TTM Technologies, Inc. - 10-Q Summary
Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 29, 2008
Business Overview: Manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving high-end commercial, aerospace, and defense markets. The company operates two reportable segments: PCB Manufacturing and Backplane Assembly.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Quarter Ended Sep 29, 2008 | Three Quarters Ended Sep 29, 2008 |
|---|---|---|
| Net Sales | $169,019 | $516,065 |
| Gross Profit | $32,146 (19.0% margin) | $106,328 (20.6% margin) |
| Operating Income | $15,505 | $58,996 |
| Net Income | $9,458 | $33,274 |
| Diluted EPS | $0.22 | $0.77 |
| Cash & Equivalents | $115,470 | N/A |
| Short-term Investments | $19,522 | N/A |
| Total Debt (Convertible Notes) | $175,000 | N/A |
| Net Working Capital | $265,949 | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 3.6% ($5.9M) for the quarter and 2.8% ($14.1M) for the three quarters compared to the prior year periods. Growth was driven by increased demand from aerospace/defense customers and a shift in production mix toward higher-priced, high-technology products, despite a ~9% decline in PCB sales volume.
- Profitability: Net income increased 15.3% for the quarter and 45.6% for the three quarters. Operating income rose due to higher pricing and improved gross margins (20.6% for the three quarters vs. 19.0% prior year), partially offset by higher repair/maintenance expenses in the quarter.
- Debt Restructuring: In May 2008, the company repaid its entire $85M senior secured term loan and issued $175M in 3.25% Convertible Senior Notes due 2015. This significantly reduced interest expense.
- Unusual Items: The company recognized $3.7M of income in the first quarter of 2008 related to a metal reclamation pricing reconciliation. Additionally, a $579k loss was recorded in the third quarter due to a money market fund (Reserve Primary Fund) suspending redemptions.
Guidance, Outlook, Risks, and Contingencies
- Liquidity & Capital Resources: The company maintains strong liquidity with $115.5M in cash and $19.5M in short-term investments. Management believes cash from operations and the convertible note proceeds are adequate for the next 12 months. Capital expenditures for 2008 are planned at approximately $15M.
- Investment Risk (Reserve Primary Fund): Approximately $19.5M is invested in the Reserve Primary Fund, which suspended redemptions due to Lehman Brothers exposure. As of October 31, 2008, the company received a partial distribution of $10.2M. The timing and full recovery of the remaining balance are uncertain.
- Market Risks: The company faces risks from the global financial crisis, potential downturns in the electronics industry, and competition from lower-cost Asian manufacturers. Customer concentration is high, with the top 10 customers accounting for 51% of sales in the quarter.
- Environmental & Legal: The company has ongoing environmental remediation obligations in Connecticut (estimated at $0.9M) and compliance commitments with the EPA and Connecticut DEP regarding water recycling systems. Failure to meet these could result in exclusion from federal contracts.
Investor Verification Checklist
- Recovery of Frozen Funds: Verify the status and expected timeline for the full redemption of the $19.5M investment in the Reserve Primary Fund.
- Customer Concentration: Assess the stability of the top 10 customers (51% of sales) and the impact of potential insolvency or order reductions in the current economic climate.
- Convertible Note Dilution: Review the terms of the $175M Convertible Notes and the associated Call Spread Transaction to understand potential future equity dilution.
- Environmental Liabilities: Confirm progress on the Connecticut water recycling system capital improvements and the status of EPA compliance plans.
- Margin Sustainability: Evaluate whether the improved gross margins (driven by high-tech mix and pricing) are sustainable given potential industry downturns and raw material cost fluctuations.