Analog Devices, Inc.

Good morning and welcome to the Analog Devices second quarter fiscal year 2026 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. Jeff Ambrosie, head of investor relations. Sir, the floor is yours.

Thank you, Jonathan, and good morning, everybody. Thank you for joining our second quarter fiscal 2026 conference call. Joining me today is ADI's CEO and Chair, Vincent Roche, and ADI's CFO, Richard Puccio. For anyone who missed the release, you can find it at investor.analog.com, along with related financial schedules. The information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties as further described in our earnings release, periodic reports, and other materials filed with the SEC. Actual results could differ materially from the forward-looking information 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. References to gross margin, operating and non-operating expenses, operating margin, tax rate, earnings per share, and free cash flow in our comments today will be on a non-GAAP basis, which excludes 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. References to earnings per share are on a fully diluted basis. And with that, I will turn the call over to ADI's CEO and Chair, Vincent Roche.

Thanks very much, Jeff, and a very good morning to you all. Well, as you've seen by now, second quarter revenue profitability and earnings per share finished above the high end of our guidance, establishing new high watermarks for both revenue and for earnings. Despite the quarter's heightened geopolitical tensions and ongoing macroeconomic challenges, we're currently seeing record demand for our products and solutions. It's at times like these when our dynamic hybrid manufacturing model performs Our robust investments over recent years have enhanced the scale and the optionality of our supply chain, enabling ADI to address demand surges and capture upside. The combination of this supply agility and resilience and our robust R&D investments across core analog segments, as well as digital software and AI, form the foundation for our growing criticality to our customers. They also enable us pursue areas that we believe offer the greatest future growth potential for ADI, namely AI-driven computing and connectivity, autonomy, proactive healthcare, sustainable energy transition, and immersive consumer experience. As I mentioned last quarter, our data center and ATE businesses are taking advantage of strong AI-driven infrastructure investments to achieve new highs. These two businesses are on steep growth trajectories, and as we move through 2026, our confidence in their continued growth into 2027 is increasing. Another robust growth market for ADI is our aerospace and defense business, which reached a new revenue high this quarter, and where increased focus on national sovereignty concerns is accelerating an already strong multi-year growth path. In general, industrial, which includes ATE as well as aerospace and defense, is our most profitable business with 15 to 20 year average product life cycles. We continue to outperform in this space. So today I'd like to unpack more of that story for you by focusing on our industrial business beyond ATE and aerospace and defense, namely Automation, electronic test and measurement, sustainable energy, healthcare, and the broad market. Collectively, these markets have grown more than 40% in the first half of fiscal 26. Customers across these sectors are consuming more semiconductors with each new product generation. And from a cyclical perspective, these businesses are still well below their prior cycle highs. with lean channel inventories. This combination of secular and cyclical positioning, along with strong demand signals, gives us confidence that all of our industrial sectors are poised for continued strong growth in the coming quarters and indeed over the longer term. So now going a little deeper into these markets, I'll begin with our automation business. Numerous megatrends, including the unshoring of advanced manufacturing and evolving labor dynamics, are increasing demand for digital factories and next generation robots. The digital factory vision is unlocking new opportunities for ADI and our portfolio of high performance sensing, signal chain, power management and connectivity solutions. We're enabling the edge intelligence and real time communication necessary in automated semiconductor fabs, biopharma, data centers, and other discrete and process manufacturing environments, for example. Additionally, as robots make up ever larger percentages of investments in factories and elsewhere, our higher value products and subsystems for content-rich robotics are aiding automation's fast recovery. Longer term, humanoids and other advanced robotics modalities are steadily increasing our opportunity pipeline value. Overall, we believe we're well positioned to continue capitalizing on automation's tailwinds today and in the future as automation transitions to autonomy. Turning now to our electronic test and measurement, our ETM business. While ATE systems are geared to enable efficient high volume manufacturing of chips and electronic systems, ETM supports end-to-end product development and delivery, from R&D prototyping, debugging, and validation, all the way through mass production in areas such as AI, EVs, and secure communications, for example. ETM is a highly diversified performance-driven market, and ADI's innovative RF mixed signal and power solutions have built our strong position in high-value applications, and are propelling our growth in our design pipeline as customers grapple with increasing levels of complexity and shrinking innovation cycles. Switching now to our energy business, the continued evolution of consumption patterns due to deeper electrification and high performance computing, for example, is putting immense pressure on legacy electrical grids. and creating profound challenges from energy generation to transmission, distribution, storage, and of course, consumption. Customers trust ADI to accurately monitor, measure, and manage all levels of the grid. We reliably convert real-world environmental and system data into digital information. delivering the essential edge intelligence, connectivity, and power management solutions today's systems require. Notably, we're also leveraging our high-performance battery management platform to support the energy storage systems that are increasingly crucial to a stable grid. Demand for our BMS portfolio from our ESS customers continues to be strong in 26, having grown more than 50% in fiscal 25. In short, our technology helps customers upgrade electrical infrastructure, ingest and manage the intermittency of renewable resources, and smooth the energy demand spikes from applications like EVs, AI, and so on and so forth. As the trend of electrification accelerates, and demand patterns continue to evolve, we believe energy will continue its growth trajectory for many, many years to come. Turning next to healthcare, where technologies and solutions protect and save lives across both clinical and non-clinical care settings each and every day. We're enabling the ongoing digitalization of clinical environments through the combination of our deep domain expertise and breadth of technological capabilities across hardware, software, and advanced packaging. We're seeing sector growth in, for example, advanced imaging, patient monitoring, and surgical robotic applications, where high performance driven solutions are further extending our leadership position. And as healthcare increasingly migrates beyond clinical to non-clinical environments, demand is accelerating for wearable solutions for outpatient management of, for example, cardiopulmonary and metabolic conditions, essentially extending the digital network edge all the way to the surface of the human body. We're driving double-digit revenue growth in our healthcare market, and we expect continued growth over the coming years due to increasing design ends with larger OEMs this year. Turning finally to our broad market industrial business, which has returned to robust growth, this market encompasses a long tail of tens of thousands of established and emerging companies who are addressing a vast array of applications. The tremendous breadth of these customers' needs aligns perfectly with the extensive scope of our diversified, performance-leading technologies and application-ready solutions spanning sensor-to-cloud, nanowatts-to-kilowatts, and antenna-to-bits. Now, before I conclude my remarks today, let me speak briefly about our planned acquisition of Empower Semiconductor, which will further augment our power technology portfolio and provide the final piece of our comprehensive grid to core power platform. With MPower, we gain cutting edge proprietary integrated voltage regulator or IVR technology and silicon capacitors that enable us to offer true vertical power delivery to our customers. The extreme power density of MPower's platforms eliminates customers' needs for bulky external components shrinks their power footprint by up to four times, slashes their data center compute power consumption by an estimated 10% to 15%, and delivers the ultra-fast transient response required by volatile AI workloads. This transaction will expand ADI's total addressable market within the hypergrowth AI accelerator space and further solidify our position. as an indispensable hardware partner in the drive for maximum compute density per server rack. And we look forward to sharing more of our vision in this exciting space when the transaction closes a little later following regulatory approval. So in closing, we believe our industrial end market is currently in a cycle of broad-based high growth, that has been further compounded by our strong investments in the most attractive secular opportunities. As ADI works to bring physical intelligence to the electrophysical interface, our competitive advantage lies in our extensive and evolving tech stack and six decades of experience as well as our deep application domain expertise. These differentiators continue to grow in importance as our customers tackle bigger, more complex challenges at the intelligent edge. And as such, our confidence in our future has never been greater. And with that, I'll pass you over to Rich.