Lattice Semiconductor Corporation (LSCC) Q3 2026 Earnings Call Transcript

Operator: Greetings and welcome to the Lattice Semiconductor Third Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. 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 Ford Tamer, Lattice's CEO, and Lorenzo Flores, Lattice's CFO. We will provide a financial and business review of the third quarter of 2026 and the outlook for the fourth quarter of 2026. 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 fourth quarter of 2026. 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. With that, I will turn the call over to our CEO, Ford Tamer.

Ford Tamer: Thank you, Rick, and welcome everyone to our third quarter earnings call. Lattice delivered record third quarter revenue of $291 million, up 45% sequentially and up 118% year-over-year. Non-GAAP EPS was $0.72, up more than 155% year-over-year, and well above the high end of our guidance, as we translated revenue growth into even stronger earnings growth. Our fourth quarter revenue guidance of $335 million at the midpoint represents approximately 130% year-over-year growth, which is an annualized revenue run rate above $1.3 billion. This exceeds the outlook we provided last quarter and reflects accelerating momentum and broad-based demand. Our Q4 non-GAAP EPS outlook midpoint of $0.84 represents 160% year-over-year growth, reflecting our operating leverage, differentiated customer value, and disciplined execution. As we continue to scale, we expect EPS growth to remain meaningfully ahead of revenue growth over time. This outlook implies non-GAAP full-year 2026 EPS of approximately $2.50, up 140% year-over-year, a clear reflection of the earnings power we are building across the business. Our Q3 results and Q4 guidance are well above expectations. This is the result of our deliberate strategy of enabling the success of our customers and partners by offering them differentiated products, solutions, support, and supply. Our commitment to you, our valued shareholders, is to tell you what we are going to do and then do what we said. This earnings call marks my two-year anniversary with Lattice. We have delivered on this commitment for eight quarters in a row now and intend to continue to do so in the future. Now let me share with you the details of our FPGA business, where our actual performance and outlook are much stronger today than what was expected two years ago. Growth was broad-based across all our end markets. FPGA revenue reached $252 million, up 90% year-over-year. Our Compute & Communications segment delivered record revenue, up 132% year-over-year, driven by rapid adoption in data center AI applications. This growing demand reflects AI infrastructure investment, more server deployments for agentic inference, and increasing AI content per server. We also continue to benefit from higher FPGA attach rates in new applications, driven by more complex disaggregated architectures and growing security requirements. Demand for our Industrial & Embedded products continued to grow, with revenue increasing 35% year-over-year. We see the worldwide and geographic-specific PMIs at near record levels since the troughs of the latest downturn. We expect our Lattice Industrial & Embedded business to continue to grow faster than the overall industrial market and accelerate its growth in Q4 and into 2027. This growth is across all sectors, including factory automation, robotics, aerospace and defense, medical equipment, and autonomy. With channel inventory at healthy levels, customer engagement accelerating, and multiple new design wins ramping into production, we expect our Industrial & Embedded business to become an increasingly important growth engine into 2027 and beyond. During the quarter, we extended our leadership in small and mid-range FPGAs. We launched Lattice Prompt, an AI-assisted development tool for Lattice FPGAs. It allows our developers to generate and validate their FPGA applications from natural language prompts. To do so, it connects our customer-preferred large language model and agentic development environment with our Lattice Radiant tools and generates tested and proven FPGA code. Lattice Prompt provides significant FPGA developer productivity benefits and represents a significant step forward for our customer base. We also introduced the Mach-N2 family, our latest secure control small FPGA platform, featuring integrated flash, hardware root of trust, post-quantum cryptography, and enhanced connectivity with customer sampling already underway. Now, let me tell you about the continued expansion of Lattice into secure control and management leadership with the successful closing of the AMI acquisition on July 27. The AMI business also delivered better-than-expected results in Q3, and we expect continued growth in Q4. In the three months since closing, we have engaged with hundreds of customers and partners globally, and the feedback has reinforced the strategic logic of the transaction and validated the highly complementary nature of our portfolios. Following the AMI acquisition, we launched AMI Rack Manager to simplify deployment and operations across large-scale AI data centers. We also expanded ecosystem collaboration with SK hynix to improve server reliability with our memory resilience technology. We held joint Lattice and AMI Tech Summits in Taipei and Shenzhen with over 700 attendees and over 20 customer and partner demos, reflecting our strong customer intimacy. Ecosystem keynotes included Advantech, Inovance, Intel, Mitsubishi Electric, NVIDIA, NXP, Panasonic, Qualcomm, and Sony, showcasing the power of our companionship and firmware strategy. During the Lattice and AMI keynote at OCP, we introduced the Secure Control and Management Plane Initiative, or SCMP, with seven industry leaders: AMD, Arm, ASPEED, Intel, Jabil, Microsoft, and NXP. Since then, four more industry leaders have notified us that they intend to join this exciting industry-wide effort. This shows the relevance of secure control and management for autonomous data center infrastructure and industrial and embedded applications. Finally, let me update you on the recent launch of four joint Lattice AMI solutions for streaming rack boot, security retrofit, plug-and-play deployment, and power and cooling management. The response to these pre-integrated and pre-validated FPGA and firmware offerings was very strong. Customers immediately recognized the benefits of rapid deployment, reduced complexity, and lower implementation risk, leading a significant number of them to advance to proof-of-concept engagements. In summary, we entered the fourth quarter with record revenue, accelerated bookings, and backlog extending well into 2027. This momentum is being fueled by normalized inventory in the channel, our leadership in small and mid-range FPGAs, and our role as companionship, firmware, and solutions for both data center and physical AI. As a result, data center demand continues to grow. Industrial and embedded is on a strong rebound, and the AMI acquisition expands the markets and application we can serve. Together, these drivers support our confidence in sustained growth and expanding profitability. Turning to the medium to longer-term outlook, we expect revenue growth of at least 60% year-over-year in 2027. We also expect revenue to continue to grow at over 30% CAGR for the next five years. Our confidence is based on the multiple growth vectors we have just outlined. We expect that this will create a sustainable, secular growth company with diversified and broad customer base and market segments. In turn, we believe this will drive robust demand for the foreseeable future. Our focus is on converting that opportunity into long-term earnings growth for you, our valued shareholders, for many years to come. With that, I'll turn the call over to Lorenzo Flores to review our third quarter results and outlook. Lorenzo?

Lorenzo Flores: Thank you, Ford, and good afternoon, everyone. The bottom line is that Lattice is delivering exceptional financial performance last quarter, this quarter, and based on our expectations, next quarter, next year, and beyond. Revenue was well above guidance. Both the FPGA business and the AMI business exceeded expectations. Our overall revenue of $291 million was 118% over last year. FPGA revenue at $252 million is up approximately 90% year-over-year. Gross margin also exceeded guidance, again, in both the FPGA and AMI businesses. We also managed operating expenses to our guide and delivered dramatic expansion of our profitability as Q3 non-GAAP EPS of $0.72 was 2.5x the prior year's EPS. The trajectory of our business indicates a remarkable 2026. We see our 2026 delivering almost $1 billion in revenue and $2.50 in EPS. This would be nearly double revenue from last year and about 2.4x more earnings. We have been driving this growth across the set of end markets we serve and see strong growth continuing. Now for some key highlights. Q3 revenue reached a record $291 million, up approximately 45% quarter-over-quarter. Within that, FPGA revenue was $252 million, up approximately 90% year-over-year and 25% quarter-over-quarter. This growth was driven by another record performance in Compute & Communications, up 132% year-over-year and 36% sequentially. Very importantly, we also saw Industrial & Embedded revenue growing 35% year-over-year and 7% sequentially. AMI, for the two months after the acquisition, delivered $39 million of revenue, also above our expectations. Q3 non-GAAP gross margin was above expectations at 70.9%. We exceeded expectations as we balanced our supply chain issues with our customer needs. Q3 non-GAAP operating expense was $86.7 million, in line with our guidance and up approximately 29% sequentially. The sequential increase primarily reflects the addition of AMI and continued investments in our product roadmap. Our Q3 non-GAAP operating margin expanded 280 basis points sequentially to 41.1%, while our EBITDA margin increased 200 basis points to 45%. Q3 non-GAAP EPS was $0.72, up approximately 160% year-over-year and 36% sequentially, easily exceeding the high end of our guidance and showing the significant leverage in our model. GAAP net cash flow from operating activities for the third quarter of 2026 was $95 million compared to $88.3 million in Q2. Free cash flow was $77.6 million in Q3. In the quarter, we had higher-than-run-rate CapEx as we invested in test capacity and R&D capabilities aimed at driving operational efficiencies and future growth. Now, a few comments on capital allocation. Our capital allocation priorities remain unchanged. Invest in the business to support long-term growth, maintain financial flexibility, reduce acquisition-related leverage rapidly, and evaluate opportunistic share repurchases. To that end, we paid down $50 million of our debt in the quarter. We remain on track to reduce leverage faster than previously planned. We expect net leverage to be under 2x EBITDA by the end of 2026. We intend to reduce the debt aggressively in 2027 while continuing to invest in growth opportunities across our markets. Now for guidance. As you heard earlier, we expect our strong growth to continue. We expect Q4 revenue of between $325 million and $345 million. At the midpoint of the range, this represents approximately 130% year-over-year growth and 15% sequential growth. We see continued growth across our primary FPGA end markets and AMI. We expect gross margin to remain strong at 72% ± 1% on a non-GAAP basis. We expect non-GAAP operating expense to be between $95 million and $101 million. Most of the increase in OPEX continues to support R&D investments in our product roadmap and long-term growth objectives, as well as a full quarter contribution from AMI. We estimate our income tax rate for Q4 to be between 4% and 6% on a non-GAAP basis. We expect non-GAAP EPS to be in a range of $0.82-$0.86 per share. At the midpoint of this guidance, we anticipate that we would exceed 160% year-over-year earnings growth as we continue to demonstrate the leverage in our model. It is worth repeating that our Q4 outlook implies full year 2026 revenue of approximately $1 billion, roughly 90% growth over 2025. We expect FPGA revenue to surpass $900 million, representing greater than 70% year-over-year growth. Importantly, we anticipate full year earnings per share of approximately $2.50, up about 140% year-over-year. These results demonstrate the strength of our business model, the benefits of scale, and the significant earnings potential we are unlocking as we execute our growth strategy. Obviously, you are interested in our expectations for 2027. We have yet to finalize our 2027 annual operating plan, but we have enough visibility to provide some expectations. As Ford has just discussed, we see a clear path to 60% or better growth from our projected 2026 revenue base of approximately $1 billion. We expect Compute & Communications to remain our fastest growing end market. We expect Industrial & Embedded to continue its strong growth trend, and we expect AMI to grow consistent with our previous expectations. While it is still early in the planning cycle, our confidence is rooted in our backlog, the ramp of design wins in I&E augmenting our demonstrated strength in C&C, and the expected contribution from AMI. In closing, Lattice enters the fourth quarter with strong momentum across all metrics. Together, Lattice and AMI have a broad market opportunity and position us to capture more value across all of our core markets. We are focused on translating that opportunity into above-market revenue and faster earnings growth, stronger free cash flow, and debt reduction, all while investing to build long-term shareholder value. Operator, that concludes my prepared remarks. We can now open the call for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from the line of Sebastien Naji with William Blair. Please proceed with your question.

Sebastien Naji: Yeah. Good afternoon and thank you for taking my questions. Congrats on the strong results here. My first question is on the guidance for next year. So you have outlined a path to approximately $1.6 billion or more of revenue in 2027. Could you maybe just help us unpack and understand what gives you the confidence in that kind of outlook this early?

Ford Tamer: Thank you, Sebastien. Good question. We are creating a sustainable secular growth company for not only 2027, but beyond. We do expect to grow faster than market because of the multiple growth vector we have worked hard to develop over the past few years. What gives us the confidence in 2027 is a few factors. I would say, number one, our backlog visibility extend well past 2027 into 2028. Number two, we see strong continued CapEx from all players across all geographies, with a multi-year long-term agreement being signed with our customers. Number three, we are seeing sustained AI-driven content expansion really around business fundamentals, so unit growth, new features like security driving higher value, and we are seeing attached FPGA rates growing fast. Number four, our industrial embedded business is now shipping to natural demand, so we are out of this inventory situation and very excited about some of these new applications like factory automation driving our growth in 2027. Number five, we have got a full year of AMI. And number six, we are seeing very strong growth in our new product revenue, such as Nexus, small FPGA. Then beyond that, we have got quite a few new growth vector into 2028 we could discuss as well.

Sebastien Naji: Okay, great. Well, maybe this will be one of those 2028 growth vectors. For my follow-up, I just wanted to ask about the four joint Lattice AMI solutions that you announced a few months back, the security retrofit, rack boot, plug and play, and the power and cooling. Could you maybe give us a sense which of these is seeing the strongest customer engagement or traction so far, and when we can expect that to layer into the revenue?

Ford Tamer: Yeah, absolutely. We are seeing strong growth across all of these, with tens of customers already in proof of concept. The strongest one by far is the security retrofit that allows operators to upgrade the fleet without changing the hardware, and that would allow them to upgrade the fleet to the latest security post-quantum cryptography right away. That is going to production with the first customer this quarter, and with many customers going to production in 2027, and we expect the revenue to inflect meaningfully in 2028. Beyond that, we see the other three. The streaming rack boot is fantastic because it allows our operators to upgrade the whole firmware at once across the whole rack, the whole pod, saving substantial time and providing tremendous consistency. We see the power and cooling with one of our major hyperscalers going to market very soon, and contributing this solution to OCP, again, taking hold and becoming a big volume contributor. Then finally, the plug and play is going to be very critical to allow our operators to be able to mix and match x86 with Arm, to mix and match various baseboard management controllers in the same rack. We are very excited about these solutions going to market starting this quarter, well into 2027, and then meaningfully contributing to revenue in 2028. Beyond that, we also see incremental industrial embedded inflection with humanoids, physical AI, aerospace defense application coming to market in 2028. Avant, our mid-range FPGA, is expected then to inflect meaningfully in 2028. We also see some new AMI functionality, such as OnSil, that allows customers to emulate the firmware ahead of tape-out, and memory resilience technology, which allows for extending the life of memory in the field. So, very exciting growth vectors ahead, Sebastien.

Sebastien Naji: Great. Thank you for the detail, Ford.

Operator: Thank you. Our next question comes from the line of Ruben Roy with Stifel. You may proceed with your question.

Ruben Roy: Yeah. Hi, good afternoon. Hey, guys. Congrats on the momentum into the year-end, and thanks for the longer-term guidance. I guess to follow up on the question around 2027, Ford, based on the run rate, it seems like you are going to need around $400 million a quarter on average. I would love to understand how you are looking at the linearity of that revenue as you flow through the year, and how much of that 60% is already in backlog versus dependent on what you are hearing from customers around design wins ramping, or maybe you could talk about the pricing environment given how much demand there is. Thank you.

Ford Tamer: Yeah. Thank you, Ruben. Quite a few questions in there. I will start and then turn it over to Lorenzo. The first one on linearity, we have taken a more conservative view of the second half of the year. Really, we are probably in our 60% guide, you are probably expecting growth in Q1 and Q2, and we have not assumed that same rate of growth in Q3, Q4. As the year develops, we do expect, as we see the Q1, Q2 number deliver, to potentially be able to take those numbers up. So, we feel confident in our 60% or higher growth rate. Number two, on the pricing question, we have some cost increases coming to us from our suppliers, as well as expedite fees, because we have got a lot of demand from our customers, and we are passing those on to customers. But really, the story is not a pricing. Pricing is a small piece of the equation. Really, the story here is a unit growth increase, a value increase, because we are going to these new applications such as security, as I mentioned, and finally, these new products. They are commanding a higher price because they are a lot more functionality as we go from our older product to the Nexus and Avant families. Yeah, Lorenzo?

Lorenzo Flores: Ruben, just a little more color, because we are still in the planning cycle for our business, and what we have looked at, as Ford said, is near term, the growth rates will remain strong, and we will still see growth, just to make sure you are clear. We still see growth, meaningful growth year-over-year in the second half of next year. To plan the business, we want to make sure we are factoring in the environmental concerns and base that, I mean, compare that to what we see in our business directly, which is, as Ford said, quite strong. We are going to manage the business through the year. What gives us a great deal of confidence is the fundamental drivers of the business, Ford articulated them in Sebastien's question, remain strong, and we are expanding the growth rate across our end markets, including Industrial & Embedded, and we see that reflected in a continued unit volume growth rate this year and next year.

Ruben Roy: Yeah. Understood, and that is very helpful. Of course, Lorenzo, I have to come back to C&C and just ask Ford. In July, Ford, you had talked about potentially a 20 million server unit TAM for 2026. I imagine, as you think about this early 2027 outlook, there has been a lot of discussion, and you mentioned it on the prepared remarks around agentic workloads on servers. Do you have an early look or read on server units, and if you could maybe give us a little bit of a high-level idea of how fast you think Compute & Communications could grow around the server opportunity, that would be helpful. Thank you.

Ford Tamer: Sure. Good question. The numbers we told you at the last call in July were correct. We do expect server units to be about 20 million this year. We do expect them to grow to about 25 million next year. The growth rate in our mind is, and based on the numbers we see from the market research and our customers, will be growing faster next year versus this year. We go from, call it, 22% growth rate year-on-year to about 25%. Within that, we do see AI continue to grow to what maybe is 25% AI server share this year to about 40% server share next year. Then we see our attach rate and our content growing as well, because as I said, we are going from older technology to newer products such as Nexus and Avant.

Ruben Roy: Very helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Gary Mobley with StoneX. Your line is now live.

Gary Mobley: Hey, guys. Thanks for taking my question. I wanted to ask about the performance of AMI. You mentioned in your prepared remarks that it is performing in line with your expectations, but if I recall correctly, you were counting this business being maybe a $200 million annual business. It seems like it might be performing a bit better than that. And on the gross margin level, it was, I think, supposed to be a bit of a headwind in the reported quarter, pending the sale of some non-core assets. Maybe you can update us on how that played out.

Lorenzo Flores: Yeah. Hey, Gary. Thanks for the question. The margin for Lattice overall this quarter was better than expected in both the FPGA business and the AMI business. To the point of your question on the AMI business, the revenue came in for Q3, again, it is only a partial quarter for them, it came in slightly higher than we had expected, and it was a better mix, meaning more high-margin business. So, that helped the margins at AMI. We still, at the aggregate level, think it is around the $200 million± run rate business through the year. It is doing better, and then next year, we should grow meaningfully as part of our 2027 AOP. In that growth, this non-core business, as you discussed, will be gone. Margins should expand into the high 70s, like we have said before. So, it is a very good revenue and profitability driver for us.

Gary Mobley: Got it. Then as far as OPEX goes in 2027, how should we model that relative to revenue growth? Is it possible to see a 45% handle on the non-GAAP op margin in 2027?

Lorenzo Flores: Yeah. So, that is a great question, and we will fill you in more details as we get through our planning process. But our objective through the planning process will be to grow EPS, the bottom line, faster than revenue in the scenario that Ford and I talked about in our prepared remarks, in terms of our expected revenue growth. So, that requires us to do all the right planning steps in OPEX. But we think we can fund significant amount of growth opportunities and still maintain this very, very meaningful growth in EPS year-over-year.

Gary Mobley: Thank you very much.

Operator: Thank you. Our next question comes from the line of Tristan Gerra with Robert W. Baird. You may proceed with your question.

Tristan Gerra: Hi, guys. Question on the long-term agreements with customers that you mentioned. How does this change from about a year ago as you have much more visibility and customers clearly are eager to secure supply? Maybe are you able to provide a percentage of your revenue coverage for next year from LTAs, and is there a pricing embedded or is it purely volume-based? If there is pricing embedded in it, is that a gross margin profile similar to what you report or guided into Q4?

Ford Tamer: Tristan, you can expect the answer, right? Obviously, no. We are not going to provide all the details of our customer agreements on a call with a gazillion people listening, but thanks for trying.

Tristan Gerra: Okay. Yeah, thank you. I know sometimes in the past, the coverage was provided, but I understand. My follow-up was to know if you expect any type of inventory replenishment, notably in industrial. You have mentioned that inventory levels are lean, but is there an expectation that at some point there is a rebuild that you expect to ship.

Lorenzo Flores: Yeah

Tristan Gerra: Next year in line with that demand?

Lorenzo Flores: Hey, Tristan, you are referring to channel inventory, right?

Tristan Gerra: Correct. Yeah.

Lorenzo Flores: Yeah. Okay. Because I want to make the distinction. Channel inventory, we are going to try to maintain close to the levels we are at. It provides us much, much better visibility into the end customer demand, and it mitigates overhang risk. So, a specific quarter number may pop up and down, but what we are really doing is looking through the distributor to the end customer and matching up the demand. And that applies to both Industrial & Embedded and Compute & Communications. So, no, we will not see that to any meaningful extent, and certainly not strategically next year. I would say, just to clear up any confusion, we are building very deliberately internal inventory so that we can respond to what we expect to be the significant growth in Q4, in 2027, and beyond. So, you will see our inventory numbers go up. You will have seen them go up this past quarter.

Tristan Gerra: Great. Thank you very much.

Operator: Thank you. Our next question comes from the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Quinn Bolton: Hey, guys. Maybe just a quick clarification. When you are talking about seeing growth rates moderate in the second half, was that a year-on-year comment? Was that more of a sequential comment? Then I have a follow-up.

Lorenzo Flores: Well, I think yes to both, actually, because by math, that would kind of work out that way. But the reality of it is there is still really strong growth numbers. It is just that, again, as we plan the business, we want to be prudent around that and not get overextended. Go ahead, and you said you have a follow-up, Quinn?

Quinn Bolton: Yeah. The follow-up is, I think you guys, and it sounds like the demand environment may have continued to be very strong, but I think last quarter you guys saw a surge in demand late in the quarter that resulted in higher-than-normal delinquencies. Wondering if you could update us on your delinquencies. Are you starting to make progress getting back to a more normal delinquency level, or has the demand environment stayed strong, keeping those delinquencies high? I guess related, just any comments on how you are feeling about being able to bring on additional capacity to support the demand environment. Thanks.

Ford Tamer: Yeah. So I am assuming you are talking supply, and if that is the question, supply, is that correct, Quinn?

Quinn Bolton: Yeah, exactly.

Ford Tamer: Okay. Got it. So, we are in good shape. We are putting multi-year supply agreements with our suppliers as well. We have secured what we believe is the right level of supply for, again, multiple years. We feel good about being able to supply to numbers that are much higher than what we discussed our growth rates to be next year. So, we are ready to do a lot more than what we discussed. Go ahead, Lorenzo.

Lorenzo Flores: Yeah. I think the evidence of that is like this, our Q3 and our Q4, where most of the upside in the business versus our prior guide was based on our ability to navigate through what I was calling a pinch point in supply in Q3 and deliver more units out to the customer this quarter. We see the same thing in Q4. As Ford said, we feel very comfortable about the supply side going forward. So our delinquencies are going down significantly, and our lead time has gone down.

Quinn Bolton: Excellent. Thanks, you guys.

Operator: Thank you. Our next question comes from the line of Melissa Weathers with Deutsche Bank. Please proceed with your question.

Melissa Weathers: Hi there. Thanks for the question. Congrats on the nice results. Please don't hate me for this question, but I think as semis analysts, we have to ask it. Any signs of double ordering? I guess we've seen, I know the channels are super lean, and you're talking with the end customers, but any actions you're taking to help scrub the demand and just make sure, especially on that Industrial & Embedded business, that there are no double ordering activities here?

Ford Tamer: Well, Melissa, thank you for the question. We have spent a tremendous amount of time with our customers, with the channel, double-checking, triple-checking these numbers, making sure that we do not give parts to where a customer may have an issue ramping production because of other parts. So we are very close to our customers and our partners in this endeavor. Industrial & Embedded is just starting to ramp again, so there are no signs of any double ordering there. On the Compute & Communications, the demand is very strong. What gives us the confidence, Melissa, is not that this booking is short-term. It is extending well into 2028. So we have got bookings now for the foreseeable future, and so that is what has given us the confidence. These are being scheduled way out in time.

Melissa Weathers: Thank you. That is helpful. On the Compute & Communications side, I might have missed it, but did you give an updated FPGA per rack or per server, any metric like that? Can you just speak to the breadth of the design engagements that you have? Is your growth kind of bringing on new hyperscale customers? Is it more broad-based? How much is the memory pooling story a part of it? Just any more color on the breadth of the momentum in data center.

Ford Tamer: I am going to point you out to a new slide we have got in our deck, corporate deck, that we just on the IR side of the website. Slide number 30 shows all the various applications where we are solving the data center challenges. You could see that we have applications all the way from compute to networking to storage across GPU, XPU, DPU, CPU, baseboard management controller, storage, network switch, NIC cards, pooling power, both the HPM card and the DC-SCM cards. If you look at the application we are detailing on slide number 30, it shows many applications in the server, from connectivity to fan and power control, to hardware abstraction, to various securities such as root of trust, attestation, post-quantum cryptography, on the rack-level trust and attestation, low-level deterministic leak response, rack telemetry, manageability, power control, throttling. You can see we have got many, many applications. If you asked me a couple years ago, we did not have all these applications. Just on the trust and control, we now have all these new regulations for CNSA 2.0 and CRA compliance. These are regulations that have to be met by early next year. So, that tremendous pressure from the customer to deliver to these new applications. We are very excited about this. I take you to slide number 32, an extra slide that was there before and shows the various applications that we have for Industrial & Embedded, and we are quite excited about those. I point you to one more place in the deck. Actually, there are a couple. If you go down the deck to slide 35 and beyond, you are going to see quite a few other applications. So, quite a few applications there. But I am going to point you to a new product we just announced this quarter called Prompt, Lattice Prompt. What that is, it allows customers to develop their application from an English language prompt, integrates with their preferred language model, their preferred IDE, and from a prompt, it would generate not only the code, but also validate the whole application. So you get to test a proven application in a matter of days versus weeks and months. Even more, it really expands the developer base well beyond what we had in the past. So we are very excited about the market expansion we are seeing with Prompt, because we do believe there is a tremendous number of applications that are more deterministic, more closer to hardware, more closer to the sensor that need to be done in FPGA. In the past, they have been done in software just because we do not have enough programmers and developers that know how to program RTL. So this is going to open up a totally new developer base, and we are very excited about the new application that this is creating. So all of this is driving our attach rate to numbers we never seen before, and fantastic range of new applications. We have not even started dreaming these applications that Prompt can open up. This shows that we are really at the very early innings of this whole AI revolution. So we are very excited about the future ahead.

Melissa Weathers: Thanks so much, Ford.

Operator: Thank you. Our next question comes from the line of Srini Pajjuri with RBC Capital Markets. You may proceed with your question.

Srini Pajjuri: Thank you. Ford, that was a passionate answer. I do want to ask another longer-term question. You talked about your five-year growth potentially around 30%. Just curious, given the history of this industry, I mean, again, you answered that question to an extent already with the previous answer, but you must be seeing something out there in the market to talk about five years of growth at 30%, given that this industry has been cyclical in the past and did not exactly grow at that rate. Just curious, I mean, is this a Lattice comment, or do you think the FPGA industry is in a structurally better position going forward?

Ford Tamer: This is coming from my past and from our past. Srini, you have been in the market as long as I have, and maybe I have been actually in the market longer than you have. I am older. Look, I have seen this the third time. I have seen it at Broadcom in the cloud where we are pushing networking, and finally we are starting the optical, and here we are starting this whole Secure Control and Management Plane, and the sky is the limit. Look, I mean, during the cloud revolution, there were many winters and ups and downs, but look where we are today. If you look at all the hyperscaler results, cloud is the absolute shining moment here, and demand continues to grow 20 years after the cloud revolution. Optical, if you remember, we started this in 2012, and look at the huge deal, $115 billion announced today by Marvell and Lumentum. Again, this optical thing, you and I can recount how many winters we had in optical, but if you take a longer-term view, the market is up. I do believe that Lattice is a perfect industry barometer because we are exposed to all the various sectors here, all the various customers, 11,000 customers, very broad-based, very varied segments across Compute & Communications, Industrial & Embedded. There are quite a few, robotics, humanoid, factory automation, drones, self-driving cars, the list goes on, medical, aerospace, defense. We are into all the top aerospace defense, and we are just bringing up a rad-hard process here on the U.S. soil in Austin. We are very excited about that as well. Yes, I mean, we do believe this is early innings of this revolution.The market is very skittish right now, but I think we have got to take a look at the longer-term view. The numbers we are posting are not showing any slowdown. If anything, we are showing tremendous acceleration. We do believe that you are going to see some company-specific issues. We have no exposure to the PC market on the FPGA side, zero, okay? That is gone. We have got very little exposure to the PC market on AMI, so that is fine, but the big business is server. All the business we are in are up and to the right and accelerating. Yes, we are very excited, and we see this as a multi-year expansion, and I think people have to go see beyond this little jitter that we have right now, I mean, and plan for the long term.

Srini Pajjuri: Makes sense, Ford. My next question is for Lorenzo. Lorenzo, you talked a little bit about your balance sheet inventory going up a little bit. Also, your receivables went up, but you beat consensus by about $35 million. Just curious how the quarter was. Was it fairly linear? Did you have an acceleration at the tail end of the quarter? My other question is that, given your balance sheet inventory, to the extent that we see incremental demand to your guidance in the next couple of quarters, it looks like you are in a pretty good position. Also, speak to us about the supply in case you have more upside in the coming quarters. Thank you.

Lorenzo Flores: Yeah. I am going to refer back how Ford set the stage for the longer-term supply. In the near term, you are talking about the balance sheet elements that we saw in Q3. Just for everybody, it was a different quarter because we included AMI for the first time, so some of the account balances, like AR, would have gone up. If you look at the days, it is actually down, and our cash conversion cycle looks really pretty good. The inventory piece is something that we are investing in, and what you would have seen as we went through the quarter aligns with your point, your question on linearity. Because of the supply side, we are getting a lot of stuff in toward the end of the quarter last quarter. We are shipping a lot of stuff out. That is going to start to level off in the next few quarters, and our linearity will look better. Overall, we think the cash generation engine of the company will remain really, really strong. What we are doing very deliberately is putting in the supply, as you pointed out, to support upside in demand. Given the potential demand scenarios we see, given our margin structure, and given the longevity of the products we build, we see risk is minimum on having a few extra parts, and we do not want to forego the opportunity of capturing the upside when it is there.

Srini Pajjuri: Got it. Thanks a lot.

Operator: Thank you. Our next question comes from the line of Joshua Buchalter with TD Cowen. Please proceed with your question.

Joshua Buchalter: Hey, guys. Thank you for taking my question, and congrats on the fantastic results and outlook. I think in the past, you have talked about FPGA per servers going from one to over 3x. Can you talk about where we are in that progression? As rack scale and heterogeneous architectures continue to become more widespread, is there any kind of cap on content or units we should be thinking about? I think generally, that has been a large FPGA problem, not a small and mid-sized one. But I would be curious, as we think about you doing well over $1 billion of FPGA revenue next year, if there is any kind of cap on the TAM or content we should be thinking about. Thank you.

Ford Tamer: No, thank you very much, Joshua. Yes, this will be well over $1 billion next year. Look, that attach rate number has been steadily growing from one to two to three to it starts with a four right now, okay? We are not going to give you more detail, but you can see it keeps growing. That is because of new applications we are finding, and we are pretty excited about it.

Lorenzo Flores: Yeah, and I think the Industrial & Embedded space as well, as we start seeing physical AI go out, we will see an attach rate phenomenon analogous to what we are seeing in the Compute & Communications and data center. So the cap, we like to think it is uncapped, but we are looking at the growth rate based not only on the unit volume industry ships, but an attach rate that grows through time.

Ford Tamer: Yeah, Joshua, I would point out that a humanoid has way many more potential sockets than in a server, because you have vision, you have motor control, you have connectivity. You have quite a few more attach points in a humanoid than a server. So that humanoid industry, as an example, could be bigger than the server industry.

Lorenzo Flores: Right. We will see competition, and we want to be prepared with not just the silicon side of it, but the software side, capabilities like Prompt, embedded firmware, manageability, where it adds it to our advantage that we can position out, provide a higher value opportunity to our customers.

Joshua Buchalter: Appreciate the color there. For my follow-up, you guys were very clear that this is not like-for-like ASPs or pricing that is driving the growth for, well, this year or next year. Maybe you could talk about how much of the, as we think about your outlook for the 60% growth next year, obviously AMI helps, but how much of it are you benefiting from new product growth as Nexus and Avant layer in more meaningfully with the higher associated ASPs? Thank you.

Ford Tamer: Yeah, thank you, Joshua. The first order of magnitude that is really driving this is unit growth of existing product. The second one is going to be the growth of the new products. The third one is going to be AMI and associated solution on FPGA and firmware. So that is how I would rank it.

Joshua Buchalter: Thank you.

Operator: Thank you. Our next question comes from the line of Sajal Dogra with Rosenblatt Securities. Please proceed with your question.

Sajal Dogra: Hey, thank you for squeezing me in, actually, and fantastic results. It is great to be on the Lattice call. I guess I had some longer-term questions too. Ford, you discussed Lattice Prompt, and I wanted to dig deeper into that. Altera recently announced its Agilex 2X portfolio, they are targeting robotics and physical AI. They also have this QuartusIQ, which is their new AI-assisted FPGA design tool. These seem to overlap with Lattice's positioning in low-power programmable logic and Lattice Prompt. As AI-assisted designs lowering the barriers to FPGA adoption, and I know you said you expect this to expand the overall FPGA market, but what do you think is Lattice's most durable differentiation in these emerging physical AI applications? And why do you think this Lattice Prompt and QuartusIQ would work? We have tried these things in the past with HLS, Xilinx Vitis, and Xilinx reVISION Stack. Thank you.

Ford Tamer: Yeah, Sajal, thanks for the question. First, we were first to announce. I would point out that Altera announced after us, so I am glad people are following us. Their tools are going to work for theirs, our tools are going to work for ours. Our tools Lattice Prompt work with our Lattice Radiant tools that obviously work for our FPGAs. The reason I think these AI-assisted tools are going to work now better than in the past is they are integrated with the IDE that people are using already today. Whether it is Claude or OpenAI or Cursor, whatever you are using today, these tools are going to seamlessly integrate with your preferred language model, with your preferred IDE. We are seeing the benefits. I mean, the benefits are just immense. Applications are being developed in hours and go production in days versus what used to take weeks and months. It is a very profound change for everyone, not just us, but obviously Altera, Xilinx, everyone. The long-term differentiation we have is going to be focused on the small FPGA, and eventually mid-range. We are very, very focused in our markets and planning on the low power, small size, best connectivity, very low latency, fast boot time that our small FPGA customers are requiring from us. We remain very focused on our markets, and we believe there is actually not that much overlap between us and Altera and Xilinx.

Sajal Dogra: Great. As a follow-up, we are seeing supply challenges across some of your FPGA competitors. Are you seeing a change in the competitive dynamics for new designs, especially in servers and industrial control? Is that translating into market share gains and higher win rates for Lattice? Thank you.

Ford Tamer: Yeah, there are two separate questions. You started with supply, and then you went to market share gain. Supply obviously is an industry-wide issue, and we, as I said, have secured supply for our customers. I am not sure what our competitors are doing there, but we just can only comment on our side, we secured supply. On the market share gain, absolutely. We are absolutely gaining share in the small FPGA. If you had walked around OCP and you look at every server board, every network switchboard, you see Lattice everywhere.

Sajal Dogra: Okay, thank you.

Operator: Thank you. We have time for one additional question, coming from the line of Christopher Rolland with Susquehanna International Group. You may proceed with your question.

Christopher Rolland: Thank you for the question, and congrats on the results. I guess perhaps for my first one, just the conservatism around the back half. I am a little bit curious. Do you guys have backlog, good backlog coverage over that period? What is the data? Is it actual customer conversations that you guys are having that is driving that? Or is it just perhaps what we have seen in the stock market recently and worries about the back half? I am just wondering, is this data-driven? Is this feedback-driven, or is it more gut?

Ford Tamer: No, good question, Chris. No, we have backlog well into 2028. Yes, Q1, Q2, Q3, Q4 of 2027, and into 2028, means Q1, Q2 2028. We are into 2028 right now. We have confidence based on backlog, but we are on November 2nd of 2026. Would it make a difference if I tell you we are going to grow at 70% or 80% next year versus 60%? I mean, we said we are going to go over 60%, and it could be 70%, could be 80%, but it could be 60%. I mean, at this point on November 2nd, we do not see a benefit or upside to go beyond over 60%.

Christopher Rolland: Okay. That makes a ton of sense, Ford. I appreciate that. For my second question, Ford, your cash is building again. You are the strategic vision guy over there at Lattice, so you are probably looking at perhaps other acquisitions, tuck-ins, or even larger. Perhaps you can talk about kind of where your head is at, what you are thinking about. Are you thinking about software or hardware? Are you thinking about FPGAs or perhaps something outside of that? Is it all AI data center-driven or something else? Just any thoughts about where you could.

Lorenzo Flores: Yeah, hey, just.

Christopher Rolland: Take the company next.

Lorenzo Flores: Just real quick. Just real quick. I have to make sure we are all on the same line. Our cash balance is not building. We are generating cash, and we are going to pay down the debt aggressively. Then I think there is nothing different about how we view the inorganic opportunities. We have a very wide lens and a very narrow aperture, and we are going to focus in the near term on paying down the debt and complete integration of, and successful integration of AMI. So that is where we are. Thanks.

Christopher Rolland: Lorenzo, I did mean growing from here.

Lorenzo Flores: Okay. But hey, no, that's fine. Anyway, we are out of time, everybody. Rick, do you want to wrap up?

Rick Muscha: Yeah. We'll play there. Thanks everyone for joining us on the call today. We'll be attending the following investor events this quarter, the RBC TMT Conference in New York City on November 17th, the UBS Global Technology Conference in Scottsdale on December 1st, and then the Barclays 24th Annual Global Technology Conference in San Francisco on December 9th. Thank you very much for your participation and have a great evening.

Operator: Thank you, and this concludes today's conference.

Speaker 14: Goodbye.

Operator: You may disconnect your lines at this time. We thank you for your participation.