Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne
Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q1, provide our Q2 outlook and the full year planning assumptions. I will also provide some financial color around our robotics companies and update you on our supply chain and resiliency progress. Now to Q1. First quarter sales were $618 million, which was $28 million above our mid-guide with non-GAAP EPS of $0.55, which was above our high guide of $0.52. Non-GAAP gross margins were 57.7% above our guidance due to favorable product mix, operational efficiencies and some resiliency costs deferred until later in the year. Non-GAAP operating expenses were $251 million, flat with fourth quarter opex. And non-GAAP operating profit rate was 17%. We had no 10% customer in the quarter. The tax rate, excluding discrete items for the quarter was 16.5% on a GAAP basis and 16.75% on a non-GAAP basis. Semi Test revenue for the quarter was $415 million, with SOC revenue contributing $347 million and memory of $68 million. As Greg noted, SOC strength was concentrated in auto and industrial end markets. In memory, our sales were strongest in flash final test followed by DRAM final test as the industry ramps new, higher-speed devices from smartphone and server applications. System Test Group Q1 revenue was $75 million with $34 million in storage test and low SLT and HDD demand. Recall, SLT has high exposure to the smartphone market and as widely noted, HDD markets are weak this year. In Wireless Test, revenue was $39 million in Q1 on the impact of both low PC and smartphone volumes and a low in complexity driven test investments ahead of the expected WiFi seven rollout beginning in 2024. Now to robotics. Revenue was $89 million with UR contributing $72 million and MiR $17 million. FX did not have a material impact on our top or bottom lines. Profitability was negative in the quarter on weaker revenue growth. We are trending toward a breakeven profit this year, below our intended 5% to 15% operating profit objectives. Gross margins continue to be above the corporate average.
Greg has noted reasons for growth in 2023 below expectations, which is preventing us from achieving our profit goal this year. I would like to share some thoughts to enable an appreciation of where we are with each business. In UR, we have conviction in this very large market and believe it is still sub-5% penetrated coupled with our products and ecosystem leadership. One of our challenges is our distribution approach, which we believe has limited our longer-term growth. We are executing a solid plan to move to an omnichannel, which we believe will significantly enhance our growth potential. In the slower market we're seeing this year, our traditional channels are being impacted by an outsized rate before we see a full effect -- full benefit of our new channel strategy. From a profitability perspective, UR has operated above 10% to 15% -- sorry, UR has operated at or above 10% to 15% profit since 2017, with the exception of the initial COVID year in 2020. In 2023, we expect profitability of UR to be in that 10% to 15% range. In short, we are profitable while we continue to invest in transforming our channel, introducing new products, which increase our served markets and growing our industry-leading ecosystem. Turning to MiR. MiR is earlier in its life cycle and serves a more fragmented AMR market where there is no clear leader and the top players have less than 10% share of the market. MiR is in the top five participants with mid-single-digit share. We're not yet profitable at MiR, we expect to be in 2025, which is aligned with our strategy to establish a leadership position in a market with long-term upside potential. This market is also less than 5% penetrated today. Given the strong pull from our large customers, we're making substantial R&D investments needed to realize the opportunity. An attractive feature of this market is the relatively concentrated customer base, which enables a focused distribution with heavy direct involvement in sales, service and product requirements.
In summary, UR is profitable with a leading market position, and we're evolving our go-to-market approach. MiR is in the heavy engineering investment phase, creating solutions in cooperation with large customers, and we expect it will be profitable in 2025. Gross margins and robotics are above the corporate average and if we do not see significant growth opportunity in the market will reduce growth in opex and enable this portfolio to have greater than 20% operating profits similar to our Test businesses. Shifting back to the financials. At a company level, our free cash flow was an outflow of $22 million in the quarter. We typically consume cash in the first quarter as we pay out our variable employee compensation. We repurchased $93 million of shares in the quarter, paid $17 million in dividends and settled $15 million of debt. Note, the share repurchase program began in late January, so it reflects approximately two months of purchases. We ended the quarter with $859 million in cash and securities. Now to our outlook for Q2. Q2 sales are expected to be between $625 million and $685 million, with non-GAAP EPS in the range of $0.55 to $0.74 on 164 million diluted shares. The second quarter guidance excludes the amortization of acquired intangibles. This outlook is slightly ahead of our January view as automotive and industrial semiconductor test demand continues to outpace our earlier forecast. Second quarter gross margins are estimated at 57% to 58%. opex is expected to run at 37% to 40% of second quarter sales roughly flat with Q1. Non-GAAP operating profit rate at the midpoint of our second quarter guidance is 19%. A few points to assist you in the modeling in the rest of the year given the unusual environment Greg has described. First, the expected revenue profile.
We expect Q3 sales to be similar to Q2 and Q4 to improve a bit from there. As a result, you should expect the second half will be a bit better than the first. Now to gross margins. We've improved gross margins in the first half of the year, driven by accelerated operating efficiencies and deferral of manufacturing resiliency spending to the second half of the year. Full year gross margins will likely be 57% to 58% range. Regarding opex for the full year. As noted in January, we expect the full year 2023 opex to be roughly flat compared with 2022. Our GAAP and non-GAAP tax rates are forecasted to be 17% in 2023. A quick update on our supply chain. While supply and demand is coming back into balance for most of our supply chain, we continue to see shortages in some analog and logic devices. This is impacting about 25% of Tester revenue in Q2 and is outside of our guidance range. On the supply chain resiliency front, while some spend moves from first half to second half, strengthening of our supply chain is progressing largely according to plan. For our tester product manufacturing, that work will be substantially complete in Q3, though there will be component qualifications continuing for several quarters after Q3. The changes in our supply chain for our hardware services business will continue through the year. The costs related to strengthening our supply chain are included in the gross margin estimates. Summing up, we delivered sales above the midpoint of our guidance range with earnings above the high guide on improved gross margins. The auto and industrial Semi Test markets in '23 look incrementally stronger than we expected earlier this year with softer mobility and compute markets. Robotics demand is also incrementally softer. In this environment, we're making the investments to strengthen our global supply chain, while maintaining the R&D and go-to-market focus to support our long-term growth strategies in test and robotics. We're doing this while maintaining roughly flat opex since 2021.
As a result, we expect to generate solid free cash flow in '23, which will deploy to maximize value for our shareholders through potential M&A, dividends and shareholder repurchases -- share repurchases. With that, I'll turn the call back to Andy. Andy?
