Texas Instruments Incorporated

Thank you for standing by. Good day and welcome to the Texas Instruments Q1 2021 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Dave Paul. Please go ahead, sir.

Good afternoon and thank you for joining our first quarter 2021 Earnings Conference Call. For any of you who missed the release, you can find it on our website at ti.com.ir. This call is being broadcast live over the web and can be accessed through our website. A replay will be available through the web. This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today. as well as TI's most recent SEC filings for a more complete description. Our Chief Financial Officer, Rafael Luzzardi, is with me today and will provide the following updates. First, I'll start with a quick overview of the quarter. Next, I'll provide insight into the first quarter revenue results with more details than usual by end markets, including some sequential performance since it's more informative at this time. Lastly, Rafael will cover the financial results, some insights into one-time items, and our guidance for the second quarter of 2021. Starting with a quick overview of first quarter. The company's revenue increased 5% sequentially and 29% year-over-year, driven by strong demand in industrial, automotive, and personal electronics. On a sequential basis, analog grew 5% and embedded processing grew 7%. On a year over year basis, analog grew 33% and embedded processing grew 17%. Our other segment grew 12% from a year ago quarter. Moving on, given the current environment, again this quarter I'll provide some insight into our first quarter revenue by end market and then some comments on our lead times. First, the industrial market was up about 20% sequentially and up almost 30% from the year ago. The strength was seen across most sectors. The automotive market was about even compared to a very strong fourth quarter 2020, and up about 25% from the year ago. Compared to the pre-COVID-19 levels of fourth quarter 19, our shipments to automotive in both the fourth quarter of 2020 and the first quarter of 2021 were up about 25%, as we work to help our automotive customers recover from their supply chain disruptions. Personal electronics was down about 10% sequentially, and up about 50% compared to the year ago. The strength was broad-based across sectors and customers within personal electronics. Next, communications equipment grew in the high teens sequentially, but was about even from the year ago. Enterprise systems grew upper single digits sequentially and was down about 10% from the year ago. Regarding lead times, over 80% of our products have steady lead times and more than 50,000 parts have off-the-shelf availability via TI.com. However, the growing demand in the first quarter of 2021 did expand our list of hotspots, which required extending some lead times. We will continue that. to add incremental capacity in 2021 and the first half of 2022 with additional support from the startup of our third 300-millimeter wafer fab, RFAB2, that will come online in the second half of 2022. As discussed during our capital management review in February, our competitive advantage of internal manufacturing and technology delivers the benefits of lower costs and greater control of our supply chain which really shows through in a market environment like this. Rafael will now look and review profitability, capital management, and our outlook.

Thanks, Dave, and good afternoon, everyone. First quarter revenue was $4.3 billion, up 29% from a year ago. Gross profit in the quarter was $2.8 billion, or 65% of revenue. From a year ago, gross profit margin increased 250 basis points. Operating expenses in the quarter were $811 million, up 2% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were 21% of revenue. Over the last 12 months, we have invested $1.5 billion in R&D. Acquisition charges and non-cash expense were $47 million in the first quarter. Acquisition charges will remain at about this level through the third quarter of 2021 and then go to zero. Operating profit was $1.9 billion in the quarter, or 45% of revenue. Operating profit was up 56% from a year-ago quarter. Net income in the first quarter was $1.8 billion, or $1.87 per share, which included a two-cent net benefit that was not in our prior outlook. primarily due to a discrete tax benefit which was partially offset by about $50 million of utility costs related to the February winter storm in Texas. Most of this expense is in our cost of revenue and reported in our other segment results. Let me now comment our capital management results, starting with our cash generation. Cash flow from operations was $1.9 billion in the quarter. Capital expenditures were $308 million in the quarter. Free cash flow on a trailing 12-month basis was $6.3 billion. In the quarter, we paid $940 million in dividends and repurchased $100 million of our stock. In total, we have returned $4.5 billion in the past 12 months. Over the same period, our dividend represented 56% of free cash flow, underscoring its sustainability. Our balance sheet remains strong with $6.7 billion of cash and short-term investments at the end of the first quarter. We retired $550 million of debt in the quarter, leaving $6.3 billion of total debt with a weighted average coupon of 2.77%. Regarding inventory, TI inventory dollars were down $65 million from the prior quarter, and days were 114. For the second quarter, we expect TI revenue in the range of $4.13 to $4.47 billion. and earnings per share to be in the range of $1.68 to $1.92. We continue to expect our annual operating tax rate to be about 14%. In closing, we continue to invest to strengthen our competitive advantages and in making our business stronger. With that, let me turn it back to Dave.