TTM Technologies Inc (TTMI) 2016 Q1 法說會逐字稿

Good day, and welcome to the TTM Technologies Incorporated Q1 2016 earnings conference call. Today's conference is being recorded.

At this time I'd like to turn the conference over to Sameer Desai, Senior Director of Corporate Development and Investor Relations of TTM. Please go ahead, sir.

Thank you. 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 factors explained in our most recent Annual Report on Form 10-K and 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 circumstance, except as required by law.

Please refer to the full disclosures including -- 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 in 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, and 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, Sameer, and welcome to TTM. It's great to have you on board. And thank you all for joining us for our first quarter 2016 conference call. I'll begin with a few highlights and a review of our business. Todd Schull, our CFO, will follow with a discussion of our financial performance. We will then open the call to your questions.

TTM delivered solid results in the first quarter. Revenue came in at $583.3 million and was within guidance. Non-GAAP EPS came in at $0.14 per diluted share and was above First Call consensus by $0.05, and above the top end of our guidance.

Our diversification initiative is paying off, as the relative strength in our aerospace and defense, automotive and computing end markets helped to offset demand in the cellular phone market. Strong operational execution drove better-than-expected non-GAAP EPS.

As evidence of our improved operating efficiency and synergy realization, our $0.14 EPS in the quarter was significantly better than the $0.09 EPS of the two combined companies in Q1 last year on 8% lower revenue. As a result, Viasystems became accretive in Q1.

Finally, we repaid $76.5 million on our term loan, in line with our focus on deleveraging. Overall, we continued to deliver on our strategic goals of improved diversification, leveraging our advanced technology position, growth in the automotive market, and operational excellence.

I've already discussed the benefits of diversification, as reflected in our performance in the first quarter. In the automotive area, we made progress in our efforts to qualify our advanced technology facilities with a focus particularly on growth applications in ADAS -- Advanced Driver Assistance Systems; infotainment; electric vehicles; and radar and lidar systems.

After completing supply agreements with two Tier 1 auto suppliers last quarter, we have started benchmarking activities with these customers over a broad spectrum of products, including radar, infotainment, engine and body control. In radar, customers are migrating to 77 gigahertz long-range radar technology, and we expect some production activity to begin in the middle of the year. We are also seeing significant interest in our HDI technology, with new programs being awarded in both the infotainment and the ADAS areas.

From an overall operations standpoint, Q1 was an excellent quarter. All of our business units exceeded their forecasts by remaining focused on yield improvement and cost reductions, despite the challenges presented by the Chinese New Year holiday. This the first quarter that our new market-based business unit structure has been in place, and we were pleased to see some immediate benefits.

As an example of the excellent operational focus of the Company, we were able to shift over 500 of our workers from within our China footprint to our main China-based automotive facility during Chinese New Year holidays. This effort benefited our critical customers, our employees, and enhanced our operational efficiency at both the receiving facility and the lending plant, as these same workers were able to return to their home plants to enable a smooth ramp after the holidays.

In regards to the synergies from the Via acquisition, I'm happy to report that we've implemented or announced actions that represent more than 90% of the annualized $55 million in cost savings that we've spoken about previously. In the first quarter, we completed the production shutdown at our Juarez and Cleveland facilities, having shut down our Milpitas facility in the previous quarter.

The combination of our diversification initiative, along with our solid operational performance, allows us to execute on our key focus items of generating EBITDA, cash flow from operations, and paying down our term loan. In Q1, our adjusted EBITDA was $74.5 million, or 12.8% of revenue. In March, we used the cash flow generated to pay back $76.5 million on our new -- on our term loan.

Now I'd like to review our end market. 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 December 30, 2014.

Networking communications remained our largest end market, as sales accounted for 24% of revenue during the quarter. This compares to sales of 23% in Q4 and 26% in the first quarter of 2015. Partnerships between some telecom service providers in China is impacting the 4G buildout, but India and the US have seen demand for base stations increase. While we are seeing pockets of strength from some networking customers, overall trends were soft in the quarter. However, we expect sales in this end market to increase and represent 24% of total sales in Q2.

In our second-largest market, automotive, sales represented 21% of total sales during the first quarter, compared to sales of 18% in Q4 and 17% in the year-ago period. This segment grew 9% year on year, and we continue to generate interest for our advanced technology products and operate our factories at high utilization rates. As such, the automotive market is expected to increase in dollar terms and contribute 21% of total sales in Q2.

The medical industrial instrumentation end market contributed 16% of total sales in the first quarter compared to total sales of 13% in Q4 and 15% one year ago. Demand for our instrumentation products was very good, and lifted sales on a sequential basis as the industrial market continued to be soft. We expect sales for this end market to represent approximately 16% of second-quarter sales.

The aerospace and defense end market represented 15% of total first quarter sales compared to 13% of Q4 sales and 13% of sales in the year-ago period. Growing 5% year over year, this end market continues to exhibit strength behind 6 consecutive quarters of impressive book-to-bill, and another sequential uptick in total backlog, which currently stands at $198 million, as compared to $185 million at the end of Q4, and $145 million a year ago. We expect sales in Q2 from this segment to represent about 15% of our total sales.

Sales in the computing/storage/peripherals end market represented 13% of total sales in the first quarter, compared to total sales of 12% in Q4 and 11% in the same period one year ago. In the second quarter, we expect sales from computing to represent approximately 12% of sales.

The cellular phone end market accounted for 9% of revenue in the first quarter, compared to sales of 18% in Q4 and 16% in the same period one year ago. The traction for what was largely an upgrade cycle demand period was lighter than anticipated, but we remain well-positioned for model transitions in the second half of the year, which typically experience higher production volumes. We expect sales as a percentage of revenue to grow to 10% of our total sales in the second quarter.

Next I'd like to talk about technology and capacity utilization trends. During the quarter, our advanced technology work, that includes HDI, rigid-flex and substrate, accounted for approximately 28% of our Company's revenue. This compares to approximately 36% in Q4 and 31% in the year-ago quarter. These declines are largely related to the decline in revenues in the cellular phone end market.

We are continuing to pursue opportunities and increase design activities that will leverage our advanced technology capabilities in new markets. We are seeing these efforts yield results, most notably in the automotive and aerospace and defense end markets, in terms of both customer qualifications and revenue diversification.

Capacity utilization in Asia Pacific was 74% in Q1 compared to 85% in Q4. The decline was primarily a result of the seasonal downturn at our advanced technology facilities. Our combined overall capacity utilization in North America was 57% in Q1 compared to 53% in Q4. The increase was largely due to the closure of our plants in Cleveland, Ohio and Milpitas, California, along with the increasingly robust demand climate in aerospace and defense.

Finally, I'd like to provide an update on our customers and order backlog. Our top five customers contributed 29% of total sales in the first quarter of 2016, compared with 36% in the fourth quarter. Our top five OEM customers during the quarter, in alphabetical order, were Apple, Bosch, Cisco, Huawei, and Juniper. Our largest customer accounted for 10% in the first quarter, compared with 17% in Q4.

At the end of Q1, our 90-day backlog, which is subject to cancellations, was $374.5 million compared to $365.8 million at the end of Q4. Book-to-bill for PCBs was 1.04 for the 3 months ending March 28.

In summary, we delivered first-quarter financial results which demonstrated the benefits of our diversification initiative, the progress on our integration efforts, and our operational execution. The Viasystems acquisition gave us greater exposure to the automotive market, which provided stability in a quarter that was seasonally challenged by the cellular phone end market. In addition, we successfully integrated Viasystems and reorganized into a market-based business unit structure that has and should continue to enhance our ability to execute.

Finally, we believe the ultimate fruits of all of these activities will be the ability to generate cash and pay down our debt. We continue to be optimistic about the future of TTM, and thank all our employees, customers and shareholders as we work towards these goals. Now, Todd will review our financial performance for the first quarter.

Thanks, Tom, and good afternoon, everyone. Before I get into the details of the numbers, let me summarize a few financial highlights for the quarter. Revenue in the first quarter was $583 million, a decline on a pro forma basis from last year's first quarter of $634 million, due primarily to declines in the cellular phone end market.

Non-GAAP EPS was $0.14 in the first quarter. This was above guidance by $0.03 and above the combined EPS of the two Companies in Q1 last year, of $0.09. The year-over-year improvement reflects the benefits of our diversification and synergy initiatives as we were able to offset the negative impacts of lower revenue in our cellular phone end market and an increased share count.

We achieved non-GAAP operating margin of 5.7%, an improvement from the combined operating margin of the two companies in Q1 1 year ago of 4.8%, despite the lower revenues, and an improvement from 3% in Q1 2014 when we had a similar product cycle in the cellular phone end market.

The acquisition of Viasystems became accretive in the first quarter, and we repaid more than $75 million of our debt in Q1, demonstrating our commitment towards deleveraging the Company's balance sheet.

Now on to the details. For the first quarter, net sales of $583.3 million compared to net sales of $329.2 in the first quarter of 2015, and compared to fourth quarter net sales of $668.9 million. The year-over-year increase was due to sales from the Viasystems acquisition of approximately $278 million, offset by declines in the cellular phone end market. On a pro forma basis, net sales in Q1 last year were $633.8 million. The year-over-year decline on a pro forma basis was due primarily to declines in the cellular phone end market.

GAAP operating income in the first quarter was $18.9 million, compared to operating income of $8.3 million in the first quarter of last year and compared to operating income in the fourth quarter of $36.5 million.

On a GAAP basis, our net income for the first quarter of 2016 was a loss of $7.3 million, or $0.07 per share. This compares to net income of $3.4 million or $0.04 per diluted share in the first quarter of last year, and $9.5 million or $0.09 per diluted share in the fourth quarter of 2015.

The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes restructuring, impairment, 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 impacts on those items. Additionally, we exclude non-operational changes in our tax expense such as the impact of retroactive changes in the tax law and non-cash discreet 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 first quarter was 14.4% compared to 15.7% in the first quarter of 2015 and 16.3% in the fourth quarter. The sequential decline was due primarily to lower volumes at our cellular phone-related manufacturing facilities.

In addition to the lower -- to the impact of lower revenues from our cellular phone end market, the year-over-year decline reflects the inclusion of the results of our acquired operations, primarily the electromechanical assembly business, which has lower gross margins than our PCB business.

In past quarters, I've commented that the acquired PCB business also had lower gross margins than our legacy PCB business. However, with the success of our synergy efforts, this gap has essentially been closed.

Selling and marketing expense was $17.1 million in the first quarter, or 2.9% of net sales, compared to $9.2 million or 2.8% of net sales in the same quarter a year ago, and $17.7 million or 2.6% of net sales in the fourth quarter. The year-over-year increase in the amount of sales and marketing expense was due to the inclusion of Viasystems.

First-quarter G&A expense was $33.7 million or 5.8% of net sales compared to $24.2 million or 7.4% of net sales in the same quarter a year ago, and $38.1 million, or 5.7% of net sales in the previous quarter. The year-over-year increase in the amount of G&A expense was again due to the inclusion of Viasystems. The decrease in G&A as a percentage of revenue reflects the leverage gain from the acquisition.

Interest expense was $15.6 million in the first quarter, a decrease of $0.3 million from the fourth quarter. We recorded $1.1 million of foreign exchange gain and other income net in the first quarter, compared to a net gain of $3.7 million in Q4.

Our operating margin was 5.7%. This compares to 5.6% in the same quarter last year and 8% in the fourth quarter. Our effective tax rate in the first quarter was 25%. First quarter net income was $13.9 million or $0.14 per diluted share. This compares to first quarter 2015 net income of $10.8 million or $0.13 per diluted share, and fourth quarter net income of $31.5 million or $0.31 per diluted share.

Adjusted EBITDA for the first quarter was $74.5 million, or 12.8% of net sales, compared with first quarter of 2015 adjusted EBITDA of $42.5 million or 12.9% of net sales. In the fourth quarter adjusted EBITDA was $95.8 million or 14.3% of net sales.

In Q1 2015, adjusted EBITDA for the combined Companies was approximately $76 million or 12% of pro forma sales.

Moving on to our segment performance, the PCB segment had net sales of $526.8 million in the first quarter, up from $309.8 million in Q1 2015 and down from $607.9 million in the fourth quarter. The year-over-year increase in revenue was noted in my earlier comments.

Gross margin for this segment was 15.6% in the first quarter compared to 16.2% in the same quarter a year ago and 17.1% in the fourth quarter. The declines in gross margin were due to lower volumes at our cellular phone-related manufacturing facility.

The PCB segment's first-quarter operating income was $52 million, compared to $22.2 million in the same quarter last year and $70.3 million in the fourth quarter.

The electromechanical solutions segment had net sales of $56.5 million in the first quarter, up from $19.4 million in Q1 2015 and down from $60.9 million in the fourth quarter. The year-over-year revenue increase was due to the contribution of sales from the Viasystems acquisition. The sequential decrease in revenue reflects lower volumes.

Gross margin for this segment was 6.7% in the first quarter, compared to 7.7% in the same quarter a year ago, and 8.2% in the fourth quarter.

The electromechanical solutions segment first-quarter operating income was $1.1 million, compared to operating income of $0.7 million in the same quarter last year and $2.9 million in the fourth quarter.

Corporate SG&A expense not directly associated with the PCB or the electromechanical solutions segments was $17.8 million in the first quarter of 2016, $4.4 million in Q1 of 2015, and $19.9 million in the fourth quarter of last year. The year-over-year increase was due to the inclusion of Viasystems.

Cash and cash equivalents at the end of the first quarter totaled $183.7 million, a decrease of approximately $79 million from the fourth quarter. Much of the decline was due to the $76.5 million debt repayment that we made during Q1.

Historically, our cash flow from operations tends to be a bit choppy quarter to quarter. This is evident in our Q1 results, as adjusted cash flow from operation, which excludes non-GAAP adjustments, was $20 million as compared to $141 million in Q4. Some of this volatility is seasonal and some is a function of our fiscal calendar, which in Q1 ended a few days before calendar month end. Many of our customers pay us at or just after calendar month end, so our quarterly results can be impacted by the timing of their payments.

Given our solid adjusted EBITDA performance, our consistent working capital management -- as cash cycle days were essentially unchanged from Q1 a year ago -- and our disciplined approach to capital expenditures, we are confident in the cash-generation capability of the business. Depreciation for the first quarter was $40.2 million.

And now I'd like to turn to our guidance for the second quarter. We expect total revenue for the second quarter of 2016 to be in the range of $580 million to $620 million. As a reference point, our second-quarter revenue last year was $445.4 million.

On a pro forma basis, Q2 revenue last year was $647.6 million. The year-over-year decline on a pro forma basis primarily reflects continued softness in the cellular phone end market.

We expect non-GAAP earnings to be in the range of $0.16 to $0.22 per diluted share. The EPS forecast is based on a diluted share count of approximately 101 million shares. This compares to the EPS of $0.17 per diluted share reported in Q2 of last year, which was based on a diluted share count of approximately 90 million shares.

We expect that SG&A expense will be about 8.4% of revenue from the second quarter, and interest expense to total about $14.4 million, and we estimate our effective tax rate to be between 23% and 27%.

To assist you in developing your financial models, we offer the following additional information. We expect to record during the second quarter amortization of intangibles of approximately $5.9 million, stock-based compensation expense of about $2.9 million, non-cash interest expense of approximately $4.8 million, and we estimate depreciation expense will be approximately $39 million.

Finally, I would like to mention that we will be hosting an Analyst Day event in New York City on May 17. A press release was issued on April 20 with more details on this event.

Additionally, we will be participating in the Stifel Technology, Internet and Media Conference in San Francisco, California on June 6 and 7, and the Barclays High Yield Bond and Syndicated Loan Conference in Colorado Springs on June 9 and 10.

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

(Operator Instructions). Paul Coster, JPMorgan.

[Firm's] push to diversify your cellular segment customer base, particularly on where the contribution from Chinese OEMs should trend?

Hey, Paul, can you repeat that question? We just caught the last part of it. So, can you repeat the first part of the question? Sorry.

Oh, just where the customer segment base for your cellular segment is trending; how it's diversifying with possibly some Chinese OEMs taking more of a percentage.

Yes. Okay. Yes. So, that percentage of Greater China and Korea cellular phone participants remains at about 25% of that business. And as you can imagine, when we look at the impact on that cellular phone end market, that also had an impact as the Chinese end market or pull-through for product was down sequentially.

So, what we -- as we look forward into the next quarter, we're encouraged by continuing to have that base of business, as they do tend to introduce product in the late spring as well as in the fall. So, looking forward to a better business environment there in the next quarter.

Got you. Thanks. And then, switching to Viasystems, has the firm targeted any other possible consolidation targets among the facilities? There's a nice jump in utilization rates in North America. Is that rate sustainable, and how do you see utilization rates trending throughout the year? Thanks.

Yes. So, the -- let me address the utilization piece -- the -- as you're right. There was an improvement of utilization rate.

As you know, in North America the utilization rate calculation that we use is not a great proxy, because it centers around plating capacity. That's not usually the bottleneck in a high-mix, low-volume facility setup like what we have in North America; but still, encouraging to see the improvement. And as I mentioned earlier, it really reflects both the consolidation but also a strong and increasingly strengthening environment in aerospace and defense.

And so, to answer the first part of your question, as we look at that North America footprint, we really are -- we're very appreciative of having the Viasystems footprint as part now of TTM, as we're able to leverage the additional capability in aerospace and defense at the right time, as we're seeing real tailwinds in our backlog for that business.

Let me chime in on a couple of comments. Indirectly, I think you're getting at the -- our efforts regarding our synergy program and initiatives that we've had going there. So, let me just give a quick update on that.

As we indicated in the comments, we are more than 90% of the way in terms of executing or announcing plans to achieve that $55 million in synergies. So, really, we don't have much left to do, and we know what we're going to do; we just have to let the time play out here in the second quarter, which is our fourth quarter since the close.

So, we're very confident about that. We're on track. In the quarter, we had another $12 million or so of implementation. We did receive the benefits that we had anticipated in Q1, and we expect to get increased flow-through now, another increment in Q2, that will benefit us, and is reflected in our higher EPS guidance that we're offering for Q2.

The second comment that we get a lot, quite frankly, and it's just worth talking to now is, is there upside to that synergies, and how do you manage all of that? And I want to make a general statement that, number one, it's a way of life for us in -- as a business in general to always aggressively manage our costs. The electronic supply chain is an -- is a very competitive environment to begin with.

And secondly, there's natural price erosion over time for established products. And so, you're always as a company looking to be more productive; looking to improve yields; looking to find cost reduction opportunities to mitigate those kinds of things, to maintain or grow profit. Part of that strategy also is winning new projects that come in at a different price point to start the cycle all over again.

So, where we're running into the issue is, are we looking for additional cost opportunities or cost saving opportunities? The answer is, absolutely. The challenge we're having is, well, how do you tell what was a synergy and what's just our normal way of life? And we're kind of crossing that bridge here, as we go into this year, because we have our own goals and expectations for the year for all of our facilities, not just the ones we acquired. And we begin to lose visibility between what is a synergy and what is not.

So, we're confident in stating that we've achieved our synergy objective, and we're also willing to share with you or at least explain that we will continue to look for cost-saving opportunities; we will continue to drive for yield improvements; we will continue to look for productivity improvements. That's just the nature of our business.

Got it. Thank you very much.

Sean Hannan, Needham & Company.

Nice job pulling some of those synergies out from the deal here. A couple of questions. The first one -- I want to see -- maybe I heard something incorrectly. Cellular was 9% in the quarter, but it's going to be 10% in the June quarter. Did I not capture that correctly?

No, you captured that correctly.

Okay. So, if I do back-of-the-envelope math on that, it suggests your June is going to be up 14% quarter over quarter. That's a pretty interesting dynamic, given everything that we're kind of hearing out there, particularly with that large customer. So, just trying to understand what really drives that.

And I guess as a follow-on or question from an analyst earlier, is there an aspect of diversification with other customers that might be contributing to that quarter-on-quarter improvement? Thanks.

Yes. So, generally, just -- yes. The -- I think you're moving in the right direction there. The -- there is -- then this has been something we've worked on for several years, diversifying within the cellular phone market, diversifying our customer base.

And as I mentioned earlier, about 25% of that business does come from the Greater China and Korea customer base. They do tend to introduce products, again in late spring as well as the fall. And clearly, as we look at Q2, that's a big part of what we're seeing in terms of potential revenue upside or revenue growth.

And in addition, from a product mix standpoint, just again a reminder -- advanced technology, broadly read, but HDI, rigid-flex and substrate that we're selling into that marketplace.

Okay. So, I suppose for a little bit more clarification, is there a thought process or belief that that diversification, that number, that 25% -- do we feel that, based on what we're ramping with, or to whatever degree of insight into the programs that you're looking at this year, we're going to be that 25% as a percentage of mix this year? Or is that just really too difficult to ascertain today?

I think it's very difficult to ascertain. As we -- because of the seasonal nature of that business, and because of the second-half ramp cycle, that changes that revenue mix, it's very hard to forecast.

Of course, we look at -- we like to have a spread of major customers in all of our end markets, and we'll continue that effort. We'll continue that positioning. And clearly, there are times when it does benefit us. And again, we -- it just helps us as we -- when we look at more challenging quarters, to have that good spread.

And I -- and of course that -- more broadly read, that crosses the end markets and is the reason that it's so important that we have that diversified position in our end markets.

Okay. Thanks. Next topic, and then I'll jump back in the queue. Can you elaborate a little bit on the automotive qualifications that you're working through currently? Obviously, there's a fair amount of time before we get into full production runs with some of that. But it sounded like there are some aspects of previously qualified work that is starting to get a little bit of ramp and into production this year.

So, can you help us to understand a little bit more for the magnitude, and also the potential tail for how that can contribute to continued growth, moving forward? Thanks.

Okay. Sure. The -- we are -- as you know, we -- in the automotive area we were able to grow last year, year on year, pro forma base by 9%. We're looking to do at least that this year in automotive. We believe we can do that.

Part of that growth expectation does lie on new products that had already been seeded by Viasystems, particularly in the radar area, where really Viasystems brought that capability to TTM, and had already positioned in that market.

That market is certainly opening up with ADAS, and I believe will continue to grow as safety systems -- both passive and active safety systems -- are of so much importance to the consumer. So, we do expect to see that growth above the -- what would be the standard 5% to 7% growth rate in that industry. So, we would expect that area to grow more rapidly.

And, yes, we'd already -- Viasystems had already seeded it. As we go forward, it usually is a 2-year approximate cycle to go through qualification and then to begin ramp. You can think of that as 2 to 3 years, depending on the timing.

And so, HDI as an example, which really TTM brings to the combination -- that growth would start kicking in in 2017 timeframe. We may see some small volumes before that, but that would be really new product introduction, or NPI as we call it -- smaller volume; not really noticeable to the investors. So, look at 2017 start to kick in on HDI; really kicking in 2018. That's -- and that's our goal.

That's great insight, folks. Thanks so much.

(Operator Instructions). Matt Sheerin, Stifel.

Just a few questions. Just another question related to your handset business and your biggest customer there. It sounds like that's all demand-related and not share-related, and maybe you can clarify that. But as you look through the end of the year -- and I know that visibility is limited at this point, but are you expecting kind of the normal ramp? And of course, last year, the ramp was different. 2 years ago you had that big product cycle. Do you have any sense of how that's going to play out for you this year?

First of all, I wish I had the crystal ball. I'll just give you a few -- a little bit of color, Matt. I think the -- as you pointed out, this is an upgrade cycle. We saw something similar to this 2 years ago in 2014.

Just as a reminder, in 2014 our EPS was impacted, and we had -- in second quarter our EPS was $0.05. And now you can compare that to the guidance of a more diversified TTM. We're certainly thrilled to see that strength coming from other markets.

On the cell phone side, what we are expecting at this point would be a ramp -- the -- what I would call a traditional ramp in the third quarter and fourth quarter. Again, you can use 2014 as a proxy for what we would be expecting in terms of the third quarter and fourth quarter ramp. And we will be pushing forward -- we were in -- we're on schedule in our prototyping and in our qualification for that ramp.

We believe that we are positioned, and we're always focused on positioning properly for that ramp. And certainly, nothing there that has -- that would lead or indicate that there would be anything unusual about that ramp. I think there's good expectations for what will be coming out in the fall in terms of new models.

Okay. That's very helpful. And just moving to some of your other businesses on the network communications side, I know you've typically seen an uptick in the June quarter -- more selling days, particularly in Asia. It sounds like it's going to flat to up a little bit; so, some weakness there.

Could you talk about the two different parts of the business -- the telecom business and the networking? I know you have a lot of exposure to China Telecom and buildout there. So, what are you seeing in those markets?

Yes. And you're right. I think we will see that uptick -- mild uptick in the second quarter. We are seeing on the networking side, which now -- if you look approximately, telecom at about a third and networking at the balance.

In the networking side, it's just been a mixed picture from -- [based] -- really moving from customer to customer. We -- so, there, it's been rather difficult for the last couple of quarters to forecast, but we are seeing improvement in some of our customers there.

On the telecom side, the -- as I mentioned earlier, there's been a partnership announced between China Telecom and China Unicom on their 4G investment, and that was a partnership designed to leverage their investment.

The sense that we have from the market is that they are working through the resulting inventories of base stations and that, again, there might be a mild improvement here as we go through the course of the year. There's certainly still the unbuilt potential in the 4G infrastructure in China. On top of that, we're starting now to see the India rollout occur, which is a positive; and a slightly better environment in the US as well.

Okay. And this just lastly, regarding the synergies. And I know, Todd, you talk about being at 90% either in execution or actually results. But if you look at your guidance for the second quarter -- so, roll that up in the first two quarters of the year -- what percentage of the synergies is reflected in that operating margin and the results? Are we at 70% or --

We're moving along quite nicely. So, we estimated that we probably had about $8 million of synergy benefit in the P&L in Q1, which was more or less on track with the guidance that we've been giving. And we'll expect that to uptick another increment here for Q2. So, probably more in the neighborhood of plus/minus $11 million, so that you are almost fully getting the benefits.

And then going into Q3, when the full $55 million is implemented, we should see the -- more of the $14 million kind of a run rate per quarter, starting in Q3. So, we're building each quarter. Q1 was about $8 million. We expect Q2 to be more in the $11 neighborhood. And then Q3 will be at full bore.

Okay. And then, looking at margins -- and I know you haven't talked about targets, and perhaps you'll talk about some of those targets at your Analyst Day -- but assuming you see normal ramps in some of your end markets at the end of the year, in addition to the synergies you should see some nice leverage in -- just on your assets, right?

I would agree with that. I think you can see the leverage that we've been enjoying now -- if you just kind of isolate the cellular phone market impact, you can see the benefit that we're achieving and deriving from that in our results here and in our projections for Q2. So, I think your assumption's a valid one.

We still are very much believers that the 10% operating margin is very doable. If you kind of look at where we've been on our journey the last few years, Tom keeps referencing, and I do too, 2 years ago we were in kind of a similar cellular phone cycle with our big customer. And if you go back to there, early in the year, Q1 and Q2, our operating margins were right around 3% -- 3.1%.

Last year, on a -- if you kind of combine the two Companies and look at it that way, we were more in the neighborhood -- in Q1 we were like 4.8%, and this year we're at 5.7%. So, you can see that on a combined basis we're building.

And obviously, Q1 and Q2 are usually our lowest quarters because of that seasonal ramp in the second half of the year. And so, we're building and kind of trying to lift that -- keep moving up to the right and keep moving to a higher plateau each year.

So, we still feel good about the target. We're obviously going to need a little more help on the revenue side and in growing our advanced technology presence. Tom talked about that in the automotive market. That'll take a couple more years to fully take hold. And we'll continue to expand into other markets to take advantage of that capacity.

In the front half of the year, that's where we have the biggest opportunity. And in the second half of the year we come pretty close to that target now. So, I think this year, if it plays out the way we're hoping, that's not an unrealistic target. I think we'll get in the neighborhood.

Okay. All right. Thanks very much.

(Operator Instructions). At this time, I show no further questions in the queue and I turn the conference back over to Tom Edman for any additional or closing remarks.

Okay. I'd like to thank everyone again for joining us, and just wanted to summarize some of the major points that we made in the call. First, we delivered solid results for the first quarter. We beat the high end of our non-GAAP EPS forecast as well as consensus, largely based on broad-based operational execution.

Second, our diversification initiative's paying off as relative strength in our automotive and aerospace and defense markets -- end markets has really offset weakness in the cellular phone end market.

Third, we've implemented or announced actions for more than 90% of our synergy target associated with the Viasystems acquisition, and we repaid $76.5 million on our term loan, consistent with our deleveraging strategy in March.

We all -- we look forward to seeing all of you at our Analyst Day on May 17, and you'll have a chance there to meet not just Sameer and Todd and myself, but also our business unit presidents. Look forward to seeing you then. Thank you.

That does conclude our conference for today. Thank you for your participation.