Teradyne Reports Strong Revenue and Earnings Growth in Second

Teradyne Reports Strong Revenue and Earnings Growth in Second Quarter and First Half 2017

(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 Teradyne’s future business prospects, results of operations, market conditions, earnings per share, the payment of a quarterly dividend, the repurchase of Teradyne common stock pursuant to a share repurchase program, use of proceeds and potential dilution from the senior convertible notes offering and potential borrowings under 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, events, earnings per share, use of cash, payment of dividends, repurchases of common stock, payment of the senior convertible notes or availability of, or borrowing under, the 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, earnings per share, use of cash, dividend payments, repurchases of common stock, payment of the senior convertible notes 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 from one or more significant customers; development, delivery and acceptance of new products; the ability to grow Universal Robots’ business; increased research and development spending; deterioration of Teradyne’s financial condition; the consummation and success of any mergers or acquisitions; unexpected cash needs; insufficient cash flow to make required payments and pay the principal amount on the senior convertible notes; the business judgment of the board of directors that a declaration of a dividend, the repurchase of common stock or borrowing 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, 2016 and the Quarterly Report on Form 10-Q for the period ended April 2, 2017. 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 SECOND FISCAL QUARTER OF 2017

CONDENSED CONSOLIDATED OPERATING STATEMENTS
(In thousands, except per share amounts)

					Quarter Ended									Six Months Ended
					July 2, 2017			April 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016

Net revenues					$	696,901		$	456,913		$	531,792		$	1,153,814		$	962,787

			Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1) (2)			305,682			191,980			248,922			497,662			449,584

Gross profit						391,219			264,933			282,870			656,152			513,203

Operating expenses:
			Engineering and development (1)			81,728			76,182			76,109			157,910			149,573
			Selling and administrative (1)			89,131			84,906			81,425			174,037			160,599
			Acquired intangible assets amortization			8,166			7,952			16,244			16,118			36,238
			Restructuring and other (3)			2,288			2,511			2,608			4,799			4,195
			Goodwill impairment (4)			-			-			254,946			-			254,946
			Acquired intangible assets impairment (4)			-			-			83,339			-			83,339
				Operating expenses		181,313			171,551			514,671			352,864			688,890

Income (loss) from operations						209,906			93,382			(231,801	)		303,288			(175,687	)

			Interest and other (5)			(3,029	)		(1,366	)		984			(4,395	)		2,062

Income (loss) before income taxes						206,877			92,016			(230,817	)		298,893			(173,625	)
			Income tax provision (benefit)			31,901			6,795			(7,271	)		38,696			(65	)
Net income (loss)					$	174,976		$	85,221		$	(223,546	)	$	260,197		$	(173,560	)

Net income (loss) per common share:
Basic					$	0.88		$	0.43		$	(1.10	)	$	1.30		$	(0.85	)
Diluted					$	0.87		$	0.42		$	(1.10	)	$	1.29		$	(0.85	)

Weighted average common shares - basic						198,774			200,005			203,018			199,390			203,645

Weighted average common shares - diluted (6)						201,529			201,936			203,018			201,732			203,645


Cash dividend declared per common share					$	0.07		$	0.07		$	0.06		$	0.14		$	0.12


Net orders					$	461,606		$	594,733		$	470,983		$	1,056,339		$	860,400


(1	)		Pension actuarial gains included in our operating results were as follows:		Quarter Ended									Six Months Ended
					July 2, 2017			April 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
				Cost of revenues	$	(664	)	$	-		$	(221	)	$	(664	)	$	(614	)
				Engineering and development		(746	)		-			(221	)		(746	)		(615	)
				Selling and administrative		(1,094	)		-			(227	)		(1,094	)		(633	)
					$	(2,504	)	$	-		$	(669	)	$	(2,504	)	$	(1,862	)


(2	)		Cost of revenues includes:		Quarter Ended									Six Months Ended
					July 2, 2017			April 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
				Provision for excess and obsolete inventory	$	2,569		$	2,726		$	7,742		$	5,295		$	12,115
				Sale of previously written down inventory		(2,149	)		(1,134	)		(5,151	)		(3,283	)		(6,319	)
					$	420		$	1,592		$	2,591		$	2,012		$	5,796


(3	)		Restructuring and other consists of:		Quarter Ended									Six Months Ended
					July 2, 2017			April 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
				Contingent consideration fair value adjustment	$	1,499		$	634		$	1,305		$	2,133		$	2,478
				Employee severance		789			583			1,303			1,372			1,717
				Facility related		-			1,294			-			1,294			-
				Impairment of fixed assets and expenses related to Japan earthquake		-			-			5,051			-			5,051
				Property insurance recovery		-			-			(5,051	)		-			(5,051	)
					$	2,288		$	2,511		$	2,608		$	4,799		$	4,195

(4	)		Goodwill and acquired intangible assets impairment related to Teradyne's Wireless Test business segment.

(5	)		Interest and other includes:		Quarter Ended									Six Months Ended
					July 2, 2017			April 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
				Non-cash convertible debt interest expense	$	3,088		$	3,050		$	-		$	6,138		$	-

(6		)	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 quarter ended July 2, 2017 and for the six months ended July 2, 2017, 0.7 million and 0.3 million shares, respectively, have been included in diluted shares.


CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

			July 2, 2017		December 31, 2016

Assets
	Cash and cash equivalents		$	598,349	$	307,884
	Marketable securities			809,338		871,024
	Accounts receivable, net			405,946		192,444
	Inventories, net			153,645		135,958
	Prepayments			105,960		108,454
	Other current assets			6,787		8,039
		Total current assets		2,080,025		1,623,803

	Property, plant and equipment, net			258,017		253,821
	Marketable securities			212,501		433,843
	Deferred tax assets			125,204		107,405
	Other assets			12,429		12,165
	Retirement plans assets			9,231		7,712
	Acquired intangible assets, net			90,603		100,401
	Goodwill			242,215		223,343
		Total assets	$	3,030,225	$	2,762,493

Liabilities
	Accounts payable		$	103,454	$	95,362
	Accrued employees' compensation and withholdings			122,246		109,944
	Deferred revenue and customer advances			81,087		84,478
	Other accrued liabilities			66,176		51,382
	Contingent consideration			22,432		1,050
	Accrued income taxes			43,812		30,480
		Total current liabilities		439,207		372,696

	Retirement plans liabilities			111,688		106,938
	Long-term deferred revenue and customer advances			32,679		23,463
	Deferred tax liabilities			10,714		12,144
	Long-term other accrued liabilities			11,061		28,642
	Long-term contingent consideration			16,983		37,282
	Long-term debt			359,245		352,669
		Total liabilities		981,577		933,834

Shareholders' equity				2,048,648		1,828,659

		Total liabilities and shareholders' equity	$	3,030,225	$	2,762,493


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

				Quarter Ended						Six Months Ended
				July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Cash flows from operating activities:
	Net income (loss)			$	174,976		$	(223,546	)	$	260,197		$	(173,560	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation			16,331			15,976			32,474			32,168
		Amortization			11,342			16,710			22,412			37,180
		Stock-based compensation			8,367			7,532			17,312			15,457
		Provision for excess and obsolete inventory			2,569			7,742			5,295			12,115
		Contingent consideration adjustment			1,499			1,305			2,133			2,478
		Goodwill impairment			-			254,946			-			254,946
		Acquired intangible assets impairment			-			83,339			-			83,339
		Impairment of fixed assets			-			4,179			-			4,179
		Property insurance recovery			-			(5,051	)		-			(5,051	)
		Deferred taxes			(86	)		(15,962	)		(3,563	)		(21,458	)
		Retirement plans actuarial gains			(2,504	)		(669	)		(2,504	)		(1,862	)
		Other			1,151			92			1,153			576
		Changes in operating assets and liabilities:
			Accounts receivable		(90,397	)		(95,678	)		(214,189	)		(138,230	)
			Inventories		54,003			30,924			(8,149	)		30,222
			Prepayments and other assets		3,321			(12,509	)		4,425			(13,657	)
			Accounts payable and accrued expenses		22,002			34,745			14,449			(6,040	)
			Deferred revenue and customer advances		8,645			77,777			5,312			106,072
			Retirement plans contributions		(1,036	)		(1,048	)		(1,983	)		(2,298	)
			Income taxes		20,130			58			34,418			6
Net cash provided by operating activities					230,313			180,862			169,192			216,582

Cash flows from investing activities:
	Purchases of property, plant and equipment				(23,901	)		(26,259	)		(45,967	)		(46,593	)
	Purchases of available-for-sale marketable securities				(181,502	)		(215,533	)		(334,819	)		(437,311	)
	Proceeds from maturities of available-for-sale marketable securities				219,423			54,566			307,607			128,024
	Proceeds from sales of available-for-sale marketable securities				99,661			95,428			313,254			334,798
	Proceeds from property insurance				-			5,051			-			5,051
Net cash provided by (used for) investing activities					113,681			(86,747	)		240,075			(16,031	)

Cash flows from financing activities:
	Issuance of common stock under stock option and stock purchase plans				131			8,756			15,215			17,896
	Repurchase of common stock				(56,598	)		(28,782	)		(94,328	)		(56,783	)
	Dividend payments				(13,904	)		(12,172	)		(27,925	)		(24,425	)
	Payments related to net settlement of employee stock compensation awards				(149	)		(180	)		(12,438	)		(9,152	)
	Payments of contingent consideration				-			-			(1,050	)		(11,697	)
Net cash used for financing activities					(70,520	)		(32,378	)		(120,526	)		(84,161	)

Effects of exchange rate changes on cash and cash equivalents					129			-			1,724			-

Increase in cash and cash equivalents					273,603			61,737			290,465			116,390
Cash and cash equivalents at beginning of period					324,746			319,358			307,884			264,705
Cash and cash equivalents at end of period				$	598,349		$	381,095		$	598,349		$	381,095


GAAP to Non-GAAP Earnings Reconciliation
(In millions, except per share amounts)
				Quarter Ended
				July 2, 2017			% of Net Revenues										April 2, 2017			% of Net Revenues								July 3, 2016			% of Net Revenues

Net revenues				$	696.9												$	456.9										$	531.8

Gross profit - GAAP				$	391.2			56.1	%								$	264.9		58.0	%							$	282.9		53.2	%
		Pension mark-to-market adjustment (1)			(0.7	)		-0.1	%									-		-									(0.2	)	0.0	%
Gross profit - non-GAAP				$	390.5			56.0	%								$	264.9		58.0	%							$	282.7		53.2	%

Income (loss) from operations - GAAP				$	209.9			30.1	%								$	93.4		20.4	%							$	(231.8	)	-43.6	%
		Acquired intangible assets amortization			8.2			1.2	%									8.0		1.8	%								16.2		3.0	%
		Restructuring and other (2)			2.3			0.3	%									2.5		0.5	%								2.6		0.5	%
		Pension mark-to-market adjustment (1)			(2.5	)		-0.4	%									-		-									(0.7	)	-0.1	%
		Goodwill impairment (3)			-			-										-		-									254.9		47.9	%
		Acquired intangible assets impairment (3)			-			-										-		-									83.3		15.7	%
Income from operations - non-GAAP				$	217.9			31.3	%								$	103.9		22.7	%							$	124.5		23.4	%


											Net Income per Common Share											Net Income per Common Share											Net (Loss) Income per Common Share
				July 2, 2017			% of Net Revenues				Basic			Diluted			April 2, 2017			% of Net Revenues		Basic			Diluted			July 3, 2016			% of Net Revenues		Basic			Diluted
Net income (loss) - GAAP				$	175.0			25.1	%		$	0.88		$	0.87		$	85.2		18.6	%	$	0.43		$	0.42		$	(223.5	)	-42.0	%	$	(1.10	)	$	(1.10	)
		Acquired intangible assets amortization			8.2			1.2	%			0.04			0.04			8.0		1.8	%		0.04			0.04			16.2		3.0	%		0.08			0.08
		Interest and other (4)			3.1			0.4	%			0.02			0.02			3.1		0.7	%		0.02			0.02			-		-			-			-
		Restructuring and other (2)			2.3			0.3	%			0.01			0.01			2.5		0.5	%		0.01			0.01			2.6		0.5	%		0.01			0.01
		Pension mark-to-market adjustment (1)			(2.5	)		-0.4	%			(0.01	)		(0.01	)		-		-			-			-			(0.7	)	-0.1	%		(0.00	)		(0.00	)
		Goodwill impairment (3)			-			-				-			-			-		-			-			-			254.9		47.9	%		1.26			1.24
		Acquired intangible assets impairment (3)			-			-				-			-			-		-			-			-			83.3		15.7	%		0.41			0.41
		Exclude discrete tax adjustments (5)			0.5			0.1	%			0.00			0.00			(7.0	)	-1.5	%		(0.04	)		(0.03	)		25.1		4.7	%		0.12			0.12
		Non-GAAP tax adjustments (6)			(5.1	)		-0.7	%			(0.03	)		(0.03	)		(3.1	)	-0.7	%		(0.02	)		(0.02	)		(45.5	)	-8.6	%		(0.22	)		(0.22	)
Net income - non-GAAP				$	181.5			26.0	%		$	0.91		$	0.90		$	88.7		19.4	%	$	0.44		$	0.44		$	112.4		21.1	%	$	0.55		$	0.55

GAAP and non-GAAP weighted average common shares - basic					198.8													200.0											203.0
GAAP weighted average common shares - diluted					201.5													201.9											203.0
		Exclude dilutive shares from convertible note			(0.7	)												-											-
		Include dilutive shares			-													-											1.9
Non-GAAP weighted average common shares - diluted					200.8													201.9											204.9


(1	)	Actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.

(2	)	Restructuring and other consists of:
				Quarter Ended
				July 2, 2017													April 2, 2017											July 3, 2016
			Contingent consideration fair value adjustment	$	1.5												$	0.6										$	1.3
			Employee severance		0.8													0.6											1.3
			Facility related		-													1.3											-
			Impairment of fixed assets and expenses related to Japan earthquake		-													-											5.1
			Property insurance recovery		-													-											(5.1	)
				$	2.3												$	2.5										$	2.6

(3	)	Goodwill and acquired intangible assets impairment related to Teradyne's Wireless Test business segment.

(4	)	For the quarters ended July 2, 2017 and April 2, 2017, interest and other included non-cash convertible debt interest expense.

(5	)	For the quarters ended July 2, 2017, April 2, 2017 and July 3, 2016 adjustment to exclude discrete income tax items. For the quarter ended July 3, 2016, adjustment to treat Wireless Test business segment goodwill and intangible assets impairments as discrete tax items.

(6	)	For periods after December 31, 2016, the non-GAAP annual effective tax rate is based on a with and without calculation with respect to non-GAAP reconciling items.



				Six Months Ended
				July 2, 2017			% of Net Revenues										July 3, 2016			% of Net Revenues

Net Revenues				$	1,153.8												$	962.8

Gross profit - GAAP				$	656.1			56.9	%								$	513.2		53.3	%
		Pension mark-to-market adjustment (1)			(0.7	)		-0.1	%									(0.6	)	-0.1	%
Gross profit - non-GAAP				$	655.4			56.8	%								$	512.6		53.2	%

Income (loss) from operations - GAAP				$	303.3			26.3	%								$	(175.7	)	-18.2	%
		Acquired intangible assets amortization			16.1			1.4	%									36.2		3.8	%
		Restructuring and other (2)			4.8			0.4	%									4.2		0.4	%
		Pension mark-to-market adjustment (1)			(2.5	)		-0.2	%									(1.9	)	-0.2	%
		Goodwill impairment (3)			-			-										254.9		26.5	%
		Acquired intangible assets impairment (3)			-			-										83.3		8.7	%
Income from operations - non-GAAP				$	321.7			27.9	%								$	201.0		20.9	%


											Net Income per Common Share											Net (Loss) Income per Common Share
				July 2, 2017			% of Net Revenues				Basic			Diluted			July 3, 2016			% of Net Revenues		Basic			Diluted
Net income (loss) - GAAP				$	260.2			22.6	%		$	1.30		$	1.29		$	(173.6	)	-18.0	%	$	(0.85	)	$	(0.85	)
		Acquired intangible assets amortization			16.1			1.4	%			0.08			0.08			36.2		3.8	%		0.18			0.18
		Interest and other (4)			6.1			0.5	%			0.03			0.03			-		-			-			-
		Restructuring and other (2)			4.8			0.4	%			0.02			0.02			4.2		0.4	%		0.02			0.02
		Pension mark-to-market adjustment (1)			(2.5	)		-0.2	%			(0.01	)		(0.01	)		(1.9	)	-0.2	%		(0.01	)		(0.01	)
		Goodwill impairment (3)			-			-				-			-			254.9		26.5	%		1.25			1.24
		Acquired intangible assets impairment (3)			-			-				-			-			83.3		8.7	%		0.41			0.41
		Exclude discrete tax adjustments (5)			(6.5	)		-0.6	%			(0.03	)		(0.03	)		22.7		2.4	%		0.11			0.11
		Non-GAAP tax adjustments (6)			(8.2	)		-0.7	%			(0.04	)		(0.04	)		(49.0	)	-5.1	%		(0.24	)		(0.24	)
Net income - non-GAAP				$	270.0			23.4	%		$	1.35		$	1.34		$	176.8		18.4	%	$	0.87		$	0.86

GAAP and non-GAAP weighted average common shares - basic					199.4													203.6
GAAP weighted average common shares - diluted					201.7													203.6
		Exclude dilutive shares from convertible note			(0.3	)												-
		Include dilutive shares			-													1.7
Non-GAAP weighted average common shares - diluted					201.4													205.3

(1	)	Actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.

(2	)	Restructuring and other consists of:
				Six Months Ended
				July 2, 2017													July 3, 2016
			Contingent consideration fair value adjustment	$	2.1												$	2.5
			Employee severance		1.4													1.7
			Facility related		1.3													-
			Impairment of fixed assets and expenses related to Japan earthquake		-													5.1
			Property insurance recovery		-													(5.1	)
				$	4.8												$	4.2

(3	)	Goodwill and acquired intangible assets impairment related to Teradyne's Wireless Test business segment.

(4	)	For the six months ended July 2, 2017, Interest and other included non-cash convertible debt interest expense.

(5	)	For the six months ended July 2, 2017 and July 3, 2016, adjustment to exclude discrete income tax items. For the six months ended July 3, 2016, adjustment to treat Wireless Test business segment goodwill and intangible assets impairments as discrete tax items.

(6	)	For periods after December 31, 2016, the non-GAAP annual effective tax rate is based on a with and without calculation with respect to non-GAAP reconciling items.

GAAP to Non-GAAP Reconciliation of Third Quarter 2017 guidance:

GAAP and non-GAAP third quarter revenue guidance:							$455 million			to	$485 million
GAAP net income per diluted share							$	0.35			$	0.42
		Exclude acquired intangible assets amortization						0.04				0.04
		Exclude non-cash convertible debt interest						0.02				0.02
		Non-GAAP tax adjustment						(0.02	)			(0.02	)
Non-GAAP net income per diluted share							$	0.39			$	0.46

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