Analog Devices, Inc.

Good morning, and welcome to the Analog Devices second quarter fiscal year 2021 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 second quarter fiscal 2021 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. 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 our most recent 10-Q and other periodic reports and materials filed with the SEC. After results could differ materially from the forward-looking information and as 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 the most 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 CEO, Vincent Roche.

Thank you, Mike, and good morning to you all. So I'm very pleased to share with you that we delivered record revenue and earnings in the second quarter, exceeding the high end of our outlook. This strength was driven by our disciplined operational execution and our ability to capture the value presented as our solutions become more vital in the modern digital economy. The supply and demand dynamics in our industry have been well publicized. Broadly speaking, the economic recovery has materialized faster and stronger than initially anticipated, placing unprecedented stress on supply chains globally. Late last year, ADI moved with speed and agility, proactively making capital investments to add capacity, positioning us to navigate this disruption and better serve our customers. That said, we like many others in the industry will face a supply-constrained environment through the balance of 2021. Despite this backdrop, we're positioned for a strong second half as our continued capital investments are aligned with robust demand. Moving to a summary of our results, revenue was $1.66 billion, increasing 26% year over year. The strength was broad-based, highlighted by record quarters for our industrial and automotive markets. Gross margin expanded to nearly 71% and operating margin to approximately 42%. Adjusted EPS of $1.54 increased 43% year over year. Over the trailing 12 months, we generated $2.2 billion of free cash flow. This equates to a record 36% free cash flow margin, maintaining our position in the top 10% of the S&P 500. So overall, I'm very proud how the ADI team executed this quarter to deliver these impressive results. At ADI, innovation is the root of how we generate value. And to maintain our virtuous cycle of innovation-driven success, we invest more than a billion dollars in R&D annually. This commitment, coupled with the diversity of our business across customers, products, and applications, positions us to deliver long-term profitable growth. And let me share a few customer highlights with you. ADI solutions are embedded across the electrification ecosystem, from developing and managing the vehicle battery to the distribution and storage across the digital grid. With the rapid shift to EVs, We're seeing new and increasing investments in battery manufacturing capacity. This quarter, we secured a design win with the supplier of one of the world's top battery producers. Our innovative solution reduces system costs by half by integrating all measurement, control, and diagnostics functions. And our portfolio of wired and wireless BMS provides unmatched accuracy to deliver market-leading vehicle range. As we grow and diversify our BMS business, this quarter we added Volvo as well as three additional large auto manufacturers, including a prominent luxury brand in Europe and two leading brands in Asia. Moving on to energy infrastructure, here, energy storage systems are required to make renewable energy a reality and to build the charging infrastructure to support EV proliferation. Our precision signal chain, power management, and BMS portfolios deliver the level of accuracy necessary to ensure consistent supply across the digital grid. We've designed WINS at more than 80% of the top customers, from traditional energy and industrial companies to new entrants. Another area of increasing importance for ADI's connectivity which of course is becoming more pervasive across demographics and industries, presenting new opportunities for us. For example, in our communications business, we announced a complete radio platform for the 5G Oran ecosystem. This radio platform builds on our market leading integrated transceiver position by expanding into the digital front end. Our full system solution enables significant size and performance improvements while reducing customers' design cycles. ORAN represents a new vector of growth in the communications market by enabling new entrants and applications, such as private networks that support connected factories. In addition to partnerships with Intel and Marvell, we are working with key carriers and system integrators to enable this ecosystem. In our space business, Our beamforming solution will be used in Telesat's Lightspeed LEO satellite constellation, scheduled to launch in late 2023. This win speaks to the breadth and depth of our RF portfolio and domain expertise at ADI, which is supporting the adoption, broadly, of LEO communications satellites. Additionally, we continue to have strong design momentum across our diversified industrial market, the largest stickiest, and most profitable business at ADI. Over the years, we've established a heritage of providing the most precise and efficient solutions required by our factory automation customers. I believe we're at a tipping point in Industrial 4.0 as customers are looking to add sensing, edge processing, and connectivity to make supply chains more robust, more efficient, and flexible. We recently won an ultra-high frequency wireless solution at a key automation company. Our solution is being used in advanced robotic systems to reduce downtime and costs. On the wired side, customers are beginning to upgrade to deterministic Ethernet to ensure machines are constantly connected and monitored. This quarter, we secured numerous design wins for our robust Ethernet solution, including two of the largest European industrial machine manufacturers. We recently hosted a deep dive on our instrumentation and test business. This is truly a performance-driven market that requires ADI's most advanced technology and solutions, making it a great fit for our high-performance precision signal chain power and RF portfolios. Our broad, diverse instrumentation business comprised of automated test equipment, electronic test and measurement, and scientific instruments is aligned with all secular growth trends across our industry. The increasing complexity of these applications is driving the need for solutions with more advanced technology capabilities. As a result, we expect our SAM to increase by over 20% in the next five years. Now these examples represent only a fraction of the incredible work across ADI. Our team is partnering with our customers every day to develop increasingly innovative technologies that not only create successful business outcomes, but also enrich people's lives and leave a greater impact on our world. To that end, I wanted to share an exciting update on how we're leveraging innovation to advance our mission of engineering good. In April, we launched an innovation accelerator with the Woods Hole Oceanographic Institution. As part of this program, we'll be combining ADI's engineers and technologies with HUI's science and technology platforms to continuously monitor critical oceanographic conditions. This effort supports our overall climate agenda, which includes our commitments to achieving carbon neutrality by 2030, and net zero emissions by 2050. We also published our 2020 Corporate Responsibility Report last week, which provides additional information on how our technologies will continue to play a major role in improving our standard of living while protecting our planetary health. So in closing, the last year has underscored how semiconductors as the bedrock of the modern digital economy, and information age are increasingly important to accelerating digitalization across all industries. We're encouraged by our results this quarter, and the momentum in our pipeline sets the stage for continued profitable growth in the years ahead. So with that, I'll hand you over to Prashant, who'll take you through the financial details.