CFO Exchange – A Discussion with Sherri Luther

Yeah, sure. So I'll start current and go back. Currently, I'm the CFO at Lattice Semiconductor, going on two and a half to three years now. It's certainly been a really fun journey so far, and I love to talk about some of the great progress we've made there in improving the financials of the company and really getting that transformation underway. Prior to Lattice, I was at Coherent for about 16 years, had a number of roles and lots of different hats in that time, which is why I stayed so long. It was fun, and I had a lot of really great opportunities to pursue. I did a lot of M&A, and I was in Germany for two years as an expat, which was really fun. Before that, I was at Quantum, a disk drive company. As many of you probably know, that industry has undergone quite a bit of consolidation, but I was there for 10 years with a lot of great experiences. Prior to that, at a small startup, and I really started my career at Arthur Andersen in public accounting on the audit side. I went to college in Ohio, a small town in Ohio, Wright State University. After graduating from Wright State, I decided I wanted to get into high tech, and I thought that would be an exciting place to start my career, so I moved to the Bay Area, Silicon Valley, to start my career here.

Yeah, sure. So I grew up in a suburb of Dayton, Ohio, and as I said, I went to Wright State University there. The university has certainly grown since I graduated; it was much smaller at the time I went there. I think what really got me interested in accounting and finance was my auditing teacher at that time. She actually had experience working at Arthur Andersen, coincidentally, and so my auditing class—strange as it sounds—I actually liked it. I liked my auditing class; it's not normal. So that really kind of kept my interest in auditing. In terms of what made me want to progress further and really focus on my career, someone who was a really big influence on me was my dad. My dad was a deputy chief of police in Dayton, Ohio. I really saw his work ethic. When he joined the police department, he didn't have his college degree at that time, but he knew that in order to move up, he would need to get his college degree. So while working on the police department, he got his undergraduate degree and then later pursued higher studies as well. I saw him working a full-time job, multiple different shifts as you can imagine on the police department, and then studying for his college courses. That really had an impact on me; it reinforced my desire to work hard and really strive to accomplish more in life, even if it means you have to work really hard. So that's the work ethic I think I got from my dad, just really wanting to work hard and push forward to succeed into higher things.

I worked at one of my first jobs when I was in later high school years and into college at Wendy's, Wendy's hamburgers in the Dayton area. I remember definitely working in those types of jobs; it's hard work. It's not a cakewalk. I would come home smelling like a hamburger because you're grilling hamburgers. One of my jobs was cleaning a salad bar, which was kind of a pain. You realize how sloppy people are when you have to clean up after them. So when I would go to the salad bar in any restaurant, I would certainly try to be careful because I knew how messy a job it is to clean up. I also worked at Domino's Pizza, and that was a crazy time. I started as a hostess, so I would seat people, and when it got really busy, I would take their order. On a busy evening, I can definitely recall times when the orders didn't come out as fast as people wanted them to, so you'd have to give them a free pizza or somehow make them happy from a customer service perspective. That was a hard job, and you learn from that not only working hard but the value of people. Those kinds of jobs typically have a lot of turnover, so it's hard for management to manage people because it's just constantly turning over with new people. But I think those are great experiences to have, and as you mentioned, Chris, from your McDonald's experience, you learn a lot when you work in those types of jobs.

Yeah, I think a part of it is just being curious, wanting to learn more and develop yourself more to take on more responsibility. I can remember early in my career, I would seek to get promoted to the next level. One of the companies I worked at earlier on modified their promotion policy because it was sort of like, 'You need to be in a job longer than that before you get promoted.' You know, you need to be in a job longer than six months or a year to get promoted to the next level. I only mention that because it was really my drive to take on more responsibility because I was curious as to how I could have an impact in a lot of different areas. That was very appealing and exciting as I would take on more responsibility. Even if it doesn't mean a promotion, you don't need to get promoted to take on more responsibility. You can just be curious and ask for additional responsibilities or exposure into different areas so you can understand how they work in a company, how different functions work. An example is M&A. When I was at Coherent, the company was very acquisitive. I think while I was there, we acquired over 20 different companies that actually closed, and the hit rate is pretty low, so you look at a whole lot more companies than you actually consummate deals with. But it's just wanting to say, 'Hey, can I help in this area? Can I have exposure here?' And whether it becomes a one-time project that you learn from or it evolves into other things where you can take on more responsibility and greater roles, either way you benefit. So I think it's that curiosity and drive to want to learn more and develop myself more so I can have an impact.

One thing, it sounds so obvious but it's not really: you need to let people know what you want to do, what exposure, what areas you want to be exposed to. And maybe even before that, talk to people who are in roles that you think you would like to take on at some point in the future. Not only does that give you the opportunity to understand what those roles are like and say, 'Yeah, I would like to do that' or maybe not, but it also shows you how other people think about things and how they got to where they are. You make great relationships through meeting people, talking to them, asking about their journey. Then they introduce you to other people, which gives you other insights into other roles. That just helps widen your horizons. It might seem simple or obvious, but people I've talked to, not a lot of people necessarily do that. You can have people who are really strong performers and do an excellent job, but that doesn't mean we all know what they want to do. Every single person on this call can be a stellar performer, but what are the next steps they want to take in their career? What exposures do they want to have in other areas? Everybody is going to be different. So it's being curious and meeting people and asking about their journey, and also being very open and saying, 'Hey, I'd like to have some exposure to this area. Can I have exposure to that area? How can I get exposure?' Look at your current company, look at the current areas in your company. Can I help in this certain area? It doesn't mean your job title changes, it doesn't mean your role changes, just ask for exposure into that area. Maybe it's something you decide you'd like to do and you would like to go down that path in your career. It exposes other people to your abilities, and so it's a simple thing that can really open the door for a lot of different things. That's something I certainly learned, and I don't think a lot of people necessarily think about it that way.

I have to say I think I've been very fortunate. I don't think I've had any negative experiences that unfortunately a lot of people have had. That's not a good thing for those to happen, but I've been very fortunate to have not had anything. I've had great mentors, both male and female, who have been very supportive and have really helped give me perspective as I've moved throughout my career. I'm extremely thankful for that. But it's an area of great concern because a number of people have had issues occur, which are certainly not a good thing.

I don't know if that would prevent it because I think the issues, like the Me Too movement and all that, arise in different ways. I don't know if the mentee relationship would solve all of those for sure. But what I can say is that I definitely encourage people to look for mentors in different areas. Your boss can be your mentor. Peers at your company or just in your network can be your mentors. I think they come in different ways, and it's through actively seeking out and talking to people who are in positions you are striving to be in that will help you meet others who can mentor you. It's not one-stop shopping, where you have one person who helps you in all areas. There are different aspects. As a CFO, not only am I responsible for finance, I'm responsible for investor relations, IT, facilities, and overall operational management. You can have mentors help you with different aspects, so you may not find one person who has all aspects they can help you with. I would seek out various avenues so you can find someone who can guide you in many different aspects of your career. Finding a mentor is very important, and it doesn't have to be official. It's just establishing relationships with people you feel comfortable with and can ask for guidance on any number of issues to get their perspective as you look at your career going forward.

You're advocating for yourself. That's what I hear.

Yeah, in addition to what we just talked about in terms of mentoring, the other thing I would say is that one piece of great advice I got from another CFO I think very highly of: she told me that if you want to be a CFO, then look in the mirror and tell yourself that you are a CFO and act like one. Whether it's CFO or some other title, whatever you want to be, tell yourself that you are that role and act like you are in that role in terms of the questions you ask in your regular job, how you think about things strategically. I thought that was a really great piece of advice.

I might after this interview.

He's not currently the deputy chief of police; that was many years ago. But yeah, there were some scary instances where I just happened to be in the car when something happened. When you're a policeman, you're always on, you always have to be available, there's something going on. So I had some scary moments, but fortunately all went well.

Yeah, sure. So Lattice is the low-power programmable leader for FPGAs. An FPGA is a field-programmable gate array; it's basically a chip. What differentiates Lattice is the small size of the chip and the fact that it is power-optimized, so it doesn't suck up so much power in an application. That's one of the things customers love about our product. If you think about an application, the last thing you want to do is have the chip consuming so much power that it impacts the ability of the product to operate effectively. Low power, small size is what helps differentiate us, as well as the fact that an FPGA by design is self-programmable. So customers like that as their needs change, they can program the chip and change the functionality of the chip, unlike some other types of applications which are not programmable. So those are a couple of the key things that help differentiate our products and make our customers like what we provide. We're constantly investing to continue to optimize power and performance for our customers. From a revenue perspective, historically we're about $400 million in size in revenue. Our market cap has gone up significantly over the past few years I've been with the company. I think when I joined, it was about $700 million in market cap; now, depending on the day, it's about $7 billion. So huge improvement. Why has it improved so much? When I joined a couple of years ago, just prior to that, we had a new CEO, Jim Anderson, joined the company, replaced the entire leadership team, and we basically have been transforming the company. One of the first things I did when I started was put key metrics in place to manage the business. My motto is what gets measured gets done. When you look at our results over the past few years, it's really a testament to that. We've increased our gross margin 450 basis points from 2018 to our most recent quarter. Within our operating expenses, we've been able to significantly reduce our SG&A spending while continuing to invest in R&D, invest in the product portfolio, and the long-term roadmap of the business. That's a key area of focus: we want to continue investing in our roadmap for long-term growth. We've significantly increased the pace of product introductions and launches, which is great for our customers because they tell us, 'We love your products; we just want more of them.' So we've significantly improved the landscape there. The other thing we've done is significantly improve the leverage profile of the balance sheet. When I joined the company, the debt leverage was over 5x, and it was very expensive debt with an interest rate of over 7%. In our most recent quarter, our leverage ratio is down to 1.3, and we're at the lowest interest rate, somewhere around 1.5%. So really a huge improvement by refinancing the debt shortly after I joined in record time. I think Wells Fargo said they hadn't done a refinance like ours in that short a period of time ever. So that was something really important to me to act on quickly, to get the debt service costs down. We significantly improved the profile of the balance sheet from a leverage perspective. We are net cash positive. Cash generation has been a key area of focus for the company, looking at our working capital and improving it. 2020 was the first time we were net cash positive in six years, so that was a huge improvement. Two quarters now of increasing the net positive cash position. So we've significantly transformed the company, hence the higher market cap. Our investors really like the fact that we do what we say we're going to do. We've established predictability with our investors; they really value the way we're managing the business. So it's been a great transformation, but there's more to come.

It's really exciting. One of the things I noticed when I did my due diligence on the company was that the company had been stagnating; it had not been growing at all. It was just sort of 100 million a quarter for so many years back. Well, the past two quarters, we've been able to generate double-digit revenue growth in our two key market segments: Comms and Compute, and Industrial and Automotive. So significant improvement there. In our most recent quarter, our Comms and Compute market segment grew 28%, and our Industrial and Automotive grew 20%. Really pleased with those results. What's driving them? A key part is the faster pace of product introductions for sure. But one of the things we did early on in developing our strategy was identify key growth vectors for the company. In Comms and Compute, it's servers, client computing, 5G in communications. In Industrial and Automotive, a huge focus during COVID on hands-free, factory optimization, robots in factories, and automotive continues to be a growth factor. Underneath all that, we have our new product introductions launches at three times the pace the company previously had done. So not just one growth driver, but multiple growth drivers that we're focused on with our products.

That's a good question. On the one hand, the entire leadership team was new. When Jim Anderson started, he brought on a new leadership team, so in some respects that might make it easier because it's not just one person who's new who has to change everyone else. But you still have the entire company, 750 employees who had a different leadership before, so you need to get them over to our way of thinking. That doesn't happen overnight. You need to make sure that first of all, you've got the right people in the right seat. It's just like in the book 'Good to Great': you need to have the right people on the bus and in the right seat. That's very important. So I spent a lot of time making sure I had the right people in the right position. I got a new corporate controller, brought her onboard, and she's doing a great job. We got a director of FP&A who's doing a fabulous job. Got a CIO who's doing amazing work. Got a head of investor relations. So I have the right people in the right place, people who are focused on driving change and making an impact. We're all like-minded in that way. Then you have to look and say, 'Okay, what are our goals and objectives? What's our strategy? What are our goals and objectives that lead us to that strategy?' One example I've used before which is true: shortly after joining the company, probably on day two, I was asking about the goals and metrics for DSO, for example. When I asked that question, the answer I got was that it was upwards of 80 days, really high. So I asked what the goal was, and I think I was told something like 50 or 60. I said, 'Okay, never mind whether that's the right goal, but how are you going to get there? You're really a lot higher than that right now. What's your plan to get there?' The answer I got was, 'Well, we just think we can get there.' Like, what do you mean? You just think you're going to get there? You need to have a plan, because you haven't gotten there yet. So how are you going to get there? That was a very common theme: people had an idea where they thought they wanted to go, but they didn't have a plan. So you really have to establish that kind of culture and enforce that rigor and discipline to have folks develop a plan. How are you going to get there? Once we achieve that goal, then let's look at the next goal. We just had our Investor Day a couple of weeks ago, and we raised our long-term targets for the company because we achieved the goals we put out two years ago. So it's that discipline and rigor of holding people accountable to goals and plans that was not the case previously. That rigor, that discipline, having that overall strategy where all the goals met and fed into it, is what allowed us to accomplish what we've accomplished today and will help us accomplish our longer-term goals.

There isn't a one-size-fits-all for any organization or for every person in the organization. You have to have some flexibility to drive the change you need to drive. So yes, sometimes it's an iron fist, and sometimes no, because it's not necessary. When you have the right people in the right place, they will drive that change. But in terms of how easy it is to do that kind of thing, I think it's just that nobody likes to be the one who puts up their slide and says, 'I missed every single one of my goals.' Nobody wants to do that. So having the rigor where you have to present the results you achieved is one thing. Even if you are that person who misses them, you see other people making their goals, and you kind of want to make your goals too, if for no other reason. There could be reasons why you missed your goals—companies change, things happen, higher priorities change. The way I think about that is I just don't want surprises. We can have a goal of achieving X, but something else may come along that we think is a higher priority, and it would cause us to miss that goal. But if we agree upfront we're going to go for that opportunity because it makes sense for the company, and we know we're going to miss the previously stated goal, then fine. We made that conscious decision. The key thing is not being surprised. If you're managing these metrics and goals all along, then you shouldn't be surprised. You might not like the answer, but you shouldn't be surprised. So that's the way I manage my team; definitely don't want to report a surprise.

That's a very good question. There's a lot of literature out there that says the way you grow is by failing, not succeeding. None of us are going to be able to do everything we want to do in a perfect way. None of us have, and none of us will be able to do that. So I think it's just really trying to learn from our mistakes, whether they are small or big. What can you learn from that to move forward? I'm probably not unlike a lot of you out there; we are hardest on ourselves when we mess up, we beat ourselves over the head. But what I try to do and would encourage others to do is to say, 'Okay, what could we have done better next time?' Because it's a shame to make a mistake and not learn from it. You might make the same mistake again. So I think it's really asking yourself what you can learn from it to make yourself better in the future, and then take that to heart so you apply it next time. I always tell my kids: you have to fall down in order to get up. So I think there's some truth to that.

I think those organizations can definitely add value because they're networking opportunities for you to meet other people and for others to meet you, and you can share ideas. I'm on several different CFO roundtables, and those are really helpful because we talk about what's top of mind and share ideas, and it becomes a resource for each of us. So those are great ideas.

Up to this point, I am actively looking at joining a board now. But I would say up to this point, I was not really because I felt that becoming a new CFO, I really needed to focus my energy and time on making sure I could get my organization shored up, solidified, establish a strategy, and all that. That takes a lot of time, so I didn't want to divert my energy. But although there's still a lot more to do at Lattice that will take up a lot of my energy, I feel like I've got a really sound foundation in terms of the great team I have and the strategy and focus. So now I feel I'm at a place where I can take on that additional responsibility. But you have to know yourself and how much time you've got. If you have the bandwidth, great. But if it's a new job, often you need to spend a little more time on that job to get yourself up to speed, and it might be better to wait a little bit. But in general, for a CFO to be on a board, everyone I talked to, including Jack when he was an active CFO, was also on boards. I think it does really help because you see the other side. As a CFO, you participate with your own audit committee and board, but being on the other side of it just helps make you a better CFO, which is why I'm interested in joining a board.

I guess I'm motivated because when I see opportunities at the company, I want to pursue them and get them to conclusion. I think I feed off my team, and I hope my team feeds off me as well. I'm excited and motivated to improve things, and they are also excited and motivated to improve. You kind of feed off each other. The executive team, Jim Anderson is a great leader, very motivated. The other members of our leadership team are also very motivated and excited. So I think that helps. If you were the only one who is motivated and trying to do that heavy lift, that's challenging. It's made easier because we have so many on the team who are motivated and excited. Also, once you start to see some improvement, that's pretty exciting. Like, 'Okay, it actually works. Let's do more.' And the investors are excited when they see improvement, and they want more too. They're constantly saying, 'Well, how come it's only this much? How come not more?' So all those things come into play. And not everything works; it goes back to the same thing. You're not always going to succeed at every single thing you try, but that's why you have a lot of items in your toolbox to activate to drive improvement.

When the new CEO started and the leadership team, one of the projects undertaken was to look at all of the R&D projects. The company's R&D spend was actually almost as high as its SG&A spend, so SG&A was a key area of focus too. But from an R&D perspective, we did go ahead and look at the projects being worked on to rationalize them. Engineers by their very nature want to develop new things, come up with new ways of doing things, but it's really finance's role to make sure they are the projects that will add the most ROI and establish that kind of rigor. So there were a lot of 'science projects' being worked on that we just canceled, and we really focused the team on the core FPGA business. That actually motivated the R&D team more because they weren't fractured; it was very focused, very clear direction. That's what we've continued to focus the team on. Even if you're not starting your job at a new company, you can be at a company and just start questioning things. Does it make sense? Just because things have always been done a certain way doesn't mean it's the right way for the company. So looking at what's adding value, and in this case, looking at those R&D projects and the ROI they contributed and streamlining them, had a big impact.

That's a really good question. You can come in and say, 'Okay, these are the goals, go off and achieve them,' but it doesn't quite work that way. What I found is that my team was actually excited to put together a plan for the goals because they weren't asked to do that before. To really take ownership for the plan of how they thought they could achieve the goals and the timeline. When we reviewed it, if we thought the timeline was too long, we poked on that and said, 'Well, why is it going to take X quarters to get this improvement? What can we do to pull it in?' So we poked on it and asked those types of questions. But the members of my team took ownership, and I empowered them to put together a plan as to how they were going to achieve those goals. They were actually motivated and energized to do that. I think everybody wants to be told at some level what to do—what goal am I working toward right now? I can disagree. You can give me a goal, and I can say, 'I don't think that makes any sense, and these are the reasons why.' That's a productive conversation, and the outcome will be a goal that we both think is reasonable. Versus not putting any goal out there, and you're just moving along, and whatever happens happens. The financials are what they are, and it can be a good thing or a bad thing. But it was that empowerment of the team that really motivated them to come up with their plans. They were excited to share their plans, and we talked about them, evaluated them, and pulled in or pushed out whatever we needed to do.

First and foremost, there has to be a culture at the company that finance always has a seat at the table. That's very important. If you just rely on folks in various aspects of the business to reach out to finance, they may or may not, and then finance is not involved. That's not a good way to have it. So my team participates in the staff meetings of all the functional executive leaders so they can add value. Whether it's an ROI for the R&D team, that's an easy example, but if you don't know what the R&D projects are, it's hard to calculate an ROI. They need to be at the table and know what's being discussed, what strategies are being discussed, so they can add value. So that's the first thing: they have to be at the table. Obviously, you need to have the right people in the right seat to be able to add that value. I've got a great FP&A team, really strong in the way they think about things, asking questions very strategically. I think all the functions are pulling on them for additional help, which is a good thing. When I always see my FP&A team being included in other staff meetings and projects, that's exactly what you want to have. Then they see the value that FP&A provides, and that makes the difference.

We just had our Investor Day a couple of weeks ago. It was virtual; two years ago it was at Nasdaq in Times Square, which was really exciting, but unfortunately because of COVID, we couldn't do it in person at Nasdaq. But we were still excited because we raised our long-term targets, and we also announced a new product portfolio platform called the Avant platform. That was very exciting. What am I most excited about going forward? It's really generating that sustainable double-digit revenue growth. We put that out as a target: in the near term, it'll be low double digits, fueled by our Nexus portfolio, which is a product launch we announced at the end of last year, and then accelerated by our Avant platform. So it's that double-digit sustainable revenue growth that I'm excited about, and the value that my team can play to really help support that. When you look at a company growing at that pace, you need to make sure you have the right systems in place, that you can scale for that kind of growth. It's not necessarily always just adding headcount. I've got key initiatives with my team for automation, using bots for automation. There are lots of projects we're looking at. We implemented Adaptive, shout out to Armanino for helping us, which my FP&A team is thrilled about. That's adding value. So you need to think about doing things differently so you can increase the bandwidth of my team to support that double-digit growth. I think it's exciting that as we grow, it will create more opportunities for folks on my team to gain more exposure in different areas. Continuing to develop people is really exciting, and I think that creates that opportunity as well. So lots of fun things ahead.

Thank you for that. I think it's probably a lot of the fact that we're not done at Lattice. There's a lot more work to do. We can check the box on a lot of the goals we put out in 2019, but we raised the bar. We're saying, 'Okay, how can we do more, get more to the bottom line, increase our gross margin, still reduce our SG&A?' We have plans in place for all that, but it's continuing to execute on those plans. We're not done by that stretch; there's still lots of work to do. The fact that I've got a great team that I rely upon—I don't have all the answers. No one person has all the answers, so I rely very heavily on my team to give their viewpoints and share their perspective on different things as we look at those. It's that continuous improvement. I told you before the call that I'm going to do the Stanford Executive MBA program this summer, which I was supposed to do two years ago but it didn't happen. It's continuous development. You never know enough; you can never do enough. That's the way I think about it. It's continuous improvement. When you have a lot to do, you're not at the top of the hill looking down; you're still climbing. There's more to do every day. That's humbling every day.

The thousand island salad dressing spread all over the place that I had to clean up.

I think it really is true that if you set your mind that you want to be something, be in a certain role, you can definitely do it. Just set your mind to it, seek out those people who are already in that role, and ask for advice from them. Don't hesitate to do that because I think people are very happy to give their perspective. I definitely encourage you to do that. Always ask questions in your job, always be curious and ask questions, and always ask for exposure to other areas to develop you, even if it doesn't mean a promotion. Just get that exposure. It helps develop you more. I think all those things have been very helpful to me, and I hope that helps others out there too.

Absolutely, Chris. It's been a pleasure getting to know you.