Teradyne, Inc. (TER)

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Teradyne (TER)

Q4 2011 Earnings Call

January 26, 2012 10:00 am ET

Executives

Gregory R. Beecher - Chief Financial Officer, Principal Accounting officer, Vice President and Treasurer

Michael A. Bradley - Chief Executive Officer, President and Executive Director

Andrew J. Blanchard - Vice President of Corporate Relations

Analysts

Mehdi Hosseini - Susquehanna Financial Group, LLLP, Research Division

Unknown Analyst

James Covello - Goldman Sachs Group Inc., Research Division

Christopher J. Muse - Barclays Capital, Research Division

Satya Kumar - Crédit Suisse AG, Research Division

David Duley

Mahavir Sanghavi - UBS Investment Bank, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Thomas Diffely - D.A. Davidson & Co., Research Division

Presentation

Operator

Good morning, my name is Cody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradyne Q4 2011 Earnings Conference Call. [Operator Instructions] Mr. Blanchard, you may begin.

Andrew J. Blanchard

Thank you, Cody. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our Chief Executive Officer, Mike Bradley; and our Chief Financial Officer, Greg Beecher. Following our opening remarks, we'll provide details of our performance for the fourth quarter and full year 2011, as well as our outlook for the first quarter of 2012.

First I’d like to address several administrative issues. The press release containing our most recent financial results was sent out via Business Wire last evening. Copies are available at teradyne.com, where this call is also being simulcast.

Note that during this call, we are providing slides on the website that may be helpful to you in following the discussion. To view them, simply access the Investor page of the site and click on the Live Webcast icon. In addition, replays of this call will be available via the same page about 24 hours after the call ends. The replays will be available, along with the slides, through February 11.

The matters that we discuss 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 financial filings with the SEC for a complete description. 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 will make reference 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 measure were available on our website. To view them, go to the Investor page and click on the GAAP to Non-GAAP Reconciliation link. Also, you may want to note that between now and our next conference call, Teradyne will be speaking in the Stifel, Nicolaus Technology and Telecom Conference on February 6 in Dana Point and Goldman Sachs Technology and Internet Conference on February 14 in San Francisco. Now let's get on with the rest of the agenda. First our CEO, Mike Bradley, will review the state of the company and industry of the fourth quarter full year 2011 and provide our outlook for the first quarter. Then our CFO, Greg Beecher, will provide more details on our quarterly and full-year performance, along with our guidance for the first quarter. We'll then answer your questions. For scheduling purposes, you should note that we intend to end this call after 1 hour.

Mike?

Michael A. Bradley

Good morning, everyone. Thanks for being with us again today. As you can see, we've raised our revenue guidance considerably from last quarter, so I want to explain what's behind that in just a few minutes from now. But first, I'd like to recap all of 2011, as we made some very good progress on our long-term strategy in the year just closed.

[Technical Difficulty]

From a numbers perspective, 2011 was solid despite a quite significant slowdown in the worldwide semiconductor test market in the second half of the year. We finished the year at over $1.4 billion in revenues and had another strong performance on the operating profit line. It's a especially satisfying to be able to go through significant down cycles and still be well in the black, something that has eluded most participants in this sector and in truth was a challenge for us until recent years. We generated nearly $200 million of free cash flow during the year, continuing a trend that we started back in 2006 when we began streamlining our product lines, shortening our manufacturing cycle time, revamping our fixed cost structure and steadily gaining market share. As you know, since 2006 we've generated over $1.2 billion in cash that has been put to good use in strengthening our core and expanding our serve markets, all through the acquisitions of Nextest, Eagle Test and now LitePoint. And of course we've kept some of those cash resources in reserve for similar strategic purposes into the future.

A few other notes on 2011 before I shift to the current quarter and upcoming year. Our Systems Test group had an exceptional year with record revenues and solid bottom line performance. Our defense business was back in very good shape after a turbulent 2010 where many military programs were reassessed or slowed. Our small but very competitive Commercial Board Test business had its best year in over 10 years. In the storage test business that had its first revenue less than 3 years ago, had an exceptional year of new products and new customers while logging a record year in systems shipped. On the semiconductor test side, we posted solid results in SOC test and Memory Test despite market contraction in both segments. While our SOC business declined as expected, our Memory Test business actually grew 11% year-over-year as our FLASH and DRAM test products gained further traction. Finally, our LitePoint business is off and running. With about 100 days under our belt, we're seeing almost exactly what we expected and then some. By that, I mean a dynamic company attacking a fast growing and fast-changing mobile electronic markets. And one like our storage test business that will ramp up and down through the coming quarters as major technology driven tool decisions are made at the same time that it delivers good annual earnings growth.

Read the rest of this transcript for free on seekingalpha.com