Lattice Semiconductor Corporation (NASDAQ:LSCC) Q1 2024 Earnings Call Transcript

Lattice Semiconductor Corporation (NASDAQ:LSCC) Q1 2024 Earnings Call Transcript April 29, 2024

Lattice Semiconductor Corporation reports earnings inline with expectations. Reported EPS is $0.29 EPS, expectations were $0.29. Lattice Semiconductor Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Lattice Semiconductor First Quarter 2024 Earnings Call. [Operator Instructions] At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Muscha, Vice President of Investor Relations. Thank you. You may begin.

Rick Muscha: Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Lattice's President and CEO; and Sherri Luther, Lattice's CFO. We'll provide a financial and business review of the first quarter of 2024 and the business outlook for the second quarter of 2024. If you have not obtained a copy of our earnings press release, it can be found at our company website in the Investor Relations section at 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 second quarter of 2024. If at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. We 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 Jim Anderson, our CEO.

Jim Anderson: Thank you, Rick. And thank you everyone for joining us on our call today. Q1 ‘24 results were in line with expectations for revenue, margin, and profitability. The industrial and automotive segment was down 25% sequentially as demand softened and end customers reduced their inventory levels. The communications and computing segment were down 7% sequentially in Q1. Within that segment, computing was sequentially up on stronger demand for our products used in servers, which was offset by weaker demand in the communication segment. We expect Q2 revenue to be down sequentially from Q1, primarily driven by softer end customer demand and continued inventory normalization. In particular, we're seeing incremental softness in the communication segment related to weaker telecommunications infrastructure deployments.

Looking forward to the second half of the year, based on our current view of anticipated near-term business conditions, we continue to expect revenue in the second half of 2024 to be higher than the first half. We believe the second half improvement will be driven by improving end market conditions as end customer inventory levels normalize, as well as a new Nexus and Avant product ramps. Turning now to our product portfolio. In our small FPGA portfolio, we now have seven Nexus device families launched and six in production and the seventh going into production in Q3. We recently shared with our customers the latest small FPGA product roadmap. This includes continued expansion of the number of Nexus device options coming to market over the coming quarters, which received a very positive reaction from our customers.

In our mid-range FPGA portfolio, we now have three Avante device families in the hands of our customers. The first device family, Avant-E, achieved initial revenue at the end of 2023, and we expect revenue to ramp through the course of this year and into the coming years. The second and third device families, Avante-G and X, are expected to achieve initial revenue toward the end of this year and to ramp over the following years. As a reminder, 90% of the target customers for Avant are already customers of Lattice today, and Avant leverages the same software that customers use today on Nexus. The strong competitive differentiation of Avant, which we demonstrated at a recent Developers Conference, combined with our software support, continues to produce a healthy, growing design opportunity pipeline.

As we discussed on our previous earnings call, Lattice hardware and software solutions are increasingly being used in a wide variety of AI-related applications. For example, an AI-optimized servers in the data center where the system is running generative AI workloads, Lattice devices are used in the control management and security of the AI computing system. Another example is in AI-enabled PCs, where Lattice hardware and software solutions are used to run the AI inference algorithm that provides features such as user presence and gaze detection. We recently shared that Lattice is designed into multiple new Dell Latitude systems, which we expect to benefit us in the second half of this year. In these types of AI applications, software is a key part of our strategy and how we enable customers in adopting our solutions.

In summary, we're excited to be in the midst of the largest product portfolio expansion in our history, which is driving strong customer momentum. Despite year-term industry headwinds, the company is well positioned with a rapidly expanding product portfolio and we remain focused on long-term value creation. I'll now turn the call over to our CFO, Sherri Luther.

Sherri Luther: Thank you, Jim. The first quarter turned out as expected with results in line with our prior outlook. We maintained strong profitability and cash generation and returned cash to shareholders through share buybacks. Let me now provide a summary of our results. First quarter revenue was $140.8 million, down 17.5% sequentially from the fourth quarter, and down 24% year-over-year, primarily reflecting end market demand softness and end customer inventory rebalancing. Our Q1 non-GAAP gross margin declined 140 basis points to 69% compared to the prior quarter and 130 basis points compared to the year ago quarter, due to mix in our end market segments. Q1 non-GAAP operating expenses were $54.9 million compared to $55.5 million in prior quarter and $54 million in the year over quarter.

We continue to be disciplined in the management of SG&A expenses while ensuring that we invest in our product portfolio. Our Q1 non-GAAP operating margin decreased 780 basis points to 30% compared to the prior quarter and was down 1,100 basis points compared to the year over quarter. Q1 non-GAAP earnings for diluted share was $0.29 compared to $0.51 in the year over quarter. In Q1, we repurchased approximately 265,000 shares or $20 million worth of stock, making Q1 our 14th consecutive quarter of executing share buybacks. Over that period, we have repurchased approximately 5 million shares, thereby reducing our dilution by 3.6%. Let me now review our outlook for the second quarter. Revenue for the second quarter of 2024 is expected to be between $120 million and $140 million.

Gross margin is expected to be 69% plus or minus 1% on a non-GAAP basis due to a less favorable mix from our end market. Total operating expenses for the second quarter are expected to be between $54 million and $56 million on a non-GAAP basis, which is in line with Q1 at the midpoint. Overall, we believe we are well positioned for long-term growth. As we navigate the near-term cyclic softness in our end market, we remain focused on supporting the expansion of our product portfolio and continued execution. Operator, that concludes my formal comment. We can now open the call for questions.

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