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

Thank you, Mariama, 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 our business activities for the third 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 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 include and 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 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 that we achieved record revenue of $230 million in the third quarter, up 16% year-on-year and just above the high end of our guidance range. Our IoT products generated a new all-time record of $125 million for the quarter or 25% growth year-on-year. In Q3, we saw year-on-year increases in all major IoT product lines including 8- and 32-bit MCUs, Bluetooth, 15.4 wireless, proprietary wireless and sensors. We also shipped our first full quarter of Z-Wave products. We continue to see solid growth in the smart home and broad industrial market segments. Smart metering delivered sequential growth in Q3 although it is still down year-on-year. Our Infrastructure products delivered another record quarter with third quarter revenue ending at $53 million, representing year-on-year growth of 35%. Isolation achieved record design wins and established record revenue with strength in automotive and industrial end markets. Timing declined slightly in the quarter with growth in 100 gig offset by declines in 10 gig optical transport markets. As expected Broadcast increased sequentially in the quarter to $36 million with both consumer and automotive up. However, auto was down year-on-year due to softness in Europe resulting from production delays related to new emission standards. Year-on-year Broadcast was down 16%. Access surpassed expectations in Q3 increasing sequentially to $16 million on strength in SLICs and Power Over Ethernet products. Year-on-year, Access was down 4%. Third quarter distribution revenue was 72% of total sales. Our top 10 customers represented less than 20% of total year-to-date revenue with no customer greater than 5% of our revenue. Looking at revenue by end market, industrial was up in Q3 driven by growth in IoT. Our participation in the industrial end market now represents just over half of our revenue. We also saw overall sequential growth…

Thanks, John. We are delighted to report outstanding third quarter 2018 financial performance including 16% year-on-year revenue growth. We saw sequential growth in all core business categories in Q3 and delivered record performance in IoT and Infrastructure. We have delivered target operating model performance in top line revenue growth, non-GAAP gross margin, non-GAAP OpEx, and non-GAAP operating margin for the past five quarters. Year-to-date our IoT products have delivered nearly 21% year-on-year growth including more than $20 million from the acquired Z-Wave business. Industrial IoT revenue has more than doubled over the past 10 quarters, reflecting growth in target applications for key market segments including smart home, metering, lighting and industrial automation. While smart metering revenue was still down in the third quarter year-on-year, we were pleased to see some recovery in Q3 with the resumption of normal shipment volumes in the UK from the SMETS1 to SMETS2 transition expected in early 2019. Simplicity is the key to scaling our IoT business. Our IoT opportunity funnel has grown to approximately $7 billion and our IoT design win lifetime revenue increased over 80% in Q3 year-on-year. The more we can do to make it easy to add connectivity to IoT devices the more we accelerate IoT adoption and growth. During the quarter we introduced new Wireless Xpress modules, enabling developers to move from product concept to prototype in a matter of hours instead of weeks. Silicon Labs' Wireless Xpress provides a configuration-based development experience with everything needed including certified Bluetooth Low Energy and Wi-Fi modules, integrated protocol stats, and easy to use tools. Bluetooth and Wi-Fi products based on Wireless Xpress can be remotely managed and updated using over the air native device management features. With Silicon Labs' Device Management Services, end users can easily install and update firmware, view real-time…

Thank you, Tyson. Before we open the call for the question-and-answer session I would like to announce our participation in Barclays Global Technology, Media and Telecommunications Conference in San Francisco on December 5. 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.

. Your first question comes from the line of Cody Acree with Loop Capital. Your line is open.

Good morning, guys, and thanks for taking my questions and congratulation on the progress. Tyson, you alluded to this maybe in the last sentence or so of your comments, but I assume you were able to take a look at TI's comments from last night about a broad slowing of demand, semi demand across most major markets. I guess I would like to get your comments, your thoughts on that, and maybe what drivers you're seeing, and then maybe as a follow-up just what are the plans, if this is a period of slowdown in the markets, what is the plan to come out the other side better positioned? Thank you.

Yeah. Thank you, Cody, for the question. If we look – I'm going to talk little bit about IoT and I'll let John talk a little bit about the Broadcast and Infrastructure areas. We saw – we are seeing growth in wireless. We're seeing IoT going to be up in Q4 and that's really driven by the growth we're seeing in wireless with Z-Wave, proprietary, and Wi-Fi in particular having strength, and really coming off of a record design win quarter in Q3. So we see traction on IoT heading into 2019. We do see some as we enter into Q4 the macro impacting a little bit of our 8-bit business in China. But the 8-bit business is quite broad with a wide range of applications and is a good indicator of some slowdown in the communications and also the industrial area there in China, so we are seeing that. And then if you look at our other businesses in Infrastructure and Broadcast and Access, all of those will be down some somewhat. I'll let John comment a little bit on that.

Yeah, Cody. So looking further at the Infrastructure business, we had strength in industrial in the first half. And we also had some strength in China in some of the 10 gig business in China. That in particular is down as we expect it to be in Q4 with relatively flat performance on the industrial side for timing. We also see a bit of macro weakness on the isolation side and that's also an area where we've had just a long string of quarterly increases in the business, so that is settling back some. So overall we're guiding Infrastructure down. Looking further at Broadcast, consumer is seasonally high in the third quarter which is not surprisingly forecasted to be down in Q4. And as I mentioned in my prepared comments, the automotive part of the Broadcast business is down, really around some of the regulatory issues in Europe affecting the emissions standards and production being impacted by adoption of that.

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

Good morning, everyone. Thanks for taking my question. I want to ask about your long-term gross margin outlook. I know you're going to shy away from giving any sort of commentary with respect to fiscal year 2019, but your long-term target is 58% to 60%. You've been consistently running above that throughout all of 2018 and so all mix issues considered how do you feel about the gross margins staying above 60% level at least for the foreseeable future – for fiscal year 2019?

Yes, Gary. This is Tyson. In terms of the long-term gross margin, if you look at the last few quarters, we have been above our product target range of 58% to 60% and that's driven by a few things. One, our Infrastructure business does tend to be at a higher gross margin than the corporate average and with the strength that we've seen there, 35% year-on-year growth in Q3, that has tended to push up the gross margin as well as some of the weakness that we've seen in some areas of the IoT as some of that growth has been a little bit below. We had a little bit of softness in the lighting market. We also had this pause in the smart metering market so that overall the mix has been favorable to gross margin, but at the same time we've been driving costs very, very aggressively. We have a culture where we sell the value of our products and really look at how we can best extract the value in the market and we continue to drive innovation. So it's our goal to maintain a premium gross margin and we're looking in Q4 at 60% to 60.5%. So we still believe that we can continue to do that. I'll let John comment a little bit as well.

Yeah, Gary. I appreciate the question. I think it's a good indicator of what our engineering and operations teams are capable of doing around optimization of our cost structure. We're holding the 58% to 60%. We've seen some positive results this year. We do continue to be in growth mode and have our eye on greater share gains, so looking forward we're holding the 58% to 60% model at this point.

Yeah. I would like to add one thing which was below the target gross margin was when we decided to go into modules, the modules had some third party content and tended to be a little bit below our corporate gross margin. We have been aggressively driving cost reductions in the modules and as Z-Wave has come in, Z-Wave actually ships mostly in modules, and we've been able to achieve substantial cost reductions on the module manufacturing there, both in manufacturing and in tests, and so we just continue to hammer on this and we'll provide updates as we go forward.

Okay, here's my follow-up and speaking of IoT modules, can you share with us your thoughts on how the introduction as announced the other day of LTE-M impacts your server available market. Does this open up new use cases for Silicon Labs?

This is – the LTE-M is an area where we currently are partnering with other providers. In this case it was with Digi International and we have a reference design with them using our microcontrollers and have a number of activities in partnership with other manufacturers on the wide area network solutions. Currently we are focused on the local area network and personal area network areas of IoT for our organic development and continue to monitor the wide area network. It would be doing that internally would be an expansion of SAM, but also we have so much opportunity in the local and personal area network spaces. We've decided to focus there and to partner on the wide area network stuff for the time being.

All right. Thank you.

Your next question comes from Tore Svanberg with Stifel. Your line is open. Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.: Yes. Thank you and congratulations on the record results. I'm pretty intrigued by this Wireless Xpress technology. Tyson, maybe you can elaborate a little bit more how that stacks up versus what's out there in the marketplace right now from a competition perspective and when should we start to see sort of the benefits of this technology? How it shows up in numbers or share gains, or any other sort of metric we might be able to track?

Yeah. So the whole purpose of Wireless Xpress is to make it easy for customers to get to market quickly without having to write a lot of code and we've been working on – we've been talking about simplicity being the key to scaling IoT for a long time, and it's something that is actually very difficult to do. You have such a wide variety of applications and a lot of different communication standards and it's our goal to try to abstract the complexity of that as much as possible so that our customers can get to market quickly and also our support cost can scale across that broad market. And so the Wireless Xpress is a key stepping stone to getting there. We have a lot of customer activity going on around that. It's very easy for our channel partners to support and that we believe this is especially for the long tail of customers that you're going to see in IoT is really the key to success. We believe that we have not only a best-in-class offering in terms of our protocol stacks and in terms of our hardware and modules and development tools, but we believe that compared to the competition there is really nothing out there that is comparable to the ease of use and completeness of the solution that we've been able to bring. Currently we've got this working on Wi-Fi and Bluetooth and we intend to extend this into other protocols and other types of development within IoT to make things easier, so I think this is one of the cornerstones of our ability to grow and scale the IoT business over time.

Your next question comes from Rajvindra Gill with Needham & Company. Your line is open. Rajvindra S. Gill - Needham & Company LLC: Yes, thank you, and I echo my congratulations on the IoT revenue. Tyson, a question on isolation. You mentioned that isolation now is 40% of Infrastructure which is a significant improvement, but you mentioned some kind of near-term headwinds. Can you kind of give us more of a long term view if we go into 2019 of how you think about isolation. Should we continue to expect more diverse end markets driving isolation going forward?

Well, isolation is very broadly penetrated into the markets and very channel-friendly and it's grown substantially this year. We've had very strong growth in isolation both in 2017 and 2018. If you look at the growth we've had close to 50% year-on-year growth rates in isolation and that's a good indicator of the strength there. If you look across the end markets you've got power supplies going to the data centers and a lot of industrial equipment. You've got solar inverters. We talked about the traction in the automotive end market, so we feel very good about our penetration. As the business gets larger, it's hard to maintain that kind of level of growth and coming off of such a fast growth we do see that the law of large numbers gets difficult but we still feel very good about the isolation products and our ability to grow those going into 2019 based on our design win traction. Rajvindra S. Gill - Needham & Company LLC: And for my follow-up, the IoT, if you take out Z-Wave of $13 million or so (00:32:13) the growth was about up 12% year-on-year. So there is still some deceleration from previous year, but it's starting to stabilize. You mentioned UK smart metering starting to see some shipments. That's been a big driver of your IoT business in the past. How do we think about that as we go into 2019? When do you expect the UK government to fully transition to the SMETS2 platform and how that will affect your business positively in 2019?

Right, so we've seen about $20 million of Z-Wave revenue cumulative throughout the partial shipment quarter in Q2 and then followed by a full quarter in Q3. If you pull that out, our IoT growth is somewhat below. It's still double digits, but below the 20% target. That's really isolated to two primary areas. We've seen the smart lighting market. We had anticipated faster growth there and we have seen some softness in the smart lighting market. We do have some nice design wins and do anticipate that coming back as we move into 2019. And then you look at the smart metering market, it's actually been down. We saw a little bit of recovery in Q3. And if you just take those two factors those account for a bit of the – or most of the below-target model performance there. We did have 26% year-on-year growth in IoT organically last year and we're a little bit below, so this 20% is a long-term target. But we do see that in 2019 we've got a number of things that are coming back with the Z-Wave portfolio now at full year as well as the lighting market or just the overall design win traction. We were 80% up on design win dollars Q3 over last year. So we think we've got a lot in the pipeline. We've just got to focus on converting that pipeline into wins and driving revenue growth. Rajvindra S. Gill - Needham & Company LLC: Thank you.

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

Thanks for taking the question. And, Tyson, congratulations on the strong IoT growth and the TV tuner shipment milestone. My first question is a follow-up on isolation. You provided in your prepared comments an example of very robust content in the automotive end market and these design wins (00:34:47) in Europe. Is automotive yet a material part of isolation revenues and if not, what would you expect it would, it would get to something that was a material part of that sub-segment?

Yeah, Craig. This is John. So given the broad diversity of the isolation business, really no single application or opportunity represents a large component of it, but if you sort of order them around the relative significance of the – actually the power supplies and the data center application is the largest opportunity. Automotive is right up there. And we do expect robust growth coming from automotive in the future as the electric vehicle phenomenon continues to take off.

That's helpful. And then the follow-up is on the cash position and the increase in the share buyback authorization, but a very robust cash position, a little over $600 million share buyback authorization increase. Is the intent to continue to use share buyback as something to really manage dilution with perhaps priority for cash, inorganic growth or given what we're seeing in the market, has there been any changes? How do you expect to deploy cash? Thanks, guys.

Yeah, Craig, it's John again. Really no major change in the company's overall strategy in these areas. We are pleased as we expected to have seen strong third quarter operating cash flow coming off of what was a relatively light first half, so that's good. I think the capital deployment strategy remains intact that we will focus on share repurchases on an opportunistic basis and we also continue to be mindful of inorganic opportunities to grow the business in areas that makes sense strategically for the company.

Thank you.

Your next question comes from Blayne Curtis with Barclays Capital. Your line is open.

Good morning. Thanks for taking my question. I'm just curious and probably a little direct impact, but just curious the impact of tariffs on downstream products and customers and if you've accounted for any of that in your outlook? And then maybe a related point, with the slowdown here just curious if you've seen any change in inventory levels within the channel or your end customers? Thanks.

Yeah, Blayne. This is John. So on the tariff side there is really not a significant material direct impact of the tariffs on us as far as our ability to ship product to customers. There is a little bit of an impact on some consumables that we intake in the company in our operations, but it's not material. We have heard some feedback from partners in China in particular that they are beginning to see some effective of the tariffs overall on their ability to be out in the market, so we have concern about that and we'll continue to monitor that. And as far as the inventory levels really we see a healthy amount of distribution inventory out there right now. We're below 45 days which is roughly our target for distributor inventory and really have not seen an over-accumulation of the inventory.

Thanks.

Your next question comes from Suji Desilva with ROTH Capital. Your line is open.

Hi, Tyson. Hi, John. Congratulations on the IoT progress here. First question is on the timing segment. The non-optical was strong this quarter in the mix. What was it a year ago? And which are the segments wireless, infrastructure, data center, and industrial are strongest in the non-optical timing? And where do you expect that share to go a year or two from now, is it expected to expand further.

Yes, Suji. This is John. So I don't have the precise data right on hand, but we've seen growth in the non-comms piece of the business year-on-year. And really looking forward, wireless is an area that we're particularly excited about. We had good design win traction in 4.5G in the third quarter and continue to work on the portfolio to address the 5G opportunity. We expect data center and comps to also contribute and look forward to greater participation in the wireless market here going forward.

Yeah I would add both the traditional comms business as well as the new areas all grew into this year, so while the growth was really driven by these other areas the core business has also been growing during that same time, so we're very excited about the growing diversity of the timing business and getting into these other areas.

Okay, that's helpful color. And then my other question on the Wi-Fi part of IoT, I believe you came into the market with the Zentri acquisition and I'm curious what end markets you're seeing adoption and you said that's a strong grower for you. And have you already cost optimized the products and power optimized the products or is there a roadmap for Wi-Fi that will continue to improve that opportunity for you?

Yeah, so we did bring in Wi-Fi both with Bluegiga and with Zentri and a lot of that was the software stack that runs – that was coming in with third party silicon. Earlier this year we introduced the first member of our own organically developed Wi-Fi solution, the WF200, and we have modules associated with that and we continue to build out the hardware portfolio with a roadmap of additional functionality as we work on the second-generation IoT solution and we've been able to use all of that software expertise and drive. That's really the Wi-Fi Xpress number of components that were both our internal silicon as well as the software that we've continued to develop in particular from the Zentri acquisition with device management features and cloud connectivity and security and such. If you look at the applications that that's going into, it's a pretty wide variety of applications I mean, everything from cameras to just very simple buttons, voice-activated source of devices, controls. There is a lot of stuff that wants to hook directly to a Wi-Fi network and we have a very nice low power solution, as well as an easy to use software stack to be able to enable these devices. So it's still fairly early days in our deployment of the roadmap and in terms of our revenue progression, but we are happy to see the progression in the market and to see growth coming here into Q4 in Wi-Fi.

Okay. Thanks, guys.

There are no further questions at this time. I will now like to hand call back over to Jalene Hoover.

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