Texas Instruments Incorporated

Welcome to the Texas Instruments Second Quarter 2023 Earnings Conference Call. I'm Dave Paul, Head of Investor Relations, and I'm joined by our Chief Financial Officer, Ralphie Elizardi. 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. In addition, today's call is being recorded and will be available via replay on our website. 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 end markets. And lastly, Rafael will cover the financial results and our guidance for the third quarter of 2023. Starting with a quick overview of the quarter, revenue in the quarter came in about as expected at $4.5 billion, an increase of 3% sequentially, and a decrease of 13% year over year. Analog revenue declined 18%, embedded processing grew 9%, and our other segment declined 10% from the year-ago quarter. Now I'll provide some insight into our second quarter revenue by market. During the quarter, we experienced continued weakness across all markets except automotive. Similar to last quarter, I'll focus on sequential performance as it is more informative at this time. First, the industrial market was about flat. Next, the automotive market was up low single digits. Personal electronics was up low single digits after several quarters of sequential declines. And next, communications equipment was down mid-teens. And finally, enterprise systems was down mid-single digits. Rafael will now review profitability, capital management, and our outlook.

Rafael? Thanks, Dave, and good afternoon, everyone. As Dave mentioned, second quarter revenue was $4.5 billion, down 13% from a year ago. Gross profit in the quarter was $2.9 billion, or 64% of revenue. From a year ago, gross profit decreased primarily due to lower revenue, increased capital expenditures, and the transition of LFAP-related charges to cost of revenue. Gross profit margin decreased 540 basis points. Operating expenses in the quarter were $938 million, up 12% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.6 billion, or 19% of revenue. Operating profit was $2 billion in the quarter, or 44% of revenue, and was down 28% from the year-ago quarter. Net income in the second quarter was $1.7 billion, or $1.87 per share. Let me now comment on our capital management results starting with our cash generation. Cash flow from operations was $1.4 billion in the quarter and $7.4 billion on a trailing 12-month basis. Capital expenditures were $1.4 billion in the quarter and $4.2 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $3.2 billion. In the quarter, we paid $1.1 billion in dividends and repurchased about $80 million of our own stock. In total, we have returned $6.5 billion in the past 12 months. Our balance sheet remains strong with $9.6 billion of cash and short-term investments at the end of the second quarter. In the quarter, we repaid $500 million of debt and issued $1.6 billion of debt. Total debt outstanding was $11.3 billion, with a weighted average coupon of 3.5%. Inventory dollars were up $441 million from the prior quarter to $3.7 billion, and days were 207, up 12 days sequentially. For the third quarter, we expect TR revenue in the range of $4.36 to $4.74 billion, and earnings per share to be in the range of $1.68 to $1.92. Lastly, we continue to expect our 2023 effective tax rate to be about 13% to 14%. 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 the opportunity to ask your questions, please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up. Operator?