TTM Technologies Inc (TTMI) 2017 Q4 法說會逐字稿

Good day, and welcome to the TTM Technologies, Inc. Q4 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, Stephanie. 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 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 fourth quarter and fiscal year 2017 conference call.

I'll begin with a review of our business strategy, including highlights from our 2017 fiscal year, followed by a discussion of our fourth quarter results. Todd Schull, our CFO, will follow with an overview of certain key balance sheet and cash flow metrics, our Q4 2017 financial performance and Q1 2018 guidance. We will then open the call to your questions.

First and foremost, I would like to thank our employees for delivering an excellent year in 2017 for TTM Technologies. We achieved record revenues during fiscal year 2017 and closed the year with a solid fourth quarter non-GAAP EPS of $0.57, leading to an annual EPS in 2017 of $1.57, the highest level achieved in the history of the company. We also signed a definitive agreement to acquire Anaren, Inc. in December, representing a critical step forward in our differentiation strategy.

The 2017 results validated many of the elements of the TTM strategy we've communicated over the past year. First, the diversification of our end markets helped to reduce quarterly volatility and grow total company revenues in what was a challenging year in one of our end markets. Specifically, growth in our aerospace and defense, cellular and computing end markets helped to offset the difficult conditions in the networking and communications end market.

Second, the automotive market continues to be a core growth driver due to increasing electronics content as well as the adoption of advanced technologies. We see 4 key megatrends driving automotive PCB content growth: vehicle safety and autonomous driving, increasing adoption of hybrid and electric vehicles, advanced infotainment and increased connectivity.

Current forecasts have recently been revised upwards to $62 in PCB content per vehicle in 2016, growing to $75 by 2020. Some hybrid and electric vehicles currently employ well over $150 of PCBs per vehicle.

We were pleased to hear that China has extended the sales tax incentive for hybrid and electric vehicle purchases, which should continue to drive growth in the China market. These types of vehicles grew by over 50% in China in 2017.

Third-party market forecasts expect the automotive PCB market to grow at a 5% to 8% CAGR from 2016 to 2021. In 2015, our automotive business grew by 10%; and in 2016, it grew 8%. Our initial expectation in 2017 was that the automotive end market would grow within the 5% to 8% range. However, due to rescheduled orders from customers in the electric vehicle end market in the fourth quarter, our automotive business grew 4% in 2017.

We expect 2018 to grow at a faster rate, which will be driven by the continued ramp of new products in the electric vehicle area and new design wins at 12 high-growth OEMs in the autonomous vehicle, electric vehicle and sensor areas.

In total, we have registered 30 new design wins with 14 different OEM platforms that will be ramping in the next 12 months.

Finally, I'd like to talk about our announced acquisition of Anaren, Inc., which will increase our presence in the aerospace and defense end market and help us create more value for our customers.

First, I'll explain some of the trends in the A&D market and then discuss more about the mutual benefits of the Anaren transaction.

In the commercial aerospace market, International Air Transport Association reported that global airline passenger traffic grew 7.6% in 2017, well above the 10-year average of 5.5%.

Boeing delivered a record number of planes in 2017, and backlog is at an all-time high. Airbus saw net orders rise 52% in 2017. The trends in the commercial aerospace market are very healthy.

In the defense market, while the fiscal year 2018 Department of Defense budget has not been approved as of yet, there appears to be broad support for increased defense spending. The fiscal year 2018 defense budget request came in at $639 billion, up 7% from the fiscal year '17 enacted budget. And there are expectations of further growth in the fiscal year '19 budget.

And while overall defense spending is growing in the single-digit range, market forecasters expect spending on AESA radar to grow at an 18% CAGR over that same period of time. AESA stands for active electronically scanned array and represents the next-generation technology for defense radars. A number of Anaren's products are used in AESA radar systems, which make up a meaningful portion of the expected growth for the company. The aerospace and defense end market represented 72% of their revenue in 2017. The remainder of their revenue, 28%, is in the networking/communications end market, specifically wireless infrastructure for use in base stations and micro cells.

Anaren designs and manufactures a number of proprietary RF components whose demand is driven by increasing data traffic as well as technology transitions such as 5G. We expect that 5G will drive a substantial increase in Anaren's addressable market for wireless components.

In regards to how Anaren fits in with TTM, we have consistently emphasized that a key part of our strategy is to add value to the product solutions that we deliver to our customers, particularly in the aerospace and defense and automotive markets.

The Anaren acquisition represents a critical step on this journey. We have spoken to you about our integrated product solution in aerospace and defense, which includes assembled solutions and engineering services built around the PCB products. The acquisition of Anaren would add RF design, engineering and test capabilities and products to this solution.

This will enhance TTM's ability to provide build-to-specification products versus built-to-print, allowing us to engage earlier in the design process with our customers' engineers.

RF technologies represent the fundamental building block required for sensors used in aerospace and defense, automotive, networking/communications and Internet of Things applications. To bring in more than 200 engineers with this experience enhances our growth prospects going forward.

We view Anaren's capabilities as complementary to TTM's and are excited to combine their expertise and engineering with our strength in manufacturing. This acquisition represents our first step into an adjacent market to PCBs and will result in an improved financial profile for TTM. We expect the acquisition to close in the first half of 2018 and to quickly be accretive to TTM. We have received HSR approval and are now awaiting CFIUS approval.

Now I'd like to review our end markets. The cellular phone end market accounted for 27% of revenue in the fourth quarter compared to sales of 19% in Q4 of 2016 and 17% in Q3 of 2017. We saw year-over-year growth of 48%, largely driven by the launch of new cellular phones. We expect cellular to represent 17% of first quarter sales due to a seasonal decline.

For full year 2017, cellular increased 34% as growth returned with new phone launches in the second half, which included a major technology transition for our PCB technologies in this market. In 2018, we expect the market to be in line with longer-term forecast of 5% to 8%, driven by additional new product launches.

Automotive sales represented 18% of total sales during the fourth quarter of 2017 compared to sales of 19% in the year ago quarter and 20% during the third quarter of 2017. The lower-than-expected growth was due to the rescheduled orders I described earlier. We expect year-on-year revenue growth to return in Q1, particularly in our E-M Solutions segment and expect automotive to contribute 21% of total sales.

For the full year, automotive increased 4% and reached a record high, driven by increased content growth and unit volumes. In 2018, we expect the market to be in line with longer-term forecast of 5% to 8%, driven primarily by content growth.

Networking/communications accounted for 17% of revenue during the fourth quarter of 2017. This compares to sales of 21% in the fourth quarter of 2016 and 17% in the third quarter of 2017. Sales declined on a year-over-year basis, largely due to weakness from the networking market, partially offset by relatively stronger demand in the telecom market. In Q1, we expect this segment to be 18% of revenue.

For the full year, networking/communications declined 16% due to weakness in both the networking and telecommunications end markets. In 2018, we expect the market to be below longer-term forecast of 1% to 3% growth due to softness in both the networking and telecommunications end markets.

The aerospace and defense end market represented 15% of total fourth quarter sales compared to 14% of Q4 2016 sales and 16% of sales in Q3 2017. On a year-over-year basis, we saw solid growth of 14% driven by our larger defense customers. Q4 2017 A&D revenues were a record high for the company. Program backlog rose to $245 million from $220 million last quarter, which is also a record level for TTM. We expect sales in Q1 from this end market to represent about 17% of our total sales.

For the full year, aerospace and defense increased 10% and reached a record high as TTM benefited from our leading position on multiple new program ramps. In 2018, we expect growth to continue to be above market projections of 2% to 4%.

The medical/industrial/instrumentation end market contributed 12% of our total sales in the fourth quarter compared to 13% in the year ago quarter and 14% in the third quarter of 2017. We expect sales for this end market to represent approximately 15% of sales in the first quarter.

For the full year, MI&I grew 1% as growth in the medical and industrial areas was offset by weakness in the instrumentation segment. In 2018, we continue to expect growth to be in line with the 4% to 6% forecast, with year-on-year growth driven by business development activities with new customers.

Sales in the computing/storage/peripherals end market represented 10% of total sales in the fourth quarter compared to total sales of 12% in Q4 of 2016 and 14% in the third quarter of 2017.

The year-on-year and sequential declines were due to an increased allocation of capacity towards the cellular market. We expect sales in computing to represent approximately 12% of first quarter sales.

For the full year, computing grew 14% as we saw growth across our high-end laptop, proprietary data center server and semiconductor customers. In 2018, we expect to be in line with expected end market growth of 0% to 2%.

Next, I'll cover some details from the fourth quarter. During the quarter, our advanced technology business, which includes HDI, rigid-flex and substrate, accounted for approximately 44% of our company's revenue. This compares to approximately 38% in the year ago quarter and 37% in Q3.

The year-over-year and sequential growth was driven by the cellular end market. For the full year 2017, advanced technology accounted for approximately 37% versus 33% in 2016. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities in new markets.

Capacity utilization in Asia Pacific was 92% in Q4 compared to 89% in the year ago quarter and 86% in Q3. Our overall capacity utilization in North America was 53% in Q4 compared to 53% in the year ago quarter and 55% in Q3.

Our top 5 customers contributed 44% of total sales in the fourth quarter of 2017 compared to 38% in the year ago quarter and 38% in the third quarter of 2017. Our top 5 OEM customers during the quarter, in alphabetical order, were Apple, Bosch, Huawei, Raytheon and Tesla. Our largest customer accounted for 28% of sales in the fourth quarter versus 20% in the year ago quarter and 21% in Q3.

At the end of Q4, our 90-day backlog, which is subject to cancellations, was $481.9 million compared to $405.3 million at the end of the fourth quarter of last year and $526.7 million at the end of Q3. Our PCB book-to-bill ratio was 0.98 for 3 months ending January 2.

In summary, we delivered solid fourth quarter operating results following our strength in Q3. We demonstrated the benefits of our diversified end-market mix, achieved better-than-expected results in the cellular market, registered strong growth in our aerospace and defense market and continue to see positive results from our focus on operational execution. We remain optimistic about the future of TTM.

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

Thanks, Tom, and good afternoon, everyone. We had a strong fourth quarter, and let me just summarize a few highlights. Revenue in the quarter of $739.3 million was a record. Revenue grew 5% year-over-year, notwithstanding that the fourth quarter of 2016 had an extra week. Adjusting for that, sales actually grew more than 9% year-over-year.

For the full year, revenue was $2.7 billion, which is also an all-time high for the company. Non-GAAP operating margin was 11.4%, exceeding expectations. For the full year, we achieved an operating margin of 9.6%, an improvement from 8.8% in 2016 and very close to our target model of 10%.

Non-GAAP EPS was $0.57 in the fourth quarter, above the high end of guidance, even including the negative impact of $0.04 per share or $5.2 million of unrealized noncash foreign exchange loss due primarily to the depreciation of the U.S. dollar versus the Chinese currency. Excluding this impact, EPS was $0.61 per share.

For the full year, we earned $1.57 in EPS, an increase of 12% from $1.40 in 2016. We generated $121.7 million of adjusted EBITDA in the fourth quarter. For the full year, we generated adjusted EBITDA of $389 million.

Cash flow from operations in the fourth quarter was $152.7 million, an all-time record high for the company. For the full year, cash flow from operations was $332.8 million, an increase of 10% year-over-year and another record high.

On to the details. For the fourth quarter, net sales were $739.3 million compared to net sales of $706.5 million in the fourth quarter of 2016 and compared to third quarter 2017 net sales of $666.8 million.

The year-over-year increase in revenue was due to strong growth in our cellular and aerospace and defense end markets, partially offset by lower revenue in our networking/communications and computing end markets.

GAAP operating income in the fourth quarter of 2017 was $71 million compared to $69.6 million in the fourth quarter of 2016 and $44.1 million in the third quarter of this year. On a GAAP basis, net income in the fourth quarter of 2017 was $49.2 million or $0.40 per diluted share. This compares to a net loss of $2 million or $0.02 per share in the fourth quarter of last year and net income of $21.5 million or $0.19 per diluted share in the third quarter of 2017.

The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes debt extinguishment costs, acquisition-related costs, certain noncash expense items and other unusual or infrequent items as well as the associated tax impact. Additionally, we exclude nonoperational changes in our tax expense such as noncash discrete items.

We present non-GAAP financial information to enable investors to see the company through the eyes of management and to provide better insight into the company's ongoing financial performance.

Gross margin in the fourth quarter was 17.9% compared to 18.9% in the fourth quarter of 2016 and 14.6% in the third quarter of 2017. The year-over-year decrease in gross margin was due to the reclassification of certain costs from G&A into cost of goods sold that we have discussed on previous earnings calls as well as the negative impact of the strengthening Chinese currency, which impacted our operating costs. The sequential increase was due primarily to the continued ramp of our cellular products and improving yields at our cellular-focused facility.

Selling and marketing expense was $16.6 million in the fourth quarter or 2.2% of net sales, essentially the same as the year ago, and was $15.9 million or 2.4% of net sales in the third quarter.

Fourth quarter G&A expense was $31.6 million or 4.3% of net sales compared to $35.8 million or 5.1% of net sales in the same quarter a year ago and $26.3 million or 3.9% 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 in the fourth quarter was 11.4%. This compares to 11.5% in the same quarter last year and 8.3% in the third quarter of 2017.

Interest expense was $10.8 million in the fourth quarter, a decrease of $1.8 million from the same quarter last year due to the repricing of our debt as well as prior debt repayments. We recorded $3.6 million of foreign exchange loss and other income net in the fourth quarter compared to a net gain of $9 million in the fourth quarter last year.

The loss in the fourth quarter of '17 was due primarily to the 1.9% appreciation in the Chinese RMB versus the U.S. dollar during the quarter.

Our effective tax rate was 12.2% in the fourth quarter. It was 22.4% in the same quarter a year ago. For all of 2017, our effective tax rate was 14%.

Fourth quarter net income was $61.2 million or $0.57 per diluted share. This compares to fourth quarter 2016 net income of $59.8 million or $0.58 per diluted share and third quarter 2017 net income of $33.4 million or $0.32 per diluted share.

Adjusted EBITDA for the fourth quarter was $121.7 million or 16.5% of net sales. This compares with fourth quarter 2016 adjusted EBITDA of $128.5 million or 18.2% of net sales.

And then in the third quarter, adjusted EBITDA was $85.7 million or 12.9% of net sales. The year-over-year decline was due to a $13.6 million swing in noncash, noneconomic foreign exchange expense.

Moving on to our segment performance. The PCB segment had sales of $684.5 million in the fourth quarter, up from $651.2 million in the fourth quarter of 2016 and $606.2 million in the third quarter of 2017.

Gross margin for this segment was 18.7% in the fourth quarter compared to 19.8% in the same quarter a year ago and 15.5% in the third quarter.

The year-over-year change in sales and gross margins were noted in my earlier comments. The PCB segment's fourth quarter operating income was $102.3 million compared to $97 1 million in the same quarter last year and $70.5 million in the third quarter.

The electromechanical solutions segment had net sales of $54.9 million in the fourth quarter, down from $55.3 million in the fourth quarter a year ago and $60.6 million in the third quarter of 2017. The year-over-year and sequential revenue decreases were due to rescheduled orders from customers in the electric vehicle end market. Gross margin for this segment was 9.7% in the fourth quarter compared to 10.3% in the same quarter a year ago and 8.7% in the third quarter. The gross margin changes year-over-year and sequentially were mainly due to product mix. The electromechanical solutions segment's fourth quarter operating income was $2.8 million compared to $3.6 million in the same quarter last year and $2.9 million in the third quarter.

Corporate SG&A expense, not directly associated with these 2 segments, was $26.2 million in the fourth quarter of 2017, $19.8 million in the fourth quarter of 2016 and $16.6 million in the third quarter of 2017.

Cash flow from operations was $152.7 million in the fourth quarter versus $97.7 million in the year ago quarter. Our fundamental cash operating metrics, cash cycle days, improved to 38 days, 5 days less than last year-end. Cash and cash equivalents at the end of the fourth quarter totaled $409.3 million versus $301.9 million in the third quarter. For the full year 2017, cash flow from operations was $332.8 million. Depreciation for the fourth quarter was $41.1 million. Net capital spending for the quarter was $32.2 million.

Now I'd like to turn to guidance for the first quarter. We expect total revenue in the first quarter of 2018 to be in the range of $610 million to $660 million. As a reference point, our first quarter revenue last year was $625.2 million. We expect non-GAAP earnings to be in the range of $0.22 to $0.28 per diluted share. This compares to an EPS of $0.37 per diluted share reported in last year's first quarter. The year-over-year decline in EPS is related to the decrease in unit volumes of cellular, computing and networking/communications products as well as a negative foreign exchange impact from the weakening dollar against the Chinese renminbi.

Also, please note that the guidance provided excludes any impact of the potential acquisition of Anaren and related financing costs. The EPS forecast is based on a diluted share count of approximately 108 million shares. Our share count guidance includes dilution from dilutive securities, such as options and RSUs as well as roughly 4 million shares associated with our convertible bonds, which is a function of the future stock price.

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

We expect that SG&A expense will be about 7.1% of revenue in the first quarter. We expect interest expense to total about $10.4 million, and we estimate our effective tax rate to be between 13% and 15%.

To assist you in developing your financial models, we offer the following additional information. We expect to record during the first quarter amortization of intangibles of about $6 million, stock-based compensation expense of about $4.5 million, noncash interest expense of approximately $3 million and we estimate depreciation expense will be approximately $39 million.

Finally, I'd like to announce that we will be participating in the JPMorgan Global High Yield and Leverage Finance Conference in Miami on February 27.

That concludes our prepared remarks. And now we'd like to open the line for questions. Stephanie?

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

So I guess, just a question on the EPS and the implied margin target. It looks like you're still despite -- it looks like you're going to have, what, a 45% or so decrease sequentially in your cellular business, but that's still up significantly year-over-year. So I would expect to see some at least year-over-year leverage there. So I'm just trying to figure out in addition to the things you talked about why the margins would be so weak. And as you look to the rest of the year, do you think you can -- I mean, excluding Anaren, obviously, that you think you can improve margins on a year-over-year basis as you get through the year?

Let me take a crack at that, Matt. So first in regards to the Q1 margins, you're correct to observe that our -- we have our normal seasonal downturn in the cellular business, and it's pretty significant. As you know from a lot of public disclosure by a lot of companies, the Q1 prospects in our cellular phone market are definitely softer than maybe we thought they might be a few months ago. Now having said that, keep in mind that this cycle, this phone cycle with our biggest customer, incorporates a new technology. And that new technology drove a different selling price or ASP compared to maybe a much narrower range, a different range for the prior generations -- last few generations of products. So from a revenue standpoint, you still see a pretty solid number, but the units underlying that revenue are different year-over-year. So when you look at our -- so then you come back to the margin equation here and you say, "Okay, what's happening that cause the margins to be challenged?" And really, it's attributed to -- it's being driven by 2 main factors. One is the utilization of our facilities, particularly in the cellular and networking and communications end markets. Our unit volumes are down. And you compound that with the fact that in our cellular market, particularly, we invested pretty significantly last year in adding new technology and new capacity to that facility. So you kind of have a little bit of a double whammy going. You've got capacity going up and unit volume declining a bit, so the gap widens from both factors. And then you add to that, really, a third factor that's really just become more pronounced recently, and that is the currency effect on our operating costs. We've always talked about the below the line FX, which is very visible on our P&L, which we call out as kind of a noncash, noneconomic factor. And that's correct. This FX that I'm referring to is actually in our cost structure. So we have -- most of our selling is done in U.S. dollars, but we have -- in our Chinese operations, we have a significant amount of our cost that are actually local currency based. Obviously, labor costs, utility costs and those kinds of things. And there's some element of our raw material purchases that are in local currency also.

So when the dollar -- when the Chinese currency strengthens against that, that effectively increases the dollar value because of the change in exchange rates in our cost structure with our selling prices being already in USD, so they're not moving in the same way to kind of mitigate that. Normally, we get -- we see some of that all the time, right? Currencies move all the time and normally in modest amounts. We just deal with that as part of our everyday cost management, which we do pretty well at. But in the last -- in the fourth quarter, to some degree, and in this quarter, as we look at Q1 year-over-year, we're staring at a pretty significant percentage change. I think it's over 4% right now in the currency between Q1 '18 and Q1 '17. So when you take those factors together, that's what's really putting pressure on the margins in the first quarter. Now having said that, we're still expecting -- if you do the -- reverse engineer the numbers I've given you, you're looking at an operating margin that's still right around 7%. So it's not like we're falling on our sword and going to die and go away, but it is a significant challenge that we have to manage to. Now the second part of your question, I think, dealt with the rest of the year. And I would just point out that, look, you have to watch. If you look over our history of the last several years, you see a seasonal dynamic to our business. And we're -- we peak in Q3 and Q4 normally. And in Q1 and Q2, we always have the most challenging quarters. Sometimes Q1 is the lowest. Sometimes Q2 is the lowest. They go back and forth, but they're always the 2 most challenging quarters. We still expect to have a pattern this year that would be pretty consistent with our long-term pattern over the last 7 years. So we don't view this as the end of the world by any means or stretch of the imagination.

Okay. And just a couple of follow-ups there. One, just on your -- the commentary, Tom, on your expectations for growth in the cellular business this year, I think low single digits. What kind of -- obviously, the visibility into that business -- as you've mentioned, other suppliers are seeing the same thing, not much visibility. So how do you -- what kind of visibility do you have or confidence that you have that you can grow that business this year?

Right. So certainly, last year, very, very strong growth environment in cellular phones. If you look year-on-year, we're up about 34%. And as we look at this year, we certainly had a big technology shift last year with the ramp. And again, I congratulate our team. I think they did a remarkable job of responding to that challenge and delivering financially. As we wind -- as this particular cycle winds up, I expect that next -- the cycle towards the end of the year, we'll be looking at new product introductions. And we'll be looking at those product introductions based on the technology that we pulled together and ramped in this last year. So we'll be starting -- we certainly intend to be starting from a better position on yield, which will be to our advantage. And beyond that, as you pointed out, it's really a function of end-market sales. I can't handicap that at this juncture. Really, the visibility that we have on cellular phone goes through a quarter, and we don't give really an indication into Q2 even until Chinese New Year, post Chinese New Year. That's sort of our next indication point. And so you're right to point out, we don't know what's going to happen in Q3, Q4. What I can say is I'm thrilled about the work that we've done on the technology transition, where we are today on yields and where we're going to be starting on that next build cycle in Q3.

Okay. And just on the higher cost structure due to the currency headwinds that you're seeing, are there any plans for cost cutting or anything that you can do to help mitigate that?

Yes. I think -- so and Todd really pointed to this. We run into cost headwinds all the time. I mean, that's a function of the business that we operate in. And as you know, in the Chinese environment, we have regular labor cost increases that we mitigate. The -- what usually takes a period of time is to respond to sudden movements in that -- sudden changes in that cost structure. And how we respond to that is really how we live our business, which is a focus on continuous improvement, a focus on best practice sharing, a focus on using our capability and our size, frankly, to continue to drive our material costs in the right direction. And so we'll continue -- that drumbeat never ends for TTM. So we are absolutely in the process of responding to that, and we'll continue to respond. And I would just remind you that a very good portion of our revenue and profitability is also North America based and not subject to that currency shift. So we've got a nice advantage there in terms of our production base.

We'll move on to our next question from William Stein from SunTrust.

I was hoping you can help us -- or give us a brief update on the Anaren financing given the market volatility today.

That's a good question. We've all been watching that very carefully the last week, where the market has been quite excited. And we're pleased to see a little bit of stabilization over the last 1.5 days. And hopefully, that will foretell a little bit more stability here as we go forward. So as you know, we are -- we announced our acquisition. We have a purchase price of $775 million. At the time of the acquisition, we announced that we would -- expected to go out and raise $700 million in the debt market to be able to fund that transaction. As I noted in my comments, though, we've had really, really excellent cash flow generation through our company, over the last year, 300 -- almost $333 million this past year. And as a result of that, you've seen our cash balance tick up here at the end of the year to over $400 million. We will use at least an extra $100 million and so -- for the acquisition, and that will basically reduce the amount that we plan to go finance from $700 million down to $600 million. So that's one factor. And I think it's a very positive indicator to the market of the cash generation capability of our business model. Secondly, assuming the market does stay stable, as Tom mentioned in his opening comments, we received one regulatory clearance, but we still have another yet to obtain. And that's the CFIUS approval. So we won't be able to close until we get that approval. And timing our financing gives us a little bit of wiggle room, but we're really trying to watch the market. We'll go to the market with probably -- we've structured the underwriters to provide us with a full Term Loan B structure, but we'll consider perhaps splitting that between Term Loan B and high yield when we go to market, depending on the market conditions at that time. But our expectations are that with our strong cash flow generation capability and I would couple that with our proven track record of deleveraging in a fairly focused and short time period, which we've committed to do again this time, and getting back to our target model of 2.0 net debt leverage, we're pretty excited and confident that we'll be able to put a good package together and get out and obtain that financing. The exact timing of when we go, is it tomorrow, is it next week, is it next month? That's all still to be determined.

Yes. And the only thing I'd add is that from a regulatory standpoint, we still continue to look at this as a first -- we intend to close in the first 6 months of this year. And that will be dependent on the regulatory process.

Helpful. One follow up, if I can. It's actually a different topic. Automotive end market coming in a little bit lighter than we expected this quarter, and you cited some pushouts in the schedule. I'm wondering what you think fundamentally is behind that. And maybe just as important, you noted that you saw that full year 2018 outlook is being within the normal range. Why shouldn't we expect it to be at or above the high end given if it's really a push as opposed to a lower level of demand momentarily, then shouldn't we get sort of better growth in the coming year?

Sure. Sure. So yes, so in terms of how to interpret the fourth quarter, we really -- as I pointed out, it was -- we had several customers in the electric vehicle area that just pushed deliveries a little bit beyond the quarter, and that was primarily in our E-M Solutions area. That -- I don't read much into that. I don't -- I think the comparable quarter of the year prior, they were actually -- demand was very high and particularly out of China on the EV side because of some subsidy changes that were going to take effect at the end of the year. So the comparable is also a little bit of a difficult one. But as we look at this year, it's early in the year. We certainly share that view that we hope to be above the range. Right now I think it's better to look at the range, which is a very positive view on the automotive potential at 5% to 8% growth and really reflects that electronics content growth in automotive, particularly in the areas that I indicated. But I would highlight, from a TTM perspective, the safety management area as well as autonomous vehicle growth is -- we take advantage of our footprint -- our geographic footprint in North America combined with volume production capabilities in China to support our customers there as well as our RF experience and knowledge and certainly intend to build on that here as we close the Anaren acquisition.

We'll take our next question from Steven Fox from Cross Research.

I guess, first off, thanks for all the color on sort of what's going on year-over-year in Q1 with the cell phone next-generation technology. Can you talk about how that ramped, though, in Q4? In other words, did you meet your yield targets? Was it staggered? Did you see better operating leverage? Was there any other costs that you had to absorb that weren't expected in Q4? A little bit more color on how that ramp went for you, obviously not -- just relative to your own performance, not relative to what your customers needed.

Sure. And we had some indication of this exiting Q3. If you remember, we were ahead of our internal forecast on yield performance in Q3. That was really -- we were excited to see that. So we had momentum that we were carrying into Q4. The team continued to improve yields through the course of Q4 ahead of our expectations. We certainly -- even in Q1, we are expecting that those yields will continue to improve given that it is -- the extent it really is a major change to move to a substrate like processing technology. And so we expect that to continue. I think, overall, Q4 in that area really exceeded our expectations on yield, tremendous job by the organization.

Great. That's helpful. And then in terms of the auto business, you mentioned -- I think it was 30 new programs that are ramping over the next 12 months. Can you give us a little bit of a sense for what those 30 are by sort of end application within the customer?

Yes. So a mix that -- those programs are mixed. They're predominately -- as you can expect, they're predominantly in the advanced technology area and RF. There are a few conventional board program still ramping, but primarily you're going to see that advanced technology in the RF area for -- and so you're seeing -- we're seeing a lot of activity -- ongoing activity, particularly in centers and electric vehicle. That area is -- we see growth. And again, it's a function of one thing being TTM's focused technology areas, the other being our ability to support geographically the early stage development work at our customers. And the way that we do that in the U.S. is mainly through our PCB facilities, most of which are in proximity. We've got a nice footprint commercially with facilities in proximity to Silicon Valley, coupled with medium-volume facilities that are in other areas of the U.S. and then the support structure in China for ramp. That gives a lot of security to those customers. And then in China, we're mainly supporting these programs with our E-M Solutions organization in Shenzhen. Again same view, but there, we're really working on assembled solutions and engaging with the customers of assembled solutions that then drag the PCB sales along with them. So that's for the manner of engagement.

Great. And then just lastly, on the cash flows, which were fantastic in the quarter and the year. You're painting a picture for top line growth in 2018. I assume that, that should lead to some profit growth. Does it also lead to cash flows from operations going higher? Or is there something going on in terms of working capital that maybe would be a drag as you think about the full year 2018?

I'll take that, Steve. In regards to our working capital metrics, I identified cash cycle days as kind of our key metric that we look at in terms of managing our working capital. We have a very vigorous program that we work internally. I'm trying to push all the different buttons or pull the levers, pick your metaphor, that influence that metric because it's important to us. And we estimate that a day's worth -- 1 day of cash cycle time is worth $8 million of cash. So we're motivated to try to improve that. Now is there a lot of runway to take another 5 or 10 days off that? It becomes very challenging. But I don't expect deterioration on a year-over-year basis. You will see some seasonality. But if you compare our cash cycle days over the last 8 quarters, for example, you'll see that each year, Q1-over-Q1, Q2-over-Q2 you'll see improvement. And we would hope to continue that path, but that's a very, very challenging and difficult thing to do. But I don't expect any serious deterioration. So therefore, cash flow from operations should parallel with what we should see in terms of revenue and profit growth in the business.

We'll move on to our next caller, Paul Coster, with JPMorgan.

A few quick questions. Tax rate for the full year, it looks pretty impressive the first quarter. Should we expect the same for the remainder of the year?

So yes, our guidance, the way we're looking at 2018 is that, that range of 13% to 17%. So that's our projection for the full year, and then you kind of tweak it as you go forward and you get more actual results.

Got it. The acquired business, Anaren, had operating margins more than double the legacy business. So I mean, it seems reasonable to assume that operating margins are going to expand in the second half of the year once the acquisition is out of the way. Do you think the combined business will top the target range and will have to be revised in the context of the Anaren integration?

One big variable on that is timing. And as Tom mentioned, we're not sure when we're going to close. But we'll certainly try to provide a better sense of the -- what the outlook might look like when we get to that closing date. You're right to observe that their profit -- their business model generates operating margins that are twice what we normally see on the average. And their EBITDA margin is mid-20s, and we're kind of mid-teens. So there's significant upside into the financial model. We also expect, assuming the debt markets willing, that if the -- if our financing comes in at a reasonable price, if you will, that this transaction is going to be accretive very quickly, if not -- either like in the first or second quarter after we close the transaction. And we have some synergies baked in and whatnot. So we definitely see positive contribution from the acquisition. Then you obviously would layer that on your expectations for our base business, which, as I indicated earlier, we've given some guidance on where we think revenue is going to look like for the year. Tom has given some color on that. And as far as the profit forecasting ability, I would encourage you to make sure you look at our typical seasonal patterns. If you look over the last several years and see how our profits generally grow as revenue grows and our ability -- you know what our leverage points are. We've talked often about incremental revenue drives 20% to 30% profit flow through on the PCB business. So using those metrics and your knowledge of kind of how we act over the last several years, you'd have to kind of build that. I can't comment specifically to estimates that are out on the street at this point.

Last question on CFIUS. You've got a large China-based operation, but you're a U.S.-based company and U.S. listed, et cetera. You've also got some Asia-based share ownership. What kind of risks are you running here? And are there contingency plans in place? I mean, how confident that you can get through the CFIUS review?

The -- so a couple of points there. So TTM has acted under a special security agreement with the U.S. government, specifically with the Defense Department since the Meadville acquisition, so going on 7 years now. And so there is an ongoing relationship there. There's an agreement, which can be amended if needed. We take those -- the requirements of that agreement very seriously and have an excellent working relationship there with the government. And so suffice it to say that we -- we certainly have been through the process twice so far. This is our third rodeo, if you will. And we understand the process. We also have an existing relationship. So we have all -- all of you that we will -- that is fairly optimistic about how this will come together, but there is a timetable and a clock that goes with the review. And we have to work through the government's timetable on this. So we'll certainly keep you informed here. And again, either Q1 or Q2 it is our intent to close the transaction.

And we'll move on to Sean Hannan with Needham & Company.

Just a question going back to automotive. When you talk about the 30 wins you took on here and that you're expecting to ramp during the course of '18, just for reference, how many did you ramp in '17, number one? And then number two, what will the timing look like for that as that proceeds there this year?

Yes, Sean. So we haven't disclosed the number last year, and this is really something that we'll be doing for you going forward. In terms of when those ramps would occur, there are ramps that will be occurring in the next year and starting with relatively small volumes and then building. And as you know, the process here is that these programs tend to take 2 years to build to meaningful volume, but we're in early -- at early stage volume at this point and building in the course of the next year or 2 commercial volumes. So you're looking at -- it's really starting this year and then building into more meaningful volumes into 2019 and 2020.

Okay, understood. And then to follow up on some commentary provided around different segments, looking at networking/communications. So you're expecting growth to be below the typical, the norm for that space this year. Just trying to understand how you expect maybe the shape of that to look. Is this something where perhaps we should think about, from current point going into the middle of the year, an incremental slowdown until then maybe we start to uptick a little bit at the end of the year? How do we think about that general path for that segment?

Sure. Yes. So the networking piece of this and about 2/3 of what we call networking/communications is really on the networking space and 1/3 is in -- on the telecom side. The networking side, always difficult -- it's difficult to give visibility there in terms of -- I think what we're seeing right now is a overall slowdown in the enterprise spend. I would expect that to gradually come back during the course of the year. But outside of that, we deal with a very large set of networking customers in all of these areas of different dynamics. And that causes it to be a little bit difficult to forecast. So for us, forecasting it relatively flat is probably the right way to look at it through the course of the year. And then telecom, we would see as right now sort of bouncing along the bottom. And as 5G, the initial build-outs start to happen towards the end of this year and then into next year, that's when we would expect volume to develop on the telecom side. So that's what -- where I think your point is a good one that we would start to see some volume build in the Q3 time frame and then really start seeing higher volumes as we go into next year and then into 2020.

And there are no further questions in the queue. I'd now like to turn the call back over to Mr. Todd Edman (sic) [Tom Edman] for any closing remarks.

Okay, thank you, Stephanie. It's Tom Edman. And I'd like to just close by summarizing the points made earlier. First, we delivered really strong results for the fourth quarter of 2017. You heard the number of records that we recorded, both for the fourth quarter and for the full year. So I'd like to just reiterate my congratulations to our team on just a terrific fourth quarter. We did beat the high end of our non-GAAP EPS forecast as well as consensus, and that really was due to the solid growth and very strong operational execution and just capped off an outstanding year, where we reached record revenues, non-GAAP earnings per share and operating cash flow. We are excited about closing the Anaren transaction and being able to welcome a new set of employees and terrific engineering capability into TTM, and I look forward to those potential mutual benefits. And finally, I'd just like to close by thanking all of you, our investors, our employees and those customers who are on the phone. Thank you for your continued support. Goodbye.

And this concludes today's call. Thank you so much for your participation. You may now disconnect.