Welcome to the TTM Technologies, Inc. Q4 Earnings Conference Call. At this time, I'd 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 our other filings with the Securities and Exchange Commission. These forward-looking statements are based on management's expectations and assumptions as of the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether as 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 discuss on this call non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP. And we direct you to the reconciliation of non-GAAP to GAAP measures included in the Company's press release which was filed with the SEC and is available on TTM's website 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 fourth quarter and fiscal-year-end 2016 conference call. I will begin with a review of our business strategy, including highlights from our 2016 fiscal year, followed by a discussion of our fourth quarter results. Todd Schull, our CFO, will follow with an overview of certain key balance sheet and cash flow metrics, our Q4 2016 financial performance and Q1 2017 guidance. We will then open the call to your questions. First and foremost, I would like to thank our employees for delivering an excellent year in 2016 for TTM Technologies. We achieved record revenues during fiscal year 2016 and closed the year with a very strong and record fourth quarter non-GAAP EPS of $0.58, leading to an annual EPS in 2016 of $1.40, our highest level since 2011. The 2016 results validated many of the elements of strategy we have communicated over the past year. First, the diversification of our end markets helped to reduce quarterly volatility and stabilize our revenues in what was a challenging year in some of our end markets. Specifically, growth in our aerospace and defense and automotive end markets helped to offset the difficult conditions in the cellular and networking and communications end markets. Second, the automotive market continues to be a core growth driver due to increasing electronic content as well as the adoption of advanced technologies. We see four key megatrends driving automotive content growth, number one, vehicle safety and autonomous driving; number two, increased adoption of hybrid and electric vehicles; number three, advanced infotainment; and number four, increased connectivity. At the beginning of last year, market forecasters expected the PCB content per vehicle to grow from $55 to $65 by 2020. However, driven by the automakers' focus on safety and…

Thanks, Tom. Good afternoon, everyone. Before sharing my comments, I, too, want to express my appreciation to the employees of TTM for their dedication and efforts in delivering great results for 2016. There are a lot of elements that contribute to a successful company, but fundamentally, it all starts with great people. We had a terrific quarter in the fourth quarter. Let me summarize a few of those financial highlights. Revenue in the fourth quarter was $706.5 million, an all-time high. And for the full year, revenue was over $2.5 billion. Non-GAAP EPS was $0.58 in the fourth quarter. This was above the midpoint of guidance by $0.13 and a $0.27 improvement from the fourth quarter one year ago. Our results did include $0.07 of favorable unrealized foreign exchange gains which can't always be counted on. But even ignoring that, our performance was above the high end of guidance. 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 the automotive, aerospace and defense and cellular end markets. We achieved a non-GAAP operating margin of 11.5%, an improvement from the 8% operating margin one year ago and the highest level for any quarter since 2011. For the full year, we achieved an operating margin of 8.8%, an improvement from 7% in 2015. We generated $128.5 million of adjusted EBITDA versus $95.8 million a year ago. This, too, is a record for TTM. For the full year, we generated adjusted EBITDA of $395 million. We repaid approximately $218 million of debt during 2016, including an additional $40 million in December. As a result, we were able to beat our target of reducing our net debt to EBITDA…

[Operator Instructions]. We will take our first question from Matt Sheerin with Stifel.

Just a couple questions from me. Your outlook, it seems fairly bullish, except for that one market you talked about, the medical market. For the year, it looks like you are growing in line to above the long term trends. Is that just visibility that you are getting from customers in general that gives you that fairly optimistic outlook?

Yes. If you march through the end markets that we did and I will just do that really quickly. Aerospace and defense -- again, 2% to 4% growth rate projected long term. We have a strong program backlog; we're at about $186 million there. That gives us confidence that -- and it is a longer term market, so it gives us some confidence in projecting that kind of a growth rate. Automotive -- we have been, as you know, with both electronics content and unit volume growth, we have been growing above the 5% to 8% range that's projected for the long term. As we look at this year and as we project perhaps a slowdown in unit volume growth, we're still expecting to see strong electronics content growth. And that's, again, why we feel that we're in the 5% to 8% growth rate as we look out for the year. Cellular phone business, as you know, always challenging to forecast the back half of the year. The front half of the year, we're certainly feeling comfortable that as we look year on year that we're not going to see the same level or magnitude of inventory correction that we saw last year. And then computing, we're seeing some promising signs of more use of our advanced HDI technology there. That certainly helped us in this last year and we -- growing above the 0 to 2% range therefore would not be a huge challenge. So yes, I think if you put all that together, while the visibility certainly on computing and cellular phone which are tied to consumer markets, is less than the other areas, we're still feeling pretty comfortable, at least in terms of the first-half projections.

Okay. And the reclassification of the COGS and SG&A -- in an apples-to-apples basis, it looks like you are still growing gross margin year over year. Obviously, you've got some higher revenue at the midpoint of your guidance, so leverage there. But also I know some additional synergies that you captured through the year since the integration of Viasystems. But could you just talk about maybe operating margins is the right metric to be looking at in terms of what you are thinking on the volumes that you are looking to grow this year? I know you've talked about a 10% operating margin target in the $700-million-plus range. Could you just walk us through assumptions on operating margin, what you're thinking through the year here?

Sure, Matt. We've had that 10% target for a while and I think now we're starting to realize the reality of that objective. Obviously, we have some seasonality in our business. We've done a great job of diversification which has helped us manage that a little bit better. But we're still going to see seasonality, as you can tell from our Q4 performance and our Q1 forecast. But the key for us has always been trying to focus on how do we lift our operating results each quarter with better utilization of our advanced technology facilities. And that is particularly challenging in the first half of the year. We will still see, though, probably our lowest performance of the year in the first half of the year with a ramp as we go into our stronger -- seasonally stronger Q3 and Q4. So the 10% average, I still think, is a very doable goal. And I think we're fast approaching that. If you go back and reverse engineer the numbers from the guidance that we've offered, you're going to get an operating margin in Q1, I think, somewhere between 7.5% and 8% or something like that. And that's obviously substantially better than last year, where I think we were 5.7%. So it's quite a step up. But as we talked about earlier, as Tom mentioned earlier, the Q1 last year had some significant challenges that were unique to that quarter that we don't see repeating itself this year. And you add to that the fact that we do have some incremental synergies year over year, okay. So that's going to help us a bit, to the tune of about $6 million, I think. And you can see -- that's how we're building our improvement of almost doubling EPS on a 5% uptick in revenue or so. So that's really what's driving it. A lot of it is kind of what I'll call long term. There are funded little changes that we made to the business over the last 12 to 18 months in terms of our synergy initiatives and some of our execution focus and so forth. Those are things that are long-lasting and we will be able to maintain. Obviously, we have to adapt to market fluctuations and what happens in revenue. Tom's given you our best insight on that in his prior question and that's always a variable that we can't always control. But we're able to manage our business well and react to the revenue pictures that we see. So we're quite optimistic for the year and I think our guidance for the first quarter shows a pretty strong year-over-year improvement. To be honest with you, I think that challenge gets harder as the year goes along, but still we expect to grow year over year.

And just a couple more quick ones, if I can. Could you talk about any impact on your costs with copper prices going up, copper foil and copper-clad laminate prices. And remind us what percentage of your costs are copper-related? And then just related to your handset business, I know that there's some new technologies that some of your competitors have been talking about in terms of substrate, like PCBs for next-generation smartphones. Could you talk about that technology and whether you are involved there and what kind of investments you are making there?

Sure. I'll cover the second question and turn it over to Todd to cover the first. In terms of technology trends in cellular phone, as you know, the general trend there is towards increasing miniaturization. That means driving narrower lines and spacing. We were in the initial development of advanced HDI technology in order to meet those requirements. Successfully came through that, commercialized the capability. Every year we see technology -- technologies move. And we invest in those technologies as they move. As you know, we don't use a term like substrate-like PCBs because, let's face it, we're looking at lines and spacing that continues to narrow. And we will meet that technology challenge. And as Todd already covered the CapEx plans for the year, that includes the ongoing investment in technology development that is required in our market. So that encompasses our technology development plans and I can assure you, as you know, that the prototyping stage for the cellular phone business starts about a year ahead of actual ramp. So we're well into the prototyping stage at this point. So that should answer your question as to whether we're engaged in technology development.

In regards to your first question, Matt, in copper, copper is an important element in our materials. So it's something we o watch pretty closely. But it's not an overwhelming percentage of our cost structure. Our biggest costs tend to be laminate and copper is an important element in the production of laminate. But it's probably -- when you factor in percentages-of-a-percentage situation, where laminate makes up 30% to 50% of our material costs and copper makes up 20% to 30% of laminate cost, you quickly get down to, if you do the math there, copper is -- indirectly makes up somewhere between 6% and 8% of our material cost. So if that was to increase by 20%, say, you are looking at maybe a percentage-and-a-half kind of impact on our margins. Obviously, I think by virtue of our size, we're able to try to mitigate that as best as we can. We think we have some advantages in that vis-a-vis some of our competition. And also, the other part in this is not just a pricing issue, it's a supply issue. And our relationship with key suppliers is important in ensuring that we have the supply of material for our customers, where other companies perhaps who have not quite the length and breadth of relationships that we have may have greater challenges in being able to do that. So yes, it's a little tougher for us. It's not overwhelming from a cost standpoint. We're certainly working on all of our -- pulling -- looking at all the leverage we can pull to extract cost-reduction benefits out of our operations to mitigate it. But that's reflected in our guidance and in what we're looking at going forward.

And we will go next to Paul Chung with JPMorgan.

This is Paul Chung on for Coster. Thanks for taking my questions. So thanks for the details on first-half margins. But in terms of second half, in particular 4Q, was the jump in operating margins more a function of scale or more structural from the synergy and cost improvements you mentioned? And could you see similar margins next year if revenues kind of stay constant?

Certainly we would expect to have a very strong fourth quarter. If you look at our history, if you just plot of our operating margin over the last several years, you'll see the seasonal pattern. And what we have been doing over the last couple years is raising the overall slope of that each year. Do I expect to do better than 11.5% in Q4 of 2017? That's a little far off. That's a pretty strong number. It's hard to pinpoint at this point because we're not close enough to it in terms of actually seeing what our demand picture will be that quarter. But it will probably be the best quarter of our year. It traditionally is, as we launch new products in our consumer customer base. So I would expect to see a similar pattern. Now, if I'm up 2% in Q1 year over year, am I going to be up 2% in Q4 year over year? Probably not. I don't have the same synergy tailwind. That's pretty well played out in fourth quarter in terms of year over year comparisons. So I think you're seeing more of an ongoing number there in Q3 and Q4 in 2016 that you might see something more similar in 2017 to be more of a volume story or other things that might come into play that we can't predict at this point. I think you will see the biggest improvements year over year is going to be in the first half of the year when we still have some synergy tailwinds on a comparative basis. And we also have a situation where in 2016, the first half of the year was pretty challenging from a revenue standpoint because of the inventory overhang that Tom was talking about earlier.

Right. Okay, thanks for that. On aerospace and defense, has your outlook on revenues and margins changed based off the new administration's signaled intentions. Is the firm competitively positioned against peers as well?

So a few important points there. Number one, I do think that the backdrop is positive and it has been positive. As the defense budget has increased over the last couple of years, that has certainly benefited our customers and has allowed them to bring critical programs forward for us. To the extent that the Trump administration has brought in -- has been looking at a supplemental budget for defense, that again is encouraging and something that we're keeping our eyes on. And of course, we will see what happens from there in terms of the go-forward spending in defense. I do think the overall climate is pretty favorable. In terms of our positioning, we remain the largest North American printed circuit board manufacturer and the largest in the aerospace and defense market. And so as our customers bring forward programs and as we service them, our full intent is to continue to improve our ability to provide, to meet their requirements. And so that's the focus there. We continue to see positive or hear positive comments from our customers in regards to critical programs that we have been working with them on and we will see how that plays out. But certainly the overall environment, I think, is positive there.

Great. And then lastly, can you give us a sense for how the firm is prepared to deal with tax reform proposals in the U.S.? Looks like with utilization rates in North America at 51%, the firm may have excess capacity to flex with. How would you say the firm is positioned relative to your peers in respect to the issue as well?

I'll just chime in a little bit. I think Tom touched on this earlier. We have the largest footprint and the most amount of capacity in the U.S. of any printed circuit board company. So if there is demand that's going to come back to the U.S. that requires capacity, we're probably best positioned to do with that, particularly in the near term, because it takes a while to put facilities in place and so forth. When you look at our utilization, be careful with that. Because in North America, our business model is a little different than it is in Asia. We're primarily a high-mix, low-volume business model in North America. And so your utilization -- really your available capacity that could be used for production is not what it might appear when you're looking at the numbers. It's not 50%; it's going to be a much smaller portion of that. But we have bricks and mortar. We have shift expansion capability. There's things we can do if that was to happen. But that's a long ways off. I think there's a lot of variables that play into that. The electronics supply chain is not very large in North America, quite frankly. And so for that to change, for us to change one small piece of that equation, it's going to require a lot of other changes in the supply chain. And I would encourage you to watch that for signs of what's going to happen. In terms of the tax structure and proposals there, there's a lot of interesting ideas floating out. You see the headline numbers of 20% tax rate or 15% tax rate. But the devil is in the details and what we don't know is a lot of, okay, if that goes down, what's the offset? Will we lose interest expense deductibility? What's going to happen with CapEx and depreciation expense? There's a lot of questions yet to be answered on that. So I'm not sure what that impact will be in the near term until we see how some of these questions get answered. In terms of the import-export issue, in terms of, I don't know, a tax on imports, by and large what we sell in the U.S. we build in the U.S.. And what we sell offshore we tend to deliver offshore. So we're not sure that that has a direct impact on us. Now obviously, we'll have to watch what happens to our customers farther up the supply chain and understand what happens there ultimately. But in terms of immediate direct impacts, I don't see too much from that particular discussion topic that's out there right now.

And we will go next to Sean Hannan with Needham & Company.

Congratulations on the strong quarter and guide here. I have a question; my first question is around cellular. Wanted to see if you guys could help us to understand a little bit more the components of being able to grow at or above that market rate. Now, you have some Asian-based customers you've built relationships with. They have early calendar year launches. Not sure how that's progressing incrementally versus the prior year. If you want content or programs or if you are just riding their presence within the market. And then the large customer you have in the space, if your assumptions at present are to follow typical trends or is there any specific enthusiasm with a new platform that could be later in the year. I know some in the supply chain have some pretty healthy expectations through their communications with that OEM. So all in, I'm just trying to get an understanding of how these factors build up for you as you take a look at that market.

So overall and this is true of every year, you can divide the year into two halves. The first half of the year, what we generally see is the Christmas -- pre-Christmas introductions have been completed. There's a general two quarter wind down, Q1, Q2 and a preparations for the ramp that will occur in Q3, Q4. That's for our -- certainly the largest customer. From a Greater China or Greater China and Korea standpoint, what we do in the first half is actually more similar to what we do in the second half. Because generally there is a first-half introduction and a second-half introduction. So two model introductions per year. And so we will be actually ramping for some product in Q1and Q2 and ramping for additional product in Q3-Q4. That business represents about a quarter of what we do in the cellular phone end market and that's remained relatively constant for the last year. We continue to work hard on expanding our presence in Greater China, but that's a function of how quickly our customer base moves to some of the newer technology requirements. As we look at additional -- the Q3-Q4 ramp, as I mentioned earlier, we're in prototyping stage with our largest customer. That starts a year ahead. I've read what you've read in terms of certainly the excitement that's out there about the new product. What we're very focused on is meeting their technology requirements, as I covered earlier and ensuring that as lines and spacing shrink that we're able to keep pace with that and successfully prototype and ramp. The good news there is that we do have a substrate plant capability, as you know, that is for us a means of testing technologies and has served as a great platform for us as we test there and then those technologies move into larger-sized requirements with PCBs. So if that gives you a picture, I think what we're positive about in the first half, as Todd mentioned, is the fact that inventory levels do look to be lower and our year-over-year compare compared to last year, therefore, certainly looks to be favorable. And then Q3-Q4 piece of this, we're going to continue to work as we prototype. And we'll certainly update you as we go forward over the next quarter on how that's going.

So am I interpreting correctly? It sounds like we have the viewpoints of the market and your opportunity to grow that segment of your business as it stands today. But that there is perhaps some cautious optimism that it could be even a little bit better?

Well, let's put it this way. Model change years. And the way to think about it is model change years when our customer base goes through a relatively significant product change, product transition. Historically and we don't have a lot of history to work with here, right, but historically, that would lead to better sellthrough. And in our facility, that leads to improved utilization. Then it becomes a function of our ability to yield and that's what we're really heads-down -- in this next two quarters, we're heads-down focusing on that yield, the ability to ramp successfully, meet those requirements. So that product -- significant product change is generally a good thing. That's what we've seen historically in the full five years that we've had in this business with a smartphone.

Fair enough; very well put. On the automotive side, now, you folks have a great position there, right? Great long term market; there are clearly long design cycles. So you feel pretty comfortable in terms of your competitive positioning. But ultimately, I figure you should see some more competition over time and it's an attractive market. Can you give us some updated viewpoints around how or when that view is maybe reasonable for the competitive dynamics to maybe start stepping up or becoming a little bit more difficult? What type of runway do you think we have and what are you looking for?

Yes. So for TTM in automotive, what we're really focused on is the breadth of offerings. And if you look at the automotive industry, there is always a desire in the customer base to consolidate the suppliers. And that's a trend that has been out there for years. In the printed circuit board industry, we're sort of the first to come to the table with that full breadth of capability that they are looking for. And that, for us, is what we're focused on. And that's why it's so critical -- and of course, we try to give you some visibility into what we're working on with the new technologies so that you gain an understanding of not only our position in conventional printed circuit boards which really is the basis for our strength in automotive. But also the new technology capability that we're bringing in, with the radar, the RF capability, the HDI capability and rigid-flex. And it's that combination of capability across the board that is critical for us as we look at a competitive market. The market today is already competitive. There's not a question. We have a listing of competitors in this business. If you -- mainly out of Taiwan, but also out of Japan. And that competitive universe is something that strategically we're dealing with by focusing on the full spread of technology capabilities and working very closely with our customers and their engineers as we meet their requirements. So to give you the answer, son, it's competitive now. I expect it will be competitive tomorrow and the next year. We have a very strong strategy that we embarked on post-acquisition and I have confidence that that's going to -- that that strategy will continue to pay off for us in automotive.

And we will go next to Ethan Steinberg with SG Capital.

I just want to clarify something. The sequential guidance of down about 13% at the midpoint. That's about what we were down last year when we had all that pressure from cellular that's not going to be down nearly as much this year. And that also the backlog this year is only done about 5% coming out of Q4. So I want to understand a little bit, is that just conservatism? Or is there something else that's pulling it down that much sequentially?

There's a little bit of noise in the sequential comparison. So in the fourth quarter, it was a 14-week quarter for us. So you had one extra week of production and potential revenue shipments. Now, we estimate that that was worth about $29 million in revenue. So if you were to try to normalize for that, we figure we're down sequentially -- on the surface, it looks like 13%, but if you normalize for this 14-week factor, you are probably down right around 9% sequentially. Okay? So that's better than it was last year. And you still see a drop in cellular, but the cellular drop is not as dramatic as last year. Right? Our expectations all along was that we've had two very interesting years in 2014 and 2015 -- or 2015 and 2016. 2015 was a very strong year with a not too big of a drop-off. And then 2016, as we've talked about and Q1 was a very dramatic drop-off intercellular business because of the inventory overhang. This year is kind of somewhere in between those two years. At least, that's what we're expecting going into the quarter. And so to have that kind of a drop and still, based on our diversification, not having too significant a drop overall and growing in most of our markets year over year, I think is a pretty good sign. So yes, the backlog looks good and that's an encouraging sign. And some of that is a factor of timing of bookings. But I think the guidance we've given is out there at that $595 million to $635 million kind of range for Q1.

Are you assuming or expecting anything different as far as what the backlog coverage is to the revenues? Because, yes, as you said, it's down a lot less than even that 9% sequential revenue. So I'm just trying to figure out is that conservatism or is there something else about what has coming out of backlog and timing in the quarter?

I think our bookings for the quarter -- we're maybe going into the quarter a little better in our beginning bookings than historically. As a rough rule of thumb, we used to be kind of like 50% to 55% booked when we started a quarter in January 1. But this year, we're probably a little bit higher than that.

And the factor there is because Chinese New Year was early this year, we were starting to see -- there's always a buildup ahead of Chinese New Year in orders. Customers sort of -- in the month prior to place their orders. So I think we saw some of that going on towards the end of the year. And that certainly affected that backlog figure.

How is the cadence of orders been year to date?

We're really commenting on Q4 results, not going into Q1.

It appears there are no further questions at this time. I will now turn the conference back to management for any additional or closing remarks.

Okay, great. Thank you very much and I'd like to thank everybody for joining the call. Just wanted to close by summarizing some of the points that we made earlier. First, TTM delivered strong results in the fourth quarter of 2016, beating the high end of our non-GAAP EPS forecast as well as consensus. That's largely due to solid growth and strong operational execution. The results for the quarter capped off what we view as really an outstanding year as we reached record revenues and free cash flow after successfully integrating Viasystems. During the quarter, we used our cash flow to repay additional debt, bringing total repayments for the year to approximately $218 million and reaching our leverage target of 2.0. So finally, I'd really like to thank, first and foremost, our employees for their contributions during the last year. And then to thank our customers and our investors for your continued support. Thank you and goodbye.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.