Analog Devices, Inc.

Good morning and welcome to Analog Devices third quarter fiscal year 2019 earnings conference call which is being audio webcast via telephone and over the web. I would like to now introduce your host for today's call, Mr. Michael Luccarelli, Director of Investor Relations. Sir, the floor is yours.

Thank you Cheryl and good morning everybody. Thanks for joining our third quarter fiscal 2019 conference call. With me on the call today are ADI CEO Vincent Roche and ADI CFO Prashant Mahendra Rajah. For anyone who missed the release, you can find it and related financial schedules at investor.analog.com. Now onto 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 earnings release and our most recent 10-Q. These forward-looking statements reflect our opinion as of date of this call We undertake no obligation to update these forward-looking statements in light of new information or future events. Our comments today about ADI's third quarter fiscal 2019 financial results and short-term outlook will also include non-GAAP financial measures, which exclude special items. In comparing our results to historical performance, special items are also excluded from these prior quarters and year-over-year results. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information about the non-GAAP measures are included in today's earnings release. I also wanted to point out that during the third quarter, we improved our method to more accurately estimate the end market classification for Shibna's two distributors. This resulted in some modest changes to our historical end market revenue breakdown, but did not change our total revenue or ETFs. We have posted a quarterly end market look back based on this improved method to our investor website. Okay, with that, I'll turn it over to ADI CEO, Vincent Roche. Vince?

Thanks very much, Mike, and good morning to you all. Well, in what continues to be a challenging macroeconomic environment, we executed soundly in our third fiscal quarter and delivered solid results. Revenue of 1.48 billion in the third quarter came in above the midpoint of our guidance. Our B2B markets decreased 3% year over year, given the weaker macro conditions, and performed well relative to the market. This performance is testament to the diversity of our franchise and investing ahead of secular trends to drive ongoing share gains and some expansion. Operating margins of approximately 41% were above our guidance as we moved quickly to reduce expenses given the ongoing market weakness. All told, adjusted EPS was $1.26. Over the past 12 months, we've generated approximately $2 billion in free cash flow, or 33% of revenue. And during the same time period, we have returned more than 100% of free cash flow to our shareholders after debt repayments. Now, while there are clearly a number of near-term external challenges we're navigating through, ADI has always been and remains focused on delivering sustainable, long-term profitable growth. To that end, before Prashanth covers our financial results in more detail, I'm going to continue our quarterly practice of providing a deeper level of insight into one of our markets, the trends influencing its future, and how we are positioned to capitalize on these trends over the long term. So today, I'd like to discuss the emerging automotive electrification ecosystem that is supporting a number of underlying industries. from energy to transportation to manufacturing and indeed beyond, and paving the way for the transition to cleaner energy sources. ADI has always been focused on making the most efficient use of energy in both our products and operations, and I'm proud to say that we are playing an important role in this new wave of electrification. We approach automotive electrification from an ecosystem perspective. That is to say, the electric vehicle is just one element. For ADI, the origin of our journey starts with the formation of the battery. It then extends to the ongoing management of an installed electric vehicle's battery system, and then to powering the supporting electrical infrastructure needed to fuel EVs. The common thread woven through all of these applications is the precision signal processing control, and power management capabilities they require, capabilities indeed in which ADI excels. So let me explain a bit more. Our value journey starts with battery formation and test, a time-consuming and complex chemical process where extremely precise measurement means the difference between a safe, high-quality battery and a low-quality one. The lithium-ion batteries that power electric vehicles represent nearly a third of the entire cost of the vehicle. So OEMs place a high premium on battery quality and reliability. Our portfolio of fully integrated precision signal processing, control, and power products allows ADI to offer customers the highest levels of accuracy, safety, and reliability for their battery formation and test process. Our solutions reduce battery formation costs by two-thirds. by shrinking our customer's equipment footprint by four times and enabling up to 95% power reuse, which reduces environmental impact as well. Once the battery system has been manufactured, our opportunity grows with the electrification applications within the vehicle itself. Here, our technology is a key enabler in the transition from combustion engines to cleaner electric vehicles. which are projected to grow from the current 2% worldwide vehicle sales to more than 20% over the next decade or so. In the vehicle, the battery management system, or BMS, provides precise monitoring and control of the complex charge and discharge cycles of the battery system. Accuracy and safety in the BMS are critical, since overcharging or undercharging can lead to the battery's destruction and render it useless. The accuracy of the BMS is also a major determining factor in the performance of the EV as it directly affects the miles per charge an electric vehicle can safely deliver. And to add to the challenge, that accuracy needs to be maintained through extreme environmental conditions and harsh interference over the 10 plus year life cycle of the car. Such an application challenge is a perfect fit for ADI. where we once again leverage our deep heritage and accurate precision measurement to provide optimized solutions for battery management. We've got the industry's broadest IC portfolio, supporting all battery voltages from 48 volts to 800 volts, covering the full range of premium electric vehicles right down to the entry level. Our products are also designed specifically for harsh automotive environments, enabling us to deliver up to 20% more miles per charge than our competition. We deliver the highest level of automotive functional safety and have a full suite of powerful safety diagnostics that are easy to integrate and use. So thanks to these advantages, we now have a leadership position across key customers in the U.S., Europe, and Asia, giving us confidence that we can continue to grow BMS revenue at a double-digit annual rate. And we continue to push the innovation curve. Future generations on our BMS roadmap include architectural innovations that will improve the way power density, accuracy, and weight challenges are solved, including the ability to wirelessly and robustly communicate. And finally, our opportunity extends beyond the car to the charging station infrastructure that sources, stores, and transfers the energy that powers electric vehicles. Charging stations represent a unique challenge for electric grids due to their intermittent and substantial demand peaks. And they must also effectively and cost efficiently meet the fast charging requirements consumers demand for their EVs. As a result, charging stations will rely on battery-powered energy storage systems to accurately and quickly charge a vehicle. Here, the precision of our BMS solution can reduce the total cost of ownership of the energy storage system by a third by extending the battery's life by up to two times and lowering maintenance costs. As demand for batteries rises, we're beginning to see a push towards extending a battery's useful life by enabling a second life for EV batteries in infrastructure applications. We believe ADI's best in class measurement capabilities will become increasingly important as this market matures and these second life deployments begin to scale. So in closing, electrification represents a highly valuable market for ADI for the long term. It presents a number of difficult challenges for our customers, challenges that our portfolio and people are transforming into opportunities every day. Through our battery management, power conversion, connectivity, and isolation technologies, we're delivering innovative solutions that position us to capture revenue growth opportunities throughout the electrification ecosystem today and well into the future. And so with that, let me hand over to Prashanth, who will take you through the financial details.