TTM Technologies, Inc.

Q1 2021 Earnings Conference Call


spk_0: that afternoon ladies and gentlemen thank you for standing by welcome to the tpm a technology first quarter twenty twenty one from river results conference call during today's presentation all parties will be in a loose and only mode following the presentation the conference will open for questions as a reminder this conference is being recorded today april twenty eight two thousand and twenty one i've now let's turn the conference over to the decide city and vice president of corporate development an investor relations from our view of the tedium disclosure statement
spk_1: density before we get started i would like to remind everyone that today's call contains forward looking statements within the meaning of a private securities and litigation reformat the mighty ninety five including statements relate to tpm speech of business outlook actual results could differ materially from the forward looking statements to to one or more risks and uncertainties including factors explained in our most recent annual report on form ken k and are other filings with the securities and exchange commission these forward looking statements are based on management's expectations and assumptions as as of the date of this presentation tpm this not take undertake any obligation to publicly update or revise any of these statements weather as a result of new information future events or other circumstances except as required by law please refer to the disclosures regarding the risk that may affect t t m which may be found in in the reports on form tank hey can que ha the registration statement on form as for and the company's other fcc filings we will also discussing this call said non gap financial measures such as a just leave it up such measures should not be considered as a substitute for the measures paired and presented a corner with gap and we direct you to the reconciliation of non gap to get measures included in the company's press release which is filed with the fcc and of a label on t t m's website at www dot t t m dot com we have also posted on our website it's by death wish we will refer to during our call i will now turned the call over to tom admin t m's chief executive officer please go ahead top
spk_2: thank you mere good afternoon and thank you for joining us for our first quarter twenty twenty one conference call i'll begin with a review of our business strategy then an update on how covert nineteen as impacted our business followed by highlights from the quarter and a discussion of our first quarter results god show our of will follow with an overview of our q one twenty twenty one financial performance and are qq twenty twenty one guidance we will then open the call to your questions
spk_1: i am pleased to report that in the first quarter of twenty twenty one ppm generated revenues and non gabby be as above the midpoint of the guided range
spk_2: all and markets perform better than guidance while year on year growth was led by strength in the automotive and data center computing and markets these results were a t despite higher raw material costs and production inefficiencies do to curb and nineteen
spk_1: the pandemic continues to create operational difficulties macro economic uncertainty and employee concerns
spk_2: these challenges are currently being compounded by increasing prices and lead times of copper clad laminate or cpl a key raw material for the manufacture of printed circuit boards tcl they're made from epoxy resin glass cloth and copper foil all of which are seeing limited supply and price increases in addition metals such as copper gold and palladium are also used in our manufacturing process we are actively managing higher raw material god through such measures and supplier diversification ongoing operational efficiency efforts and quotation adjustments to mitigate the impact the dm i am extremely proud of how tdm employees of work to deliver excellent performance despite the formidable challenges of this environment i would also like to highlight that and que one regenerated solid cash flow from operations and our leverage remained at a comfortable one point four times looking into que to i am optimistic that we are seeing healthy the man trend for cross virtually all of our and markets which is supported by are stronger than normal backlog coverage next i would like to provide an update on our long term strategy did the amazon a dirty to transform our business to be less cyclical and more differentiated we believe that overtime investors will be rewarded with more stable growth strong casual performance and improving margins as part of the strategic transition we told our mobility business last year as a reminder are operating margins with mobility as part of our business in que one of twenty twenty were five point eight percent and non gaap dps with eighteen cents which was greatly impacted by the seasonality of that business among other factors we are now able to generate more consistent cash flow and earnings with are strong set of technologies and broad exposure to longer cycle and markets a key part of our ongoing strategy will be to add capabilities and products that are complimentary to our current offerings both internally and through acquisitions looking forward our balance sheet of in a strong position to pursue further acquisitions as well as to support our organic investment needs i would also like the update you on the kobe situation at the time of last quarter's conference call in february we were seeing a surge of north america coded nineteen cases following the winter holidays which we expected to have some impact on production
spk_1: since then cases in north america have dropped off and as a result we have seen a significant reduction of new cases in our sights as well
spk_2: we are hopeful that the vaccine rollout will further reduce new cases and we are looking forward to being able to welcome customers and other important visitors back into our plants in the not so distant future in the meantime we will continue tpm protective measures such as masking temperature checks and proper distancing across our facilities worldwide along with routine internal communications to keep our employees in fort because of the stringent preventative measures in place and our culture of transparency and communications coven nineteen has had left impact on our operations than might have been the case without these precautions now i'd like to review our and markets all historical and market disclosures exclude the mobility business unit and the to m as plants which halted production in december twenty twenty for more details on and market disclosures please refer to paid for of our earnings presentation which is posted on our website the aerospace and defense and market represented thirty six percent of total first quarter sales compared to thirty eight percent of que one twenty twenty sales and thirty eight percent of sales and que for twenty twenty we continue to experience a positive defense climate with our a and d program backlog increasing to a record six hundred and ninety four million dollars compared to six hundred and eighty seven million dollars in queue for q one revenues were up one percent year on year and solid growth in defense more than offset sharp year on year declines in commercial aerospace
spk_1: growth in the defense market is a result of are strong strategic program alignment and key booking for ongoing franchise programs
spk_2: we saw significant bookings in the quarter for northrop grumman i use a radar systems for the f thirty five program we expect fails and you to from this and market represent about thirty four percent of our total sales automotive sales represented seventeen percent of total sales during the first quarter of twenty twenty one compared to thirteen percent in the year ago quarter and seventeen percent during the fourth quarter of twenty twenty automotive grew almost fifty percent year over year and continued to grow sequentially despite a normally float seasonal flu or period for chinese new year we are aware that distorted semiconductors is currently limiting automotive production but this situation as not directly affected our business since we do not purchase semiconductors lol we are monitoring the situation closely to date in a that a very limited indirect impact on our tpp the man we expect automotive to contribute seventeen percent of total sales into to the medical industrial instrumentation and market contributed seventeen percent of our total sales in the first quarter compared to nineteen percent in the year ago quarter and sixteen percent in the fourth quarter twenty twenty q one instrument instrumentation customers in the semiconductor capital equipment and market were stronger than expected for the second quarter we expect em i and i could be seventeen percent of revenues networking communications accounted for fifteen percent of revenue during the first quarter twenty twenty one this compared to sixteen percent in the first quarter of twenty twenty and sixteen percent of revenue in the fourth quarter of twenty twenty we saw relative strength on a year on year basis and the networking segment compared to the telecom segment as the five g build out as been slower to ramp and queue to we expected segment to be sixteen percent of revenue failed in the data center computing and market represented fourteen percent of total sales in the first quarter compared to twelve percent and que one of twenty twenty and thirteen percent in the fourth quarter of twenty twenty this and market was up twenty four percent year on year due primarily to growth from our data center customers we expect revenues and this and market to represent approximately fourteen percent of second quarter sales as data center continues to drive year on year growth please note that we have renamed the segment the better represent our customer max and growth opportunities next i'll cover some details from the first quarter all of the following operations metrics exclude the mobility business unit and the to e m as plants that were closed this information is also available on page five of our earnings presentation during the quarter or advanced technology business which includes h the i rigid flex and rf subsystems and components accounted for approximately thirty one percent of our revenue this compares to approximately twenty eight percent in the year ago quarter and thirty one percent in queue for we are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage are advanced technology capabilities in new programs and new markets capacity utilization in asia pacific was eighty percent and que one compared to fifty two percent a year ago quarter and sixty three percent and to for our overall capacity utilization in north america was fifty five percent and que one compared to sixty seven percent in the year ago quarter and fifty eight percent and que for our top five customers contributed thirty three percent of total sales in the first quarter twenty twenty one compared to thirty four percent in the fourth quarter of twenty twenty our largest customer accounted for thirteen percent of sales and the first quarter at the end of two one or ninety day backlog which is subject to cancellations was five hundred and forty point five million dollars compared to four hundred and seventy point eight million dollars at the end of the first quarter last year and four hundred and eighty three point nine million dollars at the end of june for rpc the book to build ratio was one point two for the three months ending march twenty night i'd like to conclude by again banking our employees for the content for continuing to contribute to a tm and are critical mission of inspiring innovation with our customers despite the coded nineteen and raw materials related challenges we face and que one our business perform better than we expected as a direct result of our employees concerted efforts to engage and support our customers we've also taken positive strategic moves that will strengthen tpm for the long term
spk_3: now todd will review our financial performance for the first quarter dad thanks time and good afternoon everyone i'll be reviewing our financial results for the first quarter which are also shown in the press release distributed today as well as a page six of earnings presentation which has posted on our website for the first quarter net sales for five hundred and twenty six point four million dollars compared to four hundred and ninety seven point six million dollars from continuing operations in the first quarter of twenty twenty
spk_1: the year over year increase in revenue was due to growth and or automotive data center computing and aerospace and defense and markets partially offset by declines in our medical industrial and instrumentation and networking telecom and markets a portion of which was due to the closure of to him as plant last year
spk_3: gap operating income for the first quarter of twenty twenty one was nineteen point eight million dollars compared to gap operating income from continuing operations the sixteen point two million dollars in the first quarter of twenty twenty on a gap bases the net loss in the first quarter twenty twenty one which included fifteen point two million dollars of expense associated with refinancing of a high yield bond was three point two million dollars or three cents per diluted share this compares to net loss from continuing operations of three point two million dollars or three has produced a chair in the first quarter of last year the remainder my comments will focus on are not get financial performance or not get financial performance excludes are the best mobility business unit non routine tax items am in a related costs restructuring costs thirty nine cash expenses another unusual or frequent items we present not get when of the nation enable investors to see the company to the eyes of management and to facilitate comparison with expectations and prior periods
spk_1: gross margin the first quarter was sixteen percent
spk_4: compared to sixteen point eight percent in the first quarter of twenty twenty a gross profit was higher by zero point eight million dollars
spk_3: these results reflect approximately thirteen million dollars of headwinds related to stronger chinese currency iran material cause you to increase commodity prices primarily merely copper and continued expenses related to the colbert pandemic
spk_1: we were able to mitigate most of the said went to a higher revenue and production and spending efficiencies
spk_3: selling in marketing experts was fifteen point six million dollars in the first quarter or three percent of that sales versus fifteen point seven million dollars or three point two percent of net sales a year ago
spk_1: first quarter dna expensive twenty six point six million dollars or five percent of that sales compared to twenty nine point six million dollars or five point nine percent of net sales in the same quarter last year
spk_3: in the first quarter are indeed birds was four point four million dollars or zero point eight percent of revenues compared to four point eight million dollars or one percent of revenue in the year ago quarter our operating margin and que one was seven point two percent this compares to six point seven percent in the same quarter last year interest expense was ten point nine million dollars in the first quarter a decrease of five point four million dollars from the same quarter last year to the lower levels of debt as we read paid four hundred million dollars of our term loan and or two hundred and fifty million dollar convertible bonds during the quarter there was minimal foreign exchange impact below the operating line government incentives and interest income resulted in a positive one point eight million dollars are approximately one set of cps this compares to again of two point four million dollars or partially two cents a vps and que one last year or effective tax rate was twelve percent in the first quarter first quarter net income was twenty five point three million dollars or twenty three cents per diluted share this compares the first quarter twenty twenty net income of sixteen point seven million dollars or sixteen cents per diluted share adjusted he but that for the first quarter was sixty one million dollars or eleven point six percent of that sales compared with first quarter twenty twenty adjusted ebitda of sixty point two million dollars or twelve point one percent of net sales fish asian for the first quarter was twenty one point five million dollars net capital spending for the quarter was twenty one million dollars ability and liquidity positions remain very strong we completed the offering a five hundred million dollars of senior notes four percent interest do twenty twenty nine we use the proceeds from that issuance to redeem three hundred seventy five million dollars of senior notes with a coupon of five and five eight do and twenty twenty five and repay forty million dollars of our us a bl in addition cash flow from operations was forty one point one million dollars in the first quarter or seven point eight percent of revenue ash and cash equivalents at the end of the first quarter twenty twenty one where five hundred and thirty nine point six million dollars at the end of the first quarter or net debt divided by last twelve months he either the was one point four times given this financial strength during the first quarter we announced they one hundred million dollars stock buyback program however due to my to the market blackout restrictions we weren't able to implement the program until late in the quarter after we completed the offering of our senior notes as a result we had no buyback activity during the first quarter we also have approximately twenty five point nine million warrants outstanding related to our redeem convertible bonds which allow for holders to acquire tpm stock at fourteen dollars and twenty six cents per share the words expire rate ugly between march fifteen twenty twenty one and january twenty fifth twenty twenty two during the first quarter we renegotiate or negotiated an amendment that allows tpm to settle sixty percent of these words in cash rather than issuing shares e t m as exercise that option for warrants expiring through the second quarter this will help reduce the potential dilution of the war it's to our stockholders it effectively acts like a stock buyback program we will determine whether the exercise that cash settlement option for future quarters at a later date
spk_1: now i'd like to turn de gar guides for the second quarter
spk_3: we expect total revenue for the second quarter of twenty twenty one be in the range of five hundred and twenty five the five hundred and sixty five million dollars
spk_1: we expect non gaap earnings the be in the range of twenty seven to thirty three cents per diluted share
spk_3: pps forecast is based on a diluted share can't have approximately one hundred and nine million shares our share count guidance includes dilute of security such as options and are a huge but no shares associated with our warrants for every dollar increase in the average share price about fourteen dollars and twenty six cents during a quarter or shares outstanding would increase by approximately one million shares
spk_1: we expect it's impact however will decline through the year as we settled the wars
spk_3: we estimate that as yeah and experts will be about eight point two percent of revenue in the second quarter and are indeed to be about zero point eight percent of revenue we expect interest expense total approximately ten million dollars finally we estimate are effective tax rate to be between ten and fifteen percent to assist you in developing a financial miles we offer the following additional information during the second quarter we expect record amortization of intangibles of about ten point four million dollars stock based compensation expensive about three point five million dollars noncash interest expense of approximately a half a million dollars and we as
spk_1: the mate depreciation experts will be approximately twenty one point four million dollars
spk_3: finally i'd like to announce that will be participating virtually and several conferences this quarter including the goldman sachs leveraged twentieth and credit conference on may seventeen
spk_1: the needed technology and media conference on may eighteen
spk_3: the barclays high yield and syndicated loan conference on may twenty fifth the crag hallam institutional investor conference on june second the u b s global industrials and transportation conference on june eight the bear global consumer technology and services conference on you nine and of people cross sector insight conference on june tenth
spk_0: that concludes are prepared remarks the know like open the like for questions casey if you have i to ask a question please press star one now on your telephone keypad if you're using a speaker phone please ensure your meat function is turned off till i hear signal to reach our quit net if you invite to remove yourself from the queue you may press start in again to ask a question please press star one now
spk_2: we'll take our first question from william sign of trust securities
spk_1: right thanks are taken across question apologize for any back on know here restored and from home com
spk_5: ah i wanted to ask about long term operating margin trans he just a murder think it was seven point two percent of margin at the last analyst go on he established a goal and twelve to fourteen percent quite a bit higher than where we are and you've sold one business that without an open was you our on average would certainly much more volatile and and admired most of my recollection in new adam yard sale on shut down most of your vms business than a editing both of which certainly have a stabilizing effect and probably net i'm in ohio effect on operating margin so i understand you're probably not gonna set a new target for us today
spk_3: on i wonder what investors can expect the path to be whether we should still expect a path to significantly higher operating margins from here and what they will take to cheat thank you well thank you for the question
spk_4: and i think that's a pretty practical question given the performance of the quarter in a we did pretty well on the top line similar things and growth there and neck growth is delivering incremental margin that we would expect that of in that neighborhood of twenty five percent
spk_1: but it was unfortunately
spk_3: offset if you if you will from these issues that were facing in terms of but significant challenges of foreign exchange marty pricing and and still some residual challenges with kobe as we try to wind down or the impact of this virus or operations i highlighted the fact that we had about thirteen million dollars of head when in the quarter and those are things that are we don't view as permanent were in some cases though the correct themselves and others we are taking steps and measures to mitigate the impact of the have some of that thirty laid out by point highlighting that is that if you have you looked outside that thirty million dollars are operating margins would have been quite strong and that's really what we're looking at on a long term basis we had these challenges short term and when you have steep adjustments and for exchange rates are commodity pricing the particular if those changes happen very rapidly it will negatively impact our are operating margins temporarily while we work through a period digestion and you know how do we work on these things well obviously and in the case of commodity prices were working to diversify that could be come on the air supply base and we're also working i make sure that we're adjusting our pricing model so that yeah we're passing these costs onto our customers i'm so with that in mind back to the original statement you made about our target margins were still believers of those which is where you have to get through this issue short term with the with the market that we're dealing with both in terms of the the virus that's out there as well as commodity price thing that we're dealing with
spk_0: and then of and have continued growth in the revenue which we are starting to see now over that give you some kind of context and it's i'm confident that we have in the business model itself
spk_5: thank you
spk_2: thank you and we will take our next question for my crawford of be riley securities oh thanks are that any changes will conversations are having was a the fence testimony give him a new administration n or than the opening up the pentagon's mom was far less severe travel restrictions the a little time out out out and them and my thanks for the question of a day what what i would say at at this point you know some first of all encouraging news on the budget side sort of like be calm and a lot last last quarter has been coming to pass i think the by the administration recognizes that that that how important defense is there been some shift in strategy but in terms of overall budget looking at a relatively flat budget which is great news for us because we're in the in the programs that are that are still benefiting from that budget so i think that's bad continue to be are you know a positive trend for us as you mentioned things you know things gradually opening up there is a couple of development yeah right there yet the the government's early defense department department looking at strategically how can we continue to talk to or how can we returned the building of our manufacturing infrastructure both for a defense and also for dual use kind of requirements
spk_1: that while there's nothing short term to report their i think that's an encouraging trend certainly for a company such as tpm with with that will such a strong footprint in north america
spk_2: and then as you mentioned that yeah there's a there's an opening up and turn to the ability to have dialogue with with the defense department and die and that again i'm not are direct customers customers customary most cases but they're being able to have that that dialogue as needed
spk_5: allows us to i told to learn more about the strategic priorities make sure that we are in turn meeting those requirements from a technology development standpoint and also that our footprint continues to to meet those requirements for my production ongoing production standpoint shuttle all opposite
spk_2: the developments i would say oh okay thank you just one follow up to some footprint in addition to that that star north american football a any update for the aspirations the get anything in europe and or southeast asia continuing to actively look i think i think nothing of jail term for the meeting have a twitter that way the the from our customers the desired at that to see that support tie in europe the still there were doing i think that our our team does a great job of of meeting requirement out in north america but there are opportunities in europe as well and that i am in southeast asia from the volume that standpoint
spk_6: shit going administration's really there hasn't been that their media as shift in tone in terms of the absolute urgency
spk_0: to move the fed friends but no shift in tone in terms of the long term need to move that were bred sell our dialogue with our customers continues around how do we ensure that the that we have the right footprint for for their launcher need so continuing to look at that mike
spk_7: like exxon better
spk_5: thank you
spk_8: thank you and label tiger next question so christian swath of clegg helen i've power on on behalf a christian things for elemis african questions here
spk_3: first question i want to revisit use these headwinds you see you know you by mistake two million dollars and one on to the for exchange and lob rock marty price increases and some residual covert of impacts others wondering if you could maybe give a low my color on your time minute studies the east and yeah maybe how much it costs a us mean i'm teasing cute too because you're you're gonna tell the player of a relatively nice step up and markets so you call that a great tyler and thanks again for asking the question because i think this is really the key topic that we're dealing with
spk_1: so if you take taken take the three pieces right
spk_3: colby were certainly think some progress here in north america where where most impacted the last several quarters in the general population in what's happening with them the decline now since the year and or the beginning of the year in covert cases the increasing rate of vaccinations for people these are all favorable in our employees within the general population so they're subject to those same challenges as the average person isn't america i'm so that progress is encouraging we will we still expect to see some challenging cute you
spk_9: well as we begin to come out of peanut we're in we're spread across country and different state and regions of different protocols and as we work through those issues using an able to support our business and get our people back to work or consistently
spk_3: we'll see some affecting que to but that should start to wind pretty consistently with what you're looking at a terms of vaccination rates in general virus new virus cases in the general population so i think that's something you can monitor gotta have a sense of direction from of in a was you watch the news indicator of a raw material pricing that continues to be a challenge and in typically we're just quotations going forward but obviously you have product that's already in the pipeline with fix pricing in so there's challenges to how you can
spk_4: i just pricing to mitigate those cost increases which tenth of tenth a lag right to pricing changes and a lag the actual costs changes and so are we continue to see pressure there so i think will continue to face some challenges with that as we go into the second quarter certainly
spk_1: and how much beyond that is difficult to say but certainly the second quarter will continue to feel some pressure from their
spk_3: foreign exchange started the look a little bit better during que one but then since the start in april we've seen it does strengthened or the chinese currency strengthen again which puts a little more pressure on us i'm year over year it continues to be a challenge but that's something that we built into the costs structure and we work on in terms of pricing and particular way we work on in terms of cost management of our team does a great job of trying to get more efficient all the time and we have some of the benefits of that in q what even though he had thirteen million dollar
spk_7: as a head when you know we are margins came down a little bit but not thirteen million dollars worth we mitigate some of that with revenue increased but a big shock a that was through production and enough and other spending efficiencies which is a reflection of the effort to the team to improve yields and products and to just managed costs very careful and becoming more productive so we just we we do that all the time when you need to keep doing that to help offset some of these challenges over a longer term so will continue to pay some pressure on that a to we tried to reflect that in the forecasts but also noting some improvement
spk_2: as we continue to return to make progress on the site and words have to watch and see what happens in the market i time commodities and and what not as we go to the second quarter to have a better sense of what gonna what it's gonna look like we get to the third quarter felt that helps a little bit
spk_10: now great meltdown outbreak i appreciate that added effect the question if you could yeah i was hoping to maybe get update on on your kind of our kind of telecom market it and and the take go on china's
spk_2: no progress or or or time i turn begin their face to five you brought on any update their are your outlook from color commentator customers their be would be great sure yeah they get up you look at that ab ab in the telecom situation maybe they the the critical point in terms to china is is when is though that feeds reimbursement cycle really start at sounds like that's going to be vs sort of being a you know a single action and looks like it's going to be more al fayed then erase me as we go through cute you at into cute three or which which is a new development so he fell more of a of phased an approach i don't know the day i haven't seen any change in terms of certainly the official forecasts think the official forecasts are still you know somewhere around six hundred thousand a day stations up from about five hundred eighty thousand last year now being require yards so that that number has changed where we are seeing seeing activity and and as we had forecast the last quarter isn't a non china isa of telecom and and a strong activity in north america as for the activity and and japan south korea south east asia as starting a good job to warm up
spk_11: balance of the world as slow so you know you well as certainly a latin and south america slow
spk_0: but i a pick up in the rest of world that is that it's pretty much as as we had forecast last quarter show with am of course you see your tennessee yeah i'd our revenues are are pretty well balanced but if anything a little bit weighted towards china and the revenue side at you start thinking about our composure
spk_12: and business more waited for rest of world ah so we're still agnostic we'd love to see all of our customers succeed here
spk_5: and certainly look forward to add to china that the demand coming out of china that is that the three starts to kick off
spk_2: that great they develop rough i give thank you and we'll take our next question from as and pack of stiefel i thank you for taking the question are going on behalf of many sharon matter how upon the book the billion mention that at one point two which is relatively elevated and you did mention for auto that the current semi shortages supply shortages is not having a direct impact to yoav rob bookings volume but in terms of that elevated booking level how much of that you think is involved with inventory build vs true demand follow through and looking further into the year how do you think the i'm those already trying to make progress given what's going on with the channel industry and the supply chain sure yeah i think the i'm certainly add a comment overall night on the bookings level and on the commercial side don't you know very very strong that's reflected in in that backlog number glad to see that a commercial bookings really move now across our footprint not just asia pacific but benefiting are north america footprint as well which is a great development and then if you start looking at you know specifically where i you know the inventory concerns of that been raised is predominantly around around the automotive side what we're hearing from customers at this point as i as i mentioned earlier is that that they continue to want to see his ship that and and and and discussions with those customers they're saying look at demand is still there
spk_10: that they that they need us to continue to ship part of that is is frankly inventory replenishment
spk_2: from last year as a there is a little bit of inventory replenishment i'd say there but in terms of them potential inventory adjustments we certainly haven't seen that and as the demand as continued to remain there remain strong for us here and and certainly that's what we're seeing and in the second quarter as well
spk_12: what we're looking to particular an automotive is what does the and market look like here as we head into the second half of the year we've been encouraged encouraging trans and asia north america encouraging as well the i think the that the only question out there right now as we look at our business is europe and i and when when do we feel stronger recovery out of europe and die and how does that that impacted second half of the yourself so we still i would say second half of the year we're not yet sure yet
spk_1: that certainly through the first half and look strong looks like gum that the the and market demand really across a commercial sector is is that holding up very well so very pleased to see that
spk_3: is he thinking if i may for a follow up on you clearly the child the causing a gross profit margin and the associated commodities headwinds and fx headwinds and the likes but could we get more color on how you're looking into our backs later in the year and beyond once saw of fully at the broken back in two posts pandemic recovery and and things go back to normal i meet and i believe for the ah picks guidance including are indeed the guy who was around ten percent of revenue vs last quarter guide which was at nine point six hundred and trickling up slightly can we be looking at off going up or down my increase of travel but cover costs are decreasing august the with ah the person takes how she would be looking at that going forward ah frederick by the that some alvin you're correct and in observing that last year's effect summers were probably well certainly suppressed because of the virus right we curtailed all travel we will also took aggressive actions proactively to be very cautious
spk_13: and we ran at when as we possibly could in terms of headcount and and managing that a business
spk_3: and so we were below average or below what we would i would cause a normal sustainable run rate for you look at the twenty twenty kind of our backs numbers as you go into this coming year and you start to look at cute you know what we've given guy inside are littered of cute to and how that compares to que one of in a we're we're gradually starting the ramp up travel is still relatively muted but will increase as the virus gets under better control here throughout the throughout the year that would probably be one of the biggest factors influencing some of our spending and the we're not talking five million dollars worth of our backs here were really focusing on on modest growth as we deal with some of the the
spk_1: one off
spk_14: it's travel been one of the you get fluctuations quarter to quarter ending a what happens sometimes would like accounts receivable with bad debt reserves of things like that we did have a little bit of recovery and que one that probably a well suppressed our results are are are gene a exposed by about a million bucks
spk_0: no that's not likely to repeat next quarter so you gotta take out some of those one off anomalies when you look at our overall run rate our backs
spk_8: a number up and that fifty million dollar range is not unreasonable for kind of a normal number
spk_2: so that that's probably of these to look at longer term in in terms of expectation that we go to the year i see think is a very much i do thank you and we'll take our next question some tyler bailey of need and ah yeah thanks for day my question john and per game or sooty on it you know you mentioned again get your continue to build a strong balance sheet she just wondered if you could maybe provide some insight into your and they pipeline and if you're a moron and which part of course my be targeting sure yeah where are you so so the theme for us and and really strategically that direction tricky dm as you continue to focus on on differentiation that differentiation comedy in a couple of born to tie directly to our or am at a strategy one one is in terms of the of really how we build on on top of are printed circuit board and and then that's really a oriented around our up are in building on on the and or an acquisition of several years ago continuing dad or ethics expertise in the component area for our commercial business and any and with rf engineering strength for ios basin defense a business okay so that's the the primary drugs of of our am in a direction from at secondary area differentiation for as is in art our footprint capability between our north america
spk_1: the strength and backed up by volume production and asia i as we see customer needs a shift in terms of requirements will will continue to look at em in a opportunities as related to our footprint
spk_0: expansion as well as a those are that the really the two primary areas
spk_15: i would come and that you know that the the marker that the valuation expectations out there still a little bit of a disconnect in terms of that where where are we believe when we look cash well analysis which is critical for us we look at our cash flow based valuations still a little bit a gap there and between expectations and and and what we would look at as as really a discounted cash flow they sell you a son but that will that changes over time hasn't hasn't shifted our strategic direction here as we look at emanate so hopefully that helps you with that but that question day i appreciate that and that much on corner and good thank you very much thank you and as a reminder if you if i ask a question please press star one now we'll take our next question from park coaster of jp morgan
spk_2: hi i'm paul chung on for counter thanks for taking our questions the just time seasonality today now with cellular gone you know that can lessen the volatility of three and for que but know how do we can think about sequential trend throughout the year to queue you got a bomb from from your guidance but she was still expect you know kind of larger second half relative to the first half and he comments or be helpful
spk_16: maybe i can start todd and you can jump in if i miss anything as i take the yeah you know from from your you're absolutely right ball from from am seasonality damn playing really the that she'd nally that's left in our in our business model is maybe just out chinese new year
spk_2: and that and and that's based on our our customers production schedules are being impacted by chinese new year as well as as well as our own factories and production being limited as a that that that's the the seasonality the we have lasted did most of now we're looking at markets that that work on different cycles and so it's very much and market specific now as we start looking at the second half of this year and certainly as we've engaged in the second quarter were saying you know commercial market know strength generally
spk_17: if you look at the start with just running quickly through the businesses if you look at the ad automotive answered made the an automotive continuing continuing a rebound eight i covered the second half i do think we're going to get to a steady state year but still you know good solid strength there are driven by the and market
spk_2: data center continuing to the judge grow we had a very good year last year and data center computing and and i and it looks again this year a lot of design activity with our customers i'm and and very encouraging environment i am i i am if you look at medical industrial instrumentation i highlighted in yellow semiconductor capital equipment everyone knows that's been a strong area certainly has impacted our business when i'm excited about as we're now seeing medical lot you know really really the elective surgery related medical business started to come back last year we were dealing with with with urge and requirements for ventilator and patient monitoring system now we're back to to seeing that makes shift towards towards more steady solid growth and in that medical deserts am really excited to see that coming coming into our next now and industrial for us the industrial lot of a lot of our industry work automation robotics related starting to really come back now so i am i i area of now looking to be much better balanced and that certainly bodes well here as we as we go through the course of the year and i commented on a network communications
spk_15: and that telecom peace again from a revenue standpoint i would expect china to to reemerge on on that side and as as we go through the queue to and que three and complemented by rest of world demand networking continue to look solid
spk_18: so overall commercial business looks looks very good here as we go through the course of the year and as the economy's with our overall recover oppose covert aerospace and defense defense remains solid i and what again flight encouragement year and in terms
spk_2: original aerospace and was dumb you know has been really bad business bumping along the bottom hours starting to see a little bit of a positive movement there
spk_1: that's encouraging to see we'll see if it holds up the but certainly you know better situation than a than a quarter ago though still still subdued on a year on year basis
spk_2: i felt hopefully i give you a quick guide bob and much more related be then markets and their demands friends now than any any particular consumer base dignity
spk_3: as a thank you very helpful and then on your capital structure to very good shape and now you mention share buybacks may become a priority which you really haven't been active on in years though i'm are you can have signaling a pause on ebay and maybe focus more on increasing margins organically and then more share buybacks what i had maybe i can i'll start out thought you can deny the i'm out we review this is complimentary we we have a as you know we've always had a structure of balance sheet goal of being and that one point five to two times are very comfortable operating in that neighbor head as we thought ourselves coming down below that one point five times that's when it starts making sense to add to look at returning returning of money capital the shareholders as part of the overall capital allocation strategy but that by no means reduces the priority around him when it really just says his leg we got another tool in the toolbox here as we manage our overall balance sheet
spk_15: so so think about it that way in terms of of certainly the tdm orientation or but taught any any other comments or citing i just i like you know we've reached the point where it at it the your seasonality question questionable the actual to see the now we have much more consistent performance and were much more predictable that way and so it's increased our partners level in the ability of the business in terms of the cash generation capability and a time highlighted we we are moving forward on both fronts we believe that we can do both they're not mutually exclusive
spk_1: now there may be a time of we do a big deal or something like that that we might have the throttle back on the stock buyback for a period of time but over the longer hall we see room for both
spk_3: both actions are both opportunities in terms of helping our shareholders increase their value great thanks for that last question you know free cash flow of if i was know what you're saying about the the status of the quarters on a few more basis to that kind of apply to your free cash flow as well and flown through an arm what kind of your outlook on on working cat you know you had a pretty big benefit and twenty and some noise and the the sale of cellular but as we think about a roam free cash flow for the your conversion thanks
spk_4: die we're just gonna go at the answer kind of backwards when we do the cap part of the first were we we manage that pretty carefully
spk_1: but as we noted i think last quarter q what our cash cap ex was twenty or twenty one million dollars at stake we're expecting cash cap eggs for the year to be no eighty million dollars plus or minus
spk_19: the net kind that than that four to five percent of revenue range which we talk about his kind of our long term swim lane for cap act a he should we continue to invest in technology as well as capacity challenges and being a good corporate citizen relative to environmental safety and what not i'm so that's pretty can shift
spk_3: as and we can tone we can you know turn that down of we need to the economy thought as the that certainly not situation that we're looking at this year in terms of cash flow from operations generally speaking were wrote respect he relatively consistent but you one always is a little softer than the rest of the course if you look year over year or que one cash flow from operations is up significantly compared to last year
spk_20: and then we tend to do better as we go through the year
spk_21: you know which we're targeting would like to be around ten percent of of revenue in terms of our cash flow from operations
spk_0: but that subject to a lot of different variables
spk_21: profit obviously the key piece of that as well as managing working capital and we are in a week we have programs in place internally we're we're working to to make sure that we're managing both of those
spk_2: aspects appropriately so i think we're looking for good consistency yes we had some potential you know with failed mobility business and winding down that working capital helped us a little bit less your blue still be producing some pretty strong numbers and in there you know i think will be very proud of him by the end of the are here like so much and dealing with felt thank you and the skin concludes attacked our question and answer questions such as a teleconference i would now like to turn it back over to tom help thank you i'd i'd get like the close by summarizing similar the critical points of first week we delivered revenues in earnings above the midpoint of guidance
spk_0: that's despite similar challenges we had from covered nineteen currency in supply chain second second are our and market diversification really enabled solid year on year growth in the mid single digits

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