10-QPeriod: Q3 FY2018

TEXAS INSTRUMENTS INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 2, 2018For Securities:TXN

Summary

Texas Instruments Inc. (TXN) reported solid financial results for the nine months ended September 30, 2018, with revenue and net income both showing significant year-over-year growth. For the third quarter of 2018, revenue increased 4% to $4.26 billion, driven by an 8% increase in Analog segment revenue, though this was partially offset by a 4% decline in Embedded Processing revenue. Net income for the quarter rose to $1.57 billion, translating to diluted EPS of $1.58, up from $1.26 in the prior year period. The company highlighted its strong free cash flow generation, which was $5.9 billion for the trailing twelve months, and its commitment to returning capital to shareholders through increased dividends and share repurchases. For the nine-month period, revenue grew 8% to $12.07 billion and net income increased to $4.34 billion, with diluted EPS at $4.32. The company continues to focus its investments on the industrial and automotive markets within its Analog and Embedded Processing segments. While overall demand showed signs of slowing, TXN's robust business model, diversified product portfolio, and efficient manufacturing strategy, including the benefits of 300-millimeter wafer production, position it favorably for continued profitability and cash generation.

Financial Highlights

53 data points
Beta

Revenue

$4.26B

65.8% Gross Margin

Net Income

$1.57B

36.8% Net Margin

EPS (Diluted)

$1.58

Total Assets

$18.57B

Cash & Equivalents

$1.50B

Free Cash Flow

$1.74B

Financial Statements
Beta
Revenue$4.26B
Cost of Revenue$1.46B
Gross Profit$2.80B
R&D Expenses$390.00M
SG&A Expenses$396.00M
Operating Income$1.94B
Net Income$1.57B
EPS (Basic)$1.61
EPS (Diluted)$1.58
Shares Outstanding (Basic)969.00M
Shares Outstanding (Diluted)989.00M

Key Highlights

  • 1Total revenue for the nine months ended September 30, 2018, increased by 8% to $12.07 billion, compared to $11.21 billion in the same period of 2017.
  • 2Net income for the nine months ended September 30, 2018, was $4.34 billion, a significant increase from $3.34 billion in the prior year.
  • 3Diluted EPS for the nine months ended September 30, 2018, was $4.32, up from $3.26 in the first nine months of 2017.
  • 4For the third quarter of 2018, revenue grew 4% year-over-year to $4.26 billion, driven by the Analog segment which saw an 8% revenue increase.
  • 5The company generated $5.9 billion in free cash flow for the trailing twelve months, representing 37.5% of revenue, underscoring its strong cash-generating capabilities.
  • 6Texas Instruments returned $6.2 billion to shareholders in the past 12 months through stock repurchases and dividends, with a stated strategy to return all free cash flow to shareholders.
  • 7The company announced a 24% increase in its quarterly dividend and a $12 billion increase in share repurchase authorizations in September 2018.

Frequently Asked Questions

Revenue growth was primarily driven by the Analog segment, which saw an 8% increase in revenue for the third quarter and a strong performance over the nine-month period. The Embedded Processing segment experienced a slight decline in revenue for the third quarter but saw growth for the nine-month period. The company is strategically focusing its investments on the industrial and automotive markets within these core segments.

Texas Instruments demonstrates a strong commitment to returning capital to shareholders. For the trailing twelve months, free cash flow was $5.9 billion, and the company's strategy is to return all of this free cash flow to owners through dividends and stock repurchases. In September 2018, the company increased its quarterly dividend by 24% and authorized an additional $12 billion for share repurchases, indicating confidence in its future cash generation.

Management noted that demand for its products slowed across most markets in the third quarter of 2018, and they are heading into a period of weaker demand. However, the company plans to remain disciplined with its operating expenses while continuing its long-term investments. The strong free cash flow generation and efficient manufacturing strategy are expected to support continued profitability and cash generation.

Yes, Texas Instruments adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as of January 1, 2018. This standard impacts how revenue is recognized, particularly for royalty income on intellectual property, leading to an acceleration of royalty income recognition in Other Income (Expense), net. The adoption resulted in a $206 million increase to opening retained earnings as of January 1, 2018.