Lattice Semiconductor Corporation

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. If you would like, and I would like to welcome everyone to the Lattice Semiconductor First Quarter Fiscal Year 2020 Earnings Release Conference Call. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the star 1 on your push button phone. A replay will be available approximately two hours after the call today. The replay dial-in number is 404-537-3406. The conference ID number is 8369259. The replay will also be accessible on Lattice's website at latticesemi.com. I would now like to turn the call over to Rick Muscha. Please go ahead.

Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Lattice's President and CEO, and Sherry Luther, Lattice's CFO. We will provide a financial and business review of the first quarter of 2020 and the business outlook for the second quarter of 2020. If you have not obtained a copy of our earnings press release, it can be found at our company website in the investor relations section at latticecemi.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and the actual results may differ materially. refer you to the documents the company files with the FCC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those containing our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the second quarter of 2020. If at any time after this call we communicate any material changes to this guidance, We intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. Some financial information that we present during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. For historical periods, we provide reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at latifsemi.com. Let me now turn the call over to Jim Anderson, our President and CEO.

Thank you, Rick, and thank you everyone for joining us on our call today. I'm pleased with the results we delivered in Q1 of 2020, given the dynamic environment around COVID-19. We took action quickly at Lattice to safeguard the health and well-being of our employees, which is a top priority. I want to take the opportunity to thank all of our employees for how well they managed this situation. I want to thank the engineering team for staying focused on executing our roadmap, our operations team for staying focused on supply chain management, and our business team for continuing to make progress with our customers. I could not be more proud of the Lattice team. Let me cover a few key points from the first quarter of 2020. Relative to our Q1 guidance, we experienced a roughly 3% impact to Q1 revenue due to COVID-19, with the impact to demand concentrated in Asia and primarily in our consumer segment. However, we saw strong year-over-year revenue growth in both our communications and computing segment as well as our industrial and automotive segment. Also, we continued to make progress on gross margin expansion. With a non-GAAP gross margin increase of 120 basis points year-over-year, as we continue to execute on our gross margin improvement strategy. We also continue to drive improvements to profitability with a 39% year-over-year increase in our non-GAAP net income. And we ended the quarter with a healthy balance sheet including a strong cash position. Also, despite many of our employees working from home over the past weeks, we continue to make steady progress on our key product roadmap milestones and continue to build customer momentum on the products that we launched last year. Let me now provide an overview of our business by end market. In the communications and computing market, revenue was approximately flat sequentially and up 8% on a year-over-year basis. In computing, our revenue grew sequentially and year-over-year as we continued to see adoption of our products used in both servers as well as client computing platforms. Growth in servers was driven by both our higher attach rate and ASP versus the prior generation of servers. We continue to work closely with our key server customers to bring greater value to next generation platforms. In the communications market, although revenue is down sequentially due to declines in older generation systems, we continue to benefit from 5G infrastructure deployments with both sequential and year-over-year growth in 5G revenue in Q1. We continue to expect the deployment of 5G infrastructure to be a long-term, multi-year growth opportunity for Lattice. Turning now to the industrial and automotive market, revenue increased 5% sequentially in Q1 and 14% on a year-over-year basis. Q1 growth in the industrial segment reflects increased demand for our products used in a broad range of applications, including factory automation, robotics, and embedded vision. Although automotive remains a small portion of this segment at this time, we believe it will be a long-term growth vector as new customer programs ramp and demand in the automotive market returns. Turning now to the consumer market, revenue declined 24% sequentially in Q1 and 32% year-over-year. The decline reflects weakness due to COVID-19, particularly in the Asia geography. as well as the expected shift in the mix of revenue towards our other market segments over time. In consumer, we remain focused on applications with consistent multi-year revenue streams and higher margins where our solutions are enabling customers to differentiate their products. I'll now provide some highlights of our recent product roadmap execution. As we discussed at our Nexus platform launch in December, we're investing in a portfolio of higher level software that allows our devices to be easily used, adopted quickly, and introduced to the market much faster. The first installment in our software solution portfolio was our award-winning Sense AI software stack, which is focused on low-power inference processing at the edge of the network. I'm very pleased that we launched our second installment in our software solution portfolio on time in Q1, which is our embedded vision stack called AmVision. M-Vision is a complete hardware software solution that enables customers to accelerate and simplify the implementation of embedded vision across our key markets. The response has been very positive from both our customers and the industry as our M-Vision solution stack recently received Best in Show award at the 2020 Embedded World Exhibition. We also remain firmly on track for the launch of the third installment in our software solutions portfolio. which is our security solution stack, which is planned for delivery to customers in the second half of 2020. With regard to our device roadmap, when we launched our Nexus FPGA platform this past December, we also launched our first device based on the platform, the Crosslink NX device. At that time, we committed to releasing two additional Nexus-based devices in 2020. I'm pleased to report that execution remains on track for both programs. We expect to launch our second Nexus-based device in Q2 and our third device is on track to launch in the second half of 2020. The Nexus platform has been architected for power efficiency, which enables a significant power reduction for our customers across a broad range of applications. We also offer significantly better performance compared to the competition in applications that require video connectivity, such as AI and embedded vision. We're very pleased with the broad adoption of our Nexus platform as the number of both customer engagements and opportunities continues to build. In summary, while COVID-19 creates some uncertainty in the near-term business environment, we remain focused on our long-term strategy. We continue to accelerate the cadence of new products and solutions that we're bringing to market, and we continue to build momentum with customers across our market segments with our expanding product portfolio. Our team remains focused on executing our strategy, and I want to once again thank our employees for their creativity, dedication, and continued execution. I'll now turn the call over to our CFO, Sherry Luther.