TTM Technologies Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 5, 2025
Skip to Participants
Operator

Good afternoon. Thank you for standing by. Welcome to the TTM Technologies Inc. Fourth Quarter twenty twenty four Financial Results Conference Call. During today's presentation, all parties will be in a listen only mode.

Operator

Following the presentation, the conference will be open for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press 11 again. As a reminder, this conference is being recorded today, 02/05/2025.

Operator

Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations, will now review TTM's disclosure statement.

Sameer Desai
Sameer Desai
Vice President of Corporate Development & Investor Relations at TTM Technologies

Thank you, Sherry. Before we get started, I would like to remind everyone that today's call contains forward looking statements, including statements related to TTM's future business outlook. Actual results could differ materially from these forward looking statements due to one or more risks and uncertainties, including the risk factors we provide 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.

Sameer Desai
Sameer Desai
Vice President of Corporate Development & Investor Relations at TTM Technologies

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 in the Investor Relations section of TTM's website at investors.ttm.com. We have also posted on that website a slide deck that we will refer to during our call. I will now turn the call over to Tom Edmond, TTM's Chief Executive Officer. Please go ahead, Tom.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Thank you, Sameer. Good afternoon and thank you for joining us for our fourth quarter and fiscal year '20 '20 '4 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results, followed by a summary of our business strategy. Dan Bailey, our CFO, will follow with an overview of our Q4 twenty twenty four financial performance and our Q1 twenty twenty five guidance. We will then open the call to your questions.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Highlights of the quarter's financial results are summarized on Slide three of the earnings presentation posted on TTM's website. We delivered an excellent quarter and a strong full year in 2024. And I would like to thank our employees for their hard work and contributions in support of those results. In the fourth quarter of twenty twenty four, TTM achieved revenues and non GAAP EPS above the high end of the guided range. Revenues grew 14% year on year and represented the fourth consecutive quarter of year on year growth due to demand strength from our Aerospace and Defense, Data Center Computing and Networking end markets, the latter two being driven by generative AI.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

While the growth in revenues was partially offset by year over year declines from our Automotive and Medical Industrial and Instrumentation end markets, we achieved record high with the A and D book to bill at 1.14. With the A and D book to bill at 1.14. Demand in our aerospace and defense market, which was 47% of revenues for the quarter, continues to be strong and we now have a record program backlog of approximately $1,560,000,000 Finally, non GAAP EP operating margins were double digit for the second consecutive quarter and reflected continued solid execution. 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.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Over the past several years, we have consistently emphasized that a key part of our strategy is to add value to the product solutions that we deliver to our customers, particularly in the Aerospace and Defense market. As a result of strategic transactions in the aerospace and defense end market through the acquisitions of Anaren and Telephonics, over 50% of our revenues in aerospace and defense are now generated from engineered and integrated electronic products, with printed circuit boards contributing less than 50% overall. We have been successfully executing against this strategy and our Aerospace and Defense and Operations teams have steadily improved operating margins. The financial impact of this strategy really began to show in 2024 with revenues for the year up 9.4% and non GAAP operating margins up 70 basis points. And heading into the first quarter, we expect to see a significant reduction of the normal seasonal impact on non GAAP operating margins in comparison to the past four years.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Another important element of our differentiation strategy is our investment in a new state of the art highly automated PCB manufacturing facility in Penang, Malaysia to service customers in our commercial end markets. This new facility in Malaysia is supporting customers in markets such as data center computing, networking and medical, industrial and instrumentation. We continue to make progress ramping volume production as we navigate the necessary customer audits and qualifications. We gathered further momentum in the fourth quarter with solid bookings and we expect the ramp to continue to accelerate this year. I'd also like to update you on the consolidation of our manufacturing footprint.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

We previously announced our plan to close three small printed circuit board manufacturing facilities in order to improve total plant utilization, operational performance, customer focus and profitability. During the course of 2023, PCB manufacturing operations in Anaheim and Santa Clara, California and Hong Kong were closed and consolidated into TTM's remaining facilities. We continue to ramp production for the transferred parts at receiving facilities. We also previously announced plans to consolidate two smaller non PCB integrated electronics facilities in Elizabeth City, North Carolina and Huntington, New York into existing facilities in order to improve efficiencies. As of the end of fiscal year '20 '20 '4, the closure of Elizabeth City has been completed and the closure of Huntington is expected by the middle of twenty twenty five.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

After these consolidation plans are complete, TTM will operate a total of 22 facilities worldwide. Finally, I would like to update you on the previous announcement of our intent to expand our advanced technology capability for the aerospace and defense market through the construction of a new facility immediately adjacent to our existing Syracuse, New York campus. This new facility will focus on specialized high technology printed circuit board production, providing customers with reduced lead times and a significant increase in domestic capacity for Ultra HDI PCBs in support of increasing national security requirements for high technology PCBs. We are continuing construction for the new building and expect initial low rate production in 2026. As previously announced, we expect the investment for Phase one of the proposed project, including capital for campus wide improvements, to be in the range of between $100,000,000 to $130,000,000 We will be receiving support from both federal and state sources on the order of approximately $52,000,000 subject to certain requirements and contingencies, which will serve to offset the initial capital investment and lower operating expenses.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Now, I'd like to review our end markets, which are referenced on Page four of the earnings presentation on our website. The Aerospace and Defense end market represented 47% of total fourth quarter sales compared to 46% of Q4 twenty twenty three sales and 46% of sales in Q3 twenty twenty four. Revenues grew 16% year on year to an all time record high. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets and supplemental funding related to conflicts in Ukraine and The Middle East, our strong strategic program alignment and key bookings for ongoing franchise programs. We had a strong bookings quarter with a book to bill ratio of 1.14 leading to a record A and D program backlog of approximately $1,560,000,000 at the end of the fourth quarter.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

During the quarter, we saw significant bookings for the Patriot, MRAM and TPY4 programs. We expect sales in Q1 from this end market to represent about 47% of our total sales. Bookings in the Aerospace and Defense market ship over a longer period of time than in our commercial markets and provide good visibility into future revenue growth. For the full year, Aerospace and Defense revenues grew 12% due to strong demand and improved operational execution. In 2025, we expect end market growth to be above longer term market projections of 3% to 5%.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Sales in the data center computing end market represented 22% of total sales in the fourth quarter compared to 17% in Q4 of twenty twenty three and nineteen percent in the third quarter of twenty twenty four. This end market saw 44% year on year growth due to a record high due to strength from our data center customers building products for generative AI applications. The higher than expected revenues in Q4 were a result of pull ins from Q1. As a result, we expect revenues in this end market to represent 21% of first quarter sales. For the full year, data center computing increased 58% due to the increased demand for PCBs for generative AI applications.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

In 2025, we expect to be above the longer term end market growth of 7% to 9%, driven primarily by generative AI applications. The medical industrial instrumentation end market contributed 13% of our total sales in the fourth quarter compared to 16% in the year ago quarter and 14% in the third quarter of twenty twenty four. The year over year decline was generally the result of lower demand and ongoing inventory normalization, particularly in the industrial and medical areas. We saw increased demand from our semiconductor testing customers as generative AI drove increased purchases of automated testing equipment. For the first quarter, we expect the medical industrial instrumentation end market to be 13% of revenues.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

For the full year, MI and I declined 9% due to the continued inventory correction at many customers that began in 2023 following years of above market growth. In 2025, we expect growth to be in line with the 2% to 4% longer term industry forecast for this end market. Automotive sales represented 11% of total sales during the fourth quarter of twenty twenty four compared to 15% in the year ago quarter and 14% during the third quarter of twenty twenty four. The year over year decline for automotive was due primarily to continued inventory adjustments and soft demand at several customers. We expect our automotive business to contribute 11% of total sales in Q1.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

For the full year, automotive decreased 12% due to the inventory correction and weak demand at automotive customers as EV demand stalled in developed countries and Chinese OEMs took share in China. We expect this market in 2025 to be below longer term forecasts of 3% to 5% growth due to ongoing demand softness. Networking accounted for 7% of revenue during the fourth quarter of twenty twenty four. This compares to 6% of revenue in the year ago quarter and 7% during the third quarter of twenty twenty four. Year on year growth was 35%, the strongest in many quarters due to increased demand from certain networking customers.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

In Q1, we expect this end market to be 8% of revenues as this market continues to recover, driven by AI related demand and new products. For the full year, networking declined 11% due to inventory correction and weak demand. In addition, we sold the Shanghai BPA facility in Q1 of twenty twenty three that had $8,000,000 revenue in 2023. We expect this market to be above longer term forecasts of 2% to 5% growth in 2025. Next, I'll cover some details from the fourth quarter.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

This information is also available on Page five of our earnings presentation. During the quarter, our advanced technology and engineered products, which include HDI, RigidFlex, RF subsystems and components and engineered systems accounted for approximately 50% of revenue, a record high. This compares to approximately 47% in the year ago quarter and 49% in Q3. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology and engineered products capabilities in new programs and new markets. PCB capacity utilization in Asia Pacific was 59% in Q4 compared to 51% in the year ago quarter and 60% in Q3.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

On a year on year basis, utilization rates improved as data center demand continues to be strong and the networking market rebounded. Our overall PCB capacity utilization in North America was 34% in Q4 compared to 35% in the year ago quarter and 35% in Q3. As a reminder, North America utilization figures are not as meaningful as Asia Pacific because bottlenecks in these high mix low volume facilities tend to occur in areas outside of plating, which is the core process that we use for calculating utilization rates. Our top five customers contributed 44% of total sales in the fourth quarter of twenty twenty four compared to 44% in the fourth quarter of twenty twenty three. We had two customers with over 10% of our total sales in the quarter.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

At the end of Q4, our ninety day backlog, which is subject to cancellations and includes shipments into customer hubs, was $612,600,000 compared to $575,900,000 at the end of the fourth quarter last year. Starting in Q1, we will report total company backlog excluding shipments into the hubs to provide a more accurate measure of backlog. And as I mentioned earlier, our Aerospace and Defense program backlog increased from $1,330,000,000 at the end of Q4 last year to a record of $1,560,000,000 at the end of Q4 this year. Our overall book to bill ratio was 1.09 for the three months ended December 30. Now Dan will review our financial performance for the fourth quarter.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Dan?

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Thanks, Tom, and good afternoon, everyone. I will review our financial results for the fourth quarter that were included in the press release distributed today and are summarized in Slide six of the earnings presentation posted on our website. For the fourth quarter, net sales were $651,000,000 compared to $569,000,000 in the fourth quarter of twenty twenty three. The 14% year over year increase was due to growth in our aerospace and defense, data center computing and networking end markets, partially offset by declines in our automotive, medical, industrial and instrumentation end markets. For the full year, net sales were $2,400,000,000 compared to $2,200,000,000 in 2023.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

The 9% increase was driven by growth in our data center computing and aerospace and defense end markets, partially offset by declines in our automotive, medical, industrial and instrumentation and networking end markets. GAAP operating income for the fourth quarter of twenty twenty four was $9,000,000 inclusive of a $32,600,000 goodwill impairment charge related to the RF and S component segment compared to GAAP operating income for the fourth quarter of twenty twenty three of $34,600,000 On a GAAP basis, net income for the fourth quarter of twenty twenty four was $5,200,000 or $0.05 per diluted share, inclusive of a $32,600,000 goodwill impairment charge related to the RF and S component segment. This compares to GAAP net income for the fourth quarter of twenty twenty three of $17,300,000 or $0.17 per diluted share. The remainder of my comments will focus on our non GAAP financial performance. Our non GAAP performance excludes M and A related costs, restructuring costs, certain non cash expense items such as amortization of intangibles, impairment of goodwill, stock compensation, gains on the sale of property and other unusual or unfrequent items.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

We present non GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparisons with expectations and prior periods. Gross margin in the fourth quarter was 20.5% and compares to 21.3 in the fourth quarter of twenty twenty three. The year on year decrease was due to continued Penang startup costs, higher employee related costs and declines in the automotive market, partially offset by higher sales volume, particularly in the data center computing and aerospace and defense end markets and improve operational execution. Selling and marketing expense was $18,900,000 in the fourth quarter or 2.9% of net sales versus $17,800,000 or 3.1% of net sales a year ago. Fourth quarter G and A expense was $40,900,000 or 6.3% of net sales compared to $34,900,000 or 6.1% of net sales in the same quarter a year ago.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

In the fourth quarter of twenty twenty four, research and development was 7,600,000 or 1.2% of net sales compared with $7,300,000 or 1.3% of net sales in the same quarter last year. Our operating margin in the fourth quarter of twenty twenty four was 10.1%, a 60 basis points decrease from 10.7% in the same quarter last year, due primarily to the decrease in gross margin as I just mentioned. Interest expense was $10,700,000 in the fourth quarter of twenty twenty four compared to $12,900,000 in the same quarter last year. During the fourth quarter of twenty twenty four, there was a $14,100,000 foreign exchange gain below the operating income line compared to a $7,000,000 foreign exchange loss in the fourth quarter of twenty twenty three. The current year impact was primarily driven by unrealized foreign exchange gains from translation of our China and Malaysia balance sheets from local currency into the U.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

S. Dollar functional currency, which experienced significant appreciation against the local currencies in the fourth quarter. The full year 2024 net impact from foreign exchange gains and losses was a gain of $1,200,000 compared to a $3,900,000 loss in the prior year. Due to the significant quarterly volatility of unrealized foreign exchange gains and losses, driven by the translation of our China and Malaysia balance sheets from local currency into the U. S.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Dollar functional currency, we have determined it appropriate to remove the unrealized foreign exchange net impact from our non GAAP financial measures, beginning with our first quarter of twenty twenty five. In order to provide our financial statement users with comparative information, we have attached a second schedule to our earnings release that provides restated historical measures of non GAAP net income, non GAAP EPS and adjusted EBITDA. In addition, government incentives and interest income totaled $2,400,000 resulting in a net $16,500,000 gain or a 0.14 impact to EPS in the current quarter. This compares to a net loss of $2,300,000 or $0.03 negative impact to EPS in the same quarter of last year. Our effective tax rate was 12.3% in the fourth quarter resulting in tax expense of $8,800,000 This compares to a rate of 4.1% or a tax expense of $1,900,000 in the same quarter last year.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Fourth quarter twenty twenty four net income was $62,800,000 or $0.6 per diluted share. This compares to fourth quarter twenty twenty three net income of $43,000,000 or $0.41 per diluted share. Adjusted EBITDA for the fourth quarter of twenty twenty four was $108,700,000 or 16.7% of net sales compared with fourth quarter twenty twenty three adjusted EBITDA of $80,900,000 or 14.2% of net sales. Depreciation for the quarter was $26,500,000 Net capital spending for the quarter was $52,800,000 Cash flow from operations in the fourth quarter of twenty twenty four came in strong at $86,100,000 representing more than 13% of net sales. Cash and cash equivalents at the end of the fourth quarter of twenty twenty four totaled $503,900,000 Our debt net debt divided by last twelve months EBITDA was 1.2 times.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Now I will turn to our guidance for the first quarter of twenty twenty five. We project net sales for the first quarter of twenty twenty five to be in the range of $600,000,000 to $640,000,000 and non GAAP earnings to be in the range of $0.37 to $0.43 per diluted share, which is inclusive of operating costs associated with starting up our Penang facility. The EPS forecast is based on a diluted share count of approximately 104,800,000.0 shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG and A expense to be about 9.4 of net sales in the first quarter and R and D to be about 1.1% of net sales. We expect interest expense of approximately $11,200,000 and interest income of approximately $2,000,000 We estimate our effective tax rate will be between 1217%.

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Further, we expect to record depreciation of approximately $28,100,000 amortization of intangibles $9,200,000 stock based compensation expense of approximately $8,900,000 and non cash interest expense of approximately 500,000 Finally, I'd like to announce that we will be participating in the TD Cowen Aerospace and Defense Conference in Arlington, Virginia on February 13, the City Industrial Tech and Mobility Conference in Miami on February 20 and the JPMorgan Leverage Finance Conference in Miami on February 25. That concludes our prepared remarks. Now we'd like to open the line for questions. Operator?

Operator

Thank And our first question will come from the line of William Stein with Truist Securities. Your line is open.

William Stein
William Stein
Managing Director/Senior Research Analyst - Technology at Truist Securities

Great. Thank you for taking my questions. First, Tom, I think you talked about smoothing the seasonality in operating margin performance and that is apparently reflected in your Q1 guidance.

William Stein
William Stein
Managing Director/Senior Research Analyst - Technology at Truist Securities

Can you talk about what's changed that's allowing you to do this and maybe quantify the effect?

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Sure.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes, let me address I think the changes in the business that have allowed us to do this. The biggest shift has been improving that A and D revenue mix. And as we've done that, we've effectively over time brought over the last six years, we brought A and D up from a level of approximately around 25%, thirty % now to where we're looking at 47%, forty six %, forty seven %. So that shift in revenue, the consistency of performance associated with the North America facilities that we added there, the integrated electronics facilities as we call them, the non PCB facilities, bringing that into our mix, that has allowed us to really improve in terms of that Q4 to Q1 compare. We still do in A and D, we still do see a little bit of seasonality.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Q4 tends to be a better quarter, but it's not as dramatic of a drop off. The second thing we did is really related to our commercial business and that in 2020, we sold our mobility business. That was a business that really relied on the consumer products area, very seasonal, strong in Q3, Q4, big drop off in Q1 and then into Q2. And also and therefore a very difficult business to manage from the standpoint of a highly asset intense business and then working with that seasonality, which always put pressure on our margins. So selling that business, improving the A and D mix And then on the commercial business, we've just continued to build that strong business to business connection with our customers.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Again, these are longer cyclical, longer cycle markets. Yes, we still do have Chinese New Year and that is a factor certainly in Asia, does affect our production volumes, but the demand base is certainly stronger and stronger over time. So that's the real combination that has worked for us. And from a quantification standpoint, we used to see revenues could drop off 15%, twenty % in that quarter. They certainly today are much more consistent as we go from Q4 to Q1.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Dan, do you have anything to add there?

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

No, I'd agree with that. And that will drive with the volume staying up, that will drive improvement in the margins obviously considerable over the same comparative last year.

William Stein
William Stein
Managing Director/Senior Research Analyst - Technology at Truist Securities

Great. As a follow-up, I'm hoping you can give us a bit more detail on Penang. A few quarters ago, you pushed out the sort of timing to ramping to breakeven, but I think you've reiterated that sometime what Q3 or thereabouts. I'm just hoping you can maybe tell us what how much revenue Penang generated in Q4? What's contemplated in Q1?

William Stein
William Stein
Managing Director/Senior Research Analyst - Technology at Truist Securities

And what's the timing of the breakeven? Any details you can offer us there? Thank you.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Q4 revenue level, very, very small, really not material in Q4. As we start to look at Q1, we'll be pushing up to somewhere, let's just say in the $4,000,000 to $5,000,000 range, Will. So still a good start in terms of commercial production. We still as we ramp that commercial production, we're going to be working through that yield curve, particularly as these are new parts that we're putting into production. But it's nice to see that level of revenue coming in and encouraging in terms of starting to see the program intersection occur.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

So we had been waiting for qualifications to come through, those have been coming through and now we're starting to see program intersection, so we can start to register revenue at the facility. So that will continue through the course of the year as we ramp into programs and you're correct that we've been we're still looking at that Q3 time period to get to that breakeven level.

William Stein
William Stein
Managing Director/Senior Research Analyst - Technology at Truist Securities

Thank you.

Operator

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

Operator

Your line is open.

Mike Crawford
SMD & Head of Discovery Group at B.Riley Securities

Thank you. You talked about some bookings and Patriot, Amram, some others in Aerospace and Defense. Is there a way you could break down the percent of backlog or program backlog of PCB versus integrated electronics?

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

So roughly, if you look at backlog levels, it reflects pretty well reflects our revenue mix there in A and D, Mike. So about fiftyfifty approximately. We did bring as Spheric use comes into the mix in early next year, we'll probably see the PCB revenue come up a bit as that increases in the balance against some of the organic growth that we continue to see in IE. So again, roughly half and half in terms of the backlog.

Mike Crawford
SMD & Head of Discovery Group at B.Riley Securities

Okay. Thanks, Tom. And I guess related to that would be potential yield curve effect and margin impact or expense it as you start the LRIP at the new PCB facility in 2026 versus I suppose it would probably be early twenty twenty seven more than it would start to be running a little bit more smoothly and how that might all affect margins?

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

So I'll let Dan talk about a little bit about the margins, but let me explain a little bit of how the process will work in the case of Syracuse. We will be working very closely hand in hand with our primary customer on that facility. And so what you'll be seeing there is the equipment as we bring it in And then in early next year, we'll be running that equipment as part of really a qualification there. And so you won't see significant impact until you get through the first part of next year. Now remember the revenues associated with the plan also are in the $100,000,000 at full production level rate.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

So it's not going to be anywhere as significant in terms of revenue contribution as Penang certainly not in the early stages. But Dan, you have any further comments there?

Daniel Boehle
Daniel Boehle
Executive VP & CFO at TTM Technologies

Yes, I just echo that comment there that it's half the size of Penang. And so you won't expect the same level of headwind to the margins. And currently, I mean, we don't give one year or two year guidance, but it's going to be minimal impact to 2025. And I would say, much less than Penang in 2026 as we ramp up because of the relative size.

Mike Crawford
SMD & Head of Discovery Group at B.Riley Securities

Okay. Thank you. And just final question would be, I know it's not plating as a bottleneck in North America and your high mix facilities, but what are the main bottlenecks there in North America today and might that be similar to what you might expect in Syracuse or not?

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes, that's a good question. So the bottlenecks absolutely move around in those kinds of facilities. Interestingly, front end engineering, so you start with front end can be an area where we have problems getting if we get hit with a lot of orders that can be an area where we bottleneck. Going into the other two significant areas that we can bottleneck in our drill, the drill area and then the test area. Again tend to be smaller facilities, tend to have more single point or perhaps only one backup piece of equipment to use when you're seeing orders rise.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

So depending on the complexity of the part, depending on the speed required, you're going to see those bottlenecks move around the facility. And you're absolutely right. We're in really good shape on plating capacity in North America at this point. We added significantly in capacity. We've been using some of the knowledge that we gained in our commercial operations and that's been informing our purchasing equipment purchasing strategy.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

And so over the last two years, we have added significant plating capacity in North America that gives us that flexibility to respond. As we get into Syracuse, you're going to see with an Ultra HDI facility, a lot of weight on the plating. So, but the facility will be built for that. We're building it to handle the kind of high layer count that's going to be required and the high density interconnect requirement. So we're building it with that in mind.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Again, if it's not going to be plating, what you'll see is primarily drill and test will be areas where we may face challenges.

Mike Crawford
SMD & Head of Discovery Group at B.Riley Securities

Great. Thank you very much.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Thank you, Mike.

Operator

Thank you. One moment for our next question. And that will come from the line of James Ricchiuti with Needham. Your line is open.

Chris Grenga
Equity Research Associate at Needham & Company

Hi, good afternoon. This is Chris Gringa on for Jim.

Chris Grenga
Equity Research Associate at Needham & Company

I was just wondering if

Chris Grenga
Equity Research Associate at Needham & Company

you could elaborate on the pull ins that you saw in the data center end market and whether you expect that to be a headwind in the current quarter or if strong demand there is going to backfill that pull in activity you saw in Q4? Thank you.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes. Great question, Chris. So it's a little bit it's going to be a little bit of both. We as you can see as we're looking at Q1, we are expecting Q1 to be sequentially down slightly from Q4. That is a function of yes, the pull in plays into that.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

The other piece though is Chinese New Year. So we are operating one of the primary facilities for data center and networking during Chinese New Year, but the balance of our facilities in Asia will be down for Chinese New Year and that has an impact in terms of our ability to ship additional product out. So it's a combination of those two factors.

Chris Grenga
Equity Research Associate at Needham & Company

Got it. How are you now that sort of the contours of the tariff regulations are starting to come into view, how are you approaching that? And I guess what types of conversations are you having with your customers around abating or minimizing the impact of those tariffs?

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes. So I'm glad the contours are coming into view for you. We're still staying very trying to stay as close as possible to the situation. And I'll tell you, so we have a number of scenarios modeled of course internally. And certainly in the case of direct imports of PCBs from China into The U.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

S, our customers own those PCBs and it remains a very small portion of our revenue. So an additional 10% tariff there may cause what's left, which is if you look at revenue about 3% of last year's revenue, that portion may shift. What our customers have done a very good job of is cross qualifying now with multiple assembly locations. So if they do see tariffs move, what we'll see potentially is the shift to will change into another geography, but and they will at least for a period of time ask us not to ship into a geography that's affected by the tariffs. So that's been it's actually quite impressive.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

The flexibility has now been built in from a supply chain resiliency standpoint with the contract manufacturers that we're shipping to. So that's the primary mitigation strategy that our customers are using.

Chris Grenga
Equity Research Associate at Needham & Company

Great. Thank you very much. Thank you.

Operator

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Tom Edmond for any closing remarks.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Yes. Thank you. Just wanted to again reiterate that to thank everyone for joining us on today's call. And then just to summarize some of the major points that we hit in the call. We delivered strong revenues and growth in Q4, '14 percent year on year, record revenues in aerospace and defense and the data center computing markets.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Second, we had a second consecutive quarter of double digit operating margins. Third, we generated a healthy cash flow from operations of 13.2% of sales and we were able to bring our net debt to EBITDA leverage down to 1.2 times. So fantastic project there, our progress there from a financial standpoint. And of course, we continue to focus on our strategic initiatives as we bring up our new facility in Penang and complete the construction this year of our facility in Syracuse. So in closing, I'd just like to thank all of you, our employees and our customers of course for your and their continued support as we navigate twenty twenty five going forward.

Tom Edman
Tom Edman
Chief Executive Officer at TTM Technologies

Thank you very much. Goodbye.

Operator

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

Executives
    • Sameer Desai
      Sameer Desai
      Vice President of Corporate Development & Investor Relations
    • Tom Edman
      Tom Edman
      Chief Executive Officer
    • Daniel Boehle
      Daniel Boehle
      Executive VP & CFO
Analysts
Powered by Quartr
Earnings Conference Call
TTM Technologies Q4 2024
00:00 / 00:00

Transcript Sections