Teradyne, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended April 2, 2023. Financial statements are unaudited. Teradyne supplies automated test equipment and robotics products and services.
Financial performance and liquidity
| Metric | Q1 2024 | Prior comparable quarter | Change |
|---|---|---|---|
| Revenue | $599.8 million | $617.5 million | Down $17.7 million (2.9%) |
| Gross profit / margin | $339.3 million / 56.6% | $356.4 million / 57.7% | Margin down 1.2 percentage points |
| Operating income / margin | $77.8 million / 13.0% | $92.9 million / 15.0% | Down $15.1 million |
| Net income | $64.2 million | $83.5 million | Down 23.1% |
| Diluted EPS | $0.40 | $0.50 | Down $0.10 |
| Operating cash flow | $7.3 million | $19.3 million | Down $12.1 million |
Gross margin declined mainly because of product mix and lower volume. Other expense, net was $12.1 million, versus $0.1 million in the prior-year quarter, primarily reflecting a $13.9 million unrealized loss on a euro call option related to the planned Technoprobe investment. The effective tax rate was 11.9%, compared with 14.0%; the decrease primarily reflected benefits from reduced uncertain tax positions and a projected shift in geographic income mix.
Cash, cash equivalents and marketable securities totaled $870.6 million at March 31, down $66.6 million from year-end. Operating cash flow was modest as changes in operating assets and liabilities used $108.6 million, including lower accrued compensation and accounts payable. Investing activities used $24.0 million, including $44.0 million of capital expenditures; financing activities used $36.7 million, including $22.1 million of repurchases and $18.4 million of dividends.
Total assets were $3.41 billion and total liabilities were $852.9 million. The company reported no borrowings under its $750 million revolving facility as of May 3, 2024, and stated it was in covenant compliance. The $460 million convertible notes matured in December 2023. Teradyne said available cash, securities and the undrawn facility should meet working-capital and expenditure needs for at least the next 12 months.
Material changes and business trends
- Semiconductor Test revenue was $412.3 million, down 0.7%; management cited lower automotive tester sales, partly offset by DRAM wafer-sort memory testing. Semiconductor Test income before taxes fell to $79.4 million from $96.2 million, mainly due to mix-related margin pressure and higher operating expenses.
- System Test revenue increased 0.9% to $75.3 million, with higher Defense/Aerospace sales partly offset by lower Storage Test sales.
- Robotics revenue decreased 1.7% to $87.7 million. The segment’s pretax loss narrowed to $14.0 million from $18.5 million, primarily due to lower operating expenses.
- Wireless Test revenue fell 36.4% to $24.6 million, mainly due to lower connectivity and ultra-wideband product sales; the segment reported a $0.9 million pretax loss.
- Asia Pacific accounted for $423.7 million of revenue, approximately 71% of the total. Korea represented 28% of company revenue, versus 12% in the prior-year quarter.
Outlook, risks and notable items
- Management said AI-related applications drove Semiconductor Test performance above plan, particularly in Memory, and expects AI to support meaningful demand into Q2 2024. Weak smartphone mobility test demand persists; management anticipates a mobility upturn that may not occur until 2025.
- Robotics results were in line with forecast. Management expects full-year growth, citing new products, broader OEM and large-account channels, and recurring service and software revenue. A quantified full-year or Q2 revenue or earnings forecast is not provided in the filing text.
- Teradyne agreed to invest €481 million for a 10% stake in Technoprobe, which agreed to buy Teradyne’s Device Interface Solutions business for $85 million. The sale was expected to close in Q2 2024, subject to regulatory approval. The planned sale did not qualify for discontinued-operations accounting.
- Management noted test-product sales are concentrated among a limited number of significant customers. Approximately 70% of Robotics revenue has historically been denominated in foreign currencies, making a stronger U.S. dollar a potential headwind to 2024 Robotics revenue growth.
- Q1 restructuring and other charges included $2.2 million of Technoprobe-related acquisition and divestiture costs and $2.0 million of severance charges, primarily in Robotics and Semiconductor Test. Purchase commitments totaled approximately $428.8 million, of which $404.7 million was due within one year.
- Ordinary-course legal claims include patent, employment, commercial and environmental matters. The company said potential losses were unlikely to have a material adverse effect, but outcomes and possible loss ranges could not be determined. The filing also identifies supplier purchase commitments and customary indemnification and product warranty obligations.
Important facts for investors to verify
- Whether AI-driven memory-test demand continues into Q2 and offsets weakness in smartphone mobility testing.
- Progress and regulatory approval for the Technoprobe investment and DIS business sale, including the transaction’s cash and earnings effects.
- Whether revenue mix, volume and the sharp Wireless Test decline continue to pressure gross margin and operating results.
- Cash conversion and working-capital trends, given low quarterly operating cash flow and substantial operating-liability reductions.
- Customer concentration, foreign-exchange exposure, and the timing and amount of planned 2024 repurchases (up to $90 million, subject to market conditions).