Analyst Conference Summary

conference date: October 29, 2014 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2014 (Q3, third quarter)

Forward-looking statements

Overview: Strong revenue growth with okay net income. Strong Q4 guidance.

Basic data (GAAP) :

Revenues were $345.3 million, up 16% sequentially from $297.6 million, and up 2% from $338.7 million in the year-earlier quarter.

Net income was $7.7 million, up sequentially from negative $3.1 million, and up from negative $7.7 million in the year-earlier quarter.

EPS (earnings per share) was $0.09, up sequentially from negative $0.04, and up from negative $0.09 year-earlier.

Guidance:

Q4 revenue expected between $370 and $390 million with non-GAAP net income between $0.22 and $0.28.

Conference Highlights:

Demand was solid in Q3 across all end markets, led by the seasonal ramp in cell phones and tablets and a stronger than expected networking/telecommunications end market. A five-day power outage at one Asian facility interrupted production, reduced yields, and reduced operating margins. But TTM was back on track by the end of the quarter.

Announced in September TTM is buying Viasystems for $11.33 in cash and $0.706 in TTM shares per share of Viasystems common stock, with closure expected in the first half of 2015. A new $1.1 billion senior secuted credit facility will pay for the acquisition and refinance some of TTM's current debt. One benefit of the acquisition is expansion to additional global end markets and reducing the seasonal impact of the cell phone market.

Non-GAAP net income was $11.0 million, up sequentially from $3.9 million but down from $11.6 million year-earlier. EPS was $0.13, up sequentially from $0.05 and down from $0.14 year-earlier. EBITDA was $43.6 million. Non-GAAP expenses exclude stock-based compensation, etc.

Non-GAAP gross margin was 14.2%, up sequentially from 13%. Operating margin was 3.6%.

Advanced technology facility is already booked through December. The increase in tablet and smartphone production has increased the advanced

80% utilization in Asia, up sequentially. $214.7 million in sales. 13.6% gross margin, up sequentially. $10.8 million operating income.

54% utilization in North America, down sequentially. $131.1 million sales. 15.4% gross margin, down sequentially. $7.2 million operating income.

Aerospace/defense market represented 15% of total sales, down from 18% from year-earlier, and is expected to decline slightly in Q4.

Cellular Phones represented 25% of revenue, up from 21% year-earlier. New smartphone devices ramped strongly, and will continue

Computing, storage and peripherals market 13%, down from 19% year-earlier.

Medical and industrial was strong, at 9% of total, down from 11% year-earlier. Q4 sales are expected to be flat.

Networking and communications end market was 32% of total sales, up from 30% year-earlier. Chinese demand for high-technology boards for 4G was strong, but expects a modest decline in Q4.

Other was 6% of revenue, down from 5% year-earlier. Expects stability in Q4.

Top five customers: Apple, Cisco, Ericsson, Huawei, and Juniper. They accounted for 45% of sales in quarter. One customer accounted for over 10% of sales in the quarter.

Book to bill ratio 1.16 at end of quarter. Backlog was up $239.8 million.

ASPs increased in the quarter, 16% in Asia and 5% in North America, mainly due to higher mix of advanced technology sales.

Cash and equivalents ended at $249 million, down $33 million sequentially from $282 million, mainly from a debt repayment of $48 million. $43.8 million cash flow from operations. Cap ex $29.5 million. $307.5 million net debt, down $14.8 million sequentially. Total debt outstanding was $128 million short-term and $372 million long-term. $23.9 million depreciation in quarter.

Cost of goods sold was $296.2 million, leaving GAAP gross profit of $49.1 million. Operating expenses of $36.8 million consisted of: sales and marketing $9.0 million; general and administrative $25.7 million; amortization $2.0 million. Leaving operating income of $12.3 million. Interest expense was $6.0 million. Other income $1.7 million. Income tax benefit $0.4 million.

Believes Viasystems will be material accretive in the first year after closing, with cost savings of some $25 million.

Q&A:

Power outage impact? It did have an impact of revenue, but it was early in the ramp, so we made up for it later in the quarter. It slowed the yield ramp, mainly due to people losing training time.

80% utilization rate in Asia, Q4 outlook? We were at 81% at the advanced facilities, and should be higher in Q4.

North America utilization trend? It is high mix, low volume, so lower utilization is the norm. We expect about the same utilization in Q4. We added plating capacity to out Chippewa Falls facility, which helps with customer requirements but hurts utilization.

Power outage, reason for? Every year in summer in China the grid is strained. With about a weeks notice we were informed of a 2 day planned outage. Then they discovered they needed a spare part that required the additional 3 days. So it was local to our industrial park. It had been about 4 years since the last power outage.

The gross margin decrease y/y, the main factors are the yield challenges of the new advanced technology, and mix in North America. But operating margin for 2014 should be about flat compared to 2013.

Product cycle of largest customer, seasonality? The fact that we are booked into December on the cell phone side is a real positive, we haven't seen that in a few years. In networking and telecom we have been told 4G growth is expected to resume late in Q4 and into Q1. So those are some encouraging signs that the Q1 falloff won't be as severe as in the past.

Regulatory approval issues for Viasystems acquisitions? Our filings are in. It is hard to handicap the process, but we are confident in our position.

Cause for belief in 4G resumption timing? Q3 2014 to Q4 2013 we were up about 8% in telecommunications. We expect it to be down sequentially in Q4, but our customers are consistent in saying they believe there will be a pickup by the end of the quarter.

Dollar cost impact of power outage? Depends on how you look at it, something like 1% hit on the gross margin.

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