TEXAS INSTRUMENTS INCORPORATED Overview
We design, make and sell semiconductors to electronics designers and manufacturers all over the world. Technology is the foundation of our company, but ultimately, our objective and the best metric to measure progress and generate long-term value for owners is the growth of free cash flow per share.
Our strategy to maximize free cash flow per share growth has three elements:
1.A great business model that is focused on analog and embedded processing products and built around four sustainable competitive advantages. The four sustainable competitive advantages are powerful in combination and provide tangible benefits:
i.A strong foundation of manufacturing and technology that provides lower costs and greater control of our supply chain.
ii.A broad portfolio of analog and embedded processing products that offers more opportunity per customer and more value for our investments.
iii.The reach of our market channels that gives access to more customers and more of their design projects, leading to the opportunity to sell more of our products into each design and gives us better insight and knowledge of customer needs.
iv.Diversity and longevity of our products, markets and customer positions that provide less single point dependency and longer returns on our investments.
Together, these competitive advantages help position TI in a unique class of companies capable of generating and returning significant amounts of cash for our owners. We make our investments with an eye towards long-term strengthening and leveraging of these advantages. 2.Discipline in allocating capital to the best opportunities. This spans how we select R&D projects, develop new capabilities like TI.com, invest in new manufacturing capacity or how we think about acquisitions and returning cash to our owners.
3.Efficiency, which means constantly striving for more output for every dollar spent.
We believe that our business model with the combined effect of our four competitive advantages sets TI apart from our peers and will for a long time to come. We will invest to strengthen our competitive advantages, be disciplined in capital allocation and stay diligent in our pursuit of efficiencies. Finally, we will remain focused on the belief that long-term growth of free cash flow per share is the ultimate measure to generate value. Management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results of operations: •Our segments represent groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the financial statements for more information regarding our segments.
•When we discuss our results:
•Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by fluctuations in shipment volumes.
•New products do not tend to have a significant impact on our revenue in any given period because we sell such a large number of products.
•From time to time, our revenue and gross profit are affected by changes in
demand for higher-priced or lower-priced products, which we refer to as changes
in the "mix" of products shipped.
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•Because we own much of our manufacturing capacity, a significant portion of our
operating cost is fixed. When factory loadings decrease, our fixed costs are
spread over reduced output and, absent other circumstances, our profit margins
decrease. Conversely, as factory loadings increase, our fixed costs are spread
over increased output and, absent other circumstances, our profit margins
increase.
•For an explanation of free cash flow and the term "annual operating tax rate," see the Non-GAAP financial information section.
•All dollar amounts in the tables are stated in millions of
The coronavirus (COVID-19) pandemic and its effects are impacting and will likely continue to impact market conditions and business operations across industries worldwide, including at TI. Therefore, we remain cautious about how the economy might behave for the next few years and continue to monitor potential impact on our operations.
Performance summary
Our first quarter revenue was
Revenue increased 14% from the same quarter a year ago primarily due to growth in industrial and automotive.
Our cash flow from operations of$9.1 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the same period was$6.5 billion and 34% of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter production.
Over the past 12 months we invested
Results of operations - first quarter 2022 compared with first quarter 2021
Revenue of$4.91 billion increased$616 million , or 14%, primarily due to higher revenue from Analog and, to a lesser extent, Embedded Processing. This increase benefited from higher prices and the mix of products shipped.
Gross profit of
Operating expenses (R&D and SG&A) were
Restructuring charges/other was
Operating profit was
OI&E was
Our provision for income taxes was$325 million compared with$186 million . This increase was due to higher income before income taxes and lower discrete tax benefits. Our annual operating tax rate, which does not include discrete tax items, was 14% in both periods. We use "annual operating tax rate" to describe the estimated annual effective tax rate, which differs from the 21%U.S. statutory corporate tax rate due to the effect ofU.S. tax benefits.
Net income was
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--------------------------------------------------------------------------------First quarter 2022 segment results
Our segment results compared with the year-ago quarter are as follows:
Analog (includes Power and Signal Chain product lines)
Q1 2022 Q1 2021 Change
Revenue $ 3,816 $ 3,280 16 %
Operating profit 2,150 1,646 31 %
Operating profit % of revenue 56.3 % 50.2 %
Analog revenue increased in both product lines, led by Signal Chain. Operating profit increased primarily due to higher revenue and associated gross profit.
Embedded Processing (includes microcontrollers and processors)
Q1 2022 Q1 2021 Change
Revenue $ 782 $ 767 2 %
Operating profit 315 287 10 %
Operating profit % of revenue 40.3 % 37.4 %
Embedded Processing revenue increased. Operating profit increased primarily due to higher gross profit.
Other (includes DLP® products, calculators and custom ASIC products)
Q1 2022 Q1 2021 Change
Revenue $ 307 $ 242 27 %
Operating profit* 98 6 1,533 %
Operating profit % of revenue 31.9 % 2.5 %
* Includes acquisition charges and restructuring charges/other
Other revenue increased
Financial condition
At the end of the first quarter of 2022, total cash (cash and cash equivalents plus short-term investments) was$9.83 billion , an increase of$86 million from the end of 2021. Accounts receivable were$1.80 billion , an increase of$94 million compared with the end of 2021. Days sales outstanding for the first quarter of 2022 were 33 compared with 32 at the end of 2021. Inventory was$2.06 billion , an increase of$150 million from the end of 2021. Days of inventory for the first quarter of 2022 were 127 compared with 116 at the end of 2021.
Liquidity and capital resources
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments and access to debt markets. We also have a variable rate, revolving credit facility. As ofMarch 31, 2022 , our credit facility was undrawn, and we had no commercial paper outstanding. Cash flows from operating activities for the first three months of 2022 were$2.14 billion , an increase of$294 million from the year-ago period due to higher net income, partially offset by higher cash used for working capital. 17 -------------------------------------------------------------------------------- Investing activities for the first three months of 2022 used$1.67 billion compared with$1.11 billion in the year-ago period. Capital expenditures were$443 million compared with$308 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods. As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, we expect our capital expenditures to be higher than historical levels. Short-term investments used cash of$1.21 billion compared with$782 million in the year-ago period. Financing activities for the first three months of 2022 used$1.60 billion compared with$1.41 billion in the year-ago period. In the year-ago period, we retired maturing debt of$550 million . Dividends paid were$1.06 billion compared with$940 million in the year-ago period, reflecting an increased dividend rate. We used$589 million to repurchase 3.4 million shares of our common stock compared with$100 million used in the year-ago period to repurchase 0.6 million shares. Employee exercises of stock options provided cash proceeds of$57 million compared with$196 million in the year-ago period.
In
We had$3.51 billion of cash and cash equivalents and$6.32 billion of short-term investments as ofMarch 31, 2022 . We believe we have the necessary financial resources and operating plans to fund our working capital needs, capital expenditures, dividend and debt-related payments, and other business requirements for at least the next 12 months.
Non-GAAP financial information
This MD&A includes references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with generally accepted accounting principles inthe United States (GAAP). Free cash flow was calculated by subtracting capital expenditures from the most directly comparable GAAP measure, cash flows from operating activities (also referred to as cash flow from operations). We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to shareholders, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures. Reconciliation to the most directly comparable GAAP measures is provided in the table below. For 12 Months Ended March 31, 2022 2021 Change Cash flow from operations (GAAP)$ 9,050 $ 7,138 27 % Capital expenditures (2,597) (796) Free cash flow (non-GAAP)$ 6,453 $ 6,342 2 % Revenue$ 18,960 $ 15,421
Cash flow from operations as a percentage of revenue (GAAP)
47.7 % 46.3 %
Free cash flow as a percentage of revenue (non-GAAP) 34.0 % 41.1 %
This MD&A also includes references to an annual operating tax rate, a non-GAAP
term we use to describe the estimated annual effective tax rate, a GAAP measure
that by definition does not include discrete tax items. We believe the term
annual operating tax rate helps differentiate from the effective tax rate, which
includes discrete tax items.
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