Good day and welcome to the TTM Technologies Inc. Q3 Earnings Conference Call. At this time, I would like to turn the conference over to Sameer Desai, Senior Director of Investor Relations. Please go ahead sir.

Thank you. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to TTM’s future business outlook. Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties, including the factors explained in our most recent Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. These forward-looking statements are based on management's expectations and assumptions as of the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether as a result of new information, future events or other circumstances, except as required by law. Please refer to the full disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S-4 and the company's other SEC filings. We will also be discussing on this call certain non-GAAP financial measures, such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP and we direct you to the reconciliation of non-GAAP and GAAP measures included in the company's press release, which was filed with the SEC and is available on TTM's website at www.ttm.com. I would now like to turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead, Tom.

Thank you, Sameer. Good afternoon and thank you for joining us for our third quarter 2016 conference call. I'll begin with a few highlights and a review of our business. Todd Schull, our CFO, will follow with a discussion of our financial performance for the quarter. We will then open the call to your questions. TTM delivered strong results in the third quarter. Revenue came in at $641.7 million and was within prior guidance. Non-GAAP earnings per share came in at $0.39 per diluted share and was well above the First Call consensus by $0.07 and above the top end of our guidance. Our diversified revenue mix continues to yield benefits as significant improvements in cellular phone end market offset modest sequential declines in the networking and communications and medical industrial and instrumentation end market. In addition, the aerospace and defense end market achieved another record high for quarterly revenues. I am particularly pleased to highlight our strong operational execution, which drove better than expected non-GAAP EPS during the quarter. As evidence of our improved operating efficiency and synergy realization our $0.29 EPS in the quarter was significantly better than the $0.24 EPS in Q3 last year on revenue that was 2% lower. Also at September, just after our quarter-end we re-priced our term loan B and repaid $66 million of principal on our debt, in line with our focus on deleveraging our balance sheet. This now brings the total debt principal repayments in 2016 to $172.5 million and combined with the re-pricing of our debt will save us $10 million in annual cash interest expenses. Finally on October 5, we announced that we are welcoming Julie England to our Board of Directors. Ms. England retired from Texas Instruments in 2009 following a 30-year career in which her most recent…

Thanks, Tom, and good afternoon, everybody. We had a terrific quarter in Q3. Let me just summarize the key financial highlights. Revenue in the quarter was $641.7 million, up $40 million sequentially. Non-GAAP EPS was $0.39 in the quarter. This was above the midpoint of guidance by $0.07 and a $0.15 improvement from Q3 last year. The year-over-year improvement reflects the benefits of our diversification and synergy initiatives, as we were able to offset the negative impacts of lower revenue in our networking and communications end market with growth in automotive, aerospace and defense and cellular end markets. We achieved the non-GAAP operating margin of 9.5% an improvement from 6.9% operating margin in Q3 one year ago and the highest level for any quarter since 2011. We generated $102 million of adjusted EBITDA compared to $87.6 million a year ago. This is a record for TTM. Adjusted cash flow from operations during the third quarter was $102.7 million versus $21.3 million a year ago. Finally, on the first day of our fourth quarter, we successfully re-priced our term loan B reducing the interest rate 75 basis points, LIBOR plus 4.25 with a 1% LIBOR floor and we repaid $66 million of principal. In addition, we increased the availability of our revolving U.S. asset base loan from $150 million to $200 million and decreased the interest rate by 25 basis points. These actions will reduce our annual cash interest expense by about $10 million. So onto the details. For the third quarter, net sales were $641.7 million compared to net sales of $652 million in the third quarter of 2015 and compared to second quarter net sales of $601.8 million. The year-over-year decrease in revenue was due to declines in the networking and communications end market, partially offset by growth in…

Certainly. [Operator Instructions] We'll go ahead and take our first question from Matthew Sheerin [Stifel Nicolaus]. Please go ahead your line is open.

Yes. Thank you and good afternoon, guys. Just a few questions. Just quickly on your tax rate guidance, was that 19% to 20%, Todd?

It was 19% to 23%. Essentially, you know, if you take the midway it's essentially where we're at now.

Got you. Okay. And obviously the margin leverage has been very strong. And I know part of that has to do with the advanced technologies, HDI, a lot of that has to do with the big ramps out of your big mobile customer. And it looks like you are going to -- you will be hitting that 10% EBIT margin target that you set longer term on an annual basis. As we look -- I know visibility into Q1 obviously limited, but as we look into next year, should we expect sort of margins to dip as those product ramps roll off? And although, on a year-over-year basis, given the synergies and the cost savings and efficiencies we should still expect year-over-year margin improvement, correct?

Matt, I think you said it very well. You can expect in Q1 that you'll see our typical seasonal downturn as a result of the consumer portion of our business, you know, how deep that will be will totally depend on how successful the products are rolling out here in Q4. We will have to watch and see that. But even in a good year you'll see a seasonal downturn. So, it would be totally reasonable to expect margins and absolute dollar amounts of earnings to decline in Q1 versus Q4. But in terms of year-over-year comparisons, it's a little early to tell, but recognize we had pretty tough Q1 this past year in 2016.

And I think your point, Matt, on operational execution and performances is absolutely right. That's where the focus is, and continuing that that treadmill, if you will, in terms of improving our operational performance across the board. So that will be the focus is, you know, as we go into Q1 next year.

Got it. And on the networking and comms segment which has been weak for a number of suppliers in that market. Although, there are some rumblings of some pick-up, I know you are looking at some sequential growth there. Could you maybe drill down into areas of strength and weakness? I noticed that Huawei was still a top customer. So, on a relative basis, are you still seeing greater strength from customers in Asia versus other parts of the world?

Yeah, so, a couple of comments. I always segment this and sort of got the telecom side and the networking side. And on the telecom side which is about a third of our business in the networking communications end market. What we're seeing is yes 4G continues to rollout in China. I think if you look at where they are in the 4G buildout, you know, the estimates are somewhere around 75%, 70% to 75% through the buildout. Growth in India, that growth has come slower than expected in India, but it is growing and I think the expectations in 2017 are that market will grow. That sort of -- those are that the ongoing bright spots. Other than that in telecom I think it's going to be a relatively flat year next year as we -- I think the market digest 4G and as we -- and start to point towards 5G for 2018 and beyond. On the networking side, it's been very interesting. I think there's -- general generally this was a slower quarter. I think the fourth quarter we should see some improvement there. That improvement will -- should be moderate. At this point and we continue to see a very different mix depending on the customer. I think there's a lot of share movement going on and in our customer base. And we're, of course, focused on servicing our -- those -- that customer base broadly. So if you put that picture together, I think, you know, overall fourth quarter as we said we're expecting sequential growth. I think that growth will be moderate. And as we look into 2017 I would expect again moderate to flat kind of situation in networking communications, balanced by a much more positive growth environment in automotive and aerospace and defense.

Okay. That's very helpful. And just a couple of quick ones. Just as -- you are well into the integration of Viasystems and that's gone very well. But as you look forward, are there any other cost cutting opportunities in the business, particularly given the capacity in North America, where you can drive margins higher, or is that really just contingent on higher volumes here and the leverage of that going forward?

Yeah, I think you hit it there, Matt, -- the last part of statement that the -- as you know we're not really concerned about that plating base calculation on capacity utilization in North America. We really track the profitability in each facility, because they're high mix low volume facilities. And right now, we're really pleased with what we have in our footprint in North America. And we're positioned for that growth that I talked about in aerospace and defense, and that's very important for our customer base. They're looking at that. They're looking at critical programs and where those critical programs get placed and our ability to absorb that capacity requirement is critical. So, overall, very pleased with our position in North America. I think overall if you look at our footprint globally we're pretty happy with where we are. So we will continue though that, you know, as you know cost reduction is a part -- it's basically our life, it's a necessity and we will continue to focus on improving our costs and sharing best practices across our facility and improving operational execution as a result.

Got it. Thanks very much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Paul Coster [JP Morgan]. Please go ahead. Your line is open.

Yeah, a few quick questions. First off -- well, first of all, good [indiscernible] well done. Next year, in the cell phone space, we expect seeing much of the industry's shift towards OLED. I don't see any reason why that should change the PCB side of the equation. But is there any chance that it is disruptive and causes a shakeup of the supply chain?

Thanks, Paul. The -- so you're correct there. If there is a transition to OLED and down the road the requirement on the PCB side there's always -- every year, you know, every year as you prototype your new product and as you're developing and shipping that prototype product to the customer, there's always going to be a movement in terms of demand requirement. But what I would say is, you know, as we look at an LCD shift to an OLED display shift that would not require an essential change in the PCB technology.

…okay.

…outside of that regular technology, you know, advancement that is part of the industry.

Okay. On the auto side, there is concern that we are at peak auto at the moment. Now to your point that the amount of PCB content per automobile will increase, but the product cycle is pretty long, so it could take a while for that to play out. Are we at risk next year of -- it sounds like you don't think so -- the auto segment could be flattish?

We really do key in on -- it's the electronics content growth more than the unit volume growth that's driving PCB -- the PCB area and that is really dependent then on some of the growth areas we talked about whether it's ADAS which requiring new radar technology and that is the brand new to the industry. If you look back to three years ago really now being broadly incorporated into automobiles, infotainment requirements that that continued to shift in the industry and then along with that camera requirements that shift as well. So those fundamental drivers of electronic content growth I don't see that changing at all next year. I think we're going to still continue to see a lot of movement in our customer base there, and new and expanding requirements for technologies.

All right. Last question. Most exciting one for Todd. What was the share count again, Todd, and please give us some kind of update regarding when we should start to think about using it and is converted basis?

Okay. So let me take the first question. Our share count if we look at the earnings release that we put out there…

I mean, the guidance. Sorry, my bad.

For guidance, we were using 102.5 million.

Thank you.

Now that assumes because for non-GAAP we don't -- well, let me back up. On the GAAP calculation, we are required to ignore our heads that we put in on the conversion price to avoid dilution to the company. And as a result our share count or diluted shares under our GAAP calculation which is reflected in our GAAP share price of our share performance of $0.23 this past quarter is like a penalty of about an extra 120 -- about 26 million extra share, so I think the total is like 126, 127 million shares used in the denominator for the EPS computation under GAAP calculation. So that's really essentially a 26 million share hit assuming the full outstanding bond is converted into stock which isn't going to happen. But we're not under GAAP rules. We are not allowed to consider the fact that we put a call spread hedge in place back when we issued to convert to reduce the dilutive effect to the company. The convert does not become dilutive to the company until we strike -- we go about $14.26 per share on the price. So that's one data point. Second data point is people who hold converts, generally don't exercise until the convert matures. So you're looking at December of 2020 if we run it all the way out that's when -- that's when the convertible bond actually matures. So then you are -- and when you get there essentially you're looking at only -- we did it, we did a what if calculation. If the share price was $16 and because of our call spread option we don't get dilutive until $14.26. We would have to issue about 3 million shares -- 3.5 years from now -- three plus years from now in order to cover the convert. It's not a big concern at this point. There's a lot of time to run between now and when it matures and we will have to manage that. But for purposes of this year we have excluded that from our non-GAAP EPS guidance because of the call spread option that we have in place effectively protects the company.

So, the non-GAAP EPS guidance, I am just rallying through the model here -- I beg your pardon -- is based on 128 million shares or thereabouts, right?

Non-GAAP is 102.5.

Okay. I don't know. It feels to me like if you are saying that it becomes a consideration at $14.26 and the stock is going to trade up perhaps on these solid results, why isn't it now becoming a consideration notwithstanding your point about it being a long dated event. I am not an expert on these things, but I guess you guys are, and you are saying that we shouldn't really be paying attention at the moment. That's the takeaway here.

Yeah, it's not practical to try to take an action right now on the convert, such a long ways to run on it. It would be…

So maybe one other question, Todd. When you say there is 3 million to settle the call spread, is that 3 million on top of the 26 million that has to be added to the GAAP share count?

No, the 3 million on the 102.5.

Okay. Got it.

So, it becomes like 3% dilutive not 25% dilutive as it presently appears under the GAAP calculation.

All right. Thank you.

Okay?

Yeah.

Thank you. [Operator Instructions] Our next question comes from Sean Hannan [Needham & Company] Please go ahead. Your line is open.

Yes. And thanks very much for taking my question here and also congratulations on the nice results. It's really a nice thing to see with these benefits coming through from the Viasystems deal, and I know there was a lot that you folks were fighting from a sentiment standpoint there, so congratulations on that. First question here on automotive. Can you talk a little bit about whether you see opportunities for platform growth in terms of being placed through the Tier 1s or your customers' to OEM platforms new to you, that's materializing beyond just the general theme of increasing content? Can you maybe explain a little bit of that for your part of the story?

Yeah, let me talk about, I guess, a couple of things just to keep in mind. Most of our customers would be the major parts suppliers and obviously, you know, this quarter in our top five we had Autoliv I mentioned and Bosch.

Right.

So you know that's the type of major customer, and they're servicing, of course, automotive platform, if you will, for their customer base. As we announced that, you know, several quarters ago one of one of the major initiatives as we went through the integration was to mend the fences with a couple of the other majors and we successfully moved through that process and a lot of that had to do with the opportunities they were seeing in some of these newer areas such as a ADAS and infotainment what we could offer. And a lot of it had to do with -- I would complement our team on very determined effort to repair relationships and improve them from where they were pre-acquisition. And so we've worked our way through that. We're now in qualification with those customers. As I mentioned again several quarters ago it takes a couple of years before you start seeing those prototyping effects turning into volume. But I can say that we are making good progress there. The other development, you know, out there is it comes from broadly -- we feel the automated driving area and the electric vehicle area. The electric vehicle growth coming -- a lot of it coming from China with new players there. The automation -- the automobile coming -- it's a global phenomenon, but a lot of that innovation coming out of Silicon Valley. We are blessed, if you will, with a strong sales force presence in Silicon Valley and relationships that go back quite a ways. And so we're certainly doing our best to be on top of those opportunities. And our EM solutions business unit is doing a very nice job with the electric vehicle opportunities in China which in turn feed PCB opportunities for us. So compliment to the teams and TTM for what they're focused there. But we certainly are seeing innovation at a level that I think is really unheard of in the automotive business and that's exciting for a company like TTM.

That's great. And that's very helpful. Second, the medical industrial instrumentation segment, can you break down the pieces and what you'd seen during the course of the quarter there as well as a little bit more color on your expectations as we move into 4Q here? Thanks.

Sure. So, interesting question, because we highlighted that we actually -- instrumentation on a sequential basis was down in the quarter and that had been an area of real strength that in the first half of the year. So what we sort of saw the situation reversed itself where industrial which had been the weakest part of the portfolio, sort of had had been bouncing along on the bottom -- a lot of that driven down by the oil situation and then some of the larger industrial manufacturing related customers weren't doing very well. As we -- what we have seen in this past quarter is industrial now starting to recover a bit and improve, and we expect that to continue in the fourth quarter. And the medical space has continued to be a relatively strong. It's a business where we have a very broad customer base and a number of customers that source out of North America and then if they do hit volume requirements shifts to Asia. We're working very hard to connect with those customers as they move those volume requirements and ensure that we are the choice for them not, you know, from prototyping all the way through ramp, very much what we do in our other end markets. So we're making progress in that effort positioning our HY facility as we call it in China for volume production. And overall I am optimistic that we're going to make good progress in that area. And if you look at the overall market environment there, you know, in 2017 I think we'll be returning to growth.

That's very helpful. Thank you so much for taking my questions.

Thank you, Sean.

Thank you. [Operator Instructions] And speakers it does appear we have no further questions at this time.

Okay. Well, let me close by just summarizing a few of the critical points that we made today. First, we delivered strong results in the third quarter beating the high end of our non-GAAP EPS as well as consensus, really do the strong operational execution. Second, our diversification initiative continues to reap benefits as our growth in cellular phone end market offsets weakness in networking and communications. And third, we've continued to pay down our debt as shown by a $66 million payment in September. So let me just close by thanking our employees, our customers, and our investors for your continued support. Thank you and goodbye.

And that does conclude today's program. We'd like to thank you for your participation. Have a wonderful day. You may disconnect at any time.