LATTICE SEMICONDUCTOR CORP 10-Q

lscc20230930_10q.htm   Table of Contents   UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One)     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE QUARTERLY PERIOD ENDED September 30, 2023   OR     ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE TRANSITION PERIOD FROM __________ TO __________   Commission file number 000-18032     LATTICE SEMICONDUCTOR CORPORATION (Exact name of Registrant as specified in its charter)     State of Delaware 93-0835214 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)     5555 NE Moore Court , Hillsboro , OR 97124 (Address of principal executive offices) (Zip Code) ( 503 ) 268-8000 (Registrant's telephone number, including area code)   Securities registered pursuant to Section 12(b) of the Act:   Title of each class Trading Symbol Name of each exchange on which registered Common Stock, $.01 par value LSCC Nasdaq  Global Select Market   Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒  No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.   Large accelerated filer  ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐   Emerging growth company ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐   No ☒   Number of shares of common stock outstanding as of October 24, 2023 138,028,377     Table of Contents       LATTICE SEMICONDUCTOR CORPORATION QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS           Note Regarding Forward-Looking Statements 3       PART I. FINANCIAL INFORMATION Page       Item 1. Financial Statements 4         Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2023 and October 1, 2022  (unaudited) 4         Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and October 1, 2022  (unaudited) 5         Consolidated Balance Sheets – September 30, 2023 and December 31, 2022  (unaudited) 6         Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and October 1, 2022  (unaudited) 7         Consolidated Statements of Stockholders' Equity – Three and Nine Months Ended September 30, 2023 and October 1, 2022  (unaudited) 8         Notes to Consolidated Financial Statements  (unaudited) 10       Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18       Item 3. Quantitative and Qualitative Disclosures About Market Risk 25       Item 4. Controls and Procedures 25             PART II. OTHER INFORMATION         Item 1. Legal Proceedings 26       Item 1A. Risk Factors 26       Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27       Item 5. Other Information 27       Item 6. Exhibits 28         Signatures 29   - 2 - Table of Contents       Note Regarding Forward-Looking Statements   This Quarterly Report on Form 10-Q contains 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. We use words or phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” "possible," “predict,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,” “future,” “potential,” and similar words or phrases to identify forward-looking statements.   Forward-looking statements include, but are not limited to, statements about: our target or expected financial performance and our ability to achieve those results; future impacts of the ongoing military conflicts between Ukraine and Russia, and in the Middle East, and the outbreak of new, or expansion of current, military conflicts or terrorism; the impact of any continuing trade or travel restrictions on the export and import of products between the U.S. and China; the impact of any deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia; the impact of tariffs, trade sanctions, license requirements or similar actions on our suppliers and customers; the impact of inflationary pressures; future impacts of global pandemics, epidemics, and other public health problems; our business strategy; our opportunities to increase our addressable market; our expectations and strategies regarding market trends and opportunities, including market segment drivers such as wireless and wireline communications infrastructure deployments, datacenter servers and networking equipment, client computing platforms, industrial Internet of Things, factory automation, robotics, automotive electronics, smart homes, prosumers, and other applications; our expectations regarding our customer base and the impacts of our customers’ actions on our business; our expectations regarding both new and existing product offerings; our gross margin growth and our strategies to achieve gross margin growth and other financial results; our future investments in research and development; future financial results or accounting treatments; our judgments involved in accounting matters, including revenue recognition, inventories and cost of revenue, and income taxes; actions we may take regarding the design and continued effectiveness of our internal controls over financial reporting; our use of cash; our beliefs regarding the adequacy of our liquidity, capital resources and facilities; whether we will consider and act upon acquisition opportunities to extend our product, technology and product offerings, and the impact of such opportunities on our business; our expectations regarding taxes, including unrecognized tax benefits, and tax adjustments and allowances; whether we will pursue future stock repurchases and how any future repurchases will be funded; our ability to prevent and respond to information technology system failures, security breaches and incidents, cyber-attacks or fraud; the impact of laws and regulations addressing privacy, data protection, and cybersecurity and our ability to comply with the same; and our beliefs regarding legal or administrative proceedings.   These forward-looking statements are based on estimates and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those statements expressed in the forward-looking statements. The key factors, among others, that could cause our actual results to differ materially from the forward-looking statements include global economic conditions and uncertainty, including as a result of trade-related restrictions or tariffs, inflationary pressures, or the effect of any downturn in the economy on capital markets and credit markets; the effects of global military conflicts, pandemics or widespread global health problems and the actions by governments, businesses, and individuals in response to the situation, the effects of which may give rise to or amplify the risks associated with many of these factors listed here; and other factors more fully described herein or that are otherwise described from time to time in our filings with the Securities and Exchange Commission ("SEC"), including, but not limited to, the items discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 17, 2023 and any additional or updated risk factors discussed in any subsequent Quarterly Report on Form 10-Q filed since that date.   You should not unduly rely on forward-looking statements because our actual results could differ materially from those e xpressed by us. In addition, any forward-looking statem ent applies only as of the date of this filing. We do not plan to, and undertake no obligation to, update any forward-looking statements to reflect new information or new events, circumstances or developments, or otherwise.   - 3 - Table of Contents       PART I. FINANCIAL INFORMATION   ITEM 1. FINANCIAL STATEMENTS   LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)       Three Months Ended     Nine Months Ended       September 30,     October 1,     September 30,     October 1,   (In thousands, except per share data)   2023     2022     2023     2022   Revenue   $ 192,169     $ 172,509     $ 566,558     $ 484,396   Cost of revenue     57,608       53,777       170,835       154,412   Gross margin     134,561       118,732       395,723       329,984   Operating expenses:                                 Research and development     42,048       34,820       119,983       100,988   Selling, general, and administrative     33,217       31,926       102,583       89,721   Amortization of acquired intangible assets     870       869       2,609       2,908   Restructuring     1,509       2,315       1,427       2,505   Acquisition related     —       —       —       511   Total operating expenses     77,644       69,930       226,602       196,633   Income from operations     56,917       48,802       169,121       133,351   Interest income (expense), net     954       ( 1,267 )     588       ( 2,866 ) Other income (expense), net     14       ( 820 )     ( 257 )     ( 1,085 ) Income before income taxes     57,885       46,715       169,452       129,400   Income tax expense     4,097       356       9,097       2,431   Net income   $ 53,788     $ 46,359     $ 160,355     $ 126,969                                     Net income per share:                                 Basic   $ 0.39     $ 0.34     $ 1.16     $ 0.92   Diluted   $ 0.38     $ 0.33     $ 1.15     $ 0.90                                     Shares used in per share calculations:                                 Basic     137,948       137,267       137,697       137,397   Diluted     139,828       139,935       139,927       140,921       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       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Net income   $ 53,788     $ 46,359     $ 160,355     $ 126,969   Other comprehensive income (loss):                                 Translation adjustment     ( 369 )     ( 987 )     ( 637 )     ( 2,215 ) Comprehensive income   $ 53,419     $ 45,372     $ 159,718     $ 124,754       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 5 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)       September 30,     December 31,   (In thousands, except share and par value data)   2023     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 114,397     $ 145,722   Accounts receivable, net of allowance for credit losses     105,913       94,018   Inventories, net     104,019       110,375   Prepaid expenses and other current assets     36,404       29,052   Total current assets     360,733       379,167   Property and equipment, less accumulated depreciation of $ 124,493 at September 30, 2023 and $ 116,349 at December 31, 2022     50,164       47,614   Operating lease right-of-use assets     16,088       17,590   Intangible assets, net     21,951       25,070   Goodwill     315,358       315,358   Other long-term assets     15,328       13,914   Total assets   $ 779,622     $ 798,713                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 36,887     $ 42,036   Accrued liabilities     36,305       48,467   Accrued payroll obligations     27,471       36,870   Total current liabilities     100,663       127,373   Long-term debt     —       128,752   Long-term operating lease liabilities, net of current portion     12,122       13,618   Other long-term liabilities     40,667       41,807   Total liabilities     153,452       311,550   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; 138,022,000 shares issued and outstanding as of September 30, 2023 and 137,099,000 shares issued and outstanding as of December 31, 2022     1,380       1,371   Additional paid-in capital     578,580       599,300   Retained earnings (Accumulated deficit)     49,261       ( 111,094 ) Accumulated other comprehensive loss     ( 3,051 )     ( 2,414 ) Total stockholders' equity     626,170       487,163   Total liabilities and stockholders' equity   $ 779,622     $ 798,713       See Accompanying Notes to Unaudited Consolidated Financial Statements.   - 6 - Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)       Nine Months Ended       September 30,     October 1,   (In thousands)   2023     2022   Cash flows from operating activities:                 Net income   $ 160,355     $ 126,969   Adjustments to reconcile net income to net cash provided by (used in) operating activities:                 Depreciation and amortization     25,279       21,498   Stock-based compensation expense     52,408       41,207   Amortization of right-of-use assets     5,022       4,995   Impairment of operating lease right-of-use asset     —       1,149   Other non-cash adjustments     177       791   Changes in assets and liabilities:                 Accounts receivable, net     ( 11,895 )     ( 20,587 ) Inventories, net     6,356       ( 26,370 ) Prepaid expenses and other assets     ( 5,305 )     ( 2,033 ) Accounts payable     ( 5,149 )     9,038   Accrued liabilities     ( 14,495 )     2,190   Accrued payroll obligations     ( 9,399 )     3,549   Operating lease liabilities, current and long-term portions     ( 5,736 )     ( 5,571 ) Net cash provided by (used in) operating activities     197,618       156,825   Cash flows from investing activities:                 Capital expenditures     ( 16,370 )     ( 13,080 ) Cash paid for software and intellectual property licenses     ( 8,917 )     ( 8,322 ) Net cash provided by (used in) investing activities     ( 25,287 )     ( 21,402 ) Cash flows from financing activities:                 Restricted stock unit tax withholdings     ( 48,633 )     ( 50,043 ) Proceeds from issuance of common stock     5,519       4,317   Repurchase of common stock     ( 30,005 )     ( 90,137 ) Proceeds from long-term debt, net of issuance costs     —       148,601   Repayment of long-term debt     ( 130,000 )     ( 158,750 ) Net cash provided by (used in) financing activities     ( 203,119 )     ( 146,012 ) Effect of exchange rate change on cash     ( 537 )     ( 2,215 ) Net increase (decrease) in cash and cash equivalents     ( 31,325 )     ( 12,804 ) Beginning cash and cash equivalents     145,722       131,570   Ending cash and cash equivalents   $ 114,397     $ 118,766                     Supplemental disclosure of cash flow information and non-cash investing and financing activities:                 Interest paid   $ 3,240     $ 2,203   Income taxes paid, net of refunds   $ 11,229     $ 4,115   Operating lease payments   $ 6,179     $ 5,500   Accrued purchases of plant and equipment   $ 269     $ 4,822   Operating lease right-of-use assets obtained in exchange for lease obligations   $ 3,718     $ 639       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 September 30, 2023:       Common Stock ($.01 par value)     Additional Paid-in     Retained Earnings (Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit)     Loss     Total   Balances, December 31, 2022     137,099     $ 1,371     $ 599,300     $ ( 111,094 )   $ ( 2,414 )   $ 487,163   Components of comprehensive income, net of tax:                                                 Net income for the nine months ended September 30, 2023     —       —       —       160,355       —       160,355   Other comprehensive income (loss)     —       —       —       —       ( 637 )     ( 637 ) Total comprehensive income                                     159,718   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     1,274       13       ( 43,127 )     —       —       ( 43,114 ) Stock-based compensation expense     —       —       52,408       —       —       52,408   Repurchase of common stock     ( 351 )     ( 4 )     ( 30,001 )     —       —       ( 30,005 ) Balances, September 30, 2023     138,022     $ 1,380     $ 578,580     $ 49,261     $ ( 3,051 )   $ 626,170           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     Retained Earnings (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       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 September 30, 2023:       Common Stock ($.01 par value)     Additional Paid-in     Retained Earnings (Accumulated     Accumulated Other Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit)     Loss     Total   Balances, July 1, 2023     137,823     $ 1,378     $ 580,592     $ ( 4,527 )   $ ( 2,682 )   $ 574,761   Components of comprehensive income, net of tax:                                                 Net income for the three months ended September 30, 2023     —       —       —       53,788       —       53,788   Other comprehensive income (loss)     —       —       —       —       ( 369 )     ( 369 ) Total comprehensive income                                     53,419   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     309       4       ( 8,679 )     —       —       ( 8,675 ) Stock-based compensation expense     —       —       16,664       —       —       16,664   Repurchase of common stock     ( 110 )     ( 2 )     ( 9,997 )     —       —       ( 9,999 ) Balances, September 30, 2023     138,022     $ 1,380     $ 578,580     $ 49,261     $ ( 3,051 )   $ 626,170           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     Retained Earnings (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       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 technology 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 U.S. 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 December 31, 2022 (" 2022 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  2022 10 -K. There have been no changes to the significant accounting policies, procedures, or general information described in our  2022 10 -K that have had a material impact on our consolidated financial statements and related notes. 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 2023 will be a 52 -week year and will end on December 30, 2023, and our fiscal 2022 was a 52 -week year that ended December 31, 2022. Our  third quarter of fiscal 2023 and third quarter of fiscal 2022 ended on September 30, 2023 and October 1, 2022 , 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 2023 and 2022 , and 89 % for both the nine months ended September 30, 2023 and October 1, 2022. Distributors also account for a substantial portion of our net accounts receivable. Our two largest distributors accounte d for 41 % and 27 % of net accounts receivable at September 30, 2023  and 47 % and 27 % of net accounts receivable at December 31, 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       September 30,     October 1,     September 30,     October 1,   (In thousands, except per share data)   2023     2022     2023     2022   Net income   $ 53,788     $ 46,359     $ 160,355     $ 126,969                                     Shares used in basic Net income per share     137,948       137,267       137,697       137,397   Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition     1,880       2,668       2,230       3,524   Shares used in diluted Net income per share     139,828       139,935       139,927       140,921                                     Basic Net income per share   $ 0.39     $ 0.34     $ 1.16     $ 0.92   Diluted Net income per share   $ 0.38     $ 0.33     $ 1.15     $ 0.90     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       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive     448       604       223       535         Note 3 - Revenue from Contracts with Customers   Disaggregation of revenue   The following tables provide information about revenue from contracts with customers disaggregated by channel and by geographical market, based on ship-to location of our customer :       Three Months Ended     Nine Months Ended   Revenue by Channel   September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Distributors   $ 173,344       90 %   $ 154,417       90 %   $ 504,052       89 %   $ 433,535       89 % Direct     18,825       10 %     18,092       10 %     62,506       11 %     50,861       11 % Total revenue   $ 192,169       100 %   $ 172,509       100 %   $ 566,558       100 %   $ 484,396       100 %                                                                   Revenue by Geographical Market                                                                 (In thousands)                                                                 China     64,114       34 %     75,933       44 %     175,670       31 %     232,099       48 % Japan     25,689       13 %     26,924       16 %     94,434       17 %     62,784       13 % Other Asia     27,532       14 %     20,003       12 %     72,009       12 %     55,449       11 % Asia     117,335       61 %     122,860       72 %     342,113       60 %     350,332       72 % Americas     33,209       17 %     23,154       13 %     107,780       19 %     66,976       14 % Europe     41,625       22 %     26,495       15 %     116,665       21 %     67,088       14 % Total revenue   $ 192,169       100 %   $ 172,509       100 %   $ 566,558       100 %   $ 484,396       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 distributed to us by 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 2023 :   (In thousands)         Contract assets as of December 31, 2022   $ 7,347   Revenues recorded during the period     9,377   Transferred to Accounts receivable or collected     ( 7,378 ) Contract assets as of September 30, 2023   $ 9,346     Contract liabilities are included in Accrued liabilities on our Consolidated Balance Sheets. The following table summarizes activity during the first nine months of fiscal 2023 :   (In thousands)         Contract liabilities as of December 31, 2022   $ 17,666   Less: Product shipments from prepaid customer deposit     ( 12,826 ) Accruals for estimated future stock rotation and scrap returns     6,348   Less: Release of accruals for recognized stock rotation and scrap returns     ( 6,114 ) Contract liabilities as of September 30, 2023   $ 5,074       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 2022 10 -K.       September 30,     December 31,   (In thousands)   2023     2022   Accounts receivable   $ 105,913     $ 94,018   Less: Allowance for credit losses     —       —   Accounts receivable, net of allowance for credit losses   $ 105,913     $ 94,018     Inventories       September 30,     December 31,   (In thousands)   2023     2022   Work in progress   $ 70,197     $ 58,269   Finished goods     33,822       52,106   Total inventories, net   $ 104,019     $ 110,375     Property and Equipment – Geographic Information   Our Property and equipment, net by country at the end of each period was as follows:       September 30,     December 31,   (In thousands)   2023     2022   United States   $ 29,531     $ 29,118                     Taiwan     11,527       10,732   Philippines     4,606       3,596   China     2,556       2,229   Other     1,944       1,939   Total foreign property and equipment, net     20,633       18,496   Total property and equipment, net   $ 50,164     $ 47,614     - 12 - Table of Contents   Accrued Liabilities   Included in Accrued liabilities in the Consolidated Balance Sheets are the following balances:       September 30,     December 31,   (In thousands)   2023     2022   Liability for non-cancelable contracts   $ 12,994     $ 10,498   Current portion of operating lease liabilities     5,932       6,454   Contract liabilities     5,074       17,666   Liability for production materials     4,049       6,002   Other accrued liabilities     8,256       7,847   Total accrued liabilities   $ 36,305     $ 48,467       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. Details of the revolving loan facility, including the basis for interest and covenants are described in the 2022 Credit Agreement.   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 f irst nine months of fiscal 2023 , we made discretionary payments totaling $ 130 million on the revolving loans outstanding under the 2022 Credit Agreement.   The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:       September 30,     December 31,   (In thousands)   2023     2022   Principal amount   $ -     $ 130,000   Unamortized original issuance discount and debt costs     —       ( 1,248 ) Long-term debt, net of unamortized debt issue costs   $ -     $ 128,752     We pay a quarterly commitment fee of 0.20 % on the unused portion of the revolving facility. 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       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Contractual interest   $ 83     $ 1,328     $ 2,701     $ 2,690   Amortization of original issuance discount and debt costs     67       76       200       243   Total interest expense related to long-term debt   $ 150     $ 1,404     $ 2,901     $ 2,933       Note 6 - Restructuring   In the third quarter of 2023, our management approved and executed an internal restructuring plan (the “Q3 2023 Plan”), which included a targeted workforce reduction intended to reorganize critical roles and focus skillsets in key growth markets. We incurred restructuring costs of approximately $ 1.5 million during the third quarter and first nine months of fiscal 2023. Under this plan, approximately $ 1.5 million of total costs have been incurred through September 30, 2023. The Q3 2023 plan is expected to be largely complete by the end of fiscal year 2024.   Under the Q2 2019 Sales Plan, which is described in the 2022 10 -K, we incurred no restructuring costs in the third quarter or first nine months of fiscal 2023. 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. Under this plan, approximately $ 3.1 million of total costs have been incurred through September 30, 2023. All actions planned under the Q2 2019 Sales Plan have been implemented.   - 13 - Table of Contents   Under the June 2017 Plan, which is described in the 2022 10 -K, we incurred less than $ 0.1 million of restructuring costs in the third quarter of fiscal 2023 and approximately $ 0.1 million of restructuring costs in the first nine months of fiscal 2023. 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 costs, we incurred restructuring costs of approximately $ 1.3 million and approximately $ 1.6 million during the third quarter and first nine months, respectively, of fiscal 2022. Under this plan, approximately $ 23.3 million of total costs have been incurred through September 30, 2023. All actions planned under the June 2017 Plan have been implemented.   These costs, and adjustments on previous plans, are recorded to Restructuring on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accrued liabilities 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 December 31, 2022   $ 400     $ 5,892     $ 640     $ 6,932   Restructuring     1,365       58       4       1,427   Costs paid or otherwise settled     ( 446 )     ( 1,083 )     ( 24 )     ( 1,553 ) Accrued Restructuring at September 30, 2023   $ 1,319     $ 4,867     $ 620     $ 6,806                                     Accrued Restructuring at January 1, 2022   $ 251     $ 7,130     $ —     $ 7,381   Restructuring     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     ( 1 )  Includes employee relocation and outplacement costs ( 2 )  Includes termination fees on the cancellation of certain contracts     Note 7 - Leases   We have operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center. All of our facilities are leased under operating leases, which expire at various times through 2028, with a weighted-average remaining lease term of 3.4 years and a weighted-average discount rate of 5.8 % as of September 30, 2023 .   We recorded fixed operating lease expenses of $ 2.0 million and $ 1.9 million for the third quarter of fiscal 2023 and 2022, respectively, and $ 5.8 million for both the first nine months of fiscal 2023 and 2022.   The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during the first   nine months of fiscal 2023 :   Operating lease right-of-use assets   (In thousands)   Balance as of December 31, 2022   $ 17,590   Right-of-use assets obtained for new lease contracts during the period     3,718   Amortization of right-of-use assets during the period     ( 5,022 ) Adjustments for present value and foreign currency effects     ( 198 ) Balance as of September 30, 2023   $ 16,088     Operating lease liabilities   (In thousands)   Balance as of December 31, 2022   $ 20,072   Lease liabilities incurred for new lease contracts during the period     3,718   Accretion of lease liabilities     749   Operating cash used for payments on lease liabilities     ( 6,179 ) Adjustments for present value and foreign currency effects     ( 306 ) Balance as of September 30, 2023     18,054   Less: Current portion of operating lease liabilities (included in Accrued liabilities)     ( 5,932 ) Long-term operating lease liabilities, net of current portion   $ 12,122     - 14 - Table of Contents   Maturities of operating lease liabilities as of September 30, 2023 are as follows:   Fiscal year   (In thousands)   2023 (Remaining quarter)   $ 1,552   2024     7,000   2025     5,028   2026     3,405   2027     1,742   Thereafter     1,425   Total lease payments     20,152   Less: amount representing interest     ( 2,098 ) Total lease liabilities   $ 18,054     Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $ 4.9 million at September 30, 2023 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 September 30, 2023 and December 31, 2022, Intangible assets, net are shown net of accumulated amortization of $ 143.7 million and $ 140.3 million, respectively. Additionally, we enter into license agreements for third -party technology and record them as intangible assets. These licenses are being amortized to Research and development expense over their estimated useful lives.   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       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Research and development   $ 277     $ 264     $ 818     $ 789   Amortization of acquired intangible assets     870       869       2,609       2,908       $ 1,147     $ 1,133     $ 3,427     $ 3,697       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       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Cost of revenue   $ 1,035     $ 880     $ 3,402     $ 2,705   Research and development     7,020       4,925       20,006       14,461   Selling, general, and administrative     8,609       8,153       29,000       24,041   Total stock-based compensation   $ 16,664     $ 13,958     $ 52,408     $ 41,207     Market-Based and Performance-Based Stock Compensation   In the first and third quarters of fiscal 2023, 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 3000 index, which condition is measured for the grants on either the third anniversary of the grant date, or equally on the first, second, and third anniversary of the grant date, depending on the executive. The awards may vest at 250 % or 200 %, depending on 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.   - 15 - Table of Contents   In the first nine months of fiscal 2023, certain awards with a market condition or performance condition granted in prior fiscal years vested. During the first quarter of fiscal 2023 , the market condition for awards granted to certain executives in the first quarter of fiscal 2020 exceeded the 75th percentile of their TSR condition, and the second tranche of these awards vested at 250 % or 200 %, as applicable for the respective executive. Also during the first quarter of fiscal 2023, the first tranche of awards granted in fiscal 2021 with a performance condition vested. Under the terms of these grants, the RSUs with a performance condition will vest based on the Company generating specified levels of year-over-year revenue growth, which will be measured annually for one - fourth of the grants after each fiscal year-end through the end of fiscal 2024, with vesting of each tranche occurring 13 months after the performance condition is met. Vesting of these awards scales for achievement of year-over-year revenue growth compared to certain targets, with maximum vesting up to 200 %. The first tranche of these awards vested at the 200 % level of achievement, as the Company met the maximum year-over-year revenue growth performance criteria as of January 1, 2022. For the second tranche of these awards, the Company met the year-over-year revenue growth performance criteria at the 200 % level of achievement as of December 31, 2022.   For our awards with a market condition or a performance condition, we incurred stock compensation expense of approximately $ 5.1 million and $ 5.5 million in the third quarter of fiscal 2023 and 2022, respectively, and approximately $ 21.0 million and $ 18.4 million in the first nine months of fiscal 2023 and 2022, 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, December 31, 2022     985   Granted     172   Effect of vesting multiplier     331   Vested     ( 633 ) Balance, September 30, 2023     855       Note 10 - Common Stock Repurchase Program   On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $ 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. During the third quarter of fiscal 2023, we repurchased 109,950 shares for $ 10.0 million, or an average price paid per share of $ 90.95 . Under this plan during the first nine months of fiscal 2023, we have repurchased a total of 351,449 shares for $ 30.0 million, or an average price paid per share of $ 85.38 . All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the 2023 Repurchase Program were retired by the end of the third quarter of fiscal 2023. As of September 30, 2023 , the remaining portion of the amount authorized for the 2023 Repurchase Program is approximately $ 99.7 million.     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 2023 and 2022 , we recorded income tax expense of approximately $ 4.1 million and $ 0.4 million, respectively. For the first nine months of fiscal 2023 and 2022, we recorded income tax expense of approximately $ 9.1 million and $ 2.4 million, respectively. Income taxes for the  three and nine -month periods ended September 30, 2023 and October 1, 2022 represent tax at the federal, state, and foreign statutory tax rates in addition to withholding taxes, excess benefits from stock compensation, 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 September 30, 2023 and for the three and nine months ended October 1, 2022 resulted primarily from U.S. valuation allowance, foreign withholding taxes, foreign rate differentials, and the discrete impacts of excess tax benefits from stock compensation.   Our liability recorded for uncertain tax positions (including penalties and interest) wa s $ 22.1 million and $ 21.6 million a t September 30, 2023 and December 31, 2022 , respectively, and is included as a component of Other long-term liabilities on our Consolidated Balance Sheets.   - 16 - Table of Contents     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 alleged that we violated the Lanham Act, engaged in negligence, fraud, and breach of contract by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. In January 2019, we removed the action to the United States District Court for the District of Oregon. On May 24, 2023, the Plaintiffs filed a second amended complaint, which added Apex-Micro Manufacturing Corporation as a plaintiff and removed the violation of the Lanham Act claim. The Plaintiffs seek damages of $ 180 million, punitive damages, and other remedies. 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 continue to 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     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion should be read along with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 10-K.     Overview   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 technology licenses. Lattice is the low power programmable leader. We solve customer problems across the network, from the Edge to the Cloud, in the growing communications, computing, industrial, automotive, and consumer markets. Our technology, long-standing relationships, and commitment to world-class support helps our customers quickly and easily unleash their innovation to create a smart, secure, and connected world.   Lattice has focused its strategy on delivering programmable logic products and related solutions based on low power, small size, and ease of use. We also serve our customers with intellectual property ("IP") licensing and various other services. Our product development activities include new proprietary products, advanced packaging, existing product enhancements, software development tools, soft IP, and system solutions for high-growth applications such as Edge Artificial Intelligence, wireless and wireline infrastructure, platform security, and factory automation.     Critical Accounting Policies and Use of Estimates   Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results of operations, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 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, actual results may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.     Impact of Global Economic Activity on our Business   Increased financial market volatility, inflationary pressure, rising interest rates, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension continue to impact business globally and may impact our operations by causing disruption to our labor markets and supply chains. The extent to which increased financial market volatility, inflationary pressures, global pandemics, and related uncertainty will impact our business activities will depend on future developments that are highly uncertain and cannot be predicted at this time.   - 18 - Table of Contents   Results of Operations   Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table:       Three Months Ended     Nine Months Ended       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Revenue   $ 192,169       100.0 %   $ 172,509       100.0 %   $ 566,558       100.0 %   $ 484,396       100.0 %                                                                   Gross margin     134,561       70.0       118,732       68.8       395,723       69.8       329,984       68.1                                                                     Research and development     42,048       21.9       34,820       20.2       119,983       21.2       100,988       20.8   Selling, general and, administrative     33,217       17.3       31,926       18.5       102,583       18.1       89,721       18.5   Amortization of acquired intangible assets     870       0.5       869       0.5       2,609       0.5       2,908       0.6   Restructuring     1,509       0.8       2,315       1.3       1,427       0.3       2,505       0.5   Acquisition related     —       —       —       0.0       —       —       511       0.1   Income from operations   $ 56,917       29.6 %   $ 48,802       28.3 %   $ 169,121       29.9 %   $ 133,351       27.5 %     Revenue by End Market   We sell our products globally to a broad base of customers in three primary end market groups: Communications and Computing, Industrial and Automotive, and Consumer. We also provide IP licensing and services to these end markets.   Within these end markets, there are multiple segment drivers, including: • Communications and computing: datacenter servers and networking equipment, client computing platforms, and wireless and wireline communications infrastructure deployments, • Industrial and automotive: factory automation, robotics, automotive electronics, and industrial Internet of Things ("IoT"), • Consumer: smart home, prosumer, and other applications.   The end market data we use is derived from data provided to us b y our customers. Wi th a diverse base of customers who may manufacture end products spanning multiple end markets, the assignment of revenue to a specific end market requires the use of judgment. We also recognize certain revenue fo r which end customers an d end markets are not yet known. We assign this revenue first to a specific end market using historical and anticipated usage of the specific products, if possible, and allocate the remainder to the end markets based on either historical usage for each product family or industry application data for certain product types.   The following are examples of end market applications for the periods presented:   Communications and Computing Industrial and Automotive Consumer Wireless Security and Surveillance Cameras Wireline Machine Vision Displays Data Backhaul Industrial Automation Wearables Server Computing Robotics Televisions Client Computing Automotive Home Theater Data Storage Drones     - 19 - Table of Contents   The composition of our revenue by end market is presented in the following table:       Three Months Ended     Nine Months Ended       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Communications and Computing   $ 68,311       35.5 %   $ 73,040       42.3 %   $ 198,876       35.1 %   $ 209,720       43.3 % Industrial and Automotive     109,944       57.2       85,730       49.7       333,713       58.9       229,820       47.4   Consumer     13,914       7.3       13,739       8.0       33,969       6.0       44,856       9.3   Total revenue   $ 192,169       100.0 %   $ 172,509       100.0 %   $ 566,558       100.0 %   $ 484,396       100.0 %   Revenue from the Communications and Computing end market decreased by 6% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and decreased by 5% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to softer end market demand in both wireless and wireline communications infrastructure, partially offset by strong demand in datacenter applications.   Revenue from the Industrial and Automotive end market increased by 28% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and increased by 45% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to strong customer adoption in a broad range of applications, including industrial automation and robotics. Growth in Automotive was driven by the adoption of new designs in advanced driver assistance ("ADAS") and infotainment applications.   Revenue from the Consumer end market increased by 1% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 due to increased demand for our products in Consumer end market applications over the quarterly periods and decreased by 24% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 primarily due to macroeconomic weakness in Consumer over the year-to-date periods.     Revenue by Geography   We have a diverse base of customers where distributors represent a significant portion of our total revenue. Our revenue by geographical market is based on the ship-to location of our customers, which can vary from time to time. Revenue from Asia decreased in the periods presented primarily due to the macroeconomic environment in the region, while revenue from the Americas and Europe increased due to increased demand in these regions.   The composition of our revenue by geography is presented in the following table:       Three Months Ended     Nine Months Ended       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Asia   $ 117,335       61.1 %   $ 122,860       71.2 %   $ 342,113       60.4 %   $ 350,332       72.3 % Americas     33,209       17.3       23,154       13.4       107,780       19.0       66,976       13.8   Europe     41,625       21.6       26,495       15.4       116,665       20.6       67,088       13.9   Total revenue   $ 192,169       100.0 %   $ 172,509       100.0 %   $ 566,558       100.0 %   $ 484,396       100.0 %     Revenue from Customers   We sell our products to independent distributors and directly to customers. 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 2023 and 2022, and 89% for both the nine months ended September 30, 2023 and October 1, 2022, respectively.     Gross Margin   The composition of our Gross margin, including as a percentage of revenue, is presented in the following table:       Three Months Ended     Nine Months Ended       September 30,     October 1,     September 30,     October 1,   (In thousands)   2023     2022     2023     2022   Gross margin   $ 134,561     $ 118,732     $ 395,723     $ 329,984   Gross margin percentage     70.0 %     68.8 %     69.8 %     68.1 %   Gross margin, as a percentage of revenue, increased 120 basis points in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and increased by 170 basis points in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022. Improved margins were driven by benefits from our gross margin expansion strategy.   - 20 - Table of Contents   Operating Expenses   Research and Development Expense   The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Research and development   $ 42,048     $ 34,820       20.8 %   $ 119,983     $ 100,988       18.8 % Percentage of revenue     21.9 %     20.2 %             21.2 %     20.8 %           Research and development expense includes costs for compensation and benefits, stock compensation, engineering wafers, depreciation and amortization, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions.  The increase in Research and development expense for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was due primarily to increased headcount-related costs, including stock compensation, as we continue to invest in our long-term product roadmap, and depreciation and amortization related to our research and development equipment and tools. We believe that investing in research and development is important to delivering innovative products to our customers and, therefore, we expect to continue to increase our investment in research and development.     Selling, General, and Administrative Expense   The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Selling, general, and administrative   $ 33,217     $ 31,926       4.0 %   $ 102,583     $ 89,721       14.3 % Percentage of revenue     17.3 %     18.5 %             18.1 %     18.5 %           Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses. The increase in Selling, general, and administrative expense for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was due primarily to increased headcount-related costs, including stock compensation and other costs, related to demand creation to support the growth of our business.     Amortization of Acquired Intangible Assets   The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Amortization of acquired intangible assets   $ 870     $ 869       0.1 %   $ 2,609     $ 2,908       (10.3 )% Percentage of revenue     0.5 %     0.5 %             0.5 %     0.6 %           Amortization of acquired intangible assets was flat between the third quarter of fiscal 2023 and the third quarter of fiscal 2022, and decreased for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 due to the end of the amortization period during the first quarter of fiscal 2022 for acquired intangible assets from previous acquisitions.   - 21 - Table of Contents   Restructuring   The composition of our Restructuring activity, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Restructuring   $ 1,509     $ 2,315       (34.8 )%   $ 1,427     $ 2,505       (43.0 )% Percentage of revenue     0.8 %     1.3 %             0.3 %     0.5 %           Restructuring activity is generally comprised of expenses resulting from consolidation of our facilities, cancellation of contracts, and headcount reductions. Details of our restructuring plans and expenses incurred under them are discussed in " Note 6 - Restructuring " to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Restructuring costs decreased in the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 primarily due to lower costs in the current year periods for severance compared to higher costs in the prior year periods for lease right-of-use impairment and contract termination fees.     Acquisition Related   Acquisition related activity of $0.5 million, or 0.1% of revenue, for the first nine months of fiscal 2022 were attributable to our acquisition of Mirametrix in November 2021 and were comprised primarily of professional services including legal and accounting fees, as well as closing costs.     Interest Income (Expense), net   The composition of our Interest expense, net, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Interest income (expense), net   $ 954     $ (1,267 )     (175.3 )%   $ 588     $ (2,866 )     (120.5 )% Percentage of revenue     0.5 %     (0.7 )%             0.1 %     (0.6 )%           The change in Interest income (expense) for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 was driven by increased interest income, coupled with decreased interest expense as we paid off the outstanding balance of our long-term debt.     Other Income (Expense), net   The composition of our Other income (expense), net, including as a percentage of revenue, is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Other income (expense), net   $ 14     $ (820 )     (101.7 )%   $ (257 )   $ (1,085 )     (76.3 )% Percentage of revenue     0.0 %     (0.5 )%             (0.0 )%     (0.2 )%           The changes in Other income (expense) for the third quarter and first nine months of fiscal 2023 compared to the third quarter and first nine months of fiscal 2022 were primarily due to the non-recurrence of the $0.7 million loss on refinancing of our long-term debt during the prior year period, and to foreign currency effects.   - 22 - Table of Contents   Income Tax Expense   The composition of our Income tax expense is presented in the following table:       Three Months Ended             Nine Months Ended               September 30,     October 1,             September 30,     October 1,           (In thousands)   2023     2022     % change     2023     2022     % change   Income tax expense   $ 4,097     $ 356       1,050.8 %   $ 9,097     $ 2,431       274.2 %   Our Income tax expense is composed primarily of taxes on foreign income and withholding taxes, partially offset by benefits resulting from excess tax benefits from stock compensation. The increase in tax expense in the third quarter and first nine months of fiscal 2023 as compared to the third quarter and first nine months of fiscal 2022 is primarily due to increased worldwide income and U.S. tax on foreign operations.     Liquidity and Capital Resources   The following sections discuss material changes in our financial condition from the end of fiscal 2022, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. There continues to be uncertainty around the extent and duration of the disruption to our business, including from the effects of market volatility, inflationary pressures, rising interest rates, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension, which may impact our liquidity and working capital needs in future periods.   We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions. Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things.   We believe that our financial resources, including current cash and cash equivalents, cash flow from operating activities, and our credit facilities, will be sufficient to meet our liquidity and working capital needs through at least the next 12 months. On September 1, 2022, we entered into our 2022 Credit Agreement, as described in "Note 5 - Long-Term Debt" under Part I, Item 1 of this report. As of September 30, 2023, we did not have significant long-term commitments for capital expenditures. For further information on our cash commitments for operating lease liabilities, see "Note 7 - Leases" under Part I, Item 1 of this report.   In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing. We may also seek to obtain equity or additional debt financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than we anticipated when determining our current working capital needs.     Cash and cash equivalents   (In thousands)   September 30, 2023     December 31, 2022     $ Change     % Change   Cash and cash equivalents   $ 114,397     $ 145,722     $ (31,325 )     (21.5 )%   As of September 30, 2023, we had Cash and cash equivalents of $114.4 million, of which approximately $32.4 million was held by our foreign subsidiaries. We manage our global cash requirements considering, among other things, (i) available funds among our subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-US earnings may require us to withhold and pay foreign income tax on dividends. This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of September 30, 2023, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.   The net decrease in Cash and cash equivalents of $31.3 million between December 31, 2022 and September 30, 2023 was primarily driven by cash flows from the following activities:   - 23 - Table of Contents   Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities for the first nine months of fiscal 2023 was $197.6 million compared to $156.8 million for the first nine months of fiscal 2022. This increase of $40.8 million was primarily driven by an increase of $46.6 million provided by improved operating performance, partially offset by $5.8 million of net changes in working capital, primarily from cash used for Accounts payable, Accrued liabilities, and Accrued payroll obligations offset by cash provided by Inventories.   Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses. Net cash used by investing activities in the first nine months of fiscal 2023 was $25.3 million compared to $21.4 million in the first nine months of fiscal 2022. This increase of $3.9 million is primarily a result of increased capital expenditures.   Financing activities — Financing cash flows consist primarily of activity on our long-term debt, tax payments related to the net share settlement of restricted stock units, proceeds from the exercise of options to acquire common stock, and repurchases of common stock. Net cash used by financing activities in the first nine months of fiscal 2023 was $203.1 million compared to $146.0 million in the first nine months of fiscal 2022. This $57.1 million increase was due to the following mix of activities. During the first nine months of fiscal 2023, we made discretionary payments totaling $130.0 million on our revolving loans under the 2022 Credit Agreement. In September 2022, we entered into our 2022 Credit Agreement and drew down an initial $150.0 million revolving loan at closing, which we used to pay off the $150.0 million outstanding balance on our previous term and revolving loans. In connection with the 2022 Credit Agreement, we paid $1.4 million in debt issuance costs. In the first nine months of fiscal 2022 we paid required quarterly installments of $8.8 million on our long-term debt under our prior Credit Agreement, dated May 17, 2019. Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $43.1 million in the first nine months of fiscal 2023, a decrease of approximately $2.6 million from the net $45.7 million used in the first nine months of fiscal 2022. During the first nine months of fiscal 2023, we repurchased approximately 0.4 million shares of common stock for $30.0 million compared to repurchases in the first nine months of fiscal 2022 of approximately 1.7 million shares of common stock for $90.1 million.     Accounts receivable, net   (In thousands)   September 30, 2023     December 31, 2022     $ Change     % Change   Accounts receivable, net   $ 105,913     $ 94,018     $ 11,895       12.7 % Days sales outstanding - Overall     50       49       1             Accounts receivable, net as of September 30, 2023 increased by approximately $ 11.9 million, or 13%, compared to December 31, 2022. This increase resulted primarily from higher revenue shipments in the third quarter of fiscal 2023 compared to the fourth quarter of fiscal 2022. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.   Inventories   (In thousands)   September 30, 2023     December 31, 2022     $ Change     % Change   Inventories   $ 104,019     $ 110,375     $ (6,356 )     (5.8 )% Days of inventory on hand     165       187       (22 )           Inventories as of September 30, 2023 decreased $ 6.4 million, or approximately 6% , compared to December 31, 2022 primarily as a result of increased product shipments to meet customer demand.   The Days of inventory on hand ratio compares the inventory balance at the end of a quarter to the cost of sales in that quarter. We calculate Days of inventory on hand on the basis of a 365-day year as Inventories at the end of the quarter divided by Cost of sales during the quarter annualized and then multiplied by 365.   Credit Arrangements   On September 1, 2022, we entered into our 2022 Credit Agreement. The details of this arrangement are described in "Note 5 - Long-Term Debt" in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q .   As of September 30, 2023 , we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 2022 Credit Agreement.   Share Repurchase Program   See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Quarterly Report on Form 10-Q for more information about the share repurchase program.   - 24 - Table of Contents   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures. There have been no material changes to either the foreign currency exchange rate risk or interest rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our 2022 10-K.     ITEM 4. CONTROLS AND PROCEDURES   Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures   In connection with the filing of this Quarterly Report on Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls were effective as of the end of the period covered by this report.     Changes in Internal Control over Financial Reporting   There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.     Inherent Limitations on Effectiveness of Controls   We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.   - 25 - Table of Contents   PART II. OTHER INFORMATION   ITEM 1. LEGAL PROCEEDINGS   On September 27, 2023, the SEC approved the settlement of an administrative proceeding, previously disclosed in the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2023, alleging that in certain instances the Company (i) failed to timely file public reports regarding reportable transactions by certain of the Company’s officers and directors primarily related to the granting, vesting and related tax withholding of RSUs and (ii) failed to comply with Section 13(a) of the Exchange Act and Item 405 of SEC Regulation S-K regarding the failure to disclose such late filings. Without admitting or denying the allegations, the Company agreed to pay a civil penalty of $185,000 and to cease and desist from future violations of the relevant securities law provisions. The Company fully cooperated with the SEC and all reportable transactions have been disclosed. The Company has taken certain remedial measures to ensure compliance with the applicable rules, including hiring of additional personnel responsible for such filings.   In addition to this matter, the information set forth above under " Note 12 - Contingencies - Legal Matters " contained in the Notes to Consolidated Financial Statements is incorporated herein by reference.     ITEM 1A. RISK FACTORS   In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors associated with our business previously described in Part I, Item 1A, “Risk Factors,” in our 2022 10-K. There have been no material changes in the risk factors included in our 2022 10-K, and this report should be read in conjunction with the risk factors set forth in our 2022 10-K. These risk factors are not the only risks facing our company. Additional risks and uncertainties not presently known to us or that we may currently deem to be immaterial could materially adversely affect our business, financial condition, or operating results, including those related to adverse macroeconomic conditions, such as rising inflation and labor shortages, which may affect demand for our products or increase our product or labor costs, negatively impacting our revenues, gross margins, and overall financial results. If any of these risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected, and the trading price of our common stock could decline. These factors, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, should be carefully considered before making an investment decision relating to our common stock.   - 26 - Table of Contents   ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   Issuer Purchases of Equity Securities   On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $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. During the third quarter of fiscal 2023, we repurchased 109,950 shares for $10.0 million, or an average price paid per share of $90.95. All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the 2023 Repurchase Program were retired by the end of the third quarter of fiscal 2023.   The following table contains information regarding our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the third quarter of fiscal 2023.   Period   Total Number of Shares Purchased     Average Price Paid per Share     Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)     Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($M) (b)   July 2, 2023 through July 29, 2023     —     $ —       —     $ 109.7   July 30, 2023 through August 26, 2023     70,894     $ 87.45       70,894     $ 103.5   August 27, 2023 through September 30, 2023     39,056     $ 97.30       39,056     $ 99.7   Total     109,950     $ 90.95       109,950     $ 99.7     (a)   All repurchases during the quarter were open-market transactions funded from available working capital made under the authorization from our Board of Directors to purchase up to $150.0 million of our common stock announced August 8, 2022. (b)   As of September 30, 2023, this amount consisted of the remaining portion of the $150.0 million program authorized through the end of December 2023 that was announced August 8, 2022.     ITEM 5. OTHER INFORMATION   Rule 10b5 - 1 Trading Plans   On August 24, 2023 , Mark Nelson, Senior Vice President of Sales, adopted a Rule 10b5 - 1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5 - 1 (c), pursuant to which an estimated aggregate of 39,640 shares of our Common Stock may be sold. The aggregate number of shares sold may differ based on tax withholdings for vesting stock awards and actual market achievement for performance RSUs. The duration of the trading arrangement is until August 27, 2024 , or earlier if all transactions under the trading arrangement are completed.   - 27 - Table of Contents   ITEM 6. EXHIBITS   Exhibit Number   Description       31.1   Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       31.2   Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       101.INS    Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)       101.SCH    Inline XBRL Taxonomy Extension Schema Document       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document       101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document       104   Cover Page Interactive Data File - formatted in Inline XBRL and included in Exhibit 101   - 28 - Table of Contents   SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     LATTICE SEMICONDUCTOR CORPORATION   ( Registrant)       /s/ Sherri Luther   Sherri Luther   Chief Financial Officer   (Principal Financial and Accounting Officer)   Date: October 31, 2023   - 29 -