Silicon Laboratories, Inc.

Thank you for joining Silicon Lab's first quarter 2022 financial and business update. My name is Tom, and I will be your conference operator today. 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, then one on a touch-tone phone. To withdraw your question, please press star, then two. 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.

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 scilabs.com. forward slash 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 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. I would now like to turn the call over to Silicon Labs Chief Financial Officer, John Hollister. John?

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 and 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 and 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 pack. 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, though project timing resulted in favorability in our OPEX. Non-GAAP operating margin for Q1 was stronger than expected, ending at 24 percent 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 percent. 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 stack 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 one-time expenses incurred in Q4. GAAP R&D expenses were $78 million, with SG&A expenses at $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 gap earnings per share ended for Q1 at 58 cents, with a 34% gap-affected 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 to $255 million with sequential growth expected in both the industrial and commercial and home and life categories. We expect non-GAAP gross margin to decline to around 61 percent based on FY22 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-GOP operating expenses to increase to around $107 million as our merit increases for FY22 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 85 to 95 cents. 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 37 to 47 cents. I will now turn the call over to Matt. Matt?