Teradyne Reports First Quarter 2022 Results

On May 16, 2019, Huawei and 68 of its affiliates, including HiSilicon, were added to the U.S. Department of Commerce Entity List under U.S. Export Administration Regulations (the “EAR”). This action by the U.S. Department of Commerce imposed new export licensing requirements on exports, re-exports, and in-country transfers of all U.S. - regulated products, software and technology to the designated Huawei entities. On August 17, 2020, the U.S. Department of Commerce published final regulations expanding the scope of the U.S. EAR to include additional products that became subject to export restrictions relating to Huawei entities including HiSilicon. These new regulations restrict the sale to Huawei and the designated Huawei entities of certain non-U.S. made items, such as semiconductor devices, manufactured for or sold to Huawei entities including HiSilicon under specific, detailed conditions set forth in the new regulations. These new regulations have negatively impacted our sales to Huawei, HiSilicon and their suppliers. Teradyne is taking appropriate actions, including filing for licenses with the U.S. Department of Commerce. However, Teradyne cannot be certain that the actions it takes will mitigate the risks associated with the new export controls that impact its business. It is uncertain the extent these new regulations and any other additional regulations that may be implemented by the U.S. Department of Commerce or other government agency may have on Teradyne’s business and financial results.

On April 28, 2020, the U.S. Department of Commerce published new 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. The definition of military end user is broad. The regulations went into effect on June 29, 2020. In December 2020, the U.S. Department of Commerce issued a list of companies in China and other countries that it considered to be military end users. Teradyne does not expect that compliance with the new export controls will significantly impact its ability to sell products to its customers in China or to manufacture products in China. The new export controls, however, could disrupt the Company’s supply chain, increase compliance costs and impact the demand for the Company’s products in China and, thus, have a material adverse impact on Teradyne’s business, financial condition or results of operations. In addition, while the Company maintains an export compliance program, its compliance controls could be circumvented, exposing the Company to legal liabilities. Teradyne continues to assess the impact of the new export controls on its business and operations and take appropriate actions, including filing for licenses with the U.S. Department of Commerce, to minimize any disruption. However, Teradyne cannot be certain that the actions it takes will mitigate all the risks associated with the export controls that may impact its business.

In response to the regulations issued by the U.S. Department of Commerce, the Chinese government has passed new laws that may impact Teradyne’s business activities in China. The Company continues to assess the potential impact of these new Chinese laws and to monitor relevant laws and regulations issued by the Chinese government.

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; 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. 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 FIRST FISCAL QUARTER OF 2022      
                
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
                   
          Quarter Ended
          April 3,
2022
  December 31,
2021
  April 4,
2021
                   
Net revenues   $ 755,370     $ 885,047     $ 781,606  
Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1)     300,437       357,998       319,988  
                   
Gross profit     454,933       527,049       461,618  
                   
Operating expenses:            
  Selling and administrative     140,185       142,747       129,797  
  Engineering and development     108,116       109,965       100,402  
  Acquired intangible assets amortization     5,063       5,163       5,536  
  Restructuring and other (2)     15,714       12,738       (7,130 )
      Operating expenses     269,078       270,613       228,605  
                   
Income from operations     185,855       256,436       233,013  
                   
  Interest and other expense (3)     5,496       1,256       9,020  
                   
Income before income taxes     180,359       255,180       223,993  
  Income tax provision     18,431       31,140       18,481  
Net income   $ 161,928     $ 224,040     $ 205,512  
                   
Net income per common share:            
Basic       $ 1.00     $ 1.38     $ 1.23  
Diluted       $ 0.92     $ 1.26     $ 1.09  
                   
Weighted average common shares - basic     162,048       162,769       166,491  
                   
Weighted average common shares - diluted (4)     175,565       178,020       187,740  
                   
                   
Cash dividend declared per common share   $ 0.11     $ 0.10     $ 0.10  
                   
                   
                   
(1 ) Cost of revenues includes:   Quarter Ended
          April 3,
2022
  December 31,
2021
  April 4,
2021
      Provision for excess and obsolete inventory   $ 1,590     $ 3,700     $ 2,827  
      Sale of previously written down inventory     (262 )     (434 )     (790 )
          $ 1,328     $ 3,266     $ 2,037  
                   
(2 ) Restructuring and other consists of:   Quarter Ended
          April 3,
2022
  December 31,
2021
  April 4,
2021
      Litigation settlement   $ 14,700     $ 12,000     $ -  
      Employee severance     551       284       188  
      Acquisition related expenses and compensation     (201 )     174       (237 )
      Contingent consideration fair value adjustment     -       -       (7,227 )
      Other     664       280       146  
          $ 15,714     $ 12,738     $ (7,130 )
                   
(3 ) Interest and other includes:   Quarter Ended
          April 3,
2022
  December 31,
2021
  April 4,
2021
      Loss on convertible debt conversions   $ -     $ 3,431     $ 4,069  
      Non-cash convertible debt interest     -       1,166       3,581  
      Pension actuarial losses     -       (1,590 )     -  
          $ -     $ 3,007     $ 7,650  
                   
(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 April 3, 2022, December 31, 2021 and April 4, 2021, 2.5 million, 3.4 million and 10.3 million shares, respectively, have been included in diluted shares. For the quarters ended April 3, 2022, December 31, 2021 and April 4, 2021, diluted shares also included 10.0 million, 10.5 million and 9.4 million shares, respectively, from the convertible note hedge transaction.
     
     
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)            
                   
          April 3,
2022
  December 31,
2021
   
Assets                
  Cash and cash equivalents   $ 794,603     $ 1,122,199      
  Marketable securities     282,016       244,231      
  Accounts receivable, net     546,881       550,749      
  Inventories, net     259,341       243,330      
  Prepayments     479,414       406,266      
  Other current assets     12,127       9,452      
      Total current assets     2,374,382       2,576,227      
                   
  Property, plant and equipment, net     399,485       387,240      
  Operating lease right-of-use assets, net     67,718       68,807      
  Marketable securities     126,130       133,858      
  Deferred tax assets     113,556       102,428      
  Retirement plans assets     14,669       15,110      
  Other assets     23,480       24,096      
  Acquired intangible assets, net     69,846       75,635      
  Goodwill     419,888       426,024      
                   
      Total assets   $ 3,609,154     $ 3,809,425      
                   
Liabilities              
  Accounts payable   $ 156,493     $ 153,133      
  Accrued employees' compensation and withholdings     139,287       253,667      
  Deferred revenue and customer advances     155,761       146,185      
  Other accrued liabilities     118,252       124,187      
  Operating lease liabilities     18,523       19,977      
  Income taxes payable     103,386       88,789      
  Current debt     20,497       19,182      
                   
      Total current liabilities     712,199       805,120      
                   
  Retirement plans liabilities     151,697       151,141      
  Long-term deferred revenue and customer advances     51,698       54,921      
  Long-term other accrued liabilities     15,748       15,497      
  Deferred tax liabilities     4,927       6,327      
  Long-term operating lease liabilities     55,934       56,178      
  Long-term income taxes payable     67,041       67,041      
  Debt       75,378       89,244      
                   
      Total liabilities     1,134,622       1,245,469      
                   
Mezzanine equity     -       1,512      
                   
Shareholders' equity     2,474,532       2,562,444      
                   
      Total liabilities, convertible common shares and shareholders’ equity   $ 3,609,154     $ 3,809,425      
                   
                   
                   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)            
                   
          Quarter Ended    
          April 3,
2022
  April 4,
2021
   
Cash flows from operating activities:            
  Net income   $ 161,928     $ 205,512      
                       
  Adjustments to reconcile net income to net cash provided by operating activities:            
    Depreciation     22,503       23,910      
    Stock-based compensation     12,894       12,232      
    Amortization     5,233       9,822      
    Deferred taxes     11,288       (1,057 )    
    Losses (gains) on investments     2,001       (2,491 )    
    Provision for excess and obsolete inventory     1,590       2,285      
    Loss on convertible debt conversions     -       4,069      
    Contingent consideration fair value adjustment     -       (7,227 )    
    Other     177       200      
                   
  Changes in operating assets and liabilities:          
      Accounts receivable     208       (87,512 )    
      Inventories     (9,480 )     (35,870 )    
      Prepayments and other assets     (74,305 )     (86,131 )    
      Accounts payable and other liabilities     (124,382 )     (10,571 )    
      Deferred revenue and customer advances     6,747       7,952      
      Retirement plans contributions     (1,329 )     (1,925 )    
      Income taxes     (7,611 )     4,941      
Net cash provided by operating activities     7,462       38,139      
                   
Cash flows from investing activities:            
  Purchases of property, plant and equipment     (43,999 )     (39,250 )    
  Purchases of marketable securities     (165,977 )     (211,604 )    
  Proceeds from maturities of marketable securities     96,682       194,228      
  Proceeds from sales of marketable securities     30,581       61,293      
Net cash (used for) provided by investing activities     (82,713 )     4,667      
                   
Cash flows from financing activities:            
  Issuance of common stock under stock purchase and stock option plans     16,475       17,144      
  Repurchase of common stock     (201,465 )     (45,188 )    
  Payments related to net settlement of employee stock compensation awards     (31,048 )     (30,675 )    
  Payments of convertible debt principal     (20,694 )     (51,275 )    
  Dividend payments     (17,895 )     (16,667 )    
Net cash used for financing activities     (254,627 )     (126,661 )    
                   
Effects of exchange rate changes on cash and cash equivalents     2,282       883      
Decrease in cash and cash equivalents     (327,596 )     (82,972 )    
Cash and cash equivalents at beginning of period     1,122,199       914,121      
Cash and cash equivalents at end of period   $ 794,603     $ 831,149      
                   




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