Prepared remarks
Hello, and welcome to TTM Technologies' Second Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. I will now hand the call over to Sean Hannan, Vice President of Investor Relations at TTM. Mr. Hannan, please go ahead.
Greetings, everyone. Welcome, and 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 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 provided 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 a substitute for the measures prepared and presented in accordance with GAAP, and 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 the website an earnings presentation that we will refer to during the call. Here is Edwin.
Thank you, Sean. Good afternoon, everyone, and 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-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, and the key strategy to our business, is an 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, and 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. 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 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% to 20% organic revenue growth for 2027 and 2028 as previously shared. We will provide further clarity on these out years next quarter as we develop our updated long-term plan. In our commercial segment, 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, our asymmetrical interconnect printed circuit boards. We are also focused on evolving opportunities in the use of automation and AI in our medical, industrial and instrumentation end markets, while we remain strategically positioned in automotive for longer-term advanced technology cycles.
In our aerospace and 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 encouraged by our opportunities, and we are 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 plant is expected to continue into the fourth quarter and throughout 2027 to reach full capacity run rate in 2028. Operationally in aerospace and defense, we are 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. This transaction is 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. But most importantly, these strategic acquisitions will establish our initial footprint in Europe, adding healthy long-cycle businesses, primarily into medical and aerospace and defense 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 meet such criteria.
I'll now begin with an overview of our business highlights from the quarter. Dan will follow up with a summary of our Q2 2026 financial performance and our Q3 2026 fiscal guidance. We will then 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-over-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-over-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-over-year. The aerospace and defense end market represented 37% of second quarter 2026 sales. Sales in the aerospace and defense market grew 14% year-over-year in the second quarter while the vast majority of our facilities performed 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 road maps, 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 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.
Aerospace and defense 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 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 continue delivering both year-over-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-over-year. Sales in the data center and networking end market represented 40% of our second quarter 2026 sales. This end market experienced 91% year-over-year growth in the second quarter, above our growth expectations and reflecting continued demand strength from our data center and networking customers building out 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 N+M asymmetrical printed circuit boards. For the full year 2026, we now expect sales in this end market to more than double year-over-year. The medical, industrial and instrumentation end market represented 50% of our second quarter 2026 sales. This end market saw year-over-year growth of 33% during the second quarter, primarily aided by healthy demand in medical, which included support for major continuous glucose monitoring products and in instrumentation for automated test equipment supporting AI solutions. Year-to-date, TTM's top five medical customers' performance has more than doubled our internal expectations, and we expect growth in this submarket to continue to be driven by demand for innovative products such as surgical robots, electrophysiology and continuous glucose measuring solutions.
For the third quarter of 2026, we expect the medical, industrial and instrumentation end market to represent 13% of total sales, growing both sequentially and year-over-year. For the full year 2026, we now expect sales in this end market to grow 35% to 40% year-over-year. Automotive sales represented 8% of second quarter 2026 sales and were down marginally year-over-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. For the third quarter of 2026, we expect that the automotive market will represent about 6% of total sales, which reflects slight pressure in supply chain materials availability as CCL producers attempt to shift away from lower complexity materials towards higher complexity products.
Given this dynamic, we are actively working with our supply chain partners to secure adequate supply that is in line with our customer demand. For the full year 2026, we continue to expect sales in this end market to decrease in the mid-single digits year-over-year. The overall book-to-bill was 1.49 for the second quarter of 2026, with the commercial reporting segment at 1.63 and the aerospace and defense reporting segment at 1.3. At the end of the second quarter of 2026, the 90-day backlog, which is subject to cancellations, was $901 million compared to $497 million a year ago, an 81% increase year-over-year. Now Dan will summarize our financial performance for the second quarter.
Thanks, Edwin, and good afternoon, everyone. I will review our financial results for the second quarter of 2026 that were included in the press release distributed today. Key financial highlights are also summarized in the earnings presentation posted on our website. For the second quarter of 2026, net sales were $1.0 billion compared to $731 million in the second quarter of 2025. The 37% year-over-year increase was due to continued strong growth in our data center and networking; medical, industrial and instrumentation; and aerospace and defense end markets, partially offset by a more modest-than-anticipated decline in our automotive end market. GAAP operating income for the second quarter of 2026 was $109.1 million compared to GAAP operating income for the second quarter of 2025 of $61.8 million. During the second quarter, we also recognized a noncash pretax unrealized loss in the amount of $14 million from changes in the fair value of a deal-contingent cross-currency swap we entered into in order to economically hedge the Swiss franc-denominated purchase price of the pending STG acquisition.
We could not use hedge accounting since the deal had not yet closed. Therefore, changes in the fair value of the swap were required to be recognized in our GAAP earnings. On a GAAP basis, net income in the second quarter of 2026 was $83 million or $0.77 per diluted share. This compares to GAAP net income for the second quarter of 2025 of $41.5 million or $0.40 per diluted share. The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes M&A-related costs, restructuring costs, certain noncash expense items such as amortization of intangibles, impairment of goodwill, stock-based compensation, gains on the sale of property, unrealized gains or losses on foreign exchange and other unusual or infrequent items. We present non-GAAP financial information to enable investors to see the company through the eyes of management and to facilitate comparison with expectations and prior periods.
Gross margin in the second quarter of 2026 was 21.9%, an increase of 100 basis points from 20.9% in the second quarter of 2025. The year-over-year increase was due primarily to higher sales volume and favorable product mix, particularly in the data center and networking, and aerospace and defense end markets. Selling and marketing expense was $24.2 million in the second quarter of 2026 or 2.4% of net sales versus $20.3 million or 2.8% of net sales a year ago. Second quarter general and administrative expense was $49.3 million or 4.9% of net sales compared to $44.3 million or 6.1% of net sales a year ago. Our operating margin in the second quarter of 2026 was 13.8%, a 270 basis point improvement from 11.1% in the same quarter last year. The increase in the period was due both to the improvement in gross margin as well as operating leverage resulting from selling, general and administrative expense discipline.
Interest expense was $9.9 million in the second quarter of 2026 compared to $10.6 million in the same quarter last year. Interest income was $1.9 million in the second quarter of 2026 compared to $2.2 million in the same quarter last year. Realized foreign exchange and other nonoperating income and expenses in the second quarter of 2026 totaled a net expense of $4.7 million as compared to net expense of $1.6 million in the same quarter last year. The increased expense was driven by the weakening of the U.S. dollar, which resulted in a $4.9 million foreign exchange loss in the second quarter of 2026 as compared to a $1.4 million loss in the same quarter last year. Our effective tax rate was 15.0% in the second quarter of 2026, resulting in tax expense of $18.9 million. This compares to an effective tax rate of 15.0% or a tax expense of $10.7 million in the same quarter last year. Second quarter 2026 non-GAAP net income was $106.9 million or $0.99 per diluted share.
This compares to second quarter 2025 non-GAAP net income of $60.8 million or $0.58 per diluted share. Adjusted EBITDA for the second quarter of 2026 was $166.8 million or 16.6% of net sales compared with second quarter 2025 adjusted EBITDA of $109.7 million or 15.0% of net sales. Cash flow provided by operating activities was $96.4 million in the second quarter of 2026, which compares to cash flow provided by operating activities of $97.8 million in the same quarter last year. Free cash flow in the second quarter of 2026 was $46.0 million as compared to free cash flow of $37.6 million in the second quarter of last year. Now we will provide our financial guidance for the third quarter of 2026 and an update to our outlook for the full year 2026. We project net sales for the third quarter of 2026 to be in the range of $1.10 billion to $1.14 billion and non-GAAP earnings to be in the range of $1.21 to $1.27 per diluted share.
These estimates exclude any contribution or impact from pending acquisitions. In addition, considering the current demand dynamics reflected in our first-half results and third-quarter guidance, we believe that net sales growth should continue with a sequential uptick in the fourth quarter. Consequently, we now expect full year 2026 sales of approximately $4.4 billion and non-GAAP earnings to approach $5 per diluted share. These full year 2026 projections also exclude any contribution or impact from pending acquisitions. The third quarter 2026 non-GAAP diluted EPS forecast is based on a diluted share count of approximately 107.7 million shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG&A expense to be approximately 7% of net sales in the third quarter and R&D expenditures to be approximately 1% of net sales. We expect interest expense of approximately $11.3 million, interest income of approximately $2.5 million, and realized foreign exchange and other nonoperating expenses of approximately $5 million.
We estimate our effective tax rate to be between 13% and 17%. Further, we expect depreciation expense of approximately $33.5 million, amortization of intangibles of approximately $9.2 million, stock-based compensation expense of approximately $18.8 million and noncash interest expense of approximately $0.7 million. And finally, I'd like to announce that we will be participating in the Jefferies Semiconductor Conference in Chicago on August 26, the Jefferies Industrial Conference in New York on September 9 and the B. Riley TMT Conference in New York on September 10. That concludes our prepared remarks, so I'll turn it back to you, Justin, for the Q&A session.
Questions and answers
And we will take our first question from the line of Jim Ricchiuti from Needham & Company.
First question, I wonder if you can talk a little bit about the impact you may be assuming on revenues and margins from the N+M scale-up in Q3. If you can't provide specific numbers, I wonder if you could just speak about the impact qualitatively.
Jim, thank you for being on the call. Happy to start this answer and then hand it over to Dan. First of all, the second half of the year is very important for us as the asymmetrical PCBs, the N+M, will kick in. We have already delivered tens of millions in N+M, and yields are looking very good. We still have about $600 million of that technology to ramp, which is a meaningful opportunity. Assuming other factors remain the same, this will help our margins. This is something to look forward to.
Jim, to give a little more color: Edwin mentioned roughly $600 million in the second half. About one-third of that's in Q3 and two-thirds in Q4. You will see the ramp as we increase production and then improve yields in the fourth quarter. The margin will improve as those yields improve. I won't quantify exactly what it will be because it depends upon how quickly we move up the yield curve, but it should improve margins in both the third quarter and fourth quarter.
And of course, Jim, this is all built into our guidance for Q3 and into our full-year outlook.
Yes. We're talking about adjusted EBITDA margins.
Right. I wonder if you could talk to the number of 10% customers you may have had in the quarter. I know that the 10-Q was filed; I'm not sure if you disclosed it there, but I wonder if you can help on that score in terms of defense and the data center area.
Sure. The 10% customers we disclose in our 10-Q and 10-K are largely distributed over the two reporting segments. One is in our commercial businesses and one is in our aerospace and defense businesses. In the commercial business it is getting a bit crowded; there's another customer approaching the 10% threshold. It's good to have large customers but also good to have a broad distribution of customers. Among hyperscalers and networking customers, we have more than ten large companies in that field. On the defense side, our customers are well-known and provide a nice balance. Overall, we have the 10% customers nicely distributed across our key segments.
Got it. One quick question and I'll jump back in the queue. It sounds like you're making progress in Penang. Are you pivoting now to producing product for the data center market from this facility?
Yes. I'm very pleased with Penang. It's doing what we said it would do six months ago. Revenues are approaching levels near breakeven, which we expect to reach in late Q3 or Q4. We are achieving good yields on important lead vehicles for our anchor customers and have added a few customers as well. Most of the business in Penang is related to our medical, industrial and instrumentation business, but Penang is also producing N+M, one of the most challenging technologies in the company, and is supporting some of our data center and networking customers. So there is a good mix: primarily medical, instrumentation and industrial, with some data center work.
And we will take our next question from Steven Fox of Fox Advisors.
I was wondering if you could dig in a little bit more into the sales pipeline you talked about in the aerospace and defense business. Any sort of gauge into how maybe your business either is changing or expanding? What capability trends are you seeing that are needed there that maybe we haven't thought of yet? And then I had a follow-up.
Good question. Our aerospace and defense business is essentially split between our PCB business, using Ultra-HDI, and our up-the-chain electronics business, which produces modules, mostly RF modules, subsystems and systems including complete radar systems. Both parts of the business are doing well. The PCB side benefits from sites like the Syracuse facility for Ultra-HDI, and the electronics side continues to perform strongly. The backlog is at $1.7 billion, which is a solid number, and the qualified pipeline exceeds $7 billion. We see strong activity across munitions programs—where demand is most urgent and primarily driven by PCBs—Golden Dome programs that combine PCB and electronics work, and communications and other applications. The mix is healthy. At the recent Farnborough show, we saw large players increasing demand and, in some cases, we are a primary supplier in the U.S. Our international business is growing nicely, and we expect to expand that further with the announced European acquisitions.
Great. That's very helpful. As a follow-up, I'm sorry if I missed this, but is there any update on the Wisconsin facility ramp and your latest thinking on that?
I can give an update on the Wisconsin facility. We're not in a rush. We plan to start some production there and establish an innovation center, which is the most important element. The innovation center will demonstrate our newest technologies and will be located near Chippewa Falls, where the site is doing well. Eau Claire is about 20 minutes away and is well positioned for advanced R&D. Data center and networking customers can come to Eau Claire when needed, and we will request contributions from them where appropriate. Because neither we nor our customers are in a rush, we have more time to plan and align with our aerospace and defense business. We have capacity available and acquired the site for less than $20 million, so it is not a burden. We'll take our time to execute carefully.
Congrats on the quarter.
Thanks, Steve.
Our next question comes from Mike Crawford from B. Riley Securities.
You addressed some CCL supply chain issues affecting lower-end automotive products serving that vertical. What about the supply chain for T-glass and other materials needed for your most sophisticated printed circuit boards serving the data center vertical? How is that supply chain looking? And then switching gears to the two proposed acquisitions: could you give any more firm economics over potential annualized revenue contribution once they close, what you're paying and your ability to expand in the footholds you're gaining in Europe, such as within existing facilities or adjacent expansions?
Michael, there is a trend where suppliers are focused more on higher-end products, including high-end materials, which is understandable as those are higher-margin areas. If we see supply chain pressure, it tends to be in the lower-end parts of our business, such as certain automotive segments, rather than our highest-end materials used for data center products. We are still able to get decent lead times and materials for our high-end offerings. Regarding the two proposed acquisitions in Europe, I am very excited about both companies. I visited recently and believe they will be great additions to TTM. ILFA's leadership is already engaged with us, and STG feels like a natural fit. As we stated in our press release, the combined businesses are expected to contribute less than 5% of incremental sales. We expect the transactions to close in the third quarter, subject to regulatory approvals. I can't provide more details on purchase price or exact revenue contributions at this time due to the pending status, but we believe these additions will strengthen our position in medical and aerospace and defense in Europe and provide attractive technology and long-cycle businesses.
Nothing more to add. We do expect them to close in the third quarter, and we'll provide all related information at that time, including the impacts going forward.
Our next question comes from the line of William Stein from Truist Securities.
First, congrats on the good results, a better outlook and a very strong implied Q4. I'd like to ask about N+M. It seems this is a major contributor to the upside in Q4. Edwin, I think you talked about doing an incremental $1 billion of N+M revenue next year. Can you comment whether I have that data point correct, whether there is need for this technology outside of data center, and the expected impact on margins?
Will, we are extremely pleased with N+M. It is not just one process but a family of options, and this is only the first step. N+M supports multiple customers and is useful beyond data center and networking; it opens opportunities in other markets as well. Yields are better than we anticipated and the ramp is underway. We are planning substantial business for next year, but the exact number is still being developed as part of our detailed strategic and operational planning. Our strategic plan spans seven years, and next year's business plan is being finalized with bottom-up inputs from customers. N+M is very important for us and could be in the ballpark you mentioned, but we'll provide more accurate guidance as we finalize our plan.
As a follow-up, are you facing capacity constraints? Previously you indicated you weren't facing constraints in data center, and that additional capacity would be welcomed in the MI&I business. Is that still the case? Have capacity additions allowed you to overcome constraints? How does this compare to what your customers are seeing broadly in the industry?
The MI&I business is growing—year-over-year it's up 33%—and we are still able to supply these customers. Capacity across our footprint, including China and China-plus-one sites and the U.S., remains comfortable. We favor brownfield expansions—expanding existing facilities—which we can execute quickly. For example, we recently moved from empty halls to fully equipped production halls in a few months in China. We continue to approve capital investments to accelerate capacity where needed. On the A&D side, we are expanding sites such as Sterling and others. Those brownfield expansions allow a site to grow from $100 million to $200 million over time. We prefer that approach because capacity is available quickly.
Will, to add, we received approval to accelerate some of our capital expenditures. If you look at our 10-Q disclosure, you'll see the expected expenditures for this year increased by about $45 million at the top and bottom end of that range.
Yes. Thank you, Justin. I'd like to close by summarizing three key items. First, we are experiencing healthy growth. We delivered strong sales growth in Q2 of 37% year-over-year, resulting in an all-time high of $1 billion for quarterly revenue, driven by increases in our data center and networking; medical, industrial and instrumentation; and aerospace and defense end markets. Second, our adjusted EBITDA of 16.6% for the second quarter reflects strong operating performance, leading to another all-time record and quarterly non-GAAP EPS of $0.99. We expect to continue building on this operating performance in the second half of 2026. Third, we continue to generate solid cash flows from operations, which enables us to invest in our projected continued growth while maintaining a healthy net leverage ratio of 0.9x. In closing, as always, I would like to thank the employees of TTM, our customers, our suppliers and our shareholders for your continued support. Thank you very much, and goodbye.
Ladies and gentlemen, that concludes our conference call today. Hope you have a great rest of the week. You may now disconnect.