Q2 2022 TTM Technologies Inc Earnings Call
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Good day, everyone and welcome to the TTM technologies second quarter 2022 financial results conference call.
During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be opened for questions. If you would like to ask a question. During that time, you may signal by pressing star one on your telephone keypad.
As a reminder, this call is being recorded today August 3rd 2022.
Sameer Desai Ttm's, Vice President of corporate development and Investor Relations will now review Ttm's disclosure statement. Please go ahead.
Thank you April 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 a sort.
Including the factors explained in our most recent annual report on Form 10-K, and 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 pay.
Whether 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 companies.
Other SEC filings.
We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. So I can measure should not be considered as a substitute for 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.
<unk> website at Www Dot TTM Dot Com. We've also posted on the website a slide deck that we will refer to during our call.
I will now like to turn the call over to Tom Edman Ttm's Chief Executive Officer. Please go ahead Tom.
Thank you Samir good afternoon, and thank you for joining us for our second quarter fiscal year 2022 conference call.
I will begin with a review of our business highlights from the quarter and a discussion of our second quarter results followed by a summary of our business strategy.
Todd Schull, our CFO will follow with an overview of our Q2 2022 financial performance and our Q3 2022 guidance. We will then open the call to your questions.
The quarter's highlights are also shown on slide three of the Investor presentation posted on Ttm's website.
In the second quarter of 2022, TTM delivered an outstanding quarter with revenues and non-GAAP EPS above the high end of guidance, despite a challenging supply chain and labor environment and the continued impact of the COVID-19 is having on our business.
Revenues were up 10, 3% year on year, the second consecutive quarter of double digit growth as our commercial markets drove the year on year increase we.
We saw a significant jump in our profit margins in Q2 as many of the cost headwinds that we faced over the past year turned into a tailwind.
Specifically, we saw improved product mix product mix globally.
Verbal foreign exchange rates as the Chinese RMB weakened against the dollar lower metal prices and improve productivity in North America.
We also enjoyed very strong levels of quick turn business that contributed to our profitability.
I am extremely proud of our employees for delivering outstanding results this quarter.
We had previously discussed pay adjustments that we made in the first quarter of this year in North America to increase our competitiveness.
Since then we have seen a general improvement in our ability to attract and retain talent build the labor market is still tight and specific regions. The.
The price increases that will offset these higher compensation costs are still anticipated to have a positive impact on our margins through the balance of the year.
We expect that the elevated high margin quick turn quick turn business realized in Q2 will normalize in Q3 and will offset the margin improvements from price increases on a sequential basis. However.
Margins are expected to be up on a year on year basis.
Finally, I would like to mention the TTM published our first corporate social responsibility report or CSR and it is available on our website on the sustainability page under the about PGM section.
The report highlights ttm's commitment to CSR, and the environmental social and governance or ESG initiatives that are an integral part of the way we do business.
I would now like to provide a strategic update.
TTM is on a journey to transform our business to be less cyclical and more differentiated as part of this strategic transition near the end of the second quarter, we closed the acquisition of Telephonics.
Over the past several years TTM has consistently emphasized that a key part of our strategy is to add value to the product solutions that we deliver to our customers, particularly in the aerospace and defense market.
In 2018, we acquired Anaren, which broadened ttm's product portfolio into highly engineered RF components and sub assemblies as well as adding critical RF engineering capability and resources.
Telephonics builds on Anaren, and Ttm's customer driven culture, and disciplined approach to engineering and manufacturing by further broadening ttm's aerospace and defense product offering vertically into higher higher higher level engineered systems solutions and horizontally.
Into the surveillance and communications markets, while strengthening our position and radar systems.
Going forward, the aerospace and defense end market will be approximately 40% of revenues, which will provide growth and stability and it potentially uncertain demand environment for commercial markets.
In addition over 50% of A&D revenues will be from engineered and integrated electronic products with pcbs being less than 50% of the overall contribution.
Finally, the transaction will be immediately accretive to EPS.
Adding another element of our differentiation strategy on April 28, we broke ground on a new state of the art highly automated PCB manufacturing facility in Penang Malaysia.
The decision to build this new factory is a direct response to our customers' increasing concerns about supply chain resiliency and regional diversification and in particular, the need for advanced multilayered PCB sourcing options in locations outside of China.
The new facility in Malaysia will assist customers in our commercial markets, such as networking Telecom data center computing and medical industrial and instrumentation.
Lastly, I would like to update you on our Covid situation.
Earlier this year, COVID-19, and impacted our employee base with increased cases in North America. However, this was meaningfully reduced in the second quarter, which contributed to our increased productivity and.
In Asia Pacific, We saw Covid related disruptions and one of our smaller facilities in Shanghai, but this was more than offset by stronger growth from our larger facilities in southern China.
We understand Covid cases are growing again in China, and North America, and we are closely monitoring the situation and we'll adjust our protocols accordingly.
Now I'd like to review our end markets, which are referenced on page four of the investor presentation on our website.
The aerospace and defense end market represented 30% of total second quarter sales compared to 33% of Q2, 2021 sales and 30% of sales in Q1 2022.
This market performed better than our expectations and we continue to experience a positive defense climate with our A&D program backlog at $737 million, excluding telephonics compared to $671 million a year ago.
Telephonics included our program backlog is $1.04 billion.
The solid demand in our defense market as a result of a positive tailwind in defense budgets and our strong strategic program alignment and key bookings for ongoing franchise programs.
During the quarter, we saw a significant bookings for several programs, including the joint strike fighter and other space and airborne programs.
We expect sales in Q3 from this end market to represent about 39% of our total sales, including a full quarter of telephonics as the acquisition closed near the end of our second quarter.
The medical industrial instrumentation end market contributed 21% of our total sales in the second quarter compared to 19% in the year ago quarter and 21% in the first quarter of 2022.
The M I and II market set a new quarterly record as it were.
Was up 27% year on year exceeding $100 million in revenue for the fifth quarter in a row and performing much better than expected with broad based strength across all segments.
For the third quarter, we expect <unk> to be 17% of revenues as the elevated quick turn business in Q2 normalizes in Q3 and select customers face component shortages.
Due to the strength in this new in this market year to date, we expect this market will be above the long term third party projections of 2% to 4%.
Which is better than the inline growth rate expectations, we had at the start of the year.
Automotive sales represented 18% of total sales during the second quarter of 2022 compared to 18% in a year ago quarter and 20% during the first quarter of 2022.
Automotive grew eight 6% year over year and exceeded $100 million for the third quarter in a row.
We continue to see year on year growth for automotive Pcbs, Despite the combined impact of supply chain and demand disruptions caused by Covid, the Ukraine, Russia conflict and semiconductor shortages that are all impacting automotive OEM production.
However growth rates are moderating somewhat and we expect our automotive PCB business to contribute 16% of total sales in Q3.
Sales in the data center computing end market represented 17% of total sales in the second quarter compared to 14% in Q2 of 2021 and 16% in the first quarter of 2022.
This end market was up 29% year on year due primarily to growth from our data center customers we expect.
Revenues in this end market to represent approximately 15% of third quarter sales as strong data center demand continues to drive year on year growth.
Networking communications accounted for 14% of revenue during the second quarter of 2022.
This compares to 15% in the second quarter of 2021, and 13% of revenue in the first quarter of 2022.
We saw relative strength on a year on year basis, and networking as compared to telecom as we continue to allocate capacity for high layer count boards to our data center computing and networking customers.
In Q3, we expect this end market to be 13% of revenue.
Next I'll cover some details from the second quarter. This information is also available on page five of our earnings presentation.
During the quarter, our advanced technology, and engineered products business, which includes HDI rigid flex and RF subsystems and components accounted for approximately 33% of our revenue.
This compares to approximately 31% in the year ago quarter and 33% in Q1, we are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology and engineered products capabilities and new programs and new Mark.
That's.
Capacity utilization in Asia Pacific was 88% in Q2 compared to 88% in the year ago quarter and 85% in Q1.
Our overall capacity utilization in North America was 42% in Q2 compared to 49% in the year ago quarter and 46% in Q1.
This lower rate was caused by the additional plating capacity that we've added in North America.
Bottlenecks and non plating processes.
And direct labor shortages in certain regions.
Our top five customers contributed 30% of total sales in the second quarter of 2022 compared to 33% in the first quarter of 2022, we had one customer above 10% in the quarter.
At the end of Q2, our 90 day backlog, not including Telephonics, which is subject to cancellations was $635 $7 million.
<unk> two $553 $1 million at the end of the second quarter of last year and $605 $3 million at the end of the first quarter.
With Telephonics included our 90 day backlog at the end of Q2 was $703 $7 million.
Our book to Bill ratio was 0.89 for the three months ending July 4th.
As we look forward to the fourth quarter and beyond we will continue to closely monitor global economic influences on our commercial business to.
To date, we have seen minor impacts as specific customers focus on managing inventories to lineup with expected semiconductor chip deliveries are.
Our backlog continues to be robust, however, and we expect the aerospace and defense market to provide a strong counter cyclical element to our commercial business if conditions should weekend.
I'd like to conclude by again, highlighting the significant strategic moves that we made in the quarter with the groundbreaking in Malaysia, and the completion of the Telephonics acquisition, both of which will further differentiate TTM and our technology solutions.
I also want to thank our employees for continuing to contribute to TTM and our critical mission of inspiring innovation for our customers.
Our business performed much better than we expected as a direct result of our employees and our supply chain partners concerted efforts to support TTM and our customers now.
Now Todd will review, our financial performance for the second quarter Todd.
Thanks, Tom and good afternoon, everyone.
I apologize if I sound, a little congested I'm getting over a cold and I hope you'll bear with me.
Today I'll be reviewing our financial results for the second quarter that are also shown in the press release distributed today as well as on slide six of our earnings presentation that is posted on our website.
For the second quarter net sales were $625 $6 million.
<unk> to $567 4 million in the second quarter of 2021.
The year over year increase in revenue was primarily due to strong growth in our commercial markets, particularly data center computing and medical industrial and instrumentation.
GAAP operating income for the second quarter of 2022 was $37 $2 million, which included $10 $6 million of acquisition related costs.
This compares to $49 million in the second quarter of 2021.
On a GAAP basis net income in the second quarter of 2022 was $27 8 million or 27 cents per diluted share.
This compares to GAAP net income of $28 3 million or.
<unk> 26 per.
<unk> per diluted share in the second quarter of last year.
The remainder of my comments will focus on our non-GAAP financial performance.
Our non-GAAP performance excludes M&A related costs restructuring costs, certain noncash expense items and other unusual or infrequent items we've.
Present, non-GAAP financial information to enable investors to see the company through the ice management and to facilitate comparisons with expectations in prior periods.
Gross margin in the second quarter was 20%.
The highest level since the divestiture of our mobility business.
This compares to 18% in the second quarter of 2021.
The year on year increase was due to better pricing and product mix higher levels of quick turn business.
The fall through from higher revenues.
Partially offset by higher year on year labor costs, particularly in North America, where we had a special wage adjustment earlier in the year to be more competitive as well as higher material costs.
Selling and marketing expense was $16 $9 million in the second quarter or two 7% of net sales.
Versus $14 2 million or.
Or two 5% of net sales a year ago.
Second quarter, G&A expense was $35 $4 million or five 7% of net sales.
Compared to $28 $6 million or 5% of net sales in the same quarter last year.
In the second quarter of 22, R&D was $5 million.
Or 0.8% of revenues compared to $4 1 billion or 0.7% in the year ago quarter.
Our operating margin in Q2 was 10, 8% and outstanding result, given the macro challenges we have been dealing with.
Our highest level since the divestiture of the mobility business.
This compares to nine 7% in the same quarter last year.
Interest expense was $10 $2 million in the second quarter compared to $10 $5 million in the same quarter last year.
During the quarter, there was a positive $6 $8 billion foreign exchange impact below the operating line.
Government incentives and interest income increases to $7 6 million.
We're six cents of EPS.
This compares to a loss of zero point $7 million or one set of EPS in Q2 last year.
Our effective tax rate was 15% in the second quarter, resulting in a tax expense of $9 8 million.
This compares to a rate of eight 7% our tax expense of $3 8 million in the prior year.
Second quarter net income was $55 3 million or 54 cents per diluted share.
This compares to the second quarter 2021, net income of $40 million or <unk> 36 per diluted share.
Adjusted EBITDA for the second quarter was $96 9 million or 15, 5% of revenue.
Paired with second quarter 2021, adjusted EBITDA of $75 6 million.
Or 13, 3% of revenue.
Depreciation for the quarter was $21 8 billion.
Net capital spending for the quarter was $26 4 million.
Adjusted EBITDA for this excuse me cash flow from operations was $79 3 million or 12, 7% of revenue exceeding our target of 10%.
Free cash flow was very strong at $52 9 million or eight 5% of revenue.
During the quarter, we had we completed our $100 million stock buyback program and acquired Telephonics using cash on hand.
After all of that our balance sheet and liquidity positions remain very strong cash and cash equivalents at the end of the second quarter of 2022 were $266 5 million and our net debt divided by last 12 months EBITDA was 2.2 slightly above our target of 2.0.
Our leverage ratio was better than we had expected due to the stronger EBITDA results for the second quarter and a $300 million cash outlay for the Telephonics acquisition was about $30 million less than we had anticipated as a result of working capital adjustments.
Now I'd like to turn to our guidance for the third quarter.
We expect total revenues for the quarter.
Third quarter of 2022 to be in the range of $655 million to $695 million and we expect non-GAAP earnings to be in the range of 41 to 47.
Per diluted share.
This guidance includes a full quarter of revenue and profits in telephonics of approximately $69 million in <unk> of EPS, respectively.
We expect that pricing actions taken earlier in the year to mitigate labor cost increases we will have a positive impact in the quarter, but we also anticipate lower levels of quick turn business.
The EPS forecast is based on a diluted share count of approximately 103 million shares which includes dilutive securities such as options and stock.
Victor stock units.
We expect that SG&A expense will be about eight 5% of revenue in the third quarter and R&D to be about one 1% of revenue.
We expect interest expense to total approximately $10 $2 million.
Finally, we estimate our effective tax rate to be between 13% to 17%.
To assist you in developing your financial models, we offer the following additional information.
During the third quarter, we expect to record amortization of intangibles of about $11 7 million.
Stock based compensation expense of about $5 5 million noncash.
Noncash interest expense of approximately zero point $5 million.
And we estimate depreciation expense will be approximately $24 $5 billion.
Finally, I'd like to announce that we'll be participating in the Needham virtual industrial Tech robotics and clean Tech one on one conference on August eight the Jefferies Industrial Conference on August 10, and the Jefferies semiconductors hardware and communications infrastructure Summit on August 30.
That concludes our prepared remarks, and now I'd like to open the line for questions April .
Yes.
Thank you if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad also if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again press star one at this time, we will pause for a moment.
And well first hear from Matt Sheerin of Stifel.
Hey, guys. Thank you and good afternoon.
Tom I was hoping you could give us a little bit more color on some of the end markets.
Looks like you had a pretty strong growth.
And most of the sectors, where you are you're calling for auto to.
To be down again quarter on quarter, and I'm wondering what youre seeing some other suppliers and I know that.
You're sort of at a different spot in the supply chain and maybe the.
Semiconductor guys, but there's expectations of growth over the next public quarters, just on on production and content. So wanted to get your read.
On that and then also.
Just on a quick turn business.
Could you remind us how big revenue it is as a percentage of.
Of sales and.
And then.
Why are you are you seeing a slowdown and why did you see a pick up in the quarter.
Sure.
So yes, let me start with.
The automotive.
Situation in so over overall, obviously as you pointed out that we had we had a terrific quarter very very strong quarter pretty much across the board and particularly if you look at those year on year.
Growth rates.
If we're to talk specifically on automotive.
Sequentially, yes down looking at about down 6% or so in our forecast.
Versus but we are up in our.
<unk> forecast year on year again about 6%.
So if you parcel out what's going on there part of it is automotive.
Customers in summer shutdowns that particularly impacts Europe .
And in inventory pull plans in Europe , I do think we're seeing a bit of.
The semiconductor.
Shortage impact in other words customers adjusting inventory levels and waiting to see when the chips arrive and then at that point pulling.
Inventory when as those chips come in so you are right to point out there is.
Difference there.
In terms of of how.
Our situation versus others.
Overall automotive continues to be.
A strong market.
When it comes to two quick turn and what and what we're seeing.
And premiums.
We.
Look at this just in terms of its primarily North America, but we did see some premium activity in Asia Pacific.
The activity crosses the board, but particularly critical too.
<unk> customers in.
And you can you can see that.
That's really tied to.
Sure.
The need for our customers as they develop new products.
To pull prototyping support.
And another.
Another activities related to the development so.
As we come into the third quarter again.
What we're expecting here is more of a normal pace.
Between.
Premium and quick turn versus I would call normal levels of <unk>.
Quick turn.
And that's that's what we're expecting.
We'll see how the quarter develops as the market.
Start to come down a bit that that's one factor here and the other again is just with the summer you'd get tend to get a little bit less.
Prototyping activity.
So again rather.
Rather than talk about percentage versus revenue I think you can.
Look at this as being an unusually heightened quarter and what we're seeing as normalized.
I don't know Todd if you got if you've got the numbers that.
Your fingers here in terms of percentage.
Yes, traditionally we run on a global basis and this will vary between North America, and Asia Pacific as Tom alluded to in his comments, but we typically run.
Around 9%.
But what we saw is that was more muted in 2021 and then in the last couple of quarters, it's been much much stronger.
As Tom mentioned.
A big portion of that is tied to prototyping activity, but another portion is tied to lead times and as demand was really accelerating and lead times were extending people, we're mixing and matching and then accelerating orders are looking for.
<unk> production to better match their supply chain.
It seems as parts for coming in and so we definitely saw more of that and as lead times are coming back down.
We would expect to see less of that types of prototyping activity is more consistent.
Notwithstanding Tom's comment about seasonality in the summertime, which is.
On spot but.
It's more consistent longer term, but the lead time component that was driving some of our.
A heightened activity.
As expected to subside gradually here or as we go through the rest of the year.
Okay. Thank you and then on the gross margin.
Understand why it'll be down sequentially, but it still sounds like just backing into that number based on the Opex number you gave us it still looks like it will still be well above 18%.
As you go forward given the telephonics acquisition are there any synergies cost synergies.
You see either on the <unk>.
Impacting gross margin or opex over the next few quarters or really was that just.
Obviously acquiring that company for the technology and the product set.
Well, we've been pretty public Matt about our synergy expectations. We're looking for we've identified preliminarily $12 million of synergies that we hope to.
Be able to get through efficiencies here over the next by the end of 2020 for a.
A lot of that is going to be cost of goods sold both.
Materials as well as infrastructure is certainly opex will be impacted that we also so we will see improvements in their margins. We've talked about how their margins are a little less than ours on average right now, but we expect them to be above our legacy margins here once we implement the synergies that we've identify.
Right.
Okay, alright, thanks very much.
Thanks, Matt.
Next we'll hear from Mike Crawford of B Riley Securities.
Thank you.
Really surprised youre seeing these <unk> when others, particularly are sitting.
Decommit and.
Material not come in in particular in semiconductor side is there something in particular are you or your clients are doing that manage that process better than the others.
Well so so.
I think I think Mike.
Todd we.
We both commented on.
Work that we've been doing in terms of meeting customer accelerated demand in a lot of this.
I have to I'd have to say to two big factors at least as I look at it one.
How responsive are team.
<unk> are in Asia Pacific.
As well as in North America.
And that takes the full organization, that's the sales team upfront working with our customers understanding their needs and then it's.
Really operations responding.
Responding to make room for products responding as customers deal with these semi.
Semiconductor chips, arriving.
Out of the Blue and then the need to fill fulfill a program.
So you have to be.
Our team has been agile.
And responding and all credit to them.
I'd also like to highlight.
North America.
We continue to have a challenge labor environment, but.
Our human resources group in operations, we're able to staff a number of our critical facilities.
And bring in labor, we still have opportunity.
To do even better there we still have North America production for us from a percentage of revenue about 42% in this last quarter, that's relatively consistent to past quarters. So we still have work to do here as we as we bring in labor, but <unk>.
Definitely productivity improvements in North America also helping to.
To drive those results so.
Again.
Those are the things I would highlight for you.
Just just aligning with customers in meeting that demand profile as it changes from a direct semiconductor impact on TTM theirs.
There is the telephonics business as we bring it in certainly more exposed on the semiconductor side, but.
TTM, even in our integrated product sub assembly work that we do we do have chipsets involved there but not not.
It's not a not an overwhelming number of chipsets and our supply chain team has done a good job of lining up deliveries as needed.
Okay. Thank you Tom and then just one other question on the differentiation front.
Well part of it.
If that is could you comment on the design win activity in automotive, but then.
Broadly talk about your efforts.
Two.
Get it.
Involved with earlier engineering and design work on the automotive side.
Similar to what Youre doing with some of your defense customers.
Sure.
So.
Automotive.
This was this was what I would call. It's interesting I think as the as the markets have shifted our customers have been a bit hesitant to put put out.
Big bidding packages.
Probably because they are waiting for the situation to clarify in terms of their own product build plans.
That's my hypothesis at any rate.
Wins were down a little bit we had a total program value we want about 13 designs program.
Program value total of about $60 million.
As I mentioned that is that is certainly down year on year.
A year ago, we were at about twice that about 120 $122 million.
But what I put that to again is just.
And the state that.
The economy was with.
With product changes.
Planned our customers are.
They've been hesitating to put out those packages I expect that pace of.
The opportunity set to increase pretty dramatically here as we as we go through the balance of the year.
Engagement standpoint.
Absolutely right one of the major shifts in automotive that has that we identified several years ago.
Is the growing involvement of Oems in the design in process and.
Not that the tier ones are still the most significant customers for TTM.
But we are finding more and more involvement from the OEM side and so our engagements have deepened with the engineering side of the Oems.
And particularly true when it comes to RF.
And the Adas systems.
Really are become now becoming now sort of required in vehicles.
That involvement from an engineering standpoint starts early I'd also highlight that our RF and specialty components group, which we brought in with with Anaren has been critical to those engagements the RF expertise that they bring to the game the the focus on module solutions.
As with our customers has allowed us to deepen that engineering engagement again, with both tier ones and Oems and finally, I'd, just highlight where the EV companies.
Companies coming in often they in their case they start they start directly working with a TTM and with that engineering engagement.
And have and plan in most cases to vertically integrate or even if they do decide to use an assembly service. They first wanted to get the design right and so a lot of our engagement now is with those.
These companies as well.
And we're growing with them. So hopefully that gives you a feel for how the landscape has shifted here over the last few years.
Excellent. Thank you very much.
Thank you.
Next we will hear from Jim Ricchiuti of Needham <unk> company.
Hi, Thanks, good afternoon wanted to.
Again go back to that quick turn business, which was.
Significantly higher I don't recall you guys haven't.
Any instance, where you called that out that kind of the strength in at least in recent quarters and my question is I'm wondering if you can give us some sense as to how much of.
A lift that might have given your gross margins in the quarter.
Well, it's a significant lift I mean, that's essentially a price increase.
And so we have an ongoing relatively consistent level of activity there.
And the incremental activity that came in in the last couple of quarters has been pretty substantial and and what came in in Q2 was more than we had expected we had expected to see some reversion to the mean, if you will on our history.
And again, we're expecting that in Q3, but we were surprised to the upside in Q2.
And that gave us a little bit of extra lift, but if you look and think about all the we listed it was a more complicated list of explanation for our improved gross margin this quarter than we normally have but revenue related items, both volume mix and pricing and premium all factored in very significant.
For the quarter and more than offset the increased material costs.
Labor costs that we had had been witnessing over the last few quarters.
And that really drove the upside.
And it was more so pricing at a premium than it was volume.
Okay.
Wondering if there's any read through on the PCB book to Bill being below one.
Tom you kind of very quickly alluded to some minor impacts where youre seeing some some signs of change in demand. Obviously, we're all looking for any any indications that business.
Start.
Weekend. So I was just wondering if you could elaborate on that.
Sure sure Yeah. So if you look at the overall book to Bill bigger.
Biggest biggest factor, Jim which is related to <unk>.
Bookings on the commercial side.
Coming back to more normalized levels.
The fact that we were able to reduce lead times.
And in our plants.
As we reduce lead times theres still elevated by the way, but as they as they have now come down when the lead times come down that allows the customers to hold off on on orders.
And so.
Really what Todd was talking about with quick turn where.
You've got your lead times stretching them they need to get inside those lead times demand.
More quick term premium or in this case is as things started to normalize in the commercial business.
Did start making lead time adjustments.
Again still elevated but we started making lead time adjustment so that was the single B.
Biggest factor.
Secondly.
There are particular customers.
And I would highlight.
The computing area networking area, where for individual programs they were seeing.
Conductor.
With semiconductor.
Issues they were adjusting inventory.
And so inventory adjustments as sort of a secondary factor and then thirdly really on the booking side, we had a.
Lower.
Lower quarter for A&D bookings.
Actually those booking shifted into this upcoming quarter. So we should actually see a very strong bookings quarter in the third quarter, but those shifts also contributed.
On the bookings side. So those are the three big factors.
Got it.
That's on a quarter end.
On closing.
Thanks.
Thank you Jim.
Yeah.
As a reminder, if you would like to ask a question.
Please press star one.
Next we'll hear from William Stein of Truth Securities.
Okay great.
Guys. Congratulations on these very strong results, especially the margins and thanks for taking my question.
First I'm, hoping you can talk to us a little bit about how ramping.
Capacity and production in the India facility might influence your.
Gross margins, if thats going to have a meaningful impact.
I think that you can answer that Matt Malaysia facility.
So alright in Malaysia.
Yes.
It's going to be negligible it won't really have any impact this year next year as we begin to add some infrastructure cost.
Bring on and start to bring in our leadership.
And mid year start to bring on employees it will have a drag.
We haven't updated a lot of those numbers from when we gave our initial announcement.
I'd have to get that to you, we would probably get closer to it because we really haven't offered any insight to 2023 yet.
But we would expect some negative impact as we ramp in 'twenty three we won't hit what we call kind of normal run rate margins until late 2004, probably we will be ramping all the way during 'twenty four we expect to be at full steam.
By the end of 'twenty for early 'twenty five so the margins will trail a little bit because you've got to bring up people and train them before you can actually build product and that will certainly be.
Headwinds for that ramp up but.
We're expecting to hit normalized margins kind of in that timeframe late 'twenty early 'twenty five.
Great. Thank you.
<unk>.
Go ahead, Yeah go ahead, well no no no. Please continue sir.
Yes, so I just wanted to highlight one of the basis.
Really the basis for.
For this facility was.
The fact that we had customers lined up and we have and we had customers that have now committed.
To TTM in the form of long term agreements.
And that provides you as you start thinking about margin that provides us the assurance on the on the sales side and the revenue side and the product mix.
We can then drive into the facility. So that's going to help to shorten that ramp time.
<unk>.
As we bring on the facility it's great to have.
The base load of assurance.
Great.
Follow up as it relates to the chips Act.
Well aware youre not a semiconductor device company, but I wonder if that.
There's probably a secondary influence on your business, but I wonder if there is any potential for a primary.
Direct effect on your business.
Yes. Thank you I mean, we've certainly been.
A supporter of this.
Through the IPC in the PCB Association of America.
We've been supporting these efforts in the mirror and also reminding reman.
Reminding Congress.
As we put a chips don't float.
Chips are part of a broader electronics ecosystem, that's been a very consistent message.
We're thrilled to see that.
Youre right well, it's not a direct.
Impact in terms of the larger portion.
Of the funding.
It will help our customers and semiconductor customers are critical to us, we do test and burn in board production. So.
Going to be some interesting developments I'm sure from a demand standpoint there.
Directly we're also.
Really thrilled to see the $2 $5 billion.
Was earmarked for microelectronics.
Have our own microelectronics business out of Syracuse.
About a 50 million dollar a year business.
But then broader than that.
Microelectronics and advanced packaging tied to that broader ecosystem. So, we'll certainly be working with customers.
As we as we look at infrastructure.
Potential infrastructure needs for both microelectronics into some of the more advanced printed circuit Board technologies here as we work with our customers. So.
Good to see that.
Certainly going to remain involved with consortia as well as with the associations to make sure that the proper support provided but.
But I think it's good to see it's good to see the investment in the infrastructure here in North America.
Great. Thank you.
Thank you.
And it appears there are no further questions at this time I will turn the call back over to Tom for any additional or closing comments.
Great. Thank you. Thanks April I'd like to just close by summarizing some of the points I made earlier.
First we delivered revenues and earnings above the high end of guidance.
And the fact that we've seen many of the cost headwinds of the past year really turn into a tailwind in this past quarter.
Our end market diversification really enabled solid year on year revenue growth of 10, 3%.
Third we generated strong cash flow and fourth we took important steps in advancing our strategy of differentiation with the acquisition of Telephonics and breaking a great ground of our new facility in Penang Malaysia.
In closing I'd really just like to thank our employees our customers and our investors for your continued support thank you very much.
That does conclude today's conference. Thank you all for your participation you may now disconnect.
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