Teradyne Reports Third Quarter 2015 Results

NORTH READING, Mass.--(BUSINESS WIRE)--

Teradyne, Inc. TER:

					Q3'15					Q3'14					Q2'15
Orders (mil)					$314					$273					$529
Revenue (mil)					$466					$478					$513
Non-GAAP EPS					$0.40					$0.44					$0.53
GAAP EPS					$0.34					$0.38					$0.48

Teradyne, Inc. TER reported revenue of $466 million for the third quarter of 2015 of which $326 million was in Semiconductor Test, $69 million in System Test, $55 million in Wireless Test, and $16 million in Industrial Automation. Industrial Automation consists of Universal Robots' results for the full quarter. On a non-GAAP basis, Teradyne's net income in the third quarter was $84.9 million, or $0.40 per diluted share, which excluded acquired intangible assets amortization and discrete income tax adjustments, and included the related tax impact on non-GAAP adjustments. GAAP net income for the third quarter was $71.5 million or $0.34 per share.

Orders in the third quarter of 2015 were $314 million of which $211 million were in Semiconductor Test, $47 million in System Test, $40 million in Wireless Test, and $16 million in Industrial Automation.

"We're on track to deliver our 6th straight year of above model financial results driven by strong tester sales for mobile devices, improving storage test demand, and a growing contribution from industrial automation," said CEO and President Mark Jagiela. "While our fourth quarter guidance reflects the normal seasonal slow down in tester deliveries, we are making selective inventory investments to capture the expected growth in 2016 customer demand."

"Our strong financial results also support our ongoing capital return plan as we repurchased 5.4 million shares for $98.5 million and paid $12.6 million in dividends in the third quarter," continued Jagiela.

Guidance for the fourth quarter of 2015 is revenue of $295 million to $320 million, with non-GAAP net income of $0.07 to $0.12 per diluted share and GAAP net (loss) income of ($0.01) to $0.04 per diluted share. Non-GAAP guidance excludes acquired intangible assets amortization and includes the related tax impact on non-GAAP adjustments.

Webcast

A conference call to discuss the third quarter results, along with management's business outlook, will follow at 10 a.m. ET, Wednesday, October 28. Interested investors should access the webcast at www.teradyne.com and click on "Investors" at least five minutes before the call begins. Presentation materials will be available starting at 10 a.m. ET. A replay will be available on the Teradyne website at www.teradyne.com/investors.

Non-GAAP Results

In addition to disclosing results that are determined in accordance with GAAP, Teradyne also discloses non-GAAP results of operations that exclude certain income items and charges. These results are provided as a complement to results provided in accordance with GAAP. Non-GAAP income from operations and non-GAAP net income exclude acquired intangible assets amortization, fair value inventory step-up related to Universal Robots, retired CEO equity charge, non-cash convertible debt interest, discrete income tax adjustments, restructuring and other, and a gain from the sale of an equity investment. GAAP requires that these items be included in determining income from operations and net income. Non-GAAP income from operations, non-GAAP net income, non-GAAP income from operations and non-GAAP net income as a percentage of revenue, and non-GAAP net income per share are non-GAAP measures presented to provide meaningful supplemental information regarding Teradyne's baseline performance before gains, losses or other charges that may not be indicative of Teradyne's current core business or future outlook. These non-GAAP measures are used to make operational decisions, to determine employee compensation, to forecast future operational results, and for comparison with Teradyne's business plan, historical operating results and the operating results of Teradyne's competitors. Non-GAAP gross margin excludes fair value inventory step-up related to Universal Robots. GAAP requires that this item be included in determining gross margin. Non-GAAP gross margin dollar amount and percentage are non-GAAP measures that management believes provide useful supplemental information for management and the investor. Management uses non-GAAP gross margin as a performance measure for Teradyne's current core business and future outlook and for comparison with Teradyne's business plan, historical gross margin results and the gross margin results of Teradyne's competitors. Prior to September 29, 2014, non-GAAP diluted shares included the impact of Teradyne's call option and warrant on its shares. Management believes each of these non-GAAP measures provides useful supplemental information for investors, allowing greater transparency to the information used by management in its operational decision making and in the review of Teradyne's financial and operational performance, as well as facilitating meaningful comparisons of Teradyne's results in the current period compared with those in prior and future periods. A reconciliation of each available GAAP to non-GAAP financial measure discussed in this press release is contained in the attached exhibits and on the Teradyne website at www.teradyne.com by clicking on "Investors" and then selecting the "GAAP to Non-GAAP Reconciliation" link. The non-GAAP financial measures discussed in this press release may not be comparable to similarly titled measures used by other companies. The presentation of non-GAAP measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP.

About Teradyne

Teradyne TER is a leading supplier of automation solutions for test and industrial applications. Teradyne Automatic Test Equipment (ATE) is used to test semiconductors, wireless products, data storage and complex electronic systems, which serve consumer, communications, industrial and government customers. Our Industrial Automation solutions include Collaborative Robots used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. In 2014, Teradyne had revenue of $1.65 billion and currently employs approximately 4,000 people worldwide. For more information, visit www.teradyne.com. Teradyne (R) is a registered trademark of Teradyne, Inc. in the U.S. and other countries.

Safe Harbor Statement

This release contains forward-looking statements regarding future business prospects, Teradyne's results of operations, market conditions, the payment of a quarterly dividend, the repurchase of Teradyne common stock pursuant to a share repurchase program and a senior secured credit facility. Such statements are based on the current assumptions and expectations of Teradyne's management and are neither promises nor guarantees of future performance, future events, future payment of dividends, future repurchases of common stock or future availability of, or borrowing under, a credit facility. There can be no assurance that management's estimates of Teradyne's future results or other forward-looking statements will be achieved. Additionally, the current dividend and share repurchase programs may be modified, suspended or discontinued at any time. Important factors that could cause actual results, dividend payments, repurchases of common stock or borrowings under the credit facility to differ materially from those presently expected include: conditions affecting the markets in which Teradyne operates; decreased or delayed product demand; market acceptance of new products; the ability to grow Universal Robots' business; increased research and development spending; deterioration of Teradyne's financial condition; the business judgment of the board of directors that a declaration of a dividend, the repurchase of common stock or debt under the credit facility is not in the company's best interests; and other events, factors and risks disclosed in filings with the SEC, including, but not limited to, the "Risk Factors" section of Teradyne's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and the Quarterly Report on Form 10-Q for the period ended July 5, 2015. 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 THIRD FISCAL QUARTER OF 2015
CONDENSED CONSOLIDATED OPERATING STATEMENTS
(In thousands, except per share amounts)
										Quarter Ended																		Nine Months Ended
										October 4, 2015						July 5, 2015						September 28, 2014						October 4, 2015						September 28, 2014
Net revenues										$	465,994					$	512,739					$	478,010					$	1,321,133					$	1,324,587
Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1)											207,368						214,171						216,889						571,517						606,006
Gross profit											258,626						298,568						261,121						749,616						718,581
Operating expenses:
Engineering and development											74,027						75,832						71,953						221,309						212,452
Selling and administrative (2)											77,481						77,073						73,064						226,595						228,556
Acquired intangible assets amortization											20,053						15,258						18,271						49,119						54,813
Restructuring and other (3)											261						(385	)					(405	)					(124	)					167
Operating expenses											171,822						167,778						162,883						496,899						495,988
Income from operations											86,804						130,790						98,238						252,717						222,593
Interest and other (4)											604						1,346						2,432						9,264						(2,404	)
Income before income taxes											87,408						132,136						100,670						261,981						220,189
Income tax provision											15,955						29,257						17,721						54,863						35,106
Net income										$	71,453					$	102,879					$	82,949					$	207,118					$	185,083
Net income per common share:
Basic										$	0.34					$	0.48					$	0.40					$	0.97					$	0.93
Diluted										$	0.34					$	0.48					$	0.38					$	0.96					$	0.83
Weighted average common shares - basic											210,032						213,845						207,381						213,688						198,367
Weighted average common shares - diluted (5)											211,736						215,496						218,333						215,348						223,795
Cash dividend declared per common share										$	0.06					$	0.06					$	0.06					$	0.18					$	0.12
Net orders										$	314,222					$	528,693					$	273,043					$	1,333,272					$	1,349,957
(1	)		Cost of revenues includes:							Quarter Ended																		Nine Months Ended
										October 4, 2015						July 5, 2015						September 28, 2014						October 4, 2015						September 28, 2014
			Provision for excess and obsolete inventory							$	3,011					$	14,441					$	6,434					$	18,892					$	21,505
			Sale of previously written down inventory								(1,936	)					(2,745	)					(6,332	)					(6,612	)					(9,726	)
			Inventory step-up								972						595						-						1,567						-
										$	2,047					$	12,291					$	102					$	13,847					$	11,779
(2	)		For the nine months ended September 28, 2014, selling and administrative expenses include an equity charge of $6,598 for the modification of Teradyne's retired CEO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his January 31, 2014 retirement.
(3	)		Restructuring and other consists of:							Quarter Ended																		Nine Months Ended
										October 4, 2015						July 5, 2015						September 28, 2014						October 4, 2015						September 28, 2014
			Employee severance							$	1,117					$	255					$	225					$	1,372					$	797
			Acquisition costs (a)								144						960						-						1,104						-
			Contingent consideration fair value adjustment								(1,000	)					(1,600	)					(630	)					(2,600	)					(630	)
										$	261					$	(385	)				$	(405	)					(124	)				$	167
			(a)  Costs related to Universal Robots acquisition. The results of Universal Robots are included in Teradyne's results starting June 12, 2015.
(4	)		Interest and other includes:							Quarter Ended																		Nine Months Ended
										October 4, 2015						July 5, 2015						September 28, 2014						October 4, 2015						September 28, 2014
			Gain from the sale of an equity investment							$	-					$	(624	)				$	-					$	(5,406	)				$	-
			Non-cash convertible debt interest expense								-						-						-						-						4,290
										$	-					$	(624	)				$	-					$	(5,406	)				$	4,290
(5	)		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 nine months ended September 28, 2014, 6.7 million shares have been included in diluted shares.

CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
					October 4, 2015					December 31, 2014
Assets
Cash and cash equivalents					$	294,217				$	294,256
Marketable securities						525,381					533,787
Accounts receivable						245,233					151,034
Inventories, net						128,432					105,129
Deferred tax assets						58,480					57,239
Prepayments						80,779					95,819
Other current assets						4,135					6,582
Total current assets						1,336,657					1,243,846
Net property, plant and equipment						275,089					329,038
Marketable securities						257,560					470,789
Deferred tax assets						6,909					7,494
Other assets						13,096					10,419
Retirement plans assets						13,933					12,896
Intangible assets, net						260,294					190,600
Goodwill						498,346					273,438
Total assets					$	2,661,884				$	2,538,520
Liabilities
Accounts payable					$	81,642				$	47,763
Accrued employees' compensation and withholdings						98,252					100,994
Deferred revenue and customer advances						74,318					71,603
Other accrued liabilities						83,823					50,247
Contingent consideration						14,447					895
Accrued income taxes						43,259					20,049
Total current liabilities						395,741					291,551
Long-term deferred revenue and customer advances						29,490					19,929
Retirement plans liabilities						107,102					108,460
Deferred tax liabilities						35,494					23,315
Long-term other accrued liabilities						28,304					13,830
Long-term contingent consideration						20,148					2,455
Total liabilities						616,279					459,540
Shareholders' equity						2,045,605					2,078,980
Total liabilities and shareholders' equity					$	2,661,884				$	2,538,520

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
				Quarter Ended													Nine Months Ended
				October 4, 2015						September 28, 2014							October 4, 2015						September 28, 2014
Cash flows from operating activities:
Net income				$	71,453					$	82,949						$	207,118					$	185,083
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation					16,301						19,047							52,531						52,832
Amortization					20,764						19,132							52,159						62,122
Stock-based compensation					7,675						8,343							23,080						31,873
Provision for excess and obsolete inventory					3,011						6,434							18,892						21,505
Gain from the sale of an equity investment					-						-							(5,406	)					-
Deferred taxes					(3,602	)					(3,050	)						(13,973	)					(8,747	)
Non cash charge for the sale of inventories revalued at the date of acquisition					972						-							1,567						-
Contingent consideration adjustment					(1,000	)					(630	)						(2,600	)					(630	)
Tax benefit related to employee stock compensation awards					(2,321	)					(55	)						(3,213	)					(1,726	)
Other					1,368						183							2,523						2,110
Changes in operating assets and liabilities, net of business acquired:
Accounts receivable					51,376						(20,545	)						(91,117	)					(163,670	)
Inventories					9,923						19,798							33,423						38,267
Prepayments and other assets					1,475						20,784							15,529						47,784
Accounts payable and accrued expenses					(729	)					(23,687	)						52,663						29,109
Deferred revenue and customer advances					1,066						466							6,751						14,266
Retirement plans contributions					(999	)					(893	)						(2,998	)					(3,281	)
Accrued income taxes					2,416						4,713							25,677						10,208
Net cash provided by operating activities					179,149						132,989							372,606						317,105
Cash flows from investing activities:
Purchases of property, plant and equipment					(20,617	)					(54,963	)						(66,727	)					(146,352	)
Purchases of available-for-sale marketable securities					(367,356	)					(319,348	)						(957,606	)					(844,056	)
Proceeds from maturities of available-for-sale marketable securities					98,947						118,129							330,363						495,565
Proceeds from sales of available-for-sale marketable securities					212,334						82,602							843,734						236,060
Acquisition of business, net of cash acquired					(409	)					-							(282,741	)					-
Proceeds from the sale of an equity investment					-						-							5,406						-
Proceeds from life insurance					-						-							1,098						4,391
Net cash used for investing activities					(77,101	)					(173,580	)						(126,473	)					(254,392	)
Cash flows from financing activities:
Issuance of common stock under employee stock purchase and stock option plans					267						10,387							18,145						21,030
Repurchase of common stock					(98,527	)					-							(226,843	)					-
Tax benefit related to stock options and restricted stock units					2,321						55							3,213						1,726
Dividend payments					(12,577	)					(12,772	)						(38,434	)					(24,428	)
Payment of revolving credit facility costs					-						-							(2,253	)					-
Payments of long-term debt					-						-							-						(190,975	)
Net cash used for financing activities					(108,516	)					(2,330	)						(246,172	)					(192,647	)
Decrease in cash and cash equivalents					(6,468	)					(42,921	)						(39	)					(129,934	)
Cash and cash equivalents at beginning of period					300,685						254,625							294,256						341,638
Cash and cash equivalents at end of period				$	294,217					$	211,704						$	294,217					$	211,704

GAAP to Non-GAAP Earnings Reconciliation
(In millions, except per share amounts)
					Quarter Ended
					October 4, 2015						% of Net Revenues																				July 5, 2015						% of Net Revenues																	September 28, 2014						% of Net Revenues
Net revenues					$	466.0																									$	512.7																						$	478.0
Gross profit - GAAP					$	258.6						55.5	%																		$	298.6					58.2	%																$	261.1					54.6	%
Inventory Step-Up						1.0						0.2	%																			0.6					0.1	%																	-					-
Gross profit - non-GAAP					$	259.6						55.7	%																		$	299.2					58.4	%																$	261.1					54.6	%
Income from operations - GAAP					$	86.8						18.6	%																		$	130.8					25.5	%																$	98.2					20.5	%
Acquired intangible assets amortization						20.1						4.3	%																			15.3					3.0	%																	18.3					3.8	%
Restructuring and other (1)						0.3						0.1	%																			(0.4	)				-0.1	%																	(0.4	)				-0.1	%
Inventory step-up						1.0						0.2	%																			0.6					0.1	%																	-					-
Income from operations - non-GAAP					$	108.2						23.2	%																		$	146.3					28.5	%																$	116.1					24.3	%
																	Net Income per Common Share																									Net Income per Common Share																							Net Income per Common Share
					October 4, 2015						% of Net Revenues						Basic						Diluted								July 5, 2015						% of Net Revenues					Basic						Diluted						September 28, 2014						% of Net Revenues					Basic						Diluted
Net income - GAAP					$	71.5						15.3	%				$	0.34					$	0.34							$	102.9					20.1	%				$	0.48					$	0.48					$	82.9					17.3	%				$	0.40					$	0.38
Acquired intangible assets amortization						20.1						4.3	%					0.10						0.09								15.3					3.0	%					0.07						0.07						18.3					3.8	%					0.09						0.08
Inventory step-up						1.0						0.2	%					0.00						0.00								0.6					0.1	%					0.00						0.00						-					-						-						-
Restructuring and other (1)						0.3						0.1	%					0.00						0.00								(0.4	)				-0.1	%					(0.00	)					(0.00	)					(0.4	)				-0.1	%					(0.00	)					(0.00	)
Interest and other (2)						-						-						-						-								(0.6	)				-0.1	%					(0.00	)					(0.00	)					-					-						-						-
Exclude discrete tax adjustments (3)						(3.3	)					-0.7	%					(0.02	)					(0.02	)							0.2					0.0	%					0.00						0.00						(1.6	)				-0.3	%					(0.01	)					(0.01	)
Tax effect of non-GAAP adjustments						(4.7	)					-1.0	%					(0.02	)					(0.02	)							(3.4	)				-0.7	%					(0.02	)					(0.02	)					(3.4	)				-0.7	%					(0.02	)					(0.02	)
Net income - non-GAAP					$	84.9						18.2	%				$	0.40					$	0.40							$	114.6					22.4	%				$	0.54					$	0.53					$	95.8					20.0	%				$	0.46					$	0.44
GAAP and non-GAAP weighted average common shares - basic						210.0																										213.8																							207.4
GAAP and non-GAAP weighted average common shares - diluted						211.7																										215.5																							218.3
(1	)	Restructuring and other consists of:
					Quarter Ended
					October 4, 2015																										July 5, 2015																							September 28, 2014
Employee severance					$	1.2																									$	0.2																						$	0.2
Acquisition costs						0.1																										1.0																							-
Contingent consideration fair value adjustment						(1.0	)																									(1.6	)																						(0.6	)
					$	0.3																									$	(0.4	)																					$	(0.4	)
(2	)	For the quarter ended July 5, 2015, Interest and other included a gain from the sale of an equity investment.
(3	)	For the quarters ended October 4, 2015, July 5, 2015 and September 28, 2014, adjustment to exclude discrete income tax items.
					Nine Months Ended
					October 4, 2015						% of Net Revenues																				September 28, 2014						% of Net Revenues
Net Revenues					$	1,321.1																									$	1,324.6
Gross profit - GAAP					$	749.6						56.7	%																		$	718.6					54.3	%
Inventory step-up						1.6						0.1	%																			-					-
Gross profit - non-GAAP					$	751.2						56.9	%																		$	718.6					54.3	%
Income from operations - GAAP					$	252.7						19.1	%																		$	222.6					16.8	%
Acquired intangible assets amortization						49.1						3.7	%																			54.8					4.1	%
Restructuring and other (1)						(0.1	)					0.0	%																			0.2					0.0	%
Inventory step-up						1.6						0.1	%																			-					-
Equity modification charge (2)						-						-																				6.6					0.5	%
Income from operations - non-GAAP					$	303.3						23.0	%																		$	284.2					21.5	%
																	Net Income per Common Share																									Net Income per Common Share
					October 4, 2015						% of Net Revenues						Basic						Diluted								September 28, 2014						% of Net Revenues					Basic						Diluted
Net income - GAAP					$	207.1						15.7	%				$	0.97					$	0.96							$	185.1					14.0	%				$	0.93					$	0.83
Acquired intangible assets amortization						49.1						3.7	%					0.23						0.23								54.8					4.1	%					0.28						0.24
Interest and other (3)						(5.4	)					-0.4	%					(0.03	)					(0.03	)							4.3					0.3	%					0.02						0.02
Restructuring and other (1)						(0.1	)					0.0	%					(0.00	)					(0.00	)							0.2					0.0	%					0.00						0.00
Inventory step-up						1.6						0.1	%					0.01						0.01								-					-						-						-
Equity modification charge (2)						-						-						-						-								6.6					0.5	%					0.03						0.03
Exclude discrete tax adjustments (4)						(4.9	)					-0.4	%					(0.02	)					(0.02	)							(4.5	)				-0.3	%					(0.02	)					(0.02	)
Tax effect of non-GAAP adjustments						(10.5	)					-0.8	%					(0.05	)					(0.05	)							(11.9	)				-0.9	%					(0.06	)					(0.05	)
Convertible share adjustment (5)						-						-						-						-								-					-						-						0.04
Net income - non-GAAP					$	236.9						17.9	%				$	1.11					$	1.10							$	234.6					17.7	%				$	1.18					$	1.09
GAAP and non-GAAP weighted average common shares - basic						213.7																										198.4
GAAP weighted average common shares - diluted						215.3																										223.8
Exclude dilutive shares from convertible note						-																										(6.7	)
Non-GAAP weighted average common shares - diluted (5)						215.3																										217.1
(1	)	Restructuring and other consists of:
					Nine Months Ended
					October 4, 2015																										September 28, 2014
Employee severance					$	1.4																									$	0.8
Acquisition costs						1.1																										-
Contingent consideration fair value adjustment						(2.6	)																									(0.6	)
					$	(0.1	)																								$	0.2
(2	)	For the nine months ended September 28, 2014, selling and administrative expenses include an equity charge for the modification of Teradyne's retired CEO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his January 31, 2014 retirement.
(3	)	For the nine months ended October 4, 2015, Interest and other included a gain from the sale of an equity investment. For the nine months ended September 28, 2014, Interest and other included non-cash convertible debt interest expense.
(4	)	For the nine months ended October 4, 2015 and September 28, 2014, adjustment to exclude discrete income tax items.
(5	)	For the nine months ended September 28, 2014. the calculation of non-GAAP diluted earnings per share gives benefit to the Company's call option on its stock for 34.7 million shares at $5.48. As a result, 6.7 million shares have been included in non-GAAP diluted shares and net interest expense of $2.0 million has been added back to non-GAAP net income for the non-GAAP diluted earnings per share calculation.
GAAP to Non-GAAP Reconciliation of Fourth Quarter 2015 guidance:
GAAP and non-GAAP fourth quarter revenue guidance:											$295 million to $320 million
GAAP net (loss) income per diluted share											$	(0.01	)				$	0.04
Exclude acquired intangible assets amortization												0.10						0.10
Tax effect of non-GAAP adjustment												(0.02	)					(0.02	)
Non-GAAP net income per diluted share											$	0.07					$	0.12

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