Teradyne, Inc.

Ladies and gentlemen, good afternoon and welcome to the Teradyne Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. At that time, if you wish to ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, VP of Corporate Relations for Teradyne. 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 of our performance for the third quarter of 2025 and our outlook for the fourth quarter of 2025. The press release containing our third quarter results was issued last evening. The slides, as well as a copy of this earnings script, are available 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 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 the UBS Technology Investor Conference. Our quiet period will begin at the close of business on December 24th, 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, Amy. Good morning, everyone, and thanks for joining us. Today, I'll discuss our third quarter results, talk a bit about what is driving the business in Q4, and provide a general update on conditions across our businesses. Sanjay will then provide more detail on our third quarter results and fourth quarter guidance. As you saw in the earnings release, we grew sequential revenue 18% and non-GAAP EPS by 49% in the third quarter. This growth was driven by AI demand in semiconductor test. Our other test businesses delivered on plan in the quarter. In robotics, we continue a slow crawl up from our Q1 revenue trough in a challenging environment. The huge investments in cloud AI build out drove our Q3 performance to the high end of our guidance range as our customers ramped production of a wide range of AI accelerator, networking, memory, and power devices. An example of this AI strength is in compute, where our view of the second half of 2025 revenue is more than 50% higher than our expectations just three months ago. Some of this increase comes from us responding to customer pull-in requests, and some is demand increases. As design process and packaging technologies for AI compute rapidly advance, we expect that our growth will continue. our ultra flex plus system has been architected from the ground up for high performance processors and networking devices which have demanding power pin count and test data requirements as ai devices become more complex the ultra flex plus architectural advantages become more valuable to potential customers by enabling fast test development times and high efficiency volume production Our focused investment in R&D is also yielding new differentiated capabilities for compute tests, some of which have already been announced in Q3. In memory, our Q3 memory test sales more than doubled from Q2 to $128 million, with the majority of those shipments supporting AI applications. In Q3, 75% of our memory revenue was driven by DRAM, nearly all of it from final test of DRAM and HBM performance test. 25% of revenue was from Flash, mainly for Cloud SSD, another segment being driven by AI data centers. Our Magnum 7H product is differentiated in HBM performance test because it is a multi-generational product. It can cover the test needs of HBM 3E and HBM 4, and it provides upgrade headroom for HBM 4E and HBM 5. The Magnum 7H also supports HBM's singulated stack performance test. In Q2, we want to design in for this insertion, and in Q3, we began volume shipments. So at this point, Teradyne participates in all major test insertions for HBM, memory die wafer sort, post-stack wafer test, and singulated stack test. Our results in memory tests this year are especially satisfying in light of the composition and size of the memory TAM for 2025. Our best guess is that the total memory TAM for 2025 will be down low double digits, and the weakest part of this market is flash, our traditional strongest segment. Despite this, we expect our memory revenue will sustain at 2024 levels. AI-driven applications for power ICs were a bright spot in the auto industrial market segment. The Eagle test platform has a leading position in the test of high-performance power conversion devices for data center applications. Volumes of these devices are forecast to grow over 50% between now and 2027. We expect the demand for VIP compute and networking to continue to grow significantly, and we have been investing R&D, applications, sales, support, and manufacturing capacity for this expansion. this includes investments to win new vip and merchant gpu customers we're making good progress on new design and opportunities and are cautiously optimistic about our potential success but i would like to make it clear that our q3 results and our q4 guidance do not include any revenue from these types of new opportunities For the deployed fleet of Ultraflex and Ultraflex Plus testers, we see higher utilization and fewer system upgrades than in past quarters, which we believe means that customers are exhausting their inventory of underutilized systems. As a result, we now expect a more direct connection between inflection and end market demand and new system sales. Looking beyond AI and semi-test, conditions in mobile and auto-industrial remain somewhat weak. Now, in our integrated systems division, our Q3 shipments were above plan as SLT customers accelerated deliveries for mobile processors and compute applications. We also saw increases in orders for both HDD and SLT systems. Now recall, lead times are generally measured in quarters for this business, so most of that order strength will translate into revenue in 2026 and beyond. In robotics, we are growing slowly from our trough quarter in Q1 2025. If you go down one level of detail, we continue to see persistent weakness in our core indirect distribution channel as we expand our large customer and OEM channels. An important element of our robotics strategy is to establish UR Cobots as the preferred platform for AI-driven work cell applications and to deliver superior performance for our AMRs by leveraging AI features. In the third quarter, over 8% of robotics sales were for AI-related products, up from 6% in Q2. Another element of our robotics strategy is to deliver value-added service to our installed base of over 100,000 robots. Service represented 14% of sales in Q3, up from 12% in Q2. As we noted in our July call, our semi-test business has evolved to where the largest demand driver is AI data center investments rather than consumer end markets. We have aligned our R&D and go-to-market investments to capture the tremendous opportunities in test driven by this AI-related demand. Our investments are focused on extending our product performance advantages with innovative R&D while also expanding our engineering teams to help customers develop and ramp production of these fantastically complex devices on Teradyne platforms. Sanjay will describe how these investments translate into OpEx, but as we're seeing, their returns are well worth the investment. Looking at Q4, we expect AI-related demand for compute, networking, and memory to be the primary engine of our growth, which reflects both industry trends and the result of our investments to align with those trends. Looking to the future, the long-term themes that we've highlighted in the past, AI, verticalization, and electrification remain firmly intact. As we enter 2026, we expect AI and verticalization will be the primary growth drivers. We've said before that the AI market is both highly concentrated and highly dynamic. The timing of any one project can affect the delivery schedule for hundreds of testers. This can swing quarterly results significantly. So with that understanding, let me offer a few high-level comments about how we're looking at 2026. At the company level, 2026 looks stronger today than it did six months ago, and all indications suggest solid growth from 2025. We anticipate that business conditions for mobile, auto-industrial and robotics will improve, but the timing and the intensity of that recovery is uncertain. But the real story in 2026 is AI, and the investments that we have made to develop differentiated solutions in that space will drive our growth plan. I'd like to share a few specific examples. Massive investments in building data centers are translating into strong demand for Ultraflex Plus in VIP, compute, merchant compute, and networking. In the memory market, AI will drive growth in HBM, DRAM, and Flash for SSD applications served by Magnum. Accelerated bid growth in HDD is driving the demand for more HDD tests. The deployment of AI-capable processors for mobile, client computing, and cloud AI is driving the demand for more system-level tests. We plan to give you a more detailed view as part of our model update in the January call. Now, before I hand the call over to Sanjay, I would like to say a few words about the CFO transition that we announced last night. Michelle Turner will be our Chief Financial Officer effective November 3rd, 2025. She brings 30 years of financial and strategic leadership experience in the technology and manufacturing sectors, and she has a strong track record of driving growth, disciplined capital allocation, and operational efficiency. She is looking forward to getting to know all of you in the upcoming quarter. I'm excited to welcome Michelle to the Teradyne team. Now, Sanjay has been Teradyne's CFO since 2019, and he has offered to stay on as an executive advisor to operations as we expand capacity in 2026. I want to thank Sanjay for his excellent leadership and contributions over the past six years, and I'm grateful that we will have the benefit of his guidance. With that, I'll turn the call over to Sanjay.