Lattice Semiconductor Corporation

Ladies and gentlemen, welcome to the Lattice Semiconductor's third quarter 2021 earnings conference call. Your lines are in a listen-only mode. We'll open up questions after management's prepared comments. To ask a question, press star 1 on your telephone keypad. I will now turn the call over to Mr. Rick Mosche, Lattice's Director of Investor Relations. 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'll provide a financial and business review of the third quarter of 2021 and the business outlook for the fourth quarter of 2021. If you have not obtained a copy of our earnings press release, it can be found on our company website in the investor relations section at latticesemi.com. I'd 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. We refer you to the documents that the company files with the SEC, 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 contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the fourth quarter of 2021. 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 provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at LatticeSemi.com. Let me now turn the call over to Jim Anderson, our CEO.

Thank you, Rick, and thank you, everyone, for joining us on our call today. I'm pleased with our strong results in Q3 as we delivered double-digit year-over-year revenue growth driven by our expanding product portfolio and multiple growth vectors across our end markets. Let me start by covering a few highlights from Q3 of 2021. We grew revenue 28% year-over-year and 5% sequentially with double-digit year-over-year growth in each of our three market segments. We expanded non-GAAP gross margin by 210 basis points year-over-year to a record 63.6% as we continue to execute on our gross margin expansion strategy. We achieved record non-GAAP operating profit of 30.4%. In addition, we drove 49% year-over-year increase in non-GAAP net income. And we continue to expand our hardware and software capabilities with new product enhancements. Let me now provide an overview of our business by end market. In the communications and computing market, revenue increased 6% sequentially and 26% on a year-over-year basis. As we've highlighted previously, our key long-term growth drivers in this segment are data center servers, client computing, and 5G infrastructure. In servers, growth continues to be driven by expansion in both attach rate and ASP as we continue to drive an increase in our dollar content per server with each new server generation. In client computing, growth is driven by the ramp of customer programs that started last year and have continued into this year. In addition, we're engaged with customers on new programs that will generate revenue in the coming quarters. Lastly, we were pleased with our growth in 5G infrastructure in Q3, as 5G continues to be deployed worldwide. Turning now to the industrial and automotive market, revenue increased 3% sequentially and was up 40% on a year-over-year basis. Q3 growth in the industrial segment reflects strong customer adoption in a broad range of applications, including industrial automation and robotics, where Lattice solutions provide significant competitive advantages for our customers. We've recently seen an accelerated rate of customer adoption and conversion to Lattice devices used in this segment. Combination of power efficiency, performance, flexibility, and software content makes our devices a natural fit for the industrial market. As the digital transformation industrial and automotive applications continues, our product portfolio is well positioned for sustained long-term growth. Turning now to consumer, revenue is up 1% sequentially and was up 25% year-over-year. As we've discussed previously, our focus is on applications with multi-year revenue streams and higher margins, where our solutions are enabling customers to differentiate their products. I'll now provide some product roadmap highlights. I continue to be pleased with our team's execution on our product roadmap. Since the launch of Lattice Nexus, we've launched four device families based on the platform. The first two device families, Crosslink NX and Certus NX, are already in production and ramping with customers. Our third Nexus device family, Mach NX, remains on track to generate revenue towards the end of this year. Certus Pro NX, the fourth device family, was launched in June and is expected to go into production next year. Certus Pro NX has significantly better power efficiency, best-in-class system bandwidth, and a much smaller footprint than our competition. We continue to be pleased with the broad adoption of our Nexus platform across all our market segments. We're also excited about our upcoming Lattice Avant platform that we announced at our investor day in May. Avant will double our addressable market and will allow us to address mid-range FPGA applications. Customer engagement and momentum continues to grow and execution is going well. We remain on track for launch in the second half of next year. As we've discussed over the past few years, software is a key component of our strategy. We've been increasing organic investment in our software portfolio, not just the development environment, but increasing the investment in our application-specific solution stacks as well. For example, during Q3, we further enhanced the capabilities and performance of mVision, our award-winning solution stack focused on embedded vision applications. These investments are focused on making it easier for our customers to adopt Lattice products and get to market quickly. In summary, we're pleased with the strong revenue growth and profit expansion, and we continue to make solid progress on our expanding product portfolio. I'll now turn the call over to our CFO, Sherry Luther.