Texas Instruments Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Texas Instruments designs, manufactures and sells semiconductors. Its reportable segments are Analog and Embedded Processing; “Other” includes DLP products, calculators and custom ASIC products. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $4.905 billion | $4.289 billion | +14% |
| Gross profit | $3.442 billion | $2.797 billion | +23% |
| Gross margin | 70.2% | 65.2% | +5.0 percentage points |
| Operating profit | $2.563 billion | $1.939 billion | +32% |
| Operating margin | 52.3% | 45.2% | +7.1 percentage points |
| Net income | $2.201 billion | $1.753 billion | +26% |
| Diluted EPS | $2.35 | $1.87 | +26% |
| Cash from operations | $2.144 billion | $1.850 billion | +$294 million |
| Capital expenditures | $443 million | $308 million | +$135 million |
Management attributed revenue growth primarily to higher Analog sales, with growth in industrial and automotive markets, and also cited higher prices and product mix. R&D and SG&A together were $813 million, compared with $811 million a year earlier. Interest and debt expense was $52 million versus $46 million; income tax provision was $325 million versus $186 million. The reported effective tax rate was 13%, while the estimated annual operating tax rate, excluding discrete items, was about 14% in both periods.
Segments and cash generation
- Analog: Revenue of $3.816 billion, up 16%; operating profit of $2.150 billion, up 31%. Revenue grew in both product lines, led by Signal Chain.
- Embedded Processing: Revenue of $782 million, up 2%; operating profit of $315 million, up 10%.
- Other: Revenue of $307 million, up 27%; operating profit of $98 million versus $6 million. Results included restructuring charges/other in 2022 and acquisition charges in 2021.
- For the trailing 12 months ended March 31, 2022, cash from operations was $9.050 billion and free cash flow was $6.453 billion, or 34.0% of revenue. Free cash flow is a non-GAAP measure calculated as operating cash flow less capital expenditures. The comparable prior-year free cash flow was $6.342 billion, or 41.1% of revenue.
Financial position and capital allocation
At March 31, 2022, cash and cash equivalents were $3.505 billion and short-term investments were $6.320 billion, totaling $9.825 billion. Total debt, including its current portion, was $7.742 billion; the current portion was $500 million. The company had an undrawn $1 billion revolving credit facility and no commercial paper outstanding. Current assets were $14.010 billion and current liabilities were $2.528 billion.
Quarterly financing cash outflows included $1.063 billion of dividends and $589 million of share repurchases; the company repurchased 3.4 million shares in open-market purchases. Capital expenditures were $443 million, primarily for manufacturing equipment and facilities. Management said it expects capital expenditures to be higher than historical levels as it invests in manufacturing capacity. In April 2022, after quarter-end, the company used cash to retire $500 million of maturing debt.
Material changes, outlook and risks
- Revenue, profit and margins rose substantially year over year. Management cited higher revenue as the primary driver of gross-profit growth.
- Q1 2022 included $66 million of restructuring charges/other related to integration at the Lehi, Utah, manufacturing facility. The filing reports no acquisition charges in the quarter, compared with $47 million in Q1 2021.
- Inventory increased to $2.060 billion from $1.910 billion at year-end; days of inventory rose to 127 from 116. Accounts receivable increased to $1.795 billion, and days sales outstanding rose to 33 from 32.
- Management said it remained cautious about economic conditions and the continuing effects of COVID-19, but believed available resources and operating plans were sufficient to fund working capital, capital expenditures, dividends, debt payments and other needs for at least the next 12 months. The filing provides no specific revenue or EPS guidance.
- Disclosed risks include semiconductor demand and customer forecasts, competition, global economic and trade conditions, supply and manufacturing capacity, execution of capacity investments, cybersecurity, product claims, tax and regulatory changes, and customer or distributor concentration and inventory adjustments. Management stated that pending legal and administrative proceedings were not expected to have a material adverse effect; it also reported no material warranty or product-liability accruals or payments in the periods presented.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter. The 10-Q states that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether industrial and automotive demand, pricing and product mix continue to support revenue and margin growth.
- How planned increases in capital expenditures affect capacity, fixed-cost absorption and future free cash flow.
- Whether inventory growth and higher inventory days reflect planned support for demand or changing customer and market conditions.
- The sustainability of shareholder returns alongside manufacturing investment and the post-quarter $500 million debt retirement.
- How discrete tax items affect reported quarterly tax expense relative to the approximately 14% annual operating tax-rate estimate.