Bill Betz
Chief Financial Officer at NXP Semiconductors
Thank you. Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q1 and provided our revenue outlook for Q2. I will move to the financial highlights. Overall, our Q1 financial performance was very good. Revenue was above the high end of our guidance range and both non-GAAP gross and operating profit were above the midpoint of the guidance.
Now moving to the details of Q1. Total revenue was $3.12 billion, essentially flat year-on-year while the $121 million above the midpoint of the guidance range. We generated lease conference and Townshend finished. This is your operator. And you are live. Great. Bill, why don't you continue. Sorry about that folks. So let me start. Now moving to the details of Q1, total revenue was $3.12 billion, essentially flat year-on-year while $121 billion above the midpoint of the guidance range. We generated $1.82 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.2%, up 50 basis-points year-on-year and 20 basis-points above the midpoint of the guidance range. Total non-GAAP operating expenses was $728 million or 23.3% of revenue up $40 million year-on -year and $15 million from Q4 modestly above the high end of the guidance range driven by variable compensation and slightly higher R&D investments. From a total operating profit perspective, non-GAAP operating profit was $1.09 billion and non-GAAP operating margin was 34.8% down 90 basis-points year-on-year, though above the midpoint of the guidance range, reflecting solid fall through on the increased revenue level versus the guide. Non-GAAP interest expense was $76 million, with non-GAAP income tax provision of $167 million consistent with the high end of the guidance, due to better profitability reflecting a non-GAAP effective tax-rate of 16.6%. Non-controlling interest was $8 million and stock-based compensation, which is not included in the non-GAAP earnings was $99 million. Taken together, this resulted in a non-GAAP earnings per share of $3.19, which is near the high end of our guidance range.
Turning to the changes in our cash and debt. Total debt at the end of Q1 was $11.17 billion, flat sequentially. The ending cash position was $3.93 billion, up $85 million sequentially due to the cumulative effect of higher working capital, capex investments, capital returns and cash generation during Q1. The resulting net debt was $7.24 billion and we exited the quarter with a trailing 12 month adjusted EBITDA $5.46 billion. The ratio of net debt to trailing 12 month adjusted EBITDA, at the end of Q1 was 1.3 times. And the 12 month adjusted EBITDA interest coverage was 16.4 times. During Q1, we paid $219 million cash dividends, which represented 35% of cash flow from operations. Due to the uncertain macroenvironment and the recent liquidity issues in the regional banking sector, we paused our share repurchases during Q1. However, we plan to resume buybacks in Q2 and our capital allocation strategy has not changed. We plan to return 100% of excess free-cash flow back to the owners of the company.
Turning to working capital metrics. Days of inventory was 135 days, an increase of 19 days sequentially and distribution channel inventory was 1.6 months or 49 days. When combined, this represents approximately 184 days. As mentioned during the last earnings call, our inventory strategy is to manage both on hand and channel inventory together to better serve our customers and prevent excess finished goods inventory on our balance sheet and/or in the distribution channel. Our goal is to only ship products into the distribution channel that have a high likelihood of selling through in the current quarter or is being pre staged, if needed for customer delivery in the next quarter. From an internal standpoint, we are comfortable supporting approximately 140 days of inventory on the balance sheet. So long as we hope the channel at 1.6 months or 49 days. As the channel inventory returns to the long-term target of 2.5 months or 75 days, we would correspondingly lower our balance sheet inventory. In Q1, the inventory flexibility on the balance sheet enabled us to deliver an extra $120 million of revenue, by leveraging the die bank inventory on hand. Moving on to days receivables. It was 31 days, up five days sequentially, days payable were 68 days, a sequential decrease of 9 days due to timing of material receipts. Please note, beginning Q1, we reclassified certain payables amounts to other current liabilities to better reflect true payable trends.
Taken together, the cash conversion cycle was 98 days, an increase of 33 days versus the prior quarter as we leverage the balance sheet to avoid over shipping into the channel. Cash flow from operations was $632 million, and net capex was $251 million, resulting in non-GAAP free cash flow of $381 million or 12% of revenue. The reduction in free cash flow quarter-on-quarter is primarily due to increased working capital needs as previously noted. Our long-term target has not changed and we are focused on driving non-GAAP free cash flow margin to greater than 25%, a level we demonstrated in the second half of 2022.
Turning now to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be $3.2 billion, plus or minus $100 million. Furthermore, given our manufacturing cycle times and the current demand environment, our guidance contemplates maintaining channel inventory at 1.6 month level, though we may move this upward pending improved market conditions. At the midpoint of our revenue outlook, this is down 3% year-on-year and up 3% versus Q1. We expect non-GAAP gross margin to be flat sequentially at 58.2% plus or minus 50 basis-points. Operating expenses are expected to be $760 million, plus or minus about $10 million, reflecting annual merit increases.
Taken together, non-GAAP operating margin will be 34.5% at the midpoint. We expect non-GAAP financial expense to be $69 million and the non-GAAP tax-rate to be 16.5% of profit before tax. Non-controlling interest will be $7 million for Q2, we suggest for modeling purposes, you use an average share count of 261.2 million shares and a capex rate of 8% of revenue. Taken together at the midpoint., this implies a non-GAAP earnings per share of $3.28.
In closing, I would like to highlight the key themes for this earnings cycle. First, we will continue to manage our inventory as a combination of internal and channel inventory. This enables us to better serve our customers' requirements, prevent excess inventory buildup in the channel and supports our outlook for the second half revenue of 2023 to be greater than the first half. Second, the Q2 guidance contemplates internal factory utilization to be in the mid 70s range, which is modestly down from the low 80s in Q1. We believe operating our factories at a more reasonable utilization level enable better flexibility and improve throughput. Despite the lower utilization level, we anticipate our gross margin to remain at the high end of our long-term model for the remainder of 2023, driven by improved product mix.
Thirdly, we are holding more cash on the balance sheet to enable greater flexibility. This includes options around the timing and magnitude of share repurchases, cash dividends or the ability to retire debt early, as well as any small tuck in acquisitions, all of which can be funded with cash on hand. Finally, we will continue to be very disciplined to manage what is in our control and stay within our long-term financial model.
I would like to now turn it back to the operator for questions.
