Q2 2019 Earnings Call

Hi, My name is I P 50, and I will be your conference operator today.

They tend to like to welcome everyone to the second quarter 2000, and <unk> results Conference call.

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I took the speakers remarks, there will be a question and answer session. If you like to ask a question. During this time simply put star then the number one is helping keep hot.

Well like to withdraw your question. Please press the pound Ki bin Kim I would now like to turn the coloratura Hes, David Pasquale Global IR partners, Sir you may begin.

Thank you operator, welcome everyone to lattice semiconductor second quarter 2019 results conference call.

Joining us today from the company are Mr., Jimmy Anderson, lattices, President and CEO and Mr. Sherry Luther let us as CFO , both executives will be available for <unk>. After the prepared comments. If you have not yet received a copy of today's results release. Please email global IR partners using L.S.C.C. equitable IR partners Dot Com, where you can get a copy of the press release.

What are the Investor relations section of lattice semiconductors website.

Before we begin the formal remarks or be the safe Harbor statement.

It's our intention that this call will comply with the requirements of FCC regulation FD.

This call includes and constitutes the company's official guidance for the third quarter of 2019.

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.

The matters that we discuss today other than historical information include forward looking statements relating to our future financial performance and other performance expectations.

Investors are cautioned that forward looking statements are neither promises or guarantees they involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward looking statements.

Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended December 29, 2018, and our quarterly reports on Form 10-Q .

The company disclaims any obligation to publicly update or revise any such forward looking statements to reflect events or circumstances that occur after this call.

Our prepared remarks will also be presented within the requirements of FCC regulation G regarding generally accepted accounting principles or gap.

Some financial information presented by US during this call will be provided on both a GAAP and on 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.

non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

At this time I'd like to now turn the call over to lattice Semiconductor's, President and CEO Mr. Jim Anderson. Please go ahead Sir.

Thank you David and thank you everyone for joining us on our call today I'm pleased with the strong results. We had in Q2 of 2019, we achieved the companys highest profitability level in over a decade with a company record high in operating income percentage and significant improvement across key metrics.

While we are encouraged with the progress to date, we have more work to do as we continue to drive to the financial targets, we outlined at our Investor Day. This past may.

Highlights from the second quarter included sequential revenue growth of 4% driven primarily by our communications computing and industrial markets.

Gross margin increase of 40 basis points sequentially to 59% on a non-GAAP basis.

Operating profit was the companys highest in over a decade and 24% of revenue and we achieved non-GAAP EPS expansion of 43% on a sequential basis.

Let me now provide an overview of our business by end market.

In the communications and computing market revenue was up 12% sequentially in Q2.

In computing, we continue to benefit from growth in our products that are used in both server and cloud computing platforms. We have a strong footprint across a number of different OEM server platforms and as our customers continue to ramp the current generation of servers, we benefit from a higher attach rate and DSP versus the prior generation.

As with servers lattice devices are also a great solution for client computing platforms. As we can provide support for functions such as video bridging, Iowa aggregation and security in a variety of different form factors.

In the communications market, we're benefiting from early Fiveg infrastructure deployments, we expect fiveg to become a more material contributor to our revenue in the second half of 2018 and into 2020 as a fiveg wireless infrastructure build out progresses.

Turning now to the industrial and automotive market revenue was up sequentially in Q2 by about 7%. We continue to benefit from design wins Bramson industrial and automotive applications. We believe this segment will continue to remain a long term growth factor for us as factory automation continues and more electronic content designed into automobiles.

Turning now to the consumer market revenue was down sequentially in Q2 by roughly 2%. This reflects continued softness related to macroeconomic conditions, particularly in Asia and the expected ongoing mix shift of our business.

I'll now transition from talking about our end markets to providing a couple of recent product highlights.

We had two major product launches at our Investor day in May our mock ekso threed product and our sense to that all the software.

Our markets. So threed product is the first controlled PLD that has security features which allow it to be used as a platform root of trust.

It's typically the first device turned on and assist them in the last device to be turned off providing secure protection through the entire operation of the system.

We've achieved several important design wins with this product for next generation platforms.

We're also excited about our new since EEI, two data or software stack for artificial intelligence inferencing at the edge of the network.

Since I just one its fifth major industry award and the broad recognition. This solution has received reflects the high level of interest we're seeing from our customers as well.

Before turning the call over to Sherri I want to comment briefly on Wally.

In mid May we stop shipments to walk away when the government order was given.

However, we resumed shipments to while away in late Q2 of those products that we determined to be incompliance with export restrictions.

In summary, we're pleased with our continued progress and improved results in Q2.

We're well positioned moving forward with multiple growth factors in Servier and client computing fiveg infrastructure build out industrial automation and automotive electronics, we remain focused on execution and driving further improvement as we unlock the full potential of lattice.

I'll now turn the call over to our CFO Sheri looser.

Thank you Jim.

Let me now provide a summary of our results.

We are pleased with the results for our second quarter.

With revenue of 102.3 million.

Up 4.2% sequentially from the first quarter.

Product revenue growth and communications and computing as well as in industrial and automotive offset a sequential decline in consumer and IP revenue.

This is in line with the growth vectors, we outlined at our Investor day.

We expect the mix will continue to shift to higher margin markets as we successfully execute on our strategy.

Gross margin on a GAAP basis was 58.7% compared to 58.8% in the first quarter.

Our non-GAAP gross margin expanded to 59% from 58.6% in the prior quarter due primarily to benefits of the strategic pricing optimization and product cost reduction strategies that we initiated in Q4.

This improvement is on top of the 180 basis point improvement we achieved in Q1 and further demonstrates the margin expansion strategies, we discussed at our Investor day.

As Jim noted earlier, we are encouraged by our progress, but still have a lot of work to do.

We remain committed to expanding gross margin over the long term.

On a non-GAAP basis operating expenses were $35.5 million compared to 38 million in the first quarter.

As a percentage of revenue Opex declined to 34.7% in Q2 from 38.7% in Q1 on a non-GAAP basis.

As DNA was the largest contributor of the sequential reduction as we continue to execute on our target model of reducing SGN, 8% to 15% overtime.

There was also a sequential decline in R&D. However, we expect R&D will increase sequentially in Q3.

As we noted at our Investor day, our target model for R&D is 20%.

Q2, GAAP operating expenses were $45.7 million compared to 45.2 million for the first quarter.

Our GAAP net income for the second quarter was $8.6 million or six cents per basic and diluted share compared to a net income of $7.4 million or six cents per basic and five cents per diluted share in the first quarter.

On a non-GAAP basis second quarter net income was $21.1 million or 16 cents per basic and 15 cents per diluted share as compared to $14.6 million or 11 cents per basic and diluted share in the first quarter.

This represents a 42.6% expansion in sequential non-GAAP EPS on a diluted basis.

We also made significant improvements to cash generation in Q2.

We generated 44.7 million of cash flow from operations during the second quarter as we continue to improve overall working capital by reducing accounts receivable and inventory.

We announced at our Investor day that we refinanced our debt, which reduced our interest rate by 250 basis points and extended the maturity by three years to 2024.

We also laid out our plan to actively de lever the balance sheet.

During Q2, we made $40 million and discretionary debt payments.

As a result, our non-GAAP debt leverage ratio as defined in the credit agreement is now below two.

This is down from 4.2 a year ago.

In addition, the Q2 debt payment allowed a further step down in the interest rate by 25 basis points for a total reduction of 275 basis points.

We expect to continue to delever through discretionary payments moving forward.

Finally, we ended Q2 with a cash balance of $122.6 million compared to 130.4 million at the end of Q1.

This is after the $40 million discretionary debt payment that we made during the quarter.

This underscores the strength of our business and our focus on improving cash flow generation.

Let me now review our outlook for the third quarter.

Revenue for the third quarter of 2019 is expected to be between 101 million and 105 million.

Gross margin is expected to be 59% plus or minus 1% on a non-GAAP basis.

Total operating expenses for the third quarter are expected to be between $35.5 million and $36.5 million on a non-GAAP basis.

As we look forward our priorities and focus are unchanged, we remain committed to increasing our profitability delevering, our balance sheet and building additional value for lattus and our shareholders.

Operator, we can now open the call for questions.

And at this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.

And again Thats star followed by the number one to ask a question.

We will pause for just a moment to capacity in a roster.

And our first question comes from the line of Matt Ramsey at Cowen.

Thank you very much good afternoon, Jim Carey congratulations on.

Really strong results and what I imagine with a bit of a turbulent period with wawa.

Jim I wanted to ask.

You had mentioned that you guys had suspended shipment to walk away and then resume date at the end of the quarter.

There has been various companies that have said they've resumed full shipment theres. Some that have said Dave excluded it from Q3.

One of your SPG, a competitor xilinx had their shipping partial product going forward, maybe you could add a little bit of context I know it was supposed to be mid single digits for the year and I'm just trying to understand how much is in or out and we can gauge the relative magnitude of the strength of the rest of the business. Thanks.

Sure. Thanks, Matt Let me start with Q2, and then I'll give a little color on Q3 as well.

So for Q2 first just to reiterate so clearly we stopped shipments in mid May when we got the government order and then.

We worked with our internal legal team and external legal counsel to do a pretty detailed analysis.

Examine which products. We believed were compliant with export restrictions and so near the end of Q2, we started shipping those products that we determined we are complying with export restrictions and so.

And then that we restarted shipments roughly in the last couple of weeks of Q2, but if I look at kind of where we ended up with while we revenue in Q2 versus what we had kind of originally assumed as part of our original Q2 guidance. It was roughly the same so we kind of ended up where we had expected with respect to Wally revenue and then moving forward.

Going into Q3, I'd say, our Q3 guidance reflects the current demand outlook that we have from Wally.

Again for those products said weve already deemed compliant with the export restrictions. So that's factored into our into our Q3 guidance. So hopefully that's helpful. Matt.

No. Thank you very much for that Jim I guess as a follow up.

A little bit unrelated, but I think it's pretty clear to see some of the strength that you guys are having.

In the in the server data center portfolio.

I Wonder if you might give a little more color into the momentum you're seeing in that business I know that.

And these now ramping from server product Theres, obviously datacenter product going on from a number of vendors, Besides Intel and a little bit of movement lately on the 10 nanometer roadmap at Intel. So if you could lay out for us how you're thinking about the content expansion there if anything's changed since the analyst day, because it seems like the revenues stronger there then than maybe we anticipated. This soon thank you.

Yes, Thanks, Matt.

Yes, so thats in our comps are communications and compute segment and so we did see nice sequential growth from Q1 to Q2 of about 12% and this isn't a segment that's been a pretty strong performer for us over the recent quarters and.

A few different things going on within that segment first of all we're seeing just.

Really nice growth in our products that are used in both server and client computing platforms and.

The example that we gave at our Investor day in mid May was around server.

Servers going into data center and one of the nice things that we're seeing right now is in the current generation of servers that are ramping up this year.

We're seeing a very good expansion in both our attach rate and our ASP is relative to the prior generation so about a.

About a tripling of our attach rate and a doubling of our ASP is from prior generation of current generation and so that's driving some nice growth for us.

This year, we're also pleased with.

Our growth and progress in client computing platforms, and then maybe the other thing to mention is we did get a nice contribution in the communication segment for revenue from Fiveg infrastructure Fiveg infrastructure, we started seeing initial flow of revenue.

Late late last year Q4 of last year.

And then that incrementally grew Q4 to Q1, we saw another nice contribution in Q2 and so that's that's also been a contributor and.

Looking forward on Fiveg, we're still expecting to see that become a more material contributor in the back half of this year and into 2020. So in general for comes and compete it's been a good performer, we see it as a long term growth vector for the company as well.

Thanks, very much I'll get back in thank you appreciate it.

Thanks, Matt.

And your next question comes from line of question there from Baird.

And then is for gross margin.

The gross margin also benefited from mix and I can think of wild way.

And does the ones that I see that you expect in the second that have any impact on the ongoing margin.

Bob is the pricing up can you nation benefits continuing in the second half or is it gross margin going to be more exposed to make sense.

After Q3.

Yes, Thanks, Tristan I hear the very first part of your question got cut off a little bit, but I think it was the first part was asking about Q2 gross margin and then I think the second part was asking about just forward looking in the back half of this year. So let me start with.

Gross margin, we did see a nice.

Sequential benefit of about 40 basis points from Q1 to Q2 in terms of non-GAAP gross margin expansion will note that.

Our IP revenue actually declined from Q1 to Q2, and so if you look at our product growth product revenue only we saw a really nice gross margin expansion sequentially from Q1 into Q2 now that's from a number of different factors I'd say, probably three three factors number one our pricing optimization strategy, which we we planned that out in Q4 of last year, we began to implement that in Q1 of this year. We saw some initial benefit in Q1, we saw some more benefit in Q2, so that was a nice contributor in Q2.

Also product cost reductions our operations team has been doing a nice job to drive sequential product cost reductions for US and then another factor in Q2 was mixed across the segments with comes in computing industrial and auto segments being up sequentially that helped contribute to gross margin as well. So we're pleased with the progress on gross margin in Q2, and now looking forward to Q3.

Ordered or just in general and beyond if you remember from our Investor day.

In mid May we put out a long term target of 62% for gross margin we're certainly.

Committed to continuing to make progress on progress against that goal again that will be in three short of categories that we drive improvement those three categories of pricing optimization product cost reduction in mix in Q3 were the midpoint of our guidance is roughly flat with Q2, what's going on there as in Q3.

We do expect to see sequential improvement due to pricing optimization and product cost reduction, but that's offset by mix in Q3, we are seeing.

Mix headwind in one particular segment within our consumer segment actually that's offsetting some of the progression we're expecting in pricing and.

In product costs, but we view that as a as a short term temporary mix headwind.

That would.

We'll go with it so in general look we're very committed to continuing to expand gross margin and driving to our long term target of 62% or higher.

Great and then as a follow up.

Any color you could provide in terms of.

Do you watch and the love you by segment for Q3, and the second half.

Yes for the for Q3, if you look at the midpoint of our revenue guidance, it's up slightly from Q2 to Q3 I would say at this point.

Kind of all segments reflect to that at this point.

All segments reflect just a slight increase in revenue sequentially from Q2 to Q3.

Great. Thank you very much.

Thanks, Chris.

And again, if you like to ask a question. Please press star followed by the number one.

And our next question comes from line of Charlie Anderson from Battery and company.

Yes. Good afternoon, thanks for taking my questions and my congrats on great results.

Specific shout out on the DSO improvement Thats just excellent.

So thank you Charlie shares by the way Sherry appreciates that.

Thank you Terry Theres a lot about dsos as you appreciate that.

Great. So.

A question on Opex to start so you seem to be tracking well ahead of schedule here on M&A as a percent of revenue.

In terms of where you want to go I Wonder if maybe you could just articulate us kind of where you are what you did to reduce SGN a how much headroom is left to.

To have more efficiency there and then you did mention 20% as a good place to be on R&D. We're below that now so to the degree that there's incremental investment if you could maybe talk to.

What that incremental investment would be and then I've got a follow up.

Yes, Thanks Charlie.

So first of all in the SG any yes, we had put out a long term target of 15% of revenue. We've made some nice progress on that from Q1 to Q2 in fact.

That we made a bit faster progress than share year, I had anticipated and so that was good. We we have a number of actions in place that we actually started to drive in Q1 in terms of actions to reduce.

SG any expenses I wouldn't point to any one particular factor is just a number of different things that we're driving within that category and there were a couple of those actions. They just yielded benefit quicker than we had originally anticipated. So it's good to see we remain committed to getting SGN aid to that 15% level that will take that will take time.

It will be a combination of direct cost reductions, but also scaling into our revenue as revenue grows we'll scale into it. So it's a combination of both but.

We expect to continue to to make.

Incremental progress towards that 15% goal and now on R&D. Our target is 20% that's our long term target we are.

Running underneath 20% right now the way I would characterize that is if you look over the last few quarters certainly since.

I started last year late last year and.

In our new head of R&D and new head of marketing came on in the back half of last year, one of our areas that we focused on right away was in driving just at what I would call better efficiency within R&D or better productivity, just making sure that our existing R&D spend was optimized for the best ROI and so that was our initial focus because before we add on in additional spending time R&D, we want to be convinced that the spending that we have is fully optimized and so we went through a lot of work over the prior quarters to trim out projects that we thought were low ROI and.

Reinvest that.

That investment back into projects that are high ROI and so that's really been our focus over the last two to three quarters and now that we're through with that I would expect now R&D.

To start to incrementally grow from here and we'll do that very judiciously and carefully but we would expect to.

R&D to tick back up for instance from Q2 to Q3 and as we continue to invest in the roadmap and ensure that we've got a steady beat rate of new innovation and new products for for our customers. Hopefully that's helpful. Charlie and I think you had a follow up.

Absolutely. So just real quick industrial it was really nice to see an uptick there had been a few quarters. Since we've seen that I think you had called out in your script that maybe there were some some new wins there are new opportunities I wonder maybe give us expand on what's going on and industrial near term. Thanks.

Yes, and industrial industrial is a very.

Diversified.

Ill also just sort of fragmented segment theres a lot of customers in that segment and so it.

It's never one particular thing what we're seeing is.

Just really good design win ramps in across a number of different customers in a number of different applications. Examples would be just in general industrial automation Bud Robotics is a great example, motor precision motor control within robotic arms for instance, which are used in factory automation. So it's just a number of places where look lattice devices given their small size program ability low power are great power efficiency, just a great solution for.

Industrial automation and so we're seeing some nice just nice growth in some of those new design wins that we've secured.

Perfect. Thanks, so much.

Thanks, Charlie.

Next question comes from the line of Christopher will link from I tunes.

Hey, guys. Congrats on the strong results and guidance here, it's nice to see the progress.

Thanks, guys appreciate it.

So Jim for you Im sorry, if I missed.

I didn't quite catch what you are saying about resuming full or partial shipments to walk away and the reason I ask is because.

It was obviously a nice the Threeq guide that no one's complaining there, but if you had no long wall way into Q.

And then you're coming on full for Threeq, two and there were 5% customer and the bumps just up.

Call It <unk> million sequential.

How are we supposed to think about that is it because it's a partial shipment or.

Are there other puts and takes in there and if so maybe you could walk us through it.

Yes, Chris maybe I'll walk you through a couple of points I made earlier, so let's start with Q2. So if you look at Q2. So we were shipping to walk away through the first half of Q2. It was mid may.

When the government order came out we see shipments at that time.

Did our legal analysis, and then resumed shipments for the components that work that we deemed compliant with export restrictions we resumed to that in the last couple of weeks of Q2, when I look at where we ended up for while way revenue in Q2 versus what we had originally assumed in early Q2 as part of our guidance that we gave in Q2, it's roughly similar it was pretty close so we kind of ended up where we expected with wild way for Q2 revenue.

As compared to our original forecast and then Q3 our guidance reflects.

While waste latest demand forecast that we have from them for the products again that are that weve deemed compliant with export restrictions.

Okay, and I don't know if there's any other color there in terms of how are you shipping maybe half of what they would ultimately want.

I don't know if you can judge that or not.

I don't know any other color.

Yes, I can't really break it down at the product level, but just to say that look we we did a pretty detailed analysis of those products that are compliant with export restrictions and those are the ones that were shipping at this time.

Okay and then.

Pricing optimization, perhaps talk about how far along you are at this point and whether there are any other op optimizations like manufacturing for example.

I guess, that's probably one more for Sherri there.

You know are there some optimization.

As you move to ft, so I or something like that or you might be able to get.

A little bit extra.

Yes, I think Chris when you think about it.

The target that we put out there as part of our Investor day in mid May the target that we put out was to get gross margins at.

62% or higher what I would say is that that was.

A long term plan to drive continuous improvement in pricing optimization product cost reductions and then mix improvement over that time, So I view us as you know we're we're progressing along that improvement plan I think we are making reasonable progress, but we have a lot more work to do I believe we have a lot more work to do on pricing optimization product cost improvements and then the third component is the business. We are expecting the business to shift to be a higher percentage of comps compute industrial and auto overtime in that mix shift benefits, our gross margins as well. So we're committed to that long term by 62% gross margin target and.

In driving all the right actions to get there over time.

Thanks, guys Congrats again.

Thanks, Chris.

And again, if you would like to ask a question. Please press star followed by the number one telephone keypad.

And again that star followed by the number one to ask a question.

And our next question comes from the line that Richard Shannon.

From Craig Hallum.

Hi, Jim Jerry Thanks for taking my questions as well.

I think I had a question in the comms and computing segment have done my numbers correctly for the second quarter.

You grew at about 35% year on year.

If they've never really split up.

How much is from Toms versus computing.

I'm, assuming based on your commentary today and that the analyst event that the computing part is probably growing a little bit faster, but relative to your comments you've made today as well as the analyst event, where you're tripling your content and are certainly or attach rate doubling your asps seemed like computing should be growing quite a bit faster.

Seems like we could be seeing growth numbers even faster.

In that going forward. So I wanted to test that assumption out and then maybe if you can add to that when you might expect that from a year on year basis to pick up.

Yes, Thanks, Richard So, yes, certainly comes and confused spent a great.

Growth segment for us.

The 12% sequential growth in Q1 from Q1 to Q2, we're pleased with that.

A number of different things going on within that segment as I mentioned.

Growth in server as one which I touched on earlier. So those are our products used in the server platforms, but also growth in products used in client computing platforms. And then communications also is something that we're expecting to be a long term growth vector for us as fiveg infrastructure build outs continue to accelerate into second half of this year and into 2020 and beyond and so number of different growth engines underneath there. We believe comes in compute as we talked about shared at our Investor day in mid May will be long term growth growth opportunity for the for the company.

Okay Fair enough and my follow up question on industrial side for the companies have already announced earnings this quarter.

Some kind of a smattering of some that are surviving and doing well industrial and some are seeing some impact from the.

Trade.

Situation and other things.

Sounds like you're expecting to see some amount of improvement in the third quarter I Wonder if you can kind of qualitatively talk about what you're seeing in the industrial space to the extent to which you are seeing any affection traded other things going on.

Yes, I would say in terms of the general end market.

Certainly the industrial and auto segment has seen some softness in end market demand due to macroeconomic trade tensions et cetera.

And as a broad based OS as a broad based supplier. We have 9000 active customers know customers above 10%. We're highly diversified we are certainly subject to any broad base macroeconomic fluctuations, but what I would say is also in that industrial segment is look our products are really well positioned with respect to power efficiency size and some of the artificial intelligence inferencing capabilities that we can bring to the market.

We are seeing in for instance from Q2 from Q1 to Q to Q2, we saw about 7% growth. We're just seeing really nice healthy ramp in a number of different.

Applications in the industrial segment, and and then automotive which is a small portion of that segment, we expect that to be a more of a long term growth contributor. So as we as we had mentioned in the Investor day in May.

Just like Coms and compute we also expect industrial and automotive to be up a long term growth category for the company.

Okay fair enough appreciate the detail guys. Thank you.

Thanks Richard.

And then Danny you like to ask a question. Please press star followed by the number one and again Thats Star followed me the number one to ask a question and our next question comes from the line of Hans Mosesmann from resin Bob.

Security.

Hi, guys. This is Kevin Gilligan on for Honda. Thanks for taking my question and congrats on the great quarter.

Hi, Thanks, guys just kind of.

I was just kind of wondering if you could give us kind of your perspective on the competitive dynamic against other players.

Yes, sure I don't think theres been any significant change in the competitive landscape.

From our perspective, our traditional competitors are.

Certainly xilinx and Intel Altera.

Well look if we look at our product portfolio versus our competitors.

We have I think a great competitive position, we really focus on.

Small sized LPG, a very power efficient easy to program easy to use we think we're in a unique in the market place in terms of where we're focused where we focus our innovation and our R&D and then.

Thats kind of current product portfolio and as I look forward into the roadmap that we have lined up in front of us over the next 12 months or next three to five years I'm pretty excited about the products that I see on the roadmap and the innovation that's in front of us.

Were.

Very determined to deliver innovation on a regular cadence regular beat rate to our customers and and excited about some of the products. We've got coming out over the next especially over the next 12 to 24 months.

Great. Thanks, guys.

Thanks, Kevin Thanks.

And again, if you would like to ask a question. Please press star followed by the number one and again Thats Star followed by the number one to ask a question.

And our next question comes from the line of David Duley from Steelhead Securities.

Good afternoon, and congratulations on excellent results.

I was wondering.

Most of my end market questions have been answered, but if you could just talk about how we should think about seasonality of your business as we move into the back half of this year and into early next year.

And then.

Clarification, what should the interest expense dollars per quarter going forward now that you pay down the debt and lower interest rate.

Yeah. Thanks, David I'll take the first question and I'll, let sheri take the interest expense question.

On seasonality.

So as our business has shifted more and more to industrial auto comps and compute our business has been had less.

Less of a seasonality pattern I would say the we still are consumer segments still exhibits seasonality, which would be typically Q1 would be a relatively low seasonal quarter and then.

Q2, Q3 would be a stronger seasonal quarter in consumer, but the other segments, which is where roughly 70% to 80% of our revenue comes from now don't dress strip I don't have any really strong seasonality patterns.

And then maybe Sherry do you want to answer the interest expense question sure. So we ended the quarter with debt of 191.5 million.

Q2, and our interest rate after paying down.

To the next lowest interest rate here is is LIBOR plus.

110.

50 basis points and so what I would do is calculated based on that but I'd also like to note that our during the quarter. We made a $25 million. During Q3, we made a $25 million discretionary debt payments, you'll see that when we file our Q, but you can factor that into your calculation. That's the best way I would answer that question.

Okay.

You bet.

At the Analyst day, you talked about your next Gen generation that PJ products or platform coming out I guess, that's early next year.

I guess first question is are you on track for the release dates that you've talked about and then could you just remind us about what sort of performance increases or power consumption decreases that you might have for this new platform.

Yes, Thanks, David and thanks for asking yet so we're really excited about that next gen product platform. So its a new architecture that we've developed with new features and capabilities and then it's also on new.

Semiconductor technology. So it's on 28 nanometer FD Soi technology from Samsung.

We're really excited about that we do have.

First silicon back it looks very healthy and so we are we're definitely on track for sampling in the first half of next year, which is.

The the dates that we had talked about at the Investor day in mid May So I would say, we're tracking very well to those.

Dates and with respect to the.

Some of the capabilities on power efficiency, one of the really nice things that FDIC July brings is.

Sort of a built in power efficiency advantage, if you compare FD soi guidance sort of standard bulk Cmos technology, there is around 50% power.

Power improvement or power savings relative to bulk Cmos. So that's a nice advantage for us on that platform and when you couple that with some of the architectural benefits ever bringing in terms of new capabilities, New features et cetera, we're very excited about that.

New product generation, you'll hear us talk more about that as we get closer to sampling in the first half of <unk>.

Next year, but again really excited about our progress there.

And just as a point of reference the current platform SPG platform is about 40 nanometers or 65 nanometer what sort of.

Process technologies used currently.

Yes, we have products on both 65 and 40.

Okay. Thank you.

Thanks.

We have no further questions at this time I will now turn the call over to the lattice Semiconductor's CEO , Tim Anderson for further comments.

All right. Thank you operator, and thanks, everybody for joining us on the call today, we appreciate it.

So in summary in Q2.

We demonstrated the leverage in our operating model with solid improvement across key metrics, we achieved a record high operating profit as a percentage of revenue and on the product side. We had a couple of major product launches in Q2 that will help us drive long term growth for the company overall I think we're well positioned to benefit from multiple long term growth growth vectors. So we appreciate your support and look forward to continuing to update you on our progress moving forward operator that concludes todays call.

Hi, Yes. This does conclude today's conference call you may now disconnect.