Teradyne, Inc.

And welcome to the Q2 2025 Teradyne Inc. Earnings Conference Call. At this time, all participants are in lesson-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tracy Sushiguchi. Please go ahead.

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 on our performance for the second quarter of 2025 and our outlook for the third quarter of 2025. The press release containing our second quarter results was issued last evening. The slides, as well as a copy of this earnings script, are on the investor page of the Teradyne website. 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 ending 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, We're available on the investor page of our website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology or industrial-focused investor conferences hosted by Evercore, KeyBank, Citigroup, and Goldman Sachs. Our quiet period will begin at the close of business on September 19, 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, Tracy. Good morning everyone and thanks for joining us. Today I'll discuss our second quarter results and provide an update on what we're seeing across our businesses. Sanjay will then provide more detail on our second quarter results and third quarter guidance. Through the second quarter, end market trends noted in prior quarters were generally consistent with a strengthening second half. Strength in AI compute is more than offsetting lower demand in auto and industrial end markets. Pockets of improvement in mobile are driven more by customer-specific dynamics than an uptick in the end market demand. Visibility is starting to improve. In terms of capacity utilization, we believe that we have turned the corner towards more new system sales rather than selling upgrades of existing idle mobile capacity for new compute and mobile applications. Demand is strengthening in AI compute, and we are seeing a broadening of opportunities where Teradyne, and especially the Ultraflex Plus is getting strong consideration in areas where we have not historically had a seat at the table. While new program ramps and new test insertions can drive a lumpy order pattern, we are optimistic about the opportunities on our horizon. In the second half of 2025, we expect AI compute to be the dominant driver of our SOC business. The long-term themes we've discussed, AI, verticalization and electrification remain intact, with AI and verticalization emerging as the primary growth drivers in the near term. Our Q2 results reflect the evolving composition of our business. In the past, the typical seasonality in our revenue was heavily driven by consumer mobile demand. This has now been superseded by the waves of demand driven by specific customer program ramps and AI compute. These have no correlation to consumer holiday buying patterns. In the second quarter, we delivered revenue, gross margins, and earnings per share above the midpoint of our guidance ranges. Semi-test, specifically SOC for AI compute, drove results above our expectations. End demand trends in mobile persist, but we saw pockets of customer-specific strength in RF and mobile power in the quarter. In the industrial and automotive end markets, demand has stabilized at a low level. As expected in Q2, memory revenue was lower quarter on quarter due to the timing of shipments and is expected to snap back in the second half. In the quarter, our memory business unit secured an important HBM4 post-stack singulated die win. HBM suppliers are adding test coverage to improve device quality some suppliers are adding a test insertion for HBM singulated stacks. And while this new insertion is not yet pervasive across the broader industry, we believe that it is an important growth driver for the memory TAM in the future. This win builds on momentum from the HBM4 post-stack wafer test win in Q1 for our memory business unit. As we discussed in our analyst day, there are four elements to growth in our IST business. accelerated bid growth in HDD, share growth and recovery in the mobile SLT market, emerging SLT for AI accelerators, and solid state disk drives. In Q2, IST revenue more than doubled compared to the same period last year, mainly driven by HDD and mobile. All of the businesses within our product test group delivered second quarter results generally in line with our expectations and up year on year. In the quarter, we closed the acquisition of Quantify Photonics, accelerating an important element of our strategy to gain share in AI compute by establishing a leadership position in silicon photonics test. In robotics, recall that we executed a structural reorganization that consolidated the customer-facing sales, marketing, and service organizations of UR and MIR in the first quarter of 2025. In Q2, this new organization delivered 9% quarter-on-quarter growth despite persistent difficult market conditions, and we continue to optimize our OpEx envelope to respond. In the second quarter, as part of our pivot to large customers, we secured a plan of record decision from a large customer. This is not expected to have a material impact on robotics revenue in 2025, but is expected to be a significant growth driver later in 2026. In support of this opportunity and others, the team plans to open a manufacturing operation in the United States to best serve customers in this region. Moving on to Q3. As we progress through the third quarter, we are gaining confidence in AI compute-related revenue inflecting in the second half of the year, driven by both SOC and memory. We are less certain of the quarterly timing of shipments between Q3 and Q4, and then between Q4 and Q1 due to customer schedules. That said, we expect the relative size of AI compute in our SOC and memory business to represent the majority of our semi-test revenue in the second half. Our expectations for mobile are modest in the third quarter and the second half generally, expecting that the bulk of the demand we'd see for the year has been satisfied in the first half. Growth in the mobile segment is coupled to the ramp of two nanometer gate all around and the expectation of more compelling AI applications in the generation of smartphones coming in the back half of 2026. In the auto and industrial end markets, our end customers remain cautious about significant capacity ads, but we do not expect test equipment order patterns to deteriorate further. There are areas within this end market that are showing strength, like the power semiconductors for data center build-outs. And we believe that the long-term trend towards electrification will drive growth beyond 2025. Overall, we feel good about where we're headed in the third quarter and the second half of the year. We are significantly more confident than we were 90 days ago. Demand trends in AI compute have strengthened, and forecasts are materializing into orders. Utilization rates have improved considerably, leading to an increase in Ultraflex Plus system orders. With the work that we have done to increase the resilience of our supply chain and dual source our manufacturing, we are in a position to effectively scale volume with increased demand and provide timely delivery of our testers to fast-moving customers. I want to emphasize that we are opening these new opportunities because of the scalability of our newest systems, our capabilities in silicon photonics, our parallelism and higher throughput that lowers the cost of test for our customers. And with that, I'll turn the call over to Sanjay.