Analog Devices, Inc.

Good morning, and welcome to the Analog Devices third quarter fiscal year 2020 earnings conference call, which is being audio webcast via telephone and over the web. I'd now like to introduce your host for today's call, Mr. Michael Luccarelli, Senior Director of Investor Relations. Sir, the floor is yours.

Thank you, Cheryl, and good morning, everybody. Thanks for joining our fourth quarter and fiscal 2020 conference call. With me on the call today are ADI's CEO, Vincent Roche, and ADI's 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 includes forward-looking statements, including statements relating to our objectives, outlook, and the proposed maximum transaction. These forward-looking statements are subject to certain risks and uncertainties as further described in earnings release, our most recent 10-K, and other periodic reports and materials filed with the SEC. Actual results could differ materially from this forward-looking information, as these statements reflect our expectations only at 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. Okay, with that, I'll turn it over to ADI CEO, Vincent Roche. Vince?

Thank you, Mike, and good morning to you all. I hope that you and your families are healthy and safe at this time. So 2020 represented a year of strategic progress for ADI in a very highly uncertain macroeconomic environment. Fortunately, ADI was already operating from a position of strength. Over the last decade, we've created a structurally more profitable business. We realigned our portfolio to target more durable end markets and become more diverse across customers, products, and applications. During this past year and at the height of the pandemic, this business model proved quite resilient with gross and operating margins troughing at 68% and 37% respectively. levels we previously considered peak. It's this resiliency that enables us to sustain a healthy level of investment against any economic backdrop. We've also not afraid to make strategic pivots towards the most attractive investment opportunities that enhance our customer engagement and better align us to secular growth trends such as digital healthcare. Clearly, the biggest investment decision of 2020 was our strategic combination with Maxim. which will further extend the scale and scope of our semiconductor portfolio. And I'll expand on this in a while. As I reflect on the immediate challenges of our current environment, we believe there is more ADI can do to leverage our expertise to engineer a more sustainable future and make an even more positive impact on the world. To that end, earlier this year, we published our first corporate responsibility report and launched the semiconductor industry's first green bond. We also took action in the global fight against COVID-19. We prioritized production of our healthcare solutions to support customers, and we're partnering with hospitals and biotech startups to develop solutions that leverage our technology. And our impact has extended beyond our own facilities and capabilities as we've made multimillion dollar donations through the ADI Foundation to support both global and local pandemic response efforts. Overall, I'm very proud of how we've come together. We embraced and learned from this challenging time and continue to execute at a high level to generate and capture value in the market. Now turning to our results. In the fourth quarter, revenue was $1.53 billion and adjusted EPS was $1.44, above the high end of our outlook. For the year, revenue was $5.6 billion, down mid single digits year over year. This was partly driven by the economic volatility and supply chain disruptions related to the pandemic. Despite this, our cumulative B2B revenue outperformed peers for a third consecutive year. We actively managed operating expenses, delivering operating margins of 40% and adjusted EPS of $4.91. We generated approximately $1.8 billion in free cash flow in 2020. While this year's 33% free cash flow margin is just below our long-term financial model, we continue to be in the top 10% of companies in the S&P 500. So now I'd like to provide an update on how we're shaping ADI to be even more impactful in the future. During the year, we invested more than $1 billion in R&D, with over 95% targeted at the most attractive B2B opportunities. This includes funding new product development to fortify our franchises and drive new vectors of growth. As you know, we selectively use M&A to complement these organic investments, and we've taken a very significant step forward with the pending acquisition of Maxim. The numerous customers I've spoken with about our combination are delighted that we will join forces. Maxim will strengthen our leadership in the semiconductor industry, creating a more comprehensive analog mix signal and power portfolio, and further diversifying our business across markets and applications. And at 10,000 engineers strong, the acquisition will solidify ADI as the destination for the world's best analog talent. We've also been disciplined in our approach to managing our balance sheet. Since we closed the linear acquisition, we've cut our leverage ratio in half, increased our dividend by 40%, and repurchased more than $1 billion of shares. Prashanth will provide further details on our capital allocation outlook for 2021. Shifting now to customer engagement, our focus has been unwavering as we continue to solve our customers' toughest challenges. A key strength of ADI is our standard products portfolio. With its unparalleled breadth and depth from DC to 100 gigahertz, from nanowatts to kilowatts, and from sensor to cloud, we define the edge of performance. Our portfolio is sold across customers of all sizes and provides recurring revenue for decades. But what's just as important, these standard products are the foundation upon which we build more targeted, integrated solutions for higher growth vertical applications, such as 5G radio systems and automotive battery management. To that end, Industries are prioritizing digitalization and connectivity more than ever, and new industries are emerging focused on the physical and cyber. In many ways, it's semiconductors that are enabling the current virtual economy, and ADI, where data is born, is at the center of this evolution and well aligned with key secular growth trends. Now, looking across our segments, I'd like to share some highlights with you, starting first with industrial. This is an incredibly fragmented market with expanding needs as it transitions to industry 4.0 and beyond. We're in a unique position to not only solve traditional challenges like precision, signal processing, control, and power, but also new emerging challenges like connectivity and safety. For example, our time of flight solution enables safer factory floors by preventing accidents between humans, robots, and co-bots. And our connectivity portfolio of deterministic Ethernet, secure microwave, RF, and 5G is helping our customers to create ubiquitous connectivity, merging their operational and informational technologies to unlock the true value of industry 4.0. In healthcare, the pandemic is accelerating the market towards telemedicine and transitioning care into the home. To support this, systems are being upgraded and clinical-grade patient monitoring is extending outside of the hospital. We doubled our investment ahead of this trend, bringing to market hundreds of new products and tilting our offerings towards complete system solutions. The result? Over the last five years, we've grown our customer base by over 20% and our revenues at a double-digit rate, even when excluding pandemic-related demand. And we're now increasing our investment in sensing, computing, and cloud to help enable the secular shift to healthcare from anywhere. In communications, we're the market leader in 5G, a position that will deliver significant growth as 5G broadens globally in 2021 and beyond. At the same time, we view open radio access networks, or ORAN, as a disruptive technology that enables carriers to scale and upgrade their networks more quickly and economically, and an important step to help proliferate 5G into new markets. And for ADI's wireless franchise, ORAN opens up new avenues for growth. To get ahead of the market, we're further innovating our transceiver and power portfolios to shape the radio of the future. We're also forming strategic partnerships with ecosystem participants such as Intel and Marvell. And this strategy is working. Last quarter, we announced the collaboration with NEC to enable the first O-RAN installation for Rakuten Mobile. The automotive market is undergoing a revolution with electric vehicles becoming mainstream. ADI is at the heart of this movement with over half of the top 10 EV brands using our BMS solution. And our new wireless BMS offers the same reliability and performance of our wired solution while enhancing robustness and configurability. General Motors recently announced that they will deploy a wireless EMS across their entire Ultium battery line. Since the launch just a few months ago, interest in this groundbreaking technology is gaining momentum across the ecosystem. Looking at automotive more broadly, demand for our audio system solutions with signal processing A to B connectivity and road noise cancellation is intensifying. Our innovative solutions are not only the highest fidelity performance technology in the market, but they also reduce weight, removing nearly 100 pounds from an average vehicle. We've also identified opportunities to attach our LTC portfolio with our A to B platform to deliver both data and power up to 50 watts. By combining all these capabilities, we're creating deeper customer relationships while increasing our sound per audio system. Turning to consumer now, this is a market that has had its fair share of challenges over the last few years for ADI. However, we believe that the business has bottomed in 2020. Recent design wins across a diverse customer base for new and emerging applications like hearables, wearables, high-end audio and video solutions put consumer on a multi-year growth trajectory. So in closing, This was clearly an unprecedented year for us all. We're optimistic that a broad-based recovery is underway, but acknowledge that the recovery remains dependent on the economic impacts of the pandemic. With that said, I'm encouraged by our momentum and we expect 2021 to be a growth year for the company. We've seen an improvement across nearly all of our end markets and our portfolio strategically aligned with favorable secular growth trends. a position that gets only stronger with maximum. In my 30 years plus at ADI, I've never been more confident about our prospects than I am today. And so with that, I'm going to turn over to Prashant, who will take us through the financial details.