Analog Devices Inc: Form 10-Q for the period ended Aug 1, 2026

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; recently 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.

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.

Revenue 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. The 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.

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

Gross 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)

18

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. R&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)

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

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

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

19

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.

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. The 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

* 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:

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, our 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. We 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.

We are subject to market risks related to our financial instruments, including those identified in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the fiscal year ended November 1, 2025, which was filed with the Securities and Exchange Commission on November 25, 2025. There were no material changes in the nine-month period ended August 1, 2026 to the information identified in the Annual Report on Form 10-K for the fiscal year ended November 1, 2025.

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of August 1, 2026. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of August 1, 2026, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended August 1, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are subject to a number of risks that could adversely affect our business, results of operations, financial condition and future prospects, including those identified in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended November 1, 2025, which was filed with the Securities and Exchange Commission on November 25, 2025 (the 2025 Form 10-K). Except for the risk factor set forth below, there have been no material changes from the factors disclosed in the 2025 Form 10-K.

Our computer systems and networks are subject to security breaches and other cyber incidents and a significant disruption in, or breach in security of, our information technology systems or certain products could materially and adversely affect our business or reputation.

We rely on information technology systems throughout our company to keep financial records and customer data, process orders, manage inventory, coordinate shipments to customers, maintain confidential and proprietary information, assist in semiconductor engineering and other technical activities and operate other critical functions such as internet connectivity, network communications and email. In addition, we provide our confidential and proprietary information to our strategic partners in certain cases, who maintain such information on their information technology systems. We have experienced cybersecurity attacks and incidents, such as the June 2026 incident and other cybersecurity events, some of which resulted in the exfiltration of files from certain affected systems. While our operations were not interrupted as a result of the June 2026 incident, and based on information currently known, we do not believe this incident is reasonably likely to materially impact our business, operations, or financial condition, our investigation into the nature and scope of the exfiltrated information remains ongoing. There is no assurance that our assessment will not change as additional facts emerge, that exfiltrated data will not be misused, or that we will not experience additional incidents in the future that may have a material impact on our business. As demonstrated by the June 2026 incident and other cybersecurity events, our security measures and those of our third-party service providers and strategic partners may not detect or prevent all security breaches, cyberattacks, defects, bugs or errors, and threat actors can be successful in gaining unauthorized access to our systems. We expect that we and our third-party service providers and strategic partners will continue to experience cybersecurity attacks and incidents in the future.

Geopolitical tensions and conflicts have escalated the volume and sophistication of cyberattacks. Because the tactics and techniques used by threat actors to obtain unauthorized access to or sabotage systems change frequently and, in some cases, are not recognized until they are launched or even later, we are unable to anticipate all such techniques and may not be able to implement adequate preventative measures in advance, such that security breaches could remain undetected for extended periods of time. Our use of artificial intelligence (AI) can also increase vulnerability to cybersecurity risks, including through unauthorized use or misuse of AI tools and bad inputs or logic or the introduction of malicious code incorporated into AI generated code. AI and machine learning are also used in certain cybersecurity attacks, improving or expanding the existing capabilities of threat actors in ways that can result in greater risks of security incidents and breaches.

We and our third-party service providers and strategic partners are subject to security breaches of information technology systems and certain products and other incidents such as unauthorized access, supply-chain attacks, exfiltration or destruction of data, disruption of service, viruses or other malicious code, illegal break-ins or hacking, sabotage, phishing attempts and other forms of social engineering, malware, ransomware and other forms of cyber extortion and similar events. These threats come from cybercriminals, cyberterrorists and hacktivists, nation-state and nation-state-supported actors (including advanced persistent threat intrusions) and computer hackers. They also can result from the malicious or accidental acts of our employees, contractors or third-party providers. Unauthorized access to, or a security breach of, our systems or those of our third-party service providers or strategic partners could disrupt our operations. As occurred in the June 2026 incident, such events can result in the exfiltration of data from our systems and could expose our proprietary information or that of our employees, contractors, partners, customers, suppliers or other third parties to misappropriation or misuse. In the event of a cybersecurity attack or incident such as the June 2026 incident, we may become subject to litigation and regulatory action, lose existing or potential customers, suffer reputational damage and incur other financial losses. We have incurred and expect to continue to incur costs in connection with our response to and remediation of cybersecurity incidents, and such costs and operational consequences may be significant. The continuing and evolving threat of cyberattacks has resulted in increased regulatory focus which requires us to invest significant additional resources to comply with evolving cybersecurity regulations. In addition, in 2023, the SEC adopted rules requiring an issuer to disclose whether a cybersecurity incident was determined to be "material," within four business days of such determination. Making such determinations is complex, requires a number of assumptions based on several factors, and must be made while investigations may still be ongoing and the full scope of an incident may not yet be known. The SEC may not agree with our determinations regarding the materiality of cybersecurity incidents, which could result in fines, civil litigation or damage to our reputation. In addition, certain incidents may require us to notify affected parties and applicable regulators in accordance with applicable law, and we may face regulatory scrutiny regarding the timeliness or adequacy of such notifications.

Our information technology systems and those of our third-party service providers and strategic partners are also susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, user errors, catastrophes or other unforeseen events. A prolonged disruption in the information technology systems that involve our internal communications or our interactions with customers or suppliers could result in the loss of sales and customers and significant incremental costs, which may adversely affect our business.