Teradyne, Inc. (TER) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradyne Fourth Quarter 2015 Earnings Review Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Blanchard you may begin your conference. Andrew Blanchard - Vice President-Corporate Relations & IR Contact: Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Jagiela 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 2015 as well as our outlook for the first quarter of this year. The press release containing our fourth quarter results was issued last evening and we're providing slides on the Investor page of the website that may be helpful to you in following today's discussion. Those slides can be downloaded now or you can follow along live. 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 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 SEC filings. 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'll make reference to non-GAAP financial measures. We've posted additional information concerning those non-GAAP financial measures, including reconciliation to the most comparable GAAP financial measure were available on the Investor page of the website. Also between now and our next earnings call, Teradyne will be participating in investor conferences hosted by Goldman Sachs, Barclays, Susquehanna and Bank of America. Now let's get on with the rest of the agenda. First, Mark will comment on our recent results and market conditions as we enter the first quarter. Greg will then offer more details on our quarterly financial results along with our guidance for the first quarter. We'll then answer your questions and this call is scheduled for one hour. Mark? Mark E. Jagiela - President, Chief Executive Officer & Director: Thanks, Andy and good morning, everyone. Today I'll provide a summary of our 2015 results, followed by an outlook for 2016 including our capital allocation plans. But first, let me say that our strong bookings performance of over $500 million in the fourth quarter gives us strong momentum heading into 2016. More on that in a minute. 2015 was a very good year for Teradyne. We delivered our second consecutive year of revenue over $1.6 billion and we increased our operating profit from 19% to 21%. Full year orders of over $1.8 billion were the highest in more than 10 years and all this was accomplished in a soft market year for our core SOC Test business. As we've discussed in past calls, the SOC Test market has developed an on-year, off-year pattern with the odd years being softer than the even years, due mainly to the relative difference in complexity advances in smartphones in those years. In 2015, that pattern continued with the SOC market likely to come in at about $2.1 billion, down from the $2.4 billion in 2014. However, this is up 10% from the comparable odd year of 2013, signaling a positive turn after several years of a declining market. We continued our game plan of disciplined share gains in Semi Test, ending the year up an estimated 1 point overall to a new record of 47%. This comes from an estimated 1 point share gain in SOC Test to about 51% and an estimated 1 to 2 point share gain in Memory Test to 29%. Our focus on the strongest segments of the market is a key part of our winning recipe. In SOC, the Mobility segment continues to dominate capacity buying and our UltraFLEX and J750 products continue to increase share. Analog tester sales were also strong with Eagle Test sales up 30% for the year. Microcontroller Test buying was lower for the year, but growth in Image Sensor Test demand helped fill the gap. In Memory, sales grew 3% in a flat market as our Magnum V tester is winning by capitalizing on the growing trend toward higher flash interface speeds. In 2015, our Wireless and System Test businesses also performed well. Wireless Test improved profitability and increased market share while holding sales flat in a challenging market estimated to be down 15% from 2014 to about $425 million. Lower growth in worldwide smartphone shipments pushed the market size lower offsetting the longer test times required for more complex wireless interfaces like LTE and 802.11ac with MIMO. System Test sales grew about 30% due to improvements in Storage Test. As HDD capacity buying returned and new SSD test applications grew as well. Finally, on the capital allocation front, our balanced approach continued as we repurchased 300 million shares, paid $51 million in dividends, and added a major new axis of growth with the purchase of Universal Robots in June. UR set fourth quarter and full year records for both quarters and sales. We continued to lead the industry in the emerging market for collaborative robots and the introduction of our smallest, lowest price UR3 to the product family in 2015 helped broaden our range of applications. Now let me turn to 2016. As I mentioned, our bookings in the fourth quarter give us strong momentum coming into the New Year. While the normal seasonal pattern would suggest an increase in fourth quarter orders of 10% to 20%, we saw Semi Test orders jump over 90% from Q3 and over 80% from the fourth quarter of 2014. While much of this surge is a pull-in of orders to deal with the increasing device and packaging complexity in SOC, it is an early signal of confidence for 2016. On the other hand, uncertainties in the macroeconomic environment, particularly China, make estimating the full year SOC market challenging. Our early initial estimate for the SOC market for this year is between $2.1 billion and $2.5 billion, with a familiar pattern of the first half stronger than the second. We expect the Memory Test market to be similar to past years at around $500 million. As always, we will focus on disciplined share gains in Semi Test by focusing on the strongest segments of the market. Smartphones grew by an estimated 10% or 135 million units in 2015, and while unit volumes were expected to grow roughly 5% in 2016, the performance of smartphones continues to expand. This growing performance is made possible by more complex semiconductor devices, which for Teradyne Semiconductor Test and LitePoint businesses means more test time per chip to ensure the high quality that consumers expect from their smart devices. While smartphones were the major drivers of our fourth quarter surge in test demand, we see additional device and package complexity driven tailwinds on the horizon. One example is the emerging 60 gigahertz band applications in Wi-Fi and automotive radar. This band will require additional silicon content for both smartphones and cars. This brings with it the need for an entirely new class of tester instruments that will expand our markets at both Semi Test and LitePoint. The expansion of cameras and vision systems will continue to grow above market averages and our leading position in this segment will similarly allow us to grow share. And while advanced packaging will reduce electronic system size and cost, it will also raise complexity and require more testing than traditional cingulated parts. At Universal Robots we are coming off a high growth year with annual sales of $61 million. We expect both the market for collaborative robots and UR sales to expand again by about 50% in 2016. UR's collaborative robots continue to gain traction at customers, as customers increasingly recognize how their low entry cost and ease of deployment completely changes the economic equation for automating manufacturing operations. Driven by compelling economics with ROIs often less than 12 months and the flexibility to perform repetitive or difficult tasks side-by-side with production workers, we expect the collaborative robot market to grow at a high 50% plus per year rate for the foreseeable future. In 2016, we will increase our OpEx in UR to both enable and capitalize on this growth. To summarize our strategy for 2016, we will continue on the path that has delivered strong results for our customers, stockholders and employees. Number one, make investments in engineering and distribution to ensure our products continue to grow market share by leading the industry in performance, economics and ease of use. Number two; maintain an efficient operating model that generates the returns to support those investments to power future growth. And number three; maintain a capital allocation strategy that balances share repurchases, dividends and attractive M&A. Looking specifically at capital allocation, after repurchasing 300 million shares last year, we have 200 million remaining on our existing authorization and expect to repurchase between 100 million to 200 million more this calendar year while paying about $50 million in dividends. Additionally, we continue to look at opportunities for profitable growth through M&A. Greg will provide details on our cash position in the U.S. and offshore, along with details on our 2015 repurchase program. In summary, Teradyne exited 2015 a stronger company financially, competitively and we added a powerful growth dimension with Universal Robots. Looking further into 2016, I am very excited about the market position of all the segments of Teradyne and our prospects for the year. While we can't predict macroeconomic conditions I'm confident we have the people, the products and the business processes that will allow Teradyne to thrive this year and beyond. For additional details on Q4 and 2015 and our outlook for the first quarter, I'll turn it over to Greg. Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Thanks, Mark, and good morning, everyone. I'll start with the key highlights of 2015, then I'll offer some comments on 2016 including our capital allocation plans, and then I'll cover the fourth quarter results and first quarter outlook. On the financial highlights front, we had $1.64 billion of sales with a 21% operating profit rate and $323 million in free cash flow. 2015 was our first back-to-back year at over $1.6 billion in sales in over a decade. Overcoming the historical odd year dips to about $1.4 billion in sales that we saw in 2011 and 2013. The purchase of lease testers along with the SOC Test buy rate showing greater stability, strength in Storage Test and the addition of Universal Robots have all contributed to break the oscillating revenue pattern. In 2015, we deployed capital very strategically, both to establish a new growth platform in industrial automation, fund it with offshore cash and to buyback 6% on a net basis of our shares with domestic cash. Our efficient operating model and proven ability to add new businesses allow us to both return significant capital and fund new high growth platforms concurrently. The first piece of that capital deployment, the purchase of UR, is a major highlight of 2015. UR is the standout leader in the fast growing collaborative robot space with its easy to train and redeploy cobots. While it's early, UR is off to a very strong start inside of Teradyne with fourth quarter sales of $22 million bringing its annual calendar year sales to $61 million, up 56% from calendar 2014. The second component of our capital deployment plan was the return of $351 million to shareholders through our buyback and dividend programs. We bought back 15.6 million shares in 2015 at an average price of $19.21 and returned $51 million in dividends. So all-in-all a good year and as you can see from our fourth quarter orders at $522 million, we're capturing the beginning of another strong mobility complexity wave, positioning us for a very solid 2016. Now quickly to our 2016 capital allocation plans. We plan on using between $100 million and $200 million for buybacks in 2016, depending on our M&A pipeline and other factors. Given our efficient operating model and greater diversification and stability we've reset our corporate-wide minimum cash level from $500 million to $400 million. This balance of $400 million is about eight months worth of OpEx. I should point out that we also have a pipeline of a small number of attractive M&A opportunities which require that we preserve balance sheet flexibility. Of course, we'll constantly review the returns we can achieve from our M&A pipeline against an even greater capital return. The slide deck includes a schedule that shows our total cash and marketable securities balances along with our minimum cash needs. You can also see that we have $588 million of offshore cash, well above our $100 million minimum foreign balance. This is the result of our lower offshore tax rate which when combined with our U.S. rate results in an overall tax rate of about 21% for the full year 2015. As we look deeper into 2016, we see another jump-up in mobility performance and complexity, consistent with the even-year patterns we've talked about. Add to this the lessening of the impacts of Parallel Tests and SOC Tests and added complexity in Devices and Packaging, and we see another strong year ahead. Beyond Semi Test, we expect 50% plus growth for Universal Robots and healthy performance in both Wireless and System Test. Before I add more color on 2016, let me quickly fill out the picture with some information on our performance and some key trends. First, we've shown that we are good stewards in businesses where others struggle. Over the last five years, despite the ebb and flow of test demand, we've averaged 21% non-GAAP operating profit rate, and approximately $260 million in annual free cash flow. In Semi Test, in just over the last three years we've gained 11 points of SOC Test share and 13 points in Memory Test, reaching 51% share in SOC and 29% share in Memory Test, while maintaining healthy gross margins and disciplined OpEx control. We've done this by carefully targeting segments that have tailwinds such as mobility, automotive and flash memory and avoiding those that are in decline or offer razor-thin margins such as MPU and peripheral equipment like package handlers. We've designed products that win with clever architectural advantages in throughput, accuracy and fast programming tools. This has helped customers get their test economics, high yields and fast time to market with Teradyne, and in turn they have rewarded us with hard won market share and the top score in the VLSIresearch Customer Satisfaction award for the third year running. We'll continue with this scalable formula while continuing to look for opportunities for further optimization. Shifting quickly to SOC trends. Device and package complexity are both increasing as higher performance is designed into thinner packages for mobile products. As, you know, our business is driven forward by unit growth and complexity. On the other side of the ledger, our tester's own use of Moore's Law and parallel tests restrain growth. These competing forces are breaking positive for the first time in years and the SOC Test capital intensity appears to have stabilized. And significantly, we're seeing more test drivers beyond smartphones gaining traction; in autos, semi-content is forecasted to grow over 30% through 2020 and the fastest growing segment in auto is ATES (16:47), which is rich in device complexity and, therefore, test intensity. While still early, virtual reality is another driver of compute, display and communications IC test demand expected later this decade. We also expect packaging complexity to increase driving higher test times. In Memory Test, the major trend in NAND is for higher density and increasing bus interface speeds, which is where Magnum excels. It has broken into five of the top six flash memory manufacturers with its unique architecture for high throughput and performance headroom. Turning now to Wireless Test with LitePoint strong product differentiation, we delivered flat sales in a down market which pushed our market share in wireless production test to over 40%, our highest ever. We still have high concentration at one very good customer but we continue to make progress in broadening our customer base as well. The lower than forecast smartphone production ramps from Asian makers, where we won design-ins earlier, were a headwind to these efforts in 2015. Despite this and other market forces, the business runs above the industry model 15% profit rate and has a rich pipeline of new products which we expect to establish market footholds in 2016 and higher volumes thereafter. Longer term, we expect multiyear periods of modest demand growth driven by incremental performance improvements in wireless products, such as increased numbers of cellular (18:17) frequency bands extending up into the unlicensed 5 to 6 gigahertz band, moving from a single Wi-Fi data stream to eight streams with MIMO and advanced standards such as 802.11ad. Further out on the horizon is the large technology inflection of 5G. In System (sic) [Storage] (18:34) Test, the key highlights were successfully ramping our new 3.5-inch hard disc drive test into three different customers and scoring further SSD Test business which brought our total Storage Test sales to over $80 million, up from more than twofold from 2014. Overall Storage Test is a completely repositioned business with a versatile platform, extendable to variety of test applications. The end market fundamentals are strong with data center storage capacity growing at a forecasted 15% CAGR and SSDs at close to 40%. At Universal Robots, sales have grown over 50% annually for the last three years. We maintain a significant product lead with faster train and easy-to-deploy cobots that are highly reliable and repeatable and are very safe to place alongside a human without caging or fencing apparatus. UR cobots can do production tasks that are dirty, dangerous or dull. Some third parties tag the market – future market size to be over $3 billion by 2020 driven by greater adoption across diverse industries. In 2015, UR further developed its distribution network expanding the number of distributors to about 200 and growing its UR capped accessories platform, collectively turning our significant product lead into an ecosystem lead as well. UR also successfully launched and is shipping in high volume its third cobot model, the UR3 cobot, which targets lighter test or tabletop applications. Now moving to the segment level details. Semi Test orders were $408 million, the highest fourth quarter demand in over 15 years driven by Mobility. SOC Test orders were $391 million and Memory Test orders were $17 million. Semi Test service orders were $66 million of this total. Semi Test sales were $205 million in the fourth quarter, with SOC making up $180 million and Memory Test the balance. Semi Test service revenue totaled $57 million in the fourth quarter. Shifting to Wireless Test. Orders were $30 million and sales were $32 million in the fourth quarter. System Test orders were $66 million in the quarter and sales were $59 million. Universal Robots had orders of $18 million and sales of $22 million in the fourth quarter. Geographically, UR sales were 45% in Europe, 30% in North America and 25% in Asia. At the company-level our sales were $318 million, the non-GAAP operating profit rate was 10% and non-GAAP EPS was $0.13. We had no 10% customer in the fourth quarter and one for the full year. Non-GAAP gross margins were 55%. You'll see our non-GAAP operating expenses were down $11 million to $141 million compared to the third quarter due to lower variable compensation accruals and approximately $5 million in certain one-time credits. As planned our inventory increased $26 million in the fourth quarter as we added material to maintain attractive lead times. Sales for the first quarter expected to be between $410 million and $440 million, and the non-GAAP EPS range is $0.23 to $0.29 on 206 million diluted shares. Q1 guidance excludes the amortization of acquired intangibles. Gross margins are expected at 53% and OpEx should be between 36% and 38%, which includes some NREs and added Universal Robots spending. We expect the first half of this year to have higher OpEx tied to new product programs but for the full year excluding UR, we expect OpEx to be flat unlike sales levels. The operating profit rate at the midpoint of our first quarter guidance is about 16%. Our 2016 tax rate is expected to be about 20%, down from prior guidance, due to a higher mix of offshore profits and the reinstatement of the R&D credit. 2016 we've earmarked $80 million to $100 million for CapEx, about flat at the midpoint with 2015 levels of $90 million. At the high end this includes a few tens of millions dollar for potential customer leases in 2016. We don't expect the same volume of leases we placed in 2014; we may see some activity in our Semi Test segment. So we start 2016 with our strongest start since 2004, driven by SOC Test strength. And with Device and Packaging complexity going up while Parallel Test slows, we see a healthy longer term picture for our largest business even before factoring in modest share gains. Adding Universal Robots 50% plus annual growth, ongoing healthy performance in System Test and Wireless Test, we see a bright future ahead. With that, I'll turn the call back to Andy. Andrew Blanchard - Vice President-Corporate Relations & IR Contact: Thanks, Greg. Brandy, we'd now like to take some of the questions. And as a reminder, please limit yourself to one question and a follow-up.

Our first question comes from the line of Mehdi Hosseini with SIG.

Thanks for taking my question. It seems like over the past several calls we come back to the topic of what is really the true TAM for the advanced packaging and I ask that because you had a very strong booking in your Semi Test and I think some of this has to do with the necessary build-out for advanced packaging that requires more wafer level test. And I do understand that there is increased test time, but again, it's very important for us to understand to what extent this build-out for advanced packaging could sustain. So to the extent that you can provide some color, either quantitatively or qualitatively, would be great? And I have a follow-up. Mark E. Jagiela - President, Chief Executive Officer & Director: Okay. Well, the build-out for advanced packaging at one level has been going on for several years. Now, this coming year will be a particularly larger shift to that kind of technology. But our view is whether it's an advanced package or cingulated die packaging, the incremental tester demand is somewhat invariant. Now an advanced package is going to require a little bit more test time because of the complexity and the premium on wafer yields, but incrementally as the world shifts more and more to advanced package, we'll see incremental tester demand ride that incremental package. Now, if you look at advanced package part today, it might be 10% longer test time because of the nature of that technology, but over time if we look at 2017, 2018 and 2019, that ratio of test time will increase beyond 10%. As more and more die get put on the package, the premium for good yields will continue to rise. So I think advanced package in and of itself isn't necessarily a tooling exercise, it's incremental capacity that goes in that requires incrementally longer test times beyond what a cingulated die would require.

Sure. But how does – so if this is done at a foundry level, then some of the OSAT guys will be doing less tests. That context, how should we think about the trade-off between one type of customer doing less and there's a new customer that is doing more of advanced packaging? Mark E. Jagiela - President, Chief Executive Officer & Director: Yes. I think that right. That's true of all technology shifts. So the package type that's been handled in a certain OSAT, as that volume declines and shifts to advanced packaging it just happens to occur at a different site. And you know, but overall, that new site and that new package is going to have a longer test time. It could occur – the OSATs themselves are developing their own versions of advanced package, and so it could very well be that they'll be competing packaging technologies as there are today around advanced packaging and that both sides will grow in this new era of multi-die on a silicon substrate.

Got it. And just a one quick follow-up for Greg. Given the fact that your onshore cash has gone down and there's only $120 million left above the minimum, is there anything that you're thinking, or is there any discretion that you have to increase the cash onshore that could help boost the capital return program? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Mehdi, absent frankly borrowing money, not really. We can't get the offshore cash back without some tax consequence. But we certainly could borrow, but we're trying to preserve the borrowing capacity for attractive M&A.

Borrowing is out of favor now. Okay. Thank you very much. Mark E. Jagiela - President, Chief Executive Officer & Director: Sure.

Our next question comes from the line of Atif Malik with Citigroup.

Hi. Thanks for taking my question and congratulations on a good quarter and a strong guide. Mark, I fully agree with you that the test buy rates have stabilized since mid-2004. The third-party data is showing it. But we haven't seen the multiple expansion in your stock because of that and I believe a part of that has to do with this odd, even effect of the years. But with test buy rates stabilizing and you guys benefiting from the secular growth in advanced mobility packaging and auto and industrial kind of outperforming the broader semiconductor market, what can break this odd/even pattern moving forward? Mark E. Jagiela - President, Chief Executive Officer & Director: So I do think the odd/even pattern is diminishing. You know, the thing that drove the odd/even pattern was a combination of two things: unit volume growth and complexity growth. So in even years, as you looked at unit volume growth across the past four years, it's been declining. So that particular lever will go down. The complexity issue that an even year will be more intense than an odd year will persist but begin to slow down as well. When we look back at last year, what I can see is the complexity advances in applications processors and LTE that went into the phones was higher than a typical odd year. So I do see -- I would project that over the next two or three years, we're going to find that little cycle dampen such that it's down below $100 million kind of number.

Okay. And then Greg, can you talk about the gross margin effect from the advanced mobility packaging testers moving forward? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: What I'll talk about is this year we expect gross margins for the full year to look like gross margins in 2014 and 2012, that being 54%. And with this large concentrated buying we tend to fall back to that number.

Great. Thanks.

Our next question comes from the line of Farhan Ahmad with Credit Suisse. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Thanks for taking my question. My first question is regarding the fourth quarter bookings, the bookings came in very strong and you mentioned that it was primarily driven by smartphone related strength. I wanted to ask is the smartphone strength pretty broad-based across customers and how's the customer concentration in the orders that you have received? Was it pretty much like driven by like one or two customers or was there broad-based strength? Mark E. Jagiela - President, Chief Executive Officer & Director: Well, there's always been a concentration in that market. But I would say that it wasn't atypical in fourth quarter. Several providers of silicon or smartphones were strong in the fourth quarter. So it wasn't sort of one customer but a typical mix of I would say market increase going into the next year. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Got it. And do you know like what's driving that because it seems kind of surprising that the fourth quarter is strong. Was it just like apps processor or was it RF apps processor and different applicationa that are going into smartphone and it's just that the build cycles for the smartphone that are a little bit earlier this year? Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah, I think it's that, the build cycles are a little bit earlier. Certain manufacturers always have announcements of new phones in the late Q1, early Q2 period, so that has always been part of the beginning of a bookings growth in the fourth quarter. What's atypical is that some other manufacturers have moved I would say one to two months in on the typical build cycle. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Got it. And then one question on China. Like obviously like China end market is not doing very well but on a separate note, China semi incentives have been pretty strong in terms of reported announcements of capital investment in advanced packaging and test area, whether through M&A or even like new OSATs. So I just wanted to probe you a little bit there, like are you seeing any strength, particular strength out of China in terms of like new OSATs that are entering the space or like how's the exposure to China in your revenues, is that something that you're seeing is inflecting higher? Mark E. Jagiela - President, Chief Executive Officer & Director: Certainly China is growing faster than most regions for us. The OSAT investments they're making are sort of driven by demand. It's not I would say incremental. It's really the growth of silicon that drives the aggregate increase in demand and in China several major – early on, there were a series of small fabless companies in China trying to get a foothold in as design houses in silicon, as being a silicon provider, but what's emerged over the past few years is some of the major handset manufacturers have really developed robust internal silicon design capability. So we expect that sort of native complex mobility related device volumes will grow above average out of China silicon design houses in the next few years. And so that's, obviously, a place we've got a footprint and are focusing a lot of our sales energy. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Got it. Thanks a lot. That's all I had.

Our next question comes from the line of Timothy Arcuri with Cowen & Company. Timothy Arcuri - Cowen & Co. LLC: Hi, thanks. I had a couple things. I guess first of all I'm just trying to understand the guidance a little bit. Greg, so you built $408 million in Semi Test and the revenue guidance is $425 million for the whole company for Q1. If I look at the coverage usually, it's just sort of a simple exercise but if I look at the bookings in Semi Test in one quarter and then I sort of look at what you do in revenue during the next quarter it seems like you ought to do more in revenue in March. Now maybe that's because some of those shipments are spread out into June. So I guess my first question is, is it seems a little conservative, particularly given that you just saw about $150 million more in Semi Test orders than we thought and that's pretty much the amount that the SOC market will grow this year, so I guess you could conclude that you've sort of already seen the bump from Info, so maybe you can talk about that? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Tim, the way the bookings – obviously they've come in very strong, there are shipments that are scheduled to ship in April. So they're just going to – some of them are going to miss March. So we see Q4, Q1 should be very strong demand and those shipments are going to take place Q1, Q2. And we see mobility as very strong this year, stronger than last year. But it's just how some of these shipments are falling into particular months. Some are going to fall just outside of Q1. Timothy Arcuri - Cowen & Co. LLC: Okay. Then I guess, Greg, just as a bottoms-up I'm just kind of looking at where the Street is. And I'm -- your stock is down 5% and everyone's asking why that's the case because it seems like a pretty constructive set of numbers. So when I get to the bottoms-up math it seems like you're guiding, if I take the SOC market up like you say and I had you gain a couple bps of share, couple hundred bps of share and then I have you gain a couple hundred bps of share also in Memory, you could gain maybe $150 million year-over-year in Semi Test. You've told us that UR is going to double this year and if I assume LitePoint is flat and I assume that the Systems business is flat, that gives me an incremental $200 million in revenue year-over-year. So that would sort of say that this year's revenue ought to be in the $1.8 billion, $1.85 billion range which is above where Wall Street's thinking right now. So is that math wrong? I know you don't want to guide full year but is $1.8 billion, $1.85 billion reasonable? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Yes. We don't guide revenues. It's too difficult for us to do. But I think if I had to speculate as to what's going on, is why there's some confusion is our first quarter OpEx is higher than what you would expect. So I think that may throw some folks off. And I tried to say in my prepared remarks that in the first half as I said of NREs and other one-time spending tied to some new product programs and that's going to lessen and it should not be present in the second half. So Teradyne's spending is going to be consistent with last year, except for we're going to invest in Universal Robots and that's tied to high growth. So my only sort of – maybe it's not a direct response, Tim, is I think the OpEx may throw some off but I tried to explain it – I tried to explain right here as well. Timothy Arcuri - Cowen & Co. LLC: Okay. Great. Thanks so much. Mark E. Jagiela - President, Chief Executive Officer & Director: Yep.

Our next question comes from the line of Tom Diffely with D.A. Davidson. Thomas Robert Diffely - D. A. Davidson & Co.: Yes, good morning. One more question on the Mobility demand. So is this demand solely driven by unit and test times going up or are there certain chips or functions that need a new tester to perform the test? Mark E. Jagiela - President, Chief Executive Officer & Director: There's very little new tester capability in this. It's really units and complexity that's driving it. Thomas Robert Diffely - D. A. Davidson & Co.: Okay. And then so when you look at your demand, how much of it is just having a new player versus the industry needs more capacity? Mark E. Jagiela - President, Chief Executive Officer & Director: I think overall what's going on, it's the industry that needs more capacity versus new player. And that capacity is not atypical from what we've seen before. And in our case, the one thing perhaps that's different when we look at the packaging change that's going on in conjunction with the complexity change of the silicon itself is there's a double effect here. So, typically we would see demand increase just because let's say apps processors or power management ICs or image sensors were increasing in complexity. That drives up test time. We've seen that in prior years. This year you have to multiply that by maybe 1.1 in order to get the effect of a little bit more fault coverage in the advanced package world. Thomas Robert Diffely - D. A. Davidson & Co.: Okay. All right. And then Greg, you talked about a minimum cash level of $400 million. Do you have a minimum on-shore cash level that you're targeting? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Yes, that's $300 million, and $100 million is offshore, which makes the $400 million. Thomas Robert Diffely - D. A. Davidson & Co.: Great. Thank you. Mark E. Jagiela - President, Chief Executive Officer & Director: Sure.

Our next question comes from the line of C.J. Muse with Evercore.

Good morning. Thank you for taking my question. I guess first question, I guess a couple parts around the SOC side. Can you talk about what would get the overall run rate to the high end of the range? And as part of that conversation, can you speak to whether or not there are any leases this year? Thank you. Mark E. Jagiela - President, Chief Executive Officer & Director: So again, it's very difficult to look out. The things that could happen and get it at the high or above the high end of range first would be -- we're projecting a relatively weaker microcontroller and automotive market this year. Now, that's very hard for us to read, but this is based just on what we see occurring toward the end of the year and some of the conservatism in the customer base. Some of the M&A activity going on also slows down and gives a little bit of a visibility cloud there. So as that clears up, there could be a snapback of tooling needed to get the new entity back up and running full speed. So we're preparing ourselves for that. On Mobility, that looks strong. One of the things, though, that occurred if we look at fourth quarter is as we were in the November period of time, the forecast for 2016 capacity for Mobility was quite a bit more robust than it ended up toward the end of December, as the macroeconomic conditions in China and the stock market started to waiver, people became much more cautious. So it could very well be that all that passes by and we see mobility larger than we expect, automotive and MCUs larger than we expect. And that drives it up to the $2.5 billion number or higher.

That's helpful. And then I guess a question on the OpEx side. I know you really can't guide full year OpEx but maybe I can ask it this way. Right now in Q1 you're running about $6 million above your target model for UR investments. Can you share with us what the aggregate uplift in UR investments will be for the year, relative to your target model? And then as part of that question, when should we see revenues come in from that uptick in your investments in service and field ops? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Okay, C.J. UR, we would expect the revenue to come in similar to how it has come in every year. Its falls back a bit in the first quarter and then increases each quarter thereafter and has a high concentration in the fourth quarter with end of year budget money or what have you. And we expect UR after about $60 million sales to be $90 million plus. So we are investing there, opening more offices, hiring people, sales, hunters, application people. So there is more spending and advertising going into that. UR was about a 15% profit rate for us in – well, for their calendar year they were 15% in 2015. In 2016, if we see higher growth we may invest a bit more to get the next round of growth and stay ahead. But in terms of let's just say our OpEx, I think the key thing to try to outline for you guys is taking out UR, we expect OpEx for the company at like sales to be flat and that includes we're funding the salary increases people get each year through productivity or workforce shaping or finding lower cost, so flat with emphasis. In UR, there will be more spending and if you say how much, it ranges. Depends what we see. So we can meter it, anywhere from say $7 million a quarter OpEx is now, maybe we go to $10 million, maybe we go to $11 million, it all depends what we see. But the higher we go the more you're going to see the sales and/or the sales right around the corner. So I hope that answered your question with that.

Yeah, that's great. Thank you.

Our next question comes from the line of Stephen Chin with UBS.

Hi, guys. Thanks for taking the question. Just following up on the pull-ins in the fourth quarter, just to clarify, it sounds like first quarter and maybe second quarter a little bit are benefiting from those pull-ins, but then should we think about modeling the rest of the year a little bit lower than historically? And then just for the full year, that nothing really changed, it's just sort of a more lumpy year than what we've seen typically? Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah. That's really hard for us to see what's going to happen. The question really is what's going to happen out in third quarter. Typically second and third quarter are the peak quarters for the year. And this earlier tooling that's occurring means that the installations are starting a little bit earlier. The revenue will start a little bit earlier. But I would struggle to say what does that imply for the third quarter. First and second should absolutely – that's about as far as we have visibility, not even maybe beyond April at this point. But it could very well be the third quarter is strong as well.

Got it. Okay. That's helpful. And then just as my follow-up, just more of a high level on the SOC Test market returning to a growth CAGR. Have you seen any additional data points of this or either quantitatively or anecdotally that gives you more confidence that the market can actually return to secular growth? Mark E. Jagiela - President, Chief Executive Officer & Director: At the microcosm level, yes, absolutely. Part of the theory and thesis that it returns to growth is predicated on a slowing effect of Parallel Test and as we look at mobility devices, we've seen that slowing occur much faster than we expected over the past two years. So that is a early, early indicator to us that this is really inflecting back in a positive direction. Now, there's other segments of the market such as automotive, linear and microcontroller that still will be on a lag a little bit mobility in terms of its, has some towed around parallelism. But what we look at is over the course of 2002 until 2012, 2013, an increasing deployment of parallelism. 2014 and 2015 in these big, big mobility segments that has stalled and in some cases inflected back the other way.

Thanks, guys.

Our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch.

Yeah, hi. Thanks for taking my questions and really congrats on such a strong results out there. Two quick questions. Not to beat this OpEx question to death but is it fair to assume the second half of the year OpEx for you guys should come down relative to the first half? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: Yes, the second half should come down relative to the first half and that decrease will be in all areas other than Universal Robots. I would expect Universal Robots to increase OpEx throughout the year. But the other NREs, temporary contractors racing to get some new products completed, that's lined up quite considerably in the first half of the year which is unusual to have this much going on in multiple divisions and it's all contributed at the same time in Q1 and linking into Q2. But again, I try to be clear that for the full year we expect OpEx to be flat except for UR at like sales levels. And again, that includes funding salary increases.

Got it. Got it. And then I think you guys did explain the gross margin. You do see some volume pricing discount. Is it the main reason for the gross margin being lower or is there also a headwind from the fact that the microcontroller order market might be weaker so that is actually being a little bit of head room on the gross margin side? Gregory R. Beecher - Chief Financial Officer, Treasurer & VP: It's ultimately mix. You can pick different things and get to the same place. So I could have looked at it that way but the biggest swing factor for us has been the concentrated buying in the even years, albeit last year was a good year but as you know we sold lease testers that were partially on in the field for a while. 54% is kind of a normal margin that you'd expect at this level of buying.

Fair enough. Thanks a lot. Just a quick follow-up if I could. Off your $2.3 billion roughly in SOC market size is there a way to quantify how much of that is Mobility? Mark E. Jagiela - President, Chief Executive Officer & Director: It's always a challenge to do that. Roughly $2.3 billion, somewhere – let me just look it up here. Somewhere close to $1 billion of that might be Mobility.

Got it. Thanks a lot. Thank you very much.

Our next question comes from the line of Jagadish Iyer with Redstone Technology.

Yes. Mark, two questions. I'm just trying to reconcile just as a follow-up to the prior question, I'm just trying to reconcile given all the commentary that we have heard from the smartphone makers, what gives you the optimism that the SOC market is going to be up year-over-year? Why can't it be flat or even down given what all we are seeing on the smartphone market? Is there something that we are missing? And then I have a follow-up. Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah, is your question up or down in the test market or in the silicon market?

Semi Test, in the Semi Test. Mark E. Jagiela - President, Chief Executive Officer & Director: Semi Test, yeah. So the thing that gives me confidence is what I was describing earlier, looking at the test times and the diminishing parallelism. So the complexity of the devices we know at this point that are going to be launched this year so that's done. The relative time to test the devices we know pretty much. It's not completely baked but we've got a pretty good range on that. So the combination of time times time and complexity is a known quantity. So what is more speculative is units and for units various people are saying smartphone and mobility units could be flat, could be up 5%, could be up 7%. We kind of model it to be probably zero to 5%. So, if it's more than that, that's upside. So the known quantities that we see are time to test let's say the unit test time for silicon in a phone. And the thing we have to somewhat guess at is the growth rate of phones.

Okay. And then on the Wireless Test side I just see that the market seems to be coming down. Is there something that is kind of happening there or do we see further declines going out this year and going into next year? Are there any other offerings that you could make in terms of improving your participation in that market? Thank you. Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah, that market as we mentioned in our opening comments was about $425 million in size last year. When we look at this year, there's no real major technology wave inflection coming that could drive that significantly higher. So we're looking at this year to be roughly flat with last year. The thing over the horizon that will come is the 802.11ad standard in the 60-gigahertz band. The interesting thing about that is up until now all the success of connectivity standards as you go from B to G to N to AC, that's been all integrated and incorporated into a single piece of silicon. And the test equipment to test those integrated devices has essentially been a LitePoint box that gets reused generation to generation. At 60-gigahertz, it's a whole new ballgame, it's a different piece of silicon, it's not integrated, it can't be integrated. It's just a very different beast and requires a different test insertion. So we look at the 802.11ad deployment starting in 2017 as the next connectivity wave. The other thing Greg mentioned is further out in the cellular side will be 5G technologies but that's beyond 2017. So what we're doing at LitePoint in addition to going after the AD is looking at other adjacent markets such as Protocol Testing. So testing not the electronic capability and calibrating the electronic capability of the chips and the devices but also at a user level, at user experience level testing the parts. So that's another example of a product we'll be introducing this year that will ramp next year in a new market.

Okay. Thank you.

Our next question comes from the line of David Duley with Steelhead.

Thanks for taking my question. A bunch of questions on the advanced packaging front thus far. And I guess simply put we're kind of trying to figure out how the test intensity changes. Maybe you could just give us an example, an application processor moves into a fan-out package, what's the increase in overall test time that you might see from that kind of an event? Mark E. Jagiela - President, Chief Executive Officer & Director: So the device simply moving into – if that was the only device moving into that advanced package there would be very little test time impact. But in conjunction with that move, other passive devices, for example, may move into that substrate. That increases the test time. So resisters, capacitors, other things you would typically find perhaps on a printed circuit board in a phone or a flex print board will move onto the substrate. Those things from a semiconductor test point of view were never in the mix for being tested. So that adds some complexity. But that's not the big trend. Over the horizon we'll be incorporating more and more other pieces of silicon into that package. So the AP alone gives what I was describing earlier maybe a 10% bump to test time but as you also put in power management ICs, RF transceivers, Wi-Fi chips onto that substrate, then that intensity increases beyond that 10% factor. So if you added up the test time of let's say the five or six chips, the key chips in a phone cingulated, then instead of cingulated manufacturing incorporate all the die in a single advanced packaged substrate, you're going to see everything else being equal, a test time that's 1.2 plus times longer than if they were cingulated. And that's – that still may be a year or two away – first step.

Okay. And could you talk a little bit about what you think the impact of the order pull-ins were in the fourth quarter, how much do you think did get pulled in from the first quarter or later this year? Mark E. Jagiela - President, Chief Executive Officer & Director: It's probably on the order of a couple hundred million. So when we look across Q4 and Q1, we expect that the combined two-quarter period will actually show bookings up pretty significantly over our prior Q4 and Q1 average. So as far as we can have visibility at this point, the net momentum in Q1, in other words, that $200 million order didn't come out of Q1, per se. Q1 still looks pretty strong in terms of orders. So yes, $200 million showed up in Q4 but it's not yet clear to us that that means we're going to be down $200 million across Q1 and Q2.

So you think that Q1 orders will still be robust and..? Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah. In other words, I don't expect that they would be $200 million down simply because we received $200 million of advanced orders in Q4.

Okay. Final thing from me is you talked about improving Mobility demand. Did you see improvement from the Android food chain or is this more the iOS food chain? Mark E. Jagiela - President, Chief Executive Officer & Director: Yeah, I don't want to get into the specifics around that.

Okay. Thank you. Andrew Blanchard - Vice President-Corporate Relations & IR Contact: And operator, we have time for just one more call, please.

Certainly. Our final question comes from the line of Patrick Ho with Stifel Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Thank you very much. I just have one question on the cobot market as a whole. Given your early entry into that market you see the opportunities for growth right now. How do you see the competitive environment shaping up, both for 2016 over the next couple of years and I guess the reference point that I'm trying to use is the Wireless Test market you've got it, you had some really early growth but then obviously the competition helped I guess crater that market, how do you see the cobot market shaping up both for 2016 and over the next few years? Mark E. Jagiela - President, Chief Executive Officer & Director: Great question. So first of all, just to go back to the wireless space it was a little bit different in wireless. LitePoint was a late comer to that market but it came with a disruptive (58:17) product for manufacturing. So it came in, disrupted the big players. Everybody grew like mad in 2012 in Wireless Test including LitePoint. And what's occurred since then as the markets contracted there's four or five big guys in a shrinking room. LitePoint is picking up share. It's gone from 20% share in that boom period to 40% share today. But they were a late comer so very different. On the collaborative robot side of life, here we're in a market where UR is clearly the leader and out ahead. 60%, 70% share. So everybody else is trying to catch up and that as Greg described is why we are spending our time and strategy and money around developing the ecosystem to support our product line, our protocols, in advance of this wave in the market developing. The growth rate in collaborative robots is something that we're convinced is going to be at a very high, greater than 50% level for many, many years. And so we've get to get out and stay out ahead of it. We are ahead. And everybody that's in a traditional robot business and emerging startups will eventually try to enter this market. We're convinced of that. But if we have the ecosystem in place to make our products the easiest to deploy, the access to integrators who can solve whether it's pharmaceutical, chemistry, assembly, machine tending, all these different applications that today we have, we will be the easiest place to go for automating these tasks. So little bit of long-winded answer but it's to my mind a very different position we start with here. It's a leading position and it's very promising. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Great. Thank you. Andrew Blanchard - Vice President-Corporate Relations & IR Contact: Well great. Thanks everyone for joining us today and we look forward to talking with you in the days and weeks ahead. Mark E. Jagiela - President, Chief Executive Officer & Director: Thank you.