Teradyne Inc (TER) — Q1 2025 Earnings Call Transcript

Thank you, operator. Good morning, everyone, and welcome to our discussion of Teradyne’s most recent financial results. I’m joined this morning by our CEO, Greg Smith; and our CFO, Sanjay Mehta. Following our opening remarks, we’ll provide details of our performance for the first quarter of 2025 and our outlook for the second quarter of 2025. The press release containing our first quarter results was issued last evening. We are providing slides as well as a copy of this earnings script on the investor page of the Teradyne website that may be helpful in following the discussion. 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 risks that could cause Teradyne’s results to differ materially from management’s current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the Safe Harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, on file with the SEC. Additionally, these forward-looking statements are made only as of today, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, except to the extent required by law. During today’s call, we will refer 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 measures, where available, on the investor page of our website. Looking ahead, between now and our next earnings call, Teradyne expects to participate in technology and industrial-focused investor conferences hosted by JPMorgan, TD Cowen, and Stifel. Our quiet period will begin at the close of business on June 20th, 2025. Following Greg and Sanjay’s comments this morning, we’ll open up the call for questions. This call is scheduled for one hour. Greg?

Thanks, Traci. Good morning, everyone, and thanks for joining us. Today, I’ll discuss our first quarter results and provide an update on the trends that we are seeing across our businesses. Sanjay will then provide more detail on our first quarter results and second quarter guidance. It's been seven weeks since our Analyst Day and the long-term themes that we discussed; AI, verticalization, and electrification, remain the primary industry drivers that we expect will accelerate our growth trajectory in the years ahead. In the near-term, the combination of trade policy and our customers’ heightened uncertainty around end market demand has caused orders to push out, as we discussed last month. Although the direct impact of current and anticipated 90-day tariffs on our model is minimal, we are more concerned about the impact of tariffs on the end market demand. Many of our customers, primarily in the mobile, automotive, and industrial segments, are reviewing their capital acquisition plans, and we do not have firm forecasts from them at this time. Beyond the second quarter, our visibility is very limited. As such, we are not commenting on or reaffirming our expectations beyond the second quarter. We delivered first quarter revenue towards the high end of our guidance range with gross margin and earnings per share above the high end of our expectations. Strength in Semi Test, specifically SoC for the mobile end market drove year-over-year growth. This mobile demand is transitory and related to some supply chain transitions at our customers, rather than a signal of end market recovery. Our compute revenue also grew year-over-year in Q1 with record loading on our Ultra Flex and Ultra Flex Plus testers for AI accelerators. Revenue in our Product Test and Robotics Test divisions were generally in line with our expectations in Q1. In Semi Test, SoC delivered above our plan, and memory was in line with our expectations as customers digest the HBM, or high bandwidth memory, capacity that was put in place last year. In the quarter, our Memory Business Unit secured a coveted HBM4 performance test win with a major DRAM manufacturer, which is expected to begin shipping in the second half of this year. This is our first DRAM wafer sort win at this customer and a major milestone for our memory business. Our IST business, or Integrated Systems Test, delivered first quarter results in line with our expectations and achieved initial customer acceptance for the new Titan-HP, targeted at system level test of AI Accelerators. We are seeing new opportunities emerging in the IST space with both new and existing customers. All of the businesses in our newly formed Product Test division delivered first quarter results in line with our expectations. While the wireless test end market for our LitePoint business has been generally weak since 2023, the team has continued to secure the majority of opportunities in wireless networking sockets. In the first quarter, LitePoint won 13 of 13 of the Wi-Fi 7 wireless test opportunities. A critical aspect of our strategy to gain share in high performance computing is to establish a leadership position in Silicon Photonics test. In support of that goal, we believe that we are on track to close the acquisition of Quantifi Photonics in the second quarter. In the first quarter, our Robotics division executed a structural reorganization, consolidating the customer-facing sales, marketing and service organizations between UR and MiR. Our robotics team has responded with resilience in what continues to be a very challenging macro backdrop. In the quarter, Teradyne Robotics received the largest order in its history from a global automotive manufacturer for both MiR AMRs and UR cobot arms. The new Pallet Jack MiR 1200 is now in the hands of distributors and select lead customers and pilot installations are running. Moving on to Q2. As we discussed at our Analyst Day, we have seen customers push order delivery out from the second quarter into future quarters due to the uncertainty international trade policy could have on end market demand. Despite this, our view of Q2 remains in line with the expectations that we set in March. Given the lack of visibility and the impact that trade policy may have on the industry and our business, we are prudently managing expenses. While there are systematic OpEx savings that are delivered by our flexible business model and variable compensation strategy, we are also actively managing expenses with the objective of generating operating leverage. With our strong balance sheet, consistent free cash flow generation, low capital intensity and variable operating model, we are continuing critical investments and are positioning ourselves to drive growth as customers figure out their strategy in the current macro environment. We see green shoots of evidence of this across Teradyne, as our business units address emerging opportunities and increasingly work across divisions to better solve customer problems. TAS, or Teradyne Automated Solutions, is a great example. Semiconductor customers are interested in automating particularly their back-end processes, which are still quite labor-intensive. In the first quarter, we announced the strategic partnership with ADI, which will deploy UR cobots and MiR AMRs to support ADI's collaborative automation initiative. The semiconductor market is one of the segments our robotics business is targeting to drive diversified growth. Within Semi Test, IST is working hand-in-hand with our SoC team to help current and potential customers in the AI compute space cost-effectively optimize test insertion points. We are seeing this with our first Titan HP customer acceptance and revenue in Q1 from a hyperscaler customer. And in product test, our PBT, or production board test, business, which has historically been strongest in the automotive industry, is making gains in AI compute where technologies pioneered by Semi Test are being leveraged to help hyperscalers test server-level products. The increasing complexity and high cost of failure of these end products is creating sizable opportunities for us. In the mobile space, after years of overcapacity, utilization rates have improved considerably, as evidenced by new system orders for AI compute complementing upgrades of underutilized mobile testers. We have started to see improvement in LPDDR for mobile applications, and we started shipping our next-generation image sensor testers for the mobile market in Q1 of 2025. We are also winning new opportunities in SLT in the mobile market. With 2-nanometer and gate all around on the horizon, we are optimistic that as demand recovers, the setup for our mobile business is good. We cannot predict the impact that dynamic trade policies will have on global end demand, but we know that Teradyne has historically emerged stronger coming out of challenging macroeconomic periods. We expect that to be the case in 2025 as well.

Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q1 and provide our Q2 outlook. Now to Q1. First quarter sales were $686 million, which was towards the high end of our guidance with non-GAAP EPS of $0.75, above our high-end guide of $0.68. Non-GAAP gross margins were 60.6%. This was above our guidance due primarily to product mix. Non-GAAP operating expenses were $275 million, up year-over-year as we have increased our investment and target opportunities to drive longer-term growth. That said, it's down sequentially as part of our implemented spending controls. Non-GAAP operating profit was 20.5%. Turning to our revenue breakdown in Q1. Semi Test revenue for the quarter was $543 million, with SoC revenue contributing $406 million; Memory, $109 million; and IST, $27 million. Strength in SoC was driven primarily by mobile. As expected, Memory revenue was lower as customers digest the HBM test equipment delivered in 2024. We expect DRAM to dominate the memory mix in 2025 just as it did in 2024. IST revenue was $27 million, was up both sequentially and year-over-year, driven by new SLT shipments for mobile and our first AI compute revenue. In product test, Q1 revenue was $74 million, down 4% year-over-year, with wireless test revenue of $29 million up 20% year-over-year. This growth in wireless test was offset with weakness in production board test tied to the automotive industry and timing of programs in defense and aerospace. Now to Robotics. Revenue was $69 million, declining both sequentially and year-over-year. In the quarter, UR contributed $49 million and MiR contributed $20 million. While the long-term drivers of AI and onshoring and advanced robotics remain intact, near-term macro factors continue to be a headwind. In robotics, the operating loss was $22 million, in line with our expectations. Given our restructuring, I'll share the GAAP to non-GAAP reconciliation of the loss. On a GAAP basis, our loss in Q1 was $37 million, including approximately $11 million in restructuring primarily associated with our go-to-market consolidation and $4 million of amortization of intangible assets. This restructuring has reduced our operating breakeven revenue from $440 million to $365 million as described in January. I'd like to highlight our life-to-date Robotics GAAP results. Life to date, our GAAP losses are $231 million. Breaking that down, approximately $233 million of noncash amortization of intangibles, $45 million of restructuring costs resulting and $47 million of cumulative non-GAAP operating profit. Some other financial information in Q1. We had 1 customer that directly or indirectly drove more than 10% of our revenue in the first quarter. In Q1, 19% of our revenue was shipped to China, 12% in support of multinational customers, and 7% in support of indigenous Chinese customers. For context, in the past two years, shipments to indigenous Chinese customers has been 5% of Teradyne's revenue. The tax rate, excluding discrete items for the quarter, was 13.5% on a GAAP and non-GAAP basis. At a company level, our free cash flow was $98 million, primarily driven by earnings and net working capital improvements in the quarter. We repurchased $157 million of shares in the quarter and paid $19 million in dividends. We ended the quarter with $622 million in cash and marketable securities. Now turning to our outlook for Q2. Q2 sales are expected to be between $610 million and $680 million. Second quarter gross margins are estimated at 56.5% and 57.5%, a decrease quarter-over-quarter driven by product mix and lower volume. Q2 OpEx is expected to run at 40.5% to 44.5% of second quarter sales. The non-GAAP operating profit rate at the midpoint of our second quarter guidance is 14.5%, with non-GAAP EPS expected to be in the range of $0.41 to $0.64 on 161 million diluted shares. GAAP EPS is expected to be in the range of $0.35 to $0.58. Moving to the topic of tariffs. As Greg noted, the primary concern of the tariffs is the impact on the end market demand. As our manufacturing footprint and the location of our customers, we expect only a minimal impact on the efficiency of our business model. The impact of the tariff will generally be passed along to customers in affected regions. In Q2, we expect to have a small increase of cost of sales and operating expenses, which amounts to approximately $0.02 of earnings for Q2, which is included in our guide. While we have assessed the financial impact due to tariffs in Q2, there is little ability to predict either the changes in tariff or trade policy or the magnitude of impact of the trade policy on end market demand. As such, please do not rely on prior financial guidance that extends beyond the second quarter. That said, I'd like to provide additional color on the dynamics we're seeing in some of our markets. In Mobile, after two consecutive quarters of strength driven by some supply chain shifts, we expect our Q2 revenue for Mobile to be lower. In Q2, we also expect a significant sequential decline in Memory revenue as the market continues to digest installed HBM test capacity. Looking out further, freight policy, including tariffs, are most likely to impact mobile, automotive, and industrial end markets. Significant changes to the AI diffusion rule or semiconductor trade restrictions may impact the Compute market. Turning to share buybacks. As noted in our press release, we've increased our share buyback target from $400 million in 2025 to up to $1 billion through the end of 2026, reflecting our confidence in our long-term plans and free cash flow generation. Summing up, we delivered strong sales, earnings, and free cash flow in the first quarter. Our expectations for the second quarter are largely in line with our expectations provided at our Analyst Day, inclusive of the expected impact of tariffs. While visibility remains limited and there is heightened uncertainty on end market demand, we are confident in the long-term drivers of AI, electrification, and verticalization that will drive the industry and our businesses in the coming years. Our resilient variable business model and strong balance sheet enable us to continue to invest in areas of strategic importance as we await a broader end market recovery. With that, I'll turn the call back to the operator to open the line up for questions.

Putting my question, Greg, you kind of mentioned that how seven weeks ago at your Analyst Day you saw tariff-related pushouts. But now it seems like some of your OSAT customers are seeing tariff-related pull-ins, so I'm kind of curious. What are the dynamics you're seeing? It seems like you're really seeing pushouts, no pull-ins, kind of like what end verticals is it coming from? Is it mostly auto analog industrials or are you also seeing this trend with mobile and HPC? I then had a quick follow-up.

Yes, Krish. The effects of end order pull-ins, where customers are rushing to secure chips, are mainly impacting our existing capacity. This is not a significant issue, as we haven't observed major pull-ins for Q1 or Q2 that would require us to invest in additional capital equipment. Therefore, that is not a concern. The pushouts we discussed during Analyst Day remain consistent, primarily coming from customers in the auto and industrial sectors. We haven't noticed substantial pushouts in the mobile sector, but we are apprehensive about potential impacts on the end market, which is something we have yet to fully assess.

Got it. And then just a follow-up on the HPM wafer start win. Is this an existing HBM customer? Is it a new one? And also, typically, Teradyne has been better in because speed is more important. So I'm kind of curious what got you the wafer assortment? Thank you.

The important thing to remember is that HBM memory now undergoes a performance test at the wafer level, which is a post-stack test. This involves conducting a core test on all of the DRAM wafers, then dicing those wafers, stacking them onto a substrate wafer, and performing another wafer level test on the entire stacked HBM memory. This performance test occurs at higher speeds. This is the insertion we achieved, and the HBM4 win is with a customer with whom we did not have existing HBM3 or 3E business.

Yes, good afternoon. Good morning. Sorry. Thank you for taking the question. I guess, I understand not guiding to the second half given lack of visibility. But I'm hoping you could kind of speak to what you can control? So how are you thinking about kind of what the new gross margin range would look like for the full calendar year? And do you have an updated view on how we should be thinking about OpEx?

Yes. C.J., it's Sanjay. So for the full calendar year, given the uncertainty on the top line, the impact of the tariffs or the trade policy, the revenue mix is really a large factor. So we're not providing any guide for the gross margin. I will share that our first half from a gross margin perspective, is percentage-wise is roughly in line with where we expected. Q1, a little bit better and as we're guiding Q2, a little bit worse, but overall in the first half, percentage-wise, were aligned. And given the uncertainty of the top line, we're not providing any guide for the second half. From an OpEx perspective, the story is, it may sound a little bit redundant, but from a variable compensation model perspective, what we'll see is depending on the revenue flux, if the revenue comes down, we'll have a favorable impact, lower spend; if it goes up, we'll have more spend. But the kind of the narrative is consistent where we're going to prioritize our Semi Test, our engineering, and our go-to-market. You saw the restructuring in robotics in Q1. You should see that decline year-over-year. And from an OpEx perspective and product test, it should be roughly flattish to the prior year.

If I may, Sanjay, I'd like to provide some historical context to that, C.J. Looking back at previous instances of significant downturns within a single year, such as from 2022 to 2023, we experienced a sharp decline in the mobile sector in the middle of 2023, with our margins dropping from 59% in 2022 to 57% in 2023. We are not providing a gross margin forecast for the full year due to uncertainty about the complete outlook. I would like to highlight that it is likely to remain within a fairly narrow range.

Very helpful context. And I guess as my follow-up, I was hoping you could speak to the SLT wins that you highlighted in your prepared remarks. So can you give us a little more color on what you're seeing with AI accelerators? And then also on the mobility side of 2-nanometer, is that just a win at your large existing customer or have you broadened your design wins in that arena? Thank you.

Yes. So I'm glad you asked for clarification around the mobile SLT win. So in my script, it was two separate thoughts that we have won additional mobile sockets that are going to drive business in 2025 and into 2026. A separate thought is the transition to 2-nanometer is going to be a positive demand tailwind in 2026 as well. I didn't mean to imply that we won an SLT 2-nanometer socket. So I just want to make sure that we're really clear about that. On AI accelerators, this is a leading edge trend. What we're seeing is that AI accelerator devices when they're being incorporated into higher-level assemblies, those assemblies have higher than acceptable failure rates as they're being built into servers and it takes a significant amount of time to get the test coverage that you need for these devices. And many of the failures can only be found when they are running actual training workloads. The most cost-effective way to be able to run those training workloads is to do it in a system level test environment. And so we've implemented that for a leading-edge AI accelerator. We've delivered that product. That product has been accepted and is being used in production right now. The trend that we believe is going to happen is that with next-generation accelerators that are even more complex, that 100% SLT is going to be the most economic choice that these customers will make in order to achieve the quality levels that they need. So this is the tip of the spear when it comes to SLP of these devices. And the key thing that we have is a great solution around the thermal control and power required to do this. So it's an important strategic win that is going to deliver significant revenue in 2026.

Very helpful. Thank you.

Thank you very much. Greg, you mentioned what you believe to be the largest robotics order ever. June has traditionally varied quite a bit. If we're considering a typical seasonal pattern, it tends to be fairly stable in June. Could you elaborate on that order? What was its purpose? What insights does it provide about the business, and when can we expect it to be realized?

Yes, of course. As mentioned in the script, this order is for an automotive customer who has been a significant strategic partner for us regarding both UR and MiR for some time. This represents the largest order for our AMRs that we have ever received, and it marks the first occasion we've worked with this customer in a unified manner as a robotics unit rather than separately as UR and MiR units. This showcases our ability to adapt our sales approach to promote our entire product range to these strategic clients. The AMRs mainly facilitate material handling within the factory, transporting parts from storage to the assembly line, where other automation systems take over for assembly. The collaborative robot arms are typically utilized to enhance manual processes in existing manufacturing facilities. When constructing a factory, core automation features for the assembly line are programmed in, but a considerable amount of manual work takes place as products advance through the process. Once the factory is operational, this customer will constantly seek opportunities for process enhancements, and collaborative robotics plays a crucial role in those improvements since it allows for automation to operate alongside human workers. Therefore, this represents a continuous improvement investment from the customer in the collaborative robots segment.

And when is it help the business? And then Sanjay, can you give us some TAM updates from what you provided during the Analyst Day? You had said 49 SSC, 14 memory and then you had all the breakdown within SSC. Is there any change to that that you would want to highlight?

No, so it's shipments are spread out through from Q1 into Q2. So it wouldn't extend into the second half of this this year. The lead times on the robotics products are generally pretty short.

And then maybe addressing your next request. As we've said in the prepared remarks, given the uncertainty, we're not providing an update on the TAM and the breakdown for the full year.

Hi, this is Priyanka Thapa on for Samik Chatterjee. My question is on the secondary impact for tariffs. Have you observed a shift among international customers towards non-U.S. competitors in the testing space? Or have you noticed that your competitive positioning has remained stable?

Hi, Priyanka. In terms of competitive impact, particularly in the test market, we have two major international suppliers along with local suppliers in China and Korea that also serve the market. We have not observed any competitive impact where customers are choosing to buy from different vendors due to the tariffs. It remains a very competitive market, and we are always competing. Tariffs have not influenced the outcome of any of those competitions.

All right. And one follow-up. Just to put on the gross margin impact. It was noticeably strong this - on product mix this quarter. What measures are necessary in the long term to achieve the sort of 60% gross margin or is the narrow range that you spoke of like somewhat below that?

Yeah. Hi. It's Sanjay. Thanks for the question. The strength as we noted in the prepared remarks, is really tied to product mix. And we - overall, when we make our investment decisions, we are looking to differentiate our solutions and we have an overall business model of 59% to 60% and that's how we design our products in the markets we enter. I would say in the short run, when we talk about product mix, from a tester perspective, depending on what the needs are for a particular customer, it's really configuration dependent on what goes in there. But overall, in the first half, if you take a look at our guide, the first half, we're at 59%. We do believe over the mid and long term that we'll continue to operate our business at 59% to 60%.

Good morning. Thanks for letting us ask a few questions. Maybe one for you, Greg. When you size the VIP TAM at around $600 million in '26 and potentially $800 million in 2028, were you including SLT? Can you give us a sense, even if you don't want to necessarily reaffirm those targets at the moment, like how material to those TAM figures could SLT be?

The numbers we provided for the VIP total addressable market are focused on semiconductor ATE and do not account for SLT revenue. If the trends I mentioned continue, we haven't given a formal estimate for that total addressable market. It won't be as significant, but it may represent about 10% to 30% of the total addressable market for SLT. We will update this information over time and likely share more details in January of next year when we discuss the long-term outlook. It is important to view this as impactful, but not substantial. Yeah. So the thing that we have usually said and we still believe is that customers buy testers that - for the parts that they need to test. And where those parts are produced, whether it's in Taiwan or in China or in the U.S. doesn't affect the end market demand for those chips. So our ship to locations may change in the future if there's more on-site manufacturing in the U.S., but the total demand is unlikely to change in any meaningful way. There may be some additional inefficiency if yields are lower at first or if utilization is lower. But I think the onshoring of manufacturing is probably a bigger factor for front-end equipment where you need to make a large front-end investment, whether or not you have the demand for the product. For things like testers, you're only going to buy testers essentially at the point in time when you know that you have the wafer volume that's going to require the test capacity.

Thank you for taking my question. So firstly, on Memory, you spoke about DRAM dominating the memory mix in 2025, just as it did in 2024, which would imply NAND remains at very low levels. What do you think is needed from customer utilization or technology transitions to see test orders again? Thank you.

So there are two factors that will drive a larger NAND demand. The first is really mobile phone unit volume. So if mobile phone unit volume inflects significantly, then we would see an increase in the demand. Also if the rise of AI-enabled smartphones requires a lot more local storage for model parameters, that would increase the amount of NAND per phone. So those are sort of the volume drivers for the market. The other important driver is interface standards. And this is true both in the mobile space and also in the compute space. In the mobile space, there are new protocols in both the iOS ecosystem and the Android ecosystem that require investment in new tester capacity to be able to verify those devices. So as new phones adopt new standards, that does drive TAM in the mobile space. The last factor around the NAND market is as the NAND capacity continues to increase and the need for nearline storage for AI increases, there's a potential for very high demand in the cloud compute space for storage. And that's something that we think would be a positive factor for demand for ATE and we also think that that's an interesting market for us for our IST Group.

Got it. Thank you. And as for my follow-up, you previously mentioned that most of the VIP demand in '24 came from upgrades and if they were system sales, revenue would have doubled. Do you have a gauge on what the utilization are for your testers and at what point would customers have to purchase new testers rather than resorting to upgrade?

We don't have a precise measure of utilization that we can share in terms of specific numbers. However, the trend is clearly upward, and we have already seen an increase in system orders related to AI accelerators. In the early part of 2024, our sales were largely driven by upgrades. As we entered the latter half of 2024, we began to see substantial system orders in addition to those upgrades. Furthermore, the mobile business transactions we had in Q4 and Q1 are using up extra capacity. This involves transitioning mobile products but is definitely utilizing idle testers. Unfortunately, the best I can provide is a qualitative insight: we believe that the number of upgradable systems is significantly lower now compared to about six months ago.

Yes. Thank you for taking my question. I guess I had one clarification. As far as the HBM stack die test, just to clarify, I guess you now have all three of the HBM dyes for stack die test. Is that how we interpret this win?

No, that assumption is incorrect.

Okay. At the Analyst Day, you showcased a robot that was handling FOUPs. Could you clarify when you anticipate starting to generate revenue from that product and what you believe the market size could be?

We had revenue in the first quarter from our robotics business related to the semiconductor sector. Additionally, we are running semiconductor workflows, similar to what we showcased on Analyst Day, at multiple sites for a different semiconductor customer. For 2025, we anticipate a revenue impact in the low single-digit millions, which we expect to grow over time. This also plays a crucial role in the enterprise value proposition for these customers, as we are already in their production facilities providing support for our test equipment and have a solid understanding of their workflows. By offering them the robotics needed to automate some processes, we can do so effectively while being a trusted partner. We believe this is a significant way to prove that we are the ideal test and robotics partner for these customers.

Hi. Thank you for taking our question. This is an unidentified analyst on behalf of Vivek. One on compute. I know you said you're not seeing a lot of push outs with this end market and I know you won't guide the second half, but should we then expect this business to generally remain on track with your expectations from the Investor Day, just given you're not seeing any push outs? Thank you.

Yes, we haven't experienced significant delays that would impact our Q1 and Q2 results. There is some uncertainty regarding the second half of the year, and I want to stress that it is indeed uncertainty. There are both potential positive and negative factors to consider, which is why we are not providing full-year guidance; we don’t want to convey a negative message. We are receiving a lot of uncertainty from our customers about project timelines and capacity needs. However, our perspective from Analyst Day remains largely unchanged.

Got it. And then one on robotics. Obviously, the sales side is a bit uncertain, but you've previously been assuming that this segment will outgrow your industrial peers by a significant margin. So is this still what you're expecting, that would be helpful? Thank you.

Yes, we are aiming to grow our robotics business significantly faster than traditional industrial automation peers because we are focused on an underpenetrated market, particularly in advanced robotics where automation is needed alongside or in interaction with people. We believe this market will accelerate due to AI advancements. However, we are facing challenges due to a sluggish end market, and when potential clients lack funding for projects, it hinders our ability to achieve desired growth. This circumstance is a key reason for our restructuring efforts aimed at reducing our breakeven point. Our breakeven was set at $440 million for 2024, and we've lowered it to $365 million for this year. This adjustment was necessary because we do not control market conditions, and we needed to position ourselves to sustain important investments while being more cautious about our go-to-market investments and enhancing synergies between our two groups.