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TTM Technologies Inc (NASDAQ:TTMI)
Q3 2020 Earnings Call
Oct 28, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the TTM Technologies Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today October 28, 2020. Sameer Desai, TTM's Senior Director of Corporate Development and Investor Relations will now review TTM's disclosure statement.

Sameer Desai -- Senior Director, Corporate Development & Investor Relations

Great. Thanks, Casey. Before we get started, I would like to remind everyone that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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 factors explained in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.

These forward-looking statements are based on management's expectations and assumptions as of the date of this presentation. TTM does not undertake any obligation to publicly update or revise any of these statements, whether a result of new information, future events or other circumstances, except as required by law. Please refer to the disclosures regarding the risks that may affect TTM, which may be found in the reports on Form 10-K, 10-Q, 8-K, the Registration Statement on Form S-4 and the Company's other SEC filings.

We will also disclose on this call certain non-GAAP financial measures such as adjusted EBITDA. Such measures should not be considered as a substitute for the measures prepared and presented in accordance with GAAP and we direct you to the reconciliation of non-GAAP to GAAP measures included in the Company's press release, which was filed with the SEC and is available on TTM's website at www.ttm.com.

I will now like to turn the call over to Tom Edman, TTM's Chief Executive Officer. Please go ahead Tom.

Thomas T. Edman -- President and Chief Executive Officer

Thank you, Sameer. Good afternoon, and thank you for joining us for our third quarter 2020 conference call. These continue to be challenging times and I hope that all of you and your loved ones are safe and healthy. I'll begin with a review of our business strategy, then an update on how COVID-19 has impacted our business followed by highlights from the quarter and a discussion of our third quarter results. Todd Schull, our CFO, will follow with an overview of our Q3 2020 financial performance and our Q4 2020 guidance. We will then open the call to your questions.

I am pleased to report that in the third quarter of 2020 TTM generated revenues and non-GAAP EPS above the guided range. Our diversified end markets allowed us to grow PCB revenues year-on-year despite weakness in the commercial aerospace and automotive end markets. In addition, we continued strong operational execution, overcame production inefficiencies and extra costs due to COVID-19. The COVID-19 pandemic has created operational difficulties, macroeconomic uncertainty, and employee concerns. I am extremely proud of how TTM employees have worked to deliver excellent performance, despite the formidable and unprecedented challenges of this environment.

Finally, I'd like to highlight that in Q3 we received the remaining proceeds of the Mobility business unit divestiture and then apply them to repay our term loan B. Combined with strong cash flow from operations, our net debt-to-EBITDA ratio has dropped to 1.6 at the end of Q3.

Next, I would like to provide an update on our long-term strategy. TTM is on a journey to transform our business to be less cyclical, more differentiated, and more disciplined. We believe over time, investors will be rewarded with more stable growth, strong cash flow performance, and improving margins. A key part of that strategy will be to add capabilities and products that are complementary to our current offerings, internally, and through acquisitions.

The Anaren acquisition in 2018 represented a key step in this direction. Anaren provided us with engineering capabilities and a new market adjacency of RF subassemblies and components, that enabled us to provide more value to our customers. We effectively paid for that transaction with the sale of the Mobility business unit in 2020, which reduced our exposure to the volatile cellular end market that has been slowing growth and it has -- seeing slowing growth and lower margins in recent years.

In addition, in 2020, we are in the process of shutting down two of our E-MS plants which were subscale offering limited strategic value and lower margins. Looking forward, our balance sheet is in a strong position to pursue further acquisitions as well as our organic investment needs. In the A&D market, our focus is to be an indispensable supplier to our customers, providing more capabilities and expanding our addressable market. In the commercial markets, our focus is to add more RF component capabilities around Anaren's core strengths, as well as to diversify our manufacturing footprint. We prefer that acquisitions across both the A&D and commercial markets for maximum benefit to the company.

I would also like to update you on the COVID situation. We are currently managing through COVID-19 with relatively minor impact to our production. Those infected are returning to work after being cleared following testing and quarantine protocols. We continue to use contact tracing and quarantine individuals who were in close contact with infected team members, in addition to deep cleaning affected work areas.

We also continue other measures, such as extensive, internal communications, masking, temperature checks, and proper distancing in our facilities worldwide. Because of the stringent preventative measures in place and our culture of transparency and communications, these events have had much less impact on our operations then we thought at the start of the year. Our leadership team continues to remain vigilant in mitigating the impact of COVID-19, as we enter the fall and winter in some parts of the world, including the United States, see an acceleration of cases.

Now I'd like to review our end markets. All historical end market disclosures exclude the Mobility business unit and the two E-MS plants we are shutting down. For more details on end-market disclosures, please refer to our third-quarter earnings press release. The aerospace and defense end-market represented 37% of total second-quarter sales, compared to 36% of Q3 2019 sales and 33% of sales in Q2 2020. We expect sales in Q4 from this end market to represent about 38% of our total sales. We continue to see solid growth in our A&D segment with Q3 revenues up 7% year-on-year and an A&D program backlog of $625 million compared to $572 million in the year-ago quarter.

Weakness in the commercial aerospace end market was more than offset by strength in defense. Growth in the defense market is a result of our strong program alignment and key bookings for ongoing franchise programs, such as AESA radar systems for the Aegis Ashore Japan program, a variant of the U.S. LRDR program, being built by Lockheed, as well as upgrading F-16 fighter jets with scalable agile beam radar built by Northrop.

The medical-industrial instrumentation end market contributed 19% of our total sales in the third quarter, compared to 18% in the year-ago quarter and 21% in the second quarter of 2020. We were pleased to see this end market grow 9% year-on-year, as we saw strength in our medical and instrumentation customers, that was partially offset by weakness in our industrial customers. For the fourth quarter, we expect this market to be 16% of revenues, as industrial customers continue to decline and we return to less elevated levels of demand for emergency medical products.

Networking and communications accounted for 16% of revenue during the third quarter of 2020. This compares to 16% in the third quarter of 2019 and 19% of revenue in the second quarter of 2020. We saw a relative strength in the networking segment compared to the telecom segment as 5G builds took a pause. In Q4, we expect this segment to be 16% of revenue as 5G telecom demand remained subdued.

Sales in the computing storage peripherals end market represented 13% of total sales in the third quarter compared to 12% in Q3 of 2019 and 13% in the second quarter of 2020. This end market grew 8% year-on-year from strength in our data center customers. We expect revenues in this end market to represent approximately 12% of fourth quarter sales. Automotive sales represented 13% of total sales during the third quarter of 2020, compared to 15% in the year-ago quarter and 11% during the second quarter of 2020. While automotive sales declined year-over-year due to COVID-19 impacts, we saw a 9% sequential growth, which was better than the slight decline originally expected. We expect automotive to contribute 16% of total sales in Q4, as the automotive recovery continues.

Next, I'll cover some details from the third quarter. Note that all of the following operations metrics exclude the Mobility business unit and the two E-MS plants that are closing. During the quarter, our advanced technology business, which includes HDI, rigid-flex and RF subsystems and components accounted for approximately 29% of our revenue. This compares to approximately 25% in the year ago quarter and 28% in Q2. We are continuing to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capabilities in new markets.

Capacity utilization in Asia Pacific was 63% in Q3 compared to 60% in the year-ago quarter and 70% in Q2. our overall capacity utilization in North America was 61% in Q3 compared to 58% in the year ago quarter and 63% in Q2. Our top 5 customers contributed 33% of total sales in the third quarter of 2020 compared to 27% in the second quarter of 2020. Our largest customer accounted for 13% of sales in the third quarter. At the end of Q3, our 90-day backlog which is subject to cancellations was $437.8 million compared to $378.8 million at the end of the third quarter of last year and $436.6 million at the end of Q2.

Our PCB book-to-bill ratio was 0.92 for the three months ended -- ending September 28th. I'd like to conclude by again thanking our employees for continuing to contribute to TTM and our critical mission of inspiring innovation with our customers. Their efforts are particularly appreciated during these times by our customers in critical essential areas like defense and the medical industry. Despite the COVID-19 related challenges we faced in the first half nine-months of this year, our business has performed better than expectations as a direct result of operational excellence, end market diversification and our employees concerted efforts to engage and support our customers. We've also taken positive strategic moves that will strengthen TTM for the long term.

Now Todd will review our financial performance for the third quarter. Todd?

Todd B. Schull -- Executive Vice President and Chief Financial Officer

Thanks, Tom, and good afternoon, everyone. As Tom mentioned earlier, on April 19th, TTM announced the closing of the sale of its Mobility business unit. As such, the disclosure of TTM's GAAP results reflects the Mobility business unit as a discontinued operation. I will also discuss non-GAAP financial information, which excludes the results of the Mobility business unit. The EMS business unit is still included in both the GAAP and non-GAAP results we have reported. Please refer to the earnings schedule for additional details on the exited businesses and continuing operations.

For the third quarter net sales from continuing operations were $513.6 million compared to $534.2 million in the third quarter of 2019. The year-over-year decrease in revenue was due to a decline in our automotive end market with the majority of the decline coming from the E-MS plants that we are closing. This was partially offset by growth in our aerospace and defense, medical, industrial and instrumentation and computing end markets. Excluding the impact of the two E-MS plants being shut down, our revenues grew 3% year-over-year.

GAAP operating loss from continuing operations for the third quarter of 2020 was $40.3 million compared to a GAAP operating income of $21.1 million in the third quarter a year ago. The current year results include a goodwill impairment charge of $69.2 million related to the commercial portion of the Anaren business we acquired back in 2018. As a result of U.S. government actions imposing trade restrictions on U.S. manufactured products sold to certain Chinese customers, revenues and profits have been reduced resulting in the impairment. On a GAAP basis, the net loss in third quarter of 2020 was $41.5 million or $0.39 per diluted share, this compares to net income of $15.9 million or $0.15 per diluted share in the third quarter of last year.

The remainder of my comments will focus on our non-GAAP financial performance. Our non-GAAP performance excludes our divested Mobility business unit, goodwill impairments, M&A related costs, restructuring costs, certain non-cash expense items, 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 in prior periods.

Gross margin in the third quarter was 18.4% compared to 16.4% in the third quarter of 2019. The year-over-year increase in gross margin was due primarily to higher revenues in our aerospace and defense, medical, industrial and instrumentation and computing end markets, which generated production efficiencies as well as increased volumes. Selling and marketing expense was $15.3 million in the third quarter or 3% of net sales compared to $16.8 million or 3.1% of net sales, a year ago. Third quarter G&A expense was $26.9 million or 5.2% of net sales compared to $28.2 million or 5.3% of net sales in the third quarter of 2019.

In Q3 2020 R&D was $5.2 million dollars or 1% of revenues, compared to $4.3 million or 0.8% of revenue in the year-ago quarter. Our operating margin in Q3 was 9.1%, this compares to 7.1% in the same quarter last year. Interest expense was $12.9 million in the third quarter, a decrease of $4.1 million from the same quarter last year due to lower interest rates and repayment of $400 million of our term loans.

During the quarter we recorded $4.9 million of foreign exchange losses. Government incentives reduced the net loss to $2.5 million or approximately $0.02 of EPS. This compares to a net gain of $5.6 million or approximately $0.05 of EPS in Q3 of last year. Our effective tax rate was 15% in the third quarter. Third quarter net income was $26.8 million or $0.25 per diluted share. This compares to third quarter 2019 net income of $23.2 million or $0.22 per diluted share.

Adjusted EBITDA for the third quarter was $67.2 million or 13.1% of net sales compared to third quarter 2019 adjusted EBITDA of $66.7 million or 12.5% of net sales. Our balance sheet and liquidity positions remain very strong. Cash flow from operations was $84.8 million in the third quarter, inclusive of $14 million of accounts receivable collected from the Mobility business after we closed the sale. This compares to $58.7 million in the same quarter last year.

In addition, during Q3 we received the remaining proceeds from the $569 million sales of the Mobility business unit. Approximately $305 million of net of withholding taxes. Cash and cash equivalents at the end of the third quarter of 2020 were $663.3 million. At the end of the third quarter, our net debt leverage ratio was 1.6.

As a reminder, our $250 million convertible debenture comes due in mid-December and we intend to repay the principal in cash. Depreciation for the third quarter was $23.1 million. Net capital spending for the quarter was $29.1 million.

Now I'd like to turn to guidance for the fourth quarter. Looking ahead, we believe the COVID-19 may continue to cause end-market demand disruptions, supply chain challenges as well as inefficiencies with our own production. We expect total revenue for the quarter of 2020 to be in the range of $490 million to $530 million. We expect non-GAAP earnings to be in the range of $0.22 to $0.28 per diluted share. This guidance includes revenue and operating results from the two E-MS plants that we are closing at the end of the year. EPS forecast is based on the diluted share count of approximately 107.9 million shares. Our share count guidance includes diluted securities such as options and RSUs but no shares associated with our convertible bonds, which is a function of our future stock price.

As a reminder, for every dollar increase in the average share price above $14.26 during a quarter, our shares outstanding would increase by approximately 1.5 million shares. We expect that SG&A expense will be about 8.5% of revenue in the fourth quarter and R&D to be 1.1% of revenue. We expect interest expense to total about $12 million.

Finally, we estimate our effective tax rate to be between 13% and 17%. To assist you in developing your financial models, we offer the following additional information. During the fourth quarter, we expect to record amortization of intangibles of about $11 million, stock-based compensation expense of about $4.3 million, non-cash interest expense of approximately $2.9 million and we estimate depreciation expense will be approximately $22.6 million.

Finally, I'd like to announce that we will be participating virtually in the Baird Industrial Conference on November 12, the Stifel Midwest One-on-One Growth Conference, also on November 12th and the Barclays Technology Conference on December 10th.

That concludes our prepared remarks and now we'd like to open the lines for questions. Casey?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Mike Cikos with Needham & Company.

Michael Cikos -- Needham & Company -- Analyst

Hey, guys. Thanks for taking the questions today. First thing I wanted to ask about is I'm just looking at the outperformance that we had versus the guidance you had provided on revenue and earnings. This is the second consecutive quarter that we've seen this now and I'm just curious, is it based on -- do you guys have greater visibility and confidence in the guidance numbers you're providing us now, based on the movements within your portfolio or you looking at guidance differently than you had previously.

Thomas T. Edman -- President and Chief Executive Officer

So maybe I can address the revenue piece, like the -- as you know these have been very dynamic times and as we looked at our markets, as we were in July, I would say that what we were surprised to the upside by more strongly was automotive and we felt and commented on the fact that automotive was strengthening at that time, but even improved beyond what we had expected and so that was a really positive tailwind, if you will. The other big, sort of, outperformer, if you will, was networking, communications and that, if more than anything, was a function of customers pulling product out of inventory toward the end of this last quarter Q3 rather than Q4, as was expected. So if you look at that increase, that would have been very difficult to forecast. In general, with these kinds of dynamic markets we try to stay as close as we can to our customers and there forecast, which are also just very dynamic right now. And so as we look into, the fourth quarter, again, we're following our process and I think at this point, our numbers, our guidance numbers are solid as they can be, based on input from customers.

Michael Cikos -- Needham & Company -- Analyst

All right. Thanks for that. And then another question I have for you, if I'm just thinking, I think there was a comment made as well regarding potential impacts from COVID in Q4 of this year and how you guys structured your guidance, can you help us think about what that impact looks like in relation to Q3? Because obviously, you guys have been executing against that metric and I guess, pleasantly surprised by the way that your internal operations have been able to cope with the pandemic. Thank you.

Thomas T. Edman -- President and Chief Executive Officer

And I would agree with that comment. I think in the face of real challenges, our operations team has done an outstanding job of, first and foremost, protecting the employees. Our work environment is a very safe environment for our employees to be in. At the same time, we're following the rise in cases in the United States. Our workers, as you know, when they leave our facilities, they enter communities that -- and if those communities are seeing spikes in COVID cases that can then impact our employees. And so, yeah, so we have to continue to be very cognizant of that situation and particularly as we look at our aerospace and defense guidance that's something that we always consider because as you know the -- these cases, probably comes to the TTM footprint, these cases are really occurring in North America. They are not occurring in our China facilities, nor in our, in our other overseas offices. So it's really about North America and for us when it comes in North America, that's primarily going to be an aerospace and defense area, where we just have to be careful about production -- potential production limitations from disruption with COVID. So that's always -- that's encompassed in our guidance in the same way that it was this past quarter.

Michael Cikos -- Needham & Company -- Analyst

Great, thank you.

Thomas T. Edman -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Srini Pajjuri with SMBC Nikko Securities.

Srini Pajjuri -- SMBC Nikko Securities America -- Analyst

Thank you. Good afternoon, guys. First of all, congrats on the solid execution. Tom, a question on your defense business. To the extent you have visibility, can you talk about how you -- from a planning standpoint, how are you thinking about the next 12 months, especially given the upcoming election and the potential impact that might have on the defense budgets going forward?

Thomas T. Edman -- President and Chief Executive Officer

Okay, thank you. And yeah, as we look out and of course, no one has a crystal ball on this, and I'll be the very first to admit that given the very dynamic situation you mentioned and mentioned one factor with the elections, the impact of COVID on the worlds economies, particularly as we go into the winter, is very hard to forecast. So let me just comment on what we generally see out there as we look into 2021. I think the defense business -- so again 38% or so of our business -- we have some -- we have reason to be confident there that we can continue to grow that business. There will be an impact on the business from the aerospace weakness and so as opposed to the 8% to 9%, kind of, or even slightly higher than that growth rates that we've been seeing over the last several years. I think we're probably looking at something less than that, certainly higher than the Prismark market forecasting guidance which is around 2% to 4%. I think we're still looking at being above that, but struggling -- it's going to be facing that that headwind on the aerospace, it's going to be the biggest challenge in that area. As we look at automotive, we've all of course seen automotive recover, I think automotive will continue to recover as we enter into the first part of next year. Again, I think we all are watching European demand, automobile demand as they encounter another spike in COVID cases and shutdown situations. So, that's -- that is not certain, but certainly there is momentum there that's positive as we go into 2021 and so continuing to see some improvement there. When you look at computing, we've all seen a real impact of heightened demand for data center on the datacenter side, again that's the largest portion of computing for us. I would say that returning to normal demand levels, returning to a growth rate that would be more normal for our computing area around the 2% to 4% kind of range would be general expectation. MII, the medical-industrial instrumentation area we -- this is a -- this is interesting because we had such a strong Q2 and Q3 that you're going to -- we're going to be looking at a different -- a tougher compare as we go into next year, on the --certainly on the medical side. On the other hand, Industrial should again if barring no huge disruption on the COVID front, should start improving as we go into 2021.

So, the forecast there in the 2% to 4% kind of range, that's what we would be fighting to achieve. I think the first half of the year may be tough, but the second half could get a little bit better. And then networking communications, we are impacted right now by the slowdown in 5G spend, predominantly out of China. China has been driving the bulk of the equipment purchases for 5G infrastructure requirements. I would expect that the U.S. and Europe will pick up that demand and that we will see Phase 3 out of China. So, I think good reasons to be positive on the networking, certainly the telecom portion of network and communications, which is about slightly higher than a third of the business for us and then can peek at around half of the business for us when it really is moving. So networking communications should -- looking to a more positive 2021. So that's the mix, I think that's a great benefit of having this diversified end market exposure. I think we'll be seeing some markets continuing to improve strongly. Some markets that may slow -- that may have experienced heightened demand with the COVID situation falling back a bit, but a good mixture of businesses.

Srini Pajjuri -- SMBC Nikko Securities America -- Analyst

Thank you, that's great color. And then I have one question for Todd as well. Todd, utilization at roughly 63%, and then the gross margins have come up nicely here. So I'm just in -- as we look into the next 12 to 18 months, can you talk about some of the puts and takes of gross margin and any potential for further improvement here outside of the mix itself and how high do you think that utilization can go before you need to increase capacity?

Todd B. Schull -- Executive Vice President and Chief Financial Officer

Well, so utilization is a challenging metric. It's an important metric, but I say it's challenging because we have kind of two different business models. In North America, we have more of a high mix, low volume business model and so utilization levels are inherently going to be lower. And so when we say we're operating in North America, at around 63% to 65% that's actually a very good number in North America. Getting up close to 70% really, really stretches us and we've been selectively adding capacity here and there in North America to try to increase our ability, our production capacity. Now, in Asia, though, it's a different story. The business model there is more geared toward mid-to-higher volumes and lower mix and so utilization becomes a much more important factor, and quite frankly 63% utilization in Asia is not a good number. And there is a lot of upward opportunity to improve, we have capacity in several of our key plants. These plants in China tend to be driven by our commercial end markets, as Tom, mentioned A&D is really in North American market. So you have to watch what's going on with our networking and communications end market. Our medical, industrial, instrumentation end market, and automotive end markets particularly and computing will play into there also. Those who -- so what's happening in those end markets will really drive utilization, and utilization is a key factor for us because we have a fairly significant fixed cost elements in our business, there is a lot of equipment involved in what we do, and a lot of technology and so there's a lot of leverage in the business model. So there is quite a bit of opportunity to grow on the commercial side, more constrained in North America, although, we still have some upside opportunity there too.

Srini Pajjuri -- SMBC Nikko Securities America -- Analyst

Got it. And just one clarification, you said, you're going to retire the convert in the December quarter, does that or will that have any impact on the share count going forward? Thank you.

Todd B. Schull -- Executive Vice President and Chief Financial Officer

The at this stage the impact on the share count is really expected it to be zero quite frankly. There is a warrant. So when we entered into the convert seven years ago, we did a cost -- what's called a cost spread option, which protected the company from dilution up to $14.26. The second piece of that strategy involves award that we issued that a couple of the banks that we know did the transaction with, have the opportunity to exercise that warrant during 2022. If this -- and the warrant becomes in the money above $14.26. At that point, it could become dilutive during 2022 but that warrant will expire at the end of 2022. And the impact is roughly for every dollar above $14.26 stock price on the average for the quarter, our share count could be diluted about 1.5 million shares or 1.5%. So there is some exposure still at the tail, if you will, on the convert. But as of this year, I really don't expect any dilution at all.

Srini Pajjuri -- SMBC Nikko Securities America -- Analyst

Got it. Thank you.

Operator

We'll take our next question from Alvin Park with Stifel.

Alvin Park -- Stifel Nicolaus -- Analyst

Yes, hi. Thank you for taking the call just on for Matt Sheerin. I just wanted to follow up on the telecom and the 5G pause, you did mention that in an eventual U.S. and Europe pickup will be -- will end that pause, but I had a curiosity when China does resume their 5G infrastructure investments? Would you see that tailwind or will there be potential impediments and headwinds associated because of the trade restrictions?

Thomas T. Edman -- President and Chief Executive Officer

Yeah. So certainly, China is -- if they're continuing the base right now, if you look at 5G base station investments China, the total out of China is more than double the rest of the -- entire rest of the world in terms of the investment. So, no question, very important market. The market to date, it's hard to predict future but to date primarily Huawei, ZTE, have been the beneficiaries of a little bit of with some business going to Ericsson as well. From a TTM standpoint, the -- we continue to be able to provide our products out of China, which have been engineered in China, so printed circuit boards, our backplane assemblies, and our resistor components which -- all of which are manufactured in China. We continue to be able to supply to Huawei and so that business is -- has not been impacted, and would be the beneficiary of that investment -- an ongoing investment in China. And certainly Phase 3, again, I think will be a very large investment that occurs there.

Alvin Park -- Stifel Nicolaus -- Analyst

I see. I understand. That's good. And follow-up on it. So another supply mentioned that they were expecting -- they have mentioned some visibility into calendar year '21 stating at least for the next 12 months that the December quarter is going to be basically a peak in terms of global auto production for the next 12 months at the -- at least. Do you have any visibility on potential auto production order bookings that go beyond the December quarter, if you see a similar sentiment to that supplier or possibly more optimistic bullish scenario or any color, possibly, or is it just -- or is let -- visibility is still relatively limited to make that determination?

Thomas T. Edman -- President and Chief Executive Officer

Yeah, definitely visibility -- beyond for our business. We work off of automotive forecast that do go beyond the quarter, but they are very volatile beyond the quarter and so I'll start with that comment and I think what that comment may be referring to is and certainly, what we saw in the third quarter, regionally, was the fact that we reached sort of optimal or high levels of production in China, we were sell -- and our regional sales reflected that already in Q2. What we were missing was really North America and Europe and that's what really started to come in Q3 and we expect to continue into Q4, so that we end up really again regionally balanced which is a great sign for the stable business and servicing stable automotive demand.

So at that point, I think we'll be in a hopefully a stable state and then from there as we go into next year, we're going to be really seeing what consumer demand looks like in those markets. Again, I think a lot of different impacts, both positive and negative, I think the government incentives toward electric vehicles and therefore toward improving electrical content in -- or electronics content in cars is a positive for us. I think both Europe and China are very active in that area and very aggressively incentivizing move to EV, which is generally a positive from a printed circuit board demand standpoint and improvs content per vehicle. So that's going to be a real positive, I think to the extent COVID impacts overall consumer demand that would be on the flip side, suppressing unit demand.

If we can see unit demand sales, sales of cars stabilize at levels that, let's just say we're -- are closer to 2018 levels that would be -- that would bode really well for TTM and then the real adder to that would be the conversions to EV demand and the increasing incorporation of ADAS features, safety features into -- in the vehicles. So that's the trend that we certainly hope to see here as we go into next year.

Alvin Park -- Stifel Nicolaus -- Analyst

I see. Thank you so very much.

Operator

[Operator Instructions] Our next question comes from Mike Crawford with B. Riley Securities.

Mike Crawford -- B. Riley FBR -- Analyst

Thank you, Tom. You talked about wanting to add more RF component capabilities into geared differentiated product set and is -- some of that I think is internal, how much of that would be external?

Thomas T. Edman -- President and Chief Executive Officer

Yeah, so great, great point. Both. We are using the commercial RF and specialty component capability on our commercial business side to help with our organic business development areas and as I've said in the past, those are focused on photonics opportunities. On the opportunity in auto as well to build -- to provide more of a complete engineered solution for our customers versus just the discrete components and we continue those efforts. So that's one piece of it. We continue on the A&D side to focus on early engagement with our customers as they release specifications and again those large program win opportunities as a result of that. So that's the second area and then the third area that I commented on is on the M&A side where we will look to improve the positions, both on the component side in the commercial business as well as continuing that to build on that engineering capability in aerospace and defense.

Mike Crawford -- B. Riley FBR -- Analyst

Okay. And then just on the defense side, as you're looking to -- in the early engagement opportunity in addition to agile radars, are there any other key programs of record that you're not generating much revenue from today but could be important in the next few years?

Thomas T. Edman -- President and Chief Executive Officer

Absolutely. The way I would think about is any -- when you have a program, whether it's retrofit or new program and weather incorporating and active electronically scanned ray, that's where you see opportunities. So going forward, one example would be of course the F-35 program build-out would be an example. I have talked in the past about LTAMDS and the Low Tier Air and Missile Defense System going in place, that's an opportunity, but then you can even go back and look at some of the legacy patriot missile programs and there if -- their upgrades occurring there. If you look at our submarine fleet, we are looking at an upgrade there as well as the part of the fleet is still really analog and needs to be digitalize. So opportunity is there. So very broad, Mike and will continue every quarter to comment on those programs where we really saw the bigger wins, but easy way to think about it is that depth of capability that we have is mainly focused on where you're going to see and ray or a radar opportunity whether that's space, land-based, ocean-based that's where we're going to see the bigger opportunities. Though we will continue to serve as a broad range of programs.

Mike Crawford -- B. Riley FBR -- Analyst

Okay, thank you. And then last question just relates to the commercial portion of what had been the Anaren base so you took this non-cash goodwill charge and number of years after the acquisition. Today, does that in any way diminish your thoughts about what that acquisition brought you or your satisfaction with the acquisition or change anything else going forward?

Thomas T. Edman -- President and Chief Executive Officer

So, yeah its -- as you know the art of allocating goodwill at the beginning of an acquisition is always an interesting one. We took it -- we allocated goodwill between the commercial side of the business and the aerospace and defense side of the business and of course on the commercial side of the business, we expected the Huawei business to continue and to grow frankly as for Syracuse production of components. So that's really what led to the charges, the fact that we are no longer able to export components out of Syracuse and the business development efforts while they're gaining traction are early enough, but makes it very difficult to forecast. In the meantime, on the defense side as I commented, we have continued to see great traction on the defense side. And you can see that evidence even in our program backlog, which has grown from 400 and -- let's just say $440 million to $450 million, when we acquired Anaren to about $625 million today, up to $647 million last quarter. So tremendous traction that they've helped to deliver to TTM as an organization on the aerospace and defense side. So long way of saying I am as excited about the business today as I was then if not more, but we have a goodwill allocation you see that we needed to take care of in this quarter.

Mike Crawford -- B. Riley FBR -- Analyst

Great, thank you very much.

Thomas T. Edman -- President and Chief Executive Officer

Sure thing. Thank you.

Operator

And we'll take our next question from Woo Jin Ho with Bloomberg Intelligence.

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

Great, thank you for taking my questions. Tom just want to dig in a little bit on the automotive piece, it looks like on a pro forma basis you're approaching a quarterly revenue level that's close to 1Q '19, so it's a very nice rebound there. I understand the European potential headwinds ahead of us pandemic risks. I mean, what do you think this business can go if into fiscal 2021?

Thomas T. Edman -- President and Chief Executive Officer

Yeah, this is the big question, isn't it? I -- again let's just say that this year is all about getting back to that level Woo Jin, really getting -- bringing it back to -- if we in Q4 can bring this business back to what I would call 2019 levels, right. Then the go forward for us is going to be all about what we've traditionally talked about which is electronics content, taking the printed circuit board content in a vehicle, up from today, it's somewhere around $85 in PCB content. But that's up from about, in the mid-70s in 2018. So in two years time, continuing to improve that electronics content as vehicles, as EVs come into play and EVs looking at $150 plus in terms of PCB content. And then with the ADAS impact also helping to move that number upward. So, again, what I'd hope to see is that we're going to see unit volume stabilize, consumer demand come back to the extent that that happens, and then we have a great -- we're going to be able to return to really a very positive effort to improve PCB count and that's driven by electronics content in vehicles. So, the million-dollar question is, unit volume, how quickly does that move beyond the levels of Q4 and what really happens as we look at consumer demand into next year.

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

Okay, let me ask the question in a different fashion then. So that's more of a demand unit type of answer, how should we think about your design pipeline over the next couple of -- toward...

Thomas T. Edman -- President and Chief Executive Officer

Yeah...

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

Pipeline visibility. So we could still frame your auto business in the 2021, 2022 time timeframe.

Thomas T. Edman -- President and Chief Executive Officer

So, yes. So that's a great point. Just to bring everyone up to speed in our most recent -- in this last quarter we won about 40 designs lifetime program value of about $170 million. If you gone back to last year about this time, we were about the same level, but if you think about last year in total, as that program value was -- is roughly -- was roughly think about it as slightly less than that $170 million that we won in this quarter. So, what that means is, the -- or what I take that to mean is that our customers are continuing to have enough confidence that they are placing new automotive designs work with us. Does that $170 million in this last quarter will translate -- that translates in the business that will roll out starting next year and in the following year but represents very good sound level of design wins. If you step back quarter, we had -- in the second quarter about 43 designs won in the second quarter program value of $203 million. So you can see relatively constant in terms of program wins but feeding into much more confidence that programs are moving forward and that we will see those revenues occur in the upcoming years. So it gives a good level of confidence to TTM that we're in good shape here.

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

Got it. And then my follow-on question on the networking side and you talked about the China Phase 3 and 5G build-out, any commentary around the visibility into the U.S. build out going into '21? And any comments around the wide networking piece? It looks like that, you commented that pulled in a little bit into the third quarter, and how are you feeling about over the next couple of quarters, please? Thank you.

Thomas T. Edman -- President and Chief Executive Officer

Yes. So on the telecom side, in the U.S., I think again I won't predict election results, but I think who -- in either case, we're looking at the infrastructure spending. There if you back up and look at the big drivers around 5G, there is the commercial driver and then there is increasingly now a defense need to have a proper 5G infrastructure. And so the government is clearly concerned. it's a high priority if you increasingly vocal discussions about this need -- this requirement coming from the defense department and that translates into momentum. So, I would expect that to the extent there is an infrastructure bill that 5G will be part of that, and even if there isn't something coming out of Congress that 5G will be a priority from the U.S. government standpoint. Now that has to translate to the service providers and their momentum, but I think it's the right kind of backdrop to encourage the service providers to spend in this area and they certainly, as you've all seen, are advertising it, they're advertising their initial spend and to the extent of that gains traction, I think we're to see a strong move in the U.S.

On the networking side, just -- I think we -- from a TTM perspective, we've seen this market move around, but it's remained relatively constant and a lot of that I have attributed to wait, sort of, a wait and see and an allocation of spending to 5G and put in 5G in place before layering networking structures on top of 5G. We continue -- I think, in Q4, we're looking at potentially a little bit of weakness compared to Q3 on the networking side, but it's relatively small in terms of variance. And I really would expect the improvement in networking to occur after that telecom -- the 5G infrastructure has been laid, that's when we are really going to -- we should start to see momentum again in networking in a stronger way.

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

Great, thank you very much.

Thomas T. Edman -- President and Chief Executive Officer

Thank you.

Operator

This concludes today's question-and-answer session. I will now turn it back to Tom Edman for closing remarks.

Thomas T. Edman -- President and Chief Executive Officer

Thank you. Yeah, I'd just like to close by summarizing some of the points I made earlier. First, we delivered revenues and earnings above the guided range despite COVID-19 related challenges that allowed us to demonstrate our operational excellence, second, our end market diversification has allowed the continuing operations to grow despite weakness in a couple of sub-segments, and third, we generated very strong cash flow, received the remaining proceeds from the sale of the Mobility unit divestiture and repaid our term loan, a portion of our -- good portion of our term loan. As a result, we're able to drive our leverage to 1.6 times. So in closing, I would like to thank our employees, our customers, and you, our investors for your continued support and your support for TTM as we go forward. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Sameer Desai -- Senior Director, Corporate Development & Investor Relations

Thomas T. Edman -- President and Chief Executive Officer

Todd B. Schull -- Executive Vice President and Chief Financial Officer

Michael Cikos -- Needham & Company -- Analyst

Srini Pajjuri -- SMBC Nikko Securities America -- Analyst

Alvin Park -- Stifel Nicolaus -- Analyst

Mike Crawford -- B. Riley FBR -- Analyst

Woo Jin Ho -- Bloomberg Intelligence -- Analyst

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