TTM Technologies Inc (TTMI) 2006 Q1 法說會逐字稿

Good day and welcome to the TTM Technologies first quarter earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to the CEO, Kent Alder.

Please go ahead, Sir.

Thank you and good afternoon and thanks for joining us on for our first quarter 2006 conference call.

We’re excited about first quarter performance with record revenues of 72.7 million and earnings per diluted share of $0.21.

But before we get into any of the detail, let me mention that during the course of this call, we will make forward-looking statements, subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, fluctuations in quarterly and annual operating results, the volatility and cyclicality of the various industries that the Company serves, and other risks described in TTM's most recent 10-K.

The Company assumes no obligation to update the information provided in this call.

Now, as you read in our release, TTM generated another solid quarter of record revenues and strong margins.

Market conditions were favorable and we capitalized on them.

Revenues of 72.7 million for the first quarter represented an increase of 23% year over year and 15% sequentially compared to the fourth quarter of 2005.

Both production and prices were up.

Compared to the fourth quarter of 2005, panel production expanded 12%.

Average prices on a per panel basis increased 2.5%.

Market strength was broad based, encompassing all market segments and most all customers.

We continued to add new customers, 36 in the first quarter of 2006, and our technological and operational capabilities remain strong.

Products with 12 layers or more accounted for 67% of revenues compared with 66 in the fourth quarter.

Products with 20 layers or more accounted for 37% of revenues, the same as in the fourth quarter of 2005.

And the average layer count was about flat at 15.4, compared with 15.5 in the fourth quarter of 2005.

First quarter lead times extended to 12 weeks in Chippewa Falls, but decreased slightly to 5 weeks in Redmond and remained constant at 3 weeks in Santa Ana.

Overall, capacity utilization for the company was in the mid to upper 80s for the quarter.

With our past investments, we have achieved the ideal position of being able to add capacity on an incremental basis in each of our facilities.

We are currently doing just that, adding capacity in each facility and focusing on those areas that offer a high return on investment.

As you might expect, given the rising lead times, we are very focused on increasing capacity in Chippewa Falls.

You may remember we completed our building expansion in Chippewa Falls about a year ago in the first quarter of 2005.

With the bricks and mortar in place, we are increasing capacity in the most cost effective and efficient manner.

In the first quarter, we added equipment and headcount and we are continuing that process into the second quarter.

As for customer concentration, sales to our 5 largest OEMs constituted 45% of revenues in the first quarter of 2006, compared with 49% in the fourth quarter.

Our top 5 customers in alphabetical order were Cisco, HP, IBM, ITT and Juniper.

Now Steve will provide some additional details about the quarter and discuss the near-term outlook.

Thanks, Kent.

With record revenues and strong operating efficiency, gross margins expanded to 27.8% from 23.0% in the year ago period and 23.8% in the fourth quarter of 2005.

Sales and marketing expense was $3.4 million or 4.6% of sales for the first quarter of 2006 compared with $3.0 million or 4.8% of sales in the fourth quarter of 2005.

General and administrative expenses, including amortization of intangibles were $3.9 million or 5.3% of sales in the first quarter of 2006.

That was up from the fourth quarter G&A of $3.1 million or 5% of sales.

G&A expense in the first quarter included incentive compensation accrual of about $450,000 compared to no accruals in the fourth quarter 2005.

During the first quarter of 2006, we adopted FAS123R.

We recorded $255,000 of stock based compensation expense.

This was composed of $90,000 in costs of goods sold, $20,000 in selling expense and $145,000 in G&A.

Our balance sheet continued to strengthen even further during the first quarter.

We generated strong cash flow from operations of $9.8 million.

As a result, we were able to fund net capital expenditures of $3.3 million while expanding our cash and short term investment position by $8.1 million to a total of $90.5 million.

Depreciation for the quarter was $2.4 million.

As for our second quarter 2006 guidance, as stated in the earnings release, we anticipate further improvements in our performance.

We expect revenues in the $73 million to $77 million range.

We see that coming primarily from volume, not pricing, which we are forecasting will remain steady.

Our GAAP diluted earnings per share projection is $0.20 to $0.24 per share.

In terms of gross margins, we expect them to be in the range of 27 to 29%.

Two factors are likely to impact our gross margin during the second quarter.

The first is our annual pay increase of about 3% which took effect in the beginning of April.

The second factor is a small increase in laminate prices.

Increased demand for their products, as well as higher commodity metals prices, have led our laminate vendors to raise their prices to us.

We expect to be able to pass much of this price increase onto customers, but because of current long lead times, there may be some delay in that process.

As for expenses, we expect sales and marketing expenses to be approximately 4.6% of revenues or $3.5 million in the second quarter.

And we expect G&A expenses to be about $3.9 million including amortization of intangibles.

That's 5.1 to 5.3% of sales.

With that, let's open the call to your questions.

+++q-and-a

[OPERATOR INSTRUCTIONS].

Our first question comes from Thomas Dinges from JPMorgan.

Please proceed with your question.

Hi, good afternoon, guys.

Just a couple of quick ones for you.

Kent, can you talk a little bit about what you guys saw in the industrial market this quarter?

I know coming out of last quarter you were excited about a few programs that were going on there.

The quarter wasn't quite as strong Q on Q as what you'd seen in the fourth quarter, and then also could you just give us a flavor of also what you're seeing out there in the quick turn market in terms of have we seen an acceleration in new jobs?

And then I have a quick follow up for you as well.

Sure.

In our market segments, we had strength across all market segments.

The industrial and medical was just off slightly.

It went from 19% to 18%, but that’s as a percentage.

When you look at it in raw dollars, we're up in all segments of the marketplace.

In the networking segment, that's where our strongest growth occurred.

We went from the 43 to the 44% range, but we have some good strength across the board.

Military, which is kind of hidden in a lot of these categories here, mainly in the kind of the handheld section, some in the industrial/medical, was, it was up a couple of percentage points up to about 13%, so hopefully we can break that out at some point in time and list that as a category.

As far as quick turn goes, that was a strong segment for us.

Percentage wise it stayed about flat at about 21%, but it enabled us to price a little more competitively because of the strong demand.

We had some nice volume type quick turns come into play.

I think the activity level is high, and so quick turn is strong.

When you compare quick turn to our regular standard production parts, I think it's equally as strong in the production segment of our business also.

So it's pretty much strength across all market segments and solid strength in quick turn as well as our regular production products.

Okay, and then just quickly on the laminate price increase that you guys are seeing.

Inherent in the 2.5% price increase that you guys put forth, or at least were able to realize this past quarter, does that cover a fair amount of what you guys are seeing on the laminate side?

Or is there an expectation as we move through the year that you're able to re-price where you can and recoup some of this that you're now getting hit with this next quarter?

Yeah.

How we price our product, in the quick turn segment and in the high mix segment, we can adjust prices more rapidly.

It's a little longer lead time than some of our Chippewa Falls type products.

But I believe over time, because of the strong market, we’re able to pass a lot of these costs onto our customers.

We don’t believe that in say the third quarter that we’ll see a lot of price increases.

It will be tied mainly to copper, metal prices and oil products.

With laminate, we have some agreements in place that help us limit that upside on price, but it is basically tied to the metal commodity type marketplace.

So we feel pretty solid about being able to control our costs from that standpoint.

We’ll also be looking at different vendors and best practices and doing all we can to, again, drive our costs down.

Okay, thank you.

Thank you very much.

The next question is from Amit Daryanani from RBC Capital.

Please proceed with your question.

Thanks a lot.

Kent, just a question on Chippewa Falls.

It looks like the lead time is back to 12 weeks again.

The last time we saw that we started to see customers take some orders away from TTMI.

That doesn't appear that's happening so far.

Could you just talk about what gives you the comfort level that we won't see that repeating again over the next quarter or so?

Yeah, good question.

And we're not happy with the lead time as long as it is.

I think what happens when our lead time starts to grow, it gets to a point where customers start to see that and so they place orders on a longer lead time basis than they normally would.

It's certainly not double ordering by any means, but it is getting orders on the books, so our lead time is extended, but it's backlog adjusted out there a little ways.

So we're not happy with that, that's why we're increasing the capacity in Chippewa Falls as rapidly as we can to get that lead time back to the 8 to 9 week level.

So I don't believe, I think we've been flexible enough to work with our customers and we'll continue to be flexible and work closely with meeting all of our customer needs even with that longer lead time.

But it's important to us that we get that down and become more competitive on a lead time out of Chippewa Falls.

All right.

So long term I guess the goal is to get it down to 8 to 9 weeks, but do you see that happening Q2 or do you think it will take a little bit longer than that?

Well it depends on how the orders continue to come in and how quickly it can drive our capacity up there.

And a lot of our growth that we’re forecasting for this quarter is coming out of the Chippewa Falls facility.

So we anticipate that that won't get worse and will get better.

And how long that takes is kind of a matter of just the order pattern, strength of the marketplace, and our ability to get more product out the door quicker.

Okay, and just on the laminate side, Isola recently acquired PolyClad.

Does that increase the chances for more aggressive laminate price increases going forward?

How does that impede your margin strength?

Yeah, we have some agreements in place with Isola and we work pretty closely with them, that help manage the cost side of our laminate equation.

And like I mentioned, we have some formulas in place that kind of control the price increases related to copper and metal pricing.

And just finally, what is the book to bill number for the quarter?

It was 1.2.

Thanks a lot.

Thank you very much, Sir.

And I have the next question from Matt Sheerin from Thomas Weisel Partners.

Please proceed with your question.

Yes, thanks.

Just back to the capacity expansion issue, Kent.

If you could talk about the capacity coming on line in Chippewa.

Could you put a dollar volume on it on stable pricing?

Give us an idea of incrementally what that could mean to the company?

We have a long ways to go before we max out capacity in Chippewa Falls.

And when taking a look at kind of our capacity utilization for the company, it was mid 80s, but in Chippewa Falls we were over 90$% which is a nice place to operate at profitability wise.

But we certainly want to get more capacity going there and it’s all incremental at this point.

So we could grow 10% a quarter for the next 4 or 5 quarters and still not hit the capacity level.

That said though, we would have to add some additional equipment and staffing to achieve those levels of production.

But certainly the bricks and mortar expansion we did last year has made room for more equipment and it's only a matter of incrementally adding it bit by bit as needed.

And the nice thing about, Matt, too, is we don't have to expand the entire facility.

Like we mentioned, we're just attacking the bottleneck areas which are at this time mainly in the inner layer and our drill areas so it's relatively simple to get capacity in place.

We can do it quickly, get the facility staffed up, and respond to these market demands quite favorably.

Okay, and I know that as you expanded in Chippewa a year ago, you ran into some hiccups in terms of some margin issues and yield issues, I believe.

Was that based on the fact that you had put the bricks and mortar and the equipment in there and now it's a little bit easier and you won't run into those hiccups?

You’re exactly right, Matt.

Those hiccups before were related to basically the bricks and mortar we put in place and we were moving departments around and kind of breaking into clean rooms, those kind of things.

That is all behind us.

All those departments are located where they need to be.

That's improved our efficiency.

And they all have floor space ready for expansion.

Okay, and Redmond the lead times are actually coming in.

Is that because of capacity expansion there or because of customer issues?

That's because of capacity expansion.

I mean, we were well positioned in Redmond to increase our production there and this quarter was a nice up tick in throughput for our Redmond facility.

Okay, I know that in the past you've talked about qualifying customers from Chippewa also in Redmond to use that as overflow manufacturing.

Are you doing that or is it still kind of a different type of volume that you're doing there?

Yeah, and we do that wherever we can.

In this particular case, the products that are having a lot of demand for us are better suited for Chippewa Falls and that's where we have that particular expertise so it’s not as easy for us to move those products.

And Redmond is also busy with a lot of demand in Redmond.

So we still are using our 3 facilities to maximize our support to our customers, but there are particular products that are particular to each one of our facilities.

In this case, we've got a lot of demand for those products that are particular to Chippewa Falls.

So the answer is for us to grow and grow quickly and try to run that facility to about a 90% capacity utilization rate and get the capacity up.

And I think that that’s the plan we have in place.

So we’re pretty optimistic about what we can do in the future and the relative position of each one of our facilities to handle the additional growth.

Okay, great.

And then last question, on the networking, you talked about strength there.

I know Cisco is your biggest customer.

Are you seeing any impact, positively or negatively, because of the supply chain initiatives going on at Cisco?

Are you looking at any kind of buffer inventory, building the channel there, that could be a reason for the strength that you're seeing?

Let's talk a bit about that.

I think what you're getting at is the Cisco Lean Manufacturing initiative that they're kind of currently underway on.

We've had hub inventories for Cisco and other customers at the condiment manufacturers for awhile.

We have not seen a significant increase in finished goods inventory overall.

It did dip in the fourth quarter.

It's kind of risen a bit in the first quarter.

Our inventories overall increased about $300,000 this quarter versus last quarter and all of that increase was due to finished goods inventory.

But Cisco overall is only about a third of our overall finished goods inventory increase quarter over quarter.

And so it's non disproportionate to what's kind of their overall representation in the kind of finished goods hub inventory we currently have.

So we're not seeing really any change, I would say positively or negatively, due to the lean manufacturing initiative.

It’s obviously a bit more of a pull inventory program from Cisco's point of view which may mean that the condiment manufacturers and us will have more inventory that we hold.

But that hasn't really borne out to be true in a significant way yet.

Our finished goods inventory levels are kind of just now returning to the levels they were at say in the fourth quarter of 2005.

So we don't see a lot of impact for it, but we do stay tuned to it and we do have been reading all the materials that Cisco has been releasing about their initiative.

Okay, thank you.

[OPERATOR INSTRUCTIONS].

I have the next question from Sean Harrison from Longbow Research.

Please proceed with your question sir.

Good afternoon.

I just wanted to follow up first on kind of the revenue outlook.

My sense is the revenue growth outlook may have been a little higher if it weren't for just kind of the capacity constraints at Chippewa Falls.

Is that correct?

I think in part that’s correct, yeah.

I think if we have more capacity in place, we could go faster, no question about it.

Okay, and secondly, the flattish pricing scenario with lead times out as far as they are at Chippewa Falls, is that impacting that?

And just kind of what are you seeing in terms of quick turn pricing out there at this point in time?

I think the flattish price is you know we've had some nice increases over time in our pricing, and as we look forward, we think our prices and the mix might change a little bit as we go forward and get a different mix alignment which would yield to a little bit of a flat price.

As far as prices in the quick turn segment, they're up fairly significantly.

So it’s a very favorable market right now for pricing with regards to quick turn.

What was the utilization in Santa Ana for the quarter?

Was it flattish with the fourth quarter?

It's running about just under 70%, which is about the same as it was last quarter, which is a nice spot to be in because if you can run your quick turn facility at 70, 75%, you have a lot of flexibility to satisfy all the needs for quick turn on a timely basis.

So we’ve been able to increase our capacity and hold our capacity utilization at the right level to satisfy our customer needs.

And you’re bringing on some plating capacity in Santa Ana correct this quarter?

Yeah, we've added a couple of hand tanks already.

Hand plating tanks that have alleviated a bottleneck there.

And we also have an automatic plating line ordered but that's 3 or 4 months away.

But we've got a lot of runway here before we bottleneck in plating again.

All right, thank you.

Thank you very much, Sir.

The next question is from Kevin Kessel from Bear Stearns.

Please proceed with your question.

Hi guys, good afternoon.

When you look at your end markets, networking was clearly very strong.

Would you say in that segment you believe you're currently taking market share from other competitors?

You know it’s - - I think - - we haven’t gone to the nuts and bolts detail of the networking segment.

It's certainly up with TTM and my sense is that it’s up higher than the original growth in that segment, so that would leave me to believe that we have captured some market share in that segment.

Okay, and then high end computing hasn't been giving you guys problems for the last couple of quarters and this quarter actually rebounded very nicely.

Did that come at all as a surprise?

Or did you win some additional new programs that you expected to win?

That was a little bit of a surprise.

I thought that would be down a little more.

And the areas that we thought it would be down in, they were definitely down, but we did get some increased program capture, some market share gains in other segments, or with other customers within that segment, so that’s up pretty nicely.

Okay, and when you look at the balance sheet today, another quarter where you generated cash flow and free cash flow, you're now sitting with over $2.15 in net cash.

Clearly you guys are expanding already what you have in sort of your internal production.

But what about acquisitions out there?

You guys have mentioned in the past that you'd be interested in potentially consolidating some of the quick turn market up and obviously with that market being so favorable, that might make some near term sense There's obviously.

China that looms out there as a longer term thing that I think you guys want to handle.

And then North America wise, I think maybe there's still some attractive assets out there that might be worth looking at.

How do you guys think about it and the timing?

Yeah, well the timing is, we’re ready to go.

I mean, we’ve got $90 million of cash, so from our perspective, we are ready to begin executing our strategy and we’re being, I guess, prudent and patient in making sure that we do the right acquisition and maximize our chances for success.

But we haven’t changed, haven’t varied.

Our acquisition strategy has been the same.

North America to consolidate the quick turns, move into the military aerospace, and we're active on all fronts of any acquisition that becomes available.

In China, we are again, would like to expand our business model of quick turn, high mix, high technology into the low cost provider region.

We made a visit to China last quarter, we’ve got another one scheduled for next month, so we're very active in searching for the right opportunity in China also.

Do our customers currently, in terms of China, are they telling you that they'd like you to begin China by a certain timeframe, like a year from now, 6 months from now?

I mean, is there any sense from your major customers that they really want you there soon or do you think you still have time to make that decision?

Yeah, I think we have time.

We have positioned the company with the right strategy such that we’re in the sweet spot of the marketplace and we’re very happy with what's going on in North America right now with our three facilities.

We look at the low cost region as an opportunity.

We don’t believe that would cannibalize any of our work at all in any of our facilities.

We think there's another level of work that with our current structure here and current facilities, that if we had the right facility in the low cost region that's complimentary, that would be a big plus and a very nice fit to what we currently do.

But we’re not in a hurry to move over there and get involved in volume type products or low technology.

We want products, we want to service customers that have a lot of changes going on, a lot of revision levels, a lot of new product introductions, multiple part numbers.

And so just by definition, we wouldn’t be involved in say cell phones or automotive business.

We would be in the high tech segment where there's a lot of changes, where we can achieve value for our engineering and time elements.

And also where we can kind of have a lower cost solution for our existing high tech customers.

And then you mentioned on pricing, I think you said panel pricing was up 2.5% in the quarter.

Can you remind us of what your expectations were coming into the quarter for pricing?

Yeah, we kind of expected pricing to be pretty flat.

Because you guys probably recall, prices went up 6% in Q3 over Q2, and another 2% in Q4 over Q3.

So we already had 2 consecutive significant price increases coming in to the first quarter.

And historically, first quarter is pretty soft for us just in terms of the overall PCB industry is kind of soft in the first quarter historically.

So we weren't expecting the kind of price increase we actually did see.

And you're right, there was 2.5% across the board, well average panel price increase.

But it was really disproportionately strong in the quick turn arena.

The prices there were just a bit more robust.

And just to that point then, now you're looking again at another quarter when you think pricing will be stable or flat it sounds like.

Do you think again this is just conservatism on your part or, as opposed to the last couple of quarters where you kind of though coming off all these price increases you'd see flatness?

Or do you really get the sense that the price increase have stopped?

Well I think you know, we sit down and we look at what's going to happen during the quarter.

We look at some of the mix shifts.

And we can have prices go up in certain segments of our business, yet because of the mix shift that we're forecasting has a flat price come out.

But we're pretty optimistic about the next quarter.

I mean, this is a nice cycle that we're in and all the indicators that we see point to a continuation of the healthy cycle that we're experiencing.

So we're pretty optimistic about the next quarter.

And we put our parameters in that we think we can achieve.

We did that last quarter and we came in above the range, so we’re pleased about that.

Great, thank you very much.

Thank you very much, Sir.

The next question is from Sean Severson from Raymond James.

Please proceed with your question.

Thank you.

Good afternoon, gentlemen.

Could you - - I just want to dig into the volume quick turn business a little bit.

Can you give us an idea of how much of your quick turn category you would throw into volume or which I assume is just like compressed lead time volume business, upsides or rush orders of traditional volume work?

You know, Sean, we had some volume quick turn orders that I think the marketplace was healthy enough that a lot of customers came to us for product that they needed in 10 days or less and we were able to do that.

And some of that was beyond prototype quick turn that we usually do, so we had a lot of volume.

But we always measure the quick turn in 10 days or less.

That’s pretty much just a straight cutoff for us.

That way we know what our quick turn percentage is quarter in, quarter out.

It’s just 10 days or less.

Even in our Santa Ana facility where probably two thirds of our work is quick turn, 10 days or less, so that’s how we measure quick turns.

It’s pure 10 days or less, whether it's a prototype, engineering, repeat quick turn volume, whatever.

Well maybe I'll ask it a different way then.

Has it been trending up over the last couple of quarters particularly in December that you're seeing more of that sub 10 day being volume business? [non-related cross talk]

It sounds like we have a couple of voices there.

Could you hear me?

I think I got it, yeah Sean, to answer your question.

I won't say that it’s up significantly in the volume side of things.

I mean, it's there.

We have a lot of volume quick turns that we get, well not quick turn by our definition, but accelerated delivery that we get some premiums for that are outside the 10 days.

There may be 15 days and so forth that we don’t count as part of our quick turn formulation.

When you just look at the 10 days or less, that's been a pretty active marketplace with a lot of part numbers and a lot demand and a lot of new tools.

But also some repeat orders that needed to be accelerated.

So it’s just been a very healthy market in the quick turn segment, and as we look forward, we don't see that slowing down at all for the next quarter.

What kind of product categories are you finding the most need for that either 15 day or kind of 10 day if you look at the rush orders in volume business.

Is it concentrated more in communications and networking products or is it broader based than that?

I would say it's broader based than that.

There isn't more in certainly that segment of the marketplace.

The networking, because a lot of innovation, new product introductions taking place in that segment.

But when you look at all the segments, by breaking that down by quick turn, it's healthy across the board.

Okay, and then just lastly, the market in your 20 layer plus business, could you give maybe a little more color on what the kind of end market product concentrations you have in the 20 layer plus?

I mean, is it heavily oriented towards industrial and military or is it a lot of networking or what the mix would be?

Yeah, the answer, Sean, is that most of that is in the networking and then some of that is in the high end computing and that’s pretty much the predominant 20 layer and above segments.

There are some 20 layers below that in other segments, but those are where you predominantly find 25, 28 layer circuit boards.

Great.

Thank you.

Thank you very much, Sir.

And the next question is from Jim Larkins from Wassau.

Please proceed with your question.

Hello.

My questions have been answered, thank you.

Thank you.

And the next question is from Adrian Doss from Hartwell.

Please proceed with your question.

Thanks.

Congratulations on a wonderful quarter.

I wonder if you could give us a sense for this cycle relative to previous ones with regard to the opportunity for further margin expansion as we look out of the cycle?

Yeah, the cycle that we're in right now is probably the best cycle that we've had since the year 2000.

It's not close to the 2000 period, but this is one that looks like it's more sustained, has a little bit of legs, and as far as backlogs and pricing capability, all very strong, right up next to the 2000 era.

So we’re looking at this cycle.

We believe that I would say that our business has been down for quite awhile, or not our business, our industry has been down doe quite awhile, so you could almost look at that and say there's some pent up demand which could help us in the length of this cycle.

A lot of our competitors went by the wayside through the downturn of 2001 and 2002, so there's less capacity out there, I think that’s a favorable factor as we evaluate where we're headed here.

But all the signs are still pretty favorable for an extended cycle that we're in.

If memory serves me, back in 2000 your EBITDA margins hit mid to high 30s.

Is that the right recollection?

Yes, that's right.

Those were healthier days, so don’t get too enamored of that.

But yeah, that's about right back then.

Okay.

As you look at the trend and the flow of orders and deliveries and backlog and book to bill during the first quarter, how would you characterize it?

It's seen consistent throughout the quarter, but probably increasing, consistently increasing throughout the quarter.

Adrian Doss.

Tremendous.

If you look at end markets, are there any new areas that show particular promise that would be complimentary to those existing end markets you address?

Well I think certainly the story that we have is a lot more military aerospace coming into play which we need to break out in our end market segments.

But that was up probably more so than any end market segments this quarter.

And the high end computing, we had some nice surprises in that segment.

The networking, again, continued to be strong.

So, and then just looking at the computer peripherals and some of the handheld, there again, that’s a lot of our quick turn with no volume that follows that.

We did the prototypes, the quick turn needs.

So those are the comments that I believe fit the end market segments.

How should we think about relative margin across those end markets?

Are there some that we should be rooting for more than others?

Well I think certainly in the military aerospace market, you have longevity of contracts, you have the inability of those customers to really go overseas for the work because of the proprietary technology.

So there’s some real nice barriers to entry around the military aerospace that would make them a good, long term fit for us.

The programs tend to last a long time, the cycles are multi year cycles and you get - - once you're kind of okayed for military work, you tend to be on a choice list of providers.

So all those things, I think, make that segment particularly attractive and worth rooting for.

I think another way to look at that in addition to the end market segment is we like a lot of change with our customers, so we like to service those customers that have high levels of technology, that are constantly improving and revising their products, so there's a lot of change.

We like the customers that have short runs, that are a high mix, that are difficult for any printer circuit board to do.

We like to do the very challenging, difficult boards both from a high tech perspective, from a mix perspective, and then from a time element perspective.

That way we can service customers where we provide a lot of value to the customer beyond just the product so that we get compensated for the engineering and the technology and the value added services including time that we provide.

So that’s what we look for and we think that's in the networking segment.

But if it’s down in the computer peripheral or the industrial medical, that fits our strategy.

So we'll go after that kind of no matter what end market segment it's in.

You may have mentioned these stats before, so I apologize if you have.

Cash on the balance sheet and capital spending for the rest of the year.

Well cash on the balance sheet at the end of the first quarter, when you include short term investments as well, was $90.5 million.

We don’t really have a projection that we believe about what our cash flow is.

We do expect capital spending, which was $3.3 million in the first quarter, to be about $12.5 million for the year, that vicinity, which would be about 5% of revenue for the year.

Okay, and final question, with the use of cash, are there acquisitions that have been considered and discarded as potential eye junks to the business or are there still some in the hopper that if the price is right and the fit good you would do that?

With the amount of cash that we have and the position that we’ve put our company in, which is a very favorable position, we believe that we are more of a consolidator in this business.

So we are actively looking for the right acquisitions and we're just active on that front.

And as those opportunities become available to us, we’ll be involved, we'll be very involved.

Would you characterize the heat of the discussions as higher or lower recently than in the previous 12 months?

Well, I guess I’m not quite at liberty to comment to the degree of heat, but certainly on our side, we have a lot of cash and we think that the best use of that cash is to do acquisitions.

And so as we're able to be successful to that end, we’re working hard to expand our business through acquisition.

Great.

Well, thank you and again, congratulations on the quarter, but don’t give up on trying to reach 2000 EBITDA margins.

Thank you, yeah, we never give up on that Never give up.

[OPERATOR INSTRUCTIONS].

I have the next question from Amit Daryanani once again from RBC Capital.

Thank you.

Kent, I think you mentioned you missed some of the revenue upside was sort of imputed because of extended lead time at Chippewa Falls.

Could you quantify how much revenue did you potentially lose because of the extended lead times?

You're saying, Amit, how much we lost in this quarter or next quarter?

Make sure I understand the question.

I’ll take both those numbers.

Of course you will.

Well, certainly - -

What you didn't capture.

Yeah, I think - - I don’t believe that we have missed any work as far as being able to bring it into the TTM fold.

Where the work sits is in backlog rather than being shipped out to our customer.

So I believe that we're still keeping our customers happy.

We contact them daily.

We're very flexible in what part numbers and how to work our mix and so forth.

So it's hard for me to kind of quantify, but if you look at our backlog and say we're at 12 weeks and we could have been at 9 weeks, there's 3 weeks worth of production.

So we’re hoping to drive that 12 weeks down during this quarter and take advantage of the significant backlog that we have.

It’s important that we do that.

Okay, and just a housekeeping question, maybe you mentioned this, but were there any customers over 10%?

Yeah, there was one, Amit.

Well, you know we look at customers two ways of course.

We look at them from the OEM customer base that we service, and we look at customers that we actually invoice, i.e., the condiment manufacturers.

So on the OEM basis we had one customer over 10%.

Then on the kind of invoice customer basis, we had two.

Does that make sense to you?

If that's not clear, I can do it again.

No, that makes sense.

Thanks.

Thank you very much, Sir.

Once again, for those parties who have a question, please press star one on your touchtone phone.

At this time, gentlemen, I have no more questions.

Now for closing remarks, I would like to turn the call over to Mr. Kent Alder.

Please go ahead, Sir.

Yeah, thanks for joining us today.

We appreciate your interest in TTM.

We’re excited about the results that we had for the first quarter, but more importantly we're excited about the second quarter and the position that the company is in, our ability to generate favorable margins, and to keep our customers happy, and we're very pleased with the progress of the Company and we'll just continue to work hard.

So thanks for joining us and we'll look forward to the call next quarter.

Thank you.

Thank you, everyone, for joining the TTM Technology first quarter earnings release conference call.

The call has concluded.

You may now disconnect.