SLAB - Silicon Laboratories Inc.

Operator: Hello. My name is Didi, and I will be your conference operator today. Welcome to the Silicon Labs Third Quarter Fiscal 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Didi, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our third quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website. I'd now like to turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Robert Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered third quarter results consistent with our outlook, demonstrating strong sales and profitability growth driven by disciplined execution throughout the company. Based on our Q3 results and Q4 outlook, we expect full year revenue growth of 34% compared to 2024. Even more exciting is the continued growth ahead with many customers at various stages of qualification and new production ramps leading into 2026 and beyond. Our industrial and commercial business continued its strong performance in the quarter, extending the momentum we have seen throughout the year. Demand for commercial applications such as building safety, lighting and access points experienced strong quarter-over-quarter sales growth, while normal variation in electronic shelf label shipments drove softened quarter-over-quarter results. In industrial, smart meter demand continues to build as utilities worldwide deploy near real-time tracking of critical infrastructure and resource usage. The rapid rise of artificial intelligence is driving new growth in energy demand, increasing the need for intelligent load balancing across the world's electrical grids. In response, many regions, including the United States, India and Japan are expanding, upgrading or installing new monitoring infrastructure to strengthen grid resilience. This trend reinforces the importance of connected solutions that enable efficient data-driven management of energy systems. As the global leader in smart metering, we are well positioned to benefit from this trend. Our Home & Life business grew as expected with smart home applications delivering another consecutive quarter of sequential growth with medical customers up nearly 60% year-over-year as we ramp new programs and continue to expand our market share in this area. Our strong customer engagements with high win rates in this space validate our conviction that Silicon Labs wireless solutions are setting the benchmark for continuous glucose monitoring and remote outpatient care. Markets where reliability, performance and security are critical. As connected health and smart living ecosystems mature, our differentiated portfolio positions us to capture substantial new design wins across next-generation monitoring, diagnostics and wellness devices. At this year's Works with Austin Summit, we were joined on stage by senior leaders from Amazon and Cisco as we introduced 2 groundbreaking design tools that are redefining how customers develop and deploy connected solutions. The first, Studio 6 is a fully revamped enablement platform that streamlines development, integration and debugging, reducing complexity for engineers across product lines. It offers a powerful suite of tools that have become the hallmark of Silicon Labs' success and a key differentiator valued by our channel partners and broad base. The second, the Simplicity AI software development kit, or SDK, is a new platform we believe will become the de facto standard for IoT developers. It enables customers to leverage Agentic AI train directly on Silicon Labs software design rules and frameworks, delivering a step function increase in the speed, quality and efficiency of customers' code creation and testing. While currently available to select customers, we believe this first-mover advantage demonstrates our continued innovation and leadership in this space. The combined impact of these tools is powerful, easier wireless adoption, faster development cycles and over time, entirely new applications created through human AI collaboration. Another emerging trend we see as a significant future growth opportunity is accelerating demand for active wireless asset tracking. Customers increasingly want to monitor high-value assets in real time, moving beyond today's passive RFID tags and costly cellular solutions that limit scalability in battery life. Silicon Labs' latest solutions make this possible with advanced radio location features that deliver real-time beaconing with high accuracy and ultra-long battery life. This enables real-time GPS-like precision at a fraction of the cost, which is an ideal for an increasing set of emerging applications. As supply chains and operations become more data-driven, secure and accurate asset tracking will become increasingly essential across logistics, shipping, retail, manufacturing and so many other environments. Looking ahead, we believe our technology leadership and scale in IoT uniquely position us to enable a new wave of IoT growth. Consistent with our existing plans to strengthen our supply chain resilience, this past week, we announced the expansion of our partnership with GlobalFoundries to manufacture industry-leading Series 2 wireless SoCs at its Malta, New York facility. This long-term partnership will add needed U.S. capacity for competitive IoT wireless solutions for the next decade and beyond and production will ramp over the next several years. Finally, the continued strength of our Series 2 platform, combined with the ramp of Series 3 that will be even more impactful, extends our leadership position in ultra-low power performance with next-generation compute, connectivity and security to bring more secure, interoperable IoT devices to market faster. The Silicon Labs team continues developing and deploying the next wave of IoT innovation, I'm proud of their consistent execution and remain confident in our strategic direction. Looking forward to next year, we expect continued momentum from our share gains converting into revenue, gross margin expansion and the benefits of disciplined operational management, all of which will support our commitment to delivering sustained earnings growth. With that, I'll turn it over to Dean for a closer look at the financials. Dean? Dean Butler: Thanks, Matt, and good morning to everyone. I'll first review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the September quarter was $206 million, up 7% sequentially and in line with the midpoint of our prior guidance. Year-over-year, consolidated revenue was up 24%, which is twice the performance of our most comparable peer. The industrial and commercial side of the business was $118 million or 57% of consolidated revenue, up 7% sequentially and up 22% from the same period last year. Sequentially, the growth was driven by a diverse set of industrial applications like building automation, commercial lighting and access points. Strong demand from smart metering customers also contributed. Home & Life September revenue was $88 million or 43% of consolidated revenue, up 6% sequentially and up 26% from the same period a year ago. Sequential growth was driven by strength in smart home automation customers and year-over-year growth is dominated by new ramps in continuous blood glucose monitors and other medical applications. During the quarter, distribution made up approximately 74% of our revenue mix, channel inventory ended at 61 days and channel point of sale saw a sequential increase in the September quarter as some of the stocking activity is anticipation of customer production plans. September gross margins saw another positive progression driven by strength from our product mix and increasing sales through our distribution channel. GAAP gross margin was 57.8%. Non-GAAP gross margin was 58%, which was above the midpoint of our guidance and up 170 basis points from the prior quarter and better than the same quarter a year ago by 350 basis points. GAAP operating expenses were $131 million, which includes share-based compensation of $20 million and intangible asset amortization of $2 million. Non-GAAP operating expenses of $109 million was consistent with our expectations. GAAP operating loss was $12 million and non-GAAP operating income was approximately $11 million. Our non-GAAP tax rate remained 20%. GAAP loss per share was $0.30 and non-GAAP earnings of $0.32 per share beat the midpoint of our guidance by $0.02, driven by our better-than-expected gross margins in the quarter. Turning to the balance sheet. We ended the quarter with $439 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. Balance sheet inventory remained essentially flat, ending the quarter at $82 million of net inventory. Days of inventory on hand was also relatively unchanged at 85 days at quarter end. Our normal survey of end customers shows further decreasing of customer inventory and is now at the lowest levels since we began tracking this data point. Turning to our current outlook. We anticipate the revenue in the December quarter to be in the range of $200 million to $215 million, which at the midpoint would imply a 25% year-over-year growth and continued sequential growth. Q4 sequential revenue factors in seasonality effects, which is historically flat to slightly down sequentially. Product mix continues to support a further expansion of our gross margins into the September -- December quarter with both GAAP and non-GAAP gross margins expected in the range of 62% to 64%. At the midpoint of this guidance, it implies an 840 basis point non-GAAP improvement year-over-year. Q4 also includes an expected onetime benefit to gross margins, which adds approximately 200 basis points to our current forecast. Given our improvement in profitability and our fiscal year-end, the variable portion of compensation will add approximately $2 million sequentially. resulting in expected non-GAAP operating expense in the range of $110 million to $112 million and a GAAP operating expense between $134 million and $136 million. As a reminder of our stated plans, we expect to limit our operating expense growth going forward and increasingly focus on driving earnings per share accretion faster than our top line revenue growth. The company has reached a level of technical capability where the need for further expansion of spending is reduced, and our shareholders should expect to see this accelerated earnings growth going forward. December earnings per share on a GAAP basis is expected to be in the range of $0.22 loss to a profit of $0.08 per share on a basic share count of 32.9 million shares. Non-GAAP earnings per share is expected to be in the range of $0.40 to $0.70 on an expected diluted share count of 33.2 million shares. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Didi? Operator: [Operator Instructions] And our first question comes from Tore Svanberg of Stifel. Tore Svanberg: Congrats on the progress here. My first question is on the gross margin guidance for Q4, Dean. So you talked about the onetime benefit. Maybe you could clarify exactly what that is. Even without that benefit, gross margin is up pretty significantly. I think you mentioned mix was the main reason. Just wondering how we should think about that dynamic, especially going into 2026, just given how much higher the gross margin guidance was? Dean Butler: Yes, Tore, good question on gross margins. This is an area I think the company has done really well for the past year is continue to improve our gross margins. Last quarter, we ended at the high end of our long-term stable rate. Now we're pressing up above that. You're right to have cut about 200 basis points is a onetime benefit that we'll get in the December quarter. It's a credit that we're receiving and the way to recognize the credit is it has to be recorded all in one period. That's not expected to continue on a go-forward basis, which means at the midpoint, 63%, backing out 200 basis points, we're sort of at a stabilized 61%. When I look into 2026, I think where we are at sort of this normalized 61%, we're probably going to be able to maintain that from what I can kind of see in mix and production ramps and over the next couple of quarters, we'll kind of be in the 60% to 61%. Eventually, it will go back toward our long-term range. But for now, at least for the next few quarters, I think we stay in this 60% range, Tore, if that's helpful. Tore Svanberg: That's very helpful. And just my follow-up is for Matt. Matt, you talked about the Works with conference and you introduced those 2 new tools. And particularly interested in the SDK-based Studio AI that you announced. I'm just trying to understand what that means for you financially over time because obviously, this is going to really accelerate the way third-party developers design a new product. So sort of any financial impact you could talk about from that new tool would be really interesting. Robert Johnson: Yes, absolutely. So just a reminder for everyone, what this is, is an agentic AI development environment for our customers. And what we showed them is using this environment, it absolutely streamlines the steps, it accelerates the time and really eases the development. So what I would expect Tore to be very direct is for experienced developers, this will allow them to be more efficient. For new entrants, it will allow them to lower the bar in terms of what they need to know in terms of entering the IoT space and developing with a wireless solution. So what this should do over time is allow us to scale faster because one of the toughest things in the wireless domain is for someone who doesn't know how to use wireless technology to adopt wireless technology. So this essentially makes it easier and opens the door to more people being more efficient, faster time to market with their IoT wireless development. So for us, it should result in scalability and more efficiency in terms of acquiring customers' designs and scaling. Not going to happen overnight, but we're already working with our first customers there. And as you've all seen, this space is moving fast. So we're pretty excited about this, and our customers are excited about it now, too. Operator: And our next question comes from Christopher Rolland of Susquehanna. Christopher Rolland: I guess mine are around both channel and customer inventories, which you did address in the prepared remarks. I guess, first of all, good job on filling the disti channel a little bit more here. I was wondering what your expectations are there? Could we eventually get to the 70, 75 target? And how long might that take? And on the customer side, you guys talked about kind of the lowest days ever. Perhaps if you could -- I know this isn't a perfect science, but if you could talk about a range, and obviously, we're at the bottom of the range, but your expectations for customer replenishment as well over the next few quarters? Robert Johnson: Yes. So Chris, this is Matt. So quick answer. Customer side, I'd say any excess inventory effects at end customers are effectively gone now. I think we can say that with confidence. And we're now operating with the market again and those inventory effects are gone. So that's an important milestone, and that's been something that we've been dealing with for a pretty long time as part of this cycle. So that's one. I think, two, on the disti side, we've been running on the lower end of our DSI closer to 50 with a target of 70 to 75 days and a goal of working that up each quarter if we can, on average, around 5 days. And this quarter, we went up around 10. And it's important, we saw strong POS growth, but we did make progress on those 5 days we wanted to make. And in addition to that, we had another 5 days that was around strategic stocking agreement with a customer in anticipation of their ramp. So that's the combination of those is how we got to the 10 days. Moving forward, we're going to keep trying to push around 5 days until we get to our target. That hasn't been linear. It's been lumpy. So I wouldn't expect it's perfect each quarter, but that's our goal, and we're continuing to push in that direction. And we'll get there over the coming quarters. Christopher Rolland: Excellent. And without being too specific, maybe broad strokes for next year for '26, how you guys see that setting up, I guess, starting in March, I think you guys are you seasonally buck some of the other guys that are down in March. Perhaps if you could give us the setup for that year and which products are you kind of most excited about or do you think are going to carry growth the best through '26? Robert Johnson: Okay. Sure. So obviously, we're not calling '26, and I think it's a difficult time to call the broad market or macro with the uncertainty that's out there. But what we can say with confidence is just like this year, I think this year -- full year with this guide for Q4, Chris, we'll be at around 34% year-over-year for '25 versus '24, which I think is really strong. And at the same time, we've seen really good progress on gross margin and EPS. Next year, not calling the market, but whatever the market ends up being, we see a path to doing better than the market and taking continued market share. And as Dean was indicating, we see strong gross margin in there as well and solid EPS progress over that time frame. In terms of what's driving that, it's the same stuff. So we've been talking about the strength of Series 2 and increasing strength of Series 3 mixing in. And we have our metering space that's continuing to drive strength, ESL and CGM. We like what we see in each of those areas. We also shared that we're seeing increasing strength in asset tracking as a category that will mix into our growth over time. And I'd also add one other kind of tailwind is we've been talking about matter for a long time. I think next year, you're going to start to see matter revenue feathering in as well, which all of these serve as a foundation for continued growth for the years beyond that. So we're excited for 2026. And maybe easy takeaway, we have a positive bias right now, all things considered. Operator: And our next question comes from Cody Acree of the Benchmark Company. Cody Grant Acree: Congrats on the great numbers. Dean, if you can maybe talk a bit about the gross margin incremental for Q4, even with the onetime and just the sequential bump is much more than I would think just normal mix shift would entail. So can you just talk about the details of the drivers sequentially? Dean Butler: Yes, Cody, there is -- within the mix, there are a couple of specific parts that have much better margins than the rest of the profile, which is actually incrementing it up. We don't want to get into too much detail on which specific part that is that way we -- customers don't get upset at us that might be buying that. The other element that we've also returned back into is above 70% of distribution is coming our sales. We just ended Q3 at 74%. That continues to sort of move margin up. But I would say within the mix, probably there's a couple of specific parts that's driving it incrementally higher. Throughout the year, just sort of as a macro trend for the last kind of 4 quarters or so, industrial has been performing extremely well for the company. That tends to come a little bit better gross margins for us as well. And that's sort of been kind of the yearly march as we've gone forward these last 4 quarters. And so hopefully, that helps give you a little bit more color, Cody. Cody Grant Acree: Sure. And then I guess just any directional color on your different segments, Home, Life and I&C? Dean Butler: This one, we -- you've gotten this wrong a couple of times so I hesitate to give you sort of a formal guide. Look, I will say it the way I said it last quarter, which is knowing no real differences, probably we're looking at a similar mix sort of quarter-on-quarter. Kind of the hesitation around that really is just around visibility of short order lead times. So turns are coming in right now inside of lead time. So we never really know how the total backlog is going to shape out for the entire quarter, and that's really our only hesitation. Operator: And our next question comes from [ Trip Smith ] of Barclays. Kyle Bleustein: This is Kyle Bleustein on for Tom O'Malley. I wanted to dig into the gross margin commentary a little bit more. I was just kind of curious like what has changed since the Analyst Day? Like has the product mix surprised you at all? And then when you're talking about it being stable for the next few quarters and coming back down, is that again on the mix side? Or is there anything to do with pricing? Just kind of your thoughts there? Dean Butler: Yes. Nothing's really changed, Kyle, just to give you a little context from Analyst Day, that's intended to be our long-term sort of sustainable range that we think we run in, and that's 56% to 58%. Throughout the year, we've been pressing into that range and then at the high end of that range is where we landed at the end of the September quarter. Now piercing above 60%, sort of mid of our guidance 63%. That's really a relatively short-term phenomenon. We'll probably see that for the next few quarters, and Cody asked on his question on sort of specific product mix. That specific product mix probably is not a long-term multiyear sort of sustainable mix. I do think as we come up into the 60s, it takes a few quarters, but we'll gradually start moving back towards kind of the stated long-term range. But at least from what we can tell right now, that's not a fast movement back down. I think it's a fairly gradual movement back down. So I wouldn't say anything has really changed other than a couple of product-specific things that have done better. And of course, I also gave Cody some additional color on industrial throughout the year has done better as well. Distribution, we're making progress. So all those things sort of help. So I hope that answers your question, Kyle. Kyle Bleustein: Okay. That's helpful. And then just for my follow-up, can you kind of give an update on how the Series 3 rollout is going, either like expected percent of the mix? And then just overall, as that kind of ramps into your product portfolio, how we should think about overall pricing trends? Robert Johnson: Yes, sure. This is Matt, Kyle. I'll take that. So the easy setup to remember is Series 2, we've stated even in our Analyst Day, we have not even ramped -- we've ramped a small portion of what we've won there in the current platform, and we're still winning in Series 2. So Series 2, we're looking at many years of growth before we see that peaking. And as, I think, data point or testament to that, we just announced a partnership with GlobalFoundries to bring Series 2 to the U.S. as a U.S. manufacturing option because given the life we see there, that's going to be needed. So Series 2, think of that as ultra-successful de facto standard in the market today as we see it. Then bring in Series 3, which our expectation based on what we've done there will be even more impactful than Series 2. It's early days. We're just ramping our first product, and we're going to start -- you're going to start seeing a series of products come out at an increasing acceleration. So each year, more products coming off of that base platform and IP, and it will start feathering into our design wins and revenue over time. But just like Series 2, these things take time. So I wouldn't over-index on the revenue impact this year, next year. I think you're looking after that before material impact come. But why that matters is it's all about setting ourselves up for the future. And Series 3 is set up for the future, just like Series 2 was, and that's why it's so successful now. And that's important because I can say here, and I'm proud of this, we have the largest opportunity funnel as a company we've ever had because of now the combined strength of these 2 platforms. And remember, they're software compatible, which is an awesome strength. And we're on track to record design wins once again. So the combination of all those things really sets us up good for the next few years and beyond, and we're excited and proud of that. And that's why I think we can say we have a positive bias sitting here today. Operator: And our next question comes from Quinn Bolton of Needham & Company. Quinn Bolton: Congratulations on the nice outlook, especially on the margin side. I wanted to just come back to the active asset tracking, Matt, that you talked about in the prepared comments. It sounds like it could be a pretty meaningful opportunity. In the past, you guys have talked about CGM, smart meters, ESL as 3 of your more company-specific product ramps that can drive outsized growth. Wondering, would you start thinking about active asset tracking as maybe a fourth company-specific driver? Or would you not put it in the same sort of magnitude as the other 3 that you've previously talked about? Robert Johnson: So we're being intentional and deliberate, Quinn, about introducing this as a concept. And that means we believe it has a lot of growth potential as an end market. And we believe that we have a lot of potential for strength in that market. We don't want to be talking to you all about a space that's not growing long term, and we don't have a very strong position. So we think it has that potential. That being said, it's early days. We're just introducing it as a concept for you all, but it does have that recipe. And we do see an acceleration in our engagement and position in that space. What we have as a company is very attractive to customers, just a great fit for us in terms of what we can do in technology. We're the largest company in this space. That's something our customers want to see. And we have the ability to turn products really quick to address the needs of this marketplace. So yes, it has potential, and we're excited about it. Don't want to over-index on it. It's early. But I think over time, it has really exciting potential. Quinn Bolton: And Matt, just maybe a quick follow-up there. Was that the Bluetooth-6, I think it's channel sounding technology that's the basis for that active asset tracking? Or is that another wireless technology? Robert Johnson: Yes. BLE with channel sounding is and can be used in those applications and is interesting to a lot of those customers because not only can they kind of figure out where the things are, but they can figure out where they are relative to each other, which is really important in some applications. So that is one of the things that is driving interest. Quinn Bolton: Okay. Great. And then a follow-up question, just I think in the past, you thought the CGM could get to 10% of revenue by Q4 of '25 to the second quarter of 2026. Is that time line still sort of in the cards for the continuous glucose monitors? Robert Johnson: So the last thing I remember is us believe there's a path to being 10% in the first half of next year, and we still see that path. Operator: And our next question comes from Joe Moore of Morgan Stanley. Joseph Moore: Congrats on the good margin performance here. I wonder if you could talk about sort of inorganic opportunities at the Analyst Day, you said that you were open to that. Is that still something that you're contemplating? It seems like you have a lot of organic growth here. Just how are you thinking about M&A opportunities? Dean Butler: Yes, Joe, if you recall at the Analyst Day, we said we are open to M&A opportunities, but we have a pretty tight filter. And I think that hasn't changed, which means we're looking for things that can help accelerate our growth level, which is a tough filter to find these days sort of with Silicon Labs just posting a 34% year-on-year. And that growth doesn't look like it's changing anytime soon. We also don't want to add on technology or end markets that are not in our wheelhouse. So it has to be in our wheelhouse, accretive to our growth, which really means that there are not a whole lot of assets that are going to fit that stage. We also have a lot of the technology that we need. And so while we're open, I think the reality, what ends up meaning is M&A is probably something we're open to, but the more likely is to flow that excess cash flow back in terms of buyback. I think with the increasing profitability that we see now and as gross margins sort of keep going up and our operating expenses are starting to be held flat, that looks like increasing excess cash flow, and that's likely to lead us more down the path of buybacks going forward, just given that tight narrow lens on M&A. Joseph Moore: That's very helpful. And then with regards to your customers kind of drawing down inventory to these lower levels, I guess, just do you have conversations about some of the geopolitics of the situation? And I just -- I know you're not impacted by stuff like Nexperia, but it seems like that's creating line down situations. Like did the customers sort of feel like, okay, given these geopolitical uncertainties, I need to hold more inventory? Or just -- I don't think we've seen a lot of that activity, and I'm a little surprised that we haven't. Robert Johnson: Yes. We're not seeing customers building inventory around this. In fact, broadly, it's come down, not up. So -- and we're watching that very closely. I do think that the uncertainty, Joe, is just not helping anything. And I think that's worth saying that when you talk to customers, they're trying to navigate all this and they don't have as much clarity and visibility as they'd like. So I do think that, that weighs on their -- the way they talk about the future. But big picture, we're not seeing inventory builds around this. There might be a pocket here and there, but broadly, it's going the other way. Operator: And our next question comes from Peter Peng of JPMorgan. Peter Peng: Just a follow-up to that point. So you guys are above $200 million in revenue levels and your end customers' inventories are decreasing. Do you still -- do you believe you're still kind of undershipping to end demand? And if so, how much? Robert Johnson: No, we don't, Peter. We think we're as aligned with consumption and consumption as we've been in a very long time. Peter Peng: Got it. Okay. And then my follow-up is just on your Wi-Fi. Can you probably share some updates on that and some program ramps? And maybe how you're thinking about that trajectory over the next year or 2? Robert Johnson: Great. Thank you for asking. I should have mentioned that more proactively. So Wi-Fi this year, strong growth. I can't remember the exact numbers, but 30% to 40% year-on-year. That's an area that is our newest of our 4 major technology cornerstones. And it's growing and winning share. And we have our existing products out there, but also we started hinting and teasing as part of our Series 3 platform, you're going to see a lot more from us in Wi-Fi, and that's coming soon. So I think the combination of that sets us up really well for -- simply said, relatively small compared to our other areas, but accelerated growth. And maybe easy framing, right now, BLE is our fastest growing. Wi-Fi is our second fastest growing, even though we have leadership positions in the other 2 areas, 15.4 and -- yes, sorry, I just lost my train of thought, guys. 15.4 and subgig. So 15.4 subgig, leadership positions, strong growth, but the new areas, the newest areas for us are the fastest growing, and we're making really fast progress there. So an easy way to frame it, big funnel for Wi-Fi, strong design win momentum should set us up for continued growth and share gains in Wi-Fi for a long time to come, but it is still our smallest of the 4 areas. Operator: Thank you. I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Didi, and thank you all for joining this morning and for your interest in the company. Before concluding today's call, I would like to announce our upcoming participation in RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference on November 19 in New York City. This now concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Operator: Hello. My name is Didi, and I will be your conference operator today. Welcome to the Silicon Labs Second Quarter Fiscal 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs' Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Didi, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our second quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non- GAAP results is included in the company's earnings press release on the Investor Relations section of the Silicon Labs website. I'd now like to turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Robert Matthew Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered second quarter results in line with our outlook, driving strong sequential and year-over-year growth in both sales and profitability while closely managing operating expenses. We remain laser- focused on converting our design win pipeline into production ramps, and this quarter's results demonstrate our consistent progress. Our current forecasts indicate that 10 of our 12 largest customer ramps are on track or ahead of plan for 2025. As we shared in our March Investor Day, our leading -- industry-leading Series 2 platform continues to drive rapid revenue growth and share gains across both of our business areas, including significant growth in Bluetooth and Wi-Fi products. Looking at Q2, our Home and Life business was up double digits year-over-year, driven by continued stabilization in smart home applications as well as shipments to connected healthcare customers as many of these designs began production in early 2025. In the smart home, we saw strength in home automation applications like gateways and smart lighting. Additionally, our newest Wi-Fi device, the 917, is providing battery-powered Wi-Fi connectivity for the Roku battery camera that is now available on Walmart shelves as well as Roku Battery Camera Plus. Both models are available at Amazon and online at other major retailers. Silicon Labs enables a high-fidelity 1080p camera to operate on battery power for up to 2 years before needing to be replaced, an incredible breakthrough. Meanwhile, our healthcare initiatives are progressing well as we continue to ramp new customers. Overall, we remain confident in the strong growth potential of this market, including in continuous glucose monitoring applications, which we continue to expect will become 10% of our revenue. Our Industrial and Commercial business was also up double digits year-over-year. Sequentially, the growth was underpinned by strength in the electronic shelf labeling market and an ongoing recovery of broad-based industrial applications that are typically served through our distribution channel. We are also seeing steady shipments to global smart metering customers, including India's electric metering rollout and expect to begin shipments for Japan's metering refresh cycle later this year. Looking beyond Q2 results, our Series 2 platform continues to drive the growth of our design win pipeline and positions us extremely well for continued market share expansion. This includes new design wins in applications like commercial building controls, where utility companies are encouraging more efficient power consumption, utilizing our best-in-class multiprotocol solutions and domain expertise, along with further traction in ecosystems like Matter and Amazon Sidewalk. We're also working towards establishing new partnerships in connected healthcare and are confident that our market share momentum in applications like diabetes management will continue. In addition, we have secured design wins in other emerging medical applications like remote vital sign monitors and medicine delivery applications as our products emerge as best-in-class for many of these market needs. Finally, in our commercial business, we've seen strong engagement for logistics applications like real-time asset tracking. In fact, we recently won a new high-volume design win with one of the world's largest pallet makers, highlighting increasing customer interest in proximity-based tracking of higher-value assets moving through their supply chains. Building on our track record of being first to introduce new-to-industry innovative features and capabilities on our Series 2 platform, we are excited to announce that our first Series 3 device, the 301, is shipping in volume production and now claims the title as the world's first device to achieve PSA Level 4 security certification. This milestone reinforces our long track record of industry-first achievements and sets a new benchmark for trusted embedded computing. Additionally, another Series 3 device, the 302 will be sampling next year and will bring industry-leading energy efficiency and wireless performance to battery-powered devices that support both Bluetooth and matter applications, setting another industry performance benchmark. Moving forward, our market share momentum driven by our Series 2 platform and the introduction of our next-gen Series 3 platform positions us incredibly well to sustain outsized growth in our accelerating markets. Looking near term, while the evolving tariff discussions somewhat limit our visibility, we have not observed significant changes to our customers' forecast. Additionally, our customer surveys do not indicate end customer inventory builds and in many cases, reveal lower inventory positions compared to 90 days ago. Our outlook for sequential growth into the third quarter continues to be supported by share gains in secular growth markets, execution of new program ramps and consistent improvements in our order patterns. This combination gives us confidence that we are on track to outperform the broader semiconductor market this year. Now I'll hand it over to Dean for the financial update. Dean? Dean Warren Butler: Thanks, Matt, and good morning to everyone. I will first review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the June quarter was $193 million, up 9% sequentially and in line with the midpoint of our prior guidance. Year-over-year, consolidated revenue was up 33%. In our industrial and commercial business, June quarter revenue was $110 million, up 14% sequentially and up 25% from the same period last year. Sequentially, the growth was driven by customer ramps in electronic shelf label deployments, continued smart meter rollouts and a steady demand improvement for a wide range of industrial applications. Home & Life June quarter revenue was $83 million, up 2% sequentially and up 45% from the same period a year ago, driven by new design ramps with medical customers more than doubling versus the same quarter 1 year ago. During the quarter, distribution made up approximately 69% of our revenue mix. Sell-through at distribution partners continued to grow and channel inventory increased slightly to end at 51 days, up from 48 days in the prior quarter despite our intention to begin moving toward our target range of 70 to 75 days. June quarter gross margins saw positive improvements as the long tail channel sales and industrial applications continue to benefit our mix. GAAP gross margin was 56.1%. Non-GAAP gross margin was 56.3%, which was up 90 basis points from the prior quarter and above the midpoint of our guidance. GAAP operating expenses were $131 million, which includes share-based compensation of $20 million and intangible asset amortization of $3 million. Non-GAAP operating expenses of $107 million was consistent with our prior guidance. GAAP operating loss of $23 million and non-GAAP operating income was $1 million. During the quarter, we recorded a GAAP tax charge of approximately $3 million. Our non-GAAP tax rate remained 20%. GAAP loss per share was $0.67 and non-GAAP earnings of $0.11 per share beat the midpoint of our guidance by $0.02. Turning to the balance sheet. We ended the quarter with $416 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, our balance sheet inventory remained essentially flat, ending the quarter at $81 million of net inventory. Days of inventory on hand improved to 86 days, a sequential improvement from 94 days at March quarter end. As it stands today, we have not seen a direct impact to our supply chain from the shifting tariff rules. While the outcome of ongoing tariff discussions and their potential indirect impact on global demand are still uncertain, conversations with our customers do not currently point to any meaningful pull forward in demand. Order patterns from customer bookings and distribution POS continue to show positive improvement, extending a multi-quarter trend of positive progressions. This supports our view from last quarter that our end markets are making headway in their cyclical recovery. Additionally, our survey showed that our end customers' inventory ticked down in the quarter and in many cases, revealed relatively low inventory positions. Now for our current outlook. We anticipate revenue in the September quarter to be in the range of $200 million to $210 million, which at the midpoint would imply a strong 23% year-over-year growth rate and a 6% sequential growth. Importantly, we believe Silicon Labs is tracking to outperform the broader semiconductor market this year based on the execution of our new customer design ramps and further supported by improving cyclical demand. With continued strength in industrial applications and sales through our distribution channel growing, we expect continued gross margin improvement in the September quarter with both GAAP and non-GAAP gross margin expected to be in the range of 57% to 58%. We continue to manage operating expenses tightly and remain committed to our published financial model of growing expenses 1/3 the rate of revenue growth, allowing for rapid earnings acceleration moving forward. In line with that philosophy, we expect GAAP operating expenses in the September quarter to be in the range of $130 million to $133 million. We expect non-GAAP operating expenses to modestly increase in the September quarter to be in the range of $107 million to $110 million as the employee bonus pool is expected to accrue at a higher contribution given our return to profitability. Finally, GAAP loss per share is expected to be in range of $0.60 loss to a $0.20 loss on a basic share count of 32.8 million shares. Non-GAAP earnings per share is expected to be in the range of $0.20 to $0.40 on an expected diluted share count of 33 million shares. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Didi? Operator: [Operator Instructions] Our first question comes from Quinn Bolton of Needham & Company. Nathaniel Quinn Bolton: Congratulations on the continued strong outlook. I wanted to ask a question just on the Home & Life business. I know it's up strongly year-on-year, but it was sort of up 2% quarter-on-quarter, perhaps a little bit below my estimates. How are you thinking about that business as you get into the second half of the year? I think you reiterated the target for continuous glucose monitors to hit 10% of sales. Is that still on track for the second -- by the end of 2025? Robert Matthew Johnson: Yes, sure. Quinn, this is Matt. Quick answer is, let's say, big picture, CGM is still on track, still committed to that 10% number on the time line we had mentioned. I think what's going on big picture here is, as we've said for many quarters, the primary driver of our growth are these share gains in these major ramps. And those ramps can be lumpy. They can be -- some are ahead of schedule, some are behind, some are bigger, some are lower. But as we shared in the prepared remarks, we're tracking a tremendous amount of ramps. And of those, our top 12, 10 of those are on track. So in aggregate, we're able to stay on track or better to our expectations. And the easiest way to look at it is our expectations by segment, by application and by customer haven't changed. So we feel good about the outlook and no major changes. Nathaniel Quinn Bolton: Perfect. And then I guess one for Dean. Dean, you've done a great job here on gross margin, getting back to sort of, I think, your longer-term target of 57% to 58%. Do you expect it to kind of hang out in this level going forward? Or do you see room for potential further improvement above that 57% to 58% level in future quarters? Dean Warren Butler: Yes. This is an area I think the team has done super well on, Quinn. Just to reiterate what our long-term financial model is 56% to 58%, so midpoint sort of 57%. Where we are now, we're trending to the high end of that range. We just guided 57% to 58%, so in that higher end of that portion. My expectation is that we continue to drive into this higher end of it as distribution channel continues to contribute in a meaningful way as a lot of our industrial type customers are doing quite well in the marketplace. That's going to keep us in the high end of that zone. I do think over time, it will probably bounce between this 56% and 58%. I am not at a point where we're going to reassess the long-term model and say, hey, we can go higher from that 58% mark. But at least from what we can see on the near term over probably the next couple of quarters, given how distribution is trending, we look like we're going to stay in that high end. Operator: And our next question comes from Tore Svanberg of Stifel. Tore Egil Svanberg: Yes. Let me echo my congratulations, especially on the operating leverage here. My first question, Matt, is on your design win pipeline. The growth is clearly driven by your execution towards that pipeline. Could you perhaps give us any update as far as numbers? Is it growing? Yes. Just want a little bit more color on the actual pipeline. Robert Matthew Johnson: Yes, sure. Thanks, Tore. Big picture, we've shared that we've had a tremendous success over the last few years from a design win perspective. And we've really tried to pivot to making sure we ramp all those designs that we've secured, and that's exactly what we're starting to see here. And we've been consistent in the primary driver of our growth this year are those share gains and ramps that are happening. But to answer your question directly, we still -- like what we see, and we still have that momentum. The opportunity funnel is the largest it's ever been. We are on track for design wins, which are larger than they've been. And we have great momentum. The easiest way to think about it, Series 2 is still gaining market share and winning. Wi-Fi is allowing us to increment up and start growing even faster. And now we're putting Series 3 in the mix with new-to-world capabilities and features. So no expectation that, that will slow down. So we like where we're at and we like what we're seeing. Tore Egil Svanberg: Very good. And as my follow-up, I had a question on the glucose meter business. I know you mentioned multiple customers now. Again, could you perhaps give us some color on how many customers are ramping there? Because clearly, you're gaining share. And I think last time you had a call, I think you talked about already working with 10 or a dozen customers in glucose meters. Robert Matthew Johnson: Yes. Specific numbers, I hope I don't screw this up guys from Analyst Day. But I think what we shared with that is we are engaged with over 60 customers in this space, and we are ramping more than 12 in this space. So that's where we're at. And as we shared in the prepared remarks, we're continuing to make progress on that in that particular space and even expanding out into additional applications within the medical and healthcare space, where we're just finding our products are really dialed in. So liking what we see there, Tore. Operator: And our next question comes from Tom O'Malley of Barclays. Thomas James O'Malley: I have kind of the inverse question to Quinn into June. You saw some really strong trends in the industrial and consumer business. You've seen during this earnings period, other large players kind of talk about some pull forward in industrial. I was curious, was there any geographic changes in the mix of revenue in the June quarter? I think you called out shelf labeling, the disti channel and then India smart metering, but anything to note in terms of geo differences in that June quarter? Robert Matthew Johnson: Yes, Tom, this is Matt. Quick answer is no. Pretty consistent across the board. In fact, it's worth pointing out, we're seeing that broadly that we acknowledge all the uncertainty that's out there around tariffs, and we're watching closely for signs of build aheads, pull-ins, and there has to be something going on out there around that, but the data is encouraging. We see bookings consistent with what forecast was, no major anomalies there. Customers are in line with expectations, consistent improvements, but linear. And inventory is in line, right? Our internal inventory looks good. Disti inventory, if anything, is low as we're trying to build that up. And end customer inventory on average is actually down over the last 90 days. So the data -- despite the uncertainty that's out there, the data is encouraging and going in the right direction. Thomas James O'Malley: Helpful. And then when I look at the gross margins, which are very impressive going into the September quarter. It looks like the incremental gross margin is close to 80% quarter-over-quarter. That's the highest you've done in the last couple of years. So if you look at the divergence in revenue trends in the September quarter, do you continue to see more disti and by that measure, more industrial and commercial into the September quarter? But maybe give us a little color on segment trends into September and then why you're seeing such a big step-up on the gross margin side? Dean Warren Butler: Yes, Tom, I think you got it right on sort of segment and business mix. As you know, a lot of the industrial tends to go through the channel. And the channel customers generally are long tail, lower unit count and therefore, generally higher ASP. So we do get a better margin step-up as more and more things flow through the channel. A lot of that is industrial based. There are other like small benefits that you get through as revenue increases, right? You get some efficiencies on some of the fixed costs that you run your supply chain. But the majority here is really the dynamic around industrial customers going through channel. Operator: And our next question comes from Christopher Rolland of Susquehanna. Christopher Adam Jackson Rolland: Yes, just regarding distribution in the channel, are there opportunities to refill the channel to grow the channel here? And like as we look over the next few quarters, maybe in terms of dollars, what could that opportunity be? Dean Warren Butler: Yes. I mean, short answer, Chris, is we've been trying for the last couple of quarters to actually fill the channel back to where it should be. We had this call 90 days ago, and we said, hey, channel inventory at that point was 48 days. Now this quarter, it's 51. We said, "Hey, we'd like to build the channel back up and start working toward our target. And in fact, during the June quarter, we anticipated trying to get more inventory in. But the reality is the dynamic that's happening within the channel is as we ship into channel and try to refill, customers actually are taking that inventory in terms of POS, and we can see it go out the other side in POS. We then follow up with a subset of our end customers that we can reach and we survey them and ask them, hey, what's happening with the inventory? Are you just taking POS and putting on your shelf? And in fact, that doesn't seem the case. In fact, majority actually have lower end customer inventory. So we're sort of trying to track as it moves through channel. It looks like this is largely being consumed and deployed. I think it's a bunch of customers that are coming back slowly over time, and we're seeing continued positive momentum. If we can refill the channel, we can. And like the last 2 quarters, we've been trying. I don't think you'll see any sort of big step-up in any given quarter, but our intention is to move the channel from where we are this 51 days to start to move it toward our target of 70 to 75 days. I just think it's going to take a few quarters, Chris. Christopher Adam Jackson Rolland: Excellent Dean. That's actually a lot of fill at 70 to 75. It will be nice to see. I guess for my second question here, how are you -- you mentioned tariffs, how are you thinking about tariffs? And would you be passing this on to customers? Or would you eat some of it? What's your strategy here? Dean Warren Butler: Yes. I think generally speaking, from our review of tariffs, which, as you know, the rules sort of keep changing. It's all about the specific rules when they get published and how those get rolled out. We've looked at a number of options among our supply chain. For the most part, it's relatively modest in its most extreme cases that we can kind of model out. It's a relatively modest impact on the company. I think our intention would largely be to pass them along if that comes. Again, we think the impact in itself is modest. So we don't think that would cause any undue harm across the customer base if that were to come to play. And there are some geographic sort of differences when we look at what is the amount of inventory that comes across the United States border was sort of the big contentious one. For us, it's kind of in the 10% range. So if whatever rate you want to assume on tariffs and every country has a different rate, generally, we're shipping directly in by Silicon Labs only about 10%. So that's how we get to this sort of pretty modest impact, if you will, Chris. Operator: And our next question comes from Cody Acree of The Benchmark Company. Cody Grant Acree: Congrats on the progress. Maybe, Matt, if you can help us with just any of the Wi-Fi strength that you mentioned, just any of the application wins and any of the ramps that you're seeing there? Robert Matthew Johnson: Yes, sure. So continued progress in Wi-Fi. The biggest one that we just shared in the prepared remarks, which is really worth pointing out is the Roku design. What's unique about that is where we have shined where we have focused in this space is playing to our strength, which is battery-powered applications, so long battery life. As we've shared, our device, longest battery life in the world for a Wi-Fi application, and that's what Roku is taking advantage of. So they've put a 1080p camera out there that can operate for up to 2 years on battery power, which is pretty remarkable. That's on store shelves now at Walmart, available at Amazon and other retailers. And I think that is a good example and indicative of what we're seeing in Wi-Fi overall, where as we bring this capability to bear in the market, customers are starting to take advantage of it, especially in battery-powered applications to do things they could not do before. So we like what we see there. We like the progress. As always, it's a new market. It always takes longer than you want, but it's going in the right direction. Cody Grant Acree: And maybe just lastly, with your September back now above $200 million a quarter, your trajectory is definitely promising. But any thoughts on, given your pipeline and your visibility, when you would expect to be able to challenge your prior '22 highs? Do you think that, that's something you can achievably get into a range in '26? Robert Matthew Johnson: So we're not guiding beyond the quarter, but maybe the most helpful thing that we can share is kind of in line with what we shared not that long ago at our Analyst Day, we have been securing a tremendous amount of design wins over the last few years. And those are just now starting to ramp. And to help make that real, one stat that we shared was in our Series 2 platform, kind of the current or prior gen, however, you want to think of that, of what we've secured, we've only shipped a little over 1 billion units in that space. We've secured more than another 6 billion units of wins that we haven't shipped yet that are starting to ramp or will be ramping. So that kind of gives you a sense of what's been won and what's to come, where as we said, at the same time, we're still winning more designs in Series 2. It is still ultracompetitive while we're bringing in Series 3, the next generation, we had a press release yesterday where we brought the highest level security to the IoT at the PSA Level 4, which is just an indication of what's going to start to come out on this platform as we introduce it new to industry, new-to-world capabilities, features and performance. So that combination, I think, positions us really well for continued growth going into next year. But not specific on time line, and that's obviously not easy to call. Operator: And our next question comes from Peter Puk of JPMorgan. Peter Thomas Puk: Congratulations on the strong results. I think back at your Analyst Day, you gave a number on your new customer ramps being 50% of your year-over-year growth in 2025. And if I kind of work on what the consensus numbers are, that's about $100-plus million. Just given some of the commentaries about how you said kind of those are on track, does that -- are we surpassing that number? And then more importantly, I guess, does that number start to grow in 2026 as well? Robert Matthew Johnson: So Peter, it's Matt. I don't remember the exact number you're quoting, but maybe the most helpful thing around that is we mentioned, I think, 10 of our top 12 ramps. And just to be clear, there's many more ramps that we're tracking as part of that. So that's just kind of the biggest ones that have the easiest to track most visibility, but tip of the iceberg in terms of the ramps that we're working on and managing. So tough to correlate that to a specific number. But going back to the prior question and comments, we do expect continued ramps and continued growth based on design wins and share gains. That's the fastest and easiest way I can say it. We have been gaining share, and we believe we're going to continue gaining share, and we have opportunity funnel and design win momentum to support that. Peter Thomas Puk: Got it. Okay. That's helpful. And then when I kind of look at your -- some of the seasonal trends, typically, your December quarter is flattish, but you guys have been kind of driving above seasonal trends for the past several quarters. And so just given some of these positive booking trends and design win ramps, is there -- is it possible to drive sequential growth through the remainder of the year? Dean Warren Butler: Peter, you're asking about a Q4 guide, which we're not at a point we're ready to comment on. Look, most of our momentum really has been on design wins coming into production. And if that's the case, you should actually outperform seasonality One of the sort of notable things, which just so everybody has it is all throughout 2025, lead times that we're getting orders have been more and more turns based. So it limits some of our visibility a little bit to be able to comment on, hey, what does seasonality look like in a quarter or 2 from now and how that's evolving. But I think to the extent that design wins continue to be the primary growth driver, you should continue to do a little better than sort of a steady-state market-driven only number. Operator: And we have a follow-up from Tore Svanberg of Stifel. Tore Egil Svanberg: Just one quick one for you, Dean. 20% tax rate, obviously, with a big beautiful bill, that's probably going to change. So I don't know if you have any comments there. Should we just sort of wait to see how things develop? Or do you have an early read on '26 tax rate? Dean Warren Butler: Well, so our non-GAAP long-term tax rate of 20%, we tend to assess that on an annual basis or as needed if a big structural change happens. In fact, there's one big beautiful bill that ended up passing on July 4, actually was on the very last day of our quarter. Our quarter ended on July 5, just given the fiscal cycle this time. So we have included all of the tax-related adjustments that we think are in, but those are on the GAAP side of the books. On a non- GAAP basis, we haven't yet assessed what that impact would be longer term. I think it's sort of marginally lower, but whether that ends up changing sort of the longer-term sort of time horizon that we have yet to come to a conclusion on point. Operator: I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Didi, and thank you all for joining this morning, and thank you for your interest in the company. Before concluding today's call, I'd like to announce our upcoming participation in KeyBanc's Technology Leadership Forum on August 11 in Deer Valley, Utah. This now concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Operator: Hello. My name is Deedee, and I will be your conference operator today. Welcome to the Silicon Labs First Quarter Fiscal 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Deedee, and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our first quarter financial performance and review recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of our website. I’d now like to turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks, Giovanni, and good morning to everyone. Silicon Labs drove strong first quarter results consistent with our outlook and showing momentum across the business. As we highlighted in our recent Analyst Day, we are well-positioned to outperform the broader semiconductor market, and our Q1 results illustrate that with both sequential and year-over-year growth -- revenue growth in both of our business units. Our Home & Life business grew mid-single-digit sequentially, nearly doubling year-over-year, as share gains and connected healthcare continued materializing into production ramps. In addition, smart home applications showed signs of strength in the quarter. Our Industrial & Commercial business continued its recovery, growing high single digits sequentially and double digits compared to the same period last year, as design win ramps and smart metering and shipments to electronic shelf labeling customers maintained their momentum. While the overall macroeconomic environment remains uncertain, we expect to outperform the market given our leadership position in high-growth markets and a multiyear history of share gains. As we look at the current quarter and the balance of the year, our conversations with customers and distribution partners indicate that we have no reason to change our forecast due to the dynamics of global trade policy at this point. Our outlook for sequential and year-over-year growth into Q2 is based on continued linear improvement in our bookings patterns, and progress on new program ramps and secular growth areas like connected healthcare, smart home, commercial retail and global metering deployments. Additionally, supply chain diversification is an area we’ve focused on for several years, including as part of the roadmap for our next-generation Series 3 platform. Our current footprint is not significantly affected by the shifting geopolitical landscape, although it’s too early to quantify the potential indirect impacts of tariffs on global economic demand. We have not yet seen any significant impact on our customers’ forecasts. Our team is focused on delivering innovative products that reinforce our breadth, depth and singular focus on the IoT space. This includes our latest Series 2 device, the BG29 family of Bluetooth Low Energy SoCs, designed to bring industry-leading performance, battery life, security, and increased memory capacity to the smallest form factor Bluetooth devices. The BG29 family represents a breakthrough in our ability to bring highly differentiated technology to connected healthcare applications, including blood glucose monitors, as well as other wearable health devices. We also introduced our new BG22L and BG24L SoCs, optimized for common Bluetooth applications. Notably, these devices bring the most competitive combination of security, processing power and connectivity for high-volume, low-power applications, including asset tracking and small appliances. The BG24L SoC also supports advanced AI/ML acceleration and the latest in Bluetooth Channel Sounding, ideal for radio-congested areas like warehouses, smart cities and residential apartment complexes. Additionally, our recently announced Series 2 multi-protocol SoC, the MG26, is now generally available, accelerating developers’ path to designing future-proof Matter devices in smart home and commercial applications like LED lighting, switches, sensors and locks. The MG26 also sets a new standard for concurrent Bluetooth and 15.4 wireless performance, alongside best-in-class security, as well as for machine learning capabilities that enhance performance for critical tasks like predictive maintenance, anomaly and keyword detection. As Matter continues to pull thread technology into the mainstream, we are seeing our 15.4 design wind momentum accelerate. This reinforces our view that we are well aligned with the increasing Matter adoption as both the leader in thread technology and trusted partner internet security providers and ecosystem partners who are building our out Matter infrastructure. Finally, at our Analyst Day, I was pleased to announce that our first Series 3 device, which was sampling last year, is now ramping to production. Series 3 will continue its broader alpha sampling this year, and we are already seeing strong design wind momentum with the first device, which is a testament to the great execution of the Silicon Labs team. While we believe Series 3 will be even more impactful than our Series 2 over a longer time horizon, as we further expand our addressable market in Wi-Fi, compute and AI inference, our ability to offer our customers both Series 2 and Series 3 in parallel with co-compatibility between the two platforms is a significant competitive differentiator for us. In conclusion, even amid trade uncertainty, we’re highly confident in our ability to deliver sequential growth fueled by linear improvements in our order patterns and continued new product ramps across our business units. Looking ahead, we’re well-positioned to outperform based on our expanding presence in growing markets, differentiated product portfolio and continued share gains. Now I’ll hand it over to Dean for the financial update. Dean? Dean Butler: Thanks, Matt. Good morning to everyone. I will review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the March quarter was $178 million, up 7% sequentially and in line with the midpoint of our prior guidance. Year-over-year, consolidated revenue was up 67%. In our Industrial & Commercial business, March quarter revenue was $96 million, up 8% sequentially and up 47% from the same period last year. Sequentially, the growth was driven by better than forecasted customer ramps in smart metering and continued electronic shelf label market growth. Home & Life, March quarter revenue was $82 million, up 5% sequentially, and nearly doubling with a year over year growth rate of 99%. As we anticipated, the sequential increase in Home & Life was driven by strength in smart home applications and shipments to connected health customers. Sell through at our distribution partners continued to gain momentum with channel inventory decreasing by eight days to end at 48 days, which is down from 56 days in the prior quarter. This marks a new low level of channel inventory and is well below our targeted level of about 70 days to 75 days. Distribution made up approximately 66% of our revenue mix for the quarter. March quarter, gross margins saw positive improvements as long tail channel sales and Industrial applications benefited our mix. GAAP gross margin was 55%, non-GAAP gross margin was 55.4%, which was up from the prior quarter, above the midpoint of our prior guidance, and ahead of our forecasted progression. GAAP operating expenses were $130 million, which includes share based compensation of $20 million and intangible asset amortization of $5 million. Non-GAAP operating expense of $105 million reflects the normal uptick of the company’s annual merit cycle and reset of the employee bonus programs. GAAP operating loss was $32 million and non-GAAP operating loss was $7 million. During the quarter, we recorded a GAAP tax charge of approximately $2 million. Our non-GAAP tax rate remained 20%. GAAP loss per share was $0.94. Non-GAAP loss of $0.08 per share beat the midpoint of our guidance by $0.01. Turning to the balance sheet, we ended the quarter with $425 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we further reduced our internal inventory by $22 million, ending the quarter at $83 million of net inventory, which contributed to our positive operating cash flow of $48 million for the March quarter despite operating losses. Days of inventory on hand improved to 94 days, another sequential improvement from 125 days at the December quarter end. I want to thank our supply chain team here at Silicon Labs for having successfully guided our internal inventory balance to our targeted level and you should now expect to see an uptick in working capital deployment as we maintain these levels to support the ramp of new customer designs throughout 2025. Speaking of supply chains, we have completed a review of our supply chain and find that there is almost no direct impact to us under the current tariff rules as we know them today. Given our wide berth of customers and applications, there are likely to be varying degrees of potential impact to customers. The two outstanding questions are, one, what will the indirect impact to demand be and when we’ll be able to measure that? And two, will the tariff rules change either positively or negatively as we go forward? As it stands today, our order patterns from customer bookings and distribution POS showed sequential improvement in the first quarter and have maintained this trajectory quarter-to-date into the June quarter, an indication to us that our end markets are progressing in their cyclical recovery. Additionally, our end customer surveys continue to report that excess inventory is not currently a concern. We are encouraged by these positive trends entering Q2, and as such, our confidence in above market growth this year remains intact, anchored by new product ramps rather than on a reliance of robust end market demand. We anticipate revenue in the June quarter to be in the range of $185 million to $200 million, which at the midpoint would imply 32% year-over-year growth and an 8% sequential growth. Importantly, we have not witnessed any significant customer pull-ins and have kept our forecasting methodology consistent with prior quarters. We remain confident that Silicon Labs will outperform the broader semiconductor market this year, despite the shifting trade dynamics given our unique new program ramps. With improved mix of Industrial applications and channel strength, we expect the gross margin improvements in the June quarter with both GAAP and non-GAAP gross margins to be in the range of 55% to 57%. We expect GAAP operating expenses in the June quarter to be in the range of $129 million to $131 million. We expect non-GAAP operating expenses to modestly increase in the June quarter, driven by full quarter accounting of payroll-related items, including the company’s bonus plans and annual merit cycle, resulting in an expected range of $106 million to $108 million. Finally, GAAP loss per share is expected to be in the range of $0.55 to $0.95 loss on an assumed basic share count of 32.7 million shares. Non-GAAP earnings per share is expected to be in the range of $0.19 to a loss of $0.01 on an expected diluted share count of 33 million shares. That wraps up our prepared remarks. I’d like to now hand the call back over to the Operator to start the Q&A session. Operator? Operator: Thank you. [Operator Instructions] And our first question comes from Christopher Rolland of Susquehanna. Your line is open. Christopher Rolland: Hey, guys. Thanks for the question and congrats on the results here. I guess there is obviously some uncertainty in the back half here. You guys seem pretty comfortable around it and the variability there. But how are you thinking about the September quarter after a little bit of June upside here or perhaps just how the second half is shaking up overall? Matt Johnson: Yeah. I’ll start that, Christopher. So first, we’re only guiding the quarter at a time. But I think the pieces that are important to think through, and some of them were covered in the prepared remarks, everything that we look at or see, whether it’s customer forecasts, bookings, billings, inventory level at our customers, at our distributors, all these things are behaving very well linearly and as expected. So right now, there’s not anything out there to indicate that there’s a big shift coming, which is important. Now, obviously, we’re being hyper vigilant, watching all these things all the time, as I think the rest of the industry is. The other thing that’s really important as you’re thinking through this, as we’ve said consistently, we’re not looking for broad market strength to drive this year for us. We’re looking for the performance this year to really come from the design ramps that we’ve been talking about, and that’s what we’re seeing here. So we’re encouraged by that, happy to see the ramps. They’re not singular. They’re broad. And that’s really what’s driving our growth, not a broad market recovery right now. Christopher Rolland: Great. Thanks so much, Matt. And then I believe you thought maybe last quarter that Home & Life would outperform I&C, but it seems like there was more I&C strength than Home & Life. It was kind of flipped. So perhaps you can talk about what was kind of unexpectedly good and bad between the segments and how they shook out? Dean Butler: Yeah. I don’t know if there was necessarily unexpected good or bad. A little bit of timing change, maybe between the two of them. I would note that on a year-over-year basis, our Home & Life business was almost double, up 99%, and the Industrial & Commercials up 47%. I think our expectation is, hey, could I&C grow that fast, given sort of the sequential change that it had of about 8%, 9% in the quarter? The metering business, which we’ve said before, India specifically, that business has been ramping faster than what we’ve historically seen. And I think we were a little cautious whether that was able to continue and that metering business continues to ramp and actually ramping better than we originally anticipated, Chris. Christopher Rolland: Thank you very much, Dean. Appreciate it. Dean Butler: Yeah. Operator: Thank you. And our next question comes from Thomas O’Malley of Barclays. Your line is open. Thomas O’Malley: Hey, guys. Thanks for taking my questions. My first one’s just on inventory in the channel. So you guys have obviously worked that down pretty significantly. I think you said 48 days of inventory in channel versus the target of 70 days. When you look at your June guidance, what’s your target for channel inventory there? Are you going to refill that or take that to new high levels? Like, just given the stronger demand environment, I’m curious what the strategy is for June? Dean Butler: Yeah. Tom, the general expectation for the June quarter, we do not want to end June again at 48 days or, heaven forbid, even lower. I think if we look at the way that we’re running our forecast, we would expect the channel forecast to come back above 50 days for the quarter, but certainly below 60 days. So I think low 50 days is probably where it will likely stand when we forecast into June. Eventually, we want to drive it back to the target level, 70 days, 75 days. That is a multi-quarter progression. I would not expect to see us fill the channel in the June quarter. Really, we’re almost hand-in-mouth in a lot of these smaller, long-tail customers, but you won’t see any big step-up progression, at least the way that we see it today, Tom. Thomas O’Malley: Helpful. And then you guys have talked for a long time now about specific company wins driving the growth versus broad market recovery. For just context, can you help us understand, as like a percentage of your revenue today, how much kind of in the March quarter and the June quarter maybe, if that snapshot is easier, is new product versus stuff that you would deem like broad-based product? And then can you try to walk us through what the pricing difference is between some new products and something that you would sell on a broad-based? I understand it needs to be probably loose commentary, but I think that’d be some helpful perspective, just given how focused you are there? Matt Johnson: Sure. This is Matt. I’ll take a shot at that. I mean, quick answers. Easy way to think of it. We don’t break out the total revenue that way, but I can say a majority of the incremental revenue you’re seeing is definitely coming from those new ramps. That’s a very easy way to think of it. And on pricing, not meaningfully different. In fact, I think you’re seeing our gross margins progress each quarter, even with this new ramp growth. So not meaningfully different. And we see a path to being able to drive sequential revenue growth on design win ramps and sequential gross margin progression as well. So hopefully the sum of those two things gives you the full picture. Operator: Thank you. And our next question comes from Tore Svanberg of Stifel. Your line is open. Tore Svanberg: Yes. Thank you and congrats on the results. So, Matt, I think in the past we’ve talked about especially three new segments, potentially each one representing 10% of revenues this year. I think we’re talking about the shelf label, glucose meter and smart meter. Is -- are things sort of still tracking towards that number? Matt Johnson: Yeah. So big picture, Tore, those are the three areas we’ve talked about the most and we’re seeing good progress in all three is the quick answer. And one thing that we covered at our Analyst Day that I’d also like to reinforce, not backing off of those three areas at all. Those are going to be growth engines for us for many, many years to come. And we also have introduced additional growth engines such as Matter. We mentioned that Wi-Fi is growing 40% for us, DLE growing 80%. Both of those represent significant share gains. And we’re really starting to see AI/ML start to increase as well. So quick answer is those areas are going well. And you heard Dean mention maybe a little faster than expected in areas like metering in India. And we’re also seeing additional growth vectors come online as well. So the combination is what’s giving us that confidence to say we see a path to outperform the market and drive this growth independent of how this all plays out with tariffs. Dean Butler: Tore, let me just give you one quick modification on a quantified number. You said 10% across all three. We had previously said the blood glucose is expected to be a 10% application. We had not quantified the other two just so you have the right data point. Matt Johnson: So 10% for one of them, not all three combined. Tore Svanberg: Got it. No. That’s fair. And my follow-up question is on Series 2 and Series 3. Obviously, Series 3 is still very, very small. First of all, is Series 2 now more than half of revenues? And how should we think about ASP increases as Series 3 starts to ramp more meaningfully? Matt Johnson: Yeah. So we haven’t broken out the Series 2 specific, but it’s increasingly larger and larger piece of the total revenue and it’s what’s driving the incremental growth you’re seeing. All these design ramps right now we’re talking about are Series 2 ramps, which is worth pointing out. As I mentioned in our Analyst Day, we have shipped over a 1 billion units in Series 2 lifetime to date. And we’ve secured or won 5 million or 6 billion more units that we’ll be shipping in the coming years and quarters. So there’s still a lot more to come out of Series 2. At the same time, we’ve already started production shipments on Series 3. And to answer your question on ASPs and expectations there, content’s higher with increased wireless performance, increased compute, AI/ML, more memory scalability. So I would expect overall higher ASPs on Series 3, Tore. So the most important thing for people to take away, Series 2 is doing just fantastic in the marketplace and still has a lot to go. Series 3, our goal is to meaningfully outperform Series 2. And we’re liking what we’re seeing right now. We’re already ramping production with a lot of products to follow. So that combination of current gen, next-gen, just bringing what it brings, we like our positioning is the best way to say it. Tore Svanberg: Excellent. Thank you for all that color. Operator: Thank you. Our next question comes from Cody Acree of The Benchmark Company. Your line is open. Cody Acree: Thanks, guys, for taking my questions and congrats on the progress. Maybe if you can just give me a bit of a split for your expectations for the June quarter between your Home & Life and Industrial & Commercial? Dean Butler: Yeah. Cody, we expect that the mix between those will probably be pretty consistent over the last couple of quarters. Last quarter to a first order, it landed Industrial & Commercials about 55% and Home & Life about 45%. And that’s been plus or minus a 1% to 2% for the last sort of three quarters in a row. I would expect that to also be the case as we go into the June quarter. And it’s going to depend a little bit as all these new programs ramp. We might be off a point here or there, but to a first order, kind of 55, 45. Cody Acree: Excellent. Thanks for the help. And then maybe just back to the tariff situation. Can you just talk about some of those end markets, those end applications that you believe are more exposed to tariffs than others? I have a hard time thinking through your end application mix and finding a lot that have tariff sensitivity, but maybe I’m just missing something? Matt Johnson: Yeah. I think, well, I think, the quick and honest answer is, it’s difficult to answer because we really cover so much in terms of geos, end customers, applications, markets, et cetera. So extremely broad across tens of thousands as we’ve said before. But maybe a way to abstract it up and Dean just talked about it. We do have an Industrial consumer split of around 45, 55 with Industrial being the larger piece. So that’s one way to think about it. But big picture, we haven’t found any one of our end markets or major markets that’s uniquely susceptible or exposed to this, at least as they are presented and out there so far. But obviously we’ll keep watching that closely. It’s dynamic. Cody Acree: All right. Thanks guys. Operator: Thank you. Our next question comes from Quinn Bolton of Needham & Company. Your line is open. Quinn Bolton: Hey, guys. Let me offer my congratulations on the nice results and outlook. I wanted to follow up on the inventory question, Dean. It looks like you’re going to modestly increase channel inventory in the June quarter. You said it would take several quarters to get back to the 70-day, 75-day target. Is that something you would anticipate getting back to say by the end of the calendar year? Is that a good timeframe for us to be thinking about when you would normalize or look to normalize channel inventory? Dean Butler: I think that’s without a stake in the ground directionally, right? I mean, I think the problem that we face, Quinn, is as POS continues to grow as the channel outflow, the sale to all the sort of long tail end customers, we’re sort of chasing a catch up, right? So as outflow increases, inflows sort of need to increase in addition to that. And I think we are likely to pipeline material in there to slowly grow it over the next few quarters. Is it get to 70 days by the end of the calendar year, maybe it could take a quarter or two longer than that. Just depends on how the POS side of that equation is going. If that makes sense, Quinn. Quinn Bolton: Yeah. It sounds like you did -- it takes some time to stage the inventory on the way in. And if POS is better or worse than expected, that obviously affects inventory. So, yeah, I think it makes sense. And then, I guess, Matt and Dean, just a question. There continues to be sort of some chatter out there, sort of bottom of the cycle that pricing, continues to be pretty aggressive. You guys are showing nice margin expansion. So it doesn’t look like you’re seeing any adverse effects from pricing. But just wondering if you could talk about what you’re seeing in pricing on a like-for-like basis. I know the mix shift Series 2 and Series 3 is a tailwind, but are you seeing fab competitors in particular get more aggressive with pricing sort of as we’re near at the bottom of the cycle? Matt Johnson: Yeah. I guess it felt -- the quick answer on pricing is, nothing has really changed. It’s been consistent with what we’ve been seeing for a while now, where a lot of companies would like to have more revenue and they’re trying to use pricing to get more revenue. Haven’t seen that meaningfully move the needle at all in terms of share shifts or anything out there in our space. We obviously need to be competitive on pricing, but we thrive relative to our competition on differentiation, bringing features, performance capabilities that no one else has. And that’s how we have a premium gross margin versus anyone we compete against. And that’s how we’ve been able to do, I think, exactly what we said we do, which has been incrementally we start working back our gross margin coming through the cycle. So quick answer is no meaningful change. I think the market’s behaving as the market behaves and no change in what we’ve been saying or our expectations. Quinn Bolton: Got it. Thank you. Operator: Thank you. Our next question comes from Joe Moore of Morgan Stanley. Your line is open. Joe Moore: Great. Thank you. You sort of talked about customers. You haven’t seen any evidence of pull-ins. Seems like inventories are still under control. Can you talk about what those conversations are like? Because I just imagine, we’ve seen two years of inventory leaning out and now we’re dealing with on-again, off-again tariffs all over the world. It seems like if I were running a customer’s business, I would want to hold more inventory. I would want to build ahead of some of that. So can you just give us some sense of, what the interaction with customers is like during all of this? Matt Johnson: Yeah, Joe. This is Matt. I think the quick answer is and I’m not being wise about this, but fortunately, just having been through this inventory cycle, those numbers are all fresh and we’ve been taking the inventory assessment of our end customers all along and we had to stop that. So, this has just been a continuation of coming out the other side of the inventory correction cycle. And I think the fast way to answer what you’re asking, no meaningful changes in end customer inventory, no one trying to build positions, that type of thing. But what we do see is a lot of, people saying the same thing, wondering what the trade policies will do over time, what will stick, what will go away, what the implications will be over time and the honest answer is no one knows. So, I think, uncertainty is the easy way to define it. So what that uncertainty hasn’t done is driven behavior around inventory and we’re watching that super close. Joe Moore: That’s very helpful. Thank you. And then when I follow up, at the Analyst Day, you had talked about sources of inorganic growth that you would be willing to think about larger M&A, things like that. How do you see that in the current environment? Are those deals, you know, more difficult to do in this kind of global tension or just how are you thinking about that? Matt Johnson: Yeah. No change in our strategic desire there or direction. I think the quick answer is, right now, there’s just a lot of uncertainty around trade and where this will land and how it will play out. So I haven’t seen any move, meaningful changes as a result of that and I think it’s probably too soon to say. Joe Moore: Okay. Great. Thank you. Operator: Thank you. I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Deedee. And thank you all for joining this morning and your interest in the company. Before concluding today’s call, I would like to announce our upcoming participation in JPMorgan’s 53rd Annual Global Technology, Media and Communications Conference in Boston tomorrow, May 14th. We’ll also be participating in Stifel’s Cross Sector Conference in Boston on June 4th and Baird’s Global Technology Conference on June 5th in New York City. Thanks again and this concludes today’s call. Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.

Operator: Hello, my name is Gigi [ph], and I'll be your conference operator today. Welcome to Silicon Labs's Fourth Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs's Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Gigi, and good morning, everyone. We are recording this meeting, and a replay will be available for four weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me this morning are Silicon Labs's President and Chief Executive Officer Matt Johnson and Chief Financial Officer Dean Butler. They will discuss our fourth quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward looking statements that are subject to risks and uncertainties. We base these forward looking statements on information available to us as of the date of this conference call, and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the investor relations section of our website. I'll now turn the call over to Silicon Labs's Chief Executive Officer, Matt Johnson. Matt. Matt Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered fourth quarter results consistent with our outlook as we continue to drive momentum through a challenging market cycle. Looking back at 2024, we grew more than 90% from our trough one year ago, underpinned by consistent improvement in both excess customer inventory and our bookings, as well as share gains across both of our business units. Our Home & Life business entered a correction several quarters before our Industrial & Commercial business has since grown sequentially each quarter in 2024. At the same time, our Industrial & Commercial business has seen a more modest recovery after entering its correction a couple of quarters after Home & Life. As we look at 2025, we are confident in the many growth opportunities ahead, independent of a broad recovery and end market demand, as design wins in connected healthcare, smart metering, commercial retail, and many other applications are now ramping into production. In connected healthcare, we're partnering with more than a dozen continuous glucose monitoring customers globally. In Q4, we shipped meaningful volume to multiple CGM customers, which helped drive the sequential growth of our Home & Life business last quarter. We continue to expect strong growth for us from CGM ramps throughout the coming year. As an application, we see the potential for CGM to comprise nearly 10% of our revenue in the next 12 to 18 months and are laser-focused on further building momentum in this space across multiple regions with our industry-leading portfolio and security capabilities. In smart metering, we have begun shipping millions of units to India's Smart Electric Metering Initiative using our Series 2 sub-gigahertz products. India's smart metering rollout is progressing quicker than other geographic metering rollouts have historically, and we're well-positioned to capture a majority share of this 250 million unit deployment in the years to come. We're also continuing to gain share in more established metering markets, including in Japan's upcoming refreshment cycle, where we'll support a majority of the market with our higher content multi-protocol solutions for sub-gigahertz and Wi-Fi connectivity. Further, we see higher content deployments in next-generation U.S. and European markets as well. In commercial retail, we drove strong momentum in the electronic shelf labeling market in 2024, shipping significant unit volume across multiple customers and regions, while further bolstering our partnership for the majority of the leading global ESL providers to support their anticipated rollouts and design plans. In addition to connected healthcare, smart metering, and electronic shelf labeling, we're also focused on driving continued share gains in Bluetooth, which is now our fastest-growing technology by revenue and opportunity funnel. At CES this year, we showcased the first commercially available Bluetooth channel sounding solution enabled on our xG24, which is now shipping to customers and opens a new addressable market for us in proximity-based applications like asset tracking and geofence. We also debuted our first generally available Wi-Fi 6 device at CES, the 917, which can deliver an industry-leading two-year battery life on a single AAA battery. Initial design wins on our 917 are bringing low-power Wi-Fi connectivity to white goods and home automation devices. We've been investing significantly in Wi-Fi in recent years because of our belief in its immense growth potential within our IoT space. Early engagement with our existing customer base has been very strong as we work to support opportunities for pull-through of our Wi-Fi solutions. In addition to CES, we hosted our fifth annual Works With Conference series in the fourth quarter, where we met more than 1,000 customers and partners, more than half of which were new to the company. We host Works with each year to bring together our industry by connecting developers and large ecosystem partners, including Amazon, Google, Samsung, Nvidia, and others with an aim to help foster collaboration and further accelerate adoption and deployment of wireless connectivity at the edge. In total at Works With, we logged approximately 6,000 hours of high-impact engagement, which is a testament to our unique position as the preeminent thought leader in wireless connectivity for the IoT. We're also seeing record momentum for 15.4 connectivity in preparation for wider availability of matter-enabled devices later this year and into the future. As the leader in 15.4 Technology, we remain very well-positioned to benefit as matter continues to pull thread and other device interoperability into the mainstream. In fact, since the Matter spec was released, we have secured more 15.4 design wins than the prior five years combined. In conclusion, the Silicon Labs team executed well against a challenging market draft backdrop in 2024. Looking ahead, the majority of our end customers have worked through their excess inventory, and our bookings continue to move in the right direction, indicating to us that our end markets are making progress towards a cyclical recovery. That said, as I stated in my opening remarks, we are confident that we will drive growth throughout 2025 independent of a significant broad-based demand recovery due to the share gains that we've made with our industry-leading Series 2 products that bring best-in-class wireless performance, ultra-low power consumption, and leading security to our tens of thousands of customers. We expect our share gains in areas such as connected medical, smart metering, commercial retail, and many other applications to continue materializing into significant production ramps throughout 2025, placing us in a unique position to drive above-market growth this year. At the same time, we'll continue investing in technology innovation, including in our next-generation Series 3 platform that is now sampling and will maintain strong execution while driving toward our financial model. Now I'll hand it over to Dean for the financial update. Dean? Dean Butler: Thanks, Matt, and good morning to everyone. I will first review the financial results for a recently completed year-end and fourth quarter, followed by a discussion of our current outlook. Silicon Labs ended the fiscal year 2024 with revenue of $584 million, which represents a year-over-year decline of approximately 25%. The decline was most pronounced in the company's Industrial & Commercial products, which experienced a 32% decline as customers depleted excess inventory positions throughout the year. The company's Home & Life products declined 14% versus the prior year. While the year-on-year sales decline was substantial, I'm happy to have seen a positive progression in both sales and profitability improvements throughout 2024 as customers depleted inventory and demand for the company's products began to return. As a result, the company ended the fourth quarter of 2024 in a substantially better financial position with a GAAP operating loss of $29 million versus the same quarter one year ago GAAP operating loss of $73 million. Summarizing our fourth quarter results, revenue for the recently ended December quarter was $166 million in line with the midpoint of our prior guidance and up 91% from the lowest trough point we experienced in the December quarter of 2023. In our Industrial & Commercial business, December quarter revenue was $89 million, down 8% sequentially, but up approximately 50% year-over-year as customers in this area work through much of their excess inventory positions. During the quarter, we saw stabilization of demand signals for applications such as electronic shelf labeling and continue our early deployments of smart meters in the India market, which offset some of the slower recovery applications such as building controls and classic industrial end applications. Home & life December quarter revenue was $78 million, up 11% sequentially and up nearly threefold year-over-year led by new program ramps and medical applications. As we anticipated, the sequential quarter growth in Home & Life products in the December quarter was offset by Industrial & Commercial end markets resulting in roughly flat sequential revenue performance in Q4 relative to Q3 of 2024. Inventory in our distribution channel remains at lower levels than the company's target of 70 to 75 days, the December quarter saw channel inventory increased by only three days to end at 56 days, up from 53 in the prior quarter. Distribution made up approximately 62% of our revenue mix of the quarter, a decreased from the prior quarter as ramps with new design win customers began early production. For the December quarter, our GAAP gross margin of 54.3% and non-GAAP gross margin was 54.6%, which was approximately flat compared to the prior quarter and in line with our prior guidance, although direct customers are now ramping at a faster pace than the broader distribution recovery, we expect and continue to improve our gross margin profile, which continues to reinforce the value of Silicon Labs' market-leading product portfolio. GAAP operating expenses were $119 million, which includes share-based compensation of $16 million and intangible asset amortization of $5 million. Non-GAAP operating expense of $98 million was in line with the midpoint of our prior guidance range. GAAP operating loss was $29 million and non-GAAP operating loss was $7 million, both of which were improvements from the prior quarter despite a similar level of top-line sales. During the quarter, we recorded a GAAP tax benefit of approximately $2 million and our non-GAAP tax rate remained at 20%. GAAP loss per share was $0.73 and non-GAAP loss of $0.11 per share met the midpoint of our guidance range and was consistent with our expectations. Turning to the balance sheet, we ended the quarter with $382 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we further reduced our internal inventory by $34 million, ending the quarter at $106 million of net inventory, which contributed to our positive operating cash flow of $10 million for the December quarter despite operating losses. Days of inventory on hand improved to 125 days, another sequential improvement from 165 days in the September quarter end and significantly improved relative to the one quarter ago quarter of 407 days of inventory on hand. Now let me turn to our March quarter outlook. I'm happy to report that our order patterns from new bookings and distribution PLS continue to improve, which reinforces our viewpoint that demand for our products continues to make positive progress. A majority of these orders are coming at shorter lead times, which limits our visibility, giving us caution not to over index on this trend too early. Our end customer checks report that excess inventory continues to deplete and that the majority of these customers claim minimal inventory at this point. Any minor pockets that persist appear to be more customer specific than macro driven. As we enter Q1 and early 2025, we expect new program ramps at customers to be the prevailing driver of sales growth throughout the year, beginning now in the first quarter. As such, we anticipate revenue in the March quarter to be in the range of $170 million to $185 million, which at the midpoint would imply 67% year-over-year growth and 7% sequential growth. Considering the end market order patterns and our visibility into upcoming design win ramps, we anticipate another quarter of outperformance by Home & Life products in the March quarter compared to Industrial & Commercial, mainly driven by shipments to connected health customers and smart home applications. Further, our guidance assumes a flat distribution days of inventory with limited to no expected increase in the quarter. We expect GAAP gross margin in the March quarter to be in the range of 54% to 56%. We expect non-GAAP gross margin to also be in the range of 54% to 56%. We expect GAAP operating expenses in the March quarter to be in the range of $128 million to $130 million. We expect non-GAAP operating expenses to increase during the March quarter as the company enters a new fiscal year, resetting payroll related expenses, such as payroll taxes, bonus plans, and the company's annual merit cycle, resulting in an expected range of $103 million to $105 million. Finally, GAAP loss per share is expected to be the range of $0.75 cents to $1.05 loss, non-GAAP earnings per share is expected to be the range of $0.01 to a loss of $0.19 on expected basic share count of 32.5 million shares. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Operator? Operator: Thank you. [Operator Instructions]. Our first question comes from the line of Quinn Bolton from Needham & Company. Quinn Bolton: Hey, guys. Congratulations on the nice results and outlook. Dean, I know visibility is pretty low given the high level of turns orders, but you guys seem very confident in your new program ramps in CGMs, electronic shelf labeling. Just wondering, you've talked about sequential growth through the year, but Dean, can you help us shape what kind of growth you're looking at in terms of maybe quarter-to-quarter? What's realistic given the limited visibility you have right now? Dean Butler: Yes, good question, Quinn. So really what we're basing our outlook as we look forward into the remaining balance of 2025 is really around design win ramps. We think that should be relatively consistent throughout the year. Like you said, quarter-to-quarter visibility a little bit limited based on shorter lead times, but we do have confidence that we will likely grow each quarter. I think it's sort of yet to be seen exactly how that rate plays through, whether there's any unique pockets of seasonality throughout the year, but at this point, we are looking at likely a positive quarter-on-quarter throughout the year, Quinn. Quinn Bolton: Great, thanks. Thanks for that color, Dean. And then, I guess maybe just you guys talked about the new 917 Wi-Fi device you showed at CES. Can you just sort of talk about the pipeline you've built up for that product? How it might compare to Bluetooth and how do you see that contributing to revenue growth in calendar '25 and '26? Matt Johnson: Sure. So a bunch of things in there. I'll start with the pipeline. We shared some time ago that that device actually generated the largest operating pipeline that we'd ever seen for any product we'd ever released or announced. So, we've had an incredibly strong reception to that device. And the pull-through, it's mostly pull-through existing customers. We have a very broad existing customer base. They've interested in these types of products, and it's really bringing new to industry capability, as well as our support and capability that we bring to all of our customers. So, the opportunity funnel has been strong. Design win momentum has been strong. We like what we see there. And that is going to be contributing to revenue starting pretty quick in 2025. So we're not talking about something that's as far away conceptually. The product's generally released. Opportunity is good. Design win's good. And revenue's starving. So we like what we see there. To your other point on how does it compare to Bluetooth, much earlier days. If you think about it, we shared quite years ago that we were increasing our focus on Bluetooth. And that takes time, right? A lot of products in the portfolio, support, enablement. And as we've shared here, it worked. It's now our biggest opportunity funnel and fastest growing revenue space we have. And that's with the backdrop of our other technologies also all doing well. So Wi-Fi is earlier. These are really just the first products. So what you should expect is a lot more products coming down the road as we continue doing derivatives of Series 2 and introduce more products in Series 3, which will further accelerate what we're doing in Wi-Fi, which is unique because it's focused on the edge of IoT, where we really focus and thrive. So hopefully that helps. Quinn Bolton: That's great. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Christopher Rolland from Susquehanna. Christopher Rolland: Hey, guys. Thanks for the question. I guess maybe my first question is around the Synaptics and Broadcom agreement. And this was around kind of next-gen technologies, including Wi-Fi 8, which is a little further out than your roadmap. And these technologies are less low power and different from your portfolio. But I was wondering if you had any thoughts on this agreement. If you've looked at these assets from Broadcom and ultimately your thoughts on them, were they too overpriced or just absolutely not strategic in any way to you guys? Matt Johnson: Yes, sure. We're familiar with the technology. And the fastest way I can say it is, this isn't in our wheelhouse or backyard at all. What they're doing is focused on handsets, in the handset space where we don't operate or play. So a way to think of it is, it almost takes them further away from where we focus. And our focus, as I was saying a few minutes ago, is really on that low power edge in the IoT space, which we have to develop Wi-Fi products specifically for that ground up. So those products don't play in our space. And the IP is not applicable for this space, as I think they share publicly in their comments. So quick answer is, good technology, but focused on handsets, not in our markets, and kind of moves them further away from us, not closer. Christopher Rolland: Yes, I figured as much. My second question is around distribution, basically, you versus your competitors. It sounds like you finally think you're in line. You're still a little bit below your target, I think. If you had any expectations to raise that, but would love to know how you think your competitors, whether they're over allocated to distribution right now? And then also kind of maybe a postmortem, how to look at this to prevent the massive cyclical move that we've seen over the past couple of years here, what can we do to prevent that? Is it just keeping it super low moving forward? Is that your caution on just the inventory? Would love the big picture take? Dean Butler: Yes, maybe Chris, I'll start off with just our viewpoint on inventory holdings versus us internally versus distribution channel. Look, one of the things that we've seen over the last few quarters is increasing short lead time orders, which really is a perfect fit for channel partners. Quite honestly, we've been working down our internal inventory, our balance sheet inventory. And what we'd like to have happen is have a larger sort of holding set at distributors to service those short lead time orders. I think in the industry right now, there's quite a bit of inventory at various supply points and people are able to deal with it. I think once you get back to sort of a normal steady state environment, we would probably look to have our inventory holdings closer to 100 days and distribution close to 70 days. So it's really just a change between balance sheets between us sort of directly versus where the distributors are. And certainly when it comes to peers and sort of what's happening with some people around us, I think the distributors are sort of hesitant to take on a lot of extra inventory right now. I mean, everybody's sort of got their own nuanced model that they're trying to drive, but I don't think I've seen any instances where distributors are taking too much or taking too little. It seems to be fairly balanced, at least from a Silicon Labs perspective, the last probably about four quarters, we've operated in the mode of let the distributors sort of naturally hold the amount of inventory they think is sufficient for supporting their working capital sort of models, as well as customers. I think as things continue to stabilize, you'll see them probably inch up in their holdings relative to where they are now. Today, 56, we just ended the quarter with 70, 75 days as our longer term target. Matt Johnson: Yes, I fully agree with what Dean's saying. And maybe just an add as a reminder for everyone, we never really had a distribution or channel inventory problem throughout the cycle. The biggest challenge we had was really end customer excess inventory. That's where there was a substantial buildup as we went throughout this cycle. And that's really what we've been focused on working down over the past year. And as Dean and I shared in our remarks, we've made substantial progress towards that end. So maybe a way to think about it is just like in the crisis where there was not enough supply, we maintained a really constructive relationship with our suppliers. And I think we fared better than most. And also on the other side of it, I think in the inventory side, we maintained a really constructive relationship with our distributors, and I think we fared better than most there. So the biggest challenge for us was really end customer excess versus channel, although never easy to navigate all the moving pieces. Christopher Rolland: Thank you very much. Very helpful, guys. Dean Butler: Thanks, Chris. Operator: Thank you. One moment for our next question. Our next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Yes, thank you and congrats on the continuous recovery here. You mentioned the glucose meter business could be 10% of revenue over the next 12 to 18 months. Do you have similar numbers perhaps for some of your other circular drivers, including the shelf label and the smart meter business? Matt Johnson: No, Tore, we haven't shared those. We just felt that in the CGM space where you can see it coming relatively quickly, it's better to get out ahead of it and share that. Tore Svanberg: Great. And as my follow-up, there seems to be a lot of activity on the Matter side. I'm just wondering how we should think about this for Silicon Labs going forward. Obviously, this is a standard. It pulls through, obviously, a lot of your components. But how should we think about this, either from penetrating existing applications to even potentially penetrating some new applications and maybe even things like smartphones? Matt Johnson: Yes, absolutely. So the net takeaway, I'll start with the headline, is we see Matter as net favorable to the industry in terms of device adoption and net favorable to Silicon Labs in terms of our position. For anyone not familiar, Matter was really adopted for the industry to simply said, make it easier for companies to develop and deploy IoT technology and easier for consumers to adopt and deploy these technologies. And there's frustration out there with some because it's taking longer than people expected. I don't particularly find myself in that camp. I think these big transitions that are worthwhile take a lot of time. There's a lot of moving pieces, a lot of companies. And I think the thing to focus on there is, does it continue to move forward in the right direction? And the answer is yes. It continues to move forward. And if you look at where it's being adopted, the easy way to think of this is the infrastructure is being built out for Matter. And what that does is creates the real potential for us, which is the deployment of Edge devices out there. So as service providers and handsets put this technology in their devices, it lays the groundwork for all the Edge devices. That's the big volume to adopt this technology. And that's where we thrive. So as we've said all along, that's why we've leaned in on this. We have been the largest code provider for any semi-company, more SERPs than any company out there around Thread. And as I've shared in my remarks, since that spec was ratified, which I think was roughly two years ago, we've won and secured more business since then than in the prior five years combined, which speaks to really the acceleration that you're seeing. And to answer the question, yes, existing devices definitely want to adopt and deploy. And we also see new devices where they say, okay, maybe it's time. Maybe this makes it easier for us in terms of our development and for the likelihood that the outside world can adopt it. So we're cautiously optimistic that this is a win for the industry and a win for us to continue to move in that direction. Tore Svanberg: That's a great color. Thank you, Matt. Operator: Thank you. One moment for our next question. Our next question comes from the line of Cody Acree from Benchmark Company LLC. Cody Acree: Great. Thanks guys for taking the questions and congrats on the nice annual turn. With a little bit of street estimates for '25, I think the street's got you up 37% annual, about a little over $200 million annual. If I look at the drivers that you laid out, glucose monitoring, electronic shelf labels and smart metering, can you maybe handicap your other growth drivers or how much of that 37% street estimate that you could realistically gain from those large drivers and how much is going to have to come from the rest of the company? Matt Johnson: The rest of the company being other areas? Cody Acree: Yes, just other applications. Matt Johnson: Yes, sure. We haven't broken it out, but we want to be very clear about a few things. We talk about ESL, sorry, electronic shelf labels, continuous glucose monitors, smart metering, because they're applications that people understand. We have strong positions. There's awesome growth out there for both the industry and for us. I'm not going to answer the question directly what percent, but they have meaningful growth for us and they're helping impact our expectation and outlook for the year. That being said, we've also mentioned just here on this call, we expect growth in Wi-Fi. We expect growth in Bluetooth. Some are in those applications, a lot that's independent of those applications. We just talked about Matter, which is not included in those applications, which we see only accelerating as we move forward in time. So the point being, those applications and there are multiple other applications that we see as growth drivers and there's multiple other technology trends that we see as growth drivers, so I wouldn't over index on those three areas, although we really like what we see there and they're giving us good lift. There's a lot of other vehicles out there, too, that are giving us a tailwind. Cody Acree: Excellent. Thank you guys for that. Maybe if you can just talk about your gross margin puts and takes as we progress through the year, any color would be appreciated. Dean Butler: Yes, Cody, we've done a good job in improving our gross margins throughout '24. As we enter the first quarter into '25, it looks like gross margins are coming up again a little bit. Looks like midpoint is 55% is what we're guiding to for Q1. I think as we look forward into the balance of '25, we would expect sort of continued progress in gross margin. I don't think you're going to see any big sort of step function from here. We're pretty close to where we see ourselves as kind of our longer-term model, this mid to 50s or mid-high 50s, so we're in sort of the striking range now. So what I would like to see in progression in gross margins, one, as revenue continues to increase, you'll sort of get the absorption of fixed costs. So on a ratio basis, your margins will get a little bit better. As some of the new design wins ramp, I think that's helpful, but again, it's not a step function. One of the things I think is going to be key is to see sort of the broader distribution, sort of the tens of thousands of customers continue to recover and improve from here, and that will probably bring up the margins. A lot of those distribution customers end up being servicing our industrial side of the house, and that tends to come with a little bit better gross margin from a mixed perspective than some of the other areas. So I hope that helps, Cody. Cody Acree: It does. Thank you guys very much. Dean Butler: Yes. Operator: Thank you. One moment for our next question. Our next question comes from the line of Srini Pajjuri from Raymond James. Srini Pajjuri: Yes. Hi. Good morning, guys. Matt, I was hoping you could maybe give us some additional color on when you talk about end customer inventory, not just the Disney inventory, but end customer inventory kind of still normalizing. Where do you see kind of what end markets or what customer types, where do you feel comfortable that inventory is back to normal, and where do you think there's still some excess that needs to be, I guess, corrected over the next few quarters? Matt Johnson: Sure. So the quick answer is, for anyone not familiar, what we do is we work with our top 60 to 70 customers and really try to understand their end inventory situation. So again, not perfect science, but roughly right. And we've seen consistent progress there over the past year. To the point now where the pockets that remain, as we said, are probably more customer-specific phenomena than market or industry phenomena that are going on there. So, we're getting pretty close to that working its way out for us. I think the easiest way to say it is there's still some, so we don't want to ignore that. But if you can break it into the major three factors that we've been talking about for quite a while now, it was excess inventory, end market strength, and design and ramps. And I think where we are right now, maybe the easiest way to conceptualize it is going forward, the biggest influencers first will be those design and ramps. Second will be broad market or end market strength that we're not seeing yet, but we do expect at some point. And third is inventory. So it's really moved down the list where last year it would have been one. Now it's down there. So I think it's really moving from a big factor to a much smaller factor and less consequential in our expectations moving forward. So hopefully that's helpful. Srini Pajjuri: Yes, that's helpful. Thank you. And then just to follow-up to one of the previous questions about, I look at your outlook for the CGM going to 10% of sales in the next 12 to 18 months, but you feel pretty good about the next few quarters. So there must be something else that's also contributing to that incremental growth because your expectation for the end markets is kind of relatively kind of stable. So I'm just curious, what are some of the other new products that are driving, that's giving you that confidence that you'll grow through the next few quarters in the year? And also if you can talk about some of these markets are so niche that I guess some of us don't have very good idea how big these markets are. So if you can kind of give us some idea where you are in terms of penetration and how big these markets are and any additional color will be helpful? Thank you. Matt Johnson: Sure. So let's see. There's a lot in there. Let me talk about first, just kind of answer the first piece as directly as I can. CGM ramps have already started and they started across multiple customers, so that's important that that's not just a down the road thing. That's a real time thing. So that's one. And the way to think of that is if you go back a year ago, that was zero, so effectively. So that's all incremental growth for us as a company. So I don't want to downplay that piece. But to answer the question, the other areas we talked about ESL has been ramping in a good clip and that was already in motion. Metering, we've always had a strong position, but as we shared in the prepared remarks, we're also starting to see new deployments globally like the India smart metering initiative. We're starting to ship millions of units into there, so that's starting to ramp for us. We're seeing that one move faster than other geos we've seen historically, which is encouraging to see. So the areas we've talked about are all contributing. It's not just those one. And then, I'd also say, we expect to see growth in areas like from new products like Wi-Fi that we've talked about. BLE we've shared is now our fastest growing revenue space. So that's driving share gains and strong growth there. We expect Matter will continue to contribute favorably. When you see such an acceleration of design wins, the simple way to think of that is that's a precursor to an acceleration of revenue. So, all those are additional factors that we see contributing in addition to CGM to your original question. On the piece that, some of these end markets seem niche or relatively small, I'd put it this way. Maybe I'll just focus on CGM, continuous glucose monitors and shelf labels. I'd say this. Both are markets that are relatively early in terms of their global adoption. That being said, they already represent hundreds of millions of units. We've shared previous calls that we'd shipped over 300 million units into ESL already. And it's early days in that market. So the way I'd take away for those markets, early days in terms of global adoption, I think the growth potential is substantial in all those markets over time. And our position is very strong within each of those markets. So we're well indexed for the future growth opportunity there. Srini Pajjuri: Very helpful. Thanks, Matt. Matt Johnson: Yes. Operator: Thank you. One moment for our next question. Our next question comes from the line of Thomas O'Malley from Barclays. Thomas O'Malley: Hey, guys, thanks for taking my question. I wanted to ask about the dynamic between the Zigbee and the direct inventory. It took a step down in the December quarter. Could you just walk through what happened there? I think for a period of time you had talked about moving up in terms of revenue towards Zigbee and how that helped gross margin? That's question one. And then question two is, as it relates to the top 10% customer, you stop breaking it out at the end of 2023. But could you give us an update on where that stands today? I would assume that given the direct customer has grown as a total dollar amount. That number has also grown as well. Any help with that would be helpful as well? Thank you. Dean Butler: Yes, Tom, the direct versus distribution mix is actually pretty simple. We have been improving distribution versus direct as a percentage of revenue throughout '24. It did take a step down in the fourth quarter. And it's actually pretty simple. So a lot of our industrial type business goes through the channel. That's a little bit slower right now. And at the same time, some of the ramping businesses such as CGM that Matt talked about actually tends to go direct. And so what you see is distribution is not growing at the same rate that these new customer ramps are happening. And that's throwing it off. What I would expect, though, sort of throughout the year and going forward, is as industrial sort of starts coming back and sort of broader demand continues to return, I think you'll see that distribution channels continue to grow. And so you'll find probably in the near term, hey, what is the dynamic between some of these direct new design ramps versus sort of the broader long tail? And I think it would probably just take a little while before they kind of get back to equilibrium. As for your second question, Tom, around top customers, generally speaking, our top customers that you might see in some of the SEC filings tend to be our distributors. So we sell direct distributors. Historically, that's roughly on the order of 70% to -- in some cases, 80% of our revenue goes to distributors. And so a lot of the top customers you see in that vein, the company for a long, long time has never had a 10% single end customer, and that continues to remain true. Operator: Thank you. One moment for our next question. Our next question comes from the line of Peter Peng from JP Morgan. Peter Peng: Hey guys, thanks for taking my questions and congratulations on the results. Maybe on the March quarter, can you maybe talk about where we are in terms of shipment versus end consumption trends? I know you guys talk that most of your customers are done with going through inventory trends, but are you still continuing to under ship versus the end consumption trends? Matt Johnson: Sure. Hey Peter. So the quick answer is as long as there's some excess inventory out there at our customers, you can't say you're at consumption, I guess is the fastest way to say it. But as I said earlier, I think as a component of the kind of dynamic and expectation moving forward, we're predominantly through this inventory correction for us specifically. And as we've shared, that's continued to move down to a rate now or a level now where I would prioritize it the way I said, really the primary driver of expectations moving forward is design and ramps, then, broad market and then inventory. So it's really moved down to a factor that gets way less visibility and influence of our expectations. So don't say we're -- I can't say we're there cause there's some excess out there, but it continues to work its way down and it's no longer the primary factor like it was in '24, '25 is about other growth factors. Peter Peng: Got it. And then if I kind of look at some of the seasonal trends like March quarter is typically your softer period. Usually it's more flattish to down slightly, but you guys are guiding for up 7%. And then June and September quarter is your seasonally stronger periods. So would it be given all the design and ramp that you guys talked about that revenue growth is going to be accelerating into the June and September quarter? Dean Butler: Yes, Peter, good observation. You're right. Generally Q1 tends to be a little bit softer. We're bucking that trend with some of these new product ramps currently. I would say, it's probably too early to call the, what does your June, September quarter look like. Look, I do think we have lower visibility right now than we may historically have over the last couple of years. I wouldn't bank on sort of a significant acceleration from here. I mean, sort of posting a March quarter 7% positive sequentially is pretty substantial in this market based on what we're hearing around some of our peers. I would think that as you look forward into the summer months, you would probably enter with a little bit of caution. At least we do. And we look at the backlog and we say, hey, things are going the right direction, but we're not calling acceleration at this point. And that's maybe how I would frame it, Peter. Peter Peng: Perfect. Thank you guys. Operator: Thank you. At this time, I will now hand the call back over to Giovanni Pacelli. Giovanni Pacelli: Thank you, Gigi. And thank you all for joining this morning. Before concluding today's call, I would like to announce our upcoming participation in Susquehanna's 14th Annual Technology Conference in New York city on February 27th. I would also like to announce our upcoming Analyst Day in New York City on March 11th at 9.00 AM Eastern. Matt, Dean and others from our executive team will provide an in-depth review of our long term strategy, key growth initiatives, and financial outlook. We look forward to connecting with you and providing a deeper insight into our business. The registration link is available now on our website at investor.silabs.com. The event will also be streamed live on our website. This now concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: My name is Michelle, and I will be your conference operator today. Welcome to the Silicon Labs Third Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Giovanni Pacelli, Silicon Labs, Senior Director of Finance. Giovanni, please go ahead, sir. Giovanni Pacelli: Thank you, Michelle, and good afternoon, everyone. We're recording this meeting, and a replay will be available for four weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs, President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our third quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the investor relations section of our website. I'd now like to turn the call over to Silicon Labs, Chief Executive Officer, Matt Johnson. Matt Johnson: Thanks Giovanni, and good afternoon, everyone. Silicon Labs delivered solid third quarter results with revenue and earnings exceeding the midpoint of our guidance. Our surveys indicate that many of our customers' excess inventory levels have now normalized, however, there remain outliers whose destocking will continue to take time. Bookings patterns and distribution POS have modestly improved, but have not significantly accelerated, indicating to us that a demand recovery is likely to be more gradual than many of our customers originally expected. Broadly speaking, the majority of our customers remain positive looking forward into 2025. Our current quarter outlook reflects near-term uncertainty around the timing of a more robust end-market recovery and importantly does not assume any significant channel restocking. Looking ahead, our growth in the near to midterm is underpinned by design win ramps in the secular growth areas that we have previously discussed, including connected health, smart metering, and commercial retail, as well as many other applications. We are currently ramping shipments to multiple customers in all of these and are confident we are gaining share in these markets, giving us conviction in our growth opportunity moving forward. Over the last quarter, Silicon Labs Works With developer conference was a huge success. We hosted over 500 unique existing and new customers in person for two days, as well as our ecosystem partners, including Amazon, Google, Samsung, and now Nvidia. At Works With and at Embedded World North America, our CTO, Daniel Cooley and I delivered keynotes discussing how AI is rapidly becoming a growth catalyst that will enable the total number of IoT devices to reach over 100 billion over the next decade. We also detailed the continued success of our industry-leading Series 2 platform and new to industry capabilities of our upcoming Series 3 platform. Simply said, AI not only enables better use of existing IoT devices, it will also enable and accelerate even broader device deployments moving forward, further expanding the Silicon Labs addressable market. At the product level, we are currently shipping Series 2 devices with integrated machine learning inference engines. This includes our xG24 family of SoCs, a device where Silicon Labs was first to bring machine learning acceleration to wireless SoCs and still currently delivers more performance per unit of power consumption than any other wireless SOC based on a recently publicly available benchmark done by a third party. Also in the quarter, we announced Series 2 enablement of Bluetooth channel sounding on our xG24, enabling secure and precise distant measurement between Bluetooth devices. And opening the door for a new wave of proximity-based applications in home security, location tracking, geofencing, vehicle keyless entry, and building access control. This capability is already driving another wave of customer interest and design wins on our Series 2 platform at existing and new customers. At the same time, we are now sampling our first Series 3 device to customers, which is purpose-built to extend our successful Series 2 architecture to new to IoT levels of performance for the industry. For example, Series 3 will have dedicated hardware acceleration to create the world's most flexible IoT modem, dedicated security cores designed to enable post-quantum level encryption, and an advanced machine learning core designed to enable an order of magnitude increase in performance over our already industry-leading energy per inference benchmarks. We are excited with our progress on Series 3, and our Series 2 platform continues to build momentum with new exciting products and features, growing market share and new use cases through its industry-leading power consumption, security, and multi-protocol wireless performance. This includes our first Wi-Fi 6 device, the 917, which we expect to be in ramping at customers as early as Q1 of 2025, and can deliver up to two years of battery life on a single AAA battery. This equates to meaningfully better battery life versus any competing alternatives. Customer engagement with our 917 device is strong, and we are ramping our design wins quickly across multiple application spaces. Our initial intent in Wi-Fi is to work with our broad existing customer base to identify opportunities for pull through in applications where Wi-Fi is becoming more relevant and where power consumption and security are also key requirements. We've been investing significantly in Wi-Fi because of our firm belief in its relevance and growth potential within our IoT space. We're hyper-focused on driving the same market share expansion in Wi-Fi that we're currently achieving with our Bluetooth solutions after increasing our strategic focus in that technology around five or six years ago. In addition, we are continuing our focus and growth in Bluetooth. Not only is it now our fastest growing technology by revenue, but it is now our largest opportunity pipeline by technology as well. Our early integration of new to industry capabilities like PSA Level 3 security and benchmark setting machine learning performance continues to generate strong engagement and growth. Lastly, our commitment to building matter infrastructure alongside our leadership and threat technology positions us well as trusted partner to ISPs, ecosystems, and developers who are working to integrate matter into their solutions and support interoperability of edge devices. Overall, in the near term, the timing of the end market demand recovery remains uncertain. However, we expect a solid growth year in 2025 as the significant design wins we have driven over the last few years begin ramping to production. We will continue to focus on solid technology innovation and execution, gaining market share, and returning to our financial model as fast as possible. Now, I'll hand it over to Dean for the financial update. Dean? Dean Butler: Thanks, Matt, and good afternoon to everyone. I'll first review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the September quarter was $166 million, up 14% sequentially, and slightly ahead of the midpoint of our prior guidance. Year-over-year, revenue was down 18% as demand continued to be hampered by excess inventory absorption across distributors and end customers. In our industrial and commercial business, September quarter revenue was $96 million, up 10% sequentially, but down 20% year-over-year. The sequential increase was driven by a strength in applications such as smart building controls and smart meters. Home & Life, September quarter revenue, was $70 million, up 22% sequentially, and down 16% year-over-year. As expected, Home & Life grew faster than industrial and commercial in the third quarter, which we believe is at least partially driven by consumer-oriented end markets being further along in their inventory correction relative to the industrial end markets. Wearable related applications such as smart watches and fitness trackers saw strength in the quarter contributing to the 22% sequential growth. Inventory in our distribution channel declined two days to end the September quarter at 53 days. We are monitoring our distribution inventory and allowing shipments into the channel to flow naturally despite being lower than target level. Distributor POS continued to grow sequentially in Q3, as we believe many long tail customers have now worked through the majority of their excess inventory, potentially paving the path to further recovery in 2025. Distribution made up approximately 72% of our revenue mix for the September quarter, an increase from the prior quarter, but below our historical distribution versus direct channel sales mix of around 80%. For the September quarter, our GAAP gross margin was 54.3%. Non-GAAP gross margin was 54.5%, which was an improvement versus 53% in the prior quarter. GAAP operating expenses were $120 million, which includes share-based compensation of $16 million and intangible asset amortization of $5 million. Non-GAAP operating expense of $99 million was below the low end of our prior guidance range as we manage expenses during times of more limited visibility. GAAP operating loss was $30 million, and non-GAAP operating loss was $8 million, both of which were substantial improvements from the prior quarter, moving us in the right direction. During the quarter, we recorded a GAAP tax expense of approximately $2 million. Our non-GAAP tax rate remained at 20%. GAAP loss per share was $0.88. Non-GAAP loss of $0.13 per share was better than the midpoint of our guidance range due to lower operating expenses. Turning to the balance sheet, we ended the quarter with $370 million of cash, cash equivalents, and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we further reduced our internal inventory by $27 million, ending the quarter at $139 million of net inventory, which contributed to our positive operating cash flow of $32 million for the September quarter despite our operating losses. Days of inventory on hand improved to 165 days, a significant improvement from the 217 days at June quarter end. Now let me turn to our December quarter outlook. While visibility remains limited due in part to shorter lead times, the rate of change in our customers' excess inventory de-stocking process has decelerated after having made rapid progress over the last few quarters. While distribution POS in our own bookings have improved, the pace of our recovery remains somewhat uncertain due to the slower end market demand. Looking ahead to Q4, we anticipate revenue in the December quarter to be in the range of $161 million to $171 million, indicating a flat quarter-on-quarter comparison, which is likely better than seasonality. Considering the relative end-market ordering patterns, we would anticipate another quarter of outperformance by our Home & Life products in the December quarter, being somewhat offset by a muted industrial and commercial end market, therefore resulting in our flat guidance expectations for Q4. It's worth noting that the midpoint of this guidance implies a 90% year-over-year growth rate versus the through experienced in the December quarter of 2023. Additionally, as previously anticipated, we expect to begin our initial production shipments to continuous blood glucose monitoring customers and have line of sight to full-scale customer ramps into 2025. We expect GAAP gross margin in the December quarter to be in the range of 54% to 55%. We expect non-GAAP gross margin to also be in the range of 54% to 55%. We expect GAAP operating expenses in the December quarter to be in the range of $118 million to $122 million. We expect non-GAAP operating expenses in the range of $97 million to $99 million. Finally, GAAP loss per share is expected to be in the range of $0.75 to $1.05 loss. Non-GAAP loss per share is expected to be in the range of $0.01 loss to a loss of $0.21. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Michelle? Operator: Thank you. [Operator Instructions] The first question comes from Srini Pajjuri with Raymond James. Your line is open. Srini Pajjuri: Thank you. Matt, you talked about bookings being somewhat uneven. Maybe you could give us some color -- additional color on which end markets. I think you guys are guiding for commercial to be kind of flattish or muted seasonally and then Home & Life seems to be doing better. But within those, I guess, end markets, any particular subsegments or end markets that are standing out in terms of weakness? Thank you. Matt Johnson: Sure. Yes, I think the broad bookings statement is that, we have seen continued improvement overall, but as we said in the prepared remarks, not an acceleration that you'd want to see to say, we're on the other side of this cycle that we're all in. In terms of the next level down, quick answer is, more strength in Home & Life. And not as much strength in industrial and commercial, particularly industrial, which I guess, on one hand isn't surprising given that it's later into the cycle, but we'd like to see more strength from industrial than we're now seeing. Srini Pajjuri: Okay. Got it. Maybe a quick follow-up. We hear a lot about Edge AI and obviously you have a very strong position in IoT and you did talk about that as well. I'm just curious, when we look at these markets, we always tend to think in terms of units and ASPs. So maybe if you can help us understand as AI -- as we see more and more AI functionality in these applications, what sort of ASP uplift are you, I guess, seeing and what should we expect as we I guess look out to the next couple of years? Thank you. Matt Johnson: Sure. So quick answer is, it definitely would lift ASPs. That's the first thing. It's important just for framing that there's multiple levels of this, right? As we've said in some of our keynotes, as well as the prepared remarks, we do see AI accelerating IoT Edge adoption ultimately, whether it's improving the usefulness of existing deployments or helping accelerate broader deployments. So that's exciting and encouraging to see. At the device level, simply said, it takes more cores, more compute, more silicon space, more performance to bring inference at the edge. What we shared in the earlier remarks is, we have production release devices that provide industry leading inference at the edge for machine learning for battery powered applications. And we see that increasing in its adoption. And for sure, when customers use those, there's an ASP lift associated with that. So think of it as ASP lift. And I'd also add, you should also think of it as SAM expansion, because it opens the door to additional application and use cases for our device. So, net positive for us on product level and in end market adoption level. Srini Pajjuri: Got it. Thanks, Matt. Operator: The next question comes from Quinn Bolton with Needham & Company. Your line is open. Nick Doyle: Hey, guys. Nick Doyle on for Quinn. Thanks for taking my questions. You guys mentioned no channel restock next quarter. So I guess how are you thinking about the distributor mix overall? And can that mix get back to 80% in early 2025? Thanks. Matt Johnson: Yes, Nick, we're not assuming that there's a broad restocking into the channel. I would just remind everybody that our target channel days of inventory is approximately 70, 70 to 75. We just ended the quarter at 53. The prior quarter was 55. And so really, I think to see the channel restock is going to take several quarters. I think as POS continues to grow, as confidence and customer forecasts continue to grow, which they happen sequentially every quarter, you'll gradually see distributors continue to take more and more stock and put them on the shelves as turns actually go up. And that's one of the notable things that I think we've seen in the last quarter is to have short lead times turns orders coming in, which, of course, is heavily dependent on the channel being able to support that. On terms of getting the channel back to closer to our historical mix of about 80%. We're in no rush. I think ultimately that's where the company heads back to kind of our normal course of business. But again, the channel's made up of tens of thousands of customers and we're going to just slowly continue to participate and support our customers as they continue to grow, as their de-stocking gets over with and they return back to normal consumption. And once you get back to that point, I would expect it to get back nearer to that 80%. But it didn't take a few quarters. You won't see that move in one quarter. You won't probably see it move in two quarters. It's just a little bit of a patience game, I'd say, next. Nick Doyle: Thanks. Helpful. The second question on CGMs, you mentioned line of sight to full ramps in 2025. Can you give us any more details on what that looks like in terms of units? I think you've talked about millions or tens of millions of an opportunity and I think online I think CNBC was talking about 100 million units or more in terms of the overall market. So, any help there would be nice. Thanks. Matt Johnson: Yes. So, as we've said in the past, and it's unchanged. Easy way to think of it is, as a company, essentially very little historical revenue in continuous glucose monitors and insulin management in general. We've shared multiple design wins at multiple end customers. We've said more than a dozen. And we are starting to see those ramp. And as we exit this year, so we'd expect that those would start contributing in a way they haven't been able to as we go into 2025. To answer your question directly, we believe that that end market represents hundreds of millions of units of opportunity. And that's a statement in terms of the SAM or service available market there. And we feel that we are doing a pretty good job at securing market share there and we expect that to continue moving forward. Nick Doyle: Thank you. Operator: The next question comes from Cody Acree with the Benchmark Company. Your line is open. Cody Acree: Yes, guys, thanks for taking my questions. Maybe if you can just talk about your in-consumption levels with revenue here in the back half about flat, obviously after a strong sequential improvement in Q3. What do you think that that is saying about your in-consumption levels? Matt Johnson: Yes, so we could hear from Dean as well. The quick answer is not at consumption yet, Cody, is the quick answer. We've seen an improvement in the end customer excess inventory. That destocking has made a big impact in working those levels down. But as we've also said, it's not complete yet and still has some more work to be -- had for that to be complete. So getting closer to consumption, but not there yet. And just as a reminder, big, big picture, the three big pieces we've been talking about, one is that end inventory getting closer, but not corrected yet. But definitely has gone in the right direction, and we've made some big gains there. Second piece is end market. End market continues to be low in visibility and choppy and uncertain in terms of what to expect. And our customers, I think, just are trying to navigate this environment and they're not sure either, I think is the honest answer. And then the third piece is our design wind ramps. And as we've said, we've benefited from significant design win levels over the last few years, and those are now starting to ramp. And that's giving us the confidence to say we see a path to continued growth here, even with the uncertain market environment that we're all dealing with. Dean Butler: Cody, maybe I'll just add just a couple of points. One, we've made pretty rapid progress in the last three or four quarters to actually get majority of customers past their de-stocking process. I think as we look into Q4, what the dynamics are today is a little bit choppy in between different end markets. For example, industrials seem like that's sort of gotten a little bit weaker lately. I don't know if there's a sort of hesitancy on some of those customers, while some of the consumer-based applications seem like they're largely past their destocking and their forecasts continue to go up. So we still see sort of pockets of differentiation between some of the end applications. And more notably, recently, we've seen a lot more short order lead times. So that short order lead time makes it hard to give us visibility on, hey, what does the next quarter, two quarters, three quarters look like as customers sort of sit on their end demand, waiting till almost the last moment. So that is sort of caused a little bit of visibility, grey area for us as we look forward. But largely, I think people, we are making progress and I think we're not quite there yet on end market consumption level, but we're making progress every quarter. And every quarter, a little bit of pockets change, and those customers move past, and it looks more and more positive. Cody Acree: Thanks for that color. It's very helpful. Maybe if you can just carry on that thought into the first quarter, any quick thoughts on normal seasonality or what your order rates are suggesting for the first half? Dean Butler: Yeah, so for the first half, I would say, there is a lot more turns orders that we're starting to see. So it gives us a little less ability of what we might be able to see into a typical Q1. Q1 for a lot of our end applications is usually not their strong point. I think the balancing point for us in Q1 and Matt I think mentioned in some of his remarks were some of the design win ramps that we see looking to go into mass production. We have some going here in Q4. We have some pretty good ones that looks like Q1 is going to be the right timing. So I think our focus largely is around these design-win ramps, Cody. Cody Acree: All right. Thanks guys. Dean Butler: Thank you. Operator: [Operator Instructions] Our next question comes from Peter Peng with JPMorgan. Your line is open. Peter Peng: Good afternoon, and thanks for taking my question. I want to follow up on the design wind ramp. Maybe if you can just kind of give us on how material this could be to revenue contribution for 2025 that would be helpful versus 2024? Matt Johnson: Yes, that's not something that we provided more color on. I think the easiest way to say it is, right now in this market environment, once the inventory destocking is complete, for all intents and purposes, we're assuming that the end consumption or demand environment is relatively flat. It's got to change at some point. We've got to see more strength there, but we're not seeing it right now. So we're assuming that the other side of that, all the growth is coming from design wind ramps. And what we've shared is, we see a path to solid growth moving forward based on those design wind ramps in that flat market environment. That's the most color we can provide right now. Peter Peng: Got it. Okay. And then as we think about some of these new design win ramps, maybe you can talk about whether there's any margin implications either to the up or down as we think about 2025? Dean Butler: Yep, no meaningful changes. We've remained committed to our overall gross margin model. We see a path to continuing doing or meeting that model. So those ramps will definitely help our revenue, but won't meaningfully change the gross margin outlook. Peter Peng: Great. Thank you, guys. Operator: I show no further questions at this time. I would like now to turn the call back over to Giovanni for closing remarks. Giovanni Pacelli: Thank you, Michelle, and thank you all for joining us this afternoon. Before concluding today's call, I would like to announce our upcoming participation in Stifel’s 2024 Midwest Conference in Chicago on November 7th. This concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Hello. My name is Tanya, and I’ll be your conference operator today. Welcome to Silicon Labs Second Quarter 2024 Fiscal Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Tanya, and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our second quarter financial performance and review recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of the Silicon Labs website. I’d now like to turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered strong second quarter results with revenue reaching the top end of our forecast and earnings exceeding expectations. Many surveyed customers report that their excess inventory levels have normalized, although some significant outliers remain. Improved booking patterns in the first half of the year indicate a continued recovery in the second half, even though weekly bookings are still below our target level. Our design win pipeline is well on track for the year with record design wins in Industrial & Commercial business units with particular strength in the Smart Cities business. The Home business also set a design win record in the quarter. We’re also pleased to see numerous design win s ramping into production and shipping to customers, including insulin management devices, electronic shelf labels and smart meters. In insulin management, we’ve started shipping millions of units across multiple customers and regions. We expect this momentum to continue in the second half of the year and accelerate into 2025 as the market and our share for these products grow and large customers begin ramping in programs. In smart retail, global deployments in the electronic shelf label market are expanding and we have a clear leadership position in the space. We’re working with four of the top five global ESL providers to support their rollout to retail customers. Lifetime, we have cumulatively shipped 300 million units and ESL has become our fastest-growing business. We are meaningfully ramping our ESL unit volume and see this growth continuing to accelerate into the next year as this application gains further traction. In smart metering, we are participating in all of the largest smart metering deployments globally outside of the China domestic market. We’ve secured designs with a major global metering supplier positioning us to capture significant share in upcoming metering deployments in new and emerging markets like India, Central America, Southeast Asia, as well as to support next-generation deployments in more established markets like the U.S. and Europe. We’ve also just secured a significant smart metering design win with a top utility provider in Japan. This win will enable us to support a majority of Japan’s smart metering market, servicing both new and existing deployments with our multi-protocol solutions, including our award-winning Wi-Fi 6 solution, the 917, and our best-in-class sub-gigahertz solution, the FG25. Our first Wi-Fi 6 product, the 917, has meaningfully lower power consumption than competing products in the market and we believe it has the potential to drive share gain similar to our Series 2 Bluetooth solutions over the past several years. The 917 continues to generate significant market opportunities and we are now seeing those opportunities convert to dozens of design wins, including at one of the world’s largest appliance manufacturers. As IoT devices proliferate, our Series 2 portfolio is well-positioned to unlock new use cases through industry-leading power consumption, security, multi-protocol wireless performance and Edge computing power. We were the first in our industry to integrate PSA Level 3 security into our Series 2 products. We’re seeing its importance and are now securing new business as a result. Similarly, our early integration of AI/ML into multiple Series 2 SoCs is also driving strong customer engagement as they seek to understand the potential use cases and applications for ML Edge in their product roadmaps. We continue to see strong momentum in the adoption of our current generation Series 2 products, while at the same time, we’ve started sampling the first product in our next generation Series 3 platform. The strength of our current generation and potential of our next generation platforms that are highly complementary is exciting and positions us extremely well going into the future. Further, customers will be able to transition from Series 2 to Series 3 as needed through common code base, scalable memory architecture and significant advancements in performance, power consumption, and compute capability. We will be talking more about Series 3 at our upcoming Works with Developers Conference this September. Overall, I’m proud of the team’s execution last quarter. As anticipated, the main driver of our recovery so far this year has been many of our end customers managing down their excess inventory. The steadily improving inventory backdrop combined with design win ramps and key focus areas, such as insulin management, ESL and metering, positions us to continue driving sequential growth in the second half. The third driver of our future growth is an improvement in the end market demand, the time of which remains hard to predict. That said, as bookings improve and shipments into our channel increase, we will benefit from this catalyst and the combination of all three of these factors will provide momentum for us moving forward. Lastly, we remain laser focused on returning to profitability as quickly as possible and executing for our long-term financial model. Now I’ll hand it over to Dean for the financial update. Dean? Dean Butler: Thanks, Matt, and it’s great to be joining everyone this morning, having officially stepped into the CFO role during Q2. Before discussing our results and outlook, I thought it’d be helpful to begin with some early observations. Those of you who know me know that I’ve long been an admirer of the Silicon Labs business and I’m thrilled to be the newest member of such a great team. Silicon Labs is a unique company in our semiconductor industry with its singular focus as a pure player for one of the fastest growing end markets for semiconductors, the IoT. The characteristics of this market offer many compelling financial attributes, such as a tremendously diverse customer base, long product life cycles, emerging new growth applications and the ability to command market-leading pricing with highly valued technology central to the end market application needs. Having now joined and begun to integrate into the organization, I’m pleased to share that the product depth and breadth are even more impressive than I originally understood. I’m happy to report that the sales funnel is extremely robust with a pipeline of customer engagement and design wins as diverse as the IoT itself, bolstering my belief in future growth for years to come. A key focus area for us will be ensuring that we convert this pipeline of design wins to measurable topline growth, and importantly, delivering that sales growth to the bottomline in the form of ETF expansion. We can do this by putting a renewed focus on our operational expenses and improving product margins, which will become clear as our revenue continues to recover and our newest products are released to market. Now moving forward to the June quarter results. Revenue was $145 million, up an impressive 37% sequentially and above the midpoint of our prior guidance as our recovery path takes hold. Year-over-year, revenue was down 41% as expected. In our Industrial & Commercial business, June quarter revenue was $88 million, up 35% sequentially and down 47% year-over-year. The sequential increase was driven by strength and application such as smart meters, smart building controls and retail electronic shelf labels, all delivering double-digit growth. Home & Life, June quarter revenue was $57 million, up 39% sequentially and down 28% year-over-year. During the quarter, we saw strength in home automation and security. In the Life business, we’re seeing continued traction in connected health and fitness customers, and have completed the qualification at several new continuous blood glucose monitoring customers, and are now shipping products to multiple of these CGM customers globally. These medical and health-centric applications are poised to deliver future growth for Silicon Labs as customers begin to ramp their production. We continue to focus on the level of inventory in our distribution channel, which has now declined to 55 days in the June quarter. Even more encouraging is the sequential growth in our distributor POS, which leads us to believe that some of the long-tail customers are beginning to work past their excess inventory position. Distribution made up approximately 69% of our revenue mix for the June quarter, an increase from the prior quarter, but still below our typical distribution versus direct sales channel mix. Overall, ASPs were down slightly compared to the prior quarter, but this is due to product and customer mix during the quarter, while unit volume was up significantly, driving our strong sequential growth. Geographically, we saw sequential increases in all regions, with APAC being up more than EMEA and the Americas during the quarter. For the June quarter, our GAAP gross margin was 53%. Non-GAAP gross margin was also 53%, which was in line with our guidance range and reflected a mix tilted toward direct customers versus the channel, as we previously discussed. GAAP operating expenses were $125 million, which includes share-based compensation of $16 million and intangible asset amortization of $6 million. Non-GAAP operating expense of $102 million was in line with our guidance range. We continue our focus on diligent expense control and converting our working capital back into cash while experiencing non-GAAP operating losses. GAAP operating loss for the quarter was $48 million and non-GAAP operating loss was $25 million. During the quarter, we recorded a GAAP tax expense of approximately $37 million. Our non-GAAP tax rate remained at 20%. GAAP loss per share was $2.56 and non-GAAP loss of $0.56 per share was better than our guidance range. Turning to the balance sheet, we ended the quarter with $339 million of cash, cash equivalent and short-term investments. Our days of sales outstanding was approximately 30 days. During the quarter, we depleted $32 million of our internal inventory, which ended the quarter down to $166 million of net inventory. Our days of inventory on hand improved to 217 days and we expect further to reduce our balance sheet inventory position in the subsequent quarters as sales levels improve. Now, let me turn to our September quarter outlook. While visibility is somewhat limited, excess inventory at our customers is moving in the right direction, and distribution POS and our booking have gradually improved throughout the course of the year. Although the rate and pace of the recovery is still somewhat uncertain, we remain confident in our ability to continue to drive sequential growth in the second half of the year. We anticipate revenue in the September quarter to be in the range of $160 million to $170 million. We expect both the Industrial & Commercial, as well as the Home & Life business units, to be up sequentially in the September quarter, with growth being led by the Home & Life, but also returning broadly across products and end applications. We expect our GAAP gross margin in the September quarter to be in the range of 54% to 56%. We expect our non-GAAP gross margin to also be in the range of 54% to 56%, both of which mark strong sequential improvements from the prior quarter. As revenue further recovers towards a more normal run rate, our distribution mix improves and we would expect gross margin to continue to increase. We expect GAAP operating expenses in the September quarter to be in the range of $123 million to $125 million. We expect non-GAAP operating expenses to be in the range of $101 million to $103 million. And finally, we expect GAAP loss per share to be in the range of $0.95 to $1.25 loss and we expect non-GAAP loss per share is expected to be in the range of $0.10 to $0.30 loss. I’ll now hand the call back over to Giovanni for the Q&A session. Giovanni? Giovanni Pacelli: Thank you, Dean. Before we open up the call for Q&A, I’d like to announce our participation in KeyBanc’s Capital Markets Technology Leadership Forum in Vail on August 5th, Jefferies Semiconductor, IT Hardware & Communications Technology Conference in Chicago in late August, and Evercore ISI’s 2024 Semiconductor, IT Hardware & Networking Conference, also in Chicago in late August. We’ll now open up the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question and one follow-up. Tanya? Operator: [Operator Instructions] And one moment for our first question, which will come from Matt Ramsay of TD Cowen. Your line is open. Matt Ramsay: Thank you very much. Good morning, guys, and Dean, welcome to the show here. I guess for my first question, Matt, I wanted to dig into a couple of the end markets. I think we’re all obviously following the cyclical recovery for your company, but there’s some new drivers out of the back of this that I wanted to dig into a little bit and the first one is on the electronic shelf labeling market. Maybe you could spend a couple of minutes on the size of the market, the growth trajectory of the market, unit economics and then just a little bit about how that market works for a company like you guys. Do you go through an intermediary? Do you go to the retailer directly? Do you see retailers, once they make the decision to go electronic, roll things out super-fast? Do they do it regionally? Just trying to get my head around the growth dynamics and some of the unit economics of that market as it takes off? Thanks. Matt Johnson: Yeah. Sure, Matt. Good morning. So, maybe just starting at the top with the electronic or digital shelf labels. Like a lot of areas that we focus on, these things don’t happen overnight. So, this has been a multiyear investment and multiyear partnership with a lot of customers out there. So, to answer some of those questions, first is we do work directly with our customers being the shelf label supplier. So, they would actually make the shelf label and then they would work with the retailers on the strategy deployment and kind of rollout of those products and technologies. Shelf labels are not new as a technology, they’ve been around for a long time, but we’ve seen a real increase in the adoption of those technologies really led by a few dynamics. One is I think the technology maturity is now there in terms of the robustness, the interoperability, reliability. Another key factor that we’ve seen is battery life, where the battery life of these labels is enough that the retailers don’t have to worry about going around and replacing those, they can last year’s depending on how they’re being used. And then the software reliability is also critical. And then I think the key here is the return. Our retailers are seeing returns that are really attractive to them. And as a result of those things coming together, we’re seeing the adoption of retailers globally really accelerate. And this is not a phenomenon that’s unique to one retailer or one geo, we’re seeing this as a broad trend. And as we’ve said, we see ourselves as very well positioned in that space and as a leading supplier because of one, our underlying technology, a lot of our customers deploy a proprietary implementation, which is one of the many areas we thrive in the IoT. We know how to develop products that last a long time from a battery life perspective, they’re secure, they’re reliable, they work well, they work well together, all things that are critical in a retail environment where consumers are actually going to be seeing these things and experiencing these products. So, I think, even though we’ve started shipping over the last few years, a lot of unit volume, I still think we’re early days in this market. And I’d also add that in terms of ways to think about these deployments, most of our customers and retailers, they’ll prototype, right? They’ll prototype stores, they’ll try different configurations, they’ll see what’s happening and then they’ll expand those within a region, within a geo and they’ll keep going. So, again, still early days, but we like the progress we see, we think this is a durable trend, and it’s really because of one, the maturity of the technology and the return and our position here is strong, so we’re excited about this. Matt Ramsay: No. Thank you, Matt, for all the details there. I think it’s an important point on the returns for the customer. I guess this is my second question, sort of similar, but on the smart metering market, you guys had a lot of success in the U.K. in some of their programs a few years ago and it seems like there’s some developments in different countries, you mentioned Japan in your prepared script, Matt. Maybe just kind of level set us on the different programs that your customers have in flight now in the different regions and what we should expect from that market in the next, I don’t know, 24 months. Matt Johnson: Sure. Maybe to compare and contrast with ESL a little, more mature market in the grand scheme of things, market dynamics are very different in terms of the rate and pace at which it moves. These things can be out there for 10 years or 15 years in terms of life cycle. But big picture, again, very well positioned, market leader, that market leadership is a function of having all the requisite technologies our customers need, not just one technology, it’s multiple technologies that we have to bring together across sub-gigahertz and Bluetooth, Wi-Fi, all coming together, as we mentioned in the prepared remarks. And the way it started, as you mentioned, rollouts like we saw in the U.K., but a couple of phenomena. One is the rollouts, you’d expect, it takes years for these deployments to happen and then you’d expect kind of a peak and then the business to roll off. What we’re seeing is it’s much more resilient and durable because once the rollout kind of gets to its saturation, if you will, they start renewing the meters on the back end of that. So we’re seeing a lot more life and stability in each deployment than I think would have been originally expected. And you only know that as this technology becomes more mature and you get to see it. And then we’re also seeing new deployments go out globally, and that’s important, right? So across new geos, new applications, and this is broad -- this is gas, water and electric. And you can really just see, again, that combination of the maturity of the technology, the reliability, the robustness and the returns for those customers. Putting that intelligence inside a meter gives returns for those deployments. And it can be different depending on the geo and their care about and what they’re trying to accomplish. But the point is they see the return and they see the technology maturity and we have a leadership position there. So we think that’s a very long-term, robust and reliable space for us. And we don’t take that for granted and we’re not doing a victory lap in the sense that this is done. It’s still early days. But we’re well-positioned to continue bringing new technology to the space and continuing that leadership with what we have in Series 2 and what’s coming in Series 3. Matt Ramsay: Really appreciate the thoughts. Best of luck as we get through the cyclicality here and back to the growth vectors. Thanks, guys. Matt Johnson: Thanks, Matt. Operator: And our next question will be coming from Thomas O'Malley of Barclays. Thomas, your line is open. Thomas O'Malley: Hey, guys. Thanks for taking my question and welcome, Dean. My first one was just on pricing over the last couple of quarters. It’s really held in a lot better than some would have imagined kind of on the upswing. Could you guys talk about when you look at September just kind of taking the assumption of just a little bit of a pricing decrease, the midpoint of your guidance assumes another robust step up in units. Is that how we should be thinking about the next couple of quarters on the revenue upswing? Is it largely driven by units or should we be seeing any sort of ASP tailwind as we get some of the upgrades to your newer products? Dean Butler: Yeah, Tom. Good question. This is Dean. Thanks for the warm welcome. On the ASP front, largely what we saw in the June quarter and then now what we look into the September quarter guidance is primarily a function of mix. In the June quarter, actually, we ended up shipping quite a bit more direct customers than we typically would. What we find is that the mix of products and the ASPs between direct versus channel is just a little bit different in the nature of long-tail versus large consolidated customers. So I wouldn’t read into that too much. Pricing continues to be relatively stable. There hasn’t been a whole lot of change in the last couple of quarters from what I can ascertain. And as I look forward into probably the next couple of quarters, at least what we can see on the visibility front, I don’t think you’ll see much change at all from a sort of like-to-like, so customer-on-customer ASP change, if that helps, Tom. Thomas O'Malley: Yeah. That’s super helpful. Go ahead. Matt Johnson: I’ll just add to that, just exactly. An easy way to think about it is, no big change in the pricing environment out there and what we’re seeing right now is, as we’ve said, really a function of our mix. So, as revenue goes up and that mix continues to change, you’ll see the gross margin improve and that’s what we’re guiding from Q2 to Q3, which is really important for people to understand. Thomas O'Malley: Yeah. And I think like the second part of that is obviously the mix back to disti. So, you said disti was 55 days. If you look over the last three quarters, similarly, it’s gone from like 63% to 66% to 69% of revenue. Can you just talk about like the cadence there? Like, do you think 55 days is a place where you’re going to start to see some of these guys being more aggressive? Like what’s the right target for disti? And like, in terms of how quickly you can get back to what was the norm, which is low 80s by my math, like how long do you think that takes? Thank you guys. Dean Butler: Yeah. That’s right. I think that replenishment is probably, I’ll call it like roughly two quarters to sort of keep moving. Look, we’ve deliberately been shipping less into the channel to try to continue to burn down inventory as the channels and customers also look to burn down inventory. What has happened is that’s gotten lower than we typically expect. Typically, Tom, we would probably look at 70 days, 75 days as kind of a healthy sort of channel inventory mix. Like you said, we’re at 55 today. Look, I think customers and distributors, they’re all sort of watching it and nobody’s in a hurry to sort of replenish quickly. And we’re not pushing for that, just to be clear about it. I do think we ended the quarter at about 69% of our revenue coming from channel. Typically, like you said, we’re 80% kind of channel based and about 20% direct. So I do think as channel inventory comes down, starts to replenish, those long-tails and customers burn through their final access inventory and start coming back into a normal run rate, we’ll keep moving up toward that more normal distribution versus direct set of business. And then hopefully over the course of the next couple of quarters, distributors are comfortable to holding a more normal inventory level. And we’d like to see that back to the 70 days, 75 days. But like I said, I would just reiterate, we’re not pushing for that and that is not something that we’re contemplating in the September guide as we talk today. Thomas O'Malley: Thank you guys. Operator: And one moment for our next question. Our next question will be coming from Quinn Bolton of Needham. Your line is open, Quinn. Quinn Bolton: Hey, guys, and welcome. I guess just a quick clarification on your answer to Tom’s question there. Dean, it sounds like you’re sort of saying or implying that the disti mix does normalize. I think you said over a couple of quarters, but I’m hoping to try to pin you down a little bit more. Do you think it normalizes kind of by the end of this year? Do you think the disti mix takes into calendar 2025 before you get back to that more typical 80% of sales level? Dean Butler: Yeah. I don’t have a perfect crystal ball, Quinn, but if I were a betting person, I really would sort of put highest odds on early 2025 rather than getting all the way there back to normal by the end of this calendar year. So that’s, for what I can see on backlog and the way your customers are behaving, it’s probably an early 2025 rather than an end of 2024. Quinn Bolton: Got it. And then, I guess, my first question is kind of knowing that mix towards disti is helping somewhat, but you’re not fully there in the September quarter, the roughly 200-basis-point margin improvement in September feels like some of that probably is, it’s not entirely all disti mix. And so can you just kind of walk us through what are the biggest drivers of the gross margin improvement in the September quarter beyond the mix back towards disti? Dean Butler: Yeah. I mean, there’s channel, there’s product specific and then there’s the absorption of overhead. So I think all three contribute to differing levels. In the move from June quarter 53% to now guiding September quarter 55%, that 200 basis points, it’s largely around channel and product mix. So if I look at it, it looks like better margin products are likely to shift into September quarter. Channel will continue to probably make some progress as an overall mix of the revenue. And then to a lesser degree, but it is certainly a contributing factor in growing the revenue by $20 million sequentially. That has an overhead absorption contribution as well. And when I think about September quarter 200-basis-point and then going forward for there, I think about September as 55% is sort of back into kind of the normal range. And then as we sort of sequentially grow from there, okay, channel sort of contributing and then overhead absorption contributing, and probably, less so than a specific set of products or a specific set of customers as being probably third on the list as I look forward over the next few quarters. Quinn Bolton: Got it. Thanks, Dean. And then I guess just to, obviously, continuing to digest inventory, albeit at a lower rate into the second half of the year. Any updated thoughts on when you think you’ll largely be back to shipping in line with consumption? Is that something you think happens by year end? Could you see some customers, continuing to early 2025, just any updated thoughts on when you think you’re largely back to shipping in line with consumption? Thank you. Dean Butler: It’s actually, it’s a tough question. I know a lot of people have that on the top of their list. When do we get back to sort of regular consumption? Look for us, it’s difficult to tell. I don’t think anybody has any great precision on this one. Look, we’re looking at trends. They are things trending in the right direction. Our bookings coming up, there’s POS coming back. Our inventory on the customers that we survey coming down and therefore sort of the excess is bleeding off. Those indicators are all going the right direction. When we’re back to full, sort of call it regular normalized consumption rates, I don’t know, I don’t have a great prediction. I think it’s also clouded by a number of new designs that are now starting to hit production as well, that are contributing, that also mask it to some degree. And you have to imagine a company like Silicon Labs with thousands of customers, there’s no one generic answer that’s going to be a great fit for everything. So long story short, don’t think we’re quite there yet, but really tough to call when and what level that kind of normal consumption rate is. I don’t know, Matt, if you wanted to add anything. Matt Johnson: No. I think that’s 100% it. Maybe the only thing to add is, clearly Q2 is not at our consumption levels and neither is our Q3 guide. And as Dean said, I think, the three kind of pillars we’ve talked about are to drive growth. The inventory is stocking, going the right direction, but not done yet. Design when ramped, that’s encouraging that we’ve been on an incredible design when pace over the last few years. We’ve been driving design when growth annually throughout this cycle, which is remarkable. And we’re finally starting to see those designs ramp. It’s early days, but they’re ramping. So that’s going to give us some lift moving forward in addition to the de-stocking as that starts to wind down at some point. And then the third pillar is the end market, which is obviously the most difficult to call. But like the progress on de-stocking, like the progress on design wins, still watching the end market because still a fair amount of uncertainty out there. Quinn Bolton: Got it. Thanks, Matt. Thanks, Dean. Operator: And our next question will be coming from Srini Pajjuri of Raymond. Your line is open. Srini Pajjuri: Yeah. Good morning, guys. Maybe first one for Matt. Matt, you talked about design win momentum being pretty strong. Maybe you can give us an update in particular on the Wi-Fi market. I know you talked about some progress on the smart metering. Just curious as to what end market, obviously, this is a very large market when we talk about Wi-Fi. I’m just curious as to outside of smart metering, what are your target markets with this product? And how much of the overall SAM do you think you’re addressing and how should we kind of think about revenue contribution from Wi-Fi as we think about the next 12 months to 18 months? Matt Johnson: Got it. I’m just taking a lot of notes there. See if I can answer as much of that as possible. First, we are early days in Wi-Fi. As we’ve said, we’re introducing our first product of many in the space. What is exciting is that first product is getting a great market reception. We’ve shared that the opportunity funnel was record for us as a company as we introduced that product. Shared in the prepared remarks, we’re starting to convert those opportunities to design wins, which is really awesome to see. Once you have design wins, it’s going to take, depending on the product application, customer, geo, et cetera, you’re going to see a year or two to start to see those ramp. So the quick answer is, I would expect to see Wi-Fi growth continuing and if not accelerating going into 2025 and 2026. In terms of the SAM, the product, those types of questions, we are focused right now on, for lack of better terms, our backyard. And our backyard is one-by-one Wi-Fi 6 for IoT applications at the Edge. And what we’re bringing there is, as I’ve said a few times, is the world’s leading power consumption, which brings new-to-Wi-Fi battery life to those applications. So where we’re seeing design, we’re seeing design where someone needs longer battery life, that’s meaningful. And we’re also seeing a lot of design wins in markets where there’s pull-through with our existing customers. Because of our large base of customers and we serve a lot of other wireless technologies in those spaces, we see almost instant opportunity and interest in having one supplier put all these things together for those customers. So that’s kind of the quick answer of the where and that. And important way to think of it is, as you said, this is a big market and these things take time. So first product, like what we’re seeing out of the gate, it’s a lot of work, but it’s going in the right direction and you should expect to see multiple products coming as we move forward that continue to build out that position, expand the SAM and increase the capability and offering that we offer the customers in those markets. Srini Pajjuri: Got it. Thanks Matt. Very helpful. And then I have a question on competition, in particular in China. You talked about smart metering, it sounded like you’re not participating in the China smart metering market. Just wondering if there’s any reason for that. And in general, we’ve been hearing about increased competition from domestic suppliers. So, if you could talk about what you’re seeing in that market, that’ll be very helpful? Matt Johnson: Yeah. Sure. So, the quick answer is why not, China in terms of the local market there. The quick answer is it’s not for lack of competitive solutions. We have full stop, the world’s leading solutions for intelligent metering. That’s the one that you can imagine that they do not want a foreign supplier providing the technology behind their infrastructure. That’s the fastest way to answer that question. We do see opportunities in China for export of meters that would go outside of China, but not for ones to be consumed inside of China. So I don’t think that that should be surprising anyone. It’s a pretty common dynamic and similar to what we see in other geos, including U.S. and Europe, where I don’t think a Chinese supplier would be considered for smart metering infrastructure. In terms of, kind of the next clicks on that, nothing new is, in China, you only win if you have a solution that there’s no alternative to and local suppliers are favored. That’s not new, it’s probably amplified over the last few years. What we’re seeing right now is still strong design and momentum in China. But in terms of strength of the end market, it’s still relatively weak, although we have seen some improvement, it’s gone up for us, but nothing that we’re banking on or building into our forecaster numbers. So hopefully that’s helpful. Srini Pajjuri: Yeah. Thanks, Matt, and welcome, Dean. Dean Butler: Thank you. Operator: And our next question will be coming from Kyle Smith of Stifel. Kyle, your line is open. Kyle Smith: Good morning, everyone. Kyle Smith on for Tore Svanberg at Stifel. First off, congrats on the continued sequential growth and the record design wins in multiple end markets this past quarter. Maybe I could start there. So maybe, I know we’ve talked about this a bit, but any additional color on the lifetime value of design wins in the prior quarter? And if you have any commentary on pricing trends you’re seeing within these new revenue streams, that would be great? Matt Johnson: Okay. So I’m just trying to, let me try to answer the design win piece. So the quick answer is, we’ve talked quite a bit about the trend of our design wins. We haven’t shared the magnitude, but the way to think about the magnitude is we always look at our design win targets in the sense of what levels of design wins do we need, all things considered, to make sure we’re driving the financial model that we talked about, which is -- you’re well aware is that 20% component of revenue goes over time. So we have been successfully securing those amount of design wins on an annual basis, if not more, and we’ve seen that continue to grow annually throughout this entire market cycle and over the last few years, which is really incredible when you consider that normally you do see, if you go through a trough or any part of a cycle, you usually see design wins somewhat correlate the revenue and go down. We’re not seeing that. We’ve seen design wins’ growth and strength. So that’s been exciting. That’s encouraging. That’s what we want. I think the piece that’s been maybe disappointing and discouraging is a lot of those design wins haven’t ran when we wanted them to or when they were expected to. We expected a lot of design wins to rank last year and that didn’t happen for various reasons, supply constraints, product strategies, et cetera. Not lost, not going away, but for the most part, delayed. But as we’re sharing today, we are starting to see those ranks and that’s really exciting. We’re not talking one customer, one geo. We’re starting to see, as the market works through this last few years, we’re starting to see a lot of those start. And the durations can vary, right? Some last for a decade, some last for two years or three years, but those are starting to ramp and as we’ve shared, it’s just brought across multiple applications. So early days, but we like the trend that we’re seeing, and I think that’s what gives us the confidence to say, we can continue to drive sequential growth from here. Kyle Smith: Great. Thank you. And for my follow-up, I would ask, I know you mentioned that both business segments are expected to grow in the September quarter with growth being led a little bit more by Home & Life. Maybe if you could add any additional color there on how you see that revenue split, both in September and exiting the year, that’d be great? Dean Butler: Yeah. We don’t, Kyle, give specific quantified split between the two different areas when we guide going forward. But a couple of observations that we’ve seen as we look into the September quarter and sort of guiding up, we do see that the Home & Life is likely to grow a little bit faster in the upcoming quarter than the Industrial & Commercial. A couple of factors, one, look, Home & Life actually went into the down cycle earlier than the Industrial & Commercial. So, we’re starting to see that emerge just a tad quicker from at least what we can see. Even though June quarter, both of those businesses grew pretty much in line, 39% growth, 35% growth. So pretty consistent across the two. Home & Life, though, specifically has some new product ramps that are starting to take foot in the September quarter that we can see. And I think that has sort of pulled just the sequential growth between the two just to be a little bit more in favor of Home & Life rather than Industrial & Commercial. Although in our prepared remarks, like we said, both are growing and both are growing across multiple of their end applications. Kyle Smith: Great. Thank you. Dean Butler: Yeah. Thanks, Kyle. Operator: Okay. And our next question will be coming from Cody Acree of The Benchmark Company. Your line is open, Cody. Cody Acree: Yeah. Thanks, guys, for taking my questions and welcome, Dean. I guess you’ve taken a stab at when you start shipping back to consumption, but any color on what that consumption level is currently or expected to be in September? Matt Johnson: Yeah. I think the quick answer that I mentioned earlier is Q2 levels are not at consumption and the Q3 guide is not at consumption. So, that’s as far as we’ve gone in trying to articulate that. I think the other piece is the end customer inventory, which is improving. But as we said in the prepared remarks, we still, while we see improvement in the number of customers getting to right levels of excess inventory or right levels of inventory, we still have some big customers out there who are carrying more than they should. So we’ve got to see how those factors play out, but not there yet in Q2 or Q3. Cody Acree: And I guess with your guidance, your $20 million sequential increase, that’s obviously a very good number, but it is somewhat of a deceleration from your Q2 growth. Anything to make of that deceleration and what does that say about your December outlook? Dean Butler: Cody, I would just take it as, on a sequential basis, it’s still probably one of the strongest sort of growth numbers probably you’ll see across most of the semiconductor peers. We’re early in the earnings cycle, so we’ll see where everybody sort of shakes out for the September quarter. But I do think it’s probably strong relative to probably many of the peers that you’ll see probably in the coming quarter. The other thing I would say is, look, given that the downturn was very rapid in Q4 of last year, I think, the team’s made really good fast progress and had sort of pretty big uptick in the March quarter and the June quarter. And I think you would logically see at some point, you just don’t see such big jumps and what we’re starting to see is, we’re working out sort of the finer details and most of the jumps will actually be probably smaller from here, rather than continuing every quarter sort of a $40 million increase would be sort of my expectation than you would just normally see this. Matt Johnson: Yeah. And it’s important to remember that while we’re trying to be very clear and consistent that we’re seeing encouraging signs and the trends are in the right direction, between those three pillars of the inventory stocking, design and ramp, and then the end market itself, it’s difficult to tolerate. So, and of course, that would be helpful if we had a perfect crystal ball there, but the trend is right and encouraging, which I think is the most important. Cody Acree: Great. Thanks guys. Operator: And our next question will be coming from Peter Peng of JP Morgan. Peter, your line is open. Peter Peng: Hey, guys. Good morning. Welcome Dean. I just want to follow up on the China point. We heard from, a few of your peers that China market is rebounding, but it seems like you guys are not seeing it. Last quarter, it was like 13% of sales. Maybe if you just talk about what your expectations are for this market longer term. Matt Johnson: Sure. Yeah. I think, the quick answer is, we are seeing some improvement there, but we’re not banking on it for our future is the quick answer. I think at our lowest, it was China was probably 10% of revenue going up to 13%, going up to 15%. So, and our total revenue is growing as well. So, we’re seeing some improvement there, but I think it’s really important that we set expectations accordingly. There’s still a lot of uncertainty in that end market. There’s still a lot of geopolitical challenges and headwinds. We talked about that earlier around favoring local suppliers. So, we will opportunistically do anything and everything we can to get design wins there, and we’re seeing progress, but we’re not banking on it for our future, and we don’t need it to deliver the numbers that we talked about. So, hopefully that helps frame it. Peter Peng: Great. Thank you. And then in your earlier remarks, you talk about some integration of AI/ML into your Series 2 platform. And maybe you can spend some, few minutes talking about what the use cases and so forth for it that you are seeing from the customers? Matt Johnson: Yeah. Sure. So, as I said in the prepared remarks, and hopefully that was helpful for people to understand, what we’re seeing there parallels, what we’ve seen in a lot of other technology areas that we’ve brought to market. So, think of this recurring dynamic where we bring something to market that is ahead of the customer needs, and over time, the customer need moves into what that portfolio offers. Security is a great example. When we introduced security levels that we had, like the first to have PSA Level 3 on Series 2, people were like, that’s overkill. Now we’re winning design after design because of it and we’ve seen the same multi-protocol. The levels of multi-protocol and coexistence performance we brought to the market. Well, a lot of people said, how many applications will need all those different wireless technologies? They do. That’s happening now. We’re winning designs because of it. We see AI/ML as the exact same thing. We’ve brought multiple solutions to market that are introduction, that are AI, well, specifically the machine learning cores or accelerators that we have built to allow machine learning inference at the Edge on battery powered applications. And we’ve really taken our expertise in ultra-low power to bear and brought that to this space. So, I’d still call it early days to be direct in terms of the customer adoption, but it will be what we see in these other areas. Customer interest is high because of the strength of our offering. We get right in the front in terms of the engagement and we’re seeing customers work through how can they deploy machine learning in their application and we see that accelerating. And the rate is increasing over the last year or two. So, I think you’re going to see that continue and we like the trend that we’re seeing there. And as we’ve already announced in our Series 3, that’ll bring a whole new level of machine learning capability to the IoT, which is also very exciting. But we already have the industry leading solutions on an ML perspective and they’re in production today. Operator: I’ll now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Tanya, and thank you all for joining this morning. This concludes today’s call. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator: Thank you for standing by. My name is Jonathan. I will be your conference operator today. Welcome to Silicon Labs First Quarter Fiscal 2024 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Jonathan, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Interim Chief Financial Officer, Mark Mauldin. They will discuss our first quarter financial performance and review recent business activities. We'll take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website. I'll now turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Robert Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs reported solid first quarter results, with revenue and EPS exceeding the midpoint of our guidance. We are confident that Q4 represented the trough for us, and we expect revenue growth to accelerate from Q1 into Q2. Based on a sampling of our top customers, we believe they have made further progress in reducing excess inventory in the quarter. We also continue to see steady improvements in our weekly bookings levels, although still below the level we'd like to see. On a unit basis, channel inventory remains very low, decreasing again in the quarter. We are working closely with our distribution partners and key customers to manage lead times and increase order visibility as the demand environment begins to improve. I'm also incredibly excited about the senior leadership announcements that I will cover later in the call. Now I'll hand it over to Mark for the financial update. Mark? Mark Mauldin: Thanks, Matt, and good morning, everyone. First quarter revenue came in at $106 million, above the midpoint of our guidance and up 23% sequentially. Revenue was up for both business units. The Industrial & Commercial business ended at $65 million, up 9% sequentially with the broad industrial category experiencing the largest increase in the quarter. Home & Life revenue was up 51% sequentially at $41 million, driven by a rebound in smart home, particularly in home security applications. We are well positioned in the Home & Life markets as market initiatives such as Matter-enabled ecosystems and Connected Health gaining further traction. Overall, ASPs were about flat compared to the prior quarter and unit volume was up. Our regional revenue mix was also consistent in the quarter with EMEA and the Americas slightly outpacing APAC. Distribution revenue mix was about 66% for the first quarter, up from last quarter, but still below our typical levels. Channel inventory decreased to 61 days. On a unit basis, channel inventory was down almost 25% sequentially and 50% year-over-year. As Matt mentioned, we are working closely with our distribution partners and customers to bring order patterns within our standard lead times to improve demand visibility as the market recovers. Non-GAAP gross margin ended in line with guidance at 52%. As expected, customer mix was the largest headwind on our gross margin along with the impact of fixed costs over the lower revenue levels. We expect gross margin to increase toward targeted model as revenue further recovers. Non-GAAP operating expenses of $94 million were better than expected, largely due to slower-than-expected hiring and discretionary spending. Non-GAAP operating loss was $39 million, and our non-GAAP effective tax rate was 20%. Non-GAAP loss of $0.92 was at the top end of our guidance range, mainly driven by the OpEx favorability. On a GAAP basis, gross margin ended at 52%. GAAP operating expenses were $114 million, which was also better than expected. GAAP operating loss was $59 million for the first quarter. GAAP loss per share was $1.77 for the first quarter, above the top end of our guide. Turning to the balance sheet. We ended the year with cash and investments of $333 million. We repaid the $45 million outstanding on our revolving credit facility in the quarter and have no outstanding debt. Our DSO was approximately 30 days, and we continue to see no customer credit concerns. Our internal inventory was up slightly in Q1 at $198 million. Inventory turns ended at 1x, and we expect this represents our peak inventory level for the year. Importantly, the die bank inventory we strategically built over the past year positions us to address the channel efficiently as end market demand improves. Before returning the call to Matt, I will cover guidance for the second quarter. We expect revenue for the second quarter to be in the range of $135 million to $145 million. We anticipate both business units to be up sequentially. We expect non-GAAP gross margin in the second quarter to be approximately 53%. The gross margin for this quarter continues to reflect a temporary customer mix shift away from the channel and towards direct customers as distribution partners work to further reduce their inventory. We expect non-GAAP operating expenses in the second quarter to be approximately $102 million and the non-GAAP effective tax rate to be approximately 20%. Our non-GAAP loss per share for Q2 is expected to be in the range of $0.58 to $0.70. On a GAAP basis, we expect gross margins to be 53%. We expect GAAP operating expenses to be approximately $125 million and GAAP loss per share to be between $1.45 to $1.61. I will now turn the call back over to Matt. Matt? Robert Johnson: Thanks, Mark. We continue to gain share in both Home & Life and Industrial & Commercial end markets with our industry-leading power efficiency, security and our performance as well as our leadership position in Matter. Last quarter in our Home business, we highlighted the release of Matter 1.2 by the CSA, which expands Matter's reach to include smart TVs, white goods and gateways. Matter 1.2 also extends Wi-Fi connectivity to a wide array of home devices such as appliances, home security systems and automation products, including battery-powered cameras, switches, sensors and window shades. As consumer interest and interoperability intensifies, more customers are embracing Matter-enabled ecosystems. Silicon Labs remains a trusted partner in this rapidly expanding market. Our commitment to building Matter infrastructure has well positioned both Silicon Labs and Thread technology moving forward. As an example of this, we are actively working with 24 of the 26 major ISPs in North America and Europe that are integrating Matter into their solutions. Earlier this month at Embedded World, we continued to build out our Series 2 platform with the unveiling of the xG26, our most advanced multi-protocol wireless device family yet, engineered to future-proof IoT technology. This new family ensures that manufacturers' current designs can keep pace with the escalating demand of sophisticated IoT applications. The xG26 enhances performance with advanced compute capabilities, embedded AI/ML acceleration for energy-efficient battery car devices, top-tier security, 2.4 gigahertz wireless connectivity, twice the flash and RAM and support for wireless protocols such as Matter, Bluetooth Low Energy and multiprotocol and Thread. Additionally, with Amazon Sidewalk moving through its initial rollout phases, we are guiding partnerships with manufacturers to facilitate their wireless development within this growing ecosystem. Though Amazon Sidewalk is still in the very early stages, we secured a design win in the quarter with one of North America's leading hot water heater manufacturers, providing a Wi-Fi dual band solution with Matter and Amazon Sidewalk capability. This win was directly related to our being a key Amazon partner on the development and rollout of Sidewalk, enabling us to leverage our technology leadership as the Sidewalk ecosystem continues expanding. In our Life business, we are excited to see further global expansion of our continuous glucose monitoring solutions. As an example, we have secured additional APAC design wins in the quarter for more than a dozen total design wins in the region, a few of which are starting to ramp in the quarter. In the industrial end markets, the integration of machine learning at the Edge is proving essential. As a reminder, we have multiple wireless SoCs in production with industry-leading integrated AI/ML capability. Our customers are enhancing the efficiency of connected equipment with wireless connectivity for applications such as Predictive Maintenance. We recently secured a design win with a leading connected equipment provider in the construction industry to facilitate real-time data analysis and location tracking. Similarly, AI/ML at the Edge is boosting efficiency in HVAC systems in Smart Buildings using Motion Sensing, while also enhancing vehicle safety with rear seat monitoring technologies. In the Smart Access sector, Chamberlain Group, a global leader in Intelligent Access has chosen our xG28 device for their 11 million plus myQ users because of its superior compute power and greater performance that delivers a more reliable user experience. Our position in smart cities remains strong, particularly in the Metering sector where wireless communication is making electric grid more efficient and sustainable. We are actively involved in developing solutions for low disaggregation or nonintrusive load monitoring that are maintaining our leadership in smart metering across various regions. In the Commercial domain, we are tapping into retail automation trends such as electronic shelf labeling, where emerging technologies like shelf cameras and stand-alone sensors. While the overall market penetration for electronic shelf labeling is still nascent, our multi-protocol solutions and design wins in this area reinforce our belief that this market will be an additional growth engine for us, driven by expanding deployments globally. Looking ahead, we are strategically allocating resources to initiatives that bolster our long-term growth and scalability. The rollout of Series 2 continues to progress well, like the xG26 that we just announced, and is contributing significantly to our current and future growth. At the same time, the development of Series 3 continues in parallel, helping position us for an even stronger future. We will begin sampling Series 3 to alpha customers this quarter. Series 3 introduces industry-leading wireless performance, compute and scalability on a multi-radio platform and a unified code base that will support over 30 new wireless SoCs. I want to thank Mark for stepping in as Interim CFO during the CFO transition, and I look forward to Dean Butler joining us on May 15. We also announced 2 additional leadership appointments. Rob Conrad, a long-time industry veteran, is stepping down from our Board of Directors to become our SVP of Worldwide Operations. Rob's expertise in rapidly scaling semiconductor businesses will be critical as we position to scale even faster. Additionally, Radhika Chennakeshavula joins Silicon Labs as our new Chief Information Officer. Radhika will oversee IT operations, enterprise applications, data analytics and critical digital transformation initiatives. I would also like to thank Sandeep Kumar for his role in leading our worldwide operations team for the last 18 years. Sandeep has been pivotal in leading Silicon Labs' operational strategies, including during the recent supply chain crisis. I would also like to express my gratitude to Karuna Annavajjala for her leadership in our IT organization over the last 4 years. Looking ahead, we remain laser-focused on executing on our new Series 2 and Series 3 products driving design wins and continuing to accelerate our position. As excess inventory at our customers corrects, our design wins ramp and end market demand improves, we're well positioned to drive revenue and profit growth throughout 2024 and beyond. I'll now hand it back over to Giovanni for Q&A. Giovanni Pacelli: Thanks, Matt. Before we open the call for Q&A, I'd like to announce our participation in JPMorgan's Global TMT Conference in Boston on May 21 and Stifel's 2024 Cross Sector Insight Conference in Boston in early June. [Operator Instructions] Operator: [Operator Instructions] And our first question comes from the line of Matt Ramsay from TD Cowen. Matthew Ramsay: Matt, I wanted to -- I mean we're obviously going through the bottoming and now the beginning of the recovery. And you made some -- I think you guys made some comments in the script about maybe a little bit more mix toward direct sales versus the channel for this interim period. And I guess that makes sense as the customers that are supported by the channel drain their own inventory. So I guess my question is, in the prior few months, how much more visibility have you gotten to customer-level inventories that are supported by the channel? And I don't know if you can give any anecdotes as to what you're hearing by -- either by end market or by geo as to how the direct sort of the customer inventory behind the channel is trending, that would be really helpful. Robert Johnson: Yes. Sure. Thanks, Matt. So quick answer is end customer inventory and channel distribution inventory are both moving in the right direction and now, it's the fastest way to say it. In terms of end customer inventory, our approach has been to sample our top customers and pretty extensively now given what we've been through. And we see a consistent trend, Matt, is the fastest way I can say it that from December to January, January to now, we've seen both the average of excess inventory working down as well as the count of customers who have excess inventory. So it is not fully corrected. And easy way to say that is this revenue level that we're guiding is not indicative of our consumption, but we continue to see it moving in a good direction and we like the progress we're seeing and the same for Disty inventory. I'd say Disty inventory is -- I don't think we want that to go lower now. I'd say that's fully corrected. But the end customers moving in the right direction, but not there yet. Matthew Ramsay: Got it. No -- a couple of things in follow-up there, Matt. I think the first one being, do you feel like coming out of this? You'll have built maybe deeper relationships, more visibility of relationships that you might have -- the company might have over the next 2, 3, 4 years, whatever, more visibility into customer level, inventory level behind the channel. I don't know. I'm just trying to figure out if this whole thing you guys going through with your partners has led to any permanent difference in visibility. And I guess my last question, completely unrelated, you mentioned you might sample Series 3 to a few lead customers in the quarter, any thoughts or anecdotes about which industries or what type of applications or anything like that, that we could get some insights to? Because that's a pretty big milestone. Robert Johnson: Yes. So the first piece, Matt, quick answer is absolutely yes, on stronger relationships and more visibility. Easy way to say it is going through these things, it's been a tough cycle and that builds the relationship. I guess it can also work the other way. But what we've seen, whether it was the supply chain crisis or this inventory crisis, relationships got stronger, and those partnerships got stronger. So that -- I can say that was the high confidence. And I also consider high confidence to our approach and visibility to understanding end customer inventory has improved. As you all know, there's not an easy approach there to report like we can do with, obviously, internal or distribution inventory, but we've learned a lot through the cycle, and we've gotten, I think, much better at being able to see it, understand it and navigate it. So quick answer there is yes. Series 3, we're not sharing those customers. We are sampling, which is exciting. It's a big milestone. I would encourage people to remember that Series 2 is still relatively early days in its cycle and ramp, and at the same time, we're already introducing our next generation. So it's going to be -- just to be blunt, Matt, it's going to be a difficult message for our investors that both are doing really well and both are progressing and that the game is long for both. But at the end of the day, the combination positions us extremely well, and we're happy with the progress on both. Operator: And our next question comes from the line of Gary Mobley from Wells Fargo Securities. Gary Mobley: Matt, you're on record in a public venue back in March as saying that you think your end customer consumption level, I think in the -- related to the first quarter was about $160 million, so perhaps you under-shipped the channel by $50 million. And hopefully, that $160 million end consumption level is a target that's moving up into the right. And so my question is based on the June quarter revenue guidance of $140 million, by how much are you under-shipping end customer demand in the current period? Robert Johnson: Yes. Thanks, Gary, for reminding me of the record. So the quick answer is what we said was, we see consumption at least $160 million as a data point there. And we didn't say it was at $160 million, we said it was at least at that number, so that was the data point we provided. So the easy way to think about it on, as I said earlier to the previous question, we are seeing revenue at $140 million, is not indicative of consumption. And as we said in that conference, we think it's higher or at least $160 million as an easy way to think of it. So I don't think you can get to the math based on that of exactly what consumption is and exactly how much end customer inventory remains. But easy way to say it, they're going in the right direction. End inventory is going down, revenue is going up, getting closer to consumption, but still a ways to go. Gary Mobley: Got it. And as a way to get a supporting metric for future revenue growth, hopefully, you had this number at your fingertips, but I'm curious what the measure of lifetime value of design wins captured in the first quarter may have been. And then embedded within that, what the pricing trends were like in those design wins on a like-for-like product basis or maybe even considering any sort of ASP shift associated with Gen 2? Robert Johnson: Sure. Yes. I don't have all that off the top of my head. Quick answers, I think on -- actually in the -- correct me if I'm wrong, guys, in the quarter, I think pricing on a like-for-like basis was basically flat. On design wins, no changes there, good progress and on track. And in terms of pricing on design wins, as we've communicated, no changes there, but that's where we see more pricing pressure is on new business, not on existing business, and we expect that to continue. But what we're seeing there is what I define as more typical than expected, and it almost looks, Gary -- I mean, I'm jumping ahead a little bit, but we're kind of getting back to kind of pre-pandemic type of behaviors on pricing, which means low to mid-single-digit pricing pressure on an annual basis, which is what we've always had, and we've always offset that with new products, new features differentiation. So I wouldn't say we're there yet, but that appears to be where things are going. Operator: And our next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Congratulations on the continuous recovery here. So Matt, obviously, consumption is a number that we analysts have to decide at some point. But I just want to sort of understand now that you've gone through the upcycle and downcycle, and as we think about the consumption number, is the thought here that the business would grow about 20% going forward longer term? Just wanted to make sure that nothing has really changed with the upcycle and the downcycle fundamentally. Robert Johnson: Yes, sure. So sort of a quick answer is no change to our commitment to the 20%, compound annual growth on our revenue has not changed, as that is our target, our model. We see the path to doing that, and we feel really good about that. So that's the fast answer. There is a couple of things worth mentioning. We're not doing a victory lap at a $140 million guide, right, that we are doing the things that we believe we said we do that we can grow revenue. We're improving gross margin, improving profitability. That happened in Q1. That's going to happen in Q2, and we can continue doing that. But we're far from out of this at $140 million, right? There's still a big gap to our consumption levels, and we also need to see a lot of design wins ramping, which is starting, which is encouraging, and we need to see the end market show more strength. So we're trying to reflect we're very encouraged by the process -- progress, things are going in the right direction, all signs are encouraging, but we're still in a pretty big hole and we got a ways to go. So we're not celebrating $140 million. We'll be celebrating at much bigger numbers. Tore Svanberg: Great. And as my follow-up. Beyond the cyclicality stuff, you've sort of highlighted at least 3 big growth engines this year. You mentioned some of the script, right? But the glucose meter, the smart meter and also the shelf labeling, any more details you could add on those 3 as far as ramps, types of customers, regions and so on and so forth? Robert Johnson: Yes, sure. So nothing meaningful beyond what the scriptory except I'd say, to be clear, all 3 of those segments are ramping for us in 2024. That's important. And that's encouraging because that gives us growth beyond inventory destocking and whatever the end market demand dynamic ends up being. Operator: Our next question comes from the line of Thomas O'Malley from Barclays. Thomas O'Malley: Just a model squarely first and then a question off that. Just what was the percentage split between the 2 businesses in March? What are you guys assuming for June? And then can you talk to the linearity? Obviously, it looks like the Disty channel is getting a little bit -- Disty is getting better channels, getting better even in customers improving. Can you just talk about the linearity of what you see right now in terms of revenue as you progress on throughout the year? Giovanni Pacelli: Tom, it's Giovanni. I'll take the first part. Revenue is between the BUs for Q1. So it was $65 million for the Industrial & Commercial business unit, about $40 million, $41 million for Home & Life. And I'll let Mark pick up on the linearity as we get through the year. Mark Mauldin: Well, I think what we said in the script that we would expect both business units to continue to grow during the year. We're not providing specific guidance for each business unit for the second quarter. Robert Johnson: Yes. I mean maybe a way to think about it, Thomas, is, in general terms, I'd characterize Home & Life as further through the cycle. Industrial & Commercial is still absolutely going in the right direction, but not as far through the cycle. I think that's important. And then in terms of inventory, I would definitely say that Q1 represents the peak for us in internal inventory that we have intentionally built to be ready for what's coming and as we move forward from here. So that's one. And as we've said, external inventory at our distributors and other end customers is working down and continues to work down. So I think the next piece is Disty inventory. We've assumed that, that's going to be flat. But at some point, distributors are trying to work it down. At some point, that's going to start coming up as we see increases in demand in the channel, as their end inventory works down and as they just start to ramp new designs and market strength continues. But we're not assuming that in our guidance right now. Thomas O'Malley: Helpful. And then just on the gross margin side, as you see a normalization of your percent sales to kind of just being direct with direct coming back a bit down, how much do you have baked in for that normalization in the June quarter? And how quickly do you see that happening? Obviously, it's a tougher thing to kind of understand. It's a lot of different customers. But just in your base case assumption, we're kind of at the midpoint of your margin guidance, which is up, I think, 80 bps. What do you think that split looks like? Robert Johnson: Yes. It's tough to call because part of that includes call in the market, which is not good business. So I think the way to think about it is we have been absolute in our commitment to our gross margin model as well as our total model for the company going through the peak and the trough of this cycle. We didn't increase our gross margin targets in the peak, and we are not decreasing our gross margin targets in the trough. And what we've said is as we go through each quarter as revenue increases, gross margins will increase. That's what we've seen in Q1. That's what we're sharing that we expect to continue in Q2. And we expect -- simply said, as revenue increases, gross margins will continue to increase back to those levels, that we all know and love. So that's an easy way to think about it. It's also worth mentioning that as the revenue goes up, the component of the fixed cost absorption goes down. So we're seeing that. And right now, the predominant factor is the mix, and that's what we shared in the script and that's what we're looking at right now. So the easy way to think about it, each quarter's net revenue increases, you'll see that gross margin increase with it. Operator: Our next question comes from the line of Quinn Bolton from Needham & Company. Quinn Bolton: I just want to follow up first on the mix issue for gross margin. You kind of said that the mix shifts more to direct here in the near term. And it sort of feels like you're implying that that's a gross margin headwind. Just wanted to confirm that the Disty sales did carry higher margin than direct sales. And not sure if you will, but I'll ask if you could quantify how much of an impact is that channel mix having on near-term gross margins. And then I've got a second follow-up question. Robert Johnson: So yes, Quinn, this is Matt. A quick answer is, generally, you do see channel or distribution gross margin is higher than direct. That's fairly typical. And for us, what we've also said is mix is now the major driver, a predominant driver of the gross margin being at the levels it is versus where it should and will be. So those are the 2, I think, answers to your question, are hopefully helpful. Quinn Bolton: Got it. Yes. No, that helps. And then, I guess, I know you guys obviously aren't guiding beyond the current quarter. But given that you've stated that consumption level of $160 million or higher, I guess, kind of looked out to the second half of the year. The Street has got revenue close to $190 million in September, $220 million plus in December, that's significantly higher than that consumption level. And so I guess these aren't your numbers, but what has to happen for the business to get back to kind of where the Street is looking in the second half of the year? Do you think consumption can increase at that rapid of a pace? Is it really the 3 growth drivers you talked about, the smart metering, glucose monitoring, the electronic shelf labeling that gets you there? Or just any sort of thoughts on sort of that second half. Robert Johnson: Sorry, Quinn, can you just say the key question is what are the drivers for the... Quinn Bolton: Yes. I mean I just -- obviously, you've kind of stated this consumption number of $160 million, and I know that that's kind of a floor, not necessarily where you think consumption is. But the Street numbers for the second half have revenue in September up at like $190 million and $220 million. And I know these aren't your numbers, but I guess to the extent the company were to hit that kind of revenue in the second half, what has to -- what drives that? Is it -- do you think consumption can get up to that kind of level in the second half? Is it driven by some of these new product opportunities that are ramping this year? I mean just what's -- how would you get there in the second half given that $160 million consumption number you've discussed? Robert Johnson: Got it. Got it. Okay. So yes, a couple of things. I mean, obviously, the first starting point is you all know this, we don't guide beyond the current quarter, but I can definitely talk about some dynamics that might be helpful towards that end. And just a reminder on that $160 million number that, that was to give people context around kind of what we -- as we were going through our OpEx reductions last year, that was kind of a rough estimate of a breakeven point. And obviously, our point was you do your reductions around something that you believed was indicative or better of our consumption. You wouldn't make OpEx reductions on what you thought your go-forward steady state was if you're losing money there. So that's important. But to your question, so the easy way to think about it is if you oversimplify the 3 major buckets, we have the destocking phenomenon where there's excess inventory at customers, you have design wins ramping and end markets. Right now, the bulk of what we're seeing in Q1 to Q2 is really destocking. There are some ramps in there, but it's not the primary driver. So as we've said, even at $140 million, that's not indicative of consumption, so there's still a ways to go, which is encouraging, and we see that destocking continuing. There's 2 other factors there, which are the design wins, which I just shared earlier that we do see good design win progress and ramps this year on some pretty major trends in areas, including CGMs, electronic shelf labels, metering were strong positions, and those are ramping. So that gives us an additional lift in addition to revenue approach and consumption. The end market piece, end demand is more difficult to call. There's just a lot of uncertainty out there in the marketplace. There's conflicting signals and -- not for sure, not trying to call that. But if and when that does improve, that's an additional tailwind. But obviously, you can't bank on that or assume that, at least right now. Operator: And our next question comes from the line of Srini Pajjuri from Raymond James. Srinivas Pajjuri: Matt, on the bookings front, I think you said the weekly bookings are getting better. So I was just hoping you could give us some additional color as to whether the bookings improvement you're seeing is fairly broad-based or if it's -- if one particular end market is doing better than the others? And also from a geography standpoint, if you're seeing any noticeable differences in terms of the bookings improvement? Robert Johnson: Yes. Understood. Quick answer is bookings are improving in a pretty broad and consistent pace. And so what I mean by that is, this isn't 1 or 2 or 3 good weeks. This is many weeks and months of consistent improvement, which is what you want to see. As I mentioned, it's not at the levels we want to see to say we're fully on the other side of this, but the trend is undeniable and encouraging. To your other point, definitely broad by technology, geo, application space, which is what you'd want to see. As I said, I think Home & Life is a little bit further through than Industrial & Commercial, but we're seeing improvement and strength in both. And the last thing is just a caveat to all of that, maybe the exception is China, where to be clear, APAC, we're seeing improvement. But in China, we're seeing encouraging signs in terms of design win activity, signaling that there's improving strength, PMI is improving, all that, but we're not seeing that manifest in terms of revenue yet. So that would be the one place. And we're not -- we haven't baked it in. We're not assuming it improves. So there's some encouraging signs, but no, it's not coming out in results yet. So hopefully, that's helpful. Srinivas Pajjuri: Yes, yes. Great. And then you also kind of talked about ASPs kind of returning to the pre-pandemic levels or at least the trends in terms of annual ASP declines. I just want to kind of -- given your new product pipeline, of course, the market does what it does. But can you talk about in terms of as we go from Series 2 to Series 3, and there's a lot of talk about Edge, AI, et cetera, have your own ASPs on a mix adjusted basis? I guess what I'm trying to get at is that as we look out to the next 12 to 24 months, should we kind of bank on unit growth to model your revenue growth? Or do you see kind of content increasing for you as well? And if content is increasing, what are the end markets? And what are some of the applications that will drive that content? Robert Johnson: Sure. So big, big picture, if you step back. Series 2 is obviously helpful for us from a gross margin perspective and a pricing perspective in that these are new products with new features, new capabilities that are in demand. And easy way to say it, we mentioned AI/ML, so artificial intelligence, machine learning. So having products that are in production that have the ability to very efficiently provide machine learning inference at the Edge on a battery-powered device is a pretty powerful capability and feature and obviously helps us in terms of being differentiated and driving value with our customers. So Series 2, as it continues to come out with its features, capabilities that are best-in-class, that is obviously helpful against that dynamic. And to be clear that it's not a new trend or dynamic, that's always how we've operated and traded, but it's -- Series 2 is still introducing new products even in the last few days and in the last few months. So that helps. And then the second piece is Series 3, obviously, will, as we've shared, bring new to industry capabilities, features and performance, which will again allow us to work on that dynamic. But I do want to set expectations appropriately, that won't be an ASP lift in the next couple of years. I mean that's -- Series 3 will ramp over years, and I wouldn't look there for an ASP lift. I look more to the Series 2 and how is that doing. And then Series 3 is more of a mid- and long-term play. But both help on differentiation, performance features, which help on ASPs and gross margins. Operator: Our next question comes from the line of Cody Acree from The Benchmark Company. Cody Grant Acree: Just quick thoughts on operating expenses as you're heading off the bottom here. Robert Johnson: Yes, sure. So I mean, a reminder for everyone, as we were going through this cycle, as revenue is decreasing, we decreased our OpEx every quarter along with that. And then as we've shared, as revenue starts going up, we will increase our OpEx, although not at the same level moving forward. And some of those changes last year were structural, right, with reductions that we've shared in prior calls. That being said, the increase from Q1 to Q2 would be faster than that. And part of that is just one-time dynamics, for example, is we've added an annual merit cycle back for our employees that drives increases from Q1 to Q2. And then some of the temporary things from last year that have to come back, such as bonus accruals or travel that's driving an unusually high increase as well. But to be clear, as revenue was going down, we reduced OpEx every quarter. As it goes up, we will increase it at a lower rate; Q1 to Q2, a little bit higher than normal because of those one-time effects. Cody Grant Acree: And maybe just continuing on there. What were the processes that you went through as you were going through the OpEx reductions during the cuts to make sure that you weren't impairing revenue growth? Robert Johnson: Yes, sure. That's -- so big picture, that's hard and not easy to do if we're being honest about it. So what we've done is some of the changes were things, obviously, prioritization, where you take classic things, things that are at the bottom, and you do less of those and make sure you're feeding the things at the top that have the biggest impact, biggest returns. There's also -- going after shifts, we're using the environment as difficult as it is for doing strategic initiatives and shifts where you need to reshore or move resources from one geo to another or do leadership changes. So as an example, we shared the CIO announcement with Radhika, that was one of the changes that came out of last year where we said strategically, how do we approach IT differently so there's employees moving across geos as part of that, but also leveraging -- rebalancing internal-external capabilities, and make versus buy as a classic way to say it. So it's the combination of all those things, saying, look, it hurts, and it's difficult to make these decisions. But look at it through a lens of managing the portfolio and how do we use this difficult environment not just to cut and have less revenue, but to cut and use it to transform and restructure, rechange how we approach things. Because -- easiest way to say it, Cody, is if we do these cuts and we don't -- we come out the other side and say, let's just add them back the same way, horrible inefficiency. The motto and approach is make these difficult changes and use them to make us better, use them to transform to reconstitute our capability, and that's the approach we've taken. So I really do see this will be transformative even though it's difficult. But obviously, too early to see the signs of that. But you're starting to see early things like the CIO announcement. Operator: Our next question comes from the line of Peter Puk from JPMorgan. Peter Thomas Puk: Just want to follow up on the China point, where it seems like you guys are not seeing any improvement. How important is China recovery to that $160 million number that you guys talked about? Robert Johnson: It's -- quick answer is it's not in there. China, I think right now for us, is roughly around 13% of our revenue, and we are supporting the region. As I said, good design win activity, but the revenue hasn't meaningfully moved, and we're not assuming that it will. So if it does, that's fantastic, but not baked into an assumption of recovery for us. Peter Thomas Puk: And maybe just on some of these new design wins you eventually talked about, potentially coming in the second half, maybe you can help us understand maybe the size or the scope of these brands? And how meaningful is it to revenue in the second half of this year? Robert Johnson: So we haven't provided that context, and we're not guiding beyond the current quarter. But easy way to think about it is we've shared over previous quarters, all of these ramps are, one, not single customer, they're end market across multiple customers and they are meaningful end segments for us and ramps. And I would characterize each of them also as relatively early phases for us in terms of their ramp and potential. But they will all ramp this year, which I think is important and will give us a tailwind, as I said earlier, to whatever that consumption number is. As we approach that, it gives us lift beyond that. And then, as I said, the end market as well when we see strength there. But no more color on the actual magnitude or size of those that we haven't provided that. Operator: And our next question comes from the line of Joe Moore from Morgan Stanley. Joseph Moore: Last quarter, you had talked about 1 competitor. I think it was isolating signals better than it had been pricing a little bit more aggressively. Can you give us an update there, any changes? Is that just the new normal? Or is there anything to report there? Robert Johnson: Joe, I don't think it's -- I think that's been consistent that most of the industry market has been behaving as you'd expect in this type of market environment. As we said, we did see 1 competitor who is -- we thought being more aggressive, and that hasn't changed. But not signaling anything there. I'm not trying to convey anything. I just wanted to answer with integrity, which is why I called it up. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Giovanni Pacelli for any further remarks. Giovanni Pacelli: Thank you, Jonathan, and thank you all for joining our call this morning. This concludes today's call. Thanks. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: Thank you for standing by. My name is Jonathan, and I will be your conference operator today. Welcome to Silicon Labs Fourth Quarter Fiscal 2023 Earnings Call. [Operator Instructions]. As a reminder, today's program is recorded. And now I'd like to introduce your host for today's program, Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Jonathan, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs, President and Chief Executive Officer, Matt Johnson; and Interim Chief Financial Officer, Mark Mauldin. They will discuss our fourth quarter financial performance and reviewing recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website. I'll now turn the call over to Silicon Lab's, Chief Executive Officer, Matt Johnson. Matt? Matt Johnson : Thanks, Giovanni, and good morning, everyone. The Silicon Labs team delivered fourth quarter results above the midpoint of our guidance. During the quarter, we saw reductions in both channel and end customer inventory. We expect end customer inventory destocking to continue in Q1. On a unit basis, Disty inventory is now at lower levels than during the supply prices. We believe Q4 of 2023 represents our low point of revenue. We expect to return to sequential growth starting in Q1 as our customers' inventory start to normalize, and we begin to see the further benefits of design wins ramping production. We've also seen slight improvements in our weekly bookings activity, but the management ability continues to be low. We are encouraged by another year of outstanding design win achievement despite the challenges of the current operating environment. The projected lifetime revenue of our 2023 design wins was up low double digits year-over-year, in line with the ambitious targets we set. These design wins span a broad range of technologies, applications and customers, and we are expecting delivered strong growth in earnings power as the market dynamics improve. Before we turn the call over to Mark, I would like to take a moment to express our gratitude to John Hollister, who has stepped down after 20 years of dedicated service to Silicon Labs, 10 of those years as CFO. John's financial stewardship has been instrumental to our success over the years and his insights and partnerships have been invaluable. On behalf of the entire team, thank you, John, for your outstanding work and commitment, and we wish you the best as he joined GlobalFoundries. In addition, I would like to thank Mark Mauldin for stepping in so effectively during this transition. I can also share that the search for our new CFO is going well, and we're impressed by the caliber and potential fit of the candidates we're engaged with and are looking forward to concluding the search as quickly as possible. Now, I'll hand it over to Mark for the financial update. Mark? Mark Mauldin : Thanks, Matt, and good morning, everyone. Fourth quarter revenue was $87 million, above the midpoint of our guidance and down 66% year-on-year. I&C is declined sequentially in the quarter, primarily due to product and customer mix. Unit volume was also down on a sequential basis. Revenue was down year-over-year for both business units in the quarter. The Industrial and Commercial business unit ended at $60 million down 62% from the same period last year and 51% sequentially. All 3 product groups in I&C declined in the fourth quarter with a broad industrial category experiencing the largest decline. However, for the full year, the smart cities and commercial product groups achieved record revenue levels, driven primarily by strength in electronic shelf labels and metering. Weak demand and high customer inventories continue to negatively impact the home and life markets. H&L revenue was down 73% year-over-year and 67% sequentially at $27 million. Despite the near-term weakness, we are well positioned as demand recovers and inventories normalize with growth expected at smart home and particular strength in Connected Health. Successful market initiatives are driving H&L design wins above our targets in terms of projected lifetime revenue. Distribution revenue was 63% for the fourth quarter, down sequentially and well below our typical levels. Inventory in the channel decreased to 79 days. And on a units basis, this fee inventory was down to its most level since the divestiture. The decrease in test mix in the quarter was due to a temporary shift toward direct customers as channel partners work through their inventory. This mix shift also contributed to lower ASPs in the quarter. Our top 10 end customers were about 42% of revenue for the quarter and increased from historical trends driven by the lower revenue level and the mix shift. Non-GAAP gross margin ended lower than expected at 51% due to product and customer mix. We continue to see a generally stable pricing and input cost environment with no significant change expected on a like-for-like basis in the next quarter. Non-GAAP operating expenses of $91 million were better than expected largely due to the earlier pooling effects of the restructuring, which commenced in November. Non-GAAP operating loss was $47 million, and our non-GAAP effective tax rate was lower for the quarter at 14%. Non-GAAP loss of $1.19 exceeded our guidance, driven largely by the OpEx and tax rate favorability. For the full year, our non-GAAP operating margin was 8%, non-GAAP earnings for the full year were $1.65. On a GAAP basis, gross margin ended at 51%. GAAP operating expenses were $117 million, which was better than expected. GAAP operating loss was $73 million for the fourth quarter and $24 million for the full year. GAAP loss per share was $2.19 for the fourth quarter and $1.09 for the full year. The GAAP results include an approximate $9 million charge for the separation costs associated with the reduction in workforce during the fourth quarter. Turning to the balance sheet. We ended the year with cash and investments of $439 million. Our accounts receivable balance declined in the quarter to $29 million, indicative of the lower revenue levels. Our days sales outstanding reverted back to 30 days reflecting strong collections in the quarter and no known bad debts from our customers. We added $27 million in net inventory in the quarter to $194 million. We anticipate that our internal inventory will level off in Q1. Inventory turns at about 1x. As a reminder, we hold a significant portion of our inventory in die bank, which provides flexibility as to its ultimate end-use application and customers and hope to mitigate inventory obsolescence risk. We continue to have $45 million outstanding on our revolving credit facility. Our Board of Directors has authorized a new share repurchase program in 2024 or $100 million. We will continue to be very opportunistic on share repurchases as we manage liquidity and optimize the use of working capital. Overall, the balance sheet remains very healthy and well positioned to execute our strategy and weather the current market environment. As we announced last week, we identified a material weakness in our internal controls related to the operation and documentation of certain inventory controls. There was no impact to any amounts reported in our current or historical financial statements. We are in the process of developing a plan to enhance the design and operating effectiveness of our internal controls to address the material weakness and still expect to file our Form 10-K in a timely manner. Before returning the call to Matt, I will cover guidance for the first quarter. We expect revenue for the first quarter to be in the range of $100 million to $110 million. We anticipate both business units to grow in the quarter. We expect non-GAAP gross margin in the first quarter to be approximately 52%, and lower gross margin for this quarter continues to reflect the fixed cost absorption with lower revenue levels. We expect non-GAAP operating expenses in the first quarter to be approximately $96 million. We expect the non-GAAP effective tax rate to be approximately 20% in the first quarter. Our non-GAAP loss per share for Q1 is expected to be in the range of $0.92 to $1.04. On a GAAP basis, we expect gross margin to be -- we expect GAAP operating expenses to be approximately $18 million, and we expect GAAP loss per share to be between $1.89 and $2.05 per share. I will now turn the call back over to Matt. Matt Johnson : Thanks, Mark. Looking ahead in 2024, we're excited about several trends in wireless connectivity, including more matter certified products coming to market as well as strong growth in our life, smart cities and commercial segments. In Q4, the CSA Released Matter 1.2, which extends the benefits of matter to a wider array of devices, including household appliances, air conditioning and smoke alarms. At CES this year, we are encouraged by the strong level of engagement with customers, ecosystem partners and ISPs regarding the matter protocol. It's clear that interest in matter and the availability of matter-enabled devices is accelerated. As part of this, we announced our collaboration with Arduino to make matter protocol in advanced IoT development more accessible to all. We are partnering to integrate Arduino’s first-ever matter software libraries with Silicon Labs hardware so developers get our leading security, energy efficiency and processing power for matter in an intuitive ease use development environment. Additionally, Samsung recently announced matter label connectivity in the smart TVs and selected appliances that includes our Silicon and are currently hitting the market. We are excited to work with Samsung on their SmartLink platform as they expand their matter [indiscernible] ecosystem. Wi-Fi is in an increasing important role in IoT devices, including in conjunction with matter. In Q4, we expanded our portfolio of industry-leading Series 2-based products with a soft launch of our ultra-low power Wi-Fi solution to 91%, which was selected as non-RE in the embedded category of the CES Innovation Awards. The 917 has the lowest power consumption of any competing Wi-Fi 6 products on the market, enabling meaningfully longer battery lives to a whole new class of applications. We believe this will continue to drive new opportunities and design wins as customers look to integrate Wi-Fi into their products. In our Life segment, we are securing new wins in Connected Health and APAC where we are engaged in more than a dozen customers for continuous glucose monitors. The demand for connected health devices is growing rapidly, driven by demographics and an increase in chronic illnesses or diseases like diabetes. And we are confident that our solutions will continue to gain traction and serve this market well. In 2023, we achieved record revenue in our commercial product group as retail environment continue to digitize. For example, in electronic shelf labeling, we ramp new designs with SES-Imagotag, [indiscernible] Group. In addition, we have also secured new design wins in the ESL space for shelf labels, cameras and sensors with our moves solutions. The smart cities also had a record year, driven largely by meter However, we're also gaining share in the solar market with integrated solutions for both wireless activity and compute and solar panels, which helped to optimize energy production and increase first. 2023 was a difficult year characterized by weak demand and high inventory levels. While we're seeing things moving in the right direction, the market is still working through its correction. As we stated, we believe Q4 represents our volume, and we expect to return to sequential growth starting in Q1. In closing, I want to thank the Silicon Labs team for their execution in securing significant design wins and gaining share. prudently managing our expenses and advancing industry-leading technology solutions for the IoT. Despite the near-term challenges, the long-term growth trajectory of our end markets and within those markets remains unchanged. As inventory normalizes, demand improves and design wins ramp into production, we are well positioned to return to growth. I'll now hand it back over to Giovanni for Q&A. Giovanni Pacelli : Before we open the call for Q&A, I'd like to announce our participation in Morgan Stanley's 2024 TMT Conference in San Francisco on March 5. [Operator Instructions]. Jonathan? Operator: Our first question comes from the line of Matt Ramsay from TD Cowen. Matt Ramsay : I guess for my first question, and I think during the quarter, we talked a number of times about some of these dynamics, but I wanted to get an update on the inventory situation. I -- we see all the statistics you guys publish on your own inventory, channel inventory. And Matt, we take some of your comments on customer inventory. But I imagine that's an average of products where you have tons of inventory of some products in certain end markets. And perhaps you're still having escalations and other products, and it's a pretty diverse set. So if you could maybe spend a little bit of time talking about areas where you feel like you've cleaned everything up and we're sort of back to normal lead times and overall inventories if you have that visibility? And are there particular areas where you haven't? And just give a little bit more detail, maybe not average metrics, but some specifics by end market. Matt Johnson: Sure. I understand, I think. Let's see, I'm going to start just working through internal inventory, obviously, well understood by design, we've been building by inventory for the ramp on the other side of this market environment we're in. As Mark said, we kind of expect that to be peaking now, and we feel good about where that's at. There's a ton of flexibility given that we carry it in die bank, and we can configure it as needed. Next piece of inventory channel also well understood. We saw our days go down, as we mentioned. What's remarkable about that is the revenue level that, that occurred at going from around $200 million to $87 million in Q4, the actual material in the channel came down significantly. We commented is actually lower than it was in the supply chain prices. So you can see the clear trend and pattern there as the industry tries to and ourselves work down those inventories. The real trick is customer inventory -- or end customer inventory, which is the most difficult because -- as you pointed out, you can't get a report that gives you that with precision. And given the geos technologies, applications and just the sheer number of customers we have, it's much more difficult to get an exact number on that like we can with the other inventories already mentioned. So if you were to say, if you compare to this time last quarter, what we do is we sample our top customers. Last quarter, it was 40 to 50. We've expanded that. And what we see and believe is that's coming down. And we're happy to see that. And I'm not going to imply precision that doesn't exist. We see it coming down. That's the average across all the customers and even the count of customers with more inventory than they should is coming down as well. So that occurs. We expect that trend to continue through and it also speaks to, as we've been saying, are, for lack of minute term, in consumption of our product is obviously higher than our revenue levels would imply as we're working down those channel and end customer inventories. So hopefully, that's helpful and not going to put specific numbers out there that apply precision that doesn't exist, but we definitely see it moving in the right direction, which is encouraging. Matt Ramsay : No, that context does help. I realize that we're going through a transitory period. But I guess as my second question, I wanted to ask a little bit about gross margin, there's a lot of pieces moving around, and I got a few investor questions this morning. So first question is just to confirm, I didn't see it in any of the releases and you guys didn't mention it. So I think this is true. But just to confirm that there weren't any kind of explicit inventory write-downs? And I guess the second question is, any kind of rule of thumb of how gross margin might trend as we come out of this, like revenue levels where we can get back within the long-term range I imagine it has a mixed component between the 2 segments as well. But if you could give us any kind of guidance there. You mentioned in the prepared comments, there was a little bit of movement on pricing. So I was curious about that as well. But anything on margins would be helpful. Matt Johnson: Yes, sure. I'll work from the detail and then up to the bigger picture answer that. So first thing is the -- what I call the low level gross margin from the beginning, even as the guide is really driven by that [indiscernible] term fixed cost absorption at that low revenue level. but it still came in lower than expected. And the reason for that was really around the mix. At $87 million of revenue, which is indicative of our consumption or a normal operating level, the customers come in lumpy, right? And that resulted in an unfavorable mix that go where we're at. we do not expect that to be a permanent trend. So -- but we should be clear, in Q1, we'll still have those challenges, lower than consumption revenue level and lower revenue than we want to absorb all those fixed costs. So we still see gross margin challenge in Q1, although improving slightly. To answer your picture question, I think that's critical. And we all know this; we should be looking at our gross margin in the peak or the trough of these cycles as indicative of the longer-term trend. Back during the peak of the supply chain prices, we were over 60 by a meaningful amount, and there was an expectation that could be our new normal, we said no. We expect that was a transitory environment, and that's proven out. Right now, we believe we're in our trough, and that's also transform. We don't believe that that's indicative of our long-term gross margin. Our commitment to our gross margin model that we've said all along has not changed, is unwavering, and we see a continued path to delivering that. And we just have to get through this direction cycle, and that's what we expect to see. Operator: And our next question comes from the line of Thomas O'Malley from Barclays. Thomas O'Malley : I just wanted to first check out in the March quarter. Could you give us some color as to which of your segments you're expecting to grow more into the March quarter just to get to your guidance of $105 million. And then also, you mentioned in the fourth quarter that units and ASPs were both down as expected with the reset. But can you talk about what you're seeing kind of through the quarter thus far from a pricing perspective and just how that's playing into the March guidance? Matt Johnson: Sure, Thomas. This is Matt. So quick answer on segments, Q1, I would expect both of our end segments to grow in Q1. Big picture, it's really tough to call this market environment, but we ultimately believe that Home & Life is probably further through its cycle than industrial and commercial. So if I were to buy is, I would expect more there but we're not calling specific numbers in our guidance. In terms of the pricing environment overall, no big changes. So what we've been saying and experiencing seeing is price debate that is very much in line and indicative of this type of environment. No surprises there. It is worth commenting that there is 1 competitor out there who has done things that I would say are not indicative or typical in this environment. And what I mean by that is setting lower price points and trying to fill fast to justify capacity. But for us, that competitor doesn't overlap a lot with our portfolio, so not significant. But it would be incorrect to say that everything is normal, if I don't call that one out. But aside from that, we've seen very expected behavior people trying to drum up business trying to drive -- fill their capacity and get demand back up and running. But if we're just honest about it, the problem isn't price -- the problems, inventory and the market cycle that we're going through. And no big changes in our outlook or our expectations based on what we've seen so far. Thomas O'Malley : Super helpful. And then I just wanted to follow up. Obviously, you moved the report here due to inventory controls issue. It looks like you're not really seeing any impact of that in the quarter. A couple of things. One, could you maybe give us a little bit more color as to what's going on there, if you can? And two, you mentioned that most of the inventory that you're carrying right now is die bank. Could you maybe give us the split of how much of that inventory is die bank because I would assume that if you were looking at inventory controls, it would be more for products. So I would assume a smaller portion of your overall inventory. Any color there would be helpful. Mark Mauldin: Sure. This is Mark. For the controls issue late in January, we identified some areas within our inventory accounting process that needed some improvements there. We are working to develop that plan to address it going forward. the way these things work, generally speaking, we're going to have to have the new controls in the process and shown it's effective at least for more than 1 quarter. So we'll have that item open out there, at least through the first quarter. But in general, it just had to do with having more documentation and reviews over some of the assumptions that go into the judgmental aspect of the inventory valuation. Matt Johnson: And just to comment, meaningful majority of our inventories in Di Bank because for people out there just importantly understand while we have a remarkable diversity in our end customers and applications. What we try to do is not have that same diversity in Silicon. So in Silicon we'll have SoCs that address as much market as possible, and they can be tailored customized to figure in Silicon to address, for a lack of better term, different part members of SKUs and applications to customer needs. And on top of that, there's Silicon -- I'm sorry, software flexibility that is substantial as well. So it's really an advantage for us to carry a die bank and gives us the maximum flexibility to respond and to manage inventory responsibly by taking that approach. So quick answer is, that's where most of it is in. Operator: Our next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg : First question is on the Home & Life business. So Matt, I know this is a difficult question to answer, but I'll ask it anyway. So I think it peaked at a run rate of $0.5 billion. Now the run rate is $100 million. So it's quite stunning. And I'm just wondering if you could unpack a little bit as you had that $0.5 billion peak, what was cyclicality and what was more secular businesses. And if you look at the mix today, that $27 million, how much of that is "more secular business versus cyclical business." I know, again, it's difficult, but if you can unpack some of that, that would be great. And I assume you're not going to give us a true consumption number of that business, but any more color you could add would be really helpful. Matt Johnson: Yes, sure, Tore. Yes, that is not easy to answer. But I'll do my graph to provide some perspective and context that hopefully will be helpful. So maybe just going way up to the top, big picture, we haven't provided an exact consumption number for the company or for the segment. But it can be helpful to remember that we did do some meaningful OpEx actions in Q4 of last year. And obviously, those were with that consumption level of mind. And whatever you do there for cuts, you want your breakeven point to be below that consumption level. So that's important conceptually just as a way to help think about it. Going into the home line. It's been about 4, 5-plus quarters now of declines that we've seen in that business. We do see, what I call, cautiously optimistic signs that we're seeing some improvement in bookings, seeing some -- not push out anymore. It's more full ends but visibility remains low because people aren't even ordering within lead times, they're ordering a much shorter basis as they need. I think they're still working through their inventory. They've been rattled, they're uncertain. So I do much further through that cycle correction, and we're seeing encouraging signs, but not at the level to say we're on the other side of this yet or we're out of the woods. So I want that to be clear. That being said, yes, we went through a remarkable journey, right, from demand -- well, one, I think there was a shift from services to goods and then back to services, demand buying people want expected demand levels would be continuing in perpetuity. People build inventory. And then there's a whole bunch of trends under there that are difficult to pull out or tease out or parse out how much is contributing to each. But you have the end market strength, you have the secular positions that are very important, right? Matter starting to show a lot of strength in there in our prepared remarks. And then we talked about Life a few times that Life has been durable throughout this because of that secular strength. But at the same time, the design win momentum we've started sharing with the world on that is really just in its early stages, and that will be impactful as well. So I'd say it's showing resilience because throughout this, because of those ramps that are starting, but the real growth there and real impact is yet to come. So -- and the last piece is the Home piece as an end market, we continue to see solid progress and opportunity there, whether it's trends such as matter, such as Amazon Sidewalk, such as just the market finding is splitting on the other side of this downturn. What I'm trying to convey is our confidence in that end segment from a growth perspective remains very strong. And our confidence in our position there also remains very strong as we bring in really great momentum around Bluetooth where we're clearly gaining share and we're going to do the same thing in Wi-Fi, and that will help not only firm or stabilize the home for us but actually grow the home moving forward. So I know that's a lot to worry, but those are all some of the moving pieces in there. And the punch line is our confidence in the space is -- continues to be strong. We know we're gaining share, and we see opportunities to grow through some of those trends, like I mentioned, for matter, Bluetooth growth, Wi-Fi growth going forward. Tore Svanberg : No, that’s really helpful. I appreciate that, Matt. As my follow-up, so I know, obviously, there’s a cyclical balance coming here. That’s pretty obvious. But I know on top of that, you also have a lot of new design wins. You have some new secular business that are ramping. You talked about some of the glucose metering, smart metering, shelf abelling, then you go Wi-Fi. So I guess the real question that I have here is if you look at some of those newer businesses, any update there? And could these be really material to revenues for calendar ‘24, especially in light of perhaps some of the more cyclical business at such a low level? Matt Johnson: Yes. Understood. Quick answer is yes. That is our expectation that we’ve been unwavering in our view that we’re going through a particularly vicious market cycle that has impacted demand. Inventory destocking that’s substantial. And we’re trying to be clear, we’re not calling the market bottom here. We’re not out of the woods yet. It’s clearly these cycles have worked fully through, but we are calling [indiscernible]. And the reason we’re comfortable doing that is we’re not calling the rate necessarily, but we do see the confluence of all those things that the inventory and stocking going in the right direction. We do see our position in the market is strong, and those designs are starting to ramp. We just – last earnings call, we called out a few that people were unaware of. We just called out a couple more on this call that people are unaware of. And there’s more these are intended to give some perspective that they’re happening. Yes, there’s a massive counterbalance with this market cycle. But at some point, those 2 things will – the ramps are going to continue and normally get stronger and the market will work through its cycle. And when those things come together, it looks like we’ll be positioned for strong growth when those two happen. Operator: And our next question comes from the line of Cody Acree from the Benchmark Company. Cody Acree : Maybe you can talk about just your order linearity throughout the last 90 days. You mentioned that orders are coming in with less than your typical turns request. Can you just talk about that pattern of orders and how that gives you visibility to the bottom? Matt Johnson: Sure. So I'm trying -- I don't want to not make a is remark. It's hard for us right now because what is normal has really been disrupted over this entire cycle. So I'll start with that. But to answer your question directly, last 90 days, what we've seen is a trend in an encouraging direction where they're increasing -- not increasing at the level that we'd like to see to say, this is done. We're on the other side of it but optimistic that they're going in the right direction, which is always important. The visibility continues to be low because our lead time right now, let's just say, on a quarter, roughly, a little over a quarter. And most of the behavior is customers -- majority of the -- as customers are and well within that. So that gives you an indication of what we're seeing. It's also worth pointing out that given where we think we're at the cycle between -- for lack of better term, the consumer and industrial segments, probably seeing order patterns a little more indicative of consumer and home and license general being further through the cycle than industrial and commercial. But like I said earlier, we do expect both to grow from Q4 to Q1. So hopefully, that helps give some context and perspective. Simple headline going in the right direction but still have further to go. Cody Acree : Last quarter, you talked pretty optimistically about Series 3. That has been a little absent this quarter. Can you just give us an update on how that platform has progressed this quarter? Matt Johnson: Yes, sure. Not asset by design, just in the middle of a lot of work. So a quick way to think about it, Series 2. We're continuing to release products on Series 2 couldn't be happier with the impact to have on the market. Design wins, momentum has been excellent. It's then everything you'd want to see. And it's still in a very powerful spot in its life cycle that is going to drive growth for us for a long time. Series 3, making progress there on track to what we've said, but we're committed and the impact that we expect that, that's going to have not only on us as a company but on our industry. An easy way to think about it Series 3 takes that platform that is so pervasive, which is Series 2 and gives people the ability to lever that and push even further on all the dimensions that we are industry leading on. whether it's the wireless performance, whether it's scalability, flexibility, whether it's the compute that our customers want, including AIML or industry-leading security, even being quantum read. So the combination of those things have our customers excited. But what I don't want to do and why you probably noticed it's not the call, we are -- that will be work for us for years to come. And we're well into it. We're very comfortable with where we're at in that cycle, but we'll be talking about Series 2 for years still, and we'll be talking about Series 3 for years to come. And both will kind of coincide or be parallel to each other, for at least the next 5 to 10 years. So it's important to have that perspective as we talk about both of those. One is not going away and the other is not replacing it. But very encouraged by Series 3, where it's at and the market customer response. Operator: And our next question comes from the line of Quinn Bolton from Needham & Company. Quinn Bolton : I just wanted to -- you talked about starting to see some more encouraging orders in home and life and you've also said it's sort of further through the inventory correction. Just wondering if you could specifically talk more about what you're seeing on the industrial commercial side. Home & Life is sort of 4 to 5 quarters in, would you expect Industrial & Commercial to kind of have that same 4 to 5 quarter under pressure before you kind of get back to more normalized run rates. Matt Johnson: Yes, I understand the question. Quick and honest answer is we don't know for sure. There's some really interesting behavior out there in the marketplace. For us, we saw industrial enter as a start of a decline much later than consumer. For us, I think it was around where we really started seeing the signs of softening. What was remarkable for us is usually -- I think historically, typically, usually, it's much more measured and not as abroad. But across thousands of customers, we really did see that segment just really slow down big time really going from Q3 to Q4, and that was reflected in our guidance. So -- and the reason I explain that is, yes, so we're a few quarters into the cycle correction as we see it, but it also hasn't been a typical 1 in the sense of how severe. So we're assuming and it's going to continue for the next few quarters. And even with that being said, we still see this as our trough or bottom and able to drive sequential growth from here. But I wouldn't call the market is done and we believe Industrial still has some time to go. But with the caveat, we also haven't seen it go down as abruptly as we did in this current sector. Quinn Bolton : Got it. No, that's helpful. And then -- just a question on the Disty inventory. You guys said it came down to 79 days, obviously, down a ton in terms of dollars, given the lower revenue level. Do you guys have a target that you're shooting for that Disty. I mean, I imagine as revenue starts to recover, if you just kind of hold Disty inventory flat that the days and Disty's going to come down still pretty nicely. So just any thoughts you can give us how we should be thinking about where that -- where you want to try to get Disty inventory Matt Johnson: Yes, understood. Yes, I think we've said over the last past few quarters, in normal times, whatever those happen, we'd be somewhere in the 60- to 70-day range as a target. It's not an absolute or a hard target, but something in that range. But right now, it's obviously higher than that, but on a much/lower revenue level. And as you pointed out, that could spike very quickly as things start to ramp back up. But you have to counter valves that with the whole industry spooked by inventory right now, right? And everyone is trying to work down the inventory and that's what you see out there. So distributors are trying to work it down. Customers are trying to work it down. So if we're honest about it as an industry, we'll probably swing the pendulum a little too far. Maybe this will be 1 of the times that it doesn't happen, but it's possible that you'll see those inventory levels go down, and then there'll be a balance on the other side that's faster than anticipated because we take it too far as an industry. We're trying to watch that. We're trying to be responsible and do our best to manage it. But the real focus for us and problem child is end customer inventory which is going in the right direction, which is encouraging, but not done. Operator: And our next question comes from the line of Gary Mobley from Wells Fargo Securities. Gary Mobley : Matt, you briefly covered this in your prepared remarks, but I missed it, to be honest. I was hoping that you could share with us more metrics on design wins in retrospect, specifically 2 what the growth in lifetime value was for the design wins captured in the period. and as well whether or not there was a particular emphasis on any 1 wireless standard or module generation. I would presume the majority of it is on Series 2. Any color would be helpful. Matt Johnson: Yes, sure. So yes, I think in the prepared remarks and I think we said we did deliver to our target, and I'll mention in a second why that's remarkable. And we saw that as a big deal because as we entered this year, as we mentioned last year 2023. We knew it would be a great market environment, but we didn't anticipate it would be the size as well. But we set our design win target in a different environment. And usually, when you see the market drop like it did and as volatile as it has been, usually, you see that convey and impact your design win performance. And the reasons are multiple. Like think about it in real terms right now. We have customers that are working through inventory that are trying to work. A lot of customers are doing R&D reductions, so they're impacting schedules of project that way. All those things come into play. But we're certainly not happy with our revenue performance in 2023, but the team was able to secure and deliver a design win performance that was on that original plan, which is outstanding. And the reason to be very direct is serious business. right? We're still knock in the Series 3 design win phase yet. There's still a ways away. But in Series 2, as I said earlier, it's knocking it out of the park, and that's the engine that's driving design wins. And the easy way to think about it is right now, that drives the growth of our funnel -- opportunity fund that drives the design to growth, and that will be the major driver of revenue growth. And that's why we're so excited about Series 3 because now that we have that position in the market, we can leverage that with software compatibility and portability because what our customer realizes investment in Series 2 is also an investment in Series 3, which is off. So we're starting to get that critical mass and position with our platform in the industry. that will serve us well. In terms of the other question, it was pretty broad, honestly, in terms of all our geos saw good progress all our wireless technologies saw good progress. And all our focused end market segments saw good progress as well. If you wanted to call out some big one, it would be what you expected. Areas where we're just really seeing great progress in cleaning up those secular growth areas that we were talking about with Tory earlier, definitely having a big impact. And then take an area like we've been consistent in Bluetooth, where we see strength in all of our wireless areas, but Bluetooth, we've really just seen that off and grow from a design win perspective, and we see ourselves continuing to take share there. that's 1 that you could probably call out and withstand now. And as we've been saying, I expect we just released the soft lot for Wi-Fi, you're going to start seeing the same in Wi-Fi as we bring industry-leading capabilities there as well. So those are the drivers, Gary. Hopefully, that gives you some perspective. But no one thing aside from destination strength in Bluetooth. But all the focus areas performed very well, and we hit our market Gary Mobley : Thanks, Matt. Your main foundry partners is basically calling for a pretty good rebound year some pretty good growth. And I realize a lot of that rebound is a leading-edge lithographies maybe not where you're at, but to put this in the form of a question, are you potentially going to see maybe higher foundry quotes and as well related some expanding lead times could we possibly see lead times more than 13 weeks at some point in the year? Matt Johnson: Sure. Don't understand the question, for sure. I think that we've been very deliberate about our 1 strategic inventory build internally, our die bank to smooth this out. Going into the supply crisis, we were carrying a much lower level. So our intent by having that is to try to smooth the response and not have it be as abrupt and monthly. And we have a great relationship with our all our foundry partners, including our largest. So we feel just to be very blunt, we were able to navigate the supply prices with our relationships and partnerships, I definitely believe we'll be able to navigate the other side of this downturn that we're in. And I think we're much better prepared. We've learned a lot. We're carrying different die bank. We've learned a lot about forecasting, watching customer inventories, et cetera. So I think the confluence of all those position as well. And I do believe we're -- from a supply perspective, very well positioned to navigate all things considered. Operator: This Does conclude the question-and-answer session of today's program. I'd like to hand the program back to Giovanni Pacelli for any further remarks. Giovanni Pacelli: Yes. Thank you, Jonathan, and thank you all for joining us this morning. This concludes today's call. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: Hello. My name is Lisa, and I will be your conference operator today. Welcome to Silicon Labs' Third Quarter Fiscal 2023 Earnings Call. I will now turn the call over to Giovanni Pacelli, Silicon Labs' Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Lisa, and good morning, everyone. We are recording this meeting, and a replay will be available for four weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our third quarter financial performance and review recent business activities. We'll take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website. I'll now turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks, Giovanni, and good morning, everyone. In the third quarter, the Silicon Labs team executed well in a challenging environment, driving revenue and EPS to both exceeded the midpoint of our guidance. Current market environment continues to be characterized by a difficult combination of weak demand and high inventory. Specifically, end customers carry to -- continue to carry inventory levels that are too high. At the same time, our end customers' demand environment continues to be weaker than previously forecast. In particular, we see weakness extending further into the broad industrial end market. As a result of these factors, our fourth quarter will be negatively impacted across both business units. We have contained operating expenses thus far in the second half of this year by focusing on temporary reductions in discretionary and flexible spending. Given the duration and severity of this downturn, we have now proactively taken a difficult decision to make structural reductions in headcount and other spending effective immediately to manage our OpEx further while maintaining investments in essential R&D projects to drive future growth. While the near-term outlook is clearly challenging, we are focused on managing what we can control and putting ourselves in a position to deliver strong growth and higher earnings power once it's difficult market cycle corrects. Our design win momentum has never been stronger, and we are as confident as ever in our potential. To underscore this, our industry-leading Series two platform continues to perform exceptionally well, driving our design wins to an all-time record level in Q3 and up 25% year-over-year. Importantly, we are starting to see this design win momentum pay off with some exciting ramps that I'll share after we hear from John. Also, in Q3, we announced our next-generation platform called Series 3 that will further position us to lead this space. All of the items I've mentioned a strongly position us moving forward. With that, let me turn the call over to John to cover Q3 results and guidance for the fourth quarter. John? John Hollister : Thanks, Matt, and good morning, everyone. Third quarter revenue was $204 million, above the midpoint of our guidance range and down 24% year-on-year. ASPs in the quarter declined sequentially, primarily due to product and customer mix. Unit volume was down just slightly on a sequential basis. Revenue was down year-over-year in both business units in the quarter. The Industrial & Commercial business ended at $121 million, down 17% during the same period last year. All three product groups in I&C declined in the quarter with the broad industrial category experiencing the largest decline. Within the I&C business, our performance in smart metering, however, has continued to be an area of relative strength. Home & Life revenue of $83 million was down 33% year-over-year and was up 4% sequentially. We continue to see strength in Life applications, particularly in connected health devices. Geographically, we saw year-over-year decreases in all regions, with APAC being down less here Europe and the Americas. APAC, ex-China was up year-over-year. Distribution revenue was 81% for the third quarter, up slightly from the second quarter. Inventory in the channel was around 90 days. Our largest end customer was under 5% of revenue in the quarter, and our top 10 end customers were about 25%, consistent with our historical trends. Non-GAAP gross margin ended slightly lower than expected at 58.5% due to product mix. We continue to see a generally stable pricing and input cost environment with no significant changes expected in the next quarter. Non-GAAP operating expenses of $95 million was in line with our expectations as we executed focused spending reductions in the quarter primarily related to variable compensation, contractor spending, and travel. Non-GAAP operating income was $25 million or 12% of sales, and our non-GAAP effective tax rate was in line with the quarter at 24%. Non-GAAP earnings of $0.62 was $0.03 above the midpoint of our guidance, primarily due to higher revenue. On a GAAP basis, the gross margin ended at 58.4%, GAAP operating expenses were $107 million, which was better than expected and was $13 million below the midpoint of our guidance, primarily due to a change in stock compensation expense driven by the expected lower achievement on performance-based awards. Accordingly, GAAP earnings per share were $0.32 for the quarter. Turning to the balance sheet. We ended the quarter with cash and investments of $417 million. Our accounts receivable balance grew in the quarter to $102 million with days sales outstanding 45 days. Customers, including distributors, have requested longer payment terms in this current market environment. Accordingly, we temporarily extended payment terms for certain customers from our standard early-day terms. We added about $22 million in net inventory in the quarter to $168 million as we continue to accumulate a strategic benefit based on the strong design win momentum we've seen for the past few years. inventory turns into at two times. We repurchased approximately $16 million worth of shares in Q3, targeting approximately 100,000 shares. Our fully diluted shares outstanding in Q3 ended up 32 million shares. In Q2, we drew $80 million revolving -- from our revolving credit facility. We repaid $35 million of that balance in Q3 and have an outstanding amount remaining of $45 million. Overall, the balance sheet continues to be very healthy and remains well positioned to weather the current market environment and to execute on our strategy. Before I turn the call back to Matt, I will cover guidance for the fourth quarter. As Matt mentioned in his opening statement, the current demand environment is still quite challenging as customers are focused on reducing their excess inventory. Our bookings activity slowed significantly during Q3, and we believe many of our end customers still hold higher-than-normal inventory levels. As a result, we expect a decline in revenue for the fourth quarter with a guided range of $70 million to $100 million. We anticipate both units -- business units to decline in Q4. Due to the uncertainty in the market environment, we are widening the guidance range to plus minus $15 million from the revenue midpoint for this quarter. We expect non-GAAP gross margin in the fourth quarter to be approximately 53%. The lower gross margin for this quarter primarily reflects the impact of certain fixed cost developments in our cost of goods sold, which are being absorbed over a significantly lower revenue level. We continue to maintain discipline over our operating expenses, and the temporary reductions we discussed last quarter will remain in place to the fourth quarter. We expect non-GAAP operating expenses in the fourth quarter to be approximately $94 million. We expect the non-GAAP effective tax rate to be approximately 3% in the fourth quarter. Accordingly, our non-GAAP loss per share for Q4 is expected to be in the range of $1.22 to $1.66. On a GAAP basis, we expect gross margin to be 53%. We expect GAAP operating expenses to be approximately $123 million, inclusive of an expected restructuring charge of around $6 million in Q4. We expect GAAP earnings per share to be a loss of between $1.95 to $2.39 per share. I will now turn the call back over to Matt. Matt Johnson : Thanks, John. Despite the current economic challenges, we continue to execute on design win ramps and long-term growth markets such as smart cities and health care, which are driving significant deployments of devices with sizable ramps in the coming year. In smart cities, Silicon Labs has been the wireless leader in smart metering market for many years. Like the leadership role we played in the successful rollout of smart meters in the U.K., we are now planning a similar and dominant role in India's rollout where 250 million smart meters are expected to be deployed in the coming years, with our production ramp starting early next year. In addition, we were awarded new designs with Landis+Gyr, a leading provider of energy management solutions to use our Series 2 SoC in its primary smart electric metering platform, ramping early next year. Also, within our Industrial business, we have been designed into multiple products at one of the top two EV providers in the world, which we expect to ramp over the next few quarters. Turning to our Life business. The health care space continues to accelerate and offer exciting new growth opportunities that are a great fit for our platform. We are starting to see our multiyear focus on this market payoff, having secured multiple designs globally. As part of this, we are excited to share our partnership with Dexcom, which will use our platform in its continuous glucose monitors, or CGMs, moving forward. Silicon Labs' ability to offer customizable and highly secure solutions with our Bluetooth SoCs was key in solidifying this relationship, and we expect these product ramps will begin contributing to our revenue early in 2024. At our fourth annual Works with Conference in August, which attracted thousands of IoT developers, I previewed Silicon Labs' fifth-generation platform called Series 3, which is on track to sample early next year. Series 3 brings three major new capability to the IoT. First, it brings new to industry performance through new levels of security, wireless performance, power consumption, and multiband and multi-protocol capabilities, areas we have always stood out in. Second, our new levels of compute. Series 3 can support more than 100 times of processing capability of our current generation Series 2, including integrated artificial intelligence and machine learning accelerators and enabling the integration of system processing from stand-alone MCUs into our wireless SoCs. And third, the IoT is seeing new-to-world volumes and applications. Because of this, our Series 3 platform will offer new levels of scalability with a multi-radio platform and common code base that will serve over 30 new wireless SoCs, a 2 time to 3 time increase over the number of Series 2 products as well as extendable and scalable memory architecture, including support for external flash. As part of scalability, Series 3 is built on a supply chain that leverages multiple fabs and geographies to maximize the resiliency and reliability of supply. As part of the Series 3 announcement, Silicon Labs also announced the next version of its developer tool suite, Simplicity Studio 6, which will allow developers to utilize the most preferred integrated development environment on the market while giving them the latest tools to support their continued development on Series 2 as well as Series 3. As we told our developers, an investment in our industry-leading Series 2 platform is also an investment in our Series 3 platform. Importantly, Series 2 will continue to grow and be supportive of new silicon and software and will complement Series 3 with both platforms coexisting for many years to come. In closing, I would like to acknowledge that despite the near-term weakness in our end markets, our team is dedicated to overcoming this market downturn without hampering our long-term strategic and financial goals. The fundamentals of our story and the growth prospects for our end markets remain sound, and our position in those markets has only become stronger. Based on everything we're seeing, we believe Q4 will be our bottom, and we expect to return to sequential growth in the first quarter of 2024. I will now hand it back over to Giovanni for Q&A. Giovanni? Giovanni Pacelli : Thank you, Matt. Before we open the call for Q&A, I would like to announce our participation in three upcoming conferences. Stifel's 2023 Midwest One-On-One Growth Conference in Chicago on November 9, Wells Fargo's Seventh Annual TMT Summit on November 29 in Rancho Palos Verdes, and the Barclays Global Technology Conference in San Francisco on December 7. We'll now open up the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question and one follow-up. Lisa? Operator: [Operator Instructions]. Our first question will be coming from Matt Ramsey of TD Cowen. Please go ahead. Matt Ramsay : Thank you, very much. Good morning everybody. Hang-in there guys in the tough environment. I think, Matt, I wanted to start my question and just to kind of back up and reassess things on kind of first principles about some of the assumptions we have in the model relative to what's going on here. It sounds like pricing stability, exciting things coming with Series 3, still really strong design win traction and at first read, that seems just to me like an inventory correction on steroids a bit. And I'd like to get you to respond to that and just think about -- as you think about the design wins going forward that you guys continue to accumulate, are you concerned that maybe the volumes and revenue going forward that underpin those design wins have just come down and the TAM for the business that you're looking at is smaller? Or is this just literally an inventory correction that we got to get through before we get back on the bike? I'm just trying to think about, given the level of falloff in revenue here, how are you guys thinking about reassessing the actual TAM for units and dollars relative to just the design wins? Thanks. Matt Johnson: Yes. Completely understand. Thanks, Matt. Yes, let me do my best to answer that. Just to start with, before we get into the inventory and the demand, it's important to point out that we really essentially indexed to a couple of major end segments, consumer, which has been down for a year now pretty significantly. And Industrial, which had been more resilient but we've been seeing signs of that, and that really came through as we were leading in Q3 and going into Q4, the weakness in that space. But the end inventory is really important to talk about, right? So, we've -- really, when we sample our top 40 or 50 customers, they're carrying more inventory than they normally do by at least a quarter. I'd say it's an easy way to think about that. And on top of that, I think their expectation for demand and growth and strength was higher. And when those two things converge and the demand less and that inventory is high, the impact is profound, and that's what we're seeing. So that is the first piece of it. And in terms of the second piece, in terms of end markets and design wins and all that, a few things. One is we don't see share loss here. When we look at it on a socket-by-socket basis, we see gains. And that's reflected in our design win numbers and strength with a record Q3 that was, I think, up around 25% year-over-year. But what we do see is while some of those have ramped, we see those ramps being impacted by the overall market. Maybe their volumes are less than they thought, ramps might be pushed out as they work through inventory, et cetera. But the big ramps are solid and there, although some might be delayed. And so, we shared some of those in the prepared remarks that are pretty substantial and coming very soon in Q1. But I don't see anything on share loss, I want to be clear about that. And your question about the TAM, I mean I think there's an argument being made that when the market is down like the size of the market is significantly less, but the fundamentals in terms of the long-term size of the market, the growth of the market, none of that's changed at all. So, what we really see is that confluence of end inventory and demand being much softer than expected coming together and we got to navigate that. But the fundamentals haven't changed, and that's what gives us confidence moving forward. Matt Ramsay : Thank you for all that perspective, Matt. I really appreciate it. John, just as my follow-up, two things. One, it looked like you guys burned $50 million or something like that in cash, and you're guiding to, obviously, negative P&L for the December quarter. So, I just wanted to do a check on cash balances, liquidity, the revolver, stuff like that, just to see how you're thinking about it. And then you spent a little time on some OpEx reductions in the script. Maybe you could quantify how we should think about that for 2024? Thanks. John Hollister : Sure, Matt. So, on the cash balance, we continue to have a strong cash balance, our revolver that's outstanding is really around optimizing between short-term investments and interest, et cetera, to optimize that portion of our cash flow P&L. So, we're not concerned about the liquidity of the company, and we continue to have a robust cash balance. In terms of the OpEx actions, remember that in the second half of 2023, we undertook temporary non-sustainable OpEx containment actions, such as travel, contractor spending, some of our bonus programs, et cetera. These things need to come back heading into next year. And it's because related to that, unfortunately, we are taking some structural reductions in the business. From a quantification perspective there, Matt, the way to think about that is first quarter OpEx, we see is roughly flat to the second half run rate as these two things basically offset each other. And then we'll monitor this as we move through the rest of next year based on the rate pace of revenue improvements, which we do anticipate happening through the course of next year. We just need to see how strong the recovery is based on the ramps and recovery of the general market. Matt Ramsay : Very clear. Thanks guys. See you next week. Operator: And our next question will be coming from Tore Svanberg of Stifel. Your line is open. Tore Svanberg: Yes. Thank you. I wanted to zoom in on your comment about Q4 being a bottom and seeing some growth sequentially in Q1. It sounds like you have some design wins ramping. That's pretty clear. But can you also talk about the inventory correction? I mean, obviously, given the size of the Q4 guidance down here, obviously, one would think that, that's clearing out of inventories. But any more color or visibility you have on the inventory situation as you go into 2024, that would be helpful. Matt Johnson: Sure. Yes, Tore. This is Matt. A few things on that. we are definitely not calling the market bottom, and we want to be clear about that. And it should be clear, there's also headwinds, right? It's unclear how much more of a correction Industrial has as an end segment. So, there's some headwinds there. And on end customer inventory, that would be awesome if it was super clean on the quarter boundary, but it isn't. It's not uniforms across our customers. We talk to -- as I said, our top 40 or 50, they're carrying more than they should, some less, some more, some extending into Q1 and Q2, some okay now. But if you average it all out, it's really the biggest impact is, it's about a quarter that they have. They're carrying more than they typically should or would. So that's important. So, we're not saying the inventory headwind will go away, but the biggest piece of it should hopefully be addressed. So that's one. And so, you have those headwinds for sure, but that should be working its way through an end inventory. And then the tailwinds would be obviously starting from a remarkably low revenue number moving forward, and that inventory working down at our customers and the design win strength that we have. As I said earlier, none of those sockets are gone. We continue to accumulate them, and some of the bigger ones are right around the corner. So, it's a confluence of those things story that gives us the confidence to say, based on what we're seeing and what we believe is this will be our bottom, and we can drive sequential growth from here. Tore Svanberg: Yes. That's very helpful. And as my follow-up, I know this is always a very tricky question given cyclicality, and inventory management, and so on and so forth. But your revenues peaked at $270 million, you're guiding $285 million at the midpoint. Where do you think the true consumption is of your business, whether on a quarterly or an annual basis, just to sort of we get a sense for where you will eventually go back to as we get through this inventory adjustment period? Thank you. John Hollister : Yes, Tore, this is John. Yes, it is a hard question to answer, given the lack of visibility we have to into the inventory level and how that relates to our revenue run rate as seeing the effect of that right now. But suffice to say, we think it's meaningfully higher than where we're running guiding right now. That is clear. But clearly, we do need to take some action around our OpEx and we're reacting and executing important. Tore Svanberg: Sounds good. Thank you. Operator: Our next question will be coming from Gary Mobley of Wells Fargo. Your line is open. Gary Mobley : Hi, guys. Thanks for taking my question. I wanted to make sure I have the impact of the inventory reduction squared away in my head. So, you talked about $200 million worth of perhaps excess inventory or said differently, roughly a quarter's worth of revenue. And you're guiding the fourth quarter revenue down $120 million sequentially, roughly. So that is what, roughly 60% of it being digested in the fourth quarter? And then maybe 40% digested into the first quarter? And to what extent does this $85 million revenue guide reflect lower turns assumption just given the lack of visibility as your lead times have shortened? John Hollister : Yes, Gary. We're working through this as best we can to navigate the inventory situation at our customers. I guess on your question long-terms, we duplicate. So, we definitely have seen very low turns in the business. That's really at the roots of what is going on here. Turns have been quite low for multiple weeks, and that is really underpinning the weakness in our guidance. And it is exactly that. that we look to first, as the first indicator of a recovery emerging as customers clear inventory as the inventory clearance events, we should see turns improve. I hope that's answering your question. That's kind of the best half-way right now. Gary Mobley : Okay. Fair enough. All right. And so, I wanted to ask about the flexibility of the buyback. I think you have listed in your PowerPoint deck on your Investors section of your website, $100 million left in the buyback. How much flexibility do you have to ramp that up, considering the cash on the balance sheet, the lending capability, and whatnot? And to what extent are you willing to borrow at today's interest rate environment to buy back stock at these levels? John Hollister : Yes. We do have flexibility up and down, Gary, to the point of being opportunistic on it but also being mindful of our overall liquidity. These are all factors at work as we cover in the best way to approach that. But we're not locked in, so to speak, we do have flexibility [indiscernible]. Gary Mobley : All right. Thank you, guys. Operator: Our next question will be coming from Quinn Bolton of Needham. Your line is open. Quinn Bolton : Thanks, for taking my questions. Just wanted to follow up on Gary's question there. You kind of went through the math of the inventory clearance, maybe a clear 50%, 60% in Q1 -- sorry, Q4. It would seem that Q1, while you're guiding it up is still going to have a significant inventory effect. And then hopefully, by the end of Q1, maybe you've cleared most of that and you start to get back to better sequential growth rates. Just wondering if I'm thinking about the shape of the trajectory, right, or if you would think it's a different trajectory off the bottom? Matt Johnson: Yes. Quinn, thank you. This is Matt. I'm not sure about that trajectory. If we step back, I think just looking at it big picture, to be clear, our internal inventory, we are definitely growing that by design, intentionally strategically in support of the future business and ramps we've secured and it's important for our customers. We are sole source on a majority of our products, the primary silicon, and a lot of our products. And our customers have just been through this whole supply chain math that we have to make sure that we are ready to support this business that we keep securing. So that's one piece. The distribution or channel piece is obviously separate. And in that case, that's I think it's around 90 DSI. So higher. But at the end of the day, we're carrying about quarters worth at suppressed revenue levels. So, as we've said in the last few quarters, it's higher than our historical but not alarming to us and definitely manageable as we look forward and with what we know that's coming down the road. I think our biggest challenge is our end customers and what they are carrying in their lines and supply chain. And being able to -- that's high, higher than it's historically been. And at the same time, they thought their demand was going to be much stronger. And the compounding or confluence of those two things coming together is extremely impactful. And that's what we're seeing in Q4. John Hollister : Yes, Quinn, this is John. Let me try to address what I think you and Gary are both asking and say this -- we are not saying that all inventory will be cleared in the fourth quarter. Matt indicated that we've got a mix of customers and based on the best we have, and is very imperfect information, do see some of them with inventory levels that would require more time to clear in the first quarter, some even beyond first quarter. So, I'm trying to respond to what you and Gary are progressing on. Quinn Bolton : Yes. I guess that's what I started to drive that as it feels like, obviously, a low guide for the fourth quarter but it doesn't look like you're clearing all of that quarter's worth of inventory at customers. And so, I'm kind of assuming that the March quarter, I know you're not guiding, but the March quarter probably isn't all that different from the December levels, and then hopefully, by the end of March, you will have gotten through most, maybe not all, but most of that inventory buildup at customers. And then we'll just have to see sort of where end demand is and how quickly the consumption rates recover, I guess, is the way I'm thinking about it. Matt Johnson: Yes. I'm going to reiterate, but I understand the comment question now. I think the easiest way to frame it is what we've said is, one, definitely not saying when we'll get through all of it, and very imperfect, right? This is -- there's no reports for this. This is just a lot of discussions with customers on the phone and trying to get a feel for what that level is and their moving-in target. But we believe that in Q4 based on their expectations, their levels, we'll get through -- easy way to think of it as a majority of that, but there's still going to be some to work. And that's what gives us the confidence in saying, we see that as our bottom. And it's not only the inventory, but it's a big factor moving forward. It's also those ramps on the other side of it that are helping as well. But -- it's a massive hit in Q4, and that inventory is a huge piece of that. So, it's important that we're clear about that. But the data says that will work through a big chunk of it. Quinn Bolton : Got it. And then just on the split of the business. I assume you're probably seeing a bigger hit to the industrial and commercial just as that business seemed to be much stronger through the second quarter this year, and I could certainly see more inventory having accumulated there versus Home and Life, which has been under pressure for about a year now. Matt Johnson: Yes, it's tough. Yes. I think that really, in the second half of this year, the Industrial impact has really been significant where it had been so much more resilient and durable prior to that. Consumer been hit all on over the last year and significantly, but it also, worth pointing out, both are down in Q4 not only in industrial. So, new low levels for both of those Q3 to Q4. Quinn Bolton : Got it. Thank you. Operator: Our next question will be coming from Cody Acree of the Benchmark Company. Your line is open. Cody Acree : Thanks guys. Thanks for taking my question. I guess, John, Matt, if you can maybe speak to your order linearity over the last quarter, the last few months. And maybe how are you looking at your forecasting methodology, just adjusting how you're expecting to predict going forward? Matt Johnson: Sure. I'll start. Yes. I would not say there's any linearity would be the starting point on that. It's been somewhat remarkable that seeing bookings decline, and then you'll see a pause, maybe a little bit of calm and then they'll decline some more. Same thing on turns. Turns continue to drop. So, it's been extremely challenging as we try to forecast this. And remember, the forecast is a -- we have tens of thousands of data points in customers. And our forecast is really an attempted bottom of accumulation of their views. But I think the biggest challenge is when the market is changing so quickly, so volatile, the visibility is as low as it is, our customers are struggling to forecast that as well. And that accumulation is very challenging. So obviously, as we go through these quarters and see this, we're trying to do our best to reflect that, communicate that, be transparent about that. And I think I'd say it feels each time a little more conservative, I don't know how else to say it, given what we're experiencing until we see really strong signs on the other side of that of the market recovery, which we're not seeing yet. Cody Acree : Thanks for that. And then, John, if you could maybe give us any better picture of your OpEx budget for next year as you work some of these cost reductions in the model? John Hollister : Yes, Cody. Like I said, first quarter, we expect to be roughly flat to the second-half run rate in the mid-90s based on the best available information we have as of yet. And beyond that, Cody, we just have to monitor this and see how the recovery goes. And our model remains our compass, how we want to operate the company, and that's what we would seek to get back to as soon as we can. So, we're going to maintain some flexibility on OpEx as we head into the second quarter and second half of next year based on how things are tracking. Cody Acree : Okay. Great, thank you, guys. Operator: Our next question is coming from Srini Pajjuri of Raymond James. Your line is open. Srini Pajjuri : Thank you. Good morning, guys. John, on the inventory, especially the disti inventory, I think you said roughly 90 days. I'm guessing that's about $200 million. So, as we go through, I guess, the next quarter exiting December heading into March, I'm just trying to understand how we should think about the absolute inventory? How much of that disti inventory are you hoping to draw down? And if you could maybe give us some color when and where I think it normalizes. I guess what is a normal level for you at this point. John Hollister : Yes, Srini, sure. Yes. So, 90 DSI at the end of the third quarter is in the neighborhood of more like $100 million of value roughly, not $200 million. Yes. And we do expect that to moderate and decline in the fourth quarter based on what we're seeing. I mean that's part of the challenge here is the very weak POA [ph] or sell-through demand is at the roof what's behind our guidance here. Over time, I think we can see some further reduction of that with the market recovery. But landing in the 60 days, 70 days DSI is normal that would be fine from an operating perspective as we look ahead. Srini Pajjuri : Got it. Thanks, for that. And then, Matt, your comment, obviously, the environment is not great. We've heard similar comments from some of your peers. But the magnitude of your outlook is definitely worse than what we've heard so far from your peers. So, I'm just trying to understand as to why there is such a discrepancy. I guess it could be just your conservatism or it's possible that some of your customers have a little bit more inventory and some of your components were maybe constrained a bit more that caused inventories to go up a bit more than versus what your peers are seeing. So just trying to reconcile that as to why you would be, I guess, much worse than some of your peers here given your comments that you're not losing any share? Matt Johnson: Yes. Sure, makes total sense. So multiple things, right? One is our percent of our Industrial & Commercial businesses pretty high as a percentage of our total revenue going into the second half of this year, and that's getting hit pretty hard right now. So, we're -- that's one element that -- we've already seen in the consumer piece, Industrial & Commercial is really unique for the second half of this year. Because we talked about the demand piece too in our customers and inventory I think we had a lot of customers who expected a lot of ramps, a lot of strong growth, and we're carrying inventory as such. And I think that those coming together, the way they have has hit us really hard. And like I said before, we have all these design wins that I think some of those have been delayed, some are not the levels our customers expected. All of that, I think, is unique to us, given that we've been accumulating designs at such a fast level over the last few years, so the predictability of being able to forecast for our customers even, the timing of those ramps, the magnitude of those ramps, I think, is challenging. And then there's other pieces that are more difficult to know and speculative, right? But we definitely have -- as I said earlier, we are sole-sourcing a lot of our sockets almost all of our sockets. And the primary silicon in a lot of those -- we're on mature nodes and customers worry about supply. I think the -- while our gross margins are strong, the ASPs are lower -- and we have customers that are planning on these ramps. So maybe they did accumulate more in anticipation of those, but that's unclear and difficult to know because it's hard to compare end customer inventory level. What we know is our ramps and design wins, we have confidence in those, the variability is on the timing. And we know that our customers are carrying more than they want and they're working that down. But that's temporary. So that's what gives us the confidence on the other side of that. But I really think the confluence of all those things I mentioned are what's hitting us and unique to us in Q4 in the second half in general. But all those things can be true and don't change. Those fundamental pieces on the other side that the growth potential, market position, share gains, the potential there is still just as strong. So, we just have to navigate this environment responsibly, that far we're doing what we're doing in OpEx and position ourselves to capture all this opportunity in business that's been secured on the other side of it. Operator: Our next question will be coming from Blayne Curtis of Barclays. Your line is open. Blayne Curtis : Hi, good morning, thanks. I have two questions. Just kind of curious for the December quarter, $85 million between the two segments, I'm just having a hard time the order of magnitude so large of the correction. I mean you actually saw a little growth in consumer. So, I think the view was going into this that maybe you're kind of getting through things and then you're seeing a decline. So, I guess curious what you think the trigger was. I mean, was it lead times coming in? Or just the customers just turned off? And what was the trigger for that? And then just of that $85 million, can you help us between those two segments a little bit more? It sounds like industrial is worse, but just any kind of like broad strokes would be helpful between those two segments. Matt Johnson: Yes. I mean, a quick answer is Industrial is definitely the bigger challenge because we're seeing that hit harder right now. Consumer has been hit all along. But you're absolutely right that we've seen a little bit of, let's call it, stability in Q3 on Consumer and that's going down again, Q3 to Q4. The team believes that seasonally, Consumer is stronger in Q3 in anticipation of holiday builds in that cycle, and we saw some benefit from that, but those levels obviously aren't stable and holding going Q3 into Q4. So that could be impacting the consumer side of it, but we're not sure we need a few more clicks before we can say for certain. Blayne Curtis : Got you. And then I want to ask on gross margin. I mean I'm assuming there's some fixed cost absorption that's not happening here. Just wondering if there's any written off inventory. And then if you can help us on the recovery of gross margin next year? John Hollister : Yes, Blayne. It's really two effects in the fourth quarter. There's not an unusual amount of obsolescence or write-offs that are contemplated. But we are seeing both with the sharp reduction in revenue in Q4, an oversized concentration effect of customer and product mix on the downside. That's one leg of it. But the thing I mentioned and what you mentioned is also a big piece of it that we just have fixed that is being absorbed over a smaller revenue base. We do anticipate with recovery in the market that gross margins would revert back to what we experienced in the third quarter and as we move into first quarter and second half of 2024. We think this is anomalous, what we're seeing in the fourth quarter 2024. Blayne Curtis : Thanks. Operator: Our next question will be coming from Joe Moore of Morgan Stanley. Your line is open. Joseph Moore : Hi, thank you. I wonder if you guys could address like-for-like pricing. You saw the prices go up the last couple of years when foundry costs went up. Are you seeing any change there? And if you're not, I guess, to the extent that you're thinking about next-generation design wins, you're building your pipeline, do you see more price competition for those new sockets? Matt Johnson: Yes. A couple of comments, Joe. This is Matt. Yes, what we've seen is the market kind of return to pricing behavior that is typical for this type of market and really, I'm going to call it typical of pre-pandemic and now kind of post-pandemic. So, an easy way to think about it is the price pressure is really on design wins, more than anything, as you pointed out, not on our existing business. That existing business tends to cross thousands of designs and customers tends to run as it does. And where we see kind of the leading edge of price pressure is on those design wins, which, as I said, are at record levels last few years, including this year, including Q3. And what we're seeing there is price pressure that is typical, not anomalous and we are still winning at an accelerated pace. Joseph Moore : That's helpful. Thank you. Operator: And we have a follow-up question coming from Tore Svanberg of Stifel. Your line is open. Tore Svanberg: I just had two quick follow-ups. First of all, I'm back to the run rate. So, if we go back to Q1 of '21 before you had obviously very strong growth through the pandemic years, the revenue run rate was around $158 million, if I'm not mistaken. I understand sell-through is deteriorating. I understand there's cyclicality about inventory and so on and so forth. But it would just seem that a number around that level is probably where the consumption is of your business. Just wondering if you have any comment if you think that, that is completely off? Or could that potentially be in the ballpark? Matt Johnson: The only thing I understand, Tore, this is Matt, the logic, and the approach. The only thing I'd add or say and is the Think of the design win momentum and share gains over that time frame. So even if you consider the entire pandemic as a build of inventory, which we don't believe that, that's all it was. Even if you did, there's gains and stronger business underpinning that exiting than entering. So that's an important component to add to your question. Tore Svanberg: That's great perspective. And the second question is, and maybe moving away from some of the near-term challenges here. In the past, you talked about some new product cycles. Obviously, you mentioned Series 3, but there's also smart retail. There's your Wi-Fi business. You did talk a little bit about the India smart meter business. But could you give us an update on any -- some of these newer businesses that are supposed to start ramping? Matt Johnson: Yes, sure. Yes, Wi-Fi -- so let me step back. Big picture, we talked about an increased focus in Bluetooth. No change there. We're incredibly happy and excited with the progress we're making there. We are gaining share in Bluetooth and that continues. Wi-Fi earlier on in that investment and that initiative. But one of our fastest-growing areas this year and moving forward. So that's exciting progress as well. When you look at it by segments, we talked about digital retail, shelf labels, continues to see good progress there. We just, in our prepared remarks, mentioned the metering space, which we've always had an incredibly strong position, and that's gotten stronger. And there's a lot of rollouts and tenders there that are going to give us some lift not just starting next year, but also for quite a few years. We've talked about health care, Life as an increased focus. And we've made a lot of progress there, some of that, which we just shared in the prepared remarks, with Dexcom, which we're excited about. And another area that hasn't come up, but it's worth mentioning, our position in Matter, and the progress in Matter is exciting and going well also. And simply said, for those who aren't familiar, one of our historically strong positions has been at 15.4 and 15.4 is getting pulled into the mainstream with that. That's why over 80% of the certifications in Matter are coming from Silicon Labs. And you're seeing Matter get pulled into the mainstream. You saw the iPhone -- latest iPhone 15 Max supporting thread, which is great and that will help pull Matter more into the mainstream and end products where we're incredibly strong. So, all those fundamental, end markets and trends are going favorable. We just have an ugly end-market environment and inventory situation that we got to work through to see all the goodness of those other areas coming through going forward. Operator: This concludes the Q&A session for today. I would like to turn the call back over to Giovanni for closing remarks. Please go ahead. Giovanni Pacelli : Thank you, Lisa, and thank you all for joining this morning. This concludes today's call. Operator: Thank you all for joining. You may all disconnect.

Operator: Hello. My name is Sarah, and I will be your conference operator today. Welcome to Silicon Labs Second Quarter Fiscal 2023 Earnings Call. [Operator Instructions]. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli : Thank you, Sarah, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our second quarter financial performance and even recent business activities. We'll take questions after our prepared comments and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website. I'll now turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks, Giovanni, and good morning, everyone. Despite a challenging market environment, Silicon Labs' team delivered solid second quarter revenue and non-GAAP earnings per share in line with our guidance. However, during the quarter, we saw further market erosion, Broad demand weakness and elevated customer inventory continue impacting both of our business units, although our industrial and commercial business showed resilience, achieving record revenue in the quarter. This demonstrates the strength of our position and the favorable impact of our strong design win momentum. So far, in the first half of 2023, our design win pipeline is up 23% year-over-year. Looking ahead, we've continued design with production ramps in the second half of the year that will offset the ongoing market headwinds at some level. However, how much is difficult to call, given the dynamic market environment. It's important to note that even with these short-term market challenges, we are confident in our mid and long-term revenue growth potential, and we are excited by the continued strong design win growth and an expanding opportunity funnel, which now stands at over $18 billion, up 17% over the same time last year. I'll now hand it over to John to cover the financials. John Hollister : Thanks, Matt, and good morning. Second quarter revenue was $245 million above the midpoint of our guidance range and down 7% year-on-year. ASPs in the quarter declined slightly on a sequential basis. Unit volume was up sequentially. During the quarter, we saw strength in the Industrial and Commercial business unit, which ended at $165 million, up 15% from the same period of last year. All 3 segments of our I&C business performed well. In the Industrial segment, the connected equipment category was strong. In the commercial and retail space, we had a strong quarter. In electronic shelf labels and in smart cities, we saw strength in smart metering. The Home & Life business unit declined 33% year-over-year to end at $80 million. High levels of customer inventory continue to impact shipments for Home & Life. Geographically, during Q2, we saw the greatest strength in Europe, which was up 14% year-on-year. Revenue for APAC and the Americas was down year-on-year. Distribution revenue was 77% for the second quarter. That mix is down from the first quarter due to stronger shipments in Q2 to direct customers. DSI was stable in Q2 at 79 days. Our largest customer was under 4% of revenue in the quarter and our top 10 customers were about 24% of revenue, consistent with our historical results. Non-GAAP gross margin ended lower than expected at 58.9% on product mix. There were no price increases in the quarter, and we experienced no major changes in manufacturing input costs. The sequential decline in gross margin from the first quarter is largely due to the onetime effect of price increases at the beginning of this year, combined with product mix. Non-GAAP operating expenses were lower than we expected for the quarter, ending at $104 million. This was primarily due to lower variable costs based on our expectations for the year combined with specific favorable items such as lower fringe expenses in the quarter in the United States. Non-GAAP operating income was $40 million or 16.3% of sales. Our non-GAAP effective tax rate was slightly higher than we expected, the requirement to capitalize research and development costs for tax purposes continues to have an inflationary impact on our tax rate. We estimate that a normalized long-term non-GAAP effective tax rate without the effect of the R&D capitalization requirement would be in the high teens. Earnings per share on a non-GAAP basis ended slightly above the midpoint of our guidance range at $1.04, primarily on the upside in revenue and favorability in OpEx. On a GAAP basis, gross margin ended at 58.7%. GAAP operating expenses were $127 million. Our GAAP pretax income was favorable to the midpoint of our guidance range by around $3 million. However, due to the capitalization of R&D expenses and the timing of forecasted income for the year, our GAAP tax expense was unfavorable by about $5 million. Accordingly, GAAP earnings per share were $0.33 for the quarter, slightly below our guidance range. Turning on to the balance sheet. We ended the quarter with cash and investments of $506 million. Our accounts receivable balance grew in the quarter to $98 million, with days sales outstanding of 36 days. We added about $12 million in net inventory in the quarter to a total of $146 million as we continue to leverage the softer market to accumulate strategic die bank based on the strong design win momentum we've seen for the past few years. Inventory turns ended at 2.8x. During the second quarter, we finalized the redemption process on our 2025 convertible notes. As expected, we funded the par value of the notes, which was $535 million in cash. We settled the in-the-money component with shares, the total shares issued around 900,000. We were also active in the buyback market in Q2, executing about $184 million, retiring around 1.3 million shares. The net result of these activities in the quarter was a reduction of our share count our fully diluted shares outstanding in Q2 ended at just under 33 million shares, which is an all-time low share count since our IPO. On July 20, the Board of Directors authorized an incremental $100 million purchase of the company's common stock, bringing the total amount authorized through the end of 2023 to $116 million. At this point in time, we have fully deployed the excess capital of the company from the divestiture of our I&A business 2 years ago and we are in a normalized pattern for capital deployment. To partially fund these various cash outlays in Q2, we drew $80 million from our revolving credit facility, and we also renewed the facility with the existing banking syndicate for a new 5-year term. Overall, the balance sheet remains very healthy, and we have ample financial capacity to execute the business strategy. Before I turn the call back over to Matt, I will cover guidance for the third quarter. As Matt indicated in his opening comments. Over the past several weeks, we have experienced very low levels of bookings. This has impacted both of our business units. Accordingly, we are guiding revenue for the third quarter in the range of $190 million to $210 million, and we expect both business units to decline in Q3. Given the uncertainty in this market environment, we are temporarily expanding the range to plus/minus $10 million from the midpoint. We expect non-GAAP gross margin to be slightly higher in the third quarter at 59%. We are taking additional interim steps to control our OpEx in the third quarter. Accordingly, we are expecting non-GAAP operating expenses in the third quarter to decline to $95 million. We expect the non-GAAP effective tax rate to be approximately 23% in the third quarter. The lower tax rate includes a onetime discrete benefit of approximately $3 million related to a pronouncement from the IRS last week, delaying the effectiveness of certain unfavorable rules related to foreign tax credits. Our non-GAAP earnings per share is expected to be in the range of $0.45 to $0.73. On a GAAP basis, we expect gross margin to be 59%. We expect GAAP operating expenses to be approximately $120 million, and we expect GAAP rates per share to be between a loss of $0.08 and $0.20 income per share. I will now turn the call back over to Matt. Matt? Matt Johnson: Thanks, John. Disciplined execution remains a top priority as we navigate the current environment. As John mentioned, we've taken deliberate but temporary actions to appropriately manage expenses in a way that doesn't impact our mid- or long-term potential or ability to service all the new business we've been secured. We are confident that our Series 2 portfolio of products is capturing market share, and we have invested in securing strategic inventory ahead of our expectation for a market recovery. In the second quarter, we continued to expand our industry-leading Series 2 portfolio products. We announced a new bill band FG-28 SoC which addresses key customer needs for developing and deploying low-power wide area networks. The FG-28's dual-band capabilities allow for multiple protocols on a single design, including radios for Bluetooth low energy and sub gigahertz, which supports device communications over 1 month, and enables new edge applications in growth segments like smart agriculture, smart cities and neighborhood networks like Amazon Sidewalk. The FG-28's built into AIML hardware accelerator is the industry's first and a sub-gigahertz SoC, bringing artificial intelligence to machine learning to the edge. The FG-28 also offers energy efficiency ideal for battery-powered and nodes as well as Silicon Labs secure vault support, allowing designers to choose the level of security they need for their applications. Within our product portfolio, a standout feature is our industry-leading security and our PSA Level 3 certification serves as an advantage for Silicon Labs. The recent announcement from the bind administration about the development of a cybersecurity certification and labeling program, coupled with the commitment of numerous device manufacturers and retailers to enhance cybersecurity and their products. positions us favorably to offer the most secure connectivity solutions in the market. We have already seen customers proactively adopting higher levels of security for the products, and we anticipate a growing trend of more customers all in so. Also in the quarter, we opened registration for our fourth annual Work with Conference, which attracts over 8,000 IoT developers every year. A virtual conference will be held on August 22, '23 and will feature more than 40 in-depth technical sessions covering every major IoT protocol and ecosystem. Conference is incredibly popular with our developer community will come away with practical knowledge and skills to accelerate their product development. In my opening keynote at the conference, I'll share a preview of Silicon Labs' next-generation Series 3 platform. The Series 3 platform represents a major leap forward for the IoT and our already industry-leading Series 2 platform. The developer conference will also feature a keynote from our CTO, Daniel Cooley, who will address what is needed to achieve the full potential of cloud-connected embedded computing and the challenges that lie ahead. Silicon Labs’ Senior Vice President, Manish Kothari, will also showcase real-world examples of the IoT being harness for the greater good, such as caring for the planet, caring for our health in other novel use cases that we never would have imagined a decade ago. In May, we hosted a highly successful grand opening event for our connectivity lab at our Boston site, bringing together a wide range of important customers and industry partners. Our connectivity lab serves as a cutting-edge simulation of a modern smart home, showcasing a diverse array of IoT devices, applications, ecosystems and networks. With the aim of existing developers and expediting the launch of their matter products, the lab offers an ideal testing environment and allows them to assess prototypes within real-world scenarios accommodating a wide range of protocols and device brands. This invaluable resource empowers developers to refine their products efficiently, ensuring seamless integration into the market. In closing, we are focused on maximizing the significant mid- and long-term growth potential ahead of us despite the current industry challenges. Our strong market positioning and incredible product portfolio allow us to capture this opportunity while maintaining profitability. Despite short-term headwinds, we are confident in our ability to outperform the market through the effective execution of our long-term strategic plan. I'll now hand it back over to Giovanni for Q&A. Giovanni Pacelli : Thank you, Matt. Before we open the call for Q&A, I'd like to announce our participation in 2 upcoming conferences, Keybanc Capital Markets Annual Technology Leadership Forum in Vail on August 7 and Citi's 2023 Global Technology Conference in New York City in early September. We'll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to 1 question and 1 follow-up if needed. Operator: [Operator Instructions]. Our first question comes from Matt Ramsay with TD Cowen. Matt Ramsay : I guess for my first question, I'm just trying to -- I guess, first, I know you guys usually don't guide specifically by segment, but just given the delta and the outlook John, if you could maybe share the 2 segments and what you're embedding in the guide? And I guess the real part of the question is the Home & Life segment got up to $125 million a quarter, give or take, at the peak and it's pretty clear now in retrospect, that was maybe over-shipping a bit. And you're going to be under shipping, I assume, sell-through for a bit here to try to get all this inventory cleared out. So if you just kind of assess the end markets that you're serving in that home and life segment, any sense as to what sort of a steady state sell-through for your end markets looks like in that segment, a normalized revenue once all these perturbations on the inventory get sort of back to normal? John Hollister: Yes, Matt, I understand. It's hard to call it since where we are right now. We do think there's excessive inventory in the channel as you indicated. And I think that our market is in a period of digesting that and clearing a dollar. Suffice to say, over the mid and long term, as we indicated, we feel good about the business. I see a 20% long-term CAGR as the goal that we have for ourselves to see that as a very realistic outcome. As we talked about in the past, the industrial and commercial business has a market that in and of itself is growing slightly higher than the home online business over time, and we expect that trend to persist. But we do have some very exciting new wins and applications in the life business, in particular, like in that, for example, [verbal] medical applications as well. Matt Ramsay : Just to follow up there, John. Anything on the guidance split between the segments? John Hollister: It's roughly split, Matt, in terms of what we're seeing sequentially for the third quarter. Matt Johnson: The only addition I'd add to that, Matt, and what John said is as we've been saying, we're not immune to macro and we're definitely seeing that here, but we do expect that over time, that will definitely perform better. And that's what we're seeing in industrial and commercial. And that's what we saw in Q2. but we're definitely seeing each of those end segments have their own unique experience. Home definitely most impacted with that consumer exposure, Life showing itself to be, I think, more resilient. And then within Industrial and Commercial, overall, performing stronger than Home and Life, but still within, it depends. The broad industrial is softer are softening, I think, than the other spaces where you see more strength on big trends within those like metering continuing to grow, ESL continuing to grow. So each of those big picture, home and life weaker industrial commercial stronger, both being impacted overall by the market. And then underneath the next level, it varies by the subsegments, if you will. Matt Ramsay : Got it. Matt, maybe a bit longer term, you're going to be ramping all the Series 2 stuff, and you talked about strength in design wins. So what I'm trying to get an idea about is the inventory burn that needs to happen of current generation and maybe legacy products versus how quickly the design wins for the new programs can ramp and really contribute to revenue and what that balance looks like. So just kind of time to revenue across the different segments for the Series 2 platform as you've secured design wins? Any color there would be helpful. Matt Johnson: Yes, sure. So a few things. The Series 2 ramp has already started. So I think that's important. If you step back and look at the opportunity funnel of $18 billion, it's the driver of that funnel growth over the last few years easily. If you look at our design win performance over the last few years, it's -- Series 2 has been the driver of that design win growth. And our revenue growth over the last couple of years, Series 2 has been the biggest contributor to that growth. So it's important to recognize that's already happening. That being said, it's still very early days in that rank. If you look at the funnel, if you look at the design wins, we're just at the beginning of that cycle, and there's many, many more years to come of that growth. So I think it's important to frame it that way. It's already started. I think one of the difficult things that we're seeing is as we keep saying, we're not immune to macro but we think we can do better it's hard when we have these different ramping businesses and design wins ramping and the soft macro environment. And to synthesize those two things into the picture, that we're seeing. I think the two things that give us the most confidence are: one, if you look back over last year and even first half of this year, I think we've performed very strong relative to other IoT businesses out there. And if you look at that design win performance, even this year in the first half, up 23% year-over-year versus last year, which was an incredible year for design wins. So that gives us confidence that not only do we -- have we been able to do that, but it gives us confidence we'll be able to continue to do that. It's just tough to reconcile with the current market environment that we're seeing right now. Operator: Next question comes from Gary Mobley with Wells Fargo Securities. Gary Mobley : Bear with me as I set up this question. Ultimately, what I'm trying to understand is by how much we're expecting revenue to trend below the long-term trend line. And so as I look at your distribution inventory, it's about 29 days above the, I believe, your long-term target, which is about -- translates into about $50 million in revenue headwind about the same amount in terms of the expected sequential revenue decrease. And so my question is, is that expected sequential decrease in revenue in the third quarter, primarily rightsizing the distribution inventory? Or does it also have to do with just generally weak booking trends? Matt Johnson: I'll start. I think you should add, John. Thanks, Gary. So a quick answer. It's more than just inventory. It's a market as well. As we were getting towards the end of Q2, we just saw bookings really slow, and there's just so much, I guess, uncertainty with customers visibility is low. So there's also a market component to that as well. But the other thing I'd add that's important, the DSI or those days of inventory, they're higher than historical for us but also not alarming for us either. We’re going into ramps that are significant substantial for us. They are not just one quarter of ramps, but it's quarters and years of ramps. And if anything over the last few years has taught us that we need to be better prepared for that. So while it is higher than historical and we're not trying to drive that up by design, we definitely -- it doesn't scare us that it's at a higher level than historical given the confidence we have in future ramping business. John, anything you want to add? John Hollister: Yes, just one quick point. It's a point of clarification perhaps. But Gary, as we refer to bookings, we're talking about end customer demand. So that's really what we're referring to when we refer to weak bookings to round out Q2 and so far here in the third quarter, we are referring to end customers. Gary Mobley : Okay. With respect to some of the levers on the cost side, specifically OpEx. How much of the reduction -- recent reduction in operating expenses is structural or permanent? And how much is variable? Matt Johnson: John, you go first. John Hollister: Yes. Sure. Yes. Gary, it is variable and temporary. We did take some limited structural actions earlier this year. But that is not comprehended at the moment. What we are referring to for third quarter and second half is discretionary spending. We have frozen hiring. Our executives are reducing their base pay, and other similar items like that, but that is -- that should be considered temporary in nature. And as we hopefully get through this downturn and start to see more of an upswing heading into next year, we would revert those items back. Matt Johnson: Temporary in nature and temporary by design. We keep saying the design wins that we're ramping we need to be able to support them. That's why everything we're doing is setting ourselves up for that ramp, whether it's strategic inventory, having the resources to support these ramps. We don't want to do anything that diminishes that on the other side. Operator: Next question comes from Blayne Curtis with Barclays. Blayne Curtis: Just -- I had 2. I just want to understand this sitting on industrial, like home and life has been correcting now it's the fourth quarter it always as kind of to work through things. Industrial being down the substantial double digits. I was kind of curious if you could just comment on the inventory position in Industrial and Commercial? And is this a start of a longer correction? Matt Johnson: I would characterize it a little different on the Industrial and Commercial. We've seen and we've said this multiple quarters, industrial and commercial has definitely not been as impacted as home in line. I mean that's clear. but it has been impacted. And it's been impacted consistently even, yes, we had a record quarter last quarter. That quarter would have been way better because it has designs ramping and things that have been helping it have a record quarter, but it's still diminished from what its should have been and from wasn’t for this market environment. So I think what’s going on is not a new phenomenon, its actually been long March and we're continuing to see that going in Q2, I'm sorry, Q3. Blayne Curtis: Then I wanted to ask on the gross margin. So in June, top line was okay, but actually, you had a higher mix industrial/commercial margins, I think, were worse than your guidance. Just trying to understand, I know you mentioned the timing of pricing and cost, but I think that was something that you should have contemplated, I guess, when you gave the guidance. I'm just kind of curious what changed in June? And then when you look at September, huge revenue downfall, but the margins are flat. So can you walk me through that? And is there any further headwinds. Does it take some time for the higher-priced inventory to flow through. Can you talk about what happen in June and kind of any perspective beyond September for gross margin? John Hollister: Sure, Blayne. Yes, the explanation for the sequential decline was referring to the price increase activity. The variation against the guidance was really a result of product mix -- and in terms of specifically what we shipped out in the quarter, certain products have lower gross margins than others, and there was a slightly higher mix of that in second quarter stable trend in third quarter. But the top little comment here is this is very much in line with our expectations and long-time commentary that over time, we should expect to see some modest erosion of gross margins, and that's a message that we haven't talked about. Matt Johnson: Yes. I mean it seems like a long time ago now when we're in the supply chain crisis and we were getting pressure to increase margin models and these types of things, and there was some commentary in the industry that this is new normal. Our view was it was temporary, and that's what we at least are experiencing playing out that if anything, the easiest way to conceptualize things is they're back to normal now on just normal pricing pressure that we saw pre supply chain crisis, and that's what we're seeing now. And the supply chain prices was the anomaly. I think if there was a way to look at it. and it's steady, if there's no step functions or anything like that going on. And the other dynamic that's worth pointing out that is substantial is the strength of the product portfolio and Series 2 that we keep talking about. We're going to be announcing Series 3 in a few weeks. But Series 2 is still early days in this ramp and the strength of this product cycle. And I just mentioned the FG-28, a new part that came out. Just to give you all some perspective, that part is -- it's a solution that integrates both sub-gigahertz and Bluetooth, and it brings new to industry capabilities, AIML capability, industry-leading security that has an incredible effect in helping us navigate the market while there is normal industry price pressure. John Hollister: Blayne, this is John, to get one more comment. The point of emphasis again is that we see ourselves delivering a premium gross margin to the IoT market that just felt it was important to like that. Matt Johnson: That hasn't -- that's been consistent throughout and hasn't changed. Operator: Question comes from Srinivas Pajjuri with Raymond James. Srinivas Pajjuri : John, just to clarify, the -- I guess, the 7 to 9 days of DSI, are you thinking that's going to be the new normal? Or do you expect that to come down a bit over the next few quarters? John Hollister: Yes. Srini, we'll monitor that over time here. Certainly, it may come in. It may go up a little bit. We're just sponsoring that and not really I do know as Matt said, not overly concerned about where that is setting. Our focus is more on the end demand, and that's really the basis of our commentary on the state of the market. Srinivas Pajjuri : Okay. Got it. And then, Matt, maybe you can talk about the environment. It looks like the units are actually up sequentially. So obviously, you said demand is weak. Is it more of a pricing commentary? Because in a cyclical correction, we tend to see units come down quite meaningfully. So I'm just wondering, as we look through the September quarter, what does your guidance, I guess, contemplate in terms of units and ASPs? And how are you thinking about just the unit correction over the next, I guess, a quarter or 2? Matt Johnson: Yes. I think. But the easiest way to think about it is we're now in a demand-challenged environment, -- so that's the primary driver. We just mentioned the pricing dynamics are pretty much as we expected, and we're not seeing anything new or anomalous there. So it's really a story of end demand, which is really a story of units ultimately that we're navigating. If that helps frame it. Srinivas Pajjuri : Yes, that's helpful. And then maybe 1 last 1 for me. Matt, obviously, you've been in the market for a few quarters now with your Wi-Fi solutions. And just curious if there's any update on the progress there? How you're thinking about that particular product line. Matt Johnson: Yes, sure. So I guess we didn't mention that in the remarks, but if you go back a big picture, Quick answer is good and strong, and we're happy with the progress. Let me be clear, it's never big enough, fast enough. That's the world we live in. But ultimately, as we've said, we made a focus years ago to increase our focus on Bluetooth. We've loved our progress there, fastest-growing space for the company. We expect that to continue. We have the design momentum to continue that. And then we added the Wi-Fi piece. And now we have the benefit of Wi-Fi being one of our stronger growth areas as well. So we are seeing the progress that we wanted to see there. Even with the market environment that we're in, we're still seeing strong Wi-Fi performance, and we're happy about that. Operator: Our next question comes from Jeremy Kwan with Stifel. Jeremy Kwan : Yes. Sorry, can you hear me? Matt Johnson: Yes. Jeremy Kwan : Great Yes, I guess a couple of questions. First one, I guess, if you look at the new cyber security labeling, what kind of impact do you see or when -- is this something that is expected to impact over the next couple of months? Or when do you see customers really kind of clamoring for this type of solution. When can we expect to see more of an impact on the top line here from that initiative? Matt Johnson: Sure. Quick answer is it will be a while. I'd love to say short term, that would be awesome. But I don't think that's realistic the way these things usually play out. For anyone who's not familiar Biden administration cybersecurity labeling program really creates, for like better terms, some standardization or end markets, for consumers and companies around securing on these devices, which is exactly what you'd want to see and what's needed. So to answer the question directly, I think you're going to see this take time to ramp as the industry starts to deploy it, you're talking quarters and years of impact here. And easy way to frame the positioning, we've been betting, focusing on security now for a long time. have the strongest portfolio and capability out there in the industry, and this is good for us. This serves us well. And we're already known for this for our customers. We win business because of this by our customers. And this will only help. It gives us a tailwind, but it won't be short term as much as I'd like it to be. And it will be a long game. John Hollister: Yes, Jeremy, this is John. Just -- it's a good example, once again of silicon labs advancing the state of the art is in an important area for IoT and being known as a thought leader or space. Matt Johnson: I would think of it the same way as think about security. Years ago, we were offering these features and capabilities and some people are scratching their heads. Now we win designs because of it. Look, the administration is updating policies to help enable these things that are already built into our inherent capability of our entire portfolio. think the same of AML. We're introducing capability in devices that today, some people say, how is that going to -- that is the same concept just a few years later down the road, where you're going to see multiple applications and devices, taking advantage of these processors and their efficiency to enable new capabilities on the edge. So same way, just further down the road. Jeremy Kwan : Great. It's very helpful. Maybe just a quick question on geographic expectations. It sounded like Europe was quite strong in the second quarter here. How do you see this playing out in the third quarter? Is there any areas of relative strength or weakness that you can call out? John Hollister: Sure, Jeremy. I think the first thing to note, and we did not talk about this in the prepared remarks, is China. Our China revenue, again, has been weak and impacted by the Chinese economy in the second quarter [indiscernible] 10% level for the full first half of the year. And we have not seen signs of recovery there. So that said, the weakness we're seeing really is global at this point. There's a widespread overall weakness in demand, and it's not isolated to a particular -- Operator: [Operator Instructions]. Our next question comes from Nick Doyle with Needham. Nick Doyle: Nick Doyle for Raj Gill. I just wanted to focus on the September margin guide again. and just kind of ask more directly how you're able to keep the margin declining from declining when we're seeing such a sequential revenue drop? And is that an indication of mix or ASP strength? John Hollister: Yes. Sure, Matt, it's John. As a fabless company, we really operate strictly on a variable manufacturing cost model. We do have a limited amount of internal fixed costs, but it's pretty modest compared to a full ban of chip. So best to say that our gross margin really is not influenced by the revenue level that's variable based on what we're seeing at that point in time. That's really the main explanation to your question. Nick Doyle: Okay. Got it. For the bookings commentary, can you just expand on which markets or applications you're seeing more of that slowdown? And then also, do you think the customers are maybe hesitant to order related to this new intra-quarter cancellation policy? And could that be a positive in terms of over-ordering on the next up cycle? Matt Johnson: Yes. I'll start, and it would be good for John to add as well. The bookings pattern right now is pretty broad. You have to remember; we don't have any 1 or 2 major customers that make up big chunks of our revenue. I mean less than 5% for our biggest. And what we're seeing is broad across customers brought across the channel broad across segments and geos. It's really difficult to distill out or tease out a clear pattern there. What you can see is a clear pattern is a customer their certainty, their visibility, their confidence is not strong in terms of current demand and their ability to work through inventory. I don't think their confidence in the long term is shaken, but they're trying to navigate this as well and ordering with very short lead time. I mean, very short. Just -- the easy way to think about it is our current backlog position has now reverted all the way back to pre-supply chain pre-pandemic where in that pre-environment, tons of backlog work to navigate supply it. Now we’ve gone all the way back to that, but ordering with even shorter lead times because of their lack of visibility and certainty as well. So I know it doesn’t help answer what you’re looking for, but that’s what we’re seeing. John Hollister: Yes. And second part of your question, Mig, is not really – I don’t see the policy affecting things overall. Our approach is to try to gain as much visibility and confidence we can short term. But the customers are managing their inventory levels and their own experience over a longer horizon trying to position the home. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Giovanni Pacelli for any closing remarks. Giovanni Pacelli : Thank you, Sarah, and thank you all for joining this morning. This concludes today's call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Hello. My name is Betsy, and I will be your conference operator today. Welcome to Silicon Labs First Quarter Fiscal 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Betsy, and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson, and Chief Financial Officer, John Hollister. They will discuss our first quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of the Silicon Labs website. I’ll now turn the call over to Silicon Labs’ Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks, Giovanni, and good morning, everyone. Last quarter, we discussed the success of our strategy to focus on the IoT market, strength of our position to scale and lead the industry, our accelerating design wins and significant market share gains. Our team continues to execute well. We posted solid results in the first quarter, driven in part by the performance of our Bluetooth portfolio, which was up 65% year-over-year and 11% sequentially. We also drove a record level of design wins in the quarter, up 36% over the design win level from Q1 of last year. As anticipated, weaker global market conditions are contributing to near-term softness in our home and life business. Our industrial and commercial end markets are not immune to market weakness, but are demonstrating much more resilience. Despite the short-term volatility, we remain confident in our ability to outperform the market, underpinned by our breadth of our product portfolio, the depth of our wireless expertise and our singular focus on wireless connectivity for the Internet of Things. I'll now hand it over to John to cover the financials. John? John Hollister: Thanks, Matt. Revenue for the first quarter met expectations at the midpoint of our guidance range at $247 million. As expected, we saw sequential declines in both businesses. Units were down sequentially in the quarter. Our ASPs benefited from favorable product mix and modest price increase activity. First quarter revenue for our Industrial and Commercial business unit was $151 million, up 19% from the same period of last year. We saw year-over-year growth in Q1 in all of our major INC subcategories: industrial, smart cities and commercial with revenue from smart metering being a particularly strong growth driver, up 39% year-over-year and 16% sequentially. Home & Life revenue in the first quarter was down both sequentially and year-over-year, due to a relatively weak demand environment for Smart Home products. We continue to hear from customers regarding high inventory in the consumer space, and we expect that to normalize as customers work down their inventory balances. Despite the overall weakness in the home end markets, we continue to see durability in emerging applications within life, particularly affordable medicine. Geographically, during Q1, we saw the greatest strength in Europe, which was up both sequentially and year-on-year. Revenue was down for both the Americas and APAC regions sequentially. Our largest customer was about 3% of revenue, and our top 10 customers were only 18% of revenue, representing the broad-based nature of our customer base. Distribution revenue in Q1 was 83% of our total sales, and DSI grew in the quarter to 79-days as POS at some of our distributors was less-than-expected at the end of the quarter. We expect DSI to decline modestly in Q2. Non-GAAP gross margin for Q1 was 62.5% above our model and reflecting the modest price increase activity at the beginning of the year. These price increases were related to further input cost increases like as in Q1 of last year, though more targeted and smaller in magnitude. Non-GAAP operating expenses ended favorable to our guidance at $107 million as we reduced our hiring rate and dialed back certain flexible outside services costs. Non-GAAP operating income ended the quarter at $47 million or 19% of revenue, consistent with the fourth quarter despite lower revenue. Our non-GAAP effective tax rate was slightly higher-than-expected due to the geographical mix of income at 25.6%. Non-GAAP earnings per share ended at $1.12. On a GAAP basis, gross margin was 62.3%. GAAP operating expenses were $134 million and GAAP operating income was $20 million or 8% of sales. Stock-based compensation was $17 million and amortization of intangible assets was $7 million. GAAP earnings per share ended at $0.41, in line with expectations. Turning now to the balance sheet. We ended Q1 with $1.2 billion in cash and investments. During the quarter, we used $13 million in operating cash, primarily driven by growing our internal inventory to $133 million with turns at quarter end, declining to 2.8 times. As I commented last quarter, we have invested in strategic growth in our inventory balance to ensure we have the supply chain capacity to deliver on our growth objectives. During the quarter, we executed $14 million in share repurchases. We continue to have approximately $200 million in share repurchase authorization and intend to be opportunistic in the execution of our share repurchases. In Q1, we also issued a redemption notice on our outstanding 2025 convertible notes. We intend to settle the par value of the notes, $535 million in cash and any in the money value assignable to the notes and shares. The redemption process will be completed on June 20. We continue to have a credit facility in place at $400 million to fund strategic liquidity needs of the business such as M&A. Before I turn the call over to Matt, I'll cover guidance for the second quarter. We expect revenue for Q2 to be in the range of $238 million to $248 million. As previously described, our revenue estimate comprehends a modest reduction in distributor inventory. In Q2, our goal is to optimize the channel for efficiency and flexibility, while driving towards maximum success in customer ramps for both direct customers and a broad base of distribution customers. At the same time, we are seeing that supply and demand continue to normalize, and we are no longer facing severe capacity restrictions across process nodes. We expect non-GAAP gross margin to be between 60% and 61%. The decline in gross margin from Q1 is expected due to the effect of pricing variations similar to what we experienced last year at this time. We expect non-GAAP operating expenses to be $106 million and non-GAAP earnings to be in the range of $0.98 to $1.08 per share. We expect the non-GAAP effective tax rate to be 25%. On a GAAP basis, we expect gross margin to be about 60%. We expect GAAP operating expenses to be approximately $131 million and GAAP EPS to be in the range of $0.35 to $0.45 per share. I will now turn the call back over to Matt. Matt? Matt Johnson: Thanks, John. We remain focused on disciplined execution as we navigate this time of economic uncertainty. We continue to deliver against our product road map, making excellent progress in expanding our Series 2 portfolio. This includes the new IT design for the smallest form factor IoT devices, the xG27 family and Bluetooth SOCs. The xG27 offers IoT device designers, energy efficiency, high performance, trusted security and wireless connectivity ideal for tiny battery optimized devices like connected medical devices, wearables, asset monitoring tags and smart sensors. The xG27 SoCs are helping developers build exciting new products while also simplifying their development processes, all while maintaining the low power and small form factor requirements for extremely small devices. We've also announced general availability of our flagship FG257 sub-gigahertz SoC, which is already being adopted for smart city applications and long-range deployments, including smart metering products that will transform India's electrical grid. In conjunction with the launch of Amazon Sidewalk, we announced the availability of our Pro Kit for Amazon Sidewalk, a comprehensive solution designed to simplify the development process, reduce costs and accelerate time to revenue for Amazon Sidewalk devices. As one of Amazon Sidewalk only three qualified hardware partners for developing Amazon Sidewalk devices, our Pro Kit provides all the necessary tools for developing high-volume, scalable IoT applications. It’s also designed to support the development of wireless IoT-based devices on Bluetooth and sub-gigahertz wireless protocols for Amazon Sidewalk. The Pro Kit for Amazon Sidewalk was awarded best in show embedded world in March a global conference dedicated to embedded computing. Silicon last CTO, Daniel Cooley, delivered to open a keynote at the conference, outlining our vision for a connected future and calling on the industry to join us in accelerating software development and securing products to two critical steps to achieve the full potential of cloud-connected embedded computing. In addition to the keynote, Silicon Labs speakers delivered 10 sessions at the event covering a wide range of topics, including Bluetooth, Matter and Machine Learning. Building on the success we have seen with Series 2, our design team is deeply engaged in developing a Series 3 platform with more than half of our design resources already dedicated to its development. We are employing the same strategy with Series 3, albeit at a much larger scale and fully expect it will be even more impactful to us and to the industry than Series 2. Silicon Labs has established itself as a leader in the IoT industry, driving the adoption of important wireless technologies such as Matter. Since the fall release of Matter 1.0. 80% of the Matter or a threat certified products are built with Silicon Labs SoCs. Matter will simplify the consumer experience by enabling interoperability among smart home ecosystems and devices. Looking ahead, wireless connectivity and the IoT continue to advance. While we navigate near-term volatility, we are encouraged by the expansion of our opportunity funnel, which is nearing $18 billion and the significant amount of greenfield design wins we have secured in newly emerging applications and use cases. As a team, we are committed to strong execution with a focus on managing discretionary expenses supporting [Technical Difficulty] and investing in the people and products that allow us to outperform the market and capture the tremendous growth potential ahead. I'll now hand it over to Giovanni for Q&A. Giovanni Pacelli: Thank you, Matt. We'll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question with one follow-up inquiry if needed. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Matt Ramsay with TD Cowen. Please go ahead. Matt Ramsay: Thank you, very much. Good morning, guys. I guess, Matt, I wanted to start out with a question just, sort of, how you're seeing the year. I think we talked on this call a quarter ago about strength in pricing. And I think some of John's commentary in the script relative to increased input cost, I think, would still support a pretty strong pricing environment for you guys, maybe you could confirm if you see that continuing through the year. But when we talked last quarter, I think you guys had talked about this year being a unit-driven year in terms of growth, just given the design wins that you had and the visibility that you had at that time. So I mean maybe you could help us square the circle with that and the commentary on some weakening end markets with the macro and the guidance that's much less than seasonal and down on a year-over-year basis? Are we still thinking about unit growth for the year. I know the last two years, you've had a really strong pricing year last year, a really strong unit year the year before that. So the drivers of the business on pricing and units would be really helpful. Matt Johnson: Yes, sure, Matt. So let me try to address each of those, starting with the pricing piece and units. For sure, the last few years have all been unit growth driven, but 2021 was a big unit year, 2022 wasn't as big had a bigger pricing dynamic, we still expect unit growth in 2023. On the pricing side, we definitely are seeing the pressure out there, which isn't new. And people ask us all the time about that dynamic. And maybe the easiest way to think about that is we saw maybe a temporary reprieve during the supply crisis where demand was greater than supply. But we've been consistent that market forces will prevail and that we didn't raise our model during that time, and we don't find to lower our model, we feel comfortable that we can navigate that. So no major changes there. We expect market forces will continue as they normally do. And we mentioned in our prepared remarks, we're seeing strong design win growth that gives us a good indicator of what future pricing is going to need to look like. On the overall dynamics, the consumer piece is tough to call, right? There's a lot of uncertainty and volatility out there on the consumer side, so definitely not calling the bottom or anything like that. I think what we have confidence in is that design win momentum we've been consistent about and the share gains we've been consistent about. We have a lot of ramps coming in the second-half of the year. So what the consumer piece will be is difficult to see right now, but what we know is on top of that, whatever that ends up being, we have those ramps and those design wins and share gains that should position us to do better than whatever the end market ends up being. Matt Ramsay: Got it. No, I appreciate there's a lot of moving parts, Matt, and thanks for the color there. As a follow-up, I wanted to ask about a particular end market. I remember two, three years ago, the smart meter build-out in the U.K. was a pretty material driver for the company. And Matt, maybe you can give us a little -- a few anecdotes about your position in India what kind of partners you're working with, the size of the wins that you have? Obviously, everybody can figure the population differences between what's going on in India and what's going on in the U.K. So I'm just trying to calibrate the position and the potential of that build-out given how material it was in a much smaller geography a few years ago. Thanks. Matt Johnson: Yes, sure. So for anyone not familiar, we've always had a strong position in metering as a company. And we see no change in that. I think an easy way to characterize it is it's only gotten stronger over the last few years. So while we did the -- continue to do the build out in the U.K. What we've seen is the desire to replicate that in other geos globally. And we do see that in multiple geographies all over the world, and we see ourselves as very well positioned in each of those. The one we called out today is in India, where over the next few years, India has a substantial amount of tenders that are out there that, as a company, we are very well positioned to serve. And with multiple positions with multiple suppliers and the technology that we have helped drive for the industry is a pretty fundamental piece of the rollout in India. So we're very excited about that. It's early days, but that should be a multiyear growth driver for us in India, as well as other geos where smart metering, whether it's water, electric or gas continues to be deployed. Matt Ramsay: I’ll jump back in the queue. Thanks very much guys. Matt Johnson: Thanks, Matt. Operator: The next question comes from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: Yes. Thank you. Yes. Let me start with, Matt. Matt, you talked about Series 3 and you mentioned same strategy, but a much larger scale. I was hoping if you could elaborate a little bit on that especially as we start thinking about ASPs, and I'm not asking about pricing. I'm not asking about more value, more ASP. So if you can elaborate on that comment about scale, that would be great. Matt Johnson: Sure. So a quick way to characterize it. We are incredibly excited about Series 2 right now in a way that's positioned and performing. We couldn't be at a better time in that portfolio in the market, and we're really excited about that. That's helping drive these design wins that we mentioned last year's growth was incredible and we're already starting this year off at a faster pace, and that's really based on Series 2. An easy way to think about it is, our customers do not only design us in on the current generation. They need to see that road map in the future. That gives them confidence, they're betting on the right horse moving forward, and that's Series 3. So we've been working on Series 3 for a long time now concurrently with Series 2, and the intent is, Tore, the easy way to think about it, take all those learnings from multiple generations and put that together in a way that allows us to do things for the industry and the company that haven't been possible in the past. So that is already visible to a lot of our key customers and partners and it's helping fuel not only the current Series 2 design wins, but also their confidence that they picked the right partner moving forward. In terms of ASPs and that, for sure, no comments around that, except that this will allow us to not only service the markets we're servicing more effectively, but even more effectively at a greater scale and more efficiency than in the past. Tore Svanberg: That's very helpful. And as my follow-up, I know the last couple of years have been, sort of, years of strong Bluetooth share gains. I know you bought a Wi-Fi asset several years ago, that's probably now probably about to keep an inflection point. So could you comment a little bit on your design win pipeline when it comes to your Wi-Fi business, please? Matt Johnson: Sure. And I'm going to answer it directly, Tore, but I just want to comment on the Bluetooth piece first, because it gives a lot of color and perspective on the Wi-Fi piece. So Bluetooth, if you went back a few years, we made a very public statement that we have decided to increase our focus on the space, double and triple down and really bring all of our development capabilities and knowledge and domain expertise in IoT to bear with Bluetooth. And that is exactly what we've done. We've seen incredible growth in Bluetooth over the last few years. We've seen share gains, and we see no sign of that abating at all. So we're really excited about that. And you saw that come through in some of our Q1 numbers. Keep me honest guys, but I think it was over 60% year-on-year growth in Q1. So what we've said now, so we've done that in Bluetooth, and we're going to continue to focus there. What we're adding is the Wi-Fi focus and the intent is to do the same thing in Wi-Fi. And we've been clear that we've done acquisitions in the space, and we're moving large chunks of our R&D on to Wi-Fi, and that's going to help us do the same thing in Wi-Fi. It's already started. We're seeing strong growth in Wi-Fi, 20 -- last year, this year, we expect to be strong growth years in Wi-Fi. And we see that easily able to continue, now granted on a much smaller numbers than the other areas, so it is easier in the early days. So questions are about it that we've get asked, how are we going to compete, how we're going to operate there, simply said, we're going to bring the benefits that we bring to the other spaces to the Wi-Fi space, the ability to integrate all the protocols for our customers bring industry-leading power and security. We've shared that the 917, one of the first devices that we brought out has the strongest momentum of any launch we've ever done, which is incredibly exciting. And that's driven in part by bringing industry-leading power consumption to this space, along with our other capabilities. So easy way to think about it. We see good momentum there, actually record momentum for any launch we've ever done. We do see this being a growth year for Wi-Fi, and there will be a lot more products and our capabilities coming out of our portfolio moving forward. And I would expect to see us do what we did in Bluetooth and Wi-Fi in the years to come. Tore Svanberg: Very helpful. Thank you. Operator: The next question comes from Cody Acree with Benchmark. Please go ahead. Cody Acree: Yes, thanks, guys for taking my questions. Maybe if I could start with your view of the health of your channel inventories for the home and life and industrial and commercial. John Hollister: Yes. Cody, sure, this is John. So we did ship what we expected to ship in the first quarter, in line with our expectations. What we saw late in the quarter was weaker POS out from the distributors, and that's particularly notable in the Asia Pac region. We do expect that to moderate in the second quarter and come more in line as we progress through Q2. And I will also note that having the inventory staged in the channel is a good thing as we look to ramp customers across multiple new platforms in both parts of the business on the distribution side, as well as have an organic inventory in-house on the direct side. Cody Acree: And then just with your internal inventory plans, can you talk about where you're comfortable and also just your order linearity through the quarter. John Hollister: Yes. So order patterns were relatively linear through the quarter, and that's typically the case again, in line with our shipments. We did ship in line with what we expected to ship on a linear progression of orders. On the internal inventory view, where are we comfortable, we're not changing our longer-term strategic model of 3 times to 4 times on the inventory turns. We are looking across our process nodes and mindful of some of the structural issues around legacy process nodes that remain intact. We're benefiting, if you will, in the current time from a lull in the market, and that is allowing us the ability to accumulate some strategic inventory. That said, some of the structural issues around capacity limitations are unchanged. And so what are we doing about that? Well, we are diversifying our supply base to a certain extent. And we're also building some inventory ahead of what we see longer term as significant customer ramps on numerous new greenfield opportunities. Cody Acree: Any risk of obsolescence in that inventory build? John Hollister: Yes. Cody, it's a good question. We store inventory in Die Bank Form and that allows us tremendous flexibility to customize the products and software and with different security protocols, according to the actual customer demand as it comes through. So we believe the risk of inventory obsolescence is manageable and view investing in this inventory is a wise use of our available capital given the various factors of work that I described. Matt Johnson: The only thing I'd add to that, Cody, that John said is, it's exactly right that there's so much of the customization happens post silicon on top of that through software. And you also have to remember the amazing diversity of the end demand across customers, geos, applications. So we don't have one part, one customer dynamics at all. So that helps as well in terms of reducing the risk. John Hollister: It's good question, Cody. Cody Acree: Great. Thanks, [Indiscernible] Operator: The next question comes from Raji Gill with Needham & Company. Please go ahead. Raji Gill: Yes, good morning and thanks for taking my questions. First question is on the commentary, Matt, about the expectation for steel unit growth this year. Just wondering if you could maybe elaborate on that given the fact that we saw units down this quarter. There's still uncertainty around the consumer. I know industrial commercial is resilient, but there's concern with industrial production potentially coming down. So I'm curious how we're, kind of, thinking about unit growth this year? And are you -- do you still kind of expect to grow this year kind of based on previous conversations? Matt Johnson: Sure, Raji. I understand the question. And one thing that's important to point out we commented earlier. We don't see industrial and commercial as immune to this environment, but it's been much more resilient. So we don't see industrial commercial growing this year like we have in the last couple of years, just to provide some context, but definitely incredibly different experience than a straight consumer just to give perspective. On your point, again, like I said earlier, it's really difficult to know what the overall market environment will be in the second-half, I don't think anyone knows for certain, there's a lot of uncertainty around the consumer side of things. But what we do know is this, our customer inventories are working down. We haven't seen China come back yet, but we're seeing some encouraging signs. To be clear, China is still down in Q1, but we expect that will slowly work its way out. And most importantly, we know what our ramps are and our design wins. We've been very consistent last year and even right now that our design win momentum is incredibly strong. And some of that is greenfield, new applications, new customers. Some of that is share gains. And while we don't have a lot of those ramps in the first-half of the year, we do have a lot of those ramps in the second-half of the year. And for sure, they're not immune to macro, but they will ride on top of whatever the market ends up being, and that's what's giving us confidence that whenever that market ends up being, we think we'll be better than the market. John Hollister: Yes. Raji, this is John. I just want to add on a quick point here. A key takeaway from all of this is the cost and price inflation dynamic in 2023, is much less than what it was in 2022. That's really a key point to take away from this. Raji Gill: Yes. I appreciate that, John, and thanks, Matt, for that. Just for my follow-up, it really has to do with pricing as well and also the impact on margins. So you guided margins down to 60.5%. You've been telegraphing to the Street that margins will drift lower over time. But I am curious to see the fact that prices have, kind of, held up. We saw a modest price increase. But with supply and demand coming back in balance, you're starting to see potential pricing pressure from competitors. There is more capacity coming online. How do we think about margins in the face of potentially unit headwinds? And then pricing potentially reversing later this year? Any thoughts on that would be great. Thanks so much. Matt Johnson: Yes, I'll start, and John, it would be good for you to add. So this topic, like I said earlier, one important way to think about it is there's not a lot of new out here on price. What was new in the last couple of years was that demand greatly exceeded supply. And because of that, the pricing pressure that was normal and typical in this market, took a temporary reprieve. I think we're reverting back to -- as demand is not as strong and there's more supply out there, you're just seeing the market revert to its normal pattern of behavior that we've always operated in and always had to navigate. So I think that's where we're getting now. We have always been in an ultra-competitive market from a pricing perspective. We see that out there, and that's exactly the reason why we didn't change our margin model during the supply crisis, because we expected it to be temporary. So that's -- market forces are there. We're navigating it. We don't see any changes. We expect continued competition and pricing pressure, but nothing that changes our long-term outlook or commitment in the space. John Hollister: Yes, I don't have anything to add, Raji. Raji Gill: Appreciate it. Thank you. Operator: The next question comes from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: Hey, good morning. Thanks for taking my questions. Just curious by segment, you actually, kind of, saw similar declines in both segments in March. So just kind of just help us with the outlook. It's not down much, but I'm curious if there's any difference between the two segments? John Hollister: Yes, Blayne, we would expect INC to perform better than Home & Life in the second quarter, is what we see. Blayne Curtis: Okay. And then I was just trying to understand the difference in the weakness in the disti channel at the end of the quarter. I mean, if it's just Asia, it seems like you're saying it was fairly small. I mean, I guess I'm looking at the big build in inventory and trying to reconcile the two. Can you just give us a perspective on that magnitude? And was that size of inventory build purpose? Or was it more you were hoping for a bit better in June, September? Matt Johnson: Yes, sure. Blayne, this is Matt. So first of all, we didn't -- just ultimately, we didn't expect it to go up as much as it did in Q1, we did expect it to go up. But as we enter towards the end of the quarter, the POS went down a little more than we expected. So it ended up higher than we expected at the end of the quarter. It's not alarming to us, just very openly, as John said, we want to build internal and external as we prepare for ramps. The world has changed in terms of being able to be ready for these ramps and supply as we all know. But because it's as high as it went, but we do plan on working that down in Q2, and that's influencing our guide, as you can see. So we'll bring it down modestly, and that's baked into the guide in Q2. Blayne Curtis: Thank you. Operator: The next question comes from Gary Mobley with Wells Fargo. Please go ahead. Gary Mobley: Hey, guys. Thanks for taking my question. Want to drill down on Blayne's question about distribution inventory. Did I hear correctly that at 79 days, I understand that the normal range is 45 to 55 days. So if we work that distribution inventory days down to the upper end of the normal range, does that imply that you have to digest roughly $45 million in inventory before we're back in the normal range of 55 days. John Hollister: Yes, Gary, this is John. I understand your logic there, and you are recalling some of our prior commentary on this. We are operating as we are with our internal inventory above target. That is by design the level of increases at just articulated, is more than we expected in the first quarter. We're indicating this morning a modest decline in DSI, but nowhere near the magnitude of what you're describing to get all the way down to, say, 55 days. That's not what we're indicating this morning. Gary Mobley: Okay. And in China indigenous demand, if I recall correctly, that has historically been somewhere in the low-20% range of your total sales. But more recently, it's probably been in what roughly the mid-teens percent. So clearly, more than 500 basis points off pace. Can you speak to, sort of, the tailwind that China may represent as a geography when and if things begin to normalize there? Matt Johnson: Sure. Sure, Gary, this is Matt. Big picture, those numbers are right. So I think if you go way back a couple of years ago, I think China was around mid-20% of our business. And as we've shared last year, we saw that go down significantly closer to around 15%. And we continue to see that decline. Even in Q1 of this year, I think China was down around 10% of sales. So that decline has continued. We're not calling it in terms of that's the bottom in China. But all the indicators say that we're seeing encouraging signs of strength and recovery there. And as we've been consistent with, it's not baked into our plan, but that could be a tailwind if we start to see some more strength, but haven't seen it yet. Gary Mobley: Thanks guys. Operator: The next question comes from Matt Ramsey with TD Cowen. Please go ahead. Matt Ramsay: Thank you very much, guys for let me jump back in for follow-up. Matt, it's around some of the pricing commentary that you made my -- a few things happened in my inbox during a couple of your comments, so I wanted to clarify something. I don't think it's a big surprise to a lot of folks that the pricing -- the relative pricing environment might return towards normal, as you described. There was a lot of commentary during the pandemic and the supply shortages that we were sort of entered a new era in semis where there weren't going to be price downs? And I think a lot of us were skeptical on that, and it sounds like you'd agree that we're going to go back to some normalcy. The question I got from a few folks was given that the input costs have gone up as much, I wouldn't expect those input costs to revert back quickly. So are you talking about pricing from here at these elevated levels going back to modest year-on-year declines on a go-forward basis? Or are you talking about pricing going back to levels where we were pre-pandemic. I just wanted you to be precise on that and walk through those dynamics. Matt Johnson: I got it, Matt. It's the former not the latter. It's that, we expect pricing pressure on the levels that we're at, and we expect that those will continue as they always have. We do not expect pricing to revert to those pre-pandemic levels, that wouldn't be possible. The cost structure wouldn't support that, that's right. Matt Ramsay: Got it. So we're back to sort of the old days on a relative basis of a much higher base. Is that a fair assessment? Matt Johnson: Yes. That's exactly right. And every major customer, every major market we go after, pricing is a key component, along with everything else that we bring to the table, and we expect that will continue. So yes, that's exactly it. You got it. Matt Ramsay: Alright. Thanks, guys. Appreciate it. Operator: The next question is from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: Yes. Thank you, Tory from Stifel. I just had a follow-up for John on OpEx. So John, OpEx came in quite a bit lower that we had at least modeled. And I'm just wondering if there's sort of any seasonality early one-time that we should be aware of? Or is this kind of the baseline for the year and perhaps going forward, OpEx will be flat to up? John Hollister: Yes, Tory, it is not affected by one-time items. We did manage our OpEx carefully in the quarter, primarily around slowing the rate of hiring and reducing our discretionary spend on outside services. And we're pulling that down a little more in the second quarter by $1 million. So you got it right. This is a new base. And we'll see how the year progresses, but the -- with growth in the business, it's safe to assume modest growth in OpEx commensurate with that, it's just a reminder that our long-term financial model remains our compass, our North Star, how we're operating and we're ahead of that now and we'll strive to continue to operate ahead of it. It's a guardrail, but that was a compass that we operated by. Matt Johnson: And Tore, just a reminder that last year, I think everybody expected that the strength of the market that we were in couldn't continue exactly the way it was, and we had been very aggressive given the strength of our Series 2 portfolio and our ability to give customers assurance and supply to go win as much business as we could. And you saw that come through in the greater than 50% year-on-year growth in our design wins. And that was by design of possible, because of the portfolio strength and supply, but it positioned us well going into this year and next year. And at the same time, we did to the extent possible, make our OpEx growth as flexible as possible. So going into this year, we could adapt as the market and the year unfolds, and that's part of what you're seeing here as well. So not perfect, but hopefully, we have as much flexibility as possible navigating this environment. Tore Svanberg: Great. Thank you, again. Operator: The next question comes from Raji Gill with Needham & Company. Please go ahead. Raji Gill: Yes. Thanks for taking my follow-up question. I appreciate it. Just a question again on the full-year and the shape of the recovery first-half versus second-half. You indicated that we could see some normalization in the Asia channel, we could see some normalization with the customer inventories, but to grow this year, it's going to really imply double-digit growth in the second-half versus the first-half. So any color there in terms of how we're thinking about the second-half? I know it's -- you only guide one quarter out, but any color there would be appreciated. Thanks, so much. John Hollister: Yes, Raji, it is a one quarter guide. So we're not going to provide annual guidance this morning. What we're trying to indicate is that there are positives in our demand profile around factors that you mentioned, as well as major greenfield opportunities that are represented in new customer ramps. That's the third item in addition to the ones you mentioned. But a lot of it depends on the macro, and we're not immune in either one of our business units from the macro. So we'll just have to wait and see the shape of that. We've got some positive drivers, but also we have the macro effects that we have to be mindful of. Raji Gill: Appreciate that. Thank you. Operator: I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Betsy, and thank you all for joining us this morning. This concludes today's call. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning everyone. My name is Jamie and I’ll be your operator today. Welcome to the Silicon Labs fourth quarter 2022 earnings release conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Giovanni Pacelli, Silicon Labs’ Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you Jamie and good morning everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson, and Chief Financial Officer, John Hollister. They will discuss our fourth quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of the Silicon Labs website. I’ll now turn the call over to Silicon Labs’ Chief Executive Officer, Matt Johnson. Matt? Matt Johnson: Thanks Giovanni, and good morning everyone. At our analyst day last March, I spoke about our singular focus on the IoT market and my confidence in our ability to lead and scale in this large and fast-growing market. In 2022, our strategy took hold. We achieved strong gains in market share and our growth accelerated. We surpassed $1 billion in revenue for the first time, which is a great milestone for the company. More importantly, in just two years, we’ve doubled our revenue organically and have significantly improved our profitability and earnings per share. I’m incredibly proud of the team for these achievements. We continue to secure major greenfield design wins and remain well positioned to outperform the market even amid macro uncertainty. The IoT market has incredible potential with thousands of new applications on the horizon. Silicon Labs is unmatched in the breadth of our product portfolio, the depth of our wireless expertise, and our singular focus on wireless connectivity solutions for the Internet of Things. Our leadership is driving an acceleration of growth in our design wins. Our design in lifetime revenue for 2022 is up more than 50% over 2021’s level, which is a leading indicator of future revenue growth. Design wins indicate that a customer has selected us for their socket and our metric requires us to have shipped at least $1,000 of parts into that design before it counts as a design win. Our opportunity pipeline is approaching $17 billion, nearly double the level of 2020. We strengthened our customer and supply relationships by the way we navigated the supply crisis together. Our singular focus on the IoT market proved to be a competitive advantage. As supply and demand come into alignment, we are well positioned to scale and capitalize, serve an increasingly diverse customer base, and capture future market share. I’ll now turn the call over to John to cover the financials before I make a few closing remarks. John? John Hollister: Thanks Matt. Revenue for the fourth quarter was above our guidance range, ending at $257 million, up 23% year-on-year. Our industrial and commercial business ended at $157 million, up 36% year-on-year and establishing a new record for the I&C business. In terms of industrial end applications, we saw strong results in the fourth quarter in connected equipment and smart meters. As expected, the home and life business declined in the quarter on a sequential basis and ended at $100 million, up 8% versus the prior year. Smart home products had the largest sequential decline in the fourth quarter. Sales of products for life applications declined slightly. Geographically, we saw the strongest performance in the quarter in Europe, which grew slightly. The Americas and Asia-Pac were both down sequentially from the third quarter. Distribution sales were 81% of our total revenue, consistent with prior quarters. The absolute amount of channel inventory declined in Q4 and we held GSI flat at 59 days versus Q3, which is an excellent outcome. As Matt mentioned, we are very pleased that revenue for the full year exceeded $1 billion for the first time in our corporate history. Revenue in 2022 grew 42% over fiscal 2021, exceeding the top end of the growth goal we established back in March at our analyst day. As a reminder, we raised prices in late fiscal 2021 in response to meaningful increases in input costs from our suppliers. We believe that our price increases have been in line with similar actions from our competitors and we have approached commercial terms with our customers responsibly and fairly. I’d like to highlight that a significant portion of our ASP strength and top line growth is due to the strength of our Series 2-based product cycle and the growing diversity of our customer base and product mix which are durable, positive developments. We also continue to increase design win velocity. Fiscal 2022 design win lifetime revenue grew more than 50% across a broad range of applications, which is an important indication of continued growth and share gain. Q4 non-GAAP gross margin ended above our expectations at 61.3% due to strong product, pricing and customer mix. Non-GAAP operating expenses were in line with our expectations at $109 million. R&D expenses increased slightly in the quarter to $70 million, and SG&A expenses declined by about $4 million to $39 million for the quarter. Non-GAAP operating margin was also above expectations, ending at 19% for Q4. Our tax rate was favorable in the quarter due to a combination of factors, including a lower than expected impact of capitalized R&D in the quarter and amplified by the catch-up effect within the fourth quarter. Our non-GAAP effective tax rate was 15% for the year--for the quarter, excuse me, and 23% for the full year. Our non-GAAP earnings for the fourth quarter ended strong at $1.31 per share, well above our guidance range. For the full year, our non-GAAP operating margin was 21%, which is above our profitability model for this level of revenue. Non-GAAP earnings for the full year were $4.72 per share, which is approximately a 230% increase over fiscal 2021. These results are truly remarkable and demonstrate the focus and execution we have been able to achieve following our successful divestiture transaction roughly 18 months ago. On a GAAP basis, gross margin was 61.1%, GAAP operating expenses were $133 million for the fourth quarter, GAAP operating margin was 9% for the fourth quarter and 12% for the full year, GAAP earnings per share were $0.76 in the fourth quarter and $2.54 for the full year. Turning to the balance sheet, we ended the year with cash and cash equivalents of $1.2 billion. Operating cash flow for fiscal 2022 ended at $141 million, an increase of around 55% from the prior year. Our accounts receivable balance in the year ended at $71 million, representing days outstanding of 25. As expected, we increased our inventory balance to $100 million or about four turns. We expect to continue to strategically manage our inventory balances to ensure we have the supply chain capacity to deliver our growth objectives. During fiscal 2022, we repurchased approximately $880 million of our common stock, bringing our total share repurchase activity to more than $2 billion since we announced the divestiture in April 2021, retiring more than 25% of our outstanding shares. This outcome will provide a long term benefit to our earnings power going forward. We expect to continue our share repurchase program, and today we have about $200 million in remaining authorization through the end of this year. Our debt balance remains unchanged with our 2025 convertible notes outstanding with a par value of $535 million. Overall, our balance sheet continues to be very healthy. Before I turn the call back to Matt, I will cover guidance for the first quarter. We expect revenue for Q1 to be between $242 million to $252 million. We expect both business units to be down sequentially. We expect non-GAAP gross margin in Q1 to be approximately 63%. Late in the fourth quarter, we implemented limited price increases on a subset of our portfolio in response to ongoing input cost increases. We view this as a one-time phenomenon in the first quarter and do not have plans to raise prices further. We expect non-GAAP operating expenses for Q1 to increase slightly to $111 million with the increase largely attributable to the payroll tax reset in January. We continue to closely manage our operating expenses by leveraging flexible non-structural spending and carefully pacing our hiring. We will also have take steps to optimize our investments across certain areas to achieve further operational efficiencies. We expect our non-GAAP effective tax rate to be approximately 23% and non-GAAP earnings to be between $1.07 to $1.17 per share. On a GAAP basis, we expect gross margin to be 63%, we expect GAAP operating expenses to be approximately $139 million, and GAAP EPS to be in the range of $0.36 to $0.46. I will now turn the call back over to Matt. Matt Johnson: Thanks John. In addition to our outstanding financial results in fiscal 2022, we also made tremendous progress in our business and technology initiatives. From a business unit standpoint, the industrial and commercial business achieved its ninth consecutive quarter of record revenue in Q4, demonstrating resiliency amid current economic uncertainty. The value of wireless connectivity is increasingly clear in industrial applications such as connected equipment, where we hold a leadership position and grew revenue at double digit pace, both sequentially and year-over-year. Smart pallets are an example of a connected equipment application, and our FG23 sub-gigahertz SOC enables long range communication for logistics use cases. The FG23 is a single die, multi-core solution that offers industry-leading security, low power consumption with fast wake-up times, and an integrated power amplifier. Additionally, revenue from smart city applications grew by over 50% year-over-year with smart metering as a standout. We secured a significant design win with an industrial customer in the smart metering space, also using the FG23. Our chips RF range of performance and energy efficiency were key factors in winning the socket. Despite market softness in home and life attributable to certain consumer-oriented end markets, we remain bullish about the long term growth prospects in home and life. Specifically, we are seeing strength in the healthcare space with double-digit increases on a quarterly and annual basis. We recently secured several important design wins for portable medical devices, further bolstering our position in the life segment. We are also very excited about the launch of Matter 1.0, a significant industry achievement. Matter enables interoperability across major IoT ecosystems to offer developers and consumers a simpler, better experience which should boost demand for connected devices. Silicon Labs has played a significant role in Matter’s development. There from the start, we have contributed more code than any other semiconductor company. As of the end of the year, 87% of the products certified for Matter over thread are built using Silicon Labs’ SOCs. Another promising development related to Matter is the momentum we are seeing with our previously announced 917 SOC, with dozens of alpha customers currently sampling. At this point in the launch cycle, the 917 has the largest opportunity funnel of any product we’ve ever released. The 917 is the first Wi-Fi 6 combo chip in the Silicon Labs portfolio and is a Matter-ready, fully integrated single chip solution. It’s ideal for ultra-low power IoT wireless devices with secure cloud connectivity. We believe that its combination of exceptional compute power, best-in-class security, and ultra-low power profile will be instrumental in developing new use cases and applications. Matter will be a huge growth catalyst for our industry and we are proud to play a large part in it. I want to conclude by thanking the entire Silicon Labs team for their great execution amid economic and geopolitical uncertainty. I’d like to give special recognition to our operations and sales teams, who navigated complex supply chain challenges, allocations and escalations with transparency, grace and perseverance. We also want to express our gratitude to our partners and suppliers who navigated unprecedented market conditions with us. While we are certainly not immune to macro risks, our impressive design win momentum gives us confidence and conviction that we will come out of the cycle ahead and well positioned to continue leading the IoT market. We have now delivered back-to-back years of more than 40% revenue growth and believe this is just the beginning. The strength of our Series 2 product cycle has helped accelerate our design win velocity, positioning us to continue outperforming the market. We continue to strategically manage our day-to-day operations while making the investments necessary to drive innovation, long term profitable growth, and solidify our leadership position in the IoT. Giovanni? Giovanni Pacelli: Thank you Matt. We’ll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question with one follow-up inquiry if needed. Jamie? Operator: [Operator instructions] Our first question today comes from Matt Ramsay from Cowen. Please go ahead with your question. Matt Ramsay: Thank you very much. Good morning guys, and congrats on the results. I guess for my first question, just thinking about the big picture in the model and in the business, I think the majority of the 40% growth or so that you guys showed in 2021 was unit-based, and a much smaller contribution from ASPs. This past year in ’22, I think it was essentially the opposite, right - the ASPs were up quite a bit and volume up maybe less than that. Matt, as you look forward to this calendar year, I think ASPs are up a bit in the first quarter again in the guidance, but how would characterize the year that you see ahead? Is this one more evenly balanced of growth between the two, any sort of characterization of the year you see coming on those two dynamics because we get asked about that, that mix of growth a lot. Matt Johnson: Sure, thanks Matt. Understood. Yes, I think the simple and fast answer is 2023 will be much more characteristic of 2021 with a majority of the growth coming from units, not ASPs. As John mentioned in his remarks, we definitely have done some limited price actions on some increases that we’ve seen, but in general we expect the year to be vast majority driven by unit growth in 2023. John Hollister: Hey Matt, this is John. I want to add another quick comment here. If you look at 2022, the ASP strength that we realized in the year actually had a combination of factors. We did increase prices, as we’ve talked about, but we also saw strength in the product and customer mix and on the back of the product cycle. I wanted to make that point as a contributing factor as well. Matt Johnson: Yes, thanks John. Matt Ramsay: Thanks guys, I really appreciate it. Go ahead, Matt - sorry. Matt Johnson: Yes, I was just going to make sure everyone understand what that means, because it’s important. Our customer mix expanded in the sense that not only did we see more customers, over the years we gained market share. We gained some large customers but we also gained a lot of customers in the tail, in the mid of the market which gave us some strength in our ASPs, and then the product cycle piece is with our Series 2, as we’ve mentioned multiple times, we have an unprecedented amount of products coming out in ’22 as well as ’23, which gives us a lot for our sales team to work with and in a lot of cases, there is no alternative to these leading products in the marketplace, so that helps give some strength to the ASPs as well. Matt Ramsay: Thanks guys, really appreciate it. Just as my follow-up question and then I’ll get back in the queue, I wanted to ask about China. Given the changes in COVID policy and the timing of Chinese New Year and whatnot, some of your peer companies have talked about some acute weakness in sort of sell-in to distribution in China for the first quarter, and you guys are guiding for a fairly strong quarter all the way around. I just wonder, how would you characterize that impact from what’s going on in China in your first quarter guidance, and if things normalize, how much of a tailwind could that be when things turn back on over there? Thanks. Matt Johnson: Yes, understood. On China, China has been relatively weak for us in the last few quarters, and as we’ve mentioned, it’s down to around 15% of our total revenue. We haven’t seen any significant change in that or the outlook there, and our expectation for growth on the year is not predicated on a return in China. Of course, if there is increasing strength there, that would be a tailwind that we’d be happy to see, but our plan does not depend on it. Matt Ramsay: Thanks guys, appreciate it. Operator: Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question. Gary Mobley: Hey guys, good morning. Thanks for taking my question, and let me extend my congratulations on a strong fiscal year ’22 and similar to the good results. I wanted to ask about orders, order lead times, and whatnot. Can you give us an update on the uniformity of orders? I think last time, you mentioned week-to-week volatility - is that still the case? Maybe if you can give us an update on order lead times - I believe they were 26 weeks last quarter. John Hollister: Yes Gary, no change in the lead time dynamic - it’s roughly in that neighborhood, and we have seen signs of greater stability in recent weeks, a bit less volatility. It’s, I would say, largely characteristic of what we’ve seen over the last quarter or so, but getting better, I think is a fair way to say it. We’ve seen that the order patterns show a bit more stability in the week-to-week experience. Gary Mobley: That’s good to hear. I wanted to ask about your distribution inventory, since it is more than 80% of your revenue. You mentioned that 59-day metric for distributor inventories, flat sequentially so obviously no benefit quarter to quarter as you wrapped up the year, but what can that distribution inventory go in terms of days? Just trying to get a sense of the tailwind for distribution restocking, knowing that you’re benefiting to the tune of, what, $2.25 million a day in inventory. John Hollister: Yes, similar dynamics, Gary, as what we’ve seen. Still see a bit of a geographical divergence with China high, rest of the world in pretty good shape. I think we can see this come up a bit and be comfortable with that, given that we’re seeing the revenue down a bit with expectations of growth ahead, so that would be normal and okay, not dramatically but that’s something that could happen. Gary Mobley: All right, thank you guys. Operator: Our next question comes from Tore Svanberg from Stifel. Please go ahead with your question. Tore Svanberg: Yes, thank you, and congratulations on the results. I wanted to come back to the ASP topic, and I do understand obviously you’ve had to increase prices because of your suppliers’ input costs. But it’s pretty clear that you are selling more value, right - I mean, you’re selling more security features, obviously you talked about the product cycles, especially with the Series 2, so can you just maybe elaborate a little bit on that, perhaps how much is coming from just pure price increases versus how much is coming from selling more value? Matt Johnson: Sure. It’d be good to hear from John on specifics, Tore, but I think on Series 2, it’s really important that--it’s exactly what you mentioned, that this portfolio is really hitting the market at the right place and the right time with not only an unprecedented number of products coming out but it’s also what those products bring to the industry that wasn’t available before. That includes power consumption that is industry leading. Think about the solutions we’re talking about, where we’re talking about running a wireless solution on a watch battery for 10 years, or think of the latest Wi-Fi product we mentioned, the 917 that has half the power consumption of alternative solutions, so you can literally double the battery life of a battery-powered application, which is remarkable. Then in addition to that industry-leading RF performance, not just for that one technology but for all the technologies to work together, which is incredibly important for our customers. It’s not just about having one and working well, but to have all those different RF technologies working well together. Then security continues to take an increasingly important role in our space. Simply said, if our customers and consumers can’t trust the devices, it will stall the IoT growth, so this is elemental for us and we’ve been proud to be leading in that space for some time. The confluence of all these things coming together really creates a strong position that is, simply said, fueling the revenue growth we’ve seen over the last couple of years, which is, I think, a strong testament to the strength of that portfolio, but it’s also fueling that design win momentum that I mentioned in my earlier remarks, where that’s grown over 120% over the last two years, which is remarkable. That’s been almost entirely fueled by Series 2, so the combination of those speaks to that, I think, momentum and credibility of the portfolio. As I’ve said, we’re still midway through the product cycle with a lot more products to go that will give us even further lift, so we’re excited about it. John Hollister: Yes Matt, I would just add--I just want to quickly add, that all resonates, and what you see in ’22 is contribution to ASP coming from, you could think of it as pure cost increase-driven, where we see ourselves in line with our competitors, we’re not unique in that regard, and what Matt was just referring to, the strength in the value, also the strength in the customer mix. Tore Svanberg: Great, and as my follow-up, the last two years have been a lot about share gains, especially with your new Bluetooth products. I know you’ve worked a lot at getting established more in Wi-Fi, you talked about the 917 probably having the largest opportunity going forward. Should we think of 2023 as being that first year of really big growth in Wi-Fi, or would that still be more like 2024? Matt Johnson: 2023, we expect solid growth in Wi-Fi in 2023. Tore Svanberg: Clear enough. Thank you Matt. Congrats again. Matt Johnson: Thank you. Operator: Our next question comes from Raji Gill from Needham & Company. Please go ahead with your question. Raji Gill: Thanks, and congrats on good results in light of a very volatile market. John, a question on the order trends. I know last quarter, you did see order volatility and lead times came in specifically around the home and life, and then you also kind of mentioned in the industrial commercial, some of the customers were more of in a holding pattern. I wanted to get a sense of what’s changing now in terms of where you’re seeing greater--where you’re seeing more order stability over the last few weeks. Do you see any potential risk as the lead times come in, as more supply comes online, that you kind of return back to some sort of order volatility that you saw in the last quarter? John Hollister: Raj, thanks. It’s hard to call it on the last point. Of course, we could see more volatility, but we’re very encouraged by the strength of the design win momentum. As we’ve said, that is the best indicator we see of continued strong revenue performance. The supply chains are normalizing. We continue to see pockets of shortage, but we have nodes that are really more in balance between demand and supply now - that’s a good outcome and allows us to serve the demand. Back to the top of your question, simply put, we’ve seen more stable order patterns in the last several weeks. I wouldn’t say it’s completely, quote, back to normal, but getting better and we’re encouraged by that as we see it. Raji Gill: And on the gross margins, the gross margins have been kind of above plan for several quarters, above your long term plan. You did mention that this year, the growth will be less dependent on ASPs, more on unit growth. Wanted to understand how we should think about gross margins trending throughout the year, and with respect to that, what are your expectations for wafer costs? Is your main foundry, TSMC increasing capacity for Series 2 products? Just any thoughts in terms of your wafer cost expectations and how to think about the gross margins. Thank you. John Hollister: Yes, thanks Raji, that’s good. As we said at the beginning of last year, we had a one-time effect, if you will, in the first quarter of 2022 that then bled off through the course of the year, and we saw gross margin sequentially declining throughout the year. We see a very similar pattern this year with a more modest version of that, but I guess similar effect as we see a lift in the first quarter, we expect that to moderate sequentially as we work our way through the year. We’ll have to stay tuned to the overall input cost landscape. Not aware of more forthcoming - that could change, but at this point we believe we’re reaching a degree of stability on the cost side as well. Raji Gill: And just on the capacity coming out of your foundry, maybe you could just elaborate on that? Thank you. Matt Johnson: Yes, I can comment on the capacity side. It’s important, first of all, to mention that we still have supply constraints in the coming quarters, so as John said, it’s more mix. In some lines, we’re at parity, and in some lines we’re not, so we’re still working through that. Big picture, one thing that maybe more unique to us than the industry is because of our rate of growth, we’re hyper-focused on that capacity and supply not just this year, but in the coming years. Because of that design win momentum, one of the things that’s critical to our customers is an assurance that we can provide the supply that comes with that business. We’ve been fortunately very successful at partnering with our suppliers. As we said in the remarks, we’ve actually seen our relationships with our customers and suppliers improve over the last couple years through all this challenge, and that’s allowed us to position ourselves to continue scaling very quickly in the coming years, which is a key component to a lot of these wins. We couldn’t secure some of this business unless we could give our customers assurance that we’ll be able to do that. Never take it for granted. We’re watching it closely, we’re paranoid about it because of the rate of growth, but we do see a path and our customers see that path as well. Raji Gill: Appreciate it. Operator: Our next question comes from Blayne Curtis from Barclays. Please go ahead with your question. Blayne Curtis: Hey, thanks for taking my question. I just want to follow up on Raji’s gross margin question. I thought last year, you had some one-time charges, you got some benefit, so I’m just kind of curious, in that 63, because I think you said limited pricing increases but you’re seeing two points of gross margin uplift, so is that just timing like you saw the prior year, and is there any kind of one-time benefit as well? John Hollister: Yes Blayne, thanks for the question. No, there’s not a one-time aspect of that. It’s very similar to what we saw one year ago. Blayne Curtis: Got you, and then I wanted to ask, not to keep asking on pricing, but you do give the annual metric in the carryout. I was wondering if you would give us for the year in ’22, if you have that number for units and ASPs. John Hollister: Yes Blayne, the contribution for revenue growth is mainly on ASP, which has a couple of components, as we talked about, both in terms of cost, input driven, price increase, as well as value, higher ASPs on strong product and customer mix, but it is fair that more than half of the contribution on revenue is from ASP. Blayne Curtis: Great, and then if I could just ask one last question on home and life, you mentioned the smart home down the most. I’m assuming there’s some component of inventory correction because that segment is down 19% sequentially. I’m just kind of curious, your projected margin said both down, so has that kind of correction that you saw in December cleared through and it’s more normal seasonal for the business? Just some color on that correction, particularly in the smart home. Matt Johnson: Yes, sure. This is Matt. I think the most accurate and honest answer I can give you is that it varies quite a bit. We see some customers that are sitting on a lot of inventory and working their way through it. We see other customers who managed this really well and they’re still worried about their demand and working through that. But on a whole, we definitely see our customers in that space working down their inventory, but the key there is what does the demand profile look like and how long is that going to take for them to work through that. But like I said, pretty variable customer to customer, depending on how they’ve managed it and how their end markets are doing. Blayne Curtis: Got you, thanks. Operator: Our next question is a follow-up from Gary Mobley from Wells Fargo Securities. Please go ahead with your follow-up. Gary Mobley: Yes, thanks. I just had one follow-up question. I wanted to ask about the pace of the share buyback. If I’m not mistaken, in the past you mentioned that you would ideally like to maintain a billion-dollar cash position, gross cash position, and that would indicate that maybe there’s $200 million to $300 million of available buyback capacity. Am I summarizing that correctly? John Hollister: Yes Gary, you have that exactly right. We’ve done a bit better than we contemplated at the onset, immediately following the divestiture. We have actually generated stronger cash flow in the intervening time period, and that is what has allowed us to both surpass the $2 billion goal and have another $200 million available for continued share repurchase. Looking further ahead as we continue to generate cash, we believe that will continue to be the case, and we’ll continue to work with the board of directors on capital allocation relative to this use versus strategic M&A, which we also continue to evaluate. Gary Mobley: Got it, thank you. Operator: Our next question comes from Tore Svanberg from Stifel. Please go ahead with your follow-up. Tore Svanberg: Yes, thank you. Just a housekeeping one. John, tax rate 23%, still pretty high, right, and I know it’s got a lot of different elements to it, but anything happening this year that could potentially cause that tax rate to come down? I know you’re working on some capitalization on R&D and so on and so forth, but any view on the tax rate for the year would be great. John Hollister: Yes, you bet, Tore. As we called this a couple years ago, the capitalized R&D aspect of the Tax Cuts and Jobs Act has an inflationary effect on the tax rate. That’s true for us, that’s true for other companies and entities with a relatively high R&D spend. That’s kind of the fundamental situation. All things considered, it is down a little bit from last year and we expect over the next couple of years, it will come in a bit further, come down a bit further as the amortization ladder builds, and you can essentially build up that stack of amortization periods into the future. But that’s the main thing that’s going on. Tore Svanberg: Perfect, thank you John. Operator: Ladies and gentlemen, with that, we will be concluding today’s question and answer session. I’d like to turn the floor back over to Giovanni Pacelli for any closing remarks. Giovanni Pacelli: Yes, thank you Jamie, and thank you all for joining this morning. This concludes today’s call. Operator: Ladies and gentlemen, with that we’ll conclude today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Operator: Good day, everyone. My name is Jamie, and I'll be your conference operator today. Welcome to Silicon Labs' Third Quarter Fiscal '22 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Jamie. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our third quarter financial performance and review the recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website. I would now like to turn the call over to Silicon Labs' Chief Financial Officer, John Hollister. John? John Hollister: Thanks, Giovanni. Revenue for the third quarter grew 46% year-on-year, ending at $270 million, in line with expectations and well above our target model growth rate. During the quarter, we saw sequential growth in both business units, Industrial & Commercial and Home Life. Areas of particular strength for the quarter were in smart home applications and commercial automation. Geographically, Q3 revenue growth was strongest in the Americas, followed by Europe, then Asia Pacific. All regions grew in the quarter. Distribution sales were consistent with expectations of approximately 80% of total revenue, reflecting the broad diversity of our customer base. Our largest customer in Q3 was mid single-digits of our mix and our top 10 customers comprised around 20% of our revenue. Our distribution inventory level at the close of Q3 was slightly lower at 59 days. We continue to see a challenging operating environment in China due to ongoing COVID lockdowns impacting our distributors ability to ship POS to end customers and resulting in higher than average channel inventory. During the quarter, we experienced volatile booking patterns with some weeks continuing to show above average strength, while in other weeks, our bookings levels were relatively low. Certain customers have indicated that they have accumulated output inventory levels. And while our cumulative backlog declined in the third quarter, it remains high by historical standards. In Q3, even though we began to see signs of foundry capacity opening up on certain nodes, there continue to be lagging process nodes where we have meaningful supply constraints. That said, lead times have come down closer to 26 weeks, which is still above normal levels. Non-GAAP gross margin for Q3 was favorable to expectations on product mix, ending at 61.5%. Consistent with the overall trend for fiscal 2022, Q3 gross margin was down about 90 basis points from Q2, reflecting ongoing second half input cost increases. Non-GAAP operating expenses were slightly favorable to expectations on reduced outside services spending ending at $112 million. Non-GAAP R&D expenses were $69 million and non-GAAP SG&A expenses were $43 million. Non-GAAP operating income was $54 million, representing operating margin of 20.1%, which is above our target model for profitability at this revenue level. Our non-GAAP effective tax rate for the quarter was 27%, and non-GAAP earnings for the quarter ended at $1.21 per share. This earnings result is approximately a 250% increase from the same period last year, a dramatic improvement following the I&E divestiture. On a GAAP basis, gross margin for the third quarter was 61.4%. GAAP operating expenses were $135 million. R&D expenses were $85 million and SG&A expenses were $51 million. Stock-based compensation expenses were $16 million and amortization expenses for intangible assets were $8 million, both in line with expectations. GAAP operating income was $30 million, representing 11.2% operating margin. The GAAP effective tax rate was approximately 40% and GAAP earnings were $0.60 per share. Turning now to the balance sheet. We ended Q3 with cash and cash equivalents of $1.4 billion. Operating cash flow for the year-to-date period ending in September was $127 million. During the quarter, we executed open market repurchases of our common stock, bringing our total year-to-date repurchases to nearly $700 million, and the total completed since the announcement of our divestiture last year to more than $1.8 billion. Our fully diluted share count declined again in the quarter to 34.8 million shares. Our accounts receivable balance in the quarter increased to $77 million with day sales outstanding at 26 days. Our inventory balance grew in the quarter to $88 million, representing 4.7 turns. Our debt balance as of the end of the third quarter is unchanged with the principal balance on our 2025 convertible notes at $535 million. The company's balance sheet and liquidity position are very healthy, and we have ample capacity to continue our capital deployment strategies. Before I turn the call over to Matt, I will cover guidance for the fourth quarter. We expect revenue for Q4 to be in the range of $245 million to $255 million. We expect the industrial and commercial business to increase slightly on a sequential basis with continued tight supply on certain product lines. We expect the Home and Life business to decline in Q4 due to a slowdown in customer demand on certain programs. We expect non-GAAP gross margin in Q4 to be approximately 60%. We expect non-GAAP operating expenses for Q4 to decline to approximately $109 million. We expect our non-GAAP effective tax rate to be approximately 25% and non-GAAP earnings to be between $0.93 to $1.03 per share. On a GAAP basis, we expect gross margin to be 60%. We expect GAAP operating expenses to be approximately $132 million and GAAP EPS to be in the range of $0.35 to $0.45. I will now turn the call over to Matt. Matt? Matt Johnson: Thanks, John, and good morning, everyone. Despite a challenging macro environment, Silicon Labs delivered sequential and year-over-year growth in both revenue and EPS in the third quarter. As highlighted in the prior quarters, design and momentum is propelling our new business pipeline as we gained share across all of our applications, [indiscernible] where revenue grew by almost 50% year-over-year. The Industrial & Commercial business saw its eighth consecutive record quarter, growing on both the sequential and annual basis. The Commercial Automation segment delivered strong results with revenue up 12% sequentially and 116% year-over-year. Additionally, Smart City applications continued to demonstrate robust annual growth up 60% year-over-year. Energy conversion and agriculture applications showed strong growth rates, both sequentially and year-over-year as well. This past quarter, we are pleased to be recognized as a supplier of the year by multiple customers with whom we partnered to increase industrial adoption on [indiscernible]. A key tenet of our strategy is being a trusted partner across our diverse customer base. We demonstrated this throughout the recent supply chain challenges working closely to their customers, supporting stronger relationships. We were honored to receive Cisco's Emerging Supplier of the Year Award, which recognized the Silicon Labs in all of Cisco's core performance areas, including quality, technology, flexibility, and productivity. We were also selected by Acuity Brands as a finalist for the Supplier of the Year Award and named Collaborator of the Year and got Supplier of the Year by Schneider Electric. We're grateful for those close relationships and proud that these awards has recognized the significant efforts of our team. As John mentioned, within the Home segment, Smart Home products were towards up 6% sequentially and 40% year-over-year. It's important to highlight that smart home applications are not confined in single-family homes. Smart solutions are also being incorporated into large-scale building projects including the neighborhood and apartment complexes as well as upgrades that improve value in our lives. We were thrilled with the turnout at our third annual Forsman Developer Conference in September, which drew more than 7,000 registrants from over 1,600 companies signing up for over 67,000 individual tests. The caliber of attendees and key notes, which included speakers from Amazon and Google, among others, underscored our leadership in IoT and our increasing role within the industry. Silicon Labs Series 2 platform continues to be a growth engine as we extend our leadership position within IoT. Series 2 represents the fourth generation of Silicon Labs wireless technology and incorporates all the learnings we learned 15 years of work in this space. It's a wireless connectivity platform that is purpose-built for the IoT with industry-leading security, battery life and advanced features by the industry's first bolt-on hardware acceleration from machine learning edge. Silicon Labs has nearly doubled its IoT revenue in the last two years, driven by the first few products on its platform. Building on the strength of our Series 2 product cycle being our [indiscernible] products during the opening work keynote, it will help shape the future of the IoT, including products that support technologies such as Matter, Amazon, Sidewalk, Wi-SUN and Wi-Fi 6. We announced a complete nano development solution, providing support for Matter of Wi-Fi, Matter of Opera, and Bluetooth Low Energy and Matter brings both [indiscernible]. We also announced the Silicon Labs Pro Kit for Amazon Sidewalk, the first end-to-end development platform with complete connectivity support for Amazon Sidewalk. Wi-SUN announced the FG25 SoC and EFF01 front-end module chipset, a new flagship SoC and power amplifier for Wi-SUN, which when used together can then provide a diverse transmission range up to three kilometers in advanced urban environments and no data loss. Finally, we announced significant progress in expanding our capabilities within Wi-Fi and BLE with Silicon Lab's first Wi-Fi 6 BLE SoC family called the x917, which is the industry's lowest power, longest battery life Wi-Fi system BLE combo solution. Another significant milestone this quarter was the inauguration of Silicon Labs Development Center in Hyderabad, India which has grown to more than 500 employees. The study is focused on being the leading IoT wireless development center in the region. As part of this, Silicon Labs in Hyderabad launched India's first campus-wide Wi-SUN network at the IIIT-Hyderabad Smart City Living Lab. This network will support an innovative street lighting application with 30 built-in network nodes connecting street lamps for remote monitoring and control. In closing, we had a great quarter that showcases the strength of our execution and strategy. We are uniquely positioned with our unracked breadth, depth and focus in our space. Our breadth of support of wireless technologies, ecosystems, applications and markets is the largest in the world. Our depth and domain expertise is driving leading wireless performance, battery life, security and ease of use in the adoption of our products and 100% focused and commitment on driving phenomenal growth in IoT wireless connectivity has enabled us to double our revenue over the last couple of years in the middle of the supply chain crisis. We are confident in our ability to now meet the current challenging environment and continue to extend our IoT growth. Austin Dean: Thank you, Matt. Before we open the call for Q&A, I would like to announce our participation in the Stifel 2022 Midwest One-on-One Growth Conference on November 10 in Chicago. We'll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question with one follow-up if needed. Operator: Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Matt Ramsay from Cowen. Please go ahead with your question. Matthew Ramsay: Thank you very much. Good morning guys. I guess for my first question, Matt, if you just kind of go through the guidance as John laid it out and Industrial and Commercials up a hair in Q4. That means you're down, Home and Life down, I don't know, mid- to high teens, something like that sequentially. I just wanted you to maybe provide some color and walk us through what sort of order patterns you're seeing. I think in the commentary, you guys mentioned some -- maybe some programs that were slowing. It sounds like some customer inventory might have built up in some cases. I'm just trying to get a feel for that Home and Life segment and what you guys are seeing in real time. Thanks. Matt Johnson: Sure, Matt. No problem. So yes, this picture, if you look at Q4, we're seeing that consumer life -- particularly consumer kind of starting with China seeing softness than in Europe, than in the U.S. And in that space, there are still a demand supply gas. But if you look at Industrial and Commercial, you definitely see more strength in that space. There's definitely a pocket where we've seen softness there as well, but nowhere near the same is what we're seeing on the consumer side. In the Industrial and Commercial space, the demand supply gap remains pretty substantial. An easy way to think about it is if we had the ability to close that gap, we'll be looking at good growth going from Q3 to Q4. The other thing that were kind of mentioned in that little color is because of the diversity of business that we have across technologies, across markets, applications, geos, we're seeing a little bit of everything, honestly. We're seeing some customers were still in and out, strong growth and strong growth cycle, seeing other people kind of just right and others that are over inventory and not needing as much supply from us. So it's a pretty diverse set of circumstances that we're seeing out there. That being said, we still expect our market space to outgrow the overall market. And given the share gains we've seen over the last couple of years, we expect ourselves to be able to outperform whenever this market develops. Matthew Ramsay: I appreciate all the color there, Matt. It's definitely a dynamic environment. I guess for my follow-up question, I wanted to ask sort of a bigger picture topic. During the last, I don't know, 24 months or so when supply for your company and most of your competitors have been insanely tight, we've noticed many of your microcontroller competitors really over-indexing their allocations toward automotive and industrial and maybe much less so towards IoT customers. And you mentioned the share gains that your company has taken as a result. I guess going forward from here over the next couple of years, would you expect that sort of land and expand share gain story to continue for you and those customers that you guys service to be loyal or on the flip side as the tightness eases for your competitors, are they diving back into IoT and that becoming a focus? Just how is that dynamic playing out with customers as maybe supply opens up for some of your competition? Thanks. John Hollister: Yes, understood. Yes, quick answer. We definitely saw that dynamic where as it seems extremely tight, a lot of competitors return to what is there for, which was fantastic for us because our core with this space. And so we definitely know that we've gained share as a result of that. I think a few things. We haven't seen that dynamic shift yet. So things definitely have not opened up in a way that we've seen. Competition coming back for those sockets yet. I think it's too early for that. I do think it will happen. As supply improves, people will be out there looking for socket. Two things I'd say. One is customers remember this stuff. I think memories are pretty deep. And this supply chain prices has either strengthened relationships or weakened relationships. And I'm proud to say that I think a lot of our relationships, vast majority of them have improved in this cycle. So I think that will serve us well as we go into the next few years. The other thing that's really critical to understand, we are in an incredibly strong period of our product cycle. I mentioned our Series 2 platform. So as I said in my prepared comments, we have literally almost doubled the size of our revenue in the last couple of years on the first two products coming out of that platform. And there's -- we just announced four more, and we have a lot more coming in development. So that strength of platform where we're at in the cycle positions us really well going into whatever this is in the sense that we've improved our customer relationships, and we have that strong product pipeline. So there will be competition, but I think we're pretty well positioned going into that. Matthew Ramsay: Thanks Matt. Appreciate the color. Operator: Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question. Gary Mobley: Hey everyone. Thanks for taking my question. I wanted to ask about what Matt mentioned in his prior questioning, perhaps in a little more direct fashion. Given the trends that you're seeing in your bookings on a week-to-week basis or a month-to-month basis. Do you feel like your fourth quarter revenue guidance is reflective of the trend or is this just a node on the way down? And against that, do you think you can grow your top-line in calendar year '23? John Hollister: Yes, Gary, this is John. That's a good question. It's a hard one to answer. Based on everything we see, we see outstanding design win momentum in the company. We are at 90% of our annual goal for design win achievement through the first three quarters of the year. That's a tremendously positive statement. We are not immune for macroeconomic effects. No company really is at the end of the day. So we'll see. We'll see what the Fed comes out with next week and where the capitulation cycle may begin to kick on, et cetera. But we're as well positioned as we could be, as Matt has articulated very well to grow the business. And putting aside macro conditions, we see fundamental drivers in the business that indicate to us, yes, we expect the business to grow in fiscal '23, and we are not changing our long-term CAGR for growth of 20%. I hope that answers, but I'm happy to follow-up if that didn't quite helpful for you. Gary Mobley: No. No, it's quite helpful, John. I appreciate the comments. So if I'm not mistaken, you have some China-based fab partners. I'm curious to know, against the backdrop of tightening U.S. export restrictions targeting China. Have you begun the process of trying to reshuffle your fab partner -- excuse me, fab partner footprint to try to mitigate the risk associated with these restrictions? Matt Johnson: Yes. This is Matt. I'll pick it here. So big picture of the company. We have a relatively low percent of our overall business in China, I think around 13%, 14%. And even smaller percentage of our supply coming out of China from a foundry perspective. And we do not have any of our -- think of it as our next generation or Series 2 or growth products sole-sourced anywhere in China. So we believe that we're relatively well positioned. To be clear, it's fair, there's a lot of uncertainty of geopolitically that's growing there, but we are not sole sourced on any of our future growth and next-generation process there. Gary Mobley: That's helpful. Thank you, Matt. Operator: And our next question comes from Blayne Curtis from Barclays. Please go ahead with your question. Blayne Curtis: Hey guys. Thanks for taking my question. I just want to go back to Matt's first question on the guidance. Because you did mention some certain programs and then I think your answer was more kind of about geographies. So I'm just trying to understand is the quite a sharp decline in December, is that kind of like a onetime thing. I mean I know you're still saying demand above supply and supply is the issue, but you did also mention some programs, if you could just elaborate on that? Matt Johnson: Yes, sure. So to be clear, this is more broad in consumer. So it's a complex situation where we're definitely seeing consumer softness, right? We're not seeing more to cancellations, we're seeing more to push outs. And at the same time, we still have more demand than supply. So matching those up is becoming increasingly difficult given that volatility that we're seeing out there. This is less in Q4 about one or two customer programs or ramps or anything like that. And this is more of a market statement about what we're seeing in consumer across, really, like I said earlier, strongest and most acute in China, but then some consumer softness in Europe as well. So think of it as we're seeing broad softening in the consumer space, still some demand-supply gaps. But this isn't about one or two ramps or a few customers or products or anything like that. It's also important to reference, relative to the last year, it's definitely weaker than what we've seen. But if you step back and look at the pre-supply chain prices, our backlog and outlook would be stronger than ever going into a quarter or going into a year. So if the context matters in this case. Blayne Curtis: And then I just wanted to ask on pricing. You kind of took the position of raising once and not having to go back to customers, but it has been the primary driver of growth this year. So just your thoughts as things soften and capacity becomes available elsewhere, your ability to hold pricing that you've had this year into next? Matt Johnson: Sure. Yes, we're not seeing any indications of supplier pricing softening yet. In fact, we're still seeing some increases and expectations to increase especially there's still some pretty sharp demand supply gap, particularly in the nodes that we trade in the company, but the industry consider more mature process nodes. So that's important to realize that not all nodes are the same in the semiconductor space. So that's the first thing. The second is, we do believe that we are well positioned to navigate -- not getting stuck for lack of better terms as a company, especially given the way we manage customer relationships and the strength of that product cycle I mentioned earlier. So as we mentioned consistently over the course of the last year or so, our goal in this was not to change our model, raise our model, but to pass those prices along they not get stuck in the middle. And I think we're still in a very good position to continue to do that. John Hollister: Yes. And Blayne this is John, if I could just add a couple of quick points. On the ASP dynamics are also driven by product mix, where at times we're selling higher value-add products not just [indiscernible] higher prices. And this final point is you in Q3, we're up double-digits year-on-year just as a big point. Blayne Curtis: Thank you. Operator: Our next question comes from Raji Gill from Needham & Company. Please go ahead with your question. Rajvindra Gill: Yes, thank you for taking my questions. Just a follow-up again on the Home and Life. So it's a fairly steep deceleration in terms of year-over-year growth. The growth is decelerating to about 11% year-over-year and on a sequential basis for Q4, it's down about 17%. And so when we're thinking about going into the first half of 2023, if there's kind of continued softness in the consumer market, if this is mainly driven due to order pushouts -- I mean trying to match the demand-supply. Is there a concern that those order pushouts are going to lead to kind of order cancellations, and we have more of a pronounced -- even more pronounced kind of decline in the Home and Life. I'm just trying to get a sense of the steep decline on a quarter-over-quarter basis. You're attributing it to order pushouts and matching demand-supply yet -- but not necessarily straight out order cancellations. So I'm trying to reconcile those two ideas? Matt Johnson: Yes, sure. I think -- this is Matt. I'll comment on that, and I think it would be good to hear from John as well. Things are dynamic right now and changing, right? So what we're giving you is the best picture that we have sitting here right now. When we look customer like customer go through this, as I said earlier, there's quite a mix of what we're seeing, right? Some customers are still going strong, some are just right and some have more inventories than they should, and they're also seeing the demand soften, so they're trying to work through that. So as we go forward, we definitely know that Q4 will be working through inventory that customers have, which is good. And I think that's what we want to see going into next year. I think what you'll see in next year is a pretty wide range of things that we mentioned earlier, right? We're going to see some customers that still need to run off some inventory and are seeing also demand softness overall. But we also see some customers presenting a lot of strength in consumer. And we also know we have those share gains in those sockets and applications. So the confluence of those still gives us good confidence going into 2023 that we're going to be able to do better than wherever that space ends up being all instances. And John, go for that. John Hollister: Yes, I would just add that in terms of calculations, we really have not seen that handful, but really it's more pushouts. I understand your point, Rajiv, but so far, we have not seen meaningful cancellations. Rajvindra Gill: Yes, I appreciate that insight. And just for my follow-up on the gross margins. The gross margins, even though they've been trending down of kind of a high base, are still quite healthy relative to your long-term target, 60% for Q4 guide. If we're entering into a period where there could be volatility around the Home & Life business, I'm just curious, how are we thinking about gross margins as we trend into next year? And why have the margins been relatively healthy, given kind of the mismatch that you saw with price and cost? Is it a mix shift towards industrial commercial that's helped? Just curious on kind of the dynamics of margin in Q4, and then how should we be thinking about the margin trends next year at a high level? Thanks a lot guys. John Hollister: Yes, sure, Raj. It's John. So we've performed well in this area this year. As we look at the guide for Q4, we're near the model indication of high 50s gross margin, given the current situation. And no real change to the overall messaging on gross margin. We continue to allow for some potential compression there over time due to the factors we've talked about previously on growth in standard-based technologies growth and certain volume customers, et cetera. But we're going to try it continue to outperform. And to the extent we do that, that's a win. So really no major change in our messaging more. Operator: And our next question comes from Tore Svanberg from Stifel Nicholas. Please go ahead with your question. Jeremy Kwan: Yes. Good morning. This is actually Jeremy calling for Tore. Maybe if I could ask firstly on -- is there a way to get a sense of maybe where your lead times are at, both in terms of what you may be quoting to your customers and also what you may be getting from your suppliers? And has that shifted in the last quarter or so? John Hollister: Sure, absolutely. This is John. We've seen lead times come in a bit. We're running in the 26 to 52 weeks depending on the product. It's more averaging now about 26 weeks. So it has come in some. That said, that continues to be well in excess of where we have traditionally operated. In the past, we ran with roughly seven to eight weeks of lead time. I think those days are over. Going forward, we'll systemically have longer lead times, more likely in the roughly about a quarter worth of lead time. So we're still roughly about 2x our expected long-term lead time. They're not coming in a bit. Jeremy Kwan: Great. Thank you. And turning to the design wins. I think you mentioned you're at 90% of your initial target and just about three quarters of the way through the year. Can you give us a little bit more color in terms of is there a way to quantify that opportunity, maybe potential pipeline or lifetime revenue or also maybe in comparison to the design wins you achieved last year, how does that compare? John Hollister: Sure. Just a few points to help maybe frame it and give some context. So, we've seen honestly, just a remarkable progress on our demand win. We share that our opportunity funnel has grown to over $16 billion lifetime revenue, which is, I think 50% more than it was the same time last year, which is an amazing progress. But it doesn't matter if you have the opportunity unless you don't get the win business. So, the team has been hyper-focused on winning business in this supply constrained cycle. And it's not just the desire we had that product cycle that's incredibly strong, I mentioned, right? So, you have the strength of the product cycle, which gives our sales team the awesome and best combination you could hope for. They have strong products to go win business with. They have the ability and relationships that are improving in this cycle. It's the best combination you could hope for. And maybe another way to think about it, everything to kind of quantify it for you, we set our targets to always win as much as you can. But at a minimum, you got to win at least as much to drive our model, which is the 20% compound annual growth rate revenue growth. So, it's always -- the floor on that is always that because we always want to grow that much or faster. So right now, we're trending well above that, which is a few things. We know that positions us really well for the future. And we know we're gaining share in these design wins. So we fully recognize the uncertainty that's out there right now in the semiconductor space and the overall economy, but we do believe that whatever this ends up being, because of those share gains and that strong product cycle, we're going to gain share and outperform just like we have when things were strong, when things are uncertain, we think we're going to outperform there as well. So that's the best way I think I can find for the design win momentum, and hopefully, that answers your question. Jeremy Kwan: It's very helpful. Thank you. Operator: And with that, ladies and gentlemen, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Giovanni Pacelli for any closing remarks. Giovanni Pacelli: Yes. Thank you, Jamie, and thank you all for joining us this morning. This concludes today's call. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your lines.

Operator: Hello. My name is Sarah, and I will be your conference operator today. Welcome to Silicon Labs' Second Quarter Fiscal 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Giovanni Pacelli, Silicon Labs' Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Sarah. We are recording this meeting, and a replay will be available for four weeks on the Investor Relations section of our Web site at silabs.com/investors. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our second quarter financial performance and review recent business activities. This information, along with accompanying financial tables and the earnings press release is available on our Web site. We will take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call, and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs Web site. I would now like to turn the call over to Silicon Labs' Chief Financial Officer, John Hollister. John? John Hollister: Thanks, Giovanni. I'm pleased to report that strong revenue performance for the second quarter set a new record, at $263 million, up 55% year-on-year and above the top-end of our guidance range. Our industrial and commercial business grew exceptionally well in Q2, ending at $144 million, up 61% from the same period of fiscal 2021. We saw significant year-on-year growth in Q2 across all major portions of the [I&C] [Ph] business in industrial, commercial and smart city applications. The home and life business was also up strong for the quarter to $119 million, an increase of 49% year-on-year, with particular strength in connected home applications. In terms of our connectivity protocols, revenue from our Bluetooth product lines more than doubled in the second quarter, year-on-year. We also saw mid-to-upper double-digit growth rates across our other supporting protocols, such as Zigbee, Thread, proprietary wireless, Z-Wave, and Wi-Fi. Looking at our revenue in Q2 geographically, we saw the strongest sequential growth in Q2 in the Americas region, followed by Europe. Asia-Pacific was down. In Q2, the COVID lockdown situation in China did impact our customers, distributors, and suppliers. For example, two of our large regional distributors in China experienced increases in distribution inventory levels due to the lockdowns, and are primarily responsible for the increase in our [indiscernible] inventory. Distribution revenue for the second quarter was around 80% of total revenue. Our business continues to be very diverse, and our solutions are used in thousands of applications by tens of thousands of customers worldwide. Our top-20 end customers represent around 30% of total sales. And our single largest customer is 5% of sales. The demand environment continues to be strong, and our demand remains above our ability to fully supply it. That said, we are seeing more volatility in our recent bookings patterns, with more variation on a week-to-week basis combined with higher levels of customer reschedules. We have not seen a large uptick in order cancellations. We believe the broad-based nature of our customer footprint combined with our significant industrial exposure offers greater stability to macro weakness than more heavily consumer-oriented semiconductor operations. Non-GAAP gross margin for the quarter exceeded expectations due to favorable product mix. Q2 gross margin was 62.4%, which was a decline from first quarter, as anticipated, due to the significant price increase effect in Q1. Non-GAAP operating expenses were slightly elevated, ending at $110 million, due to additional product development costs, higher variable costs on upside business performance, and increased travel as we resumed more normalized travel patterns in Q2 coming out of the pandemic. R&D expenses were $68 million or 26% of revenue, and SG&A expenses were $41 million or 16% of revenue. Non-GAAP operating income was $55 million or 21% of sales, exceeding expectations. Our non-GAAP effective tax rate was slightly favorable, at 24%. Non-GAAP earnings ended at $1.17 per share, above the top-end of our guidance range. On a GAAP basis, gross margin was 62.3%. GAAP operating expenses were $133 million, with R&D expenses at $84 million, and SG&A expenses at $49 million. GAAP operating income was $31 million or 12% of sales. Stock compensation expense for the quarter was $14 million, and amortization of intangible assets was $9 million, both in line with our expectations. GAAP earnings were $0.60 per share, above the high end of our guidance range. Turning to the balance sheet, cash and investments ended at $1.5 billion. Accounts receivable ended at $72 million reflecting DSO of 25 days. Net inventory increased in the quarter to $74 million, up from Q1 and ending at 5.4 turns. We also invested working capital into our supply chain in Q2 to secure future capacity. Our distributor inventory increased slightly to 60 days. So far, this year, we have returned $600 million to shareholders through our stock repurchase program. Since we announced the divestiture just over a year ago, we have returned a cumulative $1.75 billion retiring $11 million shares or 25% of our pre-divestiture share count. Our share repurchase activities will provide a durable long-term benefit to our earnings power going forward. And we intend to continue to return capital to shareholders. However, this month, our Board of Directors approved an additional open market repurchase program of $250 million through the end of fiscal 2022. Next, I'll cover guidance for the third quarter. We expect our revenue for Q3 to be in the range of $265 million to $275 million. We expect our non-GAAP gross margin for Q3 to be between 60% and 61%. We expect non-GAAP operating expenses to increase to around $113 million with the increase from the Q2 level primarily in R&D based on continued investment in products. Due to our strong cash position and rising interest rate environment, we expect our other income and expenses line item to increase to around $4 million for Q3. Our convertible notes have a fixed interest rate. We expect our non-GAAP effective tax rate for Q3 to be 26%. And please note that absence any legislative changes, we continue to expect the tax rate to decline by a couple 100 basis next year as the amortization stock on R&D [deductions] [Ph] accumulates. We expect our non-GAAP earnings to be in the range of $1.08 to $1.18 per share. We expect GAAP gross margin to be about 60%, GAAP operating expenses to be approximately $137 million, and GAAP earnings to be in the range of $0.49 to $0.59 per share. I'll now turn the call over to Matt for business update. Matt? Matt Johnson: Thank you, John, and good morning, everyone. Silicon Labs continue execute well in a challenging macro environment posting record revenue in ESP during the June quarter. We are seeing volatility in the market, and as John mentioned, increasing variability in our booking pattern. That said, we are driving solid execution, strong design win momentum, and notable share gain while experiencing continued strength in our diverse end market. Demand continues to meaningfully exceed our ability to supply. And we are focused on meeting our customers' requirements. Our second quarter result was driven by double digit growth across all our major product groups and end markets highlighting the diversity within our business. Our opportunity pipeline continues to expand, and now sits at $15.5 billion, up 54% year-over-year. We continue to see a significant design win momentum as well, and our year-to-date total already approaching our 2021 full-year levels. This gives us confidence in expectations for continued outperformance in the market. In Q2, we saw a strong growth across all wireless protocols. Our Bluetooth solutions were a notable source strength reflecting our growing market share. Revenue related to our Bluetooth portfolio grew at an exceptional pace of 52% sequentially and 114% year-over-year. And our Bluetooth design win momentum is accelerating. In the Industrial & Commercial business, we saw a solid revenue growth, record design win, and a strong demand environment. We also see major design wins with leading global electronic shelf label customer including two of the top three providers. In Home & Life, we saw a solid revenue growth again this quarter as well as record level design win led by the smart home segment specifically. While we recognize the market volatility including some consumer weakness and market softening in the quarter, we know our ongoing design win momentum. For example, we continue to expand our smart home position with design wins that take advantage of the Matter connectivity standard supported in our recently launched MG24 product. Customers are showing strong interest in Matter. And we continue to support the connectivity standard [borrowings] [Ph] in Matter protocol development to help developers create the world's best Matter-based solutions. We are highly focused on the competitive landscape for recruiting and retaining talented employees. We have built a strong early talent pipeline and have over 350 interns and new college graduates joining this year. Forty five percent of our global intern products this year comes from historically underrepresented talent groups. Our new college graduate hiring also continues at an accelerated pace, further enhancing our ability to scale and build a sustainable talent base. We are investing our employee experience through a variety of training programs, resource groups, and other initiatives to ensure that we retain and attract the critical talent that drives our business. As we announced earlier this morning, Bob Conrad has been appointed to our Board of Directors. Bob has nearly 40 years in experience in the semiconductor industry, most recently with Freescale and NXP, before retiring, in 2019. He brings a strategic mindset and deep industry experience which will be invaluable as we continue to scale and grow the company. We also announced that Bill Wood has shared his intention not to stand for reelection to our Board of Directors. He will retire effective as of the date of our 2023 Annual Stockholders Meet. Bill has served on the Silicon Labs Board of Directors since the beginning of the company, and we're grateful for his leadership over the years. We're also looking forward to our upcoming Works With Developer Conference, being held September 13 to 15. In its third year, Works With is the premier developer conference for building the skills to create impactful connected devices. We bring the industry together to continue simplifying and accelerating wireless adoption worldwide. In summary, despite the changing landscape and the broader market, our team executed well across the board. In the one year since Silicon Labs became a pure-play IoT company, we have delivered record revenue growth and increased earnings power while returning significant capital to our shareholders. The IoT wireless market is showing remarkable resilience, and we are more confident than ever in our ability to lead and scale in this large and growing market. Giovanni? Giovanni Pacelli: Thanks, Matt. Before we open the call for Q&A, I would like to announce our participation in two upcoming conferences; KeyBanc Capital Markets' Annual Technology Leadership Forum in Vail on August 12, and Citi's 2022 Global Technology Conference, in New York, in early September. We will now open the call for questions. To accommodate as many people as possible before the market opens, I ask you to limit your time to one question with one follow-up inquiry, if needed. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Raji Gill with Needham & Company. Please go ahead. Raji Gill: Yes, thank you for taking my questions, and congrats on all the good momentum. And just wanted to get a little more insight on your commentary around seeing more volatility and variability in the order book and customer scheduling, wondering if you can clarify. And did you say that you have not seen an uptick in customer cancellations or have you -- you haven't seen a large uptick in order cancellations? I'm just trying to get clarity on that language. And also, if you could elaborate a little bit further on when you say you're seeing variability in the order books, what does that mean, and is there specific -- John Hollister: Hi, Raji, this is John. Yes, sure thing. Let me start, Raji. You know, as we all know in the supply crunch over the last period of time of time, and just given the strength of our demand and the secular drivers that we have, it's been a period of really sustained, strong bookings for several quarters. We have begun to see more variability there in the week-to-week booking patterns, with some weeks continuing to be very strong, some weeks are more light in the regard of new bookings, although the cumulative backlog remains high and significantly above our ability to fully service that backlog. In terms of the push-outs and cancellations, yes, we've seen a few cancellations, Raji, but not as a major trend or sort of broad-based in nature, but what we are seeing more frequently are customer requests to reschedule deliveries further out in time as they continue to assess their own demand profile. Raji Gill: Thank you for that, that -- it's helpful. Just for my follow-up, if you look at your revenue growth, you're on track to kind of exceed your annual guidance of 35% to 40%. And last year, you grew also 40% or so. Wondering if you could talk about the contrast between pricing and unit growth, if I recall, last year, much of the growth or majority of the revenue growth was attributed to unit growth, and maybe 10% of the growth was attributed to ASP increases. This year, it seems like it's going to be more even. So, double-digit price increases versus, say, double-digit unit increases, so, wanted to get your thoughts on the pricing environment. Are you continuing to kind of pass on input cost to your customers? How long do you think that that pricing power or the price increases is going to sustain itself, especially as we go into next year where there could be a deceleration in demand? Thank you. John Hollister: Let me start, and then I'll pass it to Matt. Raji, this is John again. So, you're right, and that your summary assessment there is a good way to frame that, with double-digit contributions this year from both pricing and unit output. And we saw more unit output contribution in the second quarter than the first quarter. And as we progress through the year, you'll see more of a stable pricing environment. Just as another data point to highlight that, the ASPs that we generated in Q2 were essentially flat to Q1. So, sequentially, the growth in the business was fully driven by unit output. As far as the pricing power and how long that will sustain, let me turn it to Matt to comment longer-term. Matt Johnson: Yes, sure. This is Matt. I think two quick comments. One is, it's important to recognize that we have been incrementing up our supply, which is extremely important for our customers, and we expect that to continue. On the pricing piece, we took a little bit different approach than some others, and we did a increase one time that [with calling] [Ph] our customers, we're trying to not nibbling it to that death on this; we're trying to reflect what we think is going to happen over the course of the year based on what we're being communicated by our suppliers as well as [some estimates] [Ph], and that's worked pretty well. I think that we're seeing that that's worked well for our customers, it allows them to plan and navigate the year. In terms of the durability of that, right now, we don't see any indications of supplier pricing changes, right? And that seems to be relatively durable. And, in fact, I think the expectation for most suppliers is that they're going to continue to increase their price. So, we feel good about how we've approached it. And, right now, indications are those prices will continue to increase in small amounts from suppliers, and that's what we've baked into our plans. So, we feel good about it. Raji Gill: And thank you. And if could just squeeze in one more, and I'll back up in the queue. Just could you remind us, John, what your lead times are? Thank you. John Hollister: Yes, they're quite extended. We're looking -- it depends on the product line, but just in sort of aggregate terms, between six and 12 months of lead time at this point. Raji Gill: Thank you. Operator: Our next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead. Gary Mobley: Hey, guys, thanks for taking my question. I want to start off by saying I appreciate the fact that you guys have been exceeding your long-term financial targets so far this year, and congratulations on that. But as I look at the low-end of your long-term financial target, as you present at your Analyst Day, that's roughly $1.25 billion of revenue, 55% gross margin. However, if I simply extrapolate out your $113 million non-GAAP OpEx guide that you're putting out there for the third quarter, it looks like you might be a little below that long-term 20% margin target; maybe, call it, high-teens percent. So my question is what can give to allow fruition of that low-end of the financial target, is it gross margin, is it maybe some more OpEx discipline? John Hollister: Hey, Gary, yes, this is John. I understand the point, and yes, we are pleased to be outperforming our long-term targets this year. As we look ahead, we've got a ways to go to that point, and we have no change sort of -- or that's the first thing to say, no change in the long-term model. [Would you know,] [Ph] puts and takes between gross margin and OpEx, as you indicated, that's one point to make. And second point is we have introduced a bit more variability and flex into our spending profile that provides more optionality to the management team here. Gary Mobley: Thanks, John. As my follow-up, can you remind us what you have remaining for capital return? I believe that your [indiscernible] long term is to keep maybe a billion dollars in cash for optionality, so to speak. Does that mean there is roughly $500 million left to return? John Hollister: Yes. Just suffice to say, Gary, that we expect to continue to return capital to shareholders and don't really have a view that there is a [indiscernible] points around us. Yes, we would like to maintain some dry powder for M&A optionality. I am quite pleased with how this has gone so far, and would like to continue with that program. Happy that the Board is authorized another $250 million. That would top up to full $2 billion we talked about and we did the deal, but that doesn't mean that's the end of the road [indiscernible]. Gary Mobley: Okay, thanks, John. Appreciate it. Operator: Our next question comes from the line of Matt Ramsay with Cowen. Please go ahead. Matt Ramsay: Thank you very much. Good morning, everybody. I guess for my first question, John, you mentioned in your script that distribution inventory had gone up. And I think that was you called out due to a couple of [indiscernible] in China having some COVID shutdowns that happened during the quarter. And I guess that's understandable. Okay, maybe if you can give a little bit more color on how much that's going on up? And have you been tracking sell-through from those [indiscernible] seen that inventory start to come back down? Thanks. John Hollister: Yes, a bit. So, on the second question, we're seeing the China market open up better than where it was in the second quarter for sure. And, suffice to say that the two areas where we saw accumulation are above the average clearly, and our composite goal for this remains to be in the 45 to 55 days category. So, we are a little ahead. But some distributors they are below target actually. So, we expect to continue to normalize this and create more fill and also relieve some of the accumulation that's taken place in China. Matt Ramsay: Got it. Thanks, John. I guess stepping back a little bit bigger picture for my follow-up, I guess the observation is that you and your peer companies the results are really good. ASP margins really strong right now. And there is kind of a juxtaposition of the investor fears of what's coming down the pipe with the economy. I think to that end, Matt, maybe you could spend a little bit of time on the design win momentum? How you are seeing different end markets behave from design end and design win perspective? What ASPs are being sort of contemplated? And some of the new wins that you are getting just translate that that might I guess help us talk to investors about the fact that these transits you are seeing now are sustainable and maybe defensible as the economy does get a little more [hairy] [Ph]? Thanks. Matt Johnson: Sure. Yes, so this Matt. And focusing on -- I think it's a really important point because there is a lot of uncertainty out there in terms of what the market is going to look like in the coming quarters. And one of the things that we can do that makes a massive impact and the most meaningful to insulate us from whatever happens is our share gains and design win momentum. It's one of the strongest indicators that we have of what the future is going to look like. So, you see our current performance. And what I mentioned earlier is year-to-date we have secured design wins that are approaching the level of our entire year in 2021. And 2021 was a strong design win year for us. So that gives the most momentum and confidence that, however, this ends up playing out, we will be well-positioned gaining share and outperforming. That being said, you asked about ASPs as well. We win competitive ASPs in the socket. So, these design wins are priced at competitive ASPs. There is not any assumption in there of long-term change. Honestly, it's one customer at a time; one application at a time, one socket at a time. And don't have to be competitive when we win them. So that's how it's reflected when we recognize the design win. So, important topic, and we are very proud of the team's momentum there. And our goal is to not only continue that but accelerate it to the maximum extent we can moving forward. Matt Ramsay: Thanks, Matt, really appreciate the color. Operator: Your next question comes from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: Yes. Congratulations on the strong results on a record quarter. First, for John; John, in the previous call, you talked about some potential gross margin pressures as we move throughout the year. It does sound or seem like gross margin is holding up quite a bit better. Can you talk more about the dynamics there beyond the guidance that you gave for the September quarter? John Hollister: Yes. Sure, Tore. We are seeing some downward shift here. We saw the somewhat anomalous Q1 due to the asynchronous effect of price and costs that come down in Q2 again, forecasting a bit more down in Q3 and really expected what Matt was talking about earlier in the call, where we implemented price dynamics ahead of some of the costs increases that are coming -- forthcoming. And now we're seeing some of that. So, we had some additional cost increases materializing in the second half. We have talked about that before and looking ahead, we will continue to monitor this and see how the market progresses as a supply chain may open up and capacity open up over time, so really, no major changes in our messaging around those points as well. Tore Svanberg: Great, very good. Yes, it's still several hundred basis points I think higher than what we had, or you had perhaps suggested before. Second question is for you, Matt; I think you called out the electronic shelf label market where you're now working with two of the largest players there. Could you just elaborate a little bit on that? It seems like we're still in the very early innings of that becoming potentially a huge market of the next few years? Matt Johnson: Yes, absolutely. Thanks for asking that. First of all, that's a market that as you said, early days just beginning I think it has a substantial growth potential as a space. I think the global adoption of that type of technology is relatively low, but the use cases and needs accelerated in the pandemic. And I think we're seeing what I would start to define as early signs of very broad adoption being planned by a lot of stores not just in the U.S., but globally as well. It's interesting to point out this is not a new phenomenon for us internally. We've actually been focused on this space now for about seven or eight years, and we're starting to see the impact of that, and we're really excited about it. So, early days, well-positioned, and I think substantial potential moving forward. Tore Svanberg: Great. Congratulations again. Thank you. Operator: [Operator Instructions] Our next question comes from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: Hey, thanks for taking my question. You mentioned in the script that you saw some weakness in home in life, just curious when you saw that weakness and you were able to offset it with design wins and actually grew quite nicely. Just kind of curious as you looked to September, any color on that consumer weakness within that September guide and whether Home & Life can still grow? John Hollister: Yes, Blayne, we have seen some of the push outs affected that part of the business a bit more, fair to say that. And yes, we'll see how the trends evolve over the course of the quarter, but it is possible that that business could grow. Matt Johnson: Yes, this is Matt. I just add to what John's saying, it's important to understand that dynamic, that demand continues to meaningfully exceed supply across all those markets and applications. So, we are seeing some of those push outs and some of that volatility which creates some challenges to schedule as those things happen. But we definitely see the ability to continue growing in that space. And our priority is to find a way to close the gap for our customers on demand versus supply, because we still have a lot of hurting factors out there. We want to close those gaps. So, there it's definitely opportunity for growth. Blayne Curtis: Got you. And then, just a follow up on terms of the increase in inventory, just, I mean, it is not that much on overall basis, but it is a big sequential increase. So, was that product that you had hoped to ship and just couldn't, given all these moving pieces? John Hollister: Yes, essentially, that's right. And it's also -- it speaks to our work on supply chain and what we've done there as well, but we're making some progress here, but not really at our goal. I mean, our target inventory turns level is more in the three to four times neighborhood. So, we remain a couple of turns above our target inventory turn level. Blayne Curtis: Got you. Thanks. John Hollister: Sure. Operator: I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Sarah, and thank you all for joining this morning. This concludes today's call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: My name is Tom, and I will be your conference operator today. All participants are in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I will now turn the conference over to Giovanni Pacelli, Silicon Labs’ Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Tom. We are recording this meeting, and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our first quarter financial performance and review recent business activities. This information, along with accompanying financial tables in the earnings press release is available on our website. We will take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of the Silicon Labs’ website. I would now like to turn the call over to Silicon Labs’ Chief Financial Officer, John Hollister. John? John Hollister: Thanks, Giovanni. Revenue for the first quarter established a new record and ended above the high end of our guidance range at $234 million. This represents tremendous growth as a pure-play IoT business of 48% versus the same period last year, well ahead of our long-term operating model. Our Industrial & Commercial business delivered revenue of $127 million in Q1, growing 61% year-on-year, with strength across the diverse end markets of commercial infrastructure, smart city applications and in particular, industrial applications where we saw the strongest top line performance. The Home & Life business also delivered strong growth in Q1, ending at $107 million, up 35% year-on-year with smart home and home security applications driving strong momentum. Distribution channel revenue in the quarter accounted for 82% of our total sales. Our business is very broad and diverse, serving tens of thousands of customers and thousands of applications. Our largest customer represents only about 5% of revenue, and our top 10 customers are less than 20% of revenue. Our business in Q1 grew year-on-year across all geographies with the strongest growth in the Americas, followed by Europe, then Asia Pacific. The geographical mix of our business has evolved over time and is now roughly balanced across the Americas, Europe and Asia Pac. Non-GAAP gross margin for the quarter was favorable to expectations, ending at nearly 67%. It’s important to note this gross margin was driven by an atypical quarter in which we sold out lower cost inventory procured in fiscal 2021. While also seeing our manufacturing costs rise with price increases from our suppliers. Gross margin also benefited from fewer-than-expected expedite charges in the quarter. As noted, we are experiencing manufacturing cost increases and expect gross margin to moderate over the coming quarters. Non-GAAP operating expenses increased to just under $100 million for the quarter, with R&D expenses at $63 million and SG&A expenses at $36 million, a total increase of around $5 million from Q4. The increase was due primarily to seasonal effects from payroll taxes and other benefits, combined with additional personnel-related costs. We successfully initiated accelerated IoT, OpEx investment in Q1, the project timing resulted in favorability in our OpEx. Non-GAAP operating margin for Q1 was stronger than expected, ending at 24% on the basis of strong top line performance, superior gross margin and greater-than-expected leverage in OpEx. As anticipated, we faced a significant increase in our non-GAAP effective tax rate, now up to around 26%. We expect it to remain in that range for the full year due to required capitalization of R&D expenses. Absent legislative changes, we expect the tax rate to decline a few hundred basis points per year as the amortization stock builds up over time. Based on the strong performance I’ve just described, we delivered non-GAAP earnings per share in the first quarter of $1.05, well ahead of our guidance for the quarter. On a GAAP basis, gross margin was just under 67%. GAAP operating expenses declined in the quarter to $122 million due to some significant onetime expenses incurred in Q4. GAAP R&D expenses were $78 million with SG&A expenses of $45 million. Please note that accounting rules have updated and simplified the accounting treatment of convertible debt. And accordingly, we no longer accrete a non-cash interest charge for our 2025 convertible notes. Our GAAP earnings per share ended for Q1 at $0.58 with a 34% GAAP effective tax rate. Next, I’ll cover the balance sheet and provide a capital deployment update. We ended the quarter with cash and investments of $1.9 billion. Our accounts receivable balance declined to $79 million in Q1 with DSO of around 30 days. Our operations team executed very well during the first quarter by delivering on upside revenue performance and growing our inventory balance to $56 million ahead of expected continued upside in the business later this year. Channel inventory also recovered as expected to 57 days. With strong operating results, our operating cash flow in the quarter was $85 million. Through the first four months of the year, we returned $250 million of capital to our shareholders through open market repurchases, bringing the cumulative total since we announced the divestiture to $1.4 billion. Last week, our Board of Directors authorized an additional $350 million in share repurchases for the remainder of this year. I will now cover guidance for the second quarter of fiscal 2022. We expect revenue to increase to a range of $245 million to $255 million with sequential growth expected in both the Industrial & Commercial and Home & Life categories. We expect non-GAAP gross margin to decline to around 61% based on FY2022 manufacturing cost increases already in place, along with expected increases over the course of the year. Even at the lower expected gross margin over the course of this year, we continue to deliver premium gross margin for the IoT space based on the differentiation of our platform. We expect non-GAAP operating expenses to increase to around $107 million as our merit increases for FY2022 take effect, IoT investment expands and we continue to grow our team. We expect our non-GAAP effective tax rate for the quarter to be 26% and non-GAAP earnings per share to be in the range of $0.85 to $0.95. On a GAAP basis, we expect gross margin to be around 61%. We expect GAAP operating expenses to increase to $129 million and GAAP earnings per share to be in the range of $0.37 to $0.47. I will now turn the call over to Matt. Matt? Matt Johnson: Thank you, John, and good morning, everyone. We’re off to a outstanding start in our first full year as the largest pure play IoT wireless company. We delivered record revenue for the seventh consecutive quarter and great operating result. Demand continues to meaningfully outpace our supply, even as we keep adding incremental supply. We continue to focus on doing the right thing and strengthening our customer relationships as we navigate the supply challenges together. Demand for our solutions is strong and growing. Our design and momentum is accelerating even faster than our revenue, growing 79% in the first quarter over the same period last year. This is a greatly the indicator of future revenue growth. Our opportunity pipeline also continues to grow, now well over $14 billion as we gain visibility and identify new opportunities within our large and growing market. Silicon Labs is now the largest pure play wireless IoT company in the world. Our platform based approach enables us to address an incredibly wide range of applications, using a common hardware and software platform purpose-built for the IoT. Our platform allows us to efficiently scale our technology to additional markets and applications and makes it easier for our customers to deliver products faster and accelerate wireless adoption. In Q1, we saw strong revenue growth across all wireless protocols and end markets. In Industrial & Commercial, we’re seeing strong demand for electronic shelf labels and growth in industrial automation and asset monitoring. Smart city deployments continue to expand beyond our traditional strength and smart metering into growing application areas such as grid monitoring and distribution automation. In Home & Life, demand is strong across all end markets and we’re particularly pleased with new wins in portable medical and smart appliances. Anticipation is growing for the release of the new matter standard later this year, and our solutions for quickly bringing matter enabled products to market have been well received. For example, in Q1, we announced and shipped initial samples of our xG24 family of wireless SoCs, which support matter and bring AI ML acceleration to battery-powered edge devices. Initial customer response has been fantastic. Our Alpha program sold out with participants representing a wide range of smart home and industrial applications. The xG24 family is just the latest in an impressive lineup of solutions built on our Series 2 platform. With Series 2, we’ve been able to increase our R&D efficiency and deliver new products faster. And market response has been fantastic. Our current demand is only reflective of the first few products on the Series 2 platform with three to four times more on the way, another great indicator of future demand. We’re also incredibly proud of the xG24 performance on the important MLCommons Machine Learning and Inference Performance benchmark. With integrated AI ML hardware acceleration the xG24 wireless SoCs provide up to four times faster processing with up to six times lower power consumption for machine learning workloads. This means even ultra low power wireless of IoT devices can now be enhanced with machine learning capabilities. In early March, we held our 2022 Analyst Day event in New York. The Silicon Labs’ executive team enjoyed ringing the opening belt the NASDAQ to celebrate our 22 years as a public company, and honor the achievements of our talented global workforce. Silicon Labs entered 2022, a 100% focused on wireless connectivity for the IoT and we are determined to lead the industry. We’re excited by the impact our solutions and technologies are having on the industry and in people’s lives. I couldn’t be prouder of the team’s execution and the future opportunity that we see. Silicon Labs is positioned to lead and scale in an IoT market expected to achieve tens of billions of units per year in the decade ahead. We have the talent, the technology and the trusted partnerships across every major ecosystem to be a driving force behind the success of the IoT and the market leader in this exciting segment of the semiconductor industry. Thank you for your time this morning. I will now turn the call back to Giovanni. Giovanni Pacelli: Thank you, Matt. And thank you for joining Silicon Labs Q1 2022 financial and business update. I’ll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question with one follow-up inquiry, if needed. Operator: We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead. Gary Mobley: Good morning, everybody. Let me extend my congratulations to a strong start to the fiscal year. Guys, at your Analyst Day on March 1, you endorsed perhaps 35% to 40% revenue growth fiscal year 2022 with such a strong start to the first half of the year. Are you still bracketing that growth rate or endorsing that growth rate? Or might we be at or above the high end of the range? And as well, a few hundred miles to the east you is another large chip company that was somewhat cautious with respect to different supply chain concerns specifically over in China, whatnot. So I’m curious to know, to what extent, does that second quarter guidance contemplate all the macro and supply chain risks that we hear about day-to-day? John Hollister: Yes. Gary, this is John. Let me take the first part and then I’ll kick it over to Matt for the second part. But the indication we provided at Analyst Day was really relative to that event. We’re guiding one quarter at a time. I will say, we’re quite encouraged by the strength we continue to see in the business with design win momentum up nearly 80% year-on-year for the first quarter and continue to enable more supply. That’s really the phenomenon that’s happening right now is to the extent that we can activate more supply, we can deliver upside as we have demand that is in excess of our supply at the moment. And I’ll pass it to Matt for the next part. Matt Johnson: Thanks, John. Hi, Gary. This is Matt. In terms of, I guess, looking at demand and supply that you mentioned, we definitely see some war lockdown pushouts out there. And as soon as those happen, we’re able to reallocate to other demand because the demand is meaningfully outpacing supply. So that gives us flexibility. On the supply side of all that, we do see issues pop up. And as John mentioned earlier, the operations team has been able to respond with alternatives or recover. So definitely seeing both of those, but also seeing the team being able to navigate both of those. Gary Mobley: I appreciate the comments, guys. Now with respect to gross margin, I appreciate how you’re outperforming your long-term gross margin guide of mid-50% just given sort of the mismatch between price increases and supply chain increases. But my question is, do you still anticipate given all the different variables that perhaps by the time we exit the fiscal year, you’ll be sub-60% gross margin? John Hollister: Yes, Gary, we definitely see trends ahead that’s lead to some conservatism and view that margins could moderate. The full extent of that, we’ll have to see how it plays out. But that is possible, and we’ll know more as we progress through the year here. Gary Mobley: All right. Thanks, John. Thanks to everybody. Operator: The next question comes from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: Hey, good morning. And I’ll echo my congrats as well, very strong results. And I appreciate the additional detail by segment. And actually, I was curious, I mean, I know you’re not going to guide by these segments. You said both would be up. I’m just thinking about the long-term growth rate or even the growth rate this year between these two segments, it looks like Industrial & Commercial, it’s been doing a bit better? Any thoughts on kind of the relative growth rates between these segments, at least this year or even long-term. John Hollister: I’ll start, Blayne. If we just think about the SAM growth that we highlighted at the Analyst Day event. You do see stronger SAM growth out in time for the industry estimates for the Industrial & Commercial space, given the very large and diverse market, also see strong growth opportunity in Home & Life. But do see slightly higher growth potential from the SAM growth on the INC side. Blayne Curtis: I just want to ask it maybe it was just kind of one-off on the quarter, you said there’s less expedited but then demand is still outstripping supply. So I was wondering if things are becoming more predictable in your supply chain? Or I guess what’s the root cause for last expedites in the quarter? John Hollister: Yes. Thanks, Blayne. John here. I think it’s fair to say it is a bit more predictable, even though we are still constrained and we are undertaking multiple projects in the company to open up more. But in the near term, I think that’s a fair assessment that it is somewhat more predictable. Blayne Curtis: All right. Thanks. Pass it on. Operator: The next question comes from Matt Ramsay with Cowen. Please go ahead. Matt Ramsay: Good morning, everybody. Thank you. John, I think in the script, you guys talked about the business and the design win momentum being fairly equally split between the Americas and EMEA and Asia Pac. And there’s a lot of focus as you might imagine on the lockdowns in China. So is it true that the supply chain is sort of split that way as well and the fungibility of the products that Matt described an earlier answer allows you guys to navigate through this? Or is there are you guys sort of watching and worried about some of these lockdowns in China and certain pinch points in the supply chain for your stuff as well? I’m just trying to – the results that you guys are putting up are, I think, quite a bit ahead of what we would have expected given the macro commentary that’s out there. So I’m just trying to make sure that we’re not missing anything if you get the gist behind the question. Thanks. John Hollister: Yes. Let me take a run at it. Matt, this is John. So really, the commentary on the geographical split of the business is oriented more around the demand. That’s a comment on our customer footprint globally where we have roughly equal representation across the three major regions of the world. The supply chain is heavily concentrated in Asia Pacific, as you can imagine, with a good amount of supply sourced in Taiwan, some in Mainland China, some in South Korea. So we’ve been able to navigate this so far. Of course, we’re keeping an eye on it and mindful of what could happen out there with the lockdown. But so far, we’ve been able to navigate that. And given the platform broad-based approach of our products and technologies where we may have some pushouts or lockdown issues with customers. So far, we’ve been able to reroute available supply to other customers where that is not the case. Matt Ramsay: Got it. Thanks. Just as a follow-up on you guys had maybe OpEx slightly under where a lot of us had modeled it for the fourth – for the first couple of quarters of the year, but revenue well above. I just wonder, John, if you might give us some commentary on expense levels for the rest of the year. Are you anticipating an acceleration with all the demand funnel that’s out there? Or are there things that are maybe holding you back on hiring or whatnot that aren’t allowing expenses to grow as quickly as you might like? Thanks. John Hollister: Sure, Matt. And yes, we are expecting further acceleration through the course of this year. At times, we were not quite able to execute as quickly as we might want to just from different project timing factors at work. But yes, our goal is to continue acceleration through the course of this year. Matt Ramsay: Thanks, guys. Congrats, again. Operator: The next question comes from Srini Pajjuri with SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you. Good morning guys. I guess first on the gross margins, John. So obviously, you’re guiding down for the next few quarters consistently. Just trying to understand if the inventory, the – I guess, in the lower cost inventory is pretty much flushed through the system or if you still have any inventory left. And similarly, in terms of the price increases, have they been pretty much rolled out across the board? Do you still expect some additional opportunities to raise prices in the second half of the year? John Hollister: Yes, Srini. So the first response is yes, the legacy cost of inventory from last year is fully fleshed out. We are and have been incurring new cash costs to build new inventory at the 2022 cost points, which are meaningfully higher than the 2021 cost point. So that’s what you’re seeing affect us here in the second quarter, and we expect those trends to continue in the third and fourth quarter. There are some additional manufacturing cost increases forthcoming in the second half that we are already aware of. No immediate plan on price increases can never rule it out. But as of right now, we’ve taken steps to recover what we are experiencing ourselves at the moment. Srini Pajjuri: Got it. And then in terms of visibility, I mean, you’re saying that demand is still outpacing supply by a significant margin. But any change in terms of visibility compared to a quarter or two ago, given all the supply chain noise? And then in terms of your channel inventory as well, it went up a little bit. I guess your target is 45% to 55%. And how should we think about your channel inventory levels as we go through the rest of the year? Matt Johnson: This is Matt. I’ll answer the first part of that and hand it over to John. I think in terms of visibility in the entire environment, our bookings have remained consistent. And within that, our demand continues to meaningfully outpace our supply, which, as John said earlier, gives us flexibility as things shift to respond and reallocate. Within that, we continue to increase our supply. And that’s important. That’s a statement for the coming quarters and for 2023. At the same time, our design wins are accelerating even faster than our revenue, which is really important to us because that’s one of the stronger leading indicators we have of future demand moving forward. So that combination in sequence is really important. And John, I’ll hand it over to you for the second piece. John Hollister: Yes, Srini. So we were pleased with the ability to reload the distribution channel back into our target range. Our goal would be to hold that, which would be an absolute increase in units as the business continues to grow here. But it’s tight supply, and that’s a bit of a challenge for the team. But that is our goal is to continue to hold as best we can at the level that we’re currently at. Srini Pajjuri: Hey John, just a follow-up to that. I mean given what we saw in the last couple of years in terms of the supply constraints. Are you hearing or seeing any evidence that your customers going forward may be willing to kind of hang on to a bit more inventory on a structural basis, either distribution channel or direct customers? Because that seems to make logical sense, just given what happened in the last couple of years. So I just want to hear your thoughts on what you’re hearing from your customers? John Hollister: Yes. I think – yes. Really, I think it’s – we haven’t gotten normalized well enough to really understand the longer-term strategies for companies. I think your presumption is logical, but I think we’ve got to let some more time pass and get things more normalized to really know. Matt Johnson: And I’d just add to that, that one, we’re definitely not in those types of discussions right now, right? We’re still spending a lot of time on supply alternatives for our customers, working through their demand gaps and trying to help them navigate and bridge every quarter as we keep incrementing up supply. That being said, I do think the – given what the industry has just been through and going through that the interest in mechanisms for reliability of supply long-term will be much higher. And inventory can be a component of that, for sure, as well as supply alternatives, multiple sources for fabs and back end, et cetera. So I think all of those will be on the table, but we need some time and there’s quite a distance between here and there, given the size of the demand supply gaps that we’re still experiencing. Srini Pajjuri: Makes sense. Thanks, guys, and congrats, again. Operator: The next question comes from Raji Gill with Needham & Company. Please go ahead. Raji Gill: Yes. Thank you, and congrats as well on a really strong growth in a tumultuous market. Just a follow-up on a question around price increases. I know in the past, last year, the strong IoT growth was driven primarily by unit increases. This year, the split between units and price increases is a little bit more balanced. So I just wanted to get a sense in terms of when you’re looking out into kind of 2023 and when you’re talking about new customers and new design wins, as Matt talked about, how do we think about pricing as it relates to kind of longer-term growth and as well as you negotiate some of these new contracts? Matt Johnson: Sure. So the easiest measuring stick that I can provide is the design win momentum we talked about earlier. And our philosophy and approach to those design wins is to provide competitive market pricing for those solutions. And windows not at a – how would you say, not at a transient or temporary price, but what we would expect the price to be for the duration of that business. And so that’s the way we’ve been operating, and that’s the way we’ve been winning those design wins. So I think so far, we’re seeing good progress on that, and we expect it to continue. We’re optimistic about the design win progress and the momentum we have for the rest of the year. Raji Gill: Thank you. And just for my follow-up. In terms of capacity, you mentioned, to the extent that you can activate supply, you will generate more upside because of the demand picture. I’m wondering if you can maybe describe the overall capacity conditions with your kind of foundry partners. How are they looking at adding new capacity for 14-nanometer 28-nanometer products for your Series 2 or your Series 3 products. And so I just wanted to get a sense in terms of the capacity conditions and those dynamics throughout this year and kind of how you’re thinking about it next year because, as you know, there’s a strong investor concern about over capital – an oversupply industry leading to kind of a disconnect between demand if demand accelerates and more supply comes online. So there’s a lot of concerns about that mismatch that occur perhaps next year. So any thoughts there would be helpful. Thank you. Matt Johnson: Sure. Understood. Yes, it’s – given the meaningfully – meaningful gap, I think, that we have between demand and supply right now. It seems a long ways away where that would be the issue, but I understand the question completely. I think we definitely leave it for our suppliers to comment on their overall capacity and supply plans going forward. But what I can say specifically is our ability to work with our suppliers and partners to secure more supply has been effective, not only short-term but mid-term and long-term as well. So we see a path that we like going into the second half of this year and into 2023, I think, which is very important because that’s also a major component when we’re working with our customers on design wins that we can give them that visibility and ability to support those new designs as they come online. I think one other thing that’s worth mentioning that we found helpful and powerful in these discussions to – as we work on allocation and supply is being an IoT pure-play company. I think our suppliers all want a – for lack of a better term, a portfolio position that includes IoT and that exposure. And given that that’s all we do and that we have incredibly diverse presence there, that makes us attractive from that perspective. So we’ve seen not just with one but literally across our supplier base with a strong response to that, and I think that’s helping us navigate this as well. Operator: [Operator Instructions] And the next question comes from Tore Svanberg with Stifel Nicolaus. Please go ahead. Jeremy Kwan: Yes. Good morning. This is Jeremy calling for Tore. And just let me add my congrats on the – especially on the 24% operating margin. Just a follow-up on the geographic question. Can you give us a sense of where you expect most of the – maybe if you can rank order the growth in terms of those three geographies? And how does that compare to historically? John Hollister: Yes, Jeremy, this is John. It’s pretty consistent. I think it’s fair to say for the wireless applications, at least initially in the rollout of Internet of Things applications you have seen more strength in North America and Europe. There are some good opportunities in Asia Pac and expect that to further develop over time here. We do have significant MCU business in Asia Pac as well. But overall, it’s reasonably balanced, we believe, going forward here. Jeremy Kwan: Great. And I guess maybe stepping back a bit, looking more at the long-term drivers or technologies. You mentioned matter being an important one. Are there other things on the horizon that you see maybe any things that you might want to fill out on the in terms of portfolio or even on the service complete platform side of things that you’re investing more heavily in at the moment? Thanks. Matt Johnson: Yes, sure. I’ll make some – just a quick comment first on the matter, in general, we see as an incredibly positive development for our industry. And we’re less concerned about the delays than most because we don’t see this as a short-term opportunity. We think it’s important that the industry gets this right. And if we get this right, this will drive a very positive net benefit for the space. So we’re encouraged by that. In terms of big catalysts, to be clear, we’re seeing strong growth across all our applications and technologies. But I mentioned earlier the Series 2 platform and xG24, it’s worth calling that out that that’s just indicative of why we see this longer-term demand that we know the end market is growing strongly. But our ability to service that market continues to improve. That platform approach that we’re taking allows us to keep driving more parts that are very differentiated for our customer base, and those parts keep getting a tremendous response from the market. As I said earlier, when you think about the demand environment we’re seeing, that’s really only based on historical solutions in the first two or three products coming off the Series 2 platform. And then you look and see that there’s a continued march of more and more products accelerating off that platform 3 to 4x what we’ve already released, that makes us really excited about the future demand potential that we see coming down the road. And the best example is the one I mentioned, the xG24, that’s the latest product that one supports matter, supports machine learning in a very efficient way for battery-powered applications. And as I mentioned, we sold out of that right out of the gate in terms of the alpha program and our response from customers have been fantastic. So that’s – if you step back and say, what’s one of many reasons to be excited about the future. It’s the platform effect that we’re seeing and have yet to see moving forward. Jeremy Kwan: Great. Thank you and congrats again. Operator: There are no further questions. So this concludes our question-and-answer session. I will now hand the call back over to Giovanni Pacelli. Giovanni Pacelli: Thank you for joining the Silicon Labs’ Q1 earnings call. Tom, you may now conclude the call. Thank you. Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.

Operator: Hello, my name is Jason and I’ll be your conference Operator today. Welcome to Silicon Labs fourth quarter fiscal 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I will now turn the call over to Austin Dean, Silicon Labs’ Investor Relations Manager. Austin, please go ahead. Austin Dean: Thank you Jason. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Joining me today are Silicon Labs’ President and Chief Executive Officer, Matt Johnson; Chief Financial Officer, John Hollister; and Senior Director of Finance, Giovanni Pacelli. They will discuss our fourth quarter financial performance and review recent business activities. This information along with accompanying financial tables and the earnings press release is available on our website. We will take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during today’s call we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and on the Investor Relations section of the Silicon Labs website. For clarity, all information detailed in the call today will refer to results from continuing operations. Any references to discontinued operations will be explicitly noted. I would now like to turn the call over to Silicon Labs’ Chief Financial Officer, John Hollister. John? John Hollister: Thanks Austin. Revenue for the fourth quarter ended strong, above the high end of our guidance range at $209 million, representing a year-over-year increase of 43% and our sixth consecutive quarter of record IOT revenue. These outstanding results were again driven by growth in our wireless solutions, which was up 51% year-on-year. We saw growth in Q4 in both of our business units: home and life, and industrial and commercial. The strength was pronounced in industrial and commercial, especially in our proprietary sub-gigahertz products which nearly doubled year-on-year. Industrial growth in the fourth quarter was broad-based with strength in diverse applications such as connected equipment, remote monitoring, smart buildings and retail, and smart city applications such as metering. Growth was spread across our large and diverse customer base. No single customer in Q4 represented more than 5% of total revenue, and our top 10 customers comprised only 21% of our total revenue. We continue to strengthen relationships with the long tail of small and medium-sized customers, even amid challenging pricing and supply dynamics. Distribution revenue was 81% of total revenue for the quarter while geographically revenue growth was strongest in Asia and Europe. For the full year, we recorded annual revenue of $721 million or 41% growth year-over-year. This is significantly above our stated long term compound annual growth rate target for the pure play IOT business and reflects strong design win momentum, as well as a broad-based recovery from the economic and supply chain shocks caused by the pandemic. Toward the end of the fourth quarter, we implemented a series of prices increases across all product lines and customers to recover both existing and expected manufacturing cost increases. We are seeing some near term strength in our gross margin results; however, we expect that to moderate over the course of fiscal 2022, and I will cover this more in the guidance section. For the fourth quarter, non-GAAP gross margin ended above our expectations at 61.4% on strong product mix combined with the aforementioned price increases, as well as expedite charges. Non-GAAP operating expenses in the fourth quarter were slightly favorable to expectations, ending at $94 million. Non-GAAP R&D expenses were $57 million with SG&A expenses ending at $37 million. Our non-GAAP operating profit in Q4 was $34 million, resulting in 16.3% operating margin. Non-GAAP operating profit for the full year was $70 million, resulting in a 10% operating margin, well ahead of our pure play operating model. Our non-GAAP effective tax rate for the quarter ended in line at 10% and non-GAAP earnings per share were $0.77, surpassing expectations. Non-GAAP earnings per share for the full year were [indiscernible]. On a GAAP basis, gross margin for the fourth quarter was 61.3%. Total operating expenses were $125 million with $72 million in R&D expenses and $53 million in SG&A expenses. GAAP operating income was $3 million or 1% of sales, and GAAP earnings per share were $0.13 with some upside from equity income from a corporate investment. We realized a GAAP operating loss from continuing operations for the full year of $33 million. Combined with the gain from the divestiture and results from our discontinued operations, our total GAAP earnings per share for the year were $47.78. Turning now to the balance sheet, we ended the year with approximately $2 billion in cash and investments. Driven by upside operating results and relatively lean working capital balances, we generated strong operating cash flow of approximately $91 million in fiscal 2021. Accounts receivable were up in the quarter on strong shipments, with DSO rising to around 42 days. As expected, inventory declined in the quarter to $49 million or around 6.6 turns. Our inventory balance is significantly below our target level, which would ideally be more in the range of three to four turns. Distributor inventory days at the end of the quarter declined to 37 days in the channel. Our operations team is working continuously with our suppliers to expand capacity and our expectation is that we will be able to activate higher unit output toward the end of this year. Our capital return strategy combined with the launch of an accelerated share repurchase program that commence in late October. Pursuant to the ASR, we purchased $400 million of common stock, and that program is now complete, having retired about 2 million shares. The board of directors has also approved a new open market repurchase authorization for an additional $250 million. We are pleased with the results of our capital return activities in the second half of last year following the divestiture transaction, having returned $1.15 billion thus far, and we expect to continue to opportunistically return capital to shareholders while retaining optionality for strategic M&A activity. I will now cover guidance for the first quarter of fiscal 2022. We expect revenue in the first quarter to be in the range of $220 million to $230 million with growth continuing in both of our business units. Due to the price increase activity completed in late Q4, we expect to see a brief rise in non-GAAP gross margin in Q1 to around 63% as we sell through lower cost inventory. We expect our gross margins to decline over the course of the year as new inventory builds occur at higher cost points. Our manufacturing costs are expected to continue to rise through the year. We expect non-GAAP operating expense to increase in Q1 to around $105 million as we experience typical seasonal increases in payroll-related costs and continued investment in IOT growth. We continue to anticipate a tight labor market in fiscal 2022 with associated inflationary pressures on wages and benefits. Our non-GAAP effective tax rate is expected to increase to around 30%, which is a significant increase from fiscal 2021, due to new tax rules taking effect that require the capitalization and amortization of R&D expenses for tax return purposes. Absent the impact of the new capitalized R&D rules, we expect our non-GAAP tax rate would be in our more typical mid-teens range. We are monitoring potential legislative developments in this area that may result in the elimination or deferral of this new tax provision. We expect non-GAAP earnings per share to be in the range of $0.58 to $0.68. I will now turn the call over to Matt. Matt? Matt Johnson: Thanks John. In my first call as CEO, I’m pleased to report strong financial and operational results. We continue to gain traction in our markets as an IOT pure play and are outperforming our target financial model. Our revenue grew 43% over Q4 of last year, which is significant, and we ended fiscal 2021 with operating profitability ahead of the pace. We also grew design wins in 2021 by nearly 45%, and as we enter 2022, our total funnel is at approximately $14 billion, which is greater than it was pre-divestiture. I’m very proud of the team for successfully executing a transformative divestiture, aligning as one team with one mission and delivering outstanding performance. We grew 51% year-on-year in our core wireless business despite continued supply constraints. We saw gains across all product lines with our strongest growth in sub-gigahertz products, which primarily serve industrial end markets. We are also seeing strong growth in Wi-Fi year-on-year as we continue to see the effect of the Red Pine acquisition. In addition to strong financial results in the fourth quarter, we continued to execute well on new product development, and I’d like to share some of the highlights and other news. Last week, we announced the BG24 and MG24 wireless SOCs featuring the industry’s first integrated AI and machine learning accelerator. Our most capable SOCs to date, they bring wireless high performance and AI ML applications to battery-powered edge devices. These solutions are matter ready, support multiple wireless protocols, and incorporate the industry’s highest level of IOT edge security, which is ideal for diverse smart home, medical, industrial and commercial applications. We also announced that Z-Wave 800 Series SOCs and modules are available for the Z-Wave smart home and automation ecosystem. The Z-Wave 800 Series family is one of the industry’s most secure ultra low power wireless solution for advanced high performance battery-powered IOT devices and provides greater than 50% improvement in battery life compared to the previous Z-Wave 700 Series. Additionally, Silicon Labs was proud to be named Global Semiconductor Alliance’s Most Respected Public Semiconductor Company among our peers, a testament to our strong performance, technology and culture. We were also ranked one of the best companies to work for in our industry based on our most recent Great Place to Work survey of our employees. We were also excited to have Sherri Luther join our board of directors last month. Her extensive experience in the semiconductor industry and her strong leadership at Lattice Semiconductor are a welcome addition to our outstanding board. We’ve also announced that Sumit Sadana was appointed our lead independent director at the beginning of this year. Sumit’s wealth of experience and approach make him an exciting fit for this role. I also want to congratulate Tyson one last time for his career here at Silicon Labs. We had a great time celebrating his retirement in December and it was great to see old and new faces come to wish him well. It also speaks to Tyson’s contribution towards the amazing culture that we have here at Silicon Labs. 2021 was a remarkable year of transformation for Silicon Labs as we became a focused pure play IOT company. I’m excited to be leading this great team into a new era of industry leadership and growth. We have the people, the IP and the vision to capture this great market opportunity. Our record Q4 is an early indication of the tremendous momentum we carry into 2022 and beyond. Finally, just a quick reminder that we are holding our analyst day event on March 1 at 1:00 pm Eastern time for a comprehensive overview of the IOT market, our business, technologies and financial model. I’ll be joined by John and several executives from our leadership team. The event will be in a hybrid format, so please join us in person in New York or on the webcast. I’ll look forward to meeting many of you then. With that, I’ll turn the call back over to Austin. Austin Dean: Thank you Matt, and thank you for joining Silicon Lab’s Q4 2021 financial and business update. I will now open the call for questions. To accommodate as many people as possible before the markets open, I will ask that you limit your time to one question with one follow-up inquiry, if needed. Operator? Operator: [Operator instructions] Our first question comes from Gary Mobley from Wells Fargo Securities. Please go ahead. Gary Mobley: Hey guys, hope all is well. Let me extend my congratulations on a strong finish to last year and a good start to this current year. John and Matt, I wanted to push back a little bit on what many might view as some conservative assumptions in your long term financial targets. You had been growing your design wins in the high 20% range since 2016. I think you noted this year it grew 41%. Isn’t this supportive of something more than 20% long term growth, and at minimum, how do you view the growth this current year? Matt Johnson: Sure Gary, this is Matt. We have continued to push on our design wins and we were really happy with the results we saw in 2021 at that 40% growth. One of the reasons that’s really notable for us is that we have pretty stringent controls that we put on our design wins, where to recognize that, it actually has to recognize at least $1,000 of shipments, which in this supply constrained environment we’re in is quite an accomplishment by the team, so we’re really proud of that. That being said, we’re also trying to balance the current demand environment with the supply constraints, so we’re doing our best to strike that balance, and that’s the way we’re operating on a go-forward basis. Specifically what we’re seeing right now is demand continues to significantly outpace our supply, but we are committed to each quarter finding a way to drive more shipments and that’s what we’re committing to. As you heard in the notes, we see in the second half the ability to start increasing that as we go into 2023. John Hollister: Yes Gary, I would just add, of course we all need to be mindful that this is an unusual time. Demand is very strong. How long this will last, we’ll see, but need to be mindful that we’re in a fairly unprecedented time and we’re putting out our model--please bear in mind it is a long term CAGR that takes into account our best estimates of the SAM growth in the markets we’re targeting over an extended period of time. Gary Mobley: Got it, okay. It’s understandable why your gross margins might erode from the Q1 peak, just given the timing of higher cost inventory flowing through, but aren’t you also benefiting from some notable mix shifts, in particular it sounds like your industrial IOT radio business is doing quite well. I would presume that’s the highest margin product contributor to the overall gross margin. Do you not view that as sustainable or a long term trend, or just would love to get your thoughts there long term on that mix dynamic. John Hollister: You bet, Gary - this is John. In the fourth quarter, we did have really tremendous contribution from the sub-gigahertz business. You’re right - that’s among one of the strongest performers in the overall portfolio. We do expect stronger growth coming out of areas where we have more of a nascent position in Bluetooth and Wi-Fi coming up, which may offer some headwind there, but overall we’re really pleased with the results we’re seeing right now. Gary Mobley: Got it. Again, congratulations guys. Thank you. John Hollister: Thanks Gary. Operator: Our next question comes from Raji Gill from Needham & Company. Please go ahead. Raji Gill: Yes, thank you, and congratulations on a very strong 2021. A question on the seasonality in the March quarter. In Q1, the guidance implies revenue up about 8% sequentially - that’s well above seasonal patterns. I think in the IOT business last year, it was up as well sequentially. Wanted to get a sense of how you’re looking at growth from off that high base in Q1 throughout the year. Should we expect at a high level a similar pattern that we saw in 2021, where we’ll see above seasonal growth in Q1 and then continued momentum throughout the year, given this gap between demand and supply with respect to IOT? Matt Johnson: Yes, this is Matt. The quick answer to that is given that the demand-supply gap is what it is, the seasonality doesn’t really come into play that we’ve historically seen as we go throughout the year, so really what’s driving this is, as we’ve talked about, the mix shifts, price increases, and more than anything the supply response. That’s the primary driver of what you’ll see. That used to be seasonality, now it’s supply. Our goal, as we’ve mentioned, is to every quarter ship more than the prior quarter, which is a Herculean challenge in this environment by our operations team, but we’ve been finding a way to do that and we’re continuing to focus on doing that moving forward. Raji Gill: John, on the margins, you talked about the margins trending down post-Q1 as you absorb higher input costs and maybe see a little bit less of a favorable mix. Can you maybe characterize the magnitude of that expected decline? Even despite the 63% if you look at last year, you’re still well above your long term margin target, and so there’s something else going on besides just the price increases. There’s, as Gary mentioned, a mix shift to industrial wireless radios, but just want to get a sense of what we should be expecting in terms of the decline in the margin from 63%, and when you’re thinking about your long term target on margins, what’s the thought process there in terms of certain drivers that might move that higher, that you’ve witnessed the last year or so? John Hollister: Sure Raji. Please bear in mind, we do expect cost increases to continue through the course of this year, so we know some that are already active in the first half of this year and we are aware of additional cost increases that will come online in the second half of this year, so we do expect some continued pressure there. We haven’t updated our long term model this morning, so in the current world here, seeing a trend back down to the high 50s is rational, and over the longer term the mid-50s remains our model. Raji Gill: Got it, thank you. Operator: The next question comes from Alessandra Vecchi from William Blair. Please go ahead. Alessandra Vecchi: Hi guys, I echo the congratulations on an amazing year. Just one question on the comments about proprietary doubling, I think it was year-over-year, or maybe it was quarter-over-quarter. Can you walk us through some of the puts and takes there? Is that really a function of competitive strength, is it a function of end market strength, and how should we think about the mix of proprietary versus other going forward? Matt Johnson: Yes, I’ll answer the first level in terms of--the first order driver of that is ultimately competitiveness, because that’s what’s putting the demand in place that we’re seeing there. We’re seeing very strong demand in that space and we expect that to continue. The second order driver of that is the supply response in the sense that our--you know, even in that proprietary space, the demand exceeds supply, and we’d love to be able to ship more there but as we work through the year, our goal is to maximize our response to that space, and that’s what we’re working to do. The easy way to think about it is first order is competitiveness in the space that’s driving the ultimate demand, but it’s also governed by our supply response which continues to be constrained, and we have that gap from demand versus supply. John Hollister: And just for clarity, Alex, the comments around near doubling was year-on-year. Alessandra Vecchi: Thank you for that clarification. Then John, maybe one just for you, the comments about obviously higher input costs on the operating side in terms of headcount and maybe new hires going forward, how should we be thinking about operating expenses from the Q1 levels given those pressures as well? John Hollister: Right. We expect a continued rise in opex per quarter as we work through the course of this year. Alessandra Vecchi: With that, I will pass it on. Operator: Our next question comes from Blayne Curtis from Barclays. Please go ahead. Blayne Curtis: Hey, thanks for taking my question. Just a follow-up on the gross margin. December came in better, so maybe you could just talk about when the price increases started, and then I’m assuming it doesn’t just happen overnight, so is there a dynamic - here’s your work through the year where pricing is still going up, and then the input costs are coming in faster as it rolls through? Can you just talk about the timing of those two variables rolling in? Matt Johnson: Yes Blayne, this is Matt. The high level, we started increasing--the latest round of price increases late in Q4, so you saw some of that effect, and then you’ll see a full quarter effect of that in Q1, which is important. The second piece is, as John’s mentioned a couple times, the increases that we’re doing are asynchronous to the increases we’re seeing from our suppliers, which creates that lumpiness as you go throughout the year, but we do know and anticipate additional increases from our suppliers as we continue to move forward, so that’s one level of it. The other piece that’s important to reiterate is we’re a couple quarters in as a pure play IOT company post-divestiture, and our model is a long term multi-year model, and we’re in a very atypical market environment right now, so we don’t see that as the right time to be resetting the long term model. That being said, we do expect to come back closer in line to our gross margin model as we progress throughout the year. Blayne Curtis: Got you. On the tax rate, it sounds like you guys don’t know, but I guess is 30 the rate to think about, at least for this year? Giovanni Pacelli: Yes Blayne, this is Giovanni. Thirty percent is a good rate estimate for this year. Obviously with the legislative activity in Washington, we’re watching that closely, and absent this rate impact, we would be in our normal mid-teens range. Blayne Curtis: Okay. I thought prior you were signaling the tax rate would kind of be going up anyway this year, I thought in the low 20s, but I guess you’re saying now [indiscernible], so was that prior signaling because of the uncertainty on the tax credit or has something else changed? John Hollister: Yes Blayne, nothing else has changed. We’ve just gotten deep into the year now and refined our estimates, but we did signal this earlier and now we’re providing an update to that. Hopefully Washington will eliminate this requirement, but for now this is the legislation that’s in effect so we have to reflect it this way. Blayne Curtis: Got you, thanks. Operator: The next question comes from Tore Svanberg from Stifel. Please go ahead. Tore Svanberg: Yes, thank you, and congratulations on another record quarter here. There’s a lot of talk about pricing as it relates to supply chain and your own pricing, but when you think about your hardware and software platform, especially how you’re integrating and embedding more security and so on and so forth, is it fair to say that you are moving up the value stack here and offering more value, so that’s part of the strong gross margin as well? Matt Johnson: The primary drivers that we’re seeing right now are definitely--you know, we had the mix effect, we had the price increase effect that we talked about, and that’s what you’re seeing here. That being said, we definitely feel good and are confident about our ability to continue to drive our model and deliver those gross margins moving forward. And yes, we continue to up our offerings, whether it’s--you know, we mentioned mid 2021, services like our custom part manufacturing service, the ability to update solutions over the air, all these capabilities definitely increase our value to our customers and the value of our solutions, which gives us the confidence that as we continue to see this acceleration in our space and acceleration of our trajectory, that we can continue to deliver to the model we’ve committed to, which just a couple years ago everyone saw that as under immense pressure. We feel good that we can deliver to that model, including the revenue growth and at gross margin. Tore Svanberg: Excellent, very good. Thank you for that, Matt. I’m very intrigued by the BG24 and the MG24 families. This is the first time I’ve seen you guys bring AI and machine learning to connectivity platforms, so could you just elaborate a little bit on how important that is, maybe even talk a little bit to the uniqueness of it in relation to your competitors right now? Matt Johnson: Sure, absolutely. Top level, we have supported and offered machine learning capability on our devices for a while, but what is really unique about this announcement we just made is it has integrated acceleration on a wireless SOC, and that integrated acceleration allows us to offer that AI and machine learning at incredible efficiency for performing that inference at the edge. Specifically, that is what is new to industry, new to the market, is a wireless SOC that has that efficiency because of the acceleration for running AI and ML, and in doing so, it allows that to be brought to battery-powered applications. For a lot of our solutions, we are--you know, we live at the IOT edge. A lot of those are battery-powered and a lot of them have use cases that would benefit from AI and ML, so we’re really excited that we’re able to bring that integration that allows our customers to have battery-powered applications and take advantage of AI and ML. That’s what’s new about it, and we definitely are seeing a lot of interest from customers, where hey, I could benefit from this, but definitely need that longer battery life that would be required for the applications we’re talking about. Tore Svanberg: Sounds great. Thank you so much, Matt. Operator: The next question comes from Srini Pajjuri from SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you, good morning guys. Another question on pricing, more related to what kind of impact it’s having on your growth rates. I recall, John, I think the last 10-Q that you filed, I think you disclosed about 5% increase in pricing. Maybe you can talk about how broadly pricing increases have already propagated, and then you said they’re still increasing. As we go through the year, how do you see pricing continuing to increase? Then I guess the other thing, maybe for Matt, is that as you raise prices, obviously it’s no secret that the wafer costs are increasing in the industry, so I’m just curious to hear what sort of feedback, if any, or pushback from your customers you are hearing on these price increases? John Hollister: Yes Srini, I’ll tackle the first part. We implemented broad-based price increases most recently late in the fourth quarter. We did have some that had occurred earlier in fiscal ’21. Our goal with this latest round of price increases was to really try and get in front of this and deal with it in a holistic manner that’s durable, and that’s the objective we’re trying to get to, even acknowledging that some of that is ahead of some of the cost increases that are yet forthcoming. That’s where things stand today. Of course, we’ll have to keep an eye on it and see what may be further coming on the supply chain side, but at this point, we’re holding with what we have implemented and we’ll see how that progresses. Matt Johnson: On the question about customer response, pushback to those increases, the way to think about it is this is our 100% focus in our market, and we’re taking a long term approach to the way we’re engaging customers with this. What I mean by that is we’re doing this as constructively as possible, and let’s be clear - there’s no customer that says, I love price increases, but we’re trying to do it constructively by giving a head’s up that it’s happening, explaining the logic, working with them on the ramp, and really doing it in a collaborative way because we see these customers as our long term partners and not a short term opportunity. With that approach, I think we’re getting, frankly, a really strong response from our customers in the way we’re handling this, and we’re appreciative of that and the partnership, but we need to continue to be careful and approach it constructively with them because, as I said, we see this as a long term play, not a short term one. John Hollister: And let me add one more point to what Matt just said, Srini. Clearly if we just zoom out, the goal here is to activate more supply - that’s what this is ultimately about, securing supply, activating more supply to deliver on what customers need. That’s the objective we’re going for here. Srini Pajjuri: Thanks John. On the topic of supply, you did allude to, I guess your expectation that supply will continue to improve through the year. Could you give us your goals or targets for your own balance sheet inventory, where would you see that going by end of this year, and then also if you can comment on channel inventory - I think you said it’s about 37 days, where do you see that, where do you think that should be in terms or normal range? Thank you. John Hollister: Yes Srini, you bet. We would ideally target an inventory that is roughly double what we’re currently carrying. How much progress we could make toward that goal by the end of this year, we’ll have to see - it’s tight. I think it’s fair to say we’ll likely than not fully achieve that, but our goal is to make progress towards that. On the channel inventory side, our goal is to carry 45 to 55 days of inventory - we’re currently tracking 37 days. I think we will improve that here in the first quarter and strive to keep that level through the year. While I’m on the point, we did allude to this in the prepared comments, but we do see a greater possibility for unit output materially increasing towards the end of this year, so we do expect the middle part of the year in particular be under particular constraint and we’re continuing to push very hard to improve that. Srini Pajjuri: Got it. Thanks John. Operator: Our next question comes from Matt Ramsay from Cowen. Please go ahead. Josh Buchalter: Hi, this is Josh Buchalter on behalf of Matt. Thanks for taking my question, and congrats on the results. I wanted to follow up on the previous question a bit. Just given what we’re seeing from your peers and how constrained overall capacity is, how were you able to secure the units and wafers to grow at the rates that you did in the second half, and how should we think about that visibility into the remainder of the year? John Hollister: Yes, the first point is we did go into our inventory balance to deliver on this, and that certainly has been a source of units, but I also want to acknowledge that our operations team, Matt and myself have been working very hard with the supply chain to push for more output for us, and that’s had a positive effect as well. Matt Johnson: Yes, and the only thing I’d add to that is we’ve had a constructive and positive relationship with our suppliers for a long time, and it’s part of what we do. They have more demand than they can respond to, so part of our value proposition is the constructive way that we work together, but also making sure they have visibility into our growth potential and our market positioning, because when they make their decisions, they’re betting on us or whoever they select as well. I think we’ve been able to do a good job with that, and I think our suppliers are betting on us as well, so as we’ve said earlier, we continue to work towards increasing our output every quarter and that’s our focus. Josh Buchalter: Thank you. Your IOT business has always done well with this smaller, more fragmented customer base, I guess in part because you offer more flexible modules. Given some of your peers who are also constrained have had to focus on many of their auto customers, are you seeing any changes in the competitive dynamic? Is this allowing you to pick up share with incremental customers, or am I way off base here? Thank you. Matt Johnson: Yes, there’s definitely a large amount of customers out there in the industry who don’t have the supply they need and would love to find incremental supply with us or other suppliers. Our priority is to take care of the customers that we have, where the demand there is exceeding our ability to respond from a supply perspective. But that being said, John alluded to this, through this environment we have been able to drive the over 40% year-on-year in design wins, which is a strong record for us. Our funnel has increased to $14 billion, and we were also very happy that in this environment, we’ve been able to increase our customer count long tail as well. I think it’s a balancing act, but we’ve been able to make good progress in this environment, but the clear priority is to make sure we’re taking care of the existing customers and not do conquest business at their expense. That’s the balancing act I think we’re striking pretty well right now. Josh Buchalter: That’s helpful. Thank you, and congrats again. John Hollister: Thank you. Operator: This concludes our question and answer session. I will now hand the call back to Austin Dean. Austin Dean: Thanks Jason, and thank you for joining the Silicon Labs Q4 earnings call. You can register for our analyst day event under the Events and Presentations section of our website at silabs.com/investors. You can find further information there as well. Operator, you can now conclude this call. Thank you. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Hello. My name is Sarah, and I will be your conference operator today. Welcome to Silicon Labs' Third Quarter Fiscal 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Austin Dean, Silicon Labs' Investor Relations Manager. Austin, please go ahead. Austin Dean: Thank you, Sarah. We are now recording this meeting and a replay will be available for 4 weeks on the Investor Relations section of our website at silabs/investors (sic) [silabs.com/investors]. Joining me today are Silicon Labs' Chief Executive Officer, Tyson Tuttle; Matt Johnson, President; and John Hollister, Chief Financial Officer. They will discuss our third quarter's financial performance and review recent business activities. This information along with accompanying financial tables and the earnings press release is available on our website. We will take questions after our prepared comments and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs' website. For clarity, all information detailed in the call today will refer to results from continuing operations. Any references to discontinued operations will be explicitly noted. I would now like to turn the call over to Silicon Labs' Chief Executive Officer, Tyson Tuttle. Tyson? Tyson Tuttle: Thank you, Austin. I'm excited to announce the achievement of record quarterly revenue for Silicon Labs. We recorded $185 million in third quarter revenue, a 9% increase from our previous high achieved in the second quarter of this year. I'm very proud of how our team has executed in such an unusual, and at times, challenging environment. First, John will provide further details on our financial performance. Then, Matt will discuss our execution and accomplishments for the quarter. I'd now like to turn the call over to John Hollister. John? John Hollister: Thank you, Tyson. I'm pleased to report excellent results for the third quarter. IoT revenue for Q3 ended strong at $185 million, which is above the high-end of our guidance range and represents growth of 39% year-on-year. We saw strong growth in both of our primary end-markets during the quarter, industrial and commercial, and home and life. Here strength in the quarter were in home automation and security, smart retail, portable medical, and sports and fitness. Our wireless IoT solutions continue to be the primary driver of revenue growth and share gain. Wireless products delivered robust 48% year-on-year growth during the third quarter and we saw increases across all our wireless IoT protocols, including Bluetooth, WiFi, Z-Wave, Zigbee, Thread and Proprietary. By geography, we saw the greatest strength in the third quarter in the Americas and Europe, which were up significantly. APAC was up slightly. Distribution revenue in Q3 was 81% of total sales. Our business remains highly diverse. For example, our largest customer in the IoT business is only 5% of our mix and our top 20 customers represent approximately 31% of the total. Non-GAAP gross margin exceeded our expectations for the quarter at 59.4% with favorable mix. Earlier this year, we implemented price increases to recoup cost increases from our suppliers and we are seeing positive effects. The supplier situation remains dynamic with the tight supply and rising costs across the manufacturing landscape. We expect to continue to pass along supplier cost increases to our customers to preserve our gross margin performance. In doing so, we remain committed to applying our pricing strategy in an equitable and constructive manner to maintain our strong customer relationships and long-term growth in the IoT market. Given the variable timing associated with cost and price increases, we are experiencing greater volatility in gross margins and expect that to continue in the near- to mid-term. As expected, our non-GAAP operating expenses increased significantly in Q3 to $93 million, primarily due to increased investment in our pipeline of new products which brought R&D expenses to $57 million. SG&A expenses were up slightly on higher variable compensation with upside business performance and costs associated with our Works With developer conference. In its second year, the conference drew nearly 8,000 IoT customers, partners and prospects. Non-GAAP operating margin for Q3 was better than expected at 9%. Non-GAAP earnings per share from continuing operations were $0.34, above the high-end of our guidance range. Our non-GAAP effective tax rate was approximately 8%. Turning to our GAAP results, our gross margin was 59.2%. GAAP operating expenses from continuing operations were $119 million, with R&D at $73 million and SG&A at $46 million. In addition, GAAP expenses included stock-based compensation of $14 million and amortization of intangibles at $12 million for the quarter. As a result, we generated a GAAP operating loss from continuing operations of $9 million. We closed on the divestiture of the infrastructure and automotive business in Q3, and recorded a onetime gain from the transaction of $2.1 billion during the quarter. As a result, our total GAAP earnings per share inclusive of discontinued operations was $46.76. Turning now to the balance sheet, we ended the quarter with $2.7 billion in cash and investments. We had strong operating cash flow from continuing operations in Q3, bringing our year-to-date total to $48 million. Cash flow from discontinued operations was $2.8 billion, primarily due to the divestiture transaction. Accounts receivable declined in the third quarter to $73 million on solid collections, representing DSO of 35 days. Despite the supply chain challenges, we are experiencing our team delivered both upside revenue in the third quarter and growth in inventory to $59 million, or turns of 5.1 times. We expect our inventory balance to decline in the fourth quarter. Shortly following the closing of the divestiture in Q3, we completed a modified Dutch auction tender offer under which we repurchased approximately $640 million of common stock at a price of $160 per share. This retired about 4 million shares or 9% of our Q2 ending fully diluted share count. Furthermore, we supplemented the Dutch auction with additional open market repurchases, bringing our year-to-date total on the open market program to $54 million out of $150 million authorized. As a result, the total share repurchases completed through the end of Q3 is nearly $700 million. We also expect to enter into an accelerated share repurchase agreement today pursuant to a board authorization to repurchase an additional $400 million in shares. This accelerated share repurchase is the next step in our capital deployment program and demonstrates our continued commitment to deliver value to our shareholders through a prudent capital allocation strategy. I will now cover guidance for the fourth quarter. We expect revenue for the fourth quarter to be in the range of $195 million to $205 million. We expect non-GAAP gross margin to be approximately 59.5%. We expect non-GAAP operating expenses to be around $95 million. We expect the non-GAAP effective tax rate to be about 8% and non-GAAP earnings per share to be in the range of $0.50 to $0.60. On a GAAP basis, we expect gross margin to be around 59%, GAAP operating expenses to be $126 million, and GAAP loss per share to be in the range of a $0.41 to a $0.31 loss. I will now turn the call over to Matt. Matt? Matt Johnson: Thanks, John. I'm happy to report record revenue in Q3. We're on a path to sustained growth and continued leadership in the wireless connectivity market, while achieving our profitability model. We've grown nearly 40% since Q3 of last year, which is remarkable. We've also captured greater design win lifetime revenue in the first 3 quarters of this year than we did in all of 2020. In the third quarter, Silicon Labs became a pure-play IoT company, and we're excited by the early results. The team is energized and laser focused to capture the significant market opportunity that providing the wireless connectivity for the Internet of Things represents. We achieved nearly 50% growth year-on-year and our core wireless business, despite supply chain constraints. We saw gains across all product lines. In particular, our WiFi revenue more than doubled from the third quarter last year, the first full quarter after the Redpine acquisition. Supply remains a challenge as we work to meet customer demand and do the right thing for our long-term business. We were able to build inventory slightly that we are still not what we consider a normal operating range. In addition to strong financial results, we executed well across the board, I'd now like to share some of the highlights. In September, we held our second annual Works With developer conference. The response from our ecosystem was incredible. We drew nearly 8,000 registrants, an increase of almost 20% over last year. We featured multiple keynotes including industry leaders like Amazon, Google, IKEA, Landis+Gyr and Schneider electronics. By popular demand, we also expanded the conference to add tracks on rapidly growing markets like smart retail, smart industrial and portable medical. We estimate the Works With 2021 helped us identify more than 500 new opportunities with the potential for more than $1 billion in lifetime revenue. In Q3, we also announced the xG23, the latest addition to our award-winning Series 2 wireless platform. The xG23 is a sub-gigahertz wireless SoC that brings an industry leading combination of wireless range, energy efficiency and security. This new solution can operate over a mile for more than 10 years on a coin cell battery, while supporting our industry leading Secure Vault security features. And because it's from Silicon Labs, the xG23 supports a wide range of protocols, including Amazon Sidewalk, mioty, Wireless M-Bus and Z-Wave and proprietary IoT networks. It's the optimal feature set for a growing number of smart city and industrial deployments, as well as home and commercial building automation. Next, we announced our Unify Software Development Kit or Unify SDK, which is brings a new level of interoperability between industry protocols. Silicon Labs is committed to simplifying wireless connectivity. By making it easier to connect devices, we're paving the way for wireless ubiquity. The Unify SDK provides readymade software for gateways and application processors that enables translation between wireless protocols. With Unify SDK, IoT developers can design their solutions with confidence, knowing they can easily bridge to support multiple protocols including matter once it arrives. This kind of interoperability brings us significantly improved consumer and developer experience to the industry. Finally, we announced our Custom Part Manufacturing Service or CPMS. Silicon Labs is the first in our space to allow customers to customize their devices in the final stages of manufacturing before the products leave the facility. This secure provisioning service enables greater security, simplified supply chains and greater product differentiation for our customers. This is a big deal. CPMS offers customers a trusted and economical way to add unique part numbers, custom markings, and application specific programming, as well as highly advanced security features such as secure boot, secure debug, encrypted over the air updates, public, private and secret keys, and secure identity certificates. The world is facing an increased need to protect against security breaches, intellectual property compromises and counterfeiting. Our customers are moving to implement more secure device protection, and this service is available at a great time for our industry. I'm really proud of what our team has accomplished. We brought the industry together, delivered significant innovation and drove record revenue, all while navigating a uniquely challenging environment. Now, I'd like to take a moment to recognize Tyson in his decade as CEO of Silicon Labs. He had a clear vision for the potential of smart connected devices to transform the world. His leadership and passion for innovation brought us to where we are today. Silicon Labs is a leader in a thriving and fast growing market. The Internet of Things is here and the impact is being felt in homes, cities and industries around the globe. Tyson's commitment to employees, customers, partners and the communities we live in has been deeply felt, and will continue to be a part of our values as we move forward. It's no surprise that the Austin Business Journal awarded him their 2021 CEO Legacy Award. Thank you, Tyson for your leadership and support. I'm excited to pick up the baton and carry it forward. And now, I'd like to hand it over to you for a few words. Tyson Tuttle: Thank you, Matt. I joined Silicon Labs in 1997 as the 10th employee. And I am so proud of what we accomplished over the last 25 years. It's been a great honor and a privilege to lead the company for the last decade as CEO, driving our transformation into a pure-play leader of secure intelligent wireless connectivity for the large, diverse and fast-growing IoT market. Throughout this time, we have stayed true to our values. And one of those values is to hire the best. I want to thank all the employees past and present who help turn the vision of a smarter, more connected world into a reality. Going forward, I'm excited about the future of Silicon Labs, to thrive as connectivity becomes ubiquitous in our lives and throughout the economy. As I pass the torch, I have full confidence in Matt's ability to carry forward our values and culture. And under his leadership, I know the team will continue to build on Silicon Labs' strong foundation to capitalize on the opportunities ahead. Finally, since this is my last earnings call, I want to thank all of you for your time and attention through the years and sometimes patience. I've enjoyed sharing Silicon Labs' vision for the industry, our stories of innovation, and the great work of our engineers with you all. And with that, I'd like to turn the call back over to Austin. Austin Dean: Thank you, Tyson. And thank you for joining Silicon Labs' Q3 2021 financial and business update. I will now open the call for questions. To accommodate as many people as possible, before the market opens, I ask that you limit your time to one question with one follow-up inquiry if needed. Operator? Operator: Thank you. [Operator Instructions] Our first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead. Gary Mobley: Hey, guys. Thanks for taking my question and congratulations, both Tyson and Matt, on the next chapters of your lives and careers. And congratulations on putting an exclamation point on the finish to the fiscal year. And that's where I want to start with my questioning. To what extent is this roughly 9% revenue upside, that you're posting here in the second half of the year, being driven by a better wafer supply, easing of the supply chain in general? And to what extent is it being driven by demand upside? What I'm really trying to get to is some of the forward-looking demand metrics, like your ending backlog or your book-to-bill ratio for the quarter? Matt Johnson: Yeah, Gary, this is Matt. Thank you. I guess the way I'd like to answer that is what we're seeing is continued constraints in the supply-chain in the coming quarters. With that being said, we see the opportunity each quarter to increment up on our supply. And at the same time, as we see costs coming in from our suppliers, we're passing those on to our customers, but only to the extent that it makes sense and trying to maintain our margin model. With that being said, looking forward, we see that supply will continue to be constrained, and demand is continuing to increase, widening that gap moving forward. So even though we're incrementing up our supply, demand continues to increase at a faster rate. Gary Mobley: Thank you for that. My follow-up question is a bit boring, but important. Nevertheless, John, could you share with us what you would expect the share-count to be following this $400 million ASR that you're, I guess, concluding this week? Is it roughly 37 million shares outstanding? John Hollister: Yeah, thank you, Gary. The estimate there would be around 39 million shares for the fourth quarter. And, that's really what is in view right now. So that's what I'd suggest you to think about. Gary Mobley: Got it. Thank you, guys. Operator: Our next question comes from Matt Ramsay with Cowen. Please go ahead. Matt Ramsay: Thank you very much. Good morning, guys. First off, Tyson, congrats. It's been a hell of a run. And I think most importantly, the culture you've built there is something that we can certainly observe from the outside. So just wanted to, for my question, and it kind of touches on a couple of things that Gary mentioned in his first question. But what I wanted to touch on is pricing and the environment that you're seeing. There is a lot of companies talking about some being really successful, some maybe slightly less so in passing along increased input cost, given the tight environment that we're in, through to their pricing. And obviously, the big upside that you guys showed in the back-half of this year, folks just kind of kicking the tires to see how much of that is units, how much of that is supply, how much of that might be pricing and how durable any pricing upside might be as you work through the next several quarters. Thanks, guys. Tyson Tuttle: Hi, Matt. This is Tyson. I'll start off and then I'll let Matt continue to comment on that. But I appreciate the kind words. It's been a great ride and we've had a lot of success in building the IoT business and I couldn't be happier for Matt to take over the reins here and take it to the next level. Just a few comments on the revenue upside here and what that's going to look like going forward. We have substantial pricing power in the IoT markets, strong demand. I mean, certainly in a supply constrained environment, you're going to have pricing power. We're also seeing some increased costs coming in from our suppliers. And we've seen some of that this year and expect that to continue to a certain degree. And we are passing on those cost increases in terms of price as we go forward. We can't get caught in the middle of, we got to hold our margins, and we're taking that as a goal. But at the same time, you don't want to damage your long-term relationships with customers. We want to do this in an equitable way, in a way that is sustainable going forward. We don't want to create headwinds in the future. And we want to maintain our relationships with customers. So there is a real balance with that. I'd also say that the team has been putting substantial effort into increasing supply, both with our existing customers, or with our existing suppliers, as well as bringing on new supply in the future, putting R&D into increasing supply as well as driving the roadmap. And, we see that in terms of securing additional supply going into the new year, but really as we go through 2022 and into 2023, making sure that we can support our long-term growth for the company, that we've got the supply to do that. So it's really a combination of things, very good execution, very good ability to manage our cost and our pricing, and increasing the supply going forward to support our growth. Matt Ramsay: Yeah. Thanks. Thank you for all that, Tyson. I really appreciate it. As my follow-up, I guess, this is for both Matt and John, when the deal got announced, the divestiture to Skyworks, I think the IoT franchise was somewhere in the low-single-digits from an operating margin perspective. And the fourth quarter guidance adds about 10 points to that, I think we're at 12% in the fourth quarter. It really, really early to ask about the long-term model I get that, but just want to make sure that you guys are still comfortable with the leverage you forecast out in that medium term model that was announced with the deal, it looks like you might be running a little ahead of that. So just any commentary you might have now that you've had a quarter 2 with the business running standalone, would be really appreciated? Thanks, guys. John Hollister: Yeah, Matt, you bet. This is John. We are committed to the model and are really guiding our actions to deliver on that. And we are pleased that we're running ahead of it right now. It's a good start and no change to that longer-term outlook at this time. And that remains our goal to grow the business and drive the profitability model. That's exactly what we're focused on here. Matt Ramsay: Thanks very much, guys. Operator: Our next question comes from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: Yes, thank you. Congratulations on the strong results. And Tyson, congratulations on your retirement, we're going to miss you greatly. First question is on the CPMS program; can either one of you just elaborate a little bit on that, what exactly does it mean as far as continued share gains? And is there any way that you could tie it into financials? Matt Johnson: Sure, Tore. This is Matt. So a little bit more detail on what it is and how it works. This is a service that we give our customers access to, that allows them to basically program and add customization in the late stages of our manufacturing before it leaves the facility. And in doing so it allows them to, as I said earlier, really simplify their supply chain. They don't need to send devices somewhere else for flash programming for any customization. And it also really helps with the security as well as the security configuration can be done before it ships out versus sending it somewhere else, multiple places in some cases to add those security configurations. So this is a capability that we're really excited about, because the timing is right in our industry, whether it's the supply chain challenges, the whole industry is seeing or the cybersecurity and security threats in general. This is something our customers are really looking for, and the ability to further differentiate their products as well. So it's an awesome combination. It's a service that we charge for, and it's really a good economical value for our customer base, because these are things they have to pay multiple stages of complexity in their supply chains to accomplish today. So this is a capability that we just announced and works with, and so far, the reception has been really strong. Tyson Tuttle: Yeah, Tore. This is Tyson. I'd just like to add, we have a custom test platform that's really targeted at the broad market. It enables us to do this customization in a very efficient way. It also saves the customers a lot of work. In other words, they don't have to program up the parts, as they go through their manufacturing flows, it also protects them from somebody switching a different type of part into the - so that it's custom for them. And that allows us we are charging for this, it gives us a premium pricing model. And it's kind of a good element of agility that we get, because of the way we've done our manufacturing. I'd also say that that's also given us some advantage in the supply prices, just our custom test platform that enables us to scale the back end very, very efficiently without having to acquire new big arm testers and things like that, and that's proven a big advantage for us. So we see the advantage in the CPMS program, as kind of even widening that further going forward and plays into the margin and pricing model that we have. Matt Johnson: The last thing, I'd add, Tore, just to make it real. Imagine if a customer wanted to customize top marking or part numbers for their own manufacturing schemes. They wanted to do their application programming at that phase, or they needed to inject certificates in support of multiple wireless standards like Wi-SUN or Matter, they could do that there, as well as adding their secure keys. So all of that can be done there through a secure portal, which really allows them to simplify their supply chain and increase their security. So it's pretty cool for excited about it. Tyson Tuttle: Yeah, being able to do that across a broad range of customers, you're talking the ability to do this over 1,000s and 1,000s of customers is a unique capability for Silicon Labs. Matt Johnson: No touch on our part. Tyson Tuttle: Yeah. Tore Svanberg: Yeah, that's great context. Thank you for that. Just one quick follow-up for, John. John, when you did the divestiture, you talked about gross margin [56% to 58%] [ph] this year, but sort of moving to mid-50s longer-term, obviously, you're quite a bit ahead of that. Now - does that mean that the gross margin should be higher over time? Or are you still sticking to the mid-50s gross margin longer-term? John Hollister: Yeah, Tore, we're seeing favorable mix here in some cases, price increases to recoup cost increases are contributing there. And the timing of that as an important thing to think about of exactly when costs and price increases are being implemented and coming into effect. No change in the longer-term outlook and it is an unusual time in the industry. We'll see what comes in the future. But we do not have an update for the long-term model today. Tore Svanberg: Okay, fair enough. Thank you, John. Operator: Our next question comes from Srini Pajjuri with SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you. Good morning, guys, and Tyson, congratulations on your retirement. Tyson Tuttle: Thank you. Srini Pajjuri: So just on going back on pricing, John, maybe you can help us understand how the mechanics work actually here. So, I think, it'll be helpful to understand what percent of your business you have already implemented this price actions and how much more is left? And then the other thing I want to understand is that, some of this cost increases may not be permanent. So I'm kind of trying to figure out, as you know, the industry kind of normalizes whenever that is, as some of these costs come down, should we worry about pricing coming down as well? John Hollister: Yeah, Srini, we're not going to get into really precise detail here. But suffice to say, where we're seeing price relief from cost increases that we realized more may be coming as we head into next year, as Tyson alluded to. So there may be more work to do in this area. And, as we said in the beginning, our objective is to not get stuck in the middle, and to leverage the pricing power we have to that end, but also to maintain the strong customer relationships that we have, and ensure that our long-term growth will be there for us. So we'll see what the future brings in terms of normalization of industry conditions, but those are the principles that we're operating from. Srini Pajjuri: That makes sense. And then… Matt Johnson: Yeah, Srini, I can also… Tyson Tuttle: Hold on. Just in terms of the cost increases in the durability of that, and I think that we are going into kind of a new phase of the semiconductor industry, where we've got Moore's law and advanced nodes becoming more and more expensive. And you've got mainstream technology now full, and it used to be that the digital guys would move out and the n-1, n-2, n-3 nodes, those would be fully depreciated fabs that you would move into. We have now reached a point where the mix, the ratio between advanced and mainstream is causing fabs, TSMC and others to build new mainstream technology. And that means that those fabs are not fully depreciated. So a large element of the cost increases that the industry is seeing right now is because of the additional CapEx that's having to be put in to build new capacity across the nodes, not just at the advanced nodes, but across. And so if you look at the cost increases that we're seeing another - it's across the industry, there is a certain element of that that's durable over time. And so this is a step function in terms of the cost structure of the industry to match the demand that we're seeing, and the increasing content of electronics throughout the economy and the acceleration of demand that we've seen through the pandemic has really pushed that forward in driven us into the supply constraints, we'll work through that. But to work through that is requiring a lot of CapEx, and that's got to be recouped. And that's got to flow upstream from our suppliers to us to our customers and that's what you're seeing right now. Srini Pajjuri: Makes sense. Thanks, Tyson. And, John, quickly on the channel inventory, if you could give us, what - whether that went up or down? And also, I think, last quarter, you said bookings were stable at about 6 months or so, and if you could give us some color on that? That would be helpful. Thank you. John Hollister: Yeah, channel inventory is relatively stable. And the bookings have remained consistent. We've continued to have an elevated booking level. And as Matt indicated, actually the strength and demand is not only persisting, but widening a bit in terms of our supply chain. And that's why we're working on all the things, Tyson talked about to expand our ability to supply. Srini Pajjuri: Got it. Thank you. Operator: [Operator Instructions] Our next question comes from Rajiv Gill with Needham & Company. Please go ahead. Rajvindra Gill: Yes, thank you and congratulations, and Tyson, best of luck for the future. Question is on the demand landscape, the demand for IoT across all these end markets is extremely strong. Back in July, you talked about total bookings hitting about $1 billion plus in the last 9 months, that obviously appears to be increasing. I wanted to get a sense of what's driving the demand this year relative to previous years? Are there specific end markets that you're seeing that are kind of outliers that are better than what you anticipated that's driving the growth? And it's a similar question on the wireless component, you grew almost 50% year-over-year, WiFi obviously is helping as well as this other particular protocol that you're seeing or end markets that are pulling in the adoption of wireless components as well? Matt Johnson: Sure. This is Matt. I'll answer that coming from a few directions. First of all, in terms of how we're seeing the demand come in, it's strong across technologies, and it's strong across markets and applications. So there's always bright spot each quarter, but all in all, it's a very broad strength we're seeing in the overall IoT market. If you take a step back, if you looked at our design-win trajectory over the last few years, we really started seeing an acceleration in design-wins, that we're seeing coming through now in a lot of these applications and customers. And it's, I think another way to look at it is we're seeing an acceleration or pull-in of multiple markets and applications that were expected to grow and take off. And now, we're seeing that happen very broadly and across the board. And, we probably have the most insight into this that we've had in a while. Because of the supply constraints, we've had to spend a lot of time with customers, understanding what's driving the ramps, the durability of the ramps and why we're seeing those demands increase as we move into 2022. So that's where we see it. It's broad. It's across technology and application. And we do expect it to persist in the IoT space, given what's driving these. Rajvindra Gill: Thanks for that insight, Matt. I appreciate it. So just shifting to the supply component of the equation, so your IoT revenue is on track to do over $800 million. And your previous annual guidance was $650 to $700, so you're surpassing that. You mentioned that you are getting incremental capacity from TSMC, that the gap is going to still wide - still pretty wide. When you're looking at - can you give us a sense in terms of the capacity commitments that TSMC has given you in 2022? I think that's going to be important for investors to focus on next year's capacity? And how that capacity commitments correlate to your long-term IoT growth rate of 20%? In other words, has TSMC secured capacity for you to make you feel comfortable that you're going to continue to grow at least 20% in your IoT business next year and going forward? Matt Johnson: Sure. So, I won't speak to any specific or individual supplier. But we are spending a tremendous amount of time working to secure additional supply moving forward through multiple angles, including using some of our development resources towards that end as well. And as a result of that, we're able to, as we're seeing now, drive incremental supply each quarter, and we expect that to continue well into 2022, where we'll be able to increment up supply each quarter moving forward. So that's something that we are happy to see and proud, given this environment. But with that being said, to my previous comments, at the same time, we're seeing demand increase much faster than we're able to increment up supply. So I do feel good that we've been able to increase our supply next year, and that that's going to help our customer-base significantly. But those gaps continue to widen, given the dynamic we're seeing in the industry right now. Rajvindra Gill: You're very good. Just last question, John, on the gross margins. Obviously, it's a moving target. You mentioned it's a bit volatile. It's running above target. The price increases the past along those are contributing, but you also mentioned favorable mix shift. Can you maybe elaborate a little bit further, when you're talking about a favorable mix shift within IoT, are there specific end-markets, protocols that are higher margin? How do you see that going forward? John Hollister: Yeah, I think we'll see normalization there, Rajiv. And you've got, certain product lines carry a bit higher margin than others. What a way to think about that is more proprietary-based technologies versus standards-based technologies, for example. But over time, we think that that's comprehended in our various modeling goals that we've put forth. Rajvindra Gill: Appreciate it. Congrats again. John Hollister: Thank you. Operator: This concludes our question-and-answer session. I now hand the call back to Austin Dean. Austin Dean: Thank you, Sarah. And thank you for joining the Q3 earnings call. Remember, you can find our financial information at silabs.com/investors. We look forward to discussing our business further during our participation in several upcoming conferences. Sarah, you can now conclude this call. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Hello. My name is Jason, and I'll be your conference operator today. Welcome to Silicon Labs' Second Quarter Fiscal 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Austin Dean, Silicon Labs' Investor Relations Manager. Austin, please go ahead. Austin Dean: Thank you, Jason. We are now recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website at silabs.com/investors. Joining me today are Silicon Labs' Chief Executive Officer, Tyson Tuttle; Matt Johnson, President; and John Hollister, Chief Financial Officer. They will discuss our second quarter's financial performance and review recent business activities. This information along with accompanying financial tables and the earnings press release is available on our website. We will take questions after our prepared comments and our comments today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on the information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the Company's earnings press release and in the Investor Relations section of Silicon Labs' website. I would now like to turn the call over to Silicon Labs' Chief Financial Officer, John Hollister. John Hollister: Thank you, Austin. Earlier this week, Silicon Labs accomplished a major milestone closing the divestiture of our infrastructure and automotive business to Skyworks Solutions for $2.75 billion in an all-cash transaction. The proceeds of which have been fully funded. We expect that net proceeds after taxes and fees to be approximately $2.3 billion. We are evaluating the best ways to return the majority of this capital to our shareholders while preserving an appropriate level of liquidity and financial flexibility for the business. The completion of this strategic transaction solidifies Silicon Labs as a pure-play leader in secure, intelligent, wireless connectivity for the IoT. Our team is now hyper-focused on helping customers use our integrated hardware and software development platform, an award-winning security technology to create connected devices for a wide range of industrial, commercial, home, health and safety applications. We're also working diligently to enhance production. Like the entire semiconductor industry, our supply chain conditions are tight. Yet even in this unprecedented operational environment, I'm pleased to share that Silicon Labs ended the second quarter on a strong note. Revenue on a total company basis exceeded the top-end of our guidance range at $278 million. IoT revenue ended at a new record high of $169 million, up 7% sequentially and 48% year-on-year. We also experienced another strong quarter of bookings exceeding $400 million for the total company and bringing our total for the last nine months to more than $1 billion. These successes in large part are due to strong demand for our wireless connectivity solutions. Our wireless product portfolio, which is unparalleled in breadth and depth, continues to see surging momentum, posting greater than 60% year-on-year growth in the second quarter revenue. We are also seeing strong top-line organic growth across all supported wireless protocols, including Bluetooth, Thread, Zigbee, Proprietary, and Z-wave. Additionally, we are rapidly growing our WiFi business as we have fully integrated the technology and teams from last year's Redpine Signals acquisition. The diversity of our business continues to factor into our success beyond just the number of wireless protocols we support. This quarter for our continuing operations we sold solutions to more than 20,000 customers across thousands of different applications. Our top 10 customers represented only 20% of our business. Design win lifetime revenue achievement grew 25% year-on-year reaching an all time high. I will now break out the business results in greater detail. Moving forward, Silicon Labs will report revenue from the divestiture business as discontinued operations and from IoT as continuing operations. Non-GAAP gross margin for the IoT business was approximately 57% in line with our model. During the June quarter, we implemented price increases in response to higher costs and expedite charges because of the current supply chain situation. We are working collaboratively with our customer base on pricing to ensure that while we recovered the impact of cost increases, we are at the same time preserving our relationships and superior track record of customer service. Our non-GAAP gross margin continues to represent a premium relative to competitors as our customers recognize our differentiation, innovation and value in multiple connectivity technologies, security and system design. Operating expenses for continuing operations were $85 million in Q2 with R&D expenses at $51 million and SG&A expenses at $34 million. Total operating expenses increased about $1 million in the quarter due to higher variable compensation based on upside business performance. Non-GAAP operating income on our continuing operations was $11 million or 6.6% of revenue for the quarter. On the now divested I&A business, Q2 was also strong resulting in $41 million in non-GAAP after tax income from discontinued operations. Overall for Silicon Labs encompassing both business units, we have the following quarterly results. Non-GAAP effective tax rate was 10.2% and non-GAAP earnings were $1.05 per share, which was above our guidance range. On a GAAP basis, operating expenses were $133 million, stock compensation expense was $14 million and amortization of intangible assets was $12 million. We had a GAAP operating loss of $11 million from continuing operations and $38 million in GAAP after-tax income from discontinued operations. GAAP net income was $20 million, or $0.44 per share, which was also above our guidance range. Let's now turn to the balance sheet. We ended the quarter with $622 million in cash and investments. Driven by solid performance and strong collections, the operating cash flow from continuing and discontinued operations year-to-date was $78 million. Accounts receivable was $100 million with DSO of 32 days, which is standard and we maintained a $400 million credit facility with no outstanding balance and our convertible notes, which have a par value of $535 million and mature in 2025 remain with our continuing operations. Finally, we have no known bad debts issues. Diving deeper into just IoT, we ended the quarter at $52 million in inventory, which represents inventory churns of 5.6 times, a number above our targets. As we enable more supply, we expect to churns to revert to a level of approximately 3 to 4 times. For our continuing operations, the mix of distribution business was 81% and distribution inventory increased four days, quarter-over-quarter to 50 days, which is typical. We expect channel partners to continue to play a strong role in our growth as a wireless leader. Now I'll cover guidance for Q3 2021. For continuing operations we expect the following: IoT revenue up from Q2 to a range of $170 million to $180 million. Non-GAAP gross margins to be in the range of 57% to 58%. Non-GAAP operating expenses to increase to about $93 million aligned to our goals of expanding our IoT platform, portfolio and team. We also expect a non-GAAP effective tax rate of about 14% and total non-GAAP earnings in the range $0.10 to $0.20 per share. On a GAAP basis from continuing operations, we expect gross margin to be in the range of 57% to 57.5%. Operating expenses to be approximately $116 million. Our GAAP effective tax rate to be about negative 11% and GAAP earnings per share to be in the range of $0.56 to $0.46 loss. Finally, we expect to report a one-time gain from the divestiture of approximately $2.1 billion, which will be reported in discontinued operations. And now I would like CEO, Tyson Tuttle to provide greater detail on the IoT business. Tyson Tuttle: Thanks John. To echo John's comments, I'm thrilled to report record revenue in Q2, a continued track record of sustainable growth, a large opportunity pipeline and strong demand for our wireless technology. I also want to recognize and thank the dedicated team with both Silicon Labs and Skyworks Solutions for executing the major transaction. The infrastructure and automotive business will remain a key part of Silicon Labs history and success story. Additionally, since I spent 24 years working with that group, it will always be a personal source of pride. We wish our former colleagues continued success at Skyworks. Moving forward; Silicon Labs will continue to capitalize on the large, growing and diverse IoT market. By centralizing efforts, we aim to accelerate market leadership, optimize execution, and maximize future growth opportunities and we are positioned to win globally. The highlight, I want to share some of our recent successes beyond our financials. First, we are operating successfully in the current era of unprecedented demand for semiconductors. We understand the importance of a resilient global supply chain and are working around the clock with our customers and partners. This collaborative approach ensures we are maximizing production and fairly allocating products. Additionally, we are carefully evaluating long-term options to expand capacity into 2022 and beyond. The serious shortage of supply across the industry and increased foundry prices are not impacting our strategic roadmap or pace of innovation. We keep driving the IoT market forward with our leadership position in many well-known ecosystems and wireless protocol alliances. We are at the foundational level of many standards, including Amazon Sidewalk, which extends the power of the IoT beyond the home, without the need for cellular technology. And Wi-SUN, which improves developer's ability to create scalable, robust, and safer industrial and smart city applications. We are also proud of our involvement in matter, formerly known as project connected home over IP or chip. Silicon Labs engineers contributed more than 20% of the source code for matter. And our new solutions leverage matter to help IoT product developers create secure interoperable devices and networks. This industry unifying standard can be used for a wide range of applications, and our new technology also makes it easier for consumers to use their devices with all major smart home ecosystems, including: Amazon, Alexa, Apple HomeKit, and Google Home. In Q2, we also announced the collaboration with fellow IoT leader Wirepas on Wirepas Massive, a powerful mesh networking technology solution which helps companies with asset tracking and building automation. Wirepas chose Silicon Labs for our integrated hardware and software platform, ultra low power chips and affordable solutions. This quarter, we remain steadfast in our dedication to environmental sustainability and our passion for supporting communities globally. We became the first corporation to join the International Institute of Information Technology Hyderabad's new Smart City Living Labs, which focuses R&D on devices that improve safety, sustainability, and more. We also supported our employees, families and neighbors in India who continued to battle COVID-19. We funded the creation of a new ICU hospital, donated to United Way India and made facilities changes to our new wireless lab in Hyderabad to make it easier for employees to adhere to social distancing guidelines. Examples like these service strong proof points that we are living our mission to build a more connected world. Customers are using our technology to build secure wireless devices that improve lives, transform industries, and grow economies. Working together we are measurably solving tough global challenges in energy, health, infrastructure, production, and more. These results that personally inspired me. I'm an engineer at heart. I find nothing more satisfying than working with others to find innovative solutions to tough problems. And that's exactly what we've been doing at Silicon Labs for nearly 25 years. As pioneers of wireless innovation we've simplified the complexity of implementing wireless technology from Silicon to Cloud, so developers can bring the power of secure, intelligent connectivity to the world. With the major divestiture of our I&A business complete; the vision, strategy and roadmap for the IoT sets and our current outstanding financial results reported. I decided and got Board approval to officially announce my retirement from Silicon Labs effective January 1, 2022. Silicon Labs President, Matt Johnson who has been managing the IoT business since 2018 will become our next Chief Executive Officer at that time. Matt and I have worked closely together to set our company's purpose and promise, creates a strategy for our leading wireless platform and product portfolio and most importantly reinforce our belief that people belong at the center of everything we do. I'm confident Matt will continue to demonstrate our values. The foremost of which is do the right thing for all stakeholders. Under Matt's leadership Silicon Labs will continue its proven track record of sustainable growth, meet its commitments and conduct the business with integrity. For the remainder of the year, I will work to facilitate a smooth transition both internally and externally. After my service is complete, I will continue to support Silicon Labs as a member of the technical advisory board. Matt will be joining us on the Q&A and also for the Q3 earnings call. Before we take questions, I'd like to give Matt a chance to say a few words. Matt? Matt Johnson: Thank you, Tyson. I'm incredibly excited to lead Silicon Labs as we embark on taking the company to the next level. We have great talent in technology, all now focused on the IoT wireless space that is rapidly growing. Our position to accelerate our impact has never been greater. I'm looking forward to sharing more with you on our Q3 update. I will now turn the call back over to Austin. Austin Dean: Thank you, Matt. Thank you for joining Silicon Labs' Q2 2021 financial and business updates. I recognize we've covered a lot of information. So I will now open the call for questions. To accommodate as many people as possible before the market opens, I ask you to limit your time to one question with one follow-up inquiry, if needed. Operator? Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gary Mobley from Wells Fargo Securities. Please go ahead. Gary Mobley: Good morning everybody. Matt, Tyson, let me extend my congratulations on both of your milestones. I want to start out by asking about your plans for the net proceeds specifically I think the $2 billion you had originally outlined for either a one-time dividend share buyback or other uses I'm hoping to get your current view on the options. And as well you mentioned and this is linked to the use of cash. You mentioned that you're looking at different options to expand capacity. Might you use some of that cash for things like pre-purchase about wafers to secure that? John Hollister: Hi, Gary. This is John. Yes, really no change in terms of the capital deployment. We are expecting to deploy roughly $2 billion of the cash that's in the company now, which is around $3.3 billion currently ahead of final payments for taxes and fees, et cetera, associated with the deal. No change in our view of how that might come about, either through a share repurchase program, various techniques to accomplish that either through open market repurchases, advanced share repurchases, a tender offer, these are all possibilities. A special dividend of some amount is also a possibility and the board and the management team are continuing to evaluate that in light of market conditions and other factors to determine how to proceed there. So no change in the message this morning and also nothing specific to announce this morning on that. Regarding the production capacity, we are looking at various options to enhance our production capacity into next year. This could involve entering into some longer-term agreements with suppliers, but nothing to announce specifically this morning, but we are looking at various options through. Gary Mobley: My follow up, I want to ask a question about your IoT mix and your long-term gross margin guidance, which I believe was 56% to 58%. Your guidance for the third quarter implies that you're at the high end of that long-term guidance range and that seems a bit counterintuitive given that you're – the radio portion of your IoT seems to be the growth engine right now. And I know there is mix within that mix, but maybe if you could just walk us through – basically what I'm asking is, is it sustainable? Is that third quarter gross margin sustainable given sort of the mix dynamics? John Hollister: Yes, Gary, so we've taken steps this year to address the cost increase situation that we've been facing over the last six to nine months and have implemented a number of price increase programs with our customers. As we indicated in our prepared comments, we are working collaboratively with customers to ease that in so to speak and ensure that it's not a shock to them and that's working well. We're collaboratively working with the customer base on that point, but that's definitely helping gross margin here short-term. On the sustainability, we continue to view the longer-term model here as likely indicating some pressure out in time. It's hard to predict exactly how that's going to play out, but we haven't changed our long-term model from what we talked to you guys about when we announced the deal. Gary Mobley: Thank you, guys. Operator: The next question comes from Blayne Curtis from Barclays. Please go ahead. Blayne Curtis: Hi, good morning. Thanks for taking the question and Tyson congrats. I just wanted to revisit the – your internal inventory levels, you said it needs to come up a great deal. I'm also kind of just looking at your revenue and I think you said wireless was a 60% year-over-year. So I guess the non-wire is probably down. So I am just kind of trying to figure out how you're managing that? Are you prioritizing certain products? And then maybe just a peek into the downstream supply chain, what were your lead times? And clearly, you can't buy a lot of these wireless products. So I'm just trying to understand when do you think you can get caught back up? Tyson Tuttle: Yes, Blayne, it is a tight supply chain situation out there and we're working very hard every day to secure more capacity and we're pleased actually what that we're able to do that and show some growth in the business here was strong year-on-year growth both for the second quarter results as well as the third quarter guide. The inventory level, ideally we would elevate that, now that we're in the pure-play mode and a couple of things to keep in mind about the IoT business. One is, it's very broad-based. So we're not talking about application specific products. These products are widely applicable for numerous types of applications. And that in and of itself reduces the level of inventory risk and also calls for a higher level of inventory across a broad range of tens of thousands of customers. It's a bit more challenging to predict exactly what is going to be ordered versus having a very isolated vertical type business with just a handful of customers. So, we look forward to increasing the inventory levels as we can out in time. It's going to take some time. It's likely several quarters for us to get our inventories back to where we want them to be. Blayne Curtis: Thanks. And then I just want to ask you at the time of divestiture you gave a annual guide, I didn't know if you want to revisit that or any thoughts on December? Tyson Tuttle: We're moving back into the mode of one quarter at a time on our guidance, so no real update on the annual view at this point. Blayne Curtis: Okay. Thanks, guys. Operator: The next question comes from Matt Ramsay from Cowen. Please go ahead. Matt Ramsay: Yes. Thank you. Good morning everybody. As folks have said congrats Matt and congrats Tyson. I guess my first question, and you guys laid out this new model when you announced the divestiture and with the third quarter guidance it's sort of out there officially of where the scale of the business and the margin structure is. I guess my question and I guess this is for Tyson and for Matt as we go forward is the confidence in continuing along this 20% growth plan that you have outlined in IoT while keeping operating expenses relatively flat that generate the leverage that you've laid out as we continue to grow the business. I guess that would be my question. Do we need to invest more to generate that type of growth? Or are you really confident in where the investment levels are as we see them? Thanks. Matt Johnson: Sure, Matt. This is Matt. I'll answer the first part of that. So our commitment to the long-term 20% CAGR is strong and we see a pretty good path to achieving that. If you look at our current momentum, we are clearly a supply constraint and not demand constraint in this environment in this year and next year. If you look at design win pipeline, it clearly supports continuing this model going forward, so we're encouraged by that. So, current priority is to continue to secure more supply to support that. In terms of short-term, we mentioned that one of the benefits of the divestiture is allowing us to accelerate investment in some key areas to capture as much of this opportunity as we can. Without exaggeration, we basically have unlimited demand right now and unlimited opportunity and we're working to capture that, but long-term our commitment to the model is absolute, so the long-term 20% revenue CAGR and the profitability progression each year. We believe that that's fundamental to this go forward model and that's what we're committed to. So we see a path to achieving it and that's why we're doing this. Matt Ramsay: Great, thank you for that. And just John, you mentioned a few times about how tight things are across the supply chain. As you guys invest for more supply, how much of unlocking, I don't know, the growth potential are you seeing in the next three, four quarters that that's directly in your control versus all of your peer companies that sell components into the same solutions, our supply constraint as well? So I don't know how are you guys sort of balancing and thinking about that over the next few quarters? Thanks. John Hollister: You know, Matt, we're really just driving to it and we see greater constraints in foundry capacity. Our OSAT situation is not as constraint at this point and we'll continue to monitor that as the foundry capacity increases, but that is exactly our task to keep working that and ensuring that we have adequate wafer supply to drive our growth. That's what we're laser focused on doing here. Operator: The next question comes from Raji Gill from Needham and Company. Please go ahead. Raji Gill: Yes, thank you and congrats Tyson and Matt as well. Just to go back on the full year guidance for IoT. I know, John, you had mentioned that you're not giving an update on the 2021 guidance for IoT, but it looks like it's given the guidance for third quarter that it could exceed the midpoint of the guidance, unless there is a pretty big sequential decline in Q4 to hit the midpoint, which would be, I think, different from seasonality patterns if there were to be a decline of that magnitude. So I just want to get an update of kind of what's the thought process of the full year for IoT? And how should we think about that? Tyson Tuttle: Yes, Raji, I think you're thinking about it correctly and we're not providing guidance of a decline in the fourth quarter. Demand is very strong. We continue to work the supply, certainly have the opportunity to have consistent Q4 performance. So we're not communicating this morning that we anticipate a decline in the fourth quarter. Raji Gill: Okay, good to know. And in terms of the wafer capacity constraints, I think Tyson in the last earnings call or the earnings call before had talked about that they were – you guys were 40% to 50% overbooked at TSMC for calendar 2021. And production capacity is limited on the wafer side, although the backend capacity seems to be efficient. Your recent updated conversations with TSMC, give us a sense of how those conversations are trending. How we look at capacity in calendar 2022? Tyson Tuttle: Yes. Raji, this is Tyson. And that the comment on TSMC was, they are 40% to 50% overbooked. They are completely jammed. We're working allocations for 2022 and have received increased allocations from TSMC and are looking also at other options that are under our control to be able to ramp-up additional capacity that would ramp in 2022 to support our growth. So there is certainly constraints, there's growth from here, certainly with our existing suppliers bringing on new supply and then being able to scale the backend efficiently. There's a lot of work to do here, but certainly have line of sight to that long-term model, and certainly being able to get out of the woods here in 2022. I think everyone's hoping that the – that the global situation lightens up you from – we don't see any cracks in the armor yet in terms of the tightness that we're seeing. And certainly as new fab capacity ramps towards the end of next year, I think that that should get us to the point where we can get back to serving the demand. Raji Gill: And if I can just squeeze one more in terms of the IoT, you'd mentioned broad-based growth across wireless, but kind of specific focus on some traction on WiFi. Any update there in terms of your WiFi efforts? Thank you. Matt Johnson: Yes. This is Matt. So, on the WiFi piece it's been over a year since we completed the acquisition of Redpine. We're very happy with the way that's gone. We've integrated the team. We've seen good market response to the technology, and now we're integrating that capability into our ongoing roadmap. It came off from a small base, but we're actually seeing the growth of those WiFi products above the average of our other wireless technology. So we're seeing good uptake and momentum there. And the fundamental thesis or strategic backdrop for why we did this hasn't changed. If anything we've seen in the last year or two it's accelerated. So we're happy with where it's at and we see continuing momentum there. Raji Gill: Appreciate it. Thank you. Operator: The next question comes from Srini Pajjuri from SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you. Good morning guys. And let me call my congrats as well for Tyson and Matt. Couple of questions; first, John, can we talk about the channel inventory? I think you said it went up four days. Could you put that into perspective and also, are you comfortable where the inventory is? Or do you plan to kind of try to build additional level of inventory as we head into the second half of the year? John Hollister: Yes. Srini, I mean, the main thing to say about this is our operations team that's done a great job, executing more supply, getting the shipments out and ensuring that we have adequate channel inventory. The inventory is flowing, but we are pleased that we're able to elevate our unit shipments on a sequential basis in the second quarter. I mean, anticipate doing that again in the third quarter. So that is a relatively normal level of inventory, ideally yes. We would like to increase it some, but overall that is relatively normal level. Srini Pajjuri: Got it. And then just to follow-up on gross margins, John. So your longer term model is for mid-50%. I'm just trying to understand how we get to mid-50% from the current level. So obviously you said there was some benefit in the quarter, but as we go through the next few quarters, the next couple of years, should we assume that this is going to be a gradual decline or, I mean, do you even, I mean, should we even expect a decline or do you think the mix itself will take care of itself or are there any other factors that we should be aware of as a model gross margins? John Hollister: Yes. Srini, it's – of course it's a hard thing to predict, but over time as this market grows and evolves, competition is presence in the market. And we're allowing for the possibility of some slight declines over time as we scale the business and building our model to comprehend the possibility of that happening. It may not happen, but we're acknowledging that it's possible that it might happen. Srini Pajjuri: Got it. Thank you. Operator: The next question comes from Tore Svanberg from Stifel. Please go ahead. Tore Svanberg: Yes. Thank you, and congratulations to Matt and Tyson. Tyson, we're going to miss you a lot and before we let you off the hook, I was hoping you could just talk a little bit more again about the long-term vision in IoT. Obviously, you become a semiconductor leader. I know you've invested a lot in software and security. So as we look at the next two years, how is this IoT business going to evolve for the company? Tyson Tuttle: Yes. Tore, thanks a lot for the kind words. I'm going to miss traveling with you and your thoughtful reports and questions. So, you know, but we're not done yet here. We got get a little bit of time to go. We started out over a decade ago. I think you remember when we said, hey, we're going to pivot the company to IoT, and we had been a high-performance mixed signal and RF provider of various components across a diverse set of markets. But we viewed the IoT as kind of the next frontier where we're integrating wireless connectivity into everything outside of the PC and handset. And we predicted there would be tens of thousands of customers and thousands of applications for that technology over time, and that, that would be a long-term growth trend, where we could be able to control the integration path to not just do the SoC and the chips to integrate wireless and battery management and processing and memory and sensor interfaces, and now security and AI and a lot of things, but also build on top of that, build our differentiation to where you have communication protocol stacks, and they become experts in networking and communication standards to develop tools and the channel to sell across all of those markets effectively and to drive simplicity so that we're able to effectively support those customers. And we've seen that business grow from several hundred million to now over $650 million this year and divesting our instruction automotive business, which was essentially the legacy business to be able to focus on this is, I think a real testament to how that that strategy has played out here over the last decade. And as we look forward, we see, our position is strong and growing in strength. We're now supporting a multitude of wireless standards to a very – to address various segments of the market. We've got supplying solutions to industry leaders. We've got a huge pipeline of design wins and decades of growth ahead in terms of the wireless market is growing at a 15% CAGR, so 5 times or more GDP. And, so that puts the company on a really good footing. And there's a lot of work to do to get out our new products and to continue to innovate, to continue to build out those teams, to continue to support customers in a more efficient way so that we can continue to gain leverage off of the bottom line is the revenue grows. And I couldn't be more excited about what we – more proud of what we've created and more excited about the path ahead. And I'm delighted I've been working with Matt here for the last three, four years. Actually the last year, it seems like even longer than that. But, he's a fantastic leader of the team and the team really rallies around him and he's got energy and passion and is going to do a great job carrying our values and our strategy, and then evolving that into the future and leading the team. So thank you all for your patients over the last – the last decade. It's been a really, really exciting time, and I think the future is very, very bright for Silicon Labs as I move on to the Technical Advisory Board and get to cheer from the sidelines. Tore Svanberg: Right. Thank you for that Tyson. As a follow-up, John, you mentioned total bookings of $400 million, which translates [indiscernible] book-to-bill of 1.43. Could you calibrate that number a little bit more? I mean, is the bulk of those bookings in IoT, any other color you can share? John Hollister: Tore, the majority of the bookings are in IoT and the calibration and you're correctly viewing that it's very high and it has been high now for three quarters. And what that means is we have an extraordinarily high level of backlog coverage in the business right now. It really is a supply constraint. And as we've been indicating, we're working constantly to activate as much supply as we can to drive the growth, but it is a very high level of booking. Tore Svanberg: Sounds great. Thank you very much. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Austin Dean for any closing remarks. Austin Dean: All right. Thank you. And thank you for joining us for the Silicon Labs Q2 earnings call. Remember, you can find our financial information at silabs.com/investors. We look forward to discussing our business further during our participation in the KeyBanc Conference coming up on August 9th. Operator, you can now conclude this call. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning. My name is Matt, and I will be your conference operator today. At this time, I'd like to welcome everyone to Silicon Labs' First Quarter Fiscal 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Austin Dean, Silicon Labs' Investor Relations Manager. Please go ahead. Austin Dean: Thank you, Matt, and good morning, everyone. Tyson Tuttle, Chief Executive Officer; John Hollister, Chief Financial Officer; and Giovanni Pacelli, Senior Director of Finance are on today's call. We will discuss our financial performance for the first quarter and review our business activities. After prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our Web site at www.silabs.com. This call is also being webcast and a replay will be available for four weeks. Our comments today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the Company's earnings press release and in the Investor Relations section of Silicon Labs' Web site. I will now turn the call over to Silicon Labs' Chief Financial Officer, John Hollister. John Hollister: Thanks, Austin, and welcome everyone. Last week, we signed a definitive asset purchase agreement with Skyworks Solutions for the divestiture of our infrastructure and automotive business, launching our transformation into a pure play leader of intelligent wireless connectivity for the IoT market. We also announced organizational changes that will enhance our ability to capitalize on this exciting new opportunity in IoT. Matt Johnson, formerly Senior Vice President and General Manager of IoT, has been promoted to President of Silicon Labs, where he will be leading our day-the-day business operations, as well as our product development activities. Daniel Cooley, formerly our Chief Strategy Officer, will now serve as our Chief Technology Officer, where he will continue to develop our technology roadmap and align our products and solutions to the market opportunity before us. Tyson Tuttle will continue as Chief Executive Officer to further evangelize our products and platform to the growing IoT customer base. Please note, that the divestiture will include a small [ASIC] [Ph] product line currently classified in the IoT reporting category, which accounted for less than $3 million of revenue last year. Our comments today will focus on the consolidated operations of Silicon Labs. We expect to be in position to report on our continuing operations on an IoT-only basis in the July call. We are very pleased to announce this morning record revenue for the first quarter, at $256 million, up 5% sequentially and 19% year-on-year, significantly exceeding the high end of our initial guidance for the quarter. IoT revenue for the quarter was $158 million, above our expectations, up 7% from Q4, and 34% year-on-year. IoT wireless led the way with 44% year-on-year growth in Q1, with strong double-digit growth across all our major wireless protocols. Infrastructure and automotive revenue in Q1 ended at $97 million, up 2% sequentially, and about flat year-on-year. Timing and isolation both increased from Q4, offset by slight declines in other I&A product lines. Turning to end markets, revenue from industrial, consumer, and communications markets were all up on Q1. Automotive was down slightly coming off a strong Q4 recovery. Distribution sales were 79% of total revenue for the quarter, and we ended Q1 with DSI at around 41 days, down from 47 days at the end of Q4, with strong POS to end customers, driving down the distributor inventory level. Geographically, we saw particular strength in Q1 in APAC and Europe, with sales in the Americas down in the quarter. Total bookings were very strong again this quarter, and about 5% higher than Q4 bookings, which were already at an elevated level. Non-GAAP gross margin for the quarter ended better than expected, at 59.1% due to strengthened product mix as well as operational efficiencies with the upside in revenue. Non-GAAP operating expenses in the quarter were $103 million, up about 6% from Q4, primarily due to increased payroll taxes, variable compensation, and medical claims expenses. R&D expenses were $61 million or 24% of revenue in the quarter, and SG&A expenses were $42 million or 17% of revenue. Non-GAAP operating profit for the first quarter was $48 million or 18.7% of revenue. Our non-GAAP effective tax rate for the quarter was 10.8%. Non-GAAP earnings ended at $0.91 per share. On a GAAP basis, gross margin was 58.9%, GAAP operating expenses were $128 million, stock compensation expense was $14 million, and amortization of intangible assets was $12 million, both in line with expectations. Turning now to the balance sheet, we ended the quarter with cash and investments totaling $578 million. Our operating cash flow in the first quarter was $15 million, with significant cash outlays related to seasonally high payroll taxes and increased levels of working capital. Accounts receivables, up on strong shipments in Q1, ending at $104 million. Our DSO increased slightly to 37 days. We have no known bad debt exposures related to our accounts receivable. The inventory balance grew in the quarter to $79 million on anticipated growth in the business, with inventory churns declining to 5.3 times, which is still higher than our goal. Though the overall supply chain in the semiconductor market remains tight, our fabulous business model, efficient manufacturing techniques, and outstanding relationships with our suppliers have enabled us to delivery upside results for Q1. During the first quarter, we completed the redemption of our 2022 convertible notes, and have no balance outstanding on those notes. The 2025 convertible notes have a $535 million balance. Our balance sheet remains very strong and well capitalized. I will now cover guidance for the second quarter. We expect revenue in the second quarter to be in the range of $262 million to $272 million, with IoT roughly flat sequentially limited by supply, and I&A up sequentially. As we indicated last week, we expect IoT revenue to grow 25% to 30% for the full-year or between $640 million and $660 million. The demand for our products is very strong, and our revenue outlook for the second quarter is supply constrained. We are working continuously and aggressively with our suppliers to open up additional capacity. We expect the tight supply conditions to persist for several quarters as factories need time to qualify new production capacity. We expect non-GAAP gross margin to be in the range of 57% to 58%. Based on the supply chain situation, we have experienced cost increases and expedite charges from a number of our suppliers, which is impacting our gross margin. We are implementing additional price increases, but expect we will be slightly below model on gross margin for the balance of this year. We expect non-GAAP operating expenses to be approximately $104 million. We expect our non-GAAP effective tax rate will be 11.5% for the second quarter. Based on current tax law and accounting rules, we expect our 2022 non-GAAP effective tax rate to be in the low to mid-20s on a combined company basis. For Q2, we expect non-GAAP earnings per share to be in the range of $0.88 to $0.98. On a GAAP basis, we expect gross margin to be between 57% and 58%, operating expenses to be $130 million, and GAAP earnings per share to be in the range of $0.28 to $0.38. I will now turn the call over to Tyson. Tyson Tuttle: Thank you, John. We are pleased to report record first quarter revenue. The pandemic has led to an accelerated digital transformation creating market opportunities we have been to seize through organic growth despite unprecedented global supply chain constraints. The revival of economic activities stemming from the recovery signals greater market growth ahead. And we are well-positioned to continue to capture share in 2021. Our opportunity pipeline continues to be robust at $15 billion. And our design win lifetime revenue achievement in Q1 was up 8% year-on-year. Bookings have been very strong in recent months with the semiconductor industry poised to deliver an excellent 2021. Turning to our IoT business, wireless connectivity products continue to see surging momentum, posting greater than 40% year-over-year growth in first quarter revenue. In Q1, we saw strength across our entire wireless portfolio with robust and consistent growth in all of our major wireless connectivity protocols. Security continues to be critical for the IoT's expansion. And Silicon Labs has established a clear and unique leadership position in protecting IoT devices against bad actors. In March, Silicon Labs became the world's first Silicon innovator to achieve PSA certified highest level of IoT hardware and software security. Our secure vault technology sets the standard for IoT security effectively protecting against hardware and software attacks. We have made strategic investments to ensure security as a core strength, becoming the first company to achieve PSA level 3 certification, a strong validation of our leadership role in securing the IoT. In addition to delivering superior security in our high performance parts, we provide strong security in our battery optimized devices like the xG22 which just became the world's first wireless SoC to earn CSEP Level 3 certification using the Diabetes Technology Society's DTSec security protection profile. DTSec sets the security standard for protecting personal and confidential healthcare data transmitted through connected devices. In addition to becoming more secure, the IoT is becoming more intelligent in areas such as motion detection, sound recognition, image classification, and preventative maintenance. Developer's innovation for these solutions face obstacles in linking their machine learning models to real world information. To help overcome these challenges, we have partnered with Edge Impulse to enable the integration of tiny ML solution into our SoCs and MCUs. This is just one example of the ways that we are bringing the power of machine learning to developers of wireless edge devices. Smart lighting continues to be a key growth driver for IoT business. We have a strong position in the lighting market due in large part to our unique combination of best-in-class SoCs and industry leading portfolio. Our 15.4 Mesh and Bluetooth low energy products are deployed throughout the smart lighting industry which is growing at a CAGR of 30%. A great example of this is our work with Yeelight, the recently launched new smart LED light bulb with our BG21 Bluetooth SoC. The smart lighting product enables users to connect and control smart home devices directly from the Google Home app without the need for any other apps or software. The exceptional user experiences our technology delivered are influencing the broader IoT ecosystem which will help more and more IoT products become mainstream. We are world leader in providing wireless connectivity solutions for the smart home pushing the envelop to improve simplicity and ease of use. We recently collaborated with Allterco to create the Shelly Motion, a new WiFi motion sensor with the world's lowest power consumption in mass production today. Shelly Motion features up to three-year battery life before recharging and is ideal for a wide range of motion sensing application like lighting and security. Shelly Motion is another great example of our relentless focus on designing products specifically for the unique requirements of the IoT with built-in compatibility with Alexa, Home Assistant, SmartThings and other third-party home automation platforms. Our differentiated IoT product offerings are winning share and preferred by the marketplace versus competing products architected on repurposed technology not originally designed to meet the unique requirements of the IoT. Turning now to infrastructure and automotive. As we announced last week, we're divesting our I&A business to Skyworks Solutions with closing expected in Q3. This transaction delivers significant value to our shareholders and we're excited about I&A's future under Skyworks. Onto results, we delivered first quarter I&A revenue growth both on a sequential and year-on-year basis, and saw continued recovery in both timing and isolation product lines. The automotive market continues to see increasingly demanding requirements for timing solutions. In the first quarter, we expanded our portfolio of automotive focused timing solutions with the introduction of new smart clock features that actively monitor reference clocks to detect potential faults, and provide built-in clock redundancy to ensure safe and reliable operation. To help power emerging trends in the electric vehicle and industrial markets, we introduced a new gate driver board, an all-in one isolation solution perfectly suited for the recently launched Wolfspeed WolfPACK power modules. This new board delivers superior performance to efficiently drive and protect power modules, employing any switch technology including advanced silicon carbide based modules used in the most demanding high power applications. During the quarter, we bolstered our management team welcoming Dr. Manish Kothari as Vice President of Silicon Labs India. Manish leads the company's newest and fastest growing wireless Development Center in Hyderabad and will grow our wireless engineering talent, build scalable infrastructure, and foster local and regional partnerships. Our Hyderabad Development Center is the result of our acquisition of Redpine Signals one year ago, adding more than 200 engineers with strong expertise in WiFi technology, over 70 WiFi patents and a number of highly innovative WiFi products to our portfolio. The acquisition further solidified our position in the market as the market leader in IoT wireless connectivity and the integration of the former Redpine Signals team has gone very well. Under Manish's leadership, we continue to hire world-class talent in Hyderabad as we build the region's top IoT wireless Development Center. As we shared last quarter, we have implemented an internal program to empower employees to form resource groups fostering a diverse, inclusive workplace aligned with our organizational values. I'm pleased to share that we have formed three employee resource groups and an additional two are being developed. These groups our employee led represent a diversity of interests and support our deep commitment to workplace equity and inclusion. Additionally, we have launched an Inclusive Lexicon project to eliminate offensive terms commonly used in the tech industry and replace them with inclusive language in our corporate Lexicon. In conclusion, our business is generating significant and strong momentum, with another quarter of record revenue, a growing opportunity pipeline and strengthened design win growth. We're now positioned to capitalize on the IoT opportunity in front of us with a singular focus, while supply chain constraints continue to impact our industry's ability to meet surging demand we're still delivering upside results. We're collaborating with customers and ecosystems to deliver compelling new products, and we're enhancing our workforce by focusing on diversity and expanding management talent. We continue to lead the market in wireless connectivity for a vast array of intelligent solutions and with a focused management structure we're poised to capture, share and lead the cutting edge of wireless connectivity. With the global economic recovery from the pandemic in full swing, we're very excited about capitalizing on the growing opportunities in front of us. Thank you for your time and attention. Before we take your questions, I'd like to turn the call back to Austin Dean. Austin? Austin Dean: Thank you, Tyson. We'd now like to open the call up for your questions. To accommodate as many people as possible for the market opens, we ask that you please limit your questions to one with one follow-up, Matt, back to you. Operator: We'll now begin the question-and-answer session. [Operator Instructions] Our first question will come from Gary Mobley with Wells Fargo Securities. Please go ahead. Gary Mobley: Good morning, guys. Thanks for taking my question. I want to ask a multi-part question about gross margin. It sounds as if you had a higher than expected mix of radio and IoT, which I believe perhaps margin-dilutive, but despite that you beat for the quarter. Wonder if you can give some reason or rationale behind that? And then as it relates to the headwinds from higher input cost as it impacts your gross margin, can you quantify the impact in the near-term? And as it relates to passing on the price increases where might you be getting some pushback from customers? John Hollister: Hi, Gary, it's John. On the first part of your question, as we've talked about before, technology mix is relevant. But what's also relevant is the end market and customer mix, and we did see strong results in the first quarter in our industrial and commercial part of the business. Metering was strong in Q1, which was constructive for IoT margins, as an example of that. Looking at the input costs, we don't have a hard number to give you, but you clearly can see it -- a point or so of margin impacts. And as we work through our competitors in the market and desire to grow share, we're continually assessing how to transfer that on to the customer base, and that's an ongoing process for us. Gary Mobley: Appreciate that color. And in your presentation of week, you outlined a goal of achieving roughly $650 million in sales for the IoT business. And you mentioned in your prepared remarks that you expect continued supply chain constraints for at least a few more quarters. But I'm curious to know whether or not, in a $650 million revenue expectation for IoT, you might have factored in any capacity constraints extraneous to SLAB's supply chain? Tyson Tuttle: Yes, in the revenue guidance that we gave for IoT for the year we are factoring in known supply chain constraints. So, that is a supply constraint number. Gary Mobley: Got you. All right, thank you very much, guys. Tyson Tuttle: Thank you. Operator: Our next question will come from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: Hey, good morning. Thanks for taking my question. Maybe just following up on Gary's question there, if you -- in the outlook for the year you had IoT margin kind of 57. It seems like, for the June guide, infrastructure has been kind of flat for a bit, is up sharply. So, maybe you could talk about that. And then specifically, I guess if IoT margins are 57, seems like infrastructure margin is going down. Maybe just talk about the mix there. John Hollister: Yes, Blayne, first on the upside for infrastructure in Q2, we're seeing strength in automotive, timing in isolation, sort of where you would expect that, so that's very positive for the I&A business, and great to see that. And similar dynamics that work with some input costs increasing there related to supply chain situation affecting I&A as well as IoT. Blayne Curtis: That's it. And then maybe just a longer-term question, you maybe [indiscernible] maybe in analyst day, but in the long-term targets you kind of showed an effective doubling of that $650 million in IoT. The growth rate, I mean Tyson has been talking about IoT could maybe even grow 30%. You're kind of there this year. So kind of maybe can you put some timeframe as to what that long-term is or maybe what kind of how you see the IoT CAGR going forward? John Hollister: Yes, Blayne, we tried to articulate that in the deal call last week, of identifying a 20% CAGR opportunity over time here. So, hopefully that can give you a sense of the doubling time that could be achievable if we're able to sustain that, which we believe is possible. So, we did try to go ahead and call that out. This is a strong year for sure, and we have a lot of momentum in the business right now. Blayne Curtis: Thanks. Operator: Our next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead. Craig Hettenbach: Yes, thanks. On the strength that you're seeing in the wireless IoT in the quarter, as well as your expectations going forward, can you just talk about implications of market share and where you're seeing the best momentum? Tyson Tuttle: Yes, Craig, this is Tyson. We're seeing strength in wireless really across protocols and across a number of different market segments. We outlined some of those things, like lighting, industrial automation, retail, shelf tags, smart home, a lot of the mesh networking, a lot of the Bluetooth applications and things like portable medical. So it's kind of an across the board in terms of different applications and different wireless protocols where we're seeing the strength in wireless. And those are trends that are going to just continue year-after-year. If you think about IoT, it is a long-term trend. It's not just something that's going to happen in one area, and then dwindle away. The projections are that the IoT wireless market will grow at a 15% CAGR over the next decade. And so our target of a 20% CAGR means that we will be gaining share over that timeframe while the market continues to grow. Craig Hettenbach: Got it. Thanks. And then, just the follow-up question on tax kind of going from the low to mid-20s on a combined basis, anything to note on just the IoT piece from tax implications longer term? John Hollister: Yes, Craig, similarly facing the dynamics around the increase with the change in the tax law, we'll be further refining that as we move to our continuing operations model, but a similar type of increase based on current law. And I will add that, obviously a lots happening in DC right now. We're watching that carefully, and the landscape could change depending on what happens with legislation. Craig Hettenbach: Thanks. Operator: Our next question will come from Raji Gill with Needham & Company. Please go ahead. Raji Gill: Yes, thank you. Just a question if you did not have supply constraints related to IoT. Any sense in terms of what the IoT growth rate would have been in 2021? John Hollister: Yes, Raji, it's -- not able to provide a hard number to you, but suffice to say that we exited the first quarter as we did exited the fourth quarter with an unusually high amount of unmet demand. So it would be a big number, Raji. But the entire industry is constrained, and we're working through that best we can. Raji Gill: Right. And you talked about supply constraints, lasting persisting for a kind of several quarters. Any kind of insight or color in terms of how the industry is progress in terms of supply and capacity, these are kind of lagging edge nodes, where there is supply constraints. You kind of gave it a somewhat of a timeframe, but any sense in terms of, what steps the industry is taking in order to try to increase the capacity particularly on these lagging edge nodes? John Hollister: Yes. So, the industry is -- TSMC has announced a number of investments in mature technologies. And this is really 28 nanometer and above. So this is, it's not the three nanometer and five nanometer and seven nanometer at the advanced nodes. But what's happened is that a lot of the -- in addition to strong demand, we've also had a focus of all the CapEx into the advanced nodes. And then, because Moore's law is pushing the limits here. A lot of products have gotten left behind, the N-1, N-2, N-3 nodes. And so that has also filled up the mainstream technologies. Right now, it's safe to assume that for the remainder of the year, we are going to be in a supplied constrained situation, there's incremental improvements that can be had. But it takes a little while to get other sources of supply qualified. And certainly, to the extent that we have to build new fabs and mainstream, which is not the way it used to work, it used to be that they would focus on advanced nodes and the mainstream nodes would empty out. But we're getting into a situation where the demand for semiconductors has exceeding that that model and those slowing pace of Moore's Law migration is adding to that. So it's -- I believe that this will persist into 2022, but certainly, for the remainder of the year, we're going to be in a supply chain constrained situation. Raji Gill: And just for a follow-up, in terms of your kind of long-term strategy in IoT, you're pretty much dominating wireless by servicing all the different types of standards that are available there out to your multi-protocol, multi-radio, SoC. Are there other connectivity technologies such as cellular, massive IoT that you're considering? When you are now thinking about, IoT and becoming kind of the leader in IoT going forward? John Hollister: Yes, certainly we look at a lot of the other technologies in cellular, but I think when you think about strategy and one of the things that we're accomplishing with the sale of our I&A group is to obtain focus, to be able to focus on this massive opportunity in IoT. And I think even within IoT, it's very important that we focus on the most important things and that we don't get spread too thin. And one of the -- you look at the standards that we are addressing from WiFi, Bluetooth, all the mesh networking, Z-wave, Zigbee, Thread, and then all of the industrial proprietary protocols that we can also run those onto our chip. There's a massive opportunity for that, and if we focus and execute on our vision, and continue to push that with -- into the next process technology nodes, and to really build-up our WiFi business and our Bluetooth business. We have a long runway of growth without having to necessarily add another protocol. And in fact, adding another protocol, especially going after cellular could be seen as a distraction from the success in these other large areas. So it's something that we're keeping our eyes on, but also being very careful to make sure that we maintain that focus on what the really big prizes, which is the standards that we're on is a massive growing market. And we've got to make sure that we ensure success in that. Raji Gill: Appreciate it. Thank you. Operator: Our next question will come from Matt Ramsay with Cowan. Please go ahead. Matt Ramsay: Thank you very much guys. Good morning. John, I wanted to ask a little bit about after the I&A sale, the proforma business and the concentration for the IoT business on distribution. Is that materially different than the combined company has been? I think my observation would be probably yes. And then secondly, with supply constraints, I imagine your own books inventory and your inventory in the channel are below levels right now in the IoT franchise that you'd like to run that business at in a steady state basis. If you could talk a little bit about where the IoT businesses from an inventory perspective versus what inventory might be need to be rebuilt as we get back to supply demand parity at some point here? Thanks. John Hollister: Yes, Matt, certainly, on the first question IoT is a relatively distribution heavy business with a broad base of customers outstanding support from our distribution network. So we expect that to be on the high distribution side of how we operate. And on the inventory question, you're right, channel inventory is lean. And we'd like to see some build in the channel inventory levels. And the IoT business would normally operate with a relatively higher level of inventory inside than the company average, you tend to see faster turns on more vertically oriented businesses. With a broad-based business like IoT it makes more sense to carry a bit more inventory. And we're not there right now. Matt Ramsay: Got it. Thank you. Tyson, and just a bigger picture question, and just, I guess a reflection of some investor feedback I've gotten in the last week or so since the deal was announced. You look at the IoT franchise 20% growth going forward, as you've outlined a $15 billion IoT TAM? I don't know. I would imagine you guys would agree that we're in the early innings of this IoT market phenomenon. And then you get $2 billion in the door that you've earmarked to give back to shareholders. I wonder what the debates been within the management team and the board feedback from shareholders as to use of that proceeds? My observation is a bit of a scarcity value of high growth quality and your market cap range in public companies. And I wonder if investors might ask the question, what other uses of that cash could there be to grow the business further versus just returning it to shareholders? So any big picture thoughts that would be really helpful, appreciate it? Tyson Tuttle: Yes, I mean, we're going to have a substantial cash balance here after completing the sale of I&A. And you don't want to have cash sitting on the balance sheet and it's our belief both the staff, my staff and the board that returning that to shareholders is an important priority. That being said, we have a massive opportunity in front of us. The TAM will go to on the order of $10 billion plus, and we want to ensure success. So we will be focused on execution. I think as we execute the transaction and we move our I&A team over to Skyworks, we've got optimization and execution within the company that is going to be very important for us to focus on. And there are a lot of efficiencies to be gained by having this pure play focus and both in terms of brand, in terms of culture, in terms of engineering execution, in terms of systems. And we've got to make sure that we take full advantage of that and do not want to get distracted with an immediate acquisition. I would also just add two other points. One is that with our narrowed focus on IoT that necessarily narrows the range of targets that we would potentially be interested in. And certainly, we've been active and done a number of acquisitions within the IoT area, but now that would be our pure focus in terms of M&A, and even after we returned that money, we will have a substantial cash balance to continue that. So I think overall, the right message to send is that we're going to return this either in the form of dividends or share repurchase. We're going to be getting feedback from our investors and welcome feedback on the mechanism and exactly how to deploy that, but we do think that's the right thing to do and really focus on execution and optimization around our IoT business. Matt Ramsay: Thanks, Tyson. Appreciate it. Operator: Our next question will come from Srini Pajjuri with SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you. Good morning guys. John, on the guidance for IoT being a flattish for next quarter, if I take the run rate, I think you pretty much get to your low end of your $640 million to $660 million forecast for the year. So is that how you're thinking about the second-half? And also if you could remind us if there's any seasonality to this business that we should think about and how that might change, and as they get more supply over the next few quarters? John Hollister: Yes, Srini. You bet. We're going to see if we can drive some sequential growth in the second-half that's certainly possible, but I think you're thinking about it the right way directionally. Yes, there's really less seasonality in the IoT business than some of our other product categories like broadcast video for example, which has more of a consumer focus, you do tend to see the general first quarter softness that's simply common in the industry, but apart from that, it's more of a broad based secular trend. Srini Pajjuri: Got it. And then just going back to the I&A divestiture, could you remind us some of the mechanics, John, you said you expect to close the deal in Q3, and when do you anticipate receiving the cash and how soon after that, do you anticipate making the decision about the potential usages of the cash, whether it's a buyback or dividend or something else? John Hollister: Yes, Srini. We expect to receive the cash at closing and the capital deployment will be after that, we'll be consulting with the board further as well as taking input from investors as Tyson just indicated, depending on the technique that's finally puts a work here that can affect the time horizon. I think we can measure that and months and quarters of time, not years of time, that's sort of how we're thinking about it. Srini Pajjuri: Got it. And then one last one on the Redpine acquisition, I think last time we spoke, you said the progress has been pretty much as expected. If you could just remind us how that's progressing and water some of the mileposts that you're kind of looking at if there's any revenue contribution that you want to highlight, I think that would helpful. Thank you. Tyson Tuttle: Yes, we believe that we are on track to the targets that we set out with the Redpine acquisition. And I would say, we talked in the script about Manish Kothari joining us as VP of India. So we are investing in that design center, want to make that the leading wireless design center in India. And we have a strong team there over 200 people with experience in WiFi, continuing to integrate those products into our platform and into our roadmap both from a hardware and a software perspective, continuing to execute on the next generations of WiFi technology. So we expect to be bringing those new more optimized products out into the market here over the next year. So overall very pleased with the team, very pleased with the technology and really the most important thing is that we take that integrated into our platform and make that accessible to a broader range of applications and customers. And I think that will allow us to really turbocharge the WiFi revenue beyond what we talked about initially. Srini Pajjuri: Got it. Thanks, Tyson. Operator: Our next question will come from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: Thank you, and congratulations on the revenues and also to Matt and Daniel for their promotions. First question is on the PSA Certied's Level 3 that you achieved with Secure Vault Tyson. The first thing that the company that gets that could you just elaborate a little bit on how important that is, and how do you intend to monetize the security here, whether it's monetizing it itself or perhaps getting higher content or higher ASPs [indiscernible]? Tyson Tuttle: Yes, the PSA certification was a pretty big deal in the industry in terms of really hitting the top levels of security that are required. And this is both software and hardware making these devices kind of impenetrable from hackers and end point attacks and that sort of thing. And so we've built in a number of features into the chip and also the way we've designed the security architecture and the software and the way it connects to the cloud and exchanges keys and all of that. So the entire -- we've thought about kind of the end-to-end security all the way from the Silicon, all the way to the cloud and are implementing that in our series two devices. And then certainly we'll be further enhancing that in our series three devices. Once you have a security at this level, and you can think about it like your credit card, you have the little chip on your credit card or within your phone, you have a SIM card, in IoT, each device will have a unique ID and that general concepts not only can you communicate securely, but you can address those devices in terms of updates or in terms of enabling functionality and those create additional revenue streams. And we are seeing a small amount of revenue from a security and device management and that stuff today. But that is something that over time as we roll this out and as we mature our software stacks and get further penetrated into a lot of these applications. We believe that can be an additional revenue stream. It's not something that we're necessarily forecasting yet at this point, but the ability to address these devices individually in a completely secure way and to have updates and functionality enablement is something that we are looking very carefully at. Tore Svanberg: Very good. And that was my follow-up. I know you work with several different foundries today, but as you go through with the divestiture, does that really change in a material way or do expect to continue to work with the same foundries? Tyson Tuttle: Yes actually the supply chain for our infrastructure and automotive business and our IoT businesses were actually somewhat different. So the fact that we are divesting I&A actually simplifies our supply chain to a significant degree. And that is one of the benefits that we get. So there were a number of foundries that were used on the I&A side that are not used on the IoT side. We have a very close relationship with TSMC, a 25-year partnership with those guys, and they've done a good job for us, while at same time everybody's struggling with capacity. And so we're looking at additional relationships there that could expand capacity and also continuing to work with TSMC to ensure that they're making the investments. And we have access to sufficient capacity to support our growth. Tore Svanberg: Thank you, Tyson. Operator: Thank you. Our next question will come from Bill Peterson with JPMorgan. Please go ahead. Bill Peterson: Yes, hi, good morning, and thanks for taking the questions. I was hoping can you help quantify where the lead times are currently? Are they extending from the last quarter? And is there a difference between lead ties between IoT and industrial and certainly the infrastructure and automotive businesses? John Hollister: Hey, Bill, this is John. Yes, lead times have definitely extended out. I mean, we've had in the past lead times running around seven weeks or so of order book coverage. We're looking on average now of half a year even on some product lines longer than that. And that's pretty well, across the board on that, across of the various businesses that we have. Bill Peterson: Okay. And the second part is somewhat multi-part question on IoT. Following that earlier question of the 25% to 30% growth expected, I guess, where do you see more contribution from end-markets, home and consumer, or industrial and commercial? You talked about some of the drivers, but I guess with supply constraints, are you focusing more on long lived industrial, and commercial focus and I guess, kind of longer-term, you all have sort of one reporting segment, but we report more granularly on the type of, let's say protocol growth or market growth, I guess anything that can help measure the progress on your share gains and relative performance versus peers? John Hollister: Yes, Bill's this is John again, we're seeing consistent growth in the two areas between home and life, and industrial and commercial. And part of our strategy here in the upside performance with supply limitations is to be fair and really treat customers well in this scenario we have a long tail of smaller customers. So, we need to be mindful of as we allocate scarce capacity. And that's something that we're also doing, as we also deliver upside with larger customers. So we have to be mindful of those things. And as far as the forward reporting we're working through that and we'll have more to report later on exactly how we're going to break that out, going forward, starting around the next call. Bill Peterson: Thanks. Operator: [Operator Instructions] Our next question will come from Alessandra Vecchi with William Blair. Please go ahead. Alessandra Vecchi: All right, just as a clarification question on the IoT side of the business, any color and how we should think about microcontroller growth going forward over the next few years? Tyson Tuttle: Alessandra, this is Tyson. The big growth in IoT is on the wireless side. So, this last quarter, we were 44%, up in wireless year-on-year. And if you just look at the mix between MCU and wireless, the mix is going to more and more shift towards wireless over time. We continue to make incremental investments in our MCU portfolio, on the eight bit side have been refreshing some of that and see good opportunity on the eight bit side. And we also, you have to remember that all of our wireless chips have a microcontroller in them. And so, to the extent that those can be redeployed into the microcontroller market, we opportunistically sell those devices with microcontroller functionality in cases where you might need a microcontroller as well as a wireless chip or something like that. So, we do see MCUs as an important business onto itself, but also as an important component of wireless. So in reality, all of our IoT businesses, microcontrollers, but the attach rate of wireless to those products is going to continue to rise as we see the proliferation of the wireless connected IoT. Alessandra Vecchi: That helps. And then maybe just one for John, well, somewhat of a moot point, but until the models transition over to IoT only should we still be thinking about roughly that 7% OpEx growth on a combined basis that would give annual guidance past quarter. Tyson Tuttle: Yes, thanks for the question. With the upside in revenue, we're seeing some increase in variable compensation and 9% to 10% is a more rational view on OpEx given the strong upsight in revenue that we're seeing. Alessandra Vecchi: It makes sense. Perfect, that's it for me. Thank you. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Austin Dean for any closing remarks. Austin Dean: Thank you, Matt. And thank you all for joining us this morning. That concludes today's call. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.