Greetings. Welcome to Teradyne, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Traci Tsuchiguchi, Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to our discussion of Teradyne’s most recent financial results. I’m joined this morning by our CEO, Greg Smith; and our CFO, Sanjay Mehta. Following our opening remarks, we’ll provide details of our performance for the first quarter of 2025 and our outlook for the second quarter of 2025. The press release containing our first quarter results was issued last evening. We are providing slides as well as a copy of this earnings script on the investor page of the Teradyne website that may be helpful in following the discussion. Replays of this call will be available via the same page after the call ends. The matters that we discuss today will include forward-looking statements that involve risks that could cause Teradyne’s results to differ materially from management’s current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the Safe Harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 on file with the SEC. Additionally, these forward-looking statements are made only as of today and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, except to the extent required by law. During today’s call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available, on the investor page of our website. Looking ahead, between now and our next earnings call, Teradyne expects to participate in technology and industrial focused investor conferences hosted by JPMorgan, TD Cowen, and Stifel. Our quiet period will begin at the close of business on June 20th, 2025. Following Greg and Sanjay’s comments this morning, we’ll open up the call for questions. This call is scheduled for one hour. Greg?

Thanks, Traci. Good morning, everyone, and thanks for joining us. Today, I’ll discuss our first quarter results and provide an update on the trends that we are seeing across our businesses. Sanjay will then provide more detail on our first quarter results and second quarter guidance. It's been seven weeks since our Analyst Day and the long-term themes that we discussed; AI, verticalization, and electrification, remain the primary industry drivers that we expect will accelerate our growth trajectory in the years ahead. In the near-term, the combination of trade policy and our customers’ heightened uncertainty around end market demand has caused orders to push out, as we discussed last month. Although the direct impact of current and anticipated 90-day tariffs on our model is minimal, we are more concerned about the impact of tariffs on the end market demand. Many of our customers, primarily in the mobile, automotive, and industrial segments, are reviewing their capital acquisition plans, and we do not have firm forecasts from them at this time. Beyond the second quarter, our visibility is very limited. As such, we are not commenting on or reaffirming our expectations beyond the second quarter. We delivered first quarter revenue towards the high end of our guidance range with gross margin and earnings per share above the high-end of our expectations. Strength in Semi Test, specifically SoC for the mobile end market drove year-over-year growth. This mobile demand is transitory and related to some supply chain transitions at our customers, rather than a signal of end market recovery. Our compute revenue also grew year-over-year in Q1 with record loading on our Ultra Flex and Ultra Flex Plus testers for AI accelerators. Revenue in our Product Test and Robotics Test divisions were generally in line with our expectations in Q1. In Semi Test,…

Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q1 and provide our Q2 outlook. Now to Q1. First quarter sales were $686 million, which was towards the high end of our guidance with non-GAAP EPS of $0.75, above our high-end guide of $0.68. Non-GAAP gross margins were 60.6%. This was above our guidance due primarily to product mix. Non-GAAP operating expenses were $275 million, up year-over-year as we have increased our investment and target opportunities to drive longer-term growth. That said, it's down sequentially as part of our implemented spending controls. Non-GAAP operating profit was 20.5%. Turning to our revenue breakdown in Q1. Semi Test revenue for the quarter was $543 million, with SoC revenue contributing $406 million; Memory, $109 million; and IST, $27 million. Strength in SoC was driven primarily by mobile. As expected, Memory revenue was lower as customers digest the HBM test equipment delivered in 2024. We expect DRAM to dominate the memory mix in 2025 just as it did in 2024. IST revenue was $27 million, was up both sequentially and year-over-year, driven by new SLT shipments for mobile and our first AI compute revenue. In product test, Q1 revenue was $74 million, down 4% year-over-year, with wireless test revenue of $29 million up 20% year-over-year. This growth in wireless test was offset with weakness in production board test tied to the automotive industry and timing of programs in defense and aerospace. Now to Robotics. Revenue was $69 million, declining both sequentially and year-over-year. In the quarter, UR contributed $49 million and MiR contributed $20 million. While the long-term drivers of AI and onshoring and advanced robotics remain intact, near-term macro factors continue to be a headwind. In robotics, the operating loss was $22 million, in line with our expectations. Given…

Thank you. [Operator Instructions]. Our first question is from Krish Sankar with TD Cowen. Please proceed.

Putting my question, Greg, you kind of mentioned that how seven weeks ago at your Analyst Day you saw tariff-related pushouts. But now it seems like some of your OSAT customers are seeing tariff-related pull-ins, so I'm kind of curious. What are the dynamics you're seeing? It seems like you're really seeing pushouts, no pull-ins, kind of like what end verticals is it coming from? Is it mostly auto analog industrials or are you also seeing this trend with mobile and HPC? I then had a quick follow-up.

Yes, Krish. So I think the effects of pull-ins for end orders, like people hurrying to get chips, are mostly affecting capacity that -- it's using capacity that's already in place. It is not significant -- we haven't seen significant pull-ins into Q1 or into Q2 to provide additional capital equipment to support that. So that's not a factor. The pushouts that we were talking about at Analyst Day are the situation is essentially the same as it was back then and the pushouts are primarily coming from our customers that serve the auto and industrial space. We haven't seen significant pushouts associated with mobile but we are concerned about the potential end market impact that like that is an effect yet to be seen that we don't have information about.

Got it. And then just a follow-up on the HPM wafer start win. Is this an existing HBM customer? Is it a new one? And also, typically, Teradyne has been better in because speed is more important. So I'm kind of curious what got you the wafer assortment? Thank you.

Okay. So the important thing to remember is that with HBM memory, there is now a performance test that occurs at wafer level, so this is a post stack test. So you do a core test of all of the DRAM wafers then you dice those wafers, you stack them up onto a substrate wafer, and then you do another wafer level test of the entire stacked HBM memory, and that's a performance test that happens at higher speed. That's the insertion that we won, and that is a -- that HBM4 win is with a customer, we didn't have existing HBM3 or 3E business.

Thank you, Greg, very helpful.

Our next question is from C.J. Muse with Cantor Fitzgerald. Please proceed.

Yes, good afternoon. Good morning. Sorry. Thank you for taking the question. I guess, I understand not guiding to the second half given lack of visibility. But I'm hoping you could kind of speak to what you can control? So how are you thinking about kind of what the new gross margin range would look like for the full calendar year? And do you have an updated view on how we should be thinking about OpEx?

Yes. C.J., it's Sanjay. So for the full calendar year, given the uncertainty on the top line, the impact of the tariffs or the trade policy, the revenue mix is really a large factor. So we're not providing any guide for the gross margin. I will share that our first half from a gross margin perspective, is percentage-wise is roughly in line with where we expected. Q1, a little bit better and as we're guiding Q2, a little bit worse, but overall in the first half, percentage-wise, were aligned. And given the uncertainty of the top line, we're not providing any guide for the second half. From an OpEx perspective, the story is, it may sound a little bit redundant, but from a variable compensation model perspective, what we'll see is depending on the revenue flux, if the revenue comes down, we'll have a favorable impact, lower spend; if it goes up, we'll have more spend. But the kind of the narrative is consistent where we're going to prioritize our Semi Test, our engineering and our go-to-market. You saw the restructuring in robotics in Q1. You should see that decline year-over-year. And from an OpEx perspective and product test, it should be roughly flattish to the prior year.

So if you don't mind, Sanjay, I'd like to add one sort of historical perspective to that, C.J. If you look into sort of past situations where we have had like a sharp downturn within a year, like so in -- from 2022 to 2023, we had -- in the middle of '23, we had a sharp slowdown in the mobile space that occurred midyear and our margins went from 59% in 2022 to 57% in 2023. So we're not calling a gross margin for the full year because we don't have a good picture of the full year. The thing I want to emphasize is that it's probably going to move in a pretty narrow range.

Very helpful context. And I guess as my follow-up, I was hoping you could speak to the SLT wins that you highlighted in your prepared remarks. So can you give us a little more color on what you're seeing with AI accelerators? And then also on the mobility side of 2-nanometer, is that just a win at your large existing customer or have you broadened your design wins in that arena? Thank you.

Yes. So I'm glad you asked for clarification around the mobile SLT win. So in my script, it was two separate thoughts that we have won additional mobile sockets that are going to drive business in 2025 and into 2026. A separate thought is the transition to 2-nanometer is going to be a positive demand tailwind in 2026 as well. I didn't mean to imply that we won an SLT 2-nanometer socket. So I just want to make sure that we're really clear about that. On AI accelerators, this is a leading edge trend. What we're seeing is that AI accelerator devices when they're being incorporated into higher-level assemblies, those assemblies have higher than acceptable failure rate as they're being built into servers and it takes a significant amount of time to get the test coverage that you need for these devices. And many of the failures can only be found when they are running actual like training workloads. The most cost-effective way to be able to run those training workloads is to do it in a system level test environment. And so we've implemented that for a leading-edge AI accelerator. We've delivered that product. That product has been accepted and is being used in production right now. The trend that we believe is going to happen is that with next-generation accelerators that are even more complex that 100% SLT is going to be the most economic choice that these customers will make in order to achieve the quality levels that they need. So this is the tip of the spear when it comes to SLP of these devices. And the key thing that we have is a great solution around the thermal control and power required to do this. So it's an important strategic win that is going to deliver significant revenue in 2026.

Very helpful. Thank you.

Our next question is from Timothy Arcuri with UBS. Please proceed.

Thanks a lot. Greg, you talked about -- I think you said the biggest robotics order ever, I think you talked about that in the script. June has historically been kind of all over the map. It's been -- I mean, if you said it's a normal seasonal, it's pretty flat, I guess, in June. So can you talk about that order? What was it for? What does it tell you about the business and when is it going to hit?

Yes, sure. So as we've said in the script, it's for an automotive customer. And this has been historically large strategic customer for us for both UR and MiR for a while. This is the first -- it's the largest order for our AMRs that we've ever received. And it's the first time that we've received an order where we dealt with this customer in a combined way as a robotics unit versus a UR and MiR unit. So it demonstrated the ability to transition the sales force to selling all of our products to these strategic customers. The product is primarily used in -- so for the AMRs, they're primarily used in the material handling part of the factory. So essentially, they bring parts from storage to line side and then the other automation takes that and brings it into the product being assembled. The cobot arms are generally used to automate manual processes in existing factories. So when they build a factory, they will design in the core automation for the assembly line. There is a significant amount of manual operations that occur, especially as the product gets further through the process. And after the factory is commissioned, this customer will continually look for process improvements and collaborative robotics is one of the key technologies that they use for those kinds of improvements because they don't have to make sure that the product -- that the automation and the workers are separated. So it's an ongoing continuous improvement investment from this customer on the cobots side.

And when is it help the business? And then Sanjay, can you give us some TAM updates from what you provided during the Analyst Day? You had said 49 SSC, 14 memory [ph] and then you had all the breakdown within SSC. Is there any change to that that you would want to highlight?

So Tim, I didn't quite catch the first part of your question around that?

Yes, Greg, I was just trying to understand like, I mean, like this is such a big order, when does it help the business? Does it ship in the back half of the year? Does it ship in June? When does it ship?

No, so it's shipments are spread out through from Q1 into Q2. So it wouldn't extend into the second half of this this year. The lead times on the robotics products are generally pretty short.

And then maybe addressing your next request. As we've said in the prepared remarks, given the uncertainty, we're not providing an update on the TAM and the breakdown for the full year.

Our next question is from Samik Chatterjee with JPMorgan. Please proceed.

Hi, this is Priyanka Thapa on for Samik Chatterjee. My question is on secondary impact for tariffs. Have you observed a shift among international customers towards non-U.S. competitors in the testing space? Or have you noticed that your competitive positioning has remained stable?

Hi, Priyanka, in terms of competitive impact -- so especially the key thing in the test market is we have two major international suppliers, and then there are indigenous suppliers in China and Korea that also serve the market. What -- we have not seen any competitive impact customers that are deciding to buy from a different vendor because of the tariffs. And there are certainly -- it's a very competitive market, so we're in competing all the time. There tariffs has not been a deciding factor in any of those competitions.

All right. And one follow-up. Just to put on the gross margin impact. It was noticeably strong this - on product mix this quarter. What measures are necessary in the long term to achieve the sort of 60% gross margin or is the narrow range that you spoke of like somewhat below that?

Yeah. Hi. It's Sanjay. Thanks for the question. The strength as we noted in the prepared remarks, is really tied to product mix. And we - overall, when we make our investment decisions, we are looking to differentiate our solutions, and we have an overall business model of 59% to 60% and that's how we design our products in the markets we enter. I would say in the short run, when we talk about product mix, from a tester perspective, depending on what the needs are for a particular customer, it's really configuration dependent on what goes in there. But overall, in the first half, if you take a look at our guide, the first half, we're at 59%. We do believe over the mid and long term that we'll continue to operate our business at 59% to 60%.

All right. Thank you so much.

Our next question is from Brian Chin with Stifel. Please proceed.

Good morning. Thanks for letting us ask a few questions. Maybe one for you, Greg. When you size the VIP TAM at around $600 million in '26 and potentially $800 million in 2028, were you including SLT? Can you give us a sense, even if you don't want to necessarily reaffirm those targets at the moment, like how material to those TAM figures could SLT be?

Yeah. So the numbers that we cited for the VIP TAM are around semiconductor ATE and it doesn't include SLT revenue. If there is a - if the trends that I'm talking about plays out, then I don't think we've provided a formal estimate of that TAM. It would not - it's not like going to be as big. But probably in the 10% to 30% of the total TAM would be the SLT TAM for that. We can -- we'll be updating that over time, and we'll let you know probably in January of next year when we start talking about the long term. But you should look at it as impactful but not huge, not like this.

Okay. Thanks. And then I guess kind of broadly, are you anticipating more meaningful advanced back-end test and packaging lines to be onshored here in the states? And what time frame seems realistic? And should this coincide with the next expansion of advanced logic wafer fab capacity in the U.S.?

Yeah. So the thing that we have usually said and we still believe is that customers buy testers that - for the parts that they need to test. And where those parts are produced, whether it's in Taiwan or in China or in the U.S. doesn't affect the end market demand for those chips. So our ship to locations may change in the future if there's more on-site manufacturing in the U.S., but the total demand is unlikely to change in any meaningful way. There may be some additional inefficiency if yields are lower at first or if utilization is lower. But I think the onshoring of manufacturing is probably a bigger factor for front-end equipment where you need to make a large front-end investment, whether or not you have the demand for the product. For things like testers, you're only going to buy testers essentially at the point in time when you know that you have the wafer volume that's going to require the test capacity.

Thank you.

Our next question is from Shane Brett with Morgan Stanley. Please proceed.

Thank you for taking my question. So firstly, on Memory, you spoke about DRAM dominating the memory mix in 2025, just as it did in 2024, which would imply NAND remains at very low levels. What do you think is needed from customer utilization or technology transitions to see test orders again? Thank you.

So there are two factors that will drive a larger NAND demand. The first is really mobile phone unit volume. So if mobile phone unit volume inflects significantly, then we would see an increase in the demand. Also if the rise of AI-enabled smartphones requires a lot more local storage for model parameters, that would increase the amount of NAND per phone. So those are sort of the volume drivers for the market. The other important driver is interface standards. And this is true both in the mobile space and also in the compute space. In the mobile space, there are new protocols in both the iOS ecosystem and the Android ecosystem that require investment in new tester capacity to be able to verify those devices. So as new phones adopt new standards, that does drive TAM in the mobile space. The last factor around the NAND market is as the NAND capacity continues to increase and the need for nearline storage for AI increases, there's a potential for very high demand in the cloud compute space for storage. And that's something that we think would be a positive factor for demand for ATE and we also think that that's an interesting market for us for our IST Group.

Got it. Thank you. And as for my follow-up, you previously mentioned that most of the VIP demand in '24 came from upgrades and if they were system sales, revenue would have doubled. Do you have a gauge on what the utilization are for your testers and at what point would customers have to purchase new testers rather than resorting to upgrade?

So we don't have an accurate enough measure of utilization that we can share sort of specific numbers. The trend is definitely upward. And we have already seen an increase in system orders associated with AI accelerators. So we -- in the early parts of 2024, it was really quite dominated by the upgrade sales. As we got into the latter half of 2024, we began to see significant system orders in addition to those upgrade orders. And also the mobile business that we've transacted over Q4 and Q1 is consuming additional capacity. It's mobile of one type to mobile of another type, but it is definitely consuming idle testers. So the best I can do is give you a qualitative answer that we believe that the number of upgradable systems is much, much lower now than it was, say, 6 months ago.

Got it. Thank you very much.

Our next question is from David Duley with Steelhead Securities. Please proceed.

Yes. Thank you for taking my question. I guess I had one clarification. As far as the HBM stack die test, just to clarify, I guess you now have all three of the HBM dyes for stack die test. Is that how we interpret this win?

No, we have -- that is not a correct assumption.

Okay. And then as far as the -- at the Analyst Day, you demonstrated a robot that was loading and unloading FOUPs and I was kind of wondering and I think you mentioned that that was in production or in demonstration of one customer. Just help us understand the timing of when you expect to start to see revenue from that product and how big a market do you think that can be?

So we already have -- we had revenue in Q1 in association with the semiconductor vertical for our robotics business. And so that -- those are -- and we also have semiconductor workflows similar to what we demonstrated at our Analyst Day in production at multiple sites for a different semiconductor customer. In terms of the revenue impact in 2025, it's kind of single-digit millions of dollars and we expect it to grow over time. But it also is a key element of like an enterprise level value proposition to these customers that we are already in their production facilities to provide support for our test equipment, we understand their workflows quite well. And by being able to offer them the robotics that they need to automate some of these processes. We're able to do that quite efficiently and we're also a trusted partner. So we think that this is an important way for us to demonstrate that we are the right test and robotics partner to these customers.

Thank you.

Our next question is from Vivek Arya, Bank of America. Please proceed.

Hi. Thank you for taking our question. This is [indiscernible] on behalf of Vivek. One on compute. I know you said you're not seeing a lot of push outs with this end market and I know you won't guide the second half, but should we then expect this business to generally remain on track with your expectations from the Investor Day, just given you're not seeing any push outs? Thank you.

Yes. So we haven't seen significant push outs in terms of affecting our Q1 and Q2 results. There is uncertainty around the second half of the year. And I'd like to emphasize that it is uncertainty. There are potential upside factors and there are potential downside factors and that's one of the reasons that we are not trying to guide the full year is that we -- we're not trying to suddenly communicate a downward message or anything. We're just hearing a lot of uncertainty from our customers about the timing of projects and the need for capacity. But yes, the view from the Analyst Day to now is essentially the same.

Got it. And then one on robotics. Obviously, the sales side is a bit uncertain, but you've previously been assuming that this segment will outgrow your industrial peers by a significant margin. So is this still what you're expecting, that would be helpful? Thank you.

Yes. So we are -- the way that we are typically thinking about our robotics business is that we would want to significantly outgrow traditional industrial automation peers in this space, mainly because we're addressing an underpenetrated market, the advanced robotics segment and especially the segment of robotics where people are trying to automate processes that needs to be in the presence of people or interoperating with people. So that's a different market, and we believe a market that is going to be accelerated by AI. We have not seen anything that changes our opinion that that's possible. But we definitely are struggling with an end market that's quite sluggish. And if people don't have money for projects, then it's difficult for you to achieve sort of an absolute level of growth in the business. So that's the key reason that we undertook restructuring that we did to try and bring down our breakeven. So our breakeven was at $440 million in 2024, our breakeven for this year is down at $365 million. And that was really a reaction to understanding that we don't have control over those end market conditions, and we needed to set ourselves up so that we could maintain our critical investments and still be more careful in terms of the investments that we are making around the go-to-market and achieve the synergies that we could between these 2 groups.

Understood. Thank you.

With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.