Bill Betz
Chief Financial Officer at NXP Semiconductors
Well, thank you Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q3, and provided the revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was good. Revenue and non-GAAP gross profit were modestly above the midpoint of guidance, with solid gross profit fall through.
Now, moving to the details of Q3, total revenue was $3.4 billion, $34 million above the midpoint of the guidance and essentially flat year on year. We generated $2.01 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.5%, up 50 basis points year-on-year and 10 basis points above the midpoint of the guidance range driven by the fall-through on higher revenues.
Total non-GAAP operating expenses were $803 million or 23.4% of revenue, up $73 million year-on-year and up $32 million from Q2. When compared to the midpoint of guidance, this is a miss of $18 million, where $14 million is due to a potential un-forecasted legal liability and the remainder from higher variable compensation.
From a total operating profit perspective, non-GAAP operating profit was $1.2 billion and non-GAAP operating margin was 35%. This was down 190 basis points year-on-year and slightly below the midpoint of the guidance range, due to the previously noted potential legal liability which created a 40-basis point headwind to non-GAAP operating margin.
Non-GAAP interest expense was $65 million, with non-GAAP income tax provision of $168 million, reflecting a non-GAAP effective tax rate of 14.8%, which is favorable versus our guidance range of 16% to 17%. Non-controlling interest was $5 million and stock-based compensation, which is not included in the non-GAAP earnings was $103 million. Taken together, this resulted in a non-GAAP earnings per share of $3.70, $0.10 above the midpoint of the guidance.
Now, turning to the changes in our cash and debt. Total debt at the end of Q3 was $11.17 billion, flat sequentially. The ending cash position was $4.04 billion, up $179 million sequentially due to the cumulative effect of capital returns, improved working capital metrics, flat capex investments, and positive cash generation during Q3.
The resulting net debt was $7.13 billion, and we exited the quarter with a trailing 12 month adjusted EBITDA of $5.38 billion. The ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q3 was 1.3 times, and the 12-month adjusted EBITDA interest coverage ratio was 19.9 times.
During Q3, we repurchased 306 million of our shares and paid $262 million in cash dividends. Taken together, we returned $568 million to our owners in the quarter, which represented 72% of non-GAAP free cash flow and 81% on a trailing 12-month period. Furthermore, subsequent to the end of Q2, we continued to execute our share repurchase program, buying an incremental $124 million or approximately 658,000 shares through Friday, November 3.
Now turning to working capital metrics, days of inventory was 134 days, a decrease of three days sequentially and distribution channel inventory was 1.5 months, or approximately 45 days, down about four days from the second quarter. When combined, this represents approximately 179 days, or a seven-day decline from the prior quarter.
We continue to be laser focused on tightly controlling our channel inventory levels while leveraging our balance sheet strength to hold product in dive form for quick turnaround as demand materializes.
Days receivable were 25 days, down four days sequentially, 10 days payable were 60 days, a sequential decrease of three days. Taken together, the cash conversion cycle was 99 days, an improvement of four days versus the prior quarter.
Cash flow from operations was $988 million and net capex was $200 million, or approximately 6% of revenue, slightly better than our guidance of 7%, resulting in non-GAAP free cash flow of $788 million or 23% of Q3 revenue, which is up from 17% in the prior quarter.
On a trailing 12-month basis, this represents a 20% non-GAAP free cash flow margin. Overall, we continue to be focused on driving non-GAAP free cash flow margin to greater than 25%, a level we have demonstrated in the past, and a level we believe we can achieve in the future.
Turning now to our expectations for the fourth quarter, as Kurt mentioned, we anticipate Q4 revenue to be $3.4 billion plus or minus $100 million at the midpoint of our revenue outlook, this is up about 3% year-on-year and down about 1% versus Q3.
Furthermore, given our manufacturing cycle times, the current demand environment and our lean channel inventory, our guidance contemplates improving the channel inventory to 1.6-month level for Q4. We expect non-GAAP gross margin to be flat sequentially at 58.5% plus or minus 50 basis points, as we continue to balance mix and internal utilizations. However, we do see slightly higher input costs from our suppliers. As a result, we remain focused on mitigating these higher input costs through a combination of productivity and passing higher input costs along to our customers.
Operating expenses are expected to be $785 million plus or minus about $10 million. Taken together, non-GAAP operating margin will be 35.4% at the midpoint. We expect non-GAAP financial expense to be $69 million, and the non-GAAP tax will be $180 million or an effective non-GAAP tax rate of 15.9% of profit before tax.
Non-controlling interest will be $6 million. For Q4, we suggest for modeling purposes, use an average share count of 260 million shares and capital expenditures of 6% of revenue. We expect stock-based compensation, which is not included in our non-GAAP guidance, to be $106 million taken together at the midpoint, implies a non-GAAP earnings per share of $3.65.
Now for 2024 non-GAAP modeling, we propose you to assume the following: We expect to increase channel inventory sometime in 2024 to support anticipated growth, ensure proper customer stock levels, and to support our long tail customers. We expect non-GAAP gross margin to remain at the high end of our long-term model, plus or minus the normal 50 basis points.
Non-GAAP Operating Expenses, we plan to manage the business at or below the 23% of sales. For capital expenditures, we expect to stay within the long-term model of 6% to 8% of sales. For stock-based compensation, which is not included in our non-GAAP results, we suggest using approximately $450 million. And for non-GAAP taxes, we expect a 17% rate versus the prior view of 18%.
So, in closing, I would like to highlight what we shared last cycle. First, from a performance standpoint, as we navigate a soft landing through a challenging and cyclical demand environment, we will continue to be disciplined to manage what is in our control, and stay within our long-term financial model. Second, operationally, the Q4 guidance assumes internal factory utilization will be in the low to mid 70s range, a level we expect to hold until internal inventory normalizes.
And lastly, we plan to hold more cash on the balance sheet to enable greater flexibility. We also plan to retire the $1 billion March 2024 debt tranche when it comes due with our cash on hand, which will result in an improved gross debt leverage ratio below the current 2.1 times level today.
Finally, we will remain active repurchasing our shares.
I would like to now turn it back over to the operator for your questions.
