Silicon Laboratories, Inc.

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.

Thank you, Jason. We are recording this meeting and replay will be available for four weeks on the investor relations section of our website at scilabs.com forward slash 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 statement. 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?

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 PurePlay IoT business and reflects strong design wind 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 price 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 related to this. 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 77 cents, surpassing expectations. Non-GAAP earnings per share for the full year were $1.50. 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 gap 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 gap earnings per share for the year were $47.78. Turning out of 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 commenced 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 investiture 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 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 58 to 68 cents. I will now turn the call over to Matt. Matt?