Analyst Conference Summary

conference date: August 1, 2013 @ 1:30 PM Pacific Time
for quarter ending: July 1, 2013 (Q2, second quarter)

Forward-looking statements

Overview: Solid quarter.

Basic data (GAAP) :

Revenues were $338.0 million, up 4% sequentially from $325.4 million and up 3% from $327.4 million in the year-earlier quarter.

Net income was $13.1 million, up 150% sequentially from $5.2 million, and up 77% from $7.4 million year-earlier. But see non-GAAP numbers.

EPS (earnings per share) were $0.16, up 167% sequentially from $0.06, and up 178% from $0.09 year-earlier.

Guidance:

Q3 2013 revenue range expected between $335 and $355 million. Non-GAAP EPS $0.13 to $0.19. Growth to be driven by touchpads and smartphones.

Conference Highlights:

Results were in line with guidance. Networking and telecommunications end markets were strong, but there was some softness in computing end market. A $2 million quality issue impacted EPS negatively.

Non-GAAP net income was $7.7 million, down 28% sequentially from $10.7 million and down 44% from $13.8 million year-earlier. EPS was $0.09, down 31% sequentially from $0.13 and down 47% from $0.17 year-earlier. EBITDA was $39.1 million, flat sequentially from $41.5 million and down from $45.1 million year-earlier. Non-GAAP net income and EPS were lower than GAAP because of the exclusion of the gain on the SYE transaction.

Non-GAAP gross margin was 14.4%, down from 15.7% in Q1 due to the quality issue in Asia.

"On June 17, 2013, TTM completed the transaction to sell its controlling equity interest in the SYE plant and to acquire the remaining equity interest in the DMC plant. The remaining portion of the cash settlement for this transaction is pending and expected to be completed during the third quarter of 2013. It will generate approximately $80 million net for TTM. This transaction reduces TTM’s footprint for conventional PCBs in Asia Pacific and over time is expected to improve capacity utilization and gross margins." It also shifts the product mix to higher-margin products.

Asia segment did well with $209.6 million in sales, but utilization declined due to holidays. 53% was advanced technology, compared to 51% in Q1. Capacity utilization was about 67%. ASPs increased 3%. $6.6 million operating income.

North America segment utilization was up to 69%. ASPs up 1% on mix changes. $129.7 million sales, up 5% sequentially, with improved margin and utilization. $8.7 operating income.

Aerospace/defense represented 16% of total, flat sequentially. Expects stability in Q3.

Cellular Phones represented 17% of total, flat sequentially. Expected to grow to 22% in Q3 due to seasonal

Computing, storage and peripherals were 16% of total, down from 19%. This was due to seasonal decline in touch pad and other computer

Medical and industrial were 8%, flat sequentially.

Networking and communications end market was 38% of total sales as the segment saw strength. Expects solid demand from China LTE . But divestiture of SYE plant will reduce sales in Q3.

Other was 5%, down from 6% in Q1. But expected to return to 6% in Q3.

Top five customers: Apple, Cisco, Ericsson, Huawei, and Juniper. They accounted for 38% of sales in quarter, down from 35% in Q1. One customer accounted for 14% of sales in the quarter.

Increasing to $114 million capital expense budget in 2013 for more advanced.

Cash and equivalents ended at $230.5 million, down sequentially from $284.1 million, but $80 million became receivable from sale of assets. $40 million inter-company loan repaid to SYE. Operating cash flow was $58.7 million. Reduced revolving line of credit by $30 million to zero. $314.5 million in net debt, up $22.6 million sequentially. $22 million depreciation. $35 million capital expenditures.

Cost of goods sold was $338.0 million, leaving GAAP gross profit of $48.5 million. Operating expenses of $20.1 million consisted of: sales and marketing $9.6 million; general and administrative $26.1 million; amortization $2.3 million. Leaving operating income of $28.3 million. Interest expense was $5.9 million. Other income $0.6 million. Income taxes $9.3 million. Loss from noncontrolling interest $0.6 million.

Q&A:

Demand outlook color on tablets and smartphones (which differs from other suppliers)? In Asia the tablets and smartphones are seasonal. We just started the smartphone business in 2012, so we have won market share. Networking is going strong in North America, especially with core and edge routers.

Book to bill in North America was 1.16, and was 1.32 in July. 1.05 in Asia, up to 1.2 in July. We seem to be doing better than the industry as a whole.

Gross margins? Improvement has been driven by increased revenue, resulting in better utilization. The Q2 quality issue is behind us. The SYE divestiture also helps because of the resulting mix change.

Raw material effects on margins? We are seeing some lower commodity prices, but they don't make up a big part of our cost structure. The advanced technologies have higher material costs than the standard technologies.

Cash use? We are generating cash from operations, and receiving $80 million from SYE transaction. We increased our cap ex budget. We paid off our revolving line of credit. The other debt comes due over time. Cash is earmarked for supporting operations and addressing debt as it matures.

We made some share gain in telecom, but we also saw demand improvement, about half and half in north america.

Impact from SYE in Q3 guidance? $345 million midpoint reflects no SYE revenue, which was $25 million in Q2. So we are growing despite losing SYE.

The forecast is for LTE to be released in China towards the end of the year. Meanwhile only revenue is from prototypes.

Networking expectations? We are mainly in core and edge routers. Not a big marketplace, but not many competitors. We expect to gain market share because of relationships with customers.

Historically in Asia we do about 45% of revenue in first half, 55% in second half.

Smartphone and tablet Q3 ramp, new OEMs or current OEMs? Mostly it is just seasonal, but we are strengthening our positions with customers with investments in advanced HDI and our expertise.

Quality issue was with a new advanced HDI product. We rectified it, and moved to 100% testing instead of just sampling.

19% gross margin and 10% operating margin are still the goals.

Lead times? Expanded, reflecting a strong backlog.

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