Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies' Third Quarter Fiscal 2023 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. As a reminder, this conference is being recorded today, November 1st, 2023. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's disclosure statement.

Before we get started, I would like to remind everyone that today's call contains forward-looking statements, including statements related to TTM's future business outlook. Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties, including risk factors we provided in our filings with the Securities and Exchange Commission, which we encourage you to review. These forward-looking statements represent management's expectations and assumptions based on currently available information. TTM does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or other circumstances except as required by law. We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP and we direct you to the reconciliations between GAAP and non-GAAP measures included in the company's earnings release, which is available on the Investor Relations section of TTM's website at investors.ttm.com. We have also posted on the website a slide deck that we will refer to during our call. I will now turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go-ahead Tom.

Thank you, Samir. Good morning and thank you for joining us for our third quarter fiscal year 2023 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our third quarter results, followed by a summary of our business strategy. Dan Boehle, our CFO, will follow with an overview of our Q3 2023 financial performance and our Q4 2023 guidance. We will then open the call to your questions. The quarter's results are also shown on Slide 4 of the investor presentation posted on TTM's website. We delivered an outstanding quarter despite the current uncertain macroeconomic environment and I would like to thank our employees for their hard work and contribution to generating these results. In the third quarter of 2023, non-GAAP EPS was well above the guided range as a result of better operational execution, particularly in our North America region. Revenues were within the guided range due to better-than-expected results from our aerospace and defense and data center computing end markets, which were offset by lower-than-expected results from our medical, industrial and instrumentation, automotive and networking end markets. Demand in our aerospace and defense market, which was 45% of revenues, continues to be solid with strong backlog, offset by weaker demand in some of our commercial end markets. As we look into Q4, we see a mixed picture in our end markets with sequential growth in our automotive market, stability in the aerospace and defense and MI&I markets and a decline in the data center computing and networking markets. I would now like to provide a strategic update. TTM is on a journey to transform our business to be less cyclical and more differentiated. Over the past several years, TTM has consistently emphasized that a key part of our strategy…

Thanks Tom and good morning everyone. I will review our financial results for the third quarter that were included in the press release distributed today as well as on Slide 6 of the earnings presentation that is posted on our website. For the third quarter, net sales were $572.6 million compared to $671.1 million in the third quarter of 2022. The year-over-year decrease in revenue was due to declines in our automotive, medical, industrial and experimentation and networking end markets, partially offset by growth in our data center computing end market. GAAP operating loss for the third quarter of 2023 was $10.2 million. This compares to operating income of $49.8 million in the third quarter of 2022. The current year results include a goodwill impairment charge of $44.1 million related to the RF&S components reportable segment, which was the commercial portion of the Anaren business we acquired in 2018. Due to weak demand from telecom equipment companies in the wireless infrastructure market, projected revenues and profits have been reduced, resulted in the impairment. On a GAAP basis, net loss in the third quarter of 2023 was $37.1 million or $0.36 per diluted share. This compares to GAAP net income of $43.5 million or $0.42 per diluted share in the third quarter of last year. The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes M&A-related costs, restructuring costs, certain non-cash expense items such as amortization of intangibles, impairment of goodwill and stock compensation, gains on the sale of property and other unusual or under grid items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparison with expectations and prior periods. Gross margin in the third quarter was 20.8% and compares to 19.7%…

Thank you. At this time, we'll conduct the question-and-answer session. [Operator Instructions] Our first question comes from Jim Ricchiuti with Needham & Company. Your line is open.

Hi, good morning and congratulations by the end of the quarter. I wanted to talk to you a little bit about the strength you saw in gross margins. You talked about some of the factors that contributed to it in a clearly mix. The utilization in North America, I wanted to understand that a little more because it looks like the PCB capacity utilization didn't change from Q2, yet you're talking about better efficiencies in North America contributing to the performance. So, maybe you could start there and just give me a little better understanding as it relates to that? Thanks.

Sure Jim. Let me -- I'll comment first on the utilization, and then I'll let Dan cover the gross margin. In terms of utilization in North America, we always look at this as, when it comes to North America, not a great indicator because we're really focused on plating capacity in terms of the calculation. And as we highlighted in the script, and this is a great example of this quarter where we actually, with some of the more advanced products that we were running, we found that plating was not the bottleneck. We were running into bottlenecks elsewhere in the process. And so, in that case, when we're running high mix, low-volume product, we're running a bit higher ASP, more advanced product, that plating capacity indicator isn't really all that accurate. So, it was a better quarter, certainly in North America than that utilization number indicates. I also wanted to just highlight that we have added plating capacity, actually, a very efficient plating capacity. We've added into several of our facilities in North America over the last 18 months or so. We've added that capacity primarily for capability purposes because we were seeing customers move in a direction in terms of quality requirements that demanded an upgrade in our plating capacity also allowed us to incorporate more automation and therefore, lower the labor content in those facilities. Those are the primary reasons for adding plating capacity. But again, if you look at the total plating capacity calculation, that means we're adding plating capacity and therefore, utilization rates would fall. So, hopefully, that gives you an explanation for utilization, Jim. Over to you, Dan, on gross margin.

Thank you, Tom and hi Jim. Primarily, the gross margin improvement sequentially in both North America and Asia-Pacific are driven by labor and production and efficiencies improvement. And in North America, in particular, increased improvement in our supply chain management. We're still working down the path towards managing the supply chain in the IE area, but we are getting better there. So, that's improved a bit. And then favorable mix in both North America and Asia-Pacific, primarily in Asia-Pacific as well, favorable product mix in Q3 versus Q2.

And just as a reminder, when Dan first -- IE, that's the integrated electronics portion of our North America production. So, it's the non-PCD portion of North America production.

Got it. And the follow-up question I have, and Tom, you alluded to it, just the unfortunate increased geopolitical crisis. I'm wondering if any, effects are you seeing or hearing from your defense customers in light of what's going on?

Yes. So, it usually takes a while, Jim, for that to filter through to us. I think if you look at Ukraine, as an example, took our customers about 12 months to get defense department signals through to their order book and then they did redesigns and started placing orders to us. So, it's 12 to 18 months before we started seeing heightened demand, Javelin being a great example of that. Certainly, I have seen that heightened demand coming due to the Ukraine conflict. I would expect the same as the government supports Israel, again, I would expect that to take a while 18 months a good indicator in terms of how long it takes for those signals to travel through the chain. In the meantime, of course, demand signals continue to be very strong from our defense customers. And again, we enjoyed a strong bookings quarter, expecting the same, if not better, in the fourth quarter.

Got it. Thanks very much.

Thank you.

Our next question from Mike Crawford with B. Riley Securities. Your line is open.

Thank you. Also, in defense, I know that you're breaking out space separately now at 7% of A&D revenue and I know you're chasing commercial space opportunities. There are a lot of commercial space players out there. Are there some are way bigger than others? Are there any of that like SpaceX that is just vertically integrated and you're not pursuing? Are you talking to everyone? Or is anyone more promising than others?

Okay Mike, how are you doing? So, on commercial space in particular, there are interesting developments going on there. I would say that we talk to most of the major players in commercial space. Some of those players are intent more on cost reduction than supply chain resiliency. When that becomes the case, where that's business that we may not pursue when they're looking at quality requirements and/or supply chain resiliency requirements that we can service out of North America or in the future out of Malaysia, that's when there's a decent fit. And so certainly heightened interest there from the customer base in terms of supply chain resiliency. As you may know, today, Taiwan is the main source of supply, the commercial satellite area. And some of the customers are comfortable with that. Some of the customers are concerned that, that really isn't a long-term supply chain resiliency strategy and are looking at moving some business. So, we're going to continue to try to build the connections overall. And the last thing I'd highlight, Mike, is we -- and I mentioned this last quarter, we have now two business units within our aerospace and defense business, which is over $1 billion now. One is focused on RADAR. The other is really focused on C4ISR plus space. And that business really is working on developing that commercial satellite and defense space business. So definitely an area that we're focused on.

Okay, thank you. Just one more. You've had this customer engagement side for a long time and it shows time from concept to prototype to pilots and production with AMD being the longest, but aren't you seeing those cycles shorten given the Department of Defense's attempted shift to improve cycle-times and move to more rapid iterative deployments particularly with the Space Force, but other parts of the DoD as well.

So, definitely, that's the intent of the DoD to start to shorten. I talked about that 18 months, sometimes 24 months in terms of how long it takes for a given program to work its way through. There is a definitely a heightened sense of urgency coming out of the Pentagon. I would say, Mike, that, that has yet to really translate into a concrete activity or changes in process. So, certainly, I know our customers are focused on this. The primes are focused on this. They're working with the Department of Defense. I think that would be a really positive development in defense. And certainly, the intent is there. So, again, that's going to take some decisions, some critical process-related decisions, and we'll see how that all unfolds. But so far, it hasn't happened, but good positive signals that it may in the future.

Okay. Thank you very much.

Thanks Mike.

Our next question comes from William Stein with Truist Securities. Your line is open.

Great, thanks for taking my question. I'd like to ask for an update on supply chain conditions, in particular, in the aerospace defense part of the business. As I recall, this has created very long lead times for you to deliver? And I wonder if there's been any change in that or any anticipated change in the near future?

Yes, thanks Will. So, we've been focused and really for -- particularly since the acquisition of Telephonics, as you move up in terms of complexity. So, if you start at the printed circuit board foundational level, that's not where the major constraints are. It really is concentrated in that integrated electronics area that Dan highlighted. That's about 50% of our defense business. So, that's where we're focused on. Assembly is relatively complex but when you move to a full system build, that's when it really gets complex. We have been focused on incremental quarter-by-quarter improvements. We made some critical decisions soon after the acquisition in terms of larger orders with our supply base to get their attention on critical bottleneck areas. I'm glad to say that those parts are now arriving. So, think about that lead-time. So, we're looking at essentially a year that it took to get a number of those bottlenecked parts and start to see them showing up on our docks. But they are showing up now. That's great. So, the decisions that we made then starting to pay off now. We're going to continue to work on that incremental quarterly improvement, but we do still see supply chain constraints on that side of the business and better than it was, partly because of decisions we made partly because the climate has improved a bit, our suppliers have been able to ramp a bit, labor availability has improved, allowing them to do that. But we still have those constraints, Will. And I think they'll carry out, as I've said, through the end of this year into early next year, we'll continue to see those constraints, but making progress. That's the key.

I do have a follow-up, if I can. I'd like to ask about the new facility that you're building in Syracuse. Is that intended to address incremental demand in the future? Or will this be more a matter of shifting and consolidating where you build into a new, more efficient factory?

So, two-part answer, Will. Number one, absolutely, this is new program requirements. These are future requirements for obvious reasons, I can't go into great detail. But what I can tell you is, as in our commercial world where customers are driving towards miniaturization. So, trying to get more components onto a smaller space, smaller footprint. That's critical, carrying faster and faster signal speeds, critical. Then material changes to handle the thermal management required to carry those speeds and is also critical. So, all of those facets are feeding into program demand. This is future program demand and while I say that future ramped demand. So, the second part of that question is we are building some ultra HDI boards today in our existing footprint. It is rather inefficient and the yields are not optimized. So, relatively small volumes today, thank goodness, because as you know, some of this demand could overwhelm a given small facility. So, the facility that we are going to build in Syracuse will be purpose-built to build ultra HDI printed circuit boards in an efficient process that deals with the bottleneck areas that we struggle with today. So that's how we're looking at this developing. That will free up a bit of the capacity in some of our smaller facilities today that are struggling to build these boards, successfully building them, but not as efficiently as we will be able to in the future.

Thank you.

Thank you, Will.

[Operator Instructions] Our next question comes from Chan Park with Stifel. Your line is open.

Good morning and thanks for taking the question. I just had one on your data center business. You saw some nice upside in the quarter. So, could you talk a little bit about how you differentiate versus some of the Asian peers or competitors you guys compete against? And if I'm doing the math correctly, your Q4 guide implies a sequential decline. So, could you talk about the sustainability of some of these AI ramps into 2024 and the visibility you're getting from some of your customers?

Sure. Yes. So, differentiation in terms of competition, what we focus on -- and this is true of several of our commercial areas is really differentiating through our field application engineering support for those customers. So, if they're early in their design phase, supporting that design and then doing the proper design for manufacturer for those customers responsibly in a way that allows us to do the prototyping and that prototyping developing into commercial production and ramp in our facilities. Fortunately, that's gone well with the latest generative AI and a product. And that product, generally, right now, we're seeing about 50% of our data center computing demand coming from that generative AI area. You're correct that sequentially, we're looking at being slightly down in the fourth quarter in data center. But year-on-year, still strong double-digit improvement and what's happening there. So, a few things. On the positive side, we're seeing a little bit of a better spread from a customer standpoint. So that's good to see and what we expected to see and that's starting to happen here as we are moving into the fourth quarter. In the meantime, our customers are dealing with tight supplies, particularly of chips as we understand it. They're seeing very strong demand, but a little bit of tight supplies in certain areas that are supporting a slight decline in demand and then an anticipated pick up again through the course of next year. So, I would view that as a short-term situation. Also, just as a reminder, we really saw a fantastic growth this last quarter. We were up 55% sequentially in data center. So, those were orders to fill requirements, early-stage requirements and into ramp for our customers, though it's also quite natural that there'd be a little bit of a slowing down there in demand that we've got the inventory in place as the customers now take that inventory into their product. So, that's really what we're seeing in data center.

Thanks very much.

Thank you. That concludes the question-and-answer session. At this time, I would like to turn it back to Tom Edman for closing remarks.

Okay sure. I do want to cover one area usually asked a question about, which is automotive, to let you all know that we did have a strong bookings quarter in terms of programs in automotive. We booked a lifetime program value of approximately $125 million. That compares to the second quarter of last year when -- sorry, second quarter of this year, when we booked $95 million. And year-to-date, we have now booked from a program booking standpoint, a lifetime value of $564 million. All of last year, we booked a value of $530 million. So, really strong success there. Those programs, of course, feed into production of record. Generally, the following year to 18 months after we've registered the booking. And then those programs are spread out over multiple years. But good to see that kind of momentum. And then finally, I just wanted to thank everyone for joining us, reiterate a few of the critical points. Number one, we delivered non-GAAP EPS well above our guided range. That was due to improved execution in North America and revenues were in line with our guided range. Second, strong cash flow from operations at 10.3% of revenue that enabled us to repurchase stock and maintain our solid balance sheet. Third, we announced our intent, as you saw, to build a new advanced printed circuit board facility in North America in Syracuse, adjacent to our existing Syracuse facility to serve our aerospace and defense customers. Really excited to be able to announce that greenfield effort for our defense customers feeding future demand. So, really a tremendous quarter. Again, I'd like to thank our employees, our supply base as well our customers, and of course, all of you for your support. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.