TTM Technologies Inc (TTMI) 2016 Q3 法說會逐字稿

Good day and welcome to the TTM Technologies Incorporated Q3 earnings call.

At this time, I would like to turn the conference over to Sameer Desai, Senior Director of Investor Relations.

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 or 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 expectations and assumptions as of the date of this presentation.

TTM does not undertake any obligation to publicly update or revise any of the 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 also will be discussing 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, and we direct you to the reconciliation of non-GAAP and 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.

Good afternoon and thank you for joining us for our third-quarter 2016 conference call.

I'll begin with a few highlights and the review of our business.

Todd Schull, our CFO, will follow with a discussion of our financial performance for the quarter.

We will then open the call to your questions.

TTM delivered strong results in the third quarter.

Revenue came in at $641.7 million and was within prior guidance.

Non-GAAP earnings-per-share came in at $0.39 per diluted share and was well above the First Call consensus by $0.07 and above the top end of our guidance.

Our diversified revenue mix continues to yield benefits as significant improvements in the cellular phone end market offset modest sequential declines in the networking and communications and medical, industrial and instrumentation end markets.

In addition, the aerospace and defense end market achieved another record high for quarterly revenues.

I am particularly pleased to highlight our strong operational execution, which drove better-than-expected non-GAAP EPS during the quarter.

As evidence of our improved operating efficiency and synergy realization, our $0.39 EPS in the quarter was significantly better than the $0.24 EPS in Q3 last year on revenue that was 2% lower.

Also, on September 27, just after our quarter end, we repriced our Term Loan B and repaid $66 million of principle on our debt, in line with our focus on deleveraging our balance sheet.

This now brings the total debt principal repayments in 2016 to $172.5 million, and combined with the repricing of our debt will save us $10 million in annual cash interest expenses.

Finally, on October 5, we announced that we are welcoming Julie England to our Board of Directors.

Miss England retired from Texas Instruments in 2009 following a 30-year career in which her most recent role was Vice President and General Manager of the Radiofrequency Identification, RFID, Division.

Let me move on to a strategic update.

We continued to deliver on our strategic goals of improved business diversification, differentiation leveraging our advanced technology position, growth in the automotive market, and operational excellence.

I have already discussed the benefits of diversification as reflected in our performance in the third quarter.

In the automotive market, the main growth driver for our business is increased electronic content due to industry focus on safety and emissions.

We expect average PCB content will grow from the current $55 per vehicle to $65 per vehicle by 2020 with luxury vehicles already having more than $100 in PCB content.

Our growth strategy is predicated on two priorities.

First, we're focused on the fastest-growing applications in this industry such as ADAS, Advanced Driver Assistance Systems; infotainment; electric vehicles; and radar and lidar systems.

We are leveraging TTM's advanced technology and RF capabilities and bringing them to bear with our existing automotive customer relationships to take advantage of these growth areas.

One exciting example of this is 77 gigahertz radar, which provides higher resolution over a larger area, enabling faster response times from ADAS systems.

TTM has successfully launched our second 77 gigahertz customer to volume and is working in the preproduction phase on a third major customer.

Additionally, three more new radar customers are in the development phase.

From an overall operations standpoint, Q3 was an excellent quarter.

Our cellular phone-focused manufacturing facilities successfully executed a strong new product ramp with better-than-expected yields.

This allowed us to meet customer expectations as they filled their new product pipeline.

The combination of our business diversification initiative, along with our solid operational performance, allowed us to execute on our key focus items of generating EBITDA, cash flow from operations, and paying down our term loan.

Now I'd like to review our end markets.

Networking communications remained our largest end market as sales accounted for 21% of revenue during the quarter.

This compares to sales of 25% in Q2 and 25% in the third quarter of 2015.

As expected, sales declined sequentially in Q3 due to softness from select telecom and networking customers.

However, we expect sales in this end market to improve in Q4 and represent 21% of total sales as we see demand improvement in both market areas.

In our second largest market, automotive, sales represented 19% of total sales during the third quarter compared to sales of 19% in the second quarter and 17% in the same period one year ago.

As expected, we saw a sequential increase in Q3, driven by stronger demand in China.

We expect growth to continue into Q4 and contribute 19% of total sales.

The cellular phone end market accounted for 17% of revenue in the second quarter compared to sales of 10% in Q2 and 16% in the same period one year ago.

As expected, we saw acceleration in cellular phone demand from some of our top customers in the quarter.

This drove 6% year-over-year growth, significantly better than the year-on-year declines we saw in the first and second quarters.

We expect sales as a percentage of revenue to grow to 19% of our total sales in the fourth quarter.

The aerospace and defense end market represented 15% of total first-quarter sales compared to 16% of Q2 sales and 14% of sales in Q3 2015.

We continue to see double-digit percentage year-on-year growth driven by a solid program backlog, which currently stands at $186 million as compared to $180 million a year ago.

Aerospace and defense revenues reached an all-time high for TTM in the third quarter.

We expect sales in Q4 for this segment to represent about 14% of our total sales in the fourth quarter.

The medical industrial instrumentation end market contributed 14% of our total sales in the third quarter compared to 16% in Q2 and 14% one year ago.

Demand for our instrumentation products was weak and pressured sales on a sequential basis, while industrial and medical markets improved.

We expect sales for this end market to represent approximately 13% of revenues in the fourth quarter.

Sales in the computing storage peripherals end market represented 12% of total sales in the second quarter compared to total sales of 13% in Q2 and 12% in the same period one year ago.

We expect sales in computing to represent approximately 13% of fourth-quarter sales.

Next I'd like to talk about technology and capacity utilization trends.

During the quarter, our advanced technology business, which includes HDI, rigid flex and substrate, accounted for approximately 35% of our Company's revenue.

This compares to approximately 29% in Q2 and 34% in the year ago quarter.

The sequential growth was driven by the strong growth 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 80% in the third quarter compared to 74% in the second quarter, driven by the ramp in our cellular phone-focused facilities.

Our combined overall capacity utilization in North America was 57% in Q3 compared to 59% in Q2.

Finally, I'd like to provide an update on our customers and order backlog.

Our top five customers contributed 35% of total sales in the third quarter of 2016 compared to 29% in the second 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 third quarter compared with 10% in the second quarter.

At the end of Q3, our 90-day backlog, which is subject to cancellations, was $428.4 million compared to $380.7 million at the end of the second quarter and $411.7 million at the end of the third quarter last year.

Our book-to-bill ratio for PCBs was 1.06 for the three months ending September 26.

In summary, we delivered strong third-quarter financial results, which demonstrated the benefits of our diversified end market mix, as well as our operational execution.

Our superior cash flow in the quarter allowed us to make another debt repayment in line with our stated deleveraging strategy and to refinance our debt to more favorable terms.

We continue to be optimistic about the future of TTM.

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

Thanks, Tom, and good afternoon, everybody.

We had a terrific quarter in Q3.

Let me just summarize a few financial highlights.

Revenue in the quarter was $641.7 million, up $40 million sequentially.

Non-GAAP EPS was $0.39 in the quarter.

This was above the midpoint of guidance by $0.07 and a $0.15 improvement from Q3 last year.

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 networking and communications end market with growth in automotive, aerospace and defense, and cellular end markets.

We achieved non-GAAP operating margin of 9.5%, an improvement from 6.9% operating margin in Q3 one year ago, and the highest level for any quarter since 2011.

We generated over $102 million of adjusted EBITDA compared to $87.6 million a year ago.

This is a record for TTM.

Adjusted cash flow from operations during the third quarter was $102.7 million versus $21.3 million a year ago.

Finally, on the first day of our fourth quarter, we successfully repriced our Term Loan B, reducing the interest rate 75 basis points to LIBOR plus 4.25% with a 1% LIBOR floor, and we repaid $66 million of principle.

In addition, we increased the availability of our revolving US asset-based loan from $150 million to $200 million and decreased the interest rate by 25 basis points.

These actions will reduce our annual cash interest expense by about $10 million.

So on to the details.

For the third quarter, net sales were $641.7 million compared to net sales of $652 million in the third quarter of 2015 and compared to second-quarter net sales of $601.8 million.

The year-over-year decrease in revenue was due to declines in the networking and communications end market, partially offset by growth in our A&D, auto and cellular end markets.

The sequential increase reflects our seasonal upswing in the cellular phone end market.

GAAP operating income for the third quarter of 2016 was $50.2 million, compared to $23.6 million in the third quarter of 2015, and $34.7 million in the second quarter of this year.

On a GAAP basis, our net income for the third quarter of 2016 was $25.6 million or $0.23 per diluted share.

This compares to a net loss of $2.2 million or $0.02 per share in the third quarter of last year and net income of $18.5 million or $0.17 per diluted share in the second-quarter 2016.

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

Our non-GAAP performance excludes restructuring, impairments, gains and losses on sales of fixed assets, 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 nonoperational changes in our tax expense such as the impact of retroactive changes in the tax law and non-cash discrete items.

We present non-GAAP financial information to enable you, the investor, 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 third quarter was 17.1% compared to 15% in the third quarter of last year and 16.3% in the second quarter.

The year-over-year increase in gross margin was due to improved execution at our cellular and certain acquired plants and savings from our synergy initiatives.

The sequential increase was due primarily to operational execution and higher volumes in our cellular end market focused manufacturing facilities.

Selling and marketing expense was $15.4 million in the third quarter or 2.4% of net sales compared to $17.3 million or 2.7% of net sales in the same quarter a year ag, and $16.3 million or 2.7% of net sales in the second quarter.

The year-over-year decrease and the amount of sales end marketing expense was due to synergy initiatives.

Third-quarter G&A expense was $33.3 million or 5.2% of net sales compared to $35.3 million or 5.4% of net sales in the same quarter a year ago and $35.2 million or 5.8% of net sales in the previous quarter.

The year-over-year decrease in the amount of G&A expense was again due to our synergy initiatives.

Interest expense was $14.2 million in the third quarter, a decrease of $2 million from the same quarter last year.

We recorded $3.9 million of foreign exchange gain and other income net in the third quarter.

This compares to a net gain of $4.1 million in Q3 last year.

Our operating margin in Q3 was 9.5%.

This compares to 6.9% in the same quarter last year and 7.7% in the second quarter of 2016.

The significant improvement year over year demonstrates the benefits of diversifying our revenue base and our focus on operational execution and cost management.

Our effective tax rate was 21% in the third quarter compared to 27% in the same quarter a year ago.

The year-over-year improvement is due to a more favorable geographic mix of our profits.

Third-quarter net income was $40.1 million or $0.39 per diluted share.

This compares to third-quarter 2015 net income of $23.8 million or $0.24 per diluted share and second-quarter net income of $28.4 million or $0.28 per diluted share.

Adjusted EBITDA for the third quarter was $102.2 million or 15.9% of net sales compared to third quarter 2015 adjusted EBITDA of $87.6 million or 13.4% of net sales.

In the second quarter, adjusted EBITDA was $90.2 million or 15% of net sales.

Looking at our segment performance, the PCB segment had net sales of $595.5 million in the third quarter, down slightly from $602.4 million in the third quarter a year ago, and up from $561.4 million in the second quarter.

Gross margin for this segment was 17.7% in the third quarter compared to 15.6% in the same quarter a year ago and 17.1% in the second quarter.

The year-over-year improvement in sales and gross margins were noted in my earlier comments.

The PCB segment's third-quarter operating income was $76.4 million compared to $61.5 million in the same quarter last year and $65.6 million in the second quarter.

The electromechanical solutions segment had net sales of $46.2 million in the third quarter, down from $49.6 million last year and up from $40.4 million in the second quarter of this year.

The year-over-year revenue decrease was due to a decline in the networking and communications and medical, industrial, and instrumentation end markets, partially offset by growth in the automotive end market.

The sequential increase in revenue reflects a rebound in the automotive end market.

Gross margin for this segment was 11.1% in the third quarter compared to 6.5% in the same quarter a year ago and 8.5% in the second quarter.

The gross margin increased year over year due to the closure of our Juarez facility.

The electromechanical solutions segment's third-quarter operating income was $2.4 million compared to $0.6 million in the same quarter last year and $0.7 million in the second quarter.

Corporate SG&A expense not directly tied or associated with these segments was $16.7 million in the third quarter of 2016, $17.4 million in the third quarter of 2015, and $18.3 million in the second quarter of this year.

The year-over-year decrease was due to the previously mentioned synergy initiatives.

Adjusted cash flow from operations was $102.7 million in the third quarter, increasing from $81 million in the second quarter.

Year-to-date we've generated approximately $204 million of adjusted cash flow from operations.

Cash and cash equivalents at the end of the third quarter totaled $291.8 million, an increase of approximately $76 million from the second quarter.

On the first day of Q4, we repriced our Term Loan B and repaid $66 million of our term loan, bringing our year-to-date repayments to $172.5 million.

The combination of strong operating profits and a full year of EBITDA post-acquisition has reduced our leverage ratio to 2.2 from 2.5 last quarter, keeping us well on track towards achieving our goal of 2.0 within two to four years post-acquisition.

Depreciation for the third quarter was $37 million.

Now I'd like to turn to guidance for the fourth quarter.

TTM has a 52-, 53-week fiscal calendar.

2016 is a 53-week year.

The extra week will be included in our fourth quarter.

Note, however, that the extra week is the holiday week between Christmas and New Year's.

And as such, the revenue benefit is modest at best, but we do incur an extra week of operating expense.

Both of these factors have been reflected in our guidance.

We expect total revenue for the fourth quarter of 2016 to be in the range of $650 million to $690 million.

As a reference point, our fourth-quarter revenue last year was $669 million.

On a year-over-year basis, growth in our cellular, automotive, aerospace and defense, and computing end markets is being offset by declines in the networking and communications end market.

We expect non-GAAP earnings to be in the range of $0.42 to $0.48 per diluted share.

The EPS forecast is based on diluted share count of approximately 102.5 million shares.

This compares to an EPS of $0.31 per diluted share reported in last year's Q4.

We expect that SG&A expense will be about 7.7% of revenue in the fourth quarter.

We expect interest expense to total about $12.7 million, and we estimate our effective tax rate to be between 19% and 23%.

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

We expect to record during the fourth quarter amortization of intangibles of about $6 million, stock-based compensation expense of about $3.1 million, non-cash interest expense of approximately $2.5 million, and we estimate depreciation expense will be approximately $39 million.

We also expect to record a non-cash loss resulting from the repricing of our debt related to the unamortized debt discount and issuance costs of approximately $47.8 million.

That concludes our prepared remarks, and now we would like to open the line for questions.

Operator?

(Operator Instructions).

Matthew Sheerin.

Thank you and good afternoon, guys.

Just a few questions, just quickly on your tax rate guidance, was that 19% to 20%, Todd?

It was 19% to 23%.

Essentially if you take the midpoint, it's essentially where we are at now.

Got you.

Okay.

And obviously the margin leverage has been very strong.

I know part of that has to do with the advanced technologies, HDI, and a lot of that has to do with the big ramps out of your big mobile customer.

It looks like you're going to -- you'll be hitting that 10% EBIT margin target that you set longer-term on an annual basis.

As we look, I know visibility into Q1 obviously limited, but as we look into next year, should we expect sort of margins to dip as those product ramps claims roll off?

And although on a year-over-year basis, given the synergies and the cost savings and efficiencies, we should still expect year-over-year margin improvements, correct?

Matt, I think you said it very well.

You can expect in Q1 that you will see our typical seasonal downturn as a result of the consumer portion of our business.

How deep that will be will totally depend on how successful the products are rolling out here in Q4.

We will have to watch and see that.

But even in a good year, you'll see a seasonal downturn.

So it would be totally reasonable to expect margins and absolute dollar amounts of earnings to decline in Q1 versus Q4.

But, in terms of year-over-year comparisons, it's a little early to tell, but recognize we had a pretty tough Q1 this past year in 2016.

And I think your point on operational execution and performance is absolutely right.

That's where the focus is, and continuing that treadmill, if you will, in terms of improving our operational performance across the board, so that will be the focus as we go into Q1 of next year.

Got it.

And on the networking and comms segment which has been weak for a number of suppliers in that market, although there are some rumblings of some pickups, I know you're looking at some sequential growth there, could you maybe drill down into areas of strength and weakness?

I noticed that Huawei was still a top customer.

So, on a relative basis, are you still seeing greater strength from customers in Asia versus other parts of the world?

Yes.

So, a couple comments.

I always segment this, and we got the telecom side and the networking side.

And on the telecom side, which is about a third of our business in the network and communications end market, what we are seeing is, yes, 4G continues to roll out in China.

I think if you look at where they are in the 4G buildout, the estimates are somewhere around 75%, 70% to 75%, through the buildout.

Growth in India, that growth has come slower than expected in India, but it is growing, and I think the expectations in 2017 are that that market will grow.

That's sort of -- those are the ongoing bright spots.

Other than that, in telecom I think it's going to be a relatively flat year next year as I think the market digests 4G and as we -- and starts point towards 5G for 2018 and beyond.

On the networking side, it's been very interesting.

I think generally this was a slower quarter.

I think the fourth quarter we should see some improvement there.

That improvement should be moderate at this point, and we continue to see a very different mix depending on the customer.

I think there's a lot of share movement going on in our customer base, and we are, of course, focused on servicing those -- that customer base broadly.

So if you put that picture together, I think overall fourth quarter, as we said, we are expecting sequential growth.

I think that growth will be moderate, and as we look into 2017, I would expect, again, a moderate to flat kind of situation in networking communications, balanced by a much more positive growth environment in automotive and aerospace and defense.

Okay.

That's helpful.

And just a couple of quick ones, as you are well into the integration of the systems and that's gone very well, but as you look forward, are there any other cost-cutting opportunities in the business, particularly given the capacity in North America, where you can drive margins higher, or is that really just contingent on higher volumes here and the leverage of that going forward?

I think you hit it there, Matt, in the last part of the statement.

As you know, we are not really concerned about that plating-based calculation on capacity utilization in North America.

We really track the profitability in each facility because they are high mix, low volume facilities.

And right now we are really pleased with what we have in our footprint in North America, and we are positioned for that growth that I talked about in aerospace and defense.

And that's very important for our customer base.

They are looking at that.

They are looking at could programs and where those could programs get placed, and our ability to absorb that capacity requirement is critical.

So overall, very very pleased with our position in North America.

I think overall if you look at our footprint globally, we are pretty happy with where we are.

So we will continue, though, as you know, cost reduction is part -- it's basically our life.

It's a necessity.

And we will continue to focus on improving our costs and sharing best practices across our facility and improving operational execution as a result.

Got it.

Thanks very much.

(Operator Instructions).

Paul Coster.

Yes, a few quick questions.

First off, first of all, (inaudible) well done.

Next year, in the cell phone space, we expect seeing much of the industry's shift towards OLED.

I don't see any reason why that should change the PCB side of the equation, but is there any chance that it is disruptive and causes a shakeup of the supply chain?

Thanks, Paul.

So you're correct there.

If there's a transition to OLED down the road, the requirement on the PCB side -- there's always -- every year, every year, as you prototype your new product and as you are developing and shipping that prototype product to the customer, there's always going to be a movement in terms of demand requirements.

But what I would say is, as you look at an LCD shift to an OLED display shift, that would not require an essential change in the PCB technology.

But outside of that regular technology advancement that is part of the industry.

Okay.

On the auto side, there's concern that we are at peak auto at the moment.

Now to your point that the amount of PCB content per automobile will increase for the product cycle is pretty long, so it could take a while for that to play out.

Are we at risk next year of -- it sounds like you don't think so -- the auto segment could be flattish?

We really do key in on -- it's the electronics content growth more than the unit volume growth that's driving PCB, the PCB area, and that is really dependent then on some of the growth areas we talked about, whether it's ADAS, which is requiring new radar technology, and that is brand new to the industry as you look back two or three years ago really now being broadly incorporated into automobiles,

infotainment requirements that continue to shift in the industry, and then, along with that, camera requirements that shift as well.

So those fundamental drivers of electronic content growth, I don't see that changing at all next year.

I think we are going to still continue to see a lot of movement in our customer base there and new and expanded requirements for technologies.

All right.

Last question.

Most exciting one for Todd.

What was the share count again, Todd, and please give us some kind of update regarding when we should start to think about using it and if converted basis?

So, let me take the first question.

Our share count, if we look at the earnings release that we put out there on --

I mean the guidance.

Sorry, my bad.

Guidance?

We were using 102.5 million.

Thank you.

Now, that assumes, because for non-GAAP, we don't -- let me back up.

On the GAAP calculation, we are required to ignore our -- our hedge that we put in on the conversion price to avoid dilution to the Company.

And, as a result, our share count for diluted shares under a GAAP calculation, which is reflected in our GAAP share price -- our share performance of $0.23 this past quarter, is like a penalty of about 26 million extra shares.

So I think the total is like 126 million, 127 million shares used in the denominator for the EPS computation under GAAP calculation.

So that's really essentially a 26 million share hit, assuming the full outstanding bond is converted into stock, which isn't going to happen.

But we are not -- under GAAP rules, we are not allowed to consider the fact that we put a call spread hedge in place back when we issued the convert to reduce the dilutive effect of the Company.

The convert does not become dilutive to the Company until we strike -- until we go above $14.26 per share on the price.

So that's one data point.

Second data point is people who hold converts generally don't exercise until the convert matures.

So you're looking at December 2020 if we run it all the way out.

That's when the convertible bond actually matures.

So then -- and when you get there, essentially you're looking at only -- we did a what if calculation.

If the share price was $16 and because of our call spread option, we don't get dilutive until $14.26, we would have to issue about 3 million shares three and a half years from now, three plus years from now, in order to cover the convert.

It's not a big concern at this point.

There's a lot of time to run between now and when it matures and we'll have to manage that.

But for purposes of this year, we have excluded that from our non-GAAP EPS guidance because of the call spread option that we have in place that effectively protects the Company.

So, the non-GAAP EPS guidance, I'm just rallying through the model here, I beg your pardon, is based on 128 million shares or thereabouts, right?

Non-GAAP -- non-GAAP is 102.5 million.

Okay.

I don't know.

It feels to me like if you are saying that it becomes a consideration at $14.26 and the stock is going to trade up perhaps on these solid results, why isn't it now becoming a consideration notwithstanding your point about it being a long dated event.

I'm not an expert on these things, but I guess you guys are, and you're saying that we shouldn't really be paying attention at the moment.

That's the takeaway here.

Yes.

It's not practical to try to take an action right now on the convert because there is such a long ways to run on it.

It would be (multiple speakers)

Maybe one other question, Todd.

When you say there's 3 million to settle the call spread, is that 3 million on top of the 26 million that has to be added to the GAAP share count?

No, it would be 3 million on the 102.5 million (multiple speakers).

So it becomes like 3% dilutive, not 25% dilutive, as it presently appears under the GAAP calculation.

All right.

Thank you.

(Operator Instructions).

Sean Hannan.

Yes, thanks very much for taking my question here, and also congratulations on the nice results.

It's really a nice thing to see with these benefits coming through from the Viasystems deal, and I know there was a lot that you folks were fighting from a sentiment standpoint there, so congratulations on that.

First question here on automotive.

Can you talk a little bit about whether you see opportunities for platform growth in terms of being placed through the Tier 1s or your customers' two OEM platforms new to you, that's materializing beyond just the general theme of increasing content?

Can you maybe explain a little bit of that for your part of the story?

Yes.

Sure.

Let me talk about I guess a couple of things to keep in mind.

Most of our customers would be the major parts suppliers, and obviously this quarter in our top five we had Autoliv mentioned and Bosch mentioned.

So, that's the type of major customer.

They are servicing, of course, automotive platforms, if you will, for their customer base.

As we announced several quarters ago, one of the major initiatives as we went through the integration was to mend the fences with a couple of the other majors, and we have successfully moved through that process.

And a lot of that had to do with the opportunities they were seeing and some of these newer areas, such as ADAS and infotainment and what we can offer.

And a lot of it had to do with -- I would compliment our team on a very determined effort to repair relationships and improve them from where they were pre-acquisition.

And so we've worked our way through that, we are now in qualification with those customers, as I had mentioned again several quarters ago, it takes a couple of years before you start seeing those are typing efforts turn into volume.

But I can say that we are making good progress there.

the other development out there is that comes from broadly -- it's the automated driving area and the electric vehicle area.

The electric vehicle growth coming a lot of it coming from China with new players there, the automation of the automobile coming, it's a global phenomenon, but a lot of that innovation coming out of Silicon Valley.

We are blessed, if you well, with a strong sales force presence in Silicon Valley and relationships that go back quite a ways, and so we are certainly doing our best to be on top of those opportunities.

And our E-M Solutions business unit is doing a very nice job with the electric vehicle opportunities in China, which in turn sees PCB opportunities for us.

So compliments to the teams and TTM for what their focused there, but we certainly are seeing innovation at a level that I think is really unheard of in the automotive business.

And that's exciting for a company like TTM.

That's great.

And that's very helpful.

Second, the medical industrial and string Tatian segment.

Can you break down the pieces and what you'd seen during the course of the quarter there as well as a little bit more color on your expectations as we move into 4Q here?

Thanks.

Sure.

So interesting question.

Because we highlighted that we actually -- instrumentation on a sequential basis was down in the quarter, and that had been an area of real strength that in the first half of the year.

So what we sort of saw the situation reverse itself where the industrial, which had been the weakest part of the portfolio, sort of had been bouncing along on the bottom, a lot of that driven down by the oil situation, and then some of the larger industrial manufacturing related customers were doing very well.

As what we have seen in this past quarter is industrial now starting to recover a bit and improve, and we expect that to continue in the fourth quarter.

And the medical space has continued to be relatively strong, it's a business where we have a very broad customer base, and a number of customers that source out of North America and then if they do hit volume requirements, shifts to Asia.

We are working very hard to connect with those customers as they move those volume requirements and ensure that we are the choice for them, not from a prototyping all the way through ramp, very much what we do in our other end markets.

So we are making progress in that effort, positioning are HY facility as we call it in China for volume production, and overall I am kind of optimistic that we are going to make good progress in that area.

And if you look at the overall market environment there, 2017 I think we will be returning to growth.

That's very helpful.

Thank you so much for taking my questions.

(Operator Instructions).

It does appear we have no further questions at this time.

Okay.

Let me close by just summarizing a few of the critical points that we've made today.

First, we delivered strong results in the third quarter, eating the high end of our non-GAAP EPS as well as consensus.

Really due to strong operational execution.

Second, our diversification initiative continues to reap benefits as our growth in cellular phone end markets offsets weakness in networking and communications.

And third, we've continued to pay down our debt as shown by a $66 million payment in September.

So let me just close by thanking our employees, our customers and our investors for your continued support.

Thank you.

And goodbye.

That does conclude today's program, we like to thank you for your participation, have a wonderful day and you may disconnect at any time.