Texas Instruments Incorporated

Welcome to Texas Instruments second quarter 2022 earnings release conference call. Today's call is being recorded. I'm Dave Paul, head of investor relations, and I'm joined with our chief financial officer, Rafael Lazzardi. For any of you who missed the release, you can find it on our website at ti.com slash 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. Today, we'll provide the following updates. First, I'll start with a quick overview of the quarter Next, I'll provide insight into second quarter revenue results with some details of what we're seeing with respect to our customers and markets. And lastly, Rafael will cover the financial results and our guidance for the third quarter of 2022. Starting with a quick overview of the quarter, revenue in the quarter was $5.2 billion, an increase of 6% sequentially and 14% year-over-year, driven by growth across markets. Analog revenue grew 15%, embedded processing grew 5%, and our other segment grew 19% from the year-ago quarter. Now let me comment on the environment in the second quarter to provide some context of what we saw with our customers and markets. As we spoke about in our last earnings call, April started out weak from COVID-19 restrictions in China. As those restrictions began to ease towards the latter part of May and into June, customers began to pull product generally consistent with their prior demand forecast at the start of the quarter. Moving on, I'll provide some insight into our second quarter revenue by market from the year-ago quarter. First, the industrial market was up high single digits, and the automotive market was up more than 20%. We saw weakness throughout the quarter in personal electronics, which grew low single digits. Next, communications equipment was up about 25%, and finally, enterprise systems was up mid-teens. Rafael will now review profitability, capital management, and our outlook.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, second quarter revenue was $5.2 billion, up 14% from a year ago. Gross profit in the quarter was $3.6 billion, or 70% of revenue. From a year ago, gross profit margin increased 240 basis points. Operating expenses in the quarter were $836 million, up 2% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.2 billion, or 17% of revenue. Restructuring charges were $66 million in the second quarter, and are associated with the LFAB factory that we purchased in October of last year. Operating profit was $2.7 billion in the quarter, or 52% of revenue. Operating profit was up 23% from the year-ago quarter. Net income in the second quarter was $2.3 billion, or $2.45 per share. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.8 billion in the quarter. Capital expenditures were $597 million in the quarter and $2.8 billion over the last 12 months. Free cash flow on a 12-month basis was $5.9 billion. In the quarter, we paid $1.1 billion in dividends and repurchased $1.2 billion of our stock. In total, we have returned $6.2 billion in the past 12 months. Our balance sheet remains strong with $8.4 billion of cash and short-term investments at the end of the second quarter. We retire half a billion dollars of debt in the quarter. Total debt outstanding was $7.3 billion with a weighted average coupon of 2.7%. Inventory dollars were up $139 million from the prior quarter to $2.2 billion, and days were 125, down two days sequentially and below desired levels. Accounts receivable for this quarter ended at $2.2 billion, up from $1.6 billion a year ago. This increase primarily reflects the higher proportion of shipments made near the end of the quarter, as COVID-19 restrictions were lifted in China and customers began pulling product. For the third quarter, we expect TI revenue in the range of $4.9 to $5.3 billion, and earnings per share to be in the range of $2.23, to $2.51. This outlook comprehends the weaker demand we see, particularly from customers in the personal electronics market. We expect our 2022 effective tax rate to be about 14%. Lastly, we and our customers remain pleased with the progress of our expansion of manufacturing capacity, which was outlined in our February capital management call, and will support the long-term secular trend of increased semiconductor content per system. We broke ground on the Sherman Manufacturing Complex in May, and work continues at RFAB II and LFAB to prepare for production output. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, reach of our channels, and diverse and long-lived positions. We will continue to strengthen these advantages through disciplined capital allocation, and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term. With that, let me turn it back to Dave.

Thanks, Rafael. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask your question, please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up. Operator?