Analyst Conference Summary

conference date: October 30 , 2013 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2013 (Q3, third quarter)

Forward-looking statements

Overview: Special charges, plus closure of SYE plant means a close look is necessary to understand the numbers.

Basic data (GAAP) :

Revenues were $338.7 million, nearly flat sequentially from $338.0 million, and also nearly flat from $339.0 million in the year-earlier quarter.

Net income was negative $7.7 million, down sequentially from $13.1 million, but up from negative $208.3 million year-earlier (due to a $200 million impairment charge.).

EPS (earnings per share) were negative $0.09, down sequentially from $0.16, but up from negative $2.54 year-earlier.

Guidance:

For Q4 2013 350 to $370 million $0.18 to ?. SG&A 9.5% of revenue. $3.7 million interest expense. $24 million depreciation expense.

Conference Highlights:

Kent Alder will be resigning as CEO, but remaining on the board. Thomas Edman is being promoted to CEO. Revenue and non-GAAP earnings were within guidance. Sequential increase in the cell phone, tablet, smartphone and computing end markets was driven by seasonal demand.

Revenue was up 8% sequentially if the closure of the SYE plant is excluded (about $25 million of revenue).

Restructuring charges of $14 million impacted GAAP earnings, but was excluded from non-GAAP earnings.

There were $6 million in costs related to a warranty claim from the second quarter, included in both GAAP and non-GAAP numbers. TTM was able to retain the customer.

Filed a shelf registration with the SEC.

Non-GAAP net income was $11.6 million, up 51% sequentially from $7.7 million. EPS was $0.14, up 56% sequentially from $0.09. EBITDA was $42.3 million, up sequentially from $39.1 million. Non-GAAP numbers exclude $2.3 million for amortization, $1.8 million stock-based compensation, $2.1 million non-cash interest expense, and $14.1 million in impairment and restructuring charges, offset by $1.1 million income tax benefit.

Non-GAAP gross margin was 15.9% if you exclude the warranty charge.

The $14.1 million charge excluded from non-GAAP results was related to the closing of the MAS facility in Suzhou, China.

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 of $80 million net for this transaction was completed during the third quarter of 2013.

63% of Asia was advanced technology PCBs. 76% capacity utilization was up, and showed benefit from divesting SYE.

But most American facilities were underutilized at 62% of capacity. $132. 6 million in revenue, 17.1% gross margin due to higher maintenance costs. $9.5 million operating income.

Aerospace/defense represented 16% of total, flat sequentially. Expects stable sales in Q4, but % will drop to 14%

Cellular Phones represented 21% of total, up sequentially form 17%, based on smartphone demand.

Computing, storage and peripherals were 19% of total, up sequentially from 16%. Driven by touch-pad tablets. High-end server

Medical and industrial were 9% of total revenue, up sequentially from 8%.

Networking and communications end market was 30% of total sales, down sequentially from 38%. It declined sequentially due to SYE closure. Solid demand for products for mobile telephone infrasctructure and high-end networking. LTE rollout will be gradual, so Q4 is not expected strong.

Other was 5%, flat sequentially. Expected down slightly in Q4.

On the whole sequential shifts among segments were due to the SYE adn MAS closures, combined with the seasonal increase in consumer electronics.

Top five customers: Apple, Cisco, Ericsson, Huawei, and Juniper. They accounted for 43% of sales in quarter, from 38% in Q2. One customer accounted for 23% of sales in the quarter.

ASPs up 8% in Asia sequentially due to a shift in product mix. Also up 3% in U.S.

Cash and equivalents ended at $270.5 million, up sequentially from $230.5 million. Received cash of $85 million net from SYE transaction. Cap ex $34 million. Used $6 million of cash from operations. $274.5 million net debt. Total debt outstanding was flat sequentially at $96 million short-term and $436 million long-term. $23 million depreciation.

Cost of goods sold was $290.3 million, leaving GAAP gross profit of $48.4 million. Operating expenses of $49.6 million consisted of: sales and marketing $8.9 million; general and administrative $24.3 million; amortization $2.3 million; restructuring $3.4 million, and impairment $10.8 million. Leaving operating income of negative $1.2 million. Interest expense was $5.8 million. Other income $2.7 million. Income tax benefit $3.4 million.

2013 capital expenditures of $117 million is focussed on advanced technology capacity.

Q&A:

Q4 guidance on networking? Networking is declining because of SYE divestiture. So revenue peaked in Q2. But the entire drop was due to the facility sale. So nothing dramatic is expected in Q4 in networking.

Gross margins? Margins were near our 16% expectation if you exclude the warranty issue. The claim costs hopefully include any future costs. We hope to get to 17% through growing revenue and better utilization in Q4.

The SYE facility was lower technology, did not fit strategy. We closed MAS, which was losing money. We are looking to reduce costs across our global footprint.

The drop in networking is coming from Asia-Pacific, while in America we are getting good core and edge router high-end work.

Book to bill? 1.05 in N. America; 1.14 in Asia-Pacific. Overall market was 0.98.

If not for the warranty charge, $0.20 non-GAAP EPS? Yes.

Source of margin upside? We just met expectations. We did get a bit of help from foreign exchange rates.

Shelf registration, is it to refinance debt? It is part of a complicated process. We have a lot of cash on hand and generate cash from operations. We are also open to M&A activity, but we also invest in expansion. We have a debt payment due. PCB manufacturing is a volatile industry, so we want to manage conservatively. All together, we think it is prudent to have a shelf registration in place.

Asia business, compared to expectations? In line with expectations once you cancel out MAS and SYE. Q4 and Q1 will have normal seasonality, because of consumer smartphone production in Q4.

China LTE outlook? So far has come in below our expectations for a dramatic uptick in Q4. It looks more gradual, which is good for demand in the first half of 2014.

Lead times at Chipewa facility? 4 to 6 weeks in Asia, 8 to 10 in America, with the 10 being in Chipewa, and considerable networking backlog in Chipewa. We did not lose any customers, but we lost some orders. In Q4 we should work through the backlog and get lead times back to normal.

23% OEM? Highest percentage, but is due to seasonality, they may be even higher in Q4. On a full-year basis they would be closer to 20%.

Warranty claims details? In Q2 a customer brought a problem to us. We started troubleshooting immediately, we confirmed there was an issue related to one particular part. We made changes in our process, and took a $2 million charge, mostly for future returns of the boards. It was a delayed quality issue, it did not show up immediately. Returns came in at a higher rate in Q3. $3 million of the charge is a reserve against future returns. We are filing an insurance claim and a claim against the chemistry provider, but we don't know what will happen with them.

Cap ex in 2014? We are still looking at our budget for 2014. It will be in the same range as 2013, which is planned at $117 million.

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