Lattice Semiconductor Corporation

Greetings and welcome to the Lattice Semiconductor Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Rick Mouchet, Senior Director of IR. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. With me today are Ford Tamer, Lattice's CEO, and Tanya Stevens, Lattice's interim CFO. We'll provide a financial and business review of the third quarter of 2024 and the business outlook for the fourth quarter of 2024. If you have not yet 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 the next 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 contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the fourth 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 public-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 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 LatticeSemi.com. Let me now turn the call over to our CEO, Ford Tamer.

Thank you, Rick. And thank you everyone for joining us on our call today. Seven weeks ago, I joined Lattice as CEO with great anticipation about the company's prospects. And I'm even more excited today about our potential and the significant opportunity for stockholder value creation ahead of us. One of the key messages since joining Lattice has been stability. I love the team. customers, products, partners, and end markets. Over the past few years, the team at Lattice has done an impressive job transforming itself into the low-power programmable leader in the small to mid-range FPGA market. For that, I extend my sincere thanks for everyone's hard work and continued dedication. I also want to thank Issam Elashmawi, for providing continuity and stability as interim CEO. ISAM has played a key role over the past six years in setting and executing Lattice's strategic direction. I look forward to building on our partnership. Many of the investors and analysts on today's call have a history with me from Infi, Broadcom, and AGEAR. One of the biggest factors and drivers of my previous successes has been focused on product differentiation, which I believe creates customer benefit and market leadership. And in my opinion, that combination ultimately builds long-lasting value for all stakeholders. For example, I joined the InFi team in 2012 post-IPO. And over the next 10 years, we took it from $35 million in telecom revenue to a multi-billion dollar cloud NAI revenue business. That's now an important part of Marvell. The InFi transformation story created over 20 times value appreciation for all shareholders. I'm confident that Lattice has similar potentials in many ways. Now moving to our Q3 results. From a high level, Third quarter 2024 revenue was in line with our guidance at $127.1 million. On an end market basis, communications and computing was up 12% sequentially, driven by both general purpose and AI servers. Industrial and automotive was down 7% sequentially, primarily due to broader market demand and continued inventory normalization. Gross margin held at 69%, demonstrating the stability of our business model. Overall, while our results continue to be impacted by industry headwinds, we've been outperforming our direct peers by taking share in the small FPGA market segment. In a positive outlook, Lattice's new product revenue continues to grow year over year. Design momentum continues to be robust as the total number of wins year-to-date exceeds those in the same period last year. We are also encouraged with our stronger backlog and continued improvement in our book-to-bill, which bodes well for our business moving forward. As we look ahead to Q4, we expect revenue to be in the range of $112 million to $122 million. Based on our discussions with customers and partners, we now expect more of a U-shaped recovery than a V-shaped one in 2025. With that in mind, we anticipate low single-digit revenue growth in 2025 compared to 2024 with the expectation that channel inventory will begin moving back to the midpoint of our target range and enable Lattice to execute to our long-term revenue growth targets of 15 to 20%. That said, when you consider our strategic plan, strong team, differentiated product line, breadth of market applications, leadership position and low power, and robust ecosystem, we strongly believe that Lattice is still a sound investment opportunity with clear visibility into the upside. Since joining Lattice, I've had very productive meetings with customers, partners, suppliers, and employees. These included multiple customer meetings and reviews across all segments, specifically communications, computing, industrial, and automotive. I have been pleasantly surprised at Lattice's deep consultative relationships where we are the trusted partner for small and mid-range FPGAs. This is because our team understands customer pain points and can jointly develop win-win partnerships. Our industry leading roadmap includes low power, small size, large number of interfaces, differentiated features, solution stacks, and support. All this has generated positive feedback from our global customers and partners. And from here, we plan to double down on our small to mid-range FPGA offerings. This focus will be a key enabler in Lattice's transformation to the next level in our business. We are optimistic that we have everything in place to become a much larger company and to accomplish our goal of reaching the $1 billion revenue mark. We have high confidence in this goal given the size of our addressable market and tremendous number of market opportunities in front of us. Now, there are three reasons why Lattice remains strategically well positioned for growth. First and foremost, Lattice has a history of diligent financial discipline, aligning our investments behind what we believe to be the highest return opportunities. These efforts directly extend to our operating expense plan going forward. After careful consideration, We implemented a 14% headcount reduction last week. This is the first headcount reduction of this magnitude in recent history at Lattice. We do not expect any additional reductions will be needed. We reduced non-headcount operating expenses by a similar 14% as well. The actions were primarily done as part of our shift our targeted resources from high cost to low cost regions as we work to drive for more efficiency across the business. Importantly, even though we took these actions, we intend on maintaining the integrity of our product roadmap and our customer support and demand creation. There is no expected change in what we're delivering to our customers. For example, our seventh Nexus device family achieved initial production in Q3, and Avant G and X remain on track for initial production in Q4 of 2024. As you recall, we expected more of a U-shaped recovery than a V-shaped one in 2025 with low single-digit revenue growth. We are confident and expect that anticipated revenue growth combined with the 14% OPEX reduction will help drive annual earnings expansion in the low double-digit range in 2025. The second reason Lattice remains attractive is our leadership position in our strategic core markets of communications, computing, industrial, and automotive. We intend to lean into and leverage Lattice's rich history of innovation and differentiation to drive and sustain that leadership. There is considerable value in our low power and small size leadership position. And this has been reinforced by the many customers and partners across all of our end market segments. I heard firsthand about the benefits that our Nexus small FPGA family and our Avant mid-range FPGA family are offering. And from a feature differentiation, our customers are increasingly standardizing on lattice low power solutions in multiple applications, including security, video processing, and edge AI. The third reason Lattice remains attractive is our focus on edge AI, a fast growing market by all measures. We have strong traction with AI in servers, laptops, and early traction in industrial and automotive applications. In data center servers, example Lattice applications include control, management, and security in support of generative AI workloads. At the recent Open Compute Project, or OCP, there was a great deal of interest in our data center solutions, where our OEM partners showcased the broad usage of Lattice FPGAs in AI servers. We estimate One of our OEM partners uses over 50 Lattice FPGAs within each rack and expect this partner to have a significant demand for server racks in 2025. In AI-enabled science, Lattice FPGAs are being used to run the AI inference algorithms that provide features such as user presence and gaze detection. And in Q3, Lattice's devices began powering AI computer vision on the Dell XPS model high-performance AI laptop. This is in addition to the ramping design win on select Dell Latitude models Lattice has previously discussed. And lastly, Lattice solutions are being used to aggregate and preprocess sensor data and AI processing in the data path for industrial and ADAS systems. Lattice has now been designed in five of the top six LIDAR companies for automotive and many industrial vision panels. In summary, because of our financial discipline, market-leading position, and inroads in early action in the accelerating AI market, I am confident that if you stay with Lattice during this period, you'll be in a position to go along with us into 2025. Finally, I'm pleased to share that on December 10 and 11, we'll be hosting a developers conference in San Jose. We look forward to showcasing Lattice's broad portfolio. This includes our next-gen small FPGA platform, additional Avant portfolio expansion, and enhancement in our software tools and solutions. I am personally looking forward to meeting you, our customers, and partners. I will now turn the call over to our interim CFO, Tonya Stevens, who will provide a few details about her background before discussing the financial review of the quarter. Tonya, I look forward to working with you in your expanded role. Please go ahead with your review.