Texas Instruments Incorporated

Welcome to the Texas Instruments second quarter 2026 earnings conference call. I'm Mike Beckman, head of investor relations. 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, I'm joined by our Chief Executive Officer, Haviv Ilan, and our Chief Financial Officer, Rafael Lizardi. Also with us today is Julie Knecht, who will become our Chief Financial Officer on August 1st. Julie has been with TI for more than 25 years and has held a number of finance and accounting roles, most recently serving as Chief Accounting Officer since 2021. As you know, Rafael, who has been our CFO for nearly a decade, plans to retire at the end of August. Rafael's focus on disciplined capital allocation, including our investments in 300 millimeter manufacturing capacity, and commitment to return all free cash flow to shareholders have positioned TI for continued long-term growth and value creation. As this is Rafael's final earnings call, I want to thank him personally for all of his contributions to TI. I'm sure you will join me in congratulating both Rafael and Julie. With that, today we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he'll provide insight into second quarter revenue results with some details on what we're seeing with respect to our end markets. Lastly, Rafael will cover the financial results and give an update on capital management as well as share the guidance for third quarter 2026. With that, let me turn it over to Haviv.

Thanks, Mike. Let me start with a quick overview of the second quarter. Revenue was $5.5 billion, an increase of 13% sequentially and an increase of 23% year-over-year. Analog and embedded processing both grew sequentially and year-on-year. Analog revenue grew 26% year-on-year and embedded processing grew 16%. Our other segment declined 2% from the year-ago quarter. Let me provide a few comments about the current market environment. In the second quarter, revenue came in above the range as we saw continued growth in industrial and data center in addition to accelerated growth in automotive. Our investments in inventory and capacity are serving us well, which allows us to support our customers during this time of increased demand. We are prepared with capacity and have clean room space available and are well positioned to support continued growth. Now, I'll share some additional insights into second quarter revenue by end market. First, industrial increased around 30% year on year and was up about 10% sequentially, growing broadly across sectors and regions. Automotive increased mid-teens year-on-year and increased upper single digits sequentially. Data center doubled year-on-year and grew around 20% sequentially. Personal electronics was flat year-on-year and grew upper single digits sequentially. And lastly, communications equipment grew both year-on-year and sequentially. With that, let me turn it over to Rafael to review profitability and capital management.

Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, second quarter revenue was $5.5 billion. Gross profit in the quarter was $3.4 billion, or 61% of revenue. Sequentially, gross profit margin increased 340 basis points. Operating expenses in the quarter were $1 billion, about as expected. On a trailing 12-month basis, operating expenses were $3.9 billion, or 20% of revenue. Operating profit was $2.3 billion in the quarter, or 42% of revenue, and it was up 48% from the year-ago quarter. Net income in the quarter was $2 billion, or $2.14 per share. Earnings per share included a $0.05 benefit not in our original guidance due to discrete tax benefits. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $2.7 billion in the quarter and $8.7 billion on a 12-month basis. Capital expenditures were $514 million in the quarter and $3.3 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $6.5 billion, up from $1.8 billion in the second quarter of 2025 and continuing to trend up as growth returns. Free cash flow in the trailing 12 months includes $1.6 billion of CHIPS Act incentives, which includes both the investment tax credit and direct funding. In second quarter, we received $549 million of ITC-related payments for qualifying capital expenditures. In the quarter, we paid $1.3 billion in dividends. In total, we returned $5.8 billion to our owners in the past 12 months. Our balance sheet remains strong with $7 billion of cash and short-term investments at the end of the second quarter. Total debt outstanding is $14 billion with a weighted average coupon of 4%. Inventory at the end of the quarter was $4.6 billion, down $90 million from the prior quarter, and days were 196, down 13 days sequentially. Turning to our outlook for the third quarter, we expect TI's revenue in the range of $5.65 to $6.15 billion, and earnings per share to be in the range of $2.23 to $2.57. We expect our effective tax rate to be about 13% in the third quarter. 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, Rich 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. Before I turn it over to Mike to start Q&A, I want to say that it has been an honor to work at Texas Instruments for the last 25 years and to have been CFO during the last decade. I have thoroughly enjoyed working with so many wonderful people. Over that time, we have made TI stronger and positioned it for continued success. I feel confident about the future at TI and I'm looking forward to what's ahead for the company.