TTM Technologies Inc M&A announcement

Please go ahead. Greetings, everyone.

Welcome, and thank you for joining us today. I am Sean Hannan, Vice President of Investor Relations for TTM. With me on the call are Edwin Roks, our President and Chief Executive Officer, Dan Boehle, our Executive Vice President and Chief Financial Officer. Before we get started, I would like to remind everyone 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 standard accepted GAAP guidelines. We have also posted on the website a slide presentation that we will refer to during our call. With that, here is Edwin.

Thank you, Sean. It has been a very successful year for TTM so far. Our second quarter set a new record with over $1 billion in revenue. As we noted in our earnings call, we expect to finish the second half of the year even stronger with the ramp of our MCM product offerings for data center and networking end markets. In addition, we have a record program backlog of $1.7 billion and proposal activity at an all-time high in our Aerospace & Defense segments, where we are experiencing better than expected growth. Our medical, industrial, and instrumentation and automotive end markets also have outperformed our expectations year to date. With all businesses performing well, we increased our year-end revenue guidance to approximately $4.4 billion.

Therefore, the implied fourth quarter expectation should allow us to exit the year at a run rate level that suggests exciting organic growth expectations for the next year. It also means outperforming prior expectations for 2027. As we framed at our investor day in May, TTM continues to invest in organic growth opportunities, technological advancements across our product offerings, and strategic M&A. To that end, we discussed three key strategic directives. First, investment in capacity and innovative technology for advanced interconnect. In this area, we have invested or committed to invest over $1.2 billion in capacity expansion in the 2025 to 2029 timeframe. This includes the development and launch of our MCM product for the commercial data center and networking end markets, and construction of our Syracuse facility to provide ultra-high density interconnect solutions for our Aerospace & Defense end market.

We are also in the early stages of investing in a new innovation center that will be located in Eau Claire, Wisconsin, very close to our existing technology center in Chippewa Falls, Wisconsin. This will be our third research and development facility and will spearhead our intensifying R&D activities focused on pioneering technological advancements in areas such as embedded optics, MSAP, and passives, among other technologies. Second, geographic expansion into Europe. We announced in June our intention to acquire two well-established European companies, Swiss Technology Group and ILFA GmbH, to begin with this effort. These transactions are working their way through the required regulatory processes, and we continue to expect these will close late in the third quarter. Finally, our third strategic directive is investment in what we call up the chain or vertical product solutions in integrated electronics.

In line with this directive, we are very excited today to announce the planned acquisition of Epiq Solutions. We are enthusiastic about the established platform positions and the future growth opportunities at Epiq and believe the combination of TTM and Epiq brings a unique set of competencies that will deliver differentiated and high-value solutions to all our end markets. I will expand more on the cutting-edge technology and product offerings that Epiq provides in the next sections. But first, I will turn it over to Dan to provide the financial overview of the transaction.

Thank you, Edwin, and good afternoon, everyone. Not only are we excited about the acquisition of Epiq for its fantastic technology, products, and customer base, it also strengthens our financial model by adding more high margin, long cycle business to our mix. Let me go through the financial highlights for you. We are acquiring Epiq for an all-cash purchase price of $1.1 billion. We will borrow the necessary funds and have received commitment letters from our banking partners at JP Morgan, Bank of America, and Barclays. On timing, we expect to close in the fourth quarter of 2026, subject to regulatory approvals and other customary closing conditions. Epiq is experiencing strong revenue growth and margin expansion, and the transaction is expected to be immediately accretive to our Adjusted EBITDA margins and expected to be accretive to our non-GAAP diluted EPS by 2028.

On a synergy-assisted adjusted basis, we estimate the acquisition to represent a 17.4x multiple on expected 2027 Adjusted EBITDA. On the next slide, we have an illustration of the rapid de-leveraging that we expect due to strong EBITDA generation and cash flow conversion. At the close of the transaction, we estimate total net leverage of 2.3x, and we expect to reduce this to within the range of 1.5x to 1.7x within 12 to 18 months, putting us right back in our target range of 1.5x to 2x. I'll turn it back to Edwin to further discuss the strategic benefits of combining TTM and Epiq.

Yeah, thank you very much, Dan. Today, TTM has a strong product position in the RF spectrum and components, and increasingly at the modules and subsystem levels, which have been built over time, both organically as well through the key enabling acquisitions such as Anaren and Telephonics. Acquiring Epiq means that TTM will be able to gain complete command of the RF spectrum from 2 megahertz all the way up to 40 gigahertz. Through this combination, TTM has the capability across a full RF spectrum, across components, modules, subsystems, and systems, which will all have fundamental applications in communications and other applications. Communication in military and security, which is more formally referenced as comms, surveillance, radar, electronic warfare, LEO space, missile defense, GPS position, navigation, and timing.

The Epiq portfolio has very little to no redundant overlap with TTM, so the addition is expected to be extremely additive and presents a number of opportunities for driving value-added cross-sell and combined revenue synergies in the spirit of enhancing up-the-chain progress in our go-to-market model. To close, three takeaways. First, this transaction supports the growth strategy we have been executing against and moves TTM further up the chain. Second, Epiq adds complementary and unique RF and DSP technologies and product offerings. This brings capabilities we do not have today in form factors we do not build today on programs we are aggressively asked to serve. Third, and importantly to our shareholders, this transaction enhances the long-term financial model as it is expected to be immediately accretive to Adjusted EBITDA margin and expected to be accretive to non-GAAP diluted EPS during 2028.

With that, Livia, you can now open the call for questions.