Teradyne, Inc. (NYSE: 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. (NYSE: 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 (NYSE: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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