Analog Devices, Inc.

Good morning, and welcome to the Analog Devices fourth quarter and fiscal year 2018 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, Director of Investor Relations. Sir, the floor is yours.

Thank you, Jennifer, and good morning, everybody. Thanks for joining our fourth quarter and fiscal 2018 conference call. With me on the call today are ADI CEO, Vincent Roche, and ADI CFO, Prashanth Mahendra Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. Now on to the disclosures. The information we're about to discuss, including our objectives and outlook, include forward-looking statements. Actual results may differ materially from these forward-looking statements as a result of various factors, including those discussed in our earnings release and in our most recent 10Q. These forward-looking statements reflect our opinion as of the date of this call and We undertake no obligation to update these forward-looking statements in light of new information or future events. Today's commentary about ADI's fourth quarter and fiscal 2018 financial results will be detailed further in our 10-K, which we expect to file next week. Our comments today about ADI's fourth quarter and fiscal 2018 financial results and short-term outlook will also include non-GAAP financial measures, which exclude special items. When comparing our results to historical performance, special items are also excluded from the prior quarter and year-over-year results. 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 on our web schedules, which we've posted on the quarterly results section at investor.analog.com. Okay, with that, I'll turn it over to ADI CEO, Vincent Roche. Vince?

Thank you, Mike, and good morning, everyone. Well, I'm very pleased to report that ADI had another excellent quarter to cap off what was an exceptional year for the companies. We once again hit a high watermark by achieving record revenue of $1.6 billion in the fourth quarter. In addition, we expanded operating margins to 43% and delivered $1.55 of diluted earnings per share. Looking at the full year now, revenue surpassed $6 billion for the first time. Growth was led by our B2B markets that increased well into the double digits year over year. Diluted earnings per share increased more than 20% year over year, and most notably, we generated over $2 billion of free cash flow. This robust cash generation enabled us to continue investing in the future of our business, rapidly reduce our debt by over $1.5 billion during the year, and return cash to our shareholders. As we outlined on the last call, going forward, we plan to return 100% of our free cash flow after debt repayments. In fact, we've returned $10 billion to our shareholders since 2005 through dividends and share repurchases. Beyond being a strong year financially, it was also a year of exceptional business progress for ADI also. So I'd like to spend a little time describing our progress in 2018 and show how specifically it positions ADI for continued strength in 2019 and indeed beyond. Firstly, we made tremendous progress in the integration of LTC using our best of both approach. Employees across the entire organization are unified and working towards a common goal of delivering long-term profitable growth. Our R&D teams have synergized product roadmaps and development activities and are busily extending the cutting edge of analog, mixed signal, power and sensors to deliver impactful solutions to our customers. Our combined sales force has made really great strides in building and converting our opportunity pipeline. In fact, our revenue cross-selling opportunity has doubled in value since our analyst day across large customers and also in the broad market. During the year, we successfully achieved our initial $150 million of cost synergies. In addition, as previously announced, we're optimizing our internal manufacturing footprint, reducing our cost basis by another $100 million, while enabling a more agile operation that is positioned to capture new growth upside. All that said, given the complementarity of our combined product portfolio and customer relationships, we're increasingly confident in our objective to double LTC's revenue growth over the next few years. In short, We've created an industry-leading product portfolio and team of analog, RF, and power engineers with capabilities that range from sensor to cloud, from DC to 100 gigahertz, and from nanowatts to kilowatts. We exit 2018 in a stronger position than we've ever been and are extremely well-prepared strategically and operationally to grow and take market share in 2019 and indeed beyond. In addition to our own preparedness, our confidence is grounded in a few externalities that transcend any potential short-term uncertainty in 2019. Namely, immutable technology macro trends that are creating secular tailwinds for ADI. ADI's analog expertise between the physical and digital domains becomes ever more critical to our customers' business success. And simultaneously, Our customers are partnering more deeply with us to get the full benefit of our technology capabilities and product solutions to enable them to meet the innovation demands of their customers. And we're very well aligned with these externalities and have been making strong progress during the past year to position ourselves for success in 2019 and beyond. For example, In the wireless communication sector, you may have seen recent press around deployments of 5G massive MIMO beginning in Korea. ADI software-defined transceivers are enabling those deployments. And this is just the beginning. Many other global carriers are expected to deploy 5G massive MIMO over the coming years. Much of the innovation of 5G systems is taking place in the radio subsystem. Given the increasing demands for spectral, space, thermal, and cost efficiency, our comprehensive portfolio of software-defined mixed signal, RF, microwave, and power management technologies will enable ADI to create even more compelling solutions for our customers in the years ahead. These massive MIMO-enabled radios contain an eight-times increase in radio channels, representing a significant growth opportunity for ADI. and the opportunity to capture potentially up to four times the content when compared to current 4G solutions. I should note also that in addition, power management attached design wins in this area are just beginning, but progress thus far leads us to believe that our power portfolio will continue to provide tailwinds for us in communications in 2019 and in further years. And indeed, Massive MIMO is just a stepping stone to millimeter wave-based future generations. Here, carriers will look to increase the radio channel count up to 512 channels per radio, and we're very well positioned to once again solve these immense radio challenges with our comprehensive cutting-edge portfolio. So I believe we're really in the early stages of a multi-year growth cycle in this particular space. So now turning for a moment to the industrial sector, Here, the digital factory envisioned by Industry 4.0 is expected to increase productivity and lower cost. ADI has the heritage, the domain expertise, and the most comprehensive set of technologies and capabilities to deliver the required level of precision and robustness our customers need. For example, we're building beyond our traditional strength in precision control, isolation, and power products by adding communications technologies such as industrial-grade deterministic Ethernet, and sensors in areas such as depth, motion, and vibration, which more than triples our content opportunity and expands our addressable market. In automotive, FY18 was a year of really solid progress, and I have increased conviction that we're on the right path to return to our target growth rate of at least high single digits annually. Growth in our cabin electronics business has accelerated to a double-digit growth rate this past year, driven mainly by our long-term strength in audio processing. And our future is equally bright here. We're adding new vectors to our audio processing foundation, like A to B and C to B media transport technologies. And we're attaching our power management portfolio in these engagements as well, positioning us for continued strong growth in this particular sub-sector. On the active safety side of the business, high-speed signal processing technology is required to deliver ever-increasing levels of precision in level 3 plus autonomous vehicles. Here, ADI's radar, LIDAR, and IMU solutions, coupled with power management, are strengthening our position across nearly all self-driving programs. And as is the case, as in the case with Baidu, our customers are relying on ADI to achieve their vision of fully autonomous vehicles. In the electrification application area, we've made stellar progress in strengthening our BMS solutions in FY18. Our current generation delivers up to 20% more miles per charge compared to the competition and extends the battery's useful life. We are now sampling our next generation solution, which provides another efficiency and performance leap while adding additional safety features. Beyond that, the subsequent generation of our multi-generational roadmap includes architectural innovations that will change the way the BMS problems of power density, accuracy, and weight are solved in the future. And finally, I'd like to say a few words about our healthcare business and progress. Revenue in this market has increased at a double-digit growth rate over the past five years, and I believe it's really just getting started. In areas such as remote patient monitoring and digital X-ray systems, ADI's expertise in high-performance sensing, signal processing, and power control is ever more critical to our customers. For example, in the area of digital X-ray imaging, Several years ago, we made a pivot to a domain-inspired approach to solve our customers' most difficult problems. We've leveraged our strong heritage of high-end component building blocks and have pushed the innovation curve to new levels to create highly integrated subsystems, from photons to bits, for example. These solutions have simplified an intensely complex problem by reducing our customers' design challenges while lowering radiation dosage and simultaneously increasing image fidelity. We've thereby extended our addressable market to capture new levels of value. And in general, in the healthcare area, I believe that economic needs and new technology adoption are converging to enable a new vein of growth in the future for ADI. So in closing, I've put forth the constructive scenario here today. And while some may be a bit skeptical, given the present macro uncertainty and geopolitical fears that beset our world, our confidence, I believe, is very well founded. We have a diverse business across customers, products, and applications that positions us to succeed and excel in any macro climate. We've added enormously to our cutting-edge technology portfolio during the year, and we've deepened our customer engagements. So we're in a position to capture the upside while being agile enough to weather any perturbations in the marketplace. And amidst an environment of increasing change and complexity, we continue to leverage our greatest asset, our people who continuously push the edge, learn and adapt to create ever more innovative solutions for our customers each and every day, which ultimately drives returns for our shareholders. And so with that, I'd like to hand it over to Prashant.