TTM Technologies, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies second quarter 2021 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you would like to ask a question, please press star 1. As a reminder, this conference is being recorded today, July 28, 2021. Samir Desai, TTM's Vice President of Corporate Development and Investment Relations, will now review TTM's disclosure statement. Please go ahead, sir.

Thank you, Travis. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to TTM's future business outlook. Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties including the factors explained in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission. These forward-looking statements are based on management's expectations and assumptions at the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether 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 TTM, which may be found in the reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S-4, and the company's other SEC filings. We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP, and we direct you to the reconciliation of non-GAAP to GAAP measures included in the company's press release, which was filed with the SEC and is available on TTM's website at www.ttm.com. We have also posted on our website a slide deck, which we'll refer to during our call. I will now turn the call over to Tom Edmond, TTM's Chief Executive Officer. Please go ahead, Tom.

Thank you, Samir. Good afternoon, and thank you for joining us for our second quarter 2021 conference call. I'll begin with a review of our business strategy, followed by highlights from the quarter and a discussion of our second quarter results. Todd Schull, our CFO, will follow with an overview of our Q2 2021 financial performance and our Q3 2021 guidance. We will then open the call to your questions. I am pleased to report that in the second quarter of 2021, TTM generated revenues and non-GAAP EPS above the high end of the guided range. All commercial end markets were better than guidance, and year-on-year growth was led by strength in the automotive and data center computing markets. These results were achieved despite supply chain constraints, inflationary challenges, and foreign exchange headwinds. Last quarter, I discussed with you the increasing prices and lead times of laminates. a key raw material for the manufacture of printed circuit boards. We have been actively managing both supply constraints and higher raw material costs through such measures as supplier diversification, ongoing operational efficiency efforts, and quotation adjustments to mitigate the impact of TTM. The magnitude of the impact to our cost of goods sold will be larger in Q3 and Q4 since higher laminate prices in Q1 and Q2 take some time to work through our suppliers and inventory. I am proud of how TTM employees have worked to deliver excellent performance despite the formidable challenges of this environment. Next, I would like to provide an update on our long-term strategy. TTM is on a journey to transform our business to be less cyclical and more differentiated. We believe that over time, investors will be rewarded with more stable growth, strong cash flow performance, and improving margins. As part of this strategic transition, we sold our mobility business last year. We are now able to generate more consistent cash flow with our strong set of technologies and broad exposure to longer cycle end markets. In the second quarter, we generated $56.9 million of cash from operations or 10 percent of revenue. A key part of our ongoing strategy will be to add capabilities and products that are complementary to our current offerings, both internally and through acquisitions. Looking forward, our balance sheet is in a strong position to pursue further acquisitions as well as to support our organic investment needs. Another benefit of our strategic shift is the seasonality of our business. Historically, we experienced significant seasonality in revenues with a softer first half and ramping volumes in the third quarter, which usually peaked in the fourth quarter. Post the mobility divestiture, this pattern has changed. We now experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively. and stronger revenue levels in the second and fourth quarters. This seasonality, combined with some pull forward of demand from Q3 into Q2, is resulting in a sequential decline in our revenue guidance. I would also like to update you on the COVID situation. The vaccine rollout in the United States has resulted in a decline in new COVID cases, and we have seen the same dynamic within our employee base. However, many parts of the world have much lower vaccination rates, and the rise of the Delta variant has led to significantly increasing case counts in a number of countries, with the potential of another round of lockdowns. We are watching these developments very closely to monitor impacts on demand and supply. We are using a data-driven process, monitoring vaccination rates and local case counts to determine safety precautions at our facilities as we welcome back visitors, begin traveling again, and return a number of our remote employees back to the workplace. Our global manufacturing facilities have been operating throughout the pandemic. Given the rapid reopening in the United States along with the summer holiday season, we are seeing more challenges in attracting and retaining labor. which is resulting in elevated costs and production inefficiencies in North America. Our employees are paramount to the success of TTM, and we actively endeavor to demonstrate their value to our company through a combination of financial and non-financial methods. We are also hopeful that the expiration of elevated unemployment benefits in the U.S. and increased vaccination rates will encourage potential employees to join TTM as we work to support our customers. Now I'd like to review our end markets. All historical end market disclosures exclude the mobility business unit and the two EMS plants, which halted production in December of 2020. For more details on end market disclosures, please refer to page four of our earnings presentation, which is posted on our website. The aerospace and defense end market represented 33% of total second quarter sales compared to 34% of Q2 2020 sales and 36% of sales in Q1 2021. We continue to experience a positive defense climate with our A&D program backlog at $671 million compared to $647 million a year ago. On a year-on-year basis, Defense continues to outperform commercial aerospace, which saw meaningful year-on-year declines in the quarter. The relative stability in the defense market is a result of our strong strategic program alignment and key bookings for ongoing franchise programs. We saw significant bookings in the quarter for Northrop's upgrade of F-16 fighter jets with scalable agile beam radar. We expect sales in Q3 from this end market to represent about 33 percent of our total sales. The medical industrial instrumentation end market contributed 19 percent of our total sales in the second quarter compared to 21 percent in the year-ago quarter and 17 percent in the first quarter of 2021. The MI&I market exceeded a $100 million quarterly run rate and performed much better than expectations as instrumentation customers in the semiconductor capital equipment end market were stronger than expected, and medical as well as industrial customers rebounded. For the third quarter, we expect MI&I to be 18 percent of revenues. Automotive sales represented 18 percent of total sales during the second quarter of 2021, compared to 11% in the year-ago quarter and 17% during the first quarter of 2021. Automotive grew almost 80% year-over-year and continued to grow sequentially above our expectations, exceeding a $100 million quarterly run rate, which is a level not seen since 2018. We are aware that the shortage of semiconductors is currently limiting automotive production, but this phenomena has not directly affected our business since we do not purchase semiconductors. While we are monitoring this situation closely, to date, it has had very limited indirect impact on our PCV demand. We expect automotive to contribute 19% of total sales in Q3. Networking communications accounted for 15% of revenue during the second quarter of 2021. This compares to 19% in the second quarter of 2020 and 15% of revenue in the first quarter of 2021. We saw relative strength on a year-on-year basis in networking compared to telecom, as the 5G build-out in China faced difficult year-on-year comparisons. In Q3, we expect this end market to be 15% of revenue. Sales in the data center computing end markets represented 14% of total sales in the second quarter, compared to 13% in Q2 of 2020 and 14% in the first quarter of 2021. This end market was up 15% year-on-year, due primarily to growth from our data center customers. We expect revenues in this end market to represent approximately 14% of third-quarter sales as data center continues to drive year-on-year growth. Next, I'll cover some details from the second quarter. All of the following operations metrics exclude the mobility business unit and the two EMS plants that we closed. This information is also available on page five of our earnings presentation. During the quarter, our advanced technology business, which includes HDI, RigidFlex, and RF subsystems and components, accounted for approximately 31% of our revenue. This compares to approximately 28 percent in the year-ago quarter and 31 percent in Q1. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities in new programs and new markets. Capacity utilization in Asia Pacific was 88 percent in Q2 compared to 70 percent in the year-ago quarter and 80% in Q1. Our overall capacity utilization in North America was 49% in Q2 compared to 63% in the year-ago quarter and 55% in Q1 as we added plating capacity in two of our North American sites for the first time in several years. Our top five customers contributed 29% of total sales in the second quarter of 2021 compared to 33% in the first quarter of 2021. We did not have any customers above 10% in the quarter. At the end of Q2, our 90-day backlog, which is subject to cancellations, was $553.1 million compared to $436.6 million at the end of the second quarter last year and $540.5 million at the end of Q1. Our PCB book-to-bill ratio was 1.26 for the three months ending June 28. I'd like to conclude by again thanking our employees for continuing to contribute to TTM and our critical mission of inspiring innovation with our customers. Despite the raw materials and labor-related challenges we are facing, our business performed better than we expected as a direct result of our employees and our supply chain partners concerted efforts to support TTM and our customers. Now, Todd will review our financial performance for the second quarter.