Teradyne, Inc. — Q1 2022 Form 10-Q
Business context and period: Teradyne designs and sells automated test equipment and industrial automation products, including collaborative and mobile robots. This unaudited report covers the three months ended April 3, 2022; comparisons are with the three months ended April 4, 2021. Amounts below are U.S. dollars.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $755.4 million | $781.6 million | Down 3.4% |
| Gross profit / margin | $454.9 million / 60.2% | $461.6 million / 59.1% | Margin up 1.1 points |
| Operating income / margin | $185.9 million / 24.6% | $233.0 million / 29.8% | Income down 20.2% |
| Net income / margin | $161.9 million / 21.4% | $205.5 million / 26.3% | Income down 21.2% |
| Diluted EPS | $0.92 | $1.09 | Down 15.6% |
| Operating cash flow | $7.5 million | $38.1 million | Down $30.7 million |
Revenue declined despite growth in Industrial Automation and Wireless Test, as Semiconductor Test and System Test sales fell. Gross margin improved primarily due to Semiconductor Test product mix. Operating expenses rose, including higher selling, administrative, engineering and development costs, and a $14.7 million AutoGuide settlement charge. The 2022 effective tax rate was 10.2%, compared with 8.3%.
Revenue by segment
- Semiconductor Test: $482.3 million, down 8.7%, mainly from lower sales in compute processor and industrial applications and flash memory testers.
- System Test: $118.7 million, down 10.6%, primarily from lower storage test sales.
- Industrial Automation: $103.2 million, up 29.0%, driven by collaborative robots and MiR autonomous mobile robots; the segment remained loss-making before tax at $5.1 million.
- Wireless Test: $51.5 million, up 25.9%, on stronger connectivity and ultra-wideband test demand.
Financial position and capital allocation
- Cash, cash equivalents and marketable securities totaled $1.203 billion at April 3, 2022, down $297.5 million from year-end 2021. Cash and cash equivalents alone were $794.6 million.
- Net carrying amount of convertible debt was $95.9 million: $20.5 million current and $75.4 million long-term. The company had not drawn on its $400 million revolving credit facility as of May 6, 2022; the facility matures December 10, 2026.
- Operating activities provided only $7.5 million, with operating assets and liabilities using $210.2 million of cash, including supplier prepayments and lower accrued employee compensation. Capital expenditures were $44.0 million; approximate operating cash flow less capital expenditures was negative $36.5 million.
- Financing activities used $254.6 million, including $201.5 million to repurchase 1.8 million shares and $17.9 million for dividends. The quarterly dividend rose 10% to $0.11 per share. Management intended to repurchase at least $750 million of stock in 2022, subject to Board discretion.
- Purchase commitments totaled approximately $904.0 million, including $826.7 million due within one year.
Outlook, risks and unusual items
- Management expected lower 2022 mobility demand in Semiconductor Test due to a slower technology transition, with demand expected to accelerate in 2023 as 3-nanometer production ramps. It expected automotive demand to strengthen through 2022 and continued growth in Universal Robots and MiR. The filing does not provide quantified revenue or earnings guidance.
- Supply constraints were affecting both test and automation businesses, potentially limiting revenue and raising costs. Teradyne warned that electrical-component shortages could delay customer orders and persist through the remainder of 2022 and into 2023; higher supplier costs may not be fully passed on.
- COVID-19 disruption, including shutdowns in China, could affect operations, suppliers, logistics and demand; management said the full impact was not predictable. Teradyne reported minimal direct business exposure to Russia and Ukraine but noted possible indirect supply-chain and revenue effects from sanctions.
- The AutoGuide earn-out arbitration was settled for $26.7 million in March 2022, versus a claimed maximum of $106.9 million. Teradyne recorded a $14.7 million Q1 charge and had recorded $12.0 million in Q4 2021; it reported no remaining earn-out obligations.
- Adoption of convertible-debt accounting standard ASU 2020-06 on January 1, 2022 eliminated debt-discount amortization and changed the balance-sheet presentation. The filing attributes much of the $5.0 million year-over-year decline in interest expense to that change, so reported interest expense is not fully comparable.
- Management said cash and expected operating cash flows should meet working-capital and other liquidity needs for at least 12 months. It also noted that dividends and repurchases may be reduced or discontinued at the Board’s discretion.
Important facts for investors to verify
- Whether supply constraints, prepayments and working-capital movements continue to depress operating cash flow or delay shipments.
- Whether the anticipated 2023 3-nanometer ramp and 2022 automotive demand improvement offset weaker mobility and storage-test demand.
- Whether Industrial Automation growth translates into improved segment profitability, particularly given its Q1 loss.
- How share repurchases, dividends and convertible-note conversions affect liquidity, debt and dilution; as of May 6, 2022, holders had elected to convert $373.5 million of notes.
- Developments in COVID-related disruption, component costs, customer concentration, purchase commitments and other legal contingencies.