Prashanth Mahendra-Rajah
Executive Vice President, Finance and Chief Financial Officer at Analog Devices
Thank you, Vince. Let me add my welcome to our third quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today's press release. While demand continued to soften throughout the quarter, ADI delivered nearly $3.1 billion in revenue, in line with our guidance. This was driven by continued year-over-year growth for both industrial and automotive.
Looking at our performance by end market, industrial, which represented 53% of revenue, finished down 7% sequentially after a tremendous stretch of 13 straight quarters of sequential growth. On a year-over-year basis, revenue increased 4% with most applications up, led by sustainable energy as well as aerospace and defense, which each grew double digits.
Automotive, which represented 24% of revenue, was down modestly sequentially, in line with our expectations. Year-over-year growth of 15% was broad based. We saw continued outsized growth for ADI's leading battery management and in-cabin connectivity solutions, which collectively increased nearly 30% year over year.
Communications, which represented 12% of revenue, decreased double digits both sequentially and year over year due to the broad-based Inventory correction we flagged previously.
And lastly, consumer, which represented 10% of revenue, came in stronger than expected, finishing up 15% sequentially, but down 21% year over year. We remain optimistic that our second quarter marked the bottom for this business, despite the ongoing Inventory correction.
And now on to the rest of the P&L. Gross Margin of 72.2% remains industry leading, but declined sequentially due to lower utilization and product mix. Operating expenses of $752 million were roughly flat year over year and up sequentially. This quarter's opex reflects the full impact of annual merit increases. Operating margin of 47.8% contracted 230 basis points year over year, roughly in line with the gross margin decline. Non-op expenses were $57 million, and our tax rate was 11.2%. All told, EPS came in at $2.49, within our guidance range.
Moving to the balance sheet, we ended the quarter with over $1.1 billion of cash and a net leverage ratio of 0.8. Given the revenue pressures and our decision to hold more finished goods versus restocking the channel, inventory dollars increased and the days of inventory moved higher to 179. As a result, channel Inventory remains below our target level and slightly declined. Specifically, we strategically undershipped Asia, especially China, due to weaker demand trends.
Capex was $325 million for the quarter as we Invest to enhance ADI's global resiliency and offer our customers options on where their products are sourced. 2023 should represent the high watermark for capex, and we expect it to decline in 2024. Importantly, our investments do not include the benefits of tax credits and grant funds that we anticipate from both the U.S. and the European Chips Act.
Over the trailing 12 months, we've generated $3.7 billion of free cash flow or 29% of revenue. And over the same period, we've returned nearly $5 billion to shareholders or over 130% of free cash flow via more than $3.3 billion in buybacks and more than $1.6 billion in dividends.
Now, turning to the Q4 guidance, we expect the fourth quarter revenue to be $2.7 billion, plus or minus $100 million. This outlook assumes sell-in to be below sell-through. At the midpoint of our outlook, we expect all markets to be down sequentially, given the broad-based inventory correction. On a relative basis, auto and consumer should perform a bit better than industrial and comms. Operating Margin is expected to be 44%, plus or minus 70 basis points. This margin outlook embeds planned utilization reductions and a decline in opex. Our tax rate is expected to be between 11% and 13%. And based on these inputs, adjusted EPS is expected to be $2, plus or minus $0.10.
As our outlook is lower than expected, let me provide some context on what we're experiencing and how we will navigate. Our revenue outlook reflects the broad-based macro softness across all end markets, all geographies, and customers, both large and small. We are also strategically improving lead times to get a better view into demand and enhance customer satisfaction. Today, we're shipping over 85% of our products within 13 weeks, and this is up from 35% a year ago.
As Vince mentioned, we are seeing customers accelerate inventory adjustments due to both the software environment and our lead time improvements. And as such, we're taking measures to preserve the integrity of our balance sheet, cash flow, and income statement. This includes further reducing utilization and lowering external wafer purchases with a goal to decrease inventory meaningfully in the coming quarters. And importantly, as we've outlined before, we expect gross margins will maintain a 70% level on a trailing 12-month basis. This gross margin resiliency is a testament to the flexibility of our hybrid manufacturing model and our unique swing capacity capability. In addition to the naturally lower variable comp, we're also taking steps to reduce total opex by roughly $50 million sequentially.
So stepping back, we're not ready to call the bottom yet, but our history shows that we cycle up quickly and, when we do, we will achieve higher highs. ADI has built a very resilient business, rich with opportunities. Our diversification and exposure to numerous secular trends drives our durable earnings stream and solid free cash flow, enabling us to consistently return capital to shareholders. And to that end, over the trailing 12 months, we've returned $5 billion to shareholders or more than 5% of our market cap.
As this is my last ADI earnings call, I'd like to give a quick thank you to Vince for his mentorship and counsel over the past six years; to the ADI Board, including our Audit Chair, Karen Golz, for their unwavering support; and, most importantly, to the world-class finance staff, including young Mike here, for always reminding us of our commitments to you, the company's owners. I look forward to seeing many of you in the coming weeks as we get on the road.
Mike, let's go to Q&A.
