About Teradyne
Teradyne (NASDAQ:TER) brings high-quality innovations such as smart devices, life-saving medical equipment and data storage systems to market, faster. Its advanced test solutions for semiconductors, electronic systems, wireless devices and more ensure that products perform as they were designed. Its Industrial Automation offerings include collaborative and mobile robots that help manufacturers of all sizes improve productivity and lower costs. In 2019, Teradyne had revenue of $2.3 billion and today employs 5,400 people worldwide. For more information, visit
teradyne.com. Teradyne® 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, and the impact of the U.S. export and tariff laws. 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 the impact of the U.S. export and tariff laws. 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.
On May 16, 2019, Huawei and 68 of its affiliates, including HiSilicon, were added to the U.S. Department of Commerce Entity List under U.S. Export Administration Regulations (the “EAR”). This action by the U.S. Department of Commerce imposed new export licensing requirements on exports, re-exports, and in-country transfers of all U.S. - regulated products, software and technology to the designated Huawei entities. While most of our products are not subject to the EAR and therefore not affected by the Entity List restrictions, some of our products are currently manufactured in the U.S. and thus subject to the Entity List restrictions. Compliance with the current Entity List restrictions has not significantly impacted our sales. There have been recent news reports that the U.S. Department of Commerce plans to modify the U.S. EAR to expand the scope of the regulations to include more products that would become subject to the Entity List restrictions relating to Huawei and the designated Huawei entities including HiSilicon. These modified regulations, if implemented as currently reported, would impact our ability to continue to sell certain products directly to Huawei and HiSilicon, both of which are significant Teradyne customers. However, based on our understanding, these proposed modified regulations would not impact our sales to third party contract manufacturers used by Huawei and HiSilicon to manufacture and test semiconductor and other electronic devices. Because the business environment for Huawei is both fluid and uncertain, there are also risks that Huawei and HiSilicon may have less demand for our products and/or may purchase products from our competitors who are not impacted by the U.S. regulations. Until these or any new regulations become public and effective, we will not know the extent of the impact on our business with Huawei and HiSilicon. However, it is possible that these modified regulations and any other additional regulations that may be implemented by the U.S. Department of Commerce or other government agency would have a material impact on our business and financial results.
Important factors that could cause actual results, earnings per share, use of cash, dividend payments, repurchases of common stock, or payment of the senior convertible notes 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 the Industrial Automation 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 or the repurchase of common stock is not in the company’s best interests; additional U.S. tax regulations or IRS guidance; the impact of any tariffs or export controls imposed in the U.S. or China; compliance with trade protection measures or export restrictions; the impact of U.S. Department of Commerce or other government agency regulations relating to Huawei and HiSilicon; 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, 2018 and the Quarterly Report on Form 10-Q for the period ended September 29, 2019. 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 FOURTH FISCAL QUARTER OF 2019
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||
(In thousands, except per share amounts)
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Quarter Ended | Twelve Months Ended | |||||||||||||||||||||||
December 31,
2019 |
September 29,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 | ||||||||||||||||||||
Net revenues | $ | 654,650 | $ | 582,038 | $ | 519,558 | $ | 2,294,965 | $ | 2,100,802 | ||||||||||||||
Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1) | 271,412 | 237,000 | 210,022 | 955,136 | 880,408 | |||||||||||||||||||
Gross profit | 383,238 | 345,038 | 309,536 | 1,339,829 | 1,220,394 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling and administrative (2) | 117,092 | 109,166 | 100,552 | 437,083 | 390,669 | |||||||||||||||||||
Engineering and development | 86,794 | 77,804 | 74,706 | 322,824 | 301,505 | |||||||||||||||||||
Acquired intangible assets amortization | 9,784 | 9,647 | 10,559 | 40,147 | 39,191 | |||||||||||||||||||
Restructuring and other (3) | (2,088 | ) | (6,500 | ) | 11,446 | (13,880 | ) | 15,232 | ||||||||||||||||
Total operating expenses | 211,582 | 190,117 | 197,263 | 786,176 | 746,597 | |||||||||||||||||||
Income from operations | 171,656 | 154,921 | 112,273 | 553,653 | 473,797 | |||||||||||||||||||
Interest and other expense (4) | 7,770 | 3,188 | 1,144 | 12,881 | 5,996 | |||||||||||||||||||
Income before income taxes | 163,886 | 151,733 | 111,129 | 540,772 | 467,801 | |||||||||||||||||||
Income tax provision (benefit) (5) | 27,103 | 15,873 | (32,662 | ) | 61,597 | 16,022 | ||||||||||||||||||
Net income | $ | 136,783 | $ | 135,860 | $ | 143,791 | $ | 479,175 | $ | 451,779 | ||||||||||||||
Net income per common share: | ||||||||||||||||||||||||
Basic | $ | 0.82 | $ | 0.80 | $ | 0.80 | $ | 2.81 | $ | 2.41 | ||||||||||||||
Diluted | $ | 0.75 | $ | 0.75 | $ | 0.79 | $ | 2.67 | $ | 2.35 | ||||||||||||||
Weighted average common shares - basic | 167,286 | 169,641 | 178,958 | 170,425 | 187,672 | |||||||||||||||||||
Weighted average common shares - diluted (6) | 181,780 | 180,494 | 181,520 | 179,459 | 192,605 | |||||||||||||||||||
Cash dividend declared per common share | $ | 0.09 | $ | 0.09 | $ | 0.09 | $ | 0.36 | $ | 0.36 | ||||||||||||||
(1 | ) | Cost of revenues includes: | Quarter Ended | Twelve Months Ended | ||||||||||||||||||||
December 31,
2019 |
September 29,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 | ||||||||||||||||||||
Provision for excess and obsolete inventory | $ | 6,396 | $ | 3,049 | $ | 1,720 | $ | 15,244 | $ | 11,242 | ||||||||||||||
Sale of previously written down inventory | (1,222 | ) | (821 | ) | (1,501 | ) | (3,184 | ) | (6,679 | ) | ||||||||||||||
Inventory step-up | 64 | - | - | 447 | 372 | |||||||||||||||||||
$ | 5,238 | $ | 2,228 | $ | 219 | $ | 12,507 | $ | 4,935 | |||||||||||||||
(2 | ) | For the three months ended September 29, 2019 and the twelve months ended December 31, 2019, selling and administrative expenses include an equity charge of $2.1 million for the modification of Teradyne's retired CFO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his July 17, 2019 retirement. | ||||||||||||||||||||||
(3 | ) | Restructuring and other consists of: | Quarter Ended | Twelve Months Ended | ||||||||||||||||||||
December 31,
2019 |
September 29,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 | ||||||||||||||||||||
Contingent consideration fair value adjustment | $ | (2,796 | ) | $ | (7,759 | ) | $ | 10,223 | $ | (19,257 | ) | $ | 987 | |||||||||||
Employee severance | 460 | 808 | 768 | 2,871 | 8,714 | |||||||||||||||||||
Acquisition related expenses and compensation | 248 | 451 | 455 | 2,506 | 4,584 | |||||||||||||||||||
Other | - | - | - | - | 947 | |||||||||||||||||||
$ | (2,088 | ) | $ | (6,500 | ) | $ | 11,446 | $ | (13,880 | ) | $ | 15,232 | ||||||||||||
(4 | ) | Interest and other includes: | Quarter Ended | Twelve Months Ended | ||||||||||||||||||||
December 31,
2019 |
September 29,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 | ||||||||||||||||||||
Non-cash convertible debt interest | $ | 3,496 | $ | 3,453 | $ | 3,327 | $ | 13,728 | $ | 13,064 | ||||||||||||||
Pension actuarial loss (gain) | 7,727 | - | (3,512 | ) | 8,176 | (3,316 | ) | |||||||||||||||||
$ | 11,223 | $ | 3,453 | $ | (185 | ) | $ | 21,904 | $ | 9,748 | ||||||||||||||
(5 | ) | For the twelve months ended December 31, 2019, income tax provision (benefit) includes a $26 million tax benefit from the release of uncertain tax position reserves due to the IRS completion of its audit of Teradyne's 2015 Federal tax return. For the quarter and twelve months ended December 31, 2018 income tax provision (benefit) includes a $52 million tax benefit related to the finalization of our toll tax charge. | ||||||||||||||||||||||
(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 quarters ended December 31, 2019, September 29, 2019 and December 31, 2018, 7.3 million, 5.8 million and 0.9 million shares, respectively, have been included in diluted shares. For the twelve months ended December 31, 2019 and December 31, 2018, 4.9 million and 2.7 million shares, respectively, have been included in diluted shares. For the three months ended December 31, 2019 and September 29, 2019, diluted shares also included 5.4 million and 3.6 million shares, respectively, from the convertible note hedge transaction. For the twelve months ended December 31, 2019 and December 31, 2018, diluted shares included 2.7 million and 0.5 million shares, respectively, from the convertible note hedge transaction. | ||||||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
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December 31,
2019 |
December 31,
2018 | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 773,924 | $ | 926,752 | ||||||||||||||||||||
Marketable securities | 137,303 | 190,096 | ||||||||||||||||||||||
Accounts receivable, net | 362,368 | 291,267 | ||||||||||||||||||||||
Inventories, net | 196,691 | 153,541 | ||||||||||||||||||||||
Prepayments and other current assets | 188,598 | 170,826 | ||||||||||||||||||||||
Total current assets | 1,658,884 | 1,732,482 | ||||||||||||||||||||||
Property, plant and equipment, net | 320,216 | 279,821 | ||||||||||||||||||||||
Operating lease right-of-use assets, net | 57,539 | - | ||||||||||||||||||||||
Marketable securities | 104,490 | 87,731 | ||||||||||||||||||||||
Deferred tax assets | 71,894 | 70,848 | ||||||||||||||||||||||
Other assets | 22,985 | 11,509 | ||||||||||||||||||||||
Retirement plans assets | 18,457 | 16,883 | ||||||||||||||||||||||
Acquired intangible assets, net | 125,480 | 125,482 | ||||||||||||||||||||||
Goodwill | 416,431 | 381,850 | ||||||||||||||||||||||
Total assets | $ | 2,796,376 | $ | 2,706,606 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Accounts payable | $ | 126,617 | $ | 100,688 | ||||||||||||||||||||
Accrued employees' compensation and withholdings | 163,883 | 148,566 | ||||||||||||||||||||||
Deferred revenue and customer advances | 104,876 | 77,711 | ||||||||||||||||||||||
Other accrued liabilities | 70,871 | 78,272 | ||||||||||||||||||||||
Operating lease liabilities | 19,476 | - | ||||||||||||||||||||||
Contingent consideration | 9,106 | 34,865 | ||||||||||||||||||||||
Income taxes payable | 44,200 | 36,185 | ||||||||||||||||||||||
Total current liabilities | 539,029 | 476,287 | ||||||||||||||||||||||
Retirement plans liabilities | 134,471 | 117,456 | ||||||||||||||||||||||
Long-term deferred revenue and customer advances | 45,974 | 32,750 | ||||||||||||||||||||||
Deferred tax liabilities | 14,070 | 20,662 | ||||||||||||||||||||||
Long-term other accrued liabilities | 17,188 | 37,547 | ||||||||||||||||||||||
Long-term contingent consideration | 30,599 | 35,678 | ||||||||||||||||||||||
Long-term operating lease liabilities | 45,849 | - | ||||||||||||||||||||||
Long-term income taxes payable | 82,642 | 83,891 | ||||||||||||||||||||||
Debt | 394,687 | 379,981 | ||||||||||||||||||||||
Total liabilities | 1,304,509 | 1,184,252 | ||||||||||||||||||||||
Shareholders' equity | 1,491,867 | 1,522,354 | ||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,796,376 | $ | 2,706,606 | ||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
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Quarter Ended | Twelve Months Ended | |||||||||||||||||||||||
December 31,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 136,783 | $ | 143,791 | $ | 479,175 | $ | 451,779 | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation | 19,326 | 17,485 | 70,834 | 67,415 | ||||||||||||||||||||
Amortization | 12,972 | 12,900 | 49,821 | 45,809 | ||||||||||||||||||||
Deferred taxes | (3,186 | ) | 3,898 | (6,163 | ) | 28,340 | ||||||||||||||||||
Stock-based compensation | 9,075 | 8,250 | 37,897 | 33,577 | ||||||||||||||||||||
Provision for excess and obsolete inventory | 6,396 | 1,720 | 15,244 | 11,242 | ||||||||||||||||||||
Contingent consideration fair value adjustment | (2,796 | ) | 10,223 | (19,257 | ) | 987 | ||||||||||||||||||
Retirement plans actuarial losses (gains) | 7,727 | (3,512 | ) | 8,176 | (3,316 | ) | ||||||||||||||||||
(Gains) Losses on marketable securities | (1,875 | ) | 3,914 | (6,033 | ) | 3,494 | ||||||||||||||||||
Other | 153 | 144 | 766 | 1,083 | ||||||||||||||||||||
Changes in operating assets and liabilities, net of businesses acquired: | ||||||||||||||||||||||||
Accounts receivable | (3,651 | ) | 59,869 | (70,440 | ) | (17,938 | ) | |||||||||||||||||
Inventories | (13,265 | ) | 4,619 | (27,408 | ) | (29,498 | ) | |||||||||||||||||
Prepayments and other assets | (5,319 | ) | (29,683 | ) | (21,437 | ) | (58,402 | ) | ||||||||||||||||
Accounts payable and other liabilities | 28,472 | (2,431 | ) | 49,279 | 13,693 | |||||||||||||||||||
Deferred revenue and customer advances | 11,534 | 3,556 | 39,313 | 13,379 | ||||||||||||||||||||
Retirement plans contributions | (1,311 | ) | (1,090 | ) | (5,086 | ) | (4,334 | ) | ||||||||||||||||
Income taxes | 15,293 | (47,277 | ) | (15,931 | ) | (80,429 | ) | |||||||||||||||||
Net cash provided by operating activities | 216,328 | 186,376 | 578,750 | 476,881 | ||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Purchases of property, plant and equipment | (38,594 | ) | (26,110 | ) | (134,642 | ) | (114,379 | ) | ||||||||||||||||
Proceeds from government subsidy for property, plant and equipment | - | - | - | 7,920 | ||||||||||||||||||||
Purchases of marketable securities | (57,162 | ) | (109,223 | ) | (662,701 | ) | (918,744 | ) | ||||||||||||||||
Proceeds from sales of marketable securities | 45,312 | 2,958 | 105,586 | 846,122 | ||||||||||||||||||||
Proceeds from maturities of marketable securities | 218,455 | 336,339 | 611,927 | 1,270,439 | ||||||||||||||||||||
Proceeds from life insurance | - | - | 2,912 | 1,126 | ||||||||||||||||||||
Purchase of investments and acquisition of businesses, net of cash acquired | (57,772 | ) | - | (79,742 | ) | (169,474 | ) | |||||||||||||||||
Net cash provided by (used for) investing activities | 110,239 | 203,964 | (156,660 | ) | 923,010 | |||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Issuance of common stock under stock purchase and stock option plans | 33 | 14 | 29,312 | 20,973 | ||||||||||||||||||||
Repurchase of common stock | (131,218 | ) | (261,215 | ) | (500,000 | ) | (823,478 | ) | ||||||||||||||||
Dividend payments | (15,036 | ) | (16,002 | ) | (61,305 | ) | (67,322 | ) | ||||||||||||||||
Payments related to net settlement of employee stock compensation awards | (192 | ) | (182 | ) | (14,741 | ) | (20,023 | ) | ||||||||||||||||
Payments of contingent consideration | - | - | (27,615 | ) | (13,571 | ) | ||||||||||||||||||
Net cash used for financing activities | (146,413 | ) | (277,385 | ) | (574,349 | ) | (903,421 | ) | ||||||||||||||||
Effects of exchange rate changes on cash and cash equivalents | (169 | ) | (222 | ) | (569 | ) | 439 | |||||||||||||||||
Increase (decrease) in cash and cash equivalents | 179,985 | 112,733 | (152,828 | ) | 496,909 | |||||||||||||||||||
Cash and cash equivalents at beginning of period | 593,939 | 814,019 | 926,752 | 429,843 | ||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 773,924 | $ | 926,752 | $ | 773,924 | $ | 926,752 | ||||||||||||||||