TTM Technologies Inc (TTMI) 2015 Q4 法說會逐字稿

Good day and welcome to the TTM Technologies, Inc.

fourth-quarter and fiscal year 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 with The Blueshirt Group to review TTM's disclosure statement.

Thank you, operator.

Before we get started I'd 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 Securities and 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 reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S4 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 at 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 fourth-quarter and fiscal year 2015 conference call.

I will begin with a review of our business strategy including highlights from our 2015 fiscal year followed by a discussion of our fourth-quarter results.

Todd Schull, our CFO, will follow with an overview of certain key balance sheet and cash flow metrics and our Q4 financial performance and Q1 guidance.

We will then open the call to your questions.

2015 was an excellent year for TTM Technologies.

We achieved record revenues during fiscal year 2015 and closed the year with a very strong fourth-quarter non-GAAP EPS of $0.31 leading to an annual EPS in 2015 of $0.87.

We also achieved an important strategic objective of our Company by closing the Viasystems acquisition on May 31, 2015.

The acquisition established us as the global rigid printed circuit board leader and allowed us to solidify our technology leadership in the critical markets of networking and communications, automotive, aerospace and defense and medical, industrial and instrumentation.

After closing the acquisition we quickly and barked on the task of delivering accretive results to our investors.

I am very pleased to report that we closed the year having already announced and implemented 80% of our stated annual synergy target of $55 million.

The strong run rate of synergies combined with the superior cash flow and earnings generation of our combined Company, give us confidence in our ability to deliver accretion in the first year following the closing of the acquisition.

The Viasystems acquisition represented a critical step for TTM in achieving the three pillars of the strategy that we outlined in 2015.

Namely to continue to diversify our business with leadership positions in a diverse set of markets.

I am proud of our employees' efforts in this area during 2015 as we leveraged the Viasystems acquisition to further diversify our market exposure.

On a pro forma basis all of our markets now represent less than 25% of our revenue and our largest customer has been diluted to approximately 16% of revenue for 2015.

And we have continued to work on introducing our advanced technologies into our traditional markets, which are increasingly adopting compact packages with high information content requirements.

This diversification is serving TTM well already in 2016 as automotive and aerospace and defense demand strength help to mitigate more challenging demand environments in the other end markets we serve.

Secondly, we are leveraging the acquisition to build on growth opportunities.

Selecting the right technology markets within the automotive market will become key for outpacing the industry's projected growth of 7%.

The key technologies that TTM and their customers focus on include: electric vehicles and hybrids; radar systems; drive by wire use of electrical, or electromechanical systems for performing vehicle functions; power electronics, which used heavy copper; and thermal solutions for EV inverters, breaking, bussed electrical centers and battery management; ADAS, or advanced driver assistance systems, camera, front and rear HDI boards; the center display and cluster and transmission and engine control.

Since the acquisition have signed strategic supply agreements with two major OEMs which should set the framework for our long-term growth as a supply partner.

In addition, we introduced our HDI capabilities to four major HDI customers who are now in varying stages of qualification, and we launched four new radar programs at our facility in Guangzhou.

During the last several months we have met with nine new entrants into connected car applications.

All of these activities are essential to our building upon the 2015 growth rate of 10% and carrying further momentum into 2016.

Lastly, we outlined operational performance as a primary initiative last year.

We announced two actions late in 2015 that will enhance our ability to continue to consistently execute within the framework of a significantly larger, more diversified Company.

First, we announced changes to our manufacturing footprint that will reduce our worldwide sites to 25 from 28 in order to improve our total plant utilization, profitability and customer focus.

Second, we outlined a new global operating model that became effective on January 1 of this year.

The new structure is market focused and aligns our advanced technologies and application-specific know-how to bolster our competitive advantages across our footprint.

As a result of these two actions we believe our business is optimized for today's macro environment with the capacity to increase production as demand dynamics improve over time.

By executing on these strategies while delivering on our synergy commitments, our goal is to generate cash flow that will allow us to rapidly delever our balance sheet.

We are already demonstrating progress towards this goal as we plan to utilize the $183 million in adjusted EBITDA earned over the last two quarters to repay $70 million to $80 million of our debt late in the first quarter.

And now on to our fourth-quarter highlights.

We achieved net sales of $668.9 million.

We had non-GAAP net income of $31.5 million or $0.31 per diluted share.

We had non-GAAP operating margin of 8%.

And our adjusted EBITDA was $95.8 million or 14.3% of net sales.

And finally, we generated $118.4 million in free cash flow.

For the fiscal year 2015 our net sales were $2.1 billion, non-GAAP net income was $81.1 million or $0.87 per diluted share.

Our adjusted EBITDA was $285.7 million or 13.6% of net sales.

And we generated $182.7 million in free cash flow.

In Q4 revenue was within our guidance range and our non-GAAP earnings exceeded the high end of our guidance range by $0.04.

Our fourth-quarter revenue was driven by seasonal growth in our cellular phone end market and sequential increases in aerospace and defense, automotive and computing storage peripheral end markets.

During the quarter our advanced technology work that includes HDI, rigid-flex and substrate accounted for approximately 36% of our Company's revenue.

This compares to approximately 34% in Q3.

As I mentioned earlier, we are continuing to pursue opportunities and increase design activities that will leverage our advanced technology capabilities in markets outside of mobile devices.

Capacity utilization in Asia-Pacific was 85% in Q4 compared to 89% in Q3.

The decline was a result of demand tapering off at our advanced technology facilities at the end of the quarter.

Our combined overall capacity utilization in North America was 53% in Q4 and Q3.

Our North American facilities operate based on a high mix low-volume model which requires TTM to hold excess capacity.

As a result of this model our bottlenecks are often in process steps outside of the plating step, which is the basis for our utilization calculation.

Now moving on to our end markets.

Until we establish new baselines for our end markets we will provide the percentage of total revenue for the current quarter and the percentage of total pro forma sales for comparable periods.

The pro forma results assume that TTM acquired Viasystems on January 1, 2014.

Networking communications remained our largest end market as sales accounted for 23% of revenue during the quarter.

This compares to sales of 25% in both Q3 and the fourth quarter of 2014.

We continue to see good demand from our networking customers, which was offset by lower sales to telecom customers largely due to the delayed 4G buildout in China.

We expect sales in this end market to increase and represent 26% of total sales in the first quarter.

For the full year 2015 revenue in this end market declined by 14%.

In 2016 we anticipate that networking and communications will grow at the lower end of the 3% to 6% CAGR range estimated by industry analysts.

The automotive end market sales represented 18% of total sales during the fourth quarter compared to sales of 17% in Q3 and 16% in the year ago period.

We expect our automotive market to become 20% of total sales in the first quarter.

For the full year 2015 revenue in this end market increased by 10% driven by increased electronic content in automobiles.

In 2016 industry analysts forecast lower unit volume growth but increased electronic content and our efforts to grow share should drive similar rates of revenue growth as in 2015.

The cellular phone end market accounted for 18% of revenue in the fourth quarter compared to sales of 16% in the third quarter and 20% in the same period one year ago.

Demand began to soften in mid December and we expect sales to continue to decline to 11% of our total sales in the first quarter.

For the full year 2015 revenue from this end market increased by 43% compared to 2014.

In 2016 we expect growth in this end market to be below the 5% to 8% growth rate expected by industry analysts due to a weaker first half when compared to 2015.

The aerospace defense end market represented 13% of total sales and revenue continued to grow on both a sequential and year-on-year basis.

On a basis of total sales, third quarter of 2015 accounted for 14% and year ago sales were 12%.

Our book to bill ratio remains strong for the third consecutive quarter as we continue to benefit from defense budget support in the US and wins on targeted commercial aerospace and defense programs.

Total aerospace and defense related backlog stands at $185 million as compared to $130 million at the end of 2014, reflecting the long-term strength of this end market.

We expect sales in the first quarter from this market to represent about 16% of our total sales.

For the full year revenue from this end market increased by 4% compared to 2014.

In 2016 we expect demand to remain strong and this end market should outperform the 2% to 4% CAGR range estimated by industry analysts.

The medical industrial instrumentation end market contributed 13% of total sales in the fourth quarter compared to total sales of 14% in both the third quarter and one year ago.

Softening sales in the industrial and instrumentation portions of this end market led to a sequential decline.

We expect sales for this end market to represent approximately 15% of first-quarter sales.

For the full year 2015 revenue from this end market declined by 7%.

GDP like growth rates are expected for 2016.

Sales in the computing storage peripherals end market represented 12% of total sales in the fourth quarter compared to total sales of 12% in the third quarter and 11% in the same period one year ago.

In the first quarter we expect sales in computing to represent approximately 11% of sales.

For the full year 2015 revenue from this end market increased by 4% compared to 2014.

We would expect 2016 demand in this market to remain at 2015 levels.

As with our end markets, we will also be reporting our customer metrics on a pro forma basis until we have a full year of history.

Our top five customers contributed 36% of total sales in the fourth quarter of 2015 compared with 35% in the third quarter.

Our top five OEM customers during the quarter in alphabetical order were Apple, Autoliv, Bosch, Cisco and Huawei.

Our largest customer accounted for 17% of sales in the fourth quarter.

At the end of the fourth quarter our 90-day backlog, which is subject to cancellations, was $365.8 million compared to $380.8 million at the end of Q3.

Book to bill for PCBs was 0.93 for the three months ending December 31.

In summary, we delivered an outstanding fourth-quarter financial result, capping a transformational year during which we created one of the largest most diversified PCB manufacturers in the world.

While we see several macroeconomic challenges ahead of us in the first quarter, we are well-positioned for the long-term.

Our diverse end market exposure, broad technology breadth and ability to support our customers throughout the product lifecycle will carry us through challenges in any given market.

We have significantly expanded our total serviceable market through the Viasystems acquisition and materially reduced our exposure to consumer electronic product cycle risks.

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

Todd.

Thanks, Tom, and good afternoon, everyone.

Tom has already outlined his strategic objectives and successes of 2015; I would like to add to that by reviewing just some of the financial successes for the year before I jump into the details of the fourth quarter.

We had revenues in 2015 of $2.1 billion.

On a non-GAAP basis we earned $0.87 per diluted share.

We produced EBITDA of $285.7 million.

We generated adjusted cash flow from operations of $282.4 million and free cash flow of $182.7 million.

The financial performance of TTM's organic business was outstanding.

Sales were approximately $1.43 billion, an all-time high and just over $100 million better than last year.

Gross and operating margins were very strong and higher than they have been in the past several years.

Of course the big event, the acquisition of Viasystems, changed our Company financially as well as strategically.

To complete the transaction we issued a six-year term loan for 14 $950 million maturing in 2021 and borrowed $80 million on our US ABL.

Taking on this debt increased our leverage to 3.3 times as of the end of Q4.

Of course this metric only included seven months of EBITA generation from Viasystems.

If you use pro forma numbers for the full year, our leverage ratio was about 2.7.

Our goal is to reduce this metric to 2.0 over the next two to four years.

With this goal in mind, we chose to structure our debt as a term loan rather than a high-yield bond, allowing us to make prepayments without any penalty.

The structure is covenant light with the primary covenant being our leverage ratio.

Our covenant is set at 4.5 through the first quarter of 2016 and reduces to 3.75 thereafter.

Our loan requires modest amortization payments: 1% in year one; 4% in year two; and 5% per year thereafter.

There are excess cash sweep requirements, but those payments can be applied against future required amortization payments affording us flexibility if necessary.

What makes all this work is the cash generation capability of our combined Company.

Tom already noted our progress toward meeting our synergy target of $55 million.

We have already implemented or announced actions that generate more than 80% of that target.

Combining these synergies with the underlying cash generation capability of the Company provides ample ability to reduce our debt.

On a pro forma basis we generated approximately $342 million of EBITDA in 2015.

In an average year if you deduct capital expenditures of around $125 million, cash tax payments in the range of $40 million to $50 million, and cash interest payments of approximately $60 million, we have about $100 million to $125 million available for debt reduction.

Obviously the precise level of cash generation will be impacted by the macroeconomic environment, but you can see that we have a lot of headroom to work with.

Towards our goal of debt reduction, today we are announcing our intent to pay between $70 million and $80 million of principal on our term loan later in Q1.

As we move forward we will continue to look for opportunities to reduce our debt.

As you can see, 2015 was a very successful year financially as well as strategically and we are well-positioned for whatever the economy may bring us.

Now on to the income statement.

For the fourth quarter net sales were $668.9 million compared to net sales of $390.9 million in the fourth quarter of 2014 and compared to third-quarter net sales of $652 million.

The year-over-year increase in revenue was due to sales from the Viasystems acquisition of approximately $287.9 million.

And stronger revenues in our computing storage peripheral end market, partially offset by lower sales in our cellular phone and networking communications end markets.

GAAP operating income for the fourth quarter was $36.5 million, compared to GAAP operating income of $26.6 million in the fourth quarter of 2014 and compared to operating income in the third quarter of $23.6 million.

On a GAAP basis our net income for the fourth quarter of 2015 was $9.5 million or $0.09 per diluted share.

This compares to GAAP net income of $13.9 million or $0.17 per diluted share in the fourth quarter last year and a GAAP net loss of $2.2 million or $0.02 per share in the third quarter of this year.

The remainder of my comments will focus on our non-GAAP financial performance.

Our non-GAAP performance excludes restructuring, impairment and early extinguishment of debt-related costs, acquisition-related costs, certain non-cash expense items and other unusual or infrequent items as well as the associated tax impact of these items.

Additionally, we exclude non-operational changes in our tax expense such as 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 fourth quarter was 16.3% compared to 17.6% in the fourth quarter of 2014 and 15% in the third quarter.

The sequential improvement was due primarily to improved yields at one of our advanced technology plants and favorable volumes and mix of business at a few of our conventional technology facilities in China.

The year-over-year decline reflects the inclusion of the results of our acquired operations, which have lower gross margins than our existing business, partially offset by the improved performance at our advanced technology facilities.

We expect to largely eliminate the gross margin differential between our legacy business and the newly acquired operations once our synergy plan is fully implemented.

Selling and marketing expense was $17.0 million in the fourth quarter, or 2.6% of net sales, compared to $9.7 million or 2.5% of net sales in the same quarter a year ago, and $17.3 million or 2.7% of net sales in the third quarter.

The year-over-year increase in the amount of sales and marketing expense was due to the inclusion of Viasystems.

Fourth-quarter G&A expense was $38.1 million, or 5.7% of net sales, compared to $24.4 million or 6.2% of net sales in the same quarter a year ago, and $35.3 million or 5.4% of net sales in the previous quarter.

The year-over-year increase in the amount of G&A expense was due again to the inclusion of Viasystems.

The decrease in G&A as a percentage of revenue reflects the leverage we are gaining from the acquisition.

Interest expense was $15.3 million in the fourth quarter compared to $16.2 million in the third quarter.

We recorded $3.7 million or $0.03 per share of foreign exchange gain in other income net in the fourth quarter compared to a net gain of $4.1 million in the third quarter.

The Q4 gain was due primarily to the continued devaluation of the Chinese currency.

Our operating margin in Q4 was 8%, this compares to 8.9% in the same quarter last year and 6.9% in the third quarter of 2015.

For all of 2015 our operating margin was 7%, an improvement from the prior year's performance of 5.3%.

The Q4 2015 results include approximately $3.8 million of losses associated with the three plants that we announced that we're closing.

Our effective tax rate in the fourth quarter was 24.6% resulting in effective tax rate of 26% for the full year.

Fourth-quarter net income was $31.5 million or $0.31 per diluted share including approximately $0.03 of dilution from the acquisition.

This compares to fourth-quarter 2014 net income of $23.2 million, or $0.28 per diluted share, and third-quarter net income of $23.8 million, or $0.24 per diluted share.

Adjusted EBITDA for the fourth quarter was $95.8 million or 14.3% of net sales compared with fourth-quarter 2014 adjusted EBITDA of $60.5 million or 15.5% of net sales.

In the third quarter adjusted EBITDA was $87.6 million or 13.4% of net sales.

Moving on to our segment performance, with the acquisition of Viasystems we changed how we manage our business and now report our results in two segments, PCBs and Electromechanical Solutions.

The PCB segment had net sales of $607.9 million in the fourth quarter, up from $371.9 million in the fourth quarter a year ago and $602.4 million in the third quarter.

Gross margin for this segment was 17.1% in the fourth quarter compared to 18% in the same quarter a year ago and 15.6% in the third quarter.

The changes in revenue and gross margin were due to the reasons that I mentioned earlier.

The PCB segment's fourth-quarter operating income was $70.3 million compared to $38.4 million in the same quarter last year and $61.5 million in the third quarter.

The Electromechanical Solutions segment had net sales of $60.9 million in the fourth quarter, up from $19 million in the fourth quarter of 2014 and $49.6 million in the third quarter.

The year-over-year increase was due to the contribution of sales from the Viasystems acquisition.

The sequential increase in revenue reflects primarily increased volumes.

Gross margin for this segment was 8.2% in the fourth quarter compared to 8.4% in the same quarter a year ago and 6.5% in the third quarter.

The sequential improvement reflects both increased volumes and a better mix of product.

The Electromechanical Solutions segment's fourth-quarter operating income was $2.9 million compared to operating income of $0.7 million in the same quarter last year and $0.6 million in the third quarter.

Corporate SG&A expense not directly associated with either segment was $19.8 million in the fourth quarter of 2015, $4.6 million in the fourth quarter of 2014, and $17.1 million in the third quarter of this year.

The year-over-year increase was due to the inclusion of Viasystems in 2015 as well as higher incentive compensation.

Cash and cash equivalents, including restricted cash, at the end of the fourth quarter totaled $262.6 million, an increase of approximately $112.5 million from the third quarter.

Adjusted cash flow from operations, which excludes non-GAAP adjustments, was $141.4 million and our cash cycle days improved to 49 days.

Free cash flow for the fourth quarter was $118.4 million reflecting capital expenditures of approximately $23 million during the quarter.

For the full year free cash flow was $182.7 million.

Now as we look to 2016 we expect capital expenditures to be approximately $110 million to $120 million.

Net debt was approximately $940 million at the end of the fourth quarter and a reduction of about $111 million on a sequential basis.

Depreciation for the fourth quarter was $39.1 million.

And now I'd like to turn to our guidance for the first quarter.

The first quarter is going to be challenging as we expect a larger than normal drop off in revenue from our cellular phone end market and our plants in China experience the annual one-week shutdown for Chinese New Year.

We expect total revenue for the first quarter of 2016 to be in the range of $570 million to $610 million.

As a reference point, our first-quarter revenue last year was $329.2 million.

On a pro forma basis Q1 revenue last year was $633.8 million.

The year-over-year decrease reflects a 33% decline, that is 44% sequentially, in our cellular phone end market and lesser declines in our other end markets, partially offset by 8% to 10% increases in our aerospace and defense and automotive end markets.

We expect non-GAAP earnings to be in the range of $0.05 to $0.11 per diluted share.

Included in this forecast are projected operating losses of about $600,000 related to the two remaining plants that we announced would be closed.

The EPS forecast is based on a diluted share count of approximately 100 million shares.

This compares to an EPS of $0.13 per diluted share reported in Q1 of 2015 which was based on a diluted share count of approximately 84 million shares.

We expect SG&A expense to be about 9.2% of revenue in the first quarter and we expect interest expense to total about $16 million and we estimate that our effective tax rate will be between 25% and 29%.

To assist you in developing your financial models we offer the following additional information.

We expect to record during the first quarter amortization of intangibles of about $6.6 million, stock-based compensation expense of about $2.4 million, non-cash interest expense of approximately $4.9 million, and we estimate depreciation expense will be approximately $41 million.

Finally, I'd like to announce that we will be participating in the JPMorgan global high-yield and leverage that conference in Miami, Florida on March 2. That concludes our prepared remarks and now I would like to open the line for questions.

Operator?

(Operator Instructions).

Matt Sheerin, Stifel.

Just following up on just the comments you made, Todd, regarding the handset, the cellular business being down 45% or so sequentially.

It looks like if you look at other suppliers to Apple, obviously everyone was guiding down, but it looks like -- this looks like the biggest decline sequentially.

You know, the timing within the supply chain of your big supplier differs by component supplier.

But I'm just trying to figure out why that seems to be deeper than others.

And as you look to the year, I think you said that you expected -- I think the comment was that you expected to grow this business, but was down 32%-33% year-over-year right out of the box here.

Unless you have a huge ramp in the second half it looks like that business will be down double-digits for you this year.

And the concern is that most of that is advanced technologies where you get better margins.

So the question is, A, are going to be able to grow the business for the year?

And B, if not, are you going to see margin contraction in that business?

So, this is Tom.

Let me answer that.

Of course, I can't comment on others and on their business situation.

I think you, as we emphasized, if you looked at the year-on-year growth for TCM in the cell phone business, we grew year on year against 2014 by 43%.

We had a very strong fourth-quarter.

Sometimes that -- what I would point you to is potential inventory situations that are then corrected in the first quarter.

And so, I think that is going to help explain any potential differences you might see between different participants in the cell phone market.

If you look at how we are looking at the year, this was a -- as you know, a product upgrade cycle, what we saw this year, very similar to 2014.

If you looked at 2014 Q1/Q2 you were looking at sort of the tail end of a product upgrade cycle.

What is very different of course is when you are looking at a new product or a major product introduction cycle and the ramp that occurs then.

So, as we look forward at this year we have quite a bit of confidence that, as we build into Q3/Q4 and we look at that usual seasonal turn, that we will be in a good position to ramp.

And that the demand, as we showed or talked about that we we'd be seeing, again, below what industry forecasts look at as a longer-term CAGR at 5% to 8%, that it would be below that but that we would see overall growth.

So that is where we stand right now as we look at that particular market.

And as we emphasized, what is terrific about our position now is that we have got a very strong diversified set of end markets that we are serving that really help to mitigate that seasonal Q1/Q2 effect.

Okay I appreciate that.

And if you look at the EPS guidance, you are looking at a roughly 200, 250 basis points decline in gross margin.

And I understand that the negative leverage, particularly the holidays in China, the handset business, etc.

But I think the whole point of doing the Viasystems acquisition was to mitigate the volatility in the margins quarter to quarter, and here you have a fairly significant drop.

And understand it could be sort of a one-off because of the handset business.

But you get through the consolidation of manufacturing and the cost cutting are you expecting that the Q4 to Q1 swings will be less pronounced going forward or is that just hard to tell at this point?

Well I think it is a little bit challenging.

Each year is different.

We are always going to have the seasonality in our cellular consumer product market segment.

The trick there -- one of the focuses that we have had is to try to dilute that impact.

So the dollar amount doesn't necessarily change, but the percentage of that as a piece of the total pie does change.

So we are expecting some improvement.

And if you look kind of cycle to cycle over the last -- a similar time in 2014 when you were in kind of a similar product cycle swing, the EPS impact was much more severe.

And we are not saying the guidance this quarter is robust or anything, we are certainly working to improve that.

But we are much better than we were positioned a couple of years ago when we went through a similar cycle.

We are benefiting from the synergies that we've implemented, but at this stage we are probably only seeing about half of that benefit.

And so, the other half will come in as we projected and discussed over the last couple of quarters; will continue to come on during the rest of this year.

And you would get the -- that should provide some incremental benefit as we look at Q1 a year from now all things being equal.

So I think there is a couple of things to keep in mind as you look at the guidance that is offered here.

Okay, fair enough.

And then just on the networking and communications business, which it sounds like that is holding up well, particularly the networking side.

You are guiding it sequentially basically flattish, which seems to be a little bit better than seasonal.

Why is that?

Are you starting to see any signs of the telecom 4G buildout in China resume?

Yes, if you look at telecom and especially during the last year we sell telecom drift down to closer -- we've traditionally talked about it as being half of that networking communications market, now it is closer to about 40%.

But if you look at the situation in China, really from about mid December we started to see our customers come back with demand reflecting the momentum -- a regain in momentum around the build out in China of 4G.

We have continued to see that momentum carry into the first quarter and we do expect it to continue in the first quarter.

So that has sort of been -- that is the swing factor that we are seeing that is helping us to -- on the networking communications side.

Okay, great.

That is it for me.

Thanks a lot and good luck this year.

Paul Coster, JPMorgan.

So I am intrigued by what seems like a new product cadence and a new customer acquisition cadence.

Can you just talk us through that a little bit?

And how, if at all, you think that might benefit utilization rates in the North American facilities and ultimately gross margins for the overall Company?

So with the acquisition and I think just a couple of points there.

Clearly the acquisition has helped us in our positioning, particularly in the automotive area, but it has also brought us a nice strength and position and product offering across the board into our other end markets, particularly in the networking telecom into the MII area and aerospace and defense.

So when you are looking at automotive what the principal strategy for us is, as I emphasized earlier, is taking the TTM technology -- legacy TTM Technologies capabilities, moving those into the automotive area where Viasystems has always had a very strong position.

And we are finding increased traction now with our customers there.

It does take usually several years to really build the volume into that area, but we are really encouraged by the response and the interest from our customers.

As you look at North America in particular, that is more for automotive, it is a new product introduction market as it is for network and telecom.

And then you have the aerospace and defense component.

All three of those areas, as we now have increased product technology breadth, product capability, we are looking to move utilization rates up in the facilities.

Obviously that will also be enhanced as we complete the shutdown of the announced plant shutdowns that we announced back in September.

So with the completion there we will see a tick up in utilization rates.

We will continue to look at the revenue opportunities that we are seeing now.

Aerospace and defense strength is clearly of help there as we look at filling those facilities.

As you increase the utilization rates, is there some kind of rule of thumb we can use to determine the impact it has on gross margin?

Well in North America there is a very, very poor correlation between utilization and profitability.

As we've reported the last couple of quarters some rather low levels of utilization we have had some of the best profit quarters in our North America operations that we have had in some time.

So it is difficult to correlate that very well at all.

Now in Asia it is quite a different story, more of a high-volume oriented footprint, utilization is a much more useful metric.

And as you look at those levels, I haven't necessarily calculated for a 5 point change in utilization what does that do to our gross margin, it is something to look at.

I have just done it precisely.

But there is a definite benefit to us as we improve utilization levels in Asia.

And as Tom mentioned, in the fourth quarter our utilization level was down more in the mid-80s, which is actually less than Q3, which is a little uncommon but still at a relatively high level.

And I will say that our profitability was very good in Asia for the quarter.

And again, what we saw and why it was maybe down a few points from where we expected it to be was things softened a little bit in December in some of our Advanced Technology plants, maybe a few weeks sooner than we might normally have seen in past cycles.

So you can kind of wage that and gauge, but I don't have a specific number to share with you at this point.

Okay.

And then the remaining 20% of the synergies are really sort of long lead time items if I remember correctly, like real estate and insurance and other costs that can be managed down, is that correct?

I'm sorry, could you repeat that?

The remaining 20% of the synergies that you intend to achieve out of the $55 million relate to long lead time items such as -- I don't know, rent and insurance, is that correct?

No, not really.

We are just working down a rather methodical path.

There are some efficiencies both in our cost structure in terms of looking at our staffing levels.

We have plans in place through the rest of the year to make small adjustments as we transition certain processes.

We have also got best practice initiatives that we've identified and steps that we are taking to take advantage of knowledge throughout the Company that we can share that will provide some improvement, all specifically identified that we are working.

So it is not some a long lead time real estate driven as it is just actions within the operations that take a little bit of time to be able to implement.

So you will see those kick in here over the next two quarters to fulfill our overall goal of the $55 million target.

Okay, my last question is, as we look at the overall shape of the year, I am assuming that we just sort of see sequential revenue and margin improvement and obviously EPS improvement sequentially, does that align with your expectations?

Well, I think so, Tom made comments in his script about what we are -- what our view is on the market in terms of the growth of the certain end market segments that we participate in.

If you work through the math on some of those you are going to see that we are looking at an encouraging year, we are just having a pretty tough start to it.

And so, obviously as the revenue picture improves, and as we implement the additional synergies and feel the effect of the synergy actions that we have already taken, all of those will contribute to improving margins as we go forward here this year.

Very good, thank you.

(Operator Instructions).

Sean Hannan, Needham & Company.

So, I want to see if I can take the direction of questions on a little bit of a different path.

the automotive space you have touched on a bit tonight, certainly been an area of growth focus for much of the IT supply-chain.

Can you elaborate for us -- because I know you have talked about this a fair amount, really with the Viasystems acquisition, etc.

Can you elaborate for us a little bit more in the specific systems that you are seeing the growth in?

Certainly realizing that there is a lot more content related to safety features within the cars, within more complex infotainment.

Is there a way to perhaps give us some bit of a sense of what specifically is a growth driver today?

And then also based on the long cycle of design that you typically would go through from this, I am sure there must be some insight that you would have today for how perhaps that growth may morph and where it goes?

Thanks.

Okay, sure.

Think about -- I would start with the -- what are the traditional PCB uses in the car.

And a lot of that has been built around engine controls, around the basic safety systems.

Think about it as sort of the powertrain transmission-related area as well.

What has been really starting to grow in terms of applications would be areas now around the engine, so you start thinking about first and foremost electric vehicles and hybrids.

And there you are now incorporating a battery.

So as you incorporate the battery you are looking at a very different level of electronic or electric -- electronic content requirements.

As you start looking at radar requirements, so now you are looking around the car and looking at sensor requirements.

Whether those sensors are built into the mirrors or elsewhere, a sensor requirement again is going to require a relatively -- a pretty complex printed circuit board.

Generally an RF board requirement, something similar to what we would see traditionally in aerospace and defense now moving into automotive.

As you look at more and more battery management, power electronic requirements require very special boards, heavy copper boards.

And generally you are looking there at very difficult copper layers to lay down, very precise registration requirements.

And then the advanced drivers assistance systems and infotainment -- you can almost categorize those together because there you are looking at a requirement for a high density interconnector, an HDI board and what we would classify as Advanced Technology requirements for those cameras.

Also there's requirements for the infotainment applications.

All of those nontraditional areas of the automobile are where you are seeing growth, that is where the TTM or the legacy TTM capability is concentrated.

And often if you are looking -- particularly in infotainment, you are looking at a slightly shorter cycle for a qualification then you would traditionally look at for a high reliability board used in engine controls.

So instead of a two to three-year requirement you are looking more at slightly shorter requirement.

So that is where we are seeing the interest right now from customers in particular.

And they already value what we provide in terms of high reliability capability with the boards that we supply.

So you put all that together and that is what gives us confidence that the 10% growth rate that we saw last year, which really didn't have elements of what I just talked about in terms of the legacy TTM capability, that wasn't built into that growth rate.

But it was a very strong unit volume growth year.

Now we are looking into 2016, you are going to see electronics content continue to build, unit volume growth perhaps come down a little bit, but still high level of electronics content growth.

And that is where we are going to see continued opportunities and where we have some level of confidence that you're going to see a similar growth rate from TTM in automotive.

And I will leave you with one other last thought.

If you look at 2014 comp PCB content per unit, automobile was $55 per automobile, that is a rough average.

And you can expect that that sort of right in the mid range kind of number from a PCB standpoint.

So now as you see electric vehicles, hybrid growth, as you see some of these other systems grow you are going to see that content -- PCB content grow as well.

So really for us a very exciting opportunity and one that we need to deliver on.

That is great.

And then if I could just key on a few times in mentioning the advanced technologies.

Obviously that is a goal and a growth focus of yours in terms of your mix and solutions.

Is it appropriate for us to step back and think, and hey, look this is not just a TTM goal, and this is not just a general direction of where some of the market is in PCBs?

But instead that you have enhanced tangible programs that have longer visibility, that allow you to roadmap [you] to continue growing this mix when I think about contributors such as the higher growth automotive content and so forth?

Is that an appropriate way to think about things?

That is correct.

Now what you will -- as you look long-term what we -- and as we look at our ability to capture more share of the overall PCB usage in an automobile you -- the swing factor as you look at it is of course unit volume always difficult to estimate what that growth rate is.

Much more I think we are going to have a pretty good handle going forward as we look at electronics content development in the automobile and we look at the particular opportunities as we qualify for specific models.

So we are going to have visibility there.

What is always difficult to estimate is, okay, how are those models going to sell, what is the unit volume that is going to be ultimately associated with that model?

But it certainly enhances our visibility long-term, similar to what we see in aerospace and defense where we qualify for programs.

And also more similar to networking communications where we qualify for a platform.

So that is the kind of visibility that we like as a Company and it also makes very good use of our capability to support the customer at the NPI stage and to take that to volume production as they go to ramp.

So a really nice fit with the TTM model.

Sure, all make sense.

And thanks very much for all the color.

Yes, thank you, Sean.

That concludes today's question-and-answer session.

I would like to turn the conference back over to our management team for any additional or closing remarks.

Sure.

Let me just -- I just wanted to close by emphasizing a few of the points that -- summarizing the points that we made earlier.

First of all, the 2015 results from TTM were strong, and we made a real strategic step forward with the Viasystems acquisition.

Secondly, with the acquisition we have got a leadership position now in a diverse set of end markets.

That diversity is going to be -- is going to pay off for us in Q1 and beyond as we deliver on the synergies.

Thirdly, the automotive market offers real growth potential at TTM and we are positioned to take advantage of that growth with our Advanced Technology platform.

And finally, all of these efforts are focused on generating the cash that will rapidly allow us to delever our balance sheet and repay our debt.

And we will be showing investors evidence of that with a $70 million to $80 million repayment of our debt in the first quarter.

We really appreciate your interest in TTM.

Thank you for joining us on the call.

And that does conclude today's conference.

Thank you for your participation.

And you may now disconnect.