Teradyne, Inc.

Good day, and thank you for standing by. Welcome to the Q1 2022 Teradyne, Inc. 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 that session, you'll need to press star 1 on your telephone. Be prepared that today's conference is being recorded, and if you require any assistance during the call, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Andy Blanchard. Mr. Blanchard, the floor is yours.

Thank you, Chris. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Jagala, and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2022's first quarter, along with our outlook for the second quarter of 2022. The press release containing our first 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 discussed 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 take 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 those non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure, where available on the investor page of the website. Looking ahead, between now and our next earnings call, Teradyne expects to participate in technology or industrial-focused Investor conferences hosted by Colin, Luke Capital, Bank of America, Stiefel, and Bernstein. Now, let's get on with the rest of the agenda. First, Mark will comment on our recent results and market conditions as we enter the new quarter. Sanjay will then offer more details on our quarterly results along with our guidance for the second quarter. We'll then answer your questions, and this call is scheduled for one hour. Mark?

Hello, everyone, and thanks for joining us. Today, I'll summarize our Q1 results, review current market conditions, and provide an update on Q2 in the full year. Sanjay will then take you through the financial details, including our outlook for the second quarter. The first quarter played out as expected from a financial perspective. We delivered results toward the high end of guidance as we cleared a few more supply chain bottlenecks than expected. As outlined in January, we expect revenue growth throughout the year as we build toward 2023 and the transition to 3-nanometer. Consequently, we expect roughly 7% to 9% sequential quarter-over-quarter growth throughout the year. Since January, we've seen incremental strengthening of demand for semi-test and wireless in the areas of automotive, memory, Wi-Fi 6E, and 7. On the other hand, for the first time in two years, supply chain challenges are materially impacting our semi-test shipments. This is reflected in our wider-than-normal revenue guidance range in Q2. Sanjay will describe these details shortly. From a full-year market perspective, we estimate the SOC market is trending to the high end of the $4.6 to $5 billion range we discussed in January. Strengthening automotive test demand is one element driving the market increase, as both per-car content and unit complexity are growing quickly. The accelerating move to electric vehicles is a key part of this increase, with EVs growing at a 20%-plus TAGR, while the chip content of these vehicles is running more than 3x compared to gas-powered cars. This year, we are seeing particular strength emerging in high-end automotive ADAS processors. Complexity of these processors is approaching the level of high-end cell phone applications processors. Additionally, high-end ADAS processors have about a three to four times longer test time due to the more stringent test requirements for devices used in automotive safety applications. Furthermore, there are usually multiple ADAS processors per vehicle, amplifying the unit demand. Combining the enhanced EV semiconductor content with these ADAS trends, we expect the automotive test market to outgrow the core test market for the foreseeable future. Another area of growth is in hyperscaler silicon development. While the material test revenue impact from these complex chips is in 2023 and beyond, both the complexity and pace of development is accelerating. This has been a focused investment area for us over the last 18 months, and we are pleased with our win rate for these new opportunities. Shifting to the memory test market, our market size estimate for the year remains at about $1 billion, but within that, we have seen the DRAM demand soften a bit, offset by an increase in flash demand. In system tests, defense and aerospace and production board test groups collectively grew over 30% from Q1 2021 on strong automotive board test demand and program buying in defense and aerospace. In storage test sales, we're down 28% as expected versus one Q of 21. Customer concentration here causes this lumpiness, but the long-term complexity and unit demand drivers remain in place. Our wireless test business at Lightpoint remains very healthy, with sales growing 26% year over year in Q1. Strong demand for emerging Wi-Fi 6E and Wi-Fi 7 standards is driving this growth and the outlook for the year. LightPoint's strategy delivers high throughput, easy to deploy test solutions for the full array of wireless standards. Our chipset test library approach to programming allows customers to shorten their time to market and achieve superior test economics for these emerging standards. Moving to industrial automation, group revenues were up 29% from Q1 of last year. Demand in North America was particularly strong with 55% growth year over year. While we cleared some supply issues at UR late in the quarter, IA shipments overall continue to be constrained by material shortages. Globally, the PMIs for the U.S. and Europe remain over 50, while in China the PMI dipped below 50 in March. We are closely watching to confirm the China data point is a short-term COVID lockdown issue and anticipate recovery in 3Q and 4Q. Similarly, the conflict in Ukraine slowed EU demand in March and has the potential to impact European industrial activity throughout the year. While we expect these constraints to continue in 2Q, we do expect IA growth rates to increase through the year as supply constraints ease, AutoGuide begins to ramp shipments, and you are in mere see increased growth on China and EU recovery. At UR, our OEM welding application continued on a tear with 1Q growth of over 100% compared to one year ago. The U.S. geography was also strong with over 50% year-over-year growth. Our UR Plus program of plug-and-play applications for our cobots is passing the 400 product milestone this quarter. Each of these applications leverages an independent third-party developer's knowledge of a specific market vertical to solve a specific problem. This application is then certified by UR so our customers can deploy automation solutions quickly by spending less time on programming and integration work. The resulting network effect is a powerful differentiator for us, and we continue to invest to support this growing army of developers. At MIR, we are seeing two positive trends emerge as we grow the business. First, we are seeing a steady movement towards higher payload, higher ASP AMRs. In 2020, about 10% of our sales were above the 500-kilogram payload range. This moved to 22% in 2021, and in Q1, we saw over 30% of our sales in this class. This represents a broadening of AMR applications to a wider range of material handling tasks in manufacturing and logistics. Second, we are seeing the trend toward both growing fleet sizes and increasing multi-factory deployments at major customers. Within these environments, our fleet management software is an increasingly important product differentiator. These larger customers also have demanding uptime and support requirements, which also plays to our strength as Mir is leveraging Teradyne's global support and large account experience to meet these customers' needs in ways that smaller players can't. With one quarter of 2022 in the books, the year is unfolding roughly in line with our forecasts. The incrementally stronger demand and test is being balanced by supply constraints. Longer term, I am encouraged by the continued strength in WFE investments, which fuels our growth, the progress from industry leaders on three nanometer technology, the growing opportunity for human scale automation projects, and the resilience of Teradyne's global team and our partners that are enabling us to muscle through some very tough supply and operational constraints. And before closing, I want to note an important milestone at Teradyne. Mike Bradley will retire from our board of directors in May. Mike's Teradyne career spans over 40 years, including 10 years as CEO, helping shape Teradyne's products, business model, and culture. Mike has had an incredible impact on our company, our customers, and shareholders, and I am especially appreciative for the help he's given me along the way. Thanks, Mike. Sanjay will now take you through the financial details.