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 2025 10-K.

Overview

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 Communications, Computing, Industrial, Automotive, and Embedded 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 2025 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.

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
		April 4,								March 29,
(In thousands)		2026								2025
Revenue		$	170,897				100.0	%		$	120,150				100.0	%
Gross margin			117,632				68.8				81,728				68.0
Research and development			50,836				29.7				41,387				34.4
Selling, general and, administrative			40,105				23.5				33,126				27.6
Amortization of acquired intangible assets			20				0.0				-				-
Restructuring and other			603				0.4				241				0.2
Income from operations		$	26,068				15.3	%		$	6,974				5.8	%

Revenue by End Market

During the first quarter of 2026, we aligned our end market structure to our larger strategic market focus areas. We sell our products globally to a broad base of customers in two primary end market groups: Compute and Communications, and Industrial and Embedded. 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. We also provide IP licensing and services to these end markets.

Within these end markets, there are multiple drivers, including:

•	Compute and Communications: data center servers and networking equipment, client computing platforms, and wireless and wireline communications infrastructure deployments,
•	Industrial and Embedded: factory automation, robotics, automotive electronics, and industrial Internet of Things ("IoT"), smart home, prosumer, and other applications.

The end market data we use is derived from data provided to us by our distributors and end customers. With 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 for which end customers and 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:

Compute and Communications	Industrial and Embedded
Data Networking	Security and Surveillance
Server Computing	Machine Vision
Client Computing	Industrial Automation
Data Storage	Robotics
Cloud	Automotive
Hyperscalers	Drones
Wireless	Factory Automation
Wireline	Cameras
	Displays / Televisions
	Home Theater / Sound Systems
	Wearables

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

		Three Months Ended
		April 4,								March 29,
(In thousands)		2026								2025
Compute and Communications		$	106,632				62.4	%		$	57,434				47.8	%
Industrial and Embedded			64,265				37.6				62,716				52.2
Total revenue		$	170,897				100.0	%		$	120,150				100.0	%

Note: During the first quarter of 2026, we began disaggregating our revenue by Compute and Communications, and Industrial and Embedded. Prior periods have been reclassified to match current period presentation.

Revenue from the Compute and Communications end market increased by 86% for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 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 Embedded end market increased by 2% for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 primarily due to recovering end market demand particularly from industrial and aerospace customers.

AI applications are pervasive across our end markets, so 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 both of our end market groups.

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. For the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025, revenue from Asia increased by 71% primarily due to hyperscaler demand, while revenue from the Americas decreased by 37% primarily due to the non-recurrence of certain one-time sales in the prior year period, and revenue from Europe increased by 57% primarily due to broad market recovery in this region.

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

		Three Months Ended
		April 4,								March 29,
(In thousands)		2026								2025
Asia		$	132,577				77.6	%		$	77,741				64.7	%
Americas			18,792				11.0				29,997				25.0
Europe			19,528				11.4				12,412				10.3
Total revenue		$	170,897				100.0	%		$	120,150				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 94% and 79% for the first quarter of fiscal 2026 and 2025, respectively.

Gross Margin

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

		Three Months Ended
		April 4,				March 29,
(In thousands)		2026				2025
Gross margin		$	117,632			$	81,728
Gross margin percentage			68.8	%			68.0	%

Gross margin, as a percentage of revenue, increased 80 basis points in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025. Higher margins resulted primarily from changes in product mix and volume between the periods, partially offset by higher stock-based compensation expense 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 expense in the current year periods. See "Note 9 - Stock-Based Compensation" for additional details.

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
		April 4,				March 29,
(In thousands)		2026				2025				% change
Research and development		$	50,836			$	41,387				22.8	%
Percentage of revenue			29.7	%			34.4	%

Research and development expense includes headcount-related costs, including cash- and stock-based compensation and benefits, R&D equipment expenses, engineering wafers, 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 first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 was primarily due to higher stock-based and cash-based compensation expense, along with higher depreciation and amortization on semiconductor equipment and licensed software tools, and higher expenses for prototypes. We believe that investing in research and development is important to delivering innovative products to our customers. We expect research and development expense to increase in the future, but to decline as a percentage of revenue.

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
		April 4,				March 29,
(In thousands)		2026				2025				% change
Selling, general, and administrative		$	40,105			$	33,126				21.1	%
Percentage of revenue			23.5	%			27.6	%

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 the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 was primarily due to higher stock-based and cash-based compensation expense, partially offset by lower legal costs and audit fees. We expect selling, general, and administrative expense to increase in the future, but to decline as a percentage of revenue.

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
		April 4,				March 29,
(In thousands)		2026				2025				% change
Amortization of acquired intangible assets		$	20			$	-				100+%
Percentage of revenue			0.0	%			-	%

The increase in Amortization of acquired intangible assets for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 was due to the purchase of intellectual property assets in the second quarter of fiscal 2025.

Restructuring and Other

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

		Three Months Ended
		April 4,				March 29,
(In thousands)		2026				2025				% change
Restructuring and other		$	603			$	241				150.2	%
Percentage of revenue			0.4	%			0.2	%

Restructuring and other is generally comprised of expenses resulting from workforce reductions, cancellation of contracts, and consolidation of our facilities. Details of our restructuring plans and expenses accrued 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 and other costs increased in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 primarily due to additional costs incurred in the current year period for settlement of certain severance liabilities under the Q3 2024 Plan.

Interest Income (Expense), net

The composition of our Interest income (expense), net, including as a percentage of revenue, is presented in the following table:

		Three Months Ended
		April 4,				March 29,
(In thousands)		2026				2025				% change
Interest income (expense), net		$	1,269			$	1,052				20.6	%
Percentage of revenue			0.7	%			0.9	%

Interest income (expense) for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 increased primarily due to lower interest expense on long-term contractual obligations and reduced carrying costs on our revolving loan facility.

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
		April 4,				March 29,
(In thousands)		2026				2025				% change
Other income (expense), net		$	(71	)		$	(45	)			57.8	%
Percentage of revenue			(0.0	)%			(0.0	)%

Other income (expense) for the first quarter of fiscal 2026 and 2025 was primarily due to foreign currency effects.

Income Tax Expense

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

		Three Months Ended
		April 4,				March 29,
(In thousands)		2026				2025				% change
Income tax expense		$	5,449			$	2,959				84.2	%

Our Income tax expense is partially offset by federal tax credits. The higher income tax expense for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 was primarily due to increased worldwide income, combined with federal tax credits and the impact of stock-based compensation.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net income before net interest income (expense), income tax 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: legal expenses 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, 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. Accordingly, we believe that Adjusted EBITDA provides useful information in understanding and evaluating our operating results in the same manner as our management and our Board of Directors. Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison.

There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which is the most directly comparable financial measure calculated in accordance with GAAP. Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these potential capital expenditures. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items, as in the future we may incur expenses similar to the adjustments in this presentation. Evaluation of our performance should consider Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results.

A reconciliation of Net income to Adjusted EBITDA, including as a percentage of revenue, is presented in the following table:

		Three Months Ended
		April 4,				March 29,
(In thousands)		2026				2025
GAAP Net income		$	21,817			$	5,022
GAAP Net income margin			12.8	%			4.2	%
Interest (income) expense, net			(1,269	)			(1,052	)
Income tax expense			5,449				2,959
Amortization of acquired intangible assets			20				-
Depreciation and other amortization			9,109				8,586
Stock-based compensation (1)			28,491				20,556
Incentive compensation to be settled in equity (2)			3,433				1,528
Transformation charges			-				1,012
Legal expenses (3)			-				533
Restructuring and other			703				936
Adjusted EBITDA		$	67,753			$	40,080
Adjusted EBITDA margin			39.6	%			33.4	%

(1)		Includes stock-based compensation and related payroll tax expenses.
(2)		Includes accruals for the portion of our annual Corporate Incentive Plan that we intend to settle in equity and related payroll tax expenses.
(3)		Includes legal expenses outside the ordinary course of business, including those incurred defending against claims described in our 2025 10-K.

Adjusted EBITDA increased for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 primarily as a result of higher revenue, partially offset by higher headcount-related expenses.

Liquidity and Capital Resources

The following sections discuss material changes in our financial condition from the end of fiscal 2025, 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 of market volatility, the impact of tariffs, inflationary pressures, interest rate changes, 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 April 4, 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 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 purposes, 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)		April 4, 2026				January 3, 2026				$ Change				% Change
Cash and cash equivalents		$	139,956			$	133,886			$	6,070				4.5	%

As of April 4, 2026, we had Cash and cash equivalents of $140.0 million, of which $56.4 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 April 4, 2026, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

The net increase in Cash and cash equivalents of $6.1 million between January 3, 2026 and April 4, 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 for the first three months of fiscal 2026 was $50.3 million compared to $31.9

million for the first three months of fiscal 2025. This increase of $18.4 million was primarily driven by $27.6 million more cash provided by net income adjusted for non-cash items, partially offset by $9.2 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 the first three months of fiscal 2026 was $15.4 million compared to $12.1 million in the first three months of fiscal 2025.

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 employee stock purchase plan. Net cash used by financing activities was $28.8 million in the first three months of both fiscal 2026 and 2025. During the first three months of fiscal 2026, we repurchased 0.2 million shares of common stock for $15.0 million compared to the first three months of fiscal 2025, where we repurchased 0.4 million shares of common stock for $25.0 million. Payments for tax withholdings on vesting of RSUs partially offset by purchases under the employee stock purchase plan used net cash flows of $13.8 million in the first three months of fiscal 2026, an increase of $10.0 million from the net $3.8 million used in the first three months of fiscal 2025.

Accounts receivable, net

(In thousands)		April 4, 2026				January 3, 2026				$ Change				% Change
Accounts receivable, net		$	118,106			$	102,277			$	15,829				15.5	%
Days sales outstanding			63				64				(1	)

Accounts receivable, net as of April 4, 2026 increased by $15.8 million, or 16%, compared to January 3, 2026. This increase was due to increased revenue and order scheduling through the 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.

Inventories

(In thousands)		April 4, 2026				January 3, 2026				$ Change				% Change
Inventories		$	88,231			$	89,202			$	(971	)			(1.1	)%
Days of inventory on hand			151				178				(27	)

Inventories as of April 4, 2026 decreased by $1.0 million, or 1%, compared to January 3, 2026 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. We expect to build inventory as we see continued demand growth.

The Days of inventory on hand ratio compares the inventory balance at the end of a quarter to the cost of revenue 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 revenue during the quarter annualized and then multiplied by 365.

Credit Arrangements

As of April 4, 2026, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 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.

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.

The information contained under the heading "New Accounting Pronouncements" in Note 1 -Basis of Presentation to our Consolidated Financial Statements in Part I, Item 1 of this report is incorporated by reference into this Part I, Item 2.