Texas Instruments Incorporated (TXN) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Texas Instruments designs, manufactures and sells semiconductors worldwide, principally through its Analog and Embedded Processing businesses. Results are unaudited; the company cautions that quarterly results are not necessarily indicative of a full year.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $4.289 billion | $3.329 billion | +29% |
| Gross profit / margin | $2.797 billion / 65.2% | $2.088 billion / 62.7% | Margin +2.5 percentage points |
| Operating profit / margin | $1.939 billion / 45.2% | $1.244 billion / 37.4% | Margin +7.8 percentage points |
| Net income | $1.753 billion | $1.174 billion | +49% |
| Diluted EPS | $1.87 | $1.24 | +51% |
| Cash from operations | $1.850 billion | $851 million | +$999 million |
| Capital expenditures | $308 million | $161 million | +$147 million |
| Dividends paid | $940 million | $841 million | +$99 million |
Quarterly free cash flow was not separately stated in the cited MD&A. For the trailing 12 months ended March 31, 2021, operating cash flow was $7.138 billion and free cash flow (a non-GAAP measure, operating cash flow less capital expenditures) was $6.342 billion, or 41.1% of revenue. The comparable prior-year trailing figures were $6.393 billion and $5.636 billion, respectively.
Segments and other key metrics
- Analog: Revenue $3.280 billion, up 33%; operating profit $1.646 billion, up 61%; operating margin 50.2% versus 41.7%.
- Embedded Processing: Revenue $767 million, up 17%; operating profit $287 million, up 58%; operating margin 37.4% versus 27.9%.
- Other: Revenue $242 million, up 12%; operating profit $6 million versus $37 million.
- At quarter-end, cash and cash equivalents were $2.442 billion and short-term investments were $4.244 billion, totaling $6.686 billion. Total debt, net of discounts and issuance costs, was $6.250 billion, all classified as long-term. The company repaid $550 million of maturing debt in February.
- Current assets were $10.405 billion and current liabilities were $1.700 billion. A $2 billion revolving credit facility was undrawn, and no commercial paper was outstanding.
- Accounts receivable were $1.584 billion; inventory was $1.890 billion. Days sales outstanding rose to 33 from 31 at year-end 2020; days of inventory declined to 114 from 123.
Material changes and notable items
- Management attributed year-over-year revenue growth primarily to strong demand in industrial, automotive and personal electronics. Analog grew 5% and Embedded Processing 7% sequentially; year-over-year growth was 33% and 17%, respectively.
- Gross and operating margins increased alongside higher revenue. Operating expenses (R&D and SG&A) were $811 million versus $794 million. Acquisition charges were $47 million versus $50 million and were non-cash.
- The Other segment’s operating profit fell by $31 million; management attributed the decline to approximately $50 million of utility costs related to the February Texas winter storm.
- The reported effective tax rate was 10% versus 4%. The estimated annual operating tax rate, excluding discrete items, was about 14% in both periods. Discrete tax benefits were $89 million in Q1 2021 and $116 million in Q1 2020.
- Cash returned to shareholders through dividends and repurchases totaled $1.040 billion in the quarter, compared with $2.482 billion in Q1 2020. Repurchases were $100 million versus $1.641 billion.
Outlook, risks and contingencies
The filing provides no specific quarterly or annual revenue or earnings guidance. Management said it remained cautious about the economic effects of COVID-19 and would continue monitoring impacts on operations. It believes available resources and operating plans are sufficient to fund working capital, capital expenditures, dividends, debt payments and other requirements for at least the next 12 months.
Key disclosed risks include pandemic-related effects, global economic and trade conditions, semiconductor demand—particularly in industrial and automotive markets—competition, customer demand differing from forecasts, manufacturing capacity and cost pressures, supply availability, cybersecurity, product claims, tax and regulatory changes, and customer or distributor concentration and inventory adjustments. The company stated that pending legal and administrative proceedings are not expected to have a material adverse effect; it reported no material product warranty or liability accruals or payments in the periods presented. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether strong demand and higher factory utilization persist, and how they affect revenue, gross margin and operating margin.
- Whether the $6.342 billion trailing-12-month free cash flow and 41.1% free-cash-flow margin are sustainable; these are non-GAAP measures.
- How capital spending and manufacturing investment evolve relative to cash generation and shareholder distributions.
- Future dividend and repurchase levels, given $6.250 billion of debt and the remaining $10.53 billion share-repurchase authorization at March 31, 2021.
- Whether COVID-19, supply constraints, geopolitical and trade developments, or changing customer and distributor inventories affect demand and operations.
- The duration and financial effects of the Texas winter-storm utility costs and the impact of tax items on reported earnings.