Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies Third Quarter 2019 Financial Results Conference Call. Sameer Desai, TTM's Senior Director of Corporate Development and Investor Relations, will now review TTM's disclosure statement.

Thank you, Brad. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to TTM's future business outlook. Actual results could differ materially from these forward-looking statements due to one or more risks or uncertainties, including the factors explained in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission. These forward-looking statements are based on management's expectations and assumptions as of the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether as a result of new information, future events, or other circumstances, except as required by law. Please refer to the disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S-4, and the company's other SEC filings. We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for measures prepared and presented in accordance with GAAP, and we direct you to the reconciliation of non-GAAP to GAAP measures included in the company's press release, which was filed with the SEC and is available on TTM's Web site at www.ttm.com. I would now like to turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead, Tom.

Thank you, Sameer. Good afternoon and thank you for joining us for our third quarter 2019 conference call. I'll begin with a review of our business strategy, including highlights from the quarter, followed by a discussion of our third quarter results. Todd Schull, our CFO, will follow with an overview of our Q3 2019 financial performance and our Q4 2019 guidance. We will then open the call to your questions. In the third quarter of 2019, TTM generated revenues and EPS within the guided range, better than expected foreign exchange offset weaker than expected operating results. Our operational efficiencies were hampered by labor challenges in our aerospace and defense and cellular markets as we work to manage increased demand from our customers. Specifically, our North American facilities' operating performance fell short of our forecast due to the tight North American labor market, compounded by the summer vacation season, which negatively impacted our output. In cellular, we faced yield challenges early in the quarter as we added and trained employees to ramp new cellular products. While yields stabilized in September, the quarterly margin performance did not meet our expectations. We are not satisfied with our third quarter overall results, and we are therefore taking concrete actions to cut additional costs in our commercial facilities as well as addressing operational bottlenecks in our aerospace and defense business to adjust to higher demand realities. Despite the challenges in the quarter, we generated solid cash flow from operations of $58.7 million in the quarter. Looking into Q4, we face softer sequential demand in the automotive and cellular end markets. We will remain focused on operational excellence and financial discipline, as well as our strategic goals of diversification and differentiation. In particular, we will continue on our path towards differentiation in the aerospace and defense…

Thanks, Tom, and good afternoon, everyone. For the third quarter, net sales were $716.8 million compared to net sales of $755.8 million in the third quarter of 2018, and compared to second quarter 2019 net sales of $633 million. The year-over-year decrease in revenue was due to declines in our networking and communication, computing and medical, industrial and instrumentation end-markets, partially offset by organic growth in our core aerospace and defense and cellular end-markets. GAAP operating income for the third quarter of 2019 was $36.4 million, compared to $54.6 million in the third quarter of 2018 and $16.8 million in the second quarter of 2019. On a GAAP basis, net income in the third quarter of 2019 was $15.9 million or $0.14 per diluted share. This compares to net income of $27 million or $0.22 per diluted share in the third quarter of last year, and $3.4 million or $0.03 per diluted share in the second quarter of this year. The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes acquisition related costs, restructuring costs, certain non-cash expense items, and other unusual or infrequent items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and to provide a better insight into the company's ongoing financial performance. Gross margin in the third quarter was 14.8% compared to 17.5% in the third quarter of 2018 and 13.6% in the second quarter of 2019. The year-over-year decrease in gross margin was primarily due to lower volumes in our non-cellular commercial end-markets, unfavorable shifts and product mix and to a lesser degree production inefficiencies. Selling and marketing expense was $17.8 million in the third quarter, or 2.5% of net sales versus $18 million, or 2.4% of net sales a year-ago,…

Thank you. [Operator Instructions] And our first question comes from Matt Sheerin with Stifel.

Yes, thank you. Just a couple of questions from me, first one, just regarding the aerospace and defense market, which you've talked about having very strong bookings and backlog and good growth, but you also ran into some labor issues, and it looked like that came in below your forecast, but your guidance also implies, as a percentage certainly up with some other markets down, but still good growth there. So could you get into the reasons behind whatever headwinds you faced, and what you're doing to overcome that?

Sure. Thank you, Matt. Yes, to talk about it, I mean clearly we're very encouraged by the bookings climate and being at a record program backlog level. What that requires from TTM is not only ongoing investment in terms of capital equipment, which we've been very regular with, but also the addition of people. As we bring in new capital equipment, new capability, particularly, we're providing now not only the RF solution and the PCB solution, we're also doing more assembly work on the A&D side, bringing that package together for our customers, and as we do that, of course, we add additional employees and bring additional employees to TTM. I think as is well-known, it's a tight labor market out there, and particularly in the summer months, and so, we were in ramp, but not able to ramp as quickly as we were hoping for in the third quarter as we brought in those people. So, we now have brought in people who are through that summer vacation obviously focused in Q4 on continuing to grow, and that will be a regular cadence of growth as we push into next year given the backdrop, again given the strong backlog that we're positioned with. So we're going to continue to ramp at this slow and steady progress, but we'll continue to build up and grow with that strength that we had in backlog.

Okay. And those orders were basically just pushed into the fourth quarter, and with the ramped labor you're going to fulfill those orders, in other words, you're not losing any market share or anything because of that?

That's correct, yes. The programs and -- so what happens here is there's always program timing, and so we're doing a delicate dance here in terms of bringing some programs in, billing ahead on particular programs, moving -- and making sure that we're keeping in lockstep with other components as we deliver the programs, and we certainly -- while output feel short of our expectations, I think we continue to hold our head up and deliver what we need to to our customers and their key programs, and that's what's really critical here. So yes, we're not -- we're certainly not losing share, we're continuing to focus on our customers and delivering complete solutions for them.

Thank you for that. And my next question just regarding the network and communications segment which has been down significantly, you're not the only supplier to be calling out weakness both in telecom and networking, but I also know there's a Huawei piece there. So could you help us sort of looking at that down mid 20% year-on-year, what percentage was due to Huawei, and then can you just parse out what you're seeing in terms of the networking side and the telecom 5G side, both near-term and as you roll into next year.

Sure, and you're absolutely right. I think we're not alone in terms of seeing the situation, seeing the weakness. If you look at, and again we don't -- we usually don't comment on specific customers, but what I can tell us overall if you think about Huawei as being traditionally about a four to five percent revenue type customer, what we're seeing here is an impact on our wireless component business which came to us with Anaren. As you know, the Anaren operating margins were approximately twice what traditional TTM operating margins were. And so it's that impact that we're feeling in terms of bottom line impact. If you think about the revenue, it's still less than 1%. So you're looking at that 4% to 5% dropping to 3% to 4%, in that kind of range as a piece of revenue. To talk more about the general situation in telecom and 5G, I think what we have seen is certainly that first wave of investment coming from China, some investment occurring in Korea, a little bit of investment in Japan for the Tokyo Olympics, but these are early games, and I think certainly what we're interpreting as happening right now is that some of our customers overbuilt in anticipation of that demand moving beyond China, and right now are sort of hearing a point where they're going to build, they're going to bleed off that inventory as we head into next year, and I think we're going to -- latter-half of next year we should be on to that next phase of the real ramp in 5G, sort of back to where we expected to be with 5G. We've always thought it would be ramping this coming year. I think we'll see that. I think we'll -- it looks like it's going to be more towards the second-half of the year than the first-half.

Okay, thanks very much, Tom.

Sure, thank you, Matt.

Thank you. Our next question comes from William Stein with SunTrust.

Great, thanks for taking my question. I wanted to dig into the automotive end market that was sort of an unusual result relative to what I expected. It looks like if I have my numbers right, that the expectation -- you beat my expectations for September pretty materially, but then it comes falling back down in the next quarter. Do I have that right? And if this continues to be this EMS business, we know that's low margin business for you. I'm wondering if there's, as you consider the cost structure of the company, if you'd consider whether this really makes sense as a go-forward business for the company to participate in.

Yes, thank you, Will. So, yes, as the automotive -- the best way to look at really the automotive piece and how we'd looked at it is there's the certain pullout the solutions portion. I think we had certainly strengthened this last quarter, and then it's going to drop off next quarter. And so, that's one of the reasons we wanted to get some visibility on where the PCB sales into that end market. And the PCB sales were sequentially really flat as we've looked at specifically the automotive market. And they will be down slightly as we look at the forecast for the fourth quarter. So, definitely I -- like you, I would - I think you're right to focus on the PCB piece of that, rather than the E-M Solutions piece, which moves around quite a bit. In terms of the business, we continue to what we like about the E-M Solutions business is it allows us to give a more complete solution to those customers who would wish to see it. And also particularly for start up efforts in automotive it's very helpful that have that assembled solution for our customers. So while it is not a significant profitability contributor in and of itself, of course the PCB sales that go into the business are helpful and, and more profitable and the business does give us an avenue to customers particularly in that automotive world that is helpful for us. So, that's where we continue to stand with the E-M Solutions business for TTM. Same thing for of course the business also services networking, communication customers in the same way. So that's where we stay on there, but hopefully that gives you a better feel for the automotive.

Okay. Let me dig into cellular phone if I can. I guess typically, well Q4 the revenue pattern I think historically doesn't have a very typical pattern, right? I think as we progress through the quarter, the news flow out of Asia suggesting that a large North American customer demand indications looked constructed. So I'm a little bit surprised by the Q4 guidance in this end market. I think that's your biggest customer. I would've expected flat to performance. I think you're guiding it down. And I'm wondering if you could tell me if I'm right in sort of my math and expectations of what's driving the sequential decline, if that's correct.

Yes. So, it is a very good question. This is actually the second consecutive year where we would be saying that fourth quarter, actually as we forecasting our fourth quarter declining from the third quarter. And as we've always said, we really build in the third quarter, we're very focused on maximizing output in this third quarter even with some of the yield challenges we had early in the quarter We were still able to exceed our forecast in terms of our output. And so, therefore feeding into obviously providing more products to our customer, as we look at the fourth quarter, as with last year I think in the world that we live in today, I think it's, it's wise for our customer base to be conservative and forecasting, and to manage inventories carefully. So we're looking at more of what I would call, what looks to be a real demand kind of requirements and ultimately we'll see what the sales through looks like when we get revised forecast in December. So that is normal, right? So what we're seeing is really a second quarter in a row where at the end of the third quarter, we're seeing a forecast that looks like it's a more conservative or down from the third quarter. But then ultimately it's that sell through mid-December input that we'll be looking through to determine how are we really doing in the, in the cycle. And that will feed into end of December sales and then in the Q1, and hopefully into Q2. So that's really where we stand well. So hard to say that this is a going to go on next year or not, but I do think we're, it's a second year in a row or we have this data point that just points to a slightly more careful for forecasting in the fourth quarter. Thank you.

Thank you.

Our next question comes from James Ricchiuti with Needham & Company.

Hi. Thank you good afternoon. A question on the automotive market, and I'm wondering if you could talk about the PCV portion as it related to what you were seeing geographically. Was it fairly broad-based the softness that you saw?

Thank you, Jim. So, yes, if you look at an automotive overall and what we saw in the quarter and if you think about it, I'll give more sequential in year-on-year because I think it's more instructive. We have in Asia we saw a bit of an improvement in Asia, in Europe still pretty much bouncing along the bottom and then weakness and more weakness in North America than we had seen before, so quarter-on-quarter more down in North America. The way I interpret that is that we did the digital impact on our business continues in Europe. But we sort of -- it's sort of the impact has been felt and we're now bouncing along the bottom. I think, in Asia, it's good to start seeing some gradual improvement particularly in China. Hard to call that a trend as yet but it's good, it's a positive indication. I think in the U.S. we're just seeing this fallen as customer as our customers are experiencing some of the US auto softness now. And so, that's your geographic picture. Fourth quarter, yes, sure thing, fourth quarter, we're expecting to have more of the same I would say.

Are you seeing, Tom, or did you are you seeing any or have you seen any disruption as it related to the recent GM strike?

Well, so always hard for us to tell, because we're generally selling into tier one parts, suppliers, right? And so, we shift into a hub inventory. And then, we experienced the pull. That could be part of what we saw in the U.S. this last quarter, but it's difficult to tell.

Okay. And not to try to pin you down beyond Q4, but is there anything that you're seeing in the automotive market that would suggest that there's some change in the environment for you, in the early part of 2020?

I would say, 2020, I think it's still going to be a challenging year and really a year of ongoing transition, particularly in China and Europe, as those markets really push towards EV adoption. Long-term that's a terrific thing for the TTM, content more than doubled on average, with an electric vehicle. So that's terrific, but this transition in terms of unit sales, which is I think going to be, is going to continue to be challenging. U.S. a little bit harder to call and I think it's more tied to what happens with the macro economy in the U.S. But what I can say Jim is certainly in regards to the to the Asia, China market and Europe market, European market, it is good to see a little bit of improvement in Asia and to see Europe sort of steady now at a lower very unsatisfactory level, but at least stabilize. So, it's -- that's a good sign. I just say that overall for next year. I don't, I think we're going to continue to see this market be challenging as we go through that transition.

Got it, thanks a lot.

Thanks, Jim.

Thank you. [Operator Instructions] We'll take our next question from Mike Crawford with B. Riley.

Thanks. You talked about inventory is good enough, particularly, and relative to 5G, where maybe some of the build got ahead of demand expanding from the first adopters. But have you seen any changes recently in lead times that can indicate that any of that direction is running its path? And we might see more of a run rate demand situation starting in Q1 or Q2 next year?

Thank you, Mike. Yes, I think on. So again, we're, it's difficult based on our -- based on customer forecast more than anything else. I would say that they're going to be there. They're certainly leading on being conservative. I think you've seen that with a couple of the public announcements as well. I think they're looking at real demand starting towards the latter half of next year. We will see what that mean in terms of equipment build and whether they bring that forward or not, but I think at least for a couple of quarters here, we're expecting that inventory, they'll still be working off that inventory.

Okay, and thanks. And then just on your footprint, it sounds like in the U.S. with even bottlenecks, you're fine. Certainly, I think you could operate that at 50% utilization, but in Asia, I think you'd probably rather be closer to 80% versus 71% in a peak quarter, have you -- how far lower would utilization at slip say in Asia before you started to think about maybe consolidating footprint there?

Right. Yes, so you're absolutely right, in a peak quarter, we really in Asia, we prefer to be operating 85% or above territory. And so, from that standpoint, where it's a concerning number to be at that 71%, remember that this is based on equipment that we have installed, so we may have plating -- based on plating capacity, which is the core process. And so, we may have equipment that's sitting in a facility that's not operating, but we would still call that capacity, if you will. So, that's the basis for the calculation. And so, what you're really talking about is, at what point would it make sense for us to actually close a facility, and as we've looked at our markets, and let me just talk a little bit about what we see longer term here, but as we look longer term at our markets, we're still seeing with 5G coming, not only, of course, a pick-up towards the second-half of next year in network and communications, but we're seeing the impact of 5G, which we expect to be felt in the cellular phone side, we expect that to be felt on the Internet of Things and the medical and industrial side of our business. We expect the data requirements to be felt in the computing side of our business, and we're already seeing a strength returning on semiconductor and semiconductor capital equipment, which lend credence to that, and that they're now bringing in capabilities that will be required for 5G on the semiconductor side, and they're adding capacity in the anticipation of that. So, again, as we look at that situation we're going to be careful in terms of how we manage our footprint, we will continue to cut costs from a labor standpoint, but will be very careful about managing the charters of our facilities and how they tie into those end market requirements because that return of the businesses, when it comes could come awfully quickly.

Okay, thank you. And then last question relates to the point you made about data and your datacenter customers where in your general remarks, you talked about that being a little soft, but then conversely, I think in the last call, you talked about the visibility improving in that sector and we all see what's coming with the 5G-enabled data that needs to be stored. So, has anything changed there regarding visibility or not?

Yes, it's excellent question. So what has changed is this, the steepness of the ramp, a little bit of a less steep ramp than certainly we anticipated, but we're still looking at a ramp occurring here, as we -- certainly as we go into Q1, Q2 of next year. And that's good to see. It's been a long period of digestion here as our customers designed new equipment platforms, and looked at additional or more complex server requirements. So just I would say that the difference is the steepness of that ramp, and that has caused the higher demand to shift a little bit to the right.

Okay, great. Well, thank you.

Thank you.

Thank you. And we have no further questions at this time. I will now turn the conference back to Mr. Tom Edman for closing remarks.

Thank you, and I would like to thank you all for attending. Just to summarize some of the points we made earlier, first, we delivered earnings within the guided range, we generated solid cash flow despite some of the operational challenges that we covered. Second, while we are facing a tough demand environment, in some of our commercial end markets we continue to execute well on our core strategies of diversification, differentiation, and discipline. And finally, I would like to thank you, our investors, our employees, and of course, our customers for your continued support. Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. We thank you for your attendance and participation, and you may now disconnect.