Maxim Integrated Products, Inc.

Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 2023 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Michael Luccarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours.

Thank you, Liz, and good morning, everybody. Thanks for joining our Second Quarter Fiscal 23 Conference Call. With me on the call today are ADI CEO and Chair Vincent Roche and ADI CFO Prashanth Mahendra Rajav. For anyone who missed the release, you can find it in relating financial statements and schedules at investor.analog.com. On to the disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in earnings release and other periodic reports and other materials filed with the SEC. Actual results could differ materially from these forward-looking statements, and these statements reflect our expectations only as the date of this call. We undertake no obligation to update these statements except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI CO, Chair Finz. Chair Finz. Chair Finz.

Thanks, Mike, and good morning to you all. Well, I'm very pleased to share that ADI continued to execute well in the second quarter. We delivered our 13th consecutive quarter of revenue growth and record earnings per share. Notably, revenue was $3.26 billion, growing 10% year over year. And once again, this was driven by record results in our industrial and automotive sectors. Gross margin was nearly 74%, and operating margin surpassed 51%, reflecting the innovation premium our portfolio commands. and our strong financial discipline. And EPS increased an impressive 18% year over year. Now I'd like to spend a moment on the current business conditions. We previously shared that our business was at an inflection point due to uncertain economic and the geopolitical backdrop. After three years of steady growth, customers are beginning to adjust their forecasts and rebalance their inventories. This is most pronounced in Asia, while North America and Europe demand is moderating. But at a more measured pace, we expect this normalization of revenue will persist through the second half of 2023. Importantly, given our customer conversations and proactive decisions to improve lead times and right size or backlog, we're in a position to deliver on our goal of delivering a soft landing. Stepping back, We've successfully navigated macro challenges many, many times before. Today, ADI has an even more durable franchise defined by an unmatched diversity of products, customers, and applications, a hybrid manufacturing model that better adapts to demand fluctuations, and of course, a fortified balance sheet. These characteristics instill a resiliency that helps ADI mitigate market weakness and invest throughout economic cycles in critical areas that will define our future. Notably, unlike previous economic cycles, we have numerous concurrent secular growth drivers across all of our markets that drive more semi-content per dollar of CapEx. And we have exposure to sectors that will transcend the macro uncertainty, including areas like digital healthcare, aerospace, defense, and the electrification ecosystem. So to that end, I want to highlight our digital healthcare business, which resides in our industrial end market. Healthcare is a market that is ripe for innovation and is one that requires the highest levels of performance. Now, currently, the United States leads the world in healthcare spending with more than $4 trillion spent in 2022 alone, approaching 20% of GDP. This amount has steadily increased over several decades and unfortunately does not correlate to world leading health outcomes. Both the US along with most international healthcare systems are still reliant on serving the majority of patients with critical or chronic conditions in large centralized acute care hospitals where specialized expertise and equipment reside. The pandemic highlighted the fragility of this system underscoring the urgent need for remote physician consultation and distributed clinical-grade patient care. This vision of a decentralized system to improve the accessibility, affordability, and efficacy of global healthcare can only be realized through the proliferation of edge-based diagnostic and therapeutic technologies. ADI saw this promising opportunity early and made digital healthcare a strategic focus area over a decade ago. Over that time, our R&D investments have expanded our portfolio from core signal processing, sensing, and power technologies to more highly integrated application specific products to now full system level solutions. The results, our healthcare franchise has delivered seven straight record revenue years, generating $900 million annually And we're on track to achieve a new high watermark in 23, despite the macro backdrop. Importantly, ADI has become an industry leader in three primary areas. The first is medical imaging, where our highly integrated products perform critical functions. This includes enhancing image quality, minimizing radiation dosage, improving system assembly, and simplifying field maintenance. Today, we have strong share positions in areas like CT scanners, digital x-ray, and ultrasound. Next is automation and instrumentation. For example, our broad portfolio enables us to create the optimized signal chains required in applications such as infusion pumps, ventilators, and defibrillators. Third is personal health monitoring. Here, our highest performance products are used throughout the operating room and the ICU, while more compact versions with lower power are designed into wearable devices performing both clinical and consumer wellness monitoring functions. Now, let me share some of the examples of how we're seeing ADI solutions shape the future of healthcare. The ultrasound industry is migrating from large cart-based equipment to more compact mobile systems. Recently, ADI won the design as a market leader for their compact ultrasound system. Our solution leverages our complete portfolio, including high-speed signal chain and high-voltage power technologies, to deliver the highest quality images at the lowest power in a smaller footprint. We're also developing an echo to bits technology to untether the ultrasound modality from the hospital and enable hospital grade care in even the most remote locations. Our solution uses proprietary ultra low power analog technology that performs both the data acquisition and beam forming functions at extremely low power levels with embedded software algorithms. This allows the user to get CART-based performance in a handheld form without compromising image quality, resolution, or functionality. Now turning for a moment to robotic surgery, currently only about 15% of the world's surgical procedures use robotic technology despite the many benefits. These include greater precision, flexibility, and control during surgery. and shorter hospital stays, fewer complications, and lower levels of pain for patients. We're already designed in at the largest robotic surgical suppliers with our suite of precision motor control, signal processing, power management, and sensing solutions. And with content per system in the thousands of dollars and performance demands increasing exponentially, This application is poised to deliver significant growth in the years ahead. In the area of personal health monitoring, clinical-grade vital signs monitors are converging with consumer wellness wearables. Now, this is an emerging market for our comprehensive suite of technologies, including our sensor AFEs, microcontrollers, and ultra-low-power technologies, which has been strengthened by the integration of Maxens. For example, in diabetes management, ADI has long been a leading supplier of blood glucose monitoring technology. Now we're working with key customers in the next generation of continuous glucose monitoring. Our solution increases the level of robustness, accuracy, and power efficiency of the glucose sensor, thereby extending its life from days to weeks. And there's much, much more to come. We're extending our reach into innovative medical products that connect our hardware with cloud-based connectivity, analytics, and service. I'm delighted to share with you that our first non-invasive chronic disease management device is undergoing marketing clearance with the FDA. And I look forward to sharing more as this new market has the potential to significantly expand our healthcare set. So big picture. We're shaping the digital revolution in healthcare. ADI's ability to go from component to system supplier underscores our deep domain expertise and unrelenting focus on innovation, setting us apart from the pack, not only in healthcare, but in all of our markets. So while there's near-term uncertainty, we're excited about the long-term opportunities that lie ahead. The center of gravity for data processing is shifting from the cloud to the edge. And ADI, where data is born, is at the center of this evolution, enabling the next waves of innovation for our customers. Now, before I hand over to Prashanth, I want to address our announcement that he will be leaving ADI at the end of the fiscal year. I want to recognize Prashanth for his many contributions and for his partnership. over these past six years. He's played an important role during a period of extraordinary growth and value creation for ADI, including help build a robust finance function and fostering strong investor community engagement. Please know that Prashanth will be remaining in his full capacity and continuing to engage with all of you while we identify our next CFO through a search process that is now underway. And with that, I'll hand it over to Prashant.