TTM Technologies Inc (TTMI) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the TTM Technologies second quarter 2013 earnings 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, August 1, 2013. I would now like to turn the conference over to our host, Ms. Diane Weiglin with TTM Technologies, who will now review the disclosure statement. Please go ahead, ma'am.

During the course of this call, the Company will make forward-looking statements that relate to future events or performance. These statements reflect the Company's current expectations, and the Company does not undertake to update or revise these forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in this or other Company statements will not be realized.

Furthermore, we wish to caution you that these statements involve risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include but are not limited to general market and economic conditions, including interest rates, currency exchange rates and consumer spending, demand for the Company's products, market pressures on prices of the Company's products, changes in product mix, contemplated significant capital expenditures and related financing requirements, the Company's dependence upon a small number of customers, competition in the labor markets in which the Company operates, and other risk factors set forth in the Company's most recent SEC filings.

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.

I would now like to turn the call over to Kent Alder, TTM's Chief Executive Officer. Please go ahead, Kent.

Okay. Thank you, Diane. Good afternoon, and thanks for joining us for our second quarter 2013 conference call. I'm joined on the call today by Todd Schull, our CFO. As in previous calls, I'll begin with a review of our business, and Todd will follow with a discussion of our financial performance. After that, we'll open the call to your questions.

Now let's start with a few highlights of the second quarter. Net sales were $338 million. Non-GAAP gross margin was 14.4%. Non-GAAP net income was $7.7 million or $0.09 per diluted share.

We are pleased to report that we completed the transaction to sell our equity interest in the SYE plant and to acquire the remaining equity interest in our DMC plant. As part of our strategy to shift our product mix towards advanced technology products, this transaction will reduce our footprint for conventional printed circuit boards in Asia-Pacific and should improve our capacity utilization. We anticipate margin improvement benefits from this transaction beginning in late 2013.

Revenue for the second quarter was near the high end of guidance, and our bottom line results were at the lower end of guidance. Our second quarter results were negatively impacted by a $2 million quality issue. We worked closely with our customer to resolve the issue and were able to satisfy our customer and maintain order flow. Our third quarter revenue guidance reflects the fact that this issue has been resolved.

Our second quarter revenue grew both on a year-over-year and a sequential basis. The growth was driven by broad-based strength in our networking end market and continued solid performance in our other end markets. Our advanced technology work increased during the second quarter. HDI, substrate, rigid flex, and flex assembly accounted for approximately 53% of our Asia-Pacific segment's revenue. This compares to approximately 51% in the first quarter.

While a number of our facilities remained underutilized during the quarter, overall utilization levels slightly improved sequentially. Our blended capacity utilization rate in Asia-Pacific remained about the same as last quarter at approximately 67%. Our capacity utilization in North America increased to approximately 69% in the second quarter. This is up from 65% in the first quarter. In the third quarter, we expect utilization levels to increase in our advanced HDI facilities in Asia-Pacific.

For the third quarter, we are projecting revenue to be in the range of $335 million to $355 million. Using the midpoint of guidance, this projection reflects a sequential increase of 2% despite the loss of revenue from our SYE divestiture. SYE revenue in the second quarter was approximately $25 million. Our third quarter revenue projection is driven by anticipated strong seasonal growth in our smartphone and touchpad tablets markets and further sequential growth in North America.

Now, moving on to our end markets. Second quarter sales in our largest end market, networking communications, increased strongly, both sequentially and year-over-year. Networking comprised 38% of total sales compared to 34% in the first quarter. We experienced a solid increase in demand for products supporting mobile, telecom infrastructure, and high end networking. Trends in this end market have become positive over the last three quarters. We continue to expect solid demand relating to the pending 4G LTE network build out in China later this year. Sales will decline to 29% in the third quarter due to the divestiture of our SYE plant. However, on a comparable basis, we expect sales in this end market to remain steady.

Sales in the computing, storage, peripherals end market represented 16% of sales compared to 19% in the first quarter. As expected, sales in this end market experienced a seasonal decline related to touchpad tablets. Sales to storage and high end server customers were also softer during the quarter. We expect the computing end market will increase to approximately 20% of sales in the third quarter based on increased tablet sales.

Sales in the cell phone end market remain consistent with Q1 and represented 17% of total sales. With anticipated increases in smartphone products, the cell phone end market is expected to be up sequentially to approximately 22% of sales in the third quarter.

The aerospace and defense end market remained steady at 16% of total sales. As in the past, we continue to benefit from our broad program participation in both defense and commercial aerospace. We expect third quarter sales to continue to be stable at about 15% of total sales. The medical, industrial instrumentation end market also remains steady on a sequential basis and represented 8% of sales. On a dollar basis, sales were up slightly in this end market primarily due to increased demand from medical customers. We expect this end market to be similar to the second quarter at about 8% of sales.

Sales in the other end market were 5% of total sales in the second quarter compared to 6% in the first quarter. We expect this end market to be up modestly to about 6% of sales in the third quarter.

Now on to our customers. Our top five customers accounted for 38% of sales in the second quarter compared to 35% in the first quarter. In alphabetical order, our top five OEM customers were the same as last quarter -- Apple, Cisco, Ericcson, Huawei, and Juniper. We had one customer who accounted for 14% of sales during the quarter.

ASPs increased 3% in Asia-Pacific from the first quarter, largely as a result of a shift in our product mix to more products utilizing advanced printed circuit boards. In North America, ASPs increased approximately 1%, again, due to mix changes.

We continued to benefit from our capital investments in advanced technology, which enable us to expand our business in handheld devices. In 2013, our CapEx investments are focused on enhancing our advanced technology position with capital capacity expansions in our advanced HDI, rigid flex, and substrate business, as well as further productivity improvements and maintenance. We are increasing our CapEx budget to $114 million for 2013. A significant portion of the $14 million increase is being used to accelerate our environmental compliance to meet new wastewater regulations in China. The remaining portion will be used to meet product mix requirements for high end networking and computer customers.

In summary, we were pleased to see an improvement in the demand environment in the second quarter. In North America, we continued to expand our market share in networking, and our aerospace and defense business remains consistent despite US budgetary concerns. Based on our solid bookings, we continue to expect seasonal strength in the second half of this year as customer programs ramp. Overall, we like our position within our diverse group of end markets with a broad set of customers. We believe we are well positioned to address the fastest growing segments of our end markets through our focus on advanced printed circuit board technology.

Now Todd will review our financial performance for the second quarter.

Thanks, Kent, and good afternoon, everyone. Second quarter net sales of $338 million increased $12.6 million or 3.9% from the first quarter largely driven, as Kent said, by growth in our networking segment. Operating income for the second quarter was $28.3 million compared to operating income for the first quarter of $12.7 million. Included in our operating results for the second quarter of 2013 was a gain of $17.9 million related to the sale of our equity interest in the SYE plant. Excluding this gain, operating income was $10.4 million.

As mentioned earlier, TTM completed the transaction to sell its equity interest in the SYE plant and to acquire the remaining equity interest in the DMC plant on June 17. The expected economics of the transaction remain the same as previously disclosed, net proceeds to the Company of approximately $40 million. As the first step in the financial settlement, the Company repaid an intercompany loan of approximately $40 million to SYE before the transaction closed. The remaining step is for TTM to receive approximately $80 million net of taxes. We expect to collect these funds during the third quarter.

On a GAAP basis, net income attributable to stockholders for the second quarter of 2013 was $13.1 million or $0.16 per diluted share. This compares to GAAP net income attributable to stockholders of $5.2 million or $0.06 per diluted share in the first quarter of 2013.

The remainder of my comments will focus on TTM's non-GAAP financial performance. Our non-GAAP performance excludes the amortization of intangibles, stock-based compensation expense, noncash interest expense, and other unusual or infrequent items such as the gain realized on the SYE transaction as well as the associated tax impact of these items. Additionally, we exclude nonoperational changes in our tax expense, such as the impact of retroactive changes in the tax law. We present non-GAAP financial information to enable investors to see the Company through the eyes of management and to provide better insight into the Company's ongoing financial performance.

Gross margin for the quarter was 14.4% compared to 15.7% in the first quarter. Improvements in North America were offset by a decline in our Asia-Pacific segment due to the quality challenges referenced by Kent earlier, annual wage increases, and lower utilization in the second quarter as compared to the first quarter. While most of this was expected, the quality issue was not. That issue alone impacted our EPS by $0.02 in the second quarter.

Selling and marketing expense was $9.2 million in the second quarter compared to $8.8 million in the first quarter. As a percentage of net sales, selling and marketing expense in the second quarter was unchanged at 2.7%. Second quarter general and administrative expense was $24.1 million or 7.1% of net sales compared to $24.9 million or 7.7% of net sales in the first quarter. Interest expense was $3.8 million in the second quarter compared to $4.2 million in the prior quarter.

Our effective tax rate in the second quarter was approximately 32%, an increase from the first quarter effective tax rate of 20%. The increase was due primarily to a shift in our profit mix reflecting an increased contribution from our North America operations. This variance impacted our EPS by $0.01 in the second quarter.

Second quarter non-GAAP net income attributable to stockholders was $7.7 million or $0.09 per diluted share. This compares to the first quarter non-GAAP net income attributable to stockholders of $9.8 million or $0.12 per diluted share. Adjusted EBITDA for the second quarter was $39.1 million or 11.6% of net sales compared with the first quarter adjusted EBITDA of $41.5 million or 12.7% of net sales.

Moving on to our segment performance. The Asia-Pacific segment had sales of $209.6 million in the second quarter, a 3% increase from the first quarter. Gross margin for the Asia-Pacific segment was 12.3% compared to 15.6% in the first quarter. The decline in gross margin was primarily due to the previously discussed quality issue, higher labor expenses, and lower utilization. Even though total revenue increased in the second quarter, the utilization declined as there were less production days in the first quarter due to the Chinese New Year holiday. The Asia-Pacific segment's second quarter operating income was $6.6 million compared to operating income of $12.0 million in the first quarter.

The North America segment recorded second quarter sales of $129.7 million, up 5% sequentially. Gross margin for our North America segment increased to 17.6% from 15.8% in the first quarter. The gross margin increase primarily reflects better utilization at certain of our plants. The North America segment's operating income for the second quarter was $8.7 million compared to $5.3 million in the first quarter.

Cash and cash equivalents at the end of the second quarter totaled $230.5 million, a decrease of approximately $53.6 million from the prior quarter. During the second quarter, we repaid the intercompany loan of $40 million to SYE and $30 million of our debt under our revolving line of credit. Additionally, we incurred capital expenditures in the second quarter of approximately $35 million. These disbursements were partially offset by strong cash flow from operations of approximately $59 million.

Net debt was $314.5 million at the end of the second quarter, an increase of $23.6 million from the prior quarter. Depreciation for the second quarter was $22 million.

Now I'd like to turn to our guidance for the third quarter. During the past several quarters, we have experienced a very challenging decline in margins. With stronger seasonal revenues and structural and executional improvements, we expect improving results in the second half of 2013. In the third quarter, we expect revenue to be in the range of $335 million to $355 million. We expect non-GAAP earnings attributable to stockholders to range from $0.13 to $0.19 per diluted share. This is based on a diluted share count of approximately 83 million shares.

Due to the inherent difficulty in predicting the timing of one-time items or events such as the SYE transaction, we will only provide guidance on a non-GAAP basis. We expect that SG&A expense will be about 9.5% of revenue in the third quarter. We expect interest expense to total approximately $3.9 million, and we estimate our effective tax rate to be between 24% and 28%.

During the third quarter, we expect to record amortization of intangibles of about $2.1 million, stock compensation expense and noncash interest expense of approximately $2 million each, and we estimate depreciation expense will be approximately $23 million.

That concludes our prepared remarks. Operator, let's open it up for questions.

Thank you. Ladies and gentlemen, at this time, we will now being the question and answer session. (Operator Instructions)

And our first question comes from the line of Matt Sheerin with Stifel Nicolaus. Please go ahead.

Yes, thank you, and good afternoon, everyone. So, first question just regarding your outlook. It sounds like you're seeing fairly strong seasonal trends in both the -- on the tablet side of the business and the handset side while we're seeing very mixed signals from other suppliers selling into those markets due to timing of some program ramps and also some -- looks like some inventory build. So could you talk about why you're seeing that strength and is it from just one customer or are you seeing more diverse wins there with multiple customers?

Yes, Matt, hey, that's a good question. And to answer that question, in Asia-Pacific what's going to drive our business in the third quarter is the seasonality with the smartphones and touchpad tablets. And those projections that we've had in the past are moving right along the lines of what we anticipated. When you look at our smartphone business in 2013, we've had that business for the entire year where we just started that business in 2012, the latter part of the year. So, kind of -- I don't know if you want to call us new to that business, but certainly that has enabled us to win some market share with our smartphone businesses.

When you look at our networking business, that's pretty strong in North America, and again, it's due to increase business that we're gaining. It's also due to some market share wins. Our business in North America in the networking, it's at the high end again with the core routers and the edge routers, so that's kind of driving our business there. The other end markets are pretty steady, I guess is the way to word that. What might help give a little more color to this, Matt, is just looking in our book to bill numbers here. And when I look at our book to bills for North America for the second quarter, we came in at 1.16. When I look at our book to bill in North America for just July alone it's 1.32, so we have a real strong backlog in North America. And in Asia-Pacific, our second quarter book to bill ratio was 1.05. Of course, that's up from 0.99 in the first quarter. You look at the last two months of June and July, we came in at about 1.2 in each of those months, and of course, that's representing the seasonal uptick that we project.

And when you compare that with the IPC numbers in June where we were, in North America, 1.16, the IPC was 1.08. And then in June, just that one month alone, IPC was 0.98 and again in North America we were 1.11. So, I think that those numbers do reflect the strength that we have at TTM that's probably not reflected throughout the industry.

Okay. That's very helpful. And on the margins, Todd, it sounds like your guiding SG&A on a dollar basis, flat to down a little bit, so backing into gross margin, it looks like gross margin would be in the 16% range or so. So it's certainly up significantly quarter-on-quarter, but I know June was weak because of the quality issue. And also I would think that you're getting a benefit from the SYE divestiture because it sounds like margins were lower there. So can you give us the puts and takes of -- on an apples to apples basis where you think gross margins will go over the next couple quarters?

Okay. It's a couple of questions in that one question you asked. Let me tackle the first question of what's really driving our improvement. You've hit upon a couple of key issues. First of all, we had an isolated issue that hurt us a bit in the second quarter. That's behind us so we don't have that drag or baggage if you will on our performance. Secondly, you just had a long explanation from Kent about the strength in our revenue forecast driven by seasonality as well as stronger performance in the networking sector. That is helping us in terms of utilization, which we have been discussing for some time but it's now materializing, which is a positive uplift for us.

And then the last piece that I think's a significant element that's worth noting is the SYE divestiture. The debt transaction where we divested ourselves of one plant and acquired the minority interest in another plant that we have has some favorable benefits to us. Strategically, obviously, it moves us in the direction where we want to be, which is more higher technology focused and reduces our conventional footprint. But on a more tactical basis, it helps with the short-term cash flow but then as it relates to the margin question, we will have a margin improvement as a result of that change and the change in the mix of our business as a result of that divestiture. So all of those are kind of coming together in a positive way to help see us make some improvements, and it's consistent with what we've been expecting.

And as it relates to the rest of the year, we have all along been discussing and expecting a strong seasonal push here in Q3 and Q4. Our expectations when you look particularly at our Asia-Pacific segment, which tends to be more impacted by seasonality, you see anywhere from a 20% to 30% increase in the second half revenues compared to the first half revenues. And that strength and that push is very helpful to our margins and our utilization given the nature of our industry and the fixed cost base that we carry. So those are all going to be positive steps helping us increase and improve our margins here in the second half.

Okay. Thanks, Todd, and just a last quick one from me on the margins and costs. Are you seeing any benefit from lower pricing of copper clad laminates or other raw materials based components that you buy because we've seen material prices decline?

Yes, Matt, we are seeing some lower commodity type prices, but the commodities don't make up a big part of our cost structure. So we are seeing some benefits there, but then we're also moving into higher tech work, which comes with a little higher cost on our materials. So, overall, the impact would be maybe slightly positive, but probably more flattish.

Okay. Fair enough. Thanks a lot.

Thank you. And our next question comes from the line of Shawn Harrison. Please go ahead.

Hi. Good afternoon. This is Gausia Chowdhury calling on behalf of Shawn. I was wondering about the use of cash. You mentioned the plans for the $40 million in proceeds from SYE and any free cash that you generate this year. Do you have any other uses planned?

Well, as I mentioned, we have about $230 million of cash on hand. We are expecting the remaining transaction or piece of the SYE divestiture transaction to generate approximately $80 million of cash flow for us. We are generating cash from operations. We had a very strong second quarter where we generated almost $60 million in cash flow from operations. That helps to offset a little bit the lower number that we had in Q1, but now we're kind of back on track where we think we should be.

As you look out into the future in terms of our cash needs, as Kent mentioned earlier in his comments, our CapEx budget for the year has been increased slightly up to $114 million, so we'll have some uses of our cash to support that. And then as far as our debt picture goes, I did note in my comments that we did pay off -- pay down our revolving line of credit and that is presently carrying a zero balance. And then we have a term loan as well as some convertible debt that will come due in various amounts over the next few years, some in 2014 and more in 2015 and 2016. And we're -- our cash that we have on hand is really going to be earmarked for supporting the business operations first and foremost and then we're in the planning phase for making sure that we're able to address the debt maturities that'll be coming in the next few years.

Great. Thanks. My second question is just about the [com] networking market. Previously, you've mentioned about share gains in that area. Have those share gains slowed down at all?

The share gains -- with the closure of one of our competitor's facilities, we had kind of an immediate bump there. But those share gains -- that wasn't the only share gain that we had. So there's kind of immediate bump because of the closure and then we've been able to gain some more shares as we've moved forward. Probably, when you look at our North America going up about $6 million just in the quarter, about half of that was share gain and half of that was just demand improvement. So, I just, again, come back to how we're positioned with our technology capabilities and the customer base we have and how we're focused -- the areas of focus within each of our end markets. And I think that is helping TTM continue to grow our market share and move our top line forward.

Great. Sounds good. Thank you so much.

Thank you, and our next question comes from the line of Amitabh Passi. Please go ahead.

Thank you. I wanted to just clarify first, as we look at the guidance for the third quarter, should we normally be thinking about -- or should we think about the impact from the SYE divestiture at the $25 million range? I mean, is that the way to think about the guidance?

Yes, it's important -- so when you look at -- on the surface, if you take the midpoint of guidance --

Yes.

-- at 345, that number reflects, if you will, the fact that we have no SYE revenue in the third quarter, when compared to the second quarter we had just under $25 million. So, on the surface, we're growing even though we've lost $25 million in revenue, if you will, through the divestiture. So, as a result, if you kind of normalize for that, we're actually up quite substantially in the Asia-Pacific segment when you normalize out for the SYE transaction.

And then just to confirm, if I normalize that, it looks like the guidance for the networking communication segment is sort of flattish quarter-over-quarter, essentially steady, I guess, 2Q to 3Q?

That's correct.

Okay. And, Kent, maybe one for you. You talked about some potential strength or pickup in demand related to the 4G LTE build outs in China. Just curious, are you actually starting to see some evidence of such a build in your order flow, or is it still just sort of expectation and hope at this point?

Yes. I think in the past we've had some benefit, but it's not been a lot, and it's more along the lines of our customers putting in kind of trial runs if you will of the 4G LTE. We're still waiting for the full release of that project. As near as we can tell, the forecast now is that will be released towards the end of this year, so we've had some benefit, but it's not been a lot. The real benefit's ahead of us as they release the full 4G project in the latter part of this year.

Okay. I think that's it for now. I'll step back in the queue.

Thank you. And our next question comes from the line of Steven Fox. Please go ahead.

Thanks. Good afternoon. A couple questions from me. First of all, on the networking expectations for this quarter, is that excluding any kind of other share gains or are you still gaining -- ramping some new business that you won from competitors? And then secondly on the divestiture, the SYE, why is it that you're not giving any benefit into utilization or margins in, more importantly, in the third quarter? Why is not coming out in the fourth quarter? And then I have a follow-up.

Yes, maybe I'll -- the first question about the share gain in the end markets, I mean, some -- the share gains when we initially gain share, we have an influx of product that comes into us. And then that product stabilizes and so we take kind of a level step function up. And we believe we'll continue to gain market share with some of the opportunities that we have in place. When you look at networking and the areas that we function in, which is those core and edge routers, there's not as many competitors in those areas. It's not a big marketplace, but certainly it's one where we flourish and we like our position there, so we think we'll continue to gain market share simply because of the relationships we have with our customers and some of the inroads that we are making.

With regards to the SYE, when we get to the end of the third quarter, our capacity utilization rates should go up because of the low utilization we had at SYE. So that will help. And over time, we've been projecting an increase in gross margins in Asia-Pacific to just under 1% or about 1%, so that will help us but it takes a little while to get all that on the -- get that onto our financial scorecard if you will.

Okay. And then just looking at the gross margins going forward, I guess I was kind of curious -- obviously, the mix improvement is helping and you had a little bit of setback with a quality issue. But if I looked at -- just qualitatively-wise, if I looked at the high tech margins versus your more standard products, is there any sort of difference in how the margins have been trending within the two product categories you'd like to talk about now?

A lot of times the gross margins in those categories come back to the capacity utilization. And with our advanced HDI work that's all related to smartphones and these touchpad tablets. That's the growth area for us in the third and fourth quarter, and I think Todd mentioned that we'll be up 20% to 25%, 30% in that area, in the fourth quarter. Historically, in Asia-Pacific, we invoice about 45% of our revenue in the first six months, 55% in the second half of the year. So, as we fill our facilities, we're able to then have better utilization rates, which generates higher gross margins. So -- but still, when you looked at the advanced HDI work and how we have the opportunities we have there, that still carries a little higher margin for us, but it gets -- it becomes pretty dependent on how full our facilities are. So, it's higher gross margin but you've got to have the facilities full, which is why we're projecting what we are for the second and third -- or the third and fourth quarter.

So, the mix and the margins by product are both benefits, just to be clear? For the rest of the calendar year?

I'm sorry. I didn't quite hear that.

Not only is the mix a benefit between now and the end of the calendar year, but you're also saying that within each product sector you should be benefitting -- seeing better margins as the --

Yes, yes. That's -- yes. That's correct.

Okay.

Thank you for clarifying that.

All right. Just wanted to make sure. Thank you very much.

Thank you. (Operator Instructions) And our next question comes from the line of Jiwon Lee. Please go ahead.

Thank you. If you have commented that, Kent, I do apologize -- but just wanted to get back to that smartphones and tablet ramps in the second half, whether or not that is more of a function of a deepening relationships or more of a function with better ramps from the newer OEMs?

Well, it's certainly seasonal just inherent in that product type, and so that's the major reason why we have higher forecast in the third and fourth quarter because of the smartphones and the touchpad tablets are more seasonal. And now having said that, we are strengthening our position within our customers, and we continue to move up. I think, if you start to rank preferred customers and so forth, we continue to perform well for our customers. And it's one thing, Jiwon, when you look at the advanced HDI capabilities, you can buy the equipment, but you've got to have the relationships with the customers, you've got to service those customers, you've got to have the expertise in-house to execute. And so it's not just buying equipment, investing in CapEx. It's having the capabilities and working side by side with these customers to make sure you have the capacity when they need it and that you have the capability to deliver products that meet their kind of demanding quality specifications. So, I say that because the products are seasonal, but we also are pleased with how we're progressing and servicing our customers.

That's fair, and then, Kent, the quality issues that you discussed, did you talk about which end market that related to?

Well, it's with the advanced HDI, new product in our advanced HDI.

I see, but now that issue is behind you -- temporary issues?

Yes. We've been able to identify the cause of that situation. We worked closely with our customer to rectify the situation. It was a quality issue. It was only on a small percentage of our product, but at the time, we were sampling rather than doing 100% test. So not only did we go back and fix our processes and our procedures, but we went from sampling to 100% test, so that'll eliminate any escapes. But we were able to identify the causes, work with the customer, and resolve that fairly quickly.

Okay. Terrific. And then out of the $80 million you're expecting from this SYE divestiture, now -- so then the calculation, the fourth quarter, there should be some residuals, no?

Well, we -- as I mentioned, the transactions really came in two pieces, which is --

Okay.

-- what we've kind of described all along. One was proceeds we had received from selling our equity interest and then the second one, a smaller piece going the other way where we would be paying off an intercompany loan with SYE. As the transaction came to fruition, we actually executed the repayment of the intercompany loan first so that, if you will, we had the bad news in Q2 and the only part remaining is collecting now for the sale of our equity interest. And that is expected to be approximately $80 million net of taxes and that we are targeting to close here in the third quarter.

Oh, I see. That's very clear. Thank you. And lastly for me, with some of the margin improvement anticipated, especially in the Asian side, would you care to revisit some of your long term margin goals?

Well, let me -- Todd can fill in the blanks after I say a few --

Okay.

-- quick comments here. But no, I think our margin goals and our target margins, a 19% gross margin, 10% operating margins, are still applicable, and I think they are reachable. It depends on -- it always comes down to two factors, and that is we've got to have the right product mix and we've got to have our facilities pretty close to fully loaded. So we get the right mix with the right capacity utilization, we can achieve the 19% and 10%.

Very good. That's all for me.

Thank you. (Operator Instructions) And our next question comes from the line of [David Rold]. Please go ahead.

Hi, there. David Rold in for Rich Kugele. Just one question for me. Last call you'd noted some elevated lead times in North America, at least as they related to networking. Is that still the case? Has that abated at all? And then I guess more generally, what are the lead times looking like, I guess, across your two geographies?

Yes, thanks for the question. We continue to book. When you look at our book to bill numbers, both in North America and Asia-Pacific, for the last part of the second quarter and for the first month, June, July, very strong bookings, so our lead times did not go in. They continued to go out. And so in North America, I think last quarter we were four to eight weeks and now we're four to ten weeks --

Wow.

-- depending on the facility and in Asia-Pacific we were three to four weeks last quarter, now we're four to five weeks.

Okay.

That's a reflection of a strong backlog and the booking rate.

Yes, absolutely. All right. Thank you very much.

Thank you. And I am showing no further questions at this time. I would like to turn the call back over to Kent Alder.

Okay. Thank you, thank you, and thank you very much for joining us on the call. We look forward to having a good third quarter here and seeing you at the end of the third quarter. So thank you very much for joining us.

Thank you. Ladies and gentlemen, this concludes the TTM Technologies second quarter 2013 earnings conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 and enter the access code 4630056 followed by the pound sign. We'd like to thank you for your participation, and you may now disconnect.