Lattice Semiconductor(LSCC) - 2021 Q4 - Annual Report

PART I Business Lattice Semiconductor specializes in low-power FPGAs, operating a fabless model and generating significant revenue through distributors across key end markets - Lattice positions itself as the leader in low-power programmable logic, focusing on FPGAs to solve customer problems in growing markets like 5G, cloud computing, industrial IoT, and automotive electronics[13] - The company operates a fabless model, partnering with established foundries like Samsung, UMC, TSMC, and Epson for wafer fabrication, and OSATs like ASE and Amkor for assembly and testing. This strategy allows Lattice to focus on product development and avoid the high costs of owning manufacturing facilities[34][36][38] Revenue by End Market (Fiscal Year 2020) | End Market | Revenue ($ millions) | % of Total | | :--- | :--- | :--- | | Communications and Computing | $174.7 | 42.8% | | Industrial and Automotive | $168.3 | 41.2% | | Consumer | $45.5 | 11.2% | | Licensing and Services | $19.6 | 4.8% | | Total Revenue | $408.1 | 100.0% | Sales Channel Breakdown (Fiscal Year 2020) | Channel | % of Total Revenue | | :--- | :--- | | All Distributors | 83.1% | | Direct Customers | 12.1% | | Licensing and Services | 4.8% | - As of January 2, 2021, the company had 746 employees worldwide[50] Risk Factors The company faces significant risks from the COVID-19 pandemic, supply chain concentration, distributor reliance, geopolitical tensions, and industry competition - The COVID-19 pandemic is highlighted as a significant risk that could disrupt manufacturing, supply chains, and customer demand, potentially impacting revenue, margins, and overall operating results[59][60] - The company relies on a concentrated number of independent foundries and OSATs in Asia. Any disruption, financial difficulty, or inability of these partners to meet demand could lead to significant costs and delays[70][71][72] - A substantial portion of revenue comes from a concentrated group of distributors. In fiscal 2020, two distributors accounted for 60% of total revenue. Adverse changes in these relationships could significantly harm sales[114] - Tariffs, trade sanctions, and U.S. export restrictions, particularly concerning customers in China, pose a significant risk. Regulatory actions have previously limited business with a major Chinese customer and could affect others in the future[68][69] - As of January 2, 2021, the company had approximately $171.9 million in outstanding debt. The credit agreement contains covenants that could limit strategic flexibility and require significant cash flow for debt service[98][99] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[122] Properties Lattice leases all major facilities, including its corporate headquarters and key R&D centers, which are deemed adequate for current needs - Key leased properties include a 47,800 sq ft corporate headquarters in Hillsboro, OR; a 98,874 sq ft facility in San Jose, CA (of which about half is intended for sublease); a 48,565 sq ft facility in the Philippines; and a 68,027 sq ft facility in Shanghai, China[123][124] Legal Proceedings The company is defending a lawsuit seeking $138 million in damages related to export-controlled product sales, believing the claims are without merit - The company is defending a lawsuit where plaintiffs seek $138 million in damages related to the sale of export-controlled products in 2008. The company believes the claims are meritless[335] Mine Safety Disclosures This item is not applicable to the company - Not applicable[127] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Lattice's common stock trades on NASDAQ, has never paid dividends, repurchased $15.0 million in Q4 2020, and significantly outperformed market indices - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "LSCC"[128] - Lattice has never paid cash dividends and intends to retain earnings to finance its business[130] Q4 2020 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Nov 1 - Nov 30, 2020 | 384,538 | $38.98 | | Total | 384,538 | $38.98 | - The company's stock performance from December 2015 to December 2020 showed a cumulative return of 708.19%, substantially outperforming the S&P 500 (203.04%) and the PHLX Semiconductor Index (461.53%)[137] Selected Financial Data Five-year selected financial data shows stable revenue, return to profitability in 2019, and reductions in total assets and liabilities Five-Year Selected Financial Data | Fiscal Year Ended | Jan 2, 2021 | Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue ($ millions) | $408.1 | $404.1 | $398.8 | $386.0 | $427.1 | | Gross Margin ($ millions) | $245.3 | $238.4 | $219.4 | $216.6 | $246.4 | | Income (loss) from operations ($ millions) | $52.4 | $59.0 | $(3.1) | $(47.6) | $(26.7) | | Net income (loss) ($ millions) | $47.4 | $43.5 | $(26.3) | $(70.6) | $(54.1) | | Diluted EPS | $0.34 | $0.32 | $(0.21) | $(0.58) | $(0.45) | | Total assets ($ millions) | $680.1 | $612.0 | $623.7 | $636.0 | $766.9 | | Total liabilities ($ millions) | $295.6 | $284.4 | $365.2 | $418.3 | $496.5 | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2020 saw 1.0% revenue growth to $408.1 million, improved gross margin, increased operating expenses, and strong liquidity with $182.3 million cash Fiscal 2020 vs. 2019 Revenue Performance | Metric | FY 2020 ($ millions) | FY 2019 ($ millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $408.1 | $404.1 | 1.0% | Revenue by End Market (YoY Change) | End Market | % Change (2020 vs 2019) | | :--- | :--- | | Communications and Computing | 12.1% | | Industrial and Automotive | 11.0% | | Consumer | (39.4)% | | Licensing and Services | (8.9)% | - Gross margin percentage increased by 110 basis points to 60.1% in fiscal 2020, attributed to pricing optimization programs, product cost reductions, and favorable product mix[165] - Operating expenses increased in fiscal 2020. R&D expense rose 13.5% due to increased stock compensation and headcount to support product portfolio expansion. SG&A expense increased 15.5%, also driven by higher stock compensation and salaries[168][172] - Cash and cash equivalents increased by $64.3 million to $182.3 million at year-end. The company generated $91.7 million in cash from operating activities during fiscal 2020[190][193] - Inventories increased by 17.5% to $64.6 million to meet increased customer demand[197] Quantitative and Qualitative Disclosures About Market Risk The company's market risks primarily involve interest rates on its $171.9 million variable-rate debt, with foreign currency risk historically immaterial - Foreign currency exchange rate risk has not had a material impact on the company's results from operations[212] - The company is exposed to interest rate risk on its $171.9 million of outstanding debt. A hypothetical 100 basis point (1%) increase in the one-month LIBOR would increase future interest expense by about $0.4 million per quarter[213] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2020-2018, including statements of operations, balance sheets, cash flows, and detailed notes Consolidated Statement of Operations Highlights | Line Item | FY 2020 ($ millions) | FY 2019 ($ millions) | FY 2018 ($ millions) | | :--- | :--- | :--- | :--- | | Revenue | $408.1 | $404.1 | $398.8 | | Gross Margin | $245.3 | $238.4 | $219.4 | | Income (loss) from operations | $52.4 | $59.0 | $(3.1) | | Net income (loss) | $47.4 | $43.5 | $(26.3) | Consolidated Balance Sheet Highlights | Line Item | Jan 2, 2021 ($ millions) | Dec 28, 2019 ($ millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $182.3 | $118.1 | | Total Assets | $680.1 | $612.0 | | Long-term debt, net | $157.9 | $125.1 | | Total Liabilities | $295.6 | $284.4 | | Total Stockholders' Equity | $384.4 | $327.7 | - The company relies on a limited number of distributors, with Weikeng Group and Arrow Electronics accounting for 35% and 25% of total revenue in fiscal 2020, respectively[229] - Total stock-based compensation expense was $40.4 million in fiscal 2020, a significant increase from $18.9 million in 2019, primarily driven by market-based and performance-based awards[300][311] - The company maintains a full valuation allowance against its net federal and state deferred tax assets in the U.S., as it has not concluded that realization is more-likely-than-not[318] Changes in and Disagreements with Accountants On Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants on financial disclosure - None[362] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of January 2, 2021, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[363] - Management concluded that the company's internal control over financial reporting was effective as of January 2, 2021, based on the COSO framework[366] Other Information The company reports no other information for this item - None[370] PART III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14 is incorporated by reference from the forthcoming definitive proxy statement for the 2020 Annual Meeting - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and accountant fees is incorporated by reference from the forthcoming Proxy Statement[371] PART IV Exhibits This section lists all financial statements and exhibits filed as part of the Form 10-K report - This item contains a list of all financial statements and exhibits filed with the Form 10-K[381]