TTM Technologies Inc (TTMI) 2017 Q1 法說會逐字稿

Good day, and welcome to the TTM Technologies Q1 Earnings Call.

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

Please go ahead.

Thanks, John.

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

Actual results could differ materially from these forward-looking statements due to one or more risks and uncertainties, including the factors explained in our most recent annual report on Form 10-K and our other filings with the 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 the reports on Form 10-K, 10-Q, 8-K, the registration statement on Form S-4 and the company's other SEC filings.

We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA.

Such measures should not be considered as a substitute for 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.

Good afternoon, and thank you for joining us for our first quarter 2017 conference call.

I'll begin with a review of our business strategy, including highlights from the quarter, followed by a discussion of our first quarter results.

Todd Schull, our CFO, will follow with an overview of certain key balance sheet and cash flow metrics, our Q1 2017 financial performance and Q2 2017 guidance.

We will then open the call to your questions.

I would like to thank our employees for delivering an excellent start to 2017 for TTM Technologies.

This year, our facility did an excellent job of starting up immediately after Chinese New Year, which allowed us to deliver revenues above the midpoint of our guidance and non-GAAP EPS above the high end of the range.

Revenues were $625 million, growing 7% year-on-year, representing the second consecutive quarter of year-over-year growth.

This was the highest revenue and EBITDA first quarter results in the history of the company.

The non-GAAP EPS of $0.37 grew 164% year-over-year and was the highest Q1 EPS in 6 years.

The first quarter results validated many of the elements of the strategy we've communicated over the past year.

First, the diversification of our end markets helped to reduce quarterly volatility and stabilized our revenues in what was a challenging quarter in some of our end markets.

On a year-over-year basis, most of our end markets grew, more than offsetting some difficult conditions in the networking and communications end market.

Sequentially, relative strength in our computing, aerospace and defense and medical/industrial and instrumentation end markets helped to offset the seasonal downturn in the cellular phone end market and weaker conditions in the networking and communications end market.

Second, the automotive market continues to be a core growth driver due to increasing electronic content as well as the adoption of advanced technologies.

We continue to see 4 key megatrends driving automotive content growth: vehicle safety and autonomous driving, increasing adoption of hybrid and electric vehicles, advanced infotainment and increased connectivity.

Market forecasters expect the PCB content per vehicle to grow from $60 in 2016 to $70 by 2020.

Some hybrid and electric vehicles currently employ well over $150 of PCBs per vehicle.

While hybrid and electric vehicles make up only 1% of automotive production today, forecasts expect unit volumes to increase significantly, following price parity with traditional combustion engines as early as 2022.

TTM is uniquely positioned to take advantage of these megatrends and content growth due to our focus on radio frequency, or RF, technology and advanced technologies such as high-density interconnect and rigid-flex.

TTM has a long history of RF technology leadership, which is currently being applied to the automotive industry in radar and LiDAR technologies used in safety systems and autonomous driving initiatives.

We recently announced the opening of a center of excellence for RF assembly in our Stafford Springs facility, and completed a new technology center at our Guangzhou, China facility.

TTM plans to remain on the cutting edge in the future development and testing of PCBs used in radar.

As radar technology evolves from 24 gigahertz to 77 gigahertz, customers are looking for proven -- for the proven solutions which we provide.

We are currently qualified by non -- 9 automotive customers and are in qualification with 6 additional customers.

Infotainment applications, such as advanced dashboard screens, require more advanced graphics processors, which in turn drive the need for advanced HDI PCB technology.

TTM is a leader in the advanced HDI market, first offering the technology to the cellular market years ago.

Our Toronto automotive prototyping facility is seeing large demand for these applications and we continue to shift production volumes from our China facilities.

HDI-designed activity is also increasing for use in autopilot applications in next-generation electric vehicles.

Finally, operational execution for the first quarter of 2017 was excellent, enabling us to meet customer demands during and immediately following Chinese New Year as we retained over 95% of our direct workforce throughout Chinese New Year, which represents a record retention rate, resulting from excellent employee outreach efforts by our human resources organization and our plant management.

Now I'd like to review our end markets.

Networking/communications accounted for 20% of revenues during the first quarter of 2017.

This compares to sales of 24% in the first quarter of 2016 and 21% in the fourth quarter of 2016.

Sales declined on a year-over-year basis, largely due to weakness from the telecom market, with the networking market relatively stronger.

In Q2, we expect this segment to be 22% of sales as we see sequential growth in the networking market.

Automotive sales represented 20% of total sales during the first quarter of 2017 compared to sales of 21% in the first quarter of 2016 and 19% during the fourth quarter of 2016.

We saw a modest year-over-year growth in Q1, driven by increased adoption of electric vehicles.

We expect year-on-year revenue growth to accelerate in Q2 and expect automotive to contribute 23% of total sales.

The aerospace and defense end market represented 15% of total first quarter sales compared to 15% of Q1 2016 sales and 14% of sales in Q4 2016.

On a year-over-year basis, we saw solid growth across a broad set of defense customers.

Program backlog rose to $192 million from $186 million last quarter.

We expect sales in Q2 from this end market to represent about 15% of our total sales.

The medical/industrial/instrumentation end market contributed 15% of our total sales in the first quarter compared to 16% in the year-ago quarter and 13% in the fourth quarter of 2016.

We saw modest year-over-year growth across a number of medical, industrial and instrumentation customers.

We expect sales for this end market to represent approximately 15% in the second quarter.

Sales in the computing/storage/peripherals end market represented 15% of total sales in the first quarter compared to total sales of 13% in Q1 of 2016 and 12% in the fourth quarter of 2016.

We saw year-on-year growth of 20% from increased adoption of advanced PCB technologies in high-end laptops as well as strength in the semiconductor sector.

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

The cellular phone end market accounted for 14% of revenue in the first quarter compared to sales of 9% in Q1 of 2016 and 19% in Q4 of 2016.

We saw substantial year-on-year growth due to improved inventory control and sell-through by our primary cellular phone customers.

We expect continued year-on-year revenue growth in Q2 to 12% of revenues.

Next I'd like to talk about details from the first quarter.

TTM delivered strong results in the first quarter.

Revenue came in at $625 million and was above the midpoint of prior guidance of $595 million to $635 million.

Non-GAAP earnings per share came in at $0.37 per diluted share and was well above First Call consensus by $0.08 and above the top end of our guidance.

Most end markets grew year-over-year with particular strength in the cellular and computing markets.

From an overall operations standpoint, Q1 was an excellent quarter.

Much of our upside this quarter came from better execution at our automotive plant and higher volumes at our cellular phone and computing-focused manufacturing facilities.

I continue to be pleased by our strong operational execution, which amplified the revenue upside and drove better-than-expected non-GAAP EPS during the quarter.

As evidence of our improved operating efficiency, our $0.37 EPS in the quarter was significantly better than the $0.14 EPS in Q1 last year on revenue that was 7% higher.

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 28% in the year-ago quarter and 38% in Q4.

The year-over-year growth was driven by the cellular and computing end markets, while the sequential decline was due to normal cellular Q1 seasonality.

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 81% in Q1 compared to 88% in Q4, driven by the seasonal declines in our cellular-focused facilities.

Our overall capacity utilization in North America was 56% in Q1 compared to 51% in Q4.

Our top 5 customers contributed 34% of total sales in the first quarter of 2017 compared to 38% in the fourth quarter of 2016.

Our top 5 OEM customers during the quarter in alphabetical order, were Apple, Autoliv, Bosch, Cisco and Huawei.

Our largest customer accounted for 16% of sales in the first quarter compared with 20% in Q4.

At the end of Q1, our 90-day backlog, which is subject to cancellations, was $414 million compared to $374 million at the end of the first quarter last year and $405 million at the end of Q4.

Our book-to-bill ratio was 1.03 for 3 months ending April 3.

In summary, we delivered strong first quarter financial results, which has started 2017 on the right track.

We demonstrated the benefits of our diversified end market mix, registered strong growth in our cellular and computing end markets and continued to focus on operational execution.

We continue to be optimistic about the future of TTM.

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

Thanks, Tom, and good afternoon, everyone.

We had a terrific quarter.

Let me just summarize a few of the financial highlights.

Revenue in the first quarter of $625.2 million grew 7% year-over-year and represents an all-time high for a first quarter.

Non-GAAP EPS was $0.37 in the first quarter.

This was above the midpoint of guidance by $0.09 and was a $0.23 improvement from Q1 last year.

Our results did include $0.02 of proceeds from an insurance settlement related to a fire that occurred in our Anaheim facility a year ago, and a $0.01 impact from the dilution associated with our convertible bond.

We achieved a non-GAAP operating margin of 9.8%, an improvement from 5.7% operating margin in Q1 one year ago and the highest level for any first quarter since 2011.

We generated $95.6 million of adjusted EBITDA versus $74.5 million a year ago.

And lastly, after quarter end, we made a $50 million payment on our term loan, further reducing our debt and our leverage ratio.

Onto the details.

For the first quarter, net sales were $625.2 million compared to net sales of $583.3 million in the first quarter of last year and compared to fourth quarter net sales of $706.5 million.

The year-over-year increase in revenue was across all our end markets, except networking and communications, and was led by growth in our cellular, computing and aerospace and defense end markets.

GAAP operating income for the first quarter of 2017 was $52.6 million compared to $18.9 million in the first quarter of last year and $69.6 million in the fourth quarter.

On a GAAP basis, net income in the first quarter of 2017 was $33 million or $0.28 per diluted share.

This compares to a net loss of $7.3 million or $0.07 per share in the first quarter of last year and a net loss of $2 million or $0.02 per share in the fourth quarter of 2016.

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

Our non-GAAP performance excludes debt extinguishment costs, restructuring expenses, acquisition-related costs, certain noncash 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 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 first quarter was 16.9% compared to 14.4% in the first quarter of 2016 and 18.9% in the fourth quarter.

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

The sequential decrease was due primarily to lower volumes at our cellular end market-focused manufacturing facilities and inefficiencies resulting from the Chinese New Year holiday season.

There were also 2 other items that impacted the first quarter's results.

The first was a $3 million benefit for an insurance settlement for losses incurred from a fire in our Anaheim facility a year ago.

The second item was the reclassification of certain costs from G&A into cost of goods sold as we work to harmonize our reporting processes post the Viasystems acquisition.

This reclassification reduced our gross margin but had no impact on our operating margin.

Selling and marketing expense was $16.4 million in the first quarter or 2.6% of net sales compared to $17.1 million or 2.9% of net sales in the same quarter a year ago, and $16.5 million or 2.3% of net sales in the fourth quarter.

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

First quarter G&A expense was $27.7 million or 4.4% of net sales compared to 3 -- $33.7 million or 5.8% of net sales in the same quarter a year ago, and $35.8 million or 5.1% of net sales in the previous quarter.

The year-over-year decrease in G&A as a percentage of sales was largely due to the reclassification of certain costs from G&A into cost of goods sold.

Our operating margin was 9.8%.

Now this compares to 5.7% in the same quarter last year and 11.5% in the fourth 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.

The results also include a $3 million insurance settlement discussed earlier.

Interest expense was $11 million in the first quarter, a decrease of $4.6 million from the same quarter last year due to both repricing and debt repayments.

We recorded $1.7 million of foreign exchange loss and other income net in the first quarter compared to a net gain of $1.2 million in the first quarter last year.

The loss in the first quarter of 2017 included a foreign exchange loss of $3.7 million due to approximately a 1.5% appreciation in the Chinese RMB versus the U.S. dollar during the quarter.

Our effective tax rate was 19% in the first quarter.

It was 25% in the same quarter a year ago.

First quarter net income was $39.2 million or $0.37 per diluted share.

This compares to the first quarter of 2016 net income of $13.9 million or $0.14 per diluted share, and fourth quarter net income of $59.8 million or $0.58 per diluted share.

Adjusted EBITDA for the first quarter was $95.6 million or 15.3% of net sales compared with first quarter 2016 adjusted EBITDA of $74.5 million or 12.8% of net sales.

In the fourth quarter, adjusted EBITDA was $128.5 million or 18.2% of net sales.

Moving on to our segment performance.

The PCB segment had net sales of $583.6 million in the first quarter, up 10.8% from $526.8 million in the first quarter of 2016 and down from $651.2 million in the fourth quarter.

Gross margin for this segment was 18.2% in the first quarter compared to 15.6% in the same quarter a year ago and 19.8% in the fourth quarter.

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

The PCB segment's first quarter operating income was $82.4 million compared to $52 million in the same quarter last year and $97.1 million in the fourth quarter.

The electro-mechanical solutions segment had net sales of $41.7 million in the first quarter, down from $56.5 million in Q1 2016 and $55.3 million in the fourth quarter.

The year-over-year revenue decrease was due to a decline in the networking and communications end market.

The sequential decline in revenue was due to a decline in the automotive end market and to a lesser extent, the networking and communications end market.

Gross margin for this segment was 2.7% in the first quarter compared to 6.7% in the same quarter a year ago and 10.3% in the fourth quarter.

The gross margin decreased year-over-year and sequentially due to decreased volumes and higher inventory reserves.

The electro-mechanical solutions segment's first quarter operating income was a loss of $1.3 million compared to a profit of $1.1 million in the same quarter last year and $3.6 million in the fourth quarter.

Looking forward, we expect to see improved financial performance in the electro-mechanical solutions segment through the remainder of this year.

The book-to-bill for this segment during the first quarter was strong at 1.5.

Corporate SG&A expense, not directly associated with the PCB or electro-mechanical solutions segments, was $18 million in the first quarter of 2017, $17.8 million in Q1 2016 and $18.5 million in the fourth quarter.

Adjusted cash flow from operations was $49.7 million in the first quarter versus $20.2 million in the year-ago quarter.

Cash and cash equivalents at the end of the first quarter totaled $282.9 million versus $256.3 million in the fourth quarter.

Note that after quarter end, we repaid $50 million of principal on our Term Loan B.

Depreciation for the first quarter was $36.1 million.

Net capital spending for the quarter was $23.4 million.

For the full year, we expect our net capital spending to be in the range of $155 million to $170 million.

The increase from our prior forecast is due to an opportunity to consolidate our Hong Kong offices.

We've acquired new space and sold an existing office facility.

We will also be exiting a lease facility when that lease expires at the end of the year.

These actions will allow for future cost savings.

Additionally, we are further expanding capacity in our automotive business.

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

We expect total revenue for the second quarter of 2017 to be in the range of $605 million to $645 million.

As a reference point, our second quarter revenue last year was $601.8 million.

We expect non-GAAP earnings to be in the range of $0.31 to $0.37 per diluted share.

This compares to an EPS of $0.28 per share reported in the second quarter of 2016.

The EPS forecast is based on a diluted share count of approximately 106 million shares.

Our share count guidance includes dilution from dilutive securities such as stock options and RSUs as well as roughly 2.5 million shares associated with our convertible bond, which is a function of our future stock price.

As a reminder, for every dollar increase in the average share price above $14.26 during the quarter, our shares outstanding would increase by approximately 1.5 million shares.

We expect that SG&A expense will be about 7.3% of revenue in the second quarter.

We expect interest expense to total about $10.6 million and we estimate our effective tax rate to be between 17% and 21%.

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 about $5.9 million, stock-based compensation expense of about $5 million, noncash interest expense of approximately $2.7 million and we estimate depreciation expense will be about $36 million.

Finally, I'd like to announce that we'll be participating in the JPMorgan Global Technology, Media and Telecom Conference on May 24; the Stifel Technology, Internet & Media Conference in San Francisco on June 5; the Needham Automotive Technology Conference in New York City on June 6; and the Barclays Global High Yield and Leveraged Debt Conference in Colorado Springs on June 8.

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

John?

(Operator Instructions) And we'll take our first question from Matt Sheerin with Stifel.

Just a question regarding, Tom, your commentary on the various end markets.

It didn't look like any big surprises except for the networking/communications, and you talked about the weakness there from -- on the telecom side.

And I remember, at the beginning of the year, you gave an outlook for each of your end markets for the year, and I believe that you're looking at sort of a flattish environment for that segment.

Do you expect that even though -- I know it's going to be up sequentially.

Do you expect that market to be down for the year and perhaps offset by strength in other end markets?

Yes, I think if you look at what -- as we look through the year and what we expect to see at this point, our expectation is that it will be difficult to be flat or to register flat growth in that market at this point.

I think the -- on the other side, the aerospace and defense markets continues to show strength.

And we had been saying that it would be at the high end of the 2% to 4% growth rate that the industry forecasters are projecting for that market, long-term.

We're now expecting that we will be above that growth, the high-end of that growth rate.

So that should offset that and no real change to your outlook for the other segments?

That's correct.

The other segments, the outlook would be relatively consistent, and I'll -- let me just give you a feel for that.

If you start with automotive, forecasters have it at 5% to 8% growth.

We believe that we'll be in line in that area.

The cellular phone business, forecast at 5% to 8%.

We would expect to be above that 5% to 8% rate for -- in 2017, largely due to the strength that we're seeing here in the first half.

Aerospace and defense, as I mentioned, above the 2% to 4% growth rate that's projected there.

Computing, for a long term, forecasters are at 0% to 2%.

We expect to be above that forecast -- well above that forecast.

And then MI&I, or medical/industrial/instrumentation, forecasters have it at 4% to 6%.

We do believe that we will be -- with a relative difficult compare in the first half, we should follow that with a second half rebound.

So somewhere in that -- slightly below that range.

Okay.

And the weakness that you're seeing in the electro-mechanical segment, where it looks like you posted a loss there, is that primarily because there's a lot of exposure to your communications and telecom segment?

It's really 2 factors.

That has a minor effect.

The bigger effect for us in Q1 was in the automotive -- on the automotive side, specifically for electric vehicles.

And I think we had mentioned in the past, we work very closely with a number of -- particularly Chinese customers in that area.

A lot of them are -- or several of those customers are in the early stages of their ramp, and so you see fluctuations in the business.

And that's certainly what we saw in Q1 and we are expecting to see a rebound in Q2.

And I think Todd covered the strength of the backlog going into Q2.

Okay.

And then just lastly for me regarding the strengthening balance sheet, you talked about the cash balance of $282 million.

And Todd, I think you said you paid down $50 million of the debt post the quarter.

Still a rather large cash balance here.

Would you expect to continue to pay that down as we get through the year in terms of chipping away at the debt?

That's certainly our goal, right?

We -- and I think we've shown that ever since we closed the deal.

I mean, we're going to be opportunistic and looking at opportunities to reduce the debt as we generate that cash and as we look at the different alternatives that we have.

So we'll -- we made the $50 million payment here 1.5 weeks ago.

We'll continue to look for opportunities to do that throughout the year.

And we'll take our next question from Steven Fox with Cross Research.

A couple of questions for me.

First on the auto, you mentioned that you're seeing some acceleration and you mentioned a number of the long-term drivers and I think I also heard that EV adoption is helping.

But can you maybe dig into a little bit more into the acceleration portion?

How much was related to just a little bit better production rates in Q1 versus your own content gains?

And how are you looking at production for second half versus your own content gains?

Yes, so as -- the way I would think about that, the -- if you look at the combination of RF and the advanced technology work that we do on automotive today, that's approximately in the 15% neighborhood.

What we're trying -- we're trying to drive that above 20% -- over 20%.

That will be an indicator of electronics content growth and particularly growth in some of these new areas as we push that percentage up.

Certainly, if you look at the short-term quarterly numbers, what you're seeing is Q1 against Q4, we were actually slightly down on a sequential basis.

And then we're forecasting strength sequentially in Q2.

And as I mentioned earlier, that short-term fluctuation, a lot of that is just the EV demand out of China in our E-M Solutions business.

And then the other factor in Q1 is the Chinese New Year factor.

And we're always production constrained in that first quarter with Chinese New Year.

We'll be back to normalcy in the second quarter.

So we'll start seeing again that pickup on the conventional side there.

Okay.

So just in terms of the back half of the year, you're factoring in better content on new programs and -- how would you describe it?

That's correct.

We would expect to see continuing growth in those new -- in the new areas.

They're certainly growing at a faster rate.

And if you look at that overall automotive growth, that's projected of 5% to 8% and then you look specifically at radar and at the HDI demand, you're in the -- easily in the double-digit CAGR area.

So those are the areas that grow more rapidly.

And as you push out in the back half of the year, of course, we'll continue -- we should continue to see that momentum and then into the out years as well.

Great.

That's really helpful.

And then just a question on -- another question on the E-M gross margins.

You mentioned an inventory reserve.

Can you just sort of talk about what that was about?

Sure.

You get fluctuations in demand.

I think we saw that on some of the revenue description that we gave for that business unit.

And so we have some excess inventory that, from an accounting perspective, we felt it appropriate to reserve for.

And then we'll try -- obviously, we'll work -- we'll continue to work really hard to recover that.

But at this point, it was prudent to take the reserve based on what we see today and our expectations for that particular customer.

So there's still a chance that it might not be totally obsolete?

It's more excess than obsolete from a technical perspective.

And we'll take our next question from Sean Hannan with Needham & Company.

First one I'd have here, there are some rumors that are starting to circulate regarding a large handset customer, some of which ties to a product launch later in the year that their speculation there could potentially be some delays related to some componentry not really up to performance as of yet.

And some of that also had referenced PCBs as a part of the issue.

Just wanted to see if I could get some perspective around what it is that you're experiencing, what you're observing.

Any color around that would be very helpful.

Okay.

Sure, Sean.

So one area that I think that we should just clear the air around is certainly the description of the technology transition that is occurring this year.

There's a -- there have been references to what are called substrate-like PCBs, or SLPs as they're called.

And essentially, what that is, these are printed circuit boards.

So this is our printed circuit board transition.

The reference to substrate is really related to the fact that we're -- in the next transition, we will be and the industry will be using more semi-additive process steps versus simply subtractive process steps.

So certainly that does come from a substrate technology that was -- where this capability was introduced, including in our own substrate facility.

And then we're scaling that up for printed circuit boards.

So to give you a feel for what kind of transition is occurring, that is what is occurring.

It really is targeted at the requirements for miniaturization and continued shrinkage of lines and spacing in circuitry.

And in order to shrink the lines and spacing, we're able to incorporate -- we are incorporating this mix of additive processes.

So as you know, every year, we work through a transition process.

What I can tell you today is that the prototyping stage has been complete for our Q3, Q4 ramp, and we're now into pilot production phase.

And again, that's standard, on schedule and as with every year, our goal is to maintain or improve on our existing position.

We've certainly demonstrated a strong track record.

We have the substrate experience that we're leveraging.

We have a ability to invest as needed in the technology, and we have continued to invest in technologies required.

And so our intent is to continue to support or be in position to support that ramp.

And certainly, we're on schedule to do it.

So that's sort of -- hopefully, that gives you a little bit of color, Sean, about where we stand this year and certainly, our Q1 results and what we're seeing in Q2.

We've continued to demonstrate performance in that cellular market.

So in that sense, we're always going to have a learning curve with a new platform launch.

We're proceeding per normal course in that process and from your vantage point, in terms of what you're experiencing with your product and the feedback from customer, you're on schedule at least at present?

Well said.

Yes, that's -- we are on schedule, continue to be on schedule, our focus will be on ramping to meet customer need in Q3 and Q4.

Okay.

That's helpful.

And then on the aerospace and defense side of the business that was a great grower for you folks last year.

You talked earlier about the expectation that initially for '17 was a fair bit lower than what you performed at in '16, and now quickly it's starting to bump back up again.

So just trying to understand what is improving that growth dynamic?

What's really the driver behind that there?

Sure.

The -- we -- what we try to give -- we try to give you visibility to the program -- overall program backlog, and you're absolutely right.

Towards the end of last year, we saw a little bit of flatness and actually a decline in the overall program backlog.

As I think we indicated then, we weren't concerned about it.

There were a lot of dynamics out there with our customers and programs continued to move forward.

It was just the issuance of purchase orders that was getting held up.

Today, I'd say there's a very different dynamic out there.

We're seeing the program backlog move back up.

We are certainly more confident in where we stand for 2017.

And what we're really excited about is what -- the nature of the programs that we're involved in and what that might mean as we go forward into next year and beyond.

So again, that gave us the confidence to talk about being above that 2% to 4% range in growth this year and we'll see where the business carries us.

We certainly -- but still believe we're in the right programs to grow successfully in that area.

(Operator Instructions) We'll take our next question from Paul Coster with JPMorgan.

Most of them have been answered.

However, I missed the utilization rate for the U.S., the North America.

Can you just repeat that, please?

Sure.

Yes, the utilization rate for North America was 56% in Q1.

That compared to about 51% at the -- in the fourth quarter.

Got it.

And then the backlog, can you give just some sense of how that breaks out?

Did it change significantly year-on-year or quarter-on-quarter?

I mean, just what does it point to?

So the 90-day backlog moved up to -- so it's about $414 million.

That compares to $374 million at the end of the first quarter last year and $405 million at the end of Q4.

So positive book-to-bill ratio is about 1.03.

So that's positive.

It's certainly what I'd indicate as the year-on-year strength.

And the year-on-year strength we're seeing particularly on that cellular phone and computing market.

But those are the strong indicators.

As you know, we'll work through more than half of that backlog in the first half of the year or first half of the quarter, we work through that backlog.

It's an indicator of -- it's a good indicator of strength.

It's certainly a nice indicator of year-on-year strength, but I wouldn't take too much away from it.

Finally, the accelerated CapEx or rather the increase in CapEx, it sounded like it was -- some of it was somewhat routine in that you're replacing some existing facilities.

But is there anything in it that might point to sustainable competitive advantage over time that you can share?

Well, I think we talked about at the beginning of the year in our last call, actually, we talked about this year was going to be a substantial increase in investment compared to 2016.

A big reason for the increase is really new technology and focusing on growth opportunities or the technology and growth opportunities associated with both the cellular and -- as well as the automotive end markets.

So we see both technology demands there and some capacity opportunities, particularly in automotive.

So there is a shift, and I think that does provide us some advantages.

Not every company has the wherewithal that we have to make these kind of investments, number one.

And number two, in putting these -- increasing our technology and keeping ourselves on that -- I've often talked about being on the technology treadmill.

We need to -- our vision is to be a leader in our industry from a technology standpoint.

So we are always going to be out front, trying to stay abreast of those opportunities to keep us and to give us that competitive advantage as those technologies migrate to the other markets that we participate in.

So I do believe there is a competitive advantage there.

It's not instantaneous.

It's something that we're working to grow and maintain over time.

And then the more current uptick here this quarter that we just talked about was the building opportunity we mentioned in Hong Kong, which I think over the long term is going to give us some cost advantages.

And then also, we just had some additional demands that we saw on automotive, which are consistent with what Tom is talking about in terms of the growth rates that we're seeing.

And I think we've commented on that pretty extensively already in the call.

And the only other thing that I'd add, Paul, is if you remember in Q4, actually last year we were below that 4% to 5% of revenue that we've historically been targeting.

So there was a good -- we had some catch-up to do from a cash flow CapEx standpoint this year as well.

And there are no more questions in the queue at this time.

Okay.

Great.

So this is Tom Edman.

I will -- let me just close it by summarizing a few of the points that we made during the call.

We did deliver strong results for the first quarter of 2017.

We beat the high-end of our non-GAAP EPS forecast as well as consensus, really due to solid growth and very good operational execution.

I would like to thank our employees, our customers and you, our investors, for your continued support.

Thank you very much and goodbye.

And that concludes today's call.

Thank you for your participation.

You may now disconnect.