This is the 2023 BofA Leveraged Finance Conference. I'm Ana Goshko. I cover technology and telecom credits, and I'm thrilled to have TTM Technologies with us, and Dan Boehle, the company's Executive Vice President and Chief Financial Officer. So, Dan, thank you so much for being with us. Appreciate it. Thank you, Ana. It's nice to be here. Great. Hello. So I have a couple introductory questions for you, but even as a pre-introduction, I don't know if you had any opening comments you wanted to make. No, no, I'll. We can just jump right in, but just happy to be here. This is my first BofA Leveraged Finance Conference, and my first time representing the company. I've been with them for three months now, so the new CFO. And so I may have to refer to Sameer to help me out, but or my notes, but we'll get through it. Okay. Okay, great. Okay, so just in case we have anyone in the audience that's new to the TTM story, if you want to just start with a brief introduction, a few comments on the company's key products. So I think most people do know that the history is it's a printed circuit board or PCB designer and producer. If you could just talk about what the company's current PCB market share is, and then also the scale of the non-PCB business. Sure. You know, I'll give a little bit of an overview. We are a globally leading global manufacturer of technology solutions, which include, you know, mission systems, RF components, RF microwave, and microelectronics products, as well as quick turn and/or high technology PCBs. The name TTM means time to market, so that reflects our time-critical approach to partnering with our customers to reduce the time to develop and bring a product to market. We have been through over the last, you know, several years, working through a transition from just a traditional PCB business to higher up the food chain a bit, I guess, to more engineered products. And we're also focused on growing our longer cycle business, and focused on aerospace and defense, both, you know, commercial and, and aerospace and defense, commercial aero and aerospace and defense. So we've done that through some acquisitions. In 2018, we bought Anaren. In 2021 we-- or 2022, we closed a deal on Telephonics. So we've been integrating those businesses and growing that, engineered product base for our business. So, ultimately, hoping to, that will stabilize the business. The PCB, the commercial PCB market, can be volatile, and so we want to stabilize that business through the, the aerospace and the electronics, or integrated electronics side of our business. We have about... I mean, I guess if you wanted to know scale a little bit, we probably are the dominant PCB manufacturer in the U.S. But we don't go after the lower-end, you know, consumer electronics. What we call commercial is still high-end, highly complex, differentiated circuit boards. So, the majority of probably 80% of our U.S.-based PCB products, or sorry, of our U.S.-based business is for the aerospace and defense group. The Asia, we do the more commercial PCBs, but they're still higher end. If you look at the PCB market, maybe it's about $70 billion, but we don't do the lower end. We probably only have 2%-3% of that market share, but the work that we do is much more high-end. Okay. Great. That's a great introduction. Thank you. So also, you're new to the company. I think you joined in the summer of this year. Just joined. You said, "I think you just, just hit your three-month mark. Yeah. You know, we'd love to hear your first impressions and, you know, what the opportunities and key challenges are. Sure. I appreciate that. I did join in August. Prior to that, I was with Aerojet Rocketdyne for six years, served as a CFO for three of those years, and have been in the aerospace and defense market for the last 21 years of my career. Joined here after Aerojet Rocketdyne was sold to L3Harris in July. Yeah. Took three weeks off and then jumped over to TTM. So, wanted to keep working. The business was appealing to me for a number of reasons. I do like the, you know, the strategy to grow in the aerospace and defense market. I think that they have a very good foothold, especially on the PCB side, a very good majority share of the PCB market in the U.S. and they're well-positioned because of their differentiated strategy, their ability, and their desire to help engineer not just build the print, but also work with the customer to be at the customer. We have field application engineers who are working with the customers to, you know, help develop and design their project or their product, so they can be most efficient. And then as we climb the food chain, we can integrate our PCBs into more subassemblies and subsystems or what have you. So, I see that as, you know, the opportunity, the opportunity to, to grow in that aerospace and defense market, which is my background. The challenges we have is integration. All right? So we've grown through acquisition. So integrating those companies and, getting, building the synergies, building the processes, and getting the systems and understanding of, of that business integrated with the rest of our PCB business, that's a bit of a challenge. The culture is a little bit different. The business model is a little bit different, and so we're working through that. The interrelationships with the supply chain has been a bit of a challenge with us. Aerospace and defense had some challenging years with supply chain, with labor shortages, with longer lead times that were, you know, came about through COVID and what have you. So, you know, we're still feeling some of that, but we're working through that pretty well, and then building a structure around how we manage those relationships, so. Okay, interesting. Okay, great. So I think the best way to approach this is, you know, to really kind of dig deeper into the company is to go by your end market segment. Sure. If we start with, I think your largest is Aerospace and Defense, so roughly, it is about 45% of the revenue. The outlook, as the company has last presented it, was stable to growing, for the foreseeable future. Is that accurate, first of all? Yes, that is still accurate. Okay. Frankly, in 2023, one of the ones that did grow, probably beyond what our third party... You know, we use Prismark to kind of give us our benchmarking. And so we disclose these in our investor presentations. But yes, aerospace and defense was expected to grow at 3%-5% over the next several years. We are in line with that in 2023, and we do intend to, you know, continue to grow, you know, in line with that growth. It's, as I mentioned, you know, it's an area where the company is trying to strategically move towards. The U.S. defense budget is increasing. There are good, stable platforms that we're on. We are most of our business in defense is in the radar business, radar and communications, and those came through those acquisitions of Anaren and Telephonics, so we have very strong footholds there. And then our number one customers are the big primes, you know, that we all have heard of, Lockheed Martin, Raytheon, Northrop Grumman. You know, our challenge or our opportunity is to become, you know, one of their suppliers of preference, and continue to stay on their large platforms, and then that will carry us through these long cycles, so. Okay. So a follow-up on that. Mm-hmm. But... Well, but let me follow up on that. So when you say supplier of preference, what do you think you need to do to get there? Reliability. The biggest thing I think for aerospace and defense is reliability, right? And so we need to be and also on-time delivery. And so we need to be able to you know say do what we say we will do, deliver on time and on schedule and on cost, and then and build reliable products. I think our printed circuit boards are highly reliable. As I mentioned, we compete at the higher, more complex technology on PCBs, and that's why we want to do business with the aerospace and defense. We announced a few weeks back the expansion of our Syracuse facility, and that's mostly focused on doing- Got it. It is focused on doing Ultra HDI PCBs that are strictly for aerospace and defense products. Okay, got it. Great. And then, if you can talk about the commercial end market and how those trends and outlook may differ. Sure. And so we've got, yeah, we break down three of those, right? So I'll go from the top. The largest one is automotive. It's about, Oh, I was talking about commercial within the aerospace and defense- Oh! -sector. Oh, commercial aerospace. Yeah. Sorry. Yes. Yeah. Well, sorry. It's okay. Commercial aerospace is starting to come back, so, you know, I know myself, I've been flying more than I- Okay ... did in the last couple of years. So commercial aerospace is a strong growth for us. Boeing's one of our largest customers there. We have another of others, but that is strong growth area. And probably, you know, again, depending upon the year, because it's commercial, it's a little bit more volatile, but you could see growth, you know, higher than that 3%-5% in particular years. But, you know, we're starting to see, you know, the inventory build-up that has happened across most commercial businesses over the last few years because of inventories or because of material shortages. People started buying up, buying up and started, you know, building up inventory, and then waiting for the demand to come. We're starting to see that demand come, but there's still a high build-up of inventory on the commercial side, and so as that inventory burns down, then we'll start seeing increases. But yes, commercial aerospace, we're starting to see the increases building into next year. Okay, great. Okay, so then I was gonna go in order of, so descending order. So, Sure. So I think then your next end market, and there's five, so the next end market is data center and computing. So again- Okay ... aerospace and defense, 45% of revenue, so now we drop down to about 17% of revenue for data center and computing. So, for this, for the very near term, for the fourth quarter, I think you've guided it down sequentially, though still up about 8% year-over-year. Yes. So I guess, you know, what are the drivers here? And, how much of that segment is the data center versus the computing? So traditionally, you probably may have been closer to 50/50. It's now currently more like 80%-85%, data center versus computing. And mostly that's because in the last couple of quarters, we've had explosive growth in Generative AI in the data center area. So probably even more than we expected, especially into Q3. So when you say sequentially in Q4, we do see that going down a little bit. The indicators are that Q4 will be a little bit down from Q3, but a lot of that's because some of that got pulled forward from Q4 into Q3 because the demand's been so high. But we are seeing that continue to be strong, and we see that continuing to be strong into next year. The, you know, the benchmark growth expectations for data center computing is 68%. You know, we were down below that this year, but we do see that growing, you know, into next year. And, you know, you know, we've all heard the story of NVIDIA. We do supply to them, but we're also looking for to broaden our customer base within data center. So- Okay. Okay, then, next one down is medical, industrial, and instrumentation. So that's 16% of revenue. So, right now, you know, roughly the same size. In fact, all of your other segments are- Correct ... kind of roughly in the same size. But, so that one, it's been down at least year-over-year for, I think, five consecutive quarters. It will be the fifth one in 4 Q, and that's gonna be down about 15% year-over-year if your g- Sure ... if your guidance holds. So are we at the trough for that segment? And if you just talk about, like, what, you know, what's been happening there. Right. So I, you know, it's a bit of a mixed story on these commercial areas, but I think a lot of, as I mentioned, a lot of the decrease has been, not because... Well, there's twofold. Either end demand has not been there, or it's slowed, and/or inventory has been built up, and that needs to be burned down. So I think in medical and, well, let's do medical, right? That particular, you know, the end market, the end demand kind of decreased during COVID, where people weren't going to do elective medical surgeries and things like that. You know, so people are starting to go back to that, right? But again, you know, inventory was probably built up, so that's now burning down, and you'll start to see growth there. So medical, you're starting to see growth. You're also seeing more of, more electronics being used in medical. So, you know, remote sensing devices for, like, you know, diabetes monitoring, what have you. Also using, you know, robotic surgeries and things like that. So that increased technology within medical is good for us, good for our business. The industrial group has been pretty stable. Industrial is pretty stable, you know, but it's a slow growth area. But that is—we're starting to see an increase there again, coming off of inventory buildups. On the industrial side, we tend to do... Let's see. What do we do there? More robotics being used for industrial manufacturing, what have you. So as robotics and automation increases, that's good for our business. And then instrumentation, we do test equipment for semiconductors, and so semiconductors is kind of a cyclical business. That cycle is kind of down right now, so we're seeing decrease there. So when you look at MI&I in total, I'd say a bit of a mix. Mm-hmm. I think medical is probably growing a little bit, starting to grow a little bit. Semiconductors are still down. The industrial industrialization is still kind of slow growth. So kind of mixed, but I think steady, steady overall at, you know, probably that, you know, 2%-4%. Okay. And then, and then auto. So it, it's also still been, you know, down year-over-year. Do you expect it to be able to ramp from here? Yeah, we are starting to see that even in this fourth quarter of this year. Automotive is one of those where the inventory was highly built up and overproduced. We are starting to see the demand exceed those inventory burn-down levels. You know, into Q4 this year, even, we're seeing some good automotive growth that's driving some of our, you know, driving the majority of our top-line growth into Q4, other than data center, is coming from automotive. We are starting to see that strengthen. You know, it's, but it's the messages have seemed to be mixed in the past few quarters. But, you know, everyone keeps saying you're gonna turn the corner. I think we are starting to turn the corner. We really are seeing the numbers come in Q4 now. So- Okay. Automotive is ticking up. Just to touch a little bit on automotive, too, as there's more, as we move more from internal combustion to EVs, there's higher content of electronics, which means there's higher content of our products, our PCBs. Ours are mostly in, you know, sensors, and safety devices and, like, ADAS, the assisted driver, security systems that are now in, in your car that won't let you hit anything, and jolt you when you get too close. Yeah. I've had that happen. So, so the, the content, the electronic content of these cars, especially with the EVs, is, is increasing, and so, cost per car, used to be or probably generally in the $80-$90 range. Now it's gonna increase, you know, 30%-40% into, like, $120 or more. And that's on average. The EV cars are probably in the $200-$300, per car. So, as we get more EVs, you're gonna see more and more of our product. Okay, that's great. And then- The demand plus the content will give us more. Okay. And then to, I guess, to finish this part of the conversation on, on sort of a, at a, a tougher note, so networking and communications is about 15% of revenue now, but it's really down. Yeah. For the fourth quarter, the revenue outlook is down 15% sequentially, but 56% year-over-year. Yeah. What is happening to drive this steep decline? Yeah, I mean, this has been a very, very challenged area, and challenged meaning that this is an area where there's been a lot of inventory buildup, right? Yeah. So on the networking side, our major customers are Cisco and Juniper. You know, Cisco is continuing to show, you know, slow growth, and they've just got a lot of inventory buildup that they're still burning down. So, that's going to take a little while to continue to get down. On the infrastructure, or sorry, on the communication side, our customers are- biggest customers like Ericsson and Nokia, the telecommunications. There's not a lot of money being spent on, you know, the 5G network or anything in the U.S. We are seeing some overseas. We're seeing growth in India there, but the U.S., I mean, you know, none of us have 5G phones that really do any 5G. We're just not investing. The capital investment's not been made by the telecom companies. That continues to just be flat to reduced. And so we're not seeing a big turnaround there, not in the U.S. But year-over-year, we will see growth, and a lot of that's coming from cross-selling those products into different markets, and/or as I said, the India market is showing some revitalization, and mostly because they're rolling out a 5G network, so. Okay, great. Okay, so shifting to now sort of some manufacturing topics. Mm-hmm. So all around your manufacturing footprint strategy, but I, I think there's kind of three things. So I think there's a shift from Greater China to your new Malaysia facility. You're shutting down production in a couple of places, I think Anaheim, Santa Clara, and Hong Kong. And then as you already touched upon, you have this, this new build in Syracuse. So if, if, if we start with the first one, so the shift from Greater China to the new Malaysia facility, what's the magnitude of that shift? And if you just maybe touch on your overall China exposure, both from a- Sure ... revenue and maybe manufacturing kind of- Yeah, sure percentage of footprint strategy, you know, standpoint. Yeah. So, from a revenue standpoint, China, we don't have a lot of Chinese customers. Our revenue is probably only 2% coming from there. Most of our customers are actually, you know, U.S.-based or elsewhere. So from a revenue standpoint, not a lot of exposure, but from a manufacturing standpoint, we've got about 40%-42% of our products are made in China, and that's all of our, you know, commercial products. And so you mentioned, you know, the building in Malaysia, how much will shift? Maybe, some of it will shift. The Malaysian factory, when it's up and running, will be probably this size. We'll have, you know, the opportunity to do about $200 million of sales, which is about the size of, you know, our other large China factories. So it will be able to match them, but it's also will be more productive because it'll be more automated. So we'll be able to match them with lower cost and with lower labor. But most of the work that's going to be filling in the Malaysian factory will be new work, new products for existing and/or new customers. It's hard to requalify product lines from one place to another, so very little will do that because it's costly. So most of the business that's going to go into Malaysia will be new product- Okay ... or next generation of existing products. So they'll be qualified in Malaysia, not moved from where they are. Okay. So- Was this initiative in response to customer demand to kind of reduce? Some of it, yes. Risk- We certainly have been hearing that. China presence? Yes. And, you know, there's different views on how hard a decoupling could happen or if and when it would happen. Certainly, our customers have asked us to have a presence. You know, there's the whole concept of China Plus One. But, you know, in its name, it doesn't say get out of China. It just says, "Have another alternative," right? Got it. China is still less expensive to. Malaysia will be a little bit more expensive to produce there. China is still the you know less cost and most effective location to manufacture. But now that we have this, you know, we've always had a global footprint. It's always been part of our strategy. Having the Malaysia site, we're one of the first ones that's kind of opening up there. There are some others that are following. Our customers have been very positive on it, and we've got a number of our key customers that are you know anchor customers that are helping us invest and open that factory, so. Okay. And then on the three facilities being shut, now the production there is really just being transferred- Being transferred- For the most part ... For the most part, For the most part, you know, probably 80%-90% of it is being transferred over to other existing facilities within the U.S., so. Okay, great. Okay, and then labor supply constraints, has that improved for you? It has. I mean, we don't see much constraints at all on the PCB side. The labor constraints and supply chain constraints were more on the A&D side, as I was speaking to you a little bit earlier. I think that was industry-wide. Just we're kind of newer in that A&D space. We're building up a supply chain team that understands those relationships and understands the complexity and the intertwines between, you know, being a subcontractor within the chain of command within an aerospace and defense industry. So there's, you know, low volume, high complexity, so the relationships are very important. So you need a partner, you need to help, help them make sure that their design works well with your design, and then, you know, integrating into the ultimate sub-assembly or assembly, so. Okay, great. We're doing that. Let's shift to some financial performance topics. Sure. So, so among the goals, so the company has set a goal to be less cyclical, which I think, you know, you touched upon, more differentiated with stable growth, improved margins, strong free cash flow. And then in your recent in the company's investor day, there's some operating targets included organic revenue growth of 4%-6% and adjusted EBITDA margin of 15%-17%. So those are some very specific targets, but where are you in, I think on the path of achieving these kind of- Sure. stable free cash flow and, you know, organic growth and margin targets? Right. I think free cash flow, we're doing pretty well. I think we've, we generate a good, strong cash flow. Our target is 10% of revenue, and we've been, you know, year to date, we're above that. On our margin, you know, you refer to the bridge that we had in our investor deck, showing that we could get from, you know, our single digit, 9.4%, up to, ultimately to 13%. We've talked about some of the things that will get us there. You know, we closed some facilities, we're opening the Penang facility. So, you know, the drag that comes from, you know, closing the cost of closing down while you're running out of revenue, you're getting rid of revenue, and then ramping up Penang while you don't have revenue yet, as that all goes away, you know, that's, you know, I think 50-70 basis points, as well. Or, 50 basis points for Penang plant, a hundred basis points for the plant closures in the U.S. So we're well along on those two. As I said, both the plants will be closed, and then Penang will be open by the end of this year. The incremental revenue that, you know, will drive another 70 basis points there, in our bridge, that will come as these commercial markets start coming back. So we just talked about there's some mix there. The data center and automotive are going to be driving some growth. Aerospace and defense will be driving growth. And as we see that, you know, revenue growth pulling in strong margins, we need to continue to manage our costs. We've done that very well in the last couple of quarters. If you look at the margins that we had in Q3, we're back to our double digits, right? Historically, our North American PCB factories did the mid to high double digits. We have, you know, lost some of that productivity, and we're heading back towards that. So this quarter, all of our factories are firing on all their cylinders, and so we're doing well. I think we're heading in the right direction, and we're on track to get to that number. Now, we didn't put a timeframe on it. We said kind of two to three years, but we are heading in that direction, and I think we feel strongly about that. Okay, and then, the company has had a net leverage target of under two times. Yep. By my math, you're, you're actually there. Yep. So as a new CFO coming in, looking at the debt structure, are you comfortable with it or anything you'd want to...? Very comfortable. I mean, so my predecessor did me right by refinancing last year. And we're in a good position in our debt structure and our current leverage. We do like to have a, you know, keep a pretty conservative balance sheet to allow for expansion if, you know, we have grown through acquisition. So if there's, you know, acquisition targets out there, you know, we're always looking, but we want to just have the enough dry powder to be able to do that. But yes, I mean, we don't have a maturity in our debt until 2028 and then a couple of years beyond that. So we're in good position there, and as I said, we're generating good cash. So, you know, we've announced another $100 million buyback in Q2 of this year, and we've been doing some buybacks in Q3 and Q4 to return some of that cash to our stockholder base, so. Okay. Then how do you characterize the current M&A environment, and are you sort of active or...? I wouldn't say active. We're certainly always watching. And, as I said, you know, we're doing a share buyback, so obviously we're not hoarding our cash to make a big acquisition right now. With our strategy of trying to grow more towards the integrated electronics and the engineered products in the aerospace and defense area, those would be the targets we're looking at, and they tend to still be pretty expensive. So, the M&A market is, you know, it's always active, but I think that with the debt rates going up, the sellers haven't really adjusted their expectations of price yet, especially in that A&D business. There's been a few recent deals that are in the 14-15x, and that's, you know, still pretty rich, so. Okay. What about, anything else that you might still be able to divest, or are you happy with your current footprint? We're always looking at opportunities to improve our cost structure, and so we don't have any current plans to divest in anything else or close any factories. I think we've done what made the most sense right now. We're focused on the growth in Malaysia and the Syracuse building. So, obviously, we've got, you know, those capacity needs, and so I don't think we're looking at closing anything immediately. Okay, great. Okay, we've got a few seconds left. Okay. Any closing comments or anything, any kind of final thoughts you wanted to leave us with? I just, I think that we are well along our stated path of growing into expanding our product base into those engineered products. We want to be on more the higher-end high technology integrated electronics business and catering to the aerospace and defense business within the U.S. because of the stable growth that it has. That stable growth will generate, you know, less volatility, should hopefully, as we continue to manage the supply chain, expand the margins in that area, and hopefully lead to increased valuation in the long run. So- Okay, great. Okay, Dan, thank you so much for being with us. You're welcome. Thank you. Thanks for having me. Thanks for coming.