Q4 2020 TTM Technologies Inc Earnings Call

I am extremely proud of how PPM employees have worked to deliver, excellent performance despite the formidable and unprecedented challenges of this environment.

I'd also like to highlight that includes war-weary paid and settled are $250 convertible bond with no dilution to shareholders home solid cash flow from operations drove our net debt-to-ebitda ratio to 1.4 at the end of you for finally. We announced the $100,000 a share repurchase program as an additional tool to increase shareholder value following the strengthening of our balance sheet.

For the full year twenty-twenty excluding the vested and closed businesses TTM grew 3% with solid profitability despite Hedwig from COVID-19 and the strengthening Chinese currency.

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Your cash flow from operations was 287.2 million dollars and along with the sale of the mobility business enabled us to repay debt and reduce average putting us in a strong position for the future.

Next I would like to provide an update on our long-term strategy TTM is on a journey to transform our business to be less cyclical and more differentiated We Believe over time investors will be rewarded with more stable growth strong cash flow performance and improving margins a key part of that strategy may be bad capability and products that are complementary to our current offerings both internally and through Acquisitions looking forward for Thursday is in a strong position to to pursue further Acquisitions as well as to support our organic investment needs. I would also like to update you on the coding situation.

And the majority of twenty-twenty we manage through COVID-19 with relatively minor impact to our production.

Currently the combination of Colder Weather in North America and the recent holiday season has created a surge of Covent cases. Since many of these infections are occurring in regions where our manufacturing locations are plants are located. We have also seen an increase of covetous within our employee population in North America off and we expect this condition to continue into twenty Twenty-One while many of those that were infected returned to work after being cleared following testing and quarantine protocols. We still have a number of employees in quarantine, which is causing some production and efficiencies. We continue to conduct rapid testing contact anything had to quarantine individuals who were in close contact with infected team members in addition to deep cleaning affected work areas.

We also continued other measures such as extensive internal Communications masking temperature checks and proper distancing in our facility home World Wide because of the stringent preventive measures in the in place and our culture of transparency and Communications. These events have had less impact on our operations and then might have been the case without these precautions now, I'd like to review our end markets.

All historical End Market disclosures exclude the mobility business unit and the to EMF plans would help in production in December former details on End Market disclosures. Please refer to our fourth quarter earnings, press release and Pages four and five of our earnings presentation, both of which offer are posted on our website the Aerospace and defense and Market represented 38% of total fourth-quarter sales compared to 37% off of keys for a 2019 sales and 37% of sales in to 3:20. We expect sales in q1 from this end Market to represent about 36% of our total sales. We saw solid growth in our ND segment with Q4 revenues out 2% year-on-year to a record-high wage.

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The record program backlog of $687 compared to six hundred million dollars in the year-ago quarter strength in defense more than a weakness in the commercial Aerospace and market growth in the defense Market is a result of our strong strategic program alignment and key bookings for ongoing programs. We saw a significant bookings in the quarter for radar systems for refund raytheon's Army-Navy transportable surveillance real life to protect against ballistic missiles lockheed's 5-7 a variant of the US lrdr program for the f110 Spanish frigate off as well as Northrop upgrade of F-16 fighter jets with scalable agile being radar.

For the full-year Aerospace and defense increased 7% and reached a record high as he can benefited from increased defense spending and demand for multiple new programs. We were pleased to see the 2021 ndaa passed into law with bipartisan support which suggests the defense budget could stay stable at a high level going forward given are solid program alignment. We would expect to help perform. Our defense budget growth.

In 2021, we expect growth to be in line with Market projections of two to 4% driven by the defense side of our business. We expect the commercial Aerospace portion, which was 16% of our ND Market in 2020 to be down in 2021.

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Automotive Sales represented 17% of total sales during the fourth quarter of 2020 compared to 15% in the year-ago quarter and 13% during the third quarter of 2020 Automotive Group almost 40% sequentially following the growth in to 3 and return to year-on-year growth of 14% off respect Automotive to contribute 18% of total sales in q1.

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For the full-year automotive declined 11% is both demand and Supply were affected by COVID-19 in the first half of the Year followed by a recovery in the second half of the year in 2020 advanced technology was 26% of our Automotive End Market compared to 20% in 2019 month for the full year. We won design win with a lifetime value of $629 compared to $475 million in 2019.

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Solid cash flow from operations drove our net debt to EBITDA ratio to one four at the end of Q4.

Finally, we announced the $100 million share repurchase program and additional tool to increase shareholder value following the strengthening of our balance sheet.

For the full year of 2020, excluding the divested and closed businesses.

TTM grew 3% with solid profitability, despite headwinds from COVID-19, and the strengthening Chinese currency.

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41 due to the anticipated stronger start we expect the market to be above longer-term forecasts of three to 6%

Full year of cash flow from operations was $287 $2 million and along with the sale of the mobility business enabled us to repay debt and reduce leverage putting us on a strong position for the future.

the medical industrial instrumentation and Market contributed 16% of our total sales in the fourth quarter compared to 17% in the year-ago quarter and 19% in the third quarter of 2020 for the first quarter. We expect this Market to be 16% of revenues.

Next I would like to provide and update on our long term strategy.

TTM is on a journey to transform our business to be less cyclical and more differentiated.

For the full-year. Am I in I grew 12% Well above the trend line do to strengthen our instrumentation customers specifically automated test equipment and strengthen our medical customers particularly for emergency requirements are printed circuit boards used in ventilators and patient monitoring systems applied to the agreement of COVID-19 in 2021. We expect growth to be below the two to four percent forecast has these segments he moderated demand following the above ordinary strength of 2020.

We believe over time investors will be rewarded with more stable growth strong cash flow performance and improving margins.

The key part of that strategy will be to add capabilities and the products that are complementary to our current offerings, both internally and through acquisitions.

Looking forward, our balance sheet is and our strong position.

And to pursue further acquisitions as well as to support our organic investment needs.

I would also like to update you on the Covid situation.

Networking Communications accounted for 16% of Revenue during the fourth quarter of 2020 this compares to 17% in the fourth quarter of 2019 and 17% of Revenue in the third quarter of 2020. We saw relative strength in the networking segment compared to the Telecom segment as 5G billing temporarily in q1 reflected zenmarket to be 15% of Revenue. Do you primarily do uncertainty around the timing and ramp off three bills for 5G and sign up for the full-year network and Communications declined 4% We expect this Market to grow but be below the long-term forecast for five to eight percent growth in 2021 due to the anticipated soft start in the early part of the Year followed by a ramp or 5G infrastructure.

For the majority of 2020, we manage through COVID-19, with relatively minor impact to our production.

Currently the combination of and colder weather in North America and the recent holiday season has created a surge of Covid cases.

Since many of these infections are occurring and regions, where our manufacturing locations. Our plants are located.

We have also seen an increase of Covid cases within our employee population and North America and.

And we expect this condition to continue into 2021.

While many of those that were infected returned to work after being cleared following testing and quarantine protocols.

We still have a number of employees and quarantine, which is causing some production inefficiencies.

We continue the conduct of rapid testing contact tracing and to quarantine individuals who were in close contact with infected team members. In addition to deep cleaning affected work areas.

Needs in the back half of the Year complemented by growth in networking.

Sales and the Computing storage peripherals End Market represented 13% of total sales in the fourth quarter compared to 13% and 2 for a 2019 and June the 3rd quarter of 2020. This end Market was up 2% year-on-year as growth in our semiconductor customers offset modest near on your declines of our data center customers.

We also continue other measures such as the extensive internal communications masking temperature checks and proper distancing and our facilities worldwide.

Because of the stringent preventative measures in place and our culture of transparency and communications. These events of had less impact on our operations and might've been the case without these precautions.

Respect revenues in this end Market to represent approximately 14% of first-quarter sales.

Now I'd like to review our end markets.

All the historical and market disclosures and exclude the mobility business unit and the to the EMS plants withheld and production and December.

For the full-year Computing grew 9% as we saw growth across our data center and semiconductor customers in 2021. We expect to be above the law passes and market growth of 1 to 3% driven primarily by dead of data center growth.

For more details on and market disclosures, please refer to our fourth quarter earnings press release and.

On pages, four and five of our earnings presentation, both of which are posted on our website.

I still covered some details from the fourth quarter note that all of the following operations metrics exclude the mobility business unit and the two EMS plants that we closed. This information is also available on page six of our earnings presentation during the quarter far advanced technology business, which includes HDM rigid flex and RF subsystems and component accounted for approximately 31% of our Revenue this compares to approximately 27% in the year-ago quarter and 29% into three We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities in New Markets.

The aerospace and defense end market represented 38% of total fourth quarter sales compared to 37% of Q4 of 2019 sales and 37% of sales and Q3 2020.

We expect sales in Q1 from this end market to represent about 36% of our total sales.

We saw solid growth and our A&D segment with Q4 revenues up 2% year on year to a record high and and A&D record program backlog of $687 million.

Compared to $600 million and the year ago quarter.

The strength in defense more than offset weakness and the commercial aerospace end market.

Capacity utilization in asia-pacific was 63% in Q4 compared to 61% in the year-ago quarter and 63% into three months. Our overall capacity utilization in North America was 58% into three compared to 58% in the year-ago quarter and 51% into one of our top five customers contributed 34% of total sales in the fourth quarter of 2020 compared to 36% in the third quarter of 2025. Our largest customer accounted for 14% of sales in the fourth quarter.

Growth in the defense market as a result of our strong strategic program alignment and key bookings for the ongoing franchise programs.

We saw significant bookings in the quarter for our use of radar systems for raise on Raytheon's Army Navy and transportable surveillance radar to protect against the ballistic missiles.

Lockheed spy seven a variant of the U S. <unk> program for the F 110, Spanish frigate.

As well as Northrop upgrade of F 16 fighter Jets with scalable agile the radar.

At the end of Q4 or 90-day backlog, which is subject to cancellation was 483.9 Million compared to four hundred five point eight million dollars at the end of the fourth quarter last year and 437.8 million dollars at the end of two three rpcv book-to-bill ratio is 1.19 for the three months ending December 28th.

For the full year aerospace and defense increased 7% and reached a record high and CGM benefited from the increased defense spending and demand for multiple new programs.

We were pleased to see the 2021 and the a a passed into law with bipartisan support.

Which suggests the defense budgets and stays stable at a high level going forward.

I'd like to conclude by again thanking our employees for continuing to contribute to 2 p.m. And our critical mission of inspiring Innovation with our customers wage are efforts are particularly appreciated during these times by our customers in critical essential areas, like defense and the medical Industries despite the COVID-19 game and currently related challenges challenges. We faced in 2020 our business performed better than we expected as a direct result of operational excellence and Mark diversification and our employees concerted efforts to engage and support our customers.

Given our solid program of alignment, we would expect to outperform broader defense budget growth.

And 2021, we expect growth to be in line with market projections of 2% to 4% driven by the defense side of our business.

We expect the commercial aerospace portion, which was 16% of our A&D market and 2020 to be down in 2021.

Automotive sales represented 17% of total sales during the fourth quarter of 2020, compared to 15% and the year ago quarter and 13% during the third quarter of 2020.

Automotive grew almost 40% sequentially following the growth in Q3 and return to year on year and a growth of 14%.

We've also taken positive strategic moves that will strengthen p.m. For the long-term. Now Todd will review our financial performance for the fourth quarter ton Dodge. Thank you, and good afternoon. Everyone mentioned earlier announced the closing of the sale of its Mobility business with the closure of t t m. Results reflect the mobility business unit as a discontinued operation during this call. I will discuss non-gaap financial information which excludes the results of liability business in the EMS business unit is still included in both the gaap and non-gaap results. We have reported. Please refer to the earning schedule for additional details exit businesses and continuing operations pay Seven of our earnings presentation and the appendix of our investor presentation also continuous information.

We expect automotive to contribute 18% of total sales in Q1.

For the full year automotive declined 11% as both demand and supply were affected by COVID-19, and the first half of the year, followed by a recovery and the second half of the year.

In 2020 advanced technology was 26% of our automotive end market compared to 20% and 2019.

For the full year, we want and design wins with the lifetime value of $629 million compared.

Compared to $475 million and 2019.

In 2021 due to the anticipated stronger start we expect the market to be above longer term forecast of 3% to 6%.

for the fourth quarter net sales from continuing operations for 523.8 million dollars compared to

The medical industrial instrumentation and market <unk>.

135.7 million dollars in the fourth quarter of 2019 the year-over-year decrease in Revenue was due to declines in our medical industrial instrumentation and network intelligence in Market. It's roughly a third of the decline coming from the DMS plant between this was particularly our excuse me. This is partially offset by faith Automotive Aerospace and defense and Computing and markets excluding the impact of the TPMS planting shutdown. Our revenues were down 1.1% year-on-year.

<unk>, 16% of our total sales and the fourth quarter compared to 17% and the year ago quarter, and 19% and the third quarter of 2020.

For the first quarter and we expect this market to be 16% of revenues.

For the full year.

<unk> grew 12% well above the trend line due to strengthen our instrumentation customers specifically automated test equipment.

And strengthened our medical customers, particularly for emergency requirements of printed circuit boards used in ventilators and patient monitoring systems, a variety of the treatment of COVID-19.

Operating income from continuing operations for the fourth quarter of 2020 was $2,920 compared to gaap operating income of 29.4 million dollars a quarter of last year. You got a Gap a net income from continuing operations in the fourth quarter of 2020 was $39 or $0.34 per diluted share with this compares to a net income of 10.8 million dollars for ten cents per diluted share in the fourth quarter 2019.

In 2021, we expect growth to be below the 2% to 4% forecast as these segments. The moderated demand following the extraordinary strength of 2020.

Networking communications accounted for 16% of revenue during the fourth quarter of 2020.

This compares to 17% and the fourth quarter of 2019, and 17% of revenue and the third quarter of 2020.

Remainder of my comments will focus on our non-gaap financial performance. Our non-gaap performance excludes our domestic Mobility business unit non-routine tax items m&a rated in structuring cost certain non-cash expense items and other unusual or infrequent items. We present non-gaap financial information to enable investors to see the company Through The Eyes of managers office and the Priscilla Tate comparison with expectations and prior.

We saw relative strength and the networking segment compared to the telecom segment and five rebuilds paused temporarily.

In Q1, we expect this end market to the 15% of revenue due primarily to uncertainty around the timing and ramp of phase III build for <unk> and China.

Gross margin in the fourth quarter was 17.5% compared to 19.1% in the fourth quarter of 2019. The year-over-year decrease in gross margin would lower Revenue COVID-19 related costs and Associated labor and efficiency and corn exchange headlines, which increased our china-based costs.

For the full year networking communications declined 4%.

We expect this market to grow but the below the longer term forecasts of 5% to 8% growth and 2021 due to the anticipated soft start and the early part of the year, followed by a ramp of <unk> infrastructure needs and the back half of the year complemented by growth and networking.

Selling and marketing expenses fifteen point two million dollars in the fourth quarter or 2.9% of net sales vs. 17 million or 3.2% of net sales in year ago for a quarter to you and expense was twenty four point four million dollars or 4.7% of net sales compared to twenty nine point eight million dollars or 5.6% of their sales in the same quarter of a year ago in Q4 next 20, 20 R&B or four point six million dollars, 4.87% of revenues is compared to four point three million dollars fifty-eight one-per-cent in the year-ago quarter for operating margin in Q4 was 9% This compares to 9.6% in the same quarter last year.

Sales and the computing storage peripheral end market represented 13% of total sales and the fourth quarter compared to the 13% and Q4 of 2019 and and the third quarter of 2020.

And this end market was up 2% and year on year as growth and our semiconductor customers offset modest year on year declines from our datacenter customers.

We expect revenues and this end market to represent approximately 14% of first quarter sales.

For the full year computing grew 9% as we saw growth across our data center and semiconductor customers.

Interest expense was eleven point six million dollars in the fourth quarter a decrease for 4.8 million dollars from the same quarter last year to the lower interest rate and the term loan repayment of $4,000 during the quarter. We recorded 5.3 million dollars of Foreign Exchange losses government in sentence reduced the net loss to 1.9 billion dollars off of eps. This compares to a loss of one point eight million dollars or approximately $0.01 of eps in Q4 of last year.

And 2021, we expect to be above the forecast of end market growth of $1 of 3% driven primarily by Denis data center growth.

Next I'll cover some details from the fourth quarter.

Note that all of the following operations metrics exclude the mobility business unit and the two m's plants that we closed.

This information is also available on page six of our earnings presentation.

During the quarter, our advanced technology business, which includes the HDI rigid flex and the RF subsystems and components accounted for approximately 31% of our revenue.

Tax rate was a negative 19% of the fourth quarter due to a change in the non-gaap school year tax rate from 15% to 6% Income is 44 to million dollars were thirty-seven cents per diluted share this compared to fourth quarter 2019. Nineteen twenty seven point five million dollars for twenty-six cents per diluted share home. I just need the address for the fourth quarter was 68.2 million dollars or 13% of net sales compared with fourth quarter 2019 adjusted either. A 17-2 point eight million dollars or 13.6% of net sales.

This compares to approximately 27% in the year ago quarter and 29% in Q3.

We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities and new markets.

Capacity utilization and Asia Pacific was 63% and Q4 compared to 61% in the year ago quarter, and 63% and Q3.

Appreciation for the fourth quarter was 22.7 million dollars net capital spending for the quarter Was Eighteen point seven million dollars?

Our overall capacity utilization in North America was 58% and Q3 compared to 58% and the year ago quarter, and 61% and Q3.

My balance sheet and liquidity position remained very strong cash flow from operations is 55.5 million dollars in the fourth quarter or 10.6% of Revenue income and cash equivalents at the end of the fourth quarter 2020 with 451.2 million dollars. It's cash number is after we pay $250 to settle our convertible bonds December 15th this cash. No, excuse me, at the end of the fourth quarter our net debt / last 12 months ago was 1.4 times a month during the quarter. We also received the Two Notch upgrade from Moody's to be 8 to

Our top five customers contributed 34% of total sales and the fourth quarter of 2020 compared to 36% and the third quarter of 2020.

Our largest customer accounted for 14% of sales and the fourth quarter.

At the end of Q4, our 90 day backlog, which is subject to cancellations was $483 9 million.

Compared to $402 8 million at the end of the fourth quarter last year and $437 8 million at the end of Q3.

It's not mentioned in his comments today. We announce the 2-year 100 million dollars a share repurchase program as we continue to transform our company. We have modified our Capital allocation strategy m&a will start will still be our priority for increasing shareholder value, but at the company becomes more consistent in his cash generating performance, we believe that we can utilize going to increase shareholder value.

And <unk> book to Bill ratio was one point and one nine for the three months ending December 28.

I'd like to conclude by again thanking our employees for continuing to contribute the TTM and.

And our critical mission of inspiring innovation with our customers.

Their efforts are particularly appreciated during these times by our customers and critical and central areas like defense and the medical industries.

Now I'd like to turn to our guidance from the first quarter looking ahead. We believe the COVID-19 may continue to cause end market demand disruption supply chain challenges bath in efficiencies with our own production with this in mind. We estimate total revenue for the first quarter of 2021 to be in the range of 490 to $530 a month. We expect non-gaap earnings need the range of nineteen to twenty-five cents per diluted share.

Despite the COVID-19, and currency related challenges challenges, we faced in 2020.

Our business performed better than we expected as a direct result of operational excellence and the market diversification and.

And our employees concerted efforts to engage and support our customers.

We've also taken positive strategic moves and it will strengthen TTM for the long term.

UPS forecast is based on the account of approximately 109 million Shares are shared count guidance includes the security bunch of options and but don't be associated with our warranty. We believe we expect that sg&a expense will be about 8.4% of Revenue in the first quarter and R&D to be about 1% of the total approximately eleven million dollars. And finally we estimate our effective tax rate should be between ten and 15%

Now and Todd will review, our financial performance for the fourth quarter Todd.

Thanks, Tom and good afternoon, everyone.

As Tom mentioned earlier in 2020 of TTM announced the closing of the sale of its mobility business unit.

As such the disclosure of Ttm's GAAP results reflects the mobility business unit as a discontinued operation.

During this call I will discuss non-GAAP financial information, which excludes the results of the mobility business unit.

When developing your financial models we offer the following additional information during during the first quarter. We expect to record amortization of intangibles of about 10.9 million dollars off these compensation expense of a 4.7 million dollars non-cash interest expense of approximately 0.5 million dollars, and we have to make appreciation extreme be approximately 22 million dollars. Finally. I'd like to announce it will be participating virtually in McAllen Aerospace and defense and Industrial conference on February 9th, the JPMorgan leveraged-finance an ideal conference on March 1st, and the technology networking and services conference on March 9th.

The EMS business unit is still included in both the GAAP and non-GAAP results, we have reported.

Please refer to the earnings schedule for additional details on the exited businesses and continuing operations.

Page seven of our earnings presentation, and the appendix of our Investor presentation, and also continue with the information.

For the fourth quarter net sales from continuing operations were $523 8 million.

Compared to $535 7 million and the fourth quarter of 2019.

The year over year decrease in revenue was due to declines and our medical industrial instrumentation and networking telecom and markets with roughly a third of the decline coming from the EMS plant, which we have growth.

That concludes my prepared remarks and I would like to open the line for questions. Sorry.

This was particularly on.

Well, thank you. If you'd like to ask a question at this time, just a reminder by pressing on your telephone keypad using the speaker phone function is turned off off to reach us. Once again, that's star one to ask a question or pause or just a brief moment.

Excuse me this was partially offset by growth and our automotive aerospace and defense and computing end markets.

Excluding the impact of the two the EMS plant shutdown of our revenues were down one 1% year on year.

GAAP operating income from continuing operations for the fourth quarter of 2020 was $29 2 million compared to GAAP operating income of $29 $4 million and the fourth quarter of last year.

Removing take our first question.

On the.

GAAP basis net income from continuing operations and the fourth quarter of 2020 was $39 million or <unk> 34 per diluted share. This.

Yes, thank you. Good afternoon. I wanted to ask a question regarding the the forward guidance of backing into the gross margin number. It looks like that's going to be down sequentially on your modest Revenue decline. So I'm trying to figure out what are the drivers of that. I know that they're we're hearing a lot of these conference calls that they were are incremental costs Supply costs Logistics costs materials cost. I know you spend a lot on on copper and other things so are are there any winds that you're seeing in the next quarter or two?

This compares to a net income of $10 8 million or <unk> 10 per diluted share and the fourth quarter of 2019.

The remainder of my comments will focus on our non-GAAP financial performance on.

Non-GAAP performance excludes our divest and mobility business unit and non routine tax items and.

M&A related and restructuring costs, and certain noncash expense items and other unusual or infrequent items.

We present non-GAAP financial information to enable investors to see the company through the eyes of and manage it and.

Well, are you are you over here man?

And the facilitate comparison with expectations and prior periods.

Well, you have a year. It looks like your was sequential e sequentially. Okay. So when you when you look at q1 compared to Q4 and looking at our gross margins, you're right to observe is that would be down slightly sequentially on the margin line. What's really driving that for us is obviously our revenues down sequentially a little bit. Now a lot of that comes from the DMS business which for the two thousand plants that we completed production in in in Q4 until there's a little bit of profit that goes away from that. But also what we have we have Chinese New Years in q1 actually didn't have that in Q4 and although revenue is stronger in Asia. We have to work through that Chinese New Year and you have to pay holiday pay which gets a good bit of a headwind wage. Then of course where we continue to challenge a big challenge with the strengthening Chinese currency, which sequentially is a modest increase we watch that every day you over a year off.

Gross margin and the fourth quarter was 17, 5% compared to 19, 1% of the fourth quarter of 2019.

The year over year decrease and gross margin was due to lower revenue.

COVID-19 related costs and associated labor inefficiencies and foreign exchange headwinds, which increased our China based costs.

Selling and marketing expense of $58 $2 million and the fourth quarter or two 9% of net sales.

Versus $17 million or three 2% of net sales a year ago.

Fourth quarter G&A expense was $24 4 million or four 7% of net sales compared to $29 8 million or five 6% of net sales and the same quarter a year ago.

And Q4, net 2020, RMB with $4 6 million or <unk>, 87% of revenues. This.

This compares to $4 $3 million, 4.81% in the year ago quarter.

Figuring headlines. So those are the three really big issues that are affecting us. I can't sequential e The Cove it issue was was pretty challenging in Q4. We expect it to be too similar.

Our operating margin in Q4 was 9%. This compares to nine 6% and the same quarter last year.

Interest expense was $11 $6 million and the fourth quarter of decrease of $4 $8 million from the same quarter last year due to lower interest rates and the term loan repayment of $400 million.

So that's not really a variance because one.

Okay, and and on on that, could you quantify perhaps the number of employees that have been affected and in in the cost associated with that would be on a a basis point a metric in in terms of the headwind that you're seeing?

During the quarter, we recorded $5 $3 million of foreign exchange losses.

Government incentives reduced the net loss of $1 $9 million of approximately <unk> of EPS.

I'd like to comment in the employee information but in regards to cost, you know, there's certain direct out-of-pocket costs for things like that that extra cleaning expenses and things like that, which we can quantify that part of its relatively modest. But proving to be the bigger challenge is Although our plants are open when you get a very significant sickness or quarantine, you know in as a precautionary measure to avoid people getting sick you have production and efficiencies which department might bring down one day or you have to work overtime to keep up production schedule. Those are the kind of production inefficiency that were referring to that were a much more pronounced for us in Q month. And we expect to have some additional challenges in q1 direct qualification is difficult to do but it was it was a substantial amount in terms of the impact that we could see dead.

This compares to a loss of $1 8 million or approximately one set of EPS in Q4 of last year.

Our effective tax rate was the negative 19% of the fourth quarter due to a change and the non-GAAP full year tax rate from 15% to 6%.

Fourth quarter net income was $40 2 million or <unk> 37 per diluted share of.

This compares to the fourth quarter 2019, net income of $27 $5 million or 26 cents per diluted share.

Adjusted EBITDA for the fourth quarter was $68 2 million or 13% of net sales compared with fourth quarter 2019 of adjusted EBITDA of $72 $8 billion or 13, 6% of net sales.

Depreciation for the fourth quarter was $22 $7 million.

Net capital spending for the quarter was $18 $7 million.

Labor time. Did you want to add anything else?

Our balance sheet and liquidity positions remain very strong cash flow from operations was $55 $5 million and the fourth quarter or 10, 6% of revenue.

Yeah, I would just add a couple of things one is the other inefficiency Madam we talked about this in the past. We we have a structure particularly in North America because our plants are smaller. We will when when they're dealing with the challenges around new products potential complexities of Technology. We bring in Tiger teams from our other plants. We also had a lot of involvement Hands-On from management, obviously with the situation of the code that we've we've been presented from from doing that, you know from from organizing that kind of assistance and that goes into that production and efficiency that did Todd talked about very difficult to quantify that clearly, you know impact on yield and also an impact on total production the other peace of terms of Labor Force wage.

Cash and cash equivalents at the end of the fourth quarter 2020 were $451 $2 million. This.

And this cash number is after we paid $250 million to settle our convertible bond on December 15th.

This cash number of excuse me at the end of the fourth quarter, our net debt divided by last 12 month EBITDA was one four times.

During the quarter. We also received a two notch upgrade from Moody's to <unk>.

And as Tom mentioned in his comments today, we announced the two year $100 million share repurchase program.

As we continue to transform our company, we have modified our capital allocation strategy and.

M&A will start will still be our priority for increasing shareholder value and then.

As the company becomes more consistent and the cash generating performance. We believe that we can utilize both tools to increase shareholder value.

About about 10% to date of our of our labor force has been impacted by kogan during the course of this bandage. So what we saw and I think others have seen is is a real uptick and incidence increases starting mid-november carrying through December into mid-January. We may be signing to see a little you know, a little bit of tail off there. We're we're encouraging that but we're also being very careful, you know, given what what has happened here. It seems like every social event leads to life leads to another influx of cases. And and so we're we're very it's nice to see that the case is starting to come down a bit, but but we're not not counting on Thursday.

Now I'd like to turn of our guidance for the first quarter.

Looking ahead, we believe the COVID-19, and they continue to cause and market demand disruption supply chain challenges as well as inefficiencies with our own production.

With this in mind, we estimate total revenue for the first quarter of 2021 of the being the range of 490% of $530 million.

We expect non-GAAP earnings to be in the range of 19% to 25 cents per diluted share.

The EPS forecast is based on the diluted share count of approximately 109 of their own shares.

Our share count guidance includes dilutive securities such as options and the origin, but no shares associated with our warrants.

We believe we expect the SG&A expense will be about eight 4% of revenue and the first quarter and R&D to be about 1% of revenue.

Okay. Thanks very much. Very helpful.

We expect interest expense to total approximately $11 million.

Thank you, ma'am.

Finally, we estimate our effective tax rate to be between 10% and 15%.

On this next to William Stein with to a securities.

To assist you in developing the financial models, we offer the following additional information.

Congrats on my good results in the in the new buyback announcement. Thanks for taking my questions first. I'm wondering if it is restrictive or Revenue in any way either in the Q4 results or the q1 Outlook.

During the fourth during the first quarter, we expect the record amortization of intangibles of about $10 $9 million.

<unk> based compensation expense.

Of $4 $7 million noncash interest expense of approximately zero point $5 million and we estimate depreciation expense will be approximately $22 million.

I can I can jump in on that. Yeah, definitely and from the standpoint of productivity in in our North America facilities had an impact in Iraq before we will have an impact in q1 and that's just yeah again that impact on yields that impact on total production and Todd really hit on it. It's just it's difficult to forecast if you're going to quarter but in different cells of you know production sales, we may be more impacted than other and that causes a month and imbalance in in the operations so that that absolutely impacts overall production and therefore Revenue.

Finally, I'd like to announce that we'll be participating virtually and the Cowen Aerospace and defense and industrial conference on February 9th the.

The J P Morgan leveraged finance and high yield conference on March one and.

And the true technology networking and services conference on March nine.

That concludes our prepared remarks, and now we'd like to open the line for questions Tomorrow.

Well. Thank you okay. If I could ask the question at this time, just a reminder.

Staying on my question on Star one on your telephone keypad.

Speakers, please make sure you're on mute function of turned off all the signals from Hs.

Going to ask another but also asked if you have any way to quantify what the shortfall might have been like if you have Cove in putting the margin in fact of life, I'd how much potential Revenue do you think you left on the table? But the the follow-up question is to what degree you think you're being affected by shortages either for your own business or from the perspective of your customers not being able to get chips to put on boards.

And Thats Star one to ask the question I'll pause for just the frame.

And that will take our first question comes from Matt Sheerin with Stifel.

Yes. Thank you good afternoon I wanted to ask a question regarding the forward guidance sort of backing into the gross margin number and it looks like that's going to be down sequentially on.

The modest revenue decline.

Yeah, so so in terms of of impact on Revenue it is it is difficult to to quantify what I can tell you if if you know, if you look at q1 as an example in Aerospace and defense we're relatively flat a piece of that of course is off. All right, here's your commercial Aerospace being soft. But also a significant piece of that is is our inability to get to get production out. And so if you think about what would be a normal growth rate in that Aerospace and defense, you know area where and and we talked about being in that, you know Cuba for the same range more towards the high end. Of course last year. We grew 7% you know, it's clearly. Yeah the closing situations having a bath

So I'm trying to figure out here what are the drivers of that I know that there were hearings on.

A lot of these conference calls that there are incremental costs supply costs and logistics cost of materials costs. I know you've spent a lot on on copper and other things. So are there any cost headwinds that youre seeing and the next quarter or two.

Well go on sequentially or year over year map.

Well year over year, it looks like you're sequentially sequentially.

Okay sequentially. So when you when we look at Q1 compared to Q4 and looking at our gross margins you are right to observe that that would be down slightly.

Sequentially on the margin line, what's really driving that for US is obviously, our revenues down sequentially a little bit now a lot of that comes from the Gms business.

For the two closed plants that we completed production and.

And Q4, and so theres a little bit of profit that goes away from that but also what we have is we had the Chinese new year. In Q1, obviously you didn't have that in Q4.

There's also of course I'll bookings way out and between quarters, but but yeah, it's pretty pretty significant there in terms of other shortages and how they're impacting our business. You know, I think we'll you're you're referring really two components. And of course we've been reading along with everyone else about the tip shortage has how that relates to Automotive. What I tell you is yeah on the on the edges we've seen we've seen shift shipments may be affected by by customers running into shortages, but it has not had a had a large impact on us. We are continuing particularly inatome to monitor the situation carefully and you know, and and and we're thrilled to see the Brookings coming in as they have but still log.

And although revenue was stronger in Asia.

Of the work through that Chinese new year, and you have to pay the holiday pay which is a bit of a headwind and then of course, we continue to challenge the challenge with the strengthening Chinese currency, which sequentially is a modest increase.

Watch that every day year over year at the bigger headwind. So those are the three really big issues that are affecting us I think sequentially the COVID-19 issue.

<unk> was pretty challenging in Q4, and we expect it to be the similar in Q1, and so thats not really of various sequentially.

Okay and.

On the Covid issue could you quantify perhaps the number of employees that have been affected and and the.

And the cost associated with that and maybe on a basis point.

Metric and.

No troubles.

In terms of the headwind that youre seeing.

On the inventory Hub to see if that is at all impacted so far so good. But you know, I would expect eventually that's going to trickle through the supply chain jobs that we would start to see, uh, you know more of an impact in terms of how both so that's what we're watching so far so good. But again something to keep keep our eyes on.

Well I'll, let Tom comment on the employee information, but in regards the costs.

On the.

Theres certainly direct out of pocket cost of things like masks and extra cleaning expenses and things like that which we can quantify it and that's part of it is relatively modest what's proving to be the bigger challenge is although our plants are open, but we have a very significant.

Thank you.

Thickness of our core and team.

almost next to Steven fox fox advisors

And as a precautionary measure to avoid people getting sick you have production inefficiencies of the department of might be down one day or you have to work overtime to keep of production schedule.

Thanks. Good afternoon. First question. I was curious if you could go into a little bit more detail on the big uptick in the percent of federal revenues tied to your advanced technology. And she said it went from 20% to 26% So what what Advanced Technologies was driving at and what and application and then I had a follow-up.

As of the kind of production inefficiencies that we were referring to that we are a much more pronounced for us and Q4, and we expect to have some additional challenges and Q1 on.

Direct kind of quantification and is difficult to do but it was it was a substantial amount in terms of the impact that we could see in terms of our labor efficiencies.

Sure. Yeah see predominantly that was driving it, you know r s going into each other and and off the vehicle related Center needs but that's the bigger driver a secondary factor is HDI and and the impact of em, I positively and that that's more time to infotainment and infotainment development as Miniatures off components we can you know more and more a factor driving a new Freaky. I so both of those areas that but more RF than anything else until I come to the Brookings that we've talked about in the past in the eighth. Now translating into into revenues.

And do you want to add anything yet.

Yeah, I would just add a couple of things one of the other inefficiency Matt and.

And we've talked about this and the past we have a.

The structure, because theyre really and North America because of our plants are of smaller we will.

When when they're dealing with challenges around new products.

And so complexities of technology.

We bring and Tiger teams from our other plants. We also have a lot of involvement and hands on from management.

Obviously with the situation with Covid. The reason that we've been prevented from from doing that from from organizing that kind of the assistance and that goes into that production of inefficiency of debt.

Understood and then in terms of the data center the networking Communications area. Can you just sort of talk a little bit more specifically about your expectations for five days and Datacenter. I guess you're still waiting to hear and in terms of actual orders for trying to 5 G, but I'd love to just sort of get your deal for maybe on q1 in terms of how you thinking about those markets. Thank you.

<unk> talked about very difficult to quantify the clearly the impact on on yield and also on impact on total production.

The other piece in terms of labor for us.

About 10%.

To date of our of our Labor force has been.

Impacted by Covid.

During the course.

All of this pandemic.

No.

What we saw and I.

Sure. Yeah, so I'm going to separate that the scratches and the way the way we look at five 5G thousand to our networking Communications and Market wage. So I'll talk to that first and then I'll talk a little bit about data center trans would fall into our Computing and Market on the on the network and communication a 5G what we what we saw last year was, you know, very real strong demand coming out of China related to phase two of their 5G investment. Now, we've all been waiting for for phase three initially that was slated to start in the fall of Life year. It was delayed to this year the question questions or really revolving around wouldn't be before Chinese New Year or after birth.

Think others and seeing as a real uptick.

And the incidence and cases.

<unk> mid November carrying through the December into mid January we may be starting to see a little a little bit of the tail off there.

We're encouraged by that but we're also being very.

Careful.

Given.

What has happened here it seems like every social event and leads to.

Leads to another influx of cases and.

So were very.

Nice to see the cases of starting to come down a bit but the we're now not counting on that.

Okay. Thanks, very much very helpful.

Thank you Matt.

On the next to Lena Zhang with true with Securities.

Great.

Congrats on the good results and the and the new buyback announcement, thanks for taking my questions first.

I would say definitively it will be after Chinese New Year.

And frankly, I think the uh, the Chinese government is monitoring the situation with Huawei their design divestment and real-time feed three for the right timing when when Huawei and and others are ready to to provide the equipment. So there's a little bit of you know, I think that's where where the uncertainty comes in. I think it is a first half of the Year situation where we should see that to give you a sense of at least officially what's out there. The Chinese government has said that last year approximately 580000 base stations. We're install and what they're what they're calling for. This year is closer to six hundred thousand and then what you can pick up

Im wondering if COVID-19 is restricting your revenue and any way either and the Q4 results and or the Q1 outlook.

I can I can jump in on that yes definitely.

And from the standpoint of productivity and our North America facilities had an impact in Q4.

We will have an impact in Q1.

And Thats, just the yeah again that impact on yields and that impact on total production.

And Todd really hit on it and it's just it's difficult to forecast as you go into the quarter, but in different cells.

Production and sales, we may be more impacted than other and that causes and and imbalance and.

On the operations, so that absolutely impacts overall production and therefore revenue.

Going to the App.

In terms of the other factors rest of world, which frankly was very small last year was that you know that estimate from Market forecasters somewhere around 150,000 PlayStation compared to that $600,000 in China this year. I would expect to see what the forecasters are expecting to see is a good option. There could be 250,000 could be north of that. I think anywhere between $250,000 and $400,000 for kids that that I seem that's going to be driven out of North America and we're starting to see some of the initial signs of that followed by wage Europe and then rest of Asia, so that activity is is what we're starting to, you know, see a bit of here, which is incorrect.

Another but I'll also ask if you have any way to quantify what the shortfall. It might've been like if you didn't have COVID-19.

Putting the margin impact of side, how much potential revenue do you think you left on the table, but the the follow on question is to what degree you think youre being affected by shortages either for your own business or from the perspective of.

Your customers not being able to get chips to put on boards.

Sure.

Yeah. So so in terms of.

The impact on revenue again, it is it is difficult to.

To quantify what what I can tell you is if.

If you look at Q1, as an example, and aerospace and defense were relatively flat.

A piece of that of course is.

Is commercial aerospace.

And being soft.

<unk>.

And then what we're waiting for from a real, you know, a real significant volume standpoint would be that sign up piece combined with further rest of the world expansion pack course of the year, but that's why we've been pointing really, you know, this is more of a second half of the Year phenomena than the first half of the year, which we expect will be sought in the meantime networking will continue to be to pull it along and in terms of that end Market in data center trans always always interesting, you know, last year second quarter was phenomenal with a the data requirements out there driving some very urgent needs for equipment. I would say that would come off of that Q4 was better than we expected which is encouraging. I hate to one of those good from the data center requirement standpoint. Yep.

Also on a significant piece of that is.

And our inability to get to get production.

Good.

And so if you think about what would be of normal growth rate and that aerospace and defense area, where and we talked about being in that 2% to 4% range more towards the high and of course last year, we grew 7%.

Clearly.

Yes, the COVID-19 situation of having an impact on that and there is also of course of our bookings lay out.

And between quarters, but.

But yes, COVID-19 is pretty pretty significant there.

In terms of of other shortages and how they are impacting our business.

Yeah.

Well, you're referring really to the components and of course and we've.

And then reading along with everyone else about the chip shortages and how that relates to automotive.

Again, I need the longer-term trends were there in terms of data.

What I would tell you is yes.

Yeah on the on the.

The edges, we've seen we've seen shifts and shipments.

I need that that will help will help that data Centre demand to continue to grow this year. So encouraging on that side.

The effected by by customers running into shortages, but it has not had a had a large <unk>.

Impact on us.

Great, that's super helpful. Thank you very much.

We are continuing particularly in automotive to monitor the situation carefully.

Thank you.

Next we'll move to Jim Ritchie with Needham & Country.

And.

Hi, good afternoon to talk to you about the caseload increasing an input October. I need to have it's having on your Workforce and I'm just wondering how long have you guys should variability in some of the orders that are coming in from your customers that you think could be tied to this whether it's in the US or elsewhere. They're listening to page a case has increased.

And we're thrilled to see the bookings coming and as they have.

But still watching those hub polls.

Out of inventory hubs to see if that is at all impacted so far so good but.

I would expect eventually that's going to trickle through the supply chain and we would that we would start to see.

More of an impact in terms of hub polls.

So that's what we're watching so far so good but again something to keep our eyes on.

I'm not sure. I caught all of that and can you can you repeat the last month be impacted code that I mean clearly it's impact you had an impact of your Workforce and I'm just wondering if you're seeing the variability in orders that have been coming in from college for themselves or being impacted by this. Are you able to see that at all yet or just curious if if that's playing into any of the forecast?

Okay. Thank you.

Thank you.

And almost next to Steven Fox Fox Advisors.

Thanks, Good afternoon.

First question and I was curious if you could go into a little bit more detail on the day.

Uptick in the percentage of.

Auto revenue is tied to your advanced technologies, you said it went from 20% of 26%.

What what advanced technologies was driving that and what and the applications and then I had a follow up.

What I would say and and as we go again, it's it's primarily going to be Aerospace and Defence where where we where we hear that and and and I think they're the supply chain as a whole has been has been challenged our customer. I'm using programs around I'd say it's pretty Dynamic but they're moving program needs around 2 to accommodate the situation the supply chain and so far. I think I've done a pretty good job of the gym to allow, you know, certainly allow the TPM and others to continue to to ship. There's also I think you know part of this component if you just think broadly about component shortages part of that is probably, you know impacted by the situation as well.

Sure.

Steve predominantly that RF, that's driving it.

RF going into the Aaas.

Other and other autonomous vehicle related center.

Needs, but.

That's the bigger driver of secondary factor is the HDI.

And and the impact of the HDI.

Positively and that's that's more tied to infotainment.

And the infotainment.

Developments as miniaturization of components becomes more and more of a factor.

Driving the need for HDI.

And both of those areas, but more RF than anything else. So.

Some of the bookings that we've talked about in the past and the Adas area and now translating into in the revenues.

Understood and then in terms of.

The data center the networking communications area can you just sort of talk a little bit more specifically about your expectations for <unk> and data center, I guess youre still waiting to hear and in terms of.

And you know, so it's hard to separate the two but I would say that overall, you know, customers are adjusting to this month and they're allowing us to continue shipments on on critical programs and then and and adjusting needs as they look out over several quarters. But but but you know, I think they've done a really good job of handling. What is a very complex supply chain situation.

Actual orders for China, five G, but I'd love to just sort of get your feel for the beyond Q1 in terms of how youre thinking about those markets. Thank you.

Sure.

So I'm going to separate that discussion and the way the way we look out of five five day falls into our network and communications end market. So on.

I know you guys don't think I'd be on the corner. But as we start coming out of this hopefully over the next several months and we see more of the vaccine getting out there or it should be it would sound like there should be some list to your gross margins just on the basis of the disruption that you've seen keep foreign. You're anticipating and see one is that wage their way to think about it being an anchor if you will often related to Cove it in terms of its impact on our cost structure through those imitation season, we talked about as we saw significant ramping and in cases on an impact farm, so yes, we would expect that to relieve as as they get the, you know, the country is really or the world gets cold the situation particularly North America gets the coldest month.

So after that first and then and I'll talk a little bit about data center trends, which fall into our computing.

And market.

On the.

On the networking communications side with <unk>.

And what we what we saw last year.

Was.

The real strong demand coming.

Coming out of China related the phase two of the <unk> investment.

And we've all been waiting for for a phase III. Initially that was slated to start in the fall of last year.

Delayed too.

This year and the question.

And we're really revolving around would it be before Chinese new year or after I would say definitively it will be after Chinese new year and.

And frankly I think the.

Under under better control. Is that is that beyond that?

The Chinese government is.

And monitoring the situation with Huawei.

Point I think I had to we can all watch the news and speculate on the vaccine for a while, but I think there's no doubt that that certainly holding a faculty.

Their design and development.

And well time phase III.

For the right timing on when the Huawei and others are ready to provide the equipment.

When do the comparisons give you your in the commercial Aerospace area? When did when was the big hit last year for you in that area?

And so theres a little bit of.

I think that's where the uncertainty comes in and I think of it as a first half of the year.

If you go from from a revenue standpoint, you know, really really like three so started in Q2 started coming down into three and and two for some and and so, uh, I think that's when you know again, we're going to go through the course of this year. It's it's off until we get to that second half of year. It's going to be a tough tough compare and last question and you know, we're seeing more of these reports come back. I'll give you administration of ad by American and it is and yeah, I'm just wondering do you see any benefit if in fact that's real that it might have in terms of Supply change for you guys.

Situations, where we should see that.

To give you a sense of at least the officially what's out there the Chinese government and said that.

Last year, approximately 580000 base stations.

Were installed.

And what they are.

They are calling for this year is closer to 600000.

And then what you can pick up and sort of the the other factor is rest of world, which.

And frankly was very small last year was that the <unk>.

Estimates from <unk>.

Market forecasters somewhere around 150000 base stations.

Compared to that 600000 and China.

This year I would expect to see where and what the forecasters are expecting to see is of good uptick.

Yes, so it is early and and I think it's early to predict how that will all come together. I think clearly when when we look, you know, we are well established in North America. We have the you know, we have the opportunity we have that certainly the footprint we can continue to invest in is the administration looks at at by America initiative the you know, what we're dead. Well we are certainly thinking through is is a lot to do gym with if you start to think about our business you start to think about a few things one is on a Supply Chain Letter. It's laminate laminate supply chain, whether it's equipment supplies, and there are a number of areas where frankly birth

And there.

Could be 250000 could be north of that and I think anywhere between 250000 and 400000 or the.

The forecasted that I've seen.

And that's going to be driven.

Out of North America, and we're starting to see some of the initial signs of that.

Following by Europe, and then rest of Asia.

So that activity is is what we're starting to see a bit of here.

Which is encouraging.

And then what we're waiting for from a real.

The real significant volume standpoint, and we'll do that China.

<unk> combined with further rest of the world expansion through the course of the year, but that's why we have been pointing really this is more of the second half of the year.

Phenomenon of and the first half of the year, which we expect will be soft in the meantime networking.

The US infrastructure is insufficient. So we end up importing and and we we we've are quite a bit of costs associated with that. I see the same area is just simply volume manufacturer because uh, you know, we we and others have have really moved to a high mix Vol volume type of action in in in the US and so there needs to be a recognition with with our customer base, perhaps encouraged by the US government that that it makes sense for larger-scale commercial production to come back into the US and then it needs then you're looking at a full-scale no infrastructure requirement booked in our supply chain as well as in the scale demanded by those customers. That's that's when it would get get into a state wage.

<unk> to be.

Pull us along and in terms of that and market.

And data center trends always always interesting.

Last year second quarter was phenomenal where the the data requirements out there of driving some very.

Urgent needs for equipment.

I would say that we.

Come off of that Q4 was better than we expected, which is encouraging and I think Q1 looks good from a data center.

Requirement standpoint.

And again I think the longer term trends are there in terms of data needs that that will help will help that data center demand to continue to grow this year so and.

Courage and on that site.

Great. That's super helpful. Thank you very much.

Thanks, Steve.

Thanks, Thomas to Jim Mcniel, <unk> with Needham and company.

yeah, we're you know, obviously watching that closely and

Hi, good afternoon.

And talking about the <unk>.

At least the discussions around it, you know could could be encouraging longer-term but it does sound like it's very early days and even it sounds like there's just lots of challenges even if they really do want to execute on this.

And slows increasing and the input of Covid in the winter.

It's having.

On your workforce and I'm, just wondering have you guys seen variability and.

Some of the orders that are coming in from your customers that you think could be tied to this whether it's in the U S or elsewhere. So we're seeing some case loads and the cases increase.

Yeah, we're we're you know for us it's always always starts with our customers to the extent that our customers are looking have that supply chain need we moved up north and we will encourage our supply changes that most to meet those needs so that that's where it all starts.

Yeah.

And.

I'm not sure I caught all of that Jim can you can you repeat of the last day of short of the question, yes, hopefully on about breaking up the.

The question I have the assist regarding the.

And the impact of Covid I mean, clearly it's intact.

Okay. Thanks a lot.

Thank you.

The answer of the workforce and I am just wondering if youre seeing the variability and orders that have been coming in from customers who themselves are being impacted by this are you able inc.

And just a reminder to our audience, please allow for one question and one follow-up only and we'll take our next question from Paul with JPMorgan. Yeah, thanks for taking my questions a little late to the office. So some of these might have been touched by just two questions or any first off on the auto front. Are you seeing a change in the customer base? We've seen just you know dozens of companies entering this took place, especially believe he's at the moment and it strikes me that there must be some new logos in in your mix by now, but perhaps you can Enlighten us.

Some of that at all yet or just curious.

Thats playing into any of the forecast.

Yes.

And.

What I would say and.

As we as so again, it's primarily going to be.

Aerospace and defense.

We hear that and.

And I think the supply chain as a whole.

Yeah, interesting. And and and I'll thank you for for the question. I'll broaden it slightly. I think I think what's interesting to me is if you look at at the automotive space and and what happened in the fourth quarter is that we we saw a strong year on your growth across across-the-board. But if you start to look regionally where we really where we draw the strongest growth continued to be Asia month and then when Europe coming in right after age of North America good year-on-year growth, but not but not the same level and what I attribute that to me is what what you commented on. We we have seen a lot of innovation in the EV States certainly, uh in Asia and South

It has been has been challenged.

Our customers are moving programs around I'd say, it's pretty dynamic, but theyre moving program needs around.

To accommodate the situation of the supply chain and so far I think they're doing a pretty good job of the gym to.

Low <unk>.

Certainly allow the TTM and others to continue to ship.

There is also I think part of this component of if you just think broadly about component shortages.

Part of that is probably impacted by the COVID-19 situation.

And as well.

And so it's hard to separate the two and then I will.

Say that overall.

Customers are adjusting to this and they are allowing us to continue shipments on the <unk>.

And that has helped our customers that are working there primarily tier one suppliers. I think that's really helped their business and it's energized their business as consumer demand has come back. Um, and so that's a really encouraging feature. I think I'm on the European side also it encouraging to see this kind of sucks. Because if you remember we were dealing a year ago was really that transition from out of diesel and the big question in Europe was where would the demand go down as the consumer transitioned out a vehicle? And I think the answer is starting to emerge any more and more easy adoption and and yet some good solid demand for our internal combustion engine as well. But Evie certainly playing a role in in that geography as well. So so yeah for birth

Critical programs and and adjusting needs as they look out over several quarters.

And I think again, they've done a really good job of handling on what is a very complex supply chain situation.

And I know you guys kind of guide beyond the quarter, but as we start coming out of the Salt Lake over.

Over the next several months and we see.

More of the vaccine and getting out there there should be it would seem like there should be some lift.

On your gross margins just on the basis of the disruption that you've seen in Q4 and the anticipated in Q1 is that a fair way to think about it.

Yes.

Well, there's no doubt where all of Harry.

Carrying.

And anchor if you will and Q4 and Q1 related to Covid in terms of the impact on our cost structure.

On to those of inefficiencies and we've talked about is we saw a significant ramping and the cases and impac.

That that yes, there are direct shipments to some of these new customers.

The impact to our employees.

And so yes, we would expect that to relieve and so as we get the the.

But don't get me wrong when they're doing development work. We're doing a lot of work for them. But the the major volume continues to be with the tier once and they're turning around and not seeing a very different landscape that they look out at their customer base.

Countries really of the world given the Covid situation, we're particularly North America gets the COVID-19 situation under under better control.

Is that Q2 is that beyond that point and I think that the.

And again I'll watch the news and speculate on the vaccine rollout, but I think there's no doubt the best certainly holding us back of it.

Click daughter and then my fill up really also in the auto segment really perhaps more in the ice area at the moment. That's the the supply constraints not related to COVID-19 will people related but most to you know silicon, you know, whether it's a micro controllers or off on chip technology. Is that affecting you

When do the comparisons get easier.

Todd.

And the commercial aerospace area and when did the big hits last year for you and that area.

Yes.

If you came from from a revenue standpoint.

Really.

The Q3. So started in Q2 is there any do really impacted us in Q3 and Q4.

Yeah, so so yeah, I did kind of a bid on that. Yeah, the straight answer calls were not we haven't seen it yet. We're still seeing strong demand. You can see that reflected in in the backlog from number to that which which are strong for us coming out of the out of the fourth quarter, but we're watching it really closely and and um and that and that's going to be a function of of Hub, you know, how the inventories and the pool out of those out of those hubs. So we're both in a closely and and I would expect that. Yeah, there will be an impact here, uh eventually, but it just hasn't had materialized yet.

And and so.

I think thats why and again, we're going to go through the course of this year.

And until we get to.

So that the second half of the year, it's going to be the tough a tough compare.

Got it and last question and.

Yes.

We're seeing more of these sort of towards coming out of the new administration of the AD buy American and it is and I'm. Just wondering do you see any benefit if in fact that the real that it might have in terms of supply chain for you guys.

Yeah. So.

It is early and.

And I think it's early to.

To predict how that will all come together.

Very good. Thanks so much.

Thank you.

And then clearly when we look we are well established and North America.

We'll take our next question Christian Schwab with craig-hallum capital group.

We have the we have the opportunity we have and certainly the footprint and we can continue to invest in.

Great execution. This is if I wanted to be an optimist in this environment and we assume you know, that means accelerate and we get into the fall and and everything's uh a more predictable and safer environment as well as we have phase 3 months production starting and utilization up in particular in asia-pacific. If we wanted to think about you know, how much gross margins could improve from your applied guidance office in q1 or something that could be executing at you know in the back half of the year, you know, could you bridge that gap for us?

Is the.

And the administration looks at.

The America initiatives.

The.

And what we're what we are certainly.

Thinking through is is a lots of do Jim with.

If you start to think about our business, you're starting to think about a few things one of our supply chain.

Whether it's laminate laminate and supply chain, whether it's the equipment suppliers and there are a number of areas where.

And frankly the U S.

The infrastructure is insufficient and so we end up importing and we we were quite of bit of cost associated with that I would say the second area is.

Sure, I'll take a crack at that. I mean what we talked about. It is really looking at that Revenue level of what happens right Auto maintained. That's great. And if we see the 33 with the 5G roll out and trying to kick in let's say let's just pick a quarter cute too and it starts to ramp from there and we have a good strong second-half that's going to be very constructive. When we look at our incorrect charges associated with that Revenue that comes through we're looking at somewhere in that I use 20 to 30, but it's really 25 to 30% depending on the complexity of the higher the month to do the higher the incremental margins, but you know, it flowed through to our operating income level as a result of that incremental Revenue that we pick up and it's really key for us. Quoted in his comment earlier, you know, our utilization levels and Asia are relatively low there in the low sixties low 60% range, which is a very low number for us is dead.

And just simply volume manufacturer because.

We and others have and really move to a high mix low volume type.

Site production and.

And and the U S and so.

There needs to be of recognition.

And with our customer base, perhaps encouraged.

By the U S government debt when it makes sense for larger scale commercial production to come back into the U S. And then it needs when youre looking at a full scale infrastructure requirement, both and our supply chain as well as.

And the scale demanded by those customers.

When it would get get interesting.

But yeah, we're obviously watching that closely.

And at least the.

And the discussions around it.

Berkeley and we have plenty of

It could be encouraging longer term.

Capacity and capability. Yes, we have to add to labor and so forth, but in terms of the fixed infrastructure, but we have that in place. And so there's a rich flow through an incremental Revenue. So if we look at our job markets and say okay Tom mentioned the first half to be a bit of a tough compare because we had very excited medical-industrial and and to some degree the Telecom Telecom section and the first half of 2019 and it might be some stuff Compares there but those things uh for those end markets strengthened as we go through the year, that's nice to have a nice flow to ask them if Auto remain strong or continue to improve keep in mind that as excited as we are about Auto. We're still not yet back to our 2018 Lexus and Tom quoted in in some of the information he provided, you know, our lifetime wins and Automotive this past year was was a very robust number and that was on Top Dog.

But it does sound like it's very early days and EBIT.

And it sounds like the they're still just lots of challenges due to COVID-19.

Do you want to execute on this.

Yes.

And so for us it's always.

Always starts with our customers.

But to the extent that our customers are looking and have that supply chain need.

And we will do our utmost and we will encourage our supply chain and most of that to meet meet those needs.

So.

And that's where it all starts.

Okay. Thanks, a lot.

Thank you.

And as a reminder, two of our audience. Please the last one one question and one follow up on me and we will take our next question.

<unk> with Jpmorgan.

Yes, thanks for taking my questions a little late to the call. So some.

Some of these might of been touched on was just two questions from me first off on the also from and you're seeing a change and the customer base and we've seen just dozens of companies entering the.

Very good year last year and when I was always a lag here, but we're building the pipe one. And if we get that incremental Revenue through that that's good business because again, a lot of the fixed costs are already taken care of. So, we we look for nice flow through as we grow Revenue in the various markets that we're competing in and we're we're optimistic about that we go get the opportunity particularly is in those commercial markets where we have a what we are underutilized with our facilities particularly in Asia.

The space, especially with the these at the moment.

So the strikes me the must be some new logos and you'll miss.

Exploring now, but sort of puts you can move a lot of us.

Yeah.

The interesting and then and all.

And thank you for the question and I'll broaden it slightly I think I think.

Whats interesting to me as we look at the automotive.

Space and what happened and the fourth quarter is that we.

Great good, that's that's a great answer. My second question has to do with an errand. Is there any way for you to quantify how big that business is today? Monday? We well the real answer is we don't think about it that way. So when I like to point you if you think about business that we acquired which is an integrated with our elevation defense business. What I would look at is is that the overall backlog and and then we acquired a door in 2018 that that overall backlog was in the $400 range and and obviously, you know, we're now we're reaching record levels from from from the from an overall backlog standpoint. And and so if you you know, if you look at at that up list at 6 a.m.

We saw strong year on year growth.

Across across the board.

But if you start to look regionally.

Where we really where we saw the strongest growth continued to be Asia.

And then with Europe coming in and right. After the Asia North America, good year on year growth did not not the not the same level and.

What I attribute that to is what.

When you commented on and we have seen a lot of innovation and.

And the easy states certainly.

And in Asia.

And and that has helped our customers the team.

And what primarily tier one.

Suppliers I think that's really help their business and its energize their business as consumer demand has come back and.

So that's a really encouraging.

Feature I think on on the European side.

87 million not all of it. But but I a good majority of it is in the RF states, which was either I direct contribution from from the combination of the two companies. So that's that's the impact that you know, the the that really the foundation is happening. Um, and that's probably the best, you know, best deal. I can give him give to on uh on the internet thing.

Also.

The encouraging to see this kind of growth because if you remember we were dealing a year ago was really that transition from out of diesel and the big question and Europe was where was the demand go.

As the as the consumer of transitioned out of diesel and I think the answer is starting to emerge I think more and more EV adoption.

And yes, and good solid demand for internal combustion engine as well, but.

Is is there even a margin similar to what they were at when you acquired them? I mean they're materially higher than your combined business. Should we assume that they're still that high?

On EV certainly.

And playing a role.

And in that geography as well so.

So yes for us.

Yes, there are direct shipments to some of these new customers don't get me wrong and Theyre doing development work and we're doing a lot of work for them, but the major volume continues to be with the tier ones.

So the the the only the only head with the headwind we've had there on the commercial side of the rfms segment took a break out but that that side we did lose the the Huawei business which which obviously had an impact both on revenue on Thursday. But other than that, it's yeah. It's a very, you know, similar similar kind of margin.

And they are turning around and they're seeing a very different landscape as they look out at their customer base.

Got it and then my follow up also on the auto segment.

And then perhaps more on the on us.

For the moment of months the.

The supply constraints related to Covid people people related.

Okay, and that gets me to the punch like so if you look at that business back-of-the-envelope math and you you put you know, what a market multiple on that business maybe it was traded by itself and not hidden inside your company. It could be the Lions here in your market cap. Are you guys exploring that or is it to add grated for that to ever be something to to contemplate?

Two.

Silicon.

And whether it's more on crude.

Control and so.

Sure.

Technologies.

Is that affecting you.

Yes, so and so yes.

I'd comment on bid on that day.

Yes.

The straight answer Paul's we're not.

We haven't seen it yet we're still seeing very strong demand you can see that reflected and the backlog.

Yeah, we're we're very we're completely integrated this point. So yeah, I think that you know at this point as a country that it's really the when we're looking at at our Aerospace and defense has and sets an integrated business and and you know, if he if he's in it as an integrated module are srf designed to spec element that that utilizes the the full company capabilities, but we may have other programs to be be supplying a portion maybe the printed circuit board quotes and it may be the component portion into a certain program. But it's that ability to really be you know, Flex to need the customer needs. That is so critical in the combination. Um, so uh, you know short answer is it really is an integrative totally integrated business at this point?

The numbers, which are strong for us coming out of the out of the fourth quarter, but we're watching it really closely and.

And that and that's going to be a function of of hub.

Our hub the inventories and the pull out of those out of those hubs. So we're watching it closely and I would expect that yes, there will be in the impact here.

Eventually, but it just hasn't it hasn't materialized yet.

So the good thanks, so much.

Thank you.

We'll take our next question from Christian Schwab with Craig Hallum capital from.

Great.

Execution of this challenging environment.

Is.

And if one wanted to be an optimist.

And this environment and we assume no vaccines accelerates and we get into the fall and and everything.

great new other questions

Thank you.

It's like a final question from Mike Crawford would be Riley.

And more predictable and safer environment.

Well as we have phase III.

Thank you. And if you continue to generate suggest you can make a different name under advanced search technology now or perhaps in the future design with you know coming the situation.

And production, starting and utilization up and particularly in Asia Pacific and we wanted to think about you know how.

How much gross margins could improve from your implied guidance and in Q1, and there's something that could be executing that.

And the back half of the year, you know could you.

The bridge that gap for us.

Sure I'll take a crack at that I mean, we've talked about is really looking at that revenue level and what happens right.

That that's a great great example, like, you know, if of how the business works today. So the the what we essentially acquired with I three was the capability to produce in high mix no volume substrate like printed circuit board, you know Dent circuitry for Miniatures wage. There are different ways the product than moved moved from our printed circuit board facility into into the market one is as a as an internal supplier because we we need some of those capabilities for our RF component business. And so we're an internal customer another way is in the Aerospace and defense business. We have customers that that that need those boards. We also have customers that are very integrated and in a microbe.

And if auto maintained that's great.

And if we see the phase III with the <unk> rollout and trying to kick in.

And let's just pick a quarter of Q2 and it starts to ramp from there and we have a good strong second half that is going to be very constructive when we looked at our incremental margins associated with that revenue that comes through we're looking at somewhere and that I use 20 to 30, but it's really 25% to 30% depending on the complexity of the hire of the complexities of the higher.

And the incremental margins, but.

The flow through to our operating income level and.

The result of that incremental revenue that we pick up and it's really key for US is Tom quoted in his comments earlier, our utilization levels and Asia are relatively low there and the low sixties.

On low 60% range, which is of.

Very low number for us historically, and we have plenty of capacity and capability of yes, we'd have to add some labor and so forth, but in terms of the fixed infrastructure.

Electronics, you know and assembly

We have that in place and so there is a rich flow through on incremental revenue. So as we look at our end markets and say, Okay, Tom mentioned and the first half to be a bit of a tough compare because.

A module. So now they're looking at how what can we do in in terms of integration out of our out of our facilities that would combine that board capability with the RF component capability into a throttle module and those are longer-term programs that receding today that will come into fruition. They, you know, three three to five years from now. So if you look at there at the overall Revenue that piece today, the biggest portion is what we're using internally off our own component need if you look at that business three years from now, it's going to look very different and it's going to be a combination of module business office and and board business and then an internal peace. So that's the kind of development. You know, that that the organization is achieving Now by by birth

Because we had very excited medical industrial and and to some degree.

<unk> com and networking and telecom section and the first half of 2019 and it might be from tough compares there, but as those things.

And as those and market strengthen as we go through the year.

And that's gonna have a nice flow through effect if auto remains strong.

And for continues to improve keep in mind.

And as excited as we are of on auto we're still not yet back to our 2018 levels.

And as Tom quoted in and some of the information we provided our lifetime wins and automotive this past year was the very robust number and.

And that was on top of of very good year last year and wins now there's always a lag here, but we're building the pipeline and if we get that incremental revenue through net that's good business because again a lot of the fixed costs are already taken care of so we look for nice.

In the I3 element and what we brought in with mandarin and combine that with the overall PCV capability of the PCM Brethren table.

And nice flow through as we grow revenue and the various markets that we're competing and and we're optimistic about that as we go but the big opportunity and particularly as and those commercial and markets, where we have on where we are underutilized and our facilities.

Okay, thank you. And my other question is is it more functional in your target model from where you left off?

Particularly in Asia.

Great good but that's the integrate answered one of my second question has to do with Anaren, Inc.

I think in obviously we have the short-term issues with COVID-19 have to work through but beyond that we need some top-line growth. You can't have 60% utilization in your commercial facilities. And and you know, what your volume oriented facilities and and get there. We've talked about the need to get our Revenue levels up to an approximate mileage on an annual basis is about 2.3 billion or roughly a $2 billion now and we need to see some growth there to be able to adequately utilize our facilities give our current program. And and that's what we're driving for. Now. We see that opportunity we look at our Revenue growth targets of you know, mid single-digits organically. You can get there in the time frame that we're looking at wage. Obviously other things can happen to to make that quicker or slower depending on macro levels or Acquisitions or other things, but that's what we're looking at. We certainly believe it's attainable with the what the fuc.

Is there any way for you to quantify how big that business is today.

Well the the real answer is we don't think about it that way.

And so.

Yeah.

Well I like the point of view is if you think about.

The business that we acquired which is being integrated with our aerospace and defense business. What I would look at is is that.

The overall backlog and when we acquired.

And are in 2018.

Overall backlog is and the $400 million.

On a range.

And obviously, we're now we're now reaching record levels.

From from a from an overall backlog.

And point and and.

So if you if you look at at that uplift of $687 million.

And they capability that we have today.

Not all of it.

But.

Great. Thank you.

A good majority of it is in the RF space, which was the direct contribution.

Thank you. I can prove question answer. For this time. I'll turn the call back over to mister Edmund for a find any final or additional comments.

From from the combination of the two companies.

Thank you. And thank you everyone for joining us. Just wanted to reiterate a few points. We delivered revenues above the midpoint earnings above the guided range. And that's the 2019 Challengers second. Our end Market diversification was allowed continuing operations to be stable and despite some weaknesses and in a couple of our end markets third. We generated very solid Cashflow repaid and settled our convertible Bond and as a result, we brought our leverage down to one page and announced the stock buyback program. So quite a busy quarter for us in closing. I would like to thank you and also thank our employees and our customers for your and their continued support. Thank you very much.

So that's that's the impact that.

And that really the combination is having.

And that's probably the best the best deal I can give can give too on.

On the <unk> impact.

It is their EBITDA margins similar to what they were at and when you acquired them I mean, they are materially higher than your combined business.

Should we assume that there's still that high.

Yes.

And.

So the.

The only thing the only hedge with the headwind we've had there on the commercial side.

Of the RF and Thats segment, which we break out.

But that that side, we did lose the Huawei.

Business.

And which obviously had the impact both on revenue and on on profitability, but other than that it's yes.

Does conclude our conference call for today everyone? Thank you all for your participation. You may not disconnect.

Very similar similar kinds of margins.

Okay and that gets me to the punch line.

So if you look at that business in the back of the envelope math and you put you know when the market multiple on that business may be if it was trading by itself and not hidden inside your company.

Could be the lion's share of your market cap.

Are you guys exploring that or is it too.

The integrated for that to ever be something.

Two to contemplate.

Yes, we're very we're completely integrated.

And this point.

And so so yes, I think that.

At this point and as a company where the that's really the.

And when we're looking at at our Aerospace and defense business, that's in the integrated business and the.

A piece of a piece.

Piece of it as an integrated module RF RF.

Design to spec element.

The that utilizes the full company capabilities, but we may and other programs the.

The supplying of portion may be and the printed circuit board portion of and maybe the component and portion.

And two of certain program, but it's that ability to really.

Flex to meet the customer needs.

So critical and the combination.

So the.

Short answer is it really is and integrated.

Heavily integrated business at this point.

Great no other questions. Thanks, guys.

Thank you.

And we'll take our final question from Mike Crawford with B Riley.

Yeah.

Both of you.

We continue to generate the free cash flow over the balance of the message.

And just somebody from the of hydrocarbons.

Right.

On the.

Okay.

And 87 million of defense backlog and I know the majority of our Australia is there any way to quantify how much of that might be related to your new and sale.

The <unk> technology.

Now or perhaps on the features of the design wins the might be.

Well the come into fruition.

And that's of Great. Great example, Mike.

And if.

And how the business works today and so.

The the iron.

And essentially acquired with <unk> III was the capability to produce and high mix low volume substrate like printed circuit board.

Denser circuitry and miniaturization.

There are different ways of the product then move moves from our true.

And it's here good board facility and.

To enter the market one.

As a as an internal and supplier because we we need some of those capabilities for our RF component.

Business, and so we're and internal and customer.

Another way is and the aerospace and defense.

We have customers that need those boards. We also have customers that are very integrated and and a micro electronics and <unk>.

Semblance of module, so now theyre looking at how what can we do and in terms of the integration.

Out of our out of our facilities that would combine that board capability with the RF component capability into a full module.

And those are longer term programs that we're seeding today that will come into fruition.

Three three to five years from now so if you look at their at the overall revenue that piece today. The biggest portion is what we're using internally for our own component needs. If you look at that business three years from now it's going to look very different and it's going to be.

The combination of module business.

And the and board business, and then and internal piece.

So that's the kind of development.

And the organization is achieving now bye bye bolting and the 83 element and what we brought in with Anaren and combine that with the overall PCB capability of the TTM breath of the table.

Okay. Thank you and then my final question is.

Is it more of a function of volume or mix of lift of that sort of the 18% EBITDA on the target model.

And where you are sort of.

Okay.

I think in.

Obviously, we have the short term issues with Covid and that we'd have to work through but beyond that we need from top line growth.

And you can't past, 60% utilization and your commercial facilities.

And which are volume oriented facilities and get there we've talked about the need to get our revenue levels up to and.

Proximate run rate on an annual basis of about $2 3 billion were roughly a 2 billion now and we need to see some growth there to be able to adequately utilize the facility given our current footprint.

And that's what we're driving for it and now we see that opportunity and you look at our revenue growth targets.

Mid single digits organically.

And you can get there and the timeframe that we're looking at.

Obviously, other things can happen to make that quicker or slower depending on macro levels of acquisitions or other things on.

But that's what we're looking at and we certainly believe is attainable with the with the footprint and the.

Capabilities that we have today.

Great. Thank you.

Thank you and that concludes our question and answer Okay and for this time I'll turn the call back over to Mr. Edman from finance.

Final or additional comments.

Thank you and.

Thank you everyone for joining us just wanted to reiterate a few points, we delivered revenue above the midpoint earnings above the guided range and that's despite COVID-19 challenges.

Second our end market diversification of allowed continuing operations to be stable and.

And despite some weakness and.

A couple of our end markets.

Third we generated very solid cash flow, we repaid and settled our convertible bond.

And as a result, and we brought our leverage down to one four and announced the stock buyback program.

So.

And quite a busy quarter for us in closing I would like to thank you.

And also thank our employees and our customers.

For a year and their continued support thank you very much.

Yeah.

That does conclude the conference call for today, everyone. Thank you all for your participation you may now disconnect.

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And.

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