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.

Thank you, operator, and good afternoon, everyone. With me today are Fouad Tamer, Lattice's CEO, and Lorenzo Flores, Lattice's CFO. We'll 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 containing 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 lattice-semi.com. With that, I'll turn the call over to our CEO, Fouad 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 72 cents, 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%. Our commitment to you, are 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 and communication 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 and embedded products continue 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 downtime. We expect our lattice industrial and 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 and 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 a Gentic development environment was our Lattice region tools and generates tested and proven FPGA code. Lattice Prompt provides significant FPGA developer productivity benefits and represent a significant step forward for our customer base. We also introduced the Mach M2 family, our latest secure control, small FPGA platform, featuring integrated flash, Hardware Route 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 complimentary 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 a strong customer intimacy. Ecosystem keynotes included Advantech, Innovent, 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 SCAMPI, with seven industry leaders. AMD, ARM, ASPEED, Intel, Jabil, Microsoft, and NXP. And 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 Laura 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 companionships, 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 and many more.

Thank you, Fouad, 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 72 cents was two and a half times the prior year's EPS. The trajectory of our business indicates a remarkable 2026. We see our 2026 delivering almost a billion dollars in revenue and $2.50 in EPS. This would be nearly double revenue from last year and about 2.4 times 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.

Again, 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 and communications, up 132% year over year and 36% sequentially. Very importantly, we also saw industrial and 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 pay 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 two times 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 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% plus or minus 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 82 cents to 86 cents 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 Fouad 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 and communications to remain our fastest growing end market. We expect industrial and 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 CNC, 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.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Sebastian Najee with William Blair. Please proceed with your question.

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. You've 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?

Thank you, Sebastian. 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 extends well past 2027 into 2028. Number two, we see strong continued capex from old players. across all geographies with a multi-year long-term agreement being signed with our customers. Number three, we're seeing sustained AI-driven content expansion really around business fundamentals. So unit growth, new features like security driving higher value, and we're seeing an attached FPGA rate growing fast. Number four, our industrial embedded business is now shipping to natural demand. So we're out of this inventory situation and very excited about some of these new applications like factory automation driving our growth in 27. Number five, we've got a full year of AMI. And number six, we're seeing very strong growth in our new product revenue, such as Nexus, small FPGA. Then beyond that, we've got quite a few new growth vectors into 28 we could discuss as well.

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 revenues?

Yeah, absolutely. So we're 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 operator 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. And so that's going to production with the first customer actually this quarter. and with many customers going to production in 27 and we expect the revenue to inflect meaningfully in 28. 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 was one of our major hyperscaler going to market actually very soon and contributing this solution to OCP. Again, taking hold and becoming a big volume contributor. And 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 board management controller in the same rack. And so we're very excited about these solutions going to market starting this quarter well into 27 and then meaningfully contributing to revenue in 28. 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 FPGAs, expected then to inflect meaningfully in 2028. We also see some new AMI functionality, such as OnSil, we call it 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, Sebastian.

Great. Thank you for the detail, Ford. Thank you. Our next question comes from the line of Ruben Roy with Stifel. You may proceed with your question.

Yeah. Hi. Good afternoon. Hey, guys. Congrats on the momentum into the year end, and thanks for the, The longer-term guidance. I guess to follow up on the question around 2027 forward, based on the run rate, it seems like you're going to need around $400 million on a quarter on average. We'll let you understand how you're 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're hearing from customers around design winds ramping or maybe you could talk about the pricing environment given how much demand there is. Thank you.

Yeah, thank you, Ruben. Quite a few questions in there. I'll 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. So really, we're probably in our 60% guide, you're probably expecting growth in Q1 and Q2, and we haven't 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 there are 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've got a lot of demand from our customers and we're 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 and many more.

looked at, as Fouad said, is near-term, the growth rates will remain strong, and we'll still see growth, just to make sure you're clear, we'll still see growth, meaningful growth, year over year in the second half of next year, but to plan the business, we want to make sure we're factoring in The fundamental drivers of the business for articulated them and Sebastian'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.

Yeah, understood. And that's very helpful. Of course, Lorenzo, I have to come back to CNC and just ask Ford, In July, Fouad, you had talked about potentially a 20 million server unit TAM for 26. I imagine as you think about this early 27 outlook, there's 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 sort of if you could maybe give us a little bit of a high level idea of how fast you think Compute and Calm could grow, you know, around, you know, sort of the server opportunity, that'd be helpful. Thank you.

Sure, sure. Good question. You know, we, 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 next year. So the growth rate in our mind is, or based on the numbers we see from the market research and our customers, will be growing faster next year versus this year. So 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. And then we see our attach rate and our content growing as well because, as I said, we're going from all their technology to newer products such as Nexus and Avant.

Very helpful. Thank you. Thank you. Our next question comes from the line of Gary Mobley with Stonex. Your line is now live.

Hey, guys. Thanks for taking my question. I wanted to ask about the performance of AMI. You mentioned in your prepared remarks that it's performing in line with your expectations, but if I recall correctly, You were counting this business being maybe a $200 million annual business. 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 reporter quarter pending the sale of some non-core assets. Maybe you can update us on how that played out.

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. And to the point of your question on the AMI business, the revenue came in for Q3. Again, it's 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's around the 200 plus or minus run rate business through the year. It's 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's a very good revenue and profitability driver for us.

Got it. And then as far as OPEX goes in 2027, how should we model that relative to 2020? Is it possible to see a 45% handle on the non-GAAP op margin in 2027?

Yeah, so that's a great question. And we'll fill you in more detail 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 Fouad 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.

Thank you very much.

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

Hi, guys. Question on the long-term agreements with customers that you've 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, you know, from LTAs? And is there a pricing embedded or is it purely volume-based? And is that, if there's pricing embedded in it, is that a margin, gross margin profile similar to what you reported or guided into Q4?

Tristan, you can expect the answer, right? So obviously, no, we're not going to provide all the details of our customer agreements on a call with a gazillion people listening, but thanks for trying.

Okay, yeah, thank you. I know sometimes in the past, you know, the coverage was provided that I understand. And then my follow-up was to know if you expect any type of inventory replenishment Notably in industrial, you've mentioned that inventory levels are lean, but is there an expectation that at some point there is a rebuild, or do you expect to shift next year in line with that demand?

Hey, Tristan, you're referring to channel inventory, right?

Correct, yeah.

Yeah, yeah, yeah, okay, because I want to make the distinction. Channel inventory, we're going to try to maintain close to the levels we're at. It provides us much, much better visibility into the end customer demand, and it mitigates overhang risk. So, you know, it'll, you know, A specific quarter number may pop up and down, but what we're really doing is looking through the distributor to the end customer and matching up the demand. And that applies to both industrial and embedded and computing comms. So no, we won't 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'll see our inventory numbers go up. You will have seen them go up this past quarter.

Great. Thank you very much.

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

Hey guys, maybe just a quick clarification when you're talking about sort of seeing growth rates moderate in the second half. Was that a year-on-year comment? Was that more of a sequential comment? And then I've got a follow-up.

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's still really strong growth numbers. It's just that, again, as we plan the business, we want to be prudent around that and not get overextended. So go ahead, then you said you have follow-up, Quinn?

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 more normal delinquency level, or has the demand environment stayed strong? keeping those delinquencies high, and I guess related, you know, just any comments on how you're feeling about being able to bring out additional capacity to support the demand environment. Thanks.

Yeah, so I'm assuming you're talking supply, and if that's the question, supply, is that correct, Quint?

Yeah, exactly.

Okay, got it, 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. And 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're ready to do a lot more than what we discussed. So go ahead, Lorenzo.

And 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 to navigate through what I was calling a pinch point in supply in Q3 and deliver more units out to the customer this quarter. And we see the same thing in Q4. And 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.

Excellent. Thank you, guys.

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

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 checking the DN customers, but any – Thank you for the question.

Yeah, we have spent a tremendous amount of time with our customers, with the channel, double checking, triple checking these numbers, making sure that we don't 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 and comms, again, the demand is very strong. And what gives us the confidence, Melissa, is not that this booking is short-term. It's extending well into 2028. So we've got bookings now for the foreseeable future. and so that's what gives us the confidence. These are being scheduled way out in time.

Thank you. That's helpful. And then on the comms and compute side, I might have missed it, but did you give an updated FPGA per rack or per server, any metric like that? And 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?

I'm going to point you out to a new slide we've got in our corporate deck. On the IR side of the website, slide number 30 shows all the various applications where we're solving the data center challenges. And you can see that we have applications all the way from You know, compute to networking, to storage across, you know, GPU, XPU, DPU, CPU, board management controller, storage, network switch, NIC cards, pooling power, you know, both the HPM card and the SCM cards. If you look at the application we're 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, rack-level trust attestation, low-level deterministic leak response, rack telemetry, manageability, power control, throttling. And so you can see we've got many, many applications. If you asked me a couple of years ago, we didn't have all these applications. Just on the trust and control, we now have all these new regulations for CNSA 2.0 and CRA compliance. And so these are regulations that have to be met by early next year. So that tremendous pressure on from the customer to deliver to these new applications. And so we're very excited about this. And I take you to slide number 32. And that's a slide that was there before and shows the various applications that we have for industrial embedded. and we're quite excited about those. And I'll point you to one more place in the deck. Actually, if you go down the deck to slide 35 and beyond, you're going to see quite a few other applications. So quite a few applications there. But I'm going to point you to a new product we just announced this quarter called Prompt, Lattice Prompt. And 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. And so you get to test a proven application in a matter of Thank you for joining us today. and so this is going to open up a totally new developer base and we're very excited about the new application that this is creating. So all of this is driving our attach rate to numbers we've never seen before and, you know, fantastic range of new applications. We haven't even started dreaming of the application that Prompt can open up and this shows that we really are at the very early innings of this whole AI revolution and so we're very excited about the future ahead.

Thanks so much, Fred.

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

Thank you. That was a passionate answer, but 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 know, you must be seeing something out there in the market, you know, to talk about five years of growth at 30%, given that this industry, you know, has been cyclical in the past and, you know, didn't exactly grow at that rate. So just curious, I mean, is this a lattice comment or do you think the FPGA industry is in a structurally better position going forward?

This is coming from my past and from our past. Trini, you've been in the market as long as I have, and maybe I've been actually in the market longer than you have. I'm older. But, you know, look, I've seen this a third time. I've seen it at Broadcom in the cloud where we're pushing networking. In fine, we're starting the optical. And here, we're starting this whole secure control and management, and the sky's the limit. So, 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. And again, so this optical thing, you and I can recount how many winters we had in optical and 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, very valued segments across the pros and cons. Industrial embedded, there's quite a few, robotics, humanoid, factory automation. Drones, self-driving car, the list goes on. Medical, aerospace, defense, we're into all the top aerospace, defense, and we're just bringing up a red hard process here on the U.S. soil in Austin. So we're very excited about that as well. And so, yes, I mean, we do believe this is early innings of this revolution. The market is very skittish right now, but I think we've got to take a look at the longer term view. The numbers we're posting are not showing any slowdown. If anything, we're showing tremendous acceleration. We do believe that you're going to see some company-specific issues. Exposure to the PC market on the FPGA side, zero, okay? So that's gone. We've got very little exposure to the PC market on AMI, so that's fine, but the big business is server. So all the business we're in are up and to the right and accelerating. So 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.

Makes sense, Fouad. My next question, I saw Lorenzo. Lorenzo, you talked a little bit about your balance sheet inventory going up a little bit, and also your receivables went up, but you beat consensus by about 35 million. Just curious how the quarter You know, was it fairly linear? You know, did you have, you know, an acceleration at the tail end of the quarter? I guess my other question is that, you know, given your balance sheet, you know, inventory, you know, to the extent that we see incremental demand to your guidance in the next couple of quarters, it looks like you're in a pretty good position. So also speak to us about, you know, the supply in case, you know, if you have more upside, you know, in the coming quarters. Thank you.

Yeah, I'm going to, you know, refer back, you know, how Ford set the stage for the longer term supply. But in the near term, you're talking, you know, about the balance sheet elements that we saw in Q3. Just for everybody, you know, it was a different quarter because we included AMI for the first time. and so some of the account balances like AR would have gone up, but if you look at the days, it's 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're getting a lot of stuff in toward the end of the quarter, last quarter. We're shipping a lot of stuff out. That's going to start to level off in the next few quarters, and our linearity will look better. Overall, we think... The cash generation engine in the company will remain really, really strong. And what we are doing very deliberately is putting in the supply, as you pointed out, to support upside in demand. because 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 don't want to forego the opportunity of capturing the upside when it's there.

Thanks, Lonely.

Thank you. Our next question comes from the line of Joshua Butalter with TD Cowan. Please proceed with your question.

Hey guys, thank you for taking my question and congrats on the fantastic results and outlook. I think in the past you've talked about FPGA per servers going from 1 to over 3x. Can you talk about where we are in that progression? And 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 mean, I think generally that's been a large FPGA problem, not a small and mid-sized one. But I'd be curious as we think about you doing, you know, well over a billion of FPGA revenue next year, if there's any kind of cap on the TAM or content we should be thinking about. Thank you.

Thank you very much, Joshua. And yes, this will be well over a billion next year. So look, that attach rate number has been steadily growing from 1 to 2 to 3 to start with a 4 right now. We're not going to give you more detail, but you can see it keeps growing. And that's because of new applications we're finding, and we're pretty excited about it.

Yeah, and I think the industrial embedded space as well, as we start seeing physical AI go out, we'll see an attach rate phenomenon analogous to what we're seeing in the compute and data center. So the cap, we'd like to think it's 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.

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

But we know 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 to our advantage that we can position out, provide a higher value opportunity to our customers.

Appreciate the color there. And for my follow-up, you guys were very clear that this is not like-for-like ASPs or pricing that's driving the growth for this year or next year. But 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.

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

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

Hey, thank you for squeezing me in, actually, and fantastic results. It's great to be on the Lattice call. I guess I have some longer-term questions, too. Fouad, you discussed Lattice Prompt, and I wanted to dig deeper into that. Now, Altera recently announced its Agilex 2S portfolio that's targeting robotics and physical AI. They also have this Quartus IQ, which is their new AI-assisted FPGA design tool. Now, these seem to overlap with Lattice's positioning in low-power programmable logic and Lattice Prompt. Now, 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 Quartus IQ would work. We've tried these things in the past with HLX, Xilinx Y8S, and Xilinx RevisionStack. Thank you.

Yeah, no, Sajjad, thanks for the question. You know, first, we were first to announce, right? So I point out that Altera announced after us, so I'm glad people are following us. But their tools are going to work for theirs. Our tools are going to work for ours. Our tools prompt work with our radiant tools that obviously work for RFPGAs. The reason I think these AI-assisted tools are going to work now better than in the past is they're integrated with the IDE that people are using already today. So whether it's Cloud or OpenAI or Cursor or whatever you're using today, these tools are going to seamlessly integrate with your preferred language model, with your preferred IDE. and we're seeing the benefits. I mean, the benefits are just immense. I mean, applications are being developed in hours and go production in days versus what used to take weeks and months. So it's a very profound change for everyone, not just us, but obviously Altera, Xanax, everyone. The long-term differentiation we have is going to be focused on the smaller PGA and eventually mid-range. So we're very, very focused in our markets and Thank you for joining us.

New designs, especially in servers and industrial control. And is that translating into market share gains and higher win rates for Laris? Thank you.

Yes, there's two separate questions. You started with supply and then you went to market share gain. You know, supply obviously is an industry-wide issue. And we, as I said, have secured supply for our customers. So I'm not sure what our competitors are doing there. But we just can only comment on our side with secured supply. On the market share gain, absolutely. We're 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.

Okay. Thank you.

Thank you. And we have time for one additional question coming from the line of Christopher Rowland with Susquehanna International Group. You may proceed with your question.

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's driving that? or is it just you know perhaps what we've seen in the stock market recently and worries about the back half I'm just wondering like is this is this data driven is this feedback driven or or is it more gut no good question uh Chris no this is uh we have backlog well into 28 so yes q1 q2 q3 q4 of 27 and

into 2028, means Q1, Q2, 2028. So we're into 2028 right now. So we have confidence based on backlog, but we are on November 2nd of 2026. Will it make a difference if I tell you we're going to grow at 70% or 80% next year versus 60%? So, I mean, we said we're going to go over 60%, and so it could be 70%, it could be 80%, but it could be 60%. So, I mean, at this point on November 2nd, we don't see a benefit or upside to go beyond over 60%.

Okay, that makes a ton of sense, Fouad. I appreciate that. For my second question, Fouad, you know, your cash is building again. You're the strategic vision guy over there at Lattice. And so, you know, you're probably looking at perhaps other acquisitions, tuck-ins or even larger acquisitions. Perhaps you can talk about kind of where your head's at, what you're 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

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

And Lorenzo, I did mean growing from here.

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

Yeah, we'll play there. Yeah, 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 the 17th of November, 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.

Thank you. This concludes today's conference. Goodbye. We thank you for your participation.