Q3 2024 Lattice Semiconductor Corp Earnings Call
Pickering, New York
Thanks for watching!
Precisely.
Speaker Change: Greetings and welcome to the Lattice Semiconductor third quarter 2024 earnings conference call.
Speaker Change: 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.
Speaker Change: And I'd like to turn the conference over to your host, Rick Muscha, Senior Director of IR. Thank you. You may begin.
Rick Muscha: Thank you, operator, and good afternoon, everyone. With me today are Ford Tamer, Lattice's CEO, and Tonya 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 actual results may differ materially.
Rick Muscha: We refer you to documents that 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 contained in our projections or forward-looking statements.
Rick Muscha: 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.
Rick Muscha: 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.
Rick Muscha: 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.
Speaker Change: Let me now turn the call over to our CEO, Ford Tamer.
Ford Tamer: Thank you, Rick, and thank you, everyone, for joining us on our call today.
Ford Tamer: Seven weeks ago, I joined Lettice as CEO with great anticipation about the company's prospects.
Rick Muscha: And I'm even more excited today about our potential and the significant opportunity for stockholder value creation ahead of us.
Rick Muscha: One of the key messages since joining Lattice has been stability.
Rick Muscha: I love the team, customers, products, partners, and end markets.
Rick Muscha: Over the past few years, the team Atlantis has done an impressive job transforming itself into the low power programmable leader in the small to mid range FPGA market.
Rick Muscha: and many more. Thank you. Thank you.
Rick Muscha: For that, I extend my sincere thanks for everyone's hard work and continued dedication.
Rick Muscha: I also want to thank Esam Elashmawi for providing continuity and stability as interim CEO.
Rick Muscha: Esam 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.
Rick Muscha: and many more. Thank you. Thank you.
Speaker Change: Many of the investors and analysts on today's call have a history with me from Infi, Broadcom, and Aguirre.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: One of the biggest factors and drivers on my previous successes has been focus on product differentiation, which I believe creates customer benefit and market leadership.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: And in my opinion, that combination ultimately builds long-lasting value for all stakeholders.
Speaker Change: For example, I joined the in-flight team in 2012 post-IPO.
Speaker Change: 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.
Speaker Change: The InFi transformation story created over 20 times value appreciation for all shareholders.
Speaker Change: I'm confident that Lattice has similar potentials in many ways.
Speaker Change: Now moving to our Q3 results.
Speaker Change: From a high level, third quarter 2024 revenue was in line with our guidance at $127.1 million.
Speaker Change: On an end market basis, communications and computing was up 12% sequentially, driven by both general purpose and AI servers.
Speaker Change: Industrial and automotive was down 7% sequentially, primarily due to broader market demand and continued inventory normalization.
Speaker Change: For more information visit www.fema.gov
Speaker Change: Gross margin held at 69%, demonstrating the stability of our business model.
Speaker Change: 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.
Speaker Change: In a positive outlook, Lattice's new product revenue continues to grow year over year.
Speaker Change: Design momentum continues to be robust as the total number of wins year-to-date exceeds those in the same period last year.
Speaker Change: We are also encouraged with our stronger backlog and continued improvement in our book to bid, which bode well for our business moving forward.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: As we look ahead to Q4, we expect revenue to be in the range of $112 million to $122 million.
Speaker Change: and many more. Thank you for joining us. I'm Sherri Luther.
Speaker Change: Based on our discussions with customers and partners, we now expect more of a U-shaped recovery than a V-shaped one in 2025.
Speaker Change: With that in mind, we anticipate low single-digit revenue growth in 2025 compared to 2024.
Speaker Change: 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 percent
Speaker Change: and many more. Thank you for watching. I'm James Anderson.
Speaker Change: 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.
Speaker Change: We strongly believe that Lattice is still a sound investment opportunity with clear visibility into the upside.
Speaker Change: Since joining Gladys, I've had very productive meetings with customers, partners, suppliers, and employees.
Speaker Change: and Sherri Luther. Thank you. Thank you.
Speaker Change: These included multiple customer meetings and reviews across all segments, specifically communications, computing, industrial, and automotive.
Speaker Change: I have been pleasantly surprised at Lattice's deep, consultative relationships, where we are the trusted partner for small and mid-range FPGAs.
Speaker Change: For more information visit www.fema.gov
Speaker Change: This is because our team understands customer pain points and can jointly develop win-win partnerships.
Speaker Change: Our industry-leading roadmap includes low power, small size, large number of interfaces, differentiated features, solution stacks, and support.
Speaker Change: All this has generated positive feedback from our global customers and partners.
Speaker Change: And from here, we plan to double down on our small to mid-range FPGA offerings.
Speaker Change: This focus will be a key enabler in Lattice's transformation to the next level in our business.
Speaker Change: 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 dollars revenue mark.
Speaker Change: We have high confidence in this goal given the size of our addressable market and tremendous number of market opportunities in front of us.
Speaker Change: Now, there are three reasons why Lattice remains strategically well positioned for growth.
Speaker Change: First and foremost, Lattice has a history of diligent financial discipline, aligning our investments behind what we believe to be the highest return opportunities.
Speaker Change: These efforts directly extend to our operating expense plan going forward.
Speaker Change: After careful consideration, we implemented a 14% pet count reduction last week.
Speaker Change: This is the first headcount reduction of this magnitude in recent history at Lattice.
Speaker Change: We do not expect any additional reductions will be needed.
Speaker Change: We reduced non-headcount operating expenses by a similar 14% as well.
Speaker Change: 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.
Speaker Change: Importantly, even though we took these actions, we intend on maintaining the integrity of our product roadmap and our customer support and demand creation.
Speaker Change: There is no expected change in what we're delivering to our customers.
Speaker Change: For example, our 7th Nexus device family achieved initial production in Q3, and Avant G and X remain on track for initial production in Q4 of 2024.
Speaker Change: As you recall, we expected more of a U-shaped recovery than a V-shaped one in 2025 with low single-digit revenue growth.
Speaker Change: 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.
Speaker Change: The second reason Lattice remains attractive is our leadership position in our strategic core markets of communications, computing, industrial, and automotive.
Speaker Change: We intend to lean into and leverage Lattice's rich history of innovation and differentiation to drive and sustain that leadership.
Speaker Change: There is considerable value in our low-power and small-size leadership position.
Speaker Change: And this has been reinforced by the many customers and partners across all of our end market segments.
Speaker Change: I heard firsthand about the benefits that our Nexus, small FPGA family, and our Avant midrange FPGA family are offering.
Speaker Change: 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.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: The third reason Lattice remains attractive is our focus on edge AI, a fast-growing market by all measures.
Speaker Change: We have strong traction with AI in servers, laptops, and early traction in industrial and automotive applications.
Speaker Change: In data center service, exampleized applications include control, management, and security in support of generative AI workloads.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: In AI-enabled clients, Lattice FPGAs are being used to run the AI inference algorithms that provide features such as user presence and gaze detection.
Speaker Change: And in Q3, Lattice's devices began powering AI computer vision on the Dell XPS model high-performance AI laptop.
Speaker Change: This is in addition to the ramping design win on select Dell Latitude models like as has previously discussed.
Speaker Change: And lastly,
Speaker Change: Lattice solutions are being used to aggregate and pre-process sensor data and AI processing in the data path for industrial and ADAS systems.
Speaker Change: Lattice has now been designed in five of the top six lighter companies for automotive and many industrial vision panels.
Speaker Change: In summary,
Speaker Change: 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.
Speaker Change: and others. Thank you. Thank you.
Speaker Change: Finally, I'm pleased to share that on December 10 and 11, we'll be hosting a developers conference in San Jose.
Speaker Change: We look forward to showcasing Lattice's broad portfolio.
Speaker Change: This includes our next-gen small FPGA platform, additional Avant portfolio expansion, and enhancement in our software tools and solutions.
Speaker Change: I am personally looking forward to meeting you, our customers, and partners.
Speaker Change: I will now turn the call over to our Interim CFO, Tanya Stevens, who will provide a few details about her background before discussing the financial review of the quarter.
Ford Tamer: Tanya, I look forward to working with you in your expanded role.
Ford Tamer: Please go ahead with your review.
Ford Tamer: and many more. Thank you. Thank you.
Tanya Stevens: Thank you, Ford. While my corporate finance career spans more than 30 years, for the last five and a half years, I've worked very closely with the executive leadership team at Lattice, especially the former CFO.
Ford Tamer: I worked as corporate controller, but also doing many other aspects of the CFO role.
Ford Tamer: I'm confident this will help ensure continued stability and precision in all our processes and financial reporting as we move forward.
Ford Tamer: and many more. Thank you. Thank you.
Ford Tamer: Let me now provide you with a summary of our third quarter 2024 results.
Ford Tamer: From a high level, Q3 results were in line with expectations.
Ford Tamer: Our profitability expanded, our operating cash flows more than doubled sequentially, and we continued to return cash to shareholders through share buybacks.
Ford Tamer: Specifically, third quarter 2024 revenue was $127.1 million, up 2% from the second quarter, down 34% year-over-year, which reflects continued inventory normalization.
Speaker Change: For more information, visit www.fema.gov
Ford Tamer: Communications and Computing grew sequentially 12%.
Ford Tamer: driven by strength in computing, which more than offset softness in industrial and automotive.
Ford Tamer: These two strategic end markets comprise over 90% of total lattice revenue.
Ford Tamer: Our Q3 GAAP and non-GAAP gross margin was 69%, reflecting the continued stability of our gross margin despite the overall market softness.
Speaker Change: https://www.youtube.com or the link in the description below.
Ford Tamer: Q3 non-GAAP operating expenses were flat with the prior quarter at $54 million and down 7% compared to the year ago quarter.
Ford Tamer: and Sherri Luther. For more information, visit www.fema.gov.
Ford Tamer: This is a result of our continued discipline in managing our operating expenses, particularly SG&A.
Speaker Change: As Ford told you earlier, we implemented a workforce reduction of 14% last week, which resulted in a one-time gap charge of $6.5 million for the third quarter 2024.
Speaker Change: This action better aligns our resources to support the current business level.
Ford Tamer: Our Q3 non-GAAP operating margin was 26.6% compared to 25.4% in the prior quarter, driven by stability in our gross margin, coupled with disciplined management of operating expenses.
Ford Tamer: Q3 EBITDA margin was 33.7% up 160 basis points from the second quarter.
Ford Tamer: In Q3, Diluted Shares Outstanding was $137.9 million, resulting in Q3 non-GAAP earnings per diluted share of $0.24 compared to $0.23 in the prior quarter.
Speaker Change: Moving to our cash flow and balance sheet, cash flow from operations in the third quarter was $44 million.
Speaker Change: This was more than double the cash flow from operations in the second quarter.
Speaker Change: Free cash flow margin increased to 31% up from 12% in the prior quarter.
Speaker Change: Our inventory at the end of the third quarter was $104.5 million, which is an increase of $3 million from the prior quarter.
Speaker Change: On a year-over-year basis, inventory was flat.
Speaker Change: For more information, please visit www.FEMA.gov
Ford Tamer: In Q3, we repurchased approximately 370,000 shares, or $17 million of stock.
Speaker Change: making Q3 our 16th consecutive quarter of executing share buybacks.
Ford Tamer: Over that period, we have repurchased approximately 5.6 million shares, thereby reducing dilution by 4.1 percent.
Ford Tamer: Let me now review our outlook for the fourth quarter.
Ford Tamer: Revenue for the fourth quarter of 2024 is expected to be between $112 million and $122 million.
Ford Tamer: Gross margin is expected to be 68% plus or minus 1% on a non-GAAP basis.
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Ford Tamer: Total operating expenses for the fourth quarter are expected to be between $52 million and $54 million on a non-GAAP basis.
Ford Tamer: Our tax rate in the fourth quarter is expected to be in the 5 to 6 percent range.
Ford Tamer: Based on the above inputs, our EPS is expected to be in the range of 15 cents to 23 cents.
Ford Tamer: Operator, that concludes my formal comments. We can now open the call for questions.
Speaker Change: Great, thank you. At this time, we will be conducting a question-and-answer session.
Speaker Change: If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Ford Tamer: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.
Speaker Change: One moment please while we poll for questions.
Speaker Change: Thank you.
Speaker Change: Our first question here is from Tristan Guerra from Robert W. Baird. Please go ahead.
Speaker Change: For more information, visit www.fema.gov
Tristan Guerra: Hi, good afternoon and just a couple of high-level questions. The first one is regarding Nexus which you launched in December 2019.
Tristan Guerra: Obviously, it's been a resounding success since then, and the typical ramp of an FPGA historically has been seven years before Wavenew Peak, and that suggests, unless there's something really different about Nexus, that
Speaker Change: Nexus Revenue could peak sometime late 26.
Speaker Change: So the question is, given that it takes obviously, you know, some time between designing and volume ramp for your product,
Speaker Change: Should we expect a new product line, and I know you have new iterations of Nexus every six months, but I'm thinking of a new node or something that will be very different architecturally.
Speaker Change: that could potentially succeed Nexus at a time when the WAMP starts slowing down.
Speaker Change: Thank you, Tristan. This is Ford.
Ford Tamer: Yeah, we're very excited about the Nexus and Avant ramps. You know, the current revenue growth, the first three quarters of 2024 are well over the first three quarters of 2023 as far as new product, and it's driven primarily by Nexus and secondarily by Avant.
Speaker Change: So, we continue to see that ramp, as you are suggesting. We are actually doubling down on both the small and large and mid-range PGA segments.
Speaker Change: You will hear more of this.
Speaker Change: leadership position at our Developer Conference in December.
Speaker Change: So we're very pleased with the differentiation that our customers are indicating we have and the benefits that small power, small size, differentiation like security and video streaming and Edge AI are providing with both Nexus and Avant.
Speaker Change: Okay thanks, that's very useful and great to hear. And then I wanted to see if you're able to elaborate a little bit on the traction that you're seeing in the AI
Speaker Change: You know, it was previously quantified.
Speaker Change: But, at the same time, we know that traditional data center inventory digestion had a bit of an impact on everybody's top line a year ago.
Speaker Change: Could you elaborate, you know, now that you seem to have a lot of design with traction.
Speaker Change: and elaborate a little bit on the dollar content per APGA, you know, the adoption rate and what makes you believe that this is sustainable and of course as a derivative, how should we be looking at computing and data center revenue going forward given this?
Speaker Change: A very promising traction that you're now getting in AI.
Speaker Change: www.mytrendyphone.co.uk
Speaker Change: Excellent.
Speaker Change: Yeah, so we, in the past, have broken up that number to be about 100 million.
Speaker Change: And we believe we're about slightly in the same range or slightly above that. So as a percent of revenue, you could see our AI revenue is growing.
Speaker Change: We just talked about engagement, new engagement opportunities with server and clients. So on the client side, we announced on my script that then XPS.
Speaker Change: design opportunity that is increasing our footprint above the latitude that was already shipping. On the server side, we started shipment of our Lattice NVIDIA Edge AI boards.
Speaker Change: And we did discuss the phenomenal progress we had at OCP, the Open Compute Conference, where as many OEMs were at one data center server platform, we had in excess of a 50-5-0
Speaker Change: you know, Lattice devices in one of these platforms.
Speaker Change: And then finally, on my prepared remark, we also discussed the fact that we are in the top five LIDAR Tier 1s.
Speaker Change: and they were into many industrial display panels. So we are excited about the continuing progress we're making on the client.
Speaker Change: on the servers, on the automotive, and on industrial with Edge AI. And please stay tuned for more. We encourage you to come see the many demos that we're going to have and the many partners we'll have at the developer conference in December. Very exciting development for us.
Speaker Change: Great, thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question is from Melissa Weathers from Deutsche Bank. Please go ahead.
Melissa Weathers: Hi guys, thank you for letting me ask a question. Ford, welcome to the call. I'm excited to work with you going forward.
Melissa Weathers: I guess I wanted to double click on your U-shaped recovery that you're talking about.
Melissa Weathers: Should we be thinking about the December quarter as kind of the bottom of this cycle?
Speaker Change: Do you believe that you're shipping to true end demand now, or is there still some inventory in the channel so that maybe that burn should end at some point and you would see a snapback? Any more color on your U-shape recovery would be helpful.
Speaker Change: Yeah, thank you Melissa. Yes, we do believe that what we're seeing is consistent with a broader market that's also indicating a U-shaped versus a V-shaped recovery.
Speaker Change: Overall we continue to see softness in our largest end market which is industrial and automotive and in that market we're four quarters in what's typically an eight-quarter recovery.
Speaker Change: So, you could see that that would point to a flattish Q4 through sort of mid-year 2025 for this inventory to sort of clear itself up.
Speaker Change: And on purpose, what we've done, we've worked with our channel partner to glide down that inventory position in the channel to where it goes back to normal inventory by sort of Q2, Q3 of 2025.
Speaker Change: And we're being applauded by this channel partner for being good partners and helping them do that And sort of getting inventory levels in the channel to normal level, which is about two to three months, okay, so
Speaker Change: When we look at our long-term fundamentals, the demand recovers around the second half and then starts driving back to our regular run rates of 15-20% revenue growth in 2026.
Speaker Change: And then if you combine all this with the, you know, sort of operating expense action we've taken, we do believe that the financial discipline that Leidos has shown in the past will shine again and show double-digit earning growth expansion in 2025 and definitely beyond that in 2026.
Speaker Change: Hopefully that answers the question. I'm happy to give you a lot of data. We've obviously spent a lot of time on this topic and and we could we could spend a lot of time on this if needed.
Speaker Change: Yeah, thank you so much. Maybe a little bit more color on that. Is there anything you're seeing from a pricing perspective or from a competitive perspective that could be weighing on your Alloc into 2025, or do you think this is mostly market-wide dynamics?
Speaker Change: Yeah, we believe it's mostly market-wide. We have been very disciplined, and we believe more disciplined than our peers in price and supply assurance.
Speaker Change: We've talked about our pricing optimization strategy and pricing ability in the past.
Speaker Change: We, during this difficult supply situation, we strike the right balance to ensure that our broad-based 10,000 customers had mineral disruption for their supply chain and were able to continue to operate without disruption amid their obligations.
Speaker Change: And this was very important to us to be customer friendly as opposed to just focusing on a few large customers aligned with certain segments. So we did a really good job, we believe.
Speaker Change: in a supply-constrained world to really be a very strong, trusted partner for our customers and ensure that they didn't see any disruption.
Speaker Change: And so we, at this point, you can see from our gross margin that our, the stability, our gross margin, despite a product mix that's gone more.
Speaker Change: towards a compute income, which is typically harder than industrial automotive. And despite a lower revenue trend, we've been able to maintain our gross margin, which shows the durability and strengths of our financial model.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Thank you, Ford.
Speaker Change: Our next question is from Christopher Rolland from Susquehanna International Group. Please go ahead.
Christopher Rolland: Hi guys, thanks for the question. So, Ford, welcome aboard, I guess, for the second time, but I just wanted to kind of bigger picture ask you, just given your heritage and kind of AI,
Speaker Change: and networking, did you have some early thoughts on how FPGAs, either low-end or mid-tier, could have a role there? I don't know if it could ever make it into a transceiver, if it could ever be paired with, I don't know, a DSP or something like that. I don't see a logical fit, but just anywhere in these interconnects, or maybe some AI applications that we haven't thought about, and or even, you know, IoT at the edge, AI IoT at the edge, I don't know, but just given your heritage.
Speaker Change: you know, maybe you can talk to these opportunities and are these some of the brightest you see for Lattice?
Speaker Change: Thank you Chris, I appreciate the question. So maybe I'll divide the answer into two parts. Since joining, I've been talking about Seth, and you've got a bit of background, if you don't mind muting Chris, or I don't know if that's you, but can you mute us?
Speaker Change: Okay, thank you so much.
Speaker Change: So, I'll answer the question in two parts. Number one, since I joined, I've been talking about SELF, S-E-L-F, which says we control our own destiny. And what that is, is stabilize, execute, lead, and focus. So stabilize, we've got good team, good product, good strategy.
Speaker Change: execute on the roadmap that we currently have and lead with low power, small size differentiation like security video and AI.
Speaker Change: and number four, F, for focus. And here we're focused on really nexus and advancements. So that's what we're doing.
Speaker Change: Coming to AI now, we're actually above all the trends you've discussed. So, for example, you know, when you talk about a transceiver, the device that sits between that switch...
Speaker Change: and many optical modules to light the LED and provide things like telemetry and all kinds of measurement functions as sort of this bridge between, if you wish, the switch and these optical transceivers. We're sitting in there providing this bridging and sort of...
Speaker Change: LED and control type of function.
Speaker Change: If you look at the server, we've got many applications on servers. And we're designing the top ten servers in the world today.
Speaker Change: Many applications on server.
Speaker Change: Same with IOT, same with clients, same with...
Speaker Change: All the applications you mentioned were designed in doing things like preprocessing, HMI,
Speaker Change: User and object detection, gesture and gaze, defect detection, security.
Speaker Change: You know, 3D audio is head tracking. So many applications of AI, we're not always in a data path. Sometimes we are, and most of the time, we're probably going 20, 80, 20% in the data path and 80% more of a sort of supporting function, not the main chip.
Speaker Change: But you're going to see as in all of the applications, and given our current focus on AI, you're going to see as in more applications. So I do expect our percent of revenue coming from AI to grow over time, Chris.
Speaker Change: And you are mute if you have another question.
Speaker Change: Yes, thank you for that, Ford. I appreciate it. And maybe for a follow-up...
Speaker Change: You know, some of your FPGA competitors have married their kind of FPGA fields with a hardened arm core. I think there's also the potential for even a micro controller.
Speaker Change: I think the last management team didn't seem particularly interested in this. I was wondering if maybe you would revisit this and whether you think this is interesting at all. Thank you.
Speaker Change: Yeah, thank you, Chris. You should come to our DevelOp conference, which I think you'll be attending, and see the many partners we have on the microcontroller side. And, you know, so whether it's a long list, you know,
Speaker Change: whether it's NXP, or ST, or Renaissance, or many of the other ones, you know, we're going to have many microprocessor partners that are
Speaker Change: designed in with us. So instead of having our own...
Speaker Change: We partner with them.
Speaker Change: And again, instead of having our own...
Speaker Change: AI Accelerator, we partner with companies like NVIDIA and others, including Habana and AMD to provide companion chips on all of these. So we believe that not having our own is actually an advantage.
Speaker Change: because we end up being the, um, uh...
Speaker Change: the friendly partner. And furthermore, we have developed and delivered to our partners SoC development tools. It's called Propel, P-R-O-P-E-L. That is our development tool that actually enables some of this design.
Speaker Change: designs to go to market.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: Thank you.
Speaker Change: Our next question is from Quinn Bolton from Needham & Company. Please go ahead.
Quinn Bolton: Hey Ford, welcome to Lattice. I guess a couple of questions. Ford, it sounds like you're describing, you know, a lot of the headwinds that the company's facing is being more industry-wide, but I guess I look at your competitors Xilinx Altera. Both of those companies saw revenue drop in the March quarter and they saw sequential growth throughout the rest of 2024.
Speaker Change: Lattice is seeing sort of the opposite pattern where it looks like Q1 may be the highest revenue in the quarter and Q4 is the lowest and so
Speaker Change: you're showing a different trend than the two largest competitors. And so I'm wondering if you had any thoughts why you may be saying something different than your big competitors. And then I've got a follow-up question as well.
Speaker Change: Yeah, look, it's a good question. We've got very detailed data. I've got a graph right in front of me here that tracks this back to Q1 of 2023.
Speaker Change: And if you track this back to Q1 of 2023, our performance is twice as good.
Speaker Change: as the worst one of these two and 50% better than the other guys. So we're doing, based on sort of tracking a longer-term view from where the peak was.
Speaker Change: So if you take a 2023 view, you'll see us do much better. Of course, you can always, you know, take data and come up with any trend you want. So sure, if you map this over the past six months, you may see something different.
Speaker Change: But we believe the really fair way to do this is to track this over a longer term period and you see us...
Speaker Change: do better than competitors by a long shot. We're not even close as far as our performance.
Speaker Change: and Quim have been taking shares. So if you look at our view of their share, you know, against these two companies, we believe that we have continued to expand our share. We're introducing new products.
Speaker Change: new products.
Speaker Change: And especially if you track this and the small to mid-range FPGA without SOC because, you know, we're not into that market. We don't have SOC. So if you look in the Apple-to-Apple SAM, which is small and mid-range, no SOC, we'll show you we're taking shares.
Speaker Change: Got it. Okay. Thanks for that part, and I just wanted to maybe follow up on Melissa's question just about sort of where do you think Consumption is if I take your guidance for fiscal 25 looks like Revenue up low single digits year on year probably puts it about five hundred and twenty five million
Speaker Change: for the year, something like 130 or so million a quarter. Is that the right level to be thinking about what end consumption or POS data supports or are you looking at POS, even though revenues
Speaker Change: Below that level is POS sort of higher than than that 130 or so million a quarter level
Speaker Change: Yeah, I think those numbers, you know, for revenue are right. I'm going to let Tanya...
Tanya Stevens: Should I come in here, Tanya, do you want to take this question? Sir, and that's a great question, and you're exactly right. When we look forward to 2025, as you heard in Ford's prepared remarks,
Tanya Stevens: We believe that DISTI Inventory currently is at the high end of the pre-pandemic levels, and we believe through 2025 that will get more to the mid-range of our target range.
Tanya Stevens: So, as a result of that, we do believe our revenue will be lower than the actual end consumption, depending on, of course, the specific market.
Speaker Change: So POS should be sort of at 130 or higher next year it sounds like, since you're going to be consuming inventory at least, yeah certainly it looks like through the first half of the year.
Speaker Change: Yes, that's correct. That's correct, sir.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Srinivajiri from Raymond James. Please go ahead.
Srinivajiri: Thank you. A couple of questions. For the very near term, as we look out to the next quarter and also into the first half of next year, I look at your two different segments, one obviously going through a cyclical correction in auto and industrial.
Speaker Change: you know, fairly well-known, but the other one...
Speaker Change: You know, you're basically doing quite well when it comes to servers because of the content increases. Those are, I believe, secular.
Speaker Change: and also you talked about AI design wins. So I'm a little surprised as to, you know, why we're seeing the weakness in the short term. Is it primarily still auto-industrial correcting or are you seeing some correction in the, you know, comms and compute as well?
Speaker Change: Let me share with you numbers that are public that you know. So if you were to go back, let's say to
Speaker Change: Q1 of 2023, at that time, in Q1 of 2023, industrial auto was 59% of revenue and comms computes was 36% of revenue.
Speaker Change: And so if you fast forward now to this quarter we just announced in Q3, industrial auto is 43% and comms and compute is 48%.
Speaker Change: So you can see it's a pretty big shift from one to the other.
Speaker Change: And so despite this product mix and despite lower revenue, we have been able to maintain a solid gross margin and solid financial.
Speaker Change: Operating metrics on the EPS, EBITDA, free cash flow, which jumped nicely quarter-on-quarter. And furthermore, going forward into 2025 and 2026, we should be back up and to the right and back in good shape.
Speaker Change: you've had a pretty big change here from in these end segments that they will been able to weather because of the growth in the compute incomes.
Speaker Change: And again, if you look at compute and comms, obviously comms has not been very strong because of 5G being delayed, so you could even read further into that, that compute is actually quite strong.
Speaker Change: Okay, and you expect that to continue in the next few quarters?
Speaker Change: Ford, are you seeing anything there as well?
Ford Tamer: No, we do expect that to continue and as Tanya just answered that we do expect the POS now being higher than revenue and so we continue to glide down that inventory to mid-year.
Ford Tamer: 2025. And then after that, we're back up to the right. It's just we're, you know, a couple of quarters away from this. And in the meantime, we have the financial discipline to, you know, continue to.
Ford Tamer: drive good earnings expansion.
Speaker Change: Fair enough. And then a quick follow-up on the workforce reduction, you know, the guidance for next quarter, 52 to 54 million, does that fully reflect the 14% workforce reduction?
Ford Tamer: And then, Ford, I think at the Analyst Day, you know, you're still maintaining that 15% to 20% that was communicated at the Analyst Day.
Ford Tamer: And at that time, I think the management communicated about 30% OPEX. Is that still valid, or given the cost cuts, should we expect something below the 30% longer term? Thank you.
Ford Tamer: and Sherri Luther. Thank you.
Ford Tamer: Yes, and I'll take that. This is Tanya. Your first question on our OPEX guidance, of course the workforce reduction, it isn't done at the beginning of the quarter and takes time to fully implement, but our operating expense guidance does contemplate our assumptions around that workforce reduction.
Ford Tamer: And we do expect that to continue to benefit our 2025 results as well.
Ford Tamer: So, if you're thinking about our 2025 model, Ford mentioned in his prepared remarks that we expect low single-digit revenue growth in 2025 compared to 2024, improving as the year goes on, and we come out of the inventory digestion cycle about mid-2025.
Ford Tamer: We expect margin to be primarily flat year over year, but we expect sort of high single-digit OPEX reduction compared to 24, mid to high, compared to 24 as a result of both the head count and non-head count OPEX reductions.
Ford Tamer: and it's a 14% reduction in our head count and our higher OPEX run rate.
Ford Tamer: We also, you saw, guided our non-GAAP tax rate. It's expected to be in the mid to high single digits then as we carry forward into 2025, and all of those factors provides a low double-digit EPS earnings expansion outpacing revenue growth. So that's kind of how we're thinking about it.
Speaker Change: Got it. Thank you.
Speaker Change: As a reminder, if you'd like to ask a question, it is star 1.
Speaker Change: And our next question here is from Reuben Roy from Stiefel. Please go ahead.
Reuben Roy: Thank you. Hi Ford.
Reuben Roy: Thank you. Thank you.
Reuben Roy: I wanted to ask for just on new products and it's great to hear that the new product growth has continued.
Ford Tamer: But when I think about 2025, obviously, you know, we've got, you know, these industry headwinds, which are which are well, well known, I guess, at this point, but we're also expecting higher IST Avant to kind of roll into the model. I guess the question is,
Ford Tamer: you know, the incremental from Avant. Has anything changed given what's going on with the end market, you know, in the way you're thinking about the Avant rollout for next year? Is it?
Ford Tamer: Maybe delayed a little bit from you know sort of earlier expectations or no changes there And it's really just the core products And you know the core markets that are creating these you know sort of headwinds that are driving the u-shaped recovery expectation
Ford Tamer: and many more. Thank you. Thank you.
Speaker Change: Thank you Reuben, nice to reconnect. Yeah, no change on Avant, we're pleased with the traction of Avant. We continue to drive increased design when with revenue from new product expect to be in the double digits for 24.
Ford Tamer: and continue to grow from there, led by Avant. So the opportunity for Avant is bigger, as shown from the funnel, the opportunity that we're seeing for Avant is quite bigger than the same time ramp in Nexus.
Ford Tamer: So we're seeing early revenue of Avant E, which is what we have introduced some time ago, Avant G and X.
Ford Tamer: on track for prioritization in Q4 and early revenue.
Ford Tamer: And then we expect Avant Revenue in the second half, the second year of the platform launch, will exceed what we sell for Nexus in that second year. And so we're excited about Avant and we'll tell you more about them at the developer conference.
Speaker Change: Okay, thanks for that Ford. And then if I could just ask a quick follow-up on the comment you made as in reference to the communications part of communications and computing.
Speaker Change: You know, we've seen, you know, sort of the progress and the success in the compute part, as you mentioned.
Speaker Change: On the communications part, you know, we are starting to hear, you know, some data points that would suggest that, you know, there's a bottoming.
Ford Tamer: on-com infrastructure and maybe even a little bit of improvement here exiting the year. Is that kind of the way you're thinking about that business or is, you know, the com part still, you know, a potential area of headwind, you know, as we look ahead to 2025? Thank you.
Speaker Change: So, we do expect COMS to normalize and
Ford Tamer: second half of 25 be on track to grow along with the rest of the portfolio.
Ford Tamer: and others. Thank you. Thank you.
Ford Tamer: Okay, thank you Ford.
Ford Tamer: and many more. Thank you. Thank you.
Ford Tamer: Thank you, everyone.
Speaker Change: Our next question is from Joshua Buckwalter from TD Cowan. Please go ahead.
Joshua Buckwalter: Hey guys, congrats on the first earnings call at Lattice, and thank you for taking my question. I wanted to ask about some of the assumptions and follow up on some of the earlier comments that are going into the low single digit percent growth next year. I know you've given us a time frame of when you expect digestion to cease, but any way you can quantify the magnitude, and I guess the real reason to ask is, you know,
Speaker Change: The prior management team had put out the 15 to 20% long-term growth target. Is that still the right number you're thinking about or is that under evaluation right now? Thank you.
Ford Tamer: and many more. Thank you.
Ford Tamer: and Sherri Luther. Thank you. Thank you.
Speaker Change: Yeah, thank you, Josh.
Speaker Change: The prior target of 15-20% revenue growth is still the correct target, so we're not changing that. We're saying, in my prepared remark, we did...
Speaker Change: comment that we expect that we expect to come back to that
Speaker Change: guys of 15 to 20% in 2026.
Speaker Change: We also said this U-shape recovery would probably,
Speaker Change: in Q4, Q1, Q2 of next year. And then as this inventory situation normalizes to start seeing growth in the second half of next year leading to this stronger growth into 2026.
Speaker Change: Thank you. And then for my follow up.
Speaker Change: I think the prior management team had mentioned that
Speaker Change: inventory in the channel was a little at the high end but still within a range that it was comfortable with but there
Ford Tamer: more concerned about.
Ford Tamer: and Customer Inventory Levels.
Ford Tamer: Is that how you're seeing it, too? It sounds like a little bit of a change in that you're trying to get the channel level down as well. And I'd just be curious to hear how you feel about visibility and to end customer inventory in particular for pre-Nexus products as Nexus and Avant ramp and become more of a mix and you go through the digestion. Thank you.
Speaker Change: Yeah, thank you. I've been...
Ford Tamer: Josh has been pretty impressed with the amount of data the team has here on
Speaker Change: on POS, on what's at the channel, what's at Lattice, what's at customers. So a lot of data and we've been tracking this. Our book to bill has steadily improved over the past four quarters from very low level to close to one.
Ford Tamer: And so we're seeing that normalization happen. It's taking a bit longer in industrial automotive than maybe prior expectations, but I think it's in line with the broader market trends in our peers.
Ford Tamer: And so again, we expect this channel, eventually, to be back to the midpoint in 2025. And Tania, I think you have a bit more data.
Speaker Change: Yeah, I think it's consistent with what you said. I think we've always said that a DISTI inventory can fluctuate on a quarterly basis. We have pretty good visibility into the DISTI inventory, as Ford said, tracking, you know, end consumption out of the DISTI. It is the inventory all the way at the end customer because, like Ford said, we have over 10,000 end customers that it's a little harder to see, but we think we now have a better handle on it. We're, like Ford said, looking to get to that DISTI inventory more to the midpoint of our target range through mid-2025.
Speaker Change: That's helpful, Collar. Thank you, I appreciate it.
Ford Tamer: and many more. For more information, visit www.fema.gov.
Ford Tamer: Thank you, Jeff.
Ford Tamer: and many more. Thank you for watching. I'm James Anderson.
Speaker Change: Our next question is from Daxong Chang from Bank of America. Please go ahead.
Daxong Chang: Hi, thank you for taking my question. You mentioned that Q1 and Q2, you expect revenue to be flattish. Is that a company overall number or is that industrial specific? Because I've heard from your peers and also other industrially exposed semis that Q1 tends to be pretty seasonal. So any comment would be helpful. Thank you.
Ford Tamer: and Sherri Luther. Thank you. Thank you.
Speaker Change: Yes, thank you, Doxan. We're saying that the revenue will be flattish from Q4 of 24
Ford Tamer: through Q1-Q2 of 25. We are obviously not guiding, just these are expectations, we're not guiding to
Ford Tamer: to those quarters, but that's the expectation.
Ford Tamer: and many more. Thank you. Thank you.
Ford Tamer: I see.
Speaker Change: And then, one on servers, the previous management team has been pretty big in talking about the content expansion, gen over gen, in the servers. Are you still seeing that sort of coming through in the current generation of CPUs, and should we still expect this trend to continue into the next one as well?
Speaker Change: Thank you for watching!
Speaker Change: Yes, thanks, Doxan. Yes, we were seeing it, as I said, at the Open Compute show where we had many OEMs and ODM designs on the show floor.
Speaker Change: NIDAS was on display on many of these boards.
Speaker Change: was, you know, over 50, 5-0, led us to PGA, was in E-Track.
Speaker Change: and expect these partners to have very significant demand for server racks in 2025. So, not only have we increased the content per server, we've also increased the design.
Speaker Change: footprint where we now design into the top 10 server makers for for this market so so very excited about about both trends.
Speaker Change: that should increase our revenue in 2025.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: That was great. Thank you, Ford.
Speaker Change: We have time for one additional question. The question here is from David Williams from Benchmark Company. Please go ahead.
David Williams: Hey, good afternoon. Thanks for letting me ask the question here and for letting me also send my my congrats and welcome
David Williams: One I wanted to ask, just quickly, on the pipeline of design winds you have, it seems quite strong and just kind of wondering if you think we'll see a potential inflection as the markets improve and just kind of how some customers are likely delaying their product launches. Are you seeing that? Are you hearing it? Just maybe any caution around their product launches and how that can inflect.
David Williams: and Sherri Luther. Thank you. Thank you.
Speaker Change: Yeah, thank you, David. I'm very excited about the footprint of these design wins because they range, you know, anywhere from the top 10 server and storage, the top 10 leading coms, the top 10 factory automation, the top tier auto OEMs, the top PC OEMs. Across many of the application, we talked about Edge AI, imaging and vision, robotics, motion control, various automotive, both in car and ADAS type application, test and measurement, video broadcast.
Ford Tamer: system control, power interfacing, security, sensor integration and fusion.
Ford Tamer: and then many in specialized harsh environments, including...
Ford Tamer: avionics and defense type applications. So the applications are varied.
Ford Tamer: We continue to be very pleasantly surprised about the wide range.
Ford Tamer: of applications that our customers are using Nexus Avant for and we're very confident that we continue to have some great differentiation from a low power and low size, small size and
Ford Tamer: cost-effective solutions and, you know, security, video streaming. So, very excited about what the future brings across.
Ford Tamer: thousands of applications across 10,000 customer base. So stay tuned and please look forward to seeing you in person at Developer Conference December 10-11 in San Jose.
Ford Tamer: Thank you.
Speaker Change: Thanks so much for that. And then just one last one, if I may, here. It seemed like the prior leadership was, they ran a fairly lean organization, and I'm surprised to hear the 14% op-eds or the headcount reduction there. Could you give maybe some color just around where you are able to define those cuts and what that means you think in terms of further development down the road? Does it impact you at all?
Speaker Change: Thank you. Bye. Bye.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Yes, thank you David. So we took action, we're done, it's behind us and now we're back to execution and we had to do it to maintain the financial discipline of our of our model and you'll see the benefits.
Speaker Change: very strong EPS and EBITDA next year. We, you did hear us in Q3 of 24, we talked about an EBITDA of
Speaker Change: 33.7% and so if you grow this at, you know, low double digit into next year you could see we end up with very strong EBITDA next year.
Speaker Change: And so that's the financial discipline and benefit of doing this. But we're done. There's no impact on the product roadmap.
Speaker Change: because we moved a lot of these resources from sort of a high...
Speaker Change: cost geography to lower cost geography.
Ford Tamer: I just came back from Penang, Manila, and I'll be on my way to...
Ford Tamer: Shanghai, Montreal, and Austin, and after this to Taiwan and Pune, India. And so we've done a good job sort of balancing the headcount between these geographies. And right now we feel like we've got the right level of investment to support our growth and the numbers we discussed with you on this call.
Ford Tamer: and others. Thank you. Thank you.
Ford Tamer: and many more. Thank you. Thank you.
Speaker Change: Thank you. I'd like to turn the floor back to Lettice Honeyconductor's CEO, Mr. Ford Tamer.
Ford Tamer: Thank you, operator, and thank you everyone for joining us on today's call. As you heard earlier, I am excited about the opportunity to build on Lattice's strong foundation, broad customer base, highly differentiated products, and strong partner ecosystem.
Ford Tamer: We intend to leverage that foundation as our three-part strategy of continuing our diligent financial discipline to achieve the highest ROI, maintaining market leadership, and implementing our laser focus on AI applications.
Ford Tamer: Thank you for being on today's call and for your continued support.
Ford Tamer: I look forward to sharing the company's progress with you in the coming quarters. Operator, that concludes today's call.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: Thank you for watching my willy canino Please like and subscribe and please leave a comment thanks for watching