TTM Technologies, Inc.

Good afternoon. Thank you for standing by. Welcome to the TTM Technologies, Inc. Third Quarter 2025 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 during the session, 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, press star 1-1 again. As a reminder, this conference is being recorded today, October 29, 2025. Dan Bailey, TTM's Chief Financial Officer, will now review TTM's disclosure statement.

Before we get started, I'd 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 the 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 a 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 and Ernie's presentation that we will refer to during our call. I will now hand the call over to Edwin Rox, our new president and chief executive officer. Edwin, welcome to the CTM team and to your first quarterly conference call with us. Please go ahead.

Thank you, Dan, for welcoming me. Good afternoon, everyone, and thank you for joining us for our third quarter 2025 conference call. I want to thank Tom Edmund for his leadership of the company for more than a decade, and I look forward to engaging with our shareholders in the future. Before we review results, I want to reaffirm our strategic foundation. At TTM Technologies, we believe the future of electronics lies in speed, reliability, and integration. With over 17,000 employees across 22 factories, we already deliver millions of printed circuit boards every year. But our roadmap goes further. We continue to move up the value chain into highly complex modules and subsystems that combine sensors, actuators, RF, and photonics for markets where reliability and performance matter most. Aerospace, defense, data centers, telecom, instrumentation, and medical systems. From AI-driven PCB design to mission-critical subsystems, TTM's mission is in our name, time to market, delivering complex, high-performance solution at global scale. I know you want to hear whether I make any strategic changes And all I will say about that now is that we're currently in the middle of our disciplined annual strategic review, and we'll go before the board for approval next month. This plan will guide our future conversations, but as you'll hear throughout the comments today, TTM is performing well and is aligned perfectly with key growth industries. So I'm happy to be here and excited about the opportunities for continued growth and excellence ahead. And I'll begin with a review of our business highlights from the quarter and a discussion of our third quarter results, followed by an update of our current geopolitical environment and an update of our planned expansions. Then we'll follow with an overview of our Q3 2025 financial performance and our Q4 guidance. We will then open a call to your questions. We delivered an excellent third quarter of 2025, and I would like to thank our employees for their part in delivering these results. For the fourth quarter in a row, TTM achieved sales and no gap EPS above the high end of the guided range. Sales grew 22% year on year, reflecting continued demand strength in our data center computing and networking end markets driven by the requirements of generative AI. Our medical industrial instrumentation and aerospace and defense end markets also experience double-digit year-on-year sales growth. As you know, the company reports sales in five strategic end markets. Aerospace and defense is a focused end market which we deliver a mix of approximately 50-50 between PCBs and integrated electronics products. Sales in our aerospace and defense markets were better than expected this quarter at 45% of total sales, resulting from a pull forward of sales that were originally expected in the fourth quarter. Demand in this end market continues to be strong and book to build increased to very close to one for the third quarter, keeping program backlog steady at approximately $1.46 billion. Three of the remaining four end markets, data center computing, networking, and medical industrial instrumentation are experiencing sales growth directly or indirectly related to the growing requirements of AI. Nearly all of data center computing and networking and approximately 25 of medical, industrial, and instrumentation. In total, approximately 80% of our total sales in the quarter related to two very strong industries, aerospace and defense and AI. We are well positioned in both areas and offer highly innovative technologically advanced products to meet our customers' needs. We are focused on working diligently with our customers and suppliers to support the continued growth demand in each. The company's adjusted EBDA margin was 16.1%, which is comparable to 16.3% in the same quarter a year ago, reflecting continued solid execution. Non-GAAP EPS of 67 cents reflect the solid consecutive quarterly record for TTM. And cash flows from operations were $141.8 million, or 18.8% of sales, which brings the year-to-date cash flow from operation to $229 million, or 10.7% of sales. To reiterate comments made over the past two quarters regarding the potential impact of tariffs, With our diversified supplier-based and global manufacturing footprint, we do not expect a significant short-term impact of tariffs, whether through direct impact to sales or direct impact to materials and equipment purchases. And while it's possible that there could be an indirect impact, such as overall end market demand weakness and economic slowdown, we have not seen that impacting our key end markets, as I mentioned. In Penang, we continue to make progress with our customer qualifications and training the local workforce. Third quarter sales match the second quarter at $5 million and we expect to see growth in the fourth quarter. We are focused on improving and sustaining yields to support our customers' production cycles and it remains one of our top priorities. Customer interest in our Penang facility remains strong, and our confidence in our growth in Malaysian production is evident in our long-term plans for a second production facility announced last quarter. We will align the timing of construction of our planned second facility with the longer-term customer demand, and as of now, we have not broken ground. Progress on our ultra-HDi PCB manufacturing facility in Syracuse, New York, continues as planned. Equipment is arriving and we are beginning to install and test equipment setups. As a reminder, we expect volume production to start in the second half of 2026. The aerospace end market represented 45% of third quarter 2025 sales compared to 45% in the second quarter and 45% in the third quarter 2024. Sales in this market grew 20% year-on-year to a record high and were significantly better than expected, partially due to timing of sales that were originally planned in the fourth quarter. The solid demand in the defense market is a result of positive tailwinds in defense budgets, our strong strategic program alignment, and key bookings for ongoing programs. We maintain a solid A&D program backlog of about $1.46 billion at the end of the quarter compared to $1.49 billion a year ago. Bookings in the aerospace and defense markets ship over a longer period of time than our commercial markets and provide good visibility into future sales growth. During the quarter, we saw significant bookings related to the MRAM missile program, the passive detection and reporting system for the US Army, and the APS-153 radar system for the MH-60R helicopter. We expect sales in Q4 from this end market to represent 42% of our total sales. Sales in data center computing end markets represented 23% of third quarter 2025 sales compared to 21% in the second quarter and 20% of third quarter 2024 sales. This end market saw 44% year-on-year growth, which was better than expected, and a record high due to continued demand strength from our data center customers building products for Gen AI applications. We expect this growth rate to continue, increasing this end market to 28% of the fourth quarter sales. The medical, industrial, and instrumentation end market represented 14% of third quarter 2025 sales compared to 15% in the second quarter and 14% in third quarter of 2024. This end market saw year-on-year growth of 22% during the third quarter of 2025 as the medical and industrial segments saw increased demand for robotics and in the instrumentation segments saw increased demand for automated test equipment and gen AI applications. For the fourth quarter, we expect the medical industrial instrumentation and market to represent 14% of total sales. Automotive sales represented 11% of third quarter 2025 sales compared to 11% in the second quarter and 14% in the third quarter of 2024. The year-over-year decline for automotive was primarily due to continued inventory adjustments and soft demand at several customers. We expect the automotive end market to represent about 9% of total sales in the fourth quarter. Networking represented 7% of third quarter 2025 sales compared to 8% in the second quarter and 7% of third quarter 2024 sales. Year-on-year growth was 35% as this market continues to show strong growth driven by AI-related demand and new products. In Q4, we expect this market to represent 7% of total sales. At the end of Q3, our 90-day backlog, which is subject to cancellations, was $610.4 million compared to $534.5 million in the third quarter of last year. As I mentioned earlier, Our aerospace and defense program backlog was $1.46 billion at the end of Q3 this year, compared to $1.49 billion at the end of third quarter 2024. Our overall book-to-bill ratio was 1.15 for the third quarter of 2025, with the commercial segment at 1.29, the AMD segment at 0.99, and the RF&S segment at 0.95. Now Dan will review our financial performance for the third quarter.

Dan? Thanks, Edwin, and good afternoon, everyone. Highlights of our third quarter financial results were included in the press release distributed today that are summarized on slide seven of the earnings presentation posted on our website. For the third quarter, net sales were $752.7 million, compared to $616.5 million in the third quarter of 2024. The 22% year-over-year increase was due to growth in our aerospace and defense data center computing, networking, and medical, industrial, and instrumentation end markets, partially offset by a slight decline in our automotive end market. On a GAAP basis, gross margin for the third quarter of 2025 was 20.8%, compared to GAAP gross margin for the third quarter of 2024 of 21.1%. On a GAAP basis, operating income for the third quarter of 2025 was $71.9 million, or 9.6%, compared to GAAP operating income for the third quarter of 2024 of $51 million, or 8.3%. On a GAAP basis, net income in the third quarter of 2025 was $53.1 million, or 50 cents per diluted share. This compares to GAAP net income for the third quarter of 2024 of $14.3 million, or 14 cents per diluted share. In the third quarter of 2025, the aerospace and defense segment recorded $336.8 million in net sales, and $52.9 million in segment operating income compared to $279.5 million in net sales and $40.3 million in segment operating income in the year-ago quarter. In the third quarter of 2025, the commercial segment recorded $408.9 million in net sales and $60 million in segment operating income compared to $329.4 million in net sales and $51.1 million in segment operating income in the year-ago quarter. In the third quarter of 2025, the RF and specialty components segment recorded $10.4 million in net sales and $3.1 million in segment-operated income compared to $9.8 million in net sales and $2.4 million in segment-operated income in the year-ago quarter. The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes M&A-related costs, restructuring costs, certain non-cash expenses items such as amortization of intangibles, impairment of goodwill, stock compensation, gains on the sale of property, unrealized gains or losses on foreign exchange, and other unusual or infrequent items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and facilitate comparisons with expectations and prior periods. Gross margin in third quarter was 21.5% compared to 22% in the third quarter of 2024. The year-over-year decrease was primarily due to ramp-up costs in connection with our fabrication plant in Penang, Malaysia. Selling and marketing expense was $20.5 million in the third quarter, or 2.7% of net sales, versus $18.9 million, or 3.1% of net sales a year ago. Third quarter general and administrative expense was $42.1 million, or 5.6% of net sales, compared to $36.4 million, or 5.9% of net sales in the same quarter a year ago. The dollar increase was primarily driven by an increase in the incentive compensation accrual and outside services. In the third quarter of 2025, research and development was $6.9 million or 0.9% of net sales compared to $7.7 million or 1.3% of net sales in the same quarter last year. Interest expense was $9.9 million in the third quarter of 2025 compared to $11.3 million in the same quarter last year. During the third quarter of 2025, there was $1.8 million realized foreign exchange loss below the operating income line compared to $1.6 million of realized foreign exchange loss in the third quarter of 2024. Interest and other income totaled $2.5 million at the third quarter of 2025. This compares to interest and other income totaling $3.6 million in the same quarter of last year. Our effective tax rate was 15% in the third quarter, resulting in tax expense of $12.5 million. This compares to a rate of 10.6% or tax expense of $6.7 million in the same quarter of last year. Third quarter 2025 net income was $71 million, or 67 cents per diluted share. This compares to third quarter 2024 net income of $56.8 million, or 55 cents per diluted share. Adjusted EBITDA for the third quarter of 2025 was $120.9 million, or 16.1% of net sales, compared with third quarter 2024 adjusted EBITDA of $100.6 million, or 16.3% of net sales. Depreciation for the quarter was $27.6 million. Net capital spending for the quarter was $99.2 million. Cash flow from operations in the third quarter of 2025 was $141.8 million, or 18.8% of net sales. Cash and cash equivalents at the end of the third quarter of 2025 totaled $491.1 million. And our net debt divided by last 12 months EBITDA was 1.0. Now I will turn to our guidance for the fourth quarter of 2025. We project net sales for the fourth quarter of 2025 to be in the range of $730 to $770 million, and non-GAAP earnings to be in the range of $0.64 to $0.70 per diluted share, which is inclusive of operating costs associated with starting up our Panang facility. The EPS forecast is based on a diluted share count of approximately 106 million shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG&A expense to be about 8.9% of net sales in the fourth quarter and R&D to be about 1% of net sales. We expect interest expense of approximately $10.2 million and interest income of approximately $2.7 million. We estimate our effective tax rate will be between 11% and 15%. Further, we expect to record depreciation of approximately $28.1 million, amortization of intangibles of approximately $9.2 million, stock-based compensation expense of approximately $12.3 million, and non-cash interest expense of approximately $0.5 million. Finally, I'd like to announce that we will be participating in the Stiefel Midwest one-on-one conference in Chicago, Illinois on November 6th, the Bank of America Leverage Finance Conference in Boca Raton, Florida on December 2nd, the UBS Global Industrials and Transportation Conference in Palm Beach, Florida on December 3rd, and the UBS Technology Conference in Scottsdale, Arizona on December 4th. That concludes our prepared remarks. I would like to turn it over for questions. Cherie?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Jim Rusciutti with Needham & Co. Your line is open.

Hi. Thank you. First off, Edwin, welcome. Best of luck to you. I wanted to start off just on the data center market. Can you talk about two questions? One, how far out does your visibility extend into this market? And the follow-up really deals with the – whether you have been able to bring on additional capacity to be able to satisfy the demand from your customers from your two main facilities in China.

Yeah, Jim. First of all, thank you for your question, and thank you for your nice comments here, and good to meet you again. Yeah, the visibility is pretty okay. I would say our visibility is between six to nine months. And again, we are already dealing with the top players there. So it's going relatively smooth. And if I look at capacity, Jim, I think when we are in the middle of, let's say, our strategic planning, we are sort of, let's say, over the coming years, we have a good value capacity. both in North America and Asia Pacific, well balanced, by the way, between these two continents. So that's what I want to mention here.

And Penang, can you update us? Maybe, Dan, you could take this one, just the margin headwind that you experienced in Penang and how you think about that in Q4 going forward.

Yes, I'm happy to update you about Penang. First of all, Penang remains a key part of our China plus one strategy. And we're making very good progress there, I would say. Like Tom mentioned last quarter, we are very much focused now on yield before we start ramping up. We want to ramp steadily with our customers. So the good news, Jim, is that we have five customers lined up, and we are basically qualifying these customers before the end of the year, and they're still progressing very well. The training aspect is key. We're working a lot with local staff now. The training aspect is key. We are still planning also for that second facility in Penang, so I would say I'm pleased with the progress over the last quarter. I know we were a bit optimistic in the past, but I think we should be okay going forward.

And Jim, I'll jump in and address your question with regards to the headwind on the profit. In Q3, it was about 195 basis points to the bottom line, which is an improvement from Q2, which was about 210 basis points. And then in Q4, we're forecasting with increased revenue about 160 basis points impact to the bottom line, which is comparable to Q4 of last year, actually. I'm going to look at it year over year. Thank you. You're welcome. Thank you. You're welcome.

Thank you. One moment for our next question. And that will come from the line of Mike Crawford with B. Reilly Securities. Your line is open.

Thank you. Just more broadly, could you help characterize your PCB manufacturing capacity share globally in China and in the U.S.? ?

Yeah, Mike, good question. First of all, in the U.S., we are still the number one player. And globally, it's always a bit more tricky to mention it, but of course we are typically a high-end player. But if you look at overall, I think we're about the number six or seven of the world. That's basically where we are. And if you concentrate on data center, it's about the number three or four with some typical competition, but about the number three or four.

Okay, thank you. And then the follow-up is in Penang, I believe you're starting out with something like maybe 15-layer boards, but where are you moving to density in China for data center applications?

Yeah, yeah, absolutely. You will not see us. We still have, of course, capacity, let's say, below the 16 layers, but our focus is, let's say, beyond that, going to a lot of layers. One of our typical things happening right now is that we are demonstrating 87 layers. So this is going very, very rapidly. And also on the stacked micro-VFs to be better, higher resolution, let's say, we're making really, really good progress. So working with customers on different aspects of the roadmap, be it more on the material side, be it more like asymmetrical designs like in PCBs where you put the power on one side and the signal on the other side, or let's say be at the pitch where you try to minimize the pitch. We want to be a leader there. And I can tell you, let's say, from my personal perspective here, we will invest a lot more in R&D and get more progress there to continue to be that top player.

Excellent. Thank you very much.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. Our next question comes from the line of William Stein with Chua Security. Your line is open.

Great. Thanks for taking my question. Congrats on the great results tonight. Edwin, for investors who have not met you or have much experience with you, maybe you can share with us a little bit about your background, what led you to TTM. I understand you have some connections to the board of directors, but sort of what led you to the company and maybe talk a little bit about how your experience and background leads you to succeed at TTM.

Okay, happy to do that. Well, I'm good to meet you, by the way, and thank you for your nice words here. Yeah, my background is I'm an engineer. And of course, I did business school as well. 15 years, Phillips, 20 years, Dalsa and Teledyne, nine years, let's say, leading the largest segment in Teledyne, the fastest growing segment in Teledyne. And the last two years, I was the CEO of Teledyne, working closely with the executive chairman, and by the way, the new CEO as well. Still really good relations with Teledyne, and Teledyne does do great. But for me, it was time to do something else after 20 years. And TTM was a really good fit. My background is physics and electronics, and mostly semiconductor physics. So with TTM being a player in the back end, let's say, where the back end players in silicon, the packagers, the PCB players, everybody comes together in that back end, is absolutely a key thing to focus on. I still have great respect for the guys who are making the most complex chips. But nowadays, it's all about the back end. How can you integrate these chips, let's say, in a very compact, heterogeneous package? And that's very exciting. And that's my main motivation to be part of TPM. A fantastic company, excellent leadership, and again, good relation with the board of directors. I knew a few board of directors members, let's say, from my previous experience. previous work, but again, this is a great company to be part of. Hopefully that answers your question.

That helps. Thank you. And one more, if I can follow up. I don't know that these metrics are still entirely relevant because you're growing much faster now because of AI data center and also because defense is doing very well and margins have been moving up. But at the last analyst day, the company had a 4% to 6% top line organic growth view and 11% to 13% operating margin target. Those were sort of the targets that the prior company management team established I can't imagine you're going to give us new targets on this call, but I wonder if you can help us think about at least which metrics are most important to you. What are you trying to maximize from, let's say, from an outsider's perspective, just looking at the financials, what metrics and what levels should we think so that we're aligned with your way of thinking for the future of the company?

Yeah, great question. Thank you. First of all, we want to grow. The strategic plan, let's say, and even looking at already at next year, it's all about growth. And of course, growth in a very qualitative matter. So we want to make sure that our gross margin stays very, very healthy. That's basically the number one metric. where you can see if you're competitive. So that's the key thing here. Of course, we like to generate cash. You saw our great cash position this quarter. Year-to-date, we're at a really nice level. This gives us a possibility not only, let's say, to do acquisitions, and we can do that both in a horizontal way or vertical way, let's say buying more PCBs, uh factories or buying let's say up the chain um but also we can invest in our facilities and that's what we do yeah we are planning to invest uh hundreds of millions let's say in our facilities in in in penang and and syracuse and of course also investing in in china again so that's that's that's going well um the the top method for me is always cash it's always growth It's gross margin, and of course our EBITDA should be healthy. Our bottom line should be healthy. But again, we are set up to grow. That's my answer here.

Great. Thank you.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Rocks for any closing remarks.

Thank you, Cherie. And I'd like to close by summarizing the points I made earlier. First, we delivered strong sales growth in Q3 of 22% year-on-year, driven by increases in our data center computing, networking, medical, industrial instrumentation, and aerospace and defense markets, with record highs in A&D and data center markets. Second, our adjusted EBDA of 16.1% reflected strong operating performance, leading to a record quarterly non-GAAP EPS of 67 cents, And third, we had solid cash flow from operations of 18.8% of sales, enabling us to invest in our projected continued growth. In closing, I would like to thank all employees of TTM, our customers, our suppliers, and our shareholders for your continued support. Thank you very much. Goodbye.

This concludes today's program. Thank you all for participating. You may now disconnect.