Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward-looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

Overview

We are a leading global supplier, designer, developer, and manufacturer of automated test equipment and robotics products. Our automated test systems are used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our Robotics products consist primarily of collaborative robotic arms and autonomous mobile robots used by global manufacturing, logistics and industrial customers to improve quality and increase manufacturing and material handling efficiency, while decreasing manufacturing and logistics costs. Our automated test equipment and robotics products and services include:

semiconductor test (“Semiconductor Test”) systems;

robotics (“Robotics”) products; and

product test ("Product Test") systems, which includes defense/aerospace ("Defense/Aerospace") test instrumentation and systems, circuit-board test and inspection ("Production Board Test") systems, and wireless test systems.

The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our products both through direct sales and sales to the customer’s supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future.

The first quarter of 2025 benefited from solid revenue performance, operating expense control, and gross margins above the high-end of our expectations. The strong first quarter performance was driven primarily by Semiconductor Test, specifically in mobility, leading to year-over-year growth. Although first quarter results were positive, there is less than normal visibility for the rest of the year due to uncertainty around tariffs, changing trade policies, and fluctuating end customer demand. As a result of uncertainty, we are prudently managing operating expenses including restructuring our Robotics organization to consolidate our go-to-market functions.

On January 31, 2025, we acquired from Infineon Technologies AG ("Infineon") its automated test equipment technology and associated development team ("AET") based in Regensburg, Germany for a total purchase price of 17.6 million Euro, equivalent to $18.3 million. AET adds resources and expertise to our company and strengthens the relationship between Teradyne and Infineon. AET is included in our Semiconductor Test segment.

On March 10, 2025, we entered into a definitive agreement to acquire privately held Quantifi Photonics ("Quantifi"), a leader in photonic IC testing. This acquisition will enable us to deliver scalable photonic integrated circuit ("PIC") test solutions. The acquisition is expected to close in the second quarter of 2025, subject to customary closing conditions and regulatory approvals.

While revenues in our test businesses are predominantly in U.S. dollars, the majority of our Robotics revenue is denominated in foreign currencies. Strengthening of the U.S. dollar would negatively affect Robotics revenue growth in 2025.

Our corporate strategy for our test businesses is to profitably increase market share while in Robotics, we plan to grow revenue and profits through diligent cost management and the introduction of differentiated products targeting expanding markets. Our capital allocation plan will continue to be balanced between investing in organic and inorganic growth and returning cash to shareholders through share repurchases and dividends.

In the first quarter of 2025, the US government announced a number of tariffs which could impact our businesses. On April 9, 2025, a 90 day pause was instituted on some of the previously announced tariffs. Currently, we are assessing the potential impact of the tariffs. Based on currently available information we do not anticipate a material impact to our costs as a result of the tariffs. However, the impact to end customer demand remains unclear as the global economy works through trade negotiations.

For information regarding risks associated with import-export control regulations and similar applicable laws and regulations, see Part II - Item 1A "Risk Factors- Risks Related to Legal and Regulatory Compliance" included elsewhere in this Form 10-K.

Critical Accounting Policies and Estimates

We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the three months ended March 30, 2025, to the items disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. These estimates may change, as new events occur and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions.

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

		For the Three Months Ended
		March 30, 2025				March 31, 2024
Percentage of revenues:
Revenues:
Products			82	%			76	%
Services			18				24
Total revenues			100				100
Cost of revenues:
Cost of products			33				33
Cost of services			7				10
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)			39				43
Gross profit			61				57
Operating expenses:
Selling and administrative			23				25
Engineering and development			17				17
Acquired intangible assets amortization			1				1
Restructuring and other			2				1
Total operating expenses			43				44
Income from operations			18				13
Non-operating (income) expense:
Interest income			(1	)			(1	)
Interest expense			—				—
Other (income) expense, net			1				2
Income before income taxes and equity in net earnings of affiliate			17				12
Income tax provision			2				1
Income before equity in net earnings of affiliate			15				11
Equity in net earnings of affiliate			(1	)			—
Net income			14	%			11	%

Results of Operations

First Quarter 2025 Compared to First Quarter 2024

Revenues

Revenues by our reportable segments were as follows:

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	542.5			$	434.8			$	107.7
Robotics			69.0				87.7				(18.7	)
Product Test			74.2				77.4				(3.2	)
		$	685.7			$	599.9			$	85.8

The increase in Semiconductor Test revenues of $107.7 million, or 24.8%, was driven primarily by higher sales for mobility. The decrease in Robotics revenues of $18.7 million, or 21.3%, was primarily due to lower sales of collaborative robotic arms due to market weakness. The decrease in Product Test revenues of $3.2 million, or 4.1%, was primarily due to lower sales in Defense/Aerospace and Production Board Test, partially offset by an increase in wireless tester sales.

Our reportable segments accounted for the following percentages of consolidated revenues:

		For the Three Months Ended
		March 30, 2025				March 31, 2024
Semiconductor Test			79	%			72	%
Robotics			10				15
Product Test			11				13
			100	%			100	%

Revenues by country as a percentage of total revenues were driven by location of customer demand and were as follows (1):

		For the Three Months Ended
		March 30, 2025				March 31, 2024
Taiwan			28	%			12	%
China			19				7
Korea			12				28
United States			11				17
Singapore			8				3
Europe			6				11
Philippines			4				2
Japan			2				11
Malaysia			2				3
Thailand			2				2
Rest of World			6				4
			100	%			100	%

(1)

Revenues attributable to a country are based on location of customer site.

Gross Profit

Our gross profit was as follows:

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar/Point Change
		(in millions)
Gross profit		$	415.3			$	339.3			$	76.0
Percent of total revenues			60.6	%			56.6	%

Gross profit as a percent of revenue increased by 4.0 points, primarily due to product mix in Semiconductor Test and higher volume.

Selling and Administrative

Selling and administrative expenses were as follows:

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar Change
		(in millions)
Selling and administrative		$	157.3			$	149.2			$	8.1
Percent of total revenues			22.9	%			24.9	%

The increase of $8.1 million in selling and administrative expenses was primarily higher spending in Semiconductor Test, partially offset by a reduction in spending in Robotics.

Engineering and Development

Engineering and development expenses were as follows:

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar Change
		(in millions)
Engineering and development		$	118.2			$	103.2			$	15.0
Percent of total revenues			17.2	%			17.2	%

The increase of $15.0 million in engineering and development expenses was primarily due to higher spending in Semiconductor Test.

Restructuring and Other

During the three months ended March 30, 2025, we consolidated our Robotics go-to-market functions to better serve our customers. As a result, we recorded $11.4 million of employee severance charges, $9.2 million of which is related to the Robotics restructuring which impacted approximately 150 employees. We expect all Robotics severance payments to be made prior to the end of our second quarter. Additionally, we recorded $2.0 million of acquisition and divestiture related costs and $1.1 million related to lease terminations.

During the three months ended March 31, 2024, we recorded $2.2 million of acquisition and divestiture related costs and $2.0 million of severance charges related to headcount reductions primarily in Semiconductor Test and Robotics.

Interest and Other

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar Change
		(in millions)
Interest income		$	(5.1	)		$	(7.9	)		$	2.8
Interest expense			0.8				0.7			$	0.1
Other (income) expense, net			6.1				12.1			$	(6.0	)

In the period ended March 31, 2024, other (income) expense, net included the change in value of our call option purchased in connection with the acquisition of Technoprobe. The call option expired on May 23, 2024.

Income (Loss) Before Income Taxes

		For the Three Months Ended
		March 30, 2025				March 31, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	155.8			$	83.4			$	72.4
Robotics			(37.2	)			(14.0	)			(23.2	)
Product Test			8.6				13.5				(4.9	)
Corporate and Eliminations (1)			(8.2	)			(10.0	)			1.8
		$	119.0			$	72.9			$	46.1

(1)

Included in Corporate and Eliminations are interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations, severance charges, pension and postretirement plan actuarial gains (losses), contingent consideration adjustments, acquisition and divestiture related expenses, and an expense for the modification of Teradyne's former chief executive officer's outstanding equity awards.

The increase in income before income taxes in Semiconductor Test was driven primarily by higher sales for mobility as well as higher margins due to product mix. The decrease in income before income taxes in Robotics was primarily due to lower sales of collaborative robotic arms. The decrease in income before income taxes in Product Test was primarily due to lower sales in Defense/Aerospace and Production Board Test, partially offset by an increase in wireless tester sales.

Income Taxes

The effective tax rate for the three months ended March 30, 2025 and March 31, 2024, was 12.2% and 11.9%, respectively. The increase in the effective tax rate from the three months ended March 31, 2024, to three months ended March 30, 2025, is primarily attributable to a decrease in benefit related to uncertain tax positions, net of an increase in benefit related to tax credits.

Contractual Obligations

There have been no changes outside of the ordinary course of business to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balances decreased by $102.3 million in the three months ended March 30, 2025, to $621.5 million.

Operating activities during the three months ended March 30, 2025, provided cash of $161.6 million. Changes in operating assets and liabilities provided cash of $7.7 million due to a $12.0 million increase in operating liabilities, partially offset by a $4.3 million rise in operating assets.

The change in operating assets was primarily due to a $31.0 million increase in inventories, partially offset by a $13.1 million and $13.7 million decrease in accounts receivable and other assets, respectively.

The change in operating liabilities was due to growth in accounts payable of $48.0 million, a $13.0 million uptick in income taxes, and a $10.2 million increase in deferred revenue and customer advance payments, partially offset by a $58.0 million decrease in accrued other and a $1.3 million decline is retirement plan contributions.

Investing activities during the three months ended March 30, 2025, used cash of $61.8 million due to $64.0 million used for the purchase of property, plant and equipment, $17.0 million used for the acquisition of business, net of cash acquired, $10.8 million used for the purchase of marketable securities, and $3.0 million used for investments in businesses, partially offset by $27.4 million in proceeds from the maturities of marketable securities and $5.6 million in proceeds from the sale of marketable securities.

Financing activities during the three months ended March 30, 2025, used cash of $176.8 million due to $157.5 million used for the repurchase of 1.5 million shares of common stock at an average price of $107.21 per share, $19.4 million used for dividend payments and $14.7 million used for payments related to net settlements of employee stock compensation awards, partially offset by $14.8 million in proceeds from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the three months ended March 31, 2024, provided cash of $7.3 million. Changes in operating assets and liabilities used cash of $108.6 million due to a $3.9 million increase in operating assets and a $104.7 million decrease in operating liabilities.

The increase in operating assets during the three months ended March 31, 2024, was primarily due to an $8.1 million and $6.9 million rise in accounts receivable and inventories, respectively, partially offset by a $11.1 million decrease in other assets.

The decline in operating liabilities during the three months ended March 31, 2024, was due to a $70.2 million decrease in accrued employee compensation $28.4 million decrease in accounts payable, $7.0 million reduction in accrued other, $1.4 million decrease in deferred revenue and customer advance payments, and $1.4 million of retirement plan contributions, partially offset by a $3.8 million increase in income taxes.

Investing activities during the three months ended March 31, 2024, used cash of $24.0 million due to $44.0 million used for the purchases of property, plant and equipment, $16.0 million used for the purchase of marketable securities, partially offset by $20.7 million and $14.4 million in proceeds from the sale of maturities and marketable securities, respectively, and $0.9 million in proceeds from life insurance.

Financing activities during the three months ended March 31, 2024, used cash of $36.7 million due to $22.1 million used for the repurchase of 0.2 million shares of common stock at an average price of $100.31 per share, $18.4 million used for dividend payments and $13.1 million used for payment related to net settlements of employee stock compensation awards, partially offset by $16.9 million from the issuance of common stock under employee stock purchase and stock option plans.

In January 2025 and January 2024, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.12 per share and $0.12 per share, respectively. Dividend payments for the three months ended March 30, 2025 and March 31, 2024, were $19.4 million and $18.4 million, respectively.

During the three months ended March 30, 2025, we repurchased 1.5 million shares of common stock for $157.5 million, which excludes related excise tax, at an average price of $107.21 per share. We intend to repurchase up to $1.0 billion of common stock in 2025 and 2026, subject to market conditions. The cumulative repurchases under the 2023 repurchase program as of March 30, 2025, were 7.1 million shares of common stock for $752.7 million, which excludes related excise tax, at an average price per share of $106.42. During the three months ended March 31, 2024, we repurchased 0.2 million shares of common stock for $22.1 million, which excludes related excise tax, at an average price of $100.31 per share

While we have previously declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition.

On May 1, 2020, we entered into a credit agreement (the "Credit Agreement") providing a three-year, senior secured revolving credit facility of $400.0 million. On December 10, 2021, the Credit Agreement was amended to extend the senior secured revolving credit facility to December 10, 2026. On October 5, 2022, the Credit Agreement was amended to increase the amount of the credit facility to $750.0 million from $400.0 million. On November 7, 2023, the Credit Agreement was amended to allow for the purchase of the shares of Technoprobe. As of May 2, 2025, we have not borrowed any funds under the credit facility.

We believe our cash, cash equivalents, marketable securities and senior secured revolving credit facility will be sufficient to pay our quarterly dividend and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings.

Equity Compensation Plans

In addition to our 1996 Employee Stock Purchase Program as discussed in Note M: “Stock-Based Compensation” in our 2024 Annual Report on Form 10-K, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”).

The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers and directors. Both plans were approved by our shareholders.

Recently Issued Accounting Pronouncements

In December 2023, FASB issued ASU 2023-09 –“Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires expanded disclosures relating to the tax rate reconciliation, income taxes paid, income (loss) before income tax expense (benefit) and income tax expense (benefit), requiring a greater disaggregation of information for each. The provisions of ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. We will apply the amendments in this update on a prospective basis. This ASU will have no impact on results of operations, cash flows or financial condition.

In November 2024, the FASB issued ASU 2024-03-"Income Statement - Reporting Comprehensive Income -Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses", which requires disclosure of additional expense information on an annual and interim basis, including the amounts of inventory purchases, employee compensation, depreciation and intangible amortization included within each income statement expense caption. This standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments in this update should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the impact of this new standard.