What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-02-13 compared with 2025-02-14 · 68 added, 73 removed, 220 unchanged (39% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Lattice develops technologies that we monetize through differentiated programmable logic semiconductor products, silicon-enabling products, system solutions, design services, and licenses.

Lattice develops 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.

We solve customer problems across the network, from the Edge to the Cloud, in the Communications, Computing, Industrial, Automotive, and Consumer markets.

Our technology, long-standing relationships, and commitment to world-class support lets our customers quickly and easily unleash their innovation to create a smart, secure, and connected world.

1 unchanged sentence

We also serve our customers with 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 AI, 5G infrastructure, platform security, and factory automation.

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 AI, wireless and wireline infrastructure, platform security, and factory automation.

This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Part II, Item 8.

1 unchanged sentence

Discussions of results for prior periods (fiscal 2024 compared to fiscal 2023) are incorporated by reference from our Annual Report on Form 10-K for the year ended December 28, 2024 .

Impact of Global Economic Activity on our Business

Increased financial market volatility, inflationary pressure, interest rate changes, 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.

Additionally, our business is impacted by the cyclic correction affecting the broader semiconductor industry, which has seen softened demand across our end markets.

Critical Accounting Policies and Use of Estimates

6 unchanged sentences

We believe the following accounting policies and the related estimates are critical in the portrayal of our financial condition and results of operations, and require management's most difficult, subjective, or complex judgments.

See Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.

See Note 1 - Basis of Presentation and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Revenue from Contracts with Customers

8 unchanged sentences

We review and set standard costs quarterly to approximate current actual manufacturing costs.

Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual costs.

Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual costs.

The valuation of inventory requires us to estimate excess or obsolete inventory.

28 unchanged sentences

These changes, if any, may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which may result in a corresponding increase or decrease in net income in the period when such determinations are made.

Accordingly, the fourth quarter of fiscal 2024 included $27.7 million of income tax benefits due to the expiration of statutes of limitations that reduced our uncertain tax positions.

The expiration of statutes of limitations may decrease our uncertain tax positions.

We recognize the tax impact of including certain foreign earnings in U.S.

taxable income as a period cost.

We recognize deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S.

earnings or for outside basis differences in our subsidiaries, where we do not plan to indefinitely reinvest such earnings and basis differences.

Results of Operations

4 unchanged sentences

Amortization of acquired intangible assets

Restructuring

Restructuring and other

Impairment of acquired intangible assets

Acquisition related

Income from operations

(In thousands)

Revenue decreased $227.8 million, or 31%, in fiscal 2024 compared to fiscal 2023, primarily due to softer demand in industrial and automotive applications, telecommunications infrastructure deployments, and from continued inventory normalization by customers.

Revenue increased $13.9 million, or 3%, in fiscal 2025 compared to fiscal 2024, primarily due to stronger demand in data center applications, including general-purpose and AI-specific servers, as well as wireline networking components, partially offset by softer Industrial and Automotive end market demand and from continued inventory normalization by customers.

Revenue by End Market

1 unchanged sentence

Communications and Computing, Industrial and Automotive, and Consumer.

Across our end markets, our products are increasingly used for AI-related applications, including device usage in AI-optimized servers in data centers, AI-enabled PCs, and AI-enabled robotics and ADAS systems, among others.

Across our end markets, our products are increasingly used in AI-related applications, including device usage in AI-optimized servers in data centers, AI-enabled PCs, and AI-enabled robotics and ADAS systems, among others.

We also provide IP licensing and services to these end markets.

25 unchanged sentences

Total revenue

Revenue from the Communications and Computing end market decreased by 11% in fiscal 2024 compared to fiscal 2023 primarily due to softer end market demand in telecommunications infrastructure deployments and from continued inventory normalization by customers, partially offset by stronger demand in data center applications.

Revenue from the Communications and Computing end market increased by 28% in fiscal 2025 compared to fiscal 2024 primarily due to stronger demand in data center applications, including general-purpose and AI-specific servers, as well as wireline networking components.

Revenue from the Industrial and Automotive end market decreased by 18% in fiscal 2025 compared to fiscal 2024, primarily due to softer end market demand and from continued inventory normalization by customers.

While we do not consider AI applications as a distinct end market, we expect AI-related revenue to grow over the next few years based on the growing pipeline of AI-related design wins.

Our AI revenue is derived from applications across all three of our end market segments.

While we do not consider AI applications as a distinct end market, we expect AI-related revenue to grow over the next few years based on the growing pipeline of AI-related design wins in a diverse set of applications across all three of our end market segments.

Revenue by Geography

1 unchanged sentence

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 fiscal 2024 compared to fiscal 2023 primarily due to the macroeconomic environment in the region, while revenue from the Americas and Europe decreased due to reduced demand in these regions for our products in the Industrial and Automotive end market.

Revenue in all regions for fiscal 2025 compared to fiscal 2024 has been impacted by the global macroeconomic environment.

The composition of our revenue by geography is presented in the following table:

6 unchanged sentences

% of Total Revenue

Distributor A

Distributor B

Distributor C

Distributor D

Other distributors

5 unchanged sentences

Gross margin percentage

Gross margin percentage decreased 300 basis points from fiscal 2023 to fiscal 2024.

Reduced margins were primarily due to an approximately $7.0 million one-time charge for expiring production materials, and changes in product mix between the periods presented .

The expiring production materials were purchased on behalf of the company by the OSATs in anticipation of a supply constraint and are no longer expected to be used.

We expect gross margin to increase in future periods due to the non-recurrence of the one-time charge.

Gross margin percentage increased 140 basis points from fiscal 2024 to fiscal 2025.

Higher margins resulted primarily from the non-recurrence of an approximately $7.0 million one-time charge for expiring production materials in the prior year.

Gross margin also benefitted from changes in product mix between the periods, partially offset by higher stock-based compensation associated with market and performance-based awards in the current year.

Operating Expenses

Operating expenses increased year-over-year primarily due to higher stock-based compensation in the current year periods;

excluding stock-based compensation, operating expenses decreased year-over-year.

See Note 10 – Stock-Based Compensation Plans for additional details.

Research and Development Expense

5 unchanged sentences

These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions.

The decrease in Research and development expense for fiscal 2024 compared to fiscal 2023 was due primari ly to lower costs for outside services and R&D equipment expenses, partially offset by increased headcount-related costs and rent expense.

The increase in Research and development expense for fiscal 2025 compared to fiscal 2024 was primarily due to higher stock-based compensation associated with market-based and performance-based awards in the current year periods coupled with the prior year reduction in stock compensation expense from the forfeiture of equity awards by departing executives.

We believe that investing in research and development is important to delivering innovative products to our customers.

5 unchanged sentences

Percentage of revenue

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 decrease in Selling, general, and administrative expense for fiscal 2024 compared to fiscal 2023 was due primarily to a reduction in stock compensation expense from the forfeiture of equity awards by departing executives and reduced headcount-related costs as we aligned resources to the lower level of business, partially offset by other costs such as outside services and legal expenses.

Selling, general, and administrative expense includes headcount-related costs, including cash- and stock-based 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 fiscal 2025 compared to fiscal 2024 was primarily due to higher stock-based compensation associated with market-based and performance-based awards in the current year periods coupled with the prior year reduction in stock compensation expense from the forfeiture of equity awards by departing executives.

Amortization of Acquired Intangible Assets

3 unchanged sentences

Percentage of revenue

Amortization of acquired intangible assets was flat for fiscal 2024 compared to fiscal 2023.

Restructuring

The decrease in Amortization of acquired intangible assets for fiscal 2025 compared to fiscal 2024 was primarily due to the full impairment of the Mirametrix intangible assets in the fourth quarter of fiscal 2024.

Restructuring and other

The composition of our Restructuring activity, including as a percentage of revenue, is presented in the following table:

(In thousands)

Restructuring

Restructuring and other

Percentage of revenue

Restructuring activity is generally comprised of expenses resulting from workforce reductions, cancellation of contracts, and consolidation of our facilities.

Restructuring and other activity is generally comprised of expenses resulting from workforce reductions, cancellation of contracts, and consolidation of our facilities.

Details of our restructuring plans and expenses incurred under them are discussed in Note 8 - Restructuring to our Consolidated Financial Statements in Part II, Item 8 of this report.

Restructuring costs increased in fiscal 2024 compared to fiscal 2023 primarily due to higher severance costs incurred under the Q3 2024 Plan as we aligned resources to the lower level of business.

Impairment of Acquired Intangible Assets

In connection with our acquisition of Mirametrix in November 2021 we recorded identifiable intangible assets related to existing technology, customer relationships, and trade name / trademarks.

Our review of our strategic long-range plan completed at the end of fiscal 2024 concluded that the originally acquired Mirametrix intangible assets had limited future revenue potential due to a decline in customer demand, which we determined was an indicator of impairment.

Our assessment of the fair value of these intangible assets concluded that they had been fully impaired as of December 28, 2024, and we recorded an impairment charge of $13.9 million for fiscal 2024 in the Consolidated Statements of Operations.

Restructuring costs decreased in fiscal 2025 compared to fiscal 2024 primarily due to lower costs in the current year for severance under the Q3 2024 Plan as compared to higher costs in the prior year for severance under both the Q3 2024 and Q3 2023 Plans.

Interest Income (Expense), net

3 unchanged sentences

Percentage of revenue

The change in Interest income (expense) for fiscal 2024 compared to fiscal 2023 was driven by increased interest income, coupled with lower interest expense as we paid off the outstanding balance of our long-term debt during the third quarter of fiscal 2023.

Interest income (expense) for fiscal 2025 compared to fiscal 2024 decreased primarily due to lower interest rates on cash and cash equivalents between the periods.

Other Income (Expense), net

3 unchanged sentences

Percentage of revenue

For fiscal 2024 compared to fiscal 2023, the change in Other income (expense), net was primarily due to a $2.0 million write-off of a non-recoverable cost-method investment, and to foreign currency effects.

For fiscal 2025 compared to fiscal 2024, the change in Other income (expense), net was primarily due to a $2.0 million write-off of a non-recoverable cost-method investment in the prior year period, and to foreign currency effects.

The composition of our Income tax (benefit) expense is presented in the following table:

(In thousands)

Income tax (benefit) expense

Our Income tax (benefit) expense on worldwide income for fiscal 2024 includes $27.7 million of income tax benefits due to the expiration of statutes of limitations that reduced our uncertain tax positions, as well as federal tax credits, and stock-based compensation.

The lower income tax benefit in fiscal 2024 was primarily due to the reduction in valuation allowance over the $56.9 million of U.S.

Federal deferred tax assets in 2023.

The income tax benefit from the release of a portion of the valuation allowance was partially offset by an increase in expense in fiscal 2023 as compared to fiscal 2022 primarily due to increased worldwide income and U.S.

tax on foreign operations.

We updated our evaluation of the valuation allowance position in the United States through December 28, 2024.

Income tax expense (benefit)

Our income tax expense (benefit) for fiscal 2025 was driven primarily by nondeductible expenses related to stock‑based compensation, partially offset by federal tax credits.

The income tax benefit in fiscal 2024 includes $27.7 million of income tax benefits due to the expiration of statutes of limitations that reduced our uncertain tax positions, combined with federal tax credits and the impact of stock‑based compensation.

We updated our evaluation of the valuation allowance position in the United States through January 3, 2026.

In making this evaluation, we considered our operating environment and estimates about our ability to generate taxable income in future periods within the United States.

8 unchanged sentences

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net income before net interest income (expense), income tax (benefit) expense, depreciation and amortization, stock-based compensation, and other items that are considered unusual or not representative of underlying trends of our business, including but not limited to:

litigation expense outside the ordinary course of business, restructuring, transformation, and other charges, impairments, and other non-recurring charges, if applicable for the periods presented.

Adjusted EBITDA is a non-GAAP financial measure that we define as net income before net interest income (expense), income tax expense (benefit), depreciation and amortization, stock-based compensation, and other items that are considered unusual or not representative of underlying trends of our business, including but not limited to:

legal expense outside the ordinary course of business, transformation charges incurred in connection with our multi‑year strategic initiative to realign our organizational structure and modernize our technology platforms, restructuring, impairments, and other charges, if applicable for the periods presented.

We believe that the exclusion of the items eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of our business.

11 unchanged sentences

Interest (income) expense, net

Income tax (benefit) expense

Income tax expense (benefit)

Amortization of acquired intangible assets

1 unchanged sentence

Stock-based compensation (1)

Litigation expense (2)

Restructuring, transformation, and other (3)

Impairment of acquired intangible assets

Other non-recurring charges

Incentive compensation to be settled in equity (2)

Transformation charges

Legal expenses (3)

Restructuring and other

Impairment charges

Other EBITDA adjustments

Adjusted EBITDA

Adjusted EBITDA margin

The adjustments for Stock-based compensation include related tax expenses.

Legal expenses associated with the defense of claims that are outside the ordinary course of business that were brought against the Company by Steven A.W.

De Jaray, Perienne De Jaray and Darrell R.

Restructuring, transformation, and other includes transformation charges of approximately $2.8 million for fiscal year 2024.

Includes stock-based compensation and related payroll tax expenses.

Includes accruals for the portion of our annual incentive plan that we intend to settle in equity.

Includes legal expenses outside the ordinary course of business, including those incurred defending against claims described in our 2024 10-K.

Adjusted EBITDA increased for fiscal 2025 compared to fiscal 2024 primarily as a result of higher revenue, the non-recurrence of an approximately $7.0 million one-time charge for expiring production materials in the prior year, and lower costs for outside services.

Liquidity and Capital Resources

5 unchanged sentences

On September 1, 2022, we entered into our 2022 Credit Agreement, as described in Note 7 - Long-Term Debt to our Consolidated Financial Statements in Part II, Item 8 of this report.

As of December 28, 2024, we did not have significant long-term commitments for capital expenditures.

As of January 3, 2026, we did not have significant long-term commitments for capital expenditures.

For further information on our cash commitments for operating lease liabilities, see Note 9 - Leases to our Consolidated Financial Statements in Part II, Item 8 of this report.

4 unchanged sentences

(In thousands)

December 28, 2024

January 3, 2026

December 28, 2024

Cash and cash equivalents

As of December 28, 2024, we had Cash and cash equivalents of $136.3 million, of which approximately $71.2 million in Cash and cash equivalents was held by our foreign subsidiaries.

As of January 3, 2026, we had Cash and cash equivalents of $133.9 million, of which approximately $73.6 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.

1 unchanged sentence

This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates.

As of December 28, 2024, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

The net increase in Cash and cash equivalents of $8.0 million between December 30, 2023 and December 28, 2024 was primarily driven by cash flows from the following activities:

As of January 3, 2026, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

The net decrease in Cash and cash equivalents of $2.4 million between December 28, 2024 and January 3, 2026 was primarily driven by cash flows from the following activities:

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 was $175.1 million in fiscal 2025 compared to $140.9 million in fiscal 2024.

This decrease of $128.7 million was primarily driven by a decrease of $159.8 million provided by operating activities, partially offset by $31.1 million of net changes in working capital, primarily in Accounts receivable and Inventories.

This increase of $34.2 million was primarily driven by $17.9 million more cash provided by net income adjusted for non-cash items coupled with $16.3 million of net changes in working capital.

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 fiscal 2025 was $62.3 million compared to $37.7 million in fiscal 2024.

Financing activities — Financing cash flows consist primarily of activity on our long-term debt, repurchases of common stock, tax payments related to the net share settlement of restricted stock units, and proceeds from the exercise of options to acquire common stock.

Financing activities — Financing cash flows consist primarily of repurchases of common stock, tax payments related to the net share settlement of restricted stock units, and proceeds from the acquisition of common stock under our e mployee stock purchase plan .

Net cash used by financing activities in fiscal 2025 was $115.7 million compared to $94.5 million in fiscal 2024.

This $159.2 million decrease was due to the following activities.

During fiscal 2024, we had no balance outstanding on our long-term debt, while during fiscal 2023 we made discretionary payments totaling $130.0 million on revolving loans under the 2022 Credit Agreement.

We repurchased approximately 1.1 million shares of common stock for $67.0 million in fiscal 2024 compared to repurchases of approximately 1.2 million shares of common stock for $80.0 million in fiscal 2023.

Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $27.5 million in fiscal 2024, a decrease of approximately $16.2 million from the net $43.7 million used in fiscal 2023.

This $21.2 million increase was due to the following activities.

During fiscal 2025, we repurchased approximately 1.8 million shares of common stock for $100.0 million compared to fiscal 2024, where we repurchased approximately 1.1 million shares of common stock for $67.0 million.

Payments for tax withholdings on vesting of RSUs partially offset by purchases under the employee stock purchase plan used net cash flows of $15.7 million in fiscal 2025, a decrease of approximately $11.8 million from the net $27.5 million used in fiscal 2024.

Accounts receivable, net

(In thousands)

December 28, 2024

January 3, 2026

December 28, 2024

1 unchanged sentence

Days sales outstanding

Accounts receivable, net as of December 28, 2024 decreased by approximately $23.3 million, or approximately 22%, compared to December 30, 2023.

This decrease was due to lower revenue shipments as well as the timing of when our customers want our products.

Accounts receivable, net as of January 3, 2026 increased by approximately $21.2 million, or approximately 26%, compared to December 28, 2024.

This increase was due to order scheduling through the fourth quarter.

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.

(In thousands)

December 28, 2024

January 3, 2026

December 28, 2024

Days of inventory on hand

Inventories as of December 28, 2024 increased $4.6 million, or approximately 5%, compared to December 30, 2023 primarily as a result of product buildup ahead of new product ramps and from softer demand as customers continue to normalize their own inventories.

Days of inventory on hand increased over the period due to lower revenue.

Inventories as of January 3, 2026 decreased $14.2 million, or approximately 14%, compared to December 28, 2024 primarily as a result of our continued optimization of inventory to efficient levels for the business, which also decreased Days of inventory on hand over the period.

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.

3 unchanged sentences

The details of this arrangement are described in Note 7 - Long-Term Debt to our Consolidated Financial Statements in Part II, Item 8 of this report.

As of December 28, 2024, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 2022 Credit Agreement.

As of January 3, 2026, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 2022 Credit Agreement.

Share Repurchase Program

1 unchanged sentence

New Accounting Pronouncements

The information contained under the heading "New Accounting Pronouncements" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part II, Item 7.

The information contained under the heading "New Accounting Pronouncements" in Note 1 - Basis of Presentation and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part II, Item 7.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis