TTM Technologies, Inc.

Q1 2022 Earnings Conference Call

5/4/2022

spk_0: good afternoon ladies and gentlemen thank you for standing by welcome to the t t m technology of first quarter twenty twenty two of financial results conference call during to the his presentation all parties will be analysts and only mode following the presentation by conference will be open for question if you buy to ask a question please signal by pressing star one on your telephone keypad if you're using a speaker phone please make sure your new function as turned off to allow your signal to reach our equipment as a reminder that conference as being recorded today may fourth twenty twenty three samir defy p ends vice president of corporate development and investor relations will now reviewed ppm disclosure statement
spk_1: break your the danielle before we get started i would like to remind everyone that through paul to pay it forward looking statements with than a meeting of the private securities litigation with one act of ninety nine be barred including statements related to tedium speech your business outlook actual results to differ materially from the forward looking statements to the one or more with room for the including the back to his blame their most recent annual port on one ten k and other plans with the securities and exchange commission before looking statements are based on there's with expectations and assumptions as of the date of the conclusion tpm does not undertake any obligation to probably have their own lives and release date of there as a result of new information be to events for other circumstances except as required by law please refer to the closer regarding the risk that may affect tpm which may be found in the reports on one can carry can queue a carry the legislation statement on form of war and the company's other everything filings you will also discuss on the call certain non gap financial measures such as adjusted ebitda such measures should be considered not should not be considered as a substitute for them that has prepared and presented in accordance with gap and we direct you to the reconciliation of the non up to get measures and quoted in a company's pressure leave with was filed with the fcc is available on t v m website at www dot e d m dot com we have also posted on a website as like that which we will refer to during all call i will now a likely to end the call over to tom adnan tedium chief executive officer please go ahead tom budget summer good afternoon and thank you for joining us for a first quarter of fiscal year two thousand and twenty two conference call
spk_2: i'll begin with a review of our business highlights from the quarter of a disgusted of our first quarter results followed by a summary of our business strategy todd solar ceo will follow with an overview of our q one twenty twenty two financial performance and or two to twenty twenty two guidance we will then open the call your question the quarter highlights are also referenced in flight three of the investor presentation posted on t t m's website in the first quarter twenty twenty two tdm delivered revenues at the high end of guidance and non gaap he abs above the midpoint of guidance despite a challenging supply chain and the labour environment and the continued impact of that coven nineteen is having on our operations revenues were up ten point four percent year on year as commercial and 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 labour challenges in north america during the first quarter we mitigated virtually all of the material price increases through additional cost savings adjustments and mix and product price adjustments last quarter we discuss the pay adjustments the we plan to make their in the first quarter of this year in north america to increase our competitiveness since then we have been a general improvement in our ability to attract and retain valid though the continued tight labor conditions remain challenging the price increases the will offset feet higher compensation costs are still anticipated to have a positive impact on our margins do the balance of the year i would also like the update you on are covered situation coated nineteen impacted our employed gave base will be increased rates in north america earlier in the year during the quarter the higher infection rates experience by employees and our facilities naturally resulted in a higher levels of employee corinthians with along with a general labor shortages contributed the production inefficiencies and capacity constraints in north america in asia pacific we saw similar coded related disruptions in to of are smaller facilities in hong kong and shanghai that this was more than offset by stronger growth from a larger asia pacific facilities in southern china our long term strategy remains unchanged t v amazon a dirty to transform our business to be left cyclical and more differentiated as part of their strategic transition on april eighteenth we announced the acquisition of telephones for three hundred and thirty million dollars in cash over the past several years tdm has consistently emphasize that a key part of our strategy is the add value to products for reasons that we delivered to our customers particularly and the aerospace and defense market in two thousand and eighteen we close the acquisition of an or in which brought him to gm for a product portfolio and you're highly engineered or of components and subassemblies as well as adding critical art of engineering capability and resources tell a phonics builds on and on and teach young customer driven culture and disciplined approach to manufacturing by further broadening idioms aerospace and defense product offering vertically and the higher level engineered system solutions and horizontally and just surveillance and communication markets while strengthening our position and radar systems the transaction for transaction is expected to close by the end of the second quarter of twenty twenty two and is expected to be immediately agreed greeted to non gaap abs adding another element of our differentiation strategy on march first we announced that we will open a new state of yard highly automated beauty manufacturing facility in penang malaysia the decision to build his new factory is a direct response to our customers increasing concerned about supply chain resiliency and regional diversification and in particular the need for advanced multilayer ppb sourcing options in reasons outside of china the new facility in malaysia will assist customers and 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 twenty fifth where i had an opportunity to thank the local and national governments and malaysia for their support and our customers for recognizing the long term value of the facility and improving supply chain resiliency now i'd like to review our and markets which are referenced on pace for the investor presentation on our website
spk_1: the aerospace and defense and market represented thirty percent of total first quarter sales compared to thirty five percent of que one twenty twenty one sale and thirty percent of sales and you've for twenty twenty one
spk_2: we continue to experience a positive defense climate with our a and d program backlog at seven hundred and sixty eight million dollars compared to six hundred ninety four million dollars a year ago
spk_1: the solid demand in the defense market is a result of a positive tailwind and defense budgets and are strong strategic program alignment and keep looking for ongoing franchise programs
spk_2: the fiscal year twenty twenty two omnibus appropriations bill was signed into law on march fifteenth and provide for approximately four point five percent year on year growth in defense spending in addition the white house request for fiscal year twenty three defense spending shows growth of approximately four percent over the fiscal year two thousand and twenty two and acted budget and is the largest proposed budget to date during the quarter we thought significant bookings for the am pdf that eighty ground air task oriented radar for gator and the rss skynet programs we expect sales and due to from his and market to represent about thirty one percent of our total sales this does not include any contribution from fellow phonics as the acquisition has not yet closed the medical industrial instrumentation and market contributed twenty one percent of our total sales and the first quarter compared to seventeen percent in the year ago quarter and nineteen percent in the fourth quarter of twenty twenty one the am i and i market set a new quarterly record as it was up thirty three percent year on near exceeding one hundred million dollars in revenue for the fourth quarter in a row and performing much better than expectations as we saw a broad based strength across all segments
spk_1: the second quarter which that am i and i to be nineteen percent of revenues where the continued strong demand environment
spk_2: automotive sales representative twenty percent of total sales during the first quarter of twenty twenty two compared to eighteen percent and the year ago quarter and nineteen percent during the fourth quarter of twenty twenty one automotive group twenty one percent year over year and also exceeded one hundred million dollars there continues to be strong demand for automotive ppv but the combined impact of supply chain disruptions caused by coded the ukraine russia conflict and semiconductor shortages are all impacting automotive oh yeah i'm production in the near term demand remains above are available capacity particularly in the second quarter of our logic largest automotive bpd to philly production levels for be slightly impacted by new equipment installations and downtime for schedule facility maintenance as a result we expect our automotive bpd deserve to contribute eighteen percent of total sales and you too failed in the data center computing and market represented sixteen percent of total sales and the first quarter compared to fourteen percent into one of twenty twenty one and fifteen percent in the fourth quarter of one twenty one this and market was up twenty seven percent a year on year due primarily to grow from my data center customers we effect revenues and this and market the represents approximately seventeen percent of second quarter sales as strong data center demand continues to drive year on year growth networking communications accounted for thirteen percent of revenue during the first quarter funny twenty two this compares to fifteen percent in the first quarter twenty twenty one and sixteen percent of revenue in the fourth quarter of twenty twenty one we saw relative strength on a year on year basis and networking as compared to tell ago as we continue to allocate capacity for a highway or count boards do our data center computing and networking customers in the second quarter respect and market to be fourteen percent 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 an earnings presentation during the quarter or advanced technology business which includes hd i've written flags and are out subsystems and components accounted for a brought in the lead thirty three percent of our revenue this compares to approximately thirty one percent in the year ago quarter and thirty one percent in the fourth quarter we are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage are advanced technology capabilities and new programs and in new markets capacity utilization in asia pacific was eighty five percent into one compared to eighty percent in the year ago quarter and eighty eight percent include for or overall capacity utilization in north america was forty six percent into one compared to fifty five percent in the year ago quarter and fifty percent and queue for the lower rate was caused by the additional plating capacity and we added in north america during the quarter and the towel edges posed by coded nineteen absences and direct labor shortages the quarterly decline and capacity utilization in asia was due to the chinese new year holiday our top five customers contributed thirty three percent of total sales and the first quarter twenty twenty two compared to thirty two percent in the fourth quarter of twenty twenty one we had one customer about ten percent in the corner at the end of que one or ninety day backlog which is subject to cancellations when six hundred and five point three million dollars compared to five hundred and forty point five million dollars at the end of the first quarter last year and five hundred and ninety seven point two million dollars at the end of que for our dvd book the bill ratio is one point one four for the three months and being paid for for or backlog is higher than a revenue forecast voodoo to uncertainty around both labor and supplies him challenges for our customers and ourselves i'd like to conclude by again highlighting the significant strategic moves that we made in the corner when they announced investment in malaysia and a telephonic acquisition both of which will further differentiated yeah i also want to thank our employees for continuing to contribute to gbm and are critical mention of inspiring innovation for our customers despite the inflationary pressures and labour related challenges we are facing our business perform better than we expected as a direct result of i employed and of the blighting partner concerted effort to support to jam and our customers now toggle review our financial performance for the first quarter ton
spk_3: thanks time and good afternoon everybody
spk_2: i'll be reviewing our financial results for the first quarter and are also shown in the press release distributed today as well as on slide six of our earnings presentation which is posted on our website
spk_3: for the first quarter net sales or five hundred and eighty one point three million dollars compared to five hundred and twenty six point four million dollars in the first quarter of twenty twenty one the year over year increase in revenue was due to strong growth in virtually all of our commercial and markets which more than offset a decline in our aerospace and defense market due to commercial aerospace softness and production challenges in north america gap operating income for the first quarter of twenty twenty two was twenty five point nine million dollars compared to nineteen point eight million dollars in the first quarter of twenty twenty one on a gap basis net income in the first quarter of twenty twenty two was seventeen point two million dollars or seventeen cents per diluted share this compares to a net loss of three point two million dollars or three cents per diluted share in the first quarter of last year the remainder of my comments or focus on are non gaps in edge performance and i get performance excludes nine retain tax items am in a related costs restructuring costs certain noncash expense items and other unusual or infrequent i ups we present not 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 first quarter was fifteen point nine percent compared to sixteen percent in the first quarter of twenty twenty one year on year decline was largely due to labour and production challenges in north america
spk_3: partially offset by revenue growth in our commercial businesses
spk_2: during the quarter we get experienced significant material cost increases but we were able to mitigate the prophet impact of those increases the manufacturing efficiencies and other price increases telling and marketing experts expenses seventeen point six million dollars in the first quarter or three percent of that sales versus fifteen point six million dollars or three percent of net sales a year ago first quarter sg excuse me first quarter ne expanse was twenty nine point eight million dollars or five point one percent of net sales compared to twenty six point six million dollars or five percent of net sales in the same quarter last year
spk_3: in the first quarter of twenty twenty two are in d was five point three million dollars or zero point nine percent of revenue compared to four point four million dollars or zero point eight percent in the year ago quarter are operating margin the first quarter was six point eight percent this compares to seven point two percent in the same quarter last year interest expense was ten point eight million dollars in the first quarter changed from the same quarter last year during the quarter there was a positive zero point one million dollars of foreign exchange impact below the operating like government incentives and interesting come increases to one million dollars or a one said impact cps this compares to one point eight million dollar or two said impact in t one of last year
spk_2: are effective tax rate was fifteen percent in the first quarter resulting in tax expense of four point five million dollars this compares to a rate of twelve percent or tax expensive three point four million dollars in the prior year first quarter net income was twenty five point three million dollars or twenty four cents per diluted share this compares the first quarter net income and twenty twenty one of twenty five point three million dollars or twenty three cents per diluted share
spk_3: adjusted ebitda for the first quarter was sixty two million dollars compared with first quarter twenty twenty one adjusted either the of sixty one million dollars depreciation for the quarter was twenty one point five million dollars net capital spending for the quarter was twenty three point four million dollars in cash flow from operations was thirty six million dollars
spk_2: during the fourth quarter we repurchase two point four million shares of our common stock and are previously announced one hundred million dollar stock repurchase program at an average price of twelve dollars and seventy four cents for a total of thirty point two million dollars
spk_3: today we have completed the one hundred million dollar stock buyback program and every purchase a total of seven point five million shares of our stock our balance sheet and liquidity positions remain very strong cash and cash equivalents at the end of the first quarter of twenty twenty two or five hundred and nineteen point one million dollars and our net debt divided by last twelve months either does was one point five we plan to find the three hundred and thirty million dollar acquisition of tell a phonics from our cash balance which would increase our net leverage to two point five times above our target of two times we will likely not increase the stock buyback authorization until our leverage comes back down below two times now i like to turn to guides for the second quarter in the second quarter weeks back stronger revenue globally and improving operating conditions in north america we expect total revenue for the second quarter of twenty twenty two to be in the range of five hundred and eighty to six hundred and twenty million dollars and we expect non gaap earnings to be in the range of thirty to thirty six cents per diluted share this guy's does not include any contribution from the previously announced acquisition of telefonica as we are waiting regulatory approvals prior to closing dps forecast is based on a diluted share count of approximately one hundred and three million shares which includes the loot a securities such as options and are issues we expect es una expense to be about eight percent of revenue in the second quarter and are indeed to be about zero point nine percent of revenue we expect interest expense the total approximately ten point eight million dollars and finally we estimate are effective tax rate to be between twelve and eighteen percent to assist you in developing your financial models we offer the following additional information during the second quarter we expect record amortization of intangibles of about nine point seven million dollars stock based compensation expensive about four point one million dollars non cash interest expense of approximately zero point five million dollars and we estimate appreciation expanse will be approximately twenty one point six million dollars finally i'd like to announce that will be participating in several conferences over the next several weeks starting with the barclays high yield bond and syndicated loan conference on may twenty fourth the jp morgan global technology media and communications conference on may twenty fifth the crag hallam institutional investor conference on june first you be as global industrials and transportation conference on june seventh the baird global consumer technology and services conference on june eighth and asleep or cross sector insight conference on june night that concludes are prepared remarks and now like the open the line for questions daniel
spk_0: thank you once again if you like to ask a question please signal by far one and your telephone keep keypad if you're using a speaker phone please make sure your me a function as turn off color are your thing not every time equipment we'll take our first questions on the line and jan richie uri please go ahead carolina how open
spk_2: hi good afternoon a couple of questions just up first numb gross margins i know there's there's moving parts here boat is it fair to characterize the the key one gross margin as as a trough year because we've got it sounds like a little better mix coming up and queue to with the higher a and the the volume and yeah i don't know if the coven pressures that you alluded to had continued in in areas like china but i'm wondering how it might think about gross margins
spk_4: well
spk_2: all things being equal that the big qualifier right
spk_3: but generally speaking in a cycle now you look at our seasonality que en is always going to be a very challenging quarter primarily because of chinese new year
spk_5: and so that always puts pressure on revenue and and costs to try to work our way through that to that holiday season
spk_3: this year that is
spk_2: a little more pronounced because of the strategy that we implemented regarding compensation in north america it's you
spk_3: increase our competitiveness and in stabilizing our workforce and a tracking new workers into our business and so as i indicated last quarter of the we had this call we were expecting a pretty significant short term hit and que one cause we're implementing these costs and i've estimated those costs to be around one hundred and thirty basis point margin hit and que one on we we also mentioned that we've taken action to mitigate those costs the price adjustments back in december but it'll be a timing issue before those adjustments actually begin to show up in our piano as a result of a pretty significant back and so we have to work through those backlogs before the new pricing really takes effect so you want is definite
spk_2: lee a low mark you see are cute you coming back and you know absence of dramatic shifts in the economy we would expect expected to regain and improve as we go to the year as a result of these price increases starting to take effect more in the second half of the year that it and a question on the yet the new facility going into malaysia first off than a i may have missed it up i'm sure you mention it that when you expect that to have to be up and running and that that the bigger question of that had is just as it relates to the news facility you've talked in a pass that doubt introducing more automation into your facilities and i'm wondering if there's anything you're doing differently i know that you still have benefit from low labor costs there but if there's anything you're done differently in terms of the type of equipment you automation that you might being incorporating in the facilities that of yes sir john's yeah so the the facility in malaysia will be starting it's and the second half of next year hi and then we'll be gradually wrapping that capacities of by yeah the end of of twenty twenty four we should be as close to full capacity we do have room for an additional twenty five percent or so of after the additional the phase two capacity in the plan building but does your first things first were going to bring we're going to bring this up throughout the twenty latter half twenty three and twenty three twenty four should be had and twenty yeah be under twenty twenty four really twenty twenty five and then i'll be looking at what to do going forward from an automation standpoint are absolutely right we have been automating art facilities over time but that's i yell in that case where as a going back in incorporating automation into the facilities vs being able to start from a greenfield approach so what you'll see seeing that facility it's a single floor you're looking at a out and it a that you know a plot a little bit more than than seven hundred thousand and that sentiment that the thousand square feet as a very large a single floor facility we're going to be optimizing production flow and then the automation and and when we use the term automation we're talking not just about robotic loading we're talking about robots being incorporated into the equipment itself out of blading equipment being great example in bad guy were going to be taking a you know it's going to be a great opportunity to incorporate automation from from the front of the line to the back of the line
spk_6: as well as our industry for not auto practices from the standpoint of of how we share the data bring the data and from the various platforms i and then use that data to optimize our production and are yields are so yeah we're going to be taking a
spk_0: added visited facility you can nab yeah certainly located in southeast asia the we're looking at the at optimizing that revenue per employee in the facility through the use of automation
spk_3: and thank you and you my take on a question from the line of my crawford please go ahead your lane is open
spk_2: i'm thank you just further to malaysia her much of the capacity of that facility once it's really ramped up around the inner tube twenty twenty four is expected to be shifted from of years southern china operations vs any new business weren't to customers the man edward to that is you know what are you looking for that would then reload year china capacity yeah so am and of course that it's difficult to say my god i'm pretty sure am the right because that we have programs that that are ongoing and in china well that that almost certainly will stay inside a we have programs that maybe early in life where the customers are gonna say okay but yeah let's put that program in southeast asia combined with china nemo he only made me a little bit of of transfer from china knob into the laser or but that will be pretty insane never get i mean i beg you know is the as we look at it somewhere if you're looking at a facility sides about hundred and eighty million in revenue looking at you know ten percent is of that being a potentially transfer but then again not a bad thing because it's gonna help us with the start up afterwards but something that as we talk to our customers and as they go to their program planning were expecting to be relatively insignificant the critical advantage here for our customers is that if
spk_3: you know they'll be able to cross qualify program so put put a piece of a program in the southeast asia or at least the qualification effort in southeast asia and know that they have an option outside of are tied up facilities and vice a versa you do the same thing in terms of blazing business in the southeast asia with the option of that of ramping either in southeast asia or know china ah so ah that's that's the real
spk_7: opportunity here from from a customer standpoint
spk_2: okay thank you and then just switching gears slightly
spk_1: from you mention some new equipment been installed a support your a motive efforts because you're out capacity now so what kind of lived in capacity will you get from that and then i guess i'm many go and to that question is well as
spk_2: when when automotive be one of the main verticals that would lead you to continue your search for additional regional capacity in europe and so i am so the answer on that under first sight is actually part of and after the we have and an operating the facility so you're not going to see ya huge incremental capacity mafia the a moderate level and capacity increase and and you know you can think about that as as on the order over time on of approximately twenty million but that the real the real important aspect of our the equipment they were putting into our automotive facility is that we are upgrading or that facility and autumn and and also incorporating more automation as we do so i and then it replaces equipment that does that is out of date that you are more equipment that that is less optimal so that that's what we're we're doing there and yeah quartet you install equipment and it's a it's a little bit disrupted to production flown so that are we lose a little bit of the incremental capacity for record for a quarter and i will be right back at it the next quarter
spk_1: our europe was the other question i tell that you get the as weak as a certainly for me
spk_2: a as a quick turn stamp when we continue to be on the last for what you know what we might be able to you in europe to support automotive but also medical industrial instrumentation customers and in europe
spk_8: data young area that we've been making some progress on
spk_2: i and so as we look at our product max i our european business continues to grow yeah my eye automotive and actually have a little bit of iowa state and defense as we look at continue to build out our footprint that are the one area that we haven't yet got the right the like facility for him and so will continue to look there certainly with southeast asia
spk_7: you know coming on in a year that's gonna be a big area that's that's the real focus for us in terms of volume manufacture and damn while our automotive customers are are satisfied with our capacity and china
spk_0: the and and looking to even see as build on that over time
spk_9: it's really are are other customers sets and data center
spk_3: networking and and medical industry instrumentation that right whether looking for that supply chain resiliency be
spk_9: okay a great thank you very much
spk_2: and you
spk_1: once again if you like to ask a question please press darling will take our next question from the lane of travis that no please go ahead carolina now open
spk_2: i take to to my question i'm calling about the wheels died today i knew you touch with earlier he touched shown how cool impact your operations he was a tell us if or how you're seeing a supply or demand destructions from the ongoing war in ukraine the saudi so yeah supply chain disruptions from me yeah from the golden situation oh well i'm wondering how you've your as you greg i'm like dude ukraine russia okay and understand so yeah so so in terms of ukraine russia catholic they they did the biggest the really haven't been direct impact in terms of that supply chain the lower seeing are more or what i'd call or indirect and that indirect impact it has been on a metal pricing particularly if you look at the palladium pricing and and copper pride thing i'm bouncing all over the place in the west is one way to play but but we did see increases early in the in the quarter as the conflict began lately retain that that shifting a debt
spk_9: we are expecting an impact in terms of are costing
spk_10: as as the copper pricing in particular flows into a laminate but those increases
spk_2: it's our i have we breed with contemplated that the potential continuing inflationary impacts as we look at our the price adjustments are we had to make back in december not so where's he were you in our view is that will be able to absorb those at least as short term and you know again watching what in a pretty volatile metal pricing environment to see if there's any real life structural costumes and that that duflo through so far as and growing fairly good shape their okay and you know had a similar fallen curious if you've been seeing that this war has triggered any accelerated design or production actively in a military and market so interesting question you know we have we we we have had some historical context there i'm with somebody else several programs that bed have been impacted i'm wary inventories are being drawn down it does take a while
spk_0: and as you know and know budgets are passed it usually takes a year year and a half for the budget to them to then the impact on us in terms of actual program relief
spk_1: in this case he knows you watch inventories come down you can sort of take the same year it's gonna be something that that over the course of the year we'll probably start hearing about from customers
spk_2: and would be a positive id would have a positive impact on us that yeah again the a relatively small boat but certainly at a high a positive development in terms of our on demand as yes as we look to let them and solar back after this year in the next year are you
spk_0: thank you
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-