Teradyne Reports Second Quarter 2020 Results

Important factors that could cause actual results, 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 impact of the COVID-19 outbreak 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 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 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 and HiSilicon; 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, 2019 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020. 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 2020
              
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
              
      Quarter Ended  Six Months Ended
      June 28, 2020  March 29, 2020  June 30, 2019  June 28, 2020  June 30, 2019
              
Net revenues $838,661  $704,355  $564,178    $ 1,543,016 $ 1,058,277  
                           
  Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1)     367,188       298,805       240,260       665,993       446,724  
                           
Gross profit     471,473       405,550       323,918       877,023       611,553  
                           
Operating expenses:                    
  Selling and administrative     113,259       111,388       108,811       224,647       210,824  
  Engineering and development     94,102       85,159       81,434       179,261       158,225  
  Acquired intangible assets amortization     8,941       9,891       10,083       18,832       20,717  
  Restructuring and other (2)     37,222       (7,606 )     (10,404 )     29,616       (5,292 )
      Operating expenses     253,524       198,832       189,924       452,356       384,474  
                           
Income from operations     217,949       206,718       133,994       424,667       227,079  
                           
  Interest and other expense (3)     658       9,649       2,817       10,308       1,923  
                           
Income before income taxes     217,291       197,069       131,177       414,359       225,156  
  Income tax provision     28,383       20,878       33,780       49,261       18,621  
Net income   $ 188,908     $ 176,191     $ 97,397     $ 365,098     $ 206,535  
                           
Net income per common share:                    
Basic       $ 1.14     $ 1.06     $ 0.57     $ 2.20     $ 1.20  
Diluted       $ 1.05     $ 0.97     $ 0.55     $ 2.02     $ 1.16  
                           
Weighted average common shares - basic     165,789       166,589       171,241       166,189       172,387  
                           
Weighted average common shares - diluted (4)     180,257       180,736       178,590       180,497       177,781  
                           
                           
Cash dividend declared per common share   $ 0.10     $ 0.10     $ 0.09     $ 0.20     $ 0.18  
                           
                           
                           
(1 ) Cost of revenues includes:   Quarter Ended   Six Months Ended
          June 28, 2020   March 29, 2020   June 30, 2019   June 28, 2020   June 30, 2019
      Provision for excess and obsolete inventory   $ 5,580     $ 4,057     $ 3,402     $ 9,637     $ 5,799  
      Sale of previously written down inventory     (337 )     (1,077 )     (363 )     (1,414 )     (1,141 )
      Inventory step-up     121       118       383       239       383  
          $ 5,364     $ 3,098     $ 3,422     $ 8,462     $ 5,041  
                           
                           
(2 ) Restructuring and other consists of:   Quarter Ended   Six Months Ended
          June 28, 2020   March 29, 2020   June 30, 2019   June 28, 2020   June 30, 2019
      Contingent consideration fair value adjustment   $ 29,259     $ (10,020 )   $ (11,671 ) $ 19,239     $ (8,701 )
      Contract termination settlement fee     4,000       -       -       4,000       -  
      Acquisition related expenses and compensation     3,145       1,358       464       4,503       1,807  
      Employee severance     36       728       803       764       1,602  
      Other     782       328       -       1,110       -  
          $ 37,222     $ (7,606 )   $ (10,404 )   $ 29,616     $ (5,292 )
                           
                           
(3 ) Interest and other includes:   Quarter Ended   Six Months Ended
          June 28, 2020   March 29, 2020   June 30, 2019   June 28, 2020   June 30, 2019
      Non-cash convertible debt interest   $ 3,584     $ 3,540     $ 3,410     $ 7,124     $ 6,778  
      Pension actuarial (gains) losses     (99 )     -       448       (99 )     448  
          $ 3,485     $ 3,540     $ 3,858     $ 7,025     $ 7,226  
                           
(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 June 28, 2020, March 29, 2020 and June 30, 2019, 7.6 million, 7.3 million and 4.4 million shares, respectively, have been included in diluted shares. For the six months ended June 28, 2020 and June 30, 2019, 7.5 million and 3.3 million shares, respectively, have been included in diluted shares. For the quarters ended June 28, 2020, March 29, 2020 and June 30, 2019, diluted shares also included 5.8 million, 5.5 million and 1.8 million shares, respectively from the convertible note hedge transaction. For the six months ended June 28, 2020 and June 30, 2019, diluted shares also included 5.7 million and 0.9 million shares, respectively, from the convertible note hedge transaction.
                     
                     
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)                    
                           
          June 28, 2020   December 31, 2019            
                           
Assets                        
  Cash and cash equivalents   $ 728,306     $ 773,924              
  Marketable securities     229,791       137,303              
  Accounts receivable, net     694,521       362,368              
  Inventories, net     206,088       196,691              
  Prepayments and other current assets     238,176       188,598              
      Total current assets     2,096,882       1,658,884              
                           
  Property, plant and equipment, net     353,595       320,216              
  Operating lease right-of-use assets, net     56,172       57,539              
  Marketable securities     106,968       104,490              
  Deferred tax assets     79,210       75,185              
  Retirement plans assets     17,817       18,457              
  Other assets     11,854       10,332              
  Acquired intangible assets, net     107,563       125,480              
  Goodwill     422,003       416,431              
                           
      Total assets   $ 3,252,064     $ 2,787,014              
                           
Liabilities                      
  Accounts payable   $ 184,163     $ 126,617              
  Accrued employees' compensation and withholdings     175,589       163,883              
  Deferred revenue and customer advances     124,224       104,876              
  Other accrued liabilities     122,607       70,871              
  Operating lease liabilities     20,000       19,476              
  Contingent consideration     16,789       9,106              
  Income taxes payable     89,216       44,200              
                           
      Total current liabilities     732,588       539,029              
                           
  Retirement plans liabilities     130,826       134,471              
  Long-term deferred revenue and customer advances     55,634       45,974              
  Long-term contingent consideration     32,948       30,599              
  Long-term other accrued liabilities     22,703       19,535              
  Deferred tax liabilities     11,997       14,070              
  Long-term operating lease liabilities     43,582       45,849              
  Long-term income taxes payable     74,930       82,642              
  Debt       402,305       394,687              
                           
      Total liabilities     1,507,513       1,306,856              
                           
Shareholders' equity     1,744,551       1,480,158              
                           
      Total liabilities and shareholders' equity   $ 3,252,064     $ 2,787,014              
                           
                           
                           
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)                
                           
          Quarter Ended   Six Months Ended    
          June 28, 2020   June 30, 2019   June 28, 2020   June 30, 2019    
Cash flows from operating activities:                    
  Net income   $ 188,908     $ 97,397     $ 365,098     $ 206,535      
  Adjustments to reconcile net income to net cash provided by operating activities:                    
    Contingent consideration fair value adjustment     29,259       (11,671 )     19,239       (8,701 )    
    Depreciation     19,816       17,231       38,305       33,882      
    Amortization     12,843       12,034       26,234       24,976      
    Stock-based compensation     10,907       8,635       21,367       18,109      
    Provision for excess and obsolete inventory     5,580       3,402       9,637       5,799      
    Gains on investments     (5,126 )     (913 )     (469 )     (3,741 )    
    Deferred taxes     (5,338 )     (691 )     (7,163 )     515      
    Retirement plan actuarial (gains) losses     (99 )     448       (99 )     448      
    Other     19       210       523       429      
                           
    Changes in operating assets and liabilities, net of businesses acquired:                  
      Accounts receivable     (204,261 )     (37,772 )     (331,040 )     (79,478 )    
      Inventories     (19,546 )     470       (3,728 )     (2,447 )    
      Prepayments and other assets     (9,859 )     1,581       (49,479 )     (17,067 )    
      Accounts payable and other liabilities     151,776       38,887       116,453       (14,424 )    
      Deferred revenue and customer advances     29,568       9,371       28,655       15,826      
      Retirement plans contributions     (1,239 )     (1,204 )     (2,501 )     (2,414 )    
      Income taxes     22,564       7,831       37,842       (14,973 )    
Net cash provided by operating activities     225,772       145,246       268,874       163,274      
                           
Cash flows from investing activities:                    
  Purchases of property, plant and equipment     (47,314 )     (33,245 )     (84,014 )     (58,956 )    
  Purchases of marketable securities     (112,429 )     (108,997 )     (299,548 )     (484,181 )    
  Proceeds from maturities of marketable securities     84,527       91,992       182,984       233,193      
  Proceeds from sales of marketable securities     11,656       37,014       26,661       42,454      
  Proceeds from life insurance     546       -       546       273      
  Purchase of investments and acquisition of businesses, net of cash acquired      -       (15,000 )     149       (21,970 )    
Net cash used for investing activities     (63,014 )     (28,236 )     (173,222 )     (289,187 )    
                           
Cash flows from financing activities:                    
  Issuance of common stock under stock purchase and stock option plans   5       833       12,757       15,089      
  Repurchase of common stock     (9,426 )     (90,754 )     (88,465 )     (247,222 )    
  Dividend payments     (16,580 )     (15,392 )     (33,266 )     (31,019 )    
  Payments related to net settlement of employee stock compensation awards      (449 )     (128 )     (22,519 )     (14,446 )    
  Payments of contingent consideration     -       -       (8,852 )     (27,615 )    
Net cash used for financing activities     (26,450 )     (105,441 )     (140,345 )     (305,213 )    
                           
Effects of exchange rate changes on cash and cash equivalents     (1,496 )     (190 )     (925 )     (519 )    
Increase (decrease) in cash and cash equivalents -   134,812       11,379       (45,618 )     (431,645 )    
Cash and cash equivalents at beginning of period     593,494       483,728       773,924       926,752      
Cash and cash equivalents at end of period   $ 728,306     $ 495,107     $ 728,306     $ 495,107      
                           

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