TTMI

TTM Technologies, Inc. (TTMI)

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TTM Technologies (TTMI)

Q3 2012 Earnings Call

November 01, 2012 4:30 pm ET

Executives

Diane Weiglin

Kenton K. Alder - Chief Executive Officer, President, Director and Member of Government Security Committee

Steven W. Richards - Chief Financial Officer, Executive Vice President, Principal Accounting Officer and Secretary

Tai Keung Chung - Chief Executive Officer of Asia Pacific Region

Analysts

Paramveer Singh - Stifel, Nicolaus & Co., Inc., Research Division

Shawn M. Harrison - Longbow Research LLC

Steven Bryant Fox - Cross Research LLC

Amitabh Passi - UBS Investment Bank, Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TTM Technologies Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, November 1, 2012. And I would now like to turn the conference over to Diane Weiglin, Executive Assistant of TTM. Please go ahead.

Diane Weiglin

During the course of this call, the company will make forward-looking statements that relate to future events or performance. These statements reflect the company's current expectations, and the company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized.

Furthermore, we wish to caution you that these statements involve risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include, but are not limited to, the company's dependence upon the electronics industry, contemplated significant capital expenditures and related financing requirements, the company's dependence upon a small number of customers, the unpredictability of and potential fluctuation in future revenues and operating results and other risk factors set forth in the company's most recent SEC filings.

The company also will present non-GAAP financial information in this call. For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the company's press release, which was filed with the SEC and which is posted on TTM's website.

Participating on today's call are TTM's President and Chief Executive Officer, Kent Alder; TTM's CFO, Steve Richards; and Canice Chung, President of TTM's Asia Pacific business unit. I would now like to turn the call over to Mr. Alder. Please go ahead, Kent.

Kenton K. Alder

Okay. Thank you, Diane, and good afternoon and thanks for joining us for our third quarter 2012 conference call. As usual, I'll begin with a review of our business, and then Steve will follow with a discussion of our financial performance. And then we'll open the call for your questions.

So let's start with a review of the highlights for the quarter. Net sales were $339 million; gross margin, 15.4%. Non-GAAP net income was $18.1 million or $0.22 per diluted share. GAAP net loss attributable to stockholders was $208.3 million or $2.54 per share. Adjusted for onetime expenses, GAAP net income would have been $8.3 million or $0.10 per diluted share, and we'll add some more color and give more details later on in the call.

We're disappointed with our results for this third quarter. While a number of anticipated product launches occurred during the quarter, key program launches took place later in the quarter than we expected. Higher labor costs and other manufacturing inefficiencies associated with bringing on workers to support the delayed programs negatively impacted our gross margin for the quarter.

Consequently, our third quarter results did not improve as we expected. The global softening of demand for printed circuit boards also impacted our performance in what was typically a seasonally strong quarter. Our North American results declined from Q2 due to softer demand, and our Asia Pacific performance was affected by program timing for a couple of customers.

During the third quarter, the percentage of advanced HDI product remain unchanged from the last quarter, comprising approximately 23% of our Asia Pacific segment's revenue. Our HDI percentage did not increase as expected due to the delays in program timing. With the continued ramp of multiple customer programs that utilize advanced HDIs in the fourth quarter, we expect that advanced HDI will resume growing as a portion of our overall product mix. I'd like to comment quickly now on some of the results of our operating segments for the third quarter, and then Steve will add more during his portion of the call.

Asia Pacific had sales of $215.7 million in the third quarter, up from $195.6 million in the second quarter. Our rigid-flex and flexible printed circuit board and assembly business accounted for 12% of sales in the third quarter, an increase from 5% in the second quarter. Gross margin for the Asia Pacific segment was 14.6% in the third quarter compared to 15.4% in the second quarter. As noted, the decline in gross margin was primarily due to higher operating expenses as we increased headcount and added additional advanced HDI capacity in support of customer program launches. In addition, the flex assembly work has a higher material content that allows us to broaden our product offering to some key customers. Capacity utilization in our HDI facilities increased slightly, and our conventional capacity utilization decreased slightly. On a blended basis, our Q3 utilization in Asia Pacific during the quarter was about the same as it was in the second quarter in the mid-70s.

In the fourth quarter, we anticipate increased revenue from our touchpad tablet and smartphone customers, which we expect will improve margin and earnings. The North America segment recorded third quarter sales of $123.9 million, down from $132.3 million in the second quarter. The decline in revenue was primarily due to softer demand from our networking/communications and high-end computing customers.

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