Q2 2024 TTM Technologies Inc Earnings Call

July 31, 2024

Good afternoon. Thank you for standing by. Welcome to the TTM Technologies Inc. second quarter 2024 financial results conference call.

Operator: 2nd Quarter 2024 Financial Results Conference During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions. 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 you that your hand is free. To withdraw your question, press star 11 again. As a reminder, this conference is being recorded today, July 31st, 2021. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's Disclosure State.

Operator: Second Quarter, 2024 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. 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 your hand is raised. So what's your question?

Sameer Desai: Press star 1-1 again. As a reminder, this conference is being recorded today, July 31, 2024. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's Disclosure Statement. Thank you.

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 that we provide interference with the Security Exchange Commission, which we encourage you to review. These forward-looking statements represent management's 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 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 of GAAP, and redirect you to the Reconciliation Supreme GAAP and non-GAAP measures included on the company's earnings release, which is available on the Investor Relations section of TTM's website at investors.tpm.com. We have also posted on that website a slide deck that we will refer to during our call.

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.

The risk factors that we provide in our filings with the Securities Exchange Commission, which 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.

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 redirect you to the reconciliation of 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. 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.

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 measures prepared and presented in accordance of GAAP and redirect you to the reconciliation between GAAP and non-GAAP measures included in the company's earnings release, which is available on the investor.

<unk> section of Ttm's website at investors Dot TTM Dot com.

We are 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.

Tom Edman: I will now turn the call over to Tom Edmund, TTM's Chief Executive Officer. Please go ahead, Tom.

Tom Edman: Thank you, Samir.

Thomas T. Edman: Good afternoon, and thank you for joining us for our second quarter 2024 conference call. I'll 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. Dan Bailey, our CFO, will then provide an overview of our Q2 2024 financial performance and our Q3 2024 guidance. We will then open the call to your questions.

Thomas T. Edman: Thank you Samir.

Tom Edman: Good afternoon and thank you for joining us for our second quarter 2020 conference call. I'll 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.

Thomas T. Edman: Good afternoon, and thank you for joining us for our second quarter 2020 for our conference call.

Dan: I'll 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 Dan.

Tom Edman: Dan Bailey, our CFO, will follow with an overview of our Q2 2024 financial performance and our Q3 2024 guidance. We will then open the call to your questions. Highlights of the quarter's financial results are summarized on slide three of the earnings presentation posted on TTM's website. We delivered a strong quarter, and I would like to thank our employees for their hard work and contributions in support of these results. In the second quarter of 2024, non-GAAP earnings per share were above the guided range and demonstrated solid year-on-year growth due to higher revenues and improved operating execution.

Speaker Change: Dan Bailey, our CFO will follow with an overview of our Q2 2024 financial performance and our Q3 2020 for our guidance. We will 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 strong quarter, and I would like to thank our employees for their hard work and contributions in support of these results. In the second quarter of 2024, non-GAAP earnings per share were above the guided range and demonstrated solid year-on-year growth due to higher revenues and improved operating execution. Revenues were above the guided range, representing the second consecutive quarter of year-on-year growth due to demand strength from our aerospace and defense and data center computing end markets, the latter being driven by generative AI.

Speaker Change: Highlights of the quarter's financial results are summarized on slide three of the earnings presentation posted on Ttm's website.

Speaker Change: We delivered a strong quarter and I would like to thank our employees for their hard work and contributions and supported these results.

Speaker Change: In the second quarter of 2024 non-GAAP earnings per share were above the guided range and demonstrated solid year on year growth due to higher revenues and improved operating execution.

Tom Edman: Revenues were above the guided range, representing the second consecutive quarter of year-on-year growth due to demand strength from our aerospace and defense and data center computing and marks. with a ladder being driven by generative AI. The growth in revenues was partially offset by year-over-year declines from our medical industrial and instrumentation, automotive, and networking markets, though these markets did see sequential improvements. Overall, the company Book to Bill was 1.11, with the A&D Book to Bill at 1.26. 45% of revenues for the quarter continues to be strong, and we now have a record program backlog of approximately 1.45 billion dollars.

Revenues were above the guided range, representing the second consecutive quarter of year on year growth due to demand strength from our aerospace and defense and data Center computing end markets with the latter being driven by generative AI.

Thomas T. Edman: The growth in revenues was partially offset by year-over-year declines from our medical, industrial, and instrumentation, automotive, and networking end markets, though these markets did see sequential improvements. Overall, the company booked a bill of 1.11, with the A&D booked at 1.26.

Speaker Change: The growth in revenues was partially offset by year over year declines from our medical industrial and instrumentation automotive and networking end markets.

Speaker Change: Though these markets did see sequential improvements.

Speaker Change: Overall, the company book to Bill was 111 with the A&D book to Bill at 126 <unk>.

Thomas T. Edman: Demand in our aerospace and defense market, which was 45% of revenues for the quarter, continues to be strong, and we now have a record program backlog of approximately $1.45 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.

Speaker Change: Demand in our aerospace and defense market, which was 45% of revenues for the quarter continues to be strong and we now have a record program backlog of approximately $145 billion.

Tom Edman: 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. Over the past several years, TTM has consistently demonstrated that a key part of our strategy is to add value to the product solutions that we delivered to our customers, particularly in the aerospace and defense market. As a result of strategic transactions in the aerospace and defense market, through the acquisitions of AneurOn and Telephonics, 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.

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

Speaker Change: Amazon a journey to transform our business to be less cyclical and more differentiated.

Thomas T. Edman: Over the past several years, TTM has consistently demonstrated 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. 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.

Speaker Change: Over the past several years TTM has consistently demonstrated 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.

Speaker Change: As a result of strategic transactions in the aerospace and defense end market through the acquisitions of Anaren and telephonics over 50% of our revenues in aerospace and defense are now generated from engineered and integrated electronic products with pcbs contributing less than 50% over.

Tom 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 customers in our commercial and markets. This new facility in Malaysia is supporting customers and markets such as data center computing, networking, and medical industrial and instrumentation. We continue to make progress, ramping volume production as we manage through ongoing customer audits and qualifications. In several cases, customer qualifications are taking longer than originally expected, though we are making steady progress.

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 customers in our commercial end market. This new facility in Malaysia is supporting customers in markets such as data center computing, networking, and medical, industrial, and instrumentation. We continue to make progress, ramping up volume production as we manage through ongoing customer audits and qualifications. In several cases, customer qualifications are taking longer than originally expected, though we are making steady progress.

Speaker Change: <unk>.

Speaker Change: 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.

Speaker Change: Service customers in our commercial end markets.

Speaker Change: This new facility in Malaysia is supporting customers in markets, such as data center computing networking and medical industrial and instrumentation.

Speaker Change: We continue to make progress ramping volume production as we manage through ongoing customer audits and qualifications and.

Speaker Change: In several cases customer qualifications are taking longer than originally expected that we are making steady progress.

Tom Edman: We expect our Malaysia facility to register limited revenues in the third quarter as we continue our production ramp.

Thomas T. Edman: We expect our Malaysia facility to register limited revenues in the third quarter as we continue our production ramp. 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.

Speaker Change: We expect our Malaysia facility to register a limited revenues in the third quarter as we continue our production ramp.

Tom Edman: 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 facilities. During the second quarter, we sold the Anaheim facility and one of the small buildings we owned in Santa Clara, and we continued to ramp production for the transferred parts at receiving facilities.

Speaker Change: I'd also like to update you on the consolidation of our manufacturing footprint.

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

Speaker Change: 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 facilities during.

Thomas T. Edman: During the second quarter, we sold the Anaheim facility and one of the small buildings we owned in Santa Clara, and we continue to ramp production for the transferred parts at receiving facilities. Finally, 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.

Speaker Change: During the second quarter, we sold the Anaheim facility and one of the small buildings, we owned in Santa Clara and we continued to ramp production for the transferred parts and receiving facilities.

Tom Edman: Finally, 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 high HDI PCBs in support of increasing national security requirements for high technology PCB. We have broken ground for the new building and expect initial low rate production within 18 to 24 months. 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 to $130 million. Final capital investment commitments will be determined after finalizing terms with various stakeholders. Now I'd like to review our end markets, which are referenced on page 4 of the earnings presentation on our website. The aerospace and defense end market represented 45% of total second quarter sales compared to 47% of Q2 2023 sales and 46% of sales in Q1 2024. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets, including supplemental funding related to conflicts in Ukraine and Israel, our strong strategic program alignment, and key bookings for ongoing franchise programs. We had a strong bookings quarter with a book to bill ratio of 1.26, leading to a record A&D program backlog of approximately $1.45 billion at the end of the second quarter. During the quarter, we saw significant bookings for TPS 80 Gator, MH60R, and a key restricted program. We expect sales in Q3 from this end market to represent about 45% 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 second quarter compared to 12% in Q2 2023 and 21% in the first quarter of 2024. This end market performed better than expected and saw 93% year on year growth to reach an all time high due to strength from our data center customers building products for generative AI applications. We expect revenues in this end market to represent 21% of third quarter sales. The medical industrial instrumentation end market contributed 14% of our total sales in the second quarter compared to 16% in the year ago quarter and 14% in the first quarter of 2024. The year over year decline was generally the result of lower demand and ongoing inventory normalization, particularly in the industrial area. However, the industrial market did improve sequentially. In addition, the medical market remained stable and we saw pockets of improved demand from our semiconductor testing customers as generative AI drove growth in the DRAM market, leading to increased purchases of automated test equipment. For the third quarter, we expect the medical industrial instrumentation end market to be 14% of revenue. Automotive sales represented 14% of total sales during the second quarter of 2024 compared to 17% in the year ago quarter and 13% during the first quarter of 2024.

Speaker Change: Finally, 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.

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 for ultra-high HCI PCBs in support of increasing national security requirements for high technology PCBs. We have broken ground for the new building and expect initial low-rate production within 18 to 24 months. As previously announced, 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 to $130 million. Final capital investment commitments will be determined after finalizing terms with various stakeholders.

Speaker Change: This new facility will specialty will focus on specialized high technology PCB production.

Speaker Change: <unk> customers with reduced lead times and a significant increase in domestic capacity for ultra high HDI Pcbs in support of increasing national security requirements for high technology Pcbs.

Speaker Change: <unk> broken ground for the new building and expect initial low rate production within 18 to 24 months.

Speaker Change: 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.

Speaker Change: Final capital investment commitments will be determined after finalizing terms with various stakeholders.

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. The aerospace and defense end market represented 45% of total second quarter sales compared to 47% of Q2 2023 sales and 46% of sales in Q1 2024. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets, including supplemental funding related to conflicts in Ukraine and Israel. Additionally, our strong strategic program alignment and key bookings for ongoing franchise programs.

Speaker Change: Now I'd like to review our end markets, which are referenced on page four of the earnings presentation on our website.

Speaker Change: The aerospace and defense end market represented 45% of total second quarter sales compared to 47% of Q2, 2023 sales and 46% of sales in Q1 2024.

Speaker Change: The solid demand in the defense market as a result of a positive tailwind in previous defense budgets, including supplemental funding related to conflicts in Ukraine and Israel.

Speaker Change: Our strong strategic program alignment.

Speaker Change: And key bookings for ongoing franchise programs.

Thomas T. Edman: We had a strong bookings quarter, with a book to bill ratio of 1.26, leading to a record A&D program backlog of approximately $1.45 billion at the end of the second quarter. During the quarter, we saw significant bookings for TPS-80 Gator, MH-60R, and a key restricted program. We expect sales in Q3 from this end market to represent about 45% 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.

Speaker Change: We had a strong bookings quarter with a book to bill ratio of one to six leading to a record A&D program backlog of approximately $145 billion at the end of the second quarter.

Speaker Change: During the quarter, we saw significant bookings for GPS 80, Gator, MH 60, or and a key restricted program.

Speaker Change: We expect sales in Q3 from this end market to represent about 45% of our total sales.

Speaker Change: 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 second quarter, compared to 12% in Q2 of 2023 and 21% in the first quarter of 2024. This end market performed better than expected and saw 93% year-on-year growth to reach an all-time high due to strength from our data center customers building products for generative AI applications. We expect revenues from this end market to represent 21% of third-quarter sales.

Speaker Change: Sales in the data center computing end market represented 21% of total sales in the second quarter compared to 12% in Q2 of 2023 and 21% in the first quarter of 2020 for.

Speaker Change: This end market performed better than expected and 93% year on year growth to reach an all time high due to strength from our data center customers building products for regenerative AI applications.

Speaker Change: We expect revenues in this end market to represent 21% of third quarter sales.

Thomas T. Edman: The medical industrial instrumentation and market contributed 14% of our total sales in the second quarter, compared to 16% in the year-ago quarter and 14% in the first quarter of 2024. The year-over-year decline was generally the result of lower demand and ongoing inventory normalization, particularly in the industrial area.

Speaker Change: The medical industrial instrumentation end market contributed 14% of our total sales in the second quarter compared to 16% in the year ago quarter and 14% in the first quarter of 2020 for the.

Speaker Change: The year over year decline was generally the result of lower demand and ongoing inventory normalization, particularly in the industrial area.

Thomas T. Edman: However, the industrial market did improve sequentially. In addition, the medical market remained stable, and we saw pockets of improved demand from our semiconductor testing customers as generative AI drove growth in the DRAM market, leading to increased purchases of automated testing. For the third quarter, we expect the medical industrial instrumentation end market to be 14% of revenue. Automotive sales represented 14% of total sales during the second quarter of 2024, compared to 17% in the year-ago quarter and 13% during the first quarter of 2024. The year-over-year decline for automotive was due primarily to continued inventory adjustments and soft demand at several customers.

Speaker Change: However, the industrial market did improve sequentially.

Speaker Change: In addition, the medical market remained stable and we saw pockets of improved demand from our semiconductor testing customers as generative AI drove growth in the DRAM market, leading to increased purchases of automated test equipment.

Speaker Change: For the third quarter, we expect the medical industrial instrumentation end market to be 14% of revenues.

Speaker Change: Automotive sales represented 14% of total sales during the second quarter of 2024 compared to 17% in the year ago quarter and 13% during the first quarter of 2024.

Tom Edman: The year-over-year decline for automotive was due primarily to continued inventory adjustments and soft demand at several customers. However, we experienced solid sequential growth in Q2 tied to inventory normalization and improved demand for internal combustion engine and ADAS applications. We expect our automotive business to contribute 14% of total sales in Q3. Networking accounted for 6% of revenue during the second quarter of 2024. This compares the 8% in the second quarter of 2023 and 6% of revenue in the first quarter of 2024. We saw sequential growth due to recovering demand from certain networking customers. On a year-on-year basis, demand one software, as customers continue to focus on inventory digestion and experience weak and market demand.

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

Thomas T. Edman: However, we experienced solid sequential growth in Q2, tied to inventory normalization and improved demand for internal combustion engine and ADAS applications. We expect our automotive business to contribute 14% of total sales in Q3. Networking accounted for 6% of revenue during the second quarter of 2024. This compares to 8% in the second quarter of 2023 and 6% of revenue in the first quarter of 2024. We saw sequential growth due to recovering demand from certain networking customers.

Speaker Change: However, we experienced solid sequential growth in Q2 tied to inventory normalization and improved demand for internal combustion engine and Adas applications.

Speaker Change: We expect our automotive business to contribute 14% of total sales in Q3.

Speaker Change: Networking accounted for 6% of revenue during the second quarter of 2024. This compares to 8% in the second quarter of 2023, and 6% of revenue in the first quarter of 2024.

Speaker Change: We saw sequential growth due to recovering demand from certain networking customers.

Thomas T. Edman: On a year-on-year basis, demand was softer as customers continued to focus on inventory digestion and experienced weak end-market demand. In Q3, we expect this end market to be 6% of revenue. Next, I'll cover some details from the second quarter.

Speaker Change: On a year on year basis demand was softer as customers continue to focus on inventory digestion and experienced weak end market demand in.

Tom Edman: In Q3, we expect this end market to be 6% of revenues.

Speaker Change: In Q3, we expect this end market to be 6% of revenues.

Tom Edman: Next, I'll cover some details from the second quarter. This information is also available on page 5 of our earnings presentation. During the quarter, our advanced technology and engineered products business, which includes HDI, rigid flex, RF subsystems and components, and engineered systems, accounted for approximately 45% of our revenue. This compares to approximately 43% in the year-ago quarter and 48% in Q1. 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. PCV capacity utilization in Asia Pacific was 64% in Q2, compared to 46% in the year-ago quarter and 52% in Q1.

Speaker Change: Next I'll cover some details from the second quarter.

Thomas T. Edman: This information is also available on page 5 of our earnings presentation. During the quarter, our advanced technology and engineered products, which include HDI, Rigidflex, RF subsystems and components, and engineered systems, accounted for approximately 45% of our revenue. This compares to approximately 43% in the year-ago quarter and 48% 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 in new programs and new markets.

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

Speaker Change: During the quarter, our advanced technology, and engineered products business, which includes HDI rigid flex RF subsystems and components and engineered systems accounted for approximately 45% of our revenue.

Speaker Change: This compares to approximately 43% in the year ago quarter and 48% 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 markets.

Thomas T. Edman: PCV capacity utilization in Asia Pacific was 64% in Q2 compared to 46% in the year-ago quarter and 52% in Q1. Utilization rates improved as data center demand continued to be strong and other commercial markets started to rebound. Our overall PCB capacity utilization in North America was 39% in Q2, compared to 38% in the year-ago quarter and 38% in Q1. 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.

Speaker Change: PCV capacity utilization in Asia Pacific was 64% in Q2 compared to 46% in the year ago quarter and 52% in Q1 utilization.

Tom Edman: Utilization rates improved as data center demand continues to be strong, and other commercial markets started to rebound. Our overall PCV capacity utilization in North America was 39% in Q2, compared to 38% in the year-ago quarter and 38% in Q1. 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 plating, which is the core process that we use for calculating utilization rates. Our top five customers contributed 42% of total sales in the second quarter of 2024 compared to 40% in the second quarter of 2023.

Speaker Change: Utilization rates improved as data center demand continues to be strong and other commercial markets started to rebound.

Speaker Change: Our overall ptv capacity utilization in North America was 39% in Q2 compared to 38% in the year ago quarter and 38% in Q1 as a reminder, North America utilization figures are not as meaningful as Asia Pacific because bottlenecks in these high.

Speaker Change: 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 second quarter of 2024, compared to 40% in the second quarter of 2023. We added one customer with over 10% of our total sales in the quarter. At the end of Q2, our 90-day backlog, which is subject to cancellations, was $633.5 million compared to $556.2 million at the end of the second quarter last year. And, as I mentioned earlier, our aerospace and defense backlog increased from $1.39 billion at the end of Q2 last year to a record of $1.45 billion at the end of Q2 this year. Our overall book-to-bill ratio was 1.11 for the three months ended July 1st. Now, Dan will review our financial performance for the second quarter. Dan?

Speaker Change: Our top five customers contributed 42% of total sales in the second quarter of 2024 compared to 40% in the second quarter of 2023.

Tom Edman: We add one customer with over 10% of our total sales in the quarter. At the end of Q2, our 90-day backlog, which is subject to cancellations, was $633.5 million compared to $556.2 million at the end of the second quarter last year. And as I mentioned earlier, our aerospace and defense backlog increased from $1.39 billion at the end of Q2 last year to a record of $1.45 billion at the end of Q2 this year. Our overall book to bill ratio was 1.11 for the three months ended to lie first.

Speaker Change: We had one customer with over 10% of our total sales in the quarter.

Speaker Change: At the end of Q2, our 90 day backlog, which is subject to cancellations was $633 5 million.

Speaker Change: Compared to $556 2 million at the end of the second quarter of last year.

Speaker Change: And as I mentioned earlier, our aerospace and defense backlog increased from $139 billion at the end of Q2 last year to a record of $145 billion.

Speaker Change: At the end of Q2 this year, our overall book to Bill ratio was 111 for the three months ended July one.

Dan Bailey: Now Dan will review our financial performance for the second quarter. Dan?

Speaker Change: Now Dan will review, our financial performance for the second quarter Dan.

Dan Bailey: Thanks, Tom, and good afternoon, everyone. I will review our financial results for the second quarter that we're included in the press release distributed today and are summarized on slide six of the earnings presentation posted on our website. For the second quarter, net sales of 600 and 5.1 million compared to 546.5 million in the second quarter of 2023. The year-over-year increase was due to growth in our data center computing and aerospace and defense markets. Our set by declines in our automotive, medical, industrial and instrumentation, and networking and markets. Gap operating income for the second quarter of 2024 was 39 million, as compared with Gap operating income of 21.4 million for the second quarter of 2023.

Dan Bailey: Thanks, Tom, and good afternoon, everyone. I will review our financial results for the second quarter that were included in the press release distributed today and summarized on slide six of the earnings presentation posted on our website. For the second quarter, net sales were $605.1 million, compared to $546.5 million in the second quarter of 2020. 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 end markets.

Speaker Change: Thanks, Tom and good afternoon, everyone.

Dan: We'll review our financial results for the second 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 second quarter net sales were $605 1 million compared to $546 5 million in the second quarter of 2023.

Dan: 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 to end markets.

Dan Bailey: GAAP operating income for the second quarter of 2024 was $39 million, as compared with GAAP operating income of $21.4 million for the second quarter of 2023. On a GAAP basis, net income in the second quarter of 2024 was $26.4 million, or $0.25 per diluted share. This compares to GapNet income of $6.8 million, or $0.07 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 non-cash expense items such as amortization of intangibles, impairment of goodwill, and stock compensation, Games on the Sale of Property, and, as usual, our infrequent items.

Dan: GAAP operating income for the second quarter of 2024 was $39 million as.

Dan: As compared with GAAP operating income of $21 4 million for the second quarter of 2023.

Dan Bailey: On a gap basis, net income in the second quarter of 2024 was 26.4 million, or 25 cents per divided share. This compares to Gap net income of 6.8 million or 7 cents per divided share in the second quarter of last year.

Dan: On a GAAP basis net income in the second quarter of 2024 was $26 4 million or <unk> 25 per diluted share.

Dan: This compares to GAAP net income of $6 8 million or <unk> <unk> per diluted share in the second quarter of last year.

Dan Bailey: 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, a permanent goodwill, and stock compensation. Gains on the sale of property and are the usual or infrequent items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparisons with expectations in prior periods. Gross margin in the second quarter was 20%, and compared to 19.2% in the second quarter 2023. The year on your increase was due to higher sales volume, particularly in the data center computing and market, and improved operational execution.

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 gains.

Dan: Gains on the sale of property.

Dan: 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 second quarter was 20%, and it compares to 19.2% in the second quarter of 2023. The year-on-year increase was due to higher sales volume, particularly in the data center computing end market, and improved operational execution.

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

Dan: Gross margin in the second quarter was 20% and compares to 19, 2% in the second quarter of 2023.

Dan: The year on year increase was due to higher sales volume, particularly in the data center computing end market and improved operational execution.

Dan Bailey: Selling and marketing expense was 19 million in the second quarter, or 3.1% of net sales, versus 17.5 million, or 3.2% of net sales a year ago. Second quarter G and A expense was 39.4 million or 6.5% of net sales compared to 35.1 million or 6.4% of net sales in the same quarter a year ago. In the second quarter of 2024, research and development was 8.2 million or 1.4% of net sales, compared to 6.2 million or 1.1% of net sales in the same quarter last year. Our operating margin in the second quarter of 2024 was 9%, or a 60 basis points increase from 8.4% in the same quarter last year.

Dan Bailey: Selling and marketing expense was $19 million in the second quarter, or 3.1% of net sales, versus $17.5 million, or 3.2% of net sales a year ago. Second quarter G&A expense was $39.4 million, or 6.5% of net sales, compared to $35.1 million, or 6.4% of net sales, in the same quarter a year ago. In the second quarter of 2024, research and development was $8.2 million, or 1.4% of net sales, compared with 6.2 million, or 1.1% of net sales in the same quarter last year. Our operating margin in the second quarter of 2024 was 9%, which was 60 basis points increased from 8.4% in the same quarter last year.

Dan: Selling and marketing expense was $19 million in the second quarter or three 1% of net sales versus $17 5 million or three 2% of net sales a year ago.

Dan: Second quarter, G&A expense was $39 4 million or six 5% of net sales compared to $35 1 million or six 4% of net sales in the same quarter a year ago.

Dan: And the.

Dan: Quarter of 2020 for research and development was $8 2 million or one 4% of net sales compared with $6 2 million or one 1% of net sales in the same quarter last year.

Dan: Our operating margin in the second quarter of 2024 was 9% or 60 basis points increase from eight 4% in the same quarter of last year.

Dan Bailey: Interest expense was 11.7 million in the second quarter of 2024. Compared to 11.3 million in the same quarter last year. During the current year quarter, there was a positive 0.5 million foreign exchange impact below the operating income line. Government incentives and interest income totaling 3.4 million resulted in a net 3.9 million gain, or a 3 cents positive impact to EPS. This compares to a net gain of 5.1 million or a 4 cents positive impact at EPS in the same quarter last year. Our effective tax rate was 14% in the second quarter, resulting in tax expenses of $6.5 million.

Dan Bailey: Interest expense was $11.7 million in the second quarter of 2024 compared to $11.3 million in the same quarter last year. During the current quarter, there was a positive $0.5 million foreign exchange impact below the operating income level.

Dan: Interest expense was $11 7 million in the second quarter of 2024.

Dan: Compared to $11 3 million in the same quarter last year.

Dan: During the current year quarter, there was a positive <unk> 5 million and foreign exchange impact below the operating income line.

Dan Bailey: Government incentives and interest income totaling $3.4 million resulted in a net $3.9 million gain, or a 3 cents positive impact on EPS. This compares to a net gain of $5.1 million, or a 4 cents positive impact on EPS, in the same quarter of last year. Our effective tax rate was 14% in the second quarter, resulting in a tax expense of $6.5 million.

Dan: Government incentives and interest income totaling $3 4 billion resulted in a net $3 9 million game or a <unk> <unk> positive impact to EPS.

Dan: This compares to a net gain of $5 1 million or a <unk> <unk> positive impact on EPS in the second quarter of last year.

Dan: Our effective tax rate was 14% in the second quarter resulted in tax expense of $6 5 million.

Dan Bailey: This compares to a rate of 17% or a tax expense of $6.8 million in the same quarter last year. Second quarter 2024 net income was $40.1 million, or $0.39 per unit share. This compares to second quarter 2020 3.0 income of $33 million or $0.32 per unit share. Adjusted the bidot for the second quarter of 2024 was $84.6 million, or 14% of net sales. Compared with second quarter 2023, adjusted the bidot at $74.7 million or $13.7% of net sales. Appreciation for the quarter was $26.2 million. Net capital spending for the quarter was $10 million, reflecting cash inflows of $29.3 million from the sale of $2 billion vacated by the closure of our Anaheim and Santa Clara facilities in 2023.

Dan Bailey: This compares to a rate of 17% or a tax expense of $6.8 million in the same quarter last year. Second quarter 2024 net income was $40.1 million, or $0.39 per diluted share. This compares to second quarter 2023 debt income of $33 million, or $0.32 per diluted share. Adjusted EBITDA for the second quarter of 2024 was $84.6 million, or 14% of net sales, compared with second quarter 2023 adjusted EBITDA of $74.7 million, or 13.7% of net sales.

Dan: This compares to a rate of 17% or a tax expense of $6 8 million in the same quarter last year.

Dan: Second quarter 2024, net income was $40 1 million or 39 cents per diluted share.

Dan: This compares to second quarter 2023, net income of $33 million or 32 cents per diluted share.

Dan: Adjusted EBITDA for the second quarter of 2024 was $84 6 million or 14% of net sales compared with second quarter 2023, adjusted EBITDA of $74 7 million or 13, 7% of net sales.

Dan Bailey: Depreciation for the quarter was $26.2 million. Net capital spending for the quarter was $10 million, reflecting cash inflows of $29.3 million from the sale of two buildings vacated by the closure of our Anaheim and Santa Clara facilities in 2023. Fast flow from operations in the second quarter of 2024 was $41.9 million. We purchased 1.39 million shares of common stock for $25.1 million at an average price of $18.09 per share. Cash and cash equivalents at the end of the second quarter of 2024 were $446.2 million.

Dan: Depreciation for the quarter was $26 2 million net.

Dan: Net capital spending for the quarter was $10 million, reflecting cash inflows of $29 3 million from the sale of two buildings vacated by the closure of our Anaheim and certain credit facilities in 2023.

Dan Bailey: Fast flow from operations in the second quarter of 2024 was $41.9 million. We purchased 1.39 million shares of common stock for $25.1 million at an average price of $18.9 per share. Cash and cash equivalents at the end of the second quarter of 2024 total $446.2 million. Our net debt divided by last 12 months was $1.4 times below the low end of our targeted range of 1.5 to 2 times. Finally, we anticipate that tomorrow, August 1st, we will close the refinancing of $346.5 million of a new term loan facility at an interest rate of SO FAR plus 2.25%.

Dan: Cash flow from operations in the second quarter of 2024 was $41 9 million.

Dan: Purchased 139 million shares of common stock for $25 1 million at an average price of $18 90 per share.

Dan: Cash and cash equivalents at the end of the second quarter of 2024.

Dan: $446 2 million.

Dan Bailey: Our net debt divided by last year's EBITDA was 1.4 times, below the low end of our targeted range of 1.5 to 2 times. Finally, we anticipate that tomorrow, August 1st, we will close the refinancing of $346.5 million of a new term loan facility at an interest rate of SOFR plus 2.25%. 50 basis points lower than our previous Term B loans issued in May 2023. Upon closing, the new Tier-M-B loans will be issued at PAR and maintain the same maturity of May 2030.

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

Dan: Finally, we anticipate that Tomorrow August one we will close the refinancing of $346 5 million of a new term loan facility at an interest rate of <unk> plus <unk>, 5%.

Dan Bailey: 50 basis points lowered in our previous term B loans issued in May 2023. Upon closing, the new term B loans will be issued at par and maintain the same maturity of May 2030. We anticipate using the proceeds from a new term loan facility to refinance $346.5 million of such outstanding indebtedness. We have used cash on hand to pay fees and expenses of approximately $1 million related to refinancing activity. Once finalized, the new financing is expected to generate annual interest savings of approximately $1.7 million.

Dan: 50 basis points lower than our previous term b loans issued in May 2023.

Dan: Upon closing the new term b loans will be issued at par and maintain the same maturity of May 2013.

Dan Bailey: We anticipate using the proceeds from the new terminal facility to refinance $346.5 million of such outstanding indebtedness. Additionally, we have used cash on hand to pay fees and expenses of approximately $1 million related to the refinancing activity.

We anticipate using the proceeds from a new term loan facility to refinance $346 $5 million of such outstanding indebtedness.

Dan: Have used cash on hand to pay fees and expenses of approximately $1 million related to the refinancing activity.

Dan Bailey: Once finalized, the new financing is expected to generate annual interest savings of approximately $1.7 million. Now, I will turn to our guidance for the third quarter. We project next sales for the third quarter of 2024 to be in the range of $580 to $620 million, and non-GAAP earnings to be in the range of $0.37 to $0.43 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 103 million shares, which includes the dilutive effect of outstanding stock options and other stock awards.

Once finalized the new financing is expected to generate annual interest savings of approximately $1 7 million.

Dan Bailey: Now, I will turn to our guidance for the third quarter. We project next sales to the third quarter of 2024 to be in the range of $580 to $620 million and non-GAAP earnings to be in the range of $0.37 to $0.43 per diluted share, which is inclusive of operating costs associated with starting up our penading facility. The EPS forecast is based on the deluded share count of approximately 103 million shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG&A expense to be about 9.8% of net sales in the third quarter and R&D to be about 1.4% of net sales.

Dan: And now I will turn to our guidance for the third quarter.

Dan: We project net sales for the third quarter of 2024 to be in the range of $580 million to $620 million.

Dan: And non-GAAP earnings to be in the range of 37.

Dan: 43 per diluted share, which.

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 103 million shares which includes the dilutive effect of outstanding stock options and other stock awards.

Dan Bailey: We expect SG&A expense to be about 9.8% of net sales in the third quarter and R&D to be about 1.4% of net sales. We expect interest expense of approximately $11.3 million and interest income of approximately $2.6 million. We estimate our effective tax rate to be between 10 and 14 percent. Additionally, we expect to record depreciation of approximately $26.2 million, amortization of intangibles of approximately $9.3 million, stock-based compensation expense of approximately $8.4 million, and non-cash interest expense of approximately $0.4 million.

Dan: We expect SG&A expense to be about nine 8% of net sales in the third quarter and R&D to be about one 4% of net sales.

Dan Bailey: We expect interest expense of approximately $11.3 million and interest income of approximately $2.6 million. We estimate our effective tax rate to be between 10 and 14%. Further, we expect to record depreciation of approximately $26.2 million and mediation of intangibles of approximately $9.3 million. Stock-based compensation expense of approximately $8.4 million and non-cash interest expense of approximately $0.4 million.

Dan: We expect interest expense of approximately $11 3 million.

Dan: Interest income of approximately $2 6 million.

Dan: We estimate our effective tax rate to be between 10 and 14%.

Ammar: Further we expect to record depreciation of approximately $26 2 million Ammar.

Ammar: Amortization of intangibles of approximately $9 3 million stock based compensation expense of approximately $8 4 million and noncash interest expense of approximately $4 million.

Dan Bailey: Finally, I'd like to announce that we were participating in the Needham Virtual Industrial Technology Conference, August 19 through 20th, the Jeffree Semiconductor IT Hardware and Communications Technology Conference in Chicago, August 27th, and the Jeffree's Industrial Conference in New York on September 4th.

Dan Bailey: And finally, I'd like to announce that we will be participating in the Needham Virtual Industrial Technology Conference from August 19th through 20th. The Jeffries Semiconductor IT Hardware and Communications Technology Conference in Chicago on August 27th and the Jeffries Industrials Conference in New York on September 4th. That concludes our prepared remarks. Now we'd like to open the line for questions. Operator? Thank you.

Ammar: And finally, I would like to announce that we will be participating in the Needham virtual industrial Technology Conference August 19 through 22.

Ammar: Jefferies semiconductor <unk> hardware and communications Technology Conference in Chicago on August 27, and.

Ammar: And the Jefferies Industrials Conference in New York on September 4th.

Operator: That concludes our prepared remarks.

Speaker Change: That concludes our prepared remarks, now I would like to open the line for questions operator.

Operator: Now I would like to open the line for questions, operator. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster.

Operator: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster. And our first question will come from the line of Jim Ricchiuti with Nita Minco. Your line is open.

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

Speaker Change: To withdraw your question Press Star one again.

Speaker Change: While we compile the Q&A roster.

Jim Ricchiuti: And our first question will come from the line of Jim Ricchiuti with Needham and Co. Your line is open.

Speaker Change: And our first question will come from the line of Jim Ricchiuti with Needham <unk> Co. Your line is open.

Jim Ricchiuti: All right, thanks. I wanted to go back to the commentary around the utilization in APEC, which increased fairly meaningfully, at least from Q1. And I was hoping you could elaborate on what drove that, how much the contributor that was to the margin improvement or to the extended offset, some of the headwinds from Phenang. Maybe if you could just give a little bit more color on what you're seeing there.

James Andrew Ricchiuti: Hi, thanks. I wanted to go back to the commentary around utilization in APAC, which yeah, it increased fairly meaningfully, at least from Q1. And I was hoping you could elaborate on what drove that, how much, you know, the contributor that was to the margin improvement or to the extent it offsets some of the headwinds from Penang. Maybe if you could just give a little bit more color on what you're seeing there.

James Andrew Ricchiuti: Alright, Thanks, I wanted to go back to that.

Speaker Change: The commentary around the utilization.

Speaker Change: APAC, which yes, it increased fairly meaningfully.

Speaker Change: From Q1.

James Andrew Ricchiuti: I was hoping you could elaborate on what drove that how much.

Speaker Change: The contributor that was to the margin improvement in there to the extent did offset some of the headwinds from that and maybe if you could just give a little bit more color on what you're seeing there.

Tom Edman: Sure, Jim. You're absolutely right. If you look at the sequential growth in our commercial end markets, that was really what was driving the utilization up. And we had pretty much across the board sequential improvement, but particularly automotive MII and networking. So, whereas last quarter, most of the facilities were really outside of the data center facility. Our other facilities were relatively low on utilization. We saw the utilization rate climb a bit this last quarter. Certainly, contributors are operating margin in a positive way and help versus Phenang.

Thomas T. Edman: Sure, Jim. You're absolutely right. If you look at the sequential growth in our commercial end markets, that was really what was driving the utilization up, and we had, you know, pretty much across the board sequential improvement, but particularly in automotive, MII, and networking. So, whereas last quarter most of the facilities were really, you know, outside of the data center facility, most of our other facilities were relatively low in utilization, we saw the utilization rates climb a bit this last quarter.

Speaker Change: Sure Jim.

Speaker Change: You're absolutely right. If you look at the sequential growth in our commercial end markets.

Speaker Change: That was really what was what was driving the utilization up and we had.

Speaker Change: Pretty much across the board sequential improvement, but particularly automotive.

Speaker Change: Yes.

Speaker Change: Hi.

Speaker Change: In networking so.

Speaker Change: Whereas last quarter most of the facilities we're really.

Outside of the data center facility.

Speaker Change: Our other facilities were relatively low utilization, we saw the utilization rates climb.

Speaker Change: This last.

Speaker Change: Last quarter.

Thomas T. Edman: We certainly contributed to our operating margin in a positive way and helped versus Penang, but Dan, any further comments? Yeah, you know. I agree with those comments. Penang was still, you know, consistent with last quarter, about 180 basis points a headwind to operating profit this quarter. So to Tom's point, that utilization did offset that, which is what we'd expected. But yes, we'll continue to have that headwind, and it's just nice to be able to have the other business offsetting that.

Speaker Change: Certainly.

Speaker Change: Contributor to operating margin.

Speaker Change: And a positive in a positive way in.

Speaker Change: And helped.

Dan Bailey: But, Dan, any further comments? Yeah, I agree with those comments. Phenang was still, you know, consisting with last quarter, about 180 basis points headwind to the operating profit this quarter. So, to Tom's point, that utilization did offset that, which is what we'd expected. But yes, we'll continue to have that headwind. And it's just nice to be able to have the other business offsetting that.

Dan: Versus Penang, but Dan any any further comments.

Speaker Change: Yes.

Dan: Agree with those comments Penang was still consistent with last quarter about 180 basis points headwind.

Speaker Change: Headwind.

Speaker Change: <unk>.

Speaker Change: Operating profit this quarter so.

Speaker Change: To Tom's point that utilization.

Speaker Change: Did offset that.

Speaker Change: As what we'd expected.

Speaker Change: But yes, we will continue to have that that headwind and it's just nice to be able to have the other business.

Thomas T. Edman: A follow-up question. I know you guys don't typically guide beyond the quarter, but I wanted to ask about the two areas of the business where I think you have a line of sight, and that's the A&V business and the data center computing business. When you think about Q4, is there any reason that you wouldn't see continued strength in those areas? And on data centers, how much customer concentration is there in that sector?

Speaker Change: Offsetting that.

Jim Ricchiuti: And follow up question. I know you guys don't typically guide beyond the quarter, but I wanted to ask about the two areas of the business where I think you have a line of sight. And that's the day and the business and the data center computing business.

Speaker Change: And a follow up question.

Speaker Change: I know you guys go.

Speaker Change: Typically guide beyond the quarter, but I wanted to ask about the two areas of the business, where I think you have a line of sight and thats the A&D business in the data set.

Tom Edman: As you think about Q4s or any reason, are there that you wouldn't see continued strength in those areas. And, you know, in data centers, how much customer concentration is there in that sector? Thank you. So, sure, sure. The A&D side, as you said, Jim, that's where we have the best visibility, and that program backlog numbers a good indicator of the kind of support out there from a booking standpoint. So, we have, yeah, certainly good confidence in terms of strength and in defense as we go into the Q4 and really into next year's year given the program backlog.

Speaker Change: Computing business as you think about Q4 is there any reason that you wouldn't see continued strength in those areas.

Speaker Change: Data center.

Speaker Change: Customer concentration is there in that sector.

Thomas T. Edman: Thank you. So, sure, sure. The A&D side, as you said, Jim, that's where we have the best visibility, and that program backlog number is a good indicator of the kind of support out there from a booking standpoint. We have, yes, certainly good confidence in terms of strength and defense as we go into Q4 and really into next year, given the program backlog. When it comes to our commercial markets, a little less so, right?

Speaker Change: Thank you so sure sure.

Speaker Change: <unk> side as you said, Jim that's where we have the best visibility in that.

Speaker Change: Program backlog number is a good indicator.

Speaker Change: The kind of support out there from.

Speaker Change: Bookings standpoint, so we.

Speaker Change: Yes, certainly.

Speaker Change: Good confidence in terms of strength in defense as we go into the Q4 and really into next year.

Speaker Change: Given the program backlog.

Thomas T. Edman: We have – we book programs, and I'd say the second most visibility we usually get is out of the auto industry, where we have at least a six-month strong forecast that we're working from, and that's supplemented by purchase orders that are placed within the quarter. Data center computing comes after that, certainly program visibility, but programs do shift around. And so, in that market, as we look into Q4, I think, you know, if you look at the certainly the momentum behind generative AI, that is a strong indicator.

Tom Edman: When it comes to our commercial markets, a little less so, right? We have; we book programs in. I'd say the second most visibility we usually get is out of auto, where we have at least a six-month strong forecast that we're working from. And that's supplemented by purchase orders that are placed within the quarter. Data center computing comes after that. Certainly program visibility, but programs do shift around. And so, in that market, as we look into Q4, I think, you know, if you look at, certainly the momentum behind generative AI, that is a strong indicator for the balance of the year.

Speaker Change: When it comes to our commercial markets.

Speaker Change: A little a little less so right. We have we booked programs and I'd say the second most visibility easily get us out of auto where we have at least a six month strong forecast that we're working from.

Speaker Change: And thats supplemented by purchase orders that are placed within the quarter.

Speaker Change: Data Center computing.

Speaker Change: It comes after that certainly program visibility, but programs do shift around.

Speaker Change: And so.

Speaker Change: And that market as we look into Q4 I think if you look at certainly the momentum behind generative AI.

Speaker Change: That is a strong indicator.

Tom Edman: Certainly, what we hear from our customer base is positive around their expectations. So, you know, I think we remain optimistic in terms of certainly through the course of this year.

Speaker Change: For the balance of the year, certainly what we hear from our customer basis is positive around.

Speaker Change: And their expectations.

So.

Speaker Change: We remain.

Speaker Change: Optimistic in terms of certainly through the course of this year.

Tom Edman: I would just, just to comment on the other end markets, MII networking expected a bit more of an uptick to occur and into three heading into the back half of the year that that hasn't happened to the extent we expected. So, Q4, we'll see certainly inventory situations have improved. That's a positive indicator that will at least be seeing real demand there. So, that's what we're seeing out there in the markets.

Thomas T. Edman: I would just – just to comment on the other end markets, MII networking expected a bit more of an uptick to occur in Q3, heading into the back half of the year. That hasn't happened to the extent we expected. So, Q4, we'll see. Certainly, inventory situations have improved. That's a positive indicator that we'll at least be seeing real demand there. So, that's what we're seeing out

Speaker Change: Just just to comment on the other end markets NII networking.

Speaker Change: A bit more of an uptick to occur in Q3 heading into the end of the back half.

Speaker Change: The year that that hasn't happened to the extent we expected.

Speaker Change: So Q4, we'll see.

Speaker Change: Certainly inventory situations have improve that's a positive indicator that we will at least be seeing real demand.

Speaker Change: There so that's what we're seeing out there in the market.

Tom Edman: So, I'm just customer concentration data center. Has it changed? Oh, yeah, sorry. Thank you. That's okay. Yeah, thank you for the reminder on that. Yeah, the customer concentration does in AI and data center overall remains fairly high. I mean, you really have the hyperscalers and direct, you know, chip folks that are driving that demand.

Thomas T. Edman: Tom, just customer concentration, the data center, has it changed? Oh, yeah, sorry, yeah. That's okay.

Speaker Change: Tom just customer concentration data center hasn't changed yes, it's alright.

Speaker Change: That's okay. Yeah. Thank you for the reminder on that.

Thomas T. Edman: Yeah, the customer concentration in AI and data centers overall remains fairly high. I mean, you really have the hyperscalers and direct chip folks that are driving that demand. So it's a relatively concentrated market, and will remain so. We have seen a better spread there in terms of customers, but you do still have three, four major customers driving the demand there.

Thomas T. Edman: Customer concentration does.

Thomas T. Edman: In AI and data center overall.

Speaker Change: <unk> fairly high I mean, you really have the.

Thomas T. Edman: The hyperscale or is in direct chip.

Thomas T. Edman: Chip.

Tom Edman: So, it's a relatively concentrated market remains. So, we have seen a better spread there in terms of customers, but you do still have three, four major customers driving the demand there.

Thomas T. Edman: <unk> that are driving that demand so.

Thomas T. Edman: So it's a it's a relatively concentrated market remained so we have seen a better spread there in terms of customers, but you do still have three or four major customers driving the demand there.

Operator: Thank you.

Thomas T. Edman: Thank you.

Matt Sharon: And one moment for our next question. And that will come from the line of Matt Sharon. With stifle, your line is open.

Thomas T. Edman: Okay.

Matthew John Sheerin: And one moment for our next question, and that will come from the line of Matt Sheerin with Stiefel. Your line is open.

Speaker Change: And one moment our next question.

Matthew John Sheerin: And that will come from the line of Matt Sheerin with Stifel. Your line is open.

Matt Sharon: Yes, thank you. Question regarding gross margin. You've had two quarters in a row of sequential margin improvement and looks like backing into that for a few three, you're going to have another up quarter. And I know one headwind is the ramping of the production in Penang and it sounds like that might be pushed out a little bit because of the saying qualifications are taking a bit longer. But is that still? I think you said it was 150 basis point headwind to gross margin. So, I'm just trying to figure out how we should think about gross margins heading into key for and next year once this starts to last.

Matthew John Sheerin: Yes, thank you. A question regarding gross margin. You've had two quarters in a row of sequential margin improvement, and it looks like, backing into that for Q3, you're going to have another up quarter. And I know one headwind is the ramping up of production in Penang, and it sounds like that might be pushed out a little bit because you're saying qualifications are taking a bit longer. But is that still, I think you said it was a 150 basis point headwind to gross margin. So I'm just trying to figure out how we should think about gross margins heading into Q4 and next year once this starts to ramp up.

Matthew John Sheerin: Yes. Thank you.

Matthew John Sheerin: A question regarding gross margin.

Speaker Change: <unk> had two quarters in a row of sequential margin improvement and then it looks like backing into that for Q3, youre going to have another up quarter and I know one headwind is the.

Speaker Change: Ramping up the production in Penang and it sounds like that might be pushed out a little bit because of the.

Speaker Change: Were seeing qualifications are taking a bit longer.

Speaker Change: Is that still.

Speaker Change: You said it was 150 basis point headwind to gross margin.

Speaker Change: Just trying to figure out how should we think about gross margins heading into Q4 and next year. Once this starts to ramp.

Matt Sharon: was fully grand.

Speaker Change: Where is fully ramped.

Tom Edman: So, this is Tom. Let me, let me start on the Penang status, and then I'll hand over to Dan to talk about the gross margin. In terms of Penang, yeah, there are a few things going on there. The facility continues to ramp steadily; ramp we will have revenue in the third quarter. What's happened there in terms of the delay, and you're right, that's, you know, we are seeing a delay in terms of our breakeven point. We thought that that would come in in early Q1 next year. We're probably going to see about a two-quarter delay to get to breakeven there.

Thomas T. Edman: So this is Tom. Let me start on the Penang status, and then I'll hand over to Dan to talk about the gross margin. In terms of Penang, yeah, there are a few things going on there. The facility continues to ramp up, steadily ramping up. We will have revenue in the third quarter. What's happened there in terms of the delay, and you're right, we are seeing a delay in terms of our break-even point. We thought that it would come in early Q1 next year.

Speaker Change: So.

Speaker Change: This is Tom let me let me start.

Thomas T. Edman: I mean on the Penang status, and then I'll hand over to Dan to talk about the gross margin in.

Thomas T. Edman: We're probably going to see about a two-quarter delay to get to break-even there. And what is happening is that a couple of things. Our customers' audits are taking longer than expected, particularly the anchor customer audits, and that's just a, you know, that's sort of the outcome of customers now dealing with and seeing a greenfield facility. They're not too familiar with greenfield facilities for high layer count production, and so audit requirements have shifted a bit there. So that's one piece.

Thomas T. Edman: In terms of <unk>, yes.

Speaker Change: Yes, there are a few things going on there.

Dan: The facility continues to ramp steadily ramp we will have revenue in the third quarter. What's happened there in terms of the delay and Youre right.

Dan: We are seeing.

Dan: In terms of.

Dan: Our breakeven point, we thought that that would come in early Q1 next year, we're probably going to see about a two quarter delay to get to breakeven there.

Tom Edman: And what is happening is a couple of things. Our customers' audits are taking longer than expected, particularly the anchor customer audits. And that's just a, you know, that's sort of an outcome of customers now dealing, seeing a greenfield facility. They're not too familiar with greenfield facilities for high layer count production. And so audit requirements have shifted a bit there. So, that's one piece. The other is related to sample qualification and then sample qualification intersection with programs, program ramp. So, always tricky to get that timing right. And so, we're working with our customers to synchronize that timing.

Dan: And what is happening is that.

Scott: Couple of things Scott customers.

Speaker Change: Got it.

Speaker Change: Alright, taking longer than expected, particularly the anchor customer audits.

Speaker Change: And.

Speaker Change: That's just a.

Speaker Change: That's sort of a.

Speaker Change: The outcome of customers now dealing seeing a greenfield facility there not too familiar with greenfield facilities for high layer count production.

Speaker Change: And so audit requirements have shifted.

Speaker Change: A bit there so that's one piece the other.

Thomas T. Edman: The other is related to sample qualification, and then sample qualification intersection with program ramp. So it's always tricky to get that timing right, and so we're working with our customers to synchronize that timing. So that's what's really going on there overall in Penang. Good, steady progress, though, in terms of the facility preparation and ramp. Dan, gross margins? Thanks, Tom.

Speaker Change: Is it related to sample qualification and then sample qualification intersection with programs program ramp.

Speaker Change: Always tricky to get that timing right.

Speaker Change: And.

Speaker Change: And so we're working with our customers to synchronize that timing. So that's what's really going on there.

Dan Bailey: So, that's what's really going on there overall today. Good steady progress, though, in terms of the facility preparation and ramp.

Speaker Change: Overall in Penang, good steady progress, though in terms of the facility preparation and ramp Dan and gross margin.

Dan Bailey: Ben, Gross margin. This or thanks, Tom. You mentioned the headwind from Panag currently at the gross profit margin level. It's about 170 basis points in this period. Going forward in the next quarter, we do start seeing some revenue, so it'll decrease about 160 basis points headwind to gross margin in the third quarter. But yes, we do see still some sequential improvements or at least staying at the level that we're at right now in gross margin in Q3. And that's as we discussed on James' question, increased utilization throughout Asia Pacific on a commercial thought of a business, as well as North America factories have been running at very regularization rates as well.

Dan Bailey: You mentioned the headwind from Penang. Currently, at the gross profit margin level, it's about 170 basis points in this period. Going forward, in the next quarter, we do start seeing some revenue, so it'll decrease to about 160 basis points of headwind to gross margin in the third quarter. But, yes, we do see some sequential improvements, or at least staying at the level that we're at right now in gross margin in Q3.

Thomas T. Edman: Thanks, Tom.

You mentioned the headwind from <unk> currently at the gross profit.

Speaker Change: Margin level, it's about 170 basis points in this period going forward into the next quarter. We do start seeing some revenue. So it will decrease to about 160 basis points headwind to.

Speaker Change: Gross margin in the third quarter, but.

Speaker Change: But yes, we do see still some sequential.

Speaker Change: Improvements or at least staying at the level that we're at right now.

Dan Bailey: And that's, as we discussed in Jim's question, increased utilization throughout Asia Pacific on the commercial side of the business, as well as North America factories have been running at very good utilization rates as well, or lower volume, higher mix. However, we are doing quite well in our North America factories as far as utilization and efficiency rates are concerned, which is more than offsetting the Panama headwind right now.

Speaker Change: Gross margin in Q3, and as we discussed.

Speaker Change: James question increased utilization throughout Asia Pacific on the commercial side of the business as well as North America factories have been running at very good utilization rates as well.

Dan Bailey: As Tom mentioned in his prepared remarks, the way that we measure realization in North America is not as meaningful as it is in Asia Pacific because its lower mix or lower volume, higher mix. However, we are doing quite well in our North America factories as far as utilization and efficiency rates. So that's more than offsetting the panagma headwind right now.

Speaker Change: As Tom mentioned in his prepared remarks.

Thomas T. Edman: The way that we measure utilization North America is not as.

Thomas T. Edman: Meaningful as it is a major Pacific because it's.

Thomas T. Edman: Lower mix.

Speaker Change: Our lower volume higher mix. However, we are doing.

Speaker Change: We are doing quite well.

Thomas T. Edman: North America factors as far as utilization and efficiency rates.

Thomas T. Edman: So.

Thomas T. Edman: That's more than offsetting opening.

Dan Bailey: Got it. Okay. All right. Thanks for that.

Speaker Change: Right now.

Matt Sharon: Got it. Okay. All right. Thanks for that.

Speaker Change: Got it okay, alright, thanks for that and then.

Matt Sharon: And then another question on data center. One, in terms of visibility there, I know some of the EMS players in that space say they have about six months of visibility, but beyond that is tough. And I know you have multiple customers.

Speaker Change: Other question on the.

Speaker Change: Data center.

Speaker Change: One.

Thomas T. Edman: And then another question on the data center. One, in terms of visibility there, I know some of the EMS players in that space say they have about six months of visibility, but beyond that, it's tough. I know you have multiple customers, so I'd love to get your take there because we've had several strong quarters, or are we going to be entering sort of a digestion period at some point? And then second, if you could talk about the competitive landscape. I know there are just a handful of players with the global ability to do big volumes of PCBs for customers. Just wondering if you could maybe give us a little bit more color on that competitive environment. Sure.

Speaker Change: Yes.

Speaker Change: Terms of visibility there I know some of the EMS players in that space say, they have about six months of visibility, but beyond that it's tough and I know you have multiple customers. So would love to get your take there because we've had several strong quarters are we going to be entering sort of a digestion period at some point.

Matt Sharon: So love to get your take there because we've had several strong quarters, or are we going to be entering sort of a digestion period at some point. And then second, if you could talk about the competitive landscape, I know there are just a handful of players with the global abilities to do the volume PCBs for customers. I'm just wondering if you can maybe give us a little bit more color on that competitive environment. Thanks. Sure. So, yeah, on data center, what we're seeing right now, and as you know, we have, when we talk about data center computing, it really is semi-conductor demand and data center demand. But what we're seeing right now, driven by gender VI, is the data center demand, which you know, historically has been about 60 percent or so of that demand. Right now, it is upwards of 87 percent.

Speaker Change: Then second if you could talk about the competitive landscape I know there are just a handful of players with a global abilities to do big volume piece.

Speaker Change: Pcbs for customers.

Speaker Change: Just wondering if you can maybe give us a little bit more color on that competitive environment. Thanks.

Thomas T. Edman: Sure. So, yeah, on data centers, what we're seeing right now, and as you know, when we talk about data center computing, it really is semiconductor demand and data center demand, but what we're seeing right now, driven by generative AI, is data center demand, which, you know, historically has been about 60% or so of that demand. Right now, it is upwards of 87%, so we really are seeing momentum there on the generative AI side. I think your comment about visibility is very good, Matt.

Speaker Change: Sure.

Speaker Change: So.

Speaker Change: On data center.

Speaker Change: What we're seeing right now and as you know we have when we talk about data center computing it really is.

Speaker Change: Semiconductor demand and data center demand, but what we're seeing right now driven by generative AI as the data center demand, which historically has been about 60% or so of that demand.

Speaker Change: Right now as upwards of 87% so.

Tom Edman: So, we really are seeing momentum there on the gender of AI site. I think your comment about visibility is very good, Matt. That's approximately what we see as well as that, you know, we can look into Q4, what we're hearing from EMS partners as well as from the OEM.

Speaker Change: So we really are seeing.

Speaker Change: The momentum there.

Speaker Change: On the generative AI side.

Speaker Change: I think your comment about visibility is very good.

Thomas T. Edman: That's approximately what we see, as well as that, you know; we can look into Q4. What we're hearing from EMS partners, as well as from the OEM, so a similar kind of visibility into the six months. Hard to say when and if there will be a digestion period there.

Speaker Change: That's approximately what we see as well is that.

Speaker Change: We can we can look into Q4, what we're hearing from EMS partners as well as from the OEM. So.

Tom Edman: So, similar kind of visibility into the six months; hard to say when and if there'll be a digestive period. There, right now, it's still a really nice demand environment.

Speaker Change: <unk> kind of visibility into the six months hard to say.

Thomas T. Edman: Right now, it's still, you know, a really nice demand environment. In terms of competition, there are not a lot of changes. We're still seeing major competition out of Taiwan and Korea. You know, a few of the players there, Wu's Gold Circuits out of Taiwan, Unimicron out of Taiwan, and then in Korea, Yisoo continues to be a competitor in Korea. So those are just some representative names of folks that have the same kind of high layer count and HDI position that we have in the marketplace.

Speaker Change: When and if there'll be a digestive.

Speaker Change: Period there.

Speaker Change: Now it's still.

Speaker Change: Really nice demand environment.

Tom Edman: In terms of competition, not a lot of changes. We're still seeing major competition out of Taiwan and Korea. You know, a few of the players there, Wu's, Gold circuits out of Taiwan, Yuna Micron out of Taiwan, and then in Korea, EZU continues to be a competitor out of Korea. So, those are just some representative names of folks that have the same kind of high layer count and HCI position that we have in the marketplace.

Speaker Change: In terms of competition.

Speaker Change: Not a lot of changes, we're still seeing major competition out of Taiwan and Korea.

Speaker Change: A few of the players there.

Speaker Change: <unk>.

Speaker Change: Gold circuits.

Speaker Change: At a Taiwan unit micron out of Taiwan.

Speaker Change: And then in Korea.

Speaker Change: <unk>.

Speaker Change: Continues to be a competitor out of Korea.

Speaker Change: So those are just some representative names of folks that have the same kind of high layer count.

Speaker Change: And the hei position that we have in the marketplace.

Matt Sharon: Okay, thank you. Thank you.

Speaker Change: Okay. Thank you.

Thomas T. Edman: Thank you. One moment for our next question, and that will come from the line of Mike Crawford with B-Rally Securities. Your line is open.

Speaker Change: Thank you.

Mike Crawford: One moment for our next question. And that will come from the line of Mike Crawford with the Riley Securities.

Speaker Change: Thank you one moment our next question.

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

Mike Crawford: Your line is open. Thank you.

Michael Roy Crawford: Now, correct me if I'm wrong, but I believe most of that data center business now is coming out of China, and you don't necessarily expect much of that to move to Penang, or is that something that could drive further growth in Penang from what you initially envisioned with that facility? Yeah. So, a slight distinction there, Mike.

Tom Edman: Now, could you, if I'm wrong, but I believe most of that data center business now is coming out of China, and you don't necessarily expect much of that to move to Penang, or is that something that could drive further growth in Penang from what you initially envisioned with that facility? Yeah, so slight distinction there. Mike, yeah, so you're right. The AI, generative AI demand, which really looks at a higher layer count demand. That remains out of our China, principal China facility in Dongguan, where we have been cross-qualifying another facility in China, or Guangzhou facility as well.

Michael Roy Crawford: Thank you know correct me, if I'm wrong, but I believe most of that data center business now is coming out of China, and you don't necessarily expect much of that to move to Penang or or is that something that could drive further growth in Penang from what you initially envisioned with that facility.

Thomas T. Edman: Yeah. So, you're right. The AI, generative AI demand, which really looks at higher layer count demand, that remains out of our China principal facility in Dongguan, where we have been cross-qualifying another facility in China, our Guangzhou facility as well. When it comes to Penang, particularly in the first stages of ramp, the primary customer demand will be coming out of data center computing, but it will be more of the traditional data center requirements.

Speaker Change: Yes so.

Speaker Change: Slight distinction there Mike yes.

Speaker Change: Youre right.

Speaker Change: The AI generative AI demand, which.

Speaker Change: Really looks at at higher layer count.

Speaker Change: Demand that remains out of our China principal China facility.

Speaker Change: One where we have been cross qualifying another facility in China are Guangzhou facility as well.

Tom Edman: When it comes to Penang, particularly in the first stages of RAMP, the primary customer demand will be coming out of data center computing, but it'll be more of the traditional data center requirements. So, you'll be looking at layer counts in the 16 to 18 kind of layer count as the sweet spot that tends towards what we think of as more standard technology versus the advanced technology that's required for the generative AI applications. So, at least in this initial stage, that's going to be the case.

Speaker Change: When it comes to <unk>, particularly in the first stages of ramp.

Speaker Change: Right.

Speaker Change: The customers primary customer.

Speaker Change: <unk> will be coming out of data center computing, but it'll be more of a traditional data center requirements. So you'll be looking at layer counts in the 16 to 18.

Thomas T. Edman: So, you'll be looking at layer counts in the 16 to 18 kind of layer count as the sweet spot. That tends towards what we think of as more standard technology versus the advanced technology that's required for generative AI applications. So, at least in this initial stage, that's going to be the case. Of course, as we look longer term at the Penang facility, and particularly as we get into phase two expansion plans, we'll be planning to continue that plating capacity there that would allow efficient production of that higher layer count and HDI production as well.

Speaker Change: Kind of layer count is the sweet spot.

Speaker Change: That tends towards what we think of as.

Speaker Change: As more standard technology versus the advanced technology, that's required for degenerative AI applications.

Speaker Change: So at least in this initial stage that's going to be the case of course, as we look longer term at the Penang facility and particularly as we get into phase two.

Mike Crawford: Of course, as we look longer term at the Penang facility, and particularly as we get into phase two expansion plans, we'll be planning to continue that clating capacity there that would allow efficient production of that higher layer count and HDI production as well. Okay, thank you.

Speaker Change: Spansion.

Speaker Change: Plans will be planning to continue to add <unk> capacity, there that would allow.

Speaker Change: Efficient production of that higher layer count.

Speaker Change: HDI production as well.

Thomas T. Edman: Okay, thank you. And then just changing gears, I know that last year, at least for the first three quarters, you had extremely high automotive program, lifetime value wins, slowed down a little bit in Q4, really slow in March, and that overall vertical does not seem to have improved very much. Does that still remain weak? And what was the win number in Q2?

Speaker Change: Okay. Thank you and then just shifting gears I know that.

Mike Crawford: And then just shipping gears. I know that last year, at least for the first three quarters, you had extremely high automotive program, lifetime value wins, flow down a little bit before, really slow in March.

Speaker Change: Last year at least for the first three quarters, you had extremely high automotive program lifetime value wins slowed down a little bit in Q4 really slow in March.

Mike Crawford: And that overall vertical does not seem to have improved very much. Does that still remain weak, and what was the win number in 2Q? Sure. Yeah, so our win number did improve. We were up to about $61 million in this most recent quarter. That compares to about $95 million last year. So we are seeing a lower program win number there. And what's really happening is the customers are not releasing programs. And much of this is related to the shift that we're seeing in that market from EV and a strong emphasis in terms of programs being let for EV.

Speaker Change: And but.

Speaker Change: Overall vertical does not seem to have improved very much is that still remain weak and what what.

Speaker Change: What was the win number in <unk>.

Thomas T. Edman: Sure. Yeah, so our wind number did improve. We were up to about $61 million in this most recent quarter. That compares to about $95 million last year. And so we are seeing a lower number of program wins there, and what's really happening is the customers are not releasing programs. And much of this is related to the shift that we're seeing in that market from EV and a strong emphasis in terms of programs being offered for EV, and now customers recalibrating as they're starting to see more demand for traditional internal combustion engines, less demand than expected, and less demand growth than expected coming out of EV.

Speaker Change: Sure, Yes, so our win number did improve we were.

Speaker Change: We're up to about $61 million.

Speaker Change: And this most recent quarter.

Speaker Change: That compares to about $95 million last year.

Speaker Change: So we are seeing low lower program win number there and what's really happening is the customers are not leasing programs and much of this is related to the shift that we're seeing in the market from EV.

And a strong emphasis in terms of programs being let for EV.

Tom Edman: And now customers recalibrating as they're starting to see more demand for traditional internal combustion engine, less demand than expected, less demand growth than expected coming out of EV. And so they're looking at their own portfolios, their own designs, and sort of taking a step back to re-evaluate as they look at what designs to go forward with. So that's what's been going on there.

Speaker Change: And now customers Recalibrating as they are starting to see more demand for traditional internal combustion engine.

Speaker Change: Less demand than expected less demand growth than expected.

Speaker Change: Moving out of EV.

Thomas T. Edman: And so they're looking at their own portfolios, their own designs, and sort of taking a step back to re-evaluate as they look at what designs to go forward with. So that's what's been going on there. Mike, I think you're right to call it out as a relatively weak environment in terms of program release.

Speaker Change: And so they're looking at their own portfolios their own designs.

Speaker Change: And sort of taking a step back to reevaluate.

Speaker Change: As they as they look at what designs to go forward with so.

Speaker Change: That's what's been going on there.

Mike Crawford: Mike, I think you're right to call it out as a relatively weak environment in terms of program release. Okay.

Michael Roy Crawford: And Mike I think youre right to call it out as a relatively weak environment in terms of program Elyse.

Thomas T. Edman: Okay, thank you. And then final questions on capital allocation. So, you're below targeted leverage, you have 41 million remaining on your buyback, you have, you know, these investments in Malaysia and Syracuse, yet still excess capital deployed. So what are the priorities with that excess? Sure, we'll continue to look at the share buyback. As you mentioned, we have 41 million remaining there.

Mike Crawford: Thank you. And then final questions on capital allocation. So your below target leverage, you have 41 million remaining on your buyback. You have, you know, these investments in Malaysia and Syracuse, yet still excess capital deploy.

Speaker Change: Okay. Thank you and then final questions on capital allocation so yes.

Speaker Change: Youre below targeted leverage at $41 million remaining on your buyback you have.

Speaker Change: These investments in Malaysia in Syracuse, yet still excess capital deploy so what are the priorities with without excess.

Tom Edman: So what are the priorities with the dot access? Sure. We'll continue to look at the share buyback. As you mentioned, we have 41 million remaining in there. We did do quite a bit of buyback in Q2 to offset the tuition from our insider bestings of stock. And then we'll continue as well, always looking at the market at opportunities for M&A, as well as whether there's an opportunity to buy back some of our debt. Now, we did just, as I mentioned in my prepared remarks, we are hoping to close tomorrow on a repricing to decrease the interest expense on that current debt.

Thomas T. Edman: We did quite a bit of buyback in Q2 to offset the dilution from our insider guesstimates of stock. And then we'll continue, as well, always looking at market opportunities for M&A, as well as whether there's an opportunity to buy back some of our debt. Now we did just, as I mentioned in my prepared remarks, we are hoping to close on a repricing to decrease the interest expense on that current debt.

Speaker Change: Sure we will continue to.

Speaker Change: Look at the share buyback as you mentioned, we have $41 million remaining there we did do quite a bit of buyback in Q2.

Speaker Change: Offset the dilution from our insider.

Speaker Change: <unk> stock and then we will continue as well always looking at the market opportunities for M&A.

Speaker Change: As well as whether there is.

Speaker Change: An opportunity to buy back some of our debt that we did just.

Speaker Change: As I mentioned in my prepared remarks, we are hoping to close tomorrow on a repricing to decrease the interest.

Speaker Change: <unk> on that current debt.

Tom Edman: As you've mentioned before, there's a benefit to potentially paying that down. But that's not a priority. As you mentioned, we're at the low end of our leverage range. So really, we're keeping the powder dry for potential, you know, if there's an opportunity in the M&A market, we're continuing to look at that opportunistically.

Thomas T. Edman: As you've mentioned before, there is some benefit to potentially paying that down, but that's not a priority. You know, as you mentioned, we're at the low end of our leverage range. So really, we're keeping the powder dry for potential, you know, if there's an opportunity in the M&A market, we're continuing to look at that opportunistically.

Speaker Change: As you've mentioned before.

Speaker Change: Some benefit to potentially paying that down, but that's not that's not a priority as you mentioned, we're at the low end of our leverage range. So really were.

Speaker Change: Keeping the powder dry for a potential.

Speaker Change: If theres an opportunity in the M&A market.

Speaker Change: Continuing to look at that Opportunistically.

Mike Crawford: Great. Thank you very much.

Speaker Change: Great. Thank you very much.

Operator: Thank you. One moment for our next question.

Operator: Thank you. Thank you. One moment for our next question, and that will come from the line of William Stein with CHOICE Security.

Speaker Change: Thank you.

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

William Stein: and that will come from the line of William Stein with true securities. Great, thanks.

Speaker Change: And that will come from the line of William Stein with Jewish Securities.

William Stein: Great. Thanks, Tom. Can you hear me? Sure can, Will.

William Stein: Tom, can you hear me? Sure, Ken, well. Thanks for taking my question.

William Stein: Great. Thanks can you hear me.

Ken: Sure Ken well.

William Stein: Thanks for taking my question. I thought it might be appropriate to take a second and recognize what a great job you guys did in the quarter. It was a very good result, both revenue and margin, and we deserve some recognition for that. I wanted to ask you about two topics. First, can you remind us of the names of the end markets that are ramping there and whether I still sort of have a vague memory of whether or not this is revenue that's going to transition from another ge that you already have or whether this is more going to be new incremental revenue. Can you refresh my memory on that, please?

William Stein: I thought it might be proper to take a second and recognize my great job. You guys made the core. It was a very good, very good result, both with revenue and margin in this and would deserve some recognition to that.

William Stein: Thanks for taking my question.

Speaker Change: It might be appropriate to take a second and recognize what a great job you guys during the quarter.

Speaker Change: Very good.

Speaker Change: Alright, Good result, both revenue and margins.

Speaker Change: And we deserve some rare conditions.

William Stein: I wanted to ask about two topics. First, can you remind us what can name which end markets are ramping there and whether it's still sort of a vague memory of whether or not this is revenue that's going to transition from another geo that you already have or whether this is more going to be new incremental revenue. Can you refresh my memory on that, please? Sure, Ken, well. And thank you. Thank you for your comment. So when it comes to Penang, our anchor customers there come from, as I mentioned earlier, data center computing. That's one critical end market.

Speaker Change: I wanted to ask about.

Speaker Change: Two topics first can you remind us what you mean.

Speaker Change: Which end markets are ramping there.

Speaker Change: They're still serves as a great memory.

Speaker Change: Whether this is.

Speaker Change: Revenue, that's going to transition from another Geo that you already have whether this is more going to be new incremental revenue can you refresh my memory on that please.

Thomas T. Edman: Sure, Will. And thank you. Thank you for your comment. So when it comes to Penang, our anchor customers there come from, as I mentioned earlier, data center computing. That's one critical end market. The other is medical industrial instrumentation and really the industrial and instrumentation space. And so that's where the end market mix is predominantly coming from. And again, that 16 to 18 layer sweet spot in terms of layer count.

Speaker Change: Sure Ken well.

Speaker Change: And thank you.

Ken: For your comment.

Ken: So when it comes to Penang.

Ken: Our anchor customers there.

Ken: Come from as I mentioned earlier data center computing.

Tom Edman: The other is medical industrial instrumentation and really the industrial and instrumentation space. And so that's where the end market mix is predominantly coming from. And again, that's 16 to 18 layer sweet spot in terms of layer count. From a geographic standpoint, in the first phase, looking at approximately 20% coming out of China, that standard technology that we would be moving out of our predominantly the facility that is extremely busy right now with, with higher layer count requirements for generative AI. So that's been the plan. Will is about 20% coming out of China on the balance in new programs. And it's that balance where you really need to, you know, you have a number of programs that are starting up.

Ken: That's one critical end market the other is <unk>.

Ken: Medical industrial instrumentation, and really the industrial and instrumentation space.

Ken: And.

Ken: So that's that's where the end market mix is predominantly coming from and again that 16 to 18 layer sweet spot in terms of of layer count.

Thomas T. Edman: From a geographic standpoint, in the first phase, looking at approximately 20% coming out of China, that's standard technology that we would be moving out of our, predominantly the facility that is extremely busy right now with higher layer count requirements for generative AI. So that's been the plan, Will, about 20% coming out of China and the balance in new programs. And it's that balance where you really need to, you know, you have a number of programs that are starting up.

Ken: From a geographic standpoint.

Ken: In the first phase.

Ken: Looking at approximately 20%.

Ken: Coming out of China that standard technology.

That that we would be moving up.

Ken: Out of our.

Ken: Predominantly that facility that is extremely busy right now.

Ken: With higher layer count requirements regenerative AI.

Ken: So.

Ken: That's been the plan.

Speaker Change #100: Well, it's about about 20% coming out of China and the balance in <unk>.

Speaker Change #100: New programs.

Speaker Change #100: And it's that it's that balance where you really need to.

Speaker Change #100: You had a number of programs that are starting up.

Tom Edman: Customers need to make sure that the intersection between our approval for a program and the program ramp makes sure that that timing works. And so it's getting, you know, that's a very delicate situation for our customers and trying to make sure that they can, they can get the forecast right for these programs as they ramp. And so a little bit of a moving target there, but, but again, a lot of really good cooperation with our customers as we look at programs. Tom, 80% that's new that's worked lingering on for a moment. Is that new in the sense of new customers or new programs that you never had, or should we instead be more conservative when we think about modeling and think, well, this is new, but just placing something that you had in the past with a new program version, but maybe something that you're already building, or is this truly new, like gross revenue to you?

Thomas T. Edman: Customers need to make sure that the intersection between our approval for a program and the program ramp makes sure that that timing works. And so it's becoming, you know, that's a very delicate situation for our customers in trying to make sure that they can get the forecast right for these programs as they ramp. And so, a little bit of a moving target there, but again, a lot of really good cooperation with our customers as we look at programs.

Speaker Change #100: Customers need to make sure that the intersection between our approval.

Speaker Change #100: For our program and the program ramp nature of it that timing.

Speaker Change #100: Works.

Speaker Change #100: And so.

Speaker Change #100: It's getting.

Speaker Change #100: That's a very delicate.

Speaker Change #100: Situation for our customers and trying to make sure that they can they can get.

Speaker Change #100: The forecast right.

Speaker Change #100: These programs as they ramp and so.

Speaker Change #100: Little bit of a moving target there but.

Speaker Change #100: But again a lot of really good cooperation with our customers as we look at.

Speaker Change #100: AD programs.

Thomas T. Edman: But Tom, the 80% that's new, that's worth lingering on for a moment. Is that new in the sense of new customers or new programs that you never had, or should we instead be more conservative when we think about modeling and think, well, this is new, but it's displacing something that you had in the past, like a new program version, but maybe something that you're already building, or is this truly new growth revenue for you?

Speaker Change #100: The 80% that's new that's worth linger on for a moment.

Speaker Change #100: New initiatives, new customers or new programs that you've ever had.

Speaker Change #101: Should we be more conservative when we think about modeling and think well this is new but displacing something.

Speaker Change #100: Okay.

Im version, but maybe something you're already building or is this truly new.

Rajiv: Thanks Rajiv.

Tom Edman: The bulk of that 80% is new program positioning coming from our customers. And they are, these are existing customers. And what's happening there will is, in agreement, particularly again with our anchor customers, we didn't do much standard technology, if you will, in China. So this is for us a market share gain opportunity as they look at standard technology requirements and looking at non-China sourcing for those. So that's where that 80% is coming from.

Thomas T. Edman: The bulk of that 80% is new program positioning, you know, coming from our customers, and they are these are existing customers. And what's happening there, Will, is in agreement, particularly, again, with our anchor customers. We didn't do much standard technology, if you will, in China. So this is, for us, a market share gain opportunity as they look at standard technology requirements and look at non-China sourcing for those. So that's where that 80% is coming from.

Speaker Change #103: The bulk of that 80% is new program.

Speaker Change #103: Positioning.

Speaker Change #103: From our customers.

Speaker Change #103: And they are.

Speaker Change #104: These are existing customers.

Speaker Change #104: And what's happening there is.

Speaker Change #104: And agreement, particularly again with our anchor customers.

Speaker Change #104: We didn't do much standard technology, if you will.

Speaker Change #104: In China. So this is for us a market share gain opportunity.

Speaker Change #104: As they look at AD standard technology requirements.

Speaker Change #104: Looking at non China sourcing for those.

So that's where that that 80% is coming from we are working by the way on new customers as well.

Thomas T. Edman: We are working, by the way, on new customers as well. And so I don't want to neglect that. But in terms of the base business plan and as it's associated with anchor customers, it's predominantly that standard technology opportunity and really, you know, a market share gain opportunity for TTM.

Tom Edman: We are working, by the way, on new customers as well, and so I don't want to neglect that. But in terms of the base business plan, and as it associated with anchor customers, it's predominantly that standard technology opportunity and really a market share gain opportunity for TQ.

Speaker Change #104: And so.

Speaker Change #104: I don't want to neglect that but in terms of the base business plan.

Speaker Change #104: And is it associated ASIC associated with anchor customers, it's predominantly that standard technology opportunity and really are.

Market share gain opportunity for TTM.

Thomas T. Edman: Right, and one other topic we'd like to hit on from the past. The airspace influence business has been challenged by supply chain issues, labor shortages in, I think, upstate New York, or if I recall, you know, maybe supply shortages from semis. There have been a bunch of challenges. Can you remind me where we are in terms of addressing those? Sure.

William Stein: Right, and one other topic we'd like to hit on in the past, the air space influence business has been challenged by supply chain issues, labor shortages, and I think I've seen New York, if I recall, you know, maybe supply shortages from 70s. There've been a bunch of challenges.

Speaker Change #105: Great and one other topic I would like to hit on costs.

Speaker Change #105: The aerospace and defense business has been challenged by.

Speaker Change #105: Supply chain issues.

Speaker Change #105: Labor shortages, I think upstate New York as I recall.

Speaker Change #105: <unk>.

Maybe supply shortages from Sydney There've been a bunch of challenges can you remind me where we are in terms of addressing those.

Tom Edman: Can you mind me where we are in terms of addressing this? Sure. You are absolutely right. If you step back to, let's just say early last year, we were in the midst of some tremendous supply chain challenges over 20 million in terms of revenue impact from those supply chain challenges to TTM. And causing real customer pain. And that, you know, that was a real critical area of focus for us. We stood up a supply chain organization for our non-PCB area, what we call Integrated Electronics. That was a critical step for us. It's a different supply chain entirely from the printed circuit board area. Really helped those folks have been tremendous working with our vendors.

Thomas T. Edman: Sure. You are absolutely right. If you step back to, let's just say, early last year, we were in the midst of some tremendous supply chain challenges, over $20 million in terms of revenue impact from those supply chain challenges to TTM and causing real customer pain. And that, you know, that was a real critical area of focus for us. We set up a supply chain organization for our non-PCB area, what we call integrated electronics. That was a critical step for us. It's a different supply chain entirely from the printed circuit board area. It really helped.

Speaker Change #105: Sure.

Speaker Change #105: You are absolutely right. If you if you step back to let's just say early last year, we were.

Speaker Change #106: We're in the midst of some tremendous supply chain challenges.

Speaker Change #105: Challenges.

Speaker Change #105: Over over $20 million in terms of revenue impact.

Speaker Change #105: From those supply chain challenges to TTM, and causing real customer pain in that.

That was a that was a real critical area of focus for US we stood up a.

Speaker Change #105: Our supply chain organization for our non PCB.

Speaker Change #105: Area, what we call integrated electronics that was a critical step for us it's a different supply chain entirely from from the printed circuit Board area.

Thomas T. Edman: Those folks have been tremendous in working with our vendors. We've also seen, of course, an overall improvement in the supply chain. So we're, our most recent quarter, we still have issues, but we're down to about $5 million. And our most recent prior quarter, Q1, we were at about $8 million, to give you a feel for that.

Speaker Change #105: Really helped those folks have been tremendous working with our vendors. We've also seen of course, an overall improvement in the supply chain. So we're <unk>.

Tom Edman: We've also seen, of course, an overall improvement in the supply chain. So we're most recent quarter, we still have issues, but we're down through about five million. And our most on a prior quarter, Q1, we were at about 8 million to give you a feel for that. So good improvement there. We're still, like everyone, challenged by labor shortages. And that's particularly when we look at incremental labor, not a huge issue. We're able to source labor; it takes a little while, but we're able to source labor. When we're ramping, that's a bit more of a challenge.

Speaker Change #105: Most recent quarter, we still have issues, but we're down to about $5 million.

Speaker Change #107: And our most prior quarter Q1, we were at about $8 million to give you a feel for that so good improvement there.

Thomas T. Edman: So, good improvement there. But we're still, like everyone, challenged by labor shortages. And that's particularly when we look at incremental labor, not a huge issue. We're able to source labor. It takes a little while, but we're able to source labor. When we're ramping up, that's a bit more of a challenge. And if you think about these receiving facilities from our shutdowns last year, as we're bringing labor now into those receiving facilities, that's been more of a challenge with facilities that are ramping up.

Speaker Change #107: We're still like.

Speaker Change #107: Everyone.

Speaker Change #107: Challenged by Labor.

Speaker Change #107: Shortages and Thats, particularly when we look at incremental labor not not a huge issue we're able to source labor. It takes it takes a little while but we are able to source labor when we when we're ramping.

Speaker Change #107: That's a bit more of a challenge and if.

Tom Edman: And if you think about these receiving facilities from our shutdowns, last year we're bringing labor now into those receiving facilities. That's been more of a challenge with facilities that are ramping. So still being in progress there. But when you're looking at hiring of, let's just say, more than 20 operators in a facility, that's when it takes a little bit more time than I'd like to see. But we are making progress there, and supply chain, certainly still, still an area of focus, but good solid improvements.

Speaker Change #107: If you think about these receiving facilities.

Speaker Change #107: From our shutdowns.

Speaker Change #107: Last year, as we're bringing labor now into those receiving facilities.

Speaker Change #107: That's that's been more of a.

Speaker Change #107: The challenge with facilities that are ramping.

Speaker Change #107: No.

Thomas T. Edman: So, still making progress there. But when you're looking at hiring, let's just say, more than 20 operators in a facility, that's when it takes a little bit more time than I'd like to see. But we are making progress there. And supply chain, certainly, still an area of focus, but good, solid improvement.

Speaker Change #107: Still still making progress there.

Speaker Change #107: But.

Speaker Change #107: When youre looking at hiring of let's just say more than 20.

Speaker Change #107: Operators in a facility that's one.

Speaker Change #107: It takes it takes a little bit more time than I would like to see but we are making progress there.

Speaker Change #107: And supply chain, certainly still still an area of focus but good solid improvements.

Operator: Great, thank you. Thank you.

Speaker Change #108: Great. Thank you.

Speaker Change #108: Thank you.

Thomas T. Edman: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Tom Edman for any closing remarks.

Operator: I'm showing no further questions in the queue at this time.

Speaker Change #109: Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Tom Edman for any closing remarks.

Tom Edman: I would now like to turn the call back over to Mr. Tom and men for any closing remarks. Sure thing. Yeah, I just wanted to thank everyone again for joining the call.

Thomas T. Edman: Sure thing. Yeah, I just wanted to thank everyone again for joining the call. I wanted to summarize a few of the critical points that we made. First, we delivered non-GAAP EPS and revenues above the guided range. We had solid growth and improved operational performance on a year-on-year basis. We generated a healthy cash flow from operations of $41.9 million. We continued to repurchase stock and maintain a solid balance sheet with a net debt-to-EBITDA ratio of 1.4, which is below our target range.

Thomas T. Edman: Sure thing, yes, I just wanted to thank everyone again for joining the call I wanted to summarize a few of the critical points that we made.

Thomas T. Edman: Finally, we refinanced our term loan, resulting... and that will close, as Dan mentioned, hopefully in the next few days, and will result in a lower interest rate expense for the company going forward. In closing, I would really like to thank our employees for their significant efforts in the quarter. I also want to thank our customers, and certainly all of you, our investors, for supporting TTM. Thank you very much for joining this call.

Tom Edman: I wanted to summarize a few of the critical points that we made. First, we delivered non-GAAP EPS and revenues above the guided range. We had solid growth and improved operational performance on a year-on-year basis. We generated healthy cash flow from operations of 41.9 million. We continued to re-purchase stock and maintain a solid balance sheet with a net debt to EBITDA ratio of 1.4. It is below our target range.

Thomas T. Edman: First we delivered non-GAAP EPS and revenues above the guided range, we had solid growth and improved operational performance on a year on year basis.

Thomas T. Edman: We generated healthy cash flow from operations of $41 9 million.

Thomas T. Edman: <unk> continued to repurchase stock and maintain a solid balance sheet with a net debt to EBITDA ratio of one four.

Thomas T. Edman: This is below our target range finally, we refinanced our term loan resulting in that will close as Dan mentioned.

Dan Bailey: Finally, we refinanced our term loan, resulting, and that will close, as Dan mentioned, hopefully in the next few days. And will result in a lower interest rate expense for the company going forward.

Speaker Change #110: Hopefully in the next few days.

Dan: And will result in a lower interest rate.

Speaker Change #111: <unk> expense for the company going forward.

Tom Edman: In closing, I would really like to thank our employees, significant efforts in the quarter there. I also want to thank our customers, and certainly all of you, our investors, for supporting TTM. Thank you very much for joining this call. Goodbye.

Speaker Change #112: In closing I would really like to thank our employees our significant efforts in the quarter. There I also want to thank our customers and certainly all of you our investors for supporting TTM.

Speaker Change #114: <unk> you very much for joining this call.

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

Speaker Change #112: Hi.

Speaker Change #113: This concludes today's program. Thank you all for participating you may now disconnect.

Speaker Change #113: Okay.

Speaker Change #113: [music].

Q2 2024 TTM Technologies Inc Earnings Call

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