Analog Devices Inc (ADI) — Q2 2021 Earnings Call Transcript

Thank you, Cheryl, and good morning, everybody. Thanks for joining our second quarter fiscal 2021 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 the related financial schedules at investor.analog.com. Now onto 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 our earnings release and our most recent 10-Q and other periodic reports and materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of 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. And with that, I'll turn it over to ADI's CEO, Vincent Roche. Vince?

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 of 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 $1 billion 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. Now 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 delivered the level of accuracy necessary to ensure a consistent supply across the digital grid. We have design wins of more than 80% of the top customers, from traditional energy and industrial companies to new entrants. Another area of increasing importance for ADI is 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 the complete radio platform for the 5G O-RAN 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. O-RAN 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 our 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 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 broad adoption of LEO communication satellites. Additionally, we continue to have strong design momentum across our diversified industrial market, which is 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 a 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, which comprises 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 SEM 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 WHOI’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 Prashanth, who will take you through the financial details.

Thank you, Vince. Good morning, and let me add my welcome to our second quarter earnings call. My comments today, with the exception of revenue and non-op expenses, will be on an adjusted basis, which excludes special items outlined in today's press release. ADI delivered a record second quarter as revenue, operating margin, and EPS finished above the high end of our outlook. As I mentioned last quarter, the upside to our second quarter outlook would be predicated on our ability to increase production. And thanks to early strategic investments in capacity, as well as strong execution by our manufacturing operations team, we did just that. Now let's look at performance by end market. Industrial represented 59% of revenue and increased 14% sequentially and 36% year-over-year. This quarter marks the second consecutive all-time high for industrial. We saw strength across all applications and geographies, with all sub-segments growing double digits sequentially and year-over-year. Communications represented 17% of revenue, fell slightly sequentially and was flat year-over-year. Wireline increased double digits year-over-year, which balanced softness in wireless. As we outlined in the last call, 5G builds have been muted year-to-date. However, we anticipate momentum to pick up as 5G deployments broaden globally in the second half of this year, especially in North America now that the C-band auction is complete. Automotive represented 16% of revenue and increased 5% sequentially and 42% year-over-year. Again, we saw double-digit growth across every major application as industry production has picked up notably from a year ago. BMS grew the fastest, more than doubling year-over-year. And lastly, consumer decreased 12% sequentially in the seasonally weaker second quarter and represented 9% of revenue. Importantly, consumer grew 8% year-over-year, positioning us to deliver growth in fiscal '21. Now covering the rest of the P&L, gross margin finished just under 71%, up 90 basis points sequentially and 320 basis points year-over-year on higher utilization and better product mix. We expect additional gross margin expansion in the second half as we realize savings from the consolidation of our manufacturing operations. OpEx in the quarter was 484 million, up sequentially and year-over-year. Merit increases went into effect during the second quarter, and we also recorded higher variable compensation due to the strong results. This netted an operating margin of 41.7%, non-op expenses were 44 million, down nearly 10% from the prior year driven by lower interest expense. Our tax rate was approximately 12%. And all-in, adjusted EPS of $1.54 exceeded the high end of our outlook and marks an all-time high. Now moving on to the balance sheet. Relative to the first quarter, inventory dollars increased 23 million to a record 641 million. This increase was driven entirely by raw material and work-in-process, as we ramped utilization to better meet strong customer demand. Days of inventory were relatively unchanged at 118. Weeks of channel inventory finished lower sequentially once again. And due to the strong sell-through at our distributors, we anticipate remaining below our seven to eight-week target through the end of the year. CapEx for the quarter was 59 million, bringing our year-to-date total to 127 million or more than double compared to the second half of 2020. We expect to continue to increase capital investment and for CapEx to trend above our long-term model of 4% this year. Turning to cash flow, we generated $2.2 billion over the trailing 12 months, which equates to a record 36% free cash flow margin. And over the same period, we returned approximately 75% of free cash flow after debt repayments via dividends and repurchases. This is below our long-term target as we paused our buyback program, given the pandemic uncertainty and the pending Maxim deal. We ended the second quarter with $1.3 billion of cash and equivalents on our balance sheet, and our net leverage is now 1.3 on a trailing 12. We’re comfortable with the leverage and do not plan to reduce debt. As such, we remain committed to returning 100% of free cash flow to shareholders. So let me finish up with our third quarter outlook. Revenue is expected to be $1.7 billion plus or minus $70 million, up sequentially as additional capacity comes online. This is in line with seasonality after a very strong Q2. At the midpoint, we expect each of our B2B markets to increase slightly sequentially, and consumer to be up low double digits. Based on the midpoint of guide, operating margin is expected to be 42.5 plus or minus 100 basis points. And our tax rate is expected to fall between 11% and 13%. Based on these inputs, adjusted EPS is expected to be $1.61 plus or minus $0.11. So in summary, ADI delivered a very strong quarter highlighted by record revenue, earnings, and free cash flow conversion. Importantly, bookings and backlog remain very strong, and we're continuing to invest to increase production for the balance of the year, giving us great confidence that our second half will be stronger than our first. We've also made meaningful progress towards closing the Maxim acquisition. Shortly after the deal closes, we are going to hold a conference call to provide an update regarding our capital return plans. As a reminder, once combined, we anticipate having more than $3 billion of cash and a leverage ratio well below 1. Let me now pass it back to Mike for the Q&A.

Thanks, Prashanth. Let's go to the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up question, please requeue, and we'll take questions if time allows. With that, Cheryl, can we have our first question please?

Yes. Good morning, guys. Congratulations on the solid results. Vince, Prashanth, 90 days ago when you sort of guided for the April quarter, the key gating factor was your ability to grow supply. I'm curious, as you look at the July quarter, are you still in a supply constrained environment? And I guess more importantly, given the internal CapEx you’re spending and your work with your foundry partners, how do we think about your ability to grow supply beyond sort of the July quarter guidance?

Yes. So, John, thanks for the question. Yes, we are constrained. We've got a very, very positive book to build. But what we have forecast for the July quarter factors in all the elements of supply across silicon supply, both internally and externally, as well as all the backend operations, assembly, and test. So we feel very confident in that number. But beyond that, there is opportunity to ship more. There is more demand out there. But at least in the July quarter, we feel very comfortable with what we have forecast.

And how do we think about supply growth beyond July? Is July a good proxy to what you should be able to do sequentially for the next couple of quarters, or are you getting a particularly strong uplift in July and things moderate going forward?

Well, I think ultimately, everything will depend on demand. We're increasing our capacity. We're getting more wafer supply in general. And we are, as Prashanth said in his remarks, investing in capital equipment inside the company to expand our backend operations. So you'll see sequential improvements in ADI’s output over the coming months. So as Prashanth said, the second half of the year, given our confidence in supply, we will have a better second half than the first half.

Thanks, John. Next question?

Yes. Thank you and congratulations on the record results. Prashanth, you talked about just the inventory being sort of way below the seven to eight-week target. Could you tell us where exactly the numbers are right now? And also, do you expect to get back to seven to eight at some point or is this kind of like a new norm now where disty in the channel is going to be sort of running below at what it has historically?

Yes. Thanks, Tore. Inventory is very lean. We entered the quarter below seven weeks, and it decreased again in the quarter. So we would like to build inventory back up. It's unlikely that that's going to happen. Whatever they get their hands on sells through immediately. So until the supply gets improved over the coming quarters, I don't think you'll see us return to normal inventory levels in the channel. But I would say that we do maintain the view that sort of that seven to eight weeks is the right balance for us to have in the channel.

Great. Thank you.

Thanks, Tore.

Thanks for taking my question. Vince or Prashanth, I was hoping you could quantify lead times and book to build in various end markets to the extent possible, where are lead times stretched the most? And importantly, what are you doing to prevent double ordering? Are you implementing any firm price, non-cancelable programs like some of your peers are? Any perspective on how do we quantify the state of supply/demand imbalance and how do we get some assurance that this will be resolved, I guess peacefully is one word that comes to mind, I think that will be very helpful? Thank you.

Thank you, Vivek. Maybe just to start with some comments on where demand is coming from. So we're experiencing significant growth in demand, and it's very broad-based in all of our markets. And when you rewind and think how we got here, our customers entered the pandemic with pretty lean inventories. Then we had this synchronized government stimulus, both fiscal and monetary. We had very strong growth during the pandemic of consumer electronics with the high use of cloud compute connectivity. We're coming out of the pandemic now with GDP driving industrial, and that's driving companies to rethink both where they manufacture and upgrading the style by which they manufacture. So on the supply side, we've been planning for additional capacity, as Vince mentioned, since late summer of 2020. And as we add capacity, our revenue forecast is increasing. And that's really what helped us deliver a better Q2 guide up for Q3 and feel good about Q4. So I think supply will eventually match demand, but I don't see demand really going away. So this feels, given the secular drivers behind it, that this is going to be with us for a while. Book to build for the past quarter was above 1, and it was the same for all end markets. So it's again, very broad-based. And I think it's really just a reflection of the incredible role that ADI’s products play across the manufacturing ecosystem.

And any pricing programs that you might have put in place like your peers?

I guess a few comments to make there. We are efficiently managing our orders. We're working with our customers, both large and small, across all markets to understand the demand timing and to allocate the supply based on demand. Remember that while we report on a POA basis, we actually run the business on POS. So we look through distribution to understand what's happening at customer. We've also put in a non-cancelable, non-returnable for up to 90 days to help give us better visibility into the backlog, and that helps customers sort of manage what they can expect to get from us. So at this point, I would say the focus really has been on communication. And that's the feedback I think Vince has heard from customers as well is that what's important to them is communicating what they're going to get and when they're going to get it, so they can plan their respective downstream production requirements.

Thank you.

Thanks, Vivek. We’ll go to the next question please.

Hi. Thank you very much, Prashanth and Vince. I wanted to just unpack the gross margin comments that you made, Prashanth. You are at the model 70% plus, and when you talk about gross margin incrementally getting better, what's the right way to think about it? You had referred to the cost savings that you'll be getting from factory consolidation. Is there an impact from pricing? And then related to that, how are you managing the input cost, which seem to be going up across the board versus pricing? And is that also playing a factor in the gross margin? And sorry, related to that is would you be building inventory as you go through the second half? Thank you.

Thank you, Ambrish. Do you have any additional comments on that? Let's begin with a quick discussion on pricing. The overall effect of pricing changes is minimal on our gross margin, as we are effectively managing our cost increases to offset them through pricing. The improvement in gross margin you are observing is primarily due to the productivity initiatives we are implementing. As mentioned during the first quarter earnings call, I indicated that that quarter would be the low point for gross margins this year, and we anticipate gradual improvements. You can see that reflected in the Q2 results and the guidance we have provided for Q3. This improvement is attributed to the manufacturing consolidation from the closure of the linear factory, which we've discussed, as well as an increase in utilization. This is a practical way to understand the progression of gross margins for the remainder of the year. Our ongoing goal remains a gross margin of 70%. Vince, would you like to share some insights on our long-term gross margin outlook?

Yes. The foundation of our value creation is innovation. We are investing over $1 billion annually. We strive to have the best-performing products that are highly valued in the market. Additionally, the variety of our product applications and customer sectors helps us maintain our margins, as demonstrated during the pandemic. Out of our 125,000 customers, 85% of our sales come from products that each contribute less than 0.1% of our revenue, or even less. This is the model of the company, showcasing a significant level of resilience and flexibility built into our operations.

Thanks, Ambrish.

Thank you.

Hi. Good afternoon. Thanks for taking my question. Good morning. Just kind of curious on the industrial segment. I think last quarter you talked about two of six segments being at peak. You talked about all being up in the April quarter. So just any color by segment there and if any more of them are at record revenue, that would be helpful? Thanks.

Yes, we've observed that this is a highly diversified business. We experienced widespread growth across all sectors, with every application showing double-digit growth both year-over-year and sequentially. I believe there's significant potential for further growth as we're in a multiyear expansion cycle driven by long-term trends like Industry 4.0. Notably, we've seen a strong acceleration in the automation sector, fueled by factors such as the need for onshoring, increased flexibility, and enhanced, connected supply chains. Specifically in healthcare, it has been a growing market for us over several years, with the pandemic highlighting the critical role of information technology in managing healthcare systems. This has led to an acceleration in our digital healthcare initiatives as we transition care from hospitals to clinics and homes with point-of-care solutions. Additionally, in the energy sector, the shift towards renewables and the establishment of charging infrastructure for electric vehicles are driving some of the most robust growth in the industrial realm. However, automation is a key factor supporting this growth. I am also very satisfied with the results we are achieving across our broad range of scientific and test equipment, as well as analytics tools. Overall, the growth has been extensive.

And Blayne, just to touch on your last point about the record applications. You're right. I think last quarter, two or three had records. We increased that. Four of our six applications are at record. So I think I echo what Vince said is that we're in the early stages of this cycle. And yes, at some point, we expect all of our applications to be at record probably next year or so. And with that, can we go to our next question please?

Thank you for taking the question and congrats on the strong results. Vince, I had a multipart question on your BMS business. You guys talked about revenue more than doubling in the quarter. I was hoping you could speak to kind of the breadth of your customer profile there on the quarter on a year-over-year basis. And I guess more importantly, based on some of the comments that you've made on past calls and also this call as it relates to your design win pipeline, should we expect some of these wireless BMS projects to ramp in fiscal '22 or is it more fiscal '23 and beyond? And lastly, as it pertains to the combination with Maxim, how should we think about how your position in BMS evolves over time post the combination? Thank you.

Thank you, Toshi. To start, we lead the market in electric vehicle battery management systems. We have two main portfolios: the traditional wired portfolio, which transmits data from the battery system, and a newly introduced wireless version that uses a cognitive radio-based system. For the next year, the focus will be on the traditional wired battery technology. Later, around late 2022 into 2023, we anticipate seeing growth in the wireless technology that will enhance the wired offerings. Currently, about 2 to 3 million electric vehicles are being produced annually, which we expect will increase by at least tenfold over the next seven to eight years. This represents a multi-year growth cycle. Our battery management system chips are currently used in over half of the top ten selling electric vehicles worldwide, and we are gaining market share in this area. Our strongest presence is in North America and China, and we are also starting to make significant progress in Europe, Japan, and Korea. Ultimately, if a manufacturer aims for maximum miles per charge, they will turn to us. That's our focus going forward.

Thanks, Toshiya. We’ll go to our next question please. Cheryl, can you hear us?

Hi, guys. Can you hear me?

Yes, we can, Ross.

Okay, great. Glad Cheryl came back. Just had a couple of questions on your communications business. I guess in the tactical sense, it looked like it was better than you expected in the quarter, the April quarter. Was that specific to the wired or wireless side, or was it just the supply coming on? And then more importantly, looking forward, can you give a little bit more color on what your expectations are for the wireless side? Obviously, we had some difficult comps with what happened with Huawei year-over-year, but how do we think about that returning to year-over-year growth, given the second half commentary that you talked about with some ramps in North America and beyond?

Yes. Thanks. So I said in the prepared remarks that the communications business for the second quarter was really driven by very strong growth in the wired. I think it was up double digits. Wireless remains lumpy. But we feel pretty good that communications has bottomed in the second quarter, and we're going to see growth in the second half, and I'll let Vince jump in with some of the customer conversations he's been having. But with the completion of the C-band auction, we feel very good that you're now going to see the build-out of 5G for which we are the largest participant certainly with the transceiver product for both the U.S. and starting to see that in Europe as well.

Yes, I want to highlight that right now, the rest of the world is three times larger than China for ADI. This is very important to note. We’re definitely seeing 5G momentum building globally. In North America, the C-band auction has just concluded, and we're starting to see orders that we anticipate will increase throughout 2022 and beyond. Even in Europe, where there has been significant hesitance in upgrading communication systems over the past few years, we’re starting to observe some positive developments in 5G deployment. In India, there is a significant government-funded initiative to implement 5G, and we are beginning to be involved in trials. Lastly, regarding O-RAN, we have already generated revenue from Rakuten, the Japanese online shopping company, and we are well-positioned in our ecosystem to explore this new stream of revenue, especially as it is introduced into private networks for machinery.

Great. Prashanth, just one quick clarification. Double digits in the wired, was that a year-over-year or a sequential comment? Thank you.

That was a year-over-year.

Thanks, Ross.

Hi, everyone. Thank you for taking my question. I wanted to follow up on the communications topic. Last quarter, you mentioned the communications trajectory had declined, specifically regarding China. I want to clarify that it seems that situation hasn't changed. It appears that the recent increases are happening outside of China, in the U.S., Europe, and India. Is that accurate? Why was there no sign of that increase 90 days ago, and what are the expectations for it then compared to now? Additionally, what are your overall thoughts on the rollout of 5G in China moving forward, considering the current dynamics there?

Yes. So I think first and foremost, China is opportunistic for ADI at this point. We will sell, I think, lots of components, and therefore it is more opportunistic. Prashanth, you can talk about the specifics.

Yes. I believe we have always anticipated that 5G deployments in North America would happen first, followed by Europe. When we shared our insights heading into the second quarter, we focused on the pause in China. However, we have now observed that the auctions are complete, and particularly Verizon has become much more vocal about their plans in the 5G sector. As Vince mentioned, orders are beginning to come in for that. Therefore, the outlook for communications, specifically wireless, is expected to improve in the second half.

Thanks, Stacy. Can we go to our last question please?

Great. Thanks so much for squeezing me in. Guys, I'd like to ask about the cost function. We have two potential looming problems. I think one is inflation broadly, not just materials, potentially labor as well. And then on the OpEx side, the return to work face-to-face sort of operations suggest maybe we start spending on travel and things like that. And I wonder if you can comment as to how we might sensitize our models to these factors? Thank you.

So let me take the inflation piece first. So I think it was Ambrish who asked a question, and we are seeing cost increases from our supply base, but we feel that we're guiding margins on a net basis are going to be neutral for that because we are where we can pushing that price through. So I'm not as concerned about the inflation side. We have been very mindful of the labor side. And I would say that the data we're seeing is that it's taking us about a week longer than normal to fill jobs at the factory level. So our U.S. factories are facing a little bit longer time to fill jobs, but it's not anywhere as dramatic as what we're hearing in the media in terms of filling these high-paying manufacturing jobs. And then for return to office, that is something we spend a lot of time on. There is no doubt that there will be some return to travel. I think that's going to be universal across all companies. But more specifically to how ADI is thinking about return to office, maybe I'll let Vince talk about how we're thinking about that.

We have implemented a three-day workweek policy for our remote employees at ADI, and we will evaluate how things progress from there. My expectation is that our operational expenses will likely not return to previous levels for travel and entertainment spending. I also want to emphasize that we are consistently focused on reducing costs throughout the company. We are diligent in managing costs of goods and enhancing efficiency across all operations. Inflation is a familiar challenge for us, and if we notice an uptick in inflation, we will determine the appropriate steps to take.

So we shouldn't be modeling some step-up cost function in OpEx related to travel and such activities? I know there's some increase you've already guided to for, I think, bonuses and such, but for travel no?

I believe that's accurate. When looking at our expenses today, our operating expenses include substantial bonus payouts, reflecting the strong growth and profitability of the business. However, I anticipate that over time, both growth and bonuses will stabilize.

Will, maybe I can wrap up by saying we're expecting second half revenue to be strong. We indicated that second half gross margins are going to continue to increase, which is going to give you incredible leverage and therefore there is no reason you won't see a meaningful lift in operating margins as each quarter rolls out. And all of that is going to translate into more cash flow, which we'll have available to deploy since we're not doing any further debt reduction, that's coming back to shareholders.

Great. Thanks so much.

Thanks, Will, and thanks everyone for joining us this morning. A copy of the transcript will be available on our website. Our reconciliations will also be there. You can also find our new CSR report that Vince outlined in his script on our Analog Investor Relations homepage. And with that, thanks for joining us and your continued support of ADI.