Analyst Conference Summary

conference date: April 30, 2014 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2014 (Q1, first quarter)

Forward-looking statements

Overview: Weak quarter, even accounting for seasonality, weak guidance for June, but looks to better second half.

Basic data (GAAP) :

Revenues were $291.9 million, down 20% sequentially from $366.1 million, also down 10% from $325.4 million in the year-earlier quarter.

Net income was negative $3.8 million, down sequentially from $11.3 million, and down from $5.2 million in the year-earlier quarter.

EPS (earnings per share) was negative $0.05 , down sequentially from $0.14, and down from $0.06 year-earlier.

Guidance:

Q2 2014 revenue expected between $290 and $310 million with non-GAAP EPS of $0.02 to $0.08. Note prior year had $25 million in SYE revenue. 28% to 32% effective tax rate. Stock compensation expense around $2 million.

In second half of year TTM is positioned well to leverage expected higher demand.

Conference Highlights:

While revenue is down, partly this is from the sale of the SYE plant during Q2 2013. SYE generated $23 million in revenue in Q1 2013.

Seasonality was "somewhat more pronounced" in the past due to the cellphone market. But networking/communications demand was solid. Believes advanced technologies will help TTM with product ramps in the second half.

Non-GAAP net income was $1.2 million, down sequentially from $22.1 million. EPS was $0.01, down sequentially from $0.27 and down from $0.12 year-earlier. EBITDA was $29.1 million, down sequentially from $58.4 million. Gross margin was 13.3%, down sharply sequentially. Excludes cost of early debt extinguishment, etc.

There was a $3.6 million unrealized, non-cash foreign exchange loss in the quarter.

54% of Asian revenue came from HDI, flex, rigid-flex and substrate. $165.7 million total revenue in Asia in the quarter, down 28.5% sequentially. 12.9% gross margin. Capacity utilization in Asia was 62%, partially from Chinese New Year holidays.

North American facilities operated at 61% capacity, a slight improvement sequentially. Total revenue was $126.6 million, down 6% sequentially, with 13.7% gross margin.

Aerospace/defense declined slightly sequentially and represented 17%, up from 14% in Q4. A positive defense booking trend has emerged, so again about 17% of total in Q2.

Cellular Phones declined more than expected and represented 15% from 24% in Q4. Expects to decline to 13% of total sales in Q2.

Computing, storage and peripherals were 18% of total, down from 23% in Q4. Demand was down for touchpad, tablet, and server PCBs. Expects a slight decline in Q2 and to be 17% of sales.

Medical and industrial were up modestly, representing 10% of revenue, up from 8% in Q4. Q2 expected 10% of sales.

Networking and communications end market revenue was flat sequentially and was 34% of total sales, up from 27% in Q4. Relative strength was driven by Chinese LTE introduction. Excluding SYE plant sale revenue was up 9% y/y. In Q2 sees revenue up and representing about 37% of total.

Other was 6%, up from 4% in Q4. Automotive and gaming sales increased. Expects again to be 6% of total sales in Q2.

Top five customers: Apple, Cisco, Erickson, Huawei, and Juniper (Amazon dropped out). They accounted for 39% of sales in quarter. One customer accounted for 16% of sales in the quarter.

ASPs down 11% in Asia from Q4 due to product mix shift. In America the decline was 3%.

Cash and equivalents ended at $318.0 million, down $12.6 million sequentially. Cap ex $28.8 million. $46.7 million cash from operations. $48.1 million term loan payment made. $286.3 million net debt, down $12.1 million sequentially. Total debt outstanding was $96.2 million short-term and $448.2 million long-term. $23.7 million depreciation in quarter.

Cost of goods sold was $253.4 million, leaving GAAP gross profit of $38.5 million. Operating expenses of $34.1 million consisted of: sales and marketing $9.2 million; general and administrative $22.5 million; amortization $2.2 million; and a slight restructuring benefit. Leaving operating income of $4.5 million. Interest expense was $6.2 million. Other expense $3.9 million. Income tax benefit $1.9 million.

Continues to invest in advanced technologies, with capital expenses similar to 2013.

Book to bill (1.03) and backlog ($188 million) have been improving since the first of the year.

There was an 8% pay increase in Chinese facilities in April.

Q&A:

Weakness in handsets, is that the one big customer, or all customers? In Q1 with largest customer, anticipation of sell-through at beginning of year was followed by a dramatic fall-off after the Chinese New Year. We attribute that to disappointing demand in China. It was across-the board except for customers getting ready for new product introductions.

For smart phones for Q3 and Q4, our prototyping is on schedule, possibly Q4 will be a little bit stronger than Q3.

We believe we are doing well in terms of allocation and market share, particularly for the next product cycle.

Are you looking at cutting infrastructure in North America? We are always looking at the footprint. North American utilization numbers are a bit misleading, they are based on plating capacity, but we have a product mix that produces bottlenecks in varying by product, and not in plating. Customers also may specify the use of a particular facility.

Margins in North America are in an improving environment, for instance stronger demand for telecommunications. Defense programs may also help use capacity.

ASP downward trend? In Asia ASPs improved y/y as conventional PCBs became more complex. But sequentially we had the seasonal drop off due to a smaller proportion of advanced technology. In America we were light in Chipewa Falls, but it was not so much seasonality.

We would expect similar HDI ramping in the second half, as we saw last year.

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