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© provided by means of The Motley fool TTM applied sciences, inc (TTMI) Q2 2021 profits call Transcript

TTM technologies, inc (NASDAQ: TTMI)

Q2 2021 revenue call

Jul 28, 2021, 4:30 p.m. ET

Contents:

organized Remarks

Questions and solutions

name individuals

prepared Remarks:

Operator

first rate afternoon, ladies and gentlemen. thank you for standing through, and welcome to the TTM applied sciences second Quarter 2021 economic consequences convention name. [Operator Instructions] Following the presentation, the conference will open for questions. [Operator Instructions] As a reminder, this convention is being recorded today July 28, 2021.

Sameer Desai, TTM's vp of corporate development and Investor family members will now overview TTM's disclosure statement. Please go forward.

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this article is a transcript of this conference name produced for The Motley fool. while they try for their foolish most reliable, there may be errors, omissions, or inaccuracies during this transcript. as with every their articles, The Motley fool does not anticipate any responsibility to your use of this content material, and they strongly encourage you to do your personal research, together with taking note of the call your self and analyzing the business's SEC filings. Please see their terms and prerequisites for further particulars, together with their obligatory Capitalized Disclaimers of liability.

The Motley fool has no place in any of the shares outlined. The Motley fool has a disclosure policy.

Sameer Desai -- Senior Director, corporate development and Investor members of the family

thanks, Travis. earlier than they get started, i would like to remind everybody that today's call incorporates forward-looking statements inside the that means of the deepest Securities Litigation Reform Act of 1995, including statements regarding TTM's future business outlook. precise consequences could vary materially from these forward-looking statements, as a result of one or more hazards and uncertainties, together with the elements explained in their most accurate Annual report on form 10-okay and other filings with the Securities and exchange commission.

These ahead-searching statements are based on management's expectations and assumptions because the date of this presentation. TTM doesn't undertake any duty to publicly replace or revise any of these statements even if as a result of new advice, future hobbies, or other cases apart from as required by law. Please seek advice from the disclosures regarding the dangers that may also affect TTM, which can be found in experiences on kind 10-ok, 10-Q, eight-okay, the registration remark on kind S-4 and the enterprise's other SEC filings.

we are able to additionally focus on on this call definite non-GAAP monetary measures akin to adjusted EBITDA. Such measures should now not be regarded as an alternative to the measures prepared and offered in accordance with GAAP and they direct you to the reconciliation of non-GAAP to GAAP measures, protected within the enterprise's press release, which become filed with the SEC and is attainable on TTM's site at www.ttm.com. they now have also posted on their web site a slide deck, which they can refer to all over their call.

i will be able to now flip the call over to Tom Edman, TTM's Chief govt Officer. Please go ahead, Tom.

Thomas T. Edman -- President and Chief executive Officer

thanks, Sameer. good afternoon, and thanks for becoming a member of us for their 2nd quarter 2021 conference call. i may begin with a review of their enterprise strategy, followed with the aid of highlights from the quarter and a dialogue of their second quarter outcomes. Todd Schull, their CFO will observe with a top level view of their Q2 2021 fiscal efficiency and their Q3 2021 assistance. they can then open the name to your questions.

i'm pleased to report that in the 2d quarter of 2021 TTM generated revenues and non-GAAP EPS above the high conclusion of the guided range. All business conclusion markets had been more suitable than guidance and 12 months-on-year increase was led by strength in the car and facts centre computing markets. These consequences had been completed regardless of provide chain constraints, inflationary challenges and foreign alternate headwinds.

final quarter, I discussed with you, the expanding expenditures and lead instances of laminates, a key raw fabric for the company of printed circuit boards. they have been actively managing those provide constraints and higher uncooked fabric expenses via such measures and organisation diversification, ongoing operational efficiency efforts, and quotation changes to mitigate the affect to TTM.

The magnitude of the influence to their charge of items offered will be bigger in Q3 and this fall. because bigger laminate expenses in Q1 and Q2, take the time to work via their suppliers and stock. i am proud of how TTM personnel have labored to convey superb efficiency despite the formidable challenges of this atmosphere. subsequent, i want to supply an update on their future method. TTM is on a journey to transform their enterprise to be less cyclical and greater differentiated. They believe that over time, buyers can be rewarded with greater good increase, strong money stream efficiency, and improving margins.

As part of this strategic transition, they offered their mobility company final 12 months. They are now capable of generate more constant cash circulate with their robust set of technologies and huge exposure to longer cycle conclusion markets. in the 2d quarter, they generated $fifty six.9 million of money from operations or 10% of income. A key part of their personal ongoing approach will be to add capabilities and items that are complimentary to their current offerings, each internally and thru acquisitions. looking forward, their stability sheet is in a robust position to further acquisitions -- to pursue extra acquisitions, in addition to to aid higher organic funding needs.

an additional benefit of their strategic shift is the seasonality of their company. If theoretically, they skilled gigantic seasonality and revenues with the softer first half, and ramping volumes in the third quarter which constantly top within the fourth quarter. submit the mobility divestiture, this trial has modified. They now skilled modest seasonal softness in the first and third quarters as a result of vacation trips and vacation durations in China and North the united states respectively, and superior revenue stages within the 2d and fourth quarters. This seasonality mixed with some pull ahead of demand from Q3 into Q2 is resulting in a sequential decline in their earnings tips.

i might additionally want to replace you on the COVID circumstance. The vaccine rollout in the united states has resulted in a decline in new COVID circumstances. And we've viewed the identical dynamic within their employee base. despite the fact, many constituents of the world have much decrease vaccination charges and the upward push of the delta variant has led to tremendously increasing case counts in a number of international locations with the talents of an extra circular of lockdowns.

we're gazing these developments very carefully to display screen affects on demand and provide. they are the usage of a knowledge pushed process, monitoring vaccination rates and the local case counts to determine safety precautions at their facilities. As they welcome lower back company, begin traveling once again and return a number of their far off employees back to the office. Their global manufacturing facilities have been working all through the pandemic.

Given the swift reopening within the united states together with the summer time break season, they are seeing extra challenges in attracting and retaining labor, which is leading to increased cost and creation inefficiencies in North the us. Their personnel are paramount to the success of TTM. And they actively recreation to demonstrate their cost to their enterprise via a mixture of financial and non-monetary strategies.

we are also hopeful that the expiration of expanded unemployment advantages within the US and extended vaccination quotes will motivate advantage employees to be a part of TTM as they work to aid their shoppers. Now i might want to review their conclusion market. All old conclusion market disclosures exclude the mobility enterprise unit and both EMS flowers, which halted construction in December of 2020. For extra details on conclusion market disclosures, please seek advice from web page 4 of their salary presentation, which is posted on their site.

The aerospace and protection conclusion market represented 33% of total 2nd quarter income compared to 34% of Q2 2020 income and 36% of income in Q1 2021. They proceed to adventure a positive protection climate with their AMD application backlog at $671 million compared to $647 million a 12 months in the past. On a yr on 12 months foundation, defense continues outperform business aerospace which noticed significant yr on year declines in the quarter.

The relative steadiness within the defense market is due to the their robust strategic application alignment and key bookings for ongoing franchise programs. They saw huge bookings within the quarter for Northrop's Strengthen of F-15 fighter jets with scalable agile beam radar. They predict sales in Q3 from this conclusion market to represent about 33% of their total revenue.

The clinical industrial instrumentation conclusion market contributed 19% of their complete income within the 2d quarter in comparison to 21% within the 12 months ago quarter and 17% within the first quarter of 2021. The MI&I market handed a $a hundred million quarterly run price and carried out a great deal more suitable than expectations, as instrumentation clients within the semiconductor capital equipment end market have been more advantageous than expected and medical as well as industrial purchasers rebounded. For the third quarter they expect MI&I to be 18% of revenues.

car income represented 18% of total earnings during the 2d quarter of 2021. in comparison to 11% in the 12 months ago, quarter and 17% all over the primary quarter of 2021. automotive grew essentially 80% 12 months over 12 months and continues to develop sequentially above their expectations, exceeding a $100 million quarterly run fee, which is a stage now not viewed considering the fact that 2018.

we're aware that the shortage of semiconductors is at present limiting automobile production. but this phenomenon has not at once affected their business. considering that they don't purchase semiconductors. whereas they are monitoring the situation closely, to-date it has had very constrained indirect affect on their non -- on their PCB demand. They predict automotive to make a contribution 19% of complete revenue in Q3.

Networking communications accounted for 15% of profits during the 2nd quarter of 2021. This compares to 19% within the second quarter of 2020 and 15% of earnings in the first quarter of 2021. They noticed relative energy on a yr on year foundation in networking compared to telecom as the 5G construct out in China face elaborate 12 months on 12 months comparisons. In Q3 they predict this conclusion market to be 15% of salary.

sales within the statistics core computing end market represented 14% of complete earnings within the second quarter, compared to 13% in Q2 of 2020 and 14% in the first quarter of 2021. This conclusion market turned into up 15% yr on yr due essentially the growth from their data middle valued clientele. They are expecting revenues in this end market to signify approximately 14% of third quarter earnings as records center continues to drive 12 months on yr growth.

subsequent, i'll cover some details from the 2nd quarter. all the following operations metrics exclude the mobility company unit and both EMF flora that they shut. This counsel is additionally obtainable on page five of their income presentation. all over the quarter their advanced know-how business, which includes HDI, inflexible flex and RF subsystems and accessories accounted for approximately 31% of their profits. This compares to about 28% in the year ago quarter and 31% in Q1. we're continuing to pursue new business opportunities and raise client design engagement activities so that you can leverage their superior expertise capabilities in new courses and new markets.

capability utilization in Asia Pacific become 88% in Q2 compared to 70% in the 12 months in the past quarter and eighty% in Q1. Their standard capacity utilization in North the united states become forty nine% in Q2 in comparison to sixty three% in the 12 months ago quarter and fifty five% in Q1. As they delivered plating ability in two of their North American sites for the first time in several years. Their properly 5 clients contributed 29% of total revenue within the second quarter of 2021 in comparison to 33% in the first quarter of 2021. They didn't have any shoppers above 10% in the quarter.

on the conclusion of Q2, their 90-day backlog, which is discipline to cancellations become $553.1 million, in comparison to $436.6 million at the end of the 2d quarter last year, and $540.5 million on the end of Q1. Their PCB book-to-bill ratio turned into 1.26 for the three months ending June 28.

i'd like to conclude by using again thanking their employees for carrying on with to contribute to TTM and their critical mission of inspiring innovation with their valued clientele. regardless of the raw substances and labor linked challenges we're facing, their enterprise performed better than they expected as a direct result of their personnel and their provide chain companions concerted efforts to help TTM and their customers.

Now, Todd will assessment their monetary efficiency for the 2nd quarter.

Todd B. Schull -- executive vp and Chief fiscal Officer

Thanks, Tom, and respectable afternoon, each person. i'll be reviewing their monetary outcomes for the 2d quarter, which are additionally shown within the press release distributed today. in addition to on page seven of their revenue presentation which is posted on their web page. For the 2nd quarter net earnings are $567.four million in comparison to $570.3 million from carrying on with operations in the 2nd quarter of 2020.

year-over-yr reduce in salary turned into as a result of the closure of their two EMF amenities, which generated $21 million of revenues in Q2 of ultimate 12 months, and no revenues during this most contemporary quarter. excluding that influence, revenues of ongoing company grew 3.4% 12 months-on-12 months, as boom in their automotive and information centre computing conclusion markets greater than offset declines in different conclusion markets.

GAAP working profits for the second quarter of 2021 was $forty.9 million compared to GAAP operating salary from carrying on with operations of $23 million in the 2d quarter of 2020. On a GAAP basis, web salary in the 2d quarter of 2021 became $28.3 million, or $0.26 per diluted share. This compares the net income from carrying on with operations of $9.three million or $0.09 per diluted share within the 2d quarter of last yr.

The remainder of my comments will focal point on their non-GAAP fiscal performance. Their non-GAAP performance excludes their divested mobility enterprise devices, non-activities tax gadgets, M&A connected expenses, restructuring prices, definite non-money fee items and other odd and rare objects. They current non-GAAP economic suggestions to allow investors to look the business to the eyes of administration and to facilitate evaluation with expectations and prior intervals.

Gross Margin in the 2nd quarter turned into 18%, in comparison to 18.4% within the 2nd quarter of 2020. The 12 months-on-year decline was generally as a result of the appreciation of the chinese currency versus the U.S. dollar in their China amenities and creation inefficiencies in certain North American plants. selling and advertising and marketing fee changed into $14.2 million in the second quarter, or 2.5% of net earnings versus $15.7 million, or 2.7% of net revenue a yr ago. 2d quarter G&A cost became $28.6 million or 5% of internet revenue, compared to $30.4 million, or 5.three% of web sales in the identical quarter a year ago.

in the second quarter, R&D turned into $4.1 million or 0.7% of revenues, compared to $5.2 million or 0.9% in the 12 months-in the past quarter. Their working margin in the 2d quarter became 9.7%. This in comparison to 9.4% within the identical quarter final year. hobby expense became $10.5 million in the second quarter, a reduce from the $15 million in the equal quarter closing year, as a result of reduce levels of debt as they repaid $400 million of their term personal loan and their $250 million convertible bond in addition to reduce pastime cost following their debt refinancing in the first quarter.

right through the quarter, there was a negative $1.eight million foreign exchange have an impact on under the operating line. government incentives and interest profits reduces to a terrible $0.7 million, or about $0.01 of EPS. This compares to a profit of $0.2 million in the 2nd quarter a yr ago. Their beneficial tax rate became 8.7% within the second quarter. 2d quarter internet income became $40 million, or $0.36 per diluted share. This compares to the 2d quarter 2020 net earnings of $33 million or $0.31 per diluted share. Adjusted EBITDA for the second quarter changed into $75.6 million or 13.three% of internet sales, compared with 2d quarter 2020 adjusted EBITDA of $seventy six.8 million, or 13.5% of internet income.

Appreciation for the quarter changed into $21.2 million. web capital spending for the quarter changed into $22.7 million. And ongoing focal point for us is cash movement from operations. all through the second quarter, they proceed to bring at all times robust outcomes, generating $fifty six.9 million or 10% of earnings from operations. Their balance sheet and liquidity positions continue to be very strong. cash and money equivalents on the end of the 2d quarter of 2021 had been $558.3 million and their web debt divided through final 365 days EBITDA turned into 1.4 times.

we're the use of that power to repurchase inventory and to stay away from issuing new shares regarding their warrants. They in the past introduced $a hundred million stock repurchase software, and all through the second quarter they bought again 411,000 shares for $6.1 million. They also spent $three.1 million to cash settled 60% of the inventory warrants that mature all over the quarter, thus warding off the issuance of approximately 210,000 shares.

Now i'd want to turn to information for the third quarter. As Tom mentioned past, the character and volume of seasonality they event has changed since the divestiture of the mobility business. because of that exchange and the demand pull ahead into Q2 that they witnessed, they predict sequentially decrease income in Q3. moreover, they expect a larger inflationary impact in Q3, a good way to contribute to decrease sequential working margins.

in view that, they expect total earnings for the third quarter of 2021 to be in the latitude of $530 million to $570 million. And they expect non-GAAP profits to be in the latitude of $0.31 to $0.37 per diluted share. The EPS forecast is in line with a diluted share count of about 109 million shares. Their share count number suggestions comprises dilutive securities corresponding to alternatives and RSUs, but no shares linked to their warrants, as the present inventory cost is below the inventory of the strike rate of $14.26. They predict that SG&A rate might be about 8.2% of salary in the third quarter, and R&D may be about 0.9% of income. They predict interest expense to total approximately $10 million. ultimately, they estimate their valuable tax cost to be 10%.

To assist you in developing your fiscal fashions, they offer right here more information. all over the third quarter, they expect to checklist amortization of intangibles of about $9.7 million, inventory-based compensation cost of about $5 million, non-money interest expense of approximately $0.5 million and they estimate depreciation expense might be about $21 million. eventually, i might want to announce that they are going to be collaborating very nearly in the Jefferies Industrial convention on August 3, the Needham Industrial technology conference on August 9; and the Jefferies IT Hardware Communications Infrastructure conference on August 31.

That concludes their prepared remarks and now i would want to open the line for questions. Travis?

Questions and solutions:

Operator

[Operator Instructions] Their first query comes from William Stein, Truist Securities.

William Stein -- Truist Securities -- Analyst

first rate. Thanks for taking my query. Congrats on the respectable quarterly outcomes. I consider op margin took a pleasant ticket as much as 9.7% within the quarter. I remember you have traditionally had a 12% to 14% target on this metric. however that turned into before the divestitures that you did. and that i'm wondering, even if you nevertheless suppose 12% to 14% is a very good goal and even if you have a timeframe that you just take note of to obtain it?

Todd B. Schull -- government vice chairman and Chief fiscal Officer

i may take that one. decent to hear your voice once again, Will. in keeping with your query, sure, they nonetheless consider in those objectives. A key for us changed into a couple of issues. One turned into, getting their utilization degrees up in Asia. And we're starting to see that factor now. So it is a very favorable development. and then 2d is, continuing to develop their aerospace and protection business, mainly their RF accessories and sub assemblies portion of that company, which has more suitable than regular PCB fabrication margins, so that it is the key element that needs to continue -- that they deserve to proceed to force.

after which the other issue they need to do is, one of the vital first rate information that they might have anticipated to have considered already from the more advantageous utilization in Asia has been a little bit muted by using the inflationary costs that we've got been seeing when it comes to raw substances that Tom commented on in his opening remarks, as well as we're seeing a tighter labor force, so we've challenges getting the labor after which really, because of that you're seeing some cost inflation or wage inflation from the labor too. So, these two points are form of working in opposition t us.

Headwinds, if you will, that are muting the improvement that we'd normally see from the boom and enhanced utilization in Asia. however those are I view as brief things that we'll work through mitigating to ongoing charge administration movements as well as pricing moves. So, I view these as transitionary or transient in nature. but they can be with us here -- have been for a quarter or two and doubtless may be for a couple of extra quarters.

William Stein -- Truist Securities -- Analyst

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A follow-up to that, Todd, I recognize it. however I simply want to dig into that a little bit greater. with reference to the inflationary cost -- enter fees. Labor is one aspect, but on the material side, they have seen amongst other component suppliers and in selected, semi, however other add-ons as neatly. they have now viewed a extremely amazing willingness and capacity -- smartly, willingness among the many suppliers and additionally willingness among the many birthday celebration -- willingness among the marketers, but inclined is also among the many patrons to accept larger expenses in this ambiance, lead-times are stretched, maybe they're now not reasonably as stretched to your ingredients.

Their enter fees are going up in specific, cost at foundry, semiconductor prices are going up. Semis are raising prices to their purchasers, pretty neatly across the board, even in markets where you truly do not are expecting this skill the automotive and the customers are paying it. i wonder if here is a count number of -- i'm wondering why we're now not given that in your enterprise unlock, what it comes all the way down to? thank you.

Thomas T. Edman -- President and Chief executive Officer

sure, so Will here is this Tom. Let me cover that. first of all, simply to explain one of the crucial dynamics of work right here within the printed circuit board business in particular, but additionally in their tire company, if they have a set of corporations approximately depends on the given quarter. but when you feel about 40% to 50%, of their business business is regarding greater spot category non-contractual enterprise. and then if you consider about their A&D company, about half of the company in A&D is related to both, once again, spot or non-contractual company or contracts with escalation provisions. So, the steadiness of the enterprise about 50% would be related to contracts that we've with their purchasers.

So, they have, without doubt, instantly as they got raises -- and even forecasted raises, we're able to incorporate that in their quote models and deal with the forty% to 50% of business and the 50% of A&D that I pointed out. it be the steadiness that we're truly addressing now and that and that takes negotiations. surely, the most desirable time to negotiate with a contractual client is when the contract comes up for renewal, which they -- which they do -- they -- most of their contractual relationships come up for renewal every year, if not greater often. And so that is if in case you have your expense negotiation.

In some circumstances, now they have had to go lower back to even those purchasers and speak about the current circumstance and ask and ask for their understanding, i might say that on stability, we've been capable of mitigate about seventy five% of that -- of the increases that they have now been receiving. And, frankly, I accept as true with that, it truly is pretty good, given the element of their enterprise this is contractual.

we've additionally, of course, as they always do, they center of attention on the can charge facet of the equation, and improving operational efficiencies, and that is the reason a relentless for us. in order that continues to be the other area of focus. And as they go through contract contractual negotiations with their customers, they are going to be speaking in the course of the pricing circumstance. So it is how -- it's in reality the how it works within the printed circuit board world. And, they will continue to work through this. And as Todd mentioned, they are confident that they are going to be capable of mitigate, it's just a query of time as they work via those mitigation innovations.

William Stein -- Truist Securities -- Analyst

thank you.

Todd B. Schull -- government vp and Chief monetary Officer

sure.

Operator

[Operator Instructions] Their subsequent query comes from Jim Ricchiuti, Needham & enterprise.

Jim Ricchiuti -- Needham & enterprise -- Analyst

hi. good afternoon. i'll have neglected it, but you might be talking about Poland's. are you able to simply say or complicated on the place you had been seeing the Poland's, during which market verticals? and perhaps what became using? and the way peculiar is it really is to claim?

Todd B. Schull -- govt vice chairman and Chief fiscal Officer

Yeah. certain. Yeah and predominantly the place they where they noticed that changed into in our, within the datacenter computing conclusion-market and a little bit in the networking and the networking facet as neatly. and never atypical Jim, if you seem at the mixing of Q2, Q3 and so i might consider that it form of no longer is average to feel about it in terms of distinct quarters. and generally they were, as a result of in Q2, as they highlighted, Q2 we've add many more days of production in North the united states, coupled with the extraordinary utilization charges that they now have in Asia Pacific.

So they have been capable of push that product out and their customers had been pulling that product as they go into the 3Q, right here in those two areas, had been expecting that we'll see, a bit little bit of a greater subdued demand. but definitely on the on the edges, in case you will think very amazing atmosphere. and then, the other aspect is only the ability with vacations in North america. Q3 is at all times going to be from a production output standpoint, lessen production output quarter for us, versus Q2. So those are the type of two components that that we're absorbing at this element in Q3.

Jim Ricchiuti -- Needham & enterprise -- Analyst

and that i don't know in case you are looking to measurement it quantify a Tom. And the other question and the final query I had is barely on the utilization charges, you guys alluded to the larger utilization prices in Asia Pacific. however i am just questioning, are you at all involved about your North American utilization quotes?

Thomas T. Edman -- President and Chief executive Officer

Yeah. I consider I feel how to analyze it on in terms of sizing is barely appear at the conclusion-market forecast that they supplied. And in case you study variety of Q3 versus Q2, you'll see within the datacenter enviornment down about 6% and networking and telecom down about 2%. Bulk of this is going to be concerning the inventories and in order that quarter-to-quarter blurring, in case you will, of the demand. after which, if you study A&D, Q3 to Q2, down about 3%, and a portion of MII, which is down again about 6%. it truly is more regarding creation boundaries in North the usa.

So it truly is how a great way to examine it. If -- when it comes to utilization, I can't inform you how excited they are about, or not it's humorous to claim that North -- sure, North the usa utilization rates are down. but what that actually signifies is the undeniable fact that they brought two plating traces in the quarter. and people are vertical plating strains, they're core to their procedure, represents their potential sooner or later right here to respond in the course of the robust demand that they are feeling available in the market, and to proceed their means to respond to short turn requirements as neatly in these amenities.

We, definitely, should proceed to work on their staffing in their North the united states amenities. but this offers us the device skill that they need, primarily in those two amenities that have been bottlenecked by way of plating. And, once more, adding plating traces, outstanding indicator to their customers that we're organized to carrier their heightened demand levels.

Jim Ricchiuti -- Needham & enterprise -- Analyst

acquired it. Thanks very a great deal.

Thomas T. Edman -- President and Chief government Officer

thank you.

Operator

Our subsequent question comes from Matt Sheerin, Stifel.

Thomas T. Edman -- President and Chief executive Officer

hello Matt.

Matt Sheerin -- Stifel -- Analyst

hiya, hello, everybody. simply a query concerning the margin headwinds that you simply're seeing first on the labour aspect, and on the substances aspect. It feels like and also you're now not the only one announcing circumstances have doubtless irritate these days on the grounds that a quarter or two ago. Do you have got any visibility into when this stabilizes, and sounds like you're catching up a little bit on passing those prices along, however do you see any additional growth in the December quarter?

Todd B. Schull -- govt vice president and Chief fiscal Officer

So, form of, add to what Tom stated earlier in regards to the technique and how they can contend with pricing in their technique. What now they have considered now is increases over a length of time. they've been working themselves throughout the pipeline at their suppliers and then to their inventory after which out to consumers and as they are trying to stability that can charge raise, which they have seen fairly regularly and greatly over the ultimate few quarters, we're now -- we're working to are trying to get in entrance of that and work with their consumers on pricing.

however on that 50% or so of the income move that takes longer to contend with that Tom become referring to earlier, we're making development, Q3 has obtained a bit of a gap, they did actually neatly, I believe in Q2, there turned into a smaller hill decline, the group did a extremely respectable job going in front of it and working with shoppers and more or much less mitigated the affect of that certain element of inflation for their enterprise, and Q3 though these costs retain ramping, and we've been working with their consumers, and they see it into this autumn.

At this factor, they understand it's tough to forecast their consumer -- their suppliers are going to be proceed to increase pricing on us in August and September. however the place they are these days, we're imposing solutions to mitigate what they see nowadays. And on the way to have an improved improvement in this fall than in Q3, they now have greater coverage, already Tom alluded to the seventy five% or so. i admire it to hiking a mountain. And we're 75% of the way up that mountain in Q3. And the [Indecipherable] nevertheless working hard to are trying to get over that hump, nevertheless it's going to be more challenging this quarter. but the this autumn piece of that we're in more desirable place because we've greater runway and we've been working that subject for an extended period of time.

it truly is of direction field to what their suppliers might proceed to do to us here over the next few months. this is a relocating goal. That has been expanding right here extra time. but they suppose now they have acquired a plan in place. We're executing. We're closing that hole. They feel Q3 at this point appears to be the most difficult quarter from that viewpoint, however it's discipline to what happens in the market from their suppliers as they go ahead there.

Thomas T. Edman -- President and Chief govt Officer

sure. and that i'd only add Matt that they -- in order that what Todd is speaking about also is inclusive of what we're seeing and forecasting with from their providers as they study their -- what they take note to be their plans. And, as you know, here is type of the -- these are the times for those who in reality remember the actual partnership with vendors, the providers which are capable of forecast and which are doing their utmost to fulfill demand necessities in a transparent trend. these are the two companions. And they now have a few them that really has stepped up. And so from that standpoint, they basically try to have in mind the place the market goes and make sure that that their consumers needless to say as smartly.

Matt Sheerin -- Stifel -- Analyst

k. Thanks for that. and will you remind us what percentage of can charge of items is represented via the laminate -- the copper-clad laminate?

Thomas T. Edman -- President and Chief govt Officer

So it is probably their single largest fabric can charge that goes into -- their overall cost of goods bought. And in total, if you study laminate as a percent of their total charge of goods offered, it's about 14.5%. if you study all the copper linked stuff and precious metals that they use, it be possibly an aggregate about 20% of their complete charge of items sold is basically what we're speakme about here.

Matt Sheerin -- Stifel -- Analyst

okay. it truly is useful. and then simply -- a 2d -- my second query, just concerning M&A, Tom and clearly this is been a key part of your increase strategy. and also you've had loads of success with integrating acquisitions and Anaren, most likely, develop your product portfolio. What's your techniques there when it comes to alternatives? undoubtedly, your balance sheet has been enhancing? What should they consider about the M&A here?

Thomas T. Edman -- President and Chief government Officer

yes. I believe you mentioned -- it's -- it has been core to their strategy and it'll continue to be a important aspect of their strategy. We're still working the income synergies in case you will on the Anaren side, and that definitely on the business side of the company that involves the cross-selling efforts that we're involved in. and then there is a extremely shut relationship between their RF element design efforts and their printed circuit board support.

And so they have -- obviously it be now we're drawing near smartly within three years and that relationship now is -- just top-quality. And so they now have product now it truly is out out there. they have now been constructing their catalogue beyond simply couplers and resistors and adding transceivers and other accessories there and actively working on new markets past telecom the place they now have performed very well. but carrying on with to study add opportunities in automobile, some in optical networking as well.

So I definitely would want to praise their crew on how they proceed to focus on that enterprise development, it is truly about differentiation and course that they are getting into as an organization. As they look at M&A, completely, building on that capability, on the RF part facet, looking at their aerospace and defense electricity and including engineering capacity there, after which continuing to construct out be sure that we've the right footprint to assist their valued clientele on the business facet of the enterprise is the third aspect.

And so we're continuing to work on -- work that pipeline, this is an extended-time period effort for us. Strategically, the primary type of hurdle, if you will, internally is to make certain that there's a robust strategic set. but then over and above that, they need to make certain that acquisition satisfy economic criteria. They continue to look accelerated multiples in the market and increased varied expectations. with a view to trade right here going forward. It always does alter that actually as they study their 2d crucial hurdle, which is -- are the monetary metrics, it really is going to open up a few of these strategic alternatives. So we're going to continue to work that and or not it's a system that is very lots alive and well and a important a part of their approach there.

Matt Sheerin -- Stifel -- Analyst

ok. All appropriate. Thanks plenty, Tom.

Thomas T. Edman -- President and Chief executive Officer

thank you.

Operator

Our next query comes from Mike Crawford, B. Riley Securities.

Mike Crawford -- B. Riley Securities -- Analyst

thanks. regarding the automotive enterprise, can you focus on design wins and standard mix versus ED, which I think during the past were around 77%. And also concerning design wins, I believe in 2019 and 2020 mixed, you had over a $1 billion of design wins. And so the place that stands nowadays, so far as 2021 and outlook for the longer term?

Todd B. Schull -- govt vice president and Chief financial Officer

certain. yes. Let me start with the design wins, they in this most accurate quarter, received about forty seven new car design wins lifetime -- with a lifetime software price of about 121 million. And a very good good component of that became on the non-universal facet of the enterprise. so that offers you -- should still provide you a taste of this most fresh quarter. And what i would say in terms of the ordinary car product combine tremendously steady and what they reported closing yr about 26% of the usual company become non-typical.

So, superior know-how ability, so about 26% the balance could be regularly occurring and clearly their focus remains on building that superior know-how content material in that car company. And with that center of attention on new design wins. So good progress, solid progress, i would say in the quarter. and certainly potent prospects right here. and at last only a comment on the salary. I believe, they hitting once more 2018 tiers. Very, very satisfactory to see in certain they noticed demand boom in Europe, as a area. North the usa and Asia still remained at a high stages. however to look Europe are available, into the combine and grow is became really the alternate quarter-to-quarter for us. So decent, strong demand there.

Mike Crawford -- B. Riley Securities -- Analyst

k. thank you. and then just further related to superior know-how, what p.c of revenue I realize it looks a rather small as a triple to i3. And due to the fact that you divested some capabilities with the mobility company, like how important are differentiated options that you may provide with that, i3 intellectual property and assets that you just acquired a couple of years in the past?

Thomas T. Edman -- President and Chief government Officer

Yeah. so that you're right. So from a percentage of complete profits, nonetheless relatively small. They music the alternatives that comes out of their ACC as they name it, their superior expertise Centre. And that advanced technology Centre in Chippewa Falls, Wisconsin is the place they movement the i3 property. In that facility, we're doing substrate like printed circuit board means, they deliver their own needs there for that, so exceptional lines and spacing. and you'll think about very dense circuits.

We do not ruin that out in terms of earnings. but i will be able to let you know that, exceptionally as they examine their aerospace and defense client roadmaps, the ability is lining up very well with their interest and as well as with their personal technology roadmaps going ahead. So nowadays, we're helping right down to about a 25 micron strains and spacing sort of area, they are expecting that to proceed to push downward right here as they go in the course of the direction of the subsequent 5 years, or so. And their plan is to assist that, at that want. it is likely the-what i will let you know Mike, just a pretty good, first rate, strong development there popping out of the UTC.

Mike Crawford -- B. Riley Securities -- Analyst

ok, thank you. and then last query will switch the gears nonetheless it feels like you guys are becoming again into absolute are living trade exhibit circuit in September with a protection show in London. but how does that affect enterprise development going forward?

Thomas T. Edman -- President and Chief government Officer

it be always enhanced to be face to face. you are completely right Mike. I imply, it be been difficult for their container application engineering team and their earnings group to they've finished a fine job of interacting with their clients remotely, however to be face to face to be capable of get out to tradeshows and participate once more, greater than anything else. it's just that our-as-our mission is really to inspire innovation at their valued clientele. And the greatest strategy to encourage innovation is to be sitting collectively and assisting and-helping on the design method, and also designing to meet requirements that are laid out on the table by using their purchasers. So nearer interaction is a real superb.

Mike Crawford -- B. Riley Securities -- Analyst

magnificent. thank you.

Thomas T. Edman -- President and Chief government Officer

thank you.

Operator

Our subsequent question comes from Christian Schwab, Craig Hallum.

Tyler -- Craig Hallum -- Analyst

hello. here's Tyler [Phonetic] on behalf of Christian. Thanks for allow us to ask couple questions. First, closing quarter, you guys outlined the your quantify the affect from these commodity fees and labor and FX affects is 13 million, I trust. and that i do not feel I heard you quantify this quarter, if you could? after which it appears like your Q3 information on the midpoint implies gross margins are going to be up sequentially above 18%. I guess first, is that relevant? after which, what's kind of the driving force there?

Thomas T. Edman -- President and Chief govt Officer

smartly, to answer your first query on the second quarter the headwinds from the-from the inflationary issues, essentially raw material fees they were capable of mitigate those. in order that definitely wasn't a large factor in the quarter. it would be a bit greater difficult within the-in the third quarter as they analyze expectations, as a result of there's a bigger mountain to climb and they have not solutions or mitigated the entire charge power that we're seeing in the third quarter. So they now have a bit of of a shortfall there.

And with a purpose to impact and elements into their tips. if you study their Q3 forecasts, and type of just contrasting that with Q2, as a result of the similarity with the inflationary components, that turns into a little bit of a problem sure, you might be right. Their margins really-our margins are solid to in terms of gross margin likely solid to a bit of down. however in the event you get down to operating margins with that-it is going to trickle through, you are going to see an identical impact.

So from a margin percent standpoint as their EPS tips, which suggests you're seeing a little bit of reduction there and that shortfall, or that decrease sequentially is in reality being driven via the inflationary pressures. this is the gap between their fees that are increasing and, and what we've been in a position to mitigate. Now, they will work to are trying to close that hole. but it is what they see as of this aspect in time.

Tyler -- Craig Hallum -- Analyst

okay. awesome. after which the 2d query, a little little bit of a follow-up, your utilization fees within the u.s., you said, I believe became forty nine% this quarter and below Asia. however you are inspired with the plate machinery you introduced as a bottleneck, so I bet, what's type of a goal price there at some factor sooner or later expense-what is the goal rate in the united states?

Thomas T. Edman -- President and Chief government Officer

Yeah. certain. bound, certain. Yeah. So, if we're in North the united states, as a result of so lots of the business bases is short flip, you need to have-you must have excess capacity purchasable to satisfy these needs. after which you even have bottlenecks that movement around as a result of that excessive mix low quantity nature of the North American business. So utilizations not a very good indicator of profitability, in case you will, because of that, but when you have been to ask, what are we-what would they really like to see there?

once we're at 60%? We're doing really smartly. We-if they ever all started pushing to 70%, they might-we deserve to dramatically, they should dramatically handle that. So expectantly, that gives you a flavor, as they carry up the device that now they have now put in, as they bring in labor and they certainly hope we're going to delivery seeing more suitable labor availability within the fall, with the intention to help us to elevate -- elevate up that utilization price above the 50% area and point towards that 60% once again.

Tyler -- Craig Hallum -- Analyst

it truly is outstanding. that's serious about me. Thanks, guys.

Thomas T. Edman -- President and Chief govt Officer

thank you.

Operator

There aren't any additional questions within the queue at present. i'd now want to flip the name lower back over to Tom.

Thomas T. Edman -- President and Chief government Officer

ok, extremely good. Yeah, thank you. and i desired to first thank all of you for attending. optimistically you be mindful. and i'll just spotlight a couple of of the components from the quarter. They delivered revenues and earnings of the excessive conclusion of advice. They did that, regardless of COVID-19-related and supply chain challenges.

And their end market diversification once again, definitely pulled through for us strong 12 months-on-year boom of three% for their ongoing enterprise. and then thirdly, they generated amazing and constant cash stream, a pleasant demonstration of economic discipline on the a part of their group. and eventually, i'd similar to to thanks once again, thank their personnel and clients and vendors as smartly on your persevered aid. thank you very a whole lot.

Operator

[Operator Closing Remarks]

length: 54 minutes

call participants:

Sameer Desai -- Senior Director, company construction and Investor members of the family

Thomas T. Edman -- President and Chief executive Officer

Todd B. Schull -- govt vice president and Chief economic Officer

William Stein -- Truist Securities -- Analyst

Jim Ricchiuti -- Needham & business -- Analyst

Matt Sheerin -- Stifel -- Analyst

Mike Crawford -- B. Riley Securities -- Analyst

Tyler -- Craig Hallum -- Analyst

more TTMI evaluation

All salary call transcripts

© provided by means of The Motley idiot AlphaStreet logo

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