Good day, everyone, and welcome to Microchip's first quarter fiscal 2022 financial results. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Microchip's CFO, Mr. Eric Bjornholt. Please go ahead, sir. Thank you, and good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions, and that actual events or results may differ materially. We refer you to our press releases of today, as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Ganesh Moorthy, Microchip's President and CEO, and Steve Sanghi, Microchip's Executive Chair. I will comment on our first quarter fiscal year 2022 financial performance. Ganesh will then provide commentary on our results and financial business environment, as well as our guidance, and Steve will provide an update on our cash return strategy. We will then be available to respond to specific investor and analyst questions. We are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the investor relations page of our website at www.microchip.com, and included reconciliation information in our press release, which we believe you will find useful when comparing GAAP and non-GAAP results. We have also posted a summary of our outstanding debt and leverage metrics on our website. We will now go through some of the operating results, including net sales, gross margins, and operating expenses. Other than net sales, are referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities, share-based compensation and certain other adjustments as described in our press release. Net sales in the June quarter were $1.569 billion, which was up 7% sequentially and about 150 basis points above the midpoint of our quarterly guidance given on May 6th. We have posted a summary of our GAAP net sales by product line and geography, as well as our total end market demand on our website for your reference. On a non-GAAP basis, gross margins were a record at 64.8%, and operating income was a record 41.7%. Non-GAAP net income was a record $558.8 million. Non-GAAP earnings per diluted share was a record of $1.98, $0.08 above the midpoint of our guidance. On a GAAP basis in the June quarter, gross margins were a record at 64.2% and include the impact of $8.8 million of share-based compensation expense. Total operating expenses were $638.8 million, include acquisition intangible amortization of $215.6 million, special charges of $10.5 million, $3.6 million of acquisition-related and other costs, and share-based compensation of $47.8 million. GAAP net income was $252.8 million, or $0.89 per diluted share. Our June quarter GAAP tax expense was impacted by a variety of factors, notably tax reserve releases associated with the statute of limitations expiring. Our non-GAAP cash tax rate was 6% in the June quarter. We expect our non-GAAP cash tax rate for fiscal 2022 to be about 6%, exclusive of the transition tax, any potential tax associated with restructuring the Microsemi operations into the Microchip global structure, and any tax audit settlements related to taxes accrued in prior fiscal years. Our inventory balance at June 30th, 2021, was $683.8 million. We had 111 days of inventory at the end of the quarter, which was down one day from the prior quarter's level. Inventory at our distributors in the June quarter were at 20 days, which is a record low level and down from 22 days at the end of the prior quarter. We are ramping capacity in our internal and external factories so we can ship as much product as possible to support customer requirements. In the June quarter, we issued a $1 billion senior secured note maturing on September 1st, 2024, and bearing interest at 0.983%. We used the proceeds from this bond offering to repay a $1 billion senior secured note that matured on June 1st, 2021, that had an interest rate of 3.922%. We believe this was another excellent transaction for us as we continue to enhance our capital structure on our path to becoming an investment-grade rated company. Our cash flow from operating activities was a record at $629.9 million in the June quarter. As of June 30th, our consolidated cash and total investment position was $279.7 million. We paid down $388 million of total debt in the June quarter. Over the last 12 full quarters since we closed the Microsemi acquisition and incurred over $8 billion in debt to do so, we have paid down almost $4 billion of the debt and continue to allocate substantially all our excess cash beyond dividends to aggressively bring down this debt. We have accomplished this despite the adverse macro and market conditions during most of this time period, which we feel is a testimony to the cash generation capabilities of our business, as well as our ongoing operating discipline. We continue to expect our debt levels to reduce significantly over the next several years. Our adjusted EBITDA in the June quarter was a record $711.7 million, and our trailing 12-month adjusted EBITDA was also a record at $2.524 billion. Our net debt to adjusted EBITDA, excluding our very long-dated convertible debt that matures in 2037 and is more equity-like in nature, was 3.34 at June 30th, 2021, down from 3.71 at March 31st. Our dividend payment in the June quarter was $113.1 million. Capital expenditures were $86.3 million in the June quarter. Our forecast for the September 2021 quarter's capital expenditures is between $75 million and $95 million. Our capital expenditures for all of fiscal year 2022 are expected to be between $300 million and $350 million. As a reminder, our fiscal year 2021 capital expenditures came in lower than originally planned due to longer equipment lead times and deliveries pushing out due to overall industry conditions. We continue to add capital equipment to maintain, grow, and operate our internal manufacturing operations to support the expected growth of our business. We expect these capital investments will bring gross margin improvement to our business and give us increased control over our production during periods of industry-wide constraints. Depreciation expense in the June quarter was $41.2 million. I will now turn it over to Ganesh to give his comments on the performance of the business in the June quarter, as well as our guidance for the September quarter. Ganesh? Thank you, Eric, and good afternoon, everyone. Our June quarter results continued to be strong, leading off our fiscal year 2022 on a positive note. June quarter revenue was an all-time record of $1.57 billion, growing 7% sequentially and was 150 basis points higher than the midpoint of our guidance provided on May 5th. On a year-over-year basis, our June quarter revenue was up 19.8%. non-GAAP gross margins were another record at 64.8%, up 70 basis points from the March quarter, as we continue to ramp our internal factories and benefit from improved fixed cost absorption. non-GAAP operating margin was also a record at 41.7%, up 100 basis points from the March quarter. Our consolidated non-GAAP EPS was above the high end of our guidance at a record $1.98 per share. Adjusted EBITDA for the June quarter was again very strong and achieved another record at $701.7 million, continuing to demonstrate the robust profitability and cash generation capabilities of our business through the business cycles. The June quarter marked 123rd consecutive quarter of non-GAAP profitability. I would like to take this occasion to thank all our stakeholders who enabled us to achieve these outstanding and record results in the June quarter, and especially thank the worldwide Microchip team, whose tireless efforts not only delivered our strong financial results, but also supported our customers to navigate a difficult environment and who worked constructively with our supply chain partners to find creative solutions in an extremely constrained and challenging environment. Taking a look at our business from a product line perspective, our microcontroller revenue was sequentially up 10.7% as compared to the March quarter and set a new quarterly record. On a year-over-year basis, our June quarter microcontroller revenue was up 26%. Each of the 8-bit, 16-bit, and 32-bit microcontroller product lines established new all-time revenue records. As we have told you many times in the past, rumors of the death of 8-bit and 16-bit microcontrollers have been greatly exaggerated. The customers and applications served by microcontrollers are highly fragmented and require a wide range of solutions that span the breadth of our microcontroller product lines. Microcontrollers represented 57.5% of our revenue in the June quarter. Our analog revenue was sequentially up 4.1% as compared to the March quarter, also setting a record in the process. On a year-over-year basis, our June quarter analog revenue was up 16.7%. Analog represented 27.5% of our revenue in the June quarter. Other revenue was sequentially up 5.1% in the June quarter, bouncing back from a 6.4% sequential decline in the March quarter. Other revenue represented 15% of our revenue in the June quarter. Taking a look at our business from a geographic perspective, Americas was up 6.1% sequentially. Europe was down 2.3% sequentially, which is better than typical seasonal performance and came off of a very strong 30.4% sequential growth in the March quarter. Asia was up a strong 11.1% sequentially, reflecting better than typical seasonal growth. From an end market perspective, all end markets were strong in the June quarter. Business conditions continued to be exceptionally strong through the quarter, with record bookings and backlog for product to be shipped over multiple quarters, accentuated by our Preferred Supply Program, or PSP, which continues to be over 50% of our aggregate backlog and 100% of our backlog in the most constrained capacity product areas. Demand outpaced the capacity improvements we were able to implement in the quarter. As a result, our unsupported backlog, which customers want to ship in the June quarter, continued to climb significantly, resulting in lead time for many line items continuing to stretch out. We experienced constraints in all of our internal and external factories and their related manufacturing supply chains. We continue to work closely with our supply chain partners who provide wafer foundry, assembly, test, and materials to secure additional capacity wherever possible. Through the combination of internal and external actions that we have taken, we expect we will be in a position to support revenue growth for at least each of the next four quarters. Despite that, we also expect that wafer fab, as well as assembly and test constraints, will persist through at least the middle of 2022. We believe our backlog position, especially the proportion of PSP backlog, is giving us a solid foundation to prudently acquire constrained raw materials, invest in expanding factory capacity, and hire employees to support our factory ramps. Our capital spending plans are rising in response to growth opportunities in our business, as well as to fill gaps in the level of capacity investments by our outsourced fab, assembly, and test partners in technologies that they may consider to be trailing edge, but which we believe will be workhorse technologies for us for many years to come. The increase in capital spending will enable us to capitalize on growth opportunities, improve our gross margins, increase our market share, and give us more control over our destiny for trailing edge technologies. We will, of course, continue to utilize the capacity available from our outsourced partners, but our goal is to be less constrained by their investment priorities, which may not align with ours. We also expect that while our capital intensity may be slightly higher in any given year than the 3%-4% of revenue guidance we have provided in the past, when looked at in the context of a rolling three-year view, we believe we will very much be in the range of our capital spending guidance. Now let me get into the guidance for the September quarter. Our backlog for the September quarter is very strong. In addition, we have considerable backlog requested by customers in the September quarter that currently cannot be fulfilled until later quarters, despite us growing capacity from last quarter. This is because the entire semiconductor supply chain remains very constrained. Taking all the factors we have discussed on the call today into consideration, we expect our net sales for the September quarter to be up between 3% and 7% sequentially. Our guidance range assumes continued operational constraints, some of which we will work through during the quarter, others that will carry over to be worked in future quarters. At the midpoint of our revenue guidance, our year-over-year growth for the September quarter would be 25.8%. We believe achievement of this revenue level would be remarkable in and of itself, but even more so given how resilient our business was a year ago during the pandemic because of the diversity of our end market exposure, thus making the year-over-year comparisons that much tougher and meaningful. For the September quarter, we expect non-GAAP gross margins to be between 64.8% and 65.2% of sales. We expect non-GAAP operating expenses to be between 22.8% and 23.2% of sales. We expect non-GAAP operating profit to be between 41.6% and 42.4% of sales. We expect our non-GAAP earnings per share to be between $2.05 per share and $2.17 per share. We also expect to pay down another approximately $350 million of our debt in the September quarter. Now, we recognize that our gross and operating margin percentage guidance effectively gets us to the long-term targets we shared with you just nine months ago. We will be working to update our business model for annual growth, gross margin, and operating margin percentage, and we'll share our conclusions with you later this year. Given all the complications of accounting for our acquisitions, including amortization of intangibles, restructuring charges, and inventory write-up on acquisitions, Microchip will continue to provide guidance and track its results on a non-GAAP basis, except for net sales, which will be on a GAAP basis. We believe that non-GAAP results provide more meaningful comparison to prior quarters, we request that analysts continue to report their non-GAAP estimates to First Call. Let me pass the baton to Steve to talk about our cash return to shareholders. Steve? Thank you, Ganesh, and good afternoon, everyone. Today, I would like to reflect on our financial results announced today and provide you further updates on our cash return strategy. Reflecting on our financial results, I continue to be very proud of all employees of Microchip that have delivered another exceptional quarter and making new records in many respects, namely record net sales, record non-GAAP gross margin percentage, record non-GAAP operating margin percentage, record cash flow from operations, and record adjusted EBITDA. Also, each of our strategic product lines, 8-bit, 16-bit, and 32-bit microcontrollers, and analog individually achieved all-time new records in net sales. Reflecting on our journey since the acquisition of Microsemi three years ago, I note the following. Number one, at the time of the acquisition, we provided a long-term operating margin target of 40.5% non-GAAP operating margin, which we exceeded for the first time in the March 2021 quarter and were significantly above that in the June 2021 quarter at 41.7%. At the time of the acquisition, we also indicated that we anticipated achieving an $8 non-GAAP EPS run rate by the end of the third year after the acquisition. Between the $1.98 EPS for the June quarter we just announced and $2.11 EPS we guided to for the September quarter at the midpoint of our guidance, we have effectively delivered on this expectation. These exceptional results were achieved despite the numerous headwinds we faced from international trade tensions and tariffs, as well as the global pandemic, which matters were not predictable three years ago. Number two, we financed the Microsemi acquisition by adding $8.1 billion of debt, driving up our net leverage ratio in the June 2018 quarter to 4.95, which we know was a concern for many of you. In the last three years, we have paid down a cumulative $4 billion of debt and brought our net leverage ratio down to 3.34. We continue to allocate substantially all of our cash generation beyond what we pay to shareholders in dividends to pay down significant debt every quarter. Number three, within the last quarter, based on the debt paydown we had achieved and the continued strong cash and adjusted EBITDA generation of our business, both Moody's and Fitch changed their rating outlook from stable to a positive outlook. At the rate we expect to pay down our debt and bring our net leverage further down, we believe we are on target to achieve an investment-grade rating sometime by the end of fiscal year 2022. Regarding our cash return strategy, we are continuing to provide more cash return to the shareholders. Just today, we announced a dividend of $0.437 per share, our third largest dividend increase, by increasing the dividend by 5.8% sequentially and 18.75% over a year ago quarter. In the coming quarters, we expect to continue with more actions to increase the cash return to shareholders. With that, operator, will you please poll for questions? Absolutely. Thank you so much. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off while you're signaled to reach our equipment. We do ask that you please limit yourself to one question and re-enter the queue for any follow-ups you may have. Again, that is star one to ask a question, and our first question today will come from Toshiya Hari with Goldman Sachs. Hi, guys. Thank you so much for taking my question and congrats on the strong results. Just wanted to ask about gross margins in the June quarter and the outlook going forward. Clearly very strong results in the quarter, with margins coming in above the high end of guidance. I'm curious what drove the upside vis-à-vis your expectations. Was it primarily utilization rates or was there something else behind the beat? Ganesh, you talked about you guys performing already in line with your long-term model. As you think about your ability to expand gross margins going forward and as you insource, I guess, both front-end wafer processing as well as assembly and test, how should we think about the potential upside there going forward, again, in terms of gross margin? Thank you. Let me have Eric respond to the first part and I'll respond to the second part. Okay. Gross margin in the quarter, we are utilizing our manufacturing resources fully at this point in time. We have more orders than we know what to do with, and with that, we're being quite efficient in our manufacturing operations. It's really best utilizing our capacity. We're obviously continuing to make investment in capital, bringing that online as quickly as we can, increasing the percentage of assembly and tests that we do internally. The major driver was just effective utilization of what factories and equipment that we have. To your second question, give us some time to put some thought into how we see gross margins building over time, what the long-term model should be, and we will come back to you later this year with a more complete picture of what that will be and what the drivers will be. Many of them are what you just described, which is as we do more insourcing, there's a richer product mix that comes into play. There's pricing discipline. Those are all going to be important parts, but we need some time to process where we are, where we can get to, how we get there, and then we'll come back to you with some numbers. Understood. Thank you. Okay. Thank you. Next we'll hear from John Pitzer with Credit Suisse. Yeah, guys. Congratulations on strong results. Thanks for let me ask the question. Ganesh, it's pretty astounding that disti inventories are now down to 20 days. It kind of makes the disti model a little bit less valuable. I'm kind of curious, what is the risk that your end customers can't rely on disti, and so there's more of an inventory build going on there than you can see, one. Two, on the more positive, given what's happening in disti and this idea of just-in-time inventory management going to just in case, do you see yourself getting closer to end customers over time strategically, and what might that mean for margins? John, the distribution inventory is low in part because we are constrained, right? Distributors continue to service customers, but we are not able to help them grow that inventory. At some point, we will be able to, as we get our production up, be able to ship them more for them to help build that. For the moment, neither their customers nor distribution has the ability to grow inventory in any meaningful form. When we look at where are the number of customer requests we're getting, either direct or indirect through distribution on shortages, line downs and all that, it's pretty well represented across the spectrum. It isn't that one group of customers is doing better than the other. There are a large number of customers who are unable to get what they want and are, in the short or medium term, trying to get more product, in some cases trying to get product through more than one source if they can. The constraints are all over the place, I'm not seeing channel inventory or customer inventory building in a way that you can read something into the distribution days of inventory. Ganesh, my second half of the question, does this change the distribution model structurally for you, and is there an opportunity to get closer to customers and maybe capture some of that distie margin that you're giving them now? We have 125,000 or so customers we serve. Clearly, distribution is an important part of that model to reach that long of a tail of customers. Customers make the final choice on where do they want to buy. They have an opportunity to buy directly, they have an opportunity to buy from our web channel, they have an opportunity to buy from distribution. They buy from distribution when they see that the value that distribution is bringing them in support, in payment terms, in pipelining of inventory, and other ways that distribution adds value, is good for them. We continue to serve customers through the channel that they find to be the most effective for them. If that is someone who wants to move direct, so be it. If that's someone who wants to stay with channels, so be it. We're relatively channel agnostic in what we're doing. Clearly, in a time of escalation, more distribution customers are reaching through directly to us to get help. That does not necessarily mean that they will shift off of distribution and to us directly. Appreciate that. John, I will add that carrying inventory for customers is only one part of the value that distribution provides, and clearly they have very low inventory today, also to do with our inability to ship. That's not the only value distribution provides. They provide kitting, payment terms, programming. They provide all sorts of services for which they charge. I think distribution will continue to be an important element of Microchip's go-to-market strategy, which reaches a very, very long tail. Appreciate it, Steve. Thank you. Welcome. Thank you. Next we'll hear from Vivek Arya with Bank of America Securities. Thanks for taking my question. You gave a 3%-7% sequential growth rate for the September quarter. It's kind of in line with the sequential growth rates we have seen in the last few quarters. Is this being really driven by supply growth? If that is the case, how should we think about incremental supply that could come online in the next several quarters? I believe, Ganesh, you said that you expect to grow sequentially for the next four quarters, if I heard correctly. Should we be keeping this 3%-7% sequential growth rate in mind as we try to model out the next four quarters? Thanks. I want to be clear, we're not providing any kind of guidance that goes beyond the September quarter. We are clearly working on supply improvements, and today all of our growth is constrained not by demand, but by supply. There are supply improvements we're making that are in our control, which is what runs through our manufacturing internally, what we're doing there to increase capacity in each of our fabs, our assembly, our tests. We're working with our supply chain partners who are bringing us materials and all of that. We're working on capacity improvements with our partners that we do outsourced work through. I think we'll give you the quarter- by- quarter growth as we get to the guidance for the December and March and June quarters and all of that. I think what we do see is enough capacity coming on in the subsequent quarters. The timing is a bit hard to call because we don't have a stable environment in which we know exactly what equipment will come on, when will it bring on the capacity and all that. We're confident enough in how we see capacity coming on that we do expect that each of the next four quarters will have growth in them. Thank you. Thank you. Next we'll hear from Ambrish Srivastava with BMO. Hi. Thank you. Can we get back to the PSP program? I think you were 44% of the business was under that, and Ganesh, you said over 50%. Is there a natural ceiling to this? Kind of tied to that, getting back to the capacity, and this must be a tougher equation to get to, this is a very fragmented industry, both microcontroller and analog. How do you balance capacity increase versus what others are doing? It's not like DRAM, where there's only three guys, and everybody kind of thinks they know what the other person is doing. Ganesh and Steve, how do you balance the capacity increase versus down the road when there could be a potential oversupply? Let me start first on your PSP question. Our PSP backlog exiting the June quarter was over 50%, and it grew throughout the quarter. We have customers continuing to enroll in the program, as well as extend the time that they're providing us the backlog. The metric is really something that was important to us to convey during the early stages of launching the PSP program. At this point in time, rather than trying to provide a month-by-month or quarter-by-quarter update, it's a part of our normal business that we're doing. Certain capacity corridors, as I've explained, are 100% booked already, and we will just manage it. It gives us visibility. It gives us a better ability to service those customers who have long-term backlog that they can place that's non-cancelable. That was the whole objective of what we did. Then to your second question, in many ways, PSP is one element of what we have that helps us to make sure that the other side of the cycle, whenever it is, can be managed well. We're also bringing capacity on in measured steps. We're not trying to get all of the unsupported done in a short period of time. Every quarter, we're increasing capacity. Combination of what we're doing with measured steps in capacity, what we're doing with the PSP program and all of that, gives us reasonable confidence to be able to manage the cycle in such a way that we don't get over-committed on the capacity side. That makes sense. Thank you. Thank you so much. Our next question will come from Harsh Kumar with Piper Sandler. Yeah. Hey, guys. First of all, congratulations on stellar results. I had actually a couple. I wanted to go back to the question that Vivek asked about growth for the next four quarters. Let me see if I understand this correctly, Ganesh. You expect supply constraints for the next four quarters, but you also expect demand environment to remain pretty solid or robust, and therefore you're pretty comfortable forecasting revenue growth for the next four quarters? Or you're just referring to that you will have enough supply to be able to meet should demand exist? We have a very strong demand backlog on us. We have a substantial portion of PSP backlog on us. We continue to have a large amount that is unsupported. The demand environment we see is very strong. Now the balance is really what can we supply and how much can we bring on? Our supply lines, as we can see, continue to give us the ability to bring more supply on quarter after quarter after quarter for at least the next four quarters, giving us that line of sight into having the capability to take advantage of that demand and grow every quarter. Understood. Thanks for that clarity. For my follow-up, maybe one for Steve. Steve, everybody in the semi industry that's established, like yourself, other large guys are talking about the cash return strategy, more on cash from return. At the same time, there's very good growth in the industry. We appreciate the cash return, but with the industry still growing, why not use some of that cash for things like acquisitions, or maybe other things like growth? Just could you help us balance that argument? I think, the way we have described it forward is that, we began our acquisition process back about 13 years ago when we were well below a billion-dollar company, and I think we were probably about only $700 million-$750 million company, and we were trying to scale the business 10X so that we don't have a competitive disadvantage against our larger competitors. TI is still larger, but many of the others, Infineons and STs and Maxims and ADIs and, we've really caught up to all of them in the last 12, 13 years by scaling the business almost 10X. At the current quarter guidance, we're running somewhere in the excess of $6.5 billion. We wanted to do that, while building a portfolio of products around the microcontroller so that we can provide the entire total system solution to the customers. Having analog, some memory, some connectivity, USB, Ethernet, Wi-Fi, Bluetooth, and all that, power management and everything else. Those two things we accomplished. We scaled the business almost 10x, and we acquired or organically built all these products to be able to complete customers' solution. At this point in time, and I think we have said a couple of times that we don't find the next acquisition to be necessary. Given small acquisitions here and there, tuck-in, if the opportunity arises, we would, but we're not really working on or looking at any large acquisition because that's strategically not needed today. We have enough product portfolio, and we're working very hard to train our sales force and customers to be able to use the entire total system solution from Microchip and show the organic growth. As we adopt that strategy, as we pay down a substantial amount of debt already and continue to pay it further, you have a large, somewhere around $1.5 billion burning hole in your pocket. What do you do with that? You're saying, why don't we acquire? I'm saying, we do not find that strategically needed today. What we're planning to do is, as we achieve the investment-grade rating, as the debt level comes down further, we start giving larger and larger amount of cash back to the shareholders, some in the form of dividend and some starting a buyback program. That's sort of the summary of where our current strategy is. Harsh, if I may add too, with respect to your question, I think any OpEx or CapEx that is needed to grow the business is part of what we are doing every quarter, right? That's built into our business model. It's really the capital allocation of what we do beyond that Steve was describing. Some of the smaller companies, maybe acquiring, I think they're really sort of copying our strategy, which we concluded in the prior 13 years when they were not buying and maybe they're buying something today. We don't do something because somebody else is doing. I think, we had a laid-out strategy. We completed that phase, and that part of the strategy is no longer important, so therefore, we're going to the next phase. Got it. Appreciate it, guys. Thanks. Thank you. Next we'll hear from Harlan Sur with JP Morgan. Good afternoon. Congratulations on the strong results and execution. Back in early May, I think the team had said that the demand trends were 40% above your ability to supply, and then by late May, that gap had widened to 50%. It sounds like the gap either remained extended or may have even expanded. If you can just give us a sense of how wide the demand supply gap is today. Is it sitting above 50%? It sort of seems as if we move into the second half of the year, demand is only getting stronger. You have areas like data center and enterprise, for example, which were weak last year and into the first half of this year, which are starting to pick up. Any other end markets where demand is strongly accelerating from a softer first half? Harlan, first on the unsupported backlog. Exiting June, that unsupported backlog was higher than what it was, both what we said on our conference call, as well as where it was at the end of March. The demand increase in the June quarter outpaced the supply improvements we could make, hence, we expect as we go in through September, every indication we have is that the percentage of unsupported exiting September will be higher than where it was at the end of June. That trend continues. We are not seeing demand and supply starting to converge. or get into any kind of balance itself. Was there a second part of the question? Just in terms of end markets that were weak either last year and into the first half of this year, for example, like data center and enterprise, which feel like they're starting to accelerate as we move into the second half. Is that a dynamic that you're seeing in any other end markets where demand is strongly accelerating from maybe a slightly softer first half? As we said, all end markets were strong as we went through the June quarter. Some have been strong in prior quarters as well. We don't track end markets on a quarter-to-quarter by end market basis on it. Anecdotally, some of what you're saying is correct, and we do see strength in data centers in the second half of the year. I don't recall what the year-over-year comparisons were on them. Right now, there is no market that is feeling weak. Great. Thank you very much. Thank you. Next we'll hear from Gary Mobley with Wells Fargo Securities. Hey everybody, thanks for taking my question. Wanted to ask about some long-term supply agreements that may support that 60% of your sales that are sourced externally on the front-end side and the 40% on the back-end side. I know some of your competitors are entering LTSAs and quantifying them in SEC filings, and I haven't seen your Q yet, but have you guys officially entered into more LTSAs? Maybe you can just sort of give us a sense of how they rank relative to your sales or how they rank relative to last quarter. Then on the flip side of the coin, I was curious to know what your financial penalties may be for those customers that have entered to non-cancelable, non-returnable backlog agreements with you guys. With respect to LTAs, right? We have a range of how we have those agreements. I don't believe any of them have been big enough to be in our queues. You're not going to see something there. We have a long set of partners both on the front and the back end. We work with them quite constructively, at this point in time. That's where we are on it, in terms of our capacity for 2022 and beyond, and what we need to do to secure it. On the NCNR agreements themselves, there's a legal agreement, that's a purchase agreement that we enter into, which have obligations on our side, obligations on the customer side. We've had these. This is not new. We've done this for many, many years on a smaller subset of our business, and we have not found problems in enforcing the NCNR portions of our purchase contracts. Thanks, Ganesh. Thank you. Just a reminder, ladies and gentlemen, it is star one to ask a question at this time. Our next question will come from William Stein with Truist Securities. Great. Thanks for taking my question. I want to add my congrats on the great results and outlook. First, I'd like to ask clarification around capital allocation. What is your target leverage ratio? When would you slow down or stop the debt repurchases? What would be the plan after that? Naturally, typically you get to a certain leverage ratio if you're continuing to grow EBITDA, not adding debt, then you wind up having that ratio continue to decline. I'm wondering if you can clarify the plans around tapering the debt repurchase. Okay. Well, I'll start, and Steve, Ganesh can add onto this if they want. We don't have a stated target for our net debt to EBITDA, but we've made it very clear that we're focused on achieving an investment-grade rating and believe that that's something that we can achieve in this fiscal year. Independent decision, obviously, by the rating agencies, but we're making good progress on that. Even once we get there, you shouldn't assume that we stop paying down debt. We will continue to pay down debt, but we'll have more flexibility to increase dividends more, have a stock buyback program, and flex that as it's appropriate for our business. Steve, what would you like to add to that? I think you said it well. The board has not defined a bottom number for the debt leverage at which we will essentially stop paying down debt and give 100% of the cash back. They have not really defined that number. In future, they might. Even if we someday stop paying debt, as the business rises and EBITDA rises, the leverage will continue to come down without even paying the debt, which was one of your point also. That's where we are. I think it's a work in progress. We keep giving you update every quarter. We're getting fairly close to the investment-grade rating. In my comments, I said by the end of fiscal year 2022, which is March next year. Again, it's a independent decision by the rating agencies, but we expect that we achieve the financials and leverage metrics, which should get us there by then. At that point in time, the board will have a lot more flexibility to start a buyback program and also increase dividend. That's where we are today. That helps. One more. Sorry. Steve, I would just add to that we have made significant increases in our dividend the last three quarters, and it's up 18.8% year-over-year with the three large sequential increases that we've made. We're definitely heading in the right direction from a capital return standpoint. The next step is investment-grade, and then we'll take it from there. Great. One more, if I can. We're in this environment, some people describe it as peak, some people describe it as peaking or extended peak or there are a lot of ways to think about it, but it's certainly a very good part of the cycle and maybe raises questions as to how close to rolling over we are. I wonder if you could maybe highlight for us how you compare this cycle to others, which prior cycles this one reminds you of, and what are sort of the key signs you're going to be looking for to provide a warning to yourselves around how to manage the business for a fade or a roll in the cycle. Thank you. I don't think this one resembles any prior cycle. To some extent, many of these extraordinary cycles are all unique in and of themselves. It's a question of what precipitated them and what is happening. This is a cycle unlike one we have seen before for many reasons. We constantly look at a set of internal indicators to look ahead and peek around the corner to see when is something possibly changing. They run the gamut of bookings, billings, sell through, the rate at which customers are able to have confidence in what they're placing with us in backlog, our anecdotal conversations with the executives of many of our customers, of our channel partners. It's a process of many, many points of data that we as a team meet on a weekly basis and compare notes and see what we see, in terms of what does the data tell us. Historically, we've been able to see things early. I hope we will do the same this time too. At this point, there is no indication of any early warnings. Thank you. Thank you. Next, we'll hear from Janet Ramkissoon with Quadra Capital. Congratulations, guys. Nice quarter. I was wondering if you might be able to give us any insights on what your demand might be from China, just more in terms of what the trends are and what you see going forward. Also, if you can make some comments about what you see in the auto industry specifically. Thank you. China is part of our reporting for Asia. In fact, it's a substantial portion of our Asia revenue. I think it's about two-thirds or so of that revenue. We reported that that geography grew 11% last quarter, a little over 11%. It is performing as we expect. It remains strong. There are no China demand issues that are visible in what we see. With respect to automotive, we are continuing to increase the shipments to automotive. We are shipping well above where we were pre-pandemic. The automotive demand also is quite substantially higher. It is a matter of they have many companies that supply product to build a car. You do hear about factories shutting down and customers not able to build what they want. We are providing the products that we can provide at a rate that is consistent with our manufacturing. We're still short to what automotive would like to buy for their growth and for their growth plans. Thank you. Thank you so much. Next we'll hear from Chris Danely with Citi. Hey, thanks guys. Ganesh, you talked about all these cycles being different, and we read all these headlines about worst shortages ever, and apparently the politicians are going to try and make sure that there's never any cycles in semis again. I just appreciate your guys' perspective. Do you think that this is, I guess, the worst upturn ever from a customer standpoint? Or I guess alternatively, you could argue that it's the best upturn ever from a semiconductor supplier. Are you guys looking to do anything differently, or is the industry looking to do anything differently in future cycles that prevent these kinds of shortages? Or do you think that this is just the normal course of business? There were an extraordinary set of circumstances that got us to where we are. The pandemic was one part of that. The trade and tariff issues the year before that was another part of that. Pandemic not only created supply-side issues, but created a lot of money that consumers had, and they wanted to spend it, and they spent it on things that required electronics for it. They required things to work out of the home. I think there are all kinds of factors that came into where we are. Of course, many customers in uncertainty in the pandemic took their demand down and then realized that they had taken it down too far. I don't know what the future brings. Clearly, many of our customers are thinking through how should they, from an inventory standpoint, be preparing themselves so that they're able to run more stable through these cycles, et cetera, and where they go. I think there is a continued strong demand where people are building and selling through what they're doing. I don't know what the shape of the next cycle will be, and more importantly, what would be the causes of the next cycle. I think to a large extent, those will determine what the responses will be in it. I certainly don't think government help is going to be the answer to any of these cycles. From usually when a government begins to think of something, the cycle is long past before they can even act with respect to that. I am very confident that the industry, through many, many, many cycles, has figured out how to make adjustments and how to build in such a way that is consistent with where the market is at, and that we'll do the same in this cycle. I don't know, Steve, you've got longer years on this than I do. Well, I think, in the last several years, we have read reports, people calling the end of cyclicality in the semiconductor business. There'll be no more cycles. I think all that is wrong. Like Ganesh said, the events that precipitated this cycle could not have been forecasted two years ago. When that happens, and it put a major pressure on the industry from both sides, decreasing the supply line and increasing the demand in certain cases driven by work from home and medical and others, it created this super cycle that we haven't seen in 40 years. Similar other situations were to come in five years from now, 10 years from now, it will create a cycle again. Those cycles have really not been repealed. People will make some adjustments, maybe keep larger inventory and do some other things. Some people are trying to get Long-Term Agreements for supply, but it's not predictable how much supply is needed five years from now. Many of those agreements, you will see will have a bad ending. If there is a recession, people are not going to need that product, there'll be that excess inventory. Pay-for-play agreements don't work out very well usually. Got it. Thanks for the perspective, guys. Thanks. Thank you. Our next question will come from Rajvindra Gill with Needham & Company. Yeah, thanks for taking my questions and congratulations as well. A couple questions, if I may. One on the pricing environment. Last quarter, Ganesh, you had mentioned that you were engaged in some price increases and that was reflected in the revenue. I'm wondering how you're describing the pricing dynamic this quarter. How is that affecting the revenue? How is that affecting kind of the gross margin improvement on a sequential basis as well? Sure. The price increases largely have attempted to pass on cost increases that we've had. We continue to get cost increases on a pretty regular basis in the current environment, depending on what the material or the product that we need to buy are. As they come along, we don't do it all instantaneously. We will batch it and figure out points at which we would do the increase in prices to go with it. That's a continuous process, as and when it is needed, in terms of us collecting the data. At this point in time, there's nothing in our pricing thought process that would be different from what I said three months ago. If there is a need, if there are cost increases that we cannot absorb, and we batch it at some point in time, and we pass along the price increase. For my follow-up, you had mentioned that you will have capacity to support revenue growth in each of the next four quarters. I was wondering if you could elaborate further in terms of the capacity increases? Is that coming on the foundry side, on the test and assembly? Which areas do you think are easier to get more capacity? Which areas are harder? I would think that the foundries have been reluctant to spend on kind of lagging edge nodes, so on the wafer side it might be a bit more challenging. Any color specifically in terms of the capacity, that would be helpful. Thank you. The area we have the most control, and where we have been investing for multiple quarters, is in our internal factories. We expect that there will be more help coming where we have more control, which is in our fabs, our assembly and test factories, et cetera. It doesn't mean we're not getting anything from our partners. We are. It's selective. It really depends on the situation and where we're getting. It is correct that more help is coming from the factories we control, than from our foundry and assembly test partners. Appreciate it. Thank you. Thank you so much. Next we'll hear from Matt Ramsay with Cowen. Thank you very much. Good afternoon, guys. Two questions, a little bit unrelated. One is a follow-up on pricing, Ganesh, from the last question. Given what the margins are, you're obviously going to be able to pass on some of the higher input costs to customers. If the input cost situation were to change and come down a bit, with the long-term agreements that you're putting in place under the PSP program, how stable or durable or how much length is there to some of the new pricing negotiations you're having? Do you expect those to sort of moderate as input costs moderate if and when they do? The second question, completely unrelated, is I noticed some press releases about silicon carbide from you guys within the last week. It seems like a much more expansive program than you might have had in the past. Is that the right read? I guess, how important of a program is that for you guys going forward? Thank you. Okay. On the pricing front, right? I think there is no insight into which way input costs are going. At this point in time, every indication is that input costs are going up in 2022, and we're already starting to hear of input costs going up in 2023. If and when there is a change in the trajectory of input costs, we will relook at it at that point in time. Nothing to really say about input costs changing directions at this point in time. In regards to silicon carbide, it is a program that is important, has focus, and we have been bringing out products on a pretty consistent basis there. Is an important part of our growth strategy, is to capitalize on the markets, which have both industrial and automotive components, with industrial realizing revenues sooner, by bringing the benefits of silicon carbide to those markets. They go nicely hand in hand with many of our microcontrollers that play into these power conversion opportunities, which is where silicon carbide plays. Yeah, we haven't made a big deal of it. It is an important product line and an important initiative for growth for us. Thank you very much. Thank you. Next we'll hear from Chris Caso with Raymond James. Yes. Thank you. Good evening. I wanted to ask a bit more about what you had talked about earlier, about relying a bit more on internal capacity as opposed to foundries going forward. First, what happened within the industry that is kind of causing this shortage in foundry? Recognizing that the foundry industry didn't really expand capacity in lagging edge nodes in the past. Why are we at the point now where there's just none left and no willingness to extend that? Following that, if you are going to increase your reliance on internal capacity, how is it that you stay within the same 3%-4% of revenue, CapEx model? How does that work going forward? First of all, I think from an industry perspective, it's just the rate of growth that foundry is seeing on these lagging edge technologies is so far ahead of any normal planning that they have done, that it's overwhelming what the capacity available is. Well, the normal reaction you would say is, "Well, why aren't they building more?" Well, the economics of that for the foundries and the opportunity cost versus other capital objectives that they have don't always lend themselves to saying that trailing edge capacity is where they want to be invested. It's not that they're making no investments. They are. They're not fast enough, and they're not at a rate for products that we consider to be important for us. We're not doing it across the board. We're just picking and choosing places where we think there is significant constraint for us or opportunity for us to make that investment. That is true not only in the fabs, it's true in assembly and test as well. As to why we're doing it and what we're seeing. It will mean that we will continue to use all of the capacity available from our foundry and assembly test partners. Plus, we will try to make sure that we have, where we can, additional capacity to be able to not be constrained by what is available only from our outside partners itself. In terms of the CapEx itself, if you go back and look at our history last five, 10 years, you'll find that we have gone above and below that 3%-4% number. I think the two years previous to this, we were at about 1%, and that's where the cycle was. That's what we needed in that. I think a three-year look gives you a better sense. We could spend more than 3%-4% in any given year. As we look at investing at a time when that need is there, and then we'll breathe with that capacity and let it all build out over that time. At this point in time, that's what we feel comfortable with. If that changes in time, we'll keep you posted. All this capital that we're investing, all the capacity we're bringing on, all of it we think will be accretive to our gross margins and will enable growth that we could otherwise not have had if our only choice was to take it outside. I'd like to clarify the foundry part of the answer. Ordinarily, when the industry has a normal kind of growth rate, whatever it was over the last 10, 15 years, usually a movement to the faster nodes by the leading-edge guys kept seeing us enough trailing edge capacity, so that the trailing edge guys didn't get constrained. Because the leading-edge capacity of today is a trailing edge capacity of five, six years down the line. That's how trailing edge capacity became available, because it was originally built for people who wanted more leading edge, and then many years later, that was available for the trailing edge. When the industry grew this year at the rate it has grown, most companies have announced year-over-year growth rates of 20% plus. Our September guidance is, I think, about 25% up versus same quarter a year ago. That is a growth rate on the trailing edge technology is much, much higher than really what would become available through an ordinary process of nodes moving out. Therefore, the leading edge capacity is constrained also today. It's not like there's all the capacity available at 40nm and 28nm. They're all constrained also. Foundries are willing to add capacity on the more leading-edge nodes than they are on the trailing edge. Given the choice of the capital allocation and their priorities, they are working on more relieving the leading edge capacity, leaving the trailing edge much more constrained because of such an aggressive growth. If the growth of the industry returns back to a much more normal over the 10 years, then it's quite possible that the trailing edge capacity will not be as constrained again. Thank you. Thank you. Our next question will come from Christopher Rolland with Susquehanna. Hey, guys. Thanks for the question. Good quarter. What's the plan around just the inventory? Do you guys plan to increase that from 20 days kind of ASAP, or is this on hold as you kind of service your PSP customers, your direct customers first? Any color there on your timing around replenishment? We don't drive distribution to what inventory they should carry. The numbers we report are what their decisions are, both in terms of what they see as a demand, but in the current condition, what they see as the supply available to them. PSP customers are coming to us as much from distribution as well. I would not take PSP and say it's direct customers only. Many customers who are distribution customers are placing PSP orders on it. The issue is that when demand so far exceeds supply, you cannot build inventory internally or in the channel at that point in time. Until we get to the point where we can help provide more product than they're shipping out, distribution inventory is not likely to go up. We're shipping higher and higher amounts to distribution every quarter, it sucks out the door because of the strong demand for sales out. Because the supply is so constrained, you cannot really build inventory anywhere. Yeah. Understood. This is definitely a longer term question. Is there any point or condition when you guys would ever consider a 300 millimeter fab? For example, ON has the same revenue as you guys and has one. Is it something that given your product sets and the volumes that you guys have and the runs that you guys have, that you wouldn't have any interest in? No, there are scenarios in which a 12-inch fab may make sense for us, but there's nothing really to talk about at this point in time. The company you mentioned is not a good example for us. Our operating margin is higher than their gross margin. Yeah, a lot more weight for sure. Thanks, guys. Thank you. We'll take a follow-up from Harlan Sur with JP Morgan. Yeah. Thank you for taking my follow-up. In terms of potential uncertainties, unfortunately we are seeing a resurgence in COVID-19 Delta variant. Southeast Asia seems to be quite impacted, right? You have assembly, wafer, and final tests in the Philippines and Thailand. Some of your sub-cons are in Malaysia, which is probably the hardest hit. The team managed through COVID-19 shutdowns very well last year. For the recent surge, how's the team mitigating the potential for supply chain disruptions? Firstly, taking our own internal factories, right? Many of the protocols that we implemented last year to operate safely, to have backup plans if people need to be inside of the factory, and all that is normal part of our contingency planning. In addition, we have taken steps to accelerate how vaccines can be brought in and deployed. For example, over the course of last week and this week, a substantial portion of our Thailand factory is going to be fully vaccinated. We're taking steps to get preventive things we can do. We're trying to do the same thing in the Philippines, and we have some challenges to overcome to get there. We're working with our factory partners. From where they're operating, there are challenges. Far nothing is really a major enough issue for us to result in significant loss in production. As that data unrolls and as we see what the rules and regulations are, we will manage around it as best as we can. We have contingency plans. There's no answer which says we have all scenarios thought through. So far, no major issues, and we're okay with where things are at, but being prudent on where things might go. Absolutely. Thank you. Thank you. That concludes today's question and answer session. Ganesh Moorthy, at this time, I'll turn the conference back over to you for any additional or closing remarks. Well, I want to thank everybody for attending the call today. We have several investor events coming up over the next month and a half of timeframe, and we look forward to talking to many of you at that point in time. Thank you. Thank you. This concludes today's conference. We thank you for your participation. You may now disconnect.