Q4 2021 TTM Technologies Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to Ttm's technologies fourth quarter 2020 financial results Conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The conference will be opened for questions.

Speaker 1: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to TTM's Technologies fourth quarter 2021 Financial Results Conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

Speaker 1: You may ask a question by pressing star one on your touch tone telephone. Press star one for questions.

You May ask a question by pressing star one on your Touchtone telephone star one for questions. As a reminder, this call is being recorded today February nine 2021.

Speaker 1: As a reminder, this call is being recorded today, February 9, 2021.

Speaker 1: Samir Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's disclosure statement. Please go ahead.

Sameer Desai Ttm's, Vice President of corporate development and Investor Relations will now review Ttm's disclosure statement. Please go ahead.

Speaker 2: Thanks, Keith. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995, including statements related to TTM's future business outlook. Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties, including the factors explained in a more recent annual report on Form 10-K and our other filings with the Securities and Exchange Commission.

Thanks, Keith before we get started I would like to remind everyone that today's call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, including statements related to Ttm's future business outlook actual results could differ materially from these forward looking statements due to one or more risks and uncertainties.

Including the factors explained in more recent annual report on Form 10-K , and our other filings with the Securities and Exchange Commission. These forward looking statements are based on management's expectations and assumptions as of the date of this presentation TTM does not undertake any obligation to publicly update or revise any of these statements.

Speaker 2: These forward-looking statements are based on management expectations and assumptions of the date of this presentation.

Speaker 2: PTM does not undertake any obligation to publicly update or revise any of these statements, whether as a result of new information, future events, or other circumstances except as required by law. Please refer to the disclosures regarding the risk that may affect PTM, which may be found in the reports on form 10K, 10Q, 8K, the registration statement on form S4, and the company's other FCC filings.

As a result of new information future events or other circumstances, except as required by law. Please refer to the disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 10-K , 10-Q 8-K, the registration statement on form S. Four and the company's other SEC filings.

Speaker 2: We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP. And we direct you to the reconciliation of non-GAAP to GAAP measures included in the company's press release which was filed with the SEC and is available on TTM's website www.ttm.com.

We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP and we direct you to the reconciliation of non-GAAP to GAAP measures included in the company's press release, which was filed with the SEC and is available on Ttm's website Www dot.

TTM Dot com.

Speaker 2: We have also posted on our website a slide deck, which we will refer to during our call. I will now turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead Tom.

Also posted on our website, a slide deck, which we will refer to during our call I will now turn the call over to Tom Edman Ttm's Chief Executive Officer. Please go ahead Tom Thank.

Speaker 1: Thank you, Samir good afternoon and thank you for joining us for our 4th quarter and fiscal year 2021 conference call.

Thank you Samir good afternoon, and thank you for joining us for our fourth quarter and fiscal year 2021 conference call.

Speaker 1: I'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results followed by a summary of our business strategy

I'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results followed by a summary of our business strategy.

Speaker 2: Todd Show, our CFO , will follow with an overview of our Q4 2021 financial performance and our Q1 2022 guidance. We will then open the call to your questions.

Todd Schull, our CFO will follow with an overview of our Q4 2021 financial performance and our Q1 2022 guidance.

We'll then open the call to your questions.

Speaker 1: In the fourth quarter of 2021, TTM delivered revenues above the guided range and non-GAP EPS at the high end of guidance, despite a challenging supply chain and labor environment and the impact of the Omicron variant of COVID-19.

In the fourth quarter of 2021, TTM delivered revenues above the guided range and non-GAAP EPS at the high end of guidance, despite a challenging supply chain and labor environment and the impact of the omicron variant of COVID-19.

Speaker 1: All end markets performed better than we expected. With strong year on year growth, led by our commercial end marks.

All end markets performed better than we expected with strong year on year growth led by our commercial end markets.

Speaker 1: These results were achieved despite ongoing operational headwinds, including supply chain constraints for ourselves and our customers, inflationary pressures, and continued labor and logistics challenges in North America, resulting in production in efficient.

These results were achieved despite ongoing operational headwinds, including supply chain constraints for ourselves and our customers.

<unk> pressures and continued labor and logistics challenges in North America, resulting in production inefficiencies.

Speaker 1: Given the time that raw material prices take to work through our inventory, the impact to our cost of goods sold was larger in Q4 than in Q3, but is stabilizing at an elevated level in Q1.

Given the time that raw material prices take to work through our inventory the impact to our cost of goods sold was larger in Q4 than in Q3, but is stabilizing at an elevated level in Q1.

Speaker 1: During 2021, we mitigated virtually all of the material price increases through additional cost savings, adjustment in MIX, and product price adjustment.

During 2021, we mitigated virtually all of the material price increases through additional cost savings adjustments in mix and product price adjustments.

Speaker 1: However, production inefficiencies and labor challenges in North America further exacerbated our costs and output challenges in the fourth quarter and will continue to do so in the first quarter.

However, production inefficiencies and labor challenges in North America further exacerbated our costs and output challenges in the fourth quarter and we'll continue to do so in the first quarter.

Speaker 1: Looking into the first quarter, we are expecting a sequential decline in revenues and profits due to seasonality associated with Chinese New Year, having one less week in the quarter, and continued labor changes in North America.

Looking into the first quarter, we are expecting a sequential decline in revenues and profits due to seasonality associated with Chinese new year, having one less week in the quarter and continued labor.

In North America.

Speaker 1: For the full year 2021, excluding divested and closed business.

For the full year 2021, excluding divested and closed businesses TTM grew 10, 9% with solid profitability. Despite all the challenges we previously mentioned.

Speaker 1: PTM grew 10.9% with solid profitability, despite all the challenges we previously mentioned.

Speaker 1: Full year cash flow from operations was $176.6 million. And we use part of our cash flow to return capital to shareholders, as Todd will discuss later.

Full year cash flow from operations was $176 $6 million and we use part of our cash flow to return capital to shareholders.

Todd will discuss later.

Speaker 1: This has been and continues to be one of the most difficult manufacturing environments we have ever experienced. And I am proud of what our employees have accomplished in the face of these challenges. I would also like to.

This has been and continues to be one of the most difficult manufacturing environments, we have ever experienced and I am proud of what our employees have accomplished in the face of these challenges.

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

Speaker 1: As you are aware, the Omicron variant has created another surge of positive cases during the winter in North America, as well as other parts of the world.

As you are aware the omicron Varian has created another surge of positive cases during the winter in North America as well as other parts of the world.

Speaker 1: At TTM, our employee population was similar impacted with positive COVID cases that continue into Q1, resulting in employee quarantines, which, along with the general labor shortages, contributed to production inefficiencies and capacity constraints in North America.

At TTM, our employee population was similar impacted with positive Covid cases that continue into Q1, resulting in employee quarantines, which along with the general labor shortages contributed to production inefficiencies and capacity constraints in North America.

Speaker 1: In some facilities, our absentee rate climbed to as much as 20%.

In some facilities are absentee rate climbed to as much as 20%.

Speaker 1: In late January , we started to see relief, as cases began to subside, and our absentee rate started to decline.

In late January we started to see relief those cases began to subside and our absentee rates started to decline.

Speaker 1: All of our manufacturing facilities have been and continue to be operations.

All of our manufacturing facilities have been and continue to be operational.

Like many other companies, we continue to see challenges in attracting and retaining labor, particularly in North America.

Speaker 1: Like many other companies, we continue to see challenges in attracting and retaining labor, particularly in North America.

Speaker 1: Our employees are paramount to the success of TTM. And we actively endeavor to demonstrate their value to our company through a combination of financial and non-financial methods. We have done a thorough review of our-

Our employees are paramount to the success of TTM and.

And we actively endeavor to demonstrate their value to our company through a combination of financial and nonfinancial methods.

We have done a thorough review of our compensation practices and it is.

Speaker 1: And it embarked on a significant initiative to realign our compensation in North America with a goal of being competitive in the labor markets in which we operate.

Embarked on a significant initiative to realign our compensation in North America with a goal of being competitive in the labor markets in which we operate.

Speaker 1: These changes will increase our cost structure in the first half of the year, while improving our labor position.

These changes will increase our cost structure in the first half of the year, while improving our labor positioning.

Speaker 1: In the fourth quarter, as it became clear that we needed to make these adjustments...

In the fourth quarter as it became clear that we needed to make these adjustments we announced another round of price increases to our customers.

Speaker 1: We announced another round of price increases to our customers.

Speaker 1: given our extensive backlog and contractual commitment.

Given our extensive backlog and contractual commitments, we do not expect the full impact of the new pricing to take effect until the second half of the year.

Speaker 1: We do not expect a full impact of the new pricing to take effect until a second half of the year.

Speaker 1: As a result, we expect profitability to improve in the second half over the first half. Our long-term

As a result, we expect profitability profitability to improve in the second half over the first half.

Our long term strategy remains unchanged.

Speaker 1: PTM is on a journey to transform our business to be less cyclical and more differentiated.

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

Speaker 1: We believe that over time, investors will be rewarded with more stable growth, strong cash flow performance, and improving margin-

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

Speaker 1: As part of the strategic transition, we sold our mobility business in 2020.

As part of this strategic transition, we sold our mobility business in 2020.

Speaker 1: We are now able to generate more consistent castle with our strong set of technologies and broad exposure to longer cycle end marks.

We are now able to generate more consistent cash flow with our strong set of technologies and broad exposure to longer cycle end markets.

Speaker 1: A key part of our ongoing strategy will be to add capabilities and products that are complementary to our current offerings, both internally and through acquisition.

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

Speaker 1: As such, we continue to invest organically in differentiated product technology solutions from our Advanced Technology Center, RSNS Business Unit, and Microelectronics Business.

As such we continue to invest organically and differentiated product technology solutions from our advanced Technology Center, our SNS business unit and micro electronics businesses.

Speaker 1: Looking forward, our balance sheet is in a strong position to pursue further acquisitions as well as to support our organic investment needs. Now,

Looking forward our balance sheet is in a strong position to further to pursue further acquisitions as well as to support our organic investment needs.

Now I'd like to review our end markets.

Speaker 1: All historical end-market disclosures exclude the divested mobility business unit and the two EMS plants, which halted production in December of 2020.

All historical end market disclosures exclude the divested mobility business unit and the two m's plants, which halted production in December of 2020.

For more details on end market disclosures. Please refer to pages four and five of our earnings presentation, which is posted on our website.

Speaker 1: The aerospace and defense end market represented 30% of total fourth quarter sales compared to 38% of Q4 2020 sales and 31% of sales in Q3 2021.

The aerospace and defense end market represented 30% of total fourth quarter sales compared to 38% of Q4, 2020 sales and 31% of sales in Q3 2021.

Speaker 1: We continue to experience a positive defense climate with our A&D program backlog at $768 million. A new record compared to $687 million a year ago.

We continue to experience a positive defense climate with our A&D program backlog at $768 million, a new record compared to $687 million a year ago.

Speaker 1: The solid demand in the defense market is a result of our strong strategic program alignment and key bookings for ongoing franchise program.

The solid demand in the defense market is a result of our strong strategic program alignment and key bookings for ongoing franchise programs.

Speaker 1: We saw significant bookings in the quarter for the Spy 6 Aisa Radar Program.

We saw significant bookings in the quarter for the spy six I use a radar program.

Speaker 1: And our overall book to bill for A and D was 1.25.

And our overall book to Bill for A&D was 125.

Speaker 1: We expect sales in Q1 from this end market to represent about 33% of our total sales.

We expect sales in Q1 from this end market to represent about 33% of our total sales.

Speaker 1: For the full year, aerospace and defense decreased 2.3%. Due to significant declines in commercial aerospace and ongoing production inefficiencies in North America.

For the full year aerospace and defense decreased two 3% due to significant declines in commercial aerospace and ongoing production inefficiencies in North America.

Speaker 1: We were happy to see the National Defense Authorization Act or NDAA for fiscal 2022 signed into law last December , providing a roughly 5% increase in top-line defense spending.

We were happy to see the National Defense Authorization Act or NDAA for fiscal 2022 signed into law last December providing a roughly 5% increase in topline defense spending.

Speaker 1: In addition, the new Section 851 of the 2022 NBAA requires that the Department of Defense purchase products that contain printed circuit boards manufactured by US suppliers or from US allied countries that are part of the weapon systems and other telecom and datacom or other critical commercial applications used by the Department of Defense starting in January 2027.

In addition, the new section $8 51 of the 2022 M. B a a requires that the department of defense purchase products that contain printed circuit boards manufactured by U S suppliers or from U S. Allied countries that are part of the weapon systems and other telecom.

And datacom or other critical commercial applications used by the department of defense.

Starting in January 2027.

Speaker 1: This should provide long-term benefits to TTF, due to our strong North America foot.

This should provide long term benefits to TTM due to our strong North America footprint.

Speaker 1: In 2022, we expect growth to be in line with market projections of 2 to 4 percent driven by the defense side of our business as we expect a slow recovery in our commercial aerospace segment.

In 2022, we expect growth to be in line with market projections of 2% to 4% driven by the defense side of our business as we expect a slow recovery in our commercial aerospace segment.

Speaker 1: Automotive sales represented 19% of total sales during the fourth quarter of 2021 compared to 17% in the year ago quarter and 18% during the third quarter of 2021.

Automotive sales represented 19% of total sales during the fourth quarter of 2021 compared to 17% in the year ago quarter and 18% during the third quarter of 2021.

Speaker 1: Automotive grew 30% year over year.

Automotive grew 30% year over year.

Speaker 1: We are aware that the shortage of semiconductors has been limiting automotive production.

We are aware that the shortage of semiconductors has been limiting automotive production, but this phenomenon is not directly affected our business since we do not purchase semiconductors.

Speaker 1: But this phenomenon has not directly affected our business since we do not purchase semiconductor.

Speaker 1: However, we will continue to monitor this situation close

However, we will continue to monitor this situation closely.

Speaker 1: We expect automotive to contribute 20% of total sales in the first quarter.

We expect automotive to contribute 20% of total sales in the first quarter.

Speaker 1: For the full year, automotive increased 51% as supply and demand rebounded after COVID impacts in 2020.

For the full year automotive increased 51% as supply and demand rebounded after COVID-19 impacts in 2020.

Speaker 1: In 2021, advanced technology was 24% of our automotive end market, compared to 26% in 2020.

In 2021 advanced technology was 24% of our automotive end market compared to 26% in 2020.

Speaker 1: While our advanced technology revenues grew 41% year on year, our standard technologies grew even faster.

While our advanced technology revenues grew 41% year on year, our standard technologies grew even faster.

Speaker 1: In Q1, despite Chinese New Year, we are starting the year with solid year on year growth and we expect the market in 2022 to be above longer term forecasts of three to six percent.

In Q1, despite Chinese new year, we are starting the year with solid year on year growth and we expect the market in 2022 to be above longer term forecasts of 3% to 6%.

Speaker 1: The medical industrial instrumentation and market contributed 19% of our total sales in the fourth quarter, compared to 16% in the year ago quarter and 20% in the third quarter of 2021.

The medical industrial instrumentation end market contributed 19% of our total sales in the fourth quarter compared to 16% in the year ago quarter and 20% in the third quarter of 2021.

Speaker 1: The MI and I market exceeded $100 million in Q4 revenue and performed much better than expectations. As we saw broad-based strength across all segments.

<unk> market exceeded $100 million in Q4 revenue and performed much better than expectations as we saw broad based strength across all segments.

Speaker 1: For the first quarter, we expect MI and I to be 18% of revenues with a continued strong demand environment.

For the first quarter, we expect <unk> to be 18% of revenues with a continued strong demand environment.

Speaker 1: For the full year, MI and I grew 11%, following 12% growth the previous year. Well above trend line for two years in a row, due to strengthen our industrial customers in particular.

For the full year.

And I grew 11% following 12% growth the previous year, well above trend line for two years in a row due to strength in our industrial customers in particular.

Speaker 1: In 2022, we expect growth to be in line with a 2% to 4% forecast. As these segments see moderated demand following the extraordinary strength of the past two years.

In 2022, we expect growth to be in line with the 3% to 4% forecast as these segments see moderated demand following the extraordinary strength of the past two years.

Speaker 1: Networking communications accounted for 16% of revenue during the fourth quarter of 2021.

Networking communications accounted for 16% of revenue during the fourth quarter of 2021.

Speaker 1: This compares to 16% in the fourth quarter of 2020 and 16% of revenue in the third quarter of 2021.

This compares to 16% in the fourth quarter of 2020, and 16% of revenue in the third quarter of 2021.

Speaker 1: We saw relative strength on a year-on-year basis in networking compared to telecom. As the 5G build out in China continues to be weak, and as we made several strategic decisions, to use our higher layer count capacity for data center and key networking costs.

We saw relative strength on a year on year basis in networking compared to telecom as the <unk> build out in China continues to be weak and as we made several strategic decisions to use our higher layer count capacity for data center and key networking customers.

Speaker 1: In Q1, we expect this end market to be 13% of revenue as telecom demand continues to be soft and due to supply constraints in network.

In Q1, we expect this end market to be 13% of revenue as telecom demand continues to be soft and due to supply constraints and networking.

Speaker 1: For the full year, networking communications declined 0.3%. With strength in networking offset by weakness in telecommunications.

For the full year networking communications declined <unk>, 3% with strength in networking offset by weakness in telecom.

Speaker 1: We expect this market to grow, but be below the longer term forecast of five to eight percent growth in 2022, due to the anticipated soft start in the early part of the year.

We expect this market to grow but be below the longer term forecasts of 5% to 8% growth in 2022 due to the anticipated soft start in the early part of the year.

Speaker 1: Sales in the data center computing and market represented 15% of total sales in the fourth quarter Compared to 13% in Q4 of 2020 and 14% in the third quarter of 2021

Sales in the data center computing end market represented 15% of total sales in the fourth quarter compared to 13% in Q4 of 2020 and 14% in the third quarter of 2021.

Speaker 1: This end market was up 34% year on year. Do primarily the growth from our data center customers.

This end market was up 34% year on year due primarily to growth from our datacenter customers.

Speaker 1: We expect revenues in this end market to represent approximately 15% of first quarter sales, as strong data center demand continues to drive year on year growth.

We expect revenues in this end market to represent approximately 15% of first quarter sales as strong data center demand continues to drive year on year growth.

Speaker 1: For the full year, data center computing grew 25%. As we saw growth across our data center cuffs.

For the full year datacenter computing grew 25% as we saw growth across our data center customers in.

Speaker 1: In 2022, we expect to be above the forecasted end market growth of 1 to 3% driven primarily by data center growth. Next I'll cover.

2022, we expect to be above the forecasted end market growth of 1% to 3% driven primarily by data center growth.

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

Speaker 1: All of the following operations metrics exclude the mobility business unit and the two EMS plants that we close.

All of the following operations metrics exclude the mobility business unit and the two <unk> plants that we closed.

Speaker 1: This information is also available on page five of our earnings presentation.

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

Speaker 1: During the quarter, our advanced technology business, which includes HDI, rigid flex, microelectronics, and RF subsystems and components, accounted for approximately 31% of our revenues.

During the quarter, our advanced technology business, which includes HDI rigid flex microelectronics, and RF subsystems and components.

Counted for approximately 31% of our revenue.

Speaker 1: This compares to approximately 31% in the year ago quarter and 29% in Q3.

This compares to approximately 31% in the year ago quarter and 29% in Q3.

Speaker 1: We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities in new programs and new markets.

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

Speaker 1: Capacity utilization in Asia Pacific was 88% in Q4 compared to 63% in the year ago quarter and 91% in Q3.

Capacity utilization in Asia Pacific was 88% in Q4 compared to 63% in the year ago quarter and 91% in Q3.

Speaker 1: Our overall capacity utilization in North America was 50% in Q4 compared to 58% in the year ago quarter and 50% in Q3.

Our overall capacity utilization in North America was 50% in Q4 compared to 58% in the year ago quarter and 50% in Q3.

Speaker 1: Our top five customers contributed 32% of total sales in the fourth quarter of 2021, compared to 28% in the third quarter of 2021.

Our top five customers contributed 32% of total sales in the fourth quarter of 2021 compared to 28% in the third quarter of 2021.

Speaker 1: We had one customer above 10% in the quarter.

We had one customer above 10% in the quarter.

Speaker 1: At the end of Q4, our 90-day backlog, which is subject to cancellations, was $597.2 million, compared to $483.9 million at the end of the fourth quarter last year, and $594.8 million at the end of Q3.

At the end of Q4, our 90 day backlog, which is subject to cancellations was $597 2 million compared.

Compared to $483 9 million at the end of the fourth quarter last year and $594 8 million at the end of Q3.

Speaker 1: Our PCB Booktabill ratio is 1.20 for the three months ending January 3rd.

Our PCB book to Bill ratio was one point.

For the three months ending January 3rd.

Speaker 1: Our backlog is higher than our revenue forecast due to uncertainty around both labor and supply chain challenges for our customers and ourselves.

Our backlog is higher than our revenue forecast due to uncertainty around both labor and supply chain challenges for our customers and ourselves.

Speaker 1: I'd like to conclude by again, thanking our employees for continuing to contribute to TPM and our critical mission of inspiring innovation with our customers.

I'd like to conclude by again thanking our employees for continuing to contribute to TTM and our critical mission of inspiring innovation with our customers.

Speaker 1: Despite the raw materials and labor-related challenges we are facing, our business performed better than we expected as a direct result of our employees and our supply chain partners concerted efforts to support TTM and our customers.

Despite the raw materials and labor related challenges, we are facing our business performed better than we expected as a direct result of our employees and our supply chain partners concerted efforts to support TTM and our customers.

Speaker 1: Now Todd will review our financial performance for the fourth quarter. Todd?

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

Thanks, Tom and good afternoon, everyone.

Speaker 1: I'll be reviewing our financial results for the fourth quarter in some highlights for the year, which are also shown in the press release to be distributed today, as well as on slide seven of our earnings presentation, which is posted on our website.

I'll be reviewing our financial results for the fourth quarter and some highlights for the year, which are also shown in the press release distributed today as well as on slide seven of our earnings presentation, which is posted on our website.

Speaker 3: For the fourth quarter net sales, we're $598.1 million.

For the fourth quarter net sales were $598 $1 million.

Speaker 3: and paired to $523.8 million from continuing operations in the fourth quarter of 2020.

Third to $523 $8 million from continuing operations in the fourth quarter of 2020.

Speaker 3: The year-over-year increase in revenue is due to strong growth in our commercial end mark.

The year over year increase in revenue was due to strong growth in our commercial end markets, which more than offset a modest decline in our aerospace and defense market due to commercial aerospace softness and production challenges in North America.

Speaker 3: which more than often a modest decline in our aerospace and defense market due to commercial aerospace softness and production challenges in North America.

Speaker 3: In addition, there was a headwind from the closure of our two EMS facilities, which generated $23.7 million in revenue in the year-a-go quarter, and no revenues in the current.

In addition, there was a headwind from the closure of our two EMS facilities, which generated $23 $7 million in revenue in the year ago quarter and no revenues in the current year quarter.

Speaker 3: exclude an impact of the EMS closures, revenues of our ongoing business grew 19.6% year-on.

Excluding the impact of the EMS closures revenues of our ongoing business grew 19, 6% year on year.

Speaker 3: For the full year, revenues grew 10.9%. Driven by our automotive data center computing and medical, industrial, and instrumentation and more.

For the full year revenues grew 10, 9% driven by our automotive data center computing and medical industrial and instrumentation end markets.

Speaker 3: Both the fourth quarter and the full year 2021 numbers include an extra week when compared to the comparable periods in 2020. That extra week contributed approximately $42 million of revenue.

Both the fourth quarter and the full year 2021 numbers include an extra week when compared to the comparable periods in 2020 that.

That extra week contributed approximately $42 million of revenue.

GAAP operating income for the fourth quarter of 2021 was $33 1 million compared to $29 2 million in the fourth quarter of 2020.

Speaker 3: GAP operating income for the fourth quarter of 2021 was $33.1 million compared to $29.2 million in the fourth quarter of 2020.

Speaker 3: On a gap basis, net income for the fourth quarter of 2021 was $8.4 million, or $8 cents per deluded share. This compares to net income of $39 million, or $34 cents per deluded share in the fourth quarter last year.

On a GAAP basis net income for the fourth quarter of 2021 was $8 $4 million.

<unk> <unk> per diluted share.

This compares to net income of $39 million or <unk> 34 per diluted share in the fourth quarter last year.

Speaker 3: The remainder of my comments will focus on our non- GAAP financial performance. Our non-gap performance excludes our de vested mobility business.

The remainder of my comments will focus on our non-GAAP financial performance, our non-GAAP performance excludes our divested mobility business unit.

Speaker 3: Non-routine tax items, M&A-related costs, restructuring costs, certain non-cashy spend items, and other unusual or infrequent items.

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

Speaker 3: We present non-GAAP financial information to enable investors to see the company to the eyes of management and to facilitate comparisons with expectations and prior periods.

We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparisons with expectations in prior periods.

Speaker 3: Gross margin in the fourth quarter was 16.7%. Compared to 17.5% in the fourth quarter of 2020.

Gross margin in the fourth quarter was 16, 7% compared to 17, 5% in the fourth quarter of 2020.

Speaker 3: The year on year decline was largely due to labor and production challenges in North America.

The year on year decline was largely due to labor and production challenges in North America.

Speaker 3: During the quarter, we did experience significant material cost increases, but we were able to substantially mitigate the profit impact of those increases through customer price increases and manufacturing officials.

During the quarter, we did experience significant material cost increases.

We were able to substantially mitigate the profit impact of those increases through customer price increases and manufacturing efficiencies.

Speaker 3: Telling and marketing expense was $15.6 million in the fourth quarter or 2.6% of net sales versus $15.2 million or 2.9% of net sales a year ago.

Selling and marketing expense was $15 $6 million in the fourth quarter or two 6% of net sales.

$15 2 million or two 9% of net sales a year ago.

Speaker 3: Fourth quarter G and A expense was $30.4 million, or 5.1% of net sales, compared to $24.4 million, or 4.7% of net sales in the same quarter of Europe .

First quarter G&A expense was $30 4 million or five 1% of net sales.

Impaired to $24 4 million or four 7% of net sales in the same quarter a year ago.

Speaker 3: In the fourth quarter of 2021, R&D was $4.8 million or 0.8% of revenues compared to $4.6 million or 0.9% in the year ago quarter.

In the fourth quarter of 2021, R&D was $4 8 million or 0.8% of revenues compared to $4 6 million or 0.9% in the year ago quarter.

Speaker 3: Our operating margin in Q4 was 8.2%. This compares to 9% in the same quarter last year.

Our operating margin in Q4 was eight 2%. This compares to 9% in the same quarter last year.

Speaker 3: Interest expense was $11.2 million in the fourth quarter. A decrease of $0.4 million from the same quarter last year due primarily to lower levels of debt as we repaid our $250 million convertible bond in December of 2020, partially offset by the extra week of expense in the current quarter.

Interest expense was $11 2 million in the fourth quarter, a decrease of zero point $4 million from the same quarter last year.

Primarily to lower levels of debt as we repaid our $250 million convertible bond in December of 2020.

Partially offset by the extra week of expense in the current quarter.

Speaker 3: During the quarter, there was a negative $2.5 million for an exchange impact below the operating.

During the quarter, there was a negative $2 $5 million foreign exchange impact below the operating line.

Speaker 3: Government incentives and interesting come reduces to a negative $1.1 million or one set impact on EPS.

Government incentives and interest income reduced this to a negative $1 1 million.

Or one cent impact on EPS. This.

Speaker 3: This compares to a lot of $1.9 million or two cents of EPS in Q4 of last year.

This compares to a loss of $1 9 million or <unk> of EPS in Q4 of last year.

Speaker 3: Our effective tax rate was 1.6% in the fourth quarter, resulting in tax expense of $0.6 million.

Our effective tax rate was one 6% in the fourth quarter, resulting in tax expense of zero point $6 million.

Speaker 3: This compares to a tax benefit in the prior year of $6.4 million or $6 cents per share.

This compares to a tax benefit in the prior year of $6 4 million or.

Or <unk> <unk> per share.

Speaker 3: Fourth quarter net income was $36.2 million, or $0.34 per deluded share. This compares the fourth quarter 2020 net income of $40.2 million, or $37 cents per deluded share.

Fourth quarter net income was $36 2 million or <unk> 34 per diluted share.

This compares to fourth quarter 2020, net income of $40 2 million.

Or <unk> 37 per diluted share.

Speaker 3: For the full year net income was $138 million or $1.28 per deluded share compared to $116.7 million or $1.10 for deluded share last year.

For the full year net income was $138 million or $1 28 per diluted share.

<unk> to $116 $7 million or $1 10 per diluted share last year.

Speaker 3: Adjusted EBITDA for the fourth quarter was $70.4 million, or 11.8% of net sales, compared with fourth quarter 2020, adjusted EBITDA with $68.2 million, or 13% of net sales. Deforestation for the quarter was...

Adjusted EBITDA for the fourth quarter was $74 million or 11, 8% of net sales.

Paired with fourth quarter 2020, adjusted EBITDA of $68 2 million or 13% of net sales.

Depreciation for the quarter was $22 2 million.

Speaker 3: Net capital spending for the quarter was 19.5 million dollars.

Net capital spending for the quarter was $19 5 million.

Speaker 3: Cash flow from operations was $62.4 million. And for the full year, cash flow from operations was $176.6 million.

Cash flow from operations was $62 4 million.

For the full year cash flow from operations was $176 6 million.

Speaker 3: Our balance sheet and liquidity positions remain very small.

Our balance sheet and liquidity positions remain very strong.

Speaker 3: Cash and cash equivalents at the end of the fourth quarter of 2021 were $537.7 million. And our net debt divided by last 12 months, EBITDA was 1.4.

Cash and cash equivalents at the end of the fourth quarter of 2021.

$537 7 million and our net debt divided by last 12 months EBITDA was one four.

Speaker 3: During the fourth quarter we repurchased 2.2 million shares of our common stock under our previously announced $100 million stock repurchase program at an average price of $13.47 for share for a total expenditure of $29.6 million.

During the fourth quarter, we repurchased two 2 million shares of our common stock under our previously announced $100 million stock repurchase program at an average price of $13 47 per share for a total expenditure of $29 6 million.

Speaker 3: For the year, we have spent a total of $64.6 million for stock repurchases to buy back $4.7 million shares. Now,

For the year, we have spent a total of $64 $6 million for stock repurchases to buyback $4 7 million shares.

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

Speaker 3: As Tom stated earlier, our first quarter sees normal seasonality associated with Chinese New Year. And this year, the first quarter has one less week than our fourth quarter.

As Tom stated earlier, our first quarter sees normal seasonality associated with Chinese new year and this year. The first quarter has one less week in our fourth quarter.

Speaker 3: In addition, we are adjusting the compensation for our employees in North America to improve our competitive.

In addition, we are adjusting the compensation for our employees in North America to improve our competitiveness.

Speaker 3: While we are increasing prices to balance the entire cost, these increases won't have a significant impact until the second half of the year as we work through our existing backlog.

While we are increasing prices to balance these higher costs. These increases won't have a significant impact until the second half of the year as we work through our existing backlog.

Speaker 3: Given that, we expect total revenue for the first quarter of 2022 to be in the range of $540 to $580 million.

Given that we expect total revenue for the first quarter of 2022 to be in the range of $540 to $580 million.

Speaker 3: And we expect non-gap earnings to be in the range of 20 to 26 cents for diluted share.

And we expect non-GAAP earnings to be in the range of 20 to 26 per diluted share.

The EPS forecast is based on a diluted share count of approximately 105 million shares.

Speaker 3: The EPS forecast is based on the latest share count of approximately 105 million shares.

Speaker 3: Our share count guidance includes the loot of security such as options in our issues, but no shares associated with our warrants since all of those have settled.

Our share count guidance includes dilutive securities such as options and our shoes, but no shares associated with our boards since all of those have settled now.

Speaker 3: We expect that SG&A expense will be about 8.5% of rubbers in the first quarter, and R&D to be about 0.9%.

We expect that SG&A expense will be about eight 5% of revenue in the first quarter and R&D to be about 0.9% of revenue.

Speaker 3: We expect interest expense to total approximately $11 million.

We expect interest expense to total approximately $11 million.

Speaker 3: And finally, we estimate our effect can tax rate to be between 12 and 18%.

Finally, we estimate our effective tax rate to be between 12 and 18%.

Speaker 3: To assist you in developing your financial models, we offer the following additional information.

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

Speaker 3: During the first quarter, we expect the record amortization of intangibles of about $9.7 million.

During the first quarter, we expect to record amortization of intangibles of about $9 7 million.

Speaker 3: Stack-based compensation expense of about $4.8 million.

Stock based compensation expense of about $4 8 million.

Speaker 3: Non-cash interest expense of approximately 0.5 million dollars.

Noncash interest expense of approximately zero point $5 million and we estimate.

Speaker 3: And we estimate depreciation expense will be approximately $21.3 million.

Depreciation expense will be approximately $21 3 million.

Speaker 3: Finally, I'd like to announce that we will be participating virtually in the Cowan Aerospace and Defense Industrial Conference tomorrow. And the JPMorgan IEL and Leverage Finance Conference on March 1st.

Finally, I'd like to announce that we will be participating virtually in the Cowen Aerospace and defense Industrials Conference Tomorrow.

And the Jpmorgan high yield and leveraged finance conference on March one.

Speaker 3: That concludes our preparer remarks, and now I'd like to open the lines for questions. Keats.

That concludes our prepared remarks, and now I'd like to open the lines for questions Keith.

Speaker 3: Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on your telephone keypad. Please make sure the mute function is turned off to allow your signal to reach our equipment. Star one for questions will pass.

Ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your telephone keypad. Please make sure. The mute function is turned off to allow your signal to reach our equipment.

Star one for questions, we'll pause a moment to assemble the queue.

Okay.

Speaker 3: We'll take our first question from Therani Projury with SMBC, NECO Securities. Please go ahead.

We will take our first question from Ronny for Jeremy.

With Smbs.

Nikko Securities. Please go ahead.

Speaker 4: Yeah, thank you. Thanks for taking my question and a great job on the quarter, guys. So I guess, you know, Todd or Tom, as we look out to the first half, you're guiding for profitability to decline, which is not a surprise given the cost inflation that you talked about. But as we're going to second half, you did mention that your price increases will kick in. Do you have a target profitability as we go through the second half and how long it might take and for you to get back to whatever kind of the normalized rate is?

Yes. Thank you. Thanks for taking my question and great job on the quarter guys. So.

I guess, Todd or Tom as we look out to the first half youre guiding for profitability to decline, which is not a surprise given the cost inflation that <unk> talked about but as we go into second half you did mentioned that your price increases will kick in.

Kind of a target profitability as we go through the second half and Dana how long it might take for you to get back to whatever kind of the normalized rate is.

Speaker 3: I'll try to answer that and Tom can add to it if you feel so inclined. But let me just go back and talk about where we've come from, right? In 2021, very, very challenging year with all the material cost increases, supply chain challenges that we wouldn't.

Now I'll turn I'll try to answer that and Tom can add to it if you feel so inclined but.

Let me just go back and talk about where are we where we've come from in 2021, very very challenging year with all of the material cost increases and supply chain challenges that we witnessed.

Speaker 3: We had a lot of growth in the cost of our materials that go into our product. And we worked very hard. We talked about this over the last few quarters to mitigate that, and to adjust our pricing model. We talked extensively about how we do that. And I'm pleased to say that we've pretty well gotten there here by the end of the year, which was our hope and expectation.

We had a lot of growth and the cost of our materials that go into our products and we worked very hard we've talked about this over the last few quarters too.

To mitigate that is to adjust our pricing model, we talked extensively about how we do that and I am pleased to say that we've pretty well got in there here by the end of the year, which was our our hope and expectation.

Speaker 3: Only to find now that labor is raising its head from an inflation perspective. And we're having to deal with that. We've taken actions. We've been proactive on this one. But as noted, our backlog is going to take a little bit of time to work through. And so those price increases really don't become effective until later in the year. So we're going to incur the cost inflation starting in Q1.

The way to find now that labor is raising its head from an inflation perspective, and we're having to deal with that.

We've taken action we've been proactive on this one.

But as noted our backlog is going to take a little bit of time to work through and so those price increases really don't become effective until later in the year.

So we're going to have we're going to incur the cost inflations starting in Q1.

Speaker 3: But later in the year, we expect to have that mitigated through pricing as well as ongoing initiatives that we have internally to be more efficient.

But later in the year, we expect to have that mitigated through pricing as well as ongoing initiatives that we have internally to be more efficient.

Speaker 3: So in terms of expectations, we are looking to get back to a more normal position later in the year, absence from other, unforeseen circumstances, but we've been through a lot the last year as Tom highlighted and our team has done a really good job of fighting through all of this and we have a little bit more to go, but I think we've seen what we need to do, and at this point we have a plan that will get us in a much healthier position by the second half of the year.

So in terms of expectations, we are looking to get back to a more normal position later in the year.

Absent some other.

Unforeseen circumstances.

We've been through a lot last year as Tom highlighted and our team has done a really good job of fighting through all of this and we have a little bit more to go but I think we've seen what we need to do and at this point, we have a plan that will get us in a much healthier position by the second half of the year.

Speaker 1: And the only thing I add just to get a little bit more color on the labor adjustment that we will be taking.

Yes and no.

Only thing.

Just to get a little bit more color on.

The labor adjustments that we will be taking.

Speaker 1: This is actually part of a longer term process that we launched after the aneuron acquisition. We began a project.

This is actually part of a longer term process that we launched.

After the the Anaren acquisition.

We began a project related to the leveling global leveling of our organization and our compensation.

Speaker 1: related to the global leveling of our organization, our compensation, as well as responsibilities and making sure that we had strong global alignment.

As well as his responsibilities and making sure that we had we had strong global alignment.

Speaker 1: as an outgrowth of that process.

As an outgrowth of that process.

Speaker 1: We're now looking at a situation North America where we need them make

We are now looking at a situation North America, where we need to make.

Adjustments.

Speaker 1: And those adjustments designed to really to make sure and sure that TTM is competitive and competitive for the long term.

And those adjustments designed to really.

Make sure ensure that TTM is competitive and competitive for the long term, but.

Speaker 1: But I do want to highlight this has been a process in terms of looking at our overall levels. We're excited about this, where we stand on this project, being in the implementation phase now coming up. And then being able to offer our employees a much better defined roadmap in terms of career development that offers them global opportunities.

But I do want to highlight this has been a process in terms of looking at our overall levels. We're excited about this where we stand on this project being in the implementation phase now coming up.

And then being able to offer our employees a much better defined roadmap in terms of career development that offers them global opportunities.

Speaker 1: So there really is, you know, it's a big move on our on TTMs part, something that we're excited about.

So it really is.

It's a big move on are on Ttm's part is something that.

That we're excited about.

Speaker 4: got it, that makes total sense. And then one question about, again, pricing, potential pricing increases.

Got it.

That makes total sense and then.

One question about again pricing.

Potential price increases.

Speaker 4: I would suspect that that will have some impact or some beneficial impact on your top-line growth as well as we're going to second half. And when I look at your annual guidance by segment, it doesn't look like you're changing a whole lot here, generally, you know, consistent with what you've been telling us. So I'm just curious, you know, are you just being somewhat conservative here given the potential price increases as we're going to second half?

I would suspect that that will have some impact or some beneficial impact on your top line growth as well as we go into second half.

When I look at your annual guidance by segment. It doesn't look like you're changing a whole lot here generally consistent with what you've been telling us. So I'm. Just curious are you just being somewhat conservative here given the potential price increases as we go into second half.

Speaker 1: What I would say there, and as we talk through the end markets, I'm sure later in the call, we'll go through this. But if you certainly, we benefited from strong growth this past year.

Yes.

What I would say they're in.

No.

As we talk through the end markets I'm sure later on the call. We'll go through this but.

Certainly we benefited from strong growth.

Past year.

Speaker 1: being at that close to 11% level. Certainly a little, a portion of that were price adjustment related. But also really driven by our customer demand and I have to say by our, particularly our Asia side of the house and the ability to maximize output there.

Being at that close to 11% level, certainly a little of a portion of that were price adjustment related.

But but also really driven by our.

Our customer demand and I have to say by our particularly our Asia.

Side of the house and the ability to maximize output there.

Speaker 1: As we look at this year, I think you're right to point out that

As we as we look at this year I think youre right to point out that.

Speaker 1: We really don't incorporate the pricing adjustment as much as we look at real demand. And so we're still excited to be looking at a situation. I think if you're looking at, again, returning to that solid mid single digit growth rate, which is...

We really don't incorporate the pricing adjustments as much as we look at real demand.

And and.

So we're still excited to be looking at a situation I think.

We're looking at again, returning to that solid mid single digit growth rate, which is <unk>.

Speaker 1: given our mix of businesses where we've liked to be traditionally, particularly coming off of an elevated growth year. So again, yeah, I think there's potentially a portion of that that we're missing, but really solid growth that we foresee here.

Given our mix of businesses, where we are we like to be traditionally, particularly coming off of an elevated growth year.

<unk>.

Again I think.

Potentially a portion of that that we're missing, but but really.

Solid growth that we foresee here.

Got it thanks and good luck.

Thank you.

Speaker 3: We'll take our next question from Jim Rashudi with Needham and Company. Please go ahead.

We will take our next question from Jim Ricchiuti with Needham <unk> Company. Please go ahead.

Speaker 3: I, uh, I'm wondering if you're seeing any, putting aside the labor challenges. I'm wondering if you're seeing any signs, uh,

Hi.

Good afternoon, I'm wondering if youre seeing any putting aside the labor challenges. So im wondering if youre seeing any signs.

Speaker 3: cost stabilizing in other areas of the business, or is this still a case where you may be having to react as you go through the next one to two quarters and potentially have to take other pricing acts.

Cost stabilizing.

In other areas of the business or is this still a case, where you may be having to react as you go through the next one to two quarters and potentially have to take other pricing actions.

Speaker 1: Yeah, so Jim, I think we've...

Yes.

Jim I think we've.

Speaker 1: We have seen a stabilization. It's at the material prices generally stabilizing at high levels.

We have we have seen a stabilization it's at.

Material prices generally stabilizing at high levels.

Speaker 1: This last quarter, we did see some increase in some of the chemical related inputs in our China facilities. We worked our way through that. We do see elevated electricity.

This last quarter, we did see some increase in some of the.

Chemical related inputs in our China facilities, we worked our way through that.

We have we do see elevated electricity costs here in the winter again, primarily in China.

Speaker 1: cost here in the in the winter again primarily in in China

Speaker 1: But those are relatively minor compared to, you know, the laminated situation, which courses our major raw material. And overall, I would say that, again, high levels, levels that we certainly hope will come down over time, but at least a stabilizing trend there.

But but those are relatively minor compared to.

Samad.

The laminate situation, which of course is our major raw material and and overall I would say that again high levels levels that we certainly hope will come down over time, but.

But at least a stabilizing trend there.

Speaker 3: And Tom, just in light of the moving parts to the business, we'll be still within the next couple of quarters and some of the actions you're taking. What can you say about some of the other activities you might be pursuing on the M&A side?

And.

Tom.

In light of the.

Moving parts to the business so at least over the next couple of quarters.

The actions you are taking.

What can you say about.

Some of the other activities you might be pursuing on the M&A side.

Okay.

Speaker 1: Sure, continuing to work that side of

Sure.

Continuing to work that that side of.

<unk>.

Speaker 1: of our strategic direction. And what I can say is overall the pipeline process that we have in place still very...

Of our strategic direction.

And what I can say is overall the pipeline process that we have in place still.

Still very active.

Speaker 1: and just to reiterate the strategic themes there. We're still looking to bolster our footprint outside of China and North America, looking at what we might be able to do in Europe , what we might be able to do in Southeast Asia, and then also looking at our, particularly our RF.

And just to reiterate the strategic themes there.

We're still looking.

Bolster our footprint.

Outside of China, and North America looking at what we might be able to do in Europe , what we might be able to do in southeast Asia.

And then also looking at our particularly our RF Pas.

Speaker 1: position, strengthening our aerospace and defense business, primarily in that area, is another major priority. So those priorities remain very much in place.

Position.

<unk>, our aerospace and defense business.

Primarily in that area.

Another major priority.

So those those priorities remain very much in place.

Speaker 1: Interesting, you know, with the markets moving, you know, we are in a period of a little bit of volatility, but hoping that that also means that we're going to see, you know, some more, I would say, you know, from a valuation standpoint, realistic valuation expectations as we go forward.

Interesting.

The market's moving.

We are in a period of a little bit of volatility.

But but.

Hoping that that also means that.

We're going to see some more.

I'd say finally.

From a valuation standpoint realistic.

Valuation expectations as we go forward.

Got it thanks.

As a reminder, star one for questions. Please star one.

Speaker 3: As a reminder, star one for questions, please star one.

We will take our next question from Mike Crawford with B Riley Securities. Please go ahead.

Speaker 3: We'll take our next question from Mike Crawford with Be Rylee Securities. Please go ahead.

Speaker 1: Thank you just to follow up on the M&A question. Given the $20 billion Intel's investing in fabs in Ohio and other OEMs building out US footprints, how does that change your calculus regarding your own footprint in the US?

Thank you just a follow up on the M&A question, given the $20 billion Intel's investing in Fabs in Ohio and in other other Oems building out U S footprint.

Does that change your calculus regarding your own footprint in the U S.

Right yes.

Speaker 1: So a few things there. I think first of all, we love our position in North America. And as you know, it's a position that we use both for defense customers. And I would say primarily for defense customers, but also for some of the prototyping and pilot production requirements of our commercial customers, particularly in the MII area, and then also in the computing and communications area. So.

So a few things there I think first of all we love our position in North America.

And as you know Mike it's <unk>.

<unk> that we that we use both for defense customers.

And I would say primarily for defense customers, but also for some of the prototyping and pilot.

Production requirements of our commercial customers, particularly in the <unk> area and then also in the computing and communications area. So.

Speaker 1: So now you start fast-forwarding to a time as we start to see reshoring initiatives occur with our customer base.

So now you started fast forwarding to a time is as we start to see re shoring initiatives occur with our customer base.

Speaker 1: We will be pursuing absolutely the dialogue around their requirements in North America.

We will be pursuing absolutely.

The dialogue around their requirements in North America.

Speaker 1: And that will be an effort that we continue going forward. That requires an understanding on our customers' parts that there is a cost differential.

And that will be an effort that we that we continue.

Going forward.

That requires an understanding on our customer's part that there is a differential a cost differential.

Speaker 1: even with the more advanced capabilities around printed circuit boards, with the material supply and infrastructure being primarily in Asia, there is a cost differential associated with production in North America. As I mentioned,

Even with the more advanced Cape.

Capabilities around printed circuit boards with the material supply and infrastructure being primarily in Asia. There is there is a cost differential associated with production in North America.

As I mentioned in.

My comments.

Speaker 1: The fact that the NDA came through with certainly an emphasis on, let's say, non-China production. And as we go forward with potential interest in supply chain resiliency from our customer base, I think we're going to start seeing a shift.

The fact that the NDAA came came through with certainly an emphasis on let's say non China production.

And as we go forward with potential interest in supply chain resiliency from our customer base I think we're going to start seeing a shift.

Speaker 1: in views and regards to North America production. But I will tell you that, you know, that comes with an acceptance of cost differential. And so active, you know, discussions there will continue and we'll see where it takes us.

And views in regards to North America production.

But I will tell you that that comes with an acceptance of of cost differential and so.

So active discussions there will continue.

And you will see where it takes us.

Okay.

Thanks, Tom and Tim.

Speaker 1: I know you mentioned RF, aerospace and defense, but you also talked about your high layer count capacity in North America already being somewhat kind of allocated to more strategic verticals. Does that mean that there would be some room to add to that high layer count position in North America just through internal investment or

I know you mentioned.

Yes.

For aerospace and defense, but you also talked about.

Your higher layer count capacity in North America already being somewhat kind of allocated to more strategic verticals does that mean that there would be some room to add to that high.

<unk> position in North America through internal investment or.

Speaker 1: Right. So, so when when we talk about

Right so.

When we talk about.

Speaker 1: the demands for data center customers.

The demand for data center customers.

Speaker 1: and for networking customers, you really are looking at that high layer count requirement.

And for for networking customers, you really are looking at that high layer count.

Our requirement.

Speaker 1: And you're right. We had to make some allocation decisions, not just around North America, it's really around our total capacity.

And Youre right. We had we had to make some allocation decisions not just around North America is really around our total.

Capacity.

Speaker 1: And those are difficult. On the other hand, we have a pretty clear strategy around continuing to move towards the higher, more advanced technologies, the higher layer count requests.

And those are those are difficult.

On the other hand, we have a pretty clear strategy around continuing to move towards the higher more advanced technologies, the higher layer count requirements.

Speaker 1: And so from that standpoint, where we've been shifting is towards markets and towards customer needs.

And so from that standpoint, where we've been shifting is towards markets and towards customer needs associated with that now that's being driven by new chipsets, primarily new chipsets demanding more than circuitry to support those chips and so we expect.

Speaker 1: associated with that now that's being driven by new chipset primarily

Speaker 1: new chips that's demanding more than circuitry to support those chips. And so we expect that trend to continue.

That trend to continue as it relates to where do we put the capacity adds.

Speaker 1: As it relates to where do we put the capacity, you know, absolutely again, if we see the North American component become more and more important and if our customers...

<unk> again, if we if we see the north American component.

Become more and more important and if our customers.

Speaker 1: really need to see that capacity for an automated capability that and are willing and understand the cost differential. And at that point, yeah, that makes, in North America, make sense. In the meantime, other reasons make sense as well to service those supply chain resiliency requirements. So, yeah, I think, you know, absolutely, we'll continue to look at the footprint as we look at supporting that customer.

Really need to see that capacity for an automated capability.

And are willing and understand the cost differential then at that point, yes that makes in North America makes sense in the meantime, other reasons may make sense as well to service those supply chain resiliency requirements. So.

Yes, I think.

Absolutely, we'll continue to look at the footprint.

As we look at supporting that customer base.

Speaker 1: Thank you. And then last question is, do you have this production or record, metric, you track, and the automotive vertical that was at 6299 NM program, WINS in 2020? Do you have that number for 21?

Thank you and then last question is you have this production a record metric to track in the automotive vertical that was at $629 million of program wins.

<unk> in 2020 do you have that number for 'twenty one.

Speaker 1: I sure do. Yeah, so as we look at automotive, let me give you just some of the numbers from the most recent quarter. So we had total, let's see.

I sure do.

Yes so.

As we as we look at at automotive, let me give you just some of it some of the numbers from the.

The most recent quarter.

So we had.

Total let's see.

Speaker 1: want to make sure I get my numbers right. So we had 26 design wins $146 million in Q4.

Just wanted to make sure I get my numbers right.

So we had 26 design wins $146 million.

In Q4.

Speaker 1: That compares to the previous year we had 35 design wins, but only $81 million.

That compares to the previous year, we had 35 design wins, but only $81 million.

Speaker 1: And so, you know, very, very strong quarter. Now, if you step back and you say, okay, let's look at the fiscal year metric. 147 design wins for about $532 million.

And so.

Very very strong quarter now if you step back and you say, okay, let's look at the fiscal year metric.

Wondered 47.

Design wins for about $532 million that compares to an even stronger 2020.

Speaker 1: that compares to an even stronger 2020, which was at $629 million. And then a 2019 figure that was at $475 million.

$629 million.

Then a 2019 figure that was at $475 million. So what we're seeing or what we saw in this past year.

Speaker 1: So what we're seeing or what we saw in this past year in automotive growth, a portion of that, is these programs that we won in 2019 and 2020 coming beginning their production.

And automotive growth a portion of that is these programs that we won in 2019 and 2020 coming beginning their production.

Speaker 1: lives and what we will see in this coming year is 2020 and 2021 feeding into this coming year as we as our customers move into production.

And what we will see in this coming year is 2020 in 2021.

Feeding into this coming year as we as our customers move into production. So it's a nice space to be positioned from for sure.

Speaker 1: So it's a nice base to be positioned from for sure.

Great. Thank you very much.

Thanks, Mike.

Speaker 3: We'll take our next question from Matt Sheeran with Steve Foll. Please go ahead. Yes, thanks. Good afternoon. Just follow up questions, particularly on the gross margin.

We will take our next question from Matt Sheerin with Stifel. Please go ahead.

Yes, thanks, good afternoon.

Just.

Follow up questions, particularly on the gross margin.

Speaker 3: How should we think about, again, I know this was asked earlier, but as we get through the year, you've got the cost that you're passing along, sounds like material raw material prices are starting to stabilize. Could we expect, margin, gross margin expansion in the back half versus the back half of fiscal 21?

How should we think about.

I know this was asked earlier, but as we get through the year, you've got the the <unk>.

Costs that youre, passing along sounds like material raw material prices are starting to stabilize.

Could we expect.

Margin gross margin expansion in the back half versus the back half of fiscal 'twenty one.

Yeah.

Matt.

Speaker 3: Challenging question because it's hard to project that far out.

Challenging question, because it's hard to project that far out.

Speaker 3: But what can I do? Let me help calibrate things a little bit for you.

But what I can do let me help calibrate things a little bit for you.

Speaker 3: and for everybody else to that matter. Remember, Q1 here is we're giving guides for is always our seasonally low quarter of the year because of Chinese new year and the lost production and efficiencies that that's rise. So that's something you gotta keep in mind year over year. So certainly we would expect Q1 to be the lowest point of the year. And if you look at our pattern last year, it was consistent with that. It has been for several years.

And for everybody else for that matter remember Q1 here as we're giving guidance for is always our seasonally low quarter of the year because of Chinese new year and the loss production inefficiencies that that drives. So that's something you have to keep in mind year over year. So certainly we would expect Q1 to be the lowest point of the year.

If you look at our pattern last year, it was consistent with that and it has been for several years.

Speaker 3: The big issue that we ran into that we're seeing in Q4, that we're addressing that will impact this in the first half of this year and from a negative standpoint, is really the North America labor situation. And Tom nicely described kind of the whole process that we're going through there. Just a sense of magnitude, you know, in Q1, in the fourth quarter, that challenge impacted us by about a hundred bases.

Big issue that we ran it too that we're seeing in Q4 that we're addressing that will impact us in the first half of this year from a negative standpoint is really the North America labor situations Tom.

Nicely described kind of a whole process that we're going through there.

A sense of magnitude in Q1, I think in the fourth quarter that challenge impacted us by about 100 basis points and in Q1 that will impact us more in the closer to the neighborhood of 100 to 120 to 150 basis points.

Speaker 3: And in Q1, that'll impact us more on the closer to the neighborhood of 120 to 150 base.

Speaker 3: So if we were able to solution that, which we believe have a plan in place and we're executing that plan, you know, that gives you some sense of mitigating that particular issue. Now there's a lot of other factors that play into margins, you know, overall volume and revenue growth during the year, and other things that can be favorable. And obviously, we hope we can avoid any more of those.

So if we were able to solution that which we believe have a plan in place and we're executing that plan.

That gives you some sense of of mitigating that particular issue now theres a lot of other factors that play into margins overall volume and revenue growth during the year and other things that can be favorable and obviously, we hope we can avoid any more of those supply chain challenges that we've been seeing that hurt us so.

Speaker 3: fly chain challenges that we've been seeing that hurt us so much in 2021. So I hope that helps give you a sense of direction at least and the order of magnitude of this litigative challenge that we're working through right now.

So much in 2021, so I hope that helps give you a sense of direction at least in the order of magnitude of this labor challenge that we're working through right now.

Speaker 3: And that's all a hit to Cod, right? Not SGNA, it goes labor issues in North America because it's mostly like factory jobs.

Got it.

And Thats, all I had to Cogs right not SG&A those labor issues in North America, because it's mostly.

Like factory jobs.

Speaker 3: Essentially, yes, I mean, there's a minor amount in SG-8, but it's really really too minor to

Essentially yes, I mean, there is a minor amount in SG&A, but it's really really too minor to talk about.

Speaker 3: I know you talked about the utilization rate of 50% in North America. I know it's always significantly below Asia because of the nature of the products that you do, etc. But certainly, well below where I think you want it to be. What's the optimal level and where do you think you can get it between now and the end of the year?

And I know you talked about the utilization rate of 50% in North America, and I know, it's always significantly below Asia because of the nature of the products that you do et cetera, but certainly well below where I think you wanted to be what's the optimal level and where do you think you can get it between now and the end of.

The year.

Speaker 1: So I can start out on that one, Todd, and then please jump in and supplement the, the where we are, good way to think about it, Matt, we're still where we were last quarter in terms of contribution of North America to revenue. So about 43% of our revenues coming out of North America production, where we have been after the mobility sale was 50%.

So.

I can I can start out on that one and then please jump in and supplement.

Be.

Where we are good way to think about it Matt we're still where we were last quarter in terms of contribution of North America to revenue so about 43%.

Of our revenues coming out of North America production, where we have been after the mobility sale was 50%.

Speaker 1: So if you start thinking about it, versus utilization, that may be a better way to think about it.

So if you start thinking about it versus utilization that they would be a better way to think about it we'd like to be.

Speaker 1: We'd like to be, you know, as we get, you know, again, this is dependent on labor force, but as we start to shore up our labor force and bring that labor force into the plants, we need to bring that mix up again, the 50-50. And that will, you know, again, I think both, so clearly...

As we get.

Again, this is dependent on labor for us, but as we.

To shore up our labor force and <unk>.

Bring that labor force into the plants, we need to bring that that mix up again to 50 50 in.

And that will.

Again I think.

So clearly.

Speaker 1: help us on the margin, from margin performance standpoint because we'll be utilizing those facilities. We'd like to see to answer your question directly as well. We'd like to see, we'd like to see operating utilization in North America about 60%.

It helps us on the margin margin performance standpoint, because we will be utilizing those facilities, we'd like to see.

To answer your question directly as well, we'd like to see.

We'd like to see operating utilization in North America above 60%.

Speaker 1: That's when we're really moving things through the plants with our IMIX flow volume approach. And if we get much above those levels, then we have to start thinking about expansion.

That's when we're really really moving things through the plants.

With a high mix low volume approach.

And if we get much above much above those levels and we have to start thinking about expansion.

Speaker 3: Yeah, and in terms of the impact on these labor issues on your business, I know you talk about some headwinds, but there are pretty much across all your end markets or mostly areas where you're doing, like you said, high-mex, lower volume, more complex stuff here in the US like Mill Arrow or across the board where you're doing NPI for networking.

And then in terms of the impact on these labor issues on your business I know you talked about some headwinds but is it a pretty much across all your end markets are mostly areas where you're doing.

Like you said.

High mix lower volume more complex stuff here in the U S like Mil Aero or is it across the board, where youre doing like NPI for networking for instance.

Speaker 1: Yeah, yeah, so the biggest way, the absolute aerospace and defense, of course, 100% of that is North America production, or not 100, but it's very close. We do a little bit of commercial aerospace in China.

Yes, so the biggest way absolutely aerospace and defense of course, 100% of that is North America production, alright, not 100, but it's very close because we do a little bit of commercial aerospace in China.

Speaker 1: but by far, above 90% is North America. The other end market that's affected by this is MII. We have several facilities that service the MII market.

But by far above 90% as North America.

The other end market.

<unk> by this is high.

Hi.

We have several facilities that that service the NII.

Speaker 1: and that's mainly a quick turn early development.

Market.

And that's mainly a quicker turn early development.

Speaker 1: market and also sort of a niche market, if you will, for some of the applications. So that's a market that is dependent on North America production. And then a little bit going into data center and netcom, but that's primarily our Chippewa Falls facility, which...

Market and also sort of a.

Niche market, if you will for some of the applications. So so that's a market that is dependent on North America production.

And then the end.

And then a little bit going into data center and net comp, but that's primarily our our Chippewa falls facility, which.

Speaker 1: So a fairly small part of the North America footprint.

So still a fairly small part of the North America footprint.

Speaker 3: Okay, and just lastly, you're positive commentary on the data center. Sounds like you've got really good growth there. You're saying you expect to be above market, but I think your market growth is in sort of low to mid-single digits. Would you expect to do much better than that, given the backlog and given the growth we've seen at those customers?

Okay, and just lastly, your positive commentary on the data center it sounds like you've got a really good growth there.

Youre, saying you expect to be above market.

I think youre market growth is in sort of low to mid single digits.

Would you expect to do much better than that given the backlog and given the.

The growth we've seen at those customers.

We certainly would expect.

Speaker 1: We certainly would expect to do much better than that. That one that's 3% is also, because the most visibility we have on that market growth is through the Prismar forecast. And they include laptop and desktop monitors in that area. So that always puts a damper on data center clearly growing at higher rates. Yep, okay. All right, great, thanks a lot.

To do to do much better than that 1% to 3% is also because its the most visibility we have.

That market growth is through our through the <unk> forecast and they include laptop.

On desktop monitors in that in that.

Area, so that always puts a damper on data center clearly growing at higher rates, yes, Okay, alright, great. Thanks, a lot.

Thank you.

Speaker 3: We'll take our next question from Christian Schwab with Craig Helem Capital Group. Please go ahead.

We'll take our next question from Christian Schwab with Craig Hallum Capital Group. Please go ahead.

Speaker 5: Can you guys just help us understand the wage inflation in North America? What were you paying hourly labor in the blend? Did I know why Geography?

Hey, guys can you guys just.

Help us understand the wage inflation in.

In North America.

You paid hourly labor.

And the blended I know by geography, it would be modestly different but.

Speaker 5: different but just to give us a rough idea you know

Just to give us a rough idea.

Speaker 5: pandemic, what you were paying and now what you're paying now, uh, how to go for.

Prepaid stats with what you were paying in and now what you're paying now.

On a go forward basis.

Speaker 1: Maybe I can help characterize that for you. I think, you know, again, we are, the move we're making is really, and...

Maybe I can I can help characterize that for you I think again, we are the move we're making is really in.

Speaker 1: in the context of structural changes we need to make in our overall compensation.

In the context of <unk>.

The structural changes we need to make in our in our overall compensation.

Speaker 1: So it's more than just the starting pay or simply the pay to the workforce. But having said that, you see in the overall numbers, I think lately, 5% is the number I've been seeing for

So so.

It's more than just the starting pay or.

Or simply the pay to the to.

The workforce, but having said that.

You've seen the overall numbers I think lately.

5% is the number I have been seeing for.

Speaker 1: for inflation this past year in terms of pay.

For inflation this past past year in terms of pay.

Speaker 1: But what I can tell you is for an hourly workforce, it's substantially above that. And we've been seeing more north of 10% kind of.

But what I can tell you is for an hourly workforce is substantially above that.

And we've been seeing more north of 10% kind of.

Speaker 1: increases over over time or year you know if you go back a year on year compare so

Increases.

Over over time of year, if you go back a year on year compare.

So.

Speaker 1: Yeah, substantial. And again, from a starting wage standpoint, I think you overall, you see a manufacturing moving from what was on average, let's just say a $15 per hour kind of pay scale to closer and closer to that $20 level.

Yes substantial.

Again from our starting wage standpoint, I think.

Overall, you see a manufacturing moving from what was on average, let's just say a $15 per hour kind of pay scale to closer and closer to that $20 level.

Speaker 1: So there has been a major move there for sure.

So it's.

There has been a major move there.

For sure.

Speaker 5: Have you guys seen any pushback from any of your customers or as your order book or backlog? You know for future revenue based on price increases due to you know

Have you guys seen any.

Pushback from any of your customers there or is your order book or backlog.

<unk>.

For future revenue based on price increases due to readily raw materials, but obviously significant increases in labor costs have you seen any pushback from customers on that.

Speaker 5: of you seen any pushback from customers on that.

Yes.

Speaker 1: I have yet to run into a customer that is really satisfied with us when we increase pricing. But having said that, I think the reasons we're doing this.

I have yet to run into a customer that is really that it was really satisfied with us when we when we increase pricing.

Yes.

Having said.

Having said that.

I think the the reasons we're doing this.

Speaker 1: are well documented. The raw material inflation that we've had to deal with, the labor.

Are well documented.

The.

The raw material inflation that we've had to deal with.

The labor situation.

Speaker 1: well understood by the customer base.

Well understood by the customer base there are programs.

Speaker 1: There are programs that customers choose to move away from us at volume. If you know, particularly if they don't see equivalent kind of price movement from our competition on the commercial side. But frankly,

Customers.

Choose to move away from us at volume.

If.

Particularly if they don't see equivalent kind of price movement from our competition on the commercial side.

But frankly, given where our utilization rates are for our commercial business and.

Speaker 1: given where our utilization rates are for our commercial business and given the strength of the end market demand, this is sort of a time where you actually, it can be a bit of a relief depending on the program. So what I would say is absolutely, we've had pushback around price increases, but also a general understanding of the environment that we are in.

And given.

The strength of the end market demand.

This is sort of a time, where you actually it can be.

A bit of a release depending on the program. So what I would say is absolutely we've had.

Pushback around price increases, but also a general understanding of the environment that we are yet.

Right now.

Speaker 5: Yeah, that makes sense. And then my last question on the utilization rate North America, which is, you know, sounds relatively very...

Yeah that makes sense and then my last question on the utilization rate in North America, which is.

It sounds relatively very low.

Speaker 5: but given some of the complexity of some of the programs, you know, it is...

But given some of the complexity of some of the programs.

Is could you operate those facilities at 100% utilization or is 100% utilization really.

Speaker 5: operate those facilities at 100% utilization or is 100% utilization really a 75 or 80% utilization.

75% or 80% utilization.

Right, yes, so so.

Speaker 1: So the measure that we use for measuring utilization is based on plating capacity.

So the measure that we use for measuring utilization is based on plating capacity use and thats. The core process right in our printed circuit Board facility, it's a great metric to use in measuring capacity utilization for our high volume facility.

Speaker 1: use and that's the core process, right, in a printed circuit board facility. It's a great metric to use in measuring capacity utilization for a high volume facility, because that does tend to be a bottleneck.

Because that does tend to be a bottleneck area.

Speaker 1: When you move over to a North America facility, those bottlenecks will move around because of the high mix, low volume nature of the business that's coming into the plant. So you can have the bottlenecks in drill, you can have the bottlenecks in inspection, they move around quite a bit. So...

When you move over to our North America facility, those bottlenecks will move around because of the high mix low volume nature of the business that's coming into the plant. So you can have the bottlenecks and drill youre going to have the bottlenecks in inspection they move around quite a bit. So there is always.

Speaker 1: There's always a need, because of the quick turn requirements and also this high mix, low volume nature of the requirements that we receive, to have excess capacity in place. And that's why we use a measure of, you know, really, if you start pushing much above 60,

The need because of the the quick turn requirements and the.

And also there's high mix low volume nature of.

Their requirements when we receive that too to have excess capacity in place and that's why we use to measure it.

Really if you if you start pushing much above 60 at that point.

Speaker 1: At that point, you've got to be thinking about capacity expansion of sorts. And certainly if you hit 70 at that point,

You've got to be thinking about capacity expansion of sorts and it's certainly if you had 70 at that point.

Speaker 1: that's the equivalent of being over 100%.

That's the equivalent of being over 100% capacity of course right now what we're dealing with on the capacity utilization side is a labor shortage.

Speaker 1: capacity of course right now what we're dealing with on the capacity utilization side is a labor shortage That's that is it's not about the the equipment right now. It's really about labor

That is it's not about the equipment right now it's really about labor.

Great.

Speaker 5: Great. That helps with that clarity. Thank you. No other questions. Sure. Yeah, thank you.

So that clarity. Thank you no other questions.

Thank you.

Speaker 3: We have no further questions in the queue. I would like to turn the conference back to Tom Edman for any additional or closing remarks.

We have no further questions in the queue I would like to turn the conference back to Tom Edman for any additional or closing remarks.

Speaker 1: All righty, thank you. Yeah, I'd just like to close by summarizing some of the points that I made earlier. First, we delivered revenues above the high end of our guidance, and that was despite some of the operational challenges that we covered. Second, our end market diversification is playing out solid year-on-year growth of 19.6% for the quarter and 10.9% or almost 11% for the year.

Alrighty. Thank you.

Yes.

Like to close by summarizing some of the points that I made earlier.

First we delivered revenues above the high end of our guidance and that was despite some of the operational challenges that we covered.

Second our end market diversification is playing out a solid year on year growth of 19, 6% for the quarter and 10, 9% or almost 11% for the year.

Speaker 1: So very strong growth. We use solid cast generation to continue to repurchase our stock. And finally, I just like to again thank our employees, our customers, and you are investors for your continued support. Thank you very much.

So very strong growth.

We use solid cash generation to continue to repurchase our stock and finally I'd just like to again, thank our employees our customers.

And you our investors for your continued support thank you very much.

Speaker 3: Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.

Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.

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