TTM Technologies Inc 2026 Q2 Earnings Call

Greetings, everyone. Welcome, thank you for joining us today. I'm Sean Hannan, Vice President of Investor Relations for TTM. With me on the call are Edwin Roks, our President and Chief Executive Officer, and Dan L. Boehle, our Executive Vice President and Chief Financial Officer. Before we get started, I'd like to remind everybody that today's call contains forward-looking statements, 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 risk factors we provide in our filings with the Securities and Exchange Commission, which we encourage you to review. These forward-looking statements represent management's expectations and assumptions based on currently available information.

TTM does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or other circumstances, except as required by law. We will also discuss on this call certain non-GAAP financial measures, such as Adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP, we direct you to the reconciliations between GAAP and non-GAAP measures included in the company's earnings release, which is available on the investor relations section of TTM's website at investors.ttm.com. We have also posted on that website an earnings presentation that we will refer to during the call. Here is Edwin. Thank you, Sean.

Good afternoon, everyone, thank you for joining us for our second quarter 2026 conference call. At TTM Technologies, we are focused on designing and manufacturing complex advanced interconnect products and Printed Circuit Boards, in addition to what we term up as up-the-chain products and solutions, such as sophisticated RF modules, intricate subsystems, and fully integrated mission systems. Core to the design of all our products and solutions, as well as the key strategy to our business, is innovative focus to satisfy next-generation needs for our customers and end markets, particularly regarding SWaP, or size, weight, and power. We believe the future of electronics lies in speed to market, high reliability, and efficient technology integration, we consequently engage early with our customers to ensure this alignment while also enabling optimal management of their complex supply chains.

From a demand standpoint, we remain excited about the key megatrends of artificial intelligence and defense, which have been strong drivers of our performance and new business activity at TTM. We previously stated that approximately 80% of our net sales are related to these two megatrends, and we believe this will continue to put us in a beneficial position for our investors for the foreseeable future. We remain committed to thoughtful capital and resource investments at our facilities around the globe to take full advantage of these opportunities, and we also plan to continue the pursuit of opportunities that enhance our business and financial strength with additive products, capabilities, and geographic offerings through thoughtful strategic acquisitions.

We are tracking well ahead of our previously communicated plan to achieve at least $4 billion in net sales in 2026, and our earnings for 2026 are exceeding our prior expectations as well, as Dan will share later in his comments. With the continued strong demand in both artificial intelligence and defense, we also remain confident in our ability to achieve 15%-20% organic revenue growth for 2027 and 2028, as previously shared. We will also provide further clarity on these out years next quarter as we develop our updated long-term plan. In our commercial segments, we are highly focused on supporting the demand wave of artificial intelligence in the data center and networking end market.

In this market, technology demand has been robust across our diverse set of customers, and we are particularly excited for our growth momentum as we've initiated the early stage of our full production launch of N+M, or asymmetrical interconnect printed circuit boards. We are also focused on evolving opportunities in the use of automation and AI in our Medical, Industrial & Instrumentation end market, while we remain strategically positioned in automotive for longer-term advanced technology cycles. In our Aerospace & Defense end market, we continue to excel with our leading position in advanced interconnect products as we work to expand our product offerings in integrated electronics and up-the-chain solutions. We remain quite encouraged by our opportunities, and we are very actively working to secure additional future awards or orders for the Golden Dome program, multiple munition programs, and emerging technologies and companies.

In the third quarter, we will begin the initial stages of ramping up volume for Ultra-HDI products at our new Syracuse facility. This ramp is expected to continue into the fourth quarter and throughout 2027 to reach full capacity run rate at 2028. Operationally, in A&D, we are also very pleased with our progress on targeted initiatives to implement better pricing structures, streamline our supply chain, and drive manufacturing efficiencies, which should all enable margin improvements in the long run. Toward the end of the second quarter, we announced our intentions to acquire two well-established companies in Europe, which are privately held: Swiss Technology Group AG, or STG, in Switzerland, and ILFA GmbH, or ILFA, in Germany, with the transactions expected to close in the third quarter.

From a model standpoint, these businesses are expected to contribute less than 5% of incremental sales and to be moderately accretive on an Adjusted EBITDA basis. Most importantly, these strategic acquisitions will establish our initial footprint in Europe, adding healthy long-cycle businesses primarily in the Medical and A&D end markets, with strategic technology capabilities that reinforce our up-the-chain value-add technology approach. This will serve as a first step toward our long-term vision to become a significant competitor in this geography, and we expect to continue to be opportunistic in the future for businesses that similarly fit such criteria. I now begin with an overview of our business highlights from the quarter. We'll follow up with a summary of our Q2 2026 financial performance and our Q3 and 2026 fiscal guidance. We will open the call to your questions.

We delivered an excellent second quarter of 2026, and as always, I would like to thank our employees for delivering these results. We achieved sales of $1 billion, our first quarterly result reaching that threshold, and non-GAAP EPS of $0.99 per diluted share, both above our guidance and both all-time quarterly highs. Sales grew 37% year-on-year, reflecting continued demand strength in our Data Center and Networking end market, driven by the requirements of AI, while our Medical, Industrial, and Instrumentation and Aerospace and Defense end markets also experienced very strong growth. The company's Adjusted EBITDA margin was 16.6% in the second quarter of 2026, up 160 basis points year-on-year and 90 basis points sequentially, largely reflecting positive mix impacts. Non-GAAP EPS of $0.99 per diluted share was a 71% improvement year-on-year. The Aerospace and Defense end market represented 37% of second quarter 2026 sales.

Sales in the Aerospace and Defense market grew 14% year-on-year in the second quarter, while the vast majority of our facilities performing at very strong levels. The sales growth in the defense market continues to be a result of positive tailwinds in defense budgets, our strong strategic program alignment, and key bookings for new and ongoing programs. Our ability to support sustained longer-term growth is also very encouraging. We have many product innovation initiatives on track within our internal roadmaps, including unique advancements in Printed Circuit Board technologies for materials that enable high frequency in support of all our applications. During the second quarter of 2026, we booked significant Aerospace and Defense business related to AN/APS-153 Multi-Mode Maritime Surveillance Radar, the ATP Sensor System for targeting and surveillance, Golden Dome, and a number of projected priority-restricted programs.

A&D book-to-bill was 1.3 for the quarter, which led to a total program backlog of $1.7 billion, up from $1.5 billion a year ago. We are also pleased to share that business proposals for this end market are at an all-time high, with over $7 billion of potential business currently qualified in our strategic pipeline. For the third quarter of 2026, we expect this end market to represent 32% of our total sales and to continue delivering both year-on-year and sequential growth. For the full year 2026, we now expect sales in this end market to grow in the low to mid-teens year-on-year. Sales in the Data Center and Networking end market represented 40% of our second quarter 2026 sales.

This end market experienced 91% year-on-year growth in the second quarter, above our growth expectations and reflecting continued demand strength from our data center and networking customers building out the AI data centers. For the third quarter of 2026, we expect this end market to represent 49% of net sales as early stages begin for the planned ramp-up to volume production of our Empress M asymmetrical printed circuit boards. For the full year 2026, we now expect sales in this end market to more than double year-on-year. The Medical, Industrial & Instrumentation end market represented 50% of our second quarter 2026 sales. This end market saw year-on-year growth of 33% during the second quarter, primarily aided by healthy demand in medical, which has included support for major continuous glucose monitoring product and instrumentation for automated test equipment supporting AI solutions.

Year-to-date, TTM's top five medical customers' performance have more than doubled our internal expectations, and we expect growth in this sub-market to continue to be driven by demand of innovative products such as surgical robots, electrophysiology, and continuous glucose measuring solutions. For the third quarter of 2026, we expect the Medical, Industrial & Instrumentation end market to represent 13% of total sales, growing both sequentially and year-on-year. For the full year 2026, we now expect sales in this end market to grow 35%-40% year-on-year. Automotive sales represented 8% of second quarter 2026 sales and was down marginally year-on-year. We continue to be very selective in this market to focus on higher value add products that carry margin profiles consistent with our financial goals, as we also believe long-term business cycles should migrate back towards our advanced capabilities.