TTM Technologies, Inc. (TTMI) Q4 FY2025 Earnings Call Transcript & Summary

Good day, and welcome to the TTM Technologies Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Sean Hannan, Vice President of Investor Relations. Please go ahead.

Greetings, everyone. Welcome, and thank you for joining us today. I'm Sean Hannan, Vice President of Investor Relations for TTM. With me on the call are Edwin Roks, our President and Chief Executive Officer; and Dan Boehle, our Executive Vice President and Chief Financial Officer. Before we get started, I'd like to remind everybody that today's call contains forward-looking statements, 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 risk factors we provide in our filings with the Securities and Exchange Commission, which we encourage you to review. These forward-looking statements represent management's expectations and assumptions based on currently available information. TTM does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or other circumstances, except as required by law. 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 the measures prepared and presented in accordance with GAAP, and we direct you to the reconciliations between GAAP and non-GAAP measures included in your company's earnings release, which is available on the Investor Relations section of TTM's website at investors.ttm.com. We have also posted on the website an earnings presentation that we will refer to during our call. Here is Edwin.

Thank you, Sean. Good afternoon, everyone, and thank you for joining us for our fourth quarter and fiscal 2025 conference call. At TTM Technologies, we are focused on designing and manufacturing complex products and solutions in 2 strategic directions. The first is advanced interconnect, which includes highly complex printed circuit boards, substrates and advanced packaging. The second strategic direction builds on our advanced interconnect technology to design and manufacture sophisticated modules, subsystems and systems. Examples of this include our in-house developed RF modules, thermal and power management systems, edge and AI processing products as well as complex subsystems and fully integrated mission systems. We believe the future of electronics lies in speed to market, high reliability and efficient technology integration. The markets in which we do business continue to demand highly complex technology solutions in an increasingly complex size and footprint. Our strategy is to stay at the cutting edge of advanced interconnect technologies through innovation and continue to move up the value chain into complex modules and subsystems that combine sensors, actuators, RF and photonics. We engage early with our customers to ensure alignment on product development, which helps optimize their sourcing of leading technologies and streamlines their supply chain. From a demand standpoint, we expect healthy tailwinds due to our participation in 2 key megatrends currently driving economic growth, artificial intelligence and defense. As stated previously, approximately 80% of our net sales are related to these 2 megatrends. Our ability to seize these organic growth opportunities requires our continued focus on technological innovation as well as expanding our capacity across our strategic footprint. We are further investing capital and resources to take full advantage of these opportunities today and in the future through our global footprint, which offers our customers manufacturing options across 24 sites located in China, Malaysia, Canada and the United States. We stand well positioned to support this growth across our end markets and are on track towards our ambition to grow revenues 15% to 20% per year for the next 3 years and to double our earnings from '25 to '27, which were goals previously shared on January 13. In our Commercial segment, we are highly focused on supporting the demand wave of artificial intelligence in the data center computing and networking end markets. In our aerospace and defense end market, we continue to excel with our leading position in advanced interconnect products as we work to expand our product offerings in integrated other products, including modules, subsystems and into mission systems. We are also focused on technological opportunities arising through increased use of automation and AI applications in our medical, industrial and instrumentation end markets, while we remain strategically positioned in high-value automotive solutions. I'll now begin with an overview of our business highlights from the quarter, then we'll follow with a summary of our Q4 and fiscal 2025 financial performance and our Q1 and fiscal 2026 sales guidance. We will then open the call for your questions. We delivered an excellent fourth quarter of 2025, and I would like to thank our employees for delivering these results. We achieved sales of $774.3 million, above the high end of our guided range and non-GAAP EPS of $0.70 per diluted share met the high end of our guided range. Sales grew 19% year-on-year, reflecting continued demand strength in our data center computing and networking end markets, driven by the requirements of generative AI, while our medical, industrial and instrumentation and aerospace and defense end markets also experienced solid to strong growth. The company's adjusted EBITDA margin was 16.3% in the fourth quarter of 2025, a strong result compared with 14.7% in the prior year, reflecting continued improvements in execution. Non-GAAP EPS of $0.70 per diluted share was an all-time quarterly record high for TTM. And cash flow from operations were $63 million or 8.1% of sales, which brings fiscal 2025 cash flow from operations to $292 million or 10% of sales. The aerospace and defense end market represented 41% of fourth quarter 2025 sales. Sales in the aerospace and defense market grew 5% year-on-year for the fourth quarter and 13% year-on-year for the full year of 2025. The sales growth in the defense market as a result of positive tailwinds in defense budgets, our strong strategic program alignment and the key bookings for ongoing programs. During the fourth quarter of 2025, we saw significant A&D bookings related to the APS-153 airborne surveillance radar, LTAMDS air defense radar, MRAM, air dominance missile and Javelin anti-armor missile system. In addition, we continue to see an increase in bookings for restricted programs. A&D book-to-bill was 1.46 for the quarter and 1.04 for the full year of 2025, which increased program backlog to $1.6 billion compared to $1.56 billion a year ago. We expect sales in Q1 2026 from this end market to represent 42% of our total sales. Sales in the data center computing end market represented 20% of fourth quarter 2025 sales. This end market experienced 57% year-on-year growth in the fourth quarter and 36% year-on-year growth in the full year of 2025, which reflects continued demand strength from our data center customers, building products for AI applications. The networking end market represented 8% of fourth quarter 2025 sales. Year-on-year growth was 23% for the fourth quarter and 43% for the full year of 2025 as this market continues to become more correlated with the AI-related demand for more complex switching technology. Due to the AI-related correlation between data center computing and networking end markets, we will begin reporting them as a single combined end market in 2026. And consequently, we will be reporting on four end markets going forward. For the fourth quarter of 2025, the combined sales for data center and networking would have represented 36% of total sales, and we expect the first quarter of 2026 to represent 37% of total sales. The medical, industrial and instrumentation end market represented 14% of fourth quarter 2025 sales. This end market saw a year-on-year growth of 28% during the fourth quarter and 22% for the full year of 2025 as medical and industrial areas saw increased demand for AI-enabled robotics and more complex sensing applications and the instrumentation area saw increased demand for automated testing equipment and AI applications. For the first quarter of 2026, we expect the medical, industrial and instrumentation end market to represent 14% of total sales. Automotive sales represented 9% for the fourth quarter 2025 sales. We will be increasingly selective in this market to focus on higher value-add products that carry margin profile consistent with our financial growth. We expect the automotive end market to represent about 8% of total sales in the first quarter of 2026. The overall book-to-bill ratio was 1.35 for the fourth quarter of 2025 with the Commercial reporting segment at 1.28, the A&D reporting segment at 1.46 and the RF&S reporting segment at 0.94. At the end of 2025, the 90-day backlog, which is subject to cancellations, was $654.9 million compared to $502.1 million at the end of last year. Now Dan Boehle will summarize our financial performance for the fourth quarter and full year. Dan?

Thanks, Edwin, and good afternoon, everyone. I will review our financial results for the fourth quarter and full year 2025 that were included in the press release distributed today. Key financial highlights are also summarized in the earnings presentation posted on our website. For the fourth quarter, net sales were $774.3 million compared to $651 million in the fourth quarter of 2024. The 19% year-over-year increase was due to continued strong growth in our data center computing, networking, medical, industrial and instrumentation and aerospace and defense end markets, partially offset by a decline in our automotive end market. For the full year, net sales were $2.9 billion compared to $2.4 billion in 2024. The 19% increase for fiscal 2025 was driven by the same end market dynamics that drove growth in Q4. GAAP operating income for the fourth quarter of 2025 was $80.7 million compared to GAAP operating income for the fourth quarter of 2024 of $9 million, inclusive of a $32.6 million goodwill impairment charge related to the RF&S Components segment. For the full year of 2025, GAAP operating income was $264.7 million compared to $116 million in 2024, inclusive of the $32.6 million goodwill impairment charge related to RF&S Components segment. On a GAAP basis, net income for the fourth quarter of 2025 was $50.7 million or $0.48 per diluted share. This compares to GAAP net income for the fourth quarter of 2024 of $5.2 million or $0.05 per diluted share, inclusive of a $32.6 million goodwill impairment charge related to the RF&S Components segment. For the full year of 2025, net income was $177.4 million or $1.68 per diluted share. This compares to $56.3 million or $0.54 per diluted share in 2024, inclusive of the $32.6 million goodwill impairment charge related to the RF&S Components segment. 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 noncash expense items such as amortization of intangibles, impairment of goodwill, stock compensation, gains on the sale of property, unrealized gains or losses on foreign exchange and other unusual or unfrequent items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparisons with expectations and prior periods. Gross margin in the fourth quarter of 2025 was 21.7% and compares to 20.5% in the fourth quarter of 2024. For the full year of 2025, gross margin was 21.3% and compares to 20.4% in 2024. The year-on-year improvement in both periods was due primarily to higher sales volume and favorable product mix, particularly in the data center computing, networking and aerospace and defense end markets as well as improved operational execution. Selling and marketing expense was $19.8 million in the fourth quarter or 2.6% of net sales versus $18.9 million or 2.9% of net sales a year ago. For the full year of 2025, selling and marketing expense was $80.8 million or 2.8% of net sales compared to $76.2 million or 3.1% of net sales in 2024. Fourth quarter general and administrative expenses was $43.1 million or 5.6% of net sales compared to $40.9 million or 6.3% of net sales in the same quarter a year ago. For the full year of 2025, general and administrative expense was $168.3 million or 5.8% of net sales compared to $156.6 million or 6.4% of net sales in 2024. Our operating margin in the fourth quarter of 2025 was 12.7%, a 260 basis points improvement from 10.1% in the same quarter last year. For the full year of 2025, operating margin was 11.7% as compared to 9.6% in 2024. The increase in both periods was due to the improvement in gross margin as well as continued spending discipline in selling, general and administrative expenses. Interest expense was $11.8 million in the fourth quarter of 2025 compared to $10.7 million in the same quarter last year. For the full year of 2025, interest expense was $43.2 million compared to $45.5 million in 2024. Interest income was $2.8 million in the fourth quarter of 2025 compared to $2.1 million in the same quarter last year. For the full year of 2025, interest income was $10.4 million compared to $10.9 million in 2024. Other nonoperating income and expenses in the fourth quarter of 2025 totaled a net expense of $3 million as compared to net income of $1.4 million in the same quarter last year. For the full year of 2025, other nonoperating income and expenses totaled a net expense of $4.8 million compared to net income of $3.5 million in 2024. Our effective tax rate was 13.2% in the fourth quarter of 2025, resulting in a tax expense of $11.4 million. This compares to an effective tax rate of 12.2% or a tax expense of $7.2 million in the same quarter last year. For the full year of 2025, the effective tax rate was 14.5%, resulting in tax expense of $43.9 million compared to an effective tax rate of 12.4% and tax expense of $25.2 million in 2024. Full quarter 2025 net income was $74.8 million or $0.70 per diluted share. This compares to fourth quarter 2024 net income of $51.4 million or $0.49 per diluted share. For the full year of 2025, net income was $259 million or $2.46 per diluted share compared to $177.5 million or $1.70 per diluted share in 2024. Adjusted EBITDA for the fourth quarter of 2025 was $126.2 million or 16.3% of net sales compared to fourth quarter 2024 adjusted EBITDA of $95.7 million or 14.7% of net sales. For the full year of 2025, adjusted EBITDA was $456.3 million or 15.7% of net sales compared to $351.5 million or 14.4% of net sales in 2024. I will now turn to our guidance for the first quarter of 2026. We project net sales for the first quarter of 2026 to be in the range of $770 million to $810 million and non-GAAP earnings to be in the range of $0.64 to $0.70 per diluted share. As a reminder, we expect first quarter profitability to be typically impacted by increased operating costs, particularly labor costs resulting from the Chinese New Year holiday. In addition, we expect our full year 2026 total net sales to increase in the range of 15% to 20% over 2025 total net sales. The first quarter 2026 EPS forecast is based on a diluted share count of approximately 106.7 million shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG&A expense to be about 8.5% of net sales in the first quarter and R&D expenditures to be about 1% of net sales. We expect interest expense of approximately $10.6 million, interest income of approximately $2.2 million and other nonoperating expense of approximately $2.7 million. We estimate our effective tax rate to be between 12% and 17%. Further, we expect to record depreciation of approximately $29.8 million, amortization of intangibles of approximately $9.2 million, stock-based compensation expense of approximately $11.5 million and noncash interest expense of approximately $0.5 million. And finally, I'd like to announce that we will be participating in the Citi Industrial Tech and Mobility Conference in Miami, Florida on February 19 and the J.P. Morgan Global Leveraged Finance Conference in Miami, Florida on March 3. That concludes our prepared remarks. Now I'll turn it over for questions.

And our first question will come from the line of Jim Ricchiuti with Needham & Co.

Congrats on the quarter. First question is regarding capacity. And I wonder if you could talk about where you stand with respect to adding additional data center capacity in China as needed? And second question is just where you stand with Syracuse in terms of the ramp of the new capacity there? And then I have a follow-up question on margins.

Thank you very much, Jim. To answer your first question, we're making very good progress, both in China and the U.S. on expanding our capacity. And remember that we guided, let's say, our growth 15% to 20% over the coming 3 years. That capacity will do the job, let's say. It's -- and we have even more capacity to do even more depending on the demand, of course. But so capacity is not the issue. Also, the supply chain is not the issue. The equipment is not the issue. So we're well on track. We were there, let's say, last week in China. Things are going very, very, very smooth. To answer your second question on Syracuse, same thing. Same thing. We have our lead customers there. The building is up, as you know. The equipment is in. We are basically doing the tile and snow. And as we said 3 months ago, we are exactly on track for the second half of this year, we will see first revenues coming from Syracuse Diamond, which is a really, really nice milestone.

The question just -- a final question for me is just on gross margins, the improvement you saw. You highlighted that it was volume-driven and mix. I wonder if you could also give us a sense of what the headwind was from Penang -- and was it more mix related or volume related in terms of A&D and data center?

Jim, this is Dan. I'll take that one. So Q4, first to address your Penang question, Q4 at the gross profit level still had a headwind of about $180 million, and we had guided $160 million, so a little bit worse than expected there in Q4. But still, as you noted, improved gross margins. So that gross margin improvement was primarily mix in data center and networking as well as we did have improved margins in A&D, those 2 in that order. So you're right on with that. But about 180 basis points on Penang that will improve throughout this year. And as we guided before, it will be about half of that by the end of the year.

And maybe, Jim, some additional color on Penang. We basically doubled the revenues versus last quarter. So that's going in the right direction. Also, if I look at the yield numbers, and again, we look at these yield numbers every week on the lead vehicles, we see that it's going in the right direction. I will be there, let's say, in 1 week from now. It is going really, really smooth in Penang. So I really hope we do better, let's say, than the 160 basis points that cut it in half for the end of the year, what we said before. We're making good progress. So I really hope to do a lot better.

And that will come from the line of Will Stein with Truist Securities.

Congratulations on the strong results and outlook. Edwin, a moment ago, you referred to capacity in the United States. I suspect you're talking about Eau Claire. Could you give us any update as to what the plans are to equip that facility and when we might see any revenue from it? Any longer-term plans you can tell us about Eau Claire?

Yes, absolutely, Bill. Pleasure to do that. First of all, I was referring to China and to the existing facilities in the U.S. But I'm happy to talk about Eau Claire. Eau Claire is an amazing site. It's the largest site, if I exclude some of the in-house activities of some of our customers. But if I look at the bigger scheme, it's the largest PCB site in the U.S. It's 750,000 square feet, and it's based on 3 different modules. I was there 2 weeks ago, and it is really, really big, well maintained. The previous owner, TDK, did a really good job. It's well maintained. So what we are going to do in the coming 18 months and 2 years, let's say, we're going to tool up that facility. We are discussing right now, and this is a work in progress right now with our lead customers, both on the commercial side and the defense side. So that's still a mix. They need the capacity. So I think we are in a good position there. But again, this is going hand in hand. The thing is the facility is there. It will take us, let's say, 18 to 24 months to get first revenues, but it's going really, really smooth. And by the way, Eau Claire is not built in the capacity plans we described.

Okay. So it sounds like that's 18 to 24 months out.

Yes, Eau Claire will be on top of.

Got it. Maybe one other. The very large book-to-bill you had this quarter, it's clearly, there's a lot in defense, but even in the commercial part of the business, it was strong. And yet you also disclosed the 90-day book-to-bill. So it sounds like this is not so much sort of rush orders for the next quarter, but it's providing you greater visibility. Any color on the orders by end market? Or sort of what's -- is that -- I guess I'm trying to ask whether that's driven by just trying to lock in capacity or if it's a matter of providing a commitment to TTM so that you can then commit to add capacity?

Yes. Yes, happy to do that. So if you look at our visibility, that didn't change, let's say, for the business, the ongoing business on the commercial side, mostly data centers and networking. That's still about 6 to 9 months. Yes, that's our outlook which is a normal number. Over time, we will get, let's say, on some more strategic elements of these same customers, we get some more visibility, yes. But on the running business, it is about 6 to 9 months, and that was the case, and that's still the case. On the defense side, it's, of course, a different story. There, the backlog we have, the $1.6 billion is a big number. The pipeline is even bigger. And as you know, this is going over multiple years. So in generally, let's say, 2 years or even 2.5 years, that's where we use this $1.6 billion for. So it's still in that same order in this case.

And that will come from the line of Ruben Roy with Stifel.

This is [ Shahid Shah ] on for Ruben. Congrats on the quarter. I guess I want to ask about the CapEx and how fungible that is relative to aerospace and defense and data center and how you're thinking about that growth relative to the sort of updated long-term '27 targets you provided earlier?

Yes. So we had also given some guidance before that for the data center and compute capacity that we're putting on in China, that will be an additional incremental capital expenditure of about $200 million to $300 million over the next 2 to 3 years. So that's above the 4% to 5% normal capital expenditures that we have. So frankly, going in from this year to next year, we'll probably see about almost the same level of CapEx. We'll disclose in our 10-K, the expected CapEx for 2026, which is in the range of $240 million to $260 million, and then that will grow into the following year as well.

Okay. And in terms of the doubling in earnings, are you thinking of that really organically or inorganically? Like how are you thinking about M&A in this scenario?

Yes, Ruben, happy to answer that question. This is all organic growth. There's so much demand, and we are investing in our capacity. So based on that, let's say, and based on, let's say, the traction we make on yield and all the other operational elements, we think we can double the earnings in 2 years.

And one moment for our next question and that will come from the line of Mike Crawford with B. Riley Securities.

Just digging in deeper into the additional data center capacity you're putting in place in China. I believe the most advanced printed circuit boards you're making now are in Dongguan with maybe 87 layers, asymmetric designs. And is that -- are those processes being ported to these other facilities in China as well? And how long does that take?

Yes. Mike, that's a good question. Indeed, everything, let's say, beyond the 60 layers, yes. So we hear numbers. We hear different numbers. The 78, not the 87. The 78 layers is one of the boards we are working on, and that's going very smooth. But I can tell you that the numbers go up. If we speak with -- and of course, we speak with our customers on a daily basis, the demand is high, but the number of layers is going up. There are numbers, let's say, beyond the 100 layers already, which are required. Of course, these systems become more and more and more compact that requires more layers and more complexity. So -- and we are well positioned. We are happy to see that because we are well positioned to do these multiple layers.

And Mike, I'll just add that you mentioned the sites. So Dongguan and Guangzhou, those 2 sites, both are where we do the artificial intelligence boards now. And the capital expenditures that we are doing out there are additional equipment and facilitization and optimization of those lines in those same factories. So it's not new factories. And so to your question, it will very easily and efficiently be able to get that new capacity up and running.

Okay. And then a follow-up is regarding space. So historically, I think defense has been maybe 90% of your aerospace and defense business with maybe 5% space. But now there's talks of putting as many as a million data center satellites in low earth orbit. And so I would imagine those might have different properties required to the printed circuit boards going into such equipment. And is that something that you're working on now? Or is that another future opportunity?

Both, Mike. It is something we're working on right now. We have the technologies, but it is also -- space is absolutely one of our strategic directions and requiring more PCBs, but not only PCBs, also integrated modules, radiation heart and so on and so forth. So that's absolutely on our radar and absolutely in our strategic plan.

And we do have a follow-up question, and that will come from the line of Will Stein with Truist Securities.

Follow-up is a cost question on copper. Copper has traditionally been a significant expense for TTM. I think the price has been quite volatile and rising. I believe you hedge it, but can you just sensitize us what should we expect the impact of volatile copper prices to be on the P&L over the next few quarters?

Sure. Thanks for your question, Will. We don't expect any significant impacts from it. Generally, we build the volatility into our pricing, right? So if we see it going up, we're going to add that into our pricing. We're able to pass that through to our customers. So we're quickly able to update our pricing models, right? And then to your point, we do hedge it, so that offsets and mitigates some of the risk as well. But most of -- the biggest mitigation is that we're able to price it in.

I'm showing no further questions in the queue at this time. I would now like to turn the call over to management for any closing remarks.

Okay. Thank you, Sherry. So I'd like to close by summarizing 3 items. First of all, we are growing. We delivered strong sales growth in Q4 of 90% year-on-year, driven by increases in our data center computing, networking, medical, industrial and instrumentation and aerospace and defense markets. Second, our adjusted EBITDA for the first -- for the fourth quarter of 16.3% reflected strong operating performance, leading to an all-time high record quarterly non-GAAP EPS of $0.70 per diluted share. And third, we continue to generate solid cash flow from operations, which enables us to invest in our projected continued growth. In closing, I would like to thank all employees of TTM, our customers, our suppliers and our shareholders for their continued support. So thank you very much, and goodbye.

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