Analog Devices · 10-Q · Item 2 MD&A

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 1, 2025 (fiscal 2025).

This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “potential,” “may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements, however, the absence of the foregoing words or expressions does not mean that a statement is not forward-looking. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors.

The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in the forward-looking statements: economic, political, legal and regulatory uncertainty or conflicts; T1recently announced and future tariffs and other trade restrictions; changes in export classifications, import and export regulations or duties and tariffs; changes in demand for semiconductor products; performance of independent distributors; manufacturing delays, product and raw materials availability and supply chain disruptions; products may be diverted from our authorized distribution channels; our development of technologies and research and development investments; our ability to compete successfully in the markets in which we operate; our future liquidity, capital needs and capital expenditures; our ability to recruit and retain key personnel; risks related to acquisitions or other strategic transactions; unanticipated difficulties or expenditures relating to integrating acquired businesses; security breaches or other cyber incidents; risks related to the use of artificial intelligence in our business operations, products and services; adverse results in litigation; the outcome of any regulatory actions, including governmental inquiries, investigations or enforcement proceedings in the event of noncompliance or alleged noncompliance with laws or regulations; reputational damage; changes in our estimates of our expected tax rates based on current tax law; risks related to our indebtedness; the discretion of our Board of Directors to declare dividends and our ability to pay dividends in the future; factors impacting our ability to repurchase shares; and uncertainty as to the long-term value of our common stock.

Additional factors that could cause actual results to differ materially from those described in these forward-looking statements include the risk factors included in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q for the period ended August 1, 2026 and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for fiscal 2025. Forward-looking statements represent management’s current expectations and are inherently uncertain. We undertake no obligation to revise or update any forward-looking statements, including to reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law.

Results of Operations

Overview

Amounts in the tables below are reflected in thousands except per share amounts and percentages.

Three Months Ended

$ Change

% Change

Revenue

$

$

$

%

Gross margin %

%

%

Net income

$

$

$

%

Net income as a % of revenue

%

%

Diluted EPS

$

$

$

%

Nine Months Ended

$ Change

% Change

Revenue

$

$

$

%

Gross margin %

%

%

Net income

$

$

$

%

Net income as a % of revenue

%

%

Diluted EPS

$

$

$

%

Revenue Trends by End Market

The following tables summarize revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which our product will be incorporated. The assignment of products to end markets may change over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.

Three Months Ended

Revenue

% of

Revenue*

Y/Y%

Revenue

% of

Revenue*

Industrial

$

%

%

$

%

Automotive

%

%

%

Communications

%

%

%

Consumer

%

6

%

%

Total revenue

$

%

%

$

%

Nine Months Ended

Revenue

% of

Revenue*

Y/Y%

Revenue

% of

Revenue*

Industrial

$

%

%

$

%

Automotive

%

9

%

%

Communications

%

%

%

Consumer

%

%

%

Total revenue

$

%

%

$

%

* The sum of the individual percentages may not equal the total due to rounding.

T2Revenue increased 40% and 36% in the three- and nine-month periods ended August 1, 2026 as compared to the same periods of the prior fiscal year, reflecting broad-based demand across end markets. Within Industrial, all sub-markets grew,

with test equipment and aerospace and defense representing the highest growth. T3The strongest growth within Communications came from the data center sub-market, driven by artificial intelligence-related infrastructure investments.

Revenue by Sales Channel

The following tables summarize revenue by sales channel. We sell our products globally through a direct sales force, third-party distributors, independent sales representatives and via our website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers. Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time.

Three Months Ended

Revenue

% of Revenue*

Revenue

% of Revenue*

Channel

Distributors

$

%

$

%

Direct customers

%

%

Other

3

%

2

%

Total revenue

$

%

$

%

Nine Months Ended

Revenue

% of Revenue*

Revenue

% of Revenue*

Channel

Distributors

$

%

$

%

Direct customers

%

%

Other

2

%

1

%

Total revenue

$

%

$

%

* The sum of the individual percentages may not equal the total due to rounding.

As indicated in the tables above, the percentage of total revenue sold via each channel has remained relatively consistent in the periods presented, but can fluctuate from time to time based on end market revenue trends. As a percentage of total revenue, the increase in the distributor channel is primarily due to the increase in the percentage of revenue from our Industrial end market.

Gross Margin

Three Months Ended

Nine Months Ended

$ Change

% Change

$ Change

% Change

Gross margin

$

$

$

%

$

$

$

%

Gross margin %

%

%

%

%

T4Gross margin percentage increased by 520 and 580 basis points in the three- and nine-month periods ended August 1, 2026 as compared to the same periods of the prior fiscal year, primarily due to higher utilization of our manufacturing fixed costs as a result of increased customer demand and favorable mix of products sold into our end markets.

Research and Development (R&D)

Three Months Ended

Nine Months Ended

$ Change

% Change

$ Change

% Change

R&D expenses

$

$

$

%

$

$

$

%

R&D expenses as a % of revenue

%

%

%

%

R&D expenses increased in the three- and nine-month periods ended August 1, 2026, as compared to the same periods of the prior fiscal year, primarily as a result of higher R&D employee-related variable compensation expenses and higher salary and benefit expenses. T5R&D expenses declined as a percentage of revenue, primarily reflecting higher revenue levels and improved operating leverage. We expect to continue the development of innovative technologies and processes for new products, which we view as critical to our future growth. We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings.

Selling, Marketing, General and Administrative (SMG&A)

Three Months Ended

Nine Months Ended

$ Change

% Change

$ Change

% Change

SMG&A expenses

$

$

$

%

$

$

$

%

SMG&A expenses as a % of revenue

%

%

%

%

SMG&A expenses increased in the three- and nine-month periods ended August 1, 2026, as compared to the same periods of the prior fiscal year, primarily as a result of higher SMG&A employee-related variable compensation expenses, higher salary and benefit expenses and acquisition related transaction costs in the third quarter of fiscal 2026. SMG&A expenses declined as a percentage of revenue, primarily reflecting higher revenue levels and improved operating leverage.

Special Charges, Net

Three Months Ended

Nine Months Ended

$ Change

% Change

$ Change

% Change

Special charges, net

$

$

$

%

$

$

$

%

Special charges, net decreased in the three- and nine-month periods ended August 1, 2026, as compared to the same periods of the prior fiscal year, primarily due to a $24.4 million gain recorded on the sale of a subsidiary in Penang, Malaysia in the third quarter of fiscal 2026. The decrease in the nine-month period was partially offset by a $15.6 million impairment charge recorded in the first quarter of fiscal 2026 related to the asset group in our leased facilities in San Jose, California.

Provision for Income Taxes

Three Months Ended

Nine Months Ended

$ Change

$ Change

Provision for income taxes

$

$

$

$

$

$

Effective income tax rate

%

%

%

%

The Company’s effective tax rates for the three- and nine-month periods ended August 1, 2026 are below the U.S. statutory tax rate of 21% due to lower statutory tax rates applicable to the Company's operations in the foreign jurisdictions in which it earns income.

The tax rates for the three- and nine-month periods ended August 2, 2025 were higher than the current year periods primarily due to a net deferred tax expense of $153.8 million recorded in the third quarter of fiscal 2025 related to the remeasurement of our Global Intangible Low-Taxed Income-related deferred tax assets and liabilities attributable to the passage of the One Big Beautiful Bill Act.

Net Income

Three Months Ended

Nine Months Ended

$ Change

% Change

$ Change

% Change

Net income

$

$

$

%

$

$

$

%

Net income as a % of revenue

%

%

%

%

Diluted EPS

$

$

$

$

Net income increased in the three-month period ended August 1, 2026, as compared to the same period of the prior fiscal year, as the result of a $794.9 million increase in operating income and a $39.1 million decrease in provision for income taxes as noted above in Provision for Income Taxes.

Net income increased in the nine-month period ended August 1, 2026, as compared to the same period of the prior fiscal year, as the result of a $2.0 billion increase in operating income, partially offset by a $124.0 million increase in provision for income taxes.

Liquidity and Capital Resources

At August 1, 2026, our principal source of liquidity was $2.3 billion of cash, cash equivalents and short-term investments, of which approximately $1.0 billion was held in the United States, and the balance of which was held outside the United States in various foreign subsidiaries. We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States. We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or results of operations. Our cash, cash equivalents and short-term investments consist of highly liquid investments, including money market funds and corporate and bank obligations.

We maintain these balances with counterparties with high credit ratings, and continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.

We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing, will be sufficient to fund operations, capital expenditures, acquisitions, research and development efforts and dividend payments in the immediate future and for at least the next twelve months.

Nine Months Ended

Net cash provided by operating activities

$

$

Net cash provided by operations as a % of revenue

%

%

Net cash used for investing activities

$

$

Net cash used for financing activities

$

$

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended August 1, 2026 as compared to the same period in fiscal 2025.

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities. The increase in cash provided by operating activities during the nine-month period ended August 1, 2026, as compared to the same period of the prior fiscal year, was mainly the result of higher net income adjusted for non-cash items.

Investing Activities

Investing cash flows generally consist of purchases and sales of property, plant and equipment; purchases, sales and maturities of available-for-sale investments; and acquisitions of other businesses. T6The change in investing cash flows during the nine-month period ended August 1, 2026, as compared to the same period of the prior fiscal year, was primarily the result of the acquisition of Empower Semiconductor, Inc. during the third quarter of fiscal 2026, partially offset by the net change in our available-for-sale investment portfolio.

Financing Activities

Financing cash flows generally consist of payments of dividends to stockholders, repurchases of common stock, issuances and repayments of debt and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans. The change in cash used for financing activities during the nine-month period ended August 1, 2026, as compared to the same

period of the prior fiscal year, was primarily the result of lower net proceeds from our debt obligations and higher common stock repurchases.

Working Capital

$ Change

% Change

Accounts receivable

$

$

$

%

Days sales outstanding*

Inventory

$

$

$

%

Days cost of sales in inventory*

_______________________________________

*We use the average of the current quarter and prior quarter ending net accounts receivable and ending inventory balance in our calculation of days sales outstanding and days cost of sales in inventory, respectively.

The increase in accounts receivable in dollars was primarily the result of increased sales levels and variations in the timing of collections and billings.

Inventory increased primarily as a result of building inventory levels to support increased demand.

Current liabilities increased to $5.7 billion at August 1, 2026 as compared to $3.2 billion at the end of fiscal 2025 primarily due to the reclassification of $1.3 billion of debt due within one year to current liabilities as well as an increase in commercial paper notes and accrued liabilities, partially offset by a decrease in income taxes payable.

Debt

As of August 1, 2026, our debt obligations consisted of the following:

Principal Amount Outstanding

Commercial paper notes

$

Total debt

$

The indentures governing our outstanding notes contain covenants that may limit our ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of August 1, 2026, we were in compliance with these covenants.

Under our commercial paper program, we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $3.0 billion outstanding at any time, with maturities of up to 397 days from the date of issuance. As of August 1, 2026, we had $1.0 billion of outstanding borrowings under the commercial paper program recorded in the Condensed Consolidated Balance Sheet. We intend to use the net proceeds of the commercial paper program for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital.

Revolving Credit Agreements

Our Fourth Amended and Restated Revolving Credit Agreement entered into in April 2025 and our 364-Day Revolving Credit Agreement entered into in July 2026, each with Bank of America N.A. as administrative agent and the other banks identified therein as lenders, provide for a five-year and a 364-day unsecured revolving credit facility, respectively, in an aggregate principal amount not to exceed $6.0 billion, subject to certain terms and conditions.

We may borrow under the Revolving Credit Agreements in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. The terms of the Revolving Credit Agreements impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreements contain interest coverage covenants which requires the ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest charges to be greater than 3.0 to 1.0. As of August 1, 2026, we were in compliance with these covenants.

Stock Repurchase Program

As of August 1, 2026, T7our Board of Directors had authorized us to repurchase an aggregate of $26.7 billion of our common stock under our common stock repurchase program and $7.4 billion remained available for repurchases under the current authorized program. Repurchased shares are held as authorized but unissued shares of common stock. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when the full dollar amount of the authorization has been used to repurchase shares under the program. Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity and other factors we deem relevant.

Capital Expenditures

Net additions to property, plant and equipment were $392.7 million in the first nine months of fiscal 2026. T8We expect capital expenditures for fiscal 2026 to be between approximately 4% and 6% of fiscal 2026 revenue. These capital expenditures will be funded with a combination of cash on hand and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing.

Dividends

On August 18, 2026, our Board of Directors declared a cash dividend of $1.10 per outstanding share of common stock. The dividend will be paid on September 15, 2026 to all shareholders of record at the close of business on September 1, 2026 and is expected to total approximately $533.0 million. We currently expect quarterly dividends to continue in future periods, although they remain subject to determination and declaration by our Board of Directors. The payment of future dividends, if any, will be based on several factors, including our financial performance, outlook and liquidity.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards will not have a material impact on our future financial condition, results of operations, and disclosures. See Note 14, New Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition, results of operations, and disclosures.