Okay, good morning. Thanks again for joining us today at the 26th Annual Needham Growth Conference. Our next session is going to be a discussion with the CEO of TTM Technologies, Tom Edman. We also have the CFO, Dan Boehle, who is, I believe, in the audience. My name is Jim Ricchiuti, a senior analyst in the equity research department at Needham, covering companies in the advanced industrial technology space. TTM is one of the world's largest PCB manufacturers, but in recent years has been expanding its technology offering to include microelectronics for the aerospace, space, and defense markets. Acquisition that you did, Tom, back in what? Mid-2022, Telephonics? Yep. With that, aerospace and defense is now your largest market, and maybe, you know, to start, for those who are more familiar with the legacy TTM business, it's probably worth highlighting Telephonics and, you know, what that's brought to you in terms of expanding the A&D business. Sure. So thank, yeah, thank you for joining, and yes, Dan Boehle, who's our CFO, started in September. He'll be joining us as soon as he's able to make his way down from our one-on-one room. But to answer the question, yes, we've been on a journey to increase our content in aerospace and defense beyond the printed circuit board, really building on top of our printed circuit board capability. We are the largest printed circuit board manufacturer in North America, and had a strong defense program position, over, at the time, over 150 programs. In 2018, we acquired a company called Anaren, and Anaren brought to us RF expertise, and microelectronics. So, directly, again, a component position, a sub-assembly position, that tied to our printed circuit board position. We started looking for the next step in defense, and that was the Telephonics acquisition that Jim mentioned in 2022. That brought to us, again, additional depth in the RF side of the business, so looking at building complete mission systems at that point for radar. So radar systems, and then communications and surveillance systems as well. But tying that radar part of the Telephonics business, being over 50% of their business, tied directly to the innovation work that we were doing with RF module and RF capability, and then tied in turn to the printed circuit board position that the company had. So today, in terms of overall portfolio, defense is about 50% of our revenues, and of that 50%, half of that business is what we call integrated electronics or non-PCB business. And if you start to look at the programs, right? What used to be 150 or so programs is now over 200 programs that we're involved in. And then, if you start to think about depth of content, our content is particularly deep in radar related programs. So land, air, sea programs related to radar. So that's how, that's how the business has shifted, for TTM overall. Has the acquisition generally met expectations? There's been Sure ... some variability just in the market- Mm-hmm ... because of supply chain issues and whatnot, but how, I mean, how has the acquisition performed? So that's well said. So if you start to, you know, if you start in terms of cost synergy areas, right? We have been meeting our cost synergy targets for the acquisition. We've been exceeding those. That's been largely a function of what we've been doing in operations and then the SG&A or particularly G&A synergies. So we met the cost targets. Now, the critical point is revenue, and that's where we've been constrained on supply chain. So if you look at the beginning of last year and sort of on a per-quarter basis, roughly $30 million of supply chain constraints at the beginning of last year affecting revenue. We're down to less than half of that at this point. Still continues to be a challenge as we get into the more complex mission system area. But from a printed circuit board and a component position standpoint, we've really moved our way through supply chain bottlenecks. So now really it is we're focused on that mission system area. From what we can control, just to take you through the journey, when we acquired Telephonics, we had at that point, we acquired an organization that had been relatively tactical in its relationship with the supply chain. And so orders were being placed as orders were received. That meant for our supply chain, our vendor partners, very difficult to forecast. We were relatively low in terms of their priority. And so immediately after integration, we sat down, and we mapped out what were the strategic needs for supply, the supply base, and we started placing orders in for long-term parts, long-term delivery requirements. So, started placing those orders. Those parts have now been arriving. That's been the biggest piece of our ability to get through these bottlenecks. We still are working it, but making good progress in terms of supply chain. Fair to say Telephonics was a bit of an orphan under its pre- Uh- previous owner, and, you know, to what extent is being part of TTM and the focus on defense changing the outlook for- Well, I think, you know, I think of another way to put it is they were closely managed. They were part of a holding company. Yeah. As part of a holding company, they were closely managed in terms of balance sheet and ability to leverage balance sheet. We put the full force of our balance sheet behind Telephonics and the mission systems organization as we've integrated. And so definitely, we've seen improvements there, and I think the... You know, that carries into supply chain. It's also very important from an engineering standpoint. So as we brought our organizations together at the beginning of last year, we reorganized our aerospace and defense business into a single. We now have a single engineering organization and two business units. One is radar, one is C4ISR. That engineering organization now is a combination of our engineering depth out of Syracuse, New York, where we do our RF work, and what we have in Telephonics in terms of mission systems. So organizing that into one engineering organization, a big part of the integration, and really charting the path for us as we go forward, particularly as we develop new radar products. We are going through that conversion to AESA or active electronically scanned array, which is the latest generation of radar technologies. That integration was critical to speeding our development in that area for a product that we call MOSAIC, which really is that transition to active electronically scanned array. Very important that we did that reorganization, that we concentrated our resources in one engineering organization with two business units to, to support the overall business. You mentioned Syracuse. I wanted to just maybe update us on what you're doing there in terms of expanding that campus, what it's allowing, potentially could allow you to do going forward. Yeah, great. Sure, so Syracuse, as traditionally for us, again, this was where Anaren was headquartered. A strong engineering base for us, focused on RF capability and microelectronics, right? As we integrated Anaren, we brought in their printed circuit board manufacturing facility, which was in Denver, Colorado. That facility and our other PCB facilities now support the engineering work that we're doing in Syracuse and in Long Island. As we've gone through, as we were working through the integration, our customers, and as we've improved content and the dialogue with customers, our customers have been sharing roadmaps. What we have seen as a real need, and an increasingly urgent need from our customers, is a requirement for very complex printed circuit board technologies that incorporate high-density interconnect, which is a. If you think about, many of you are familiar with semiconductor technology. If you think about lines and spacing, right? And you start to shrink the circuitry or increase the circuitry density on a board, you have to start using more advanced semiconductor-like processing technology. That has been a technology used in phones for the last 10 years. We were involved in that area. We're now seeing that technology being adopted in the defense space. There's some other complex requirements there, particularly around the durability of the circuit that are required. So that combination of durability in the board and meeting those lines and spacing requirements, that requires a whole new thinking in terms of technology. We've been working with our customer on these programs, and we've reached a point where we see a ramp coming, you know, in the go forward. And in order to meet that ramp, we're planning to expand in an adjacent area to our existing Syracuse facility. It will be a facility that's focused on advanced printed circuit board production to meet those future ramp requirements of the Defense Department. So that's what we're focused on. The actual scale of the facility, we've announced that it will require over $100 million in terms of capital commitment. We're still looking at stakeholder involvement there, primarily the federal government, state government. We've already lined up the incentives there, and we're working with other stakeholders now to see how much of this ends up being a TTM commitment versus a government commitment. That's still in the works. But we will be expanding into a facility adjacent to Syracuse, and how that translates to the rest of our defense business is yes, printed circuit board, urgent need for technology, advanced printed circuit boards. We're planning to carry a portion of that printed circuit board production right across the driveway, if you will, to our other facility, where we'll be able to add additional value in our microelectronics facility there in Syracuse, and then deliver a package to the customer. So that's the plan as we ramp the facility. Actual ramp towards the end of 2025 is the plan. Got it. Tom, I think the backlog in the A&D business was it $1.35 billion? Correct. The end of September. So unfortunately, we're seeing open hostilities in Europe and in the Middle East. I'm curious, as you look at the business relative to when you were starting to look at Telephonics, has your view of the market changed in terms of the sustainability of this growth over the next several years and maybe the trajectory of the growth? Yeah, the interesting question. The straight answer is our view hasn't really changed. The reason for that is that we are really tied to electronics development inside of critical programs and in the DoD. Those programs would've been driven either way. They're critical. If you start thinking about, you know, critical priorities in the Defense Department, radar systems, absolutely critical. Hypersonics, absolutely critical. They, you know, you hit the top three areas. These are all tied to electronics development advancement. So from that perspective, we've been tied to those technology trends. We're still very much centered on those technology trends. When you start to think about sort of the geopolitics and what's going on around the world, yes, we feel the impacts, there, certainly up or down, but it tends to be, number one, a lag. There's a lag effect. So we won't see, a new program demand or a shift in the budget won't affect us for about 18 to 24 months. Whether that's up or down, we don't see-- You know, it takes that long for programs to be released or purchase orders to reach us. So there's always a lag effect, right? So we very much center on what programs are coming down the pipeline, how can we enable content, add content to those critical programs, knowing that they're gonna come. Now, the programs may be released a little bit faster or a little bit slower, depending on the budget, depending on geopolitics, but they will be released. And that's where we're centered. And that's really what drives our strategy. I'll give you the best example. If you think about Javelin, right? So, the Javelin program, Ukraine, the Ukrainian conflict happened, it took about 18 months for TTM to start feeling purchase orders. So inventories were being drawn down, our customers were doing redesign, purchase orders were starting to get let from the Pentagon to our customers, and then it... But it took that long for those purchase orders to actually reach us and for us to start building product in support of the program. So that's the kind of, you know, delay that, that we'll generally see around defense. We have tremendous visibility. We have that $1.35 billion backlog. That takes us... You know, if you think about 2024, roughly 80% of our demand in 2024 is already booked in. So, that, you know, that gives us a very solid positioning in 2024, oriented towards servicing our customers. So it's really about how we ramp, how we deal with supply chain, how we continue to accelerate our production here in our facilities. Great. Let's pivot to the commercial business. Maybe why don't you level set for us the end market exposure, which you talk about each quarter? Sure, yeah. So, you know, think about it as, as roughly, 15% of revenue, for most of these areas. So automotive, roughly 15%, data center computing about the same, and then medical industrial instrumentation, roughly the same. Any given quarter, they'll move back and forth 15%-20%, but that's roughly, how they're oriented. And then networking, for us, is about an 8% of revenue, end market. That's the rough breakdown of the commercial end markets. Let's focus first on automotive. Been a bit of a mixed picture- Right ... hasn't it? Sales through the first nine months were down, I think, 17% or so. About right. What led to that? But on the other hand, you've also had a nice increase in from the standpoint of program design wins, right? Mm-hmm. Yeah, so that, yeah, which is interesting. So, when you think about design wins, right? We've had year to date through the third quarter over $600 million in design wins, which is tremendous. Those design wins then go into programs that begin production roughly 18 months after receipt of the program or after we've won the program. Those have been weighted towards EV, which makes sense, right? So weighted towards EV. The other major area has been ADAS or safety, active safety systems. That's where we've been picking up business with those orders. But as you pointed out, Jim, it doesn't tie directly to revenue, right? 'Cause that's what you're looking at, is our future programs that will go into production down the road. So it bodes well for future activity and momentum. But as you start to talk about present-day revenue, not a direct connection. From a revenue standpoint, what we saw in this last year is our customers reacting to, particularly to inventory build. As semiconductors became available, the customers started to feel more comfortable with their existing inventories and started to draw down inventories of printed circuit boards. So we saw that decline about 17%. I view that as actually encouraging. Customers were actively managing inventory. Our customers in the automotive area tend to be the Tier 1s. So, whether it's a Bosch or a Continental, or the other Tier 1s, those are the major customers for us. To see them actively managing inventories was a good sign. Now, as we go into 2024, there's some interesting things happening out there. Number one, everyone's following EVs and what happens with EVs. From us, you know, we track overall PCB content in a vehicle, and that's been a very positive trend. If you go back to 2017, we were about $70 per vehicle in printed circuit board content. Today, we're looking at about $120 of printed circuit board content per vehicle. That's been a very positive trend. We expect that to continue. As EVs are adopted, that adds momentum to that content, right? Higher, so more expensive printed circuit boards and more printed circuit boards required in an EV. So definitely a positive trend, but not the only trend that impacts the additional PCB content in a vehicle. So I see that positive trend continuing through 2024. What we're also watching is unit volumes, and there, I think, you know, again, difficult for us to predict or to see how our customers are reacting, but what we see out there in the end markets is the fact that about 20% of revenue, traditional revenue, for the car manufacturers and about 15%, if you think on average for the Tier 1 parts suppliers, has exposure to China. That China piece of their revenue has been shifting over the last year pretty dramatically towards EV and towards domestic Chinese manufacturers. So that's the piece that I worry about from a unit volume standpoint. I think overall global unit production of automobiles will continue to trend upwards, but the share shift towards China EV manufacturers will cause the Western world OEMs definite consternation. I think that's gonna be a challenge for them as they think about their production volumes. And I would see those production volumes potentially decreasing on the whole if they factor in China, right? So they have to get over that hump. Yeah. How concerned are you by some of the more recent commentary we've heard about some of the chip companies that have a lot of exposure to the automotive market? Is that, you know, a surprise to you, or were you assuming this was coming down the pipe? You could see it coming. Yeah. You could see it. You can largely see it coming. Yeah. And again, our customers have been anticipating some of this as well. So as they brought down their inventories, again, they've been assuming there's some impact from China. What I don't know is how well have they been planning? Mm-hmm. What does that mean in terms of 2024? But if you talk about any individual commercial market, this is the one that I'm watching very closely for signals. You know, whether you know which around demand, potential demand softness in 2024. Okay. That's the automotive area. Other areas I feel much more optimistic about. Yeah. Let's talk about some of the other areas. Let's turn to data center. Mm-hmm. ... some puts and takes in that market as well, but I think on- Yeah the margin, you're seeing some pretty interesting developments. Yeah, good trends. Data center computing, if you take that end market, again, roughly 15% of our business, half of that, we classify as semiconductor. So that's those are boards that go directly into the semiconductor manufacturers for test and burn-in requirements, right? So roughly half ties to semiconductor. The other half ties to data center, right? Data center requirements, and half of that data center requirement right now is being driven by AI, okay? So it what Jim, what Jim is referring to is the AI piece, which has been very positive. That growth and the demand surge that we've experienced through the course of last year, a really positive development for us in what was overall a soft commercial market, and has helped us to raise utilization rates in several of our facilities. So if you start to think about data center overall, AI should continue in 2024 to be a nice driver of demand, and what I would expect is that semiconductor piece of data center computing to also start coming back towards the second half of the year, as we continue to see semiconductor demand improve through the course of the year. So- Potentially, that turns out to be a stronger tailwind as you think beyond 2024. Correct. When you have... Okay. Yeah, correct. I think both AI and- Yeah The semiconductor, you know, cycle as we start to look beyond 2024, it looks very favorable. Okay. For sure. The MII piece always is a little bit perplexing for people, just because it's. Very broad. Yeah. It's, it's broad, and let's talk about what you're seeing in that market. What are some of the trends, and how are you thinking about that part of the business? Sure. It's more macro-related, right? Yep. So, so medical industrial instrumentation is MII, again, roughly 15% of our business. Medical has held up pretty well. Some inventory corrections last year, roughly. So think about medical industrial instrumentation, a third, a third, a third in terms of of revenue contribution. Medical has held up well. Would expect that to continue as a general trend. Seeing good innovation there. We support that innovation. We have a global footprint that supports this whole MII area. It's an area of strength for us because of that support. We can support the customers through their development cycles. So medical's good. Industrial, a mixed story. We're seeing some areas of industrial relatively weak, with inventory corrections still occurring. Some areas of industrial benefited from reshoring. So we've seen, you know, sort of a balance there. If I look at 2024, and I start to think about markets, automotive, you know, number one area of concern, automotive, I would put industrial as probably still being relatively soft in 2024 because generally it ties to GDP. So that third could be soft in 2024, and then the third part is instrumentation. So again, about a third of revenue tied primarily to semiconductor capital equipment, and again, looking at a strong second, you know, second half of the year. As utilization rates go up in semiconductor fabs, you're gonna start seeing that semiconductor capital equipment cycle improve, and should improve through the course of 2025, as well. So overall picture for MII is not bad. I think we should see, again, good recovery there as we go through the second half of 2024, driven by that instrumentation piece. Tom, you alluded to some of the changes in the manufacturing footprint. Let's spend some time on that because there is a fair amount going on. Sure. Closing some facilities here in the U.S., expanding in other areas, including out in Malaysia. Yep, absolutely. So, we announced a consolidation early last year. We, during the course of last year, we shut down our Hong Kong facility. We shut down two facilities in California. The Hong Kong facility early in the year, that's done. We've moved that production into mainland China. The other, the two California facilities, one in Anaheim in Southern California, we shut down in the third quarter. Santa Clara facility, we shut down in the fourth quarter. That business is still transferring, so we built inventory in those facilities and are ramping now. Our other facilities, our receiving facilities, are ramping in the first half of this year to accommodate that demand. We'll start to see that turn into a margin tailwind as we go into the second half of the year with the utilization rates rising in the receiving facilities and not seeing the burden of those two smaller California facilities in terms of margin profile. So we will see improvement there through the course of the year as we ramp those receiving facilities. With respect to Penang- Penang. Yeah. Let's- Let's talk about Penang. Yeah, so, so Penang, sized to be about a $180 million revenue facility when we're ramped. We are looking at a phase two expansion that would bring it above $200 million, closer to $220 million in size. But right now, we're in the early stages of ramp. This will be a headwind, particularly in the first half of the year as we ramp the facility. Our goal is by Q4 to be at a break-even point in this facility as we go through ramp. But first half will certainly be a headwind. Where we are in terms of the facility itself, we are in sample production at this point. We've got, all the equipment is up and running. We've got, approximately 200 folks there out of a workforce that will be between 800 and 1,000 when we're fully ramped. We have a team of very, very capable engineers, bringing up the facility, and we've supplemented that with, support from China. So critical staff from China also supporting. And we're now, bringing customers in for audits and doing the sample production. That'll be the focus for Q1, with the revenue starting in Q2. What kind of drag is it, again, on gross margin? Yeah. So think about it as somewhere, you know, 50-50 basis points, 50-100, depending. Okay. And with respect, just more broadly, to gross margins, we should point out, too, that the expansion of the A&D business has been very accretive- That's- To gross margins. That's accretive to gross margins. Absolutely. Gross margin, accretive. Mission systems tends to be more R&D development intensive gross margin. So you'll see, you'll see higher development R&D expenses, higher margin, higher gross margins, operating margins also accretive to the TTM model. Okay, and you've touched on this in a couple of the business areas, but you know, clearly 2023, down year from a revenue standpoint, but mainly because of the inventory destocking that we're hearing from a lot of companies out there. Right. What preliminary thoughts about, just in general, the business as you look at 2024? So I talked about some of those larger- Yeah ... trends by end market, right? Yeah. So our goal is to continue to grow that defense business, mid-single digits, you know, is the kind of growth that we're looking for there. We talked about data center computing, and if you start thinking about growth profiles, there's, I think, a positive trend going on in data center computing, particularly in the second half of the year. Automotive should be a more challenging area, probably flat to slightly down on automotive as we go through the course of the year. Networking, we should see in the second half, again, improvement. And medical industrial instrumentation, again, you know, market that's growing 2%-4%. In terms of Prismark forecast, we've tended to grow above that. We should be able to get back in line with that 2%-4% on the MII as well. So positive developments, I think, overall on the commercial side of the business, as our customers now have worked through inventory, and we're starting to see real demand profiles. And as we start to see AI, AI, generative AI, and the impact of generative AI on our other end markets, causing growth towards the second half of the year. Okay, I think, going back to the analyst day, was it May or so, whenever it took place in on Long Island, at Telephonics, the Telephonics facility, you laid out some, some targets. I think you're targeting 4%-6% organic growth, and, you know, that, that compares with 5% or so in 2022. So not heroic, it doesn't seem like, but, yeah, what, what I was struck by was the, the expectations on operating margins- Right ... and the increase that you're targeting, you know, getting to our 11 to- 11 to 13 ... 13%. Mm-hmm. Versus, you know, where we've been. And talk to us about the improvement, the bridge to that. Yep. So the biggest, biggest single factor is utilization rate. Yeah. So getting the commercial production facilities back to what I would call normal utilization rates with commercial demand growth. So you have to take that into account. Bringing Penang fully online. So we're talking about, again, 2025. This is a ramp year in 2024. 2025, toward... You know, by the end of 2025, we should be at full rate production in that facility. So that's a critical factor to- Right ... to driving that improvement in margin. The other area we, and again, I sort of touched on this, integrated electronics, so that non-PCB part of our defense business. We have, as we integrate Telephonics, as we continue to ramp our opportunity to bring to improve the operating margin in our facilities for integrated electronics, that's a big driver. And then our North America PCB operations, bringing them back to what I would call pre-COVID operating performance. That has been inhibited, was inhibited by labor challenges, largely through that. So, North America PCB operations have really improved in terms of capability and their margin profile. So we are seeing that improvement happen. So if I were to highlight, you know, three critical-... Areas, those would be the areas that I'd highlight. And overlaying that, commercial utilization rates, that end market recovery and commercial, big, a big piece of driving the margins. Got it, and last question, just on capital allocation. Balance sheet's in good shape. You guys have done a nice job there, and at the same time, you've been reshaping the portfolio. But just in general, how should we think about that, additional M&A? What are your thoughts? Yeah. So, and number one, great, great operating cash flow, right? We're, we're, we're focused on operating cash flow above 10% of revenue. We've, we've been slightly-- We've been slightly below that. We need to bring that back. That's where we were. We need to bring that back. You start to look at, where, you know, how, how does that break down and, and, in terms of priorities? Number one, CapEx. So we certainly have been investing in Penang. So our traditional CapEx percentage of revenue between 4% and 5%, we tend towards the lower side when we're not doing expansions. But with Penang coming on, we've been slightly above the 5%. We'll continue to be above that 5% in 2024, given as we continue to pay for the capital equipment in Penang. But that will then come down, right? So that's priority number one, is to make sure that we're investing properly in the business. Then you come down to the next priority for us. M&A, certainly how we built the business, will continue to be active to the extent that we can meet our financial models or forecasts with opportunities that come, you know, come out. That's gonna be focused on continuing to build our microelectronics position, our RF microwave position, sort of bridging the gap between the acquisition of Telephonics and the rest of our business. But having said that, short term, I don't see anything, you know, really, any immediate M&A activity. We do have... And then you get to that third step, the share buyback program we have in place. We have an authorization in place. We'll continue to use our excess cash in terms of buying back shares. So, continue to have an active program there. Great. Well, we're gonna leave it there. Thank you very much.