Teradyne Reports Second Quarter 2022 Results

Teradyne, Inc.

• Revenue and earnings above the mid-point of Q2 guidance

• System Test, Wireless Test and Industrial Automation revenues grew compared with Q2’21 while Semiconductor Test declined consistent with guidance

• Automotive and memory test demand strong while mobility and compute related demand softening

• Industrial Automation growth slowing

	Q2'22		Q2'21		Q1'22
Revenue (mil)	$841		$1,086		$755
GAAP EPS	$1.16		$1.76		$0.92
Non-GAAP EPS	$1.21		$1.91		$0.98
Gross Margin	60.2%		59.6%		60.2%

NORTH READING, Mass., July 26, 2022 (GLOBE NEWSWIRE) -- Teradyne, Inc. (NASDAQ: TER) reported revenue of $841 million for the second quarter of 2022 of which $541 million was in Semiconductor Test, $135 million in System Test, $64 million in Wireless Test and $101 million in Industrial Automation (IA). GAAP net income for the second quarter was $197.8 million or $1.16 per diluted share. On a non-GAAP basis, Teradyne’s net income in the second quarter was $204.0 million, or $1.21 per diluted share, which excluded acquired intangible asset amortization, restructuring and other charges, and included the related tax impact on non-GAAP adjustments.

“We delivered sales and earnings above the mid-point of our second quarter guidance on strong test group shipments despite supply shortages and slowing industrial automation growth,” said Teradyne CEO Mark Jagiela. “As we enter Q3, we’re lowering our shipment plan to align with reduced mobility related test demand, slower industrial automation growth, and continued supply shortages.”

Guidance for the third quarter of 2022 is revenue of $760 million to $840 million, with GAAP net income of $0.86 to $1.12 per diluted share and non-GAAP net income of $0.90 to $1.16 per diluted share. Non-GAAP guidance excludes acquired intangible asset amortization.

Webcast
A conference call to discuss the second quarter results, along with management's business outlook, will follow at 8:30 a.m. ET, Wednesday, July 27. Interested investors should access the webcast at www.teradyne.com and click on "Investors" at least five minutes before the call begins. Presentation materials will be available starting at 8:30 a.m. ET. A replay will be available on the Teradyne website at https://investors.teradyne.com/events-presentations.

Non-GAAP Results
In addition to disclosing results that are determined in accordance with GAAP, Teradyne also discloses non-GAAP results of operations that exclude certain income items and charges. These results are provided as a complement to results provided in accordance with GAAP. Non-GAAP income from operations and non-GAAP net income exclude acquired intangible assets amortization, restructuring and other, pension actuarial gains and losses, losses on convertible debt conversions, non-cash convertible debt interest, discrete income tax adjustments, and includes the related tax impact on non-GAAP adjustments. GAAP requires that these items be included in determining income from operations and net income. Non-GAAP income from operations, non-GAAP net income, non-GAAP income from operations as a percentage of revenue, non-GAAP net income as a percentage of revenue, and non-GAAP net income per share are non-GAAP performance measures presented to provide meaningful supplemental information regarding Teradyne’s baseline performance before gains, losses or other charges that may not be indicative of Teradyne’s current core business or future outlook. These non-GAAP performance measures are used to make operational decisions, to determine employee compensation, to forecast future operational results, and for comparison with Teradyne’s business plan, historical operating results and the operating results of Teradyne’s competitors. Non-GAAP diluted shares include the impact of Teradyne’s call option on its shares. Management believes each of these non-GAAP performance measures provides useful supplemental information for investors, allowing greater transparency to the information used by management in its operational decision making and in the review of Teradyne’s financial and operational performance, as well as facilitating meaningful comparisons of Teradyne’s results in the current period compared with those in prior and future periods. A reconciliation of each available GAAP to non-GAAP financial measure discussed in this press release is contained in the attached exhibits and on the Teradyne website at www.teradyne.com by clicking on “Investor Relations” and then selecting “Financials” and the “GAAP to Non-GAAP Reconciliation” link. The non-GAAP performance measures discussed in this press release may not be comparable to similarly titled measures used by other companies. The presentation of non-GAAP measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP.

About Teradyne
Teradyne (NASDAQ:TER) brings high-quality innovations such as smart devices, life-saving medical equipment and data storage systems to market, faster. Its advanced test solutions for semiconductors, electronic systems, wireless devices and more ensure that products perform as they were designed. Its Industrial Automation offerings include collaborative and mobile robots that help manufacturers of all sizes improve productivity and lower costs. In 2021, Teradyne had revenue of $3.7 billion and today employs over 6,300 people worldwide. For more information, visit teradyne.com. Teradyne^® is a registered trademark of Teradyne, Inc. in the U.S. and other countries.

Safe Harbor Statement
This release contains forward-looking statements regarding Teradyne’s future business prospects, the impact of the global pandemic of the novel strain of the coronavirus (COVID-19), results of operations, market conditions, earnings per share, the impact of supply chain conditions on the business, customer sales expectations, the payment of a quarterly dividend, the repurchase of Teradyne common stock pursuant to a share repurchase program, sanctions against Russia and Russian companies, and the impact of U.S. and Chinese export and tariff laws. Such statements are based on the current assumptions and expectations of Teradyne’s management and are neither promises nor guarantees of future performance, events, customer sales, supply chain conditions or improvements, earnings per share, use of cash, payment of dividends, repurchases of common stock, payment of the senior convertible notes, the impact of the COVID-19 pandemic, sanctions against Russia and Russian companies, the impact of any tariffs or export controls imposed in the U.S. or China; compliance with trade protection measures or export restrictions; the impact of U.S. Department of Commerce or other government agency regulations relating to Huawei, HiSilicon and other customers or potential customers; or the impact of U.S. Department Commerce export control regulations for certain U.S. products and technology sold to military end users or for military end-use in China, Russia and Venezuela. There can be no assurance that management’s estimates of Teradyne’s future results or other forward-looking statements will be achieved. Specifically, Teradyne’s 2024 earnings model is aspirational and includes many assumptions. There can be no assurance that these assumptions will be accurate or that model results will be achieved. As set forth below, there are many factors that could cause our 2024 earnings model and actual results to differ materially from those presently expected. Additionally, the current dividend and share repurchase programs may be modified, suspended or discontinued at any time.

Following Russia’s invasion of Ukraine in February 2022, the U.S. and other countries imposed significant sanctions against the Russian government and many Russian companies and individuals. Although Teradyne does not have significant operations in Russia, the sanctions could impact Teradyne’s business in other countries and could have a negative impact on the Company’s supply chain, either of which could adversely affect Teradyne’s business and financial results.

COVID-19 has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, government vaccination mandates and other government regulations. These measures have impacted and may further impact Teradyne’s workforce and operations, the operations of its customers, and those of its contract manufacturers and suppliers. As Teradyne implements measures to comply with additional regulations, the Company may experience increased compliance costs, increased risk of non-compliance and increased risk of employee attrition.

The COVID-19 pandemic has adversely impacted the Company’s results of operations, including increased costs company-wide and constraints within the Company’s supply chain. The Company cannot accurately estimate the amount of the impact on Teradyne’s 2022 financial results and to its future financial results. The COVID-19 outbreak has significantly increased economic and demand uncertainty in Teradyne’s markets. This uncertainty resulted in a significant decrease in demand for certain Teradyne products and could continue to impact demand for an uncertain period of time. The spread of COVID-19 has caused Teradyne to modify its business practices (including employee travel, employees working remotely, and cancellation of in person participation in meetings, events and conferences) and the Company may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, contract manufacturers and suppliers. There is uncertainty that such measures will be sufficient to mitigate the risks posed by the virus, and Teradyne’s ability to perform critical functions could be impacted. The degree to which COVID-19 continues to impact Teradyne’s results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and continued spread of the virus, its severity, the actions to contain the virus or the availability and impact of vaccines in countries where the Company does business, and how quickly and to what extent normal economic and operating conditions can resume.

Important factors that could cause actual results, the 2024 earnings model, earnings per share, use of cash, dividend payments, repurchases of common stock, or payment of the senior convertible notes to differ materially from those presently expected include: conditions affecting the markets in which Teradyne operates; decreased or delayed product demand from one or more significant customers; development, delivery and acceptance of new products; the ability to grow the Industrial Automation business; increased research and development spending; deterioration of Teradyne’s financial condition; the continued impact of the COVID-19 pandemic and related government responses on the market and demand for Teradyne’s products, on its contract manufacturers and supply chain, and on its workforce; the impact of the global semiconductor supply shortage on our supply chain and contract manufacturers; the consummation and success of any mergers or acquisitions; demand for products by the Company’s largest customers; unexpected cash needs; insufficient cash flow to make required payments and pay the principal amount on the senior convertible notes; the business judgment of the board of directors that a declaration of a dividend or the repurchase of common stock is not in the Company’s best interests; additional U.S. tax regulations or IRS guidance; the impact of any tariffs or export controls imposed in the U.S. or China; compliance with trade protection measures or export restrictions; the impact of U.S. Department of Commerce or other government agency regulations relating to Huawei, HiSilicon and other customers or potential customers; the impact of U.S. Department Commerce export control regulations for certain U.S. products and technology sold to military end users or for military end-use in China, Russia and Venezuela; sanctions imposed against the Russian government and certain Russian companies and individuals by the U.S., and other countries; and other events, factors and risks disclosed in filings with the SEC, including, but not limited to, the “Risk Factors” sections of Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Quarterly Report on Form 10-Q for the fiscal quarter ended April, 3, 2022. The forward-looking statements provided by Teradyne in this press release represent management’s views as of the date of this release. Teradyne anticipates that subsequent events and developments may cause management’s views to change. However, while Teradyne may elect to update these forward-looking statements at some point in the future, Teradyne specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Teradyne’s views as of any date subsequent to the date of this release.

TERADYNE, INC. REPORT FOR SECOND FISCAL QUARTER OF 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
						Quarter Ended												Six Months Ended
						July 3, 2022				April 3, 2022				July 4, 2021				July 3, 2022				July 4, 2021
Net revenues						$	840,766			$	755,370			$	1,085,728			$	1,596,136			$	1,867,334
		Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1)					334,377				300,437				438,739				634,814				758,727
Gross profit							506,389				454,933				646,989				961,322				1,108,607
Operating expenses:
		Selling and administrative					139,533				140,185				140,187				279,718				269,984
		Engineering and development					111,951				108,116				110,021				220,067				210,423
		Acquired intangible assets amortization					4,871				5,063				5,402				9,934				10,938
		Restructuring and other (2)					2,044				15,714				2,507				17,758				(4,623	)
				Operating expenses			258,399				269,078				258,117				527,477				486,722
Income from operations							247,990				185,855				388,872				433,845				621,885
		Interest and other expense (3)					9,398				5,496				4,846				14,894				13,866
Income before income taxes							238,592				180,359				384,026				418,951				608,019
		Income tax provision					40,805				18,431				55,707				59,236				74,188
Net income						$	197,787			$	161,928			$	328,319			$	359,715			$	533,831
Net income per common share:
Basic						$	1.24			$	1.00			$	1.98			$	2.24			$	3.21
Diluted						$	1.16			$	0.92			$	1.76			$	2.07			$	2.85
Weighted average common shares - basic							159,563				162,048				165,995				160,805				166,243
Weighted average common shares - diluted (4)							171,159				175,575				186,750				173,367				187,245
Cash dividend declared per common share						$	0.11			$	0.11			$	0.10			$	0.22			$	0.20
(1	)	Cost of revenues includes:				Quarter Ended												Six Months Ended
						July 3, 2022				April 3, 2022				July 4, 2021				July 3, 2022				July 4, 2021
				Provision for excess and obsolete inventory		$	5,105			$	1,590			$	798			$	6,695			$	3,625
				Sale of previously written down inventory			(449	)			(262	)			(428	)			(711	)			(1,218	)
						$	4,656			$	1,328			$	370			$	5,984			$	2,407
(2	)	Restructuring and other consists of:				Quarter Ended												Six Months Ended
						July 3, 2022				April 3, 2022				July 4, 2021				July 3, 2022				July 4, 2021
				Employee severance		$	383			$	551			$	436			$	934			$	624
				Litigation settlement			-				14,700				-				14,700				-
				Acquisition related expenses and compensation			-				(201	)			275				(201	)			38
				Contingent consideration fair value adjustment			-				-				-				-				(7,227	)
				Other			1,661				664				1,796				2,325				1,942
						$	2,044			$	15,714			$	2,507			$	17,758			$	(4,623	)
(3	)	Interest and other includes:				Quarter Ended												Six Months Ended
						July 3, 2022				April 3, 2022				July 4, 2021				July 3, 2022				July 4, 2021
				Non-cash convertible debt interest		$	-			$	-			$	3,277			$	-			$	6,858
				Loss on convertible debt conversions			-				-				1,175				-				5,244
				Pension actuarial gains			-				-				(627	)			-				(627	)
						$	-			$	-			$	3,825			$	-			$	11,475
(4	)	Under GAAP, when calculating diluted earnings per share, convertible debt must be assumed to have converted if the effect on EPS would be dilutive. Diluted shares assume the conversion of the convertible debt as the effect would be dilutive. Accordingly, for the quarters ended July 3, 2022, April 3, 2022 and July 4, 2021, 1.9 million, 2.5 million and 9.6 million shares, respectively, have been included in diluted shares. For the six months ended July 3, 2022 and July 4, 2021, 2.2 million and 9.9 million shares, respectively, have been included in diluted shares. For the quarters ended July 3, 2022, April 3, 2022 and July 4, 2021, diluted shares also included 9.0 million, 10.0 million and 10.1 million shares, respectively, from the convertible note hedge transaction. For the six months ended July 3, 2022 and July 4, 2021, diluted shares included 9.5 million and 9.8 million shares, respectively, from the convertible note hedge transaction.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
						July 3, 2022				December 31, 2021
Assets
		Cash and cash equivalents				$	572,023			$	1,122,199
		Marketable securities					209,846				244,231
		Accounts receivable, net					683,739				550,749
		Inventories, net					295,625				243,330
		Prepayments					498,093				406,266
		Other current assets					11,109				9,452
				Total current assets			2,270,435				2,576,227
		Property, plant and equipment, net					411,263				387,240
		Operating lease right-of-use assets, net					71,812				68,807
		Marketable securities					111,999				133,858
		Deferred tax assets					126,639				102,428
		Retirement plans assets					14,245				15,110
		Other assets					26,942				24,096
		Acquired intangible assets, net					62,509				75,635
		Goodwill					397,733				426,024
				Total assets		$	3,493,577			$	3,809,425
Liabilities
		Accounts payable				$	175,606			$	153,133
		Accrued employees' compensation and withholdings					190,506				253,667
		Deferred revenue and customer advances					163,127				146,185
		Other accrued liabilities					133,881				124,187
		Operating lease liabilities					17,770				19,977
		Income taxes payable					106,863				88,789
		Current debt					9,632				19,182
				Total current liabilities			797,385				805,120
		Retirement plans liabilities					141,884				151,141
		Long-term deferred revenue and customer advances					50,357				54,921
		Long-term other accrued liabilities					15,530				15,497
		Deferred tax liabilities					3,143				6,327
		Long-term operating lease liabilities					62,751				56,178
		Long-term income taxes payable					59,135				67,041
		Debt					64,796				89,244
				Total liabilities			1,194,981				1,245,469
Mezzanine equity							-				1,512
Shareholders' equity							2,298,596				2,562,444
				Total liabilities, convertible common shares and shareholders’ equity		$	3,493,577			$	3,809,425
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
						Quarter Ended								Six Months Ended
						July 3, 2022				July 4, 2021				July 3, 2022				July 4, 2021
Cash flows from operating activities:
		Net income				$	197,787			$	328,319			$	359,715			$	533,831
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation				21,957				21,938				44,460				45,848
			Stock-based compensation				12,228				10,999				25,122				23,231
			Amortization				4,862				9,521				10,095				19,343
			Provision for excess and obsolete inventory				5,105				798				6,695				3,625
			Deferred taxes				(34,885	)			257				(23,597	)			(800	)
			Losses (gains) on investments				6,972				(2,159	)			8,973				(4,650	)
			Retirement plans actuarial gains				-				(627	)			-				(627	)
			Contingent consideration fair value adjustment				-				-				-				(7,227	)
			Loss on convertible debt conversions				-				1,175				-				5,244
			Other				345				(1	)			522				199
			Changes in operating assets and liabilities
				Accounts receivable			(146,592	)			(285,186	)			(146,384	)			(372,698	)
				Inventories			(37,202	)			56,320				(46,682	)			19,908
				Prepayments and other assets			(25,597	)			(31,285	)			(99,902	)			(117,416	)
				Accounts payable and other liabilities			85,922				97,361				(38,460	)			86,790
				Deferred revenue and customer advances			7,416				7,237				14,163				15,189
				Retirement plans contributions			(1,289	)			(814	)			(2,618	)			(2,739	)
				Income taxes			18,426				(7,569	)			10,815				(2,628	)
Net cash provided by operating activities							115,455				206,284				122,917				244,423
Cash flows from investing activities:
		Purchases of property, plant and equipment					(45,744	)			(34,707	)			(89,743	)			(73,957	)
		Purchases of marketable securities					(81,904	)			(186,482	)			(247,881	)			(398,086	)
		Proceeds from maturities of marketable securities					42,970				265,985				139,652				460,213
		Proceeds from sales of marketable securities					113,061				54,819				143,642				116,112
		Purchase of investment					-				(12,000	)			-				(12,000	)
Net cash provided by (used for) investing activities							28,383				87,615				(54,330	)			92,282
Cash flows from financing activities:
		Issuance of common stock under stock purchase and stock option plans					61				15,437				16,536				32,581
		Repurchase of common stock					(331,334	)			(151,396	)			(532,799	)			(196,584	)
		Dividend payments					(17,547	)			(16,604	)			(35,442	)			(33,271	)
		Payments of convertible debt principal					(21,598	)			(15,553	)			(42,292	)			(66,828	)
		Payments related to net settlement of employee stock compensation awards					(1,732	)			(1,119	)			(32,780	)			(31,794	)
Net cash used for financing activities							(372,150	)			(169,235	)			(626,777	)			(295,896	)
Effects of exchange rate changes on cash and cash equivalents							5,732				(1,372	)			8,014				(489	)
Decrease (increase) in cash and cash equivalents					-		(222,580	)			123,292				(550,176	)			40,320
Cash and cash equivalents at beginning of period							794,603				831,149				1,122,199				914,121
Cash and cash equivalents at end of period						$	572,023			$	954,441			$	572,023			$	954,441

GAAP to Non-GAAP Earnings Reconciliation

(In millions, except per share amounts)