Earnings Call Transcript - TTMI Q4 2023

Operator, Operator

Good morning. Thank you for standing by. Welcome to the TTM Technologies Fourth Quarter and Full Year 2023 Financial Results Conference Call. As a reminder, this conference is being recorded today, February 7, 2024. Sameer Desai, TTM's Vice President of Corporate Development and Investor Relations will now review TTM's disclosure statement.

Sameer Desai, Vice President of Corporate Development and Investor Relations

Thank you. 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 will 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 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. We also have posted on that website a slide deck which we will refer to during our call. I will now turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead, Tom.

Thomas Edman, CEO

Thank you, Sameer. Good morning, and thank you for joining us for our fourth quarter and full year 2023 conference call. I'll begin with a review of our business highlights from the quarter and a discussion of our fourth quarter results, followed by a summary of our business strategy. Dan Boehle, our CFO, will follow with an overview of our Q4 2023 financial performance and our Q1 2024 guidance. We will then open the call to your questions. The quarter's results are also shown on Slide 4 of the investor presentation posted on TTM's website. We delivered a strong finish to the year, despite the current uncertain macroeconomic environment, and I would like to thank our employees for their hard work and contribution to generating these results. In the fourth quarter of 2023, non-GAAP earnings per share were above the high end of the guided range, due to excellent operating performance and a favorable product mix. Revenues were within the previously guided range, due to better-than-expected results from our aerospace and defense and data center computing end markets, which were offset by lower-than-expected results from our medical, industrial and instrumentation, and automotive end markets. Demand in our aerospace and defense market, which represented 46% of revenues for the quarter, continues to be solid with a strong backlog offset by weaker demand in some of our commercial end markets. For the full year 2023, revenues declined by 11%, driven by the downturn in commercial end markets, offset by growth in the aerospace and defense end market. While full year non-GAAP operating margins were down year-on-year due to the revenue decline, fourth-quarter operating margins were actually up year-on-year despite the revenue headwinds. Full year cash flow from operations was $187.3 million, enabling us to strengthen our balance sheet while returning some of the capital to shareholders. In addition, we refinanced our term loan and asset-based loan, improving the tenor with the first maturity date extended to 2028. I would now like to provide a strategic update. TTM is on a journey to transform our business to be less cyclical and more differentiated. Over the past several years, TTM has 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 market. As a result of strategic moves with the A&D acquisitions of Anaren and Telephonics since 2018, over 50% of our A&D revenues are now generated from engineered and integrated electronic products with PCBs representing less than 50% of the overall contribution. Another important element of our differentiation strategy is our investment in a new state-of-the-art highly automated PCB manufacturing facility in Penang, Malaysia. The decision to build this new factory is a direct response to our customers' increasing concerns about supply chain resiliency and regional diversification, especially the need for advanced multilayer PCB manufacturing options in locations outside the Greater China region. The new facility in Malaysia will support customers in our commercial markets such as networking, data center computing, and medical, industrial, and instrumentation. We continue to make progress on the Malaysian facility with all major processes now running, and we are currently sampling product to customers for qualifications. I'd also like to update you on the consolidation of our manufacturing footprint. We previously announced our plan to close three small manufacturing facilities in order to improve total plant utilization, operational performance, customer focus, and profitability. During the course of 2023, PCB manufacturing operations in Anaheim and Santa Clara, California, and Hong Kong were closed and consolidated into TTM's remaining facilities. We ceased production at our Hong Kong manufacturing facility during the second quarter, Anaheim in the third quarter, and Santa Clara at the end of 2023. We are presently ramping production for the transferred parts at receiving facilities throughout our North America footprint. Finally, I would like to update you on the previous announcement of our intent to expand our advanced technology capability for the aerospace and defense market through the construction of a new facility immediately adjacent to our Syracuse, New York campus. Our proposed new facility will bring disruptive domestic production of high technology Ultra HDI PCBs in support of national security requirements. This new facility is expected to focus on high technology PCB production in North America, providing customers with reduced lead times and a significant increase in domestic capacity for Ultra HDI PCBs. Provided we are able to complete discussions with various stakeholders regarding their support for this facility, we anticipate that we will be prepared to break ground in the first half of 2024, with initial production within 18 months after groundbreaking. Phase one of the proposed project, including capital for campus-wide improvements, is estimated to be between $100 million to $130 million and is anticipated to run through 2026, with TTM's final capital investment commitments determined after finalizing terms with various stakeholders. Now, I'd like to review our end markets, which are referenced on Page 4 of the earnings presentation on our website. The aerospace and defense end market represented 46% of total fourth quarter sales, compared to 40% of Q4 2022 sales and 45% of sales in Q3 2023. The solid demand in the defense market is a result of a positive tailwind in previous defense budgets, our strong strategic program alignment, and key bookings for ongoing franchise programs. At the end of the fourth quarter, our A&D program backlog was $1.3 billion. During the quarter, we saw significant bookings for a key restricted program. We expect sales in Q1 from this end market to also represent about 46% of our total sales coming off a seasonally high Q4. For the full year, aerospace and defense revenues grew 17%, primarily due to a full year of Telephonics in 2023, compared to six months in 2022. Excluding that impact, organic growth was 6%. In 2024, we expect end-market growth to be above longer-term market projections of 3% to 5%. Sales in the data center computing end market represented 17% of total sales in the fourth quarter, compared to 14% in Q4 of 2022 and 17% in the third quarter of 2023. This end market performed better than we expected and saw 15% year-on-year growth due to strength in our data center customers building products for generative AI applications. We expect revenues in this end market to represent approximately 17% of first-quarter sales. For the full year, data center computing declined 16%, due to inventory corrections for semiconductor and data center customers early in the year, following 17% growth in 2022, 25% growth in 2021, and 9% in 2020. In 2024, we expect to be above the longer-term end-market growth of 4% to 7%, driven primarily by generative AI applications. The medical industrial instrumentation end market contributed 16% of our total sales in the fourth quarter, compared to 17% in the year-ago quarter and 16% in the third quarter of 2023. The year-over-year decline was caused primarily by inventory reductions at a number of our customers, particularly in the industrial and instrumentation areas. For the first quarter, we expect MI&I to be 16% of revenues. For the full year, MI&I declined 25% due to the inventory correction at many customers and weak demand from semiconductor test companies following 16.7% growth in 2022, 11.5% growth in 2021, and 12.4% growth in 2020, well above industry forecasts for three consecutive years, as we took advantage of megatrends in faster-growing subsegments of this end market. In 2024, we expect growth to be in line with the 2% to 4% longer-term industry forecast for this end market. Automotive sales represented 15% of total sales during the fourth quarter of 2023, compared to 16% in the year-ago quarter and 15% during the third quarter of 2023. The year-over-year decline for automotive was due primarily to continued inventory adjustments at several customers. We expect our automotive business to contribute 14% of total sales in Q1, due to typical seasonality in the first quarter from the Lunar New Year and ongoing demand softness. For the full year, automotive decreased 16% due to the inventory correction at automotive customers. In 2023, advanced technology was 36% of our automotive end market compared to 31% in 2022, due to strong growth in our HDI and radar product areas. In 2023, we won new designs with a lifetime value of $608 million compared to $530 million in 2022. Designs that we are winning this year will contribute to revenues in future years. We expect this market in 2024 to be below longer-term forecasts of 3% to 5%, as customers continue to adjust inventories in light of ongoing demand softness. Networking accounted for 6% of revenue during the fourth quarter of 2023. This compares to 13% in the fourth quarter of 2022 and 7% of revenue in the third quarter of 2023. Demand was softer as customers continued to focus on inventory digestion as well as weak end market demand. As a reminder, the Shanghai backplane business, which we sold in our second quarter, contributed approximately $12 million of sales in this segment in the fourth quarter of 2022. In Q1, we expect this end market to be 7% of revenues. For the full year, networking declined 46%, due to inventory correction at both networking and telecom customers, as well as weak demand at telecom customers. In addition, we sold the Shanghai BPA facility in Q2 of 2023 that had $45 million in revenues in 2022, compared to $8 million in 2023. We expect this market to be below longer-term forecasts of 2% to 5% growth in 2024 due to the softer start of the year. Next, I'll cover some details from the fourth quarter. This information is also available on Page 5 of our earnings presentation. During the quarter, our advanced technology and engineered products business, which includes HDI, rigid flex, RF subsystems and components, and engineered systems accounted for approximately 47% of our revenue. This compares to approximately 39% in the year-ago quarter and 47% in Q3. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology and engineered products capabilities in new programs and new markets. PCB capacity utilization in Asia Pacific was 51% in Q4, compared to 69% in the year-ago quarter and 46% in Q3. Our overall PCB capacity utilization in North America was 35% in Q4, compared to 41% in the year-ago quarter and 38% in Q3. The lower year-over-year rate in Asia Pacific was caused by a decline in production volumes, while the lower year-over-year rate in North America was due to additional plating capacity added as well as a greater mix of higher technology product that requires less finished plating. As a reminder, North America utilization figures are not as meaningful as Asia Pacific because bottlenecks in these volume facilities tend to occur in areas outside of plating, which is the core process that we use in calculating utilization rates. Our top five customers contributed 44% of total sales in the fourth quarter of 2023, compared to 43% in the third quarter of 2023. We had two customers over 10% of our total sales in the quarter. At the end of Q4, our 90-day backlog, which is subject to cancellations, was $575.9 million, compared to $603.1 million at the end of the fourth quarter last year. Our book-to-bill ratio was 0.88 for the three months ended January 1st. Now Dan will review our financial performance for the fourth quarter. Dan?

Dan Boehle, CFO

Thanks, Tom, and good morning, everyone. I will review our financial results for the fourth quarter that were included in the press release distributed today, as well as on Slide 6 of the earnings presentation posted on our website. For the fourth quarter, net sales were $569 million compared to $617.2 million in the fourth quarter of 2022. The year-over-year decrease was due to declines in our automotive, medical, industrial and instrumentation, and networking end markets, partially offset by growth in our data center computing and aerospace and defense end markets. The sale of our BPA facility in Q2 2023, as well as the previously announced PCB plant consolidation, also contributed to the decline in net sales. For the full year, net sales were $2.2 billion compared to $2.5 billion in 2022, an 11% decline driven by declines in our commercial markets, partially offset by growth in our aerospace and defense end market, and a full year of the Telephonics acquisition. The sale of the BPA facility in Q2 2023, as well as the previously announced PCB plant consolidations, also contributed to the decline in net sales. GAAP operating income for the fourth quarter of 2023 was $34.6 million. GAAP operating income for the fourth quarter of 2022 was $97.6 million and included a gain of $51.8 million in December 2022 from the sale of the property occupied by our former Shanghai E-MS entity. On a GAAP basis, net income in the fourth quarter of 2023 was $17.3 million, or $0.17 per diluted share. This compares to GAAP net income of $6 million, or $0.06 per diluted share in the fourth quarter of last year. 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 non-cash expense items such as amortization of intangibles, impairment of goodwill and stock compensation, gains on the sale of property, 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 comparisons with expectations and prior periods. Gross margin in the fourth quarter was 21.3% and compares to 19.8% in the fourth quarter of 2022. The year-on-year increase was due to a more favorable product mix and improved execution in the North America region, partially offset by lower sales volume and less premium in our commercial markets. Selling and marketing expense was $17.8 million in the fourth quarter, or 3.1% of net sales versus $18.8 million, or 3.0% of net sales a year ago. Fourth quarter G&A expense was $34.9 million, or 6.1% of net sales compared to $37.4 million, or 6.1% of net sales in the same quarter a year ago. In Q4 2023, research and development was $7.3 million, or 1.3% of net sales compared to $6.4 million and 1% in the year-ago quarter. Our operating margin in Q4 was 10.7%, which compares to 9.7% in the same quarter last year. Interest expense was $12.9 million in the fourth quarter compared to $12.0 million in the same quarter last year. During the quarter, there was a negative $7.0 million foreign exchange impact below the operating income line. Government incentives and interest income of $3.6 million resulted in a net $3.4 million loss, or a $0.03 negative impact to EPS. This compares to a net loss of $2.0 million, or a $0.02 impact on EPS in Q4 last year. Our effective tax rate was 4.1% in the fourth quarter, resulting in a tax expense of $1.9 million. This compares to a tax rate of 6.5% or tax expense of $2.9 million in the prior year. Fourth quarter net income was $43.0 million, up $0.41 per diluted share. This compares to fourth quarter 2022 net income of $42.7 million, or $0.41 per diluted share. Adjusted EBITDA for the fourth quarter was $80.9 million, or 14.2% of net sales. Compared with fourth quarter 2022 adjusted EBITDA of $81.6 million, or 13.2% of net sales. Depreciation for the fourth quarter was $25.1 million. The net capital spending for the quarter was $46.0 million. Cash flow from operations in the fourth quarter of 2023 was $47.5 million. We repurchased 784,000 shares of common stock for $9.8 million, at an average price of $12.52 per share. Cash and cash equivalents at the end of 2023 totaled $450 million. Our net debt divided by last twelve months' EBITDA was 1.6x, at the low end of our targeted range of 1.5 to 2 times. For the full year, cash flow from operations was $187.3 million, or 8.4% of net sales. Free cash flow for the full year was $27.5 million, or 1.2% of net sales as we invested in our Penang facility. Now I will turn to our guidance for the first quarter of 2024. We project net sales for the first quarter of 2024 to be in the range of $530 million to $570 million, and Non-GAAP earnings to be in the range of $0.24 to $0.30 per diluted share, which is inclusive of costs associated with starting up our Penang facility. The EPS forecast is based on diluted share count of approximately 104 million shares, which includes the dilutive effect of outstanding stock options and other stock awards. We expect SG&A expense to be about 9.9% of net sales in the first quarter and R&D to be about 1.2% of net sales. We expect interest expense of approximately $12.3 million and interest income of approximately $2 million. Finally, we estimate our effective tax rate to be between 12% and 16%. Further, we expect to record depreciation of approximately $25 million, amortization of approximately $14 million, stock-based compensation expense of approximately $5 million, and non-cash interest expense of approximately $0.5 million. And finally, I'd like to announce that we were participating in the Cowen Aerospace and Defense Conference in Washington DC on February 13th, the JPMorgan Global High Yield & Leveraged Finance Conference in Miami on February 27th, and the JPMorgan Industrials Conference in New York on March 12th. That concludes our prepared remarks. Now I would like to open up the line for questions.

Operator, Operator

Our first question today will come from Jim Ricchiuti of Needham & Company. Your line is open.

Jim Ricchiuti, Analyst

Hi. Thank you. Good morning. On the Automotive side, Tom, any sense as to the duration of this inventory drawdown that you're seeing with the Tier ones? And to what extent are you seeing some weakness also just on some of the softness on the EV side in the U.S. and Europe? Are you seeing any signs of that?

Thomas Edman, CEO

Yes. Thanks, Jim. Overall, on Automotive, this is one of the markets that I think is relatively soft. We are seeing year-on-year declines in all three major regions, particularly in Asia. Just as a reminder, we tend to - in China, our volume tends to go to joint ventures that are Tier 1s, Western world Tier 1s, if you will, in China. I think they are feeling the impact of EVs. If you look into the Americas and Europe, it's less so. I think we're still seeing a better demand climate there, though it is still down year-on-year. So certainly a combination of ongoing demand softness and ongoing inventory controls as customers adjust their forecasts. Hopefully, that gives you an answer there, Jim.

Jim Ricchiuti, Analyst

Yes. That's helpful. And Dan, maybe a question for you as my follow-up. Can you discuss the scale-up in Penang? How much of a headwind is that in Q1 to gross margins? And how do you see that easing as we go through the year?

Dan Boehle, CFO

Sure. Thanks. Good question. We did see - in 2023, we were mentioning about a 30 to 50 basis points headwind on Penang, and that is pretty much what we experienced through the end of the year, going into the year in 2024. It's got a little bit higher than that; it's probably going to be about 50 to 75 basis points for the first half of the year and then easing towards the end. We think we'll breakeven towards Q4, although that might slip into Q1 of next year. But we do see a headwind for 50 to 70 basis points for the first half of the year and then easing in the second half.

Jim Ricchiuti, Analyst

Got it. Thank you. I'll get back in the queue.

Dan Boehle, CFO

Thank you.

Operator, Operator

Thank you. One moment for our next question. And our next question will be coming from Mike Crawford of B. Riley Securities. Your line is open.

Mike Crawford, Analyst

Thank you. In your data center end market, how much of that vertical revenue would you attribute to generative AI? And who are your customers there?

Thomas Edman, CEO

Yes. We don't talk about specific customers, but let me answer your question. Generative AI continues to grow as a portion of the data center computing end market. Traditionally, we looked at this end market as being slightly over 50% data center and slightly less than 50% semiconductor. With the semiconductor softness combined with the strength we're seeing in data center, you're looking at nearly 75% data center demand, 25% semiconductor. Of that data center, we're now well over 50% being generative AI-driven. This is due to strong demand for generative AI, along with a shift in capital expenditures away from traditional data centers to generative AI. We're seeing terrific ongoing strength in that generative AI portion of the data center computing end market for us.

Mike Crawford, Analyst

Okay. Thanks, Tom. In the recent blog post, you referenced the RADAR Scene Emulator, a product of Keysight Technologies that you worked with them to design and supply. I'm wondering how many other types of engagements like that are you seeing, where you're really getting in early with the customer to help not only win business but design products before you win that business?

Dan Boehle, CFO

Thank you, Mike. It's absolutely a critical part of our strategy. If you look at how we've deliberately built our defense product portfolio, it really is all about that early engagement and working with our customers on the defense side of our business, which now, of course, is close to 50% of the business, working very closely with customers as they start to develop specifications for programs. That involvement is critical for us as we look at RADAR systems. We've also gotten involved with customers at the engineering level as they look at specifications, which crosses into other programs. We're also pleased with how that strategy is developing on the Aerospace and Defense side of the business. As for the commercial side of the business, this engagement with engineers as they're developing their requirements is becoming essential. They are driving higher speeds, and there's a need for close collaboration with suppliers like TTM.

Mike Crawford, Analyst

Okay, thank you. A final question. You've just provided Q1 guidance, but if TTMI grows the top line in low single digits, would you expect working capital to be a drag on free cash flow or to what extent?

Thomas Edman, CEO

I'll have Dan answer the specific working capital question. I just wanted to highlight that if you look at revenues, we have been closing plants and shifting production. Also, we sold our Shanghai BPA assembly facility. So if you look at the combined impact of the closed plants and the BPA facility in the fourth quarter, it was about $25 million. In the first quarter, we're looking at a combined impact of about $27 million. If you look at our guidance's midpoint, you'll see we're growing about 5% year-on-year if you exclude those factors. We're ramping receiving plants as we finish qualifications and begin to ramp. In the meantime, there’s a slight revenue drag. However, as we move equipment and ramp at the receiving facilities, we'll remove that drag over the course of the year.

Dan Boehle, CFO

Sure. Thank you. Obviously, with revenue increasing, you should have a relative increase in working capital. However, we have challenged ourselves a bit to reduce our overall working capital as we go into the next year. Our AR went up quite a bit at year-end. Some of that was deliveries in our integrated electronics area and A&D. We meet monthly to manage that, and we're working hard to reduce our AR balance, manage our inventory appropriately, and push out our average payable days. Normally, working capital goes up with revenue increases, but we're targeting to bring it down and increase our cash flow to get back to 10% of revenues in our cash.

Mike Crawford, Analyst

Great. Thank you very much.

Dan Boehle, CFO

Thank you.

Thomas Edman, CEO

Thank you.

Operator, Operator

Thank you. One moment for the next question. Our next question will be coming from William Stein of Truist Securities. Your line is open.

William Stein, Analyst

Great. Thanks for taking my questions. First, I just want to recognize - you already answered the question on inventory. The questions relate to two areas. First, you're guiding overall revenue for the business above seasonal. You gave the details by end market, but it's still fairly remarkable to me considering what everyone else in the tech supply chain, especially in semiconductors, is doing now. Any insight as to how you're able to guide like this, given the way everyone else is still seeing a pretty significant correction?

Thomas Edman, CEO

Thank you for the question, Will. First of all, recognizing that A&D is roughly 46%, 47% of revenue. If you're looking sequentially, we're down slightly. That's mainly just as Q4 tends to be a seasonally high quarter for us in that A&D market, so let's set that aside. Now we're really talking about the commercial markets. With TTM, we look at data center as a big driver, that generative AI demand. We do have Chinese New Year. So sequentially, we're always going to be down in Commercial Q4 to Q1 as plants shut down on Chinese New Year. In that generative AI area, we're trying to operate as much as we can during Chinese New Year. Automotive is down, which you're seeing with others as well. Medical industrial instrumentation is holding up well in Q1, and portions of instrumentation are getting a bit better too. Additionally, our North America footprint is significant. While we're shutting down in China, we operate in North America, which helps mitigate that sequential decline. Regarding networking, we see relative stability, and the better demand we're starting to see there should provide more stability too. So it's a complex interplay, but hopefully, that gives you a flavor of what we're seeing.

William Stein, Analyst

As a follow-up, can you talk about the margin improvement that we're seeing? If I were to split it bluntly into two categories, one is sort of the product mix and the growth in AI applications, which I'm sure is helping, but I know there's a lot of self-help going on as well, restructuring and such. Can you potentially divide it into those two buckets and see which is having a greater impact on your business?

Dan Boehle, CFO

Between the data center generative AI improvements versus last year's closure of facilities, yes, that's what you asked? So, in North America A&D, the integrated electronics business has expanded their margins quite a bit. This is the first full year we've had Telephonics in our business. We’ve improved our pricing on those products to achieve better margins in integrated electronics. This is a strategic focus for us. We've seen good productivity in our PCB business as well, maintaining flow through factories and getting efficiencies. The generative AI product mix is strong, which offsets some of the softness in other commercial markets. Overall, the operational improvements are important factors driving margin retention.

William Stein, Analyst

Thank you.

Thomas Edman, CEO

Just one additional highlight. In reference to Dan's earlier answer about Penang, we're seeing improvements as we ramp the facility and account for additional headwinds.

Operator, Operator

Thank you. One moment for the next question. Our next question will be coming from Matt Sheerin of Stifel. Your line is open.

Matt Sheerin, Analyst

Yes, thank you. Question regarding the expansion in Malaysia. Could you remind us what the revenue capacity will be as you ramp and then what look like fully ramped? And is that how much of that is incremental revenue versus some production shifting from China or other areas?

Thomas Edman, CEO

Sure. We're looking at full capacity, which we won't reach until next year, somewhere between $180 million and $200 million. This depends on product mix. Of that, roughly 15% will come from a shift out of China into Penang. I want to highlight that our China facilities are where we do the most advanced technology work. The sooner we can get Penang up and running to meet generative AI demand, the better it is for us.

Matt Sheerin, Analyst

Okay, I'm sorry. Was that 15% or 50%?

Thomas Edman, CEO

15%. The rest will be new program wins.

Matt Sheerin, Analyst

Got it. Thank you for that. Regarding the plans to expand in Syracuse, you said that some of the expansion plans are contingent on stakeholders buying in. Can you elaborate on that? Does that include purchasing commitments or any co-investments?

Thomas Edman, CEO

Really, we're looking to ensure the timeline aligns with potential government funding. The customer support is strong. We just need to synchronize our plans to ensure we're prepared with customer requirements regarding the schedule.

Matt Sheerin, Analyst

Got it. Okay. All right, thanks very much.

Thomas Edman, CEO

Thank you.

Operator, Operator

Thank you. We have a follow-up question from Jim Ricchiuti of Needham & Company. Your line is open.

Jim Ricchiuti, Analyst

Hi Tom, you referenced a sizable booking on the defense side. I think you mentioned that it was a restricted program. Can you clarify whether that relates to the legacy TTM defense business or was that regarding the Telephonics business?

Thomas Edman, CEO

I really can't disclose that, Jim. You're correct, though; it’s a large booking, but I cannot provide details about the product type or the exact program.

Jim Ricchiuti, Analyst

Got it. I understand. Regarding the MI&I business, there's clearly some weakness. Do you think this business is at a trough level? Many anticipate an upturn in the semi-cap side of the business over the next couple of quarters. What's your take?

Thomas Edman, CEO

Yes, of course. On MII, yes, we are looking at test and burn-in board requirements, which have a different cycle than large semiconductor capital equipment. We're generally a bit front-loaded as customers start to invest in new generation capabilities. We think we've reached a trough, and we're noticing some activity that points towards improvements in the back half of the year. For larger process equipment demand, I wouldn't expect to see that until Q4. However, the test and burn-in board requirements tend to show up earlier. So, yes, I think we’ve hit a trough and we're beginning to see signs of improvements.

Jim Ricchiuti, Analyst

Got it. If I could ask a final question, you've been providing breakdowns on the A&D business: commercial aerospace and defense. I noted that commercial air seemed to be down sequentially. Is that just lumpy business, or is there something we should be paying attention to?

Thomas Edman, CEO

Actually, commercial air for us is still strong. It's up about 7%-ish year-on-year, and slightly up quarter-on-quarter in commercial aerospace. The growth rate has certainly slowed from the remarkable recovery in commercial aerospace, but we still see growth in the quarter.

Jim Ricchiuti, Analyst

Got it. Thanks for clarifying, and congrats on the quarter.

Thomas Edman, CEO

Thanks, Jim.

Operator, Operator

Thank you. That concludes our Q&A session for today. I would now like to turn the call over to Tom Edman for closing remarks. Please go ahead.

Thomas Edman, CEO

Thank you. I will close by summarizing some of the points I made earlier. First, we delivered non-GAAP EPS that was above the high end of the guided range, with revenues in line with the guided range. Really excellent operational performance and a favorable product mix. Second, we generated a healthy cash flow from operations at 8.3% of revenue. That did allow us to repurchase stock and maintain a solid balance sheet. Finally, I would like to thank our employees again for their efforts in this past year, our customers as well. And certainly, I appreciate you, our investors, for your continued support. Thank you very much.

Operator, Operator

This concludes today's conference call. You may all disconnect.