Texas Instruments Incorporated

Welcome to the Texas Instruments Fourth Quarter 2023 Earnings Release Conference Call. I'm Dave Paul, Head of Investor Relations, and I'm joined by our Chief Financial Officer, Rafael Lazzardi. For any of you who missed the release, you can find it on our website at ti.com. 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. I'd like to provide some information that's important for your calendars. Next week, on Thursday, February 1st, at 10 a.m. Central Time, we'll have our capital management call. Similar to what we've done in the past, Rafael and I will summarize our progress and provide some insight into our business and our approach to capital allocation as we prepare for the opportunity ahead. Moving on, today we'll provide the following updates. First, I'll start with a quick overview of the quarter. Next, I'll provide insight into fourth quarter revenue results with some details of what we're seeing with respect to our end markets. I'll then provide an annual summary of revenue breakout by end market. And lastly, Rafael will cover the financial results and our guidance for the first quarter of 2024. Starting with a quick overview of the quarter. Revenue was $4.1 billion, a decrease of 10% sequentially and 13% from the same quarter a year ago. Analog revenue declined 12% year-over-year, and embedded processing declined 10%. Our other segment declined 25% from the year-ago quarter. Now I'll provide some insight into our fourth quarter revenue by end market. Our results reflect increasing weakness in industrial and a sequential decline in automotive as customers work to reduce their inventory levels. Similar to last quarter, I'll focus on sequential performance as it's more informative at this time. First, the industrial market was down mid-teens as we saw that increasing weakness. The automotive market was down mid-single digits after three and a half years of very strong growth. Personal electronics was about flat. And next, communications equipment was down low single digits. And lastly, enterprise systems grew low single digits. In addition, as we do at the end of each calendar year, I'll describe our revenue by end market. As a percentage of revenue for 2023, industrial was 40%, automotive was 34%, personal electronics 15%, communications equipment 5%, enterprise systems 4%, and other was 2%. In 2023, industrial and automotive combined made up 74% of TI's revenue, up about 9 percentage points from 2022, and up from 42% in 2013. We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial and automotive. Our industrial and automotive customers are increasingly turning to analog and embedded technologies to make their end products more reliable, more affordable, and lower in power. These trends have resulted and will continue to result in growing chip content per application, which will drive faster growth compared to our other markets. Rafael will now review profitability, capital management, and our outlook.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, fourth quarter revenue was $4.1 billion. Gross profit in the quarter was $2.4 billion, or 60% of revenue. From a year ago, gross profit decreased primarily due to lower revenue, higher manufacturing costs associated with planned capacity expansions, and reduced factory loadings. Gross profit margin decreased 650 basis points. Operating expenses in the quarter were $898 million, up 4% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.7 billion, or 21% of revenue. Operating profit was $1.5 billion in the quarter, or 38% of revenue. Operating profit was down 30% from the year-ago quarter. Net income in the fourth quarter was $1.4 billion, or $1.49 per share. Earnings per share included a 3-cent benefit for items that were not in our original guidance. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.9 billion in the quarter. Capital expenditures were $1.1 billion in the quarter. In the quarter, we paid $1.2 billion in dividends and repurchased $65 million of our stock. We also increased our dividend per share by 5% in the fourth quarter, marking our 20th consecutive year of dividend increases. In total, we have returned $4.9 billion in the past 12 months to owners. Our balance sheet remains strong with $8.6 billion of cash and short-term investments at the end of the fourth quarter. Total debt outstanding was $11.3 billion with a weighted average coupon of 3.5%. Inventory at the end of the quarter was $4 billion, up $91 million from the prior quarter, and days were 219, up 14 days sequentially. Now let's look at some of these results for the year. In 2023, cash flow from operations was $6.4 billion. Capital expenditures were $5.1 billion. Free cash flow for 2023 was $1.3 billion, or 8% of revenue. Our free cash flow reflects the strength of our business model, as well as our decisions to invest in 300-millimeter manufacturing assets and inventory to support our overall objective to maximize long-term free cash flow per share, which we believe is the primary driver of long-term value. Turning to our outlook for the first quarter, we expect TI revenue in the range of $3.45 to $3.75 billion, and earnings per share to be in the range of $0.96 to $1.16. We now expect our 2024 effective tax rate to be about 13%. 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 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 cannot open the lines for questions. In order to provide as many of you as possible an 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?