Good morning. My name is Chuck and I will be your conference operator for today. At this time, I would like to welcome everyone to Silicon Labs’ First Quarter Fiscal 2020 Earnings Conference Call and Webcast. All participants will be in a 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 call over to Jalene Hoover, Director of Investor Relations and International Finance. Jalene, please go ahead.

Thank you, Chuck and good morning everyone. Tyson Tuttle, Chief Executive Officer; and John Hollister, Chief Financial Officer, are on today’s call. Tyson will provide a brief introduction before we discuss our financial performance and review 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 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’ website. I would now like to turn the call over to Silicon Labs’ Chief Executive Officer, Tyson Tuttle.

Thank you, Jalene. Silicon Labs is global company with our headquarters and about half our employees based in Austin. We have a substantial global design and sales presence including designing centers and sales offices in Europe and Asia. Our international headquarter is in Singapore where we manage our operations and supply chain and engage in design and customer support. As we face the unprecedented Covid-19 pandemic challenge, the health and safety our employees, customers, partners and communities remain the top priority. Today, most of our employees working worldwide are working from home under local, shelter and place mandate. And some with roles being the central to the business have onsite access. We are thankful to have the collaboration tools and remote working infrastructure in place to facilitate a relatively smooth transition as our global team advanced towards world established goals. We are delighted to announce the close of our acquisition of Redpine Signals connectivity business yesterday, which we first announced in March. I credit the successful acquisition to the hard work of everyone involved, as well as our ability to collaborate on a global basis even in the face of a challenging environment brought on by the pandemic. I'll talk more about our Redpine acquisition later in the call. In addition to closing Redpine, our global sales team serves as another great example of how we are leveraging technology and tools to maintain an even increase customer engagement as evidenced by strong attendance in our new lives Tech Talks virtual training sessions. Design activity continues to be robust as we actively engage with customers enabling them to evaluate our products and technologies with easy-to-use development kits and simplicity studio software tools. And finally to date, we have committed approximately $300,000 to the global Covid-19 response and continue to work with community leaders to explore additional opportunities to help. I'll now turn the call over to John to discuss first quarter financial performance and our second quarter outlooks. And I will follow up with additional business highlights. John?

Thanks Tyson. On March 12, we hosted Silicon Labs third Analyst Day at our global headquarters in Austin, our first ever Virtual Analyst Day attracted more than 250 attendees. It was a great opportunity for our leadership team to provide updates on our strategy and long-term growth potential. If you were not able to join our virtual event, we encourage you to review the presentation and replay which are available in the Investor Relations section of Silicon Labs website. At our Analyst Day event we announced our decision to revise our external reporting categories from four into two. The two categories are now the Internet of Things which is unchanged and infrastructure and automotive which combines the infrastructure broadcast and access product categories into one. That simpler approach reflects the evolution of our business with IoT now representing more than half of revenue, as well as an increased focus on the growth drivers within our primary two reporting categories. Moving on to first quarter financial performance. Revenue ended stronger than we expected at $215 million which was about $10 million above our updated guidance range and up 14% year-on-year. IoT revenue ended at $118 million down about 8% sequentially and up 11% year-over-year. We saw a sequential growth in 32-bit MC use, Bluetooth and Z-Wave with other products down primarily related to softness in China through mid quarter. Year-over-year IoT revenue growth was led by MC use followed by strength and 15.4 wireless products for home automation, security and lighting applications. Infrastructure and automotive revenue ended at $97 million exceeding expectations and up 6% sequentially with infrastructure and broadcast products delivering sequential gains and access down. I&A grew 19% year-on-year led by strengthened sales of isolation products for industrial, automotive and solar applications and ramps and TV and automotive radio…

Thank you, John. First quarter revenue was considerably stronger than expected with sequential growth in infrastructure and automotive products driving the upside. Q1 revenue was up 14% year-on-year. We are pleased to have seen minimal disruption in our supply chain during the Covid-19 pandemic with bookings and revenue strong late in the quarter. We remain in close communication with our global suppliers who continue to report strong demands. Year-to-date design win lifetime revenue and our opportunity funnels were up approximately 10% year-on-year in Q1, highlighting the resilience of our portfolio. Silicon Labs has maintained a fabless model since our inception. This enables us to adjust the upsides and downsides in demands and ride out challenging economic times without impacting our gross margin, compared to peers with large fixed cost due to internal manufacturing operations. We believe our strategy targeting large, high-quality and diverse growth drivers in the IoT communications infrastructure and electrification combined with the industry leading technologies we bring to bear will continue to drive long-term growth and improve profitability as we scale our business. Moving on to product category updates, in IoT, we believe the demand for connectivity and intelligence and in node products will increase. During our Q1 Analyst Day event, we announced the acquisition of Redpine Signals, Wi-Fi and Bluetooth Business, Development Center in India and extensive patent portfolio which closed yesterday. We are very excited about this acquisition which is highly complementary to our IoT strategy and will expand our leadership in wireless IoT technology. Redpine's low-power Wi-Fi products and intellectual property provide an important technology for IoT connectivity. Wi-Fi 6 or 802.11AX the latest evolution of the Wi-Fi standard is tailored for IoT application and will become a key wireless technology to meet the low power performance, security and interoperability requirements needed in environments…

Thank you, Tyson. Silicon Labs is a very special place made so in large part by the amazing people throughout that make the company. I'm very proud to have been a part of Silicon Labs' success over the past 17 years and happy to pass the torch to George. Before we open the call for the question-and-answer session, I would like to announce our participation in Cowen's Technology, Media and Telecom Conference on May 29th and Stifel's Cross-Sector Inside conference on June 8th, both using virtual platforms. We would now like to open the call after 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. Chuck?

[Operator Instructions] Our first question will come from Blayne Curtis with Barclay. Please go ahead.

Yes. Thanks for taking my question. Just kind of curious, Tyson, John, just you talked about getting some kind of $5 million shipment seeing in the quarter, so it's kind of like things are getting a bit better. You've seen some recovery in China and I think you made the comment that as you look at the guidance which may be more risk of downside and upside. Can you just walk us through how orders have been in April and any perspective on if you're seeing recovery in China. And then, I guess, kind of put the two together that upside at the end of March to your [Indiscernible] lower looking forward.

Yes. Blayne, this is John. I'll take a crack at this and then Tyson can add something but bookings have been volatile. We saw pressure clearly through mid first quarter with the shutdown in China where we saw a lot of companies and suppliers under pressure in China due to the pandemic that began to stabilize later in the quarter. And we saw an uptick in bookings to round out the quarter, so we revised our guidance around the time of our Analyst Day event and then ended up, actually outperforming that given the later strengthen and the bookings to round out the quarter. There's uncertainty out there. I guess is the best way to say it uncertainty and volatility that has us indicating probably a little more risk in the system than has been the case before. But we were pleased to see the upside in first quarter.

Yes. Blayne, on that -- this is Tyson. We've got -- that there are, the volatility is really around. There are a number of customers where plants are shut down in different geographies and they are pushing out orders and we have an equal number of customers pulling in orders. We see China as rebounding strongly. We also are encouraged by the fiscal stimulus activity in particular around some of the communications infrastructure side and that will also bleed over onto the IoT side as well. So there's -- there are puts and takes but you know and then we also have slowdown in the automotive market. We see a number of plant shutdowns there. So there are kind of an equal number of push outs and pull ends but it is more highly volatile than we see. And I think that as you look at the US economy and the European economy out of an abundance of caution, it's not that-- it's seen -- we've seen that clearly in our booking patterns. The bookings have remained fairly strong as we cut through the earnings call here in April. But the flow-through of that, that's the reason for the abundance of cautions that we have in our comments around the downside risk versus the upside risk.

Thanks. And may be follow-up, you kind of answer part of the Tyson but in terms of the supply constraints you're talking about, is there any supply constraints that are Silicon Labs related and then I guess downstream you mentioned autos, I am kind of curious where else do you think about supply constraints that could add to this kind of order of visibility and an upside.

Yes. From our perspective, our supply chain is performing very, very well. We are able to meet customer demand and upside within our lead times and are not really seeing major impacts due to anything within our supply chain. So we continue to operate virtually. We've got a work from home posture and we've been able to transition to that very effectively. What I'm really talking about is that our end customers and then their customers are seeing there are a number of factories for instance automakers in the US and Europe has had shutdowns. And you've got some factories that are rolling through these coronavirus related challenges. And so those are having an impact on the ordering path and there are other customers that are accelerating orders to meet demand. So it's really a mixed bag right now, but overall if you just look at the end markets and what we're looking at here in the US and Europe, we believe that that is going to begin to flow through here at some point not just from the factory closures, but also the decline in consumer demand. And so we are being cautious in our posture both from an OpEx perspective and from a guidance perspective relative to those concerns.

Yes. Just a quick add-on there. You all have seen the news about restrictions in Malaysia and the Philippines. We have a very limited production in those regions. We do have some products, but it's fairly small volume Most of our production is in Taiwan and Taiwan has dealt with the pandemic challenge exceptionally well. So as Tyson said, we're doing well in that area.

Our next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.

Good morning, everybody. Thanks for taking my question. Wanted to start up under the -- acknowledging the fact that things are very fluid and things are probably changing week by week for you guys and thus the $20 million guidance range for Q2. So I'm wondering if you can share some additional details with us regarding the difference between hitting the high end and the low end of that guidance range maybe focusing specifically on was assumed interns business as we conclude the balance of the quarter.

Yes. Gary, this is John. It's really going to depend on how our bookings roll in. I think we see opportunities in communications and isolation has clearly areas where we have upside opportunity. Automotive is a part of the market that is logically going to be under pressure this year. On the other hand, we have some new platforms that we have been designed into which are beginning to ramp into volume so that is serving as a countervailing effect on the overall automotive pressure that we believe is likely to materialize later this year. And then just in the broad industrial part of the world, we'll have to see how things play out with businesses opening back up and factories coming back online as a swing factor. And the final point I'll make is China. China has come back strong to round out Q1 and begin Q2 and we'll see how that plays out as well. So those are some of the some of the factors.

Okay. Gary, I would also add on to that we have come into the quarter with solid bookings and our well-- our bookings we're ahead of where we would typically be during the quarter. I think that's evidence that folks are ordering ahead a little bit it, it makes things a little bit hard to predict and those bookings have remained strong as we've come into the quarter. There's just -- there's a lot of churn underneath the covers there in terms of customers pushing out and pulling in. And that's the reason for that expanded guidance range, but where we sit right now things are looking pretty solid, but given the level of volatility we felt like we needed to open up that guidance range to give us a little bit of breathing room.

Okay. Thanks for that. Want to move on to gross margin. You are guiding Q2 gross margin at the high end of your long-term guidance range. And I'm just curious to know what's contributed and the single large chunk of that is mixed related, but is it at all affected by the acquisition of Redpine? Is it all -- is it all impacted by maybe some better cost structures from your supply chain and what not.

Yes. Gary, this John. So it really is largely mixed driven with more communications and industrial mix in the numbers, a bit less consumer mix there. And the Redpine business though not a large factor in Q2 given that it's a partial quarter, but the gross margins from the acquired Redpine business are complimentary with our with our gross margin profile, so that helps a little bit.

Our next question will come from Tore Svanberg with Stifel. Please go ahead.

Yes. Thank you and thank you to Jalene, wishing you all the best. First question is on the Redpine contribution. I think you had talked about this being a $20 million run rate business, so should we assume the contribution is about $5 million then for the June quarter, John?

Yes. Tore, so we've just announced the final closing. We estimate the contribution to be at about half of that level for the partial quarter, so roughly $2 million to $3 million of contribution this quarter.

Great. Thanks. And as my follow-up to, Tyson. Tyson, this year supposed to be the year of Bluetooth for you guys. You had some pretty big announcements at the beginning of the year. Could you just talk a little bit about how the design activity is going there? And what would you expect to gain the most traction with your new Bluetooth products throughout the year? What types of applications?

We are very excited about our new BG22 device that we announced last quarter and we continue to engage in a variety of power and cost and size constrained applications within the Bluetooth market. You've got lots of consumer and industrial and medical applications, actually there's a lot of really exciting stuff going on given the pandemic around personal medical and connected devices, basically these devices connect up to your mobile phone and we are doing this with the device that has just extremely low energy consumption and a very high level of features at a very attractive cost point. So we continue to engage and get kits out into the market and developer tools and we're holding a number of seminars and virtual training sessions. And I would say that the activity there is very, very high. This also the Bluetooth market represents a substantial portion of our funnel. We've got about $3 billion of lifetime revenue opportunity in the funnel and we continue to engage strongly across the globe with these new Bluetooth products, as well as the new MG22 and FG22 that I talked about in the call. So those other products that we developed are also on the 15.4 and some of the proprietary products as well. So we continue to drive innovation on the hardware side and on the software side with Bluetooth being just a great opportunity for share gain and growth in IoT as we go forward.

Our next question will come from Srini Pajjuri of SMBC Nikko. Please go ahead.

Good morning, guys. Thank you for taking my question. John, I want to go back to the bookings comment. I think you said this dist inventory went up from 38 days to 54 days. I'm just curious what's your expectation for this quarter? Is dist inventory whether it's -- whether you expect that to go up or stay flattish or come down?

Yes. Srini, this is John. So we did see distributors build some inventory which is good that is in line with our expectations. We had inventory levels somewhat depressed in the second half of 2019, so where we see them now is normal in the mid-50s on days. We expect it to hold there of course the absolute amount will depend on the underlying commercial activity, but mid -50s is a reasonable range and that is where we expect that to hold.

Got it. And then maybe for, Tyson, a couple of areas. One isolation, it looks like that's tracking well. I'm just trying to understand what's driving this trend there. And then on the communication side, there has been a lot of talk about 5G built in China. If you could give us some color as to how much exposure you have there now. What's the content because we're hearing about almost 0.5 million base stations being rolled out this year, just trying to understand how that might impact your business. Thank you.

Yes. Srini, the infrastructure on automotive business in particular around isolation and comms is doing very well right now. The communications infrastructure part, the timing parts, we've had a multi-year effort to engage with the telecommunications equipment providers. We have -- we are designed into four out of the top five including the top two in China with our clock and oscillator products. And that includes into the new 5G base station. So there's a good attach rate to those in content per base station in that business, just China specific in terms of the stimulus and is going to drive demand. I also think that if you just look internet demand around the world as core networks are upgraded and data centers are upgraded, all the connectivity there where we have a lot of historical strengths is going to continue to bode well for our timing products. So we saw year-over-year strengths. We've had very good design win attraction but the devices that are out there in production today, we've got very good share. So I'm bullish on the communication market. In terms of isolation, we had a record quarter in Q1 and that was really driven by strength across the board and isolation is a very broad product line for us in terms of the number of different applications and the number of customers. There's a lot of industrial for motors and power supplies and monitoring and just a whole bunch of different applications within industrial. You certainly have electric vehicles and I think that within the automotive market, electric vehicles are leading share there and penetration with the leading providers. Longer-term although we see potentially the automotive markets slowing a bit, but overall I think that electric vehicles are going to be a very important driver for isolation growth going forward given our content that we have in each car. And then you've got things in green energy applications like solar and wind and a lot of things. Anytime you're connecting to the electric grid, you need isolation and that's where these products come in and we have a number of innovative features around that. And we also have a good position in isolation with data center power supplies. So within data centers, the power system is one of the critical areas and within isolation we have a particularly strong business in that. So it was kind of across the board on isolation. Those sets of applications, I think, net-net are going to benefit from some of the longer-term trends that we're seeing due to the Covid-19.

Our next question will come from Rajvindra Gill with Needham & Company. Please go ahead.

Yes. Thank you and congratulations on a good momentum in this tough environment. Tyson, just regarding the IoT traction that you're seeing, do you see any risk regarding installation of home automation equipment or smart lighting systems or smart energy systems because of Covid, because of the situation regarding the infectiousness of the disease. Is that slowing down any of the installation in this type of equipment using your chips?

Yes. It's really a little bit of a mix, if you take the home automation space. You've got a number of customers within the US and this would relate to our Z-Wave and our ZigBee products. So you've got operators and security installers that are installing home automation and security systems using our devices and there is an impact on those in terms of their ability to access homes and some of that. So we are -- that's a mix. You've also got; there's a strong retail channel and do-it-yourself and everyone sitting in house try to figure out something to do and so there's demand from that quite a bit of online ordering. You also have some of the retail channel in terms of stores that are going to see a little bit of a hit. So the -- on the home automation front there's a component of that's consumer, there's a component to that that's more industrial installer type based and both of those are going to see some impact as we roll forward here. Off at a little bit about the, and I'm speaking mostly about the US and Europe and then you've got, I think, China in terms of some of the applications for IoT and these connectivity products. We see actually increased very urgent of engagement on design win activity and on demand out of China. So I think there's going to be some puts and takes there as this all flows through. I'm also very excited about the Redpine Signals acquisition with Bluetooth and adding that protocol in and that's more of a longer term comment there, but in terms of having now all of the homes with technologies really driving at the home automation and the opportunities around that. Longer term, I'm very, very positive in terms of the deployment of these technologies and our ability to compete and gain share.

Next question for me, Tyson, you talked about volatility around a number of your customers. Some are pushing out order; some that are pulling in orders. Can you elaborate further in terms of what end market you're seeing that? And what's the nature of the decision making?

Yes. Raj, it's not really isolated to a particular part of the business. We've seen these affecting industrial customers. We've seen it affecting automotive customers. I will say communications appears more steadily strong in contrasts and on the consumer side durable goods are likely under some additional pressure as well looking ahead, but it's spotty and then not really isolated to a particular area.

Okay. Thank you so much.

I can give you an example one of the things that are pulling in. We have a number of customers in the portable medical area that provide parts for ventilators or for thermometers or other connected devices that or the micro controllers and the sensor in a number of different things. And we've got a number of customers in there. We actually elevated those customers up the priority list in terms of shipments and in terms of support to be able to expedite activity in that area. So that's an example of something that has an increased level of urgency whereas if a factory shuts down and they don't need parts that's getting pushed out. For instance in the automotive area or in some of our customers cases. So you've got -- you've got a real mix there that is going to shake out over time, but it definitely increases the level of volatility overall.

Our next question will come from Matt Ramsay with Cowen. Please go ahead.

Thank you very much. Good morning. John, I'm --you guys guided OpEx for June and you've always been good with cost controls and I assume that includes a couple of months of the acquisition. If you could just confirm how much of the OpEx is incremental from the business that you're acquiring. And then just how you're thinking about given all the moving parts here with demand managing OpEx through the back half of the year would be helpful. Thanks.

Yes. Matt, sure. So the OpEx incremental for the balance of Q2 is approximately $2 million and that's for a partial quarter. Back in the January call, we talked about a 6% estimate for the year with the acquisition and that was on an organic basis, so with the acquisition that would naturally come up. We are taking steps to control cost in light of everything that's going on. And our objective at this point would be to hold the prior view of approximately 6% increase including the acquisition maybe a little north of that, but we'll have to see how it plays out as well. It's going to be dynamic as what bookings and watch profitability through the course of this year, but that's about the best view I can give you right now.

Matt, I'd also just add to that we talked about our manufacturing model where we've got our gross margins hold because we're a fabless company and so we don't have the fixed cost on our manufacturing. We also have a variable cost model on our OpEx. So the bonuses and a number of things to the extent that we would get a downside hit would naturally push the OpEx levels down over time. So we're -- in those comments we're not assuming that things would go down, but I think that we are very well prepared both in terms of our posture, the actions that we're taking and the variable costs and structure in the variable OpEx structure that we have as a company to be able to weather a downturn situation. I would also mention, we don't, from our debt situation we are in good shape in terms of our balance sheet. We don't have a huge debt load and John maybe you want to make a few comments on that, but from a capital standpoint, we also feel like we have a very robust situation.

Sure. On a gross debt basis, we are about 3.5x levered now with the credit facility drawn. We have ample cash to refund now. We're just monitoring conditions around the optimal time to repay that and then of course the convertible bonds are outstanding with about a two year horizon on those. So we feel comfortable with the level of leverage even in a downside scenario. And we have done some scenario analysis to plan for contingencies around that.

Got it, guys. Thanks for the color there. Just as a follow-up sort of bigger picture question, Tyson. I mean you talked extensively on this call about some pull-ins of orders and maybe some push outs of orders depending on different customers and the really near-term, but as you talk within the customer base about engagements on long-term IoT programs around things like efficiencies and automation et cetera. Are those conversations sort of tampered given what may come in the economy over the next four, five, six quarters or whatever it is or are the momentum to getting efficiencies out of IOT deployments are those accelerating? It's kind of an interesting balance and just love to hear some high-level thoughts there. Thanks very much.

Yes. Matt, thank you for that. The amount of activity that we have and I would say in particular around IoT has gone up dramatically in terms of the engagement of customers and we have Tech Talks that we're doing virtually. We've got record numbers of people that are attending these. We're supporting customers virtually and it seems that the pace of excitement and adoption of these IoT technologies whether it's for improving supply chain, but for just, we are living in a more connected world now. There is a new reality that is accelerating the pace of changes due to technology in our economies and our companies in our lives; you've got people working from home. Not everybody is going to go back to the office. We're hosting our earnings call here remotely. We are going to have to monitor and sense things and connect things up and so that I think that both within the company I think there's a tremendous amount of focus and drive to get these technologies implemented. And to accelerate our product developments, but I also think that within our customer base, the level of activity that we have in terms of being able to get these products out to market, gets them designed in; move to the next generation technologies and push the envelope. I think that that's going to continue and going to accelerate. And that's what we are just laser focused on in terms of our IoT products, very excited about being able to get the Redpine team and those products under the portfolio. But you look at our position in home automation with Bluetooth with Z-Wave with ZigBee and in the broader industrial space and we, I think overall we see an increased level of customer engagement and that's specifically referring to your kind of long term big picture, is this going to be amore important part of the semiconductor industry and a more important part of the economy longer term and I think the answer is unequivocally yes. End of Q&A

This concludes our question-and-answer session. I'd now like to hand the call back over to Jalene Hoover. Please go ahead.

Ms. Hoover, your line maybe muted.

I think she maybe muted. I am going to thank everybody for the call today. And this concludes today's call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.