TTM TECHNOLOGIES INC Q1 FY2025 earnings call

Key points

• TTM delivered strong first quarter 2025 results with revenue growing 14% year-on-year, non-GAAP EPS above the high end of the guided range. Book-to-bill ratio was 1.10. Non-GAAP operating margins were 10.5%, up 340 basis points year-on-year, a record high for a first quarter.
• Aerospace and defense market, close to 50% of revenues, remains strong with a backlog of ~$1.55 billion. Bookings for Javelin and LTAMs-related programs were significant.
• New facilities progress: Penang continues with customer qualifications, had ~$2.2 million in Q1 revenue, aiming for breakeven by end of Q3. Syracuse external construction largely complete, equipment ordered, installation to begin summer 2025, production slated mid-2026.
• Diversified manufacturing footprint with presence in North America, China, and Malaysia to mitigate tariff impacts. Working with customers on alternative PCB manufacturing locations to help mitigate tariff impacts.
• End markets: Aerospace and defense, data center computing, networking, medical industrial instrumentation each had specific performance and outlook for Q2.

In the first quarter of 2025, TTM's segments showed the following performance:

• Aerospace and defense: Represented 47% of revenues, grew 15% year-on-year. Revenue was strong due to positive tailwinds in defense budgets and strong strategic program alignment, with a backlog of approximately $1.55 billion at the end of Q1.
• Data center computing: Represented 21% of total sales, saw 15% year-on-year growth due to continued strength from data center customers building products for generative AI applications.
• Medical, industrial, and instrumentation: Contributed 13% of total sales, saw a return to year-on-year growth of 5% as inventories normalized in the industrial area and demand from semiconductor testing customers increased.
• Automotive: Represented 11% of total sales, had a year-over-year decline primarily due to continued inventory adjustments and soft demand at several customers.
• Networking: Accounted for 8% of revenue, had 53% year-on-year growth due to increased switch-related demand from certain networking customers driven by AI-related demand and new products.

TTM projects net sales for the second quarter of 2025 to be in the range of $650 million to $690 million. Non-GAAP earnings are expected to be in the range of $0.49 to $0.55 per diluted share, inclusive of operating costs associated with starting up the Penang facility. SG&A expense is expected to be about 8.9% of net sales, R&D about 1.2% of net sales. Interest expense is approximately $11.4 million and interest income about $3 million. Effective tax rate is estimated to be between 13% and 17%. Depreciation is approximately $28.1 million, amortization of intangibles about $9.2 million, stock-based compensation expense about $8.5 million, and non-cash interest expense about $0.5 million.

Tariff impacts

• Direct impact to revenue: Only 3%-4% of revenues represent direct imports from China into the U.S. by customers, customer responsible for tariffs, and they can find alternative contract manufacturers.
• Direct impact in materials and equipment: TTM is responsible for tariffs on some imports into the U.S. from Europe and rest of Asia, with ~11% of revenues in materials and ~23% in equipment imported into the U.S. from Europe and Asia in 2024, expected to be ~29% in 2025 due to Syracuse facility.
• Indirect impacts: End market potential demand weakness due to higher prices in specific markets or overall economic slowdown, difficult to predict but monitored closely.

Q: Can you remind us about Penang's revenue in Q1, margins, and anticipated trajectory of revenue and margins over the next couple of quarters?

A: In Q1, Penang had about $2.2 million in revenue. Operating income loss was approximately $11.5 million. Aiming for breakeven by end of Q3, with revenue needed to be between $30 million and $35 million. Steadily ramping with volume production getting pushed out and yielding volume production but facing challenges with equipment and processing speed.

Q: Explain the slight sequential decline in aerospace defense program backlog. Is it due to better availability of components and labor?

A: Book-to-bill in defense was 0.96. Program backlog came down slightly from $1.56 billion to $1.55 billion. Expected Q4 was a terrific bookings quarter and Q1 was expected to come down further, but bookings strength was maintained. Operations team did an outstanding job coming into Q1 off a strong Q4, able to bring past dues down a bit while maintaining strong bookings in defense.

Q: Can you give sense of customers qualified at Penang facility and market verticals?

A: There are four anchor customers with ongoing qualification, and approximately 10 customers overall. From a volume standpoint, skewed towards data center and networking customers. From number of customers, MII area is higher, but in terms of revenue contribution, data center and networking are the concentration.

Q: Which verticals outside of A&E have strongest line of sight looking beyond Q2?

A: Automotive is more sensitive to tariffs. MII area is second, influenced by China and medical equipment. Industrial tied to capital investments. Instrumentation closely tied to semiconductor capital equipment. Data center and networking have ongoing strength due to investment in generative AI and data center investments.

Q: Any signs of pull-in activity ahead of clarity on tariff environment in data center and networking?

A: Haven't seen unusual momentum in data center and networking areas. In MII, much assembly takes place with contract manufacturers outside U.S., and not a major shift in behavior seen yet. Lots of modeling and exercises with customers to help look ahead, but not a short-term impact.

Q: Sense of what% of what TTM ships elsewhere like to Foxconn in Taiwan would come into U.S. and be subject to tariffs?

A: Hard to gauge as shipments go to multiple destinations. Much harder to determine when a shipment goes into Southeast Asia or Mexico. Wish I had the answer but don't have a sense for that.

Q: Any programs in the $150 billion reconciliation bill that could lend upside to aerospace and defense revenue?

A: Programs tied to air missile defense, radar systems, are in TTM's wheelhouse. Golden Dome project and potential 2026 budget over a trillion dollars are positive directions. Details being worked out, and business generally seen 18-24 months after budget agreed upon, but direction is good.