Teradyne, Inc.

Good day and thank you for standing by. Welcome to the fourth quarter and full year Teradyne Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Andy Blanchard, Vice President of Investor Relations.

Please go ahead. Thank you, Michelle. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Jagalia, and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2021's fourth quarter and full year, along with our outlook for the first quarter of 2022. The press release containing our fourth quarter results was issued last evening. We're providing slides on the investor page of the website that may be helpful to you 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 risk factors that could cause Teradyne's results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release, as well as our most recent SEC filings. Additionally, those forward-looking statements are made as of today, and we make no obligation to Update them as a result of developments occurring after this call. During today's call, we'll make reference to non-GAAP financial measures. We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure. We're available on the investor page of our website. Looking ahead between now and our next earnings call, Teradyne will be participating in technology or industrial-focused investor conferences hosted by Citi, Morgan Stanley, and Susquehanna. Now let's get on with the rest of the agenda. First, Mark will comment on our recent results and the market conditions as we enter the new year. Sanjay will then offer more details on our results along with our guidance for the first quarter. We'll then answer your questions, and this call is scheduled for one hour. Mark? Good morning, and thanks for joining us.

In our call today, I'll summarize 2001's fourth quarter and the full year and then comment on our early view of 2022. Sanjay will then provide the financial details and review our updated earnings model and capital allocation plans. While we forecast 2022 to be another solid year for Teradyne, overall sales will likely decline in the first half as we believe SOC test sales will be impacted by modest complexity growth in our largest market as the jump to 3-nanometer production is pushed to 2023. More on that in a minute. Recapping 2021, we finished the year strong, bringing full-year sales, non-GAAP earnings growth to 19% and sales growth at 19% and GAAP earnings growth to 29%, respectively. 2021's performance was a result of broad-based growth across our test and IE businesses. Semi-test sales grew about 17%, with our Ultraflex family contributing to the expansion into the compute sector and Eagle product lines serving the automotive and analog industrial sectors growing nearly 90%. For 2021, we estimate the SOC market was about $4.8 billion, up from $3.6 billion in 2020, which puts our market share at about 46% for the year. The memory market in 2021 was about flat with 2020, at approximately $1 billion. Our Magnum family continues to shine in the NAND segment, and we're reinforcing our position in the DRAM segment as the industry prepares for LPDDR5 and DDR5 RAMs in 2022 and beyond. Our share remains at about 40%. LightPoint's wireless test business had a great year, growing 25% from 2020. The global demand for connecting and tracking just about everything, machines, materials, and people, is nearly insatiable. LightPoint is well aligned to this trend with products that simplify testing of the expanding range of wireless standards. Whether in networking with Wi-Fi 6E and 7, in location tracking with ultra-wideband, In cellular with 5G or numerous other standards, the rate of technology change continues unabated, which is great for our business. Moving to our industrial automation business, at UR, sales were up 41% from 2020. We continue to expand the number of UR Plus partners and certified plug-and-play apps with assembly, machine tending, and palletizing among the most popular of the more than 375 available apps. We also continue to broaden our reach beyond existing markets, often with OEM partners. One exceptional example is our expansion into welding applications, where we finished the year with a growth of more than 3x above 2020 levels. Welding applications now account for more than 6% of UR sales. At MIR, full-year sales grew 42% from 2020, on the strength of our new higher payload Mir 250, 600, and 1350 kilogram AMRs. It's also notable that the value of Mir AMRs with advanced fleet management software is amplified as the size of the robot fleet grows. We saw this play out last year with large account sales, those with the potential to deploy hundreds of units, growing nearly 50% faster than the installed base at large. Looking ahead to 2022, the long-term drivers that power our growth in test and industrial automation are strong. In fact, as you will hear from Sanjay, our updated 2024 earnings model reflects an expected higher growth in sales and profits for both areas. However, in 2022, while we expect our IA business to power along with 35% plus growth, we see our SOC business likely contracting during the year as the shift to three nanometer volume production is pushed to 2023. You can begin to see some of this effect in our 1Q guidance as we usually see the beginnings of our summer ramp in March. We expect 2Q to show similar effects as it's usually our peak tooling period for our largest market. As a result, we are modeling first half sales down 15 to 20 percent. We don't expect the impact of this to extend into the second half. We expect demand to accelerate again in 2023 as we begin to see the complexity growth related to investments for 3-nanometer, gate-all-around, and advanced packaging. Overall, we expect the 2022 SOC market to be similar in size to 2021 at approximately $4.6 to $5 billion. Shifting to memory tests, we expect the market in 2022 to be in the $900 million to $1.1 billion range, with a midpoint that's similar to 2021. We expect spending will be weighted toward DRAM as LPDDR5 adoption expands and DDR5 for server applications ramp. In the past, a shift to spending in DRAM would be a significant headwind for us, but we expect we'll maintain our share at about 40% in 2022 as our Magnum Epic DRAM tester grows in market popularity. In system tests, After five years of high growth driven by the storage test product line, we expect 2022 to be a digestion year with sales softening slightly. Wireless test at light point, however, is expected to fill that revenue gap, so we expect the combined system test and wireless test will be about flat with 2021. Shifting from test to industrial automation, Our business outlook is brighter than ever. As I noted in our last call, the penetration rate of both collaborative robots and autonomous mobile robots is under 3%. The economic environment is favorable with worker shortages, the movement of production capacity closer to end markets, and a relentless drive for higher quality and safer operations, all helping to drive demand. The opportunity in front of us is immense, and we are investing to exploit it to the fullest. At the IA segment level, we've increased our long-term revenue growth rate and expect our sales in 2022 to grow more than 35% off of 2021. Sanjay will provide the long-term modeling details, but the key point is the investments we've made and will continue to make position us for both short and long-term success in this expanding market. Expanding OEM relationships and served markets is a key part of our strategy. Like the welding initiative that is bearing fruit, we have several others in flight. One example is in e-commerce. One of our partners, Nimble Robotics, uses AI, unique grippers, and clever software on our UR Cobot platform to pick consumer goods and high-volume warehouse operations for numerous national brands. You may have seen the recent Wall Street Journal article complete with photos of the solution in action. Their innovative solution, dubbed Goods to Robot, complement automated storage and retrieval systems widely used in e-commerce. Our co-bots' ease of use and durability are a natural for this application. Well over 15 million items across 500,000 unique products have been picked to date as Nimble executes an ambitious growth plan in the e-commerce space. Another driver of growth in IA has been the growing use of UR co-bots to improve the competitiveness of local manufacturing to support reshoring and production. Pentec, a finish maker of high-quality ceramics, is a good example. They've added automation to allow skilled craftspeople to focus on high-volume and high-value tasks, while you, our co-bots, do the repetitive and physically demanding ones, such as glazing and finishing of ceramics. To summarize, 2021 was another year of impressive growth. The Teradyne encaps a five-year stretch where sales and non-gap earnings have grown at a compounded rate of 16% and 32%, respectively. As we've said before, we've managed the business to a trendline model. Our updated 2024 earnings model shows improved growth trendlines reflecting our increasing confidence in the business. These projections are not hockey sticks. They are consistent with our past performance and correlated to investment trends in semiconductor capacity and automation market drivers. Along the way, we expect some years will perform above the trendline and other years below. In test, 2020 and 2021 were above trendline years, while 2022 will likely be below. These year-to-year swings in customer buying patterns are a part of our market dynamics. Our underlying business model with outsourced manufacturing and test is designed to efficiently absorb these dynamics. Also, our good and improving gross margins give us increasing leverage within this dynamic. The growth in volume and complexity of semiconductors that propels the test market is stronger than ever, Our industrial automation portfolio is well positioned against macro tens and back to high growth. All these dynamics should net out to attractive midterm growth of both sales and earnings. With that, I turn it over to Sanjay for more details.