TTM Technologies Inc (TTMI) 2009 Q3 法說會逐字稿

Welcome to the TTM Technologies third quarter 2009 financial results conference call.

During today's presentation all parties will be in a listen-only mode.

Following the I presentation, the conference will be opened for questions.

(Operator instructions).

This conference is being recorded today, November 4th, 2009.

I would now like to turn the conference over to Mr.

Kent Alder, CEO; go ahead, sir.

Okay, and thank you very much.

Good afternoon.

Thanks for joining us for our 2009 third quarter conference call.

Joining me on today's call is TTM's CFO Steve Richards.

I'll begin with a review of the business, and then Steve will review our financial performance, and then we'll open the call for your questions.

But before we get into any details, 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 various industry that the Company serves, and the impact of the current economic crisis and other risk described in TTM's most recent SEC filing.

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

We will also provide non-GAAP financial information in this call phone.

For a reconciliation of our non-GAAP financial information to the equivalent measures under GAAP, please prefer to refer to our press release which we filed with the SEC and is posted on our website.

Today we announced our results for the third quarter of fiscal 2009.

For the first time in five quarters, we realized improvement in our printed circuit board manufacturing segment sales, due to growth with our commercial customers, primarily in the computing and networking communications end markets.

Our revenue of $139.1 million, and EPS of 0.13 excluded non-recurring charges, were in line with our guidance, and we continued to generate cash and improve margins through disciplined operational management.

We increased our cash by $11.3 million, to a total cash position of $200.7 million, and although consolidated sales decreased by a $5.4 million, our gross margin improved to 19.3%, excluding the inventory write-down related to the Hayward and Los Angeles facility closures.

In September, we announced they we were closing our underutilized Hayward, California, and Los Angeles, California facilities, and shifting production to other TTM plants to increase utilization and productivity in those facilities.

We are currently on schedule to cease operations at the Los Angeles facility during the current quarter, and at the Hayward facility in the first quarter of 2010.

We have retained the majority of our customers at these facilities as planned, and are on target to meet the approximately $14 million in annual cost savings projected earlier.

We will begin to realize these cost savings in the first quarter of 2010.

Now let me provide a quick overview of the third quarter.

Our printed circuit board manufacturing segment recorded third quarter net sales of $123.2 million, compared with $122.6 million in the second quarter.

The increase was mainly due to strength in the networking communications and computing end markets.

Third quarter operating segment loss was $1.9 million, compared with income of $10.7 million in the second quarter.

The third quarter operating loss reflected non-recurring charges of $14 million, primarily associated with the closure of the Los Angeles facility and further impairment of our Dallas, Oregon building.

Excluding the non-recurring charges, operating segment income for the printed circuit board manufacturing segment, was $12.1 million.

On a sequential basis, the average price per panel decreased 5% due to slightly lower sales in our aerospace and defense end market, and also with changes in our product mix.

Overall, market pricing continues to be steady.

Panel production increased by 3% sequentially, due to increased orders in our network and communication end market.

For the Backplane Assembly segment, third quarter net sales were $24 million, compared to $21.9 million in the second quarter.

Third quarter operating segment loss was $2.6 million, compared with operating segment income of $2.3 million in the second quarter.

The third quarter operating loss included non-recurring charges of $3.1 million, associated with the closure of the Hayward facility.

Excluding these charges, third quarter operating income for the Backplane Assembly segment was $0.5 million.

Now, moving on to our four end markets.

We experienced increased sales with our network and communication customers in our printed circuit board manufacturing segment and decreased sales in our Backplane Assembly segment.

The printed circuit board increases are a positive indication that the demand picture is improving in our commercial customer base.

With the exception of one large Asian OEM, sales declines in the Backplane Assembly were across the board.

For TTM as a whole, network and communication end market declined to 35% of sales from 36% in the second quarter.

The aerospace and defense end markets decreased from 45% in the second quarter to 44% in the third quarter, due to timing issues on a few programs.

Overall, our broad base of defense business continues to be strong.

Over the past four to five quarters, the defense portion of this aerospace and defense end market has increased from 70% to 85%, and for the fourth quarter, we are forecasting an increase in aerospace and defense on a dollar basis.

The computing storage peripherals end market increased to 12% in the third quarter from 10% in the second quarter, reflecting strength from key OEMs in producing server and storage products.

The medical, industrial, and instrumentation end market remained flat at 9% of sales.

The medical portion increased slightly, while industrial implementation decreased light slightly.

Our top five customers comprise 35% of net sales in the third quarter, and represent a slightly higher mix of commercial customers Top 5 OEM customers in alphabetical order, were Cisco, Waway, Juniper, Northup Grumman, and Raytheon.

Lead times increased by approximately one week at several facilities, but overall lead times are stable.

For our commercial customers, lead times range from four to six weeks, aerospace and defense facilities are running at four to eight weeks.

Lead time for some of our high tech, specialized aerospace defense products are 14 to 20 weeks.

At the end of September, our printed circuit board book-to-bill ratio was 1.04.

As a reference, the IPC book-to-bill average for the same period was 1.09.

At the end of October, our book-to-bill ratio increased to 1.09.

And now, Steve -- I'll turn the time over to Steve and he can review our financial performance for the third quarter and discuss the outlook for the fourth quarter.

Thanks, Kent, and good afternoon, everyone.

As Kent mentioned our existing TTM operations performed well,l and within guidance for the first quarter when adjusted, primarily for facility closure costs.

Before I begin, I want to point out that I will be discussing our results on a GAAP and non-GAAP basis.

As Kent noted, we have included a reconciliation of our non-GAAP financial information in the press release.

With that, let's turn to the third quarter results.

Third quarter net sales of $139.1 million decreased $5.4 million, or 3.7%, from second quarter net sales of $144.5 million, due primarily to weaker demand for commercial Backplane Assemblies.

Gross margin for the quarter of 17.4% declined from second quarter gross margin of 18.7%.

Excluding inventory write-down costs related to the plant closures, gross margin was 19.3%.

Selling and marketing expense for the third quarter was $6.5 million, or 4.7% of net sales, compared to second quarter selling and marketing expense of $6.3 million, or 4.4% of net sales.

Third quarter G&A expense, including amortization of intangibles was $10.3 million, or 7.4% of net sales.

Second quarter G&A expense, including amortization of intangibles, was $8.5 million, or 5.9% of net sales.

The increase in G&A expense in the third quarter was primarily due to costs related to evaluating strategic opportunities, as well as higher bad debt expense.

In the third quarter, we encouraged stock-based compensation expense of $1.5 million, compared with $1.6 million in the second quarter.

54% of the expense was recorded in G&A, 27% in cost of goods sold, and 9% in selling and marketing.

During the third quarter, we will recorded non-recurring charges totaling $17.1 million, or $0.24 per diluted share, primarily resulted to the closure to have our Hayward and Los Angeles facilities, as well as further impairment of our Dallas, Oregon building.

Operating loss for third quarter was $5.4 million, compared to operating income of $12.2 million for the second quarter.

Excluding non-recurring charges operating income was $11.7 million in the third quarter.

Third quarter interest expense, which includes amortization of deferred financing costs, was $2.9 million, compared to interest expense of $2.8 million in the second quarter.

Third quarter interest expense included $1.4 million of non-cash interest on our convertible debt.

Third quarter interest is income was $196,000, compared to second quarter interest income of $61,000.

Third quarter other net income was $57,000.

This compares to second quarter other net income of $147,000.

This consists primarily of foreign currency translation adjustments for our international operations.

Our effective tax rate was 39.4% in the third quarter, compared with 38.2% in the second quarter.

Net loss of the third quarter was $4.9 million, or $0.11 per basic share, compared to second quarter net income of $5.9 million, or $0.14 per diluted share.

Excluding non-recurring charges, net income for the third quarter was $5.5 million, or $0.13 per diluted share.

Third quarter non-GAAP net income was $7.8 million, or 18 cents per diluted share.

This compares to the second quarter non-GAAP net income of $8.7 million, or $0.20 per diluted share.

Non-GAAP net income excludes amortization of intangibles, stock-based compensation expense, non-cash convertible debt interest expense, asset impairment and restructuring charges, inventory write-down and other costs, as well as the income tax effects related to all these expenses.

Adjusted EBITDA, which excludes asset impairment charges for the third quarter was $10.7 million, or 7.7% of net sales, compared to second quarter adjusted EBITDA of $18.3 million, or 12.6% of net sales.

Looking at our balance sheet, we continue to build cash.

Cash and cash equivalents and short term investments at the end of the third quarter totaled $200.7 million, an increase of $11.3 million from $189.4 million at the end of the second quarter.

Cash flow from operations in the third quarter was $14.4 million.

Net capital expenditures for the quarter were approximately $3.3 million, and depreciation was $4.7 million.

Looking ahead to the fourth quarter of 2009, we expect revenue in a range from $140 million to $148 million.

We expect GAAP earnings in a rain from $0.11 to $0.16 per diluted share, and non-GAAP earnings in a range from $0.18 to $0.23 per diluted share.

Gross margin percentage is expected to be in a range from 19% to 21%.

We expect that SG&A expense, including amortization of intangibles will be about 11% of revenue.

We expect our tax rate to be approximately 38%.

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

Please go ahead, Sierra.

Thank you.

We will now begin the question-and-answer session.

(Operator instructions).

Our first question comes from the line of Amit Daryanani.

Go ahead.

Thanks, good afternoon, guys.

I just had a quick question.

When I look at your guidance, l'm looking for sales to up about 4 percent or so sequentially.

When you look at the different end markets, could you talk about what we can expect across each of the end markets so we have a better sense of that?

Sure.

Our aerospace and defense, we anticipate that end market being pretty strong for the next quarter, because of some broad-based pipeline activity that we have, so the defense portion of that will be strong.

We're still a little bit weak in the aerospace activity.

So overall, that will probably be a little bit light, maybe down another percent in the fourth quarter.

That's -- this is the first quarter where we maybe will go down.

We've been on a straight line up for the last 10 quarters, so we feel pretty good about the progress that we're making in aerospace and defense.

On the computer peripherals and storage, that will be, maybe slightly down a little bit, not too much changed there.

We're at about 12, maybe down a percent.

Medical and industrial should be flat for the next quarter.

Communications and networking, when we look out into the future, we're going to see some recovery there in our Backplane operation, and will see some continued growth in that end market segment in the printed circuit board segment, so that will probably be the main segment that increases probably a couple of percentage points in network and communication in the fourth quarter.

Perfect.

That's very helpful.

I guess Kent a lot of companies across the supply chain this quarter have been talking about seeing component shortages and essentially having having to scramble to meet the uptick in customer demand.

I'm curious if you're seeing any of those issues?

Are you having any trouble procuring the raw material that you need, and did you have to leave some revenues on the table at the end of the quarter?

Yes, the answer is no, we didn't leave any revenue on the table, and some of the component shortages are mainly coming from the semiconductor marketplace.

That really doesn't impact us unless customers can't get components and they delay orders and so forth, but we haven't experienced any of that, and our raw materials costs with the laminate and other raw materials are just not impacted.

There's plenty of supply, so, from a material perspective and us being able to get the materials we need, we have no impact whatsoever.

All right.

And then just finally, I'm curious if you had any thoughts on how the competitive landscape would change with a combination of Merix and Viasystems, and does that actually increase the urgency you may have to gain a bigger presence in Asia?

You know, our strategy just hasn't changed.

I mean, it was the same before, it's the same now.

We're pretty consistent in how we approach our acquisition strategy, so it doesn't change.

I think if the Via and Merix, if they get together and create a stronger company financially, that's probably good for the industry.

So it doesn't impact.

I think we've competed then as individuals together, doesn't change what we do.

We're going to be pretty solid going forward.

Our strategy is in place, and it really has no impact on how we operate our business.

Fair enough.

Thanks a lot.

Thank you.

(Operator instructions).

Our next question comes from the line of Shawn Harrison with Longbow Research.

Go ahead.

Hi, good afternoon.

Just a quick point of clarification, Steve, in terms of the gross margin and SG&A guidance, that includes stock-based compensation in those numbers, so it could be slightly higher if we took out the stock based comp, correct?

Exactly right.

The stock-based comp numbers should be real stable quarter-over-quarter, about $1.6 million and the breakdown I gave you by G&A, selling, and COGS should be about same as well.

Okay.

But the EPS figure you provided excludes stock-based compensation.

No, the GAAP EPS number reflects the of recording that expense.

But the non-GAAP 18 to 23 excludes everything.

Exactly.

Okay.

Second, just a couple of questions, more on kind of the environment, if you could comment in terms of what you're seeing in terms of quick turn demand out there, general pricing.

Because I think DDI on their call recently said their pricing has been a little bit more under pressure in that market, and in general, although your comment today suggested otherwise And then maybe what the communications networking customers are saying just about the general health of their business, because it seems like they're a little more bullish, based upon your guidance.

Yeah, good questions.

I think first on the quick turn side of things, we -- our percentage runs about 10%, 11% almost every quarter, but we experienced more activity on quick turn in the third quarter, so that was, I think, a sign that there are some positive things happening.

Pricing, we were down on the pricing by about 5%, but that's all due to kind of the mix issues.

We did less aerospace and defense.

We had some other technology mix and so forth.

When we go out to the marketplace and look at pricing, we're seeing that as pretty stable, pretty constant.

We're not seeing price pressure.

I think a lot of places where you might have some price pressure are when you are involved in the lower technology segments of the marketplace, and of course with our quick turn and our facilities and so forth, we're not involved in any of the lower technology products, so we're not seeing any of the price pressure per se.

We're not seeing any opportunities, but we're not seeing any price pressure.

With regards to the communication end market, that -- I mean there's a lot of positive comments coming out of that segment, and we had a kind of -- it's -- we can't say that it's broad-based yet, but it's getting close to being fairly broad-based.

Some of our larger customers kind of led that end market.

So -- but those are some positive signs.

I mean we're encouraged by what we see.

We're not going to state that it's going to ramp quickly, but if we were to say that the recession is over and we've hit the low point, it feels like the low point is behind us.

Okay.

And then just as a final follow up, the restructuring savings, the $14 million, should we expect that full annual amount to benefit the P&L by the end of the first calendar quarter of 2010, or maybe if you could just describe how we should expect the savings to roll on this quarter and next quarter and beyond, if there is an amount.

Sure, sure.

That $14 million should really all be in cost of goods sold, and it will begin rolling through in the first quarter.

As Kent mentioned, we are planning to ramp down and close our Los Angeles facility this month.

We'll still have some people who help to de-commission the plant, but most of the folks will terminate this quarter, so we'll see a pretty significant impact in the first quarter.

The Hayward facility has benefited from some closeout orders, and that won't shut down until probably the end of February, so not all of that $14 million savings will begin flowing through at first quarter.

I would say about two thirds in the first quarter, and then a full quarterly allocation of that $14 million annually flowing through in the second quarter.

Does that make sense?

Perfect sense.

Thank you and congratulations on the quarter.

Thanks.

Thank you.

Thank you.

And our next question comes from line of Amit Passi with UBS.

Thank you.

Can you hear me?

My first question just had to do with the $1.669 million million of costs associated with -- I think you called it strategic alternatives, and you treated it at one time, I'm a little confused about that.

I would have thought that would be sort of an ongoing cost, and I'm just wondering whether for the time being you've sort of taken the pursuit of strategic alternatives off the table, or you could just elaborate on why it's considered a one-time cost.

Sure.

And perhaps don't think of it so much as one-time in nature.

What we're trying to to do in our non-GAAP schedule that discloses all of those items or add back is to give you a sense on an apples to apples basis from Q2 to Q3, on how we performed.

So obviously many of those costs are indeed one-time and related to the facility closures.

The nature of these costs to evaluate strategic opportunities are indeed ongoing, and so they aren't necessarily one-time in nature, but we saw a spike in that category in the third quarter, and to not add it back would not have not given investors a clear apples to apples comparison with Q2.

Steven, does have some of that then continue into the next quarter, because again I'm trying to reconcile your 11% guidance for SG&A.

Sure.

We expect to see about a similar amount of costs in the fourth quarter for that category.

Okay.

That's helpful.

And then I just wanted to clarify the comment on the $3.5 million per quarter savings that start to kick in in calendar 1Q 2010.

That looks like another 200 plus basis point improvement on your gross margin, is that the right way to think about it?

Yes.

The actual percentage will depend on our revenue, at that point, but that $3.5 million quarterly, or $14 million a year will flow in about 2/3 in Q1 and then in the full amount in Q2, and that would have a pretty significant impact on our gross margin, the same way the closure of the Redmond plant in first quarter benefited our gross margin in second quarter.

And then just a couple of questions on your end markets.

Any update on progress of business with one of your major Chinese OEMs?

And then any additional color on the strength in your computing storage segment?

any It was up pretty nicely, about 16%, I think, sequentially, so incremental insights would be helpful.

I think with our major customer in China, that is going to be one of the strengths for the upcoming quarter.

So the fourth quarter, I think they return to kind of a level that we ran at in the second quarter.

So I think that's a positive sign, again, for our business in China.

With regards to the computing and storage end market, that was coming -- the improvement there came from servers, storage type products, some reference design boards in the semiconductor marketplace.

That's majority of the improvement in those categories.

Okay.

Great.

Thank you.

Thank you.

And our next question comes from the line of Matt Sheerin.

Go ahead.

Yes, thanks.

Hi guys.

So you answered a lot of the questions, but on the Backplane business, why was in the operating margin so low, just negative leverage off of the decline from a lot of the customers you were talking about?

Well, think on the operating margin basis, Matt, we incurred a pretty significant cost in Hayward to shut down as part the restructuring cost.

So $2.2 million inventory write down that affected the gross profit margin and therefore affected operating margin, and then we also accrued about $800,000 of restructuring costs in Hayward for the ultimate severance we'll pay the employees.

So those the biggest drags on operating income.

Well, backing that out apples to apples, it was down, though, sequentially, right?

Right, that's true, and that's mostly a function of softer sales both in Shanghai and in Hayward from that customer base with the exclusion of our key Chinese customer.

And some of it's absorption and some of it's just lower revenue.

Yes, Matt, most of that, if you look at our segment, that's where the decline in our quarter came, was from our Backplane segment, so you've got some leverage tied to that.

Why was that so weak do you think, seasonal?

I don't believe it was seasonal, I think there's just some -- in our Hayward operation, that's been continuing to slide, and that continued to slide.

In Asia, outside of our larger customer, the declines were somewhat across the board.

So we're seeing some improvement in that for the fourth quarter.

It's a little hard to project, because of the number of customers in that segment, but it appears that that segment will have some recovery in the fourth quarter, particularly in China.

And also in Hayward with the closure of that facility, I think there's some kind of one-time buys that we'll see in the fourth quarter, and so forth.

Hey, Matt, one more thing, too, as I was looking at my notes while you were talking, we also recorded some pretty significant bad debt expense in both Hayward and Shanghai this quarter.

That would affect operating income, and that would not be in the one-time costs.

So we had a customer issue in Shanghai, not a dramatic one, but, a couple of hundred thousand dollars there, and we did reserve as part of the Hayward closure for some potential uncollectible debts as we wind down, but that would not have been in the one-time cost add back, so I think those are also embedding off margin.

And do you get a sense -- I know visibility is not great, but looking that's March quarter do you think some of that Backplane business starts to come back?

I think it will start to come back in the fourth quarter, and that should continue on into the subsequent quarters.

Okay.

And then on the -- I know someone asked about the charges for the M&A expenses, or the due diligence, why has that number going up now?

Or does that mean that you're getting closer to maybe finding something targets and do something more work?

Why are the expenses going up there?

Yeah, Matt, we've been -- we -- I think every quarter we are pretty clear on our acquisition, M&A strategy.

With that amount of expenses, I think it's clear that we've been more active on that front.

Okay.

And given the Viasystems Merix merger, do you feel any more pressure, have customers talked to you about the need to have a presence there sooner than later, or are you just sticking to your strategy of being cautious and waiting until the right deal comes along?

The answer is we've had a consistent strategy, and a consistent criteria for our strategy, and we're staying with that.

We believe that the right opportunity will present itself, and we're going to make sure that we get the right opportunity.

Those are long-term decisions.

They have to be evaluated very carefully, and -- to make sure that those types of acquisitions work, you are very prudent about that.

And so I think we've been consistent in that, clearly with the activity that we -- that you see, we've been more active recently.

Understood.

Okay.

Thanks a lot.

Thank you, Matt.

Thank you.

And our next question comes from the line of Jiwon Lee with Sidoti & Company.

Please go ahead.

Kent, you may have said it in a different way, but what about the $8 million sales swing in your fourth quarter guidance?

In the $8 million swing, going from the third quarter to the fourth quarter?

Well, actually the swings imbedded on your guidance.

Yeah, I think we're -- if we look at our actual performance of $139 million in Q3, and going to the mid-point of about, say, between $140, and $148, that's the $144 increase, which is about a $5 million increase, and we'll see some more improvement on the commercial side.

In our aerospace and defense, we're even forecasting on a dollar basis that to be up.

I think the main improvement, though, will come in the Backplanes, where we'll have some recovery from the week third quarter.

Okay.

Well, that's helpful.

And then other than these two dilutions costs, was there any other residual restructuring charge in the fourth quarter?

$Most of the restructuring charge of 2.5 million was for severance for L.A.

and Hayward, but you asked a good question.

We did record about $170,000 of restructuring charge still related to the Redmond plant closure, because we paid out retention bonuses to employees who had continued to serve after that plant was closed to de-commission it.

Okay.

And, lastly, with the couple pricing going up throughout the year, have you seen any laminate price increase recently?

There's some copper involved in the laminate, and so that price went up, and it's all relative to increases in the copper price.

But it really has no impact on our financial performance.

That's imbedded in our forecast, and we've been able to absorb those in the past.

So pretty good shape on the material cost side of the equation.

Great.

Thank you so much.

Thanks.

(Operator instructions).

And we have a follow-up question from Shawn Harrison with Longbow Research.

Hi, I have a few follow ups.

Given -- post the closures of Hayward and the L.A.

facility, is there going to be a change in terms of what the incremental gross margin would be?

I would assume it should be higher post these closures, maybe closer to 50% versus the mid-40% range you have historically talked about.

That's a good question Shawn, and certainly some of our analysis of that will wait until we get closer to the closures and see what customers are transferring, and so forth, but I think it's a reasonable assumption they would go up little bit, probably not as much as you indicate, because we do expect to transfer work from both Hayward and Los Angeles, in pretty significant amounts in both places.

So Stafford Springs and Shanghai will pick up some of the Hayward work, and our other commercial plants will pick up some of the LA work.

I don't think that overall mix of sales is going to change a lot with these closures.

Okay.

And then maybe on -- as a follow up to that, what is capacity utilization right now for the commercial work versus the Backplane work, and where would these transitions take those numbers to?

Yes, that's a good question.

On the -- on the commercial work, we're running about -- on our print circuit board, about 80%, and by adjusting the base for the restructuring, we'll anticipate moving to about the mid-85% to 87% level.

On the Backplane Assembly, we're running about 60% capacity utilization, maybe just slightly higher.

Okay.

And I guess those numbers, the follow-up question is, does that mean you're going to need to add capacity in 2010?

Or how would you manage kind of upside to demand from the current levels?

Even with the closure of the facilities that we've had this year, and you go back tow in beginning of the year, we closed the Redmond facility, and then the LA and the Hayward.

That's two printer circuit board facilities, as well as a Backplane operation, all in the commercial side of work.

We still have more than adequate capacity for any upside in our remaining facilities.

It won't change the mix of our work, like Steve said, we've reallocated our capacity.

I think the footprint that we have right now matches where we need to be in the future, and we have plenty of upside in each one of those.

We can grow incrementally in all of our facilities.

Every one of our facilities now are operating at levels significantly above any critical levels, so this closure now matches our -- matches what we need to have for the market place in North America, and with the closures, we'll improve our capacity utilization, our productivity will go up, we'll be more efficient and we'll more profitable.

So I think we're well positioned now with no further closures and adequate up side capabilities.

Okay.

And then two final questions.

Steve, as we look into 2010, should we expect maybe a small uptick in SG&A expense either for higher salaries, bonus accrual, things like that?

And then in the second question, maybe directed to you, Kent, is, after seeing the military budget here for fiscal 10, does it say to you that you maybe could see growth in the military market year-over-year?

For your PCB business.

I'm sorry.

I think we saw a big spike in G&A as we discussed already in the third quarter, and we'll probably see some similar numbers in the fourth quarter as we discussed already, too, but I think after that, SG&A should kind of stabilize at more historic levels.

I mean, yes, we'll see -- obviously if 2010 is a better year in terms of revenue, then we might see a slightly larger increase in some costs, certainly higher selling expense for commissions, because we'll have higher revenue.

Perhaps a higher bonus expense, although I don't think it will be materially different.

As a Company, we didn't have salary increases this year.

Obviously in a better economy we might change that.

So maybe some increase in SG&A, but I'm not expecting a big increase.

Yes.

And relative to the second question with aerospace and defense, that end market went up 10 quarters in a row.

That's a straight line up for the last two and a half years, and I think that's a pretty -- that speaks pretty highly of our capabilities and how we're able to service the aerospace and defense end market.

And while we had a couple of programs that have paused, waiting for revisions or came to an end and are waiting to replaced by another program, we had enough broad-based activity that still bolstered that end market.

We're constantly working with our customers as the largest effort aerospace and defense supplier in North America.

We have a lot of programs that we're working on.

Our sales team continues to worth with our customers on keeping pipeline full.

So we're pretty optimistic about that end market with the defense budget and so forth.

And when we talk about 10 straight quarters going up, most of that was in the defense portion, because we used to be at, say, 65% to 70% of that end market was defense, and the balance aerospace.

Now that's up to 85%.

So while we're well positioned defense, we think there's a a real opportunity when the aerospace comes to life again to have some significant growth there, too, because that's been very quiet for the last year to year and a half.

Okay.

Thank you for the insight, and thanks for taking all my questions again.

Thank you.

Thank you.

And our next question comes from the line of Amit Passi with UBS.

Please go ahead.

Actually most of my questions have been answer, but Steve maybe just a clarification and I apologize if you've talked about this, tax rate guidance for the fourth quarter, and if you have any preliminary views for 2010 similarly for CapEx.

Sure.

CapEx for the year should end probably just shy of $12 million.

We don't have a call for 2010 CapEx yet, but we are working on our budget process this quarter and will have more of feeling for CapEx at the end of the quarter.

Tax rate will actually probably dip a little bit in the fourth quarter.

We had some return to provision changes this quarter, as well as a book loss affected some of the tax deductions we had this quarter.

So the spike in tax rate was more of a one time thing, should subside to a little lower rate from for next quarter, 38ish, and probably about that same level for 2010.

So that's CapEx and tax, was there another part of your question?

That was it, thank you.

Okay.

Thank you.

Mr.

Alder, there are no further questions at this time.

Please go ahead.

Okay.

Thank you.

I appreciate everyone's interest in TTM.

Thanks for joining us on the call.

We are encouraged by the future.

I think the actions that we've taken over the past 10, 11 months with regards to restructuring our business, realigning our footprint, will pay dividends in the future.

We're optimistic about the commercial market place coming back, well positioned in aerospace and defense.

So I think we have a strategy that's working, we've got a management team that is executing that strategy.

Very excited about where we can go from here.

So thank you for your attendance, and we'll see you next quarter.

Thank you.

Ladies and gentlemen, this concludes the TTM Technologies third quarter 2009 financial results conference call.

You may now disconnect.

Thank you for using ACT conferencing.