LATTICE SEMICONDUCTOR CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS   LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (In thousands, except per share data)   2022     2021     2022     2021   Revenue   $ 172,509     $ 131,911     $ 484,396     $ 373,532   Cost of revenue     53,777       49,086       154,412       142,937   Gross margin     118,732       82,825       329,984       230,595   Operating expenses:                                 Research and development     34,820       28,769       100,988       80,289   Selling, general, and administrative     31,926       26,272       89,721       76,971   Amortization of acquired intangible assets     869       603       2,908       1,809   Restructuring charges     2,315       166       2,505       546   Acquisition related charges     —       —       511       —   Total operating expenses     69,930       55,810       196,633       159,615   Income from operations     48,802       27,015       133,351       70,980   Interest expense     ( 1,267 )     ( 661 )     ( 2,866 )     ( 2,081 ) Other (expense) income, net     ( 820 )     ( 87 )     ( 1,085 )     ( 384 ) Income before income taxes     46,715       26,267       129,400       68,515   Income tax expense (benefit)     356       ( 472 )     2,431       1,125   Net income   $ 46,359     $ 26,739     $ 126,969     $ 67,390                                     Net income per share:                                 Basic   $ 0.34     $ 0.20     $ 0.92     $ 0.49   Diluted   $ 0.33     $ 0.19     $ 0.90     $ 0.47                                     Shares used in per share calculations:                                 Basic     137,267       136,638       137,397       136,476   Diluted     139,935       141,632       140,921       142,163       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 4 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (In thousands)   2022     2021     2022     2021   Net income   $ 46,359     $ 26,739     $ 126,969     $ 67,390   Other comprehensive income (loss):                                 Translation adjustment     ( 987 )     ( 19 )     ( 2,215 )     ( 68 ) Comprehensive income   $ 45,372     $ 26,720     $ 124,754     $ 67,322       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 5 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)       October 1,     January 1,   (In thousands, except share and par value data)   2022     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 118,766     $ 131,570   Accounts receivable, net of allowance for credit losses     100,446       79,859   Inventories, net     93,964       67,594   Prepaid expenses and other current assets     27,132       22,328   Total current assets     340,308       301,351   Property and equipment, less accumulated depreciation of $ 114,948 at October 1, 2022 and $ 109,905 at January 1, 2022     45,217       38,094   Operating lease right-of-use assets     17,372       23,818   Intangible assets, net     26,085       29,782   Goodwill     315,358       315,358   Other long-term assets     14,605       18,091   Total assets   $ 758,945     $ 726,494                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 43,635     $ 34,597   Accrued expenses     35,127       26,444   Accrued payroll obligations     31,516       27,967   Current portion of long-term debt     —       17,173   Total current liabilities     110,278       106,181   Long-term debt, net of current portion     148,685       140,760   Long-term operating lease liabilities, net of current portion     14,169       19,248   Other long-term liabilities     44,082       48,672   Total liabilities     317,214       314,861   Contingencies (Note 12)                     Stockholders' equity:                 Preferred stock, $ .01 par value, 10,000,000 shares authorized, none issued and outstanding     —       —   Common stock, $ .01 par value, 300,000,000 shares authorized; 137,028,000 shares issued and outstanding as of October 1, 2022 and 137,239,000 shares issued and outstanding as of January 1, 2022     1,370       1,372   Additional paid-in capital     607,034       701,688   Accumulated deficit     ( 163,007 )     ( 289,976 ) Accumulated other comprehensive loss     ( 3,666 )     ( 1,451 ) Total stockholders' equity     441,731       411,633   Total liabilities and stockholders' equity   $ 758,945     $ 726,494       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 6 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)       Nine Months Ended       October 1,     October 2,   (In thousands)   2022     2021   Cash flows from operating activities:                 Net income   $ 126,969     $ 67,390   Adjustments to reconcile net income to net cash provided by (used in) operating activities:                 Depreciation and amortization     21,498       17,839   Stock-based compensation expense     41,207       32,624   Amortization of right-of-use assets     4,995       4,926   Impairment of operating lease right-of-use asset     1,149       —   Other non-cash adjustments     791       157   Changes in assets and liabilities:                 Accounts receivable, net     ( 20,587 )     ( 15,025 ) Inventories, net     ( 26,370 )     ( 1,506 ) Prepaid expenses and other assets     ( 2,033 )     ( 224 ) Accounts payable     9,038       8,793   Accrued expenses     2,190       ( 1,464 ) Accrued payroll obligations     3,549       7,337   Operating lease liabilities, current and long-term portions     ( 5,571 )     ( 4,784 ) Net cash provided by (used in) operating activities     156,825       116,063   Cash flows from investing activities:                 Capital expenditures     ( 13,080 )     ( 7,118 ) Cash paid for software and intellectual property licenses     ( 8,322 )     ( 9,534 ) Net cash provided by (used in) investing activities     ( 21,402 )     ( 16,652 ) Cash flows from financing activities:                 Restricted stock unit tax withholdings     ( 50,043 )     ( 41,587 ) Proceeds from issuance of common stock     4,317       5,240   Repurchase of common stock     ( 90,137 )     ( 55,126 ) Proceeds from long-term debt, net of issuance costs     148,601       —   Repayment of long-term debt     ( 158,750 )     ( 8,750 ) Net cash provided by (used in) financing activities     ( 146,012 )     ( 100,223 ) Effect of exchange rate change on cash     ( 2,215 )     ( 68 ) Net increase (decrease) in cash and cash equivalents     ( 12,804 )     ( 880 ) Beginning cash and cash equivalents     131,570       182,332   Ending cash and cash equivalents   $ 118,766     $ 181,452                     Supplemental disclosure of cash flow information and non-cash investing and financing activities:                 Interest paid   $ 2,203     $ 1,755   Operating lease payments   $ 5,500     $ 5,786   Income taxes paid, net of refunds   $ 4,115     $ 2,842   Accrued purchases of plant and equipment   $ 4,822     $ 351   Operating lease right-of-use assets obtained in exchange for lease obligations   $ 639     $ 7,550       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 7 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)     The following summarizes the changes in total equity for the nine-month period ended October 1, 2022:       Common Stock ($.01 par value)     Additional Paid-in     Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit     Loss     Total   Balances, January 1, 2022     137,239     $ 1,372     $ 701,688     $ ( 289,976 )   $ ( 1,451 )   $ 411,633   Components of comprehensive income, net of tax:                                                 Net income for the nine months ended October 1, 2022     —       —       —       126,969       —       126,969   Other comprehensive income (loss)     —       —       —       —       ( 2,215 )     ( 2,215 ) Total comprehensive income                                     124,754   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     1,452       15       ( 45,741 )     —       —       ( 45,726 ) Stock-based compensation expense     —       —       41,207       —       —       41,207   Repurchase of common stock     ( 1,663 )     ( 17 )     ( 90,120 )     —       —       ( 90,137 ) Balances, October 1, 2022     137,028     $ 1,370     $ 607,034     $ ( 163,007 )   $ ( 3,666 )   $ 441,731           The following summarizes the changes in total equity for the nine-month period ended October 2, 2021:       Common Stock ($.01 par value)     Additional Paid-in     Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit     Loss     Total   Balances, January 2, 2021     136,236     $ 1,362     $ 770,711     $ ( 385,898 )   $ ( 1,748 )   $ 384,427   Components of comprehensive income, net of tax:                                                 Net income for the nine months ended October 2, 2021     —       —       —       67,390       —       67,390   Other comprehensive income (loss)     —       —       —       —       ( 68 )     ( 68 ) Total comprehensive income                                     67,322   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     1,746       18       ( 36,365 )     —       —       ( 36,347 ) Stock-based compensation expense     —       —       32,624       —       —       32,624   Repurchase of common stock     ( 1,081 )     ( 11 )     ( 55,115 )     —       —       ( 55,126 ) Balances, October 2, 2021     136,901     $ 1,369     $ 711,855     $ ( 318,508 )   $ ( 1,816 )   $ 392,900       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 8 - Table of Contents   LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued) (unaudited)     The following summarizes the changes in total equity for the three-month period ended October 1, 2022:       Common Stock ($.01 par value)     Additional Paid-in     Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit     Loss     Total   Balances, July 2, 2022     137,263     $ 1,373     $ 646,593     $ ( 209,366 )   $ ( 2,679 )   $ 435,921   Components of comprehensive income, net of tax:                                                 Net income for the three months ended October 1, 2022     —       —       —       46,359       —       46,359   Other comprehensive income (loss)     —       —       —       —       ( 987 )     ( 987 ) Total comprehensive income                                     45,372   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     450       4       ( 13,548 )     —       —       ( 13,544 ) Stock-based compensation expense     —       —       13,958       —       —       13,958   Repurchase of common stock     ( 685 )     ( 7 )     ( 39,969 )     —       —       ( 39,976 ) Balances, October 1, 2022     137,028     $ 1,370     $ 607,034     $ ( 163,007 )   $ ( 3,666 )   $ 441,731           The following summarizes the changes in total equity for the three-month period ended October 2, 2021:       Common Stock ($.01 par value)     Additional Paid-in     Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit     Loss     Total   Balances, July 3, 2021     136,344     $ 1,363     $ 742,996     $ ( 345,247 )   $ ( 1,797 )   $ 397,315   Components of comprehensive income, net of tax:                                                 Net income for the three months ended October 2, 2021     —       —       —       26,739       —       26,739   Other comprehensive income (loss)     —       —       —       —       ( 19 )     ( 19 ) Total comprehensive income                                     26,720   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     809       9       ( 26,381 )     —       —       ( 26,372 ) Stock-based compensation expense     —       —       10,250       —       —       10,250   Repurchase of common stock     ( 252 )     ( 3 )     ( 15,010 )     —       —       ( 15,013 ) Balances, October 2, 2021     136,901     $ 1,369     $ 711,855     $ ( 318,508 )   $ ( 1,816 )   $ 392,900       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 9 - Table of Contents   LATTICE SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)     Note 1 - Basis of Presentation   Lattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, silicon-enabling products, system solutions, design services, and licenses.   Basis of Presentation and Use of Estimates   The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In our opinion, they include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the SEC's rules and regulations for interim reporting. These Consolidated Financial Statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10 -K for the year ended January 1, 2022 (" 2021 10 -K").   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, the actual results that we experience may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.   We describe our accounting methods and practices in more detail in our  2021 10 -K. There have been no changes to the significant accounting policies, procedures, or general information described in our 2021 10 -K that have had a material impact on our consolidated financial statements and related notes. The purchase price allocation for our acquisition of Mirametrix, Inc. in November 2021 has been substantially completed, but may be subject to revision as we perform and complete more detailed analysis of certain tax matters. Certain prior year balances have been reclassified to conform to the current year’s presentation.   Fiscal Reporting Periods   We report based on a 52 or 53 -week fiscal year ending on the Saturday closest to December 31. Our fiscal 2022 will be a 52 -week year and will end on December 31, 2022, and our fiscal 2021 was a 52 -week year that ended January 1, 2022. Our  third quarter of fiscal 2022 and third quarter of fiscal 2021 ended on October 1, 2022 and October 2, 2021 , respectively. All references to quarterly financial results are references to the results for the relevant  13 -week or 39 -week fiscal period.   Concentrations of Risk   Potential exposure to concentrations of risk may impact revenue and accounts receivable. Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was 90 % for the third quarter of both fiscal 2022 and 2021 , and 89 % and 88 % for the nine months ended October 1, 2022 and October 2, 2021, respectively. Distributors also account for a substantial portion of our net accounts receivable. Our two largest distributors accounte d for 40 % and 33 % of net accounts receivable at October 1, 2022  and 59 % and 28 % of net accounts receivable at January 1, 2022 .     Note 2 - Net Income per Share   Our calculation of the diluted share count includes the number of shares from our equity awards with market conditions or performance conditions that would be issuable under the terms of such awards at the end of the reporting period. For equity awards with a market condition, the number of shares included in the diluted share count as of the end of each period presented is determined by measuring the achievement of the market condition as of the end of the respective reporting periods. For equity awards with a performance condition, the number of shares that qualified for vesting as of the end of each period presented are included in the diluted share count when the condition for their issuance was satisfied by the end of the respective reporting periods. See "Note 9 - Stock-Based Compensation" to our consolidated financial statements for further discussion of our equity awards with market conditions or performance conditions.   - 10 - Table of Contents   A summary of basic and diluted Net income per share is presented in the following table:       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (in thousands, except per share data)   2022     2021     2022     2021   Net income   $ 46,359     $ 26,739     $ 126,969     $ 67,390                                     Shares used in basic Net income per share     137,267       136,638       137,397       136,476   Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition     2,668       4,994       3,524       5,687   Shares used in diluted Net income per share     139,935       141,632       140,921       142,163                                     Basic Net income per share   $ 0.34     $ 0.20     $ 0.92     $ 0.49   Diluted Net income per share   $ 0.33     $ 0.19     $ 0.90     $ 0.47     The computation of diluted Net income per share excludes the effects of stock options, restricted stock units ("RSUs"), Employee Stock Purchase Plan ("ESPP") shares, and equity awards with a market condition or performance condition that are antidilutive, aggregating approximately the following number of shares:       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (in thousands)   2022     2021     2022     2021   Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive     604       358       535       182       Note 3 - Revenue from Contracts with Customers   Disaggregation of revenue   The following tables provide information about revenue from contracts with customers disaggregated by major class of revenue, revenue by channel, and by geographical market, based on ship-to location of the customer :       Three Months Ended     Nine Months Ended   Revenue by Channel   October 1,     October 2,     October 1,     October 2,   (In thousands)   2022     2021     2022     2021   Product revenue - Distributors   $ 154,417       90 %   $ 118,227       90 %   $ 433,535       89 %   $ 328,174       88 % Product revenue - Direct     12,803       7 %     9,190       7 %     38,263       8 %     33,371       9 % Licensing and services     5,289       3 %     4,494       3 %     12,598       3 %     11,987       3 % Total revenue   $ 172,509       100 %   $ 131,911       100 %   $ 484,396       100 %   $ 373,532       100 %                                                                   Revenue by Geographical Market                                                                 (In thousands)                                                                 United States   $ 22,918       13 %   $ 11,022       8 %   $ 61,992       13 %   $ 31,804       8 % Other Americas     236       — %     9,239       7 %     4,984       1 %     22,126       6 % Americas     23,154       13 %     20,261       15 %     66,976       14 %     53,930       14 % China     75,933       44 %     76,692       58 %     232,099       48 %     208,632       56 % Japan     26,924       16 %     7,877       6 %     62,784       13 %     24,490       6 % Other Asia     20,003       12 %     14,328       11 %     55,449       11 %     50,620       14 % Asia     122,860       72 %     98,897       75 %     350,332       72 %     283,742       76 % Europe     26,495       15 %     12,753       10 %     67,088       14 %     35,860       10 % Total revenue   $ 172,509       100 %   $ 131,911       100 %   $ 484,396       100 %   $ 373,532       100 %   - 11 - Table of Contents   Contract balances   Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI Founders consortium. The balance results primarily from the amount of estimated revenue related to HDMI that we have recognized to date, but which has not yet been collected from the customers of the HDMI licensing agent. Contract assets are included in Prepaid expenses and other current assets on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2022 :   (In thousands)         Contract assets as of Year Ended January 1, 2022   $ 5,672   Revenues recorded during the period     11,499   Transferred to Accounts receivable or collected     ( 10,679 ) Contract assets as of October 1, 2022   $ 6,492     Contract liabilities are included in Accrued expenses on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2022 :   (In thousands)         Contract liabilities as of Year Ended January 1, 2022   $ 4,768   Accruals for estimated future stock rotation and scrap returns     4,268   Less: Release of accruals for recognized stock rotation and scrap returns     ( 3,144 ) Contract liabilities as of October 1, 2022   $ 5,892       Note 4 - Balance Sheet Components   Accounts Receivable   Accounts receivable do not bear interest and are shown net of an allowance for expected lifetime credit losses, which reflects our best estimate of probable losses inherent in the accounts receivable balance, as described in our 2021 10 -K.       October 1,     January 1,   (In thousands)   2022     2022   Accounts receivable   $ 100,446     $ 79,859   Less: Allowance for credit losses     —       —   Accounts receivable, net of allowance for credit losses   $ 100,446     $ 79,859     Inventories       October 1,     January 1,   (In thousands)   2022     2022   Work in progress   $ 60,798     $ 43,546   Finished goods     33,166       24,048   Total inventories, net   $ 93,964     $ 67,594     Accrued Expenses   Included in Accrued expenses in the Consolidated Balance Sheets are the following balances:       October 1,     January 1,   (In thousands)   2022     2022   Liability for non-cancelable contracts   $ 10,139     $ 9,930   Current portion of operating lease liabilities     5,843       5,696   Contract liability under ASC 606     5,892       4,768   Taxes payable     3,669       3,058   Other accrued expenses     9,584       2,992   Total accrued expenses   $ 35,127     $ 26,444     - 12 - Table of Contents   Property and Equipment – Geographic Information   Our Property and equipment, net by country at the end of each period was as follows:       October 1,     January 1,   (In thousands)   2022     2022   United States   $ 30,829     $ 26,509                     Taiwan     8,706       6,555   Philippines     3,178       2,498   China     1,362       1,643   Other     1,142       889   Total foreign property and equipment, net     14,388       11,585   Total property and equipment, net   $ 45,217     $ 38,094     Cloud Based Computing Implementation Costs   We capitalize the implementation costs for cloud computing arrangements, which are recorded in Prepaid expenses and other current assets and Other long-term assets on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2022 :   (In thousands)         Cloud based computing implementation costs as of January 1, 2022   $ 2,380   Costs capitalized     61   Amortization     ( 625 ) Cloud based computing implementation costs as of October 1, 2022   $ 1,816       Note 5 - Long-Term Debt   On September 1, 2022, we entered into an Amended and Restated Credit Agreement (the “2022 Credit Agreement”), which provides for a five -year secured revolving loan facility with an aggregate principal amount of up to $ 350 million, along with other components and options, such as a letter of credit, swingline loan, and expansion of revolving and/or term loan commitments, currently not in use.   We drew down an initial $ 150 million revolving loan at closing, which we used along with $ 1.9 million of cash to (i) repay the $ 150.5 million term loan, revolving loan, and accrued interest obligations outstanding under our previous Credit Agreement (the “2019 Credit Agreement”), and (ii) pay fees and expenses totaling $ 1.4 million incurred in connection with the 2022 Credit Agreement. We intend to use the revolving loan facility for working capital and general corporate purposes.   At our option, the revolving loans accrue interest at a per annum rate based on ranges determined by our consolidated total leverage ratio of either (i) the base rate (as defined in the 2022 Credit Agreement) plus a margin ranging from 0.25 % to 1.00 %, or (ii) the adjusted Term Secured Overnight Financing Rate ("SOFR") for interest periods of 1, 3 or 6 months plus a margin ranging from 1.25 % to 2.00 %. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three -month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted Term SOFR. In addition, we pay a quarterly commitment fee of 0.20 % on the unused portion of the revolving facility.   With the amendment of our 2019 Credit Agreement pursuant to the 2022 Credit Agreement, we capitalized $ 0.9 million of the new debt costs, and expensed $ 0.7 million of debt costs and existing original issue discount ("OID") as a loss on refinancing in Other (expense) income, net on our Consolidated Statements of Operations for the third quarter of fiscal 2022. We determine the Current portion of long-term debt, if any, as the sum of the required debt payments to be made over the next twelve months, reduced by the OID and the debt issuance costs to be amortized over the next twelve months.   The revolving loans under the 2022 Credit Agreement may be repaid and reborrowed at our discretion, with any remaining outstanding principal amount due and payable on the maturity date of the revolving loan on September 1, 2027. During the  first six months of fiscal 2022 , we paid required quarterly installments totaling $ 8.8 million on the term loans outstanding under the 2019 Credit Agreement.   - 13 - Table of Contents   The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:       October 1,     January 1,   (In thousands)   2022     2022   Principal amount   $ 150,000     $ 158,750   Unamortized original issuance discount and debt costs     ( 1,315 )     ( 817 ) Less: Current portion of long-term debt     —       ( 17,173 ) Long-term debt, net of current portion and unamortized debt issue costs   $ 148,685     $ 140,760     As of October 1, 2022 , the effective interest rate on the revolving loan was 3.94 %. Interest expense related to our long-term debt was included in Interest expense on our Consolidated Statements of Operations as follows:       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (In thousands)   2022     2021     2022     2021   Contractual interest   $ 1,328     $ 568     $ 2,690     $ 1,753   Amortization of original issuance discount and debt costs     76       90       243       274   Total interest expense related to long-term debt   $ 1,404     $ 658     $ 2,933     $ 2,027       Note 6 - Restructuring   In September 2022, our management approved and implemented additional contract cancellations and headcount reductions under the Q2 2019 Sales Plan, which focused on a restructuring of the global sales organization. With these actions, we incurred approximately $ 1.0 million of incremental restructuring costs in the third quarter and first nine months of fiscal 2022. No restructuring expense was incurred under the Q2 2019 Sales Plan during the third quarter and first nine months of fiscal 2021. Under this plan, approximately $ 3.1 million of total expense has been incurred  through October 1, 2022 . All actions planned under the Q2 2019 Sales Plan have been implemented.   Under the June 2017 Plan, which is described in the 2021 10 -K, we incurred approximately $ 1.1 million of incremental restructuring costs in the third quarter of fiscal 2022 related to an impairment of the operating lease right-of-use asset for our partially vacated facility in San Jose, California. Including these charges, we incurred restructuring expense of approximately $ 1.3 million and approximately $ 0.1 million during the third quarter of fiscal 2022 and 2021, respectively; and approximately $ 1.6 million and approximately $ 0.5 million during the first nine months of fiscal 2022 and 2021, respectively. We have incurred approximately $ 23.2 million of total expense through October 1, 2022 under the June 2017 Plan, and all planned actions have been implemented.   These expenses were recorded to Restructuring charges on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accrued expenses and in Other long-term liabilities on our Consolidated Balance Sheets. The following table displays the activity related to our restructuring plans:   (In thousands)   Severance & Related (1)     Lease Termination & Fixed Assets     Other (2)     Total   Accrued Restructuring at January 1, 2022   $ 251     $ 7,130     $ —     $ 7,381   Restructuring charges     303       1,562       640       2,505   Costs paid or otherwise settled     ( 154 )     ( 2,477 )     —       ( 2,631 ) Accrued Restructuring at October 1, 2022   $ 400     $ 6,215     $ 640     $ 7,255                                     Accrued Restructuring at January 2, 2021   $ 246     $ 8,233     $ 664     $ 9,143   Restructuring charges     15       531       —       546   Costs paid or otherwise settled     ( 165 )     ( 1,346 )     ( 664 )     ( 2,175 ) Accrued Restructuring at October 2, 2021   $ 96     $ 7,418     $ —     $ 7,514     ( 1 )  Includes employee relocation and outplacement costs ( 2 )  Includes termination fees on the cancellation of certain contracts   - 14 - Table of Contents     Note 7 - Leases   We have operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center, the terms of which are described in our 2021 10 -K. All of our facilities are leased under operating leases, which expire at various times through 2028, with a weighted-average remaining lease term of 3.6 years and a weighted-average discount rate of 5.4 % as of October 1, 2022 .   We recorded fixed operating lease expenses of $ 1.9 million and $ 2.0 million for the third quarter of fiscal 2022 and 2021, respectively, and $ 5.8 million and $ 5.9 million for the first nine months of fiscal 2022 and 2021, respectively.   The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during the first   nine months of fiscal 2022 :   Operating lease right-of-use assets   (in thousands)   Balance as of January 1, 2022   $ 23,818   Right-of-use assets obtained for new lease contracts during the period     639   Amortization of right-of-use assets during the period     ( 4,995 ) Impairment of right-of use asset during the period (recorded in Restructuring charges)     ( 1,149 ) Adjustments for present value and foreign currency effects     ( 941 ) Balance as of October 1, 2022   $ 17,372     Operating lease liabilities   (in thousands)   Balance as of January 1, 2022   $ 24,944   Lease liabilities incurred for new lease contracts during the period     639   Accretion of lease liabilities     849   Operating cash used by payments on lease liabilities     ( 5,500 ) Adjustments for present value and foreign currency effects     ( 920 ) Balance as of October 1, 2022     20,012   Less: Current portion of operating lease liabilities (included in Accrued expenses)     ( 5,843 ) Long-term operating lease liabilities, net of current portion   $ 14,169     Maturities of operating lease liabilities as of October 1, 2022 are as follows:   Fiscal year   (in thousands)   2022 (Remaining quarter)     1,305   2023     7,333   2024     5,331   2025     3,608   2026     2,549   Thereafter     2,103   Total lease payments     22,229   Less: amount representing interest     ( 2,217 ) Total lease liabilities   $ 20,012     Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $ 6.2 million at October 1, 2022 and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets.     Note 8 - Intangible Assets   In connection with our acquisition of Mirametrix, Inc. in November 2021, we recorded identifiable intangible assets during fiscal year 2021. On our Consolidated Balance Sheets at October 1, 2022 and January 1, 2022, Intangible assets, net are shown net of accumulated amortization of $ 139.2 million and $ 135.5 million, respectively. In prior years, we entered into license agreements for third -party technology and have recorded them as intangible assets. These licenses are being amortized to Research and development expense over their estimated useful lives.   - 15 - Table of Contents   We recorded amortization expense related to intangible assets on the Consolidated Statements of Operations as presented in the following table:       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (In thousands)   2022     2021     2022     2021   Research and development   $ 264     $ 223     $ 789     $ 644   Amortization of acquired intangible assets     869       603       2,908       1,809       $ 1,133     $ 826     $ 3,697     $ 2,453       Note 9 - Stock-Based Compensa tion   Total stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table:       Three Months Ended     Nine Months Ended       October 1,     October 2,     October 1,     October 2,   (In thousands)   2022     2021     2022     2021   Cost of revenue   $ 880     $ 653     $ 2,705     $ 2,144   Research and development     4,925       3,463       14,461       10,199   Selling, general, and administrative     8,153       6,134       24,041       20,281   Total stock-based compensation   $ 13,958     $ 10,250     $ 41,207     $ 32,624     Market-Based and Performance-Based Stock Compensation   In the first quarter of fiscal 2022, we granted awards of RSUs with a market condition to certain executives. Under the terms of these grants, the RSUs with a market condition vest over a three -year period based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index, which condition is measured for the grants on the third anniversary of the grant date. The awards may vest at 250 % or 200 %, depending upon the executive, if the 75th percentile of the market condition is achieved, with 100 % of the units vesting at the 55th percentile, zero vesting if relative TSR is below the 25th percentile, and vesting scaling for achievement between the 25th and 75th percentile.   In the first nine months of fiscal 2022, certain awards with a market condition or performance condition granted in prior fiscal years have vested. During the first quarter of fiscal 2022 , the market condition for awards granted to certain executives in the first quarter of fiscal 2019 exceeded the 75 th percentile of their TSR condition, and the third tranche of these awards vested at 200 %. During the first quarter of fiscal 2022 , the market condition for awards granted to certain executives in the first quarter of fiscal 2020 exceeded the 75 th percentile of their TSR condition, and the first tranche of these awards vested at 250 % or 200 %, as applicable for the respective executive. During the first quarter of fiscal 2022, the fourth tranche of 40 % of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailing four -quarter basis for two consecutive trailing four -quarter periods as of the end of the previous quarter. During the second quarter of fiscal 2022, the fifth and sixth tranches of 40 % and 70 %, respectively, of the base number of the awards with an EBITDA performance condition vested, as the Company had met the final two adjusted EBITDA performance criteria on a trailing four -quarter basis for two consecutive trailing four -quarter periods as of the end of the previous quarter. During the third quarter of fiscal 2022 , the market condition for awards granted to certain executives in the third quarter of fiscal 2019 exceeded the 75 th percentile of their TSR condition, and the third tranche of these awards vested at 250 % or 200 %, as applicable for the respective executive.   For our awards with a market condition or a performance condition, we incurred stock compensation expense of approximately $ 5.5 million and $ 4.0 million in the third quarter of fiscal 2022 and 2021, respectively, and of approximately $ 18.4 million and $ 15.3 million in the first nine months of fiscal 2022 and 2021, respectively, which is recorded as a component of total stock-based compensation.   The following table summarizes the activity for our awards with a market condition or performance condition:   (Shares in thousands)   Total   Balance, January 1, 2022     1,246   Granted     183   Effect of vesting multiplier     642   Vested     ( 1,083 ) Balance, October 1, 2022     988     - 16 - Table of Contents     Note 10 - Common Stock Repurchase Program   On November 8, 2021, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $ 100 million of outstanding common stock could be repurchased from time to time (the "2022 Repurchase Program"). The duration of the 2022 Repurchase Program is through the end of December 2022. Under the 2022 Repurchase Program during the third quarter of fiscal 2022, we repurchased 680,098 shares for $ 39.7 million, or an average price paid per share of $ 58.40 . As of October 1, 2022 , the amount authorized for the 2022 Repurchase Program had been fully utilized.   On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to an additional $ 150 million of outstanding common stock could be repurchased from time to time (the "2023 Repurchase Program"). The duration of the 2023 Repurchase Program is through the end of December 2023. Under the 2023 Repurchase Program during the third quarter of fiscal 2022, we repurchased 4,829 shares for $ 0.3 million, or an average price paid per share of $ 54.08 . As of October 1, 2022 , the remaining portion of the amount authorized for the 2023 Repurchase Program is approximately $ 149.7 million.   Under these plans during the first nine months of fiscal 2022, we have repurchased a total of 1,663,282 shares for $ 90.1 million, or an average price paid per share of $ 54.19 . All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the 2022 and 2023 Repurchase Programs were retired by the end of the third quarter of fiscal 2022.     Note 11 - Income Taxes   We are subject to federal and state income tax as well as income tax in the foreign jurisdictions in which we operate. For the third quarter of fiscal 2022 and 2021 , we recorded income tax expense of approximately $ 0.4 million and an income tax benefit of approximately $ 0.5 million, respectively. For the first nine months of fiscal 2022 and 2021 , we recorded income tax expense of approximately $ 2.4 million and $ 1.1 million, respectively. Income taxes for the  three and nine -month periods ended October 1, 2022 and October 2, 2021 represent tax at the federal, state, and foreign statutory tax rates in addition to withholding taxes, changes in uncertain tax positions, as well as other non-deductible items in foreign jurisdictions. The difference between the U.S. federal statutory tax rate of 21 % and our effective tax rates for the three and nine months ended October 1, 2022 and for the three and nine months ended October 2, 2021 resulted primarily from U.S. valuation allowance, foreign withholding taxes, foreign rate differentials, and the discrete impacts of uncertain tax positions due to lapsing of the statute of limitations.   We updated our evaluation of the valuation allowance position in the United States through October 1, 2022 and concluded that we should continue to maintain a full valuation allowance against the net federal and state deferred tax assets. In making this evaluation, we exercised significant judgment and considered estimates about our ability to generate revenue and taxable profits sufficient to offset expenditures in future periods within the U.S. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the net deferred tax assets. We do not have a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize the net deferred tax assets in future periods.   Our liability recorded for uncertain tax positions (including penalties and interest) wa s $ 21.2 million and $ 21.6 million a t October 1, 2022 and January 1, 2022 , respectively, and is included as a component of Other long-term liabilities on our Consolidated Balance Sheets.     Note 12 - Contingencies   Legal Matters   On or about December 19, 2018, Steven A.W. De Jaray, Perienne De Jaray and Darrell R. Oswald (collectively, the “Plaintiffs”) commenced an action against the Company and several unnamed defendants in the Multnomah County Circuit Court of the State of Oregon, in connection with the sale of certain products by the Company to the Plaintiffs in or around 2008. The Plaintiffs allege that we violated The Lanham Act, engaged in negligence and fraud by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. The Plaintiffs seek damages of $ 155 million to $ 268 million, treble damages, and other remedies. In January 2019, we removed the action to the United States District Court for the District of Oregon. At this stage of the proceedings, we do not have an estimate of the likelihood or the amount of any potential exposure to the Company; however, we believe that these claims are without merit and intend to vigorously defend the action.   From time to time, we are exposed to certain additional asserted and unasserted potential claims. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates.   - 17 - Table of Contents