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Teradyne Reports Third Quarter 2018 Results

October 23, 2018

  • Revenue of $567 million, organic growth of 11% from Q3’17
  • Memory Test Q3’18 revenue of $87 million, up 83% from Q3’17
  • Universal Robots revenue up 46% from Q3’17, Industrial Automation segment revenue up 64%
  Q3’18 Q2’18 Q3’17
Revenue (mil) $567 $527 $503
GAAP EPS $0.63 $0.52 $0.52
Non-GAAP EPS $0.71 $0.59 $0.54

NORTH READING, Mass., Oct. 23, 2018 (GLOBE NEWSWIRE) -- Teradyne, Inc. (NYSE: TER) reported revenue of $567 million for the third quarter of 2018 of which $417 million was in Semiconductor Test, $66 million in Industrial Automation, $50 million in System Test, and $34 million in Wireless Test. GAAP net profit for the third quarter was $120.0 million or $0.63 per diluted share. On a non-GAAP basis, Teradyne’s net income in the third quarter was $133.3 million, or $0.71 per diluted share, which excluded acquired intangible asset amortization, non-cash convertible debt interest, restructuring and other charges and included the related tax impact on non-GAAP adjustments.

"Increased third quarter sales, combined with favorable product mix, drove earnings above our guidance," said President and CEO Mark Jagiela. "In Semiconductor Test, sales increased 5% compared to Q3'17 due to continued strength in automotive and industrial chip test markets combined with increased memory test demand for our expanded Magnum product line. Universal Robots (UR) growth, combined with 2018 acquisitions MiR and Energid, drove our Industrial Automation sales up 64% compared to Q3'17. Growing traction for UR’s next generation e-Series Cobots and expanded distribution for MiR's mobile platform powered the growth and positions us for a strong finish to the year.

With expected strong Industrial Automation and Semiconductor Test shipments, the mid-point of our Q4 guidance delivers another year with over $2 billion in sales and over $2 of earnings per share."

Guidance for the fourth quarter of 2018 is revenue of $480 million to $510 million, with GAAP net income of $0.39 to $0.46 per diluted share and non-GAAP net income of $0.46 to $0.54 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 third quarter results, along with management's business outlook, will follow at 10:00 a.m. ET, Wednesday, October 24. 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 investors.teradyne.com.

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 Teradyne
Teradyne (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 industrial customers to improve quality and increase manufacturing efficiency. In 2017, Teradyne had revenue of $2.14 billion and currently employs approximately 4,800 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, 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 July 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 THIRD FISCAL QUARTER OF 2018                      
   
CONDENSED  CONSOLIDATED  STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)                  
                             
          Quarter Ended   Nine Months Ended  
          September 30,
2018
  July 1,
2018
  October 1,
2017 (1)
  September 30,
2018
  October 1,
2017 (1)
 
                             
Net revenues   $ 566,848     $ 526,929     $ 503,378     $ 1,581,244     $ 1,657,191    
                             
  Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (2)     233,155       219,595       208,509       670,385       706,667    
                             
Gross profit     333,693       307,334       294,869       910,859       950,524    
                             
Operating expenses:                      
  Selling and administrative     100,199       99,410       86,130       290,115       261,034    
  Engineering and development     77,049       75,342       76,986       226,799       235,235    
  Acquired intangible assets amortization     11,142       9,793       7,028       28,633       23,145    
  Restructuring and other (3)     1,710       2,389       (4,407 )     3,785       392    
      Operating expenses     190,100       186,934       165,737       549,332       519,806    
                             
Income from operations     143,593       120,400       129,132       361,527       430,718    
                             
  Interest and other (4)     (2,749 )     (388 )     (1,695 )     (4,852 )     (4,389 )  
                             
Income before income taxes     140,844       120,012       127,437       356,675       426,329    
  Income tax provision     20,863       18,975       24,017       48,684       62,713    
Net income   $ 119,981     $ 101,037     $ 103,420     $ 307,991     $ 363,616    
                             
Net income per common share:                      
Basic       $ 0.65     $ 0.53     $ 0.52     $ 1.62     $ 1.83    
Diluted       $ 0.63     $ 0.52     $ 0.52     $ 1.57     $ 1.81    
                             
Weighted average common shares - basic     185,744       190,730       197,485       190,576       198,755    
                             
Weighted average common shares - diluted (5)     190,505       194,909       200,775       196,300       201,413    
                             
                             
Cash dividend declared per common share   $ 0.09     $ 0.09     $ 0.07     $ 0.27     $ 0.21    
                             
                             
(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   Nine Months Ended  
          September 30,
2018
  July 1,
2018
  October 1,
2017
  September 30,
2018
  October 1,
2017
 
      Provision for excess and obsolete inventory   $ 3,347     $ 2,653     $ 1,859     $ 9,522     $ 7,154    
      Sale of previously written down inventory     (1,013 )     (1,922 )     (3,121 )     (5,178 )     (6,404 )  
          $ 2,334     $ 731     $ (1,262 )   $ 4,344     $ 750    
                             
(3) Restructuring and other consists of:   Quarter Ended   Nine Months Ended  
          September 30,
2018
  July 1,
2018
  October 1,
2017
  September 30,
2018
  October 1,
2017
 
      Employee severance   $ 1,667     $ 2,398     $ 581     $ 7,945     $ 1,953    
      Acquisition related expenses and compensation     811       2,544       -       4,129       -    
      Contingent consideration fair value adjustment     (768 )     (3,500 )     (286 )     (9,236 )     1,847    
      Other     -       947       362       947       1,656    
      Property insurance recovery     -       -       (5,064 )     -       (5,064 )  
          $ 1,710     $ 2,389     $ (4,407 )   $ 3,785     $ 392    
                             
                             
(4)  Interest and other includes:   Quarter Ended   Nine Months Ended  
          September 30,
2018
  July 1,
2018
  October 1,
2017
  September 30,
2018
  October 1,
2017
 
      Non-cash convertible debt interest   $ 3,286     $ 3,245     $ 3,127     $ 9,737     $ 9,265    
      Pension actuarial loss (gain)     267       (71 )     -       196       (2,504 )  
          $ 3,553     $ 3,174     $ 3,127     $ 9,933     $ 6,761    
                             
(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 September 30, 2018, July 1, 2018 and October 1, 2017, 3.0 million, 2.6 million and 1.1 million shares, respectively, have been included in diluted shares. For the nine months ended September 30, 2018 and October 1, 2017, 3.4 million and 0.6 million shares, respectively, have been included in diluted shares. For the quarter ended September 30, 2018 and the nine months ended September 30, 2018, diluted shares also included 0.1 million and 0.6 million shares, respectively, from the convertible note hedge transaction.  
                             


CONDENSED  CONSOLIDATED  BALANCE  SHEETS  (In thousands)          
                 
          September 30,
2018
  December 31,
2017
 
                 
Assets              
  Cash and cash equivalents   $ 814,019   $ 429,843  
  Marketable securities     418,410     1,347,979  
  Accounts receivable, net     352,476     272,783  
  Inventories, net     154,705     107,525  
  Prepayments and other current assets     139,785     112,151  
      Total current assets     1,879,395     2,270,281  
                 
  Property, plant and equipment, net     278,071     268,447  
  Marketable securities     91,982     125,926  
  Deferred tax assets     70,772     84,026  
  Other assets     11,421     12,275  
  Retirement plans assets     17,885     17,491  
  Acquired intangible assets, net     139,963     79,088  
  Goodwill     392,998     252,011  
                 
      Total assets   $ 2,882,487   $ 3,109,545  
                 
Liabilities            
  Accounts payable   $ 107,890   $ 86,393  
  Accrued employees' compensation and withholdings     116,546     141,694  
  Deferred revenue and customer advances     77,953     83,614  
  Other accrued liabilities     95,888     59,083  
  Contingent consideration     35,532     24,497  
  Income taxes payable     24,603     59,055  
                 
      Total current liabilities     458,412     454,336  
                 
  Retirement plans liabilities     127,037     119,776  
  Long-term deferred revenue and customer advances     29,387     30,127  
  Deferred tax liabilities     21,748     6,720  
  Long-term other accrued liabilities     28,956     10,273  
  Long-term contingent consideration     25,410     20,605  
  Long-term income taxes payable     147,360     148,075  
  Long-term debt     376,417     365,987  
                 
      Total liabilities     1,214,727     1,155,899  
                 
Shareholders' equity     1,667,760     1,953,646  
                 
      Total liabilities and shareholders' equity   $ 2,882,487   $ 3,109,545  
                 


CONDENSED  CONSOLIDATED  STATEMENTS OF CASH FLOWS (In thousands)                
                       
          Quarter Ended   Nine Months Ended
          September 30,
2018
  October 1,
2017
  September 30,
2018
  October 1,
2017
Cash flows from operating activities:                 
  Net income   $   119,981     $   103,420     $   307,991     $   363,616  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation       16,774         16,769         49,930         49,243  
    Amortization       12,732         9,901         32,909         32,313  
    Stock-based compensation       7,702         8,308         25,327         25,620  
    Deferred taxes       7,130         2,884         24,442         (679 )
    Provision for excess and obsolete inventory       3,347         1,859         9,522         7,154  
    Contingent consideration adjustment       (768 )       (286 )       (9,236 )       1,847  
    Retirement plan actuarial losses       267         -          196         (2,504 )
    Property insurance recovery       -          (4,309 )       -          (4,309 )
    Other       (652 )       36         516         429  
    Changes in operating assets and liabilities, net of businesses acquired:              
      Accounts receivable       101,596         137,807         (77,807 )       (75,623 )
      Inventories       (12,834 )       31,919         (34,117 )       23,770  
      Prepayments and other assets       (30,360 )       2,937         (28,719 )       7,362  
      Accounts payable and other accrued expenses       24,279         (27,778 )       16,124         5,298  
      Deferred revenue and customer advances       (695 )       29,223         9,823         34,535  
      Retirement plans contributions       (1,071 )       (2,875 )       (3,244 )       (4,858 )
      Income taxes       (6,844 )       15         (33,152 )       15,808  
Net cash provided by operating activities       240,584         309,830         290,505         479,022  
                       
Cash flows from investing activities:                
  Purchases of property, plant and equipment       (25,606 )       (27,280 )       (88,269 )       (73,247 )
  Proceeds from government subsidy for property, plant and equipment       7,920         -          7,920         -   
  Purchases of marketable securities       (162,450 )       (701,704 )       (809,521 )       (1,036,523 )
  Proceeds from sales of marketable securities       14,111         129,915         843,164         443,169  
  Proceeds from maturities of marketable securities       464,238         165,648         934,100         473,255  
  Proceed from property insurance       -          5,064         -          5,064  
  Proceed from life insurance       1,126         -          1,126         -   
  Acquisition of businesses, net of cash acquired       1,158         -          (169,474 )       -   
Net cash provided by (used for) investing activities       300,497         (428,357 )       719,046         (188,282 )
                       
Cash flows from financing activities:                 
  Issuance of common stock under stock purchase and stock option plans       10,278         9,247         20,959         24,462  
  Repurchase of common stock       (201,468 )       (57,493 )       (562,263 )       (151,821 )
  Dividend payments       (16,638 )       (13,805 )       (51,320 )       (41,730 )
  Payment related to net settlement of employee stock compensation awards       (90 )       (146 )       (19,841 )       (12,584 )
  Payment of contingent consideration       -          -          (13,571 )       (1,050 )
Net cash used for financing activities       (207,918 )       (62,197 )       (626,036 )       (182,723 )
                       
Effects of exchange rate changes on cash and cash equivalents       472         1,052         661         2,776  
                       
Increase (decrease) in cash and cash equivalents       333,635         (179,672 )       384,176         110,793  
Cash and cash equivalents at beginning of period       480,384         598,349         429,843         307,884  
Cash and cash equivalents at end of period   $   814,019     $   418,677     $   814,019     $   418,677  
                       


GAAP to Non-GAAP Earnings Reconciliation                                              
                                                     
(In millions, except per share amounts)                                              
                        Quarter Ended                        
        September 30,
2018
  % of Net Revenues           July 1,
2018
  % of Net Revenues           October 1,
2017 (1)
  % of Net Revenues        
                                                     
Net revenues   $ 566.8                 $ 526.9                 $ 503.4              
                                                     
Gross profit GAAP $ 333.7       58.9 %           $ 307.3     58.3 %           $ 294.8     58.6 %        
  Inventory step-up   -       -               0.4     0.1 %             -     -          
Gross profit non-GAAP $ 333.7       58.9 %           $ 307.7     58.4 %           $ 294.8     58.6 %        
                                                     
Income from operations - GAAP $ 143.6       25.3 %           $ 120.4     22.9 %           $ 129.1     25.6 %        
  Acquired intangible assets amortization   11.1       2.0 %             9.8     1.9 %             7.0     1.4 %        
  Restructuring and other (2)   1.7       0.3 %             2.4     0.5 %             (4.4 )   -0.9 %        
  Inventory step-up   -       -               0.4     0.1 %             -     -          
Income from operations - non-GAAP $ 156.4       27.6 %           $ 133.0     25.2 %           $ 131.7     26.2 %        
                                                     
                Net Income
per Common Share
          Net Income
per Common Share
          Net Income
per Common Share
        September 30,
2018
  % of Net Revenues   Basic   Diluted   July 1,
2018
  % of Net Revenues   Basic   Diluted   October 1,
2017
  % of Net Revenues   Basic   Diluted
Net income - GAAP $ 120.0       21.2 %   $ 0.65     $ 0.63     $ 101.0     19.2 %   $ 0.53     $ 0.52     $ 103.4     20.5 %   $ 0.52     $ 0.51  
  Acquired intangible assets amortization   11.1       2.0 %     0.06       0.06       9.8     1.9 %     0.05       0.05       7.0     1.4 %     0.04       0.03  
  Interest and other (3)   3.3       0.6 %     0.02       0.02       3.2     0.6 %     0.02       0.02       3.1     0.6 %     0.02       0.02  
  Restructuring and other (2)   1.7       0.3 %     0.01       0.01       2.4     0.5 %     0.01       0.01       (4.4 )   -0.9 %     (0.02 )     (0.02 )
  Pension mark-to-market adjustment (3)   0.3       0.1 %     0.00       0.00       (0.1 )   0.0 %     (0.00 )     (0.00 )     -     -       -       -  
  Inventory step-up   -       -       -       -       0.4     0.1 %     0.00       0.00       -     -       -       -  
  Exclude discrete tax adjustments (4)   0.3       0.1 %     0.00       0.00       (0.5 )   -0.1 %     (0.00 )     (0.00 )     0.3     0.1 %     0.00       0.00  
  Non-GAAP tax adjustments   (3.4 )     -0.6 %     (0.02 )     (0.02 )     (3.4 )   -0.6 %     (0.02 )     (0.02 )     (1.7 )   -0.3 %     (0.01 )     (0.01 )
  Convertible share adjustment   -       -       -       0.01       -     -       -       0.01       -     -       -       -  
Net income - non-GAAP $ 133.3       23.5 %   $ 0.72     $ 0.71     $ 112.8     21.4 %   $ 0.59     $ 0.59     $ 107.7     21.4 %   $ 0.55     $ 0.54  
                                                     
GAAP and non-GAAP weighted average common shares - basic   185.7                   190.7                   197.5              
GAAP weighted average common shares - diluted   190.5                   194.9                   200.8              
  Exclude dilutive shares related to convertible note transaction   (3.1 )                 (2.6 )                 (1.1 )            
Non-GAAP weighted average common shares - diluted   187.4                   192.3                   199.7              
                                                     
                                                     
(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            
        September 30,
2018
              July 1,
2018
              October 1,
2017
           
    Employee severance $ 1.7                 $ 2.4                 $ 0.6              
    Acquisition related expenses and compensation   0.8                   2.5                   -              
    Contingent consideration fair value adjustment   (0.8 )                 (3.5 )                 (0.3 )            
    Other     -                   0.9                   0.4              
    Property insurance recovery   -                   -                   (5.1 )            
        $ 1.7                 $ 2.4                 $ (4.4 )            
                                                     
(3)

For the quarters ended September 30, 2018, July 1, 2018 and October 1, 2017, adjustment to exclude non-cash convertible debt interest expense. For the quarters ended September 30, 2018 and July 1, 2018, adjustments to exclude actuarial losses recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting policy.
                                                     
(4) For the quarters ended September 30, 2018, July 1, 2018 and October 1, 2017, adjustment to exclude discrete income tax items.          
             
        Nine Months Ended                
        September 30,
2018
  % of Net Revenues           October 1,
2017 (1)
  % of Net Revenues                        
                                                     
Net Revenues
$ 1,581.2                 $ 1,657.2                              
                                                     
Gross profit GAAP $ 910.9       57.6 %           $ 950.5     57.4 %                        
  Inventory step-up   0.4       0.0 %             -     -                          
Gross profit non-GAAP $ 911.3       57.6 %           $ 950.5     57.4 %                        
                                                     
Income from operations - GAAP $ 361.5       22.9 %           $ 430.7     26.0 %                        
  Acquired intangible assets amortization   28.6       1.8 %             23.1     1.4 %                        
  Restructuring and other (2)   3.8       0.2 %             0.4     0.0 %                        
  Inventory step-up   0.4       0.0 %             -     -                          
Income from operations - non-GAAP $ 394.3       24.9 %           $ 454.2     27.4 %                        
                                                     
                Net Income
per Common Share
          Net Income
per Common Share
               
        September 30,
2018
  % of Net Revenues   Basic   Diluted   October 1,
2017
  % of Net Revenues   Basic   Diluted                
Net income - GAAP $ 308.0       19.5   $ 1.62     $ 1.57     $ 363.6     21.9 %   $ 1.83     $ 1.81                  
  Acquired intangible assets amortization   28.6       1.8 %     0.15       0.15       23.1     1.4 %     0.12       0.11                  
  Interest and other (3)   9.7       0.6 %     0.05       0.05       9.3     0.6 %