Analyst Conference Summary

conference date: February 5, 2013 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2012 (Q4, fourth quarter)

Forward-looking statements

Overview: Revenue were up sequentially and y/y, as was EPS.

Basic data (GAAP) :

Revenues were $382.4 million, up 13% sequentially from $339.0 million, and up 6% from $361.5 million in the year-earlier quarter.

Net income was $15.7 million, up sequentially from negative $208.3 million and up 40% from $11.2 million year-earlier.

EPS (earnings per share) were $0.19, up sequentially from negative $2.54, and up 36% from $0.14 year-earlier.

Guidance:

For Q1 2013, revenue is estimated between $310 and $330 million. GAAP EPS expected between $0.00 and $0.05, non-GAAP EPS between $0.07 and $0.12. This reflects the usual seasonal decline against a challenging macro environment.

Conference Highlights:

Kent Alder, CEO, said he was "pleased to close 2012 with strong financial and operational performance." Demand for HDI PCBs was broad-based and drove margins higher. [HDI PCBs are used in smartphones and tablets]

Non-GAAP net income was $21.5 million , up sequentially from $18.1 million. EPS $0.26 up sequentially from $0.22 per share. EBITDA was $50.3 million, with 13.2% margin, up from $36.5 million in Q3.

Sequential GAAP distorted because of $218 non-cash charge in Q3.

Aerospace/defense represented 13%, down from 16% of total revenue in Q3. Hit by fiscal cliff & sequestration worries.

Cellular Phones represented 17%, up from 15% in Q3 on a new program for a key customer.

Computing, storage and peripherals were 23%, up from 21% in Q3. Tablet sales drove increase, but storage demand improved.

Medical and industrial were 17%, up from from 8% in Q3.

Networking and communications was 30% of total, up from 29% in Q3. Improved sequentially in Asia, but visibility is limited. LTE build out timing will determine the next sustained increase in demand, possibly in the second half of 2013.

Other was 10%, down from 11% in Q3.

Top five customers: Amazon, Apple, Cisco, Ericsson, Huawei. IBM dropped out of top 5. Accounted for 40% of total sales. The largest customer accounted for 19% of sales.

By region: Asia-Pacific $259.4 million, up 20% sequentially, and up 18% y/y, with a 15.7% gross margin. 60% of Asia revenue was advanced products, while conventional PCB demand was soft. North America $123.9 million, nearly flat sequentially, with 17.4% gross margin.

Cash and equivalents ended at $285.4 million, up 5% sequentially. Cash flow from operations was $66 million. Capital expenditures $55 million. Depreciation $24 million. $289.6 million net debt ($567 total debt).

2013 capital spending will be reduced to $100 million, as 2012's resulted in a sufficient HDI build out.

Will be selling 70% of SYE plant and buying DMC plant. Both make conventional PCBs. Will reduce TTM's conventional capacity. Will close in Q2 and generate $84 million cash, of which $40 million will be used to repay a loan.

Cost of goods sold was $320.4 million, leaving GAAP gross profit of $62.2 million. Operating expenses of $40.8 million consisted of: sales and marketing $9.6 million; general and administrative $28.7 million; amortization $2.5 million. Leaving operating income of $21.4 million. Interest expense was $6.6 million. Other income $2.4 million. Income tax benefit $3.6 million. Income from noncontrolling interest $2.1 million.

Q&A:

SYE DYE swap details? By reducing conventional capacity we will be able to simplify our company structure and align our conventional capacity with out HDI capacity.

Conventional capacity utilization after swap? It would increase utilization 5% to 10%.

Flex assembly has a higher material content, and so has lower margins. Networking end market showed broad strength, more pronounced in Asia. We see Q4 as being inventory replenishment. The momentum faded in Q1, so not sure we have turned the corner. In North America we are back to historical levels for the year.

Book to Bill ratio? 0.99 in North America, in line with overall market. We had a strong December, then a weaker January. In Asia was 0.94, but actually picked up slightly in January.

We are looking at downsizing the workforce at a couple of facilities. We are always trying to adjust to market shifts and to gain share from competitors. We expect a bounce back in communications, which should improve utilization.

Boeing Dreamliner? We supply product to Boeing, but our products to not seem to be involved in the battery problem. Our Boeing sales run about $5 million per year, and so far are steady.

2013 capital investment vs. HDI expectations? Advanced HDI capacity is now sufficient to meet short term needs. We are doing some samples that, if they ramped quickly, might require further advanced HDI investment. On conventional side our utilization is just 65%. So cap ex will be for rigid flex, flex assembly, and substrate business, which we see as a growth opportunity. We are also investing in waste treatment in Asia to meet new environmental regulations.

Does capacity have to be removed from the overall conventional PCB industry? TTM should be about right after SYE/DMC exchange. We will adjust as needed. In current market conditions the industry has too much capacity. Our relationships with out customers allow us to win conventional market share even as the industry consolidates.

SYE/DMC effect on margins? We have not completed our projections, but margins should improve in 2013 and then longer term.

Defense in March quarter? We are projecting aerospace / defense up in Q1, making it 17% of sales. Our customers do have some uncertainty due to sequesterization. We are involved in modernization programs, which has helped us do well. Defense is around 2/3, aerospace 1/3 for us. So a 10% sequesterization would hit our revenue by about 1%, except that it depends on specific programs that get cut.

4G LTE growth expectation, why second half? It is not in our hands, it depends on when the Chinese government releases licenses to our customers. 2H is just an estimate.

Ideal level of debt? $44 million free cash from SYE deal could be used to repay debt. The deal won't close until the end of 2013, so we have time to plan the best use of cash.

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