TTM Technologies, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies third 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, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. As a reminder, this conference is being recorded today, November 1st, 2023. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's disclosure statement.

Before we get started, I would like to remind everyone that today's call contains forward-looking statements, 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 risk factors we provide in our filings with the Securities and Exchange Commission, which we encourage you to review. These forward looking statements represent management's expectations and assumptions based on currently available information. TTM does not undertake any obligation to publicly update or revise any of these forward looking statements, whether as a result of new information future events or other circumstances except as required by law. 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 reconciliations between GAAP and non-GAAP measures included in the company's earnings release which is available on the investor relations section of TTM's website at investors.ttm.com. We have also posted on the website a slide deck that we will refer to during our call. I will now turn the call over to Tom Edmund, TTM's chief executive officer. Please go ahead, Tom.

Thank you, Sameer. Good morning, and thank you for joining us for our third quarter fiscal year 2023 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our third quarter results, followed by a summary of our business strategy. Dan Bailey, our CFO, will follow with an overview of our Q3 2023 financial performance and our Q4 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. We delivered an outstanding quarter despite the current uncertain macroeconomic environment, and I would like to thank our employees for their hard work and contribution to generating these results. In the third quarter of 2023, non-GAAP EPS was well above the guided range as a result of better operational execution, particularly in our North America region. Revenues were within the guided range due to better than expected results from our aerospace and defense and data center computing end markets, which were offset by lower than expected results from our medical, industrial, and instrumentation, automotive, and networking end markets. Demand in our aerospace and defense market, which was 45% of revenues, continues to be solid with strong backlog, offset by weaker demand in some of our commercial end markets. As we look into Q4, we see a mixed picture in our end markets, with sequential growth in our automotive market, stability in the aerospace and defense and MI&I markets, and a decline in the data center computing and networking markets. 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 Anorin, which broadened TTM's product portfolio into highly engineered RF components and subassemblies, 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 expanded 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. Another important element of our differentiation strategy is our investment in 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 manufacturing options in locations outside the greater China region. The new facility in Malaysia will support customers in our commercial markets, such as networking, data center computing, and medical, industrial, and instrumentation. We continue to make progress on the Malaysia facility and the commissioning process is almost completed. We began to install equipment in the second quarter and are presently in the startup phase in a number of work areas. We remain on track for first product samples in the fourth quarter and will begin customer qualifications and ramp in the first quarter of 2024. I'd also 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 our Hong Kong manufacturing facility during the second quarter. stopped production at the Anaheim facility in the third quarter, and will cease production at the Santa Clara facility 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. Finally, I would like to discuss the separate press release we issued regarding the announcement of our intent to expand our advanced technology capability for the aerospace and defense market through the construction of a new facility immediately adjacent to our Syracuse New York campus. Our new facility will bring disruptive domestic production of high technology ultra high density interconnect or HDI printed circuit boards in support of national security requirements. This new facility will focus on high technology PCB production in North America. providing customers with reduced lead times and a significant increase in domestic capacity for ultra-HDI PCBs. In addition, it will be our most sustainable facility in North America. Groundbreaking is anticipated in the first half of 2024, with initial production in the latter half of 2025. Phase one of the proposed projects project, including capital for campus-wide improvements, is estimated to be $100 to $130 million and is anticipated to run through 2026. TTM's planned capital investment commitments will be determined after finalizing terms with various stakeholders. Now I'd like to review our end markets, which are referenced on page 4 of the earnings presentation on our website. The aerospace and defense end market represented 45% of total third quarter sales compared to 38% of Q3 2022 sales and 47% of sales in Q2 2023. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets, our strong strategic program alignment, and key bookings for ongoing franchise programs. At the end of the third quarter, our A&D program backlog was $1.35 billion. During the quarter, we saw significant bookings for key programs, including the Advanced Medium Range Air-to-Air Missile, or MRAM, and the MH-60. We expect sales in Q4 from this end market to represent about 45% of our total sales. On the U.S. budget, Though the specific trajectory of the future U.S. defense budget is still in process between the administration and Congress, the global threat landscape is increasingly elevated. As Congress continues to work through the fiscal year 2024 appropriation bills, we are optimistic that there will be consistent support for the national defense strategy and the funding of its priorities. Sales in the data center computing end market represented 17% of total sales in the third quarter, compared to 14% in Q3 of 2022 and 12% in the second quarter of 2023. This end market performed better than expected and returned to year-on-year 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 16% of fourth quarter sales. The medical industrial instrumentation end market contributed 16% of our total sales in the third quarter, compared to 19% in the year-ago quarter and 16% in the second quarter of 2023. The year-over-year decline was 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 fourth quarter, we expect MI&I to be 16% of revenues. Automotive sales represented 15% of total sales during the third quarter of 2023, compared to 15% in the year-ago quarter and 17% during the second quarter of 2023. The year-over-year decline for automotive was due primarily to continued inventory adjustments at several customers and the impact of annual production shutdowns. We have not yet seen an impact on sales due to the UAW strike, but we are closely monitoring the situation. We expect our automotive business to contribute 17% of total sales in Q4. Networking accounted for 7% of revenue during the third quarter of 2023. This compares to 14% in the third quarter of 2022 and 8% of revenue in the second quarter of 2023. Demand was softer. as customers continue to focus on inventory digestion as well as weak end-of-market demand. As a reminder, the Shanghai backplane business, which we sold in our second quarter, contributed approximately $16 million of sales to this segment in the third quarter of 2022. In Q4, we expect this end market to be 6% of revenues, as we see continued weakness due to softer market conditions, particularly in telecom, and ongoing inventory management by our customers. Next, I'll cover some details from the third quarter. This information is also available on page five of our earnings presentation. During the quarter, our advanced technology and engineered products business, which includes HDI, rigid flex, RF subsystems and components, and engineered systems, accounted for approximately 47% of our revenue. This compares to approximately 41% in the year-ago quarter and 43% in Q2. 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 Q3 compared to 72% in the year-ago quarter and 46% in Q2. Our overall PCB capacity utilization in North America was 38% in Q3 compared to 45% in the year-ago quarter and 38% in Q2. The lower year-over-year 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 product that requires less finished plating. Our top five customers contributed 43% of total sales in the third quarter of 2023, compared to 40% in the second quarter of 2023. We had two customers over 10% of our total sales in the quarter. At the end of Q3, our 90-day backlog, which is subject to cancellations, was $606.8 million, compared to $672.9 million at the end of the third quarter last year. Our book-to-bill ratio was 0.91 for the three months ended October 2nd. As we look into Q4, we are seeing our commercial markets somewhat mixed, with year-on-year growth and data center computing driven by momentum related to artificial intelligence advancements and sequential growth in the automotive market, stabilization in medical, industrial, and instrumentation with continued weakness in networking. On the A&D side of our business, we continue to make 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 the remainder of 2023 and into 2024. 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, Dan will review our financial performance for the third quarter.