Q1 2024 TTM Technologies Inc Earnings Call

May 1, 2024

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Operator: Thank you for standing by. Welcome to the TTM Technologies First Quarter 2024 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star 1 1 again.

Thank you for standing by.

Speaker Change: Welcome to the TTM technologies first quarter 2024 financial results Conference call.

During todays presentation, all parties will be in a listen only mode.

Speaker Change: After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question Press Star one again.

Operator: Please be advised that today's conference is being recorded on May 1st, 2021. I would now like to turn the conference over to your host, Mr. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, who will now review TTM's disclosure statements.

Speaker Change: Be advised that today's conference is being recorded on May 1st 2024.

Speaker Change: I would now like to turn the conference over to your host Mr. Samir Desai Ttm's, Vice President of corporate development and Investor Relations will now review Ttm's disclosure statement.

Sameer Desai: Before we get started, I would like to remind everyone that today's call contains forward-looking statements, 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 risk factors we provide in our filings with the Securities and Exchange Commission, which we encourage you to review. These forward-looking statements represent management's expectations and assumptions based on currently available information.

Sameer Desai: Thank you before we get started I would like to remind everyone that today's call contains forward looking statements, 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.

Sameer Desai: TTM does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or other circumstances, except as required by law. 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 reconciliations between GAAP and non-GAAP measures included in the company's earnings release, which is available on the investor relations section of TTM's website at investors.ttm.com.

Sameer Desai: The risk factors, we provide in our filings with the Securities and Exchange Commission.

Sameer Desai: We encourage you to review these forward looking statements represent managements expectations and assumptions based on currently available information TTM does not undertake any obligation to publicly update or revise any of these forward looking statements whether as a result of new information future events or other circuit.

Sameer Desai: Except as required by law.

Sameer Desai: We'll 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 between GAAP and non-GAAP measures included in the company's earnings release, which is available on the investor.

Sameer Desai: <unk> relations section of Ttm's website at investors got TTM dotcom.

Sameer Desai: We are also posted on that website, a slide deck that will we will refer to during our call.

Sameer Desai: We have also posted on that website a slide deck that 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 you.

Sameer Desai: I'll now turn the call over to Tom Edman, Ttm's Chief Executive Officer. Please go ahead Tom.

Thomas T. Edman: Good afternoon, and thank you for joining us for our first quarter 2024 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our first quarter results, followed by a summary of our business strategy. Dan Bailey, our CFO, will then provide an overview of our Q1 2024 financial performance and our Q2 2024 guidance. We will then open the call to your questions.

Thomas T. Edman: Thank you Samir.

Thomas T. Edman: Good afternoon, and thank you for joining us for our first quarter 2024 conference call.

Thomas T. Edman: I'll begin with a review of our business highlights from the quarter and a discussion of our first quarter results followed by a summary of our business strategy.

Thomas T. Edman: And daily our CFO will follow with an overview of our Q1 2024 financial performance and our Q2 2020 for our guidance. We will then then open the call to your questions.

Thomas T. Edman: Highlights of the quarter's financial results are summarized on slide three of the earnings presentation posted on TTM's website. We delivered a solid quarter, and I would like to thank our employees for their hard work and contributions in support of these results. In the first quarter of 2024, non-GAAP earnings per share were above the high end of the guided range and demonstrated solid year-on-year growth due to improved operating performance and favorable product, Revenues were at the high end of the previously guided range and returned to year-on-year growth due to demand strength from our aerospace and defense and data center computing and marketing, which was partially offset by lower-than-expected results from our medical, industrial, and instrumentation, and automotive end markets.

Thomas T. Edman: Highlights of the quarter's financial results are summarized on slide three of the earnings presentation posted on Ttm's website.

Thomas T. Edman: We delivered a solid quarter and I would like to thank our employees for their hard work and contributions and supported these results.

CFO: In the first quarter of 2024 non-GAAP earnings per share were above the high end of the guided range and demonstrated solid year on year growth due to improved operating performance and favorable product mix.

CFO: Revenues were at the high end of the previously guided range and return to year on year growth due to demand strength from our aerospace and defense and data Center computing end markets, which was partially offset by lower than expected results from our medical industrial and instrumentation and automotive.

Thomas T. Edman: Demand in our aerospace and defense market, which was 46% of revenues for the quarter, continues to be solid as we registered a positive book-to-bill in the quarter and now have a program backlog of approximately $1.38 billion. 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.

Thomas T. Edman: End markets.

Thomas T. Edman: Demand in our aerospace and defense market, which was 46% of revenues for the quarter continues to be solid as we registered a positive book to bill in the quarter and now have a program backlog of approximately 138 billion.

Speaker Change: I would now like to provide a strategic update.

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

Thomas T. Edman: 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 markets. As a result of strategic transactions in the aerospace and defense end market through the acquisitions of Anaran and Telefonics, over 50% of our revenues in aerospace and defense are now generated from engineered and integrated electronic products, with PCBs contributing less than 50% overall.

Thomas T. Edman: 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 markets, as a result of strategic transactions in the aerospace, space, and defense market through the acquisitions of Anaran and Telefonics. Over 50% of our revenues in aerospace and defense are now generated from engineered and integrated electronic products, with PCBs contributing less than 50% overall.

Thomas T. Edman: Over the past several years CGM 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.

Thomas T. Edman: As a result of strategic transactions in the aerospace space and defense end market due to the acquisitions of Anaren and telephonics over 50% of our revenues in the aerospace and defense are now generated from engineered and integrated electronic products with BCBS.

Thomas T. Edman: <unk> less than 50% overall.

Thomas T. Edman: Another important element of our differentiation strategy is our investment in a new state-of-the-art, highly automated PCB manufacturing facility in Penang, Malaysia, to service our customers in our commercial end market. 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 multilayer PCB manufacturing options in locations outside the Greater China region. The new facility in Malaysia will support customers in our commercial market, such as networking, data center computing, and medical, industrial, and instrumentation.

Thomas T. Edman: Another important element of our differentiation strategy is our investment in a new state of the art highly automated PCB manufacturing facility in Penang, Malaysia to service our customers in our commercial end markets.

Thomas T. Edman: The decision to build this new factory as a direct response to our customers' increasing concerns about supply chain resiliency and regional diversification and in particular, the need for advanced multilayer PCB manufacturing options in locations outside the greater China region.

Thomas T. Edman: The new facility in Malaysia will support customers in our commercial markets, such as networking data center computing and medical industrial and instrumentation.

Thomas T. Edman: We continue to make progress on the Malaysian facility, with ongoing customer audits and qualification sampling occurring, and with our test panel yields climbing. I was thrilled to welcome customers, vendors, and government officials to our grand opening event in Penang, which was held on April 25th.

Thomas T. Edman: We continue to make progress on our Malaysian facility with ongoing customer audits and qualification sampling occurring and with our test panel yields climbing.

Thomas T. Edman: I was thrilled to welcome customers vendors and government officials to our Grand opening event in Penang, which was held on April 26.

Thomas T. Edman: We expect our Penang facility to register limited revenues in the second quarter and ramp up further in the second half with investments in phase two of the facility starting towards the end of the year. I'd also like to update you on the consolidation of our manufacturing footprint. We previously announced our plan to close three small manufacturing facilities in order to improve total plant utilization, operational performance, customer focus, and profitability. During the course of 2023, PCB manufacturing operations in Anaheim and Santa Clara, California, and Hong Kong were closed and consolidated into TTM's remaining facility. We are presently on track and are ramping up production for the transferred parts at receiving facilities throughout North America and Asia Pacific. Finally...

Thomas T. Edman: We expect our Penang facility. The register limited revenues in the second quarter and ramp further in the second half with investments in phase two expansion of the facility starting towards the end of the year.

Thomas T. Edman: I would also like to update you on the consolidation of our manufacturing footprint.

Thomas T. Edman: We previously announced our plan to close three small manufacturing facilities in order to improve total plant utilization operational performance customer focus and profitability.

Thomas T. Edman: During the course of 2023 PCB manufacturing operations in Anaheim in Santa Clara, California, and Hong Kong were closed and consolidated into Ttm's remaining facilities.

Thomas T. Edman: We are presently on track and are ramping production for the transferred parts and receiving facilities throughout North America and Asia Pacific.

Thomas T. Edman: I would like to update you on the previous announcement of our intent to expand our advanced technology capability for the aerospace and defense market through the construction of a new facility immediately adjacent to our existing Syracuse, New York, campus. This new facility will focus on specialized high technology PCB production, providing customers with reduced lead times and a significant increase in domestic capacity for ultra-HDI PCBs in support of increasing national security requirements for high technology PCBs.

Thomas T. Edman: I would like to update you on the previous announcement of our intent to expand our advanced technology capability for the aerospace and defense market through the construction of a new facility immediately adjacent to our existing Syracuse, New York, campus. This new facility will focus on specialized high technology PCB production, providing customers with reduced lead times and a significant increase in domestic capacity for ultra HDI PCBs in support of increasing national security requirements for high technology PCBs.

Thomas T. Edman: Finally.

Thomas T. Edman: I would like to update you on the previous announcement of our intent to expand our advanced technology capability for the aerospace and defense market to the construction of a new facility immediately adjacent to our existing Syracuse, New York campus.

Thomas T. Edman: This new facility will focus on specialized high technology, PCB production, providing customers with reduced lead times and a significant increase in domestic capacity capacity for ultra HDI Pcbs in support of increasing national security requirements for high technology.

Thomas T. Edman: Provided we are able to complete discussions with various stakeholders regarding their support for this facility, we anticipate that we will be prepared to break ground in the first half of 2024, with initial low-rate production expected to follow within 18 months after groundbreaking. As previously announced, we expect the investment for phase one of the proposed project, including capital for campus-wide improvement, to be in the range of between 100 to 130 million dollars and is anticipated to run through 2026 with TTM's capital investments, and investment commitments determined after finalizing terms with various stakeholders.

Thomas T. Edman: <unk>.

Thomas T. Edman: Provided we are able to complete discussions with various stakeholders regarding their support for this facility. We anticipate that we will be prepared to break ground in the first half of 2024 with initial low rate production expected to follow within 18 months after groundbreaking.

Thomas T. Edman: As previously announced we expect the investment for Phase one of the proposed project, including capital for campus wide improvements to be in the range of between $100 million to $130 million.

Thomas T. Edman: We expect the investment for Phase 1 of the proposed project, including capital for campus-wide improvement, to be in the range of between 100 and 130 million dollars and is anticipated to run through 2026 with TTM's capital investments, investment commitments determined after finalizing terms with various stakeholders. To date, we have secured the land for this facility and applied for various government incentive packages in support of future equipment purchases. Now I'd like to review our end markets, which are referenced on page four of the earnings presentation on our website.

Thomas T. Edman: And as anticipated to run through 2020 with Ttm's capital investments investment commitments determined after finalizing terms with various stakeholders.

Thomas T. Edman: To date, we have secured the land for this facility and applied for various government incentive packages in support of future equipment purchases. Now, I'd like to review our end markets, which are referenced on page four of the earnings presentation on our website. The aerospace and defense end market represented 46% of total first quarter sales, compared to 43% of Q1 2023 sales and 46% of sales in Q4 2023. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets. Our strong program alignment and key bookings for ongoing franchise programs.

Thomas T. Edman: To date, we have secured the land for this facility and applied for various government incentive packages in support of future equipment purchases.

Thomas T. Edman: The aerospace and defense end market represented 46% of total first quarter sales, compared to 43% of Q1 2023 sales and 46% of sales in Q4 2023. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets. Our strong program alignment and key bookings for ongoing franchise programs.

Thomas T. Edman: Now I'd like to review our end markets, which are referenced on page four of the earnings presentation on our website.

Thomas T. Edman: The aerospace and defense end market represented 46% of total first quarter sales compared to 43% of Q1, 2023 sales and 46% of sales in Q4 2023.

Thomas T. Edman: The solid demand in the defense market as a result of a positive tailwind in previous defense budgets, our strong program alignment and key bookings for ongoing franchise programs.

Thomas T. Edman: We had a strong bookings quarter with a book to bill ratio of 1.2, leading to an A&E program backlog of approximately $1.38 billion at the end of the first quarter. During the quarter, we saw significant bookings for the F-16 Scalable Agile Beam Radar, or SABER, program, the Javelin Missile Program, and the Key Restricted Program.

Thomas T. Edman: We had a strong bookings quarter with a book to Bill ratio of 1.2, leading to an A&D program backlog of approximately $138 billion.

Thomas T. Edman: At the end of the first quarter.

Thomas T. Edman: During the quarter, we saw significant bookings for the F 16, scalable agile beam radar or Sabre program.

Thomas T. Edman: Javelin missile program and a key restricted program.

Thomas T. Edman: We expect sales in Q2 from this end market to represent about 44% of our total sales. Bookings in the aerospace and defense market ship over a longer period of time than in our commercial markets and provide good visibility into future revenue growth. Sales in the data center computing end market represented 21% of total sales in the first quarter, compared to 10% in Q1 of 2023 and 17% in the fourth quarter of 2023.

Thomas T. Edman: We expect sales in Q2 from this end market to represent about 44% of our total sales.

Thomas T. Edman: Bookings in the aerospace and defense market ship over a longer period of time than in our commercial markets and provide good visibility into future revenue growth.

Thomas T. Edman: Sales in the data center computing end market represented 21% of total sales in the first quarter compared to 10% in Q1 of 2023 and 17% in the fourth quarter of 2023.

Thomas T. Edman: This end market performed better than expected and saw 106% year-on-year growth due to strength in our data center customers building products for generative AI applications. We expect revenues in this end market to represent 20% of second quarter sales. The medical industrial instrumentation and market contributed 14% of our total sales in the first quarter, compared to 19% in the year-ago quarter and 16% in the fourth quarter of 2023. The year-over-year decline was caused primarily by inventory reductions at a number of our customers, particularly in the industrial and instrumentation area. However, we are beginning to see generative AI driving growth in the DRAM market, which is leading to increased purchases of automated test equipment.

Thomas T. Edman: This end market performed better than expected and saw 106% year on year growth due to strength in our data center customers building products for generative AI applications.

Thomas T. Edman: We expect revenues in this end market to represent 20% of second quarter sales.

Thomas T. Edman: The medical industrial instrumentation end market contributed 14% of our total sales in the first quarter compared to 19% in the year ago quarter and 16% in the fourth quarter of 2023.

Thomas T. Edman: The year over year decline was caused primarily by inventory reductions at a number of our customers, particularly in the industrial and instrumentation areas.

Thomas T. Edman: However, we are beginning to see generative AI driving growth in the DRAM market, which is leading to increased purchases of automated test equipment.

Thomas T. Edman: For the second quarter, we expect the medical industrial instrumentation and market to be 15% of revenue. Automotive sales represented 13% of total sales during the first quarter of 2024, compared to 17% in the year-ago quarter and 15% during the fourth quarter of 2023. The year-over-year decline for automotive was due primarily to continued inventory adjustments and soft demand at several customers. We expect our automotive business to contribute 14% of total sales in Q2.

Thomas T. Edman: For the second quarter, we expect the medical industrial instrumentation end market to be 15% of revenues.

Thomas T. Edman: Automotive sales represented 13% of total sales during the first quarter of 2024 compared to 17% in the year ago quarter and 15% during the fourth quarter of 2023.

Thomas T. Edman: The year over year decline for automotive was due primarily to continued inventory adjustments and soft demand at several customers.

Thomas T. Edman: We expect our automotive business to contribute 14% of total sales in Q2.

Thomas T. Edman: Networking accounted for 6% of revenue during the first quarter of 2024. This compares to 11% in the first quarter of 2023 and 6% of revenue in the fourth quarter of 2023. Demand was softer as customers continued to focus on inventory digestion and experienced weak end market demand.

Thomas T. Edman: Networking accounted for 6% of revenue during the first quarter of 2024.

Thomas T. Edman: This compares to 11% in the first quarter of 2023, and 6% of revenue in the fourth quarter of 2023.

Thomas T. Edman: Demand was softer as customers continue to focus on inventory digestion and experienced weak end market demand.

Thomas T. Edman: As a reminder, the Shanghai backplane business, which we sold in our first quarter of 2023, contributed approximately $8 million in sales to this segment in the first quarter of 2023. In Q2, we expect this end market to be 7% of revenue. Next, I'll cover some details from the first quarter.

Thomas T. Edman: As a reminder, the Shanghai back plane business, which we sold in our first quarter of 2023 contributed approximately $8 million in sales to this segment in the first quarter of 2023.

Thomas T. Edman: In Q2, we expect this end market to be 7% of revenues.

Thomas T. Edman: Next I'll cover some details from the first quarter.

Thomas T. Edman: 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, Rigidflex, RF subsystems and components, and engineered systems, accounted for approximately 48% of our revenue. This compares to approximately 41% in the year-ago quarter and 47% in Q4. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology and engineered product capabilities in new programs and new markets.

Thomas T. Edman: This information is also available on page five of our earnings presentation.

Thomas T. Edman: During the quarter, our advanced technology, and engineered products business, which includes HDI rigid flex RF subsystems and components and engineered systems.

Thomas T. Edman: Accounted for approximately 48% of our revenue.

Thomas T. Edman: This compares to approximately 41% in the year ago quarter and 47% in Q4.

Thomas T. Edman: We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology, and engineered product capabilities and new programs and new markets.

Thomas T. Edman: PCB capacity utilization in Asia Pacific was 52% in Q1, compared to 52% in the year-ago quarter and 51% in Q4. However, utilization rates were suppressed due to weak demand in several of our commercial markets. Our overall PCB capacity utilization in North America was 38% in Q1, compared to 39% in the year-ago quarter and 35% in Q4. As a reminder, North American utilization figures are not as meaningful as Asia-Pacific because bottlenecks in these high-mix, low-volume facilities tend to occur in areas outside of plating, which is the core process that we use for calculating utilization rates.

Thomas T. Edman: PCB capacity utilization in Asia Pacific was 52% in Q1 compared to 52% in the year ago quarter and 51% in Q4.

Thomas T. Edman: Utilization rates were suppressed due to weak demand in several of our commercial markets.

Thomas T. Edman: Our overall PCB capacity utilization in North America was 38% in Q1 compared to 39% in the year ago quarter and 35% in Q4.

Thomas T. Edman: As a reminder, North America utilization figures are not as meaningful as Asia Pacific because bottlenecks in these high mix low volume facilities tend to occur in areas outside of <unk>, which is the core process that we used for calculating utilization rates.

Dan Bailey: Our top five customers contributed 42% of total sales in the first quarter of 2024, compared to 44% in the fourth quarter of 2023. We had two customers contribute over 10% of our total sales in the quarter. At the end of Q1, our 90-day backlog, which is subject to cancellations, was $592.6 million compared to $482.2 million at the end of the first quarter last year. Our book-to-bill ratio was 1.15 for the three months ended April 1st. Now Dan will review our financial performance for the first quarter. Dan?

Thomas T. Edman: Our top five customers contributed 42% of total sales in the first quarter of 2024 compared to 44% in the fourth quarter of 2023.

Thomas T. Edman: We had two customers over 10% of our total sales in the quarter.

Thomas T. Edman: At the end of Q1, our 90 day backlog, which is subject to cancellations was $592 6 million.

Thomas T. Edman: Compared to $482 2 million at the end of the first quarter last year.

Thomas T. Edman: Our book to Bill ratio was 115 for the three months ended April one.

Thomas T. Edman: Now Dan will review, our financial performance for the first quarter Dan.

Dan Bailey: Thanks, Tom, and good afternoon, everyone. I will review our financial results for the first quarter that were included in the press release distributed today and are summarized on slide six of the earnest presentation posted on our website. For the first quarter, net sales were $570.1 million, compared to $544.4 million in the first quarter of 2023. The year-over-year increase was due to growth in our data center computing and aerospace and defense end markets, partially offset by declines in our automotive, medical, industrial, and instrumentation, and networking and marketing.

Dan: Thanks, Tom and good afternoon, everyone.

Dan: Ill review, our financial results for the first quarter that were included in the press release distributed today and are summarized on slide six of the earnings presentation posted on our website.

Dan: For the first quarter net sales were $570 1 million.

Dan: To $544 4 million in the first quarter of 2023.

Dan: The year over year increase was due to growth in our data center computing and aerospace and defense end markets.

Dan: Partially offset by declines in our automotive medical industrial and instrumentation and networking markets.

Dan Bailey: Gap operating income for the first quarter of 2024 was $17.1 million, as compared with a gap operating loss of $3.5 million for the first quarter of 2023. On a GAAP basis, net income in the first quarter of 2024 was $10.5 million, or $0.10 per diluted share. This compares to a GAAP net loss of $5.8 million, or $0.06 per diluted share, in the first 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 non-cash expense items such as amortization of intangibles, impairment of goodwill, and stock compensation, gains on the sale of property, and other unusual or infrequent items.

Dan: GAAP operating income for the first quarter of 2024 was $17 1 million.

Dan: Paired with a GAAP operating loss of $3 5 million for the first quarter of 2023.

Dan: On a GAAP basis net income in the first quarter of 2024 was $10 5 million or <unk> 10 per diluted share.

Dan: This compares to GAAP net loss of $5 8 million or <unk> <unk> per diluted share in the first quarter of last year.

Dan: 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, such as amortization of intangibles impairment of goodwill and stock compensation.

Dan: Vince on the sale of property and other unusual or infrequent items.

Dan Bailey: We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparisons with expectations and prior periods. Gross margin in the first quarter was 18.8%, which compares to 17.1% in the first quarter of 2023. The year-on-year increase was due to a more favorable product and Improved Execution in the North America Region, partially offset by lower sales volume and less premium sales in some commercial markets. Selling and marketing expense was $19.4 million in the first quarter, or 3.4% of net sales, versus $20.6 million or 3.8% of net sales a year ago.

Dan: 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.

Dan: Gross margin in the third quarter was 18, 8% and compares to 17, 1% in the first quarter of 2023.

Dan: The year on year increase was due to a more favorable product mix and improved execution in the North America region.

Dan: We offset by lower sales volume and less premium sales and some commercial markets.

Dan: Selling and marketing expense was $19 4 million in the first quarter were three 4% of net sales versus $20 6 million or three 8% of net sales a year ago.

Dan Bailey: First quarter G&A expense was $40 million, or 7% of net sales, compared to $32.1 million, or 5.9% of net sales in the same quarter a year ago. In the first quarter of 2024, research and development was $7 million, or 1.2% of net sales, compared with $6.8 million, or 1.3% of net sales in the same quarter last year. Our operating margin in the first quarter of 2024 was 7.1%, a 100 basis points increase from 6.1% in the same quarter last year.

Dan: First quarter G&A expense was 40, 947% of net sales compared to $32 1 million or five 9% of net sales in the same quarter a year ago.

Dan: In the first quarter of 2020 for research and development was $7 million for one 2% of net sales compared with $6 8 million or one 3% of net sales in the same quarter last year.

Dan: Our operating margin in the first quarter of 2024 was seven 1% a.

Dan: A 100 basis points increase from six 1% in the same quarter last year.

Dan Bailey: Interest expense was $11.8 million in the first quarter of 2024, compared to $12.1 million in the same quarter last year. During the current quarter, there was a positive $4.4 million foreign exchange impact below the operating income line.

Dan: Interest expense was $11 8 million in the first quarter of 2024 compared to $12 1 million in the same quarter last year.

Dan: During the current year quarter, there was a positive $4 4 million foreign exchange impact below the operating income line.

Dan Bailey: Government incentives and interest income, totaling $4.8 million, resulted in a net $9.2 million gain, or a $0.08 positive impact on EPS. This compares to a net gain of $1.2 million, or a one-cent impact on EPS in the second quarter of last year. Our effective tax rate was 14% in the first quarter, resulting in a tax expense of $5.3 million.

Dan: Government incentives and interest income totaling $4 8 million.

Dan: And in a net $9 2 million gain or <unk> <unk> positive impact to EPS.

Dan: This compares to a net gain of $1 2 million or a <unk> <unk> impact to EPS in the same quarter of last year.

Dan: Our effective tax rate was 14% in the first quarter, resulting in tax expense of $5 3 million.

Dan Bailey: This compares to a rate of 17% or a tax expense of $3.8 million in the same quarter last year. First quarter 2024 net income was $32.8 million, or $0.31 per diluted share. This compares to first quarter 2023 net income of $18.6 million, or $0.18 per diluted share. Jesse Dibbidah's revenue for the first quarter of 2024 was $74.8 million, or 13.1% of net sales, compared with first quarter 2023 revenue of $58.5 million, or 10.7% of net. Appreciation for the quarter was 24.7 minutes.

Dan: This compares to a rate of 17% for a tax expense of $3 8 million in the same quarter last year.

Dan: First quarter 2024, net income was $32 eight event for 31 cents per diluted share.

Dan: Compares to first quarter 2023, net income of $18 6 million or <unk> 18 per diluted share.

Dan: Adjusted EBITDA for the first quarter of 2024 was $74 8 million or 13, 1% of net sales compared with first quarter 2023, adjusted EBITDA of $58 5 million.

Dan: Or 10, 7% of net sales.

Dan: Depreciation for the quarter was $24 $7 million.

Dan Bailey: Net capital spending for the quarter was $49.3 million, which is inclusive of remaining fit-out costs for our Penang facility. Cash flow from operations in the first quarter of 2024 was $ 43.9 million. We purchased 600,000 shares of common stock for $9.3 million at an average price of $15.56 per share. Cash and cash equivalents at the end of the first quarter of 2024 totaled $440.4 million. Our net debt divided by last 12 months' EBITDA was 1.5 times, at the low end of our targeted range of 1.5 to 2 times.

Dan: Net capital spending for the quarter was $49 $3 million, which is inclusive of the remaining fit out costs for our Penang facilities.

Dan: Cash flow from operations in the first quarter of 2024 was $43 9 million.

Dan: We purchased 600000 shares of common stock for $9 3 million at an average price of $15 56 per share.

Dan: Cash and cash equivalents at the end of the first quarter of 2024 totaled $444 million.

Dan: Our net debt divided by last 12 months EBITDA was one five times at the low end of our targeted range of one five to two times.

Dan Bailey: Now I will turn to our guidance for the second quarter. We project net sales for the second quarter of 2024 to be in the range of $560 to $600 million and non-GAAP earnings to be in the range of $0.32 to $0.38 per diluted share, which is inclusive of operating costs associated with starting up our Penang facility. The EPS forecast is based on a diluted share count of approximately 105 million shares, which includes the dilutive impact of outstanding stock options and other stock awards.

Speaker Change: Now I will turn to our guidance for the second quarter.

Dan: We project net sales for the second quarter of 2024 to be in the range of $560 million to $600 million and non-GAAP earnings to be in the range of 32 to 38 cents per diluted share.

Dan: Which is inclusive of operating costs associated with starting up our Penang facility.

Dan: The EPS forecast is based on a diluted share count of approximately 105 million shares which includes the dilutive impact of outstanding stock options and other stock awards.

Dan Bailey: We expect SG&A expense to be about 9.9% of net sales in the second quarter and R&D to be about 1.3% of net sales. We expect interest expense of approximately $12.2 million and interest income of approximately $2 million. We estimate our effective tax rate will be between 12 and 16%. Additionally, we expect to record depreciation of approximately $26.5 million, amortization of approximately $12.6 million, stock-based compensation expense of approximately $5.6 million, and non-cash interest expense of approximately $0.5 million.

Dan: We expect SG&A expense to be about nine 9% of net sales in the second quarter and R&D to be about one 3% of net sales.

Dan: We expect interest expense of approximately $12 2 million and interest income of approximately $2 million.

Dan: We estimate our effective tax rate will be between 12% and 16%.

Dan: Further we expect to record depreciation of approximately $26 5 million.

Dan: Amortization of approximately $12 6 million stock based compensation expense of approximately $5 6 million and noncash interest expense of approximately $5 million.

Dan Bailey: Finally, I'd like to announce that we are participating in the Barclays Leverage Finance Conference in Austin on May 21, the B. Reilly Institutional Investor Conference in Los Angeles on May 22nd, and the CFO Cross-Sector Insight Conference in Boston on June 4th. That concludes our prepared remarks. Now I'll open the line for questions. Operator? Thank you.

Dan: Finally, I'd like to announce that we were participating in the Barclays leverage Finance conference in Austin on May 21 to.

Dan: The B Riley institutional Investor Conference in Los Angeles on May 22nd and the Stifel Cross sector Insight conference in Boston on June four.

Speaker Change: That concludes our prepared remarks now I'll open the line for questions operator.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. One moment while we compile the Q&A roster. And our first question will come from the line of Matt Sheerin with Stiefel. Your line is open.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced look to withdraw your question Press Star one again.

Speaker Change: One moment, while we compile the Q&A roster.

Speaker Change: Yes.

Speaker Change: And our first question will come from the line of Matt Sheerin with Stifel. Your line is open.

Matthew John Sheerin: Yes, thank you. Good afternoon, everyone.

Matthew John Sheerin: Yes. Thank you good afternoon, everyone.

Matthew John Sheerin: Just first question just regarding your guidance.

Matthew John Sheerin: And it implies that gross margin will be up.

Matthew John Sheerin: Over 19% sequentially, so good sequential growth there.

Unknown Executive: Just a first question regarding your guidance. It implies that gross margin will be up over 19% sequentially, so good sequential growth there off of this modest revenue growth. So I'm wondering, is that related to mix entirely, or are you also seeing some benefits from the closures of some of those facilities in the U.S. and in Hong Kong?

Matthew John Sheerin: This modest revenue growth. So I'm wondering if is that.

Matthew John Sheerin: Related to mix at all or are you also seeing some benefits from the closures of the.

Matthew John Sheerin: Some of those facilities in the U S and in Hong Kong.

Unknown Executive: Thanks for your question. I would say it's a combination of a few things. There's a little bit of a mix.

Speaker Change: Thanks for your question I would say, it's a combination of a few things.

Speaker Change: There is a little bit of mix, we are seeing some.

Speaker Change: You mentioned, we are seeing some benefits of the closures of the Clover.

Matthew John Sheerin: The three plants from last year.

Unknown Executive: We are seeing some benefits of the closures of the Clover, the three plants from last year. We are also, you know, there's just between Q1 and Q2, you got more efficiencies in the factory. Q1 has the impact of the Chinese New Year. And so with lower volume in AP, we tend to get, you know, lower efficiencies, obviously, in the factories there, just with the overhead, the operating leverage. So that is a natural improvement from Q1 to Q2, which is another part of that.

Matthew John Sheerin: We're also.

Matthew John Sheerin: Theres just between Q1 and Q2, you've got more efficiencies in the factory in Q1 as the impact of the Chinese new year, and so with lower.

Matthew John Sheerin: Volume in AP.

Matthew John Sheerin: Tend to get.

Matthew John Sheerin: Lower efficiencies, obviously in the factories, there just with the covering the overhead the operating leverage so with that as a natural improvement from Q1 to Q2.

Matthew John Sheerin: Which is another part of that.

Unknown Executive: Are you still, and does that also factor in the headwinds that you're seeing from the factory expansion in Penang, and is that okay, and what's the headwind there?

Matthew John Sheerin: Are you still and does that also factor in the the headwinds that youre seeing from the factory expansion.

Matthew John Sheerin: And playing in is that.

Speaker Change: Okay, and what's the headwind there.

Unknown Executive: There's a significant headwind there, about 180 basis points for the first half of the year. And then we come back in the second half of the year, we'll ramp pretty quickly in the second half of the year to get to about 100 basis points impact on the full year from the Penang headwind, which is kind of what we've expected.

Matthew John Sheerin: There are significant headwind there about 180 basis points for the first half of the year and then we come back to in the second half of the year will ramp pretty quickly in the second half of the year to get to about 100 basis points impact on the full year from the <unk> headwind, which is kind of what we've expected.

Unknown Executive: Okay, helpful. And then regarding some of the end markets, Tom, could you elaborate more on the significant growth you're seeing in the Datacom area with the hyperscale customers? Could you talk about customer concentration, where you're seeing that, and your visibility? It looks like you're going to be down a little bit sequentially, but could you talk about the visibility that you're seeing for the rest of the year?

Matthew John Sheerin: Okay helpful and then regarding some of the end markets.

Matthew John Sheerin: Could you elaborate more on the significant growth youre seeing in the Datacom area with that with Hyperscale customers could you talk about customer concentration, where youre seeing that in your visibility it looks like youre going to be down a little bit sequentially, but could you talk about the visibility that you have.

Thomas T. Edman: Yeah, so, in terms of sequential, it's, you know, it's really flat sequentially in data center computing, and what we're seeing, as you pointed out, strength in generative AI continues to, at this point, be about 50% of that data center demand, a little bit higher than that, actually, and still remains relatively concentrated, but certainly better than where we were last year when the growth started. So, a high level of growth, I think, as we start to look at the second half of the year, we're going to continue to look at adding incremental capacity there, both in our major facility that services that area, as well as another facility that we're qualifying for some more AI and hyperscale work.

Matthew John Sheerin: Seeing for the rest of the year.

Speaker Change: Yes so.

Speaker Change: Sure in terms of sequential.

Matthew John Sheerin: It's really flat sequentially in data center computing.

Matthew John Sheerin: What we are seeing absolutely as you pointed out is strengthen and generative AI continues to to at this point be about 50%.

Matthew John Sheerin: Of that data center demand, a little bit higher than that actually.

Matthew John Sheerin: And.

Matthew John Sheerin: It still remains relatively concentrated but.

Matthew John Sheerin: But certainly better than where we were last year when when the growth started.

Speaker Change: So hi.

Speaker Change: High level of growth I think is as we start to look at the second half of the year, we're going to continue to continue to look at adding incremental capacity there both in our in our major facility that services that area as well as.

Speaker Change: Another facility that they were qualifying for some more.

Speaker Change: AI and hyper scale work.

Speaker Change: So.

Speaker Change: We will look to.

Speaker Change: To meet what we expect to be scaling.

Speaker Change: Scaling demand there in the second half of the year.

Thomas T. Edman: So, we'll look to meet what we expect to be scaling demand there in the second half of the year. So, really, really strong environment there. I also expect that we're going to see semiconductors or the computing part of that data center computing end market start to improve here as we go forward through the course of the year, as well.

Speaker Change: No.

Speaker Change: Really really strong environment there I also.

Speaker Change: I expect that we're going to see semiconductors are the computing part of that data center computing end market start to improve here as we as we go forward through the course of the year as well.

Thomas T. Edman: And is there an OEM server market that you also serve as well, where you talk about things like enterprise adoption and that sort of thing that that may become at some point?

Speaker Change: Okay and is there an.

Speaker Change: In OEM server market that you also.

Speaker Change: Serve us well when you talked about like enterprise adoption and that sort of thing.

Thomas T. Edman: Yes, yes. So that's also a part of the market that we serve there. We put that in, you know, broadly into that data center area. But yes, that is an area that we serve as well.

Speaker Change: And maybe comment at some point.

Speaker Change: Yes, yes. So that's also a part of the market that we serve there.

Speaker Change: We put that in broadly into that.

Speaker Change: Data Center area.

Speaker Change: But yes that that is an area that we serve as well.

Unknown Executive: Okay, thanks very much. Thank you. One moment.

Operator: Thank you. One moment for our next question, and that will come from the line of Jim Ricchiuti with Needham & Co. Your line is open.

Speaker Change: Okay. Thanks very much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Jim Ricchiuti with Needham <unk> Co. Your line is open alright. Thanks good afternoon.

James Andrew Ricchiuti: All right, thanks. Good afternoon. Maybe just following up on the last question. Excuse me. If I look at the midpoint of your revenue guidance and the way you're characterizing the vertical market contributions, it seems like you're assuming a nice sequential step up in a couple of markets that were down sequentially in Q1, notably auto and MII. Dan, you may have touched on this.

James Andrew Ricchiuti: Maybe just following up.

James Andrew Ricchiuti: The last question.

Speaker Change: Excuse me.

James Andrew Ricchiuti: If I look at the midpoint of your revenue guidance and the way you're characterizing the vertical market contributions it seems like you're assuming a nice sequential step up in a couple of markets that.

James Andrew Ricchiuti: We're down sequentially in Q1, notably auto.

Unknown Executive: Is auto, is it seasonality coming out of the Q1 Chinese New Year, or are you seeing some improvement in the outlook there? Same question on MII. Tom, you alluded to semi-test being a big, potential bright spot, but what are you seeing in those?

James Andrew Ricchiuti: And maybe Dan you may have touched on this is auto.

James Andrew Ricchiuti: Seasonality coming out of the Q1 Chinese new year.

James Andrew Ricchiuti: Or are you seeing some improvement in the outlook there and same question on NII at Tom you alluded to semi test being.

James Andrew Ricchiuti: Potential bright spot, but what are you seeing in those markets.

Unknown Executive: Yeah, so Jim, yeah, a couple of things going on there. You're absolutely right in terms of the Chinese New Year impact. There is a positive, so think about it as a little bit more than a week of production that we bring back into Q2 that helps with those end markets. Of course, you have to see the demand to absorb that production capacity. In Auto, we are looking at being sequentially up. I'm not going to read too much into that at this point.

Speaker Change: Yes so.

Speaker Change: So Jim yes.

Speaker Change: A couple of things going on there you are absolutely right in.

Speaker Change: In terms of Chinese new year impact there is a positive.

James Andrew Ricchiuti: Think about it is a little bit more than a week.

James Andrew Ricchiuti: Of production that we bring back in Q2 that helps through those end markets of course, you have to see the demand to absorb that production capacity.

James Andrew Ricchiuti: In auto we are looking at at being sequentially up.

Speaker Change: Im not going to read too much into that at this point I think.

Unknown Executive: I think it's certainly encouraging to see some of the booking trends improve there, as well as the overall, if you look at the overall commercial market, to have a solid positive book to bill. In the medical industrial instrumentation area, you pointed out an area where we are now seeing some incremental return of growth, which is in that instrumentation category. That's primarily semiconductor capital equipment. We're seeing demand, particularly on the test side of that, come back, and so that is helping on the sequential demand side. We expect that kind of momentum to continue as we go into the back half of the year. I would add networking as well. We're finally seeing customers work through inventory, and several customers have worked through their inventory challenges, and we're starting to see some incremental improvement in that end market.

Speaker Change: It's certainly encouraging to see some of the booking trends improve there.

Speaker Change: As well as the overall if you look at the overall commercial market to have a <unk>.

Speaker Change: Solid positive book to Bill.

Speaker Change: In the medical industrial instrumentation area, you pointed out the area, where we are seeing.

Speaker Change: Now some incremental return of growth, which is in that instrumentation category, that's primarily <unk>.

Speaker Change: Semiconductor capital equipment, we're seeing.

Speaker Change: Demand, particularly in the test side of that.

Speaker Change: Come back in and so that is helping on the sequential demand side.

Speaker Change: Thing that that kind of.

Speaker Change: Momentum to continue as we as we go into the back half of the year and I would add networking as well. We're finally seeing customers work through inventory and several customers have worked through their inventory challenges.

Speaker Change: And we're starting to see some incremental improvement in that end market.

Unknown Executive: Got it. That's helpful.

Speaker Change: Got it that's helpful that actually brings me to the next question.

James Andrew Ricchiuti: To round out that discussion around the verticals in your it looks like you are again at the midpoint assuming.

Unknown Executive: That actually brings me to the next question to round out that discussion around the verticals. It looks like you're, again, at the midpoint, assuming, or anticipating a sequential decline in A&D. And I'm wondering if you could provide some color on that, just given the backlog, given the growth you're seeing. How are you thinking about the A&D business looking out over the remainder of the year?

Speaker Change: Dissipating a sequential decline in A&D and I'm wondering if you can provide some color on that just given the.

Speaker Change: The backlog given the growth Youre seeing.

Speaker Change: How are you thinking about the A&D business looking out over the remainder of the year.

Unknown Executive: Yep, I would not read too much into that. The Q1 A&D end market outperformed our expectations. That was mainly the fact that, as you remember, Q4 generally is the strongest quarter that we have in A&D as we finish out the year, and usually, Q1 we have a drop-off. We really didn't have a significant drop-off here, and that was just because we actually, I wouldn't say overproduced, but we certainly were able to maximize production in the A&D area.

Speaker Change: Yes, I would not read too much into that.

Speaker Change: Q1.

Speaker Change: A&D end market outperformed our expectations that was mainly the fact that as you remember Q4 generally the strongest quarter that we have in A&D as we finish out the year Q1, usually we have a have a drop off we really didn't have a significant drop off here in <unk>.

Speaker Change: And that was just because we actually I would say I wouldn't say overproduce that we certainly were able to maximize production.

Unknown Executive: As we look at Q2, we're sort of expecting more of a normal quarter there in A&D, and then as we look towards Q3, Q4, we're expecting that Clover, or what we call Project Clover, the facilities that we shut down, we're expecting that the tailwind there as we bring up the receiving facilities to help to improve the A&D revenues as we go into Q3 and Q4. So, again, Q2, you're absolutely right, sort of flat-ish to slightly down, but I'm expecting Q3, Q4, that capacity to kick in with the receiving facilities.

Speaker Change: And the A&D area as we look at Q2, we're sort of expecting more more of a normal quarter there in A&D.

Unknown Executive: Okay, thanks very much.

Speaker Change: And.

Speaker Change: And then as we look towards the again Q3 Q4, we're expecting that clover.

Speaker Change: Or what we call a set of project level debt facilities.

Speaker Change: Got down we're expecting that.

Speaker Change: The tailwind there as we bring up.

Speaker Change: The receiving facilities to help to improve the A&D.

Speaker Change: Revenues as we go into Q3 and Q4, so again Q2, youre, absolutely right sort of flattish to slightly down.

Speaker Change: But but I expect in Q3 Q4 that that capacity to kick.

Speaker Change: Kick in with the receiving facilities.

Speaker Change: Okay. Thanks very much.

Speaker Change: Sure. Thank.

Speaker Change: Thank you one moment our next question.

Operator: Thank you. One moment for our next question, and that will come from the line of William Stein with Truist Securities. Your line is open.

Speaker Change: And that will come from the line of William Stein with <unk> Securities. Your line is open.

William Stein: Thanks for taking my questions. First, congrats on the good progress this quarter. I wanted to actually hit on some overlapping topics for the last question, and that was your guidance for the sub seasonal. I think you sort of just explained it, but I just am reminded of what has happened historically when we see book to bill very strong in aerospace and defense and the backlog goes up, but we know it's sort of a long-duration backlog when their quarters when you have these, you know, where you have a lack of growth In the past, it's been related to labor shortages, and I wonder if that's still dogging the company in any way, or if this is something different.

William Stein: Great. Thanks for taking my questions first congrats on the good progress this quarter.

William Stein: I wanted to actually hit on some overlapping.

William Stein: Topics for.

William Stein: The last question and that was that.

William Stein: Your your guidance in.

William Stein: In aerospace defense.

William Stein: Sub seasonal I think.

William Stein: Sort of just explained it but I just I'm reminded of.

William Stein: What has happened historically, when we see book to Bill very strong in aerospace and defense and the backlog go up but we know it's sort of long duration backlog when there are quarters. When you have these.

William Stein: We have lack of growth, where we anticipate more growth because of the good bookings in the past it's been related to labor shortages and I Wonder if that's still dogging the company in any way or if this is something different.

Unknown Executive: So... Labor is always a factor, Will, that is certainly an area of focus in several of our facilities. I would say that the headwind we have in A&E continues to be concentrated in the supply chain. We're still looking at a headwind of about $8 million quarterly. That's less than half of where we were a year ago, but we still do have that headwind to overcome each quarter.

William Stein: So les.

Speaker Change: Labor is always a factor.

Speaker Change: Sure.

Speaker Change: That is certainly an area of focus in.

Speaker Change: And several of our facilities.

Speaker Change: I would say that the headwind we have in A&D continues to be concentrated in supply chain.

Speaker Change: We're still looking at.

Speaker Change: The headwind of about $8 million quarterly that's about that's.

Speaker Change: That's less than half of where we were a year ago, but we still do have that headwind.

Speaker Change: To overcome each quarter.

Unknown Executive: But really, with our business as we stand today, it's about production volumes, how we can get those out. And then, as you remember, with the addition of telephonics, we have a percent complete accounting recognition percent complete with mission systems. So that can get a little bit lumpy depending on where we are in the percent complete process. So those are factors that go beyond sort of where we were traditionally in that business. So from a labor perspective, absolutely an ongoing challenge, but really it's much more of a supply chain situation. And then just a little bit of lumpiness as we ship out on particular programs.

Speaker Change: But but really with our businesses as we stand today, it's about <unk>.

Speaker Change: Production volumes, how we can get those out and then as you remember with the addition of Telephonics, we have a percent complete.

Speaker Change: Accounting recognition there with mission systems, so that can get a little bit lumpy depending on on.

Speaker Change: Where we are in the percent complete process. So.

Speaker Change: Those are factors that that.

Speaker Change: Beyond sort of where we were traditionally in that business.

Speaker Change: So labor from a labor perspective, absolutely.

Speaker Change: Going challenge, but.

Speaker Change: But really it's much more of that supply chain situation and then just just a little bit of Lumpiness as we as we ship out particular programs.

Unknown Executive: Great. The book to bill in the... and the commercial markets were really stronger than they've been in many quarters by my math, but I think you just answered that. It sounds like you're expecting revenue to continue to accelerate in the back half. So, instead, I'm going to focus on OPEX. This is an area where I guess I was a little surprised that OPEX is up year over year. And I wonder. What we should expect going forward? Is there any activity to try to constrain that going forward? Or are there any unusual things that drove the increase year over year?

Speaker Change: Great.

Speaker Change: The book to Bill in the.

Speaker Change: In the commercial markets was really stronger than it's been in many quarters by my math, but I think you just answered that you're it sounds like you are expecting revenue to continue to accelerate there in the back half. So let me instead focus on Opex.

Speaker Change: This is an area I guess.

Speaker Change: A little surprised that opex is up year over year and I wonder.

Speaker Change: What we should expect going forward is there any.

Speaker Change: Activity to try to constrain that going forward or are there any unusual things that drove the.

Speaker Change: The increase year over year. Thank you.

Unknown Executive: Thank you for the question, Will. There were a few one-off items in Q1. There were some personnel-related and healthcare-related true-ups in Q1 that were, you know, year-end accruals that, you know, our estimates were a little bit higher than we had expected. And then, with regard to the Syracuse expansion, we had about a million and a half of application fees that we paid in Q1 that were budgeted for later in the year.

Unknown Executive: Thank you. Thank you.

Speaker Change: Alright, Thank you for the question well.

Speaker Change: There were a few one off items in Q1, there were some.

Speaker Change: Personnel related and healthcare related true ups in Q1.

Speaker Change: At year end accruals that are estimates, we had a little bit higher.

Speaker Change: Q1 true ups than we had expected and then with regards to the Syracuse expansion.

Speaker Change: We had about 1 million and a half.

Speaker Change: Application fees that we paid in Q1 that were budgeted for later in the year and so the conglomerate of those in the first quarter was about $8 5 million of additional opex expense that where we will not recur those are one offs.

Unknown Executive: And so the conglomerate of those in the first quarter is about eight and a half million of additional operating expenses that will not recur. Those are one-offs. But even with that and the headwind from Benang, we're still up 100 basis points on the operating margin year over year. We're forecasting increasing that up to another almost 190 basis points in Q2. So yes, you'll see that come back in the second half.

Speaker Change: Right.

Speaker Change: Even with that headwind from Penang, we're still up 100 basis points.

Speaker Change: Operating margin year over year.

Speaker Change: Forecasting increasing that.

Speaker Change: Other another almost 190 basis points into Q2, so so yes, youll see that come back in the second half of the year continue to grow.

Speaker Change: Thank you.

Speaker Change: Thank you one moment our next question.

Operator: Thank you. Thank you. One moment for our next question, and that will come from the line of Mike Crawford with B Raleigh Securities. Your line is open.

Speaker Change: And that will come from the line of Mike Crawford with B Riley Securities. Your line is open.

Michael Roy Crawford: Thank you. Could you provide the lifetime value of the automotive program? When will it be secured and recorded?

Michael Roy Crawford: Thank you could you provide the lifetime value of the automotive program Lindsay secured in the quarter.

Thomas T. Edman: Sure, so not a great quarter in terms of automotive. We had about $20 million in wins in terms of program wins in Q1. If you look a year ago, we were at $267 million, so that's quite a difference, Mike.

Michael Roy Crawford: Sure.

Michael Roy Crawford: So not a not a great quarter in regards to automotive we had about $20 million in wins.

Michael Roy Crawford: In terms of program wins.

Michael Roy Crawford: In Q1.

Mike Crawford: If you look a year ago, we were at $267 million, So thats quite a quite a difference Mike and.

Thomas T. Edman: And as we look at what to attribute that to, it appears that our customers – I remember most of our customers are Tier 1 parts suppliers – are dealing with market turbulence as they look at program shifts with EV coming on, and some of the changes in terms of their global marketplace. And for the second quarter in a row, they're withholding orders as they try to get more certainty about production starts.

Mike Crawford: And as we look at what to attribute that to it appears that our customers.

Mike Crawford: Most of our customers are the tier one.

Speaker Change: Part suppliers that.

Speaker Change: They're dealing with market turbulence as they look at.

Speaker Change: Program shifts with EV coming on with some of the changes in terms of their global marketplace.

Speaker Change: And for the second quarter in a row there.

Speaker Change: Holding packages as they try to get more certainty about production.

Thomas T. Edman: And again, they're trying to anticipate production starts that would begin a year from now. So you can imagine how challenging it is in the environment out there to anticipate those production starts. So we're just not seeing the volume of package opportunities that we saw last year and this year. So that's what appears to be going on in the auto industry.

Speaker Change: Production starts and again they are trying to and anticipate production starts that would begin a year from now so you can imagine.

Speaker Change: How challenging it is in the environment out there to anticipate those production starts. So we're just not seeing the.

Speaker Change: The volume of package opportunities.

Speaker Change: That we saw last year.

Speaker Change: This year so.

Speaker Change: So thats, what what appears to be going on in auto.

Thomas T. Edman: Okay, thank you, Tom. And then Regarding the new facility in Syracuse, it looks like you've already received some $16 million in local tax breaks, but you're hoping to get some federal equipment purchase breaks as well, and did I hear you say you're still helping to break it down within the next two months?

Speaker Change: Okay. Thank you.

Speaker Change: And then.

Speaker Change: Just.

Speaker Change: Regarding the new.

Speaker Change: <unk> facility in Syracuse, It looks like you are.

Speaker Change: Already.

Speaker Change: <unk>, some $60 million in local tax breaks, but youre, hoping to get some federal.

Speaker Change: Equipment purchase breaks as well and did I hear you say you are still hoping that breakdown within the next two months.

Thomas T. Edman: So, you're right, the state has been very forthcoming and really thrilled with that. We're just looking to finalize the federal side, and that takes a bit more time. So we're working our way through that, and I'd also say that in the quarter we were able to firm up our agreements with customers as well. So it hasn't changed our overall schedule in terms of breaking ground in the first half of the year, but just working through sort of the final stages here of preparation as we get ready to break ground.

Speaker Change: So.

Speaker Change: Youre right the state the state has been very forthcoming in.

Unknown Executive: Okay, thank you. I'll just end with kind of a minor question.

Speaker Change: Really thrilled with that and we're just we're just looking to finalize the.

Speaker Change: The federal side in.

Speaker Change: And that takes and that takes a bit more time.

Speaker Change: So we're working our way through that and.

Speaker Change: I would also say that in the quarter, we were able to firm up our agreement with with customers as well.

Speaker Change: So.

Speaker Change: It Hasnt changed our overall schedule in terms of breaking ground in the first half of the year.

Speaker Change: But but just working through the final stages here of preparation as we as we get ready to break ground.

Unknown Executive: But with the buyback that was active in Q1, and you're relatively well-stocked on stock-based comp, I was a little surprised that you're guiding to a higher W2 share count in 2Q. Is that just being conservative? Or is there something else happening? Yeah, I would say

Speaker Change: Okay. Thank you I'll just I'll, then just with a kind of a minor question, but with the buyback again was active in Q1 and your relative stock based comp I was little surprised that you're guiding to higher diluted share count in <unk> is that just being conservative or is there something else happening.

Unknown Executive: Yeah, I would say it's a bit conservative that with the shares that will be issued in Q2 and from the vesting of our stock plan, there will be some more buyback that will likely bring that down a little bit more than the 105 that we've got there. That's what we used for the guidance. Okay, great. Thank you.

Speaker Change: Yes, I would say.

Speaker Change: It's a bit conservative with the shares that will be issued in Q2 that.

Speaker Change: From vesting of our stock plan.

Speaker Change: There will be some more buyback probably.

Speaker Change: That will likely bring that down a little bit more than.

Speaker Change: 100, <unk> that we've got there.

Speaker Change: But that's what we used for the guidance.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you. Thank you as a reminder, if you would like to ask a question. Please press star one one.

Thomas T. Edman: Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 11. I'm showing no further questions in the queue at this time. I would like to turn the call over to Mr. Tom Edman for closing remarks.

Speaker Change: Im showing no further questions in the queue at this time I would like to turn the call over to Mr. Tom Edman for closing remarks.

Thomas T. Edman: Thank you. Yeah, I'd just like to close by summarizing a few of the points that I made earlier. First, we delivered non-GAAP EPS above the high end of the guided range and revenues at the high end of the guided range with improved operational performance and favorable product mix on a year-on-year basis. Second, we generated a healthy cash flow from operations at 7.7% of revenues. That did enable us to repurchase stock and maintain a solid balance sheet with a net EBITDA leverage of about 1.5x at the low end of our target range. And in closing, I would just like to thank our employees, our customers, and you, our investors, for your continued support. Thank you very much.

Thomas T. Edman: Thank you Yeah, I would just like to close by summarizing a few of the points that I made earlier first we delivered non-GAAP EPS above the high end of guided range revenues at the high end of the guided range with improved operational performance and favorable product mix on a year on year basis.

Thomas T. Edman: Second we generated a healthy cash flow from operations at seven 7% of revenues.

Thomas T. Edman: It did enable us to repurchase stock and maintain a solid balance sheet.

Thomas T. Edman: With a net EBITDA leverage of about one five acts at the low end of our target range.

Speaker Change: And in closing I would just like to thank our employees our customers and.

Speaker Change: You our investors for your continued support.

Operator: This concludes today's program. Thank you for participating. You may now disconnect.

Speaker Change: Thank you very much.

Speaker Change: This concludes today's program. Thank you for participating you may now disconnect.

Thomas T. Edman: Okay.

Thomas T. Edman: [music].

Thomas T. Edman: Okay.

Thomas T. Edman: Yes.

Thomas T. Edman: [music].

Thomas T. Edman: Thanks.

Q1 2024 TTM Technologies Inc Earnings Call

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