TTM Technologies Inc (TTMI) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the TTM Technologies second-quarter 2010 financial results conference call.

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

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Thursday, August 5, 2010.

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

Diane Weiglin, Executive Assistant with TTM Technologies.

Please go ahead, ma'am.

During the course of this call, the Company 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 industries that the Company serves; and other risks described in TTM's most recent SEC filings.

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

The Company also will present non-GAAP financial information in this call.

For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the Company's press release, which was filed with the SEC and which is posted on TTM's website.

The Company currently is finalizing the valuation of the assets acquired and the liabilities assumed in our April 2010 business combination with Meadville Holdings Limited.

Accordingly, the preliminary estimated fair values reflected in our second-quarter results are subject to adjustment as additional information is obtained.

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

Kent Alder, President and Chief Executive Officer.

Please go ahead, Kent.

Okay.

Thank you, Diane.

Good afternoon and thanks for joining us for our 2010 second-quarter conference call.

Joining me on today's call are TTM's CFO, Steve Richards, and Canice Chung, CEO of the Asia-Pacific Region.

I will begin with an overview of our business and then Steve will follow-up with a review of our financial performance.

Before I discuss our second-quarter results, I'd like to offer a high-level view of where we stand with the integration of the Meadville Asia-Pacific operations.

Since the completion of the transaction in April, we have made significant progress combining our businesses in order to achieve maximum results.

We continue to assess the systems and procedures currently in place at both companies, and explore areas where we can improve and implement best practices.

We are rapidly moving forward on all fronts, as we learn to operate as a global company.

In short, we are on track as planned with no surprises, and we will continue to move forward at a steady, controlled pace, making sure that we keep the best elements of both companies in place and change only when it makes sense to do so.

By doing this, we are creating a culture of trust and respect that will enable us to continue to grow and succeed.

Now I'd like to review the highlights from the second quarter.

Our results include the Meadville Asia-Pacific operations beginning on April 9, 2010.

First, as I mentioned, the integration in combination with Meadville Asia-Pacific is progressing extremely well and is on track with our expectations.

The global company we have created is receiving excellent reviews from our customer base and others as well.

We are producing results as expected and are confident that we will continue to do so in the future.

GAAP earnings per share were $0.06 per diluted share, and on a non-GAAP basis, earnings were $0.26 per diluted share in the second quarter.

The combination with Meadville was accretive to non-GAAP earnings this quarter.

And lastly, revenue of $310 million, an increase of 124% over the first quarter, was at the high end of our guidance range.

Steve will provide more details on our financial performance later in our presentation.

But, suffice it to say, Q2 was a solid quarter.

Now I'd like to review the results of our operating segments for the second quarter.

In the past, we reported results for our Printed Circuit Board Manufacturing and Backplane Assembly segments.

As a result of the combination with Meadville, we have revised our operating segments.

Our North American segment includes our US operations as well as our Shanghai facility, since it is managed in conjunction with these operations.

Our Asia-Pacific segment includes our printed circuit board manufacturing facilities in Hong Kong and China.

The North American segment recorded second-quarter sales of $138.9 million compared with $138.2 million in sales in the first quarter.

The increase resulted from improved printed circuit board sales, partially offset by softer demand in our Shanghai backplane facility.

Second-quarter operating segment income was $6.2 million compared to $10.7 million in the first quarter.

Operating segment income reflected charges associated with the Meadville transaction, and our previously announced restructuring initiatives of $7.9 million in the second quarter and $2.8 million in the first quarter.

Excluding these charges, second-quarter operating segment income was $14.1 million compared to first-quarter operating segment income of $13.4 million.

The Asia-Pacific segment had sales of $173.1 million and operating segment income of $15.8 million.

Because the transaction closed on April 8, results for the Asia-Pacific segment were not included in our first quarter.

In addition, the second-quarter results for Asia-Pacific did not include the first 10 days of the second quarter.

Now moving on to our end markets, which we have expanded to include cell phones and other.

The inclusion of the Asia-Pacific sales has changed the end market analysis so that comparisons with the first quarter on a total Company basis by not applicable.

This quarter, we are establishing new baselines that will be meaningful in the future as we analyze and compare end market data.

Now the networking communications is our largest end market.

In the second quarter, this end market represented 32% of sales.

We expect continued strength in this end market over the next quarter.

Computing, storage peripherals is our second largest end market and represented 25% of sales in the second quarter.

In addition to the historical customer base of server and storage companies, this end market also includes semiconductor and memory manufacturers.

We expect this end market to continue to be strong throughout the balance of the year.

The aerospace and defense end market represented 19% of sales in the second quarter.

In actual dollars, sales in this end market increased slightly for the quarter.

This reflects a diverse mix of programs in domestic defense, foreign military sales, and commercial aerospace, and demonstrates our leadership position in this end market.

We anticipate continued stability in the third quarter.

The Asia-Pacific segment has minimal sales in this end market.

The cell phone end market represented 10% of sales in the second quarter.

Customers in this end market are serviced by our Asia-Pacific operation.

Medical, industrial, instrumentation end market was 9% of sales in the second quarter, and we expect stable, ongoing demand.

The other end market represents 5% of sales.

Included in this end market are automotive products, consumer products, office products, and a host of other products.

Now, our top five customers comprise 28% of sales in the second quarter.

In alphabetical order, our top five OEM customers were Apple, Cisco, Ericsson, Huawei and IBM.

None of these customers represented 10% or more of sales in the second quarter.

The combination with Meadville changed the customer rankings in the top five, but the rankings below the top five were largely unchanged.

Lead-times for our North American segment are at four to 13 weeks.

Demand for our product continues to be solid, and all of our facilities continue to benefit from positive order flow, but the commercial facilities in particular have experienced a steady level of increased demand.

Order levels for Asia-Pacific segment reflect healthy demand with lead-times in the range of four to six weeks.

Now we anticipate that these improving business conditions will continue to grow through the third quarter.

We expect third-quarter revenue to be in a range of $341 million to $357 million.

We expect GAAP earnings in a range from $0.20 to $0.27 per diluted share and non-GAAP earnings in a range of $0.26 to $0.33 per diluted share.

This is based on a diluted share count for the third quarter of approximately 80.5 million shares.

Our gross margin is expected to be in the range from 20% to 22%.

All of the fair value adjustment for acquired inventory was recorded in the second quarter and should not affect third-quarter cost of goods sold.

We expect that SG&A expense will be about 9% of revenue in the third quarter.

We will record combined amortization of intangibles of about $3.7 million and we expect our blended tax rate to be approximately 34% in the third quarter.

In closing, we experienced strong demand across the board for our products in the second quarter and we are optimistic about our third quarter outlook.

We are well-positioned as a global company to continue to grow our business both in Asia-Pacific and in North America.

Our business model enables us to grow through market share gains as well as capitalize on the growing demand for our product.

The integration in combination with Asia-Pacific operations is on target and producing the results we projected.

I'll now turn the call over to Steve to review our financial performance for the second quarter.

Thanks, Kent, and good afternoon, everyone.

Second-quarter net sales of $310.2 million increased $172 million or 124% from first-quarter net sales of $138.2 million due to the addition of our Asia-Pacific segment.

Gross margin for the second quarter of 18.4% decreased from first-quarter gross margin of 19.5%.

Included in cost of goods sold in the second quarter was a $6.7 million fair value adjustment on inventory acquired in our combination with Meadville.

Excluding this increased expense, our gross profit margin for the second quarter would have been 20.5%, an increase of 100 basis points from the first quarter.

Selling and marketing expense increased to $9.1 million in the second quarter from $6.7 million in the first quarter, due primarily to the addition of our Asia-Pacific segment.

As a percentage of net sales, however, selling and marketing expense in the second quarter decreased to 2.9% from 4.9% in the first quarter.

Second-quarter G&A expense increased to $25.3 million or 8.2% of net sales from first-quarter G&A expense of $9 million or 6.5% of net sales.

Second-quarter G&A expense included $7 million in costs related to the Meadville transaction.

These costs totaled $1.8 million in the first quarter.

Amortization of intangibles increased to $4.6 million in the second quarter from $800,000 in the first quarter.

The increase in this expense is due primarily to the significant value ascribed to the customer relationships acquired in the combination.

In the second quarter, we recorded restructuring charges of $399,000 related to the closure of our Hayward facility.

In the first quarter, we recorded restructuring charges totaling $50,000, mainly related to the closure of this facility.

In the second quarter, we recorded an asset impairment charge of $266,000 to reduce the carrying value of our Dallas, Oregon facility, which we sold in July.

Operating income for the second quarter was $17.4 million compared to $9.9 million for the first quarter.

Excluding transaction costs and the fair value adjustment on inventory, second-quarter operating income was $31 million.

Interest expense increased to $6.4 million in the second quarter from $2.8 million in the first quarter.

The increase in this expense is due primarily to the increased debt we incurred to fund the combination with Meadville.

Our effective tax rate increased to 39% in the second quarter from 37% in the first quarter.

This tax rate increase is due to the non-deductibility of certain transaction costs, offset somewhat by the lower effective tax rate of our Asia-Pacific operations.

VF Partners, who hold a minority interest in three of our Chinese companies, net income attributable to these minority investors was $1.8 million in the second quarter.

Net income attributable to stockholders in the second quarter was $4.9 million or $0.06 per diluted share compared to first quarter net income of $4.5 million or $0.10 per diluted share.

Second-quarter non-GAAP net income attributable to stockholders was $19.9 million or $0.26 per diluted share.

This compares to first-quarter non-GAAP net income attributable to stockholders of $8.6 million or $0.19 per diluted share.

Non-GAAP net income attributable to stockholders adds back amortization of intangibles, stock-based compensation expense, non-cash interest expense, asset impairment and restructuring charges, inventory adjustments, costs related to the Meadville transaction, and miscellaneous closing costs, as well as the [intake effects] related to these expenses.

Adjusted EBITDA, which adds back the controlling portion of depreciation and other expenses, as well as cash impairment charges, for the second quarter was $32.6 million or 10.5% of net sales, compared to first-quarter adjusted EBITDA of $15.1 million or 10.9% of net sales.

Cash and cash equivalents and restricted cash at the end of the second quarter totaled $213.2 million, a decrease of $9.7 million from $222.9 million at the end of the first quarter.

As you will recall, we used approximately $114 million of our cash in the Meadville transaction, but we also added $85.5 million of their cash as a result of the combination.

Cash flow from operations in the second quarter was $13.4 million.

Capital expenditures from the second quarter were approximately $15.3 million, including a $12.6 million for the Asia-Pacific Region.

Depreciation for the second quarter was $12.5 million, excluding the non-selling portion.

Before I close, I'd like to mention that we filed an 8-K today that included an amendment to our Asian credit agreement.

You'll note it modifies two of our debt covenants related to tangible net worth.

This amendment was necessary due to some of the fair value adjustments we made in accounting for the Meadville acquisition.

We were in compliance with all of our debt covenants at the end of the second quarter, and if we continue to meet expected operating targets, we will continue to be in compliance in the future.

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

Camille?

(Operator Instructions).

Shawn Harrison, Longbow Research.

A few financial questions.

First, now that you have Meadville with you for essentially a quarter, if you could talk about just what you think the combined incremental gross margins are for the enterprise.

I think, last call, you said it was maybe in the 30% range, but if any thoughts have changed on that.

So, Shawn, that sounds still about right to us.

Obviously, the incremental gross margin for the North American operations stays where it's been historically in the kind of 40% to 45% range.

But, of course, because direct materials represent a much higher portion of costs, and labor is only about 10% to 11% of costs in Asia, the incremental gross margin on those operations is lower.

So I think that 30-ish range is right.

I think as we further integrate on a full-quarter basis, we can give you a better, more precise number on that.

But that still seems about right for us.

Okay.

And since you brought it up, Steve, I guess, what are you seeing in terms of the raw material environment, either in North America or Asia?

I know there were price increases last quarter for laminate and a host of other products within Asia.

Yes, Shawn, this is Kent.

Let me jump in here.

But -- the material costs, it's pretty stable right at the moment.

There'll probably be some more minor increases.

We've also had some decreases, but overall, going forward, material costs seem to be pretty stable.

Okay.

And then just two quick financial questions and I'll hop off.

The tax rate changed -- I know last call, you thought it was going to be in the mid-20s.

It was -- I think you're guiding toward 34% this quarter -- I guess, what changed?

And then the other would be, what is the stock-based compensation you're expecting for both -- within gross -- for cost of goods sold, sales and marketing, and G&A for the September quarter?

Let's try the second question first, it's a little easier.

So our stock-based comp expense estimate in G&A is $1.3 million for the third quarter.

We expect $1.75 million all in.

I think, historically, our selling portion has been pretty minimal, so the majority of that additional $400,000 or so is going to be in the cost of goods sold area.

But definitely $1.75 million is our estimate for stock-based comp expense for the third quarter.

And in terms of your first question, tax rate is very complicated, especially this year.

We are grappling -- well, for this year and especially in the second quarter, we are unable to deduct certain of the transaction costs.

In a very general sense, a lot of the costs you incur, as you are identifying an acquisition target and the diligence you do on that target are deductible; in general, the costs you incur subsequent to that to close the deal, are not deductible.

It's a rough assessment of how it works.

But that's -- and so, of course, we incurred a fair amount of costs after the deal closed or after the deal was announced, to close the deal and meet the compliance needs of the Hong Kong SFC and so forth.

That's part of the reason why our tax rate is higher.

But I think, in general, we're seeing a higher effective tax rate than we expected, due to some of the more complicated interplay of the US and China.

Certainly, we are striving to ensure that we do not -- that we do qualify for the Subpart [F] tax exemption.

So we've taken some conservative stances in our tax accrual so far this year.

I think 34% for the next two quarters is right on a full-year basis.

We do expect the tax rate to be a little bit lower next year, but we'd have to give more guidance on that as we get closer to the year.

And we are still assessing our overall tax position.

It's definitely going to be a little bit higher, though, than we had initially thought.

It's not simply kind of 50% of our -- 50% of their rate is the final rate.

Okay.

So, I guess the bottom line is this tax rate now is probably the worst case scenario for this year, and then it should move low -- and it could get better but don't count on it.

And then next year, it could go lower.

Certainly, the second-quarter rate is the worst it's going to get.

I mean, that's all linked to the closing costs we paid on this quarter, primarily.

The 34% is a good rate to use for the next two quarters, for third and fourth quarter.

And I hope it will be lower next year.

Clearly, as the businesses grow in future years, we expect more of our growth to be in Asia.

And that should actually lead to a lower rate over time as well.

I think next year's rate should be lower than the 34% we're accruing, but right now that's where we are for this year.

Okay.

Thanks a lot and congrats.

Matt Sheerin, Stifel Nicolaus.

So just on the Meadville or the Asian numbers that you gave out, I know that you just gave out the quarter numbers and the deal closed a week or so into April, but could you give us what the pro forma number was for the full quarter?

And what the growth was sequentially, just so we can get an idea of what the full number was?

Yes.

Matt, the pro forma number for Q2 total was $335 million for the Company and $196 million for Asia-Pacific.

And when you look at the forecast, we're going from $335 million in the second quarter to a forecast of a midpoint of about $350 million.

Okay.

That's helpful.

And can you give us an idea of what the first quarter -- I imagine, given where the products are skewed with Meadville, that the first quarter is typically the weakest quarter for the Asia-Pac or the China business, in that it builds gradually through the year -- is that a good way to think about the seasonality?

Let me -- in the first quarter on a pro forma basis, we had revenues of $297 million.

So we've gone from $297 million in Q1 to $335 million Q2, and now forecasting almost $350 million midpoint of Q3.

And on the seasonality basis, in China, the Chinese New Year holiday definitely impacts the first quarter.

And then the third and fourth quarters seem to be the strongest.

Canice, could you add some more color to the seasonality there in China?

I think the seasonalities for China is quite a common holiday shutdown for China plants are slightly over a week in the first quarter.

So in general, the capacity availability in the first quarter were lower by almost [one-tenth or 10%] of the availability.

And then in general, the seasonality for our Asia-Pacific region is more weaker in the second quarter normally because of our 40% China business oriented.

And in the current year, the Q2 is considered to be relatively better in terms of seasonality.

But moving ahead, the third quarter is normally running very well.

And then fourth quarter will be follow through the third quarter's momentum to [stay] or slightly even better.

Okay, so that's up seasonally but I imagine that toward the end of the fourth quarter, things fall off a little bit after you ship for your customers?

Well, in our case are slightly different because we are not 100% or very much focused on the consumer product or seasonal product for the Christmas.

To a great extent we have quite a bit of our enterprise products.

So the impact on the Christmas season or whatever, are there, but there's not as much as impacted by a lot of companies -- just primary focus on computer-type consumer types of the products.

So our seasonality between the Christmas season and beyond that were relatively less impacted.

Like I said, our impact mostly will be on the second quarter, okay, in the historical performance there.

Okay.

So you're expecting the enterprise strength in the fourth quarter.

And that sort of leads to my next question about the two segments, one on the computer/storage/server market.

Could you give us the mix?

It sounds like it's more enterprise-focused, but could you drill down a little bit on the products and end markets for those customers there?

Yes, Matt, let me -- maybe just a quick review, without going into a lot of detail on the end markets.

All of our end markets were up this quarter on a dollar basis; when you look into our forecast for the third quarter, all the end markets are going to go up on a dollar basis there, also.

On a percentage basis, when we look at aerospace and defense into the third quarter, while it's going up in dollars, it will probably be down a little bit on a percentage basis.

Cell phones, we anticipate that to be flat going forward.

Computing, flat to down slightly.

Medical will probably be flat to down.

Our networking end market -- that's one we're pretty optimistic that going into the third quarter that that will definitely go up.

And then in the other category, that will be basically flat.

I mean, included in that other category is automotive, which is just less than 1%; consumer products, like Canice mentioned, is not a big portion of our sales, that's about 1.2% on a combined basis.

So not a lot of exposure in the consumer or automotive sections.

So between networking and computing, those are the two big segments -- not a lot of seasonality there.

And that's where we expect to continue to grow our business.

And you said networking and computing will be flat to down slightly as a percentage, so in other words, more or less grow in line with your guidance?

Networking and communications -- that will be up.

That will be stronger than that.

Okay.

That will outgrow and then computing, flat to down.

Computing will be flat to down.

Okay.

Okay, that's helpful.

And then just lastly, on the cell phone business, which is 10%, could you give us the mix of the handset or feature phones versus smartphones?

And an idea of the customer exposure, the brand exposure that you have there?

Yes, I think all of our cell phone business is serviced by the Asia-Pacific segment, so I'll let Canice respond to that.

Our cell phone in Asia-Pacific were primarily serving the [Chelsey] brand, like Huawei, [Novo], or even [Longche], those guys there.

In the 10% of the market we have, our reach is about [50%] on the smartphone types and then another 50% were on the high end of the normal phone there.

So we are primarily focused a lot on the [2 plus] of the HGI technology platform, the phone there.

We are not running into much volume, okay, like a lot of Asia-Pacific manufacturers are building huge volume including the [1 plus 2 plus 1] or [1 plus 4 plus 1].

We are relatively selective and in line to the Company technology direction that we are more focusing on high technology products and more smartphones is the product focus.

We are not servicing a lot of the big brand-name manufacturing, 100,000 square feet every [month] on the cell phone, it is not the strategy for the group set.

And why have you decided not to go after big volume opportunities?

Is it just too competitive on a price basis?

You can't make money at it?

Absolutely right.

The cell phone, the big guys who almost maybe [60%, 70%] of the volume are servicing the lower end market like India, South Africa, South America, whatever that [are quick of them] are very simple, basic phones.

And then the designs are pretty simple that the price competition in the Asia region are very really huge.

So this is not a [sector] that the group will be focusing.

Yes, Matt, I think if you look at what we've done as we've merged the two companies together and said, how do they fit?

And you look at the technology on both sides, I think Canice is explaining this very nicely, that the focus is on technology.

It's not on volume or trying to drive the top-line at the expense of having to negotiate on large volume, very selective on how we approach the technology sector.

If you compare our Asia-Pacific operation with other facilities in China, you'll see that there's a high degree of technology and high layer count, high HDI capabilities that match quite nicely with the overall Company.

Okay, thanks, Kent and Canice.

That was very helpful.

Amitabh Passi, UBS.

Steve, first question for you, and I might have missed something here.

If I look at the guidance, about 13% sequential growth and top-line, why aren't we seeing more leverage on the margin front and also on the EPS line just going from Q2 to Q3?

Well, certainly, on the gross margin line, you are seeing leverage because we're actually going -- our midpoint of our guidance range is 21% gross margin, up from where we were in the earlier quarter.

I think part of the reason it's not going up more is because of the significant growth in sales in the Asia-Pacific segment quarter-to-quarter.

It's partly due to the addition of the additional 10 days that we didn't have before.

And of course, as we talked about the first question, the operating leverage in the Asia market is a little bit lower.

It's just because more of the cost is skewed towards variable costs like materials and fewer towards, say, labor and depreciation.

That's part of the math for the margin.

But we are pretty pleased that our margin is actually going up in the guidance range at 22% as the high end of our guidance range, and that's a margin we haven't seen on a gross margin basis in quite some time.

And actually, on the EPS basis, I think we're seeing still quite a bit of strength.

I mean, it's been a bit noisy in our numbers in the past because of all the transaction costs, and the purchase price adjustments and so forth, but in our third quarter EPS number, we're looking at like $0.06 of that EPS range coming from accretion from the Asia-Pacific acquisitions.

So I think we are starting to see good improvement on the EPS side.

But just to clarify, your gross margins are basically going from 20.5% to 21%, right, at the midpoint?

At the midpoint, but obviously, 22% is at the high end.

Alright, great.

And then any update in terms of just capacity utilization across your facilities and what that means for Capex as we look at 3Q, 4Q?

Yes, that's a good question.

We're running in North America on a commercial facilities, we're running in the [mid-90's] on our aerospace and defense facilities, probably the low [80's].

In Asia-Pacific, we're running at the high 90% utilization rate.

We are expanding two of our facilities in Asia to put us in a better position to capture more work as we move forward.

In North America, a couple of the commercial facilities -- again, we're looking at expanding those to capture market demand in Capex.

So that's all included in the Capex numbers that we had forecasted here.

Yes, I apologize, what was the Capex guidance for 3Q?

I've got that, actually it's like -- as we've talked about before, the Asia capacity expansion plan was -- it was the capital plan -- was $80 million for this year, of which $16 million fell in the period prior to our combine with Meadville.

So we're looking at about a $44 million to $45 million capital spending plan in the third quarter.

The biggest section of that capital program is falling into the third quarter and it ramps down to about $16 million in the fourth quarter on a combined basis.

So a pretty large share of Capex coming in the third quarter as part of that expansion we've discussed in that past of a couple of little facilities in Asia.

Great.

And then just my final question -- lead-times still appear to be extended; book to bill still fairly healthy.

What are you seeing on the pricing front?

And how do you anticipate pricing trending for the balance of this year?

On the pricing front, first in North America, the pricing is pretty firm.

And there's a position where we don't negotiate as much, so it's pretty favorable, given the market conditions that we're experiencing.

In Asia, our prices have been increasing and we've had some material cost increases, some labor increases in the past.

And the timing is never perfect, but you have the cost increase going up first, and now we're able to pass some of those costs, the increases, on to customers -- not all, depending on product type and the situation, but some of those cost increases we're able to pass on.

And then we're moving prices up because our technology is improving.

So overall, prices are pretty firm in North America and increasing in Asia-Pacific.

Thank you both.

Sean Hannan, Needham & Company.

You know, I was actually going to ask a quick question around -- now that you folks are really this larger combined entity, what type of feedback are you getting from your customers?

Are you seeing anything in terms of new opportunities now that we are this larger, robust -- we have this larger robust offering?

Or is it still a little bit early to see some of the incremental traction on that front?

Yes, we are in the beginning processes here of cross-selling.

As you can tell from our current capacity utilization, that we're using capacity currently to satisfy existing customers.

But we have started the cross-selling process.

We're moving forward in a disciplined, methodical method and we're targeting customers and so forth.

We haven't moved the dial on cross-selling yet.

I think most of those opportunities will start to come into play in the fourth quarter and definitely into the beginning of next year.

So we're making sure that we have a good fit for our customers, and that as we move and cross-sell, that the customers have a very positive experience.

So we're pretty disciplined on that, but there's a lot of opportunities and we're pretty excited about the feedback we're getting from customers.

They're anxious to have us capture some market share with opportunities that neither the North American or Asian-Pacific operations currently have.

So, I guess to summarize that, we're in the beginning throes.

We're optimistic about that.

It will be more into the fourth quarter and, certainly, into the next year as we go through the qualifying processes with some of our Tier 1 customers.

That's great.

Thanks, Kent.

(Operator Instructions).

Shawn Harrison, Longbow Research.

Just first, a clarification.

Steve, what was the cash flow from operations in the Capex in the second quarter?

Sure.

It's like -- cash flow for the -- cash flow from ops for the second quarter was, let's see, $8.4 million, I believe -- let me find it quickly on this sheet.

Yes, I think it was -- just bear with me -- yes, it was about -- I'm sorry.

The cash flow is -- the cash from ops was $13.4 million for the second quarter.

Free cash flow was a little bit negative, about $2 million negative because we had the net Capex for the quarter of about $15 million to $16 million.

So -- but I think $1.9 million negative free cash flow for the quarter.

Do you -- and then with the Capex for the back half of the year, which I think you said was going to be in the mid-40-some-million-dollar range, in aggregate?

Yes, actually more than that.

So 40 -- we're showing capital spending for $45 million for third quarter and $16 million for fourth.

Okay.

I guess, to that, do you think you'll be able to generate cash in the back half of the year if you add up the third and fourth quarters, given just where EBITDA is right now?

Yes, we're showing -- we're projecting quite strong EBITDA for the second quarter -- excuse me, for the third quarter.

We're looking at EBITDA up around, I think, $55 million or so for the third quarter.

And probably a similar number for fourth quarter if business trends continue to be strong.

So I think -- we'll probably still have a little bit of net cash outflow -- well, maybe a small net cash -- probably -- free cash flow will be probably pretty flat in the third quarter, but it should be quite strong in the fourth quarter because we start ramping down the Capex plan for the year in the fourth quarter, only about [$6 million] in expenditures.

So, we're generating strong cash flow from ops, just using a lot of it for Capex in the current -- the third quarter.

Okay.

And then I guess to that, should the Capex ramp down in 2011?

Or is that a discussion that happens as you get a better picture of the demand environment later in the year?

Yes, I think we'll look at Capex -- as you know, the expansion that we're doing in the GME facility and the MAS facility will enable us to capture $60 million to $70 million of additional revenue.

And that will take place, like, six to nine months to complete that expansion, say, in the fourth quarter, and then six to nine months be able to capture work to fill that.

So that's the immediate objective.

And then as we look at how the economy is doing, the marketplace and so forth, we'll evaluate where we go from there.

So we'll be putting together business plans and so forth, and watching the market and where we go.

But if we have in place some Capex right now that will certainly get our return on in that investment and then move to the next stage.

Okay.

I guess that with good cash flow in the fourth quarter and what sounds like it will be good cash flow for the first half of 2011 -- is there any change in terms of your prior thoughts on debt paydown, which was kind of a little bit in the beginning and then accelerate it from there?

No, that plan is still in place.

I mean, obviously, the way the debt is structured, we only have -- our first payment on a term loan is due in February of next year.

And it's small, it's about $18 million.

But obviously, we should be generating greater free cash flows than that.

And we'll probably still -- as a company, we'd always try to focus on de-levering as quickly as possible.

The contrast here is that we have, obviously, a viable use for cash in terms of capital expansion, if indeed the market demands it.

So the good news is our debt is structured in a way that we have options.

And if the best option for us is to pay down debt and reduce our expense, we will do that.

If the best option is to expand capacity due to demand in the marketplace, we'll do that instead.

Okay.

And then just one final question.

What is the goodwill balance right now, or preliminary goodwill balance?

Actually, it should be pretty firm.

We actually have a terrific schedule included in our 10-Q for filing Monday that kind of lines all these items out.

The goodwill balance at this point -- let me get the line item -- is about $195 million.

And then, of course, we have intangible assets of about $88 million, and that's largely due to the strong customers that we -- [distributor] getting with this transaction like [laced] with Ericsson and Apple, and [ZTE] in China, customers we've never really had much of a position with in the past.

Okay.

Thank you very much for taking all these follow-ups.

Matt Sheerin.

Yes, two quick questions.

One, Kent, what did you say the book to bill was in the quarter?

Our book to bill in North America was 1.17.

And I think when you compare that with the IPC, it was 1.12.

So above the IPC.

In Asia, we were just above 1.0, at about 1.01.

But I think the important thing to keep in mind there is that's on much higher shipping levels.

I mean, we're booking and shipping as it comes in, keeping the lead-times from four to six weeks.

So, even though it's 1.01, it represents some significant shipments.

Okay.

And then on the Capex that you're talking about, is there some sort of metric or ratio that we can understand what kind of revenue generation you can get for every dollar or every $1 million of Capex?

Yes, I have some numbers here.

I think what I'd like to do is have Canice answer that question.

I think that's -- Canice, go ahead.

In detail, we will be planning to spend about [$15 million] of the Capex of current year for new capacity expansion.

And then to run on this, we should be able to generate again roughly about [$5 million to $8 million] of the US dollar range per month of the new revenue.

We can pull out of that, increase our capacity.

And then the balance of the Capex that we're spending are all for our maintenance and upgrade of technologies.

So in general, that we would spend roughly about [$15 million] to generate on about $6 million to $8 million of the revenue per month.

Per month.

Okay.

So we're talking about -- so in the neighborhood of $60 million to -- or sorry, $70 million to $90 million a year on an investment of about $15 million?

Is that about right?

Five-zero, Matt.

Oh, $50 million, five-zero million, I'm sorry.

(multiple speakers) So okay, so it's a little over -- so it's like [1.2] or something.

And then when -- how fast does it take or how fast can you get the capacity online and see volumes ramp at the acceptable gross margin yields?

Canice, do you want to continue to answer that?

Okay.

In general, when new capacity is falling in, we are able to [pull] over the capacity in the range of about six to nine months time.

It all depends on the business momentum.

In about six to nine months time, then we should be able to fully apply the whole thing and running the whole thing on the [true cross] margin contribution basis.

Okay.

And just my last question has to do with the cross-selling opportunities that you've talked about on the roadshow.

And in May, you talked about those opportunities.

I know it's going to take awhile for that to kick in, but is there any update you can give us, Kent, on how those opportunities look right now?

We're still very optimistic on all of those opportunities, Matt.

I don't mean to minimize that, because we have had some successes and we are moving work over there.

It's a matter of making sure that the work matches the capabilities and as well as making sure we have room for that work.

As you look at our capacity utilization in Asia running in the upper [90's], that's used to keep our current customers happy.

So as we go forward and have more capacity online, the cross-selling will become more of a factor.

And I think we're laying the foundation and getting the customers qualified and excited.

And I think we'll be in a very nice position as we go forward to capitalize on our cross-selling capabilities.

And Matt, I want to -- just before I leave that, on our Capex expansion, we talked about the big investment that we're making in Asia -- but also in North America.

We're investing in a couple of our commercial facilities where we have some bottleneck areas, where you can put some expansion into a couple of bottleneck areas and have the overall facility grow pretty nicely.

So there's some pretty good returns on some investment in growth in our North American facilities.

And we're certainly moving ahead with some of those plans also.

It's been awhile since we've been able to talk about growth in North America, but we'll get some excellent returns on the growth in North America.

And is that in the Chippewa facility?

That will be in the Chippewa and the commercial facilities, yes.

Okay, thank you.

Thank you.

And I'm showing no further questions at this time.

I would now like to turn the call back over to Mr.

Kent Alder for any closing statements.

Okay, I'd like to thank everybody for joining us today.

And this is our first earnings call as a combined company.

And we look forward to the next call.

We're certainly laying a good foundation for the future.

We're very excited about the potential that we have moving forward.

Our customers are excited about it.

And we are looking at a pretty healthy marketplace and pretty optimistic about the third quarter as well as the fourth quarter.

So I think there's good times ahead for us.

So thank you very much for joining us and we will look forward to seeing you next quarter.

Ladies and gentlemen, this concludes the TTM Technologies second-quarter 2010 financial results conference call.

If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 with the access code 4339641.

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