Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 29, 2010 (First Quarter)
Business Overview: TTM is a manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving aerospace/defense, networking/communications, and industrial/medical markets. The company operates two segments: PCB Manufacturing and Backplane Assembly.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Sales | $138,219 | $148,997 |
| Gross Profit | $26,973 | $24,269 |
| Gross Margin | 19.5% | 16.3% |
| Operating Income | $9,868 | $5,032 |
| Net Income | $4,485 | $1,427 |
| Diluted EPS | $0.10 | $0.03 |
| Cash from Operations | $6,322 | $15,629 |
| Cash & Equivalents (End of Period) | $102,886 | $161,839 |
| Convertible Senior Notes (Net) | $141,191 | $139,882 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 7.2% ($10.8 million) year-over-year due to reduced global demand, facility closures (Redmond, WA and Los Angeles, CA), and order acceleration into Q4 2009.
- Margin Expansion: Gross margin improved from 16.3% to 19.5%. This was driven by cost savings from facility closures and better fixed cost absorption, partially offset by wind-down costs at the Hayward, CA facility.
- Profitability Surge: Net income increased 214% to $4.5 million. This significant improvement was primarily due to a $2.4 million reduction in restructuring charges (from $2.46 million in Q1 2009 to $0.05 million in Q1 2010) and higher gross margins.
- Operating Cash Flow: Cash provided by operating activities decreased 59.5% to $6.3 million, largely due to an $8.0 million increase in working capital requirements (specifically accounts receivable and inventory).
Outlook, Risks, and Unusual Items
Subsequent Event: Major Acquisition
On April 8, 2010, TTM acquired four PCB subsidiaries from Meadville Holdings. The transaction involved:
- Consideration: $114.0 million in cash, 36,334 shares of TTM common stock, and the assumption of $416.6 million in debt.
- Impact: Approximately 46% of TTM's outstanding common stock will be held by Meadville and its shareholders. The acquisition is expected to create a leading global PCB company with expanded geographic and end-market diversification.
- Restricted Cash: $120 million of cash held as of March 29, 2010, was restricted specifically for this acquisition.
Restructuring and Impairment
- Restructuring: $0.05 million in charges recorded for Q1 2010 related to the Hayward, CA facility closure. An additional $0.4 million in contract termination costs is expected in Q2 2010.
- Impairment: A $0.5 million impairment charge was recorded for the Dallas, OR facility (held for sale) due to depressed real estate market conditions.
Risks and Contingencies
- Customer Concentration: The 10 largest OEM customers accounted for 52% of net sales in Q1 2010.
- Environmental Liabilities: The company estimates $0.8 million in remediation costs over the next 12-84 months for Connecticut and Washington sites. Additional capital improvements of $0.4 million are required for Connecticut DEP compliance.
- Debt: The company has $175 million in 3.25% Convertible Senior Notes due 2015. Conversion criteria were not met as of March 29, 2010.
Investor Verification Checklist
- Acquisition Integration: Verify the final purchase price allocation and the impact of the Meadville acquisition on future debt service and dilution.
- Working Capital Trends: Monitor the continued increase in accounts receivable and inventory, which significantly reduced operating cash flow in Q1.
- Facility Closures: Confirm the completion of the Hayward, CA facility closure and the associated $0.4 million lease termination costs in Q2.
- Convertible Notes: Track stock price performance relative to the conversion price ($18.15 effective price via hedge) to assess potential dilution or cash conversion scenarios.
- Environmental Compliance: Verify the timeline and cost for the remaining $0.4 million in Connecticut DEP capital improvements.