TTM Technologies, Inc. (TTMI)

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TTM Technologies, Inc. (TTMI)

Q2 2008 Earnings Call Transcript

July 29, 2008 4:30 pm ET


Kent Alder – CEO and President

Steve Richards – EVP and CFO


Amit Daryanani – RBC Capital Markets

Kevin Kessel – JP Morgan

Matt Sheerin – Thomas Weisel Partners

Shawn Harrison – Longbow Research

Jiwon Lee – Sidoti & Co.



Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies, Inc. second quarter 2008 conference call. During today's presentation, all parties will be in a listen-only mode. (Operator instructions) This conference is being recorded today, July 29, 2008. And now, I would like to turn the conference over to Mr. Alder, CEO of TTM Technologies. Please go ahead.

Kent Alder

Thank you, Nicole. And good afternoon, and thanks for joining us for 2008 second quarter conference call. I'm here in Santa Ana with our CFO, Steve Richards. I think as many of you might know we had a little earthquake just before noon today. Everything is fine, I don't think there is any damage in the area in general that I've heard, and for TTM in particular there is no damage, no consequences whatsoever. So we're just continuing to march forward.

Now before I 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, and other risks described in TTM's most recent SEC filings. The company assumes no obligations to update the information provided in this call. Also you'll 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.

Now with that, let's turn to the results for the quarter. And before I turn the call over to Steve to review the numbers in detail, I will provide a quick overview of the business. We continued our long history of delivering solid financial performance with the aerospace and defense end market showing continued strength, coupled with the solid demand for our high-tech manufacturing services. Our results demonstrate the success we are having as we work to improve our margins.

On a segment basis, Printed Circuit Board Manufacturing continued its strong contribution to the company. Second quarter net sales, this is before intercompany sales, were $149.6 million compared with $148.7 million in the first quarter. Second quarter operating segment income before the amortization of intangibles was $17.8 million. This compares with $19 million in the first quarter, excluding a $3.7 million benefit from a metal reclamation recovery. Price per panel increased 3.9% sequentially, due mainly to a shift in product mix, while panel production declined by 2.7% sequentially. For the Backplane Assembly segment, second quarter net sales, and again this is before intercompany sales, were $31.2 million compared with $32.6 million for the first quarter. Second quarter operating segment income was $2.2 million compared with $2.7 million in the first quarter.

Now let's look at the end markets. We serve four end markets. Networking/communications, aerospace and defense, computing storage peripherals, and then the fourth end market is medical/industrial and instrumentation. Our main drivers this quarter continue to be the networking/communication and the aerospace and defense end markets, which together accounted for more than three-quarters of our net sales. As usual, networking and communications was the largest end market this quarter accounting for 40% of net sales, down from 42% in Q1. This decrease was due primarily to the decline in sales in our Backplane Assembly segment, as well as some slight softness in the networking portion of this end market.

The aerospace and defense end market increased from 34% of net sales in Q1 to 36% in Q2. We saw sequential increases with many of our aerospace/defense customers, and we were particularly pleased to shift the first production orders to the Thermal Weapon Sight program that BAE awarded us in April. This program should be a significant revenue contributor for the rest of 2008. The computing/storage and peripherals end market remained roughly flat. As a percentage of sales, this end market decreased from 12% of net sales in the first quarter to 11% of sales in the second quarter due to lighter orders from a few server manufacturers.

The medical/industrial/instrumentation end market increased to 13% of net sales in the second quarter from 12%. This diverse group of customers delivered solid results across the board, with particular strength coming from a few of our instrumentation customers. Our top five customers comprised 29% of second quarter net sales. They represent a strategic mix of commercial and aerospace and defense customers. No customer represents more than 10% of sales in the second quarter. In alphabetical order, our top five OEM customers were Cisco, Honeywell, Huawei, ITT and Juniper.

Now let's discuss our technological and operational capabilities. The average layer count of our printed circuit board in the second quarter was 13.7 compared to the first quarter average layer count of 14.2. Boards with more than 20 layers represented 27% of second quarter sales compared with 29% of sales in the first quarter. Quick-turn as a percentage of revenue, increased to 13% in the second quarter up from 11.8% in the first quarter. Lead times held roughly steady from the first quarter. Lead times for our commercial customers range from four to six weeks, while lead times for our aerospace and defense customers are six to ten weeks. At the end of June, our printed circuit board book-to-bill ratio was 1.0. That compares to the IPC book-to-bill ratio of 0.94. As we expected, we remained above the industry average.

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