Lattice Semiconductor(LSCC) - 2022 Q4 - Annual Report

PART I Business Lattice Semiconductor is a fabless leader in low-power programmable logic, providing FPGAs, software, and IP to global Communications, Computing, Industrial, Automotive, and Consumer markets - Lattice positions itself as the low-power programmable leader, addressing customer needs from Edge to Cloud across Communications, Computing, Industrial, Automotive, and Consumer markets[13] - The product portfolio includes FPGA families like Lattice Avant™, Certus™, Mach™, iCE™, and CrossLink™, tailored for specific applications[25][32] - Lattice operates a fabless business model, relying on third-party foundries (TSMC, Samsung, UMC) and OSATs (ASE, Amkor) for manufacturing[31][35][37] Sales to Distributors as a Percentage of Net Revenue | Fiscal Year | Percentage of Net Revenue | | :--- | :--- | | 2022 | 89% | | 2021 | 87% | | 2020 | 83% | - As of December 31, 2022, the company had 949 employees worldwide[48] Risk Factors The company faces significant global operational risks, including geopolitical tensions, trade sanctions, supply chain reliance on Asian manufacturers, IP licensing fluctuations, litigation, cybersecurity threats, and high distributor dependence - Global operations are exposed to economic, political, and regulatory risks, including geopolitical conflicts and U.S.-China trade relations, potentially disrupting manufacturing partners[59][60] - Reliance on a few subcontractors for wafer fabrication (TSMC, Samsung, UMC) and assembly/test (ASE, Amkor) in Asia poses significant disruption risks[72][73] - High dependence on distributors for sales, with Weikeng Group and Arrow Electronics Inc. accounting for 59% of total revenue in fiscal 2022[121] - Cybersecurity is a major risk, with threats from cyber-attacks, hacking, and fraud potentially compromising intellectual property and disrupting business operations[85][88] - The business is subject to cyclical patterns in the semiconductor industry, where downturns could reduce demand, erode prices, and lead to inventory write-downs[111] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[139] Properties Lattice leases all major facilities, including its 47,800 sq ft corporate headquarters in Hillsboro, Oregon, and key R&D sites in San Jose, Shanghai, and Muntinlupa City - Corporate headquarters is leased in Hillsboro, Oregon, spanning 47,800 sq ft through October 2028[140] - Major research and development facilities are leased in San Jose, CA (98,874 sq ft), Shanghai, China (68,027 sq ft), and Muntinlupa City, Philippines (50,503 sq ft)[141][142] Legal Proceedings The company is defending a December 2018 lawsuit alleging violations related to 2008 product sales, with plaintiffs seeking $155 million to $268 million in damages - A lawsuit commenced on December 19, 2018, alleges the company failed to disclose the export-controlled status of certain products sold around 2008[332] - Plaintiffs are seeking damages of $155 million to $268 million, plus treble damages, which the company believes are without merit and is defending[332] Mine Safety Disclosures This item is not applicable to the company - Not applicable[144] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Lattice's common stock trades on NASDAQ under "LSCC"; the company has never paid dividends and authorized a $150 million stock repurchase program in August 2022, repurchasing $110.1 million in fiscal 2022 - The company's common stock trades on the NASDAQ Global Select Market under the symbol "LSCC"[146] - Lattice has never paid cash dividends, intending to retain earnings for business financing[148] Fiscal 2022 Stock Repurchase Activity | Metric | Value | | :--- | :--- | | Program Authorization (Aug 2022) | $150.0 million | | Total Shares Repurchased (FY 2022) | 1,951,934 shares | | Total Cost (FY 2022) | $110.1 million | | Average Price Per Share (FY 2022) | $56.42 | | Remaining Authorization (as of Dec 31, 2022) | $129.7 million | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2022, Lattice achieved strong financial growth with 28.1% revenue increase to $660.4 million, gross margin expansion to 68.5%, and net income growth of 86.5% to $178.9 million, maintaining solid liquidity Fiscal 2022 vs. 2021 Financial Performance | Metric | Fiscal 2022 | Fiscal 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $660.4 million | $515.3 million | +28.1% | | Gross Margin | $452.1 million (68.5%) | $321.7 million (62.4%) | +40.5% | | Income from Operations | $187.4 million | $100.8 million | +85.9% | | Net Income | $178.9 million | $95.9 million | +86.5% | Revenue by End Market (Fiscal 2022) | End Market | Revenue (in millions) | % of Total | YoY Change | | :--- | :--- | :--- | :--- | | Industrial and Automotive | $319.4 | 48.4% | +41.2% | | Communications and Computing | $274.8 | 41.6% | +26.1% | | Consumer | $49.1 | 7.4% | -3.1% | | Licensing and Services | $17.1 | 2.6% | -16.3% | - Gross margin percentage increased by 610 basis points from 62.4% in fiscal 2021 to 68.5% in fiscal 2022, driven by the company's margin expansion strategy[183] - Cash provided by operating activities increased to $238.8 million in fiscal 2022 from $167.7 million in fiscal 2021, primarily due to improved operating performance[205] - Inventories increased by 63.3% to $110.4 million at the end of fiscal 2022, primarily to meet increased customer demand and support new product ramps[210] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency and interest rate fluctuations, with a $130.0 million variable-rate debt exposure where a 1% SOFR increase would raise quarterly interest expense by $0.3 million - The company's main market risks are foreign currency exchange rates and interest rates[215] - Interest rate risk stems from $130.0 million in variable-rate debt outstanding as of December 31, 2022, where a hypothetical 100 basis point (1%) increase in one-month SOFR would increase future interest expense by approximately $0.3 million per quarter[217] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2022-2020, with Ernst & Young LLP issuing an unqualified opinion on financials and internal controls, highlighting inventory valuation as a critical audit matter Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Jan 1, 2022 | Year Ended Jan 2, 2021 | | :--- | :--- | :--- | :--- | | Revenue (in thousands) | $660,356 | $515,327 | $408,120 | | Gross margin (in thousands) | $452,050 | $321,675 | $245,306 | | Income from operations (in thousands) | $187,367 | $100,816 | $52,366 | | Net income (in thousands) | $178,882 | $95,922 | $47,392 | | Diluted EPS ($) | $1.27 | $0.67 | $0.34 | Consolidated Balance Sheet Highlights (in thousands) | | As of Dec 31, 2022 | As of Jan 1, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents (in thousands) | $145,722 | $131,570 | | Total Assets (in thousands) | $798,713 | $726,494 | | Long-term debt, net (in thousands) | $128,752 | $140,760 | | Total Stockholders' Equity (in thousands) | $487,163 | $411,633 | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and internal controls over financial reporting[336][337] - The auditor identified Inventory Valuation as a Critical Audit Matter due to challenging and subjective judgments in estimating excess and obsolete inventory, sensitive to future customer demand assumptions[341] Changes in and Disagreements with Accountants On Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting principles, practices, or financial disclosure - None[354] Controls and Procedures As of December 31, 2022, management concluded disclosure controls and internal control over financial reporting were effective, with Ernst & Young LLP issuing an unqualified opinion and no material changes reported - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[355] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[358] - There were no material changes in internal controls over financial reporting during the fourth quarter of fiscal 2022[360] Other Information The company reports no other information for this item - None[361] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[362] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, with the company maintaining a Code of Conduct for all personnel - All required information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement[364][365] - The company has adopted a Code of Conduct applicable to all directors, employees, consultants, and agents, posted on its website[367] Executive Compensation All information related to executive and director compensation, and related committee reports, is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement under "Executive Compensation," "Director Compensation," and related committee reports[370] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement under "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information"[371] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement under "Certain Relationships and Related Transactions" and "Corporate Governance and Other Matters--Director Independence"[372] Principal Accountant Fees and Services Details regarding fees paid to and services provided by the principal independent registered public accounting firm are incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement under "Proposal 5: Ratification of Appointment of Independent Registered Public Accounting Firm--Audit and Related Fees"[373] PART IV Exhibits This section lists documents filed as part of the Form 10-K, including consolidated financial statements, corporate documents, material contracts, employee compensation plans, and CEO/CFO certifications - Lists the financial statements filed under Item 8[374][375] - Provides a detailed list of all exhibits filed, including key corporate documents, material agreements like the Amended and Restated Credit Agreement dated September 1, 2022, and various management compensation plans[376][378] - Includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[380]