TTM Technologies, Inc.

Q4 2021 Earnings Conference Call


spk_0: good afternoon ladies and gentlemen thank you for standing by and welcome to t t m's technologies fourth quarter two thousand and twenty on financial results conference call during today's presentation all parties will the analysts and only mode falling the presentation the conference will be open for questions you may ask a question my pressing star one on your touchstone telephone star one for quo june
spk_1: as a reminder this call is being recorded to date february nine two thousand and twenty one smear decide tdm vice president corporate development an investor relations will now review and disclosure statement please go ahead and he before we get started other like remind everyone that today's call contained forward looking statements with them a meeting of the private securities litigation format nike ninety five including statements related to teach him speaker business at actual results to differ materially on the board looking statements did to one or more with an answer needs including the packers plane the more recent annual port on one tenth day and are other filing to the securities and exchange commission before looking statements are based on management expectations and assumptions as of the date of his presentation t amp does not undertake any obligation to publicly update or revise any of these damon it's weather as a result of new information future events were other circumstances except as required by law please refer to the disclosures regarding the with that may have that tpm which may be found in the reports on porn ten k ten que ha the registration statement on one as for and the other fcc filings we will also discovered this concert non get financial measures such as adjusted even are such measures should not be considered as a substitute for the measures prepared and present it in accordance with gap and we direct you to the reconciliation and on the have to get measures included in the company's prosper least which is why would the every seat and is available on t team's website w w
spk_2: w dot tcm dot com we have also posted on a website a slide that which will for to during our call i will now turn the called over the tom admin pts chief executive officer please go ahead some thank you for mayor good afternoon and thirty producing us for a fourth quarter of fiscal year twenty twenty one conference call i'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results followed by a summary of our business strategy godzilla or the of all will follow with an overview of argue for twenty twenty one financial performance and are q one twenty twenty two guidance we will then open the called your questions
spk_1: in the fourth quarter twenty twenty one pm delivered revenues above the guided rains and non gaap gps at the high end of guidance despite a challenging supply chain and labour environment and the impact of the omega on variant of and nineteen all and market markets perform better than we expected with strong year on year growth led by our commercial and markets these results were achieved despite ongoing operational headwinds including supply chain constrained for ourselves and our customers inflationary pressures and continued labor and logistical challenges in north america resulting in production inefficiencies
spk_2: given the time that raw material prices take to work through our inventory the impact who are cost of goods sold was larger and queue for than and que three but is stabilizing at an elevated level and you one during twenty twenty one be mitigated virtually all of the material price increases through additional cost savings adjustment and mix and product price adjustments
spk_1: however production inefficiencies and labour challenges in north america further exacerbated our costs and output challenges in the fourth quarter and will continue to do so in the first quarter looking into the first quarter we are expecting a sequential decline and revenues and profits do to save malady associated with chinese new year having one last week in the quarter and continued labor is in north america
spk_2: for the full year twenty twenty one excluding divested and close businesses ppm group ten point nine percent with solid profitability despite all the challenges we previously mentioned full year cash flow from operations was one hundred and seventy six point six million dollars and we use part of our cash flow to return capital the shareholders as todd will discuss later this has been and continues to be one of the most difficult manufacturing environments we have ever experienced and i am proud of what our employees of accomplice in the face of these challenges
spk_1: i would also like to update you on the coded situation as you are aware the only grown very up has created another surge of positive gators during the winter in north america as well as other parts of the world at ppm dmr employee population with similar impacted with positive covert cases that continue into que one resulting in employee or in games with along with a general labor shortages contributed to production inefficiencies and capacity constraints in north america in some facilities are absentee rape climb to as much as twenty percent
spk_2: in late january we started to see relief as cases began to subside and are absentee rate started to decline
spk_1: all of our manufacturing facilities have been and continue to be operational like many other companies we continue to see challenges in attracting and retaining labour particularly in north america
spk_2: our employees are paramount to the success or tdm and we actively endeavor to demonstrate their value to our company through a combination of financial and non financial methods
spk_1: we have done a thorough review of our compensation practices and is embarked on a significant initiative to realign are compensation in north america with a goal of being competitive in the labor markets in which we operate these changes will increase our car structure in the first half of the year while improving our labor positioning
spk_2: in the fourth quarter as it became clear that we needed to make these adjustments we announced another round of price increases to our customers
spk_1: given our extensive backlog and contractual commitments we do not expect the full impact of the new pricing to take effect until the second half of the year
spk_2: as a result we expect profitability profitability to improve in the second half over the first half
spk_1: our long term strategy remains unchanged the amazon a journey to transform our business to be less cyclical and more differentiated
spk_2: we believe that over time investors will be rewarded with more stable growth strong cast flow performance and improving margins as part of the strategic transition result are mobility business and twenty twenty
spk_1: we are now able to generate more consistent castillo with are strong set of technologies and broad exposure to longer cycle and market 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
spk_2: as such we continue to invest organically in differentiated products technology solutions from our advanced technology center or have enough business unit and microelectronics businesses looking forward our balance sheet isn't a strong position to further to pursue further acquisitions as well as to support or organic investment need
spk_1: now i'd like to review our and markets all historical and market disclosures exclude the divest mobility business unit and the e m s plants which halted production and december and twenty twenty for more details on and market disclosures please refer to pages four and five of our earnings presentation which is posted on our website the aerospace and defense and market represented thirty percent of total fourth quarter sales compared to thirty eight percent of you for twenty twenty sales and thirty one percent of sales and que three twenty twenty one we continue to experience a positive defense climate with our a in the program backlog at seven hundred and sixty eight million dollars a new record compared to six hundred maybe seven million dollars a year ago the solid demand in the defense market is a result of are strong strategic program alignment and key bookings for ongoing franchise programs we saw significant bookings in the quarter for this bisects i use a radar program and our overall book the bill for a indeed was one point two five we expect sales and que one from the and market to represent about thirty three percent of our total sales
spk_2: for the full year aerospace and defense decreased two point three percent due to significant declines in commercial aerospace and ongoing production inefficiencies in north america
spk_1: we were happy to see the national defense authorization act or nd a for fiscal twenty twenty two signed into law last december providing a roughly five percent increase in top line defense spending
spk_2: in addition the new section eight fifty one of the twenty twenty two and a requires had the department of defense purchase products that contain printed circuit boards manufactured by us suppliers or from us allied countries that are part of the weapon systems and other telecom and data gone or other critical commercial applications used by the department of defense starting in january twenty twenty seven this should provide long term benefits to tdm due to our strong north america footprint
spk_1: in twenty twenty two we expect growth to be in line with market projections of two to four percent driven by the defense side of our business as we expect a slow recovery in our commercial aerospace segment
spk_2: automotive sales represented nineteen percent of total sales during the fourth quarter of twenty twenty one compared to seventeen percent in the year ago quarter and eighteen percent during the third quarter twenty twenty one automotive grew thirty percent year over year we are aware that the shortage of semiconductors has been limiting automotive production but this phenomenon as not directly affected our business since we do not purchase semiconductors
spk_1: however we will continue to monitor the situation closely we expect automotive to contribute twenty percent of total sales in the first quarter for the full year automotive increase fifty one percent and supply and demand rebounded after golden impacts and twenty twenty
spk_2: in twenty twenty one advanced technology was twenty four percent of our automotive and market compared to twenty six percent and twenty twenty
spk_1: while our advanced technology revenues grew forty one percent year on year our standard technologies grew even faster in que one despite chinese new year we are starting the year with solid year on year growth and we expect the market and twenty twenty two to be above longer term for cats have three to six percent the medical industrial instrumentation and market contributed nineteen percent of our total sales in the fourth quarter compared to sixteen percent in the year ago quarter and twenty percent in the third quarter of twenty twenty one
spk_2: the am i and i market exceeded one hundred million dollars in queue for revenue and performed a much better than expectations as we saw a broad based strength across all segments for the first quarter we expect am i and i to be eighteen percent of revenues with a continued strong demand environment
spk_1: for the full year and i and i grew eleven percent following twelve percent growth the previous year well above trendline for two years in a row due to strengthen our industrial customers in particular in twenty twenty do we expect growth to be in line with the through the four percent forecasts as the segments see moderated demand following the extraordinary strength of the past two years networking communications accounted for sixteen percent of revenue during the fourth quarter of twenty twenty one this compared to sixteen percent in the fourth quarter of twenty twenty and sixteen percent of revenue in the third quarter of twenty twenty one we saw relative strength on a year on year basis in networking compared to telegraph as the five the build out in china continues to be weak and as we made several strategic decisions views are higher layer count capacity for data center and key networking customers and you on we expect this and market to be thirteen percent of revenue as telecom demand continues to be soft and do to supply constraints and networking for the full year networking communications declined zero point three percent with strengthen networking offset by weakness in telecom we expected market to grow but be below the longer term forecasts of five to eight percent growth and twenty twenty two you to the anticipated soft starred in the early part of the year sales in the data center computing and market represented fifteen percent of total sales in the fourth quarter compared to thirteen percent and keyboard twenty twenty and fourteen percent in the third quarter of twenty twenty one this and market was up thirty four percent year on year due primarily to grow from our data center go summary we expect revenues and as and market to represent approximately fifteen percent of first quarter sales as strong data center demand continues to drive year on year growth
spk_2: for the full year data center computing grew twenty five percent as we saw growth across our data center customers
spk_1: and twenty twenty do we expect to be above the forecasted and market growth of one to three percent driven primarily by data center growth next cover some of the details of the fourth quarter all of the following operates and metrics exclude the mobility business unit and the to m plants that we closed this information is also available on page five of our earnings presentation during the quarter or advanced technology business which includes age the i rigid flex microelectronics and rf subsystems and components accounted for approximately thirty one percent of our revenue this compares to approximately thirty one percent in the year ago quarter and twenty nine percent in two three we are continuing to pursue nypd new business opportunities and increase customer design engagement activities that will leverage are advanced technology capabilities and new programs and new markets capacity utilization in asia pacific was eighty eight percent in do for compared to sixty three percent in the year ago quarter and ninety one percent in two three our overall capacity utilization in north america was fifty percent in queue for compared to fifty eight percent in the year ago quarter and fifty percent in que three
spk_2: our top five customers contributed thirty two percent of total sales in the fourth quarter of twenty twenty one compared to twenty eight percent in the third quarter twenty twenty one
spk_1: we had one customer above ten percent in the quarter at the end of two for our ninety day backlog which is subject to cancellations was five hundred ninety seven point two million dollars compared to four hundred and eighty three point nine million dollars at the end of of the fourth quarter last year and five hundred ninety four point eight million dollars at the end of june three our pp be buffed the bill ratio as one point two zero for the three months ending january third
spk_2: our backlog is higher than our revenue forecast you to uncertainty around both labor and supply chain challenges for our customers and ourselves i'd like to conclude by again banking our employees for continuing to conceded to tdm and are critical mission of inspiring innovation with our customers
spk_3: despite the raw materials and labor related challenges we are facing our business perform better than we expected as a direct result of our employees and our supply chain partners concerted efforts to support tdm and our customers now tabular view our financial performance for the fourth quarter not based on and good afternoon everyone i'll be reviewing our finance results of the fourth quarter and some highlights for the year which are also shown in the press release distributed today as well as on slide seven of our earnings presentation which posted on our website for the fourth quarter net sales were five hundred and ninety eight point one million dollars and thirty five hundred and twenty three point eight million dollars from continuing operations in the fourth quarter of twenty twenty the year over year increase in revenue was due to strong growth in our commercial and markets which more than us that a modest decline in our aerospace and defense and market due to commercial aerospace softness and production challenges in north america in addition there was a headwind when the closure of our to him as facilities which generated twenty three point seven million dollars in revenue in the year ago quarter and know revenues in the current your quarter excluding the impact of the a mess closures revenues of our ongoing business good nineteen point six percent year on year for the full year revenues to ten point nine percent driven by our automotive data center computing and medical industrial and instrumentation and markets
spk_2: both the fourth quarter in the full year twenty twenty one numbers include an extra week when compared to the comparable period and twenty twenty that extra week contributed approximately forty two million dollars of revenue gap operating income for the fourth quarter of twenty twenty one was thirty three point one million dollars compared to twenty nine point two million dollars in the fourth quarter of twenty twenty
spk_3: on a yeah faces net income for the fourth quarter of twenty twenty one was a point four million dollars or eight cents per diluted share this compares to net income of thirty nine million dollars or thirty four cents per diluted share in the fourth quarter last year the remainder of my comments or focus on are not get financial performance or not get performance excludes or divest mobility business units non retain tax items am in a related costs be suffering cause certain noncash expense items and other unusual or infrequent items that now and get financial information to enable investors to see the company to the eyes of management and to facilitate comparisons with expectations and prior periods
spk_2: gross margin in the fourth quarter was sixteen point seven percent compared to seventeen point five percent in the fourth quarter of twenty twenty
spk_3: the year on year decline was largely due to labor and production challenges in north america during the quarter we get experienced significant material cost increases while we were able to substantially mitigate the prophet impact of those increases to customer price increases and manufacturing efficiencies selling a marquee it's nights was fifteen point six million dollars in the fourth quarter or two point six percent of net sales versus fifteen point two million dollars or two point nine percent of net sales a year ago fourth quarter gain expenses was thirty point four million dollars or five point one percent of net sales compared to twenty four point four million dollars or four point seven percent of net sales and the same quarter a year ago in the fourth quarter of twenty twenty one aren't he was four point eight million dollars or zero point eight percent of residents compared to four point six million dollars or zero point nine percent in the year ago quarter
spk_4: are operating margin in queue for was a point two percent is compared to nine percent in the same quarter last year
spk_3: interest expense was eleven point two million dollars in the fourth quarter a decrease of zero point four million dollars from the same quarter last year due primarily to lower levels of debt as we we pay our two hundred and fifty million dollar convertible bonds in december of twenty twenty partially offset by the extra week of expensive the current quarter during the quarter there was a negative two point five million dollars for an exchange impact below the operating line government incentives an interesting can reduce this to a negative one point one million dollars or one said impact on e p s this compares to a lot of one point nine million dollars or two cents a dps and queue for of last year
spk_2: i effective tax rate was one point six percent of the fourth quarter resulting in tax expensive zero point six million dollars this compares to attack benefit in the prior year six point four million dollars or six cents per share
spk_3: fourth quarter net income was thirty six point two million dollars or thirty four cents per diluted share this compares the fourth quarter twenty twenty net income of forty point two million dollars or thirty seven cents per diluted share for the full year net income was one hundred and thirty eight million dollars or one dollar twenty eight cents per diluted share compared to one hundred and sixteen point seven million dollars or one dollar and ten cents per diluted share last
spk_2: year
spk_3: adjusted even after the fourth quarter was seventy point four million dollars or eleven point eight percent of net sales compared with fourth quarter twenty twenty adjusted ebitda sixty eight point two million dollars or thirteen percent of that sales depreciation for the quarter was twenty two point two million dollars net capital spending for the quarter was nineteen point five million dollars ask well from operations was sixty two point four million dollars and for the full year cash flow from operations was one hundred and seventy six point six million dollars or balance sheet and liquidity positions remain very strong cash and cash equivalents at the end of the fourth quarter of twenty twenty one or five hundred and thirty seven point seven million dollars in our net debt divided by last twelve months he but that was one point four
spk_2: during the fourth quarter we be purchased two point two million shares of our common stock and our previously announced one hundred million dollar stock repurchase program at an average price of thirteen thousand forty seven cents per share for a total out expenditure of twenty nine point six million dollars
spk_3: for the year we've spent a total of sixty four point six million dollars for stock repurchases to buy back four point seven million shares now i'd like to turn our guides for the first quarter as time stated earlier our first quarter sees normal seasonality associated with chinese new year and this year the first quarter has one last week than our fourth quarter in addition we are adjusting the compensation for employees in north america to approve our competitiveness while we are increasing prices to balance these higher costs even increases won't have a significant impact until the second half of the years we work through our existing backlog given that we expect total revenue for the first quarter of twenty twenty two to be in the range of five hundred and forty to five hundred and eighty million dollars and we expect non gaap earnings been the range of twenty to twenty six cents per diluted share pps forecasts is based on a diluted share account of approximately one hundred and five million shares or share count guides includes the loot of security such as options in our shoes but no shares associated with are more it since all of those who settled now we expected as dna expense will be about eight point five percent of revenue in the first quarter and rd to be about zero point nine percent abrupt him we expect interest expense to total approximately eleven million dollars and finally we estimate are effective tax rate to be between twelve and eighteen percent to assist you in developing a financial models we offer the following additional information during the first quarter we expect recording amortization of intangibles of about nine point seven million dollars stock based compensation expensive about four point eight million dollars noncash interest expense of approximately zero point five million dollars and we estimate appreciate expanse will be approximately twenty one point three million dollars
spk_0: finally i'd like to announce that we will be participating virtually and the cowan aerospace and defense industrials conference tomorrow and the jp morgan i yield and leveraged finance conference on march first that concludes are prepared remarks the not like to open a life to questions keep
spk_5: thank you ladies and gentlemen if you like ask a question you may do so by pressing star one on your telephone keypad please make sure the me fortunate turned off to lie your single to reach our equipment star why for questions what part moment omitted symbolic you
spk_3: we'll take our first question from ronnie perjury with smbc nico securities please go ahead yeah thank you and thanks to dig my question and a great job on the corner guy so i guess the not taught or tom as we look out to the first half your garden for profitability did decline which is not a surprise given the cost inflation the to talked about but as you're going to second half are you did mention that deny your price increases will kick in and do have a target profitability as we go to the second half and day know how long it might take in a for you to get back to whatever kind of the normalize radius out out or outright answer that and time can add to it if you feel so inclined but don't let me just go back and talk about where we declare with come from right in twenty twenty one very very challenging year with all the material cost increases supply chain challenges that we witnessed we had a lot of growth in the cost of our materials that go into our product and we worked very hard we talked about this over the last few quarters to a to mitigate added to adjust our pricing model we talked extensively about how we do that and i'm pleased to say that week we've pretty well gotten their here by the end of the year which was our our hope and expectation only to find now that labour is raising its head from an inflation perspective and we're having to deal with that have we taken actions we've been proactive on this one but as noted are backlog is going to take a little bit of time to work through and so those price increases really don't become effect of until later in the year so we're going to have a we're going incur the cost inflation starting and que one but later in the year we expect see to have that mitigated through a pricing as well as ongoing initiatives that we have internally to be more efficient
spk_2: we saw it in terms of expectations your we are looking to get back to a more normal position later in the year the absence some other
spk_1: you know unforeseen circumstances but we've been to a lot last year's time highlighted and and our team has done a really good job of fighting through all of those who and we have a little bit more to go up i think we seen what we need to do at this point we have a plan that will get isn't a much healthier position by the second half of the year
spk_2: yeah and and the only thing i'd add your thing to get a little bit more our on on the the labour a the that we will be taking
spk_1: this is actually part of a have a longer term profit that we launched the after the yeah the and or an acquisition
spk_2: we we began on a project related to the leveling and global leveling of our organization are compensation and as well as and responsibilities and making sure that we had we had strong global of i as an outgrowth don't have that process when we're now looking at it into a to north america where we need the make that adjustment
spk_1: and those adjustments designed to the really bad to make sure ensure that ppm is competitive in competitive for the long term not but i do on i like this has been a process in terms of of looking at our overall levels ah we're excited about this where we stand on this project
spk_5: the implementation fave now coming up i am dumb and then being able to offer employees a much better defined road map in terms of of career development that offers them global opportunities so it was really is i you know it it's a it's a big move on our on e t m's part something that gun other we're excited about
spk_2: got it that have no makes total sense and then the one question about been again pricing in a potential price increases of out suspect that that will have some impact are some beneficial impact on your top land growth as well as we're going to second half and hour when i look at your annual guidance my segment day doesn't look like you're changing a whole lot here generally know can just with what you've been telling yourself you just curious and are just being a somewhat conservative here given the potential price increases as are going to second half what yeah what i would what i would say there and and i'm yeah i'm i'm the as as we thought through the the and market center later in the call will go through this but if if you certainly you know we've read benefited from from strong growth is this past year
spk_1: i'm being at that real close to eleven percent level as certainly a a little of a portion elaborate price adjustment related in but got that also really driven by our customer demand and and i have to say by are are particularly are asia
spk_2: his side of the house and and the ability to maximize our blood there
spk_1: as we as we look at this here you know i think you're right to point out that
spk_6: we we we really don't in you know incorporate them that that pricing adjustments as much as we will get real demand
spk_0: and die and so we're still excited of gonna be looking at it as situation i think it you know if you're looking at again returning to that solid mid single digit growth rate which is given our mix of visitors were we where we'd like to be traditionally cut particular coming off of an elevated growth here
spk_7: help
spk_8: again yeah i think you know there there's group potentially a portion of of that that were missing than but really solid growth that that that we for see her got it thanks and good luck thank you
spk_1: we'll take our next question from gym or shooting with enemy company please go ahead i have
spk_2: good afternoon i'm wondering if if you're seeing any sub putting aside the them the labour challenges i'm wondering if you're seeing any signs of toss stabilizing
spk_1: in other areas of the business or is this still a case where you may be having to to react as you go through the next one to two quarters and potentially have to take other pricing actions yeah so you know jim as i think we've been we we have we have seen a stabilization and that the the material prices generally stabilizing at high levels
spk_8: this last quarter we we did see some increase in some of it the chemical related in britain in iraq china from facilities we worked our way through that when we had reduce heat elevated electricity costs here in the and the winner again primarily and in china
spk_1: but does it but those are relatively minor compared to you know laminate
spk_2: dilemma situations courses are major ah raw material and and an overall i would say that again high levels levels that we certainly hope will come down over time but that but at least a stabilizing trend there
spk_1: and tama use in light of of the moving parts to the business is still within the next couple of quarters and and some the actions you taking up he you what what can you say about some of the winter activities you might be pursuing on the i'm in a snide sure i can you know continuing to to work that that side of that i have our strategic direction and and the what i can say is over all the pipeline process we haven't played
spk_0: still very active and i and die and gestured to reiterate our the strategic themes there were still looking at her to bolster our footprint on the outside of china north america looking at what we might be able to do in europe what we might be able to do in southeast asia and then also and i looking at are particularly or rf
spk_8: position strengthening our our i aerospace and defense business primarily in that area i is another major priority as are those those priorities remain very much in place
spk_9: interesting you know that with the the market moving
spk_2: you know we are in a period of a little bit of a volatility ah but but i'm hoping that that also means that that were going if he you know some more i would say a fine you know the from evaluation standpoint realistic valuation expectations as we go forward
spk_1: thanks
spk_2: as a reminder star one for questions please star one we'll take our next question from my crawford would be rightly securities please go ahead
spk_1: and thank you just a follow up on them and a question given that twenty billion dollars intel invest in fads in ohio and and other other lillian's building out us but this how does that change your cat us regarding your own footprints in the us right yeah
spk_2: so so if you think they're at the i think first of all we we love our position and in the in north america and and as you know my good sir your the position that we that we use both were defense customers they'll and and i would say primarily for defense customers but also for some of the prototype thing and and pilot production requirements of our commercial customers particularly and me am i i area guy and then also in that computing and communications by area and so so now you start fast wording to do a time as as we started to see restoring initiative occur with our customer base
spk_1: we will be pursuing absolutely i that the dialogue around their requirements in north america
spk_10: and i'm and die and and that will be an effort that we that we continue going forward
spk_8: that requires and understanding on our customers part that there is a differential a cost differential even with the more advanced capabilities around printed circuit boards and a with the material supply in infrastructure being primarily in asia or there is in there is a cost differential associated with production in north america as i mentioned in a in my comments that the fact that the nd a game came through with as early an emphasis on outlets a non china production
spk_2: and as we go forward with potential interest and as obliging resiliency from our customer base i think we're we we're going to start seeing and a shift in views in regards to north america production
spk_1: but i will tell you that that you know that comes with an acceptance of lot of cops differential and done so active you know discussions there will continue and guy and he will will see where it takes us
spk_2: and thanks
spk_1: time him and then i know you mentioned the rs ah or for our nation defense but you also talk about ah yeah highway or cow capacity in north america already been somewhat added allocated similar strategic verticals the that they it they will be some room to add to that i
spk_2: layer go position north america that is that to occur in total investment or right so so when when when we talk about
spk_1: the that demands artwork for data center customers i and for for networking customers he really i looking at that that high layer count
spk_2: requirement
spk_8: and die and you're right we had we had to make the add some allocation decisions not just around north america really around our total capacity and dad those are those are difficult on the other hand we have a priest you know clear strategy around am continuing to do to move toward
spk_2: the hire more advanced technologies the higher layer count requirements the and self let them point where we've we've been shifting i is towards markets and towards customer needs associated with that now that's being driven by new chipset primarily new chipset demanding more than circuitry to support our those tips and so we expect that randy continue as it relates to where do we put that capacity yeah absolutely again if we if we see the know it an american component become more and more important than it and if our customers
spk_1: really need to see that capacity for an automated capability that and and are willing and and understand the cost differential then at that point yeah that makes in north america makes sense in the meantime other reasons may make sense as well as to service oh supply chain resiliency requirement so yeah i think you know absolutely that will continue to look at the footprint as as we look at supporting their customer base they do them last question is if you have this up production a record matchmaking track in the automotive vertical that was it like standards when i know in your program and wales and twenty twenty the of that number for twenty one i sure do
spk_11: yeah so i as we as we look at the at automotive let me give you just some of some of the numbers for know
spk_0: the most recent quarter
spk_5: so we we had the total let's see just wanna make sure i get my numbers right as so he had twenty six design wins one hundred and forty six million dollars i in queue for
spk_12: that compares to other than the previous year we had dug thirty five design went that only eighty one million dollars
spk_13: and so great you know very very strong quarter now if you step back and you say okay let's look at that fiscal year metric hundred and forty seven design wins for about five hundred and thirty two million dollars that compares to an even stronger twenty twenty which was at tom six hundred and twenty
spk_12: nine million dollars i and then eighty thousand and nineteen figure that was at four hundred and seventy five million dollars so what we're seeing or what we saw in the past year
spk_5: in automotive growth that portion of that is these programs that we won in two thousand and nineteen and two thousand and twenty coming out beginning their production allies and what we will see in this coming year is twenty twenty and twenty twenty one feeding into of this coming years we as
spk_3: the our customers move into production as oh it's a nice days to be opposition from for fisher
spk_8: late thank you very much
spk_2: like like
spk_3: we'll take our next question format sharon was steeple please go ahead
spk_8: ah yes thanks i can afternoon
spk_3: i just a follow up questions are particularly on on the the gross margin it
spk_2: how should we think about again i know if this was asked earlier but as we get through the year
spk_5: you've got the
spk_2: because you're passing along sounds like material raw material prices are starting to stabilize
spk_12: we could we expect i'm a margin it's gross margin expansion in the back half of versus the back half of siskel twenty one
spk_14: matt
spk_2: challenging question cause it's hard to project that far out
spk_1: the what kinda them let me help calibrating a little before you
spk_2: and for everybody else for that matter i remember que one hears were given guides for is always are seasonally low quarter of the year because of chinese new year and the last production and efficiencies with that right to that's something yeah to keep in mind year over year so certainly would expect you want to be the lowest point of the year i'm in if you look at our pattern last year it was it was consistent with that nesbitt for several years the big issue that we ran into that we're seeing and queue for that we're addressing that will impact isn't the first half of this year from a negative standpoint is really the north america labour situation a time nicely described kind of the whole process that we're going through their just a sense of anger to the know a queue whining in in a fourth quarter that challenge impact as by about one hundred basis points and a q one that will impact as more the closer to neighborhood of one hundred hundred twenty two hundred fifty basis points so
spk_1: if we are able to solution which we believe have a plan in place where executing that planet you know that that gives you some sense of of mitigating that that particular issue now there's a lot of other factors at play into margins you overall volume and revenue growth during the air and other things that can be favorable and obviously we hope we can avoid any more
spk_2: those supply chain challenges that would be saying that hurt as a so much in and twenty twenty one so i hope that helps give you a sense of direction at least in the order of magnitude of it's like the challenge the for working through right now
spk_12: kyle and in that some all all had to cards right not as teenage does labor issues and in north america because it's mostly yeah i'm like factory jobs and it essentially yeah i mean there's a minor amount as a but it's really really to minor to talk about yep
spk_1: and i know you you talk about the utilization rate of fifty percent in north american i know it's always significantly below i'm asia or because of the nature of the products that you do with cetera but certainly no well below and where i think he wanted to be what was the optimal level and where do you think you get it between now and the in the end of the year so am i allowed i can i can start out on that one thousand and and then please jump in and supplement the the up
spk_2: that that be where we are good way to think about imaginary risk film where we were last quarter in terms of contribution of north america to revenue tell about forty three percent of our revenues coming out of north america production where we have been after the mobility sale with fifty percent
spk_5: so if you start thinking about a universes utilization that they'd be a better way to think about it we'd like to be yeah with we as we get the young and with this is dependent on labor force but as we started to shore up our labor force and and done and bring labor force into the plants we need to bring that that makes up again the fifty fifty
spk_12: i and that will you know again i think both sell clearly
spk_2: as help around the margin of margin performance sampling because will be utilizing those facilities we liked this he added to answer your question directly as well we'd we'd like to see i'm we like the operating utilization in north america about sixty percent that's that's when the really really move and things that you the plants
spk_0: whether i'm explore volume approach and i and if we get much above yell much dunno levels and we have to start thinking about does expansion
spk_8: yup and in terms of the the impact on the these labor issues on your business i know yeah you talk about some headwinds present a pretty much across all your and markets are mostly areas where you doing i'm like you said that are hi max your lower volume your more complex stuff here the u s like mill arrow or or is it across the board were you doing like and p i for ago networking for instance yeah yeah so the biggest wait at actually aerospace and defense records one hundred percent of as north america for dad
spk_15: you are not a hundred but it's very close if we do a little bit of commercial aerospace and in china but been done by far you know about ninety percentage in north america than the other him and market that that affected by this is hi i am i i am aggies the we have several facilities that does that service them than the and my i market i'm and die and that namely a quick turn out early development
spk_2: i'm market and also sort of a a niche market if you well for some of the obligations so so that the market that that is dependent on north america production and then the and and then a little they're going into data center and and that garment that primarily are are chippewa falls facility which
spk_1: he also so fairly small part of the north america footprint okay and just lastly i mean you're positive commentary on on the the data center sounds like you've got really good growth eric you're saying am you expect to be above market by think you're your market growth is in serve load amid single digits would you expect to do much better than that given the backlog and given the growth we've seen at those customers
spk_2: we've we've certainly would expect her to i'm to do to do much better than their that that wonder three percentage of it because it's the most visibility we have to the and that market growth is do i do the prince mark forecasts and they include laptop
spk_16: i and death that monitors in that and that that area so that always put a damper on i got a data center clearly growing and higher rates yeah ok are great thanks a lot
spk_1: thank you we'll take our next question from christian shrub that great helen capital group please go ahead
spk_2: could you help us understand the wait inflation and
spk_8: in north america in a will were you paying our the labour you know in a blender they know by geography would be wildly different but just to give us a rough idea
spk_17: prepared with you
spk_8: and now which are paid for basis
spk_1: maybe i can i can help characterized that way i think you know again we we are the the move were making is really and
spk_2: the context of of the structural changes we need to make in our in our overall compensation so so it is you know it's more than just the those darting day or distorted or simply the data that to the workforce but having said that you know you seen the overall numbers letting lately i have five percent is that the number i've been seeing for
spk_1: for inflation this past past year in terms of pay out but when i can tell you is for it for an hour early workforce it's essentially above that and and we've been you know seeing more north of ten percent kind of the increases i ordered over and over time or you
spk_2: oregon of you go back a year on year compare and so
spk_1: yeah substantial and i you know daily again from a starting wage standpoint i thank you overall you feel a manufacturing moving from what leather on average let's just say a fifteen dollar per hour kind of payscale to closer and closer to add twenty dollar level
spk_2: so the a young there has been a major move there for sure
spk_1: have you seen any pushback from any of your your customers air or as your order book or backlog you know
spk_18: for future revenue based and price increases do do you know that only raw materials but obviously increases and labor costs have you seen any pushback from customers on that
spk_2: then i have yet to run into a customer that is really that is really satisfied with us when we when we increase praising the fifth month happening at a he said bath having their that
spk_8: the yeah i think the the the reasons were doing that
spk_18: i well documented the the you know the the raw material inflation that with had to deal with
spk_2: the labour situation well understood by the customer base of there are programs that that customers
spk_1: choose to him to move away from us had volume if if you know the particularly if they don't see equivalent kind of price movement from our competition on the commercial side but frankly given where our utilization rates are for our commercial business and and and given now this the strength of the and market demand this this is sort of a time where where you actually it can be
spk_2: a bit of a relief depending on the program so when i would say is absolutely we've we've had a you know push back in around price increases but also a general understanding of the environment that we are you in right now
spk_0: yeah that makes it
spk_2: last question and utilization rate north america which is is is no
spk_1: sounds relatively very low but given some of the complexity of some of the programs you know he is could you operate those facilities at one hundred percent utilization or is one hundred percent utilization really seventy five or eighty per se utilization
spk_0: right yeah so so

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