Texas Instruments Incorporated

Welcome to the Texas Instruments Third Quarter 2024 Earnings Conference Call. I'm Dave Paul, Head of Investor Relations, and I'm joined by our Chief Executive Officer, Aviva Lahn, and 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. Today, we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he'll provide insight into third 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, give an update on our capital management, as well as share the guidance for the fourth quarter of 2024. With that, let me turn it over to Haviv.

Thanks, Dave. Let me start with a quick overview of the third quarter. Revenue in the quarter came in about as expected at $4.2 billion, an increase of 9% sequentially, and a decrease of 8% year-over-year. Analog revenue declined 4% year-over-year, and embedded processing declined 27%. Our other segment declined 5% from the year-ago quarter. Now I'll provide some insight into our third quarter revenue by end market. Our results continue to reflect the asynchronous market behavior that we've seen throughout this cycle. Similar to last quarter, I'll focus on sequential performance as it is more informative at this time. First, the industrial market was down low single digits as customers continued to reduce their inventory levels. The automotive market increased upper single digits primarily due to strength in China. Personal electronics grew about 30%, enterprise systems was up about 20%, and communication equipment was up about 25% as the cyclical recovery continued in these three markets. With that, let me turn it over to Rafael to review profitability, capital management, and our outlook.

Thanks, Aviv, and good afternoon, everyone. As Aviv mentioned, third quarter revenue was 4.2 billion dollars. Gross profit in the quarter was $2.5 billion or 60% of revenue. Sequentially, gross profit margin increased 180 basis points, primarily due to higher revenue. Operating expenses in the quarter were $920 million, about flat from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.7 billion or 24% of revenue. Operating profit was $1.6 billion in the quarter or 37% of revenue. and was down 18% from the year-ago quarter. Net income in the quarter was $1.4 billion, or $1.47 per share. Earnings per share included a $0.03 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 $1.7 billion in the quarter and $6.2 billion on a trailing 12-month basis. Capital expenditures were $1.3 billion in the quarter and $4.8 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $1.5 billion. As a reminder, free cash flow includes benefits from the CHIPS Act Investment Tax Credit, which was $220 million in the third quarter and $532 million on a trailing 12-month basis. In the quarter, we paid $1.2 billion in dividends and repurchased $318 million of our stock. In September, we announced we would increase our dividend by 5%, marking our 21st consecutive year of dividend increases. This reflects our continued commitment to return free cash flow to our owners over time. In total, we returned $5.2 billion to our owners in the past 12 months. Our balance sheet remains strong with $8.8 billion of cash and short-term investments at the end of the third quarter. Total debt outstanding is $14 billion with a weighted average coupon of 3.8%. Inventory at the end of the quarter was $4.3 billion, up $190 million from the prior quarter, and days were 231, up two days sequentially. For the fourth quarter, we expect DI revenue in the range of $3.7 to $4 billion, and earnings per share to be in the range of $1.07 to $1.29. We continue to expect our effective tax rate to be about 13% in the fourth quarter. As you're looking at 2025, based on current tax law, we would expect our effective tax rate to remain about the same. 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.