Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to TTM Technologies Fourth Quarter and Fiscal 2022 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] As a reminder, this conference is being recorded to get today February 8th, 2023. I would now like to hand the call over to Samir Desai, TTM's Vice President of Corporate Development and Investor Relations to review TTM's disclosure statement. Please go ahead, sir.

Thank you, Sherry. 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 more 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 disclosures regarding the risks that may affect TTM, which may be found in the other reports on Forms 10-K, 10-Q, 8-K, the registration statement on Form S-4, and the other company's 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 will 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. We've also posted on the website a slide deck that we'll refer to during the call. I will now 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 fourth quarter and fiscal year 2022 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results, followed by a summary of our business strategy. Todd Schull, our CFO will follow with an overview of our Q4 2022 financial performance and our Q1 2023 guidance. We will then open the call to your questions. The quarter's highlights are also shown on slide three of the investor presentation posted on TTM's website. In the fourth quarter of 2022, TTM delivered solid results in a difficult business environment, while revenue softened, non-GAAP EPS was above the midpoint of guidance despite a challenging supply chain and the labor environment and the continued impact that COVID-19 is having on our business. Demand in our Aerospace and Defense market remained strong with record bookings and backlog, offset by weaker demand and bookings in our commercial end markets. We also saw improvement in our profit margins year-on-year in Q4. I am proud of our employees for delivering solid results this quarter in a tough environment. As we look into Q1, production inefficiencies in our Asia-Pacific facilities due to Chinese New Year, inventory adjustments, and weaker demand from some of our commercial end markets, are causing revenue and margin declines, but we will continue to see strong demand in our A&D market, which now represents 40% of our revenues. For the full year of 2022, excluding the acquisition of Telephonics, TTM grew revenue 5.4% with improved year-on-year profitability despite the challenges I previously mentioned. Full year cash flow from operations was $272.9 million, enabling us to purchase Telephonics and strengthen our balance sheet, while returning capital to shareholders. In addition, we repaid $50…

Thanks Tom and good afternoon, everyone. I will be reviewing our financial results for the fourth quarter that were included in the press release distributed today as well as on slide seven of our earnings presentation that is posted on our website. For the fourth quarter, net sales were $617.2 million compared to $598.1 million in the fourth quarter of 2021. The year-over-year increase in revenue was due to the inclusion of Telephonics as well as organic growth in our Aerospace and Defense end market, partially offset by declines in our commercial markets. For the full year, revenues grew 5.4% excluding Telephonics, driven by our medical, industrial and instrumentation, data center computing, automotive, and A&D end markets. For all of 2022, revenue was $2.5 billion. This compares to $2.2 billion in 2021. GAAP operating income for the fourth quarter of 2022 was $97.6 million and includes a gain of $51.8 million in December 2022 from the sale of the property occupied by our former Shanghai EMS entity. This compares to $33.1 million in the fourth quarter of 2021. On a GAAP basis, net income in the fourth quarter of 2022 was $6 million or a $0.06 per diluted share. Our fourth quarter 2022 results include a tax reserve of $51.7 million to establish the valuation allowance for certain US deferred tax items, and $14.7 million associated with the gain on the sale of the property noted earlier. This compares to GAAP net income of $8.4 million or $0.08 per diluted share in the fourth quarter of last year. The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes M&A related costs, restructuring costs, certain non-cash expense items such as amortization of intangibles and stock compensation, gains on the sale of property, and other unusual…

Thank you. [Operator Instructions] And today's first question will come from the line of James Ricchiuti with Needham & Co. Your line is open, sir.

Hi. Thank you. Good afternoon. So, maybe putting aside the aerospace and defense where you have pretty good line of sight, which are the commercial markets as you look at him today, do you believe perhaps the most uncertainty attached to them and you're clearly seeing weakness in several of them?

Yes, I think -- to two areas, Jim, in terms of, areas of weakness and we saw during the course of the quarter, a pronounced weakness in data center. And so, that was that affects our computing and data center computing and market which two-thirds of that is really data center and the third is semiconductor both, both now really, really showing signs of weakness and in the case of data center, a lot of discussion around inventory control and digestion. But I think a market that that certainly in the first half I think will continue to be weak. Networking is the second similar, similar in nature, right, I think the networking by and large by the inventory control, discussion around softening, demand environment, spending environment and a lot of discussion around the first half of the year telecom. Really, everyone holding their breath for India investment, which is coming, but it's coming slowly. And, frankly, that's a pretty small part of that networking end market for us. So those are the two markets. From a challenging standpoint, I'd say our, our there was a softening demand. And just to finish the discussion MII, Medical Industrial Instrumentation, it's really the instrumentation side that is showing the pronounced weakness, medical and industrial relatively better, though, a lot of discussion around inventory control. But I think that shorter term in nature, automotive, continuing to really hold up pretty well. We are taking the Chinese New Year time off in our facilities there. And so our revenues will be down in Q1. But if you do the quick calculation, and you add back that that week and a half to two weeks of production that we lose, you'd be right back on top of the Q4 numbers on automotive. So holding up pretty well.

Got it. Follow-up question I have, as you may have -- made some reference to this in the opening remarks, but to the announcement today with respect to the manufacturing footprint, does that in any way change the investment plans? Or timing for Malaysia?

No, no, absolutely not. And we -- yes, that that really, for us. And, we look at our footprint, regularly, these small -- smaller facilities in Hong Kong, and the two facilities in California, really been struggling in terms of profitability and their plant charter. And that that's been the struggle. And as we looked into our forecasts, they also don't look much better for the long term. So difficult actions to take but necessary, and we will continue the investment in Malaysia to our customer base is counting on this, it's a critical investment for TPM to make in terms of supply chain resiliency, automated highway account, efficient production volume production capability. So, we're moving proceeding there as scheduled and holding to our schedule at this point.

Got it. Thank you.

Thank you.

Thank you One moment for our next question, will come from the line of Mike Crawford with B. Riley Securities. Your line is open.

Thank you, I heard from your remarks that you basically have 70% of your capacity, generally sold with customers for the Malaysia plant that's opening? Is that a case where you're hoping to run that facility at what 80% plus utilization? Or what -- where -- is that going to be the same maybe type of metrics that you had for your China facilities? Or is it going to be slightly different?

So the goal, the goal will be to run it north of that. I mean, ideally, you'd love to be in between that 80% and 90% utilization rate, but you're absolutely right, Mike. It's very similar in terms with our China facilities in terms of volume capabilities, and the need to, to leverage your manufacturing foot footprint and keep that utilization at a high level. And these will be volume requirements for these customers. And, we'll obviously, we won't we won't hit that about 80%. Right away, we've got it, we've got a good ramp that'll carry -- begin the end of this year, and then carry us through next year to get there. But again, yes, it's a very strong backdrop for us to have those customers lined up and willing to, to sort of with their deposits to help us with as we invest in this critical capability.

Okay. Thank you. And then my second question switches to a CSO what is potential upside for, a, more ships being included onto that program, perhaps as a result of the forthcoming budget and budget requests we'll see in a few weeks? And secondly, for potential for military sales to allies?

So I can't it's always hard to speak for our customer. I would say that that. There certainly is upside there. And you're right, there's possibility of foreign military sales as well. The we have to stick to their announcement I think I think even that is a very strong base for us. And we've continue to see, of course, a number of other radar systems and programs, move to ESA that are that are really allowing us to grow strongly in that market. So not relying solely on that program, but it is a -- it's a program that has potential upside for sure. And our focus will be on servicing the customer, making sure that that we ramp here successfully through the course of this year for our aerospace and defense market. And critical to that is that we solve supply chain bottlenecks in that market. And that's a big area of focus for us as we ramp. It's great to be to have a program backlog as strong as we have at the beginning of the year, allows our operations to really focus on getting the job done.

Great. Thank you. Thank you.

Thank you.

Thank you. [Operator Instructions] One moment for our next question. That will come from the line of Matt Sheerin with Stifel. Your line is open.

Yes, thanks and good afternoon, everyone. Just question on the outlook for the automotive sector. Sounds like you're looking below the market growth there. And I know you're starting out down, I guess mid-teens year over year. In Q1, most of the suppliers sound more optimistic. Some are seeing a little bit of inventory, but most expect some production growth this year, and content growth. Do you expect auto to grow for the year, even though you're going to be down significantly in the first half?

So the answer is yes, the impact if you start to look sequentially, and that's probably the best way to look at this, you'll see the Chinese New Year impact. And so you can -- and that's really what this is. But last year, we ran full out Chinese New Year. We ran we were -- we -- and the interesting thing last year that was a bit different than other years is that, we had COVID out there, the government was encouraging employees to just sit -- stay in place. So we had our full complement of labor, as well. So we ran as hard as we could in Q1. And that's the difference you're seeing is that Chinese New Year difference. Now demand environment, overall, a little bit off from where we were and Q1 last year, but not substantially. So the market is holding up well. We think it will -- it looks to hold up well through the first half. So, yes, as we go, again, difficult to predict the back half of the year, and that's mainly because there still are critical shortages out there and parts. But what we see in the first half is a good strong demand environment. And yes, we would expect to be able to grow in automotive this year.

Okay. Thanks for that. And I know someone just asked about, the commercial markets being weak, in terms of the cloud as a computing, inventory correction you're seeing and same thing in the related semiconductor markets. Are you getting seeing signs that all of that bottoming in the next quarter or two, or will it get worse before stabilizes?

Yes, I think we're looking at -- I think the key there's a quarter or two, because I think this is really a -- the indications we have are for the first half. Now we'll see how demand that -- what shifts there in terms of demand as we go into the second half of the year. But most of the commentary we've had from customers around is related to the first half and digestion. Digestion as they put it, that is necessary in the first half. And it's due to substantial inventory buildup and bringing those inventories down before they can start to see again true levels of demand impacting the supply chain.

Okay. Thank you. And then Todd had a couple of modeling questions. I don't remember you or you may have talked about the OpEx guidance for the quarter, did you give that number out?

What I -- what we would think kind of give you in terms of insight into Q1. We're expecting SG&A expense to be about 9.5% of revenue, and then R&D to be an additional 1.2% of revenue in Q1.

Okay, so 10.7% total. Okay. Okay. Great. And so that implies your gross margin is actually still up year-over-year. Is that primarily due to the mix with the acquisition? Or I know you're difficult, obviously, a tough year had some issues, I know in Q1 of last year, I was just trying to figure out, given the big revenue decline, how margins can actually be up?

Well, okay, so that's good discussion. I think, when we're looking at Q1 and comparing that to Q1 last year, okay, year-over-year. Revenue was only down slightly, but there's a big mix shift, right, we added Telephonics. So when we look at year-over-year Q1 a year ago at the midpoint of guidance, our revenues are down about $11 million. But aerospace and defense is up almost $75 million. If you take all the guide that's given. So that implies the commercial markets are down substantially…

Is down about 20%, yes.

Right. But when you look at the margin impact, okay, so you have some mix shifting, we added Telephonics, we lose commercial PCB business, they have different economic profiles. The PCB business at that kind of volume is pretty lucrative and Telephonics is we brought that on there. We're working with synergies to improve their profit profile, but it's not yet quite dollar-for-dollar exchange in terms of profitability. We're also going to see year-over-year some pricing challenges, but we've got some favorable effects up in our cost structure. Exchange rates are -- that the Chinese currency is a little weaker in this quarter we're seeing compared to a year ago, and so that gives us a little bit of tailwind. So kind of works off better mix, a little FX help. And that's offsetting some of the challenges that you see in our annual kind of pricing and less premium revenue this year compared to last year. And it all kind of breaks either right margins stay relatively consistent, maybe up slightly. But even though there's a big mix, there's a lot going on underneath the covers.

Got it. Okay, very helpful. Thank you.

Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Todd -- Tom Edman for any closing remarks.

Thank you. Yes, I just like to close by summarizing some of the points that I made earlier. First, we delivered non-GAAP EPS above the midpoint of guidance, and saw good year-over-year improvement on margins. Second, we announced the consolidation of our manufacturing footprint to streamline our operations to better serve our customers and lower our cost structure. And third, we generated strong cash flow, resulting in a net leverage of 1.5 times at the low end of our target range of 1.5 to 2 times. And forth, really despite weakness in our in our commercial markets, we are seeing very strong demand in our aerospace and defense market. In closing, I'd like to thank our employees, our customers and our investors for your continued support, as we navigate the challenges to our business. We’ll continue our long-term strategic focus on diversification, differentiation and discipline. With that, I'd like to thank you again. Goodbye, everyone.

Thank you all for participating. This concludes today's program. You may now disconnect.