Good morning. My name is Marcella and I will be your conference operator today. At this time, I'd like to welcome everyone to the Silicon Labs First Quarter Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. I will now turn the call over to Jalene Hoover, Director of Investor Relations and International Finance. Jalene please go ahead

Thank you Marcella and good morning everyone. Tyson Tuttle, Chief Executive Officer and John Hollister, Chief Financial Officer are on today's call. We will discuss our financial performance and review of our business activities for the first quarter. After our prepared comments we will take questions. Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our website 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 and 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 make reference 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 also 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.

Thanks Jalene. I'm pleased to report strong financial performance in Q1. We entered the year on a strong note with revenue topping the high-end of guidance and ending at $205 million, up 15% year-over-year. Combined with favorable gross margin, we also delivered non-GAAP EPS in excess of our guide at $0.87, up 38% year-on-year. Our Infrastructure products led the way with an outstanding quarter delivering revenue of $49 million, up over $10 million sequentially, and representing 37% year-on-year growth. This is well above our 10% strategic growth target, and while we anticipated a strong quarter for Infrastructure actual results were meaningfully better than we expected. Our timing products reached an all-time record with the expansion of clock, oscillator and buffer products in target markets. Our isolation products posted another record revenue quarter with continued strong adoption of digital isolation. IoT declined as expected, down slightly on consumer seasonality, and based on delayed product ramps on some higher volume emerging customer programs. IoT revenue for the quarter was $103 million, representing a 17% year-on-year increase. Broadcast declined about 3% year-on-year, but grew slightly to $36 million in Q1 primarily on strength in automotive radio products which set a new record. And finally, Q1 Access revenue was better than expected, growing slightly sequentially to $17 million, and down about 6% year-on-year. During Q1, we consolidated our distribution relationships to a single global distributor, Arrow Electronics and expanded our direct sales force. We are maintaining our extensive network of regional distributors and e-tailers to complement our single global distribution partner. We anticipate these changes will create greater efficiencies and contribute to both near and long-term revenue growth. Distribution revenue for the quarter was $150 million and represented 73% of total sales. No single customer represented more than 5% of total revenue. Geographically, we…

Thank you, John. We're very pleased to report outstanding first quarter 2018 financial performance, including 15% year-on-year revenue growth driven by strength in Infrastructure and Broadcast automotive. Typically, first quarter revenue is seasonally down, yet we delivered 2% sequential growth and a new all-time record. We have achieved target operating model performance on revenue growth, non-GAAP gross margin, and non-GAAP operating margin for six of the past seven quarters. We attribute these strong results to continued execution on our strategy focusing on large, sustainable, high-quality growth markets in the Internet of Things, Infrastructure and automotive, which now represent 80% of total Q1 revenue. Infrastructure powered Q1 results, setting a record with first quarter revenue just shy of $50 million, with records in both timing and isolation. Timing came back strong in Q1 reflecting broad share gains in strategic markets including industrial, data center and wireless and a stable optical networking market. We're seeing growing diversity in our customer base, beyond core optical networking and a migration to faster data rates. The explosion of data is driving data center upgrades from 10-gig to 100-gig, wireless carrier upgrades from 4G to 5G and service provider upgrades from 100-gig to 400-gig. These higher speeds drive demand for high performance timing products, which plays to our core strength and leadership position in clocks and oscillators. After launching a multi-year record number of clock and oscillator products in 2017, we continue to expand our timing portfolio to drive revenue growth. Leveraging our expertise in high-performance clock design, in Q1 we introduced a new family of PCI Express clock buffers featuring up to 12 clock outputs. These buffers are ideally suited to provide low-power, low-jitter clock distribution in data center, industrial, communications and consumer designs. Isolation products represent one of our fastest growing and most diversified…

Thank you, Tyson. Before we open the call for the question-and-answer session, I would like to announce our participation in Stifel's Cross Sector Insight Conference in Boston on June 13th. We would now like to open the call up for your questions. To accommodate as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up. Marcella?

Your first question comes from the line of Blayne Curtis from Barclays. Your line is open.

Good morning, and thanks for taking my question, nice results. Tyson, maybe you saw such outperformance in the Infrastructure segment. I was just kind of curious you said both segments set a record. I was wondering if one was particularly stronger than the other and if you just maybe talk about what contributed to that?

Thanks for the question, Blayne. We had very strong performance in both isolation and timing. Coming off of a strong year in isolation and we had had a little bit of a pause in the growth on the timing side with some of the challenges we've had in the optical networking market that has been seen across the industry. The growth in isolation has been quite strong, and so I would say that the growth in isolation was a little faster than timing. But overall with the annual growth of 37% year-on-year in Infrastructure, you know, is very, very strong performance in both areas. In fact the quarter-on-quarter growth in both areas was about the same.

Thanks. And then maybe just on the Z-Wave acquisition, if you could just talk about what that acquisition is adding to the June guidance? And then maybe more strategically, if you could just talk about how Z-Wave and ZigBee fit together in the long run?

Yeah. So if you look at the second quarter, the Z-Wave acquisition, it's a partial quarter of revenue. So it's about an $8 million adder to the Q2 revenue. And if we look out into the whole year, we think that Z-Wave will add about $40 million total revenue to the company. We're able to now integrate Z-Wave into our sales channel and into our portfolio, into our multi-protocol platform and we certainly see that ZigBee has a substantial position in the market and we have a leadership position on the ZigBee side. We also have a very good position on Bluetooth and have been working on these protocols working interoperably with each other. For instance, you can commission a device with Bluetooth via your smartphone and then have that get on to a ZigBee network or a Thread network, and over time we anticipate that multi-protocol capability to be part of an extension and acceleration of the Z-Wave roadmap. So we're very excited about Z-Wave being another one of the key technologies for the smart home. It really increases our presence there. We're going to be driving the roadmap for Z-Wave, leveraging the alliance and leveraging the relationships with a lot of the operators and customers there to continue to make the smart home easier to use and to drive penetration out into the market.

Thanks.

Your next question comes from the line of Cody Acree from Drexel Hamilton. Your line is open.

Thanks for taking my question and congrats on the progress. Tyson, if you could maybe just talk about the expectations for your ramp of the new Wi-Fi products?

Yeah. So we announced the Wi-Fi product at the Embedded World Conference back in February. We have been sampling that to a number of alpha and beta customers here over the last six months or so. We have customers that are in the process of designing those products in. But if you look at the design in time and then how long it takes to get those products into the market, we'll see a modest amount of revenue possibly in the fourth quarter of this year, but it's really a 2019-2020 story.

Okay, great. And John, just from your OpEx increase, is this the new baseline? And then what do you expect for the rest of the year?

Yeah, Cody. This is the new baseline. We talked earlier about having a seasonal increase on some of the French costs kicking in in Q1 with then the incremental hiring in the company, filtering in as we move through the course of the year as those French costs roll off. So this is a rational baseline to look at in terms of the organic spend and then we have a partial quarter with the Z-Wave team which is on the order of around $4 million to $5 million on a steady state, that's more like $6 million a quarter of incremental OpEx with the acquisition activity.

$6 million per quarter. So as we look into the rest of the year, September and December, what are you expecting OpEx?

We're just guiding for Q2 right now, but you can see the $86 million would be essentially a new baseline with a bit of an increase from a full quarter of Z-wave on top of that.

Okay, very good. Thank you.

Your next question comes from the line of Gary Mobley from Benchmark. Your line is open.

Good morning, everyone. Thanks for taking my question. Congrats on the good start to the year. I wanted to delve a little bit deeper into the Sigma Designs acquisition. As you mentioned it was part of a publically-traded company. So there was some visibility on the run rate of that business and, if I'm not mistaken, the Z-Wave business was as high as $15 million a quarter. And you mentioned a $40 million annual run rate. Is that just a simple extrapolation of maybe some near-term softness is that business?

Hi, Gary. This is Tyson. The $40 million is the revenue that we would achieve for the entire year given that we just completed the acquisition here on the 18th of April. So, we've got a partial year, which is at $40 million. That's a little bit under or right at a $60 million type of run-rate for the year.

Okay. That's helpful. And you mentioned you took on 100 people, that's obviously implying a pretty lean operation, $600,000 revenue per employee. Is it your plan to accelerate investment in Z-Wave to maybe sort of capture a greater mark opportunity or revenue potential?

Yeah, Gary. This is John. We think the team is pretty well formed and they have done an excellent job building their business. We actually don't see a whole lot of OpEx synergy opportunity on this acquisition. Going back to the structure of the transaction, a lot of the heavy-lifting in that area was really completed in the transaction structuring on the front-end of this. So the team is well formed. Of course we have a few (25:50) in the team, but we see that as a fairly stable team in terms of its overall sizing.

Yeah, Gary. I would also say that we've – because we acquired this out of another company, we have – on day one we're integrating them into our systems in terms of our supply chain, in terms of sales, in terms of our BU structure, in HR. And so we're able to leverage the infrastructure of the company and actually the integration has gone quite well. So if you look at the corporate structure that is fairly well-optimized out the shoot up the gate, but it's also – we have a lot of assets within the company in terms of our portfolio and our software and we're really excited about integrating this technology and this team into our overall broader team. And I think that given our larger sales channel and given the alliance, there is a lot of synergies back and forth, both in terms of cost within our operations chain, in terms of sales but also as we are able to offer a broader portfolio of technologies to companies we think that longer that's going to be a big boost in terms of the growth both for our products that we have before as well as the Z-Wave. So we're really, really excited about this acquisition and what it brings in terms of capabilities and market position to the company.

Thank you.

Your next question comes from the line of Suji Desilva from ROTH Capital Partners. Your line is open.

Hi, Tyson. Hi, John. Congrats on a strong results here in 2018. On the Infrastructure side you had a very strong quarter. I know you guided it to decline sequentially. Can you talk about whether there is some inventory congestion here from the products and specifically in timing, what percent of that is now non-optical to understand your diversification there?

Hey, Suji. This is John. Yeah, one of the notable items for second quarter is the ZTE shipment ban. So we have to cease that here near-term. We'll see how long that takes to work itself out. But so that's – that is a factor at work here. And relative to the other portion of your question, I don't have a specific break-out, but we did see greater diversity in our timing business in the first quarter, in industrial applications as well as data center and some wireless, and those factors definitely contributed to the strong results in timing.

Okay. That's helpful, John. Thanks. And then on the automotive side, I know that's a smaller part of the revenues. But what percent have you grown till here? And is there opportunity beyond the Broadcast products additional auto opportunity for you guys?

Yeah. So really the automotive opportunity for us is around infotainment in the broadcast area where we had record revenue in our automotive radio products and that continues to be a key area of strategic high-quality growth for us. The other big opportunity that we have in automotive is really in electric vehicles and things like battery management systems, motor controls, the on-board chargers, you know, a lot of the systems that require isolation technology, so the isolation products and some of our microcontroller products actually fit well into electric vehicles. And so we've had quite good success in that area as well. We ship into a number of the leading electric vehicle platforms both in development as well as what's shipping into the market today.

Okay. Thanks, Tyson.

Your next question comes from the line of Rajvindra Gill from Needham & Company. Your line is open. Rajvindra S. Gill - Needham & Co. LLC: Yes. Thank you. And congrats on a strong results. On the IoT business, kind of declining in line with consumer seasonality and some delayed product ramps and some of the higher ramps. I was wondering if you could maybe talk a little bit about that – elaborate on the product delays and how we should look at the IoT growing into the second quarter?

Yeah. So there's – some amount of the IoT revenue is in the consumer category and you see some natural seasonality there that's offset by ramps and growth. There were a couple of higher volume designs in IoT that pushed out a bit. We still anticipate those to continue to ramp through the year. We also, in the UK Smart Energy area, the metering designs, there is about over 100 million meters being deployed over about five years. And in Q1, we're seeing a transition from an older platform into a newer platform it's called SMETS1 going into SMETS2. We believe that our market share there is intact, we've got the vast majority of this market and our customers are still engaged. But we did see a bit of a slowdown or a pause in shipments in Q1 due to that transition from SMETS1 to SMETS2 in UK Smart Energy. Rajvindra S. Gill - Needham & Co. LLC: That's helpful. And the IoT kind of target of 20% growth annually. How does that now, you know, how is that now factored in with Z-Wave and this slight hiccup in UK metering?

We still feel confident in our 20% organic growth target. So on a pro forma basis we believe that we are intact to hit that long-term 20% growth rate. We had a very good result last year where we grew the IoT business 26%. So we're coming off of a strong year. And adding that, the Z-Wave business has been growing at about that 20% rate and we think that the addition of the Z-Wave business we feel comfortable that the combined – that the Z-Wave portion will grow also at that 20% rate. So, factoring in the Z-Wave acquisition, certainly that would boost the growth rate this year, but so from an organic basis as well as Z-Wave coming in, we feel confident that that 20% growth rate is going to continue. Rajvindra S. Gill - Needham & Co. LLC: And last question on IoT. Now that you've folded Z-Wave and now you're also introducing new low-power Wi-Fi modules and transceivers, when do you think you can give us a kind of an update on the competitive landscape? How your product portfolio, which is fairly comprehensive, across all different layers stacked up against the competition? Thank you.

Yes. So, if you look competitively, we have been building our multi-protocol capability. We have a leading position on ZigBee. We have a solid position with Bluetooth Smart and a very good position on the proprietary sub-gigahertz wireless. Z-Wave was another one of the leading protocols in the smart home. So in terms of the smart home, we're very, very well positioned. And then, adding Wi-Fi that brings in a whole new set of applications for higher data rate applications. And again all of these wireless protocols are focused on IoT end-node devices where we provide essentially the SoC into the end application and have optimized the power consumption for that as well as all the software, the development tools and then getting this designed in to the thousands of applications that are out there around IoT. This is a platform that we have been developing, we've added additional capabilities through acquisitions over the last six years, and we saw the continuation of that this quarter. I think that there's a lot of the microcontroller companies out there that do have pinpoints, wireless protocols, I mean, companies like Microchip have done a number of acquisitions and have some level of wireless capability. We do not see them a whole lot in the market out there. We have companies like NXP, which have some position in ZigBee. But given the situation with Qualcomm, and some uncertainty there, I think that that's been to our advantage competitively. You have ST out there a bit with some of the Bluetooth and certainly have Nordic as a leader on the Bluetooth side. But I think that overall we have, I think, the broadest portfolio of wireless capability and wireless protocols in the industry that are highly optimized for the IoT end node applications and we continue to invest strongly in our next-generation platform to drive cost, to drive security, improvements to drive power consumption down and to further optimize that for the end node applications. So we think competitively we're in very, very good shape and it's really a matter of driving the prioritization and focusing on execution to drive the growth. Rajvindra S. Gill - Needham & Co. LLC: Excellent. Thank you.

Your next question comes from the line of Tore Svanberg from Stifel. Your line is open. Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.: Yes. Thank you. Great quarter. Back to Wi-Fi, Tyson, could you elaborate a little bit more on that, are these 802.11 HaLow products? And perhaps you can comment on how far you're willing to push the envelope on the various different 802.11 standards?

So, if you look at the Wi-Fi standard, the predominantly deployed technology today is 802.11 and in some of the higher data rates, 5 gigahertz stuff, is at 802.11ac. For the end nodes, it's really about driving cost and low power, and the 802.11 and it's a one-by-one solution, so single antenna. So that is basically the minimum cost and longest range. And it's really that – the protocol that is most suitable for IoT end node applications that don't have super high data rates. So we're not talking about high-definition video or something that you would integrate into a phone or a PC, but it would be into devices that are sensors or possibly a camera something that's a few megabits per second. And so we're focused on integrating the most widely deployed technology and then driving the integration cost and power and performance to the point that's really optimized for these end node applications, so that the Wi-Fi could be more broadly deployed into the market. And again this is, you know, it's not something that would go into an access point PC or handset, it's really for this broad range of applications. And we think that we've got a great solution there that's highly competitive. It's going against the stuff that's coming out from Cypress, that came out of Broadcom and you've got some other competition from Qualcomm and some from MediaTek, but those devices are not as highly optimized as what we've been able to introduce. Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.: That's really helpful. And as my follow-up, either for Tyson or for John, could you elaborate a little bit more on the sales strategy and also the consolidation of your distributor channel? So I think you even mentioned you're hiring a few more direct sales people. So if you could elaborate a bit more on that that'll also be helpful? Thank you.

Sure, Tore. This is John. So, we have a large and growing opportunity pipeline of $8 billion growing up to – approaching now $9 billion, and see that as expanding the size of our internal direct sales force, we can optimize our execution and sales and we're targeting to have this initiative drive faster growth for the company over time. And we also decided along with that to consolidate our global distribution to Aero Electronics and look forward to a deeper relationship with them all here going forward. Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.: Great. Thank you. Nice quarter.

Your next question comes from the line of Craig Ellis from B. Riley. Your line is open.

Thanks for taking the question and I'll echo the congratulations on the good execution guys. I'll just start-off with a question on IoT segment. With Z-Wave in the segment, how does that impact the end-market mix that we'd expect? I think previously, industrial was around 50% of mix. Will it shift more towards other end-markets? And Tyson relative to some of the blue-chip customers that were mentioned, does the addition of Z-Wave create more of a high runner element to that segment versus what we had seen previously?

Yes, Craig. I will take the first part and then send it to Tyson. So, on the industrial mix, please keep in mind the smart home is classified as an industrial application. This is an area where Z-Wave has had a lot of history and strength in the market. So, yes, over time we do think the industrial segment is going to continue to grow as a function of our overall mix and with the smart home being included in that segment as well, will further add to that.

Yeah. Let me add. Z-Wave has had a very strong position in the home security market. So companies like ADT that are rolling out wireless sensors for their security systems, that was very strong. If you look at the Z-Wave ecosystem, there are 600 members of the Z-Wave Alliance and there are over 2,400 devices out into the market supporting the Z-Wave protocol. So, this fits into our, you know, the diversity strategy that we've got within IoT of thousands of applications and tens of thousands of customers and this is bringing on a substantial new number of customers. I would say that it's not adding to the concentration, it's actually adding to the diversity. And if you just look at the overall company now, we didn't have any customers over 5% and our top 10 customers are right at 20% right now. So it's like we've made a lot of progress in the company towards diversification and driving into the broader market. The sales transformation that we've just gone through is evidence of that of our desire to continue to push this into the broader market. And I think Z-Wave contributes to that diversity going forward.

That's helpful color guys. And then a follow-up. There were comments on the cash balance $500 million and then the $300 million line of credit that's available. Can you just comment on the milestone, should we be looking at with Z-Wave's integration that would help us understand when the company would be comfortable potentially redeploying some of that cash for further inorganic growth to add technology capabilities? And Tyson, as we think about competencies that the company might want to augment or even add, can you help us understand what that priority list would look like? Thank you.

Yes, Craig, the cash position that we have is strong and additionally we feel that the Z-Wave acquisition has gone well, the structure that we were able to achieve and the integration that we were able to implement here on day one, certainly there was a lot of work to go there. But we don't have any deals active right now. But certainly we are looking out in the market for what would make sense. Some of our selection criteria involve compatible culture, something that's accretive to the bottom-line, something that is strategically aligned with our businesses in IoT and Infrastructure. And there is a number of interesting assets out there, depending on the actionability and all of that, we'll see but certainly we're in a strong position to continue to go both with situation that we have with Z-Wave and the integration and the cash balance that we have. So we're going to continue to be actively looking at the best ways to deploy our capital. We still have $100 million authorization on the share repurchase as well and we will continue to be active on that front.

Thanks, Tyson. Good luck.

Thank you.

If there are no further questions, I'll hand the call back over to Jalene Hoover.

Thank you, Marcella. And thank you all for joining us this morning. This concludes today's call.