TTM Technologies, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies second quarter fiscal 2023 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. To ask a question, please press star 1-1. You will then hear an automated message stating that your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this conference is being recorded today, August 2nd, 2023. I would now like to turn the call over to Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, to review TTM's disclosure statement. Mr. Desai, the floor is yours.

Thank you, Cherie. 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 our 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 disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 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 measures prepared and presented in accordance with GAAP, and we direct you to the reconciliation of non-GAAP to GAAP measures included in the company's press release, which was filed with the SEC and is available on TTM's website at www.ttm.com. We've also posted on our website a slide deck that we will refer to during our call. I will now 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 second quarter fiscal year 2023 conference call. First of all, I want to address the release which went out this morning announcing Todd's intent to retire from TTM. As many of you know, Todd and I have spent our career at TTM together since 2013, driving this business forward. I could not have asked for a better partner during that time. I speak on behalf of the board and executive team at TTM in thanking Todd for his tremendous dedication and service to TTM. I've always been able to count on Todd to have his fingers on the pulse of our business while prudently managing our balance sheet and optimizing our financials. Plus, he has been a real friend to the executive team members and myself. Todd has agreed to hold office retirement a bit until the end of the year as we transition to Dan Bailey to be his successor. I do also want to welcome Dan Bailey to TTM on the heels of the successful sale of Aerojet Rocketdyne to L3Harris. Dan brings tremendous CFO experience and defense industry expertise to TTM. As we map our strategic direction towards building our A&D business from 47% of our revenues, where it stood at the end of Q2, to an over 50% contribution in the future, it was critical to us that we continue to build a management team with a strong understanding of defense industry dynamics. I am confident that with Dan joining our team, we will have added yet another strong, knowledgeable, and ethical leader to our executive team. With that, let's move on to the discussion of the quarter. I'll begin with a review of our business highlights from the quarter and a discussion of our second quarter results, followed by a summary of our business strategies. Todd Schull will follow with an overview of our Q2 2023 financial performance and our Q3 2023 guidance. We will then open the call to your questions. The quarter's results are also shown on slide four of the investor presentation posted on TTM's website. In the second quarter of 2023, revenues were within guided range due to continued strength in the aerospace and defense end market, and better-than-expected results from our data center computing end market. These two markets offset lower-than-expected results from our medical, industrial, and instrumentation and automotive end markets. Non-GAAP EPS was well above the guided range as a result of improved mix and operational execution, particularly in our North America PCB operations. Demand in our aerospace and defense market remains strong, with continued record backlog offset by weaker demand in some of our commercial end markets. As we look into Q3, we see a mixed picture in our commercial markets, with sequential growth in our data center computing and MI&I markets, stability in the automotive market, and a continued decline in the networking market. Demand remains strong in our A&D market, which now represents 47% of our revenues. I would now like to provide a strategic update. TTM is on a journey to transform our business to be less cyclical and more differentiated. Over the past several years, TTM has consistently emphasized that a key part of our strategy is to add value to the product solutions that we deliver to our customers. particularly in the aerospace and defense market. In 2018, we acquired 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. In 2022, we acquired Telephonics, which builds on Anarin and TTM's customer-driven culture and disciplined approach to engineering and manufacturing. The addition of telephonics expands TTM's aerospace and defense product offering vertically into higher level engineered system solutions and horizontally into the surveillance and communications markets while strengthening our position in radar systems. As a result of these strategic moves, over 50% of A&D revenues are from engineered and integrated electronic products. with PCBs being less than 50% of the overall contribution. Since January, our A&D sector has been operating with two business units, Radar and C4ISR Plus Base. Our objective with this new organization has been to align our businesses with the critical program priorities of our customer base. I'm excited to see this new organization take shape as a critical piece of our strategy. Another important element of our differentiation strategy is the current construction of 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 multi-layer PCB sourcing options in locations outside of China. The new facility in Malaysia will assist customers in our commercial markets, such as networking, data center computing, and medical, industrial, and instrumentation. We continue to make progress on the Malaysian facility, and construction is approximately 75% complete, tracking to targets. We began to move in equipment in the second quarter and will continue this effort through the third quarter. We remain on track for first production samples in the fourth quarter. Finally, I'd like to update you on the consolidation of our manufacturing footprint. We previously announced our plan to close three small manufacturing facilities in order to improve total plant utilization, operational performance, customer focus, and profitability. PCB manufacturing operations in Anaheim and Santa Clara, California, and Hong Kong are being closed and consolidated into TTM's remaining facilities. We seized production at the Hong Kong facility during the second quarter and remain on track for ending production at the two North America facilities by the end of the year. Customers have been supportive of the consolidation, and we expect to retain the majority of the business that will be transitioning from the closed facilities. Now I'd like to review our end markets, which are referenced on page four of the earnings presentation on our website. The aerospace and defense end market represented 47% of total second quarter sales. compared to 30% of Q2 2022 sales and 43% of sales in Q1 2023. A majority of the year-on-year growth was due to the inclusion of telephonics. Excluding that impact, our Q2 A&D revenues grew 5.9% year-on-year organically. We continue to experience a positive defense climate with our A&D program backlog at $1.39 billion. including telephonics. The solid demand in the defense market is a result of a positive tailwind in defense budgets, our strong strategic program alignment, and key bookings for ongoing franchise programs. In terms of the defense budget backdrop, a debt ceiling agreement was reached, resulting in a fiscal 2024 increase of 3% for the DoD budget over the fiscal 2023 enacted funding. in line with the fiscal 2024 President's Budget Request, or PBR. During the quarter, we saw significant bookings for key programs, including the Javelin Anti-Tank Guided Munition System and the Army's Air Missile Defense Planning and Control System and Integrated Battle Command System. While the demand picture looks favorable, We continue to experience supply chain challenges for integrated electronics due to the complexity of the supply chain, including a number of smaller organizations that are struggling to meet the lead time requirements of TTM and our customers. We expect sales in Q3 from this end market to represent about 45% of our total sales. Automotive sales represented 17% of total sales during the second quarter of 2023, compared to 18% in the year-ago quarter and 17% during the first quarter of 2023. The year-over-year decline for automotive was due primarily to continued inventory adjustments at several customers. We expect our automotive business to contribute 16% of total sales in Q3, as customers are expected to continue to adjust inventory levels in line with expected semiconductor and other critical material deliveries. The medical industrial instrumentation end market contributed 16% of our total sales in the second quarter, compared to 21% in the year-ago quarter and 19% in the first quarter of 2023. The sequential decline is caused primarily by inventory reductions at a number of our customers. In addition, The instrumentation segment is weighted towards the semiconductor capital equipment market, which is seeing weaker demand. For the third quarter, we expect MI&I to be 17% of revenues. Sales in the data center computing end market represented 12% of total sales in the second quarter, compared to 17% in Q2 of 2022 and 10% in the first quarter of 2023. This end market performed better than expected and saw sequential growth due to strength in our data center customers building products for generative AI applications. We expect revenues in this end market to represent approximately 15% of third quarter sales as we continue to see sequential growth from these same customers. Networking accounted for 8% of revenue during the second quarter of 2023. This compares to 14% in the second quarter of 2022 and 11% of revenue in the first quarter of 2023. A majority of the decline in the quarter was due to the sale of our Shanghai backplane assembly facility, which generated $8 million of revenue in Q1 and had no revenues in Q2. In addition, demand was softer as customers focus on inventory digestion. In Q3, we expect this end market to be 7% of revenues, as we see continued weakness due to softer market conditions and inventory management by customers. Next, I'll cover some details from the second quarter. The information is also available on page 5 of our earnings presentation. During the quarter, our advanced technology and engineered products business, which includes HDI, RigidFlex, RF subsystems, and components and engineered systems accounted for approximately 43% of our revenue. This compares to approximately 33% in the year-ago quarter and 41% in Q1. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology and engineered products capabilities in new programs and new markets. PCB capacity utilization in Asia Pacific was 46% in Q2 compared to 81% in the year-ago quarter and 52% in Q1. Our overall PCB capacity utilization in North America was 38% in Q2 compared to 44% in the year-ago quarter and 39% in Q1. The lower rate in Asia Pacific was caused by a decline in production volumes while the lower year-over-year rate in North America was due to additional plating capacity added, as well as a greater mix of higher technology products that requires less finished plating. Our top five customers contributed 40% of total sales in the second quarter of 2023, compared to 36% in the first quarter of 2023. We had one customer over 10% in the quarter. At the end of Q2, our 90-day backlog, not including telephonics, which is subject to cancellations, was $505.7 million, compared to $635.7 million at the end of the second quarter last year. Including telephonics, our backlog at the end of Q2 was $556.2 million. Our book to bill ratio, including telephonics, was 1.04 for the three months ended July 3rd. As we look into Q3, we are seeing our commercial markets somewhat mixed with improving trends in data center computing driven by momentum related to artificial intelligence advancements and demand growth in the medical, industrial, and instrumentation market. Stabilization in automotive and continued weakness in networking. On the A&D side of our business, we continue to focus on making incremental improvements in shipments as we work with supply chain partners to loosen bottlenecks and take advantage of an improving labor market. I am confident that with the effort of our employees and supply chain partners, we will be able to overcome these challenges as we work our way through 2023. In the meantime, I wish to thank our employees for continuing to contribute to TTM and our critical mission of inspiring innovation for our customers. Now, Todd will review our financial performance for the second quarter. Todd? Thank you, Tom, for your kind comments, and good afternoon, everyone.