TTM Technologies Inc (TTMI) 2015 Q2 法說會逐字稿

Good day. Welcome to the TTM Technologies, Inc. second-quarter 2015 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Tony Righetti. Please go ahead.

Thank you, operator. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to TTM's future business outlook.

Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties, including the factors explained in our most recent annual report on Form 10-K, and our other filings with the Security Exchange Commission.

These forward-looking statements are based on management's expectations and assumptions as of the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether as a result of new information, future events, or other circumstances, except as required by law.

Please refer to the full disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S-4, and the Company's other SEC filings.

We will also discuss on this call certain non-GAAP financial measures, such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP, as we direct you to the reconciliation of non-GAAP to GAAP measures included in the Company's press release, which was filed with the SEC and is available on TTM's website, www.ttm.com.

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

Thank you, Tony. Good afternoon, and thank you for joining us for our second-quarter 2015 conference call. I'll begin with a review of our business. Todd Schull, our CFO, will follow with a discussion of our financial performance, review changes to our reporting structure, and provide third-quarter guidance for the combined Company. We will then open the call to your questions.

On May 31, 2015, we completed the acquisition of Viasystems, furthering our path toward building the preeminent company in the PCB industry. The combined Company is entering its third month, and we are already beginning to see tangible evidence that the capabilities and the scale we now possess are allowing us to add value to our customers with a broader technology portfolio. The integration process is proceeding on track, and we are excited about the opportunity in front of us.

Over the past two months, I have met with a number of our critical customers and our new employees, both in North America and Asia. The reaction from both constituencies has been positive. Our employees are communicating very well with one another, are sharing best practices, and our sales force is uncovering new cross-selling opportunities at a rapid pace.

We are acting as the one TTM, which we had envisioned for our organization. And I thank all of our employees for embracing this philosophy. Our message to employees and customers from day one of the acquisition has been to remain focused on execution on behalf of our customers.

We have been aided in this effort by the fact that overlap is minimal between our customer bases. This has allowed us to really emphasize our expanded capabilities to our customers and to explore new opportunities with them.

As you know, Viasystems and TTM were competitors in the marketplace prior to closing our deal on May 31st. As such, our ability to exchange information in the integration planning process was limited. Since May 31st, we have been able to step up this effort.

The leaders of our organization came together in late June to review integration time lines and plans, and to establish the working teams for each functional area of our integration. The main goal has been to come together as one TTM to better support our customer base.

One aspect of the integration will be to realize the $55 million in annualized synergies, which we have outlined to our shareholders. And we have already begun implementing these synergies. Of the original targeted annualized synergy amount, we delivered $6 million in annualized synergies during the second quarter, and expect to realize the balance of the $55 million by the end of the second quarter of 2016. You will see this positively impact our P&L over the next year.

Overall, I believe we have made a good start in delivering on the strategic goals of this acquisition, which are to reinforce our position as one of the largest and most diversified global PCB manufacturers, with a broad technical skill set, and the ability to support our customers product life cycles from R&D through production anywhere in the world; to expand sales in the growing automotive segment by leveraging Viasystems' established position in core automotive applications to introduce TTM's advanced technologies; and to combine our complementary businesses to better service our customers in medical industrial instrumentation, networking communications, and aerospace and defense end markets.

Finally, to build a financially accretive combination by combining $55 million in annualized run rate synergies with the already strong cash flow and earnings generation capability of the combined Company; and to rapidly de-lever our balance sheet.

I will now review the business highlights from the second quarter, which include approximately one month of consolidated results from the acquisition of Viasystems.

Net sales in the second quarter were $445.4 million. Non-GAAP net income was $14.9 million, or $0.17 per diluted share. Adjusted EBITDA was $59.7 million, or 13.4% of net sales.

Our second-quarter results were strong, with revenue in line with expectations and non-GAAP earnings at the high end of our range. We were also pleased with organic revenue growth of 18% year over year for the quarter.

Our results were driven by continued broad-based demand in our cellular phone end market, and strong sales across our networking customers. Operationally, yield performance was solid as volumes increased and the product mix remained weighted towards advanced technology products. We remain encouraged by our product prototyping activities and believe we are well-positioned to ramp volume in the back half of the year.

During the quarter, our advanced technology work, which includes HDI, rigid-flex, and substrate, accounted for approximately 48% of our legacy Company's revenue. This compares to approximately 34% in Q2 a year ago.

We will continue to leverage our advanced technology capability, particularly as we service new customers that the legacy Viasystems organization brings to TTM in the automotive, industrial, and networking and communication end markets.

In the second quarter, our combined overall capacity utilization in Asia-Pacific was 83%. Our combined overall capacity utilization in North America was 53%.

Now, moving on to our end markets, which now includes the automotive end market. Post-acquisition, we will be establishing new baselines for each end market, and will make an effort to give you comparable-period results for the pro forma combined Company.

Therefor, today we are providing percentages of total revenue for the current quarter, and both sequential and year-over-year comparisons on a pro forma basis, which assumes that TTM acquired Viasystems on April 1, 2014.

Networking and communications reemerged as our largest end market as sales accounted for 26% of revenue during the quarter. On a pro forma basis, Q2 sales were 25% of total sales, compared to 32% of sales in the year-ago period.

While we experienced broad-based strength with networking customers, a pause in 4G activity hindered the performance of our telecom customers. We believe that we are well-positioned for the resumption of 4G activity, particularly in China, which is expected late this year. We expect sales in this end market to represent 26% of total sales in Q3.

The cellular phone end market accounted for 24% of revenue in the second quarter. On a pro forma basis, Q2 sales were 16% of total sales, compared to 6% of sales in the year-ago period.

PCB demand remained robust from both our major customer and other Asia-based customers, as sales increased 196% year on year. We anticipate that product transitions during Q3 will result in sales moderating to 14% of the total as we begin to ramp production to meet new product demand.

The aerospace defense end market represented 15% of total sales and continued to be a steady performer. On a pro forma basis, Q2 sales were 13% of total sales, compared to 15% of sales in the year-ago period.

On a dollar basis, revenue was relatively flat. Bookings from numerous programs across Tier I and Tier II customers were strong, and are expected to contribute to improved sales in Q3. We expect sales in Q3 from this segment to represent about 13% of total sales.

The medical industrial instrumentation end market contributed 12% of total sales in the second quarter. On a pro forma basis, Q2 sales were 15% of total sales, compared to 16% of sales in the year-ago period.

We experienced strength across semiconductor test equipment and medical devices, with weakness in the energy sector. We expect sales for this end market to represent approximately 15% of third-quarter sales.

Sales in the computing storage peripherals end market represented 11% of total sales in the second quarter. On a pro forma basis, Q2 sales were 11% of total sales, unchanged from the year-ago period. In the third quarter, we expect sales in computing to represent approximately 12% of sales as we ramp new products launched in Q2.

Automotive end market sales represented 7% of total sales during the second quarter. On a pro forma basis, Q2 sales were 18% of total sales, unchanged from the year-ago period. Solid bookings near the end of the quarter have continued into Q3, and we expect sales to grow sequentially to 19% of total sales.

On to customers and orders. Our top five customers contributed 40% of total sales in the second quarter of 2015, compared with 47% in the first quarter, reflecting the added diversity the acquisition of Viasystems brings to our combined Company.

Our top five OEM customers during the quarter, in alphabetical order, were Apple, Bosch, Cisco, Huawei, and Juniper. Our largest customer accounted for 22% of sales in the second quarter. On a pro forma basis, our largest customer represented 15% of sales in Q2.

At the end of Q2, our backlog, which is subject to cancellations, was $403 million, compared to $410.9 million in Q1 on a pro forma basis. Book-to-bill for PCBs was 1.01 for three months ending June 30th on a pro forma basis.

In summary, we are pleased with our second-quarter results, and are excited about the opportunities created by the capabilities set and footprint of the combined Company. I am impressed by the positive response of our 30,000 employees to the acquisition, and I'm looking forward to working with them to establish TTM as the true leader in our industry.

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

Thanks, Tom. And good afternoon, everyone. For the second quarter, net sales were $445.4 million, compared to net sales of $297.6 million in the second quarter of 2014, and compared to first-quarter net sales of $329.2 million.

The year-over-year increase in revenue was driven by an 18% increase in organic revenue, and the one month contribution of sales from the Viasystems acquisition of approximately $93 million.

GAAP operating loss for the second quarter was $7.1 million, compared to GAAP operating income of $3.2 million in the second quarter of 2014, and compared to operating income in the first quarter of $8.3 million.

On a GAAP basis, our net loss for the second quarter of 2015 was $36.6 million, or $0.41 per share. This compares to a GAAP net loss of $3.1 million, or $0.04 per share in the second quarter of last year, and GAAP net income of $3.4 million, or $0.04 per diluted share, in the first quarter of 2015. Our GAAP results in the second quarter were impacted by approximately $46 million of expenses related to the acquisition of Viasystems.

The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes the amortization of intangibles, stock-based compensation expense, non-cash interest expense, restructuring impairment and early extiguishment of debt-related costs, acquisition-related costs, purchase accounting impacts, and other unusual or infrequent items, as well as the associated tax impact on these items.

Additionally, we exclude non-operational changes in our tax expense, such as the impacts of retroactive changes in the tax law, and non-cash discrete items. 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 in the second quarter was 15.5%, compared to 13% in the second quarter of 2014, and 15.7% in the first quarter. The year-over-year improvement was due primarily to increased revenue at our advanced technology plants, which resulted in higher utilization levels than in the prior year, as well as increased revenue and operation improvements at certain of our plants in North America. The sequential gross margin decrease was due primarily to the addition of Viasystems, which has lower gross margins than our existing business.

Selling marketing expense was $12 million in the second quarter, or 2.7% of net sales, compared to $8.4 million, or 2.8% of net sales in the same quarter a year ago, and $9.2 million, or 2.8% of net sales in the first quarter. The increase in the amount of sales and marketing expense was due to the inclusion of Viasystems for approximately one month in the second quarter.

Second-quarter G&A expense was $27.6 million, or 6.2% of net sales, compared to $21.2 million, or 7.1% of net sales in same quarter a year ago, and $24.2 million, or 7.4% of net sales in the previous quarter. The increase in the amount of G&A expense was due, again, to the inclusion of Viasystems for approximately one month in the quarter. The decrease in G&A as a percentage of revenue reflects the leverage gained from the acquisition.

Interest expense increase to $9.5 million in the second quarter from $3.1 million in the first quarter due to the financing associated with the acquisition. We recorded about $600,000 of foreign exchange gain and other income net in the second quarter, compared to a $500,000 loss in the first quarter.

Our effective tax rate in the second quarter was 27%, unchanged from the first quarter.

Second-quarter non-GAAP net income was $14.9 million, or $0.17 per diluted share. This compares to second-quarter 2014 non-GAAP net income of $3.9 million, or $0.05 per diluted share, and first-quarter non-GAAP net income of $10.8 million, or $0.13 per diluted share.

Adjusted EBITDA for the second quarter was $59.7 million, or 13.4% of net sales, compared with second-quarter 2014 adjusted EBITDA of $32.8 million, or 11% of net sales. In the first quarter of this year, adjusted EBITDA was $42.5 million, or 12.9% of net sales.

Moving on to our segment performance. Our Asia-Pacific segment had revenue in the quarter of approximately $218.7 million. This represents an increase of $51.9 million compared to the same period one year ago, and $13.2 million when compared to the first quarter.

Gross margin for our Asia-Pacific segment in the second quarter improved to 14.9%, compared to 10.6% in the second quarter last year. The significant improvement year over year was due primarily to increased revenue at our advanced technology plants, which resulted in higher utilization levels than in the prior year. Gross margin declined sequentially by about 100 basis points, due primarily to our annual salary increase.

The Asia-Pacific segments second-quarter operating income was $14.4 million, compared to $600,000 in the same quarter last year, and $12.8 million in the first quarter. Our North America segment had revenue in the second quarter of $133.8 million, up $2.2 million when compared to the same quarter last year, and up $9.5 million sequentially.

Gross margin for the second quarter was 18.2%. This compares to 16% in Q2 last year, and 15.5% in the prior quarter. The improved gross margin when compared to last year was due to increased revenue, and operational improvements in certain of our plants in North America.

The North America segment's operating income for the second quarter was $10.7 million, compared to $8.6 million in the same quarter last year, and $5.6 million in the first quarter.

The operations we acquired on May 31st contributed $93.2 million in revenue in Q2, had a gross margin of 12.8%, and generated operating income of $4.1 million. On a pro forma basis, Viasystems' results for the second quarter were revenue of $295 million with a gross margin of 12.8%.

Historically, we've divided our business into geographic segments. With the acquisition of Viasystems, we are changing how we manage our business, and we'll begin to report our results in two different segments -- PCBs and EM solutions, electromechanical solutions. In conjunction with this segment reporting change, this will be the last quarter that we'll provide details broken out by Asia-Pacific and North America.

To facilitate future comparisons, we are also providing you with this quarter's results broken down into these new segments. The PCB segment had sales of $417 million in the second quarter, up from $277.3 million in the second quarter of 2014, and $309.8 million in the first quarter.

Gross margin for this segment was 16.1% in the second quarter, compared to 13.2% in the same quarter a year ago, and 16.2% in the first quarter. The PCB segment's second-quarter operating income was $38.7 million, compared to $11.9 million in the same quarter last year, and $22.2 million in the first quarter of this year.

The EM solutions segment had sales of $28.4 million in the second quarter, up from $20.3 million in the second quarter of 2014, and $19.4 million in the first quarter. Gross margin for this segment was 5.9% in the second quarter, compared to 11% in the same quarter a year ago, and 7.7% in the first quarter.

The EM solutions segment second-quarter operating income was $400,000, compared to $1.5 million in the same quarter last year, and $700,000 in the first quarter of this year.

Corporate SG&A expense not associated with either of these segments was $9.9 million in the second quarter of 2015, $4.1 million in the second quarter of 2014, and $4.4 million in the first quarter of this year.

Cash and cash equivalents including restricted cash at the end of the second quarter totaled $171 million, a decrease of approximately $112 million from the first quarter. Adjusted cash flow from operations, which excludes non-GAAP adjustments, was $49 million, while we incurred capital expenditures in the second quarter of approximately $24 million, and used $137 million primarily to purchase Viasystems and have the cash required.

Net debt was $1.1 billion at the end of the second quarter, an increase of approximately $884 million from the end of the first quarter. This increase resulted from the financing activities for the Viasystems acquisition.

In conjunction with the closing of that transaction, we entered into a $950 million dollar senior secured term loan B credit facility. We also put in place two $150 million asset-backed lending, or ABL facilities -- one in the United States, of which $80 million was used to acquire Viasystems, and one in Hong Kong, both to support to support the business needs in those regions.

In conjunction with this new financing, we paid off the remaining $226 million balance of our Asia term loan. During the quarter, we also paid off the remaining $33 million of our 2015 convertible debt.

Depreciation for the second quarter was $29.8 million.

Now I'd like to turn to our guidance for the third quarter. The third-quarter guidance includes the impact of our acquisition for the full quarter. We expect revenue to be in the range of $640 million to $680 million. As a reference, our third-quarter revenue last year was $345 million. On a pro forma basis, Q3 revenue last year was $645 million.

We expect non-GAAP earnings to range from $0.14 to $0.20 per diluted share. This is based on a diluted share count of approximately 100 million shares. This compares to $0.13 per diluted share reported in the third quarter of 2014, which was based on a diluted share count of approximately 84 million shares.

We expect that SG&A expense will be about 9% of revenue in the third quarter. We expect interest expense to total about $16 million. And we estimate our effective tax rate to be between 25% and 29%.

Tom mentioned earlier that we implemented about 11% of our targeted synergy actions in the second quarter. We expect to implement an additional approximately 20% to 25% of our synergy target in each of the third and fourth quarters of this year, with the balance to be implemented evenly over the first half of 2016.

The P&L impact of the synergy actions taken in Q2 was about a half a million dollars in the second quarter. And in the third quarter, we expect it to be about $2 million. Thereafter, the P&L impact each quarter will approximate 25% of the synergies implemented with a one-quarter lag.

As part of the process to acquire Viasystems, we are required to fair value the acquired assets and liabilities, often referred to as purchase accounting. This process takes time and is not yet complete. However, we have recorded preliminary adjustments to the acquired assets and liabilities. These adjustments are just preliminary and could change in the future.

The P&L impact of these preliminary adjustments is not included in the guidance provided above. The four major impacts of purchase accounting to date are, first, inventory, which was marked up by $19 million. Approximately $7 million of this increase flowed through our P&L in June and was excluded from our non-GAAP results. The remaining $12 million is expected to flow through our P&L in the third quarter.

The second item is property, plant, and equipment increased by approximately $89 million. Most of this increase relates to land and buildings. The increased depreciation expense resulting from this adjustment was about $200,000 in June, and is estimated to be about $700,000 per quarter going forward.

The third item to be impacted was intangible assets, which increased by approximately $147 million, reflecting primarily the value of customer relationships. This asset will be amortized over several years. The increased amortization resulting from this was a $200 million hit in Q2, and it is estimated to be approximately $4.3 million of additional amortization in Q3.

The fourth item, finally, is goodwill, which increased by $298 million. As this asset is not amortized, there is no future P&L impact forecasted.

In addition to the purchase accounting impacts noted above, [I'd like to] offer the following additional information. We expect to record during the third quarter amortization of intangibles of about $2 million, stock-based compensation expense of about $2.6 million, non-cash interest expense of approximately $4.7 million, and we estimate depreciation expense will be approximately $39 million.

Finally, before we turn to your questions, I'd like to mention that we will presenting at the Canaccord Genuity 35th Annual Growth Conference in Boston on Wednesday, August 12th, and at the Deutsche Bank 23rd Annual Leveraged Finance Conference in Scottsdale on September 28th through the 30th.

That concludes our prepared remarks, and now we'd like to open the line for questions. Operator?

Thank you. (Operator instructions)

David Rold, Needham & Company.

Hi, good afternoon. Thank you. Just first on the segments, could you elaborate on what gives you the confidence that the teleco spending in China's going to come back just given some of the commentary out of supply chain?

And then can you remind us where the networking segment as a whole should be when Viasystems is at run rate as a percentage of revenue?

Okay, sure. Let's start with the last part of that. I think if you look at the overall run rate, we gave you the pro forma forecast. So if you look at 26% of total sales expected in the third quarter. So that would be the combined Company. You can expect that, if you think back to last year, which was a very strong telecom environment, then the combined Company would have been up to about 32% of total sales. So significant -- obviously the most significant market for TTM.

In terms of China and telecom, of course, always what I'm really relating there are comments that we hear from our customers in the area. There has been, I would say, an unanticipated slowdown in the environment this year, particularly last quarter, and then forecasted into the third quarter.

The anticipation is that bids are going to be let, or starting to be let again in China in this coming quarter. And that would translate into a base station demand in the fourth quarter, so that we would start to see an improvement in the fourth quarter.

Always, with all these things there is a macro environment in China that I would say is not favorable right now. How to government reacts to that, of course, is an open question. There may be even more encouragement for infrastructure spending there, or perhaps not.

So at this point, what I can relate to you is what our customers are saying, which is they do expect the fourth quarter to improve.

Okay. And then on the new segments that you're going to be reporting, could you just give us an update on seasonality, I guess, by each one? I guess, revenue, cadence, and kind of how that affects margins?

Sure, the real segment that we'd be looking at is -- new segment -- automotive. And if you look at automotive demand in terms of cycles, generally the summer season would be where you would see a little bit of a slowdown. And then strength, particularly in the first quarter, starting to build in the fourth quarter and then into the first quarter.

As you probably understand from my remarks, we're not seeing that this year. We're seeing good, solid strength continue into the third quarter. So we actually are not seeing a summer slowdown this year, at least as we see demand for the third quarter.

Okay. And then just lastly, just wondering if you'd identified any potential additional cost synergies maybe beyond the second quarter 2016 time frame (multiple speakers) you've had a chance to kind of integrate?

Yes, so we're absolutely working on that. As you can probably guess, we've -- now that the teams are able to fully share information, we've been upgrading and really at this point, taking a fresh look at our plans on integration and on synergies, and continuing to update our plans there. For now, our immediate goal in the first year is that $55 million. We believe that there is opportunity beyond that. And we certainly will continue to keep you updated.

Okay, great. Thank you.

(Operator instructions)

Matt Sheerin, Stifel.

Yes, thanks. Hello, everyone. Hi, guys. A few questions -- looking at the guidance, it looks like the operating -- it implies the operating margin is going to be down a little bit. Is that just because of the drag of the gross margin of Via, and the fact that you're really just getting started with the cost synergies?

I think you're right. It's a heavy impact that the fact that these cost synergies are just starting. You know, Tom mentioned one of our majors is certainly -- we still feel very confident in this -- is that the deal is going to be an accretive transaction at the end of the first year.

But in the first quarter, we've got to ramp up into the synergies. We've got all that interest expense now. We've got the increased shares. So we kind of took the two hits right up front in full force. Now we got to swim our way through that with the synergy exercise, which we're very aggressively focused on here, as Tom mentioned already.

So you're correct in saying that we've got a little bit of a headwind that we're working through in terms of the dilution of the new business while we ramp in our synergies.

And it sounds like -- you said that 20% to 25% of the synergies, that's a December quarter, right? Not September -- by the end of September? So in other words, we'll see that in December, and then into March?

So that seems to imply that you should be able -- I mean, demand being what it is and it's stable or growing, that you should be able to get to kind of a low-double-digit kind of operating margin in fiscal 2016. Is that fair?

We haven't projected out into 2016 yet --

Or I'm sorry, I'm looking at in terms of high-single-digits. Okay, that's fair. That's fair.

I would like to take the opportunity though just to clarify the synergy number. Because we're looking at potentially 25% -- we're going to take actions on 20% to 25% of that $55 million. So pick a number, you know it's $10 million to $13 million, $15 million -- something like that.

In the third quarter, that will yield benefits in the fourth quarter. So that's the one-quarter lag kind of concept. And just remember that if it's a full-year impact of $10 million to $15 million of actions in Q3, you'd get a quarter of that in Q4, and then another quarter each quarter after that. So as you build, and as you think about your models going forward, make sure you kind of layer in those synergies properly.

The other point I want to clarify is that we did say that we're looking for 20% to 25% percent in actions in Q3, and then an additional 20% to 25% of actions in Q4. So if you add that with the 11% we already took, we're somewhere in the 50% to 60% of that $55 million of actions before the end of the calendar year.

So we're not back-end loading it from an action standpoint. And then like Tom mentioned earlier, we're certainly looking to update that number as we get a little bit more into the integration planning process, which is just really -- just getting underway.

Okay, that's helpful. And that's coming from both COGS and SG&A, right?

That's correct.

Yes, okay. And do they fall off sort of evenly, or will the (inaudible), the COGS part take longer? In other words, will that be more back-end loaded than SG&A?

At this point I would say that they'd be relatively equal in terms of this space. We have plans to take actions that would impact both lines each quarter. So it's not like we're just focusing on SG&A today, and deferring on the manufacturing cost structure.

Okay. And on the handset business, you talked about, Tom, it moderating because of some product transitions, which sounds like it's going to be down sequentially. Typically, you've been up building in advance of Q4 product demand from your customers. Is that just because of product transition, or are you seeing any kind of slowdown, whether it be from your bigger customer or other customers?

Great question, Matt. In terms of this year, as you (inaudible) remember, last year was an unusually difficult period for cellphones in Q1 and Q2. This year has been an unusually strong period with new product introductions being highly successful. So we were coming off of a, notably, of a strong Q2 performance in terms of unit production, which of course, was excellent for us. And we're very -- we're thrilled with that.

Now as we're going into Q3, we'll be transitioning to new products. And so while we're not seeing a change in the customer's forecast, what we have there is a little bit of a dip based on the new ramp as we start to ramp yields.

So much less an indication from end markets as this is the fact that we've got to be -- we're phasing into a new model, and therefor are restarting that yield ramp cycle. And that carries into Q4, and of course, you should again, seasonally expect that Q4 will be the peak. And then we'll see how that carries into Q1 and Q2 of next year.

Okay, great. And just on the interest expense in the financing, Todd, will you be looking to go back and refinance? Or is that going to be sort of steady state for now?

I would look at that as steady state for now. The contract that we have in place, it's just not feasible to go back out here in the immediate couple of next few months or quarters. Our goal, of course, is to generate cash and pay down that debt. We have some very minimal amortization payments that we'll make. But our goal internally is to generate cash flow and to pay that down a little bit more rapidly that that. But as far as refinancing in the near term, I don't -- no, that's not really on our radar at this point.

Okay. All right, thanks a lot, guys.

Thanks, Matt.

(Operator instructions)

Paul Coster, J.P. Morgan.

Hi, this is Paul Chung on for Paul Coster. Thanks for taking my question. Just wanted to talk on the cross-selling opportunities. I know it's early days. Can you confirm any benefit if at all during the quarter from Viasystems channel partners? And can you expand upon which end markets you see the most potential for cross-selling? Thanks.

Sure, sure. And your first statement is absolutely correct. It's early for us to really talk to dollars at this point. As you can imagine, the sales cycle in most cases is multiple months. There's qualification involved. That can sometimes take up to half a year. So difficult to talk in terms of numbers as yet. Ask me again next quarter.

But what I can say is there are a few areas where we're seeing real opportunities. One area to highlight is automotive. And there, there is, as we had hoped, quite a bit of interest from our customer base in what the legacy TTM brings to the product offering in terms of advanced HDI capability and rigid-flex.

And those are areas that are growing, particularly in infotainment applications in automobiles. For the customers, it's a relief to be able to source from the same vendor for your critical, highly reliable boards as for your HDI boards. So there has been a positive reaction there to our ability to provide a stronger breadth of offerings.

I'd also highlight in the networking telecom area, actually with our EM solutions business, the legacy TTM had a backplane assembly capability. Viasystems has a much more complete EM solutions offering. We're getting quite a bit of interest from the legacy TTM customer base there in turning to our broader product offering. So those are two areas that I'd highlight.

I'm sure -- you know, our sales force has actually been turning them up very quickly. So we've been selectively, as an organization, looking at how we can respond. The real focus for us is, job number one is to execute on existing customers, existing orders, make sure that we don't drop the ball during this interim period. And then ensure that we are delivering on potential revenue upside opportunities.

Great, thank you. Great quarter.

Thank you.

And that does conclude the question and answer session. I'll now turn the conference back over to management for any additional or closing remarks.

Sure. This is Tom Edman. I'll just wrap us up. We are looking forward to seeing many of you in Boston or in Arizona in the next several months. And I'd just like to emphasize again that we're really thrilled with the Q2 results. We believe we're positioned for a strong third quarter here as a combined organization.

And as we continue to focus on our strategic priorities as a Company, building on technology leadership, carrying our advanced technologies into the new markets that have opened up for us, generating strong cash flow and de-levering that balance sheet, and then starting to deliver on synergies.

So we're thrilled with where we stand at this point, and look forward to speaking with our investors again in the next few months. Thank you.

Thank you. That does conclude today's conference call. We do thank you for your participation today.