TTM Technologies, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technology's first quarter 2022 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'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. As a reminder, this conference is being recorded today, May 4th, 2022. Samir Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's disclosure statement.

Thank you, Danielle. 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 as of 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 disclosure 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 the 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 will refer to during our call. I will now I'd like to turn the call over to Tom Edmund, TTM's Chief Executive Officer. Please go ahead, Tom.

Thank you, Samir. Good afternoon, and thank you for joining us for our first quarter fiscal year 2022 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our first quarter results, followed by a summary of our business strategy. Todd Schill, our CFO, will follow with an overview of our Q1 2022 financial performance and our Q2 2022 guidance. We will then open the call to your questions. The quarter's highlights are also referenced in slide three of the investor presentation posted on TTM's website. In the first quarter of 2022, TTM delivered revenues at the high end of guidance and non-GAAP EPS above the midpoint of guidance. Despite a challenging supply chain and labor environment, and the continued impact that COVID-19 is having on our operations. Revenues were up 10.4% year on year as commercial end markets performed better than we expected. Our employees did an excellent job of maximizing production despite ongoing operational headwinds, including supply chain constraints for ourselves and our customers, inflationary pressures, and continued labor challenges in North America. During the first quarter, we mitigated virtually all of the material price increases through additional cost savings, adjustments in mix, and product price adjustments. Last quarter, we discussed the pay adjustments that we plan to make during the first quarter of this year in North America to increase our competitiveness. We have seen a general improvement in our ability to attract and retain talent, though the continued tight labor conditions remain challenging. The price increases that will offset these higher compensation costs are still anticipated to have a positive impact on our margins through the balance of the year. I would also like to update you on our COVID situation. COVID-19 impacted our employee base with increased rates in North America earlier in the year. During the quarter, the higher infection rates experienced by employees in our facilities naturally resulted in higher levels of employee quarantines, which, along with the general labor shortages, contributed to production inefficiencies and capacity constraints in North America. In Asia Pacific, we saw similar COVID-related disruptions in two of our smaller facilities in Hong Kong and Shanghai. But this was more than offset by stronger growth from our larger Asia Pacific facilities in southern China. Our long-term strategy remains unchanged. TTM is on a journey to transform our business to be less cyclical and more differentiated. As part of this strategic transition, On April 18th, we announced the acquisition of Telephonics for $330 million in cash. Over the past several years, TTM has consistently emphasized that a key part of our strategy is to add value to product solutions that we deliver to our customers, particularly in the aerospace and defense market. In 2018, we closed the acquisition of Anarin, which broadened TTM's product portfolio into highly engineered RF components and sub-assemblies, as well as adding critical RF engineering capability and resources. Telephonics builds on Anorin and TTM's customer-driven culture and disciplined approach to manufacturing by further broadening TTM's aerospace and defense product offering vertically into higher-level engineered system solutions and horizontally into surveillance and communication markets while strengthening our position in radar systems. The transaction is expected to close by the end of the second quarter of 2022 and is expected to be immediately accretive to non-GAAP EPS. Adding another element of our differentiation strategy, on March 1st, we announced that we will open a new state-of-the-art, highly automated PCB manufacturing facility in Penang, Malaysia. The decision to build this new factory is a direct response to our customers' increasing concerns about supply chain resiliency and regional diversification, and in particular, the need for advanced multilayer PCB sourcing options in regions outside of China. The new facility in Malaysia will assist customers in our commercial markets, such as networking telecom, data center computing, and medical, industrial, and instrumentation. I had the pleasure of attending the groundbreaking ceremony on April 25th, where I had an opportunity to thank the local and national governments in Malaysia for their support and our customers for recognizing the long-term value of this facility in improving supply chain resiliency. Now I'd like to review our end markets, which are referenced on page four of the investor presentation on our website. The aerospace and defense end market represented 30 percent of total first quarter sales compared to 35 percent of Q1 2021 sales and 30 percent of sales in Q4 2021. We continue to experience a positive defense climate with our A&D program backlog at $768 million compared to $694 million a year ago. The solid demand in the defense market is a result of a positive tailwind in defense budgets and our strong strategic program alignment and key bookings for ongoing franchise programs. The fiscal year 2022 Omnibus Appropriations Bill was signed into law on March 15th and provides for approximately 4.5% year-on-year growth in defense spending. In addition, the White House request for fiscal year 23 defense spending shows growth of approximately 4% over the fiscal year 2022 enacted budget, and is the largest proposed budget to date. During the quarter, we saw significant bookings for the AN-TPS-80 Ground Air Task Oriented Radar, or GATR, and the RSS SkyNet programs. We expect sales in Q2 from this end market to represent about 31% of our total sales. This does not include any contribution from telephonics as the acquisition has not yet closed. The medical industrial instrumentation end market contributed 21% of our total sales in the first quarter compared to 17% in the year ago quarter and 19% in the fourth quarter of 2021. The MI&I market set a new quarterly record as it was up 33% year-on-year, exceeding $100 million in revenue for the fourth quarter in a row and performing much better than expectations as we saw broad-based strength across all segments. For the second quarter, we expect MI&I to be 19% of revenues with a continued strong demand environment. Automotive sales represented 20%. of total sales during the first quarter of 2022 compared to 18% in the year-ago quarter and 19% during the fourth quarter of 2021. Automotive grew 21% year-over-year and also exceeded $100 million. There continues to be strong demand for automotive PCBs, but the combined impact of supply chain disruptions caused by COVID, the Ukraine-Russia conflict, and semiconductor shortages are all impacting automotive OEM production. In the near term, demand remains above our available capacity, particularly in the second quarter as our largest automotive PCB facility production levels will be slightly impacted by new equipment installations and downtime for scheduled facility maintenance. As a result, we expect our automotive PCB business to contribute 18% of total sales in Q2. Sales in the data center computing end market represented 16% of total sales in the first quarter compared to 14% in Q1 of 2021 and 15% in the fourth quarter of 2021. This end market was up 27% year on year due primarily to growth from our data center customers. We expect revenues in this end market to represent approximately 17% of second quarter sales as strong data center demand continues to drive year-on-year growth. Networking communications accounted for 13% of revenue during the first quarter of 2022. This compares to 15% in the first quarter of 2021 and 16% of revenue in the fourth quarter of 2021. We saw relative strength on a year-on-year basis in networking as compared to telecom as we continue to allocate capacity for high layer count boards to our data center computing and networking customers. In the second quarter, we expect this end market to be 14% of revenue as networking continues to grow. Next, I'll cover some details from the first quarter. 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 33% of our revenue. This compares to approximately 31% in the year-ago quarter and 31% in the fourth quarter. 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 in new markets. Capacity utilization in Asia Pacific was 85% in Q1 compared to 80% in the year-ago quarter and 88% in Q4. Our overall capacity utilization in North America was 46% in Q1 compared to 55% in the year-ago quarter and 50% in Q4. This lower rate was caused by the additional plating capacity that we added in North America during the quarter and the challenges posed by COVID-19 absences and direct labor shortages. The quarterly decline in capacity utilization in Asia was due to the Chinese New Year holiday. Our top five customers contributed 33% of total sales in the first quarter of 2022 compared to 32% in the fourth quarter of 2021. We had one customer above 10% in the quarter. At the end of Q1, our 90-day backlog, which is subject to cancellations, was $605.3 million compared to $540.5 million at the end of the first quarter last year and $597.2 million at the end of Q4. Our PCB book to bill ratio was 1.14 for the three months ending April 4th. Our backlog is higher than our revenue forecast due to uncertainty around both labor and supply chain challenges for our customers and ourselves. I'd like to conclude by again highlighting the significant strategic moves that we made in the quarter. with the announced investment in Malaysia and the telephonics acquisition, both of which will further differentiate TTM. I also want to thank our employees for continuing to contribute to TTM and our critical mission of inspiring innovation for our customers. Despite the inflationary pressures 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 first quarter. Todd?