TTMI

TTM Technologies, Inc. (TTMI)

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TTM Technologies, Inc. (TTMI)

Q3 2008 Earnings Call Transcript

October 29, 2008, 4:30 pm ET

Executives

Kent Alder – President and CEO

Steve Richards – CFO, EVP and Secretary

Analysts

Steven Fox – Merrill Lynch

Shawn Harrison – Longbow Research

Amit Daryanani – RBC Capital Markets

Matt Sheerin – Thomas Weisel Partners

Calvin Cofield – JP Morgan

Rich Kugele – Needham & Company

Scott Coleman – Morgan Stanley

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you so much for standing by. Welcome to the TTM Technologies third quarter 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. (Operator instructions) As a reminder, this conference is being recorded today on Wednesday, October 29, 2008. I will now turn the conference over to Mr. Kent Alder, President and CEO. Please go ahead, sir.

Kent Alder

Good. Thank you. And good afternoon, and thanks for joining us for our 2008 third quarter conference call. I’m here in Santa Ana with TTM’s CFO, Steve Richards. Before we get into any details, let me mention that during the course of this call, we will make forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, fluctuations in quarterly and annual operating results, the volatility and cyclicality in various industries that the company serves, the impact of the current economic crisis, and other risks described in TTM's most recent SEC filings. The company assumes no obligation to update the information provided in this conference call. As you will note, in our press release issued today that we provide GAAP and non-GAAP financial information, specifically with reference to EBITDA. The reconciliation between GAAP and non-GAAP information is provided in the press release.

Okay. Now, before Steve reviews the numbers in detail, I’ll provide a quick overview of the business. As you’re all aware, the macroeconomic issues have converged to create an overall challenging environment. However, I’m pleased to report that we again delivered solid financial performance with the aerospace/defense end market showing continued strength.

On a segment basis, printed circuit board manufacturing continued its strong contribution. For the printed circuit board manufacturing segment, third quarter net sales were $148 million, compared with $149.6 million in the second quarter, a slight decrease of about 1%. Third quarter operating segment income was $14.3 million compared to $17.8 million in the second quarter. Average price per panel increased by 2% sequentially due mainly to a shift in mix toward higher technology products. Panel production declined by approximately 7% sequentially.

For the backplane assembly segment, third quarter net sales were $29.3 million, compared with $31.2 million in the second quarter, a decrease of about 6%. Third quarter operating segment income was $2.1 million, compared with $2.2 million in the second quarter.

Okay. Now let’s look at each of our four end markets. The main driver this quarter continued to be the aerospace and defense end market. Together with networking/communications, these two markets accounted for more than three quarters of our net sales. Historically, networking/communications has been the company’s largest end market.

This quarter, for the first time, aerospace/defense tied to the number one slot, with both representing 39% of net sales. The networking/communication end market was down slightly from 40% in the second quarter to 39% in the third quarter. This was due primarily to a softer sales to a key Chinese customer in our backplane assembly segment, which we had expected and discussed on our last call.

In our printed circuit board manufacturing segment, sales to our networking/ communication customers were down slightly due to slower orders from the networking and communication’s infrastructure portion of this end market.

Aerospace/defense increased from 36% of net sales to 39% in the third quarter. This increase was based on overall strength with most of our customers in this end market. The computing storage peripherals end market remains flat at 11% of net sales in the third quarter.

The medical/industrial/instrumentation end market decreased to 11% of net sales in the third quarter from 13% of net sales in the second quarter. We experienced an overall softness in this end market. In addition, a portion of our more volume oriented products sometimes move to low cost regions when demand decreases. Historically, most of these products have returned when global demand increases.

Now let’s talk about our customers. Our top five customers comprised about 30% of third quarter net sales, and represent a strategic mix of commercial, aerospace/defense customers. No customer represented more than 10% of sales for the quarter. In alphabetical order, our top five OEM customers in the third quarter were BAE, Cisco, Hamilton Sundstrand, Juniper, and Raytheon.

Now let’s look at our technological and operational capabilities. The average layer count of our printed circuit boards in the third quarter was 13.8%, as compared to 13.7% in the second quarter. We continue to maintain a very high average layer count while improving our technological capabilities and increasing our higher tech product mix with more HDI sequential lamination and Rigid Flex work. Quick-turn as a percentage of revenue decreased from 13% in the second quarter to approximately 11% in the third quarter. The quick-turn percentage was diluted by the increase in the aerospace/defense end market, which generally includes very little quick turn. In addition, the quick turn market was slightly softer overall.

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