Teradyne, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended July 4, 2021; comparisons are with periods ended June 28, 2020. Amounts below are in millions of dollars except per-share data.
Business context
Teradyne supplies automated test equipment for semiconductor, system and wireless applications, and industrial automation products including collaborative and mobile robots. Semiconductor Test remains the largest business. Revenue is concentrated among a limited number of test-equipment customers, and much of sales is tied to Asia-Pacific markets.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,085.7 | $838.7 | $1,867.3 | $1,543.0 |
| Gross profit | $647.0 | $471.5 | $1,108.6 | $877.0 |
| Gross margin | 59.6% | 56.2% | 59.4% | 56.8% |
| Operating income | $388.9 | $217.9 | $621.9 | $424.7 |
| Net income | $328.3 | $188.9 | $533.8 | $365.1 |
| Diluted EPS | $1.76 | $1.05 | $2.85 | $2.02 |
| Operating cash flow | — | $244.4 | $266.0 |
- Q2 revenue increased 29% year over year; net income increased 74%. Gross margin rose 3.4 percentage points, primarily due to higher-margin Semiconductor Test product mix.
- Q2 revenue by segment: Semiconductor Test $834.0 (+26.5%); System Test $104.8 (+46.0%); Industrial Automation $92.2 (+56.8%); Wireless Test $54.9 (+11.6%). Semiconductor Test growth reflected high-performance computing, industrial and automotive demand and flash memory testers, partly offset by lower mobile application processor tester sales.
- Six-month operating cash flow decreased to $244.4 from $266.0. Working-capital changes used $373.6, including a $372.7 increase in receivables and a $117.4 increase in prepayments and other assets; the filing attributes the latter to supplier prepayments supporting higher forecast revenue.
- Capital expenditures were $74.0 for the first half. Cash and marketable securities totaled $1,418.1 at July 4, down $136.3 from year-end. Current and long-term debt carrying value totaled $357.4; cash and marketable securities exceeded that carrying value by about $1.06 billion.
- Current assets were $2,699.5 and current liabilities $985.4. The balance sheet included $954.4 cash and cash equivalents and $213.8 current debt.
- First-half financing used $295.9, including $196.6 of share repurchases, $33.3 of dividends and $66.8 of convertible debt principal payments. The quarterly dividend declared was $0.10 per share.
Changes, outlook and risks
- Revenue growth spanned all four segments, led by Semiconductor Test. Industrial Automation demand recovered from COVID-related weakness in early 2020 and continued to improve in the first half of 2021, though the segment remained loss-making before tax: a $22.8 loss for the first half.
- No specific forward revenue or earnings guidance is provided in the supplied filing text. Teradyne reported $1,276.0 of unsatisfied performance obligations, expecting 94% to be recognized within 12 months and 6% within one to three years.
- Management said cash, marketable securities and anticipated operating cash flows should cover working capital and other capital and liquidity needs for at least 12 months. The undrawn revolving credit facility provides $400 million of capacity; the company reported covenant compliance as of August 6, 2021.
- COVID-19 continued to create uncertainty and operating costs. Management reported no significant COVID-related supply interruption to date, but warned that supply-chain disruption, higher component costs and delivery delays could affect results. Separately, a global electrical-component shortage had increased lead times and costs and delayed some orders; it had not materially affected results as of the filing.
- Purchase commitments totaled approximately $770 million, including $754.3 million due in less than one year. This is relevant alongside the elevated supplier prepayments.
- AutoGuide sellers’ arbitration claim seeks acceleration of a stated maximum earn-out of $106.9 million. Teradyne disputes the claim and intends to defend it; the hearing was scheduled for March 2022. The contingent-consideration carrying value was reduced to zero in the first half, but the outcome may affect the ultimate amount payable.
- During the first half, $66.8 million principal of convertible notes was converted; the filing said an additional approximately $235.2 million of principal conversions would occur in Q3. As of August 6, holders had exercised conversion rights on $302.0 million of notes. Convertible-note warrants may dilute shareholders above their strike price.
- The board authorized repurchases up to $2.0 billion and stated an intention to repurchase at least $600 million in 2021. Actual future repurchases and dividends remain subject to board discretion.
Key investor verification points
- Assess whether strong Semiconductor Test demand and margin mix persist, and whether customer concentration and Asia-Pacific exposure heighten variability.
- Track receivables, supplier prepayments, operating cash conversion and the $770 million of purchase commitments.
- Monitor component availability, lead times, manufacturing costs and order-delivery performance.
- Follow the AutoGuide arbitration and any resulting earn-out liability or cash obligation.
- Confirm the timing and settlement of remaining convertible-note conversions and assess potential warrant-related dilution.
- Compare actual repurchases with the stated 2021 minimum and $2.0 billion authorization; consider that these and dividends are discretionary.