Cash Flow Information
Percent of Revenue
Gross Margin	57.5	%	48.9	%	58.0	%	54.5	%	56.9	%
R&D Expense	18.9	%	20.5	%	27.9	%	20.9	%	27.5	%
SG&A Expense	21.5	%	20.5	%	23.1	%	23.1	%	23.1	%
Depreciation and amortization (in thousands)	8,315		10,069		15,094		30,740		45,591
Stock-based compensation expense (in thousands)	2,708		2,400		2,514		9,908		9,286
Restructuring and severance related charges (in thousands)	90		4,376		3,071		5,495		4,713
Net cash provided by operating activities (thousands)	10,978		7,124		24,232		20,560		35,746
Capital expenditures (in thousands)	2,073		2,301		5,290		6,178		12,325
Repayment of debt (in thousands)	15,875		11,134		—		27,884		33,679
Interest paid (in thousands)	4,799		4,757		4,285		13,976		16,379
Taxes paid (cash, in thousands)	659		2,017		1,332		2,716		2,308

Balance Sheet Information
Current Ratio	4.0		3.1		2.2
A/R Days Revenue Outstanding	68		68		78
Inventory Months	4.6		3.8		6.0

Revenue% (by Geography)
Asia	76	%	76	%	75	%	75	%	71	%
Europe (incl. Africa)	12	%	12	%	12	%	12	%	11	%
Americas	12	%	12	%	13	%	13	%	18	%

Revenue% (by End Market)
Communications and Computing	32	%	29	%	30	%	30	%	29	%
Mobile and Consumer	27	%	24	%	28	%	26	%	29	%
Industrial and Automotive	37	%	43	%	37	%	40	%	33	%
Licensing and Services	4	%	4	%	5	%	4	%	9	%

Revenue% (by Channel) *
Distribution	82	%	86	%	80	%	85	%	75	%
Direct	18	%	14	%	20	%	15	%	25	%

*		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									Nine Months Ended
	September 29, 2018			June 30, 2018			September 30, 2017			September 29, 2018			September 30, 2017

Gross Margin Reconciliation
GAAP Gross margin	$	58,364		$	50,248		$	53,322		$	165,133		$	165,363
Inventory adjustment related to restructured operations	(288		)	8,277			—			7,989			—
Stock-based compensation - gross margin	219			196			154			652			562
Non-GAAP Gross margin	$	58,295		$	58,721		$	53,476		$	173,774		$	165,925

Gross Margin % Reconciliation
GAAP Gross margin %	57.5		%	48.9		%	58.0		%	54.5		%	56.9		%
Cumulative effect of non-GAAP Gross Margin adjustments	(0.1		)%	8.3		%	0.1		%	2.9		%	0.2		%
Non-GAAP Gross margin %	57.4		%	57.2		%	58.1		%	57.4		%	57.1		%

Operating Expenses Reconciliation
GAAP Operating expenses	$	45,405		$	63,812		$	90,790		$	166,533		$	212,262
Amortization of acquired intangible assets	(3,823		)	(4,523		)	(8,526		)	(13,982		)	(25,777		)
Restructuring charges	(90		)	(4,376		)	(3,071		)	(5,495		)	(4,713		)
Acquisition related charges (1)	—			(864		)	(681		)	(1,531		)	(3,208		)
Impairment of acquired intangible assets	(586		)	(11,900		)	(36,198		)	(12,486		)	(36,198		)
Stock-based compensation - operations	(2,489		)	(2,204		)	(2,360		)	(9,256		)	(8,724		)
Gain on sale of building	—			—			4,624			—			4,624
Non-GAAP Operating expenses	$	38,417		$	39,945		$	44,578		$	123,783		$	138,266

Income (Loss) from Operations Reconciliation
GAAP Income (loss) from operations	$	12,959		$	(13,564	)	$	(37,468	)	$	(1,400	)	$	(46,899	)
Inventory adjustment related to restructured operations	(288		)	8,277			—			7,989			—
Stock-based compensation - gross margin	219			196			154			652			562
Amortization of acquired intangible assets	3,823			4,523			8,526			13,982			25,777
Restructuring charges	90			4,376			3,071			5,495			4,713
Acquisition related charges (1)	—			864			681			1,531			3,208
Impairment of acquired intangible assets	586			11,900			36,198			12,486			36,198
Stock-based compensation - operations	2,489			2,204			2,360			9,256			8,724
Gain on sale of building	—			—			(4,624		)	—			(4,624		)
Non-GAAP Income from operations	$	19,878		$	18,776		$	8,898		$	49,991		$	27,659

Income (Loss) from Operations % Reconciliation
GAAP Income (loss) from operations %	12.8		%	(13.2		)%	(40.7		)%	(0.5		)%	(16.1		)%
Cumulative effect of non-GAAP Gross Margin and Operating adjustments	6.8		%	31.5		%	50.4		%	17.0		%	25.6		%
Non-GAAP Income from operations %	19.6		%	18.3		%	9.7		%	16.5		%	9.5		%

(1) Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.


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

	Three Months Ended									Nine Months Ended
	September 29, 2018			June 30, 2018			September 30, 2017			September 29, 2018			September 30, 2017

Other Expense, Net Reconciliation
GAAP Other expense, net	$	(452	)	$	(348	)	$	(2,027	)	$	(246	)	$	(2,104	)
Loss on sale of assets and business units	—			—			1,796			—			1,496
Non-GAAP Other expense, net	$	(452	)	$	(348	)	$	(231	)	$	(246	)	$	(608	)

Income Tax Expense (Benefit) Reconciliation
GAAP Income tax expense (benefit)	$	33		$	1,343		$	(331	)	$	1,973		$	234
Estimated tax effect of non-GAAP adjustments (2)	108			(258		)	(218		)	(88		)	142
Non-GAAP Income tax expense (benefit)	$	141		$	1,085		$	(549	)	$	1,885		$	376

Net Income (Loss) Reconciliation
GAAP Net income (loss)	$	6,974		$	(20,223	)	$	(43,052	)	$	(19,201	)	$	(63,349	)
Inventory adjustment related to restructured operations	(288		)	8,277			—			7,989			—
Stock-based compensation - gross margin	219			196			154			652			562
Amortization of acquired intangible assets	3,823			4,523			8,526			13,982			25,777
Restructuring charges	90			4,376			3,071			5,495			4,713
Acquisition related charges (1)	—			864			681			1,531			3,208
Impairment of acquired intangible assets	586			11,900			36,198			12,486			36,198
Stock-based compensation - operations	2,489			2,204			2,360			9,256			8,724
Gain on sale of building	—			—			(4,624		)	—			(4,624		)
Loss on sale of assets and business unit	—			—			1,796			—			1,496
Estimated tax effect of non-GAAP adjustments (2)	(108		)	258			218			88			(142		)
Non-GAAP Net income	$	13,785		$	12,375		$	5,328		$	32,278		$	12,563

Net Income (Loss) Per Share Reconciliation
GAAP Net income (loss) per share - basic and diluted	$	0.05		$	(0.16	)	$	(0.35	)	$	(0.15	)	$	(0.52	)
Cumulative effect of Non-GAAP adjustments	0.06			0.26			0.39			0.41			0.62
Non-GAAP Net income per share - basic and diluted	$	0.11		$	0.10		$	0.04		$	0.26		$	0.10

Shares used in per share calculations:
Basic	127,816			124,843			122,990			125,578			122,393
Diluted - GAAP (3)	129,474			124,843			122,990			125,578			122,393
Diluted - Non-GAAP (3)	129,474			125,620			124,225			126,862			124,454

(1) Legal fees and outside services that were related to our proposed acquisition by Canyon Bridge Acquisition Company, Inc.

(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.


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

	Three Months Ended
	December 29, 2018

Business Outlook - Fourth Quarter 2018	Low			Midpoint			High

GAAP Operating expenses	$	52,000		$	53,500		$	55,000
Cumulative effect of Non-GAAP Operating expense adjustments (4)	(15,000		)	(15,500		)	(16,000		)
Non-GAAP Operating expenses	$	37,000		$	38,000		$	39,000