Lattice Semiconductor Corporation

Greetings and welcome to the Lattice Semiconductor Third Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Mouchet, Senior Director of Investor Relations. Thank you, Rick. You may begin.

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 2023 and the business outlook for the fourth quarter of 2023. 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 LatticeSemi.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 that 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 containing our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the fourth quarter of 2023. 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. We will refer primarily to non-GAAP financial measures during this call. 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. 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 latticemi.com. Let me now turn the call over to Jim Anderson, our CEO. Jim Anderson

Thank you, Rick, and thank you, everyone, for joining us on our call today. We delivered solid results in Q3 with quarterly revenue growth of 11% year-over-year while maintaining healthy gross margins and operating margins. Today, Lattice has the strongest product portfolio in our history in terms of both hardware and software solutions, and we continue to expand our product portfolio at a rapid rate. We're looking forward to the expected launch of the two newest members of our Avant mid-range FPGA family at the Lattice Developers Conference in December. Let me touch on a few Q3 highlights. In addition to the Q3 revenue growth, we achieved a record non-GAAP gross margin of 70.6%, which was an increase of 110 basis points year-over-year. We expanded non-GAAP operating margin by 60 basis points year-over-year to 40.3%, and we generated 40% pre-cash flow margin. Let me now provide an overview of our business by end market. In the communications and computing market, revenue is up 6% sequentially and down 6% on a year-over-year basis. We're pleased to see the sequential uptick in this segment given some of the macroeconomic challenges this end market has experienced over the past quarters. The sequential growth was driven in part by growth in data center servers for both general purpose and AI optimized applications. And we expect growth in servers to continue into the current quarter, offset by software demand and 5G telecom infrastructure. Over the long term, we continue to believe we are well positioned for growth in this segment. given our growing content per shiver in both general-purpose and AI-optimized data center shivers, as well as long-term growth opportunities in data center networking and telecom infrastructure. Turning now to the industrial and automotive market, revenue declined 5% sequentially and was up 28% year-over-year. While we're very pleased with the year-over-year growth, we did experience sequential softness in this market consistent with broader industry trends, and we expect this market softness to continue into the current quarter. However, we continue to expect this market to be a strong long-term growth opportunity for Lattice as we address growing applications in industrial automation and robotics, as well as automotive ADAS and infotainment systems. I'll now provide some product roadmap highlights. We're driving the largest product portfolio expansion in the company's history, which we believe continues to create new future revenue streams for Lattice. UNX, the seventh device family built on the Lattice Nexus platform. This newest device family is the industry's first FPGA in its class with integrated USB functionality, which is applicable to many diverse use cases. We also continue to be pleased with the progress on our new Lattice Abond platform, which creates new greenfield revenue opportunities for Lattice. We look forward to further extending the platform with the expected launch of two new Avant device families at our Linus Developers Conference in early December. Software is a key component of our strategy as our software accelerates customer adoption and enables faster time to market for our customers, while driving long-term multi-generational stickiness for our solutions. Avant will also leverage the same software that our customers are already using today on our current Nexus products, which enables faster customer adoption on our new Avant platform. We look forward to sharing new details about our software portfolio at our Developers Conference in December. Overall, I'm pleased with our continued execution. While we're not immune to macroeconomic headwinds in our end markets, we're excited about the continued rapid expansion of our product portfolio, and we believe that we continue to be well positioned for long-term growth across our core markets. I'll now turn the call over to our CFO, Sherry Luther.