Texas Instruments Inc. — Q2 2022 Form 10-Q
Period: Three and six months ended June 30, 2022. TI designs, manufactures and sells semiconductors worldwide, primarily through its Analog and Embedded Processing businesses. All dollar amounts are U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $5.212B | $4.580B | $10.117B | $8.869B |
| Gross profit / margin | $3.625B / 69.6% | $3.077B / 67.2% | $7.067B / 69.9% | $5.874B / 66.2% |
| Operating profit / margin | $2.723B / 52.2% | $2.213B / 48.3% | $5.286B / 52.2% | $4.152B / 46.8% |
| Net income | $2.291B | $1.931B | $4.492B | $3.684B |
| Diluted EPS | $2.45 | $2.05 | $4.80 | $3.92 |
| Operating cash flow | Not separately reported for the quarter | $3.912B | $3.971B | |
| Capital expenditures | Not separately reported for the quarter | $1.040B | $0.694B |
Q2 revenue grew 14% year over year, supported by higher revenue across markets, higher prices and product mix. Gross profit rose 18%; operating profit increased 23%. For the first six months, revenue grew 14%, operating profit 27%, and net income 22%. Six-month operating cash flow declined modestly as higher working-capital use partly offset higher net income.
Segments and cash generation
- Analog: Q2 revenue $3.992B (+15%); operating profit $2.226B (+25%) and margin 55.8% versus 51.3%. Signal Chain led revenue growth.
- Embedded Processing: Q2 revenue $821M (+5%); operating profit $324M (+4%), with margin of 39.5% versus 40.0%.
- Other: Q2 revenue $399M (+19%); operating profit $173M (+41%). This segment includes DLP products, calculators and custom ASICs, and its operating result includes restructuring and acquisition charges.
- For the 12 months ended June 30, 2022, operating cash flow was $8.697B and free cash flow (a non-GAAP measure: operating cash flow less capex) was $5.889B, or 30.1% of revenue. Free cash flow was down 9% year over year, as capex increased to $2.808B from $1.052B.
Balance sheet, liquidity and capital allocation
At June 30, cash and cash equivalents were $3.802B and short-term investments were $4.585B, totaling $8.387B, down $1.352B from year-end 2021. Total debt was $7.244B, including $499M current; long-term debt was $6.745B. Debt declined from $7.741B at year-end after retirement of $500M of maturing debt. The company reported an undrawn $1B revolving credit facility and no commercial paper outstanding.
Accounts receivable rose $489M to $2.190B and inventory rose $289M to $2.199B from year-end. Q2 days sales outstanding were 38 versus 32 at year-end; days of inventory were 125 versus 116. In the first half, TI paid $2.123B in dividends and repurchased $1.771B of stock, compared with $1.882B and $246M, respectively, in the prior-year period. Management said it believes resources and operating plans are sufficient for needs over at least the next 12 months.
Outlook, commentary and risks
- Management expects capital expenditures to remain higher than historical levels as it invests in manufacturing capacity and technology. The filing gives no specific revenue or earnings guidance.
- Management cited its manufacturing, broad product portfolio, market channels and product/customer diversity as competitive advantages, and identified long-term free-cash-flow-per-share growth as its central value objective.
- TI cautioned that COVID-19 and economic uncertainty may continue to affect business and operations. Risks include semiconductor demand and customer inventory changes, especially in industrial and automotive markets; competition; trade and geopolitical conditions; supply, equipment and raw-material availability and costs; execution and returns on capacity investments; cybersecurity; legal, product-liability and warranty matters; tax and regulatory changes; and margins’ sensitivity to factory utilization.
- Q2 restructuring charges/other were $66M, and first-half charges were $132M, related to integration at the Lehi, Utah manufacturing facility. Q2 other income was $7M versus $73M a year earlier; first-half other income was $22M versus $119M. The filing attributes the lower year-to-year other income to no specific cause in the supplied discussion.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the period. It stated that pending legal and administrative proceedings are not expected to have a material adverse effect; product warranty and liability accruals/payments were not material.
Important facts for investors to verify
- Whether higher receivables, inventory and working-capital requirements reflect demand and shipment timing or changing customer inventory conditions.
- Whether elevated capex translates into expected manufacturing capacity, utilization and future free-cash-flow growth; first-half capex was $1.040B versus $694M a year earlier.
- How sustainable recent revenue growth and expanded margins are, particularly given the filing’s stated sensitivity to semiconductor cycles, product mix and factory loading.
- The size, timing and expected benefits of Lehi integration charges, and any further restructuring or capacity-related costs.
- Future shareholder returns and balance-sheet needs in light of higher repurchases, dividends, debt maturities and the $8.387B cash-and-short-term-investment balance.