TTM Technologies, Inc. (TTMI) Q3 2021 Earnings Report, Transcript and Summary

00:08 Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies Third Quarter twenty twenty one Financial Results Conference Call. During today’s presentation, all parties will be in listen-only mode. Following the presentation, the conference will open for questions. [Operator Instructions] As a reminder, this conference is being recorded today, October twenty seven, twenty twenty one. 00:31 Sameer Desai, TTM’s Vice President of Corporate Development and Investor Relations will now review TTM’s disclosure statement.

00:39 Thanks, James. 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 nineteen ninety five, 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 ten K and other filings with the Securities and Exchange Commission. 01:06 These forward-looking statements are based on management’s expectations and assumptions as 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 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. 01:37 We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP and we direct you to the 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. We have also posted on our website a slide deck, which we will refer to during our call. 02:05 I will now turn the call over to Tom Edman, TTM’s Chief Executive Officer. Please go ahead, Tom.

02:12 Thank you, Sameer. Good afternoon, and thank you for joining us for our third quarter twenty twenty one conference call. I'll begin with a review of our business strategy, followed by highlights from the quarter, and a discussion of our third quarter results. Todd Schull, our CFO will follow with an overview of our Q3 twenty twenty one financial performance and our Q4 twenty twenty one guidance. We will then open the call to your questions. 02:40 In the third quarter of twenty twenty one, TTM generated revenues and non-GAAP EPS within the guided range, despite a challenging supply chain and labor environment. Year on year growth was led by strong demand and automotive, data center computing and medical, industrial and instrumentation end markets. 03:01 These results were achieved despite an unprecedented number of operational headwinds, including supply chain constraints for ourselves and our customers, inflationary pressures and the labor and logistic challenges in North America resulting in production inefficiencies and power restrictions in China. 03:23 Our global operations teams have responded to these immense challenges with a remarkable focus on delivering the customer commitments while flexibly responding to frequent surprises. We have been actively managing supply constraints and higher raw material costs through such measures as supplier diversification, ongoing operational efficiency efforts, and quotation adjustments to mitigate the impact. 03:51 The overall impact to our cost of goods sold was larger in Q3 than Q2 and continues to be elevated in Q4, since higher laminate and other raw material prices in the first half of the year take some time to work through our suppliers and our inventory. 04:10 Furthermore, raw material prices continue to rise in Q3 although at a diminished rate of increase. Production inefficiencies in North America further exacerbated our costs and output challenges in the third quarter and we'll continue to do so in the fourth quarter. 04:29 Power restrictions in China did not have a material effect on the third quarter as these impacts came late in the quarter, right before the planned October holidays. Coming out of the holidays, we have not experienced restrictions, but we are continuing to closely monitor their situation as we approach the winter season in China. 04:51 Next, I would like to provide an update on our long term strategy. TTM is on a journey to transform our business to be less cyclical and more differentiated. We believe that over time, the investors will be rewarded with more stable growth, strong cash flow performance, and improving margins. 05:11 As part of the strategic transition, we sold our mobility business last year. We are now able to generate more consistent cash flow with our strong set of technologies and broad exposure to longer cycle end markets. 05:27 A key part of our ongoing strategy will be to add capabilities and products that are complementary to our current offerings, both internally and through acquisitions. As such, we continue to invest organically in differentiated product technology solutions, from our advanced technology center, RF&S business unit and microelectronics businesses. 05:52 Looking forward, our balance sheet is in a strong position to pursue further acquisitions as well as to support our organic investment needs. I would also like to update you on the COVID situation. The vaccine rollout in the United States had initially resulted in a decline in new COVID cases. 06:14 However, the Delta Variant created another surge in late summer and early fall. In addition, many parts of the world have much lower vaccination rates and the rise of the Delta Variant led to significantly increasing case counts, resulting in a number of countries imposing lockdowns during the summer. 06:34 More recently, case counts in the U.S. and Asia are declining and lockdowns in Asia are being lifted. At TTM, we are seeing similar trends and are using a data driven process, monitoring vaccination rates and local case counts to determine safety precautions at our facilities. 06:54 Our global manufacturing facilities have been operating throughout the pandemic, but in Q3, we dealt with a rising number of cases, and resulting quarantines, which along with the general labor shortages contributed to production inefficiencies and capacity constraints in North America. 07:14 We are presently adjusting to the next normal in which we learned to live with COVID-nineteen while continuing to support our customers and keeping our employees safe. Like many other companies, we continue to see more challenges in attracting and retaining labor. 07:32 Our employees are paramount for the success of TTM and we actively endeavor to demonstrate their value to our company through a combination of financial and non-financial methods. We continue to be hopeful that the expiration of elevated unemployment benefits in the U.S., increased vaccination rates, and our strong company culture will encourage potential employees to join TTM as we work to support our customers. 08:02 Now, I'd like to review our end markets. All historical end market disclosures exclude the divested mobility business unit, and the two RMS plants which halted production in December of twenty twenty. For more details on end market disclosures, please refer to Page four of our earnings presentation, which is posted on our website. 08:26 The aerospace and defense end market represented thirty one percent total third quarter sales, compared to thirty seven percent of Q3 twenty twenty sales and thirty three percent of sales in Q2 twenty twenty one. 08:42 We continue to experience a positive defense climate with our AMD program backlog at seven twenty three million dollars, compared to six twenty five million dollars a year ago. This solid demand in the defense market is a result of our strong strategic program alignment and key bookings for ongoing franchise programs. 09:06 We saw significant bookings in the quarter for the AN/SPY-6 AESA Radar program. And our overall book to bill for A&D was one point three two. On a year on year basis, A&D revenues declined due to commercial aerospace weakness, defense program timing, and production inefficiencies in North America. 09:30 We expect sales in Q4 from this end market to rebound and represent about thirty two percent of our total sales. Given the year over year weakness in commercial aerospace, as well as the labor challenges in North America, we do not expect to meet this year's growth target of two percent to four percent. 09:51 The medical industrial instrumentation end market contributed twenty percent of our total sales in the third quarter compared to nineteen percent in the year ago quarter and nineteen percent in the second quarter of twenty twenty one. The MI&I market exceeded one hundred million dollars in Q3 revenue and performed much better than expectations, as medical and industrial customers continued to rebound. 10:18 For the fourth quarter, we expect MI&I to be eighteen percent of revenues with continued strong orders from the medical and industrial markets. However, revenue will be limited by capacity constraints and component shortages. Given the strength in this end market in the first nine months of the year and the fourth quarter forecast, we expect to exceed the two percent to four percent growth target for twenty twenty one. 10:46 Automotive sales represented eighteen percent of total sales during the third quarter of twenty twenty one, compared to thirteen percent in the year ago quarter and eighteen percent during the second quarter of twenty twenty one. Automotive grew fifty seven percent year over year. 11:04 We are aware that the shortage of semiconductors has been limiting automotive production, but this phenomena has not directly affected our business since we do not purchase semiconductors. 11:16 However, we are monitoring this situation closely and are starting to see a modest reduction in our PCB demand as more automotive OEMs are reducing production plans due to the semiconductor shortage. We expect automotive to contribute eighteen percent of total sales in Q4. 11:35 Networking communications accounted for sixteen percent of revenue during the third quarter of twenty twenty one. This compares to seventeen percent in the third quarter of twenty twenty and fifteen percent of revenue in the second quarter of twenty twenty one. 11:50 We saw relative strength on a year on year basis in networking compared to telecom, as the 5G build-out in China continues to be weak. In Q4, we expect this end market to be fifteen percent of revenue as telecom demand continues to be soft. 12:07 Sales in the data center computing end market represented fourteen percent of total sales in the third quarter compared to thirteen percent in Q3 of twenty twenty and fourteen percent in the second quarter of twenty twenty one. This end market was up twenty nine percent year on year, due primarily to growth from our data center customers. 12:29 We expect revenues in this end market to represent approximately fifteen percent of fourth quarter sales as strong data center demand continues to drive year on year growth. 12:41 Next, I'll cover some details from the third quarter. All of the following operations metrics exclude the mobility business unit and the two EMS plants that we closed. This information is also available on Page five of our earnings presentation. 12:58 During the quarter, our advanced technology business, which includes HDI, rigid flex and RF subsystem and components accounted for approximately twenty nine percent of our revenue. This compares to approximately twenty nine percent in the year ago quarter and thirty one percent in Q2. 13:18 We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities and new programs and new markets. 13:31 Capacity utilization in Asia Pacific was ninety one percent in Q3 compared to sixty three percent in the year ago quarter and eighty eight percent in Q2. Our overall capacity utilization in North America was fifty percent in Q3, compared to sixty one percent in the year ago quarter and forty nine percent in Q2. 13:54 Our top five customers contributed twenty eight percent of total sales in the third quarter of twenty twenty one, compared to twenty nine percent in the second quarter of twenty twenty one. We did not have any customers above ten percent in the quarter. 14:10 At the end of Q3, our ninety day backlog, which is subject to cancellations, was five hundred and ninety four point eight million dollars, compared to four hundred and thirty seven point eight million dollars at the end of the third quarter last year, and five hundred and fifty three point one million dollars at the end of Q2. 14:32 Our PCB book to bill ratio was one point to nine for the three months ending September twenty seven. Our backlog is higher than our revenue forecast due to uncertainty around both labor and supply chain challenges for our customers and ourselves. 14:51 I'd like to conclude by again thanking our employees continuing to contribute to TTM and our critical mission of inspiring innovation with our customers. Despite the raw materials and labor related challenges we are facing, our business performed in line with what we expected, as a direct result of our employees and our supply chain partners concerted efforts to support TTM and our customers. 15:18 Now, Todd will review our financial performance for the third quarter. Todd?

15:25 Thanks, Tom, and good afternoon, everyone. I will be reviewing our financial results for the third quarter, which are also shown in the press release distributed today, as well as on page seven of our earnings presentation, which is posted to our website. 15:39 For the third quarter, net sales were five hundred and fifty six point eight million dollars compared to five hundred and thirteen point six million dollars from continuing operations in the third quarter of twenty twenty. 15:50 The year over year increase in revenue was due to strong growth in our automotive, data center computing and medical industrial and instrumentation end markets, which more than offset a decline in our aerospace and defense end market and the headwind from the closure of our two EMS facilities, which contributed twenty point five million dollars of revenue in Q3 of twenty twenty, and no revenues this year. 16:15 Excluding the impact of the EMS closure, revenues for our ongoing business grew twelve point nine percent year on year. GAAP operating income for the third quarter of twenty twenty one was thirty point two million dollars, compared to GAAP operating loss from continuing operations of forty point three million dollars in the third quarter of last year, which included a goodwill impairment charge of six nine point two million dollars. 16:41 On a GAAP basis, net income in the third quarter of twenty twenty one was twenty one million dollars, compared to GAAP operating loss from continuing operations of twenty one million dollars or point one nine dollars per diluted share. This compares to a net loss from continuing operations of sixty one point five million dollars or zero point five eight dollars per diluted share in the same quarter last year. 17:05 The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes our divested mobility business unit, non-routine tax items, M&A related costs, restructuring costs, certain non-cash expense items and other unusual or infrequent items. 17:23 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. 17:34 Gross margin in the third quarter was seventeen point two percent compared to eighteen point four percent in the third quarter of twenty twenty. The year on year decline was largely due to production challenges in North America and foreign exchange headwinds in our China facilities. 17:51 During the quarter, we did experience significant material cost increases, but we were able to substantially mitigate the profit impact of those increases through customer pricing and manufacturing efficiencies. 18:04 Selling and marketing expense was fifteen point one million dollars in the second quarter or two point seven percent of net sales versus fifteen point three million dollars or three percent of net sales a year ago. 18:16 Third quarter G and A expense was twenty point two million dollars or five point two percent of net sales, compared to twenty six point nine million dollars or five point two percent of net sales in the same quarter last year. 18:30 In the third quarter of twenty twenty one, R and D was four million dollars or zero point seven percent of revenues compared to five point two million dollars or one percent in the year ago quarter. 18:41 Our operating margin in Q3 was eight point six percent This compares to nine point one percent in Q3 of twenty twenty. Interest expense was ten point six million dollars in the third quarter, a decrease from twelve point nine million dollars in the same quarter last year, due primarily to lower levels of debt as we repaid four hundred million dollars of our term loan and our two fifty million dollars convertible bond in the second half of twenty twenty. 19:10 During the quarter, there was a negative zero point seven million dollars of foreign exchange impact below the operating line. Government incentives and interest income reduces to a negative zero point one million dollars and a negligible impact to EPS. This compares to a loss of two point five million dollars or zero point zero two dollars of EPS in Q3 last year. 19:33 Our effective tax rate was one point one percent in the third quarter as we now estimate our tax rate for twenty twenty one to be seven percent. Third quarter net income was thirty six point five million dollars or zero point three four dollars per diluted share. This compares the third quarter twenty twenty net income of twenty six point eight million dollars or zero point two five dollars per diluted share. 19:56 Adjusted EBITDA for the third quarter was sixty eight point six million dollars or twelve point three percent of net sales, compared with third quarter twenty twenty adjusted EBITDA of sixty seven point two million dollars or thirteen point one percent of net sales. 20:11 Depreciation for the quarter was twenty one million dollars. Net capital spending for the quarter was nineteen point eight million dollars. Cash flow from operations was eighteen point six million dollars lower than expected due to higher inventories caused by longer transit times and lower hub pools by our customers. 20:32 Accounts receivables were also higher than expected due to timing of customer payments. Our balance sheet and liquidity positions remain very strong. Cash and cash equivalents at the end of the third quarter of twenty twenty one were five hundred and twenty nine point eight million dollars and our net debt divided by last twelve month EBITDA was one point five times. 20:55 During the third quarter, we repurchased two point one million shares of our common stock under our previously announced one hundred million dollar stock repurchase program at an average price of thirteen point seventy one per share for a total of twenty eight point nine million dollars. As of the end of the third quarter, we have spent a total of thirty five million dollars for stock purchases. 21:19 Now, I'd like to turn to guidance for the fourth quarter. As Tom stated earlier, we will continue to face elevated cost pressures in the fourth quarter, as price increases in the first half of the year take some time to work through our suppliers and our own inventory. Furthermore, raw material prices continue to rise, though at a slower rate. We also expect continuing production efficiencies – inefficiencies in North America. 21:47 Additionally, TTM has a fifty two, fifty three week fiscal calendar and twenty twenty one is a fifty three week year. The extra week will be included in our fourth quarter. Now, however, that the extra week is the holiday week after Christmas and includes New Year's. As such, the revenue benefit is modest at best, but we do incur an extra week of operating expenses. 22:11 Given that, we expect total revenue for the fourth quarter of twenty twenty one to be in the range of five thirty million dollars to five seventy million dollars and we expect non-GAAP earnings to be in the range of zero point twenty eight dollars to zero point three four dollars per diluted share. 22:25 The EPS forecast is based on a diluted share count of approximately one hundred and seven million shares. Our share count guidance includes dilutive securities such as options and RSUs, but no shares associated with our warrants as the current stock price is under the strike price of fourteen point two six dollars. We expect that SG and A expense will be about eight point nine percent of revenue in the fourth quarter and R and D to be about zero point nine percent of revenue. 22:55 We expect interest expense to total approximately eleven million dollars. Finally, we estimate our effective tax rate be between five percent and ten percent. To assist you in developing your financial models, we offer the following additional information. 23:09 During the fourth quarter, we expect to record amortization of intangibles of about ten point two million dollars. Stock based compensation expense of about five point three million dollars, non-cash interest expense of approximately zero point five million dollars, and we estimate depreciation expense will be approximately twenty two point four million dollars. 23:30 Finally, I'd like to announce that we will be participating virtually in the Baird Industrial Conference on November ninth and the Bank of America Bank Leveraged Finance Conference on November thirty. 23:41 That concludes our prepared remarks. And now, we'd like to open the line for questions. James?

23:48 Thank you. [Operator Instructions] And we'll take our first question today from Jim Ricchiuti with Needham & Company.

24:07 Hi. Good afternoon. Just wanted to go through the sequential decline in gross margins. I mean, obviously there were several contributing factors, but I'm wondering if maybe you could help us by trying to parse it out maybe quantify some of those factors which had a bigger impact, whether it was higher cost or lower utilization in North America or potentially mix?

24:40 Sure, Jim. As we highlight the results, our revenue was down about ten point six million dollars sequentially led by A&D, which was down about eleven million. Automotive was down slightly and that was offset by strength in medical industrial instrumentation. So, a net number down about ten point six million dollars on revenue. 25:04 Our gross margin decreased about seventy four basis points to seventeen point two percent. And what's really driving that, some of it is the revenue decline, okay. So that hurts our margin a bit, but really the production inefficiencies in North America driven primarily by various related labor challenges, whether that's COVID Direct or the inability to acquire the staffing levels that we needed, we’re really the big contributors. 25:35 And that resulted in our gross profit being down about six million dollars sequentially. And those two items, revenue and the production inefficiencies in North America were about a fifty-fifty split.

25:48 Got it. And just follow-up just with respect to some of labor challenges here in the U.S., it doesn't sound like that is improving much in the near term. So, I'm wondering how we should think about those pressures in Q4? Will they be more significant pressures or do you see them using [some logic] [ph]? Is it something you're anticipating improving in the early part of twenty two?

26:20 So, Jim, this is Tom. Let me just address Q4 and then talk a little bit about the longer term situation there. We mentioned, and I think this is being experienced by a number of companies. As you know, substantial part of our production does come out of North America. That's really what we're talking about here. 26:51 And the impacts in Q3 were compounded by COVID. So, we had, yes, we were dealing with labor shortages. We also had to deal with the spike in COVID cases and the resulting quarantines. As we go forward into Q4, the good news is at least, we're seeing that case count come down. 27:14 So there will be an improvement in the labor situation. The other impact of this is that we are able now to get tiger teams and have since the last quarter been able to get tiger teams in some of our facilities that were more challenged in North America. That takes time to effect itself in terms of production yield improvements, but we expect to start to see those improvements pay off as well as we come through Q4 into next year. 27:49 What we can't really forecast is the material situation in terms of material shortages and whether that situation improved also whether the inflation and what happens with the inflationary trends there. So, we can't really forecast that piece and the other piece of course is logistics and logistics challenges. 28:15 So, what I'm really saying is, yeah, there's a piece of the situation that will improve and we can see improving in Q4 around the labor, but the overall labor shortage will still be a challenge and then you've got the ongoing impacts of materials logistics challenges going forward in the Q4 as well. And of course, our teams, our operational teams as I mentioned are doing a fantastic job of adjusting on the fly in some cases to meet customer demand. 28:49 And I would remain optimistic that of course, our supply chain partners will work through some of their challenges here as we go into next year, but certainly for the fourth that's going to remain a challenge that we need to confront.

29:08 Thank you.

29:12 Our question will come from William Stein with Truist Securities.

29:17 Great. Thanks for taking my questions. First, I'm hoping you can give us an update on lead times. I think, typically your lead times are very short, but I don't think they extended the way semi and other component companies did in this cycle that we're still in the midst I guess, but if you can update us as to the trajectory there and the, sort of pacing of things like [Technical Difficulty] versus push up and cancel? Thank you.

29:55 Yes, Sure Will. Yeah, the demand environment continues to be really robust. If you look at the commercial demand environment for our Asia facilities, our Asia facilities I think with the exception of one facility pretty much booked through the fourth quarter, you can see that reflected of course in the strength of the backlog. So, we're looking at substantial lead time extensions there, Will. 30:27 It depends again on the facility, but you're looking at, I would say on average sixteen weeks plus in those facilities. North America also generally very, very tight in terms of demand and facilities that you're absolutely right, would be on average four weeks kind of lead time in the past three to four weeks. Now, you're looking at lead times that stretch into next year as we book into those facilities. 31:01 So, certainly the demand climate remains overall very be strong. I talked about one area that continues to be concerns, commercial aerospace that's probably the one market where we've continued to see real softness, but outside of that, really, really strong demand environment.

31:29 Todd, if I can, the propensity of buybacks versus M&A and any commentary on the M and A pipeline? I think it's been; I think it's been a while since you did a significant deal, but any update there, please?

31:47 Sure, I can talk about the M and A environment. Todd, maybe you can comment on the buyback. Obviously, both critical parts of our balance sheet strategy and we balance the two. In terms of M and A, the strategy very much will remains in place as we look at potential assets that that would help to satisfy some of the strategic needs of the company. One of those is looking at our footprint capabilities and printed circuit board space as we look at the need to move beyond our existing footprint into Europe into Southeast Asia. That's one area. 32:34 The even greater focus on adding to our RF engineering expertise both on the commercial side and on the aerospace and defense side, looking at opportunities to build on that capability. As you point out, we have not had a major acquisition event here for a period of time. And that's really not, we have a decent pipeline in the works, but that pipeline then, you need to work it, you need to see those opportunities come to fruition. 33:13 And also, we still are dealing with an inflated expectation environment in terms of seller expectations out there and a second area of focus for us is to really meet not only our strategic needs, but also to make sense to the company financially as we run cash flow projections and put a valuation to these assets. So, you have to clear both. And at that point, at this point, the second is more challenging, I'd say to fulfill. I will tell you that we continue to work that pipeline it’s still a very active process.

33:57 And just to add on to that, when we look at our capital allocation structure in our plans going forward, we recognize that our company has really matured over the last five years, and we're at a different place than where we were before. Notwithstanding the challenges that we talked about, our execution is relatively consistent in the markets that we're participating in, are pretty attractive. 34:23 That really affords us an opportunity to have a multi-pronged allocation strategy rather than just one option only. Our first choice without a doubt is to find opportunities to grow the company both organically or inorganically. But we feel now we've reached a point in our life that we can also have a shareholder return element to that capital allocation strategy. 34:51 One that we can keep up as we go forward at some modest level. We’ve talked about the fact that we announced a program. We hadn't had a whole lot of activity in the first quarter too for various reasons, which we talked about in the past. We were in the market much more actively hearing in the last quarter and have now spent about a third of our total program amount that was approved and authorized by the board of one hundred million dollars. 35:19 So that program is this still in force that's out there and we'll continue to take opportunities to buy back our stock when it makes sense. But we don't believe it's mutually exclusive to M&A, we think we can balance the two and that is our intention going forward.

35:40 Thank you.

35:45 Our next question will come from Srini Pajjuri with SMBC Nikko Securities.

35:54 Thank you. Hi, Tom and Todd. Tom a question about your backlog versus your revenue guidance, I guess, last quarter, they were pretty similar. I think, I get why you are guiding your revenue a little bit below your backlog, but given that you said labor situation is actually improving sequentially, I'm a little bit surprised that you're not guiding for somewhat similar revenue as your backlog. So, if you could talk about what sort of utilization you're assuming for Q4, especially given that you said you have an extra week? And then what's causing that discrepancy? I think that be helpful.

36:34 Sure. Yeah. On the labor front, yeah, the good news is that COVID cases have been trending downward, but that does not negate the fact that we still have significant labor challenges out there, both in terms of turnover and also in terms of labor availability. And those challenges will continue in the fourth quarter, at least from our vantage point. 37:11 We also have to take into account the prospects of the supply chain material shortages, continuing to impact us with various facilities and the logistics challenges. So, as we look at our production capabilities, we have to factor these elements in and frankly, that leads us to be a little bit conservative on the revenue side. 37:46 And I would add that as Todd pointed out, that additional week is really a – it's a holiday week. So, you really, you're looking at certainly additional expense. The opportunity to push out more revenue is pretty limited during that period of time. And so, that doesn't really have much impact on us. 38:13 Also Todd mentioned, we did build some revenue or some inventory last quarter. This quarter, we're looking at a situation where we're going to drive, if anything drawdown inventories, that's certainly our goal here, make sure that our inventories are properly in line to generate the cash that we need to as a company. 38:35 So, you put all that together and I'd say from a revenue standpoint, again, we're comfortable where we are. It's great to be in an environment, such a positive demand environment. We are working now to make the solid improvements that we need to operationally to have an impact on that backlog as we go into next year. 39:00 Todd, anything to add?

39:01 No, I think you hit it. There's a lot of holidays in the fourth quarter. So, when you look at on a production day basis, Q4 to Q3 is very little different even though it sounds like on paper there's an extra week.

39:14 Got it. And then on the cost mitigation actions that you were implemented, can you maybe talk about where we are in that process and how receptive your customers have been because it's no secret that the supply chain has been going through inflationary pressures, I think it's well understood. I'm just curious as to where we are in that process and how receptive the customers have been?

39:42 Sure. I think again, this an area that our teams have been working tirelessly and it's a lot of, like you said, generally recognized, but that doesn't mean the customers are pleased when they have to face a price increase. And so, what we have been doing here is really coordinating between our supply chain, our operations teams and the sales team make sure that we are as transparent as possible communicating with our customers about the increased cost pressures that we have felt. 40:19 As Todd said, those cost pressures filter in through the course of the year. Certainly, we'll continue in the fourth quarter. The third quarter, we did see some additional increases broad based, but not as extreme, fortunately as the first half of the year. And so, then you move over to the pricing side. We did a good job in Q3. I think we characterize that as, that we were seventy five percentage in terms of progress at the beginning of Q3 in passing on cost increases. We were able to pretty much close that gap in Q3. 41:05 In Q4, again, the bar goes up and we have an additional challenge as we have conversations with our customers. I would add that as you remember about fifty percent of our business is non-contractual. So, we're able to adjust quote models immediately as we forecast increases and/or is contractual, but contains material escalation [clauses] [ph]. It's the balance of the fifty percent that we're talking about here, which is contractual. 41:44 We had varying levels of contractual negotiation frequency and it's that piece that we've really been working on as a company. This is an interesting time in the fourth quarter because the number of our annual type contracts, particularly in automotive come up for negotiation in the fourth quarter. 42:04 So, I know our sales teams and business units will be working very hard this quarter on communicating with our customers and trying to really be forward looking as we look at ongoing impacts here of an inflation of a newly inflationary environment.

42:25 I just might add that Srini. I was just going to add, the other part of it, our mitigating, I use the word mitigating activity because it's not just all of about pricing, right. We have other measures that we are working very hard to try to use to help offset the pain of higher raw material costs. Be that looking at alternative suppliers, driving or gaining efficiencies as we build volume to help offset some of that negative cost, and driving just cost controls in general within our facilities to try to minimize the [pain] [ph] because pricing is a tough road to go. 43:09 Customers, like Tom pointed out, they understand it, but they don't like it. And so, you have to make sure you're doing everything you can to reduce the need to go to them, right? But we've been working all of those angles against the middle, if you will, to try to mitigate and we've done a good job here in Q2 and Q3. I think both quarters, we accomplished the goal. We're looking at Q4 and hoping to get to the same place, but there's still a little bit of work to be done. 43:39 Did you have a follow-on Srini?

43:41 Yes, just one. Tom, there's been a lot of noise about potential subsidies for the semiconductor industry and domestic manufacturing. I'm just curious if you have had any discussions in Washington, and if you foresee potentially TTMI benefiting from any sort of subsidy that might come out of there?

44:05 Yes. Let me make a couple of comments on that. I think on the aerospace, you know on the defense side in particular, I think there's a better understanding out there and really reflected in budgetary legislation around the defense spend defense as we look at next year. Around the weaknesses that the supply chain faces in terms of PCB production in North America. I think that's certainly of concern to our defense customers. 44:45 And so, I think it's a positive to see that there's a developing understanding in Congress and within the defense department of how critical print and circuit boards are to the capabilities into our infrastructure needs as a country. So, we'll see how that develops in terms of specific legislation activity. 45:14 I'd highlight another aspect, which you mentioned Srini, as you think about and as Congress looks at semiconductors, we've certainly been encouraging and educating around the need to broaden that definition to think not just about chips, but about the broader electronics manufacturing infrastructure. We like to say that chips don't float. It’s a saying that we use, which really is, I think it's important that be recognized that there needs to be an entire support structure around chips. 45:55 We'll see again, how the legislation ends up. I think it has been a broadening of definitions to include microelectronics, and that's a positive and we'll see what really comes out of Congress this year. But overall, we're certainly encouraged to see that there is more attention being paid to this issue now.

46:23 Got it. Thanks Tom and good luck.

46:26 Thank you.

46:29 Our final question will come from Mike Crawford with B. Riley Securities.

46:35 Thank you. Just before I ask about defense, can I just again here your answer about the, why the midpoint of your fourth quarter guidance would be forty five million dollars below to ninety day backlog you have right now?

46:49 Oh, sure. Yes. So, the backlog, as we look at the backlog that is – it is technically a ninety day backlog, but we are looking at a quarter, particularly North America where we have some ongoing challenges related to labor to material availability and logistics challenges. And so, as we look at the revenue projections for the fourth quarter, we need to include those challenges and so there's a bit of a shortfall if you will from the revenue as compared to the backlog.

47:30 Okay. Thank you, Tom. And I suppose in a different environment, sometimes you might actually book and ship and you could actually have a quarter, that's above the backlog or is it always some kind of shortfall relative to backlog?

47:45 This is an unusual circumstance, Mike. I'll be blunt. We saw a little bit of last quarter. If you remember, our backlog was pretty close to matching revenue last quarter, and we spoke about, again about the need to be careful and we were proven right. I think that's [every quarter] [ph], but it was really as we looked at the third quarter, we knew we were in the summer, we knew we were already seeing challenges on the labor front and we anticipated that. 48:19 So, this is again, a second quarter of this. It is unusual. Usually, we would have a portion of our revenue that we can book in the quarter and ship. But I talked a little bit, Will asked about the extended lead times, that's absolutely part of this. You can see an indication as lead time stretch that we’re just going to have real challenges booking and shipping within the quarter. So, it really does end up doing our best to ship as much of our backlog out during the course of the quarter as possible. So, yes, bit a little bit unusual.

49:00 Okay. Thank you. And then somewhat related, but when you're talking about TTM’s growth expectations for vertical end markets, I look at aerospace and defense where you had a one point three two book to bill on the quarter, a near one hundred million year over year jump and defense backlog, yet you're saying you expect to go slower than industries two percent to four percent growth rate, but is that just for fiscal twenty one? Is that what you mean by FY twenty one view, or you can’t – I don't think expect to grow slower than the industry in the next couple of years?

49:41 Absolutely Mike. Yes, that is, as you know, we have grown for the past several years, three, four years, we've been growing well above that rate. Actually, ever since the ViaSystems acquisition. So, you can step back to twenty sixteen and take a look at the numbers and we've been growing well above that rate. This year in aerospace and defense, we got hit by a couple of things. 50:12 One is, commercial aerospace weakness, and that has an impact on several of our facilities that really were focused on that area, primarily assembly needs in that area and so those facilities were impacted and then the other piece of this has been dealing with some of the ongoing challenges, production efficiency challenges in North America. 50:42 Certainly, that's heightened here in this past quarter. As we go into next year, certainly from a capital planning standpoint, we are planning on growth. We see a strong backdrop here in terms of program backlog to go out and service. As you know, we have capital capability with balance sheet capability to grow in aerospace and defense and we have differentiated technology offerings here. 51:15 So, our plan is to continue to grow in aerospace and defense. Hopeful that next year, we'll also see that turn in commercial aerospace and start to see at least some meaningful sequential improvements that will help feed into that story as well.

51:33 Mike, it’s Todd here. Just one other thing I'd highlight, aerospace and defense, unlike our commercial business, when we book orders, those orders are not necessarily for shipment in the next ninety days. Oftentimes those orders are shippable in the next one to two years. And so, it's, although the foundation if you look at the program backlog for aerospace and defense over seven hundred million dollars is a great number. It's not all shippable. And so, you got to have to look at the balance quarter to quarter and that plays into a little bit to some of the challenges that we saw this year, but when you look at the program depth and the strength over the next couple of years it's very favorable, but you could have little [blip] [ph] quarter to quarter.

52:19 Okay. Thank you for that clarification. And we saw Boeing today, you know a firm production increases in next year and we’re hearing the same from airbus, so I'm sure you'll be fine. Thank you very much.

52:30 Thank you, Mike. Appreciate it.

52:34 That will conclude today's question and answer session. I will now turn the call over to Tom Edman for any additional or closing remarks.

52:42 Thank you. Just like to close by summarizing some of the points that I made earlier. First, we delivered revenues and earnings in line with guidance despite production and labor inefficiencies in North America and supply chain challenges. Second, our end market diversification enabled solid year on year growth of thirteen percent for our ongoing business. And third, we used our strong cash position to repurchase our stock. 53:09 So, in closing, I'd like to thank you our investors again, our employees, our customers, and our supply chain partners for your continued support to TTM. Thank you very much.

53:23 This concludes today's call. Thank you for your participation. You may now disconnect.