Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTM Technologies Third Quarter 2020 Financial Results Conference Call. Today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will open for questions. [Operator Instructions] As a reminder, this conference is being recorded today October 28, 2020. Sameer Desai, TTM's Senior Director of Corporate Development and Investor Relations will now review TTM's disclosure statement.

Great. Thanks, Casey. 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 and 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 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 disclose on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the 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 website at www.ttm.com. I will 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 2020 conference call. These continue to be challenging times. And I hope that, all of you and your loved ones are safe and healthy. I'll begin with a review of our business strategy then an update on how COVID-19 has impacted our business followed by highlights from the quarter and a discussion of our third quarter results. Todd Schull, our CFO will follow with an overview of our Q3 2020 financial performance and our Q4 2020 guidance. We will then open the call to your questions. I am pleased to report that in the third quarter of 2020, TTM generated revenues and non-GAAP EPS above the guided range. Our diversified end markets allowed us to grow PCB revenues year-on-year despite weakness in the commercial aerospace and automotive end markets. In addition, we continued strong operational execution, overcame production inefficiencies, and extra cost due to COVID-19. The COVID-19 pandemic has created operational difficulties, macroeconomic uncertainty, and employee concerns. I am extremely proud of how TTM employees have worked to deliver excellent performance, despite the formidable and unprecedented challenges of this environment. Finally, I'd like to highlight that in Q3 we received the remaining proceeds of the mobility business unit divestiture and have applied them to repay our term loan B. Combined with strong cash flow from operations, our net debt-to-EBITDA ratio has dropped to 1.6 at the end of Q3. Next, I would like to provide an update on our long-term strategy. TTM is on a journey to transform our business to be less cyclical, more differentiated and more disciplined. We believe over time investors will be rewarded with more stable growth, strong cash flow performance, and improving margins. A key part of that strategy will…

Thanks, Tom and good afternoon, everyone. Now as Tom mentioned earlier, on April 19 TTM announced the closing of the sale of its mobility business unit. As such the disclosure of TTM's GAAP results reflects the mobility business unit as a discontinued operation. I will also discuss non-GAAP financial information, which excludes the results of the mobility business unit. The E-MS business unit is still included in both the GAAP and non-GAAP results we have reported. Please refer to the earnings schedule for additional details on the exited businesses and continuing operations. For the third quarter, net sales from continuing operations were $513.6 million compared to $534.2 million in the third quarter of 2019. The year-over-year decrease in revenue was due to a decline in our automotive end market with the majority of the decline coming from the E-MS plants that we are closing. This was partially offset by growth in our aerospace and defense, medical, industrial and instrumentation and computing end markets. Excluding the impact of the two E-MS plants being shut down, our revenues grew 3% year-over-year. GAAP operating loss from continuing operations for the third quarter of 2020 was $40.3 million compared to a GAAP operating income of $21.1 million in the third quarter a year ago. The current year results include a goodwill impairment charge of $69.2 million related to the commercial portion of the Anaren business we acquired back in 2018. As a result of U.S. government actions imposing trade restrictions on U.S. manufactured products sold to certain Chinese customers, revenues and profits have been reduced resulting in the impairment. On a GAAP basis the net loss in third quarter of 2020 was $41.5 million or $0.39 per diluted share. This compares to net income of $15.9 million or $0.15 per diluted share in the…

[Operator Instructions] We'll take our first question from Mike Cikos with Needham & Company.

Hey guys, thanks for taking the question. First thing I wanted to ask about if I'm just looking at the outperformance that we had versus the guidance you had provided on revenue and earnings. This is the second consecutive quarter that we've seen this now. And I'm just curious is it based on -- do you guys have greater visibility and confidence in the guidance numbers you're providing us now based on the movements within your portfolio? Or are you looking at guidance differently than you had previously?

So maybe I can address the revenue piece Mike. The -- as you know these have been very dynamic times. And as we looked at our markets as we were in July, I would say that what we were surprised to the upside by most strongly was automotive. And we felt and commented on the fact that automotive was strengthening at that time, but even improved beyond what we had expected. And so that was a really positive tailwind if you will. The other big sort of outperformer, if you will is networking communications. And that more than anything was a function of customers pulling product out of inventory towards the end of this last quarter Q3 rather than Q4 as was expected. So, if you look at that increase that would have been very difficult to forecast. In general, with these kinds of dynamic markets we try to stay as close as we can to our customers and their forecast which are also just very dynamic right now. And so as we look into the fourth quarter, again, we're following our process. And I think at this point, our guidance numbers are as solid as they can be based on inputs from customers.

All right. Thanks for that. And then another question I have for you. If I'm just thinking, I think there was a comment made as well regarding potential impact from COVID in Q4 of this year and how you guys structured your guidance. Can you help us think about what that impact looks like in relation to Q3? Because obviously, you guys have been executing against that metric? And I guess pleasantly surprised by the way that your internal operations have been able to cope with the pandemic? Thank you.

And I would agree with that comment. I think in the face of real challenges, our operations team has done an outstanding job of first and foremost, protecting the employees. Our work environment is a very safe environment for our employees to be in. At the same time, we're following the rise in cases in the United States, our workers -- when they leave our facilities they enter communities that -- and if those communities are seeing spikes in COVID cases that can then impact our employees. And yes, so we have to continue to be very cognizant of that situation. And particularly, as we look at our aerospace and defense guidance that's something that we always consider, because as you know these cases -- when it comes to the TTM footprint, these cases are really occurring in North America. They are not occurring in our China facilities nor in our other overseas offices. So it's really about North America. And for us, when it comes to North America that's primarily going to be in aerospace and defense area where we just have to be careful about production -- potential production limitations from disruption with COVID. So that's always -- that's encompassed in our guidance in the same way than it was this past quarter.

Great. Thank you.

Thank you.

Our next question comes from Srini Pajjuri with SMBC Nikko Securities.

Thank you. Good afternoon, guys. First of all, congrats on the solid execution. Tom, a question on your defense business. To the extent you have visibility, can you talk about how you -- from a planning standpoint how are you thinking about the next 12 months especially given the upcoming election and the potential impact that might have on the defense budgets going forward?

Okay. Thank you. And yes, as we look out and of course no one has a crystal ball on this and I'll be the very first to admit that given, given the very dynamic situation you mentioned one factor with the elections, the impact of COVID on the world's economies particularly as we go into the winter is very hard to forecast. So let me just comment on what we generally see out there is as we look into 2021. I think, the defense business so again, 38% or so of our business, we have some -- we have reason to be confident there that we can continue to grow that business. There will be an impact on the business from the aerospace weakness, and so as opposed to the 8% to 9% kind of or even slightly higher than that growth rates that we've been seeing over the last several years, I think we're probably looking at something less than that certainly higher than the Prismark market forecasting guidance, which is around 2% to 4%. I think we're still looking at being above that. But it's going to be facing that headwind on aerospace is going to be the biggest challenge in that area. As we look at automotive, we've all of course seen automotive recover. I think automotive will continue to recover as we enter into the first part of next year. Again, I think we all are watching European demand, automobile demand, as they encounter another spike in COVID cases and shut down situations. So that is not certain. But certainly, there's momentum there, that's positive as we go into 2021 and so continuing to see some improvement there. When you look at computing, we've all seen a real impact of heightened demand for data center --…

Thank you. That's great color. And then I have one question for Todd as well. Todd utilization at roughly 63% and then the gross margins have come up nicely here. So, just as we look into the next 12 to 18 months, can you talk about some of the puts and takes of gross margin? And any potential for further improvement here outside of the mix itself? And how high do you think that utilization can go before you need to increase capacity?

Well so utilization is a challenging metric. It's an important metric, but I say it's challenging because we have kind of two different business models. In North America, we have more of a high-mix low-volume business model and so utilization levels are inherently going to be lower. So, when we say we're operating in North America at around 63% to 65%, that's actually a very good number in North America. Getting up close to 70% really stretches us and we've been selectively adding capacity here and there in North America to try to increase our ability our production capacity. Now, in Asia though it's a different story. The business model there is more geared towards mid to higher volumes and lower mix. And so utilization becomes a much more important factor. And quite frankly 63% utilization in Asia is not a good number. And there is a lot of upward opportunity to improve. We have capacity in several of our key plants. These plants in China tend to be driven by our commercial end markets. As Tom mentioned, A&D is really a North America market. So, you have to watch what's going on with our networking and communications end market, our medical industrial instrumentation end market, and automotive end markets particularly and computing will play into there also. Those will -- so what's happening in those end markets will really drive utilization. And utilization is a key factor for us because we have a fairly significant fixed cost element in our business. There's a lot of equipment involved in what we do and a lot of technology and so, there's a lot of leverage in the business model. So, there's quite a bit of opportunity to grow on the commercial side more constrained in North America although we still have some upside opportunity there too.

Got it. And just one clarification. You said you're going to retire the convert in the December quarter. Does that or will that have any impact on the share count going forward? Thank you.

The -- at this stage, the impact on the share count is really expected to be zero quite frankly. There is a warrant. So, when we entered into the convert seven years ago, we did a -- what's called a call spread option which protected the company from dilution up to $14.26. The second piece of that strategy involves a warrant that we issued that a couple of the banks that we did the transaction with have the opportunity to exercise that warrant during 2022. And the warrant it becomes in the money above $14.26. At that point it could become dilutive during 2022, but that warrant will expire at the end of 2022. And the impact is roughly for every dollar above $14.26 stock price. On the average for a quarter, our share count could be diluted about 1.5 million shares or 1.5%. So there is some exposure still at the tail if you will on the convert. But as of this year, I really don't expect any dilution at all.

Got it. Thank you.

We'll take our next question from Alvin Park with Stifel.

Yes. Hi. Thank you for taking the call. I'm just on for Matt Sheerin. I just wanted to follow up on the telecom and the 5G pause. You did mention that in an eventual U.S. and Europe pickup will be -- will end that pause. But out of curiosity when China does resume their 5G infrastructure investments will you see that tailwind? Or will there be potential impediments and headwinds associated because of the trade restrictions?

Yes. So certainly, China is -- if they're continuing the pace right now, if you look at 5G base station investments China -- the total out of China is more than double the rest -- the entire rest of the world in terms of investment. So no question, very important market. The market to-date, it's hard to predict future. But to-date primarily Huawei, ZTE have been the beneficiaries with a little bit of with some business going to Ericsson as well. From a TTM standpoint, we continue to be able to provide our products out of China which have been engineered in China. So printed circuit boards, our backplane assemblies and our resister components, which -- all of which are manufactured in China we continue to be able to supply to Huawei. And so that business has not been impacted and would be the beneficiary of that investment and ongoing investment in China. And certainly, Phase 3 again I think will be a very large investment that occurs there.

I see. I understand. That's good. And a follow-up on it. So another supplier mentioned that they were expecting -- they mentioned some visibility into calendar year 2021 stating or at least the next 12 months that the December quarter is going to be basically a peak in terms of global auto production for the next 12 months at least. Do you have any visibility on potential auto production or order bookings that could go beyond the December quarter if you see a similar sentiment to that supply or possibly more optimistic bullish scenario? Or any color possibly or is it just -- or is visibility still relatively limited to make that determination?

Yes. Definitely visibility beyond -- for our business, we work off of automotive forecast that do go beyond the quarter, but they're very volatile beyond the quarter. So I'll start with that comment. I think what that comment may be referring to is certainly what we saw in the third quarter regionally was the fact that we'd reached sort of optimal or high levels of production in China. We were selling our regional sales reflected that already in Q2. What we were missing was really North America and Europe. And that's what really started to come in Q3 and we expect to continue into Q4. So that we end up really again regionally balanced which is a great sign for a stable business and servicing stable automotive demand. So at that point, I think we'll be in hopefully a stable state. And then from there as we go into next year, we're going to be really seeing what consumer demand looks like in those markets. Again, I think a lot of different impacts both positive and negative. I think the government incentives towards electric vehicles and therefore towards improving electrical content -- in electronics content in cars is a positive for us. I think both Europe and China are very active in that area and very aggressively incentivizing move to EV which is generally a positive from a printed circuit board demand standpoint and improves content per vehicle. So that's going to be a real positive. I think to the extent COVID impacts overall consumer demand that would be on the flip side suppressing unit demand. If we can see unit demand sales, sales of cars stabilize at levels that let's just say are closer to 2018 levels that would be -- that would bode really well for TTM. And then the real adder to that would be the conversions to EV demand and the increasing incorporation of ADAS features -- safety features into vehicles. So that's the trend that we certainly hope to see here as we go into next year.

I see. Thank you very much.

[Operator Instructions] Our next question comes from Mike Crawford with B. Riley Securities.

Thank you. Tom, you talked about wanting to add more RF component capabilities into your differentiated product set. Is -- some of that I think is internal how much of that would be external?

Yes. So great point, both. We are using the commercial our RF and specialty component capability on our commercial business side to help with our organic business development areas and. As I've said in the past, those are focused on photonics opportunities on the opportunity in auto as well to build -- to provide more of a complete engineered solution for our customers versus just the discrete components and we continue those efforts. So that's one piece of it. We continue on the A&D side to focus on early engagement with our customers as they release specifications. And again, those large program win opportunities as a result of that. So that's a second area. And then the third area that I commented on is on the M&A side where we will look to improve the positions both on the component side in the commercial business as well as continuing that to build on that engineering capability in aerospace and defense.

Okay. And then just on the defense side, as you're looking to -- in the early engagement opportunity in addition to agile radars. Are there any other key programs of record that you're not generating much revenue from today, but could be important in the next few years?

Absolutely. The way, I would think about is any -- where you have a program whether it's retrofit or new program and whether incorporating an active electronically scanned rate array that's where you see opportunities. So going forward, one example would be of course the F-35 program build out would be an example. The -- I talked in the past about LTAMDS -- the Low Tier Air and Missile Defense system going in place. That's an opportunity. But then you can even go back and look at some of the legacy patriot missile programs and there are upgrades occurring there. If you look at our submarine fleet, we are looking at an upgrades there as well as the part of the fleet is still really analog and needs to be digitalized. So opportunities there. So very broad Mike and we'll continue every quarter to comment on those programs where we really saw the bigger wins. But the easy way to think about it is that depth of capability that we have is mainly focused on where you're going to see an array or a radar opportunity whether that's space, land based, ocean based that's where we're going to see the bigger opportunities though we will continue to service a broad range of programs.

Okay. And then last question just relates to the commercial portion of what had been the Anaren base. So you took this non-cash goodwill charge a number of years after the acquisition, today does that in any way diminish your thoughts about what that acquisition brought you or your satisfaction with the acquisition or change anything else going forward?

So yes it -- as you know the art of allocating goodwill at the beginning of an acquisition is always an interesting one. We took it -- we allocated goodwill between the commercial side of the business and the aerospace and defense side of the business. And of course on the commercial side of the business we expected the Huawei business to continue and to grow frankly as for Syracuse production of components. So that's really what led to the charge is the fact that we are no longer able to export components out of Syracuse. And the business development efforts, while they're gaining traction are early enough that makes it very difficult to forecast. In the meantime on the defense side as I've commented and we have continued to see great traction on the defense side. And you can see that evidenced even in our program backlog which has grown from let's just say $440 million to $450 million when we acquired Anaren to about $625 million today up to $647 million last quarter. So tremendous traction that they've helped to deliver to TTM as an organization on the aerospace and defense side. So long way of saying I am as excited about the business today as I was then if not more. But we have a goodwill allocation issue that we needed to take care of in this quarter.

Great. Thank you very much.

Certainly. Thank you.

And we'll take our next question from Woo Jin Ho with Bloomberg Intelligence.

Great. Thank you for taking my question. Tom, I just wanted to dig in a little bit on the automotive piece. It looks like on a pro forma basis, you're approaching a quarterly revenue level that's close to 1Q 2019. So it's a very nice rebound there. I understand the European potential headwinds ahead of us relative to the pandemic risks. I mean, where do you think this business can go into fiscal 2021?

Yes, this is the big question, isn't it? Again let's just say that this year is all about getting back to that level Woo Jin really bringing it back to if we in Q4 can bring this business back to what I would call 2019 levels, right? Then the go-forward for us is going to be all about what we've traditionally talked about, which is electronics content, taking the printed circuit board, content in a vehicle up from today it's somewhere around $85 in PCB content. But that's up from about -- in the mid-70s in 2018. So in two years' time continuing to improve that electronics content as vehicles as EVs come into play and EVs looking at $150 plus in terms of PCB content. And then with the ADAS impact also helping to move that number upwards. So again what I'd hope to see is that we're going to see unit volumes stabilize, consumer demand come back to the extent that that happens then we have a great -- and we're going to be able to return to really a very positive effort to improve PCB content and that's driven by electronics content and vehicles. So the million-dollar question is unit volume, how quickly does that move beyond the levels of Q4? And what really happens as we look at consumer demand into next year.

Okay. Let me ask that question in a different fashion then. So that's more of a demand unit type of answer. How should we think about your design pipeline over the next couple of -- pipeline visibility? So we could titrate your auto business into 2021, 2022 time frame?

So, yes, so that's a great point. Just to bring everyone up to speed. In our most recent -- in this last quarter, we won about 40 designs, lifetime program value of about $170 million. If you've gone back to last year about this time, we were about the same level. But if you think about last year in total that program value was -- is roughly -- was roughly think about it as slightly less than that $170 million that we won in this quarter. So what that means is the -- or what I take that to mean is that our customers are continuing to have enough confidence that they're placing new automotive design work with us that that $170 million in this last quarter will translate -- that translates into business that will roll out starting next year and into the following year, but represents very good sound level of design wins. If you step back a quarter we had in the second quarter about 43 designs one in the second quarter program value of $203 million. So you can see relatively constant in terms of program wins, but feeding into much more confidence that program are moving forward and that we will see those revenues occur in the upcoming years. So gives a good level of confidence to TTM that we're in good shape here.

Got it. And then my follow-on question on the networking side. You talked about the China phase three 5G build-out. Any commentary around the visibility into the U.S. build out going into 2021? And any comments around the wide networking piece, it looks like that -- you commented that that pulled in a little bit into the third quarter. How are you feeling about over the next couple of quarters please? Thank you.

Yes. So on the telecom side in the U.S. I think again not -- I won't predict election results but I think in either case we're looking at infrastructure spending. There if you back up and look at the big drivers around 5G there's the commercial driver and then there's increasingly now a defense need to have a proper 5G infrastructure. And so the government is clearly concerned. It's a high priority. If you increasingly vocal discussions about this need this requirement coming from the defense department and that translates into momentum. So I would expect that to the extent there's an infrastructure bill that 5G will be part of that. And even if there isn't something coming out of Congress that 5G will be a priority from the U.S. government standpoint. Now that has to translate to the service providers and their momentum, but I think it's the right kind of backdrop to encourage the service providers to spend in this area. And they certainly as you've all seen are advertising it they're advertising their initial spend. And to the extent that that gains traction I think we're going to see a strong move in the U.S. On the networking side just -- I think we've -- from a TTM perspective, we've seen this market move around but it's remained relatively constant and a lot of that I've attributed to -- sort of a wait and see and an allocation of spending to 5G and putting 5G in place before layering networking structures on top of 5G. We continue I think in Q4 we're looking at potentially a little bit of weakness compared to Q3 on the networking side. But it's relatively small in terms of variance. And I really would expect the improvement in networking to occur after that telecom the 5G infrastructure has been laid. That's when we're really going to -- we should start to see momentum again in networking in a stronger way.

Okay. Thank you very much.

Thank you.

This concludes today's question-and-answer session. I will now turn it back to Tom Edman for closing remarks.

Thank you. Yes. I'd just like to close by summarizing some of the points I made earlier. First, we delivered revenues and earnings above the guided range, despite COVID-19-related challenges that allowed us to demonstrate our operational excellence. Second, our end market diversification has allowed the continuum operations to grow despite weakness in a couple of subsegments. And third, we generated very strong cash flow receive the remaining proceeds from the sale of the mobility unit divestiture and repaid our term loan a portion of -- a good portion of our term loan. As a result we're able to drive our leverage to 1.6x. So in closing, I would like to thank our employees our customers and you our investors for your continued support and your support for TTM as we go forward. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect your phone lines.