Analyst Conference Summary

conference date: November 1, 2012 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2012 (Q3, third quarter)

Forward-looking statements

Overview: An impairment analysis forced TTM to take a non-cash $218.4 million write down on goodwill, intangibles, property and equipment. Even aside from that it was not a great quarter.

Basic data (GAAP) :

Revenues were $339.0 million, up 3.5% sequentially from $327.4 million, but down 5% from $358.3 million in the year-earlier quarter.

Net income was negative $208.3 million, way down sequentially from $7.6 million, and way down from $24.5 million year-earlier.

EPS (earnings per share) were negative $2.54, down sequentially from $0.09, and also down from $0.30 year-earlier.

Guidance:

For q4 revenue expected between $360 and $380 million. GAAP EPS $0.07 to $0.14, non-GAAP EPS $0.14 to $0.21.

Long term margin targets have been revised down to 19% for gross margins and 9% for operating margins.

Conference Highlights:

Disappointed with results. Some new projects launched in quarter, but some were so near the end of the quarter they hurt what is usually a seasonally strong quarter. High labor costs also hurt.

Excluding the $218 million write-down and a few smaller items, non-GAAP net income was $18.1 million, or $0.22 per share, up sequentially from $13.6 million. EBITDA was $36.5 million, down sequentially from $42.3 million. There was a $5.5 million loss on extinguishment of debt responsible for the EBITDA drop. 15.4% gross margin.

Some orders came in later than expected in Asia and in general the key networking and communications market was weak.

Plans to manage costs in North America to align with business.

23% of PCBs created in Asia were advanced HDI.

Aerospace/defense represented 16% of total revenue. Commercial demand is solid, while in defense foreign sales are compensating for decreased domestic sales.

Cellular Phones represented 15% of total revenue, up from 10% year-earlier. Growth was fueled by launching of a new product for a key customer.

Computing, storage and peripherals were 21% of total revenue. Touchpad tablet customer sales grew, but high-end server sales shrank.

Medical and industrial were 8% of total revenue.

Networking and communications was 29% of total revenue, down from 38% year-earlier. Global demand was lower, and expected to remain challenging in Q4.

Other was 11% of total revenue, up from 8% year-earlier. Increase was for wireless hand held devices.

Top five customers: Apple, Cisco, Ericsson, Huawei, and IBM. Accounted for 31% of total sales. The largest customer accounted for 14% of sales.

By region: Asia-Pacific $215.7 million, North America $123.9 million.

Cash and equivalents ended at $280.9 million. Inventories rose to $142 million. Accounts receivable were $314 million, payable were $212 million. Long term debt was $526 million. Cash flow from operations was $43 million. Capital expenditures $30 million. Depreciation $21 million.

Added headcount in Asia and increased HDI capacity. In quarter HDI utilization increased and non-HDI decreased.

ASPs (prices) increased in both Asia and North America.

The impairment write-down was triggered by TTM's low stock price. The loss on extinguishment of debt was due to the September refinancing.

Cost of goods sold was $286.7 million, leaving gross profit of $52.3 million. Operating expenses of $255.0 million consisted of: selling and marketing $8.7 million; general and administrative $23.7 million; amortization $4.1 million; impairment of good will and definite lived intangibles $200.3 million, and impairment of long-lived assets $18.1 million. Leading to a GAAP operating loss of $202.7 million. Interest and other expense was $10.8 million. There was a $1 million income tax benefit.

Continuing to make capital investments to expand advanced HDI capabilities.

Q&A:

Margin guidance flat despite higher advanced HDI mix? The offset is the headwinds with conventional PCBs and underutilization of facilities both in Asia and U.S. If macro environment improves we could see a dramatic increase in profits as utilization goes up.

Smartphone margins? Advanced HDI had strong margins when first introduced, still are attractive but have been negotiated down as capacity has increased. There are still fewer competitors in the advanced HDI segment.

Long term margin targets, GAAP or non-GAAP? GAAP.

Amortization of intangibles will be dropping to about $2.5 million per quarter because of the write-down.

Smartphone and tablet delays, will that hurt demand? In Q4 backlog, $40 million higher as quarter began. For Q1 there will be a seasonal downturn for tablets. But since some product launches happened late, it is possible they will spill over more into Q1 than usual.

Mobile phone global demand is far higher than than tablet demand. In Q1 there are holidays in China that will affect demand as usual.

Our substrate business is a niche business and it is growing well for us. It ties in well with smartphones and touchpads. Same for flex. A portion of our capital expense has gone to expanding these capabilities. It was 12% of our revenue in Q4.

We have not determined cap ex for 2013, but should not be as heavy as the last couple of years. Demand is shifting to HDI, advanced HDI and flex. The new cap ex is generating good revenue. Advanced HDI was 23% of Asian revenue, HDI another 18%, in the quarter.

Networking and communications segment? It is still a very tough end market for us. We don't see any Internet infrastructure buildout. But as the amount of data increases, the buildout will have to resume.

We would expect to see wage rises in China again in Q2, hopefully in a 10% or less range this year.

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