Lattice Semiconductor Corporation

Greetings. Welcome to the Lattice Semiconductor Second Quarter 2024 earnings call. At this time, all participants are in listen-only mode. A 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. Please note this conference is being recorded. I'll now turn the conference over to your host, Rick Mouchet. You may begin.

Thank you, operator, and good afternoon, everyone. With me today are Asam El-Shnaoui, Lattice's interim CEO, and Sherry Luther, Lattice's CFO. We will provide a financial and business review of the second quarter of 2024 and the business outlook for the third quarter of 2024. 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 latticesendline.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 natural results may differ materially. We refer you to 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 third quarter of 2024. 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 exposing 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've 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 natisemi.com. And now it's time to call over to Asana Moshnawi, our interim CEO.

Thank you, Rick, and thank you, everyone, for joining us on our call today. While many of our investors, analysts, and customers know me, I'd like to provide a brief introduction given our recent CEO transition. In the six years that I've been at Lattice as Chief Strategy and Marketing Officer, I've been deeply involved in both the development and execution of our strategy. During that time, we have significantly strengthened our product portfolio, financial performance, and competitive position. Our accelerated cadence of new product launches has created new growth opportunities and deepened our customer relationships. The opportunities that made me excited to join Lattice back in 2018 are even more compelling today. Lattice is fortunate to have a deep bench of talent throughout our organization that is committed to building on our momentum and delivering future value creation for our customers and shareholders. As was previously announced, the board of directors has commenced a search process to identify a permanent CEO and will consider both internal and external candidates. While there is no specified timeline for completion, This search is the board's highest priority. I am fully committed to that process and confident that the ultimate outcome will be in the best interest of all Lattice staples. Now moving to the second quarter of 2024. The inventory normalization and near-term cyclic corrections continue as revenue declined 12% sequentially and 35% year over year. Gross margins remained at 69% and we continue to deliver profitability. In Q2, we continued to undershift to end customer demand as inventory normalization continued. On an end market basis, demand remained soft across industrial and automotive in Q2, with revenue down 23% sequentially as customers continued to reduce their inventory levels. We remain well positioned for growth over the longer term with our differentiated hardware and software solutions. Within communications and computing, Q2 revenue was flat sequentially, Strength in data center networking and servers help offset incremental weakness in wireless communication. As we discussed previously, we expect the inventory normalization cycle to continue through the second half of this year. We are seeing signs of improvement that when combined with our new product graph, we anticipate will lead to a return to growth. In terms of our product roadmap, we intend to continue investing in and accelerating our highly differentiated value portfolio. In our small FPGA portfolio, our 7-device family is on track to start ramping in Q3. We recently announced the 8-device family, the Lattice Mock X05DNX, and the latest version of the Lattice Sentry Solution Stack. This combination extends our leadership in security-focused hardware and software solutions. Last quarter, we talked about adding new Nexus device options to address increased customer demand. We're already delivering on that roadmap expansion, having recently launched Certis NX28 and Certis NX09, which offer class-leading power efficiency, small size, and reliability with flexible migration options. These devices are designed to accelerate a broad range of communications, computing, industrial, and automotive applications. Customer feedback has been very positive as we continue to invest in innovation leads in the small FPGA segment. In our mid-range FPGA portfolio, we've already launched three Avon device families. The first device, Avon E, achieved initial revenue last December, driven by numerous applications. We expect the Avon E series to ramp throughout the course of this year. We're on track and aim for both Avon G and X to achieve initial revenue before the end of this year. Customer momentum remains robust. You'll recall 90% of the target customers for Avon are already customers of Lattice today. and Avant leveraged the same software that customers use today on Nexus. We are pleased with the market traction of Avant as it expands our SAM and DryFix, expecting additional long-term revenue acceleration. As we have mentioned in previous calls, Lattice hardware and software solutions are increasingly being used in a wide variety of AI-related applications. For example, in AI-optimized servers in the data center, where the system is running generative AI workloads, Lattice devices are used in the control, management, and security of the AI computing system. Another example is in the edge AI-enabled applications where lattice solutions are used to run the AI inference algorithms that provide features such as user presence and gaze detection in client and industrial systems. Lastly, a third example is AI-enabled applications where lattice solutions are used to aggregate and pre-process sensor data that is used for AI processes. I wanted to highlight that last quarter we began shipping of Lattice NVIDIA Edge AI solutions to customers. This solution, which we first presented at our 2023 Developers Conference, is designed to accelerate the development of Edge AI applications using the NVIDIA platform. I'm pleased to share that on December 10th and 11th, we'll be hosting our second Lattice Developers Conference, which will be held live and virtual in San Jose. Driven by our increase in ecosystem and customer base, you can expect demonstrations and new product announcements. In summary, we remain focused and continue to execute on our strategy. We believe Lattice is competitively well-positioned and in the middle of the largest product portfolio expansion in our history with strong customer momentum. I'll now turn the call over to our CFO, Sherry Luther.