TER Teradyne Inc

 Teradyne, Inc. (NYSE:TER) reported revenue of $527 million for the second quarter of 2018 of which $360 million was in Semiconductor Test, $70 million in System Test, $62 million in Industrial Automation, and $35 million in Wireless Test. GAAP net profit for the second quarter was $101.0 million or $0.52 per share.  On a non-GAAP basis, Teradyne’s net income in the second quarter was $112.8 million, or $0.59 per diluted share, which excluded acquired intangible asset amortization, restructuring and other charges, non-cash convertible debt interest, discrete income tax adjustments, and included the related tax impact on non-GAAP adjustments.

“Second quarter sales and earnings exceeded guidance as our test businesses strengthened through the quarter,” said CEO and President Mark Jagiela.  “Despite the slowdown in test demand for mobile devices, other test markets grew in the quarter led by memory in Semiconductor Test, connectivity in Wireless Test at LitePoint, and storage in System Test.  In Industrial Automation, Universal Robots continued its high growth with sales up 45% from Q2 of 2017.  At newly acquired Mobile Industrial Robots (MiR), full quarter sales grew over 85% from the year ago quarter on a standalone basis.”

"Reflecting a continued strong outlook in both our Test and Industrial Automation segments, Q3 company sales are expected to grow over 10% compared to Q3 2017 at the midpoint of our guidance." 

Guidance for the third quarter of 2018 is revenue of $540 million to $570 million, with GAAP net income of $0.51 to $0.59 per diluted share and non-GAAP net income of $0.59 to $0.66 per diluted share.  Non-GAAP guidance excludes acquired intangible asset amortization, non-cash convertible debt interest, restructuring and other charges and includes the related tax impact on non-GAAP adjustments.

Webcast A conference call to discuss the second quarter results, along with management's business outlook, will follow at 10:00 a.m. ET, Wednesday, July 25. Interested investors should access the webcast at investors.teradyne.com/events-presentations at least five minutes before the call begins. Presentation materials will be available starting at 10:00 a.m. ET.

A replay will be available on the Teradyne website at www.teradyne.com/investors.

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, non-cash convertible debt interest, pension actuarial gains and losses, discrete income tax adjustments, fair value inventory step-up related to Mobile Industrial Robots, and restructuring and other, 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 gross margin excludes fair value inventory step-up related to Mobile Industrial Robots. GAAP requires that this item be included in determining gross margin. Non-GAAP gross margin dollar amount and percentage are non-GAAP performance measures that management believes provide useful supplemental information for management and the investor. Management uses non-GAAP gross margin as a performance measure for Teradyne’s current core business and future outlook and for comparison with Teradyne’s business plan, historical gross margin results and the gross margin 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 “Investors” and then selecting 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 TeradyneTeradyne (NYSE:TER) is a leading supplier of automation equipment for test and industrial applications. Teradyne Automatic Test Equipment (ATE) is used to test semiconductors, wireless products, data storage and complex electronic systems, which serve consumer, communications, industrial and government customers. Our Industrial Automation products include collaborative robots, autonomous mobile robots and sensing and simulation software, used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. In 2017, Teradyne had revenue of $2.14 billion and currently employs approximately 4,700 people worldwide. For more information, visit www.teradyne.com. Teradyne(R) is a registered trademark of Teradyne, Inc. in the U.S. and other countries.

Safe Harbor StatementThis release contains forward-looking statements regarding Teradyne’s future business prospects, results of operations, market conditions, earnings per share, the payment of a quarterly dividend, the repurchase of Teradyne common stock pursuant to a share repurchase program, use of proceeds and potential dilution from the senior convertible notes offering, potential borrowings under a senior secured credit facility, and the impact of the U.S. tax reform, 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, earnings per share, use of cash, payment of dividends, repurchases of common stock, payment of the senior convertible notes, availability of, or borrowing under, the credit facility, or the impact of the U.S. tax reform, export and tariff laws. There can be no assurance that management’s estimates of Teradyne’s future results or other forward-looking statements will be achieved. Additionally, the current dividend and share repurchase programs may be modified, suspended or discontinued at any time. Important factors that could cause actual results, earnings per share, use of cash, dividend payments, repurchases of common stock, payment of the senior convertible notes or borrowings under the credit facility 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 consummation and success of any mergers or acquisitions; 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, the repurchase of common stock or borrowing under the credit facility 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; and other events, factors and risks disclosed in filings with the SEC, including, but not limited to, the “Risk Factors” section of Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and the Quarterly Report on Form 10-Q for the period ended April 1, 2018. 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 2018
CONDENSED  CONSOLIDATED  STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
						Quarter Ended												Six Months Ended
						July 1, 2018				April 1, 2018				July 2, 2017 (1)				July 1, 2018				July 2, 2017 (1)
Net revenues						$	526,929			$	487,467			$	696,901			$	1,014,396			$	1,153,814
		Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (2)					219,595				217,635				306,263				437,230				498,159
Gross profit							307,334				269,832				390,638				577,166				655,655
Operating expenses:
		Selling and administrative					99,410				90,505				90,111				189,916				174,903
		Engineering and development					75,342				74,408				82,270				149,750				158,248
		Acquired intangible assets amortization					9,793				7,698				8,166				17,491				16,118
		Restructuring and other (3)					2,389				(313	)			2,288				2,076				4,799
				Operating expenses			186,934				172,298				182,835				359,233				354,068
Income from operations							120,400				97,534				207,803				217,933				301,587
		Interest and other (4)					(388	)			(1,714	)			(926	)			(2,102	)			(2,694	)
Income before income taxes							120,012				95,820				206,877				215,831				298,893
		Income tax provision					18,975				8,846				31,901				27,821				38,696
Net income						$	101,037			$	86,974			$	174,976			$	188,010			$	260,197
Net income per common share:
Basic						$	0.53			$	0.45			$	0.88			$	0.97			$	1.30
Diluted						$	0.52			$	0.43			$	0.87			$	0.94			$	1.29
Weighted average common shares - basic							190,730				195,255				198,774				192,992				199,390
Weighted average common shares - diluted (5)							194,909				203,484				201,529				199,197				201,732
Cash dividend declared per common share						$	0.09			$	0.09			$	0.07			$	0.18			$	0.14
(1	)	Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.
(2	)	Cost of revenues includes:				Quarter Ended												Six Months Ended
						July 1, 2018				April 1, 2018				July 2, 2017				July 1, 2018				July 2, 2017
				Provision for excess and obsolete inventory		$	2,653			$	3,522			$	2,569			$	6,175			$	5,295
				Sale of previously written down inventory			(1,922	)			(2,243	)			(2,149	)			(4,165	)			(3,283	)
						$	731			$	1,279			$	420			$	2,010			$	2,012
(3	)	Restructuring and other consists of:				Quarter Ended												Six Months Ended
						July 1, 2018				April 1, 2018				July 2, 2017				July 1, 2018				July 2, 2017
				Employee severance		$	2,398			$	3,881			$	789			$	6,279			$	1,372
				Acquisition related expenses			2,544				774				-				3,318				-
				Other			947				-				-				947				1,294
				Contingent consideration fair value adjustment			(3,500	)			(4,968	)			1,499				(8,468	)			2,133
						$	2,389			$	(313	)		$	2,288			$	2,076			$	4,799
(4	)	Interest and other includes:				Quarter Ended												Six Months Ended
						July 1, 2018				April 1, 2018				July 2, 2017				July 1, 2018				July 2, 2017
				Non-cash convertible debt interest		$	3,245			$	3,206			$	3,088			$	6,451			$	6,138
				Pension actuarial gains			(71	)			-				(2,504	)			(71	)			(2,504	)
						$	3,174			$	3,206			$	584			$	6,380			$	3,634
(5	)	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 1, 2018, April 1, 2018 and July 2, 2017, 2.6 million, 4.4 million and 0.7 million shares, respectively, have been included in diluted shares. For the six months ended July 1, 2018 and July 2, 2017, 3.5 million and 0.3 million shares, respectively, have been included in diluted shares.  For the quarter ended April 1, 2018 and the six months ended July 1, 2018, diluted shares also included 1.8 million and 0.9 million shares, respectively,  from the convertible note hedge transaction.
CONDENSED  CONSOLIDATED  BALANCE  SHEETS  (In thousands)
						July 1, 2018				December 31, 2017
Assets
		Cash and cash equivalents				$	480,384			$	429,843
		Marketable securities					712,309				1,347,979
		Accounts receivable, net					454,122				272,783
		Inventories, net					135,550				107,525
		Prepayments  and other current assets					111,820				112,151
				Total current assets			1,894,185				2,270,281
		Property, plant and equipment, net					285,302				268,447
		Marketable securities					111,417				125,926
		Deferred tax assets					73,574				84,026
		Other assets					12,192				12,275
		Retirement plans assets					18,252				17,491
		Acquired intangible assets, net					148,173				79,088
		Goodwill					388,625				252,011
				Total assets		$	2,931,720			$	3,109,545
Liabilities
		Accounts payable				$	102,737			$	86,393
		Accrued employees' compensation and withholdings					115,264				141,694
		Deferred revenue and customer advances					82,491				83,614
		Other accrued liabilities					83,681				59,083
		Contingent consideration					35,911				24,497
		Income taxes payable					32,226				59,055
				Total current liabilities			452,310				454,336
		Retirement plans liabilities					124,258				119,776
		Long-term deferred revenue and customer advances					25,375				30,127
		Deferred tax liabilities					22,281				6,720
		Long-term other accrued liabilities					22,296				10,273
		Long-term contingent consideration					25,003				20,605
		Long-term income taxes payable					147,360				148,075
		Long-term debt					372,897				365,987
				Total liabilities			1,191,780				1,155,899
Shareholders' equity							1,739,940				1,953,646
				Total liabilities and shareholders' equity		$	2,931,720			$	3,109,545
CONDENSED  CONSOLIDATED  STATEMENTS OF CASH FLOWS (In thousands)
						Quarter Ended								Six Months Ended
						July 1, 2018				July 2, 2017				July 1, 2018				July 2, 2017
Cash flows from operating activities:
		Net income				$	101,037			$	174,976			$	188,010			$	260,197
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation				16,820				16,331				33,156				32,474
			Amortization				10,973				11,342				20,177				22,412
			Deferred taxes				8,616				(86	)			17,312				(3,563	)
			Stock-based compensation				8,081				8,367				17,625				17,312
			Provision for excess and obsolete inventory				2,653				2,569				6,175				5,295
			Contingent consideration fair value adjustment				(3,500	)			1,499				(8,468	)			2,133
			Retirement plan actuarial gains				(71	)			(2,504	)			(71	)			(2,504	)
			Other				(225	)			1,151				1,168				1,153
			Changes in operating assets and liabilities, net of businesses acquired:
				Accounts receivable			(40,332	)			(90,397	)			(179,403	)			(214,189	)
				Inventories			(266	)			54,003				(21,283	)			(8,149	)
				Prepayments and other assets			2,320				3,321				1,641				4,425
				Accounts payable and accrued expenses			38,551				22,002				(8,155	)			34,504
				Deferred revenue and customer advances			874				8,645				10,518				5,312
				Retirement plans contributions			(1,153	)			(1,036	)			(2,173	)			(1,983	)
				Income taxes			(14,203	)			20,130				(26,308	)			14,363
Net cash provided by operating activities							130,175				230,313				49,921				169,192
Cash flows from investing activities:
		Purchases of property, plant and equipment					(27,866	)			(23,901	)			(62,663	)			(45,967	)
		Purchases of marketable securities					(156,747	)			(181,502	)			(647,071	)			(334,819	)
		Proceeds from sales of marketable securities					28,382				99,661				829,053				313,254
		Proceeds from maturities of marketable securities					257,164				219,423				469,862				307,607
		Acquisition of businesses, net of cash acquired					(145,276	)			-				(170,632	)			-
Net cash (used for) provided by investing activities							(44,343	)			113,681				418,549				240,075
Cash flows from financing activities:
		Issuance of common stock under stock purchase and stock option plans					27				131				10,681				15,215
		Repurchase of common stock					(226,519	)			(56,598	)			(360,795	)			(94,328	)
		Dividend payments					(17,094	)			(13,904	)			(34,682	)			(27,925	)
		Payment related to net settlement of employee stock compensation awards					(122	)			(149	)			(19,751	)			(12,438	)
		Payment of contingent consideration					-				-				(13,571	)			(1,050	)
Net cash used for financing activities							(243,708	)			(70,520	)			(418,118	)			(120,526	)
Effects of exchange rate changes on cash and cash equivalents							387				129				189				1,724
(Decrease) increase in cash and cash equivalents							(157,489	)			273,603				50,541				290,465
Cash and cash equivalents at beginning of period							637,873				324,746				429,843				307,884
Cash and cash equivalents at end of period						$	480,384			$	598,349			$	480,384			$	598,349

 

GAAP to Non-GAAP Earnings Reconciliation
(In millions, except per share amounts)
																					Quarter Ended
					July 1, 2018				% of Net Revenues												April 1, 2018				% of Net Revenues											July 2, 2017 (1)				% of Net Revenues
Net revenues					$	526.9															$	487.5														$	696.9
Gross profit GAAP					$	307.3				58.3	%										$	269.8			55.3	%										$	390.6			56.0	%
		Inventory step-up				0.4				0.1	%											-			-												-			-
Gross profit non-GAAP					$	307.7				58.4	%										$	269.8			55.3	%										$	390.6			56.0	%
Income from operations - GAAP					$	120.4				22.9	%										$	97.5			20.0	%										$	207.8			29.8	%
		Acquired intangible assets amortization				9.8				1.9	%											7.7			1.6	%											8.2			1.2	%
		Restructuring and other (2)				2.4				0.5	%											(0.3	)		-0.1	%											2.3			0.3	%
		Inventory step-up				0.4				0.1	%											-			-												-			-
Income from operations - non-GAAP					$	133.0				25.2	%										$	104.9			21.5	%										$	218.3			31.3	%
													Net Income per Common Share															Net Income per Common Share															Net Income per Common Share
					July 1, 2018				% of Net Revenues				Basic				Diluted				April 1, 2018				% of Net Revenues			Basic				Diluted				July 2, 2017				% of Net Revenues			Basic				Diluted
Net income - GAAP					$	101.0				19.2	%		$	0.53			$	0.52			$	87.0			17.8	%		$	0.45			$	0.43			$	175.0			25.1	%		$	0.88			$	0.87
		Acquired intangible assets amortization				9.8				1.9	%			0.05				0.05				7.7			1.6	%			0.04				0.04				8.2			1.2	%			0.04				0.04
		Interest and other (3)				3.2				0.6	%			0.02				0.02				3.2			0.7	%			0.02				0.02				3.1			0.4	%			0.02				0.02
		Restructuring and other (2)				2.4				0.5	%			0.01				0.01				(0.3	)		-0.1	%			(0.00	)			(0.00	)			2.3			0.3	%			0.01				0.01
		Inventory step-up				0.4				0.1	%			0.00				0.00				-			-				-				-				-			-				-				-
		Pension mark-to-market adjustment (3)				(0.1	)			0.0	%			(0.00	)			(0.00	)			-			-				-				-				(2.5	)		-0.4	%			(0.01	)			(0.01	)
		Exclude discrete tax adjustments (4)				(0.5	)			-0.1	%			(0.00	)			(0.00	)			(6.3	)		-1.3	%			(0.03	)			(0.03	)			0.5			0.1	%			0.00				0.00
		Non-GAAP tax adjustments				(3.4	)			-0.6	%			(0.02	)			(0.02	)			(1.9	)		-0.4	%			(0.01	)			(0.01	)			(5.1	)		-0.7	%			(0.03	)			(0.03	)
		Convertible share adjustment				-				-				-				0.01				-			-				-				0.01				-			-				-				-
Net income - non-GAAP					$	112.8				21.4	%		$	0.59			$	0.59			$	89.4			18.3	%		$	0.46			$	0.45			$	181.5			26.0	%		$	0.91			$	0.90
GAAP and non-GAAP weighted average common shares - basic						190.7																195.3															198.8
GAAP weighted average common shares - diluted						194.9																203.5															201.5
		Exclude dilutive shares related to convertible note transaction				(2.6	)															(6.2	)														(0.7	)
Non-GAAP weighted average common shares - diluted						192.3																197.3															200.8
(1)		Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.
(2)		Restructuring and other consists of:
					Quarter Ended
					July 1, 2018																April 1, 2018															July 2, 2017
			Employee severance		$	2.4															$	3.9														$	0.8
			Acquisition related expenses			2.5																0.8															-
			Other			0.9																-															-
			Contingent consideration fair value adjustment			(3.5	)															(5.0	)														1.5
					$	2.4															$	(0.3	)													$	2.3
(3)		For the quarters ended July 1, 2018, April 1, 2018 and July 2, 2017,  adjustment to exclude non-cash convertible debt interest expense. For the quarters ended July 1, 2018 and July 2, 2017, adjustments to exclude actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.
(4)		For the quarters ended July 1, 2018, April 1, 2018 and July 2, 2017, adjustment to exclude discrete income tax items.
					Six Months Ended
					July 1, 2018				% of Net Revenues												July 2, 2017 (1)				% of Net Revenues
Net Revenues					$	1,014.4															$	1,153.8
Gross profit GAAP					$	577.2				56.9	%										$	655.7			56.8	%
		Inventory step-up				0.4				0.0	%											-			-
Gross profit non-GAAP					$	577.6				56.9	%										$	655.7			56.8	%
Income from operations - GAAP					$	217.9				21.5	%										$	301.6			26.1	%
		Acquired intangible assets amortization				17.5				1.7	%											16.1			1.4	%
		Restructuring and other (2)				2.1				0.2	%											4.8			0.4	%
		Inventory step-up				0.4				0.0	%											-			-
Income from operations - non-GAAP					$	237.9				23.5	%										$	322.5			28.0	%
													Net Income per Common Share															Net Income per Common Share
					July 1, 2018				% of Net Revenues				Basic				Diluted				July 2, 2017				% of Net Revenues			Basic				Diluted
Net income - GAAP					$	188.0				18.5	%		$	0.97			$	0.94			$	260.2			22.6	%		$	1.30			$	1.29
		Acquired intangible assets amortization				17.5				1.7	%			0.09				0.09				16.1			1.4	%			0.08				0.08
		Interest and other (3)				6.5				0.6	%			0.03				0.03				6.1			0.5	%			0.03				0.03
		Restructuring and other (2)				2.1				0.2	%			0.01				0.01				4.8			0.4	%			0.02				0.02
		Inventory step-up				0.4				0.0	%			0.00				0.00				-			-				-				-
		Pension mark-to-market adjustment (3)				(0.1	)			0.0	%			(0.00	)			(0.00	)			(2.5	)		-0.2	%			(0.01	)			(0.01	)
		Exclude discrete tax adjustments (4)				(6.8	)			-0.7	%			(0.04	)			(0.03	)			(6.5	)		-0.6	%			(0.03	)			(0.03	)
		Non-GAAP tax adjustments				(5.3	)			-0.5	%			(0.03	)			(0.03	)			(8.2	)		-0.7	%			(0.04	)			(0.04	)
		Convertible share adjustment				-				-				-				0.02				-			-				-				-
Net income - non-GAAP					$	202.3				19.9	%		$	1.05			$	1.04			$	270.0			23.4	%		$	1.35			$	1.34
GAAP and non-GAAP weighted average common shares - basic						193.0																199.4
GAAP weighted average common shares - diluted						199.2																201.7
		Exclude dilutive shares from convertible note				(4.4	)															(0.3	)
Non-GAAP weighted average common shares - diluted						194.8																201.4
(1)		Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.
(2)		Restructuring and other consists of:
					Six Months Ended
					July 1, 2018																July 2, 2017
			Employee severance		$	6.3															$	1.4
			Acquisition related expenses			3.3																-
			Other			0.9																1.3															-
			Contingent consideration fair value adjustment			(8.5	)															2.1
					$	2.1															$	4.8
(3)		For the six months ended July 1, 2018 and July 2, 2017, Interest and other included non-cash convertible debt interest expense. For the six months ended July 1, 2018 and July 2, 2017, adjustments to exclude actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.
(4)		For the six months ended July 1, 2018 and July 2, 2017, adjustment to exclude discrete income tax items.
GAAP to Non-GAAP Reconciliation of Third Quarter 2018 guidance:
GAAP and non-GAAP third quarter revenue guidance:									$540 million			to	$570 million
GAAP net income per diluted share									$	0.51			$	0.59
		Exclude acquired intangible assets amortization								0.06				0.06
		Exclude non-cash convertible debt interest								0.02				0.02
		Exclude restructuring and other								0.01				0.01
		Tax effect of non-GAAP adjustments								(0.02	)			(0.02	)
		Convertible share adjustment								0.01				0.01
Non-GAAP net income per diluted share									$	0.59			$	0.66

Contact: Teradyne, Inc. Andy Blanchard 978-370-2425 Vice President of Corporate Relations