Good day everyone. Thank you for standing by. Welcome to the TTM Technologies' Epiq Solutions conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I will now hand the conference over to Sean Hannan, Vice President of Investor Relations. 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 N+M 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- 2029 timeframe. This includes the development and launch of our N+M product for the commercial data center and networking end markets, and construction of our Syracuse Diamond 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 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- 1.7x within 12- 18 months, putting us right back in our target range of 1.5x- 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 MH z all the way up to 40 GHz. 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. Thank you.
Certainly. As a reminder, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the queue and roster. Our first question coming from the line of Mike Crawford with B. Riley Securities. Your line is now open.
Thank you. Are there any major programs of record that are driving Epiq's growth? Could you talk a little bit about the funding for their various solutions?
Yes, Mike, a very good question. Epiq is a great addition, and if you look, let's say, at the programs they already support, and look at 2027, this is not just one program. This is a set of programs. I think it's over 10 different programs, and it covers already quite a substantial point of their whole funnel. So, there's a reason that the forward-looking numbers in 2027 are pretty accurate. And then, basically be able to do even better. So, it's not just one program. These are multiple programs with big players, a lot of players we already are engaged with, but also some very new and interesting parties.
Well, thank you, Edwin. Are you able to name them or not?
At this time, over time, I can name them. These are the big players that you are very well aware of, but also, let's say, some very unique smaller players. Also, some, by the way, some players in Europe. So, it helps a lot. But let's say 45% of the whole Epiq revenue is covered by 10 of these big players. So, it is really well-established.
Excellent. Thank you very much.
Thank you. Our next question coming from the line of Jim Ricchiuti with Needham & Company . Your line is now open.
Hi, thanks. I was just wondering, has there been any relationship between Epiq and the Anaren business or with the more recent Telephonics acquisition?
Oh, yeah. Again, very good question. These things don't come out of the blue, okay? We looked at Epiq for the last years, and they're very successful. I think we looked at Epiq, the first time, I think it was in 2022. Yeah. It was always on our wish list. The guys are very entrepreneurial. It's a very good fit. Like I said, we do a lot in radar. They do a lot in communication. We do a lot in some other things, let's say, with respect to surveillance. They cover, let's say, the whole communication side, the GPS side, the LEO space side, electronic warfare. It's so so complementary. That's the reason. No, they didn't come out of the blue. This is something we looked at since 2022.
Thanks. Dan, maybe a question for you. I think you alluded to strong revenue growth. Can you give us a sense of trailing 12-month revenues or so, just some way to frame that? And then, obviously, it sounds like higher margins, and I don't know if you can give us any color on that and t hen finally, the $9 million of synergies. Just curious if you could talk to that, just given that this is a private company. Thank you.
Sure. Thanks. That's multiple questions there, Jim. Let me try to tackle them one at a time, and then you can remind me. Frankly, what we wanted to say about the revenues, their expected revenues for 2026 full year are $160 million, and their EBITDA margins are in the mid-30%s, so that will be accretive to us. On the run rate synergies, there are some cost synergies expected as well as revenue synergies. It's kind of a mix of both. Even though they're not a public company as we join, obviously we can add some efficiencies in the back office and what have you, as well as with the customer base and the technology, we will have some revenue synergies that add up to that $9 million when you add them together. Just to address Michael's question a little bit earlier.
Key programs for Epiq do include items like Rivet Joint, the MQ-9 Reaper, and other air-based and air defense radar systems, as well as [inaudible] applications.
Noted. Thank you. I will jump back in the queue. Congrats, by the way.
Thanks, Jim.
Thank you. Our next question in the queue coming from the line of Steven Fox with Fox Advisors. Your line is now open.
Hi, good afternoon. I had one other financial question, then a bigger picture question. So, to get to the 2028 EPS accretion that you are targeting, can you give us a sense for what kind of sales growth you are expecting and, I guess, whether there is any organic margin improvement, or do we assume the margins expand because of the synergies you mentioned? Then I have a follow-up.
There is a little bit of both. There is some organic margin improvement. They have won some very strong current platform programs that will increase their margins. For as far as annual revenue growth, it is in the double digits, a little bit higher than what our A&D growth rate is right now.
Great. That is helpful. And then, it is still early days, I get that, but from a sales synergy standpoint, how much more color can you provide on how that comes about, where 1 + 1 = 3 at a certain customer, and is it more them leveraging your relationships or vice versa? How would you sort of just talk about sales synergies? Thank you.
Yeah. I mean, as always—
Okay, go ahead.
—oh, no. No worries. Steve, let me try and then hand it over to Dan. I think I am a very realistic guy. I love it when 1 + 1 = 2.1, let us say. Our team is hoping for five. Just to let you know. If I look at all these programs, and I have all these key customers here in front of me, a lot of these customers we already engaged with. Now with Epiq, we can provide a complete portfolio. Yeah? On top of that, let us say this is not just RF plus DSP. No, this is a lot more. With all these new capabilities, I am sure, I am 100% sure we get far more synergies over time. This will not be day one. Absolutely not day one. Yeah?
But over the coming months, we will align our sales forces, we will align our offerings to each of these big players, and they're all big players. These are the L3Harris's, they are the RTXs. Big guys. And same thing in Europe. So, I expect a lot more synergy. It's a very strategic buy for us. But I can tell you, these sales forces are already aligned, and this will go very, very smooth.
Great. Thank you very much.
Steve, I'll just also mention that synergies will come from—t here's very little program overlap as well as limited customer overlap in our top 10 versus their top 10. So, expansion to new customers and new platforms.
Awesome. Thanks for all the detail.
Thank you. Our next question coming from the line of William Stein with Truist Securities. Your line is now open.
Great. Thank you for taking my questions. First let me say congrats on this acquisition. It looks like a very interesting new or extending the direction of the company, as you've highlighted. First, Edwin, can you talk about the relationship between the two companies prior to this evaluation of the acquisition? Was Epiq a supplier to TTM, or was TTM a supplier to Epiq? If so, maybe you can talk about that a little bit. Can you also talk about how TTM's ownership of this asset will allow it to grow faster or become more profitable than it would have done on its own or in someone else's hands? What's special that TTM will provide here? Thank you.
Yeah. Happy to do that. Before I do that, maybe let me also step back a bit and look at the overall strategy. There is one slide, let's say, in our deck showing that. Remember that we are following that wave on data centers and networking. We're following that, we're steering that wave. At the same time, we're building up these businesses, both organically and, let's say, with step functions showing these acquisitions. So, it's important to keep that in mind. By the way, we will not step away at all from data centers and networking. We will invest, and we will invest more if the markets ask for that. We have the leverage, we will continue to do that. That's very important to know. We're very committed to all these eight end markets.
So, where A&D is just one end market, but a very interesting one, because over time, this will be a very important thing for us. Having said that, the relation between Epiq and TTM, yes, there were some relations. As you know, the RF domain, everybody knows each other. Did we have a strong relation in supplier-customer? No. This is all, let's say, new business starting. That also helps, by the way, in synergy thing. But we knew each other very, very well. Like I said, this didn't came out of the blue. It started in 2022, and we took our time to look at the company. We engaged with the company. There were a lot of management discussions with the company. The CEO and his staff are really well-established. Indeed, like you said, we can give some volume.
We can give, let's say, a bit more capital. We can give a bit more volume in our facilities to grow. We have a bit more R&D expertise in other domains and other end markets where we can help. So, there will be a lot of nice synergy there.
Well, we have very little supply into them. But we do provide PCBs to some level. With the combination of the two companies, we can obviously leverage that, our design and manufacturing ability for PCBs to then vertically integrate it into their products. So that'll be a win-win for both of us. Also want to correct a comment I made earlier. I said their revenues were $160 million in 2026, I think, and that was the 2027 number. As we look forward. Okay?
Thank you. If I can ask a quick follow-up. Edwin, I understand the way you frame this acquisition, and it's very consistent with what you talked about at the Analyst Day. On slide four, you show this sort of step function increase in the company's capabilities from Epiq. There's another one drawn out in the future. I'm sure that's mostly stylistic, but I think it's worth giving some discussion to this, whether following the two smaller deals you announced a few weeks ago and this larger one today, should investors expect additional deals of this size, of the size of the deal you're doing today, sometime in the next year or so? Or maybe you just help us understand the sizing and timing of potential acquisitions from here now that you've done a couple small ones and this somewhat bigger one.
Yeah. We did a few small ones. Indeed, there are a few small ones to follow. This is a bigger one, indeed a very strategic one. The drawing, indeed, as you see, there is no time axis. Yeah? It can be further out. But if you look at our leverage, yeah, we have the capabilities to do more. But again, very well-balanced with our internal investments, let's say, in our capacity for data centers and networking, which is also booming. So we balance it in that way. At the moment, we don't have a clear view on another acquisition this size. Of course, we always have a list of, let's say, 10 companies- 50 companies we follow very carefully, and there might be good opportunities at any point in time.
But at the moment, we are looking, let's say, in securing these smaller acquisitions we announced, maybe do a few extra in Europe, then looking to integrate this Epiq acquisition in a good way and grow it organically. But again, we keep our eyes open, and we monitor it every day of what else we can do.
Thank you.
Thank you. Our next question in queue coming from the line of Ruben Roy with Stifel. Your line is now open.
Yeah. Hi. Thank you. Edwin, you mentioned RTX, L3Harris. I think some of those companies buy some components and modules from TTM today, and when you move up into systems with Epiq, I am just wondering, are there competitive dynamics there with some of those existing customers, or is it different the way you are approaching that customer? With Epiq?
No, Ruben, that is a good question. No, absolutely. This is all very well managed, and I can tell you I am very much engaged with all these customers. They love it when we solve difficult things for them. And some of the things, yes, they do it themselves, but not at the right scale and sometimes not with the right expertise. Yeah. Being, let us say, the RF competence center with, and including the DSP, we solve a lot for them. With all these big guys, it is always a make or buy solution. But the capabilities are really, really, really outperforming some of the things they like to do themselves. So, I am not worried at all.
Yeah. Of course, we had several customer calls on this, and it is part of our due diligence, of course. And we also have the relations with these customers. So, they love it. In general, they love it if we do these type of things for them. That means they can concentrate more on the overall system architecture, the user interfacing, and all these type of things.
Right. Okay. That makes a lot of sense. Thank you, Edwin. Just a quick follow-up. On slide seven, Edwin, you can address the full frequency spectrum, and you've got TTM inside of that band. Is there a way to think about what the expanded TAM opportunity is here across the entire spectrum range?
That basically comes to, I know it's big. That basically comes back to, let's say, the overall strategic planning we are doing right now, and I mentioned it on the earnings call. This is the phase where we do our strategic planning. This is where we look at our SAM, TAM, and our market shares in each of our businesses. We will do this exercise. It will be big. It will open up a lot of opportunities, but I like to get the Epiq management team, of course, John as the CEO, to get involved in these discussions to come with some accurate numbers. But I can tell you the opportunities are big.
Great. Thank you.
Ruben, I would say that, yeah, probably extends our SAM more than the TAM. Right? Provides us—
Right.
—with, in partnership with them, more opportunities within our technology.
Makes sense. Thanks, Dan.
Yeah.
Thank you. We have a follow-up question from Jim Ricchiuti with Needham & Company. Your line is now open .
Thanks. It sounds like they have had some nice wins. I am not sure if you can give us any color as to what their backlog might look like. And then, I had one quick follow-up.
Excuse me, the question was about backlog, correct?
Yes. I'm sorry, Edwin, if you didn't hear me. I was just curious.
Oh, yeah.
It sounds like they've had some good wins. Backlog, yeah.
Yeah, backlog.
Any color?
Maybe better than backlog. If you look at 2027, and Dan mentioned the number, let's say, which we are going after, the $160 million. It is very nice to see that these top 10 programs are basically comprising already 45% of total revenue. That means that this is very much secured. If I look at the overall numbers for 2026 and 2027, a lot of things are already secured. So, without giving you an exact number, because I do not have the exact number here, I can tell you that the coverage is already pretty healthy. Again, that made us use, let's say, the 2027 number. Instead of, let's say, looking back 12 months, we said, "Okay, this is a nicely growing business, very much secured with these big guys, these big programs, which will normally not move." By the way, they do not lose any business to competition.
Yeah.
The only thing, what we took out of their forecast and look at our own forecast, is basically programs which might move to the right. If I take that into account, I am very confident about 2026 and even about 2027 on these programs. So the backlog is very, very healthy.
Got it. What does the customer concentration look like? It sounds like there might be a fair amount of customer concentration with that kind of revenue base and given the programs.
Yeah. If you look at the customers, and we mentioned a few, right?
Yeah.
It's like the L3Harris' of this world, the BAE Systems, the Roke, RTX. A lot of army programs, a lot of special operations programs, by the way, where SWaP is extremely important. Then you see that these top 10 customers are covering, let's say, 40%, 45%. Okay? That means that the other customers is basically the tail. It's interesting to see that in that tail, there are a lot of European customers as well. Working in our strategy to get to do more in Europe. A very, very healthy distribution. Not, let's say, one customer which is very, very dominant. Not at all. Looking at the top 10, a very nice distribution.
Jim, let me jump in too. As Edwin mentioned, about 40%- 45% representation in their top 10 customers. Only one of those customers is over 10% of revenue. I don't think there's a lot of customer concentration. In regards to backlog, their backlog currently is about $50 million. One of their strengths is their ability to quickly get from design inception to market. They don't carry a lot of backlog, because of their ability to go from design to manufacturing to sale pretty quickly.
Got it. Helpful. Thank you.
Thank you. I am showing no further questions in the queue at this time. I will now turn the call back over to Mr. Edwin Roks for any closing comments.
Yeah. Thank you. Thank you very much. No, it is like I said, this is a fantastic opportunity for TTM, and of course, the rest of the day, we will spend a lot of time making sure we welcome our new colleagues. I am sure that the combination of TTM, Epiq, will be a very, very, very strong position here. So, thank you very much for this call and talk to you later. Bye.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.