Greetings and welcome to the Lattice Semiconductor Fourth Quarter Fiscal Year 2024 Earnings Call. At this time all participants are in a listen-only mode. A question and-answer-session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce Rick Muscha, Senior Vice President of IR. Please go ahead.

Thank you, Operator, and good afternoon everyone. With me today are Ford Tamer, Lattice's CEO; Tonya Stevens, Lattice's Chief Accounting Officer and Former Interim CFO; and Lorenzo Flores, Lattice's CFO. We'll provide a financial and business review of the fourth quarter of 2024 and the business outlook for the first quarter of 2025. If you have not obtained a copy of our earnings press release, it can be found at our company website in the Investor Relations section at latticesemi.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the first quarter of 2025. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. We will refer primarily to non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at 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. I've just returned from customer and partner meetings and sales conferences in North America, Asia Pacific, and Europe. We capped off the European sales conference with a very productive and promising executive summit with our top European customers from the industrial, automotive, communications, and aerospace and defense sectors. We also visited Pune, India, where we inaugurated our new state-of-the-art R&D site. All of this came on the heels of our Lattice Developers Conference in December 2024. This was a highly successful event with 6,000 registrants and over 90 show floor demos. Many of you were able to hear directly from some of our leading customers and see firsthand how they're deploying the impressive innovations from Lattice in their systems. As a result of these events, I'm even more energized and confident in the long-term outlook for Lattice. Today we're pleased to announce a further strengthening of our executive leadership team with three new additions. Lorenzo Flores is joining Lattice as Chief Financial Officer from Intel, where he was CFO for the Foundry business. Prior to that, Lorenzo was Vice Chairman at Kioxia and CFO at Xilinx. Nicole Singer is coming on board as our Chief People Officer from SiFive where she was CHRO. Prior to that, she was CHRO at Synaptics and Vice President of Human Resources at Xilinx. And we're promoting Erhaan Shaikh to Senior Vice President of Worldwide Sales. Erhaan has been at Lattice for over four years, and prior to that, he spent over 20 years in executive sales and field engineering roles at Altera, Xilinx, and Fungible. I am confident that this new team will make significant contributions to Lattice's next phase of growth. I'm also pleased to announce the appointment of…

Thank you, Ford. Working closely with you as the interim CFO has been both a rewarding personal and professional experience. I'm excited to continue my growth in my new role alongside Lorenzo, one of the most respected and accomplished CFOs in our industry. I also want to welcome Nicole and congratulate Erhaan with whom I worked closely. With the strengthening of Lattice's executive team, we have a tremendous opportunity to build on Lattice's strong track record and expanded leadership product portfolio to drive Lattice's next phase of growth. In 2024, we continued to generate solid operating adjusted EBITDA and free cash flow margins and returned cash to shareholders through share buybacks, while experiencing continued customer inventory normalization and shipping under true demand. Additionally, as we mentioned on the Q3 '24 earnings call, we implemented a workforce reduction of 14%, which better aligns our resources to support the current business level. We are confident that this action will be a key driver for double-digit earnings expansion in 2025. Let me now provide a summary of our results. Fourth quarter revenue was $117.4 million, down 8% sequentially from the third quarter and down 31% year-over-year which reflects the combination of continued inventory normalization and macroeconomic softness. Full year 2024 revenue was $509.4 million, down 31% from 2023. While commuting was up for the year, both segments of communications in computing and industrial and automotive declined double digits for the year. We started to see signs of improvement in communications and computing in the second half of 2024 and expect to build on that in 2025. Our Q4 non-GAAP gross margin was 62.1%, this included a $7 million one-time charge related to materials purchased by our assembly and test partners during the supply constraint that due to the current business environment are no…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Melissa Weathers with Deutsche Bank.

Hi, there. Thank you for letting me ask a question. Congrats on the new role, Tonya, and welcome to the call, Lorenzo. I guess my first question is cyclically, it seems like you're starting to see some improvements. You talked about the backlog improvement and the improved B2B. So any particular end-markets that are performing better than others that you're seeing? And how much of this is Lattice specific versus kind of the [distis] (ph) you're making progress on getting into the channel inventory?

Thank you, Melissa. I think there are three factors. As you said, number one the channel inventory, we are making progress as expected. We do expect to continue to glide down inventory as we previously discussed, to get to regular inventory level by mid-year 2025. So that's probably factor number one. Factor number two, if you compare this against the backdrop of other companies in our sector that are guiding down, we do believe we are taking share in our markets. So we are encouraged by the continued design wins on our Nexus, Avant and new product lines and continuing to take share. And number three, we have seen improvements across our industrial automotive as well as the communication sectors. Computing has always been strong, continue to be strong, but we're seeing recovery in the other segments as well. So three factors, Melissa.

Got it. On that comms and computing side, I know computing did grow in 2024. I don't think you've given us a mix of how big the comm side is versus the computing side. But can you just, at a high level, talk about like what are the different trends you're seeing in those two sub-segments? And what should we be expecting in the coming years between those two businesses? I think we've heard from your peers at the comm side is a little bit weaker. So help us think about those two different subsegments.

So I think the percent of comms and compute is roughly the same as last quarter between Q3 and Q4. We see a slight increase in that segment, but not very meaningful. And the percent industrial, auto and consumer, again, are pretty much the same, a slight decrease in those segments. Within industrial and automotive, we have seen a nice recovery in automotive this past quarter. So that's a positive. And we do expect all segments to grow into Q1.

And anything on communications in particular?

Communications in particular, is slightly stronger in Q4 compared to Q3 and expect it to be steady going to Q1.

Got it. Thank you.

Thank you. Our next question is from David Williams with the Benchmark Company. Please proceed with your question.

Hi, good afternoon. And thanks for let me ask the question and congrats on the solid progress here. So I guess maybe first, Ford, if you kind of think about where you're seeing demand across that automotive segment, where are you seeing that picking up in terms of the market? Is it on the electrification side or more on the -- just the general ADAS side? And should we think about maybe the traditional [versus EV] (ph) your hybrid platform where you have greater exposure or potential strains?

Yes. Thank you, David. We are designed them across all the various applications, and we are in production today in infotainment and display and ADAS and charging applications as well as the other electrification factors. So we continue to see newer applications and do see automotive as a long-term growth driver for us. We're also getting increasingly more convicted that we are going to have a place in the far Edge AI where our chip -- or the first half if you wish, from a sensor. The sensor could be an image sensor. It could be a lidar, it could be a radar, could be other sensor, the FPGA, the small and mid-range of FPGA are the perfect first half from that sensor before it goes to a new edge, if you wish AI engine. And so we are the perfect case to tag, to do all kinds of function to make that near edge device more productive. And I do believe that having these -- far edge applications in our FPGAs are going to be a great place for us to provide value and automotive moving forward. If you think of a car, you've got literally tens of these sensors in the car, and they all need to be aggregated, fused and process before they go through this near edge device. And again, FPGA are the perfect place to do that.

Great. No fantastic color there. Thanks so much. And then maybe secondly, just as you kind of think about the R&D center in India, is that a market that you think is an opportunity for you all? Or is this more about maybe just the cost structure? And does this give you an opportunity do you think in that geo to maybe drive sales and really add to your portfolio there? Thank you.

No, great question, David. I think, again, maybe three factors. Number one, we are excited about the opening of this R&D center. We are finding great skill set over there, including AI, some of the new graduates are all steeped into these AI type of technologies in Pune and we should be able to double down not just on chips, but also on software MI type of skills in that market. And then number two and three, I would say, from a customer and sales point of view, there are two types of opportunities, if you wish. One is the direct customers there. And obviously, we are engaged with some of the industrial automotive in that geography. But even more importantly, a lot of the OEMs and Tier 1 that we are doing business with are actually increasing their sort of manufacturing and system bids in that geography. So it could become a global OEM and Tier 1 building in the geography. And again, being -- our support center there could support them directly. So R&D local customer as well as global customers setting up shop in India.

Thank you.

Thank you. Our next question is from Christopher Rolland with Susquehanna. Please proceed with your question.

This is [Aaron Nacelle] (ph) in for Chris. Thanks for taking the question. In doing an acquisition, would you be interested in just the low-to-mid range of the FPGA portfolio? Or would you have a preference towards moving higher up in capabilities?

Thank you, Aaron. Good question. As we look at the market, we do believe that the small-and-mid range FPGA segments are the most interesting ones. They are the ones growing faster. If you look at the large FPGA, the ROI in that category has not been stellar over the past, I don't know, 15 years probably. If you look at the usage of these larger FPGA and cloud or wireless infrastructure type application, they've been challenging. And so we do believe that the investment that we've made in the small and mid-range or focus on small to mid-range is where the money is and where the growth is. So we are going to continue to focus on those segments. Having said this, we do want to continue to broaden our portfolio. And so over time, we'll be open to address the various segments that our low power programmable offerings can address. But we'll do it in a differentiated way, not try to follow incumbents that have been there for many years.

Thanks. Thank you for that. And given your history in networking and AI, can you talk about new products that you can develop using FPGAs in these areas?

Yes. Again, we’re very mindful of our place in the hierarchy and the food chain. So we are a partner to the NVIDIAs, the Amazon, the many training and accelerator companies in the space. We work with them on reference design as well as the partners that they have on the switch and the [NIC] (ph) and storage. So we work obviously with the Broadcom to Marvell and other companies that are developing switches and networking equipment very closely on reference design and partnership opportunities. So we see these companies as partners. We have no ambition or desire right now to go do a FPGA for cloud. We believe in those spaces, you're much better off with a fixed function ASIC that is optimized. These are monthly, hundreds of million dollar type of ASICs that are not well suited for FPGAs. On the other hands, if you go -- so that's all the way on the cloud and the high end. Then if you look at the edge devices, there's been talk about the far edge and the near edge. The far edge is those devices where we are near the sensor and the near edge are sort of these main brains inside some of these systems. We do believe that we're better suited for the far edge. And the far edge is near the sensor. And so what you need there is you need a low power device, which would provide a more latency device, which we provide you need fast boot time, and we've shown at our latest developer conference a 10 times faster boot on compared to competition. We just totally smoked the competitor in those spaces. Actually, we spoke to them on small size and low power as well. I mean, the chip was small enough, I had to drop it at the developer conference. The power is -- we're talking milliwatts of power. FPGAs are great at parallel processing, and that's what we do. And we are focused on this Tiny AI model like to YOLO MobileNet, we've got our own version of these models for vision and speech and text, that are very well suited for these far edge near sensor type application. If you look at the -- then customer presentation from our developer conference is on our website, you'll see that refer to the contextual intelligence. And so we are in the laptop sitting next to the camera and inside that laptop, looking at the glance from the user and powering down the laptop as an example, if there's no user there to save battery power. We are being looked at today in many applications in industrial automotive for far Edge. So we’re very excited about our place in the ecosystem and being able to provide additional value to make our partners shine in their near Edge and bigger inference and training engines.

Thank you.

Thank you. Our next question is from Ruben Roy with Stifel. Please proceed with your question.

Thank you. Ford, I wanted to start by asking about one of the trends that you mentioned. I think trends two through five, we thought a bit about over, I don't know, the last several years. But the first trend that you mentioned that AI is driving shorter system design cycles, it's sort of new to me. I think it's starting to show up here and there, but I'm wondering if you could drill into that a little bit and how you're thinking about that? And I ask that because when I think about Avant and moving into the midrange and getting into slightly more complicated FPGA structures and designs, it would seem like those types of system designs would take longer to design and put out into the market. So I guess the question is, do you think this might accelerate the pace at which we would see Avant start to gain some traction in the marketplace?

Yes. Thank you, Ruben. Good question. What I was referring to there is the cadence of accelerators and switchers, and other fixed-function devices being released every two years. And companies in that space, like NVIDIA and others trying to get to a one-year cadence. The cadence is probably somewhat between right now. But -- what I was referring to, as you drive to this faster cadence between different releases of these chips, there can be some auxillary functions that could not be comprehended. And so we can be a good place to put these functions, especially there were still on older technologies. Avant on 16-nanometer, Nexus on 28-nanometer. So some of these functions could be much better done in our older processes as opposed to put it in a bleeding edge 2-nanometer expensive die, right? And so that's what I'm referring to. And we've got some evidence that point to that trend.

All right. Got it. Thank you Ford. And then as a follow-up, can you kind of give us an idea of where inventories are today and sort of what you are targeting? I think you said by midyear, you are expecting to hit the target. And here too, I'm asking -- it's great to see that the book-to-bill, creeped over one over the last several weeks, and it sounds like things are getting better in some of these markets that have been weak for a while. And so I'm just trying to figure out your inventory commentary relative to bookings and then sort of maintaining the low single-digit growth for the year. Just how you are thinking about those, the puts and takes of how to get to how you are thinking about the year would be helpful. Thank you.

Yes. Let me just start and then turn it over to Tonya for additional color. As I said, we are encouraged by the early sign recovery in industrial automotive, that book-to-bill has been a steady climb for the past two years, it was -- I don't know, call it, seven quarters ago and then steadily climbing back to where we are right now. So we are excited about this. The second one, as you mentioned, is the consumption demand is a very important metric that we track, and that's up. And so that again, is positive -- working with our channel partners to continue to guide to this healthy range of inventory, and they've been very supportive. So we expect this more vibrant demand to come back in the second half of 2025. Now let me turn it over to Tonya to give you a bit more color.

Yes. As we said last quarter, just the inventory can fluctuate on a quarterly basis, and it was the high end of our normal range, but we're in the process of actively bringing that down from the high end to the midpoint of our target range which is three months of inventory, and we're seeing good progress on that. As Ford mentioned last quarter, we expect to see that back to the midpoint of our target range in 2025. So we're making progress on that, and we see positive signs like Ford said with consumption and POS picking up. The other piece -- the other two pieces of the inventory equation is inventory at the end customers then in the middle is the inventory of our distis and then of course, Lattice on inventory. And we're seeing the same positive trend on Lattice-owned inventory. We do expect to be bringing that down in Q1 as well. But a reminder, relative to FPGAs and our products tend to have a very long product life cycle, selling 15, 20, 28 years. So the risk of obsolescence with some of that inventory is very low. And more important to ensure that we have the right amount of inventories to support our customers their design win ramps, new product revenue ramps, the Avant, the Nexus and any upticks in customer demand.

Great. Helpful. Thank you Tonya. Thank you Ford.

Our next question is from Quinn Bolton with Needham & Company. Please proceed with your question.

Hi. It's Nick Doyle on for Quinn Bolton. Thanks for letting me ask a couple of questions. Sorry to keep asking about inventory, but maybe I'll just ask a little differently. To get to channel inventory to the three months by end of June-ish time frame, can that be done with just solid execution? Or do you need to see the market start to recover to really get that inventory to your target? Thanks.

What was the last part of that question, Nick?

Just if you need to see the market recover to get the channel inventory to your target in the time frame that June, July time frame?

Yes. I mean look, I mean, it's been a gradual recovery, as I said for like 18 months now. So I mean the low end has been probably 18 to 20 months ago. And we are seeing early signs of recovery, and we expect a more vibrant recovery in the second half. So yes, we need to continue to see the market recover as along the same trends we're seeing now to get to these targets, Nick.

That makes sense. Thank you. And you pointed out the 2024 computing revenue grew year-over-year. Can you talk about some of the drivers there? Anything you can tell us about server or networking attach rates would be really helpful. Thanks.

I think the trend there has been the same trend as you've seen in data centers. So we are designed in into quite many applications across the server. So like on -- at their developer conference, we had a rack from one of our customers shown up with over 50 FPGAs per rack. We're not disclosing the exact amount, but as well over that number. So applications all the way from security to IO expansion to bridging to doing some control test functions across the board. And so that market has been strong for us. As I said, not only across GPU and accelerator but also across networking function across controller, across storage cards, across the board in the server. And the computing segment has been driven by servers. For the full year, server grew double-digit and driven by both the general purpose and AI servers.

Thank you Ford.

[Operator Instructions]. Our next question is from Duksan Jang with Bank of America. Please proceed with your question.

Hi, thank you for taking my question. I have a follow-up on the server question just now. Could you talk about how much of your server and computing business is driven by content gains and how much by units? Because I think we are expecting some weakness into Q1 from some of the larger CPU vendors.

Yes. So that's a good question. We have had a nice probably 50% increase in content from one generation to the next production.

I see. And that applies to this currently ramping generation as well?

Yes, it does.

Understood. And then I have a longer-term question. I think you mentioned that by 2026, you expect to get back to your longer-term 15%, 20% growth rate. It seems like though that the industry has historically grown maybe high single digit at best. So I know you're embedding some share gains in there, but I'm just curious about the puts and takes into your what's driving the 15% to 20% gain longer term? Thank you so much.

Yes. So I think this would be driven by new products. The new products have been growing double-digit. We had a really nice growth in double-digit product this year. Actually, if you look at our -- Nexus and Avant in Q4 is probably at historically high, very healthy growth in Nexus, Avant from Q3 to Q4. And we expect that continue to grow into '26 and '27, driven by -- we see now the funnel increased nicely. We see the design wins increased nicely. We're just at the early phases of rolling out these new generation. So you've seen us announce new variance of Avant at the developer conference. Avant announced a new Nexus 2 platform. Avant today in its current time and the ramp is actually much faster ramping than Nexus in that same sort of time frame in its ramp. So we are excited about all of the new products, we continue to also roll out new solutions to make it easier to use for our customer and increase their time to revenue and time to market. So I think it is going to be a -- in fact, you put all these factors together, that's what's contributing to it.

Thank you.

Thank you. Our next question is from Joshua Burkhalter with TD Cowen. Please proceed with your question.

Thank you for taking my question and congrats on the results and congrats on Tonya and Lorenzo on the new role. I guess it was great to see the new products contribute double-digit growth in 2024, despite the correction year. Any metrics you can give us on sort of how you expect them to contribute to growth in 2025, as Avant starts to ramp and Nexus 2 also begins to layer into our revenue. Thank you.

Yes. I think what we could tell you is Avant was almost non-existing in '23. It's now making a difference in '24. It will continue to grow in make a bigger difference in '25 and beyond. Same with Nexus. I mean, so they went from sort of think about it in 2023. Nexus, Avant to a single-digit percent of our revenue. To now there are mid-teens percent of our revenue. So in one year, we almost doubled the percent of revenue coming from Nexus, Avant, and that should continue to get better into '25 and beyond.

Okay. And then I guess with Avant for a couple of quarters now, at least with the [EG and X] (ph) families, anything you can give us on sort of how you view the competitive environment because it's obviously a different competitive set with mid-rage FPGAs than what you traditionally competed for in the market? Thank you.

Yes. I think there, what I can refer you to is if you look at our developer conference, all aboard, and we have the videos and the photos on the website to remind people. We've done well and proof in showcasing a lot of these Avant wins. Again, the power and size of these offerings. These are all things that are tailor-made, custom made for these markets. These are not large FPGAs that or taking or even midrange FPGA, we are taking and then cutting them for small or taking large cutting in for made. These are custom-made low power, low size. Our competitors have taken this -- we have this unique architecture, the Slot 4 architecture. And we love the fact they’re taking shots at us on this, we do believe the Slot 4 architecture is ideally suited for the sort of 700,000 logic sales and below where we're paying. Avant at this point, it goes to 500,000. And so we're optimized for these -- the architecture, the whole offering the power techniques are optimized for the small to mid-range. And so we are very confident that we'll be able to continue to grow and win because the customers are telling us we've got tremendous benefit in these markets.

Thank you.

We have time for one more question. Srini Pajjuri from Raymond James. Please proceed with your question.

Hi guys. Thanks for squeezing me in. A couple of follow-ups, Ford . First on the -- one of the trends that you mentioned that's of the five drivers that you talked about, is the post-quantum cryptography threat. I know it is early days, but at the same time, I think your customers need to prepare for that sooner than later. So just trying to understand what you're hearing from your customers in terms of the time line for that? And also, if you can talk about how actually Lattice benefits from that? Does it require new products? Or is it more content? Is it a combination? Or any color you could provide us in terms of how we should think about this market potential?

Srini, this is one of the most exciting trends we have. I mean, actually, we are the only ones today that have a solution today available for PQC or post-quantum cryptography. And what that is, is that the bad actors are storing people's data today for decrypting tomorrow. And there are some missed regulation that says you've got to be post-quantum ready by next year. And we're being designed across the board by our networking and security customers at major Tier 1 OEMs across the world. And none of our PGA competitors have a solution, none of the fixed function ASIC have a solution. And the solutions, by the way, are still being defined. And so even our solutions today are going to need to be potentially changed as this post quantum word evolves. So we're very positive and confident that this solution is actually one of the solutions that are -- that's enabling us to take share. It is being adopted as I said widely across the board, and we're surprised about how quickly people are designing them in. I would refer you to the Microsoft keynote at our developer conference, where Bharat talked about Caliptra and the adoption of Lattice for PQC outside with that. And as probably a good example of how this security and FPGA is not in PGA anymore. It's so now all of a sudden almost like a fixed function solution made for security So very excited about it.

Okay. Great. Thank you. And then a question on OpEx. Obviously you took some costs out last quarter, Ford. But at the same time, if I look at the trends that you are talking about, shortening design cycles and share gains and new products. And it seems like a lot of opportunity out there. So just wondering how to kind of think about OpEx and R&D spend because it looks like there's a lot of opportunity where you could potentially spend even more to be able to capture that -- to address that market potential. Thank you.

Yes. So I'll start and then let Tonya take it from here. I think we are in the middle of a transformation where we are growing in international locations. So we've moved a lot of the jobs to international location. We're aggressively hiring. Pune, India was zero people 8 months ago, we’re at 70 now, and we expect to get to about 100 people in that location at a 1-year mark. So aggressively hiring in these international locations to transform our OpEx in those geographies. And then I think we’re maintaining financial discipline, and we expect to continue to grow R&D as we grow revenue and recover. So Tonya?

Yes. I’ll just add to that. So of course, we took the action after very careful consideration and balancing exactly what you’ve said with R&D and the focus on investments there. So cutting OpEx, especially in the R&D area, doesn’t mean less resources. In fact, moving to the lower-cost geos has enabled us to be able to add resources and we're aggressively ramping up, like Ford said, so that we'll have even more capabilities in that demand with even lower cost.

Got it. Thank you.

Thank you. Our next question is from Nick Doyle with Needham. Please proceed.

This is Quinn. I don't know, can you hear me?

We can, Quinn.

Hi, Ford. Sorry, jumped on late. I get the name is criss-crossed. But I just wanted to come back to your comments about the revenue contribution for Avant and Nexus? You said you're sort of mid-teens, up from single digits last year. Was that cumulative that it's mid-teens across both Nexus and Avant, is it both or at that level? And I guess the related question is, if it's cumulative, it sounds like then pre-Nexus is still roughly 85% of revenue?

If you remember last quarter, Quinn, we have broken it up at 13%. And we said we are not going to break it on moving forward, all I can said in Q4 as that number is higher than that 15% that so -- but we're not -- we're going to try not to break it up. So we've made good improvement from last quarter. And yes, last year was single digits. So you could see we're making good improvement on Nexus Avant moving forward.

Got it. Okay, thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Lattice Semiconductor's CEO, Mr. Ford Tamer, for any closing comments.

Thank you, operator. Thank you, everyone, for joining us on today's call and for your continued support. Our focus is to continue to drive innovation, create value for our customers, and stakeholders and proactively adapt to market conditions to maintain the stability and integrity of our leadership product road map, customer support and demand creation infrastructure. I look forward to sharing the company's progress with you in the coming quarters. Operator, that concludes today's call.

Thank you. You may disconnect your line at this time. Thank you for your participation.