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 provider of automated test equipment and robotics products. Our automated test systems are used to test semiconductors, wireless products, data storage, silicon photonics, and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our robotics product offerings 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 reducing costs. In the first quarter of 2025, we identified opportunities for operational synergies amongst our production board test, defense and aerospace, and wireless test businesses leading to the creation of the Product Test division as a new segment effective March 2025. 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, wireless test systems ("Wireless Test"), and photonic integrated circuit ("PIC") test solutions.

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.

Although total company revenue in the second quarter declined year over year and sequentially, we have seen demand in Semiconductor Test for the second half of the year strengthening, specifically in AI Compute, networking and memory. In the second quarter, Robotics was impacted by ongoing macroeconomic challenges and leadership changes, which resulted in a quarterly loss. We are focused on our channel transformation strategy as we transition toward serving large direct customers and we are continuing to cautiously manage operating expenses to deliver profitability in Robotics in the mid-term.

On May 31, 2025, we acquired privately held Quantifi Photonics ("Quantifi"), a leader in PIC test solutions for a total purchase price of approximately $127.2 million. This acquisition is expected to enable the delivery of scalable PIC test solutions and is included in our Product Test segment. Over time, we also intend to leverage the engineering expertise and technology to enhance functionality and create additional differentiation in our Semiconductor Test business, specifically with integration into our UltraFlexPlus platform.

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

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 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. During the first six months of 2025 we completed the acquisitions of Quantifi and AET and additionally, we returned $313.5 million to shareholders through $274.9 million of share buybacks and $38.6 million of dividend payments.

On July 4, 2025, H.R. 1, commonly referred to as the "One Big Beautiful Bill Act" (“OBBBA”), was signed into law, enacting significant changes to U.S. corporate tax law. As of the date of this filing, we do not expect the OBBBA to have a material impact on our condensed consolidated financial statements or our future tax positions in any tax jurisdictions where we operate. We continue to evaluate the provisions of the OBBBA and will incorporate any necessary adjustments as further guidance becomes available.

On April 2, 2025, the US government announced reciprocal tariffs which could impact our businesses. A pause until August 1, 2025, was instituted on the reciprocal tariffs (August 14 for China). We continue to assess the potential impact of the tariffs, but based on currently available information we do not anticipate a material impact to our costs as a result of these measures. However, the ramifications on 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 six months ended June 29, 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								For the Six Months Ended
		June 29, 2025				June 30, 2024				June 29, 2025				June 30, 2024
Percentage of revenues:
Revenues:
Products			80	%			82	%			81	%			79	%
Services			20				18				19				21
Total revenues			100				100				100				100
Cost of revenues:
Cost of products			36				34				34				34
Cost of services			7				7				7				9
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)			43				42				41				42
Gross profit			57				58				59				58
Operating expenses:
Selling and administrative			24				21				24				23
Engineering and development			18				15				18				16
Acquired intangible assets amortization			1				1				1				1
Restructuring and other			—				—				1				—
Gain on sale of business			—				(8	)			—				(4	)
Total operating expenses			43				30				43				36
Income from operations			14				29				16				22
Non-operating (income) expense:
Interest income			(1	)			(1	)			(1	)			(1	)
Interest expense			—				—				—				—
Other (income) expense, net			—				(1	)			—				1
Income before income taxes and equity in net earnings of affiliate			15				30				16				22
Income tax provision			2				5				2				3
Income before equity in net earnings of affiliate			13				26				14				19
Equity in net earnings of affiliate			(1	)			—				(1	)			—
Net income			12	%			26	%			13	%			19	%

Results of Operations

Second Quarter 2025 Compared to Second Quarter 2024

Revenues

Revenues by our reportable segments were as follows:

		For the Three Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	491.9			$	559.9			$	(68.0	)
Robotics			74.9				90.2				(15.3	)
Product Test			85.1				79.7				5.4
		$	651.8			$	729.9			$	(78.1	)

The decrease in Semiconductor Test revenues of $68.0 million, or 12.1%, was driven primarily by lower sales for memory applications. The decrease in Robotics revenues of $15.3 million, or 17.0%, was primarily due to lower sales of collaborative robotic arms due to market weakness. The increase in Product Test revenues of $5.4 million, or 6.8%, was driven by higher Defense/Aerospace, Production Board Test, and wireless tester sales.

Revenues by country as a percentage of total revenues were as follows (1):

		For the Three Months Ended
		June 29, 2025				June 30, 2024
Taiwan			35	%			21	%
China			16				13
United States			12				11
Europe			9				8
Korea			7				29
Philippines			5				1
Japan			4				9
Malaysia			4				1
Singapore			3				2
Thailand			2				2
Rest of World			3				3
			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
		June 29, 2025				June 30, 2024				Dollar/Point Change
		(in millions)
Gross profit		$	373.0			$	425.8			$	(52.8	)
Percent of total revenues			57.2	%			58.3	%			(1.1	)

Gross profit as a percent of revenue decreased by 1.1 points, primarily due to lower volume overall and margin declines at Robotics.

Selling and Administrative

Selling and administrative expenses were as follows:

		For the Three Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Selling and administrative		$	157.8			$	154.5			$	3.3
Percent of total revenues			24.2	%			21.2	%

The increase of $3.3 million in selling and administrative expenses was primarily driven by 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
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Engineering and development		$	118.4			$	111.8			$	6.6
Percent of total revenues			18.2	%			15.3	%

The increase of $6.6 million in engineering and development expenses was primarily due to higher spending in Semiconductor Test, partially offset by a reduction in spending in Robotics.

Restructuring and Other

During the three months ended June 29, 2025, we recorded $2.3 million of severance charges, $0.8 million of which is related to the Robotics restructuring which was initiated during the three months ended March 30, 2025, and impacted approximately 150 employees. During the three months ended June 29, 2025, we made $3.9 million of Robotics severance payments. We expect all outstanding Robotics severance payments to be made prior to the end of our third quarter.

During the three months ended June 30, 2024, we recorded $2.0 million of severance charges related to headcount reductions of 35 people, primarily in Robotics.

Interest and Other

		For the Three Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Interest income		$	(4.4	)		$	(6.7	)		$	2.3
Interest expense			0.8				1.5			$	(0.7	)
Other (income) expense, net			(2.3	)			(3.9	)		$	1.6

The decrease in interest income was driven primarily by lower cash balances in the current period.

Income (Loss) Before Income Taxes and Equity in Net Earnings of Affiliate

		For the Three Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	95.8			$	157.2			$	(61.4	)
Robotics			(18.5	)			(17.9	)			(0.6	)
Product Test			15.6				16.3				(0.7	)
Corporate and Eliminations (1)			3.8				63.8				(60.0	)
		$	96.7			$	219.4			$	(122.7	)

(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, gain on sale of business and an expense for the modification of Teradyne's former chief executive officer's outstanding equity awards.

The decrease in income before income taxes and equity in net earnings of affiliate in Semiconductor Test was driven primarily by lower sales in memory. The decrease in income before income taxes and equity in net earnings of affiliate in Robotics was primarily due to lower sales of collaborative robotic arms, partially offset by lower operating expenses.

Income Taxes

The effective tax rate for the three months ended June 29, 2025, and June 30, 2024, was 12.7% and 15.1%, respectively. The decrease in the effective tax rate from the three months ended June 30, 2024, to the three months ended June 29, 2025, is primarily attributable to the benefit of a projected shift in the geographic distribution of income and increases in benefits related to tax credits and the international provision of the U.S. Tax Cuts and Jobs Act of 2017.

Six Months 2025 Compared to Six Months 2024

Revenues

Revenues by our reportable segments were as follows:

		For the Six Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	1,034.4			$	994.7			$	39.7
Robotics			143.9				177.9				(34.0	)
Product Test			159.2				157.1				2.1
		$	1,337.5			$	1,329.7			$	7.8

The increase in Semiconductor Test revenues of $39.7 million, or 4.0%, was driven primarily by higher sales in mobility and in compute for artificial intelligence applications partially offset by the divestiture of the DIS business and declines in memory. The decrease in Robotics revenues of $34.0 million, or 19.1%, was primarily due to lower sales of collaborative robotic arms due to market weakness.

Revenues by country as a percentage of total revenues were as follows (1):

		For the Six Months Ended
		June 29, 2025				June 30, 2024
Taiwan			31	%			17	%
China			17				10
United States			12				14
Korea			10				28
Europe			7				9
Singapore			6				2
Philippines			4				2
Japan			3				10
Malaysia			3				2
Thailand			2				2
Rest of World			5				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 Six Months Ended
		June 29, 2025				June 30, 2024				Dollar/Point Change
		(in millions)
Gross profit		$	788.3			$	765.1			$	23.2
Percent of total revenues			58.9	%			57.5	%			1.4

Gross profit as a percent of revenue increased by 1.4 points, primarily due to product mix in Semiconductor Test.

Selling and Administrative

Selling and administrative expenses were as follows:

		For the Six Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Selling and administrative		$	315.0			$	303.7			$	11.3
Percent of total revenues			23.6	%			22.8	%

The increase of $11.3 million in selling and administrative expenses was primarily due to higher spending in Semiconductor Test partially offset by lower spending in Robotics.

Engineering and Development

Engineering and development expenses were as follows:

		For the Six Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Engineering and development		$	236.6			$	215.0			$	21.6
Percent of total revenues			17.7	%			16.2	%

The increase of $21.6 million in engineering and development expenses was primarily due to higher spending in Semiconductor Test partially offset by lower spending in Robotics.

Restructuring and Other

During the six months ended June 29, 2025, we recorded $13.7 million of severance charges, $10.0 million of which is related to the Robotics restructuring which impacted approximately 150 employees, and $2.1 million of which related to Product Test. During the six months ended June 29, 2025, we made $8.1 million of Robotics severance payments. We expect all Robotics severance payments to be made prior to the end of our third quarter. Additionally, we recorded $1.6 million of acquisition and divestiture expenses related primarily to the Quantifi acquisition, and $1.2 million of charges related to lease terminations.

During the six months ended June 30, 2024, we recorded $2.2 million of acquisition and divestiture expenses related to the Technoprobe transactions, and $4.2 million of severance and other charges, primarily related to headcount reductions of 66 people, principally in Robotics and Semiconductor Test, which included charges related to a voluntary early retirement program for employees meeting certain conditions.

Gain on Sale of Business

During the six months ended June 30, 2024, we recorded a gain of $57.5 million associated with the sale of DIS to Technoprobe.

Interest and Other

		For the Six Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Interest income		$	(9.4	)		$	(14.6	)		$	5.2
Interest expense			1.6				2.2				(0.6	)
Other (income) expense, net			3.8				8.2				(4.4	)

Interest income decreased by $5.2 million primarily due to lower cash balances. In the period ended June 30, 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 and Equity in Net Earnings of Affiliate

		For the Six Months Ended
		June 29, 2025				June 30, 2024				Dollar Change
		(in millions)
Semiconductor Test		$	251.6			$	240.6			$	11.0
Robotics			(55.7	)			(31.9	)			(23.8	)
Product Test			24.2				29.8				(5.6	)
Corporate and Eliminations (1)			(4.5	)			53.8				(58.3	)
		$	215.6			$	292.3			$	(76.7	)

(1)

Included in Corporate and Eliminations are gain on sale of business, 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, gain on sale of business and an expense for the modification of Teradyne's former chief executive officer's outstanding equity awards.

The increase in income before income taxes and equity in net earnings of affiliate in Semiconductor Test was driven primarily by higher sales in compute for artificial intelligence applications. The decrease in income before income taxes and equity in net earnings of affiliate in Robotics was primarily due to lower sales of collaborative robotic arms, partially offset by lower operating expenses.

Income Taxes

The effective tax rate for the six months ended June 29, 2025, and June 30, 2024, was 12.4% and 14.3%, respectively. The decrease in the effective tax rate from the six months ended June 30, 2024, to the six months ended June 29, 2025, is primarily attributable to increases in benefits related to tax credits and the international provision of the U.S. Tax Cuts and Jobs Act of 2017.

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 $235.2 million in the six months ended June 29, 2025, to $488.6 million.

Operating activities during the six months ended June 29, 2025, provided cash of $343.7 million. Changes in operating assets and liabilities provided cash of $61.7 million due to a $56.7 million decrease in operating assets and a $5.0 million increase in operating liabilities.

The decrease in operating assets was primarily due to decreases in accounts receivable and prepayments and other assets of $49.5 million and $30.9 million, respectively, partially offset by a $23.7 million increase in inventories.

The increase in operating liabilities was due to increases in accounts payable and other liabilities and in deferred revenue and customer advances of $17.1 million and $13.1 million, respectively, partially offset by decreases in income taxes and retirement plans of $19.6 million and $5.6 million, respectively.

Investing activities during the six months ended June 29, 2025, used cash of $240.2 million due to $144.4 million used for the acquisition of businesses, $114.4 million used for the purchase of property, plant & equipment and $17.2 million used for the purchase of marketable securities, partially offset by $32.6 million and $8.5 million in proceeds from the maturities and sales of marketable securities, respectively.

Financing activities during the six months ended June 29, 2025, consumed cash of $313.6 million due to $274.9 million used for the repurchase of 3.0 million shares of common stock at an average price of $93.67 per share, $38.6 million utilized for dividend payments and $15.0 million used for payment related to net settlements of employee stock compensation awards, partially offset by $14.8 million from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the six months ended June 30, 2024, provided cash of $223.3 million. Changes in operating assets and liabilities used cash of $65.3 million due to a $14.9 million increase in operating assets and a $50.4 million decrease in operating liabilities.

The increase in operating assets was primarily due to a $54.2 million increase in accounts receivable driven by higher sales in the second quarter of 2024, partially offset by decreases in other assets and inventory of $22.2 million and $17.1 million, respectively.

The decrease in operating liabilities was due to a $30.0 million decrease in accrued employee compensation, $22.0 million decrease in accounts payable, $2.8 million decrease in retirement plans, and $1.0 million decrease in accrued other, partially offset by a $2.7 million increase in deferred revenue and customer advances and a $2.6 million increase in income taxes.

Investing activities during the six months ended June 30, 2024, used cash of $505.1 million due to $524.7 million used for the purchases of investment, $88.9 million used for the purchase of property, plant and equipment, $27.8 million used for the purchase of marketable securities, partially offset by $87.2 million in proceeds from the sale of a business, $26.9 million and $21.3 million in proceeds from the sale and maturities of marketable securities, respectively, and $0.9 million in proceeds from life insurance.

Financing activities during the six months ended June 30, 2024, used cash of $59.3 million due to $185.0 million used for proceeds from borrowings on revolving credit facility of which $185.0 million in payments were paid back in full during the quarter, $37.4 million used for dividend payment, $30.3 million used for the repurchase of 0.3 million shares of common stock at an average price of $101.40 per share and $13.4 million used for payment related to net settlements of employee stock compensation awards, partially offset by $21.8 million from the issuance of common stock under employee stock purchase and stock option plans.

In January 2025, and May 2025, our Board of Directors declared a quarterly cash dividend of $0.12 per share. Dividend payments for the three and six months ended June 29, 2025, were $19.2 million and $38.6 million, respectively.

In January 2024, and May 2024, our Board of Directors declared a quarterly cash dividend of $0.12 per share. Dividend payments for the three and six months ended June 30, 2024, were $19.0 million and $37.4 million, respectively.

During the six months ended June 29, 2025, we repurchased 3.0 million shares of common stock for $274.9 million, which excludes related excise tax, at an average price of $93.67 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 June 29, 2025, were 8.6 million shares of common stock for $870.1 million, which excludes related excise tax, at an average price per share of $101.90. During the six months ended June 30, 2024, we repurchased 0.3 million shares of common stock for $30.3 million, which excludes related excise tax, at an average price of $101.40 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 August 1, 2025, the Credit Facility was undrawn, and we were in compliance with all covenants under the Credit Agreement.

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, the 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.