TTM Technologies, Inc. - 10-Q Summary
Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 2, 2006 (Third Fiscal Quarter)
Business Overview: Manufacturer of complex printed circuit boards for sophisticated electronic equipment, serving high-end commercial markets including networking, high-end computing, and industrial/medical sectors. The company operates specialized facilities in Santa Ana, CA; Chippewa Falls, WI; and Redmond, WA.
Key Financial Metrics
| Metric (in thousands) | Q3 2006 | Q3 2005 | YTD 3Q 2006 | YTD 3Q 2005 |
|---|---|---|---|---|
| Net Sales | $75,765 | $60,979 | $225,136 | $177,078 |
| Gross Profit | $22,477 | $14,152 | $65,649 | $38,727 |
| Gross Margin | 29.7% | 23.2% | 29.2% | 21.9% |
| Operating Income | $15,026 | $5,946 | $43,537 | $17,599 |
| Net Income | $10,523 | $4,061 | $29,890 | $11,793 |
| Diluted EPS | $0.25 | $0.10 | $0.71 | $0.28 |
| Cash & Equivalents | $94,675 | $61,258 | $94,675 | $41,805 |
| Working Capital | $148,943 | $111,224 | $148,943 | $111,224 |
| Operating Cash Flow (YTD) | $32,525 | $18,415 | $32,525 | $18,415 |
Note: All figures in thousands except per share data and percentages.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 24.2% in Q3 2006 compared to Q3 2005, driven by an 8% increase in volume and a 14% increase in pricing, particularly in quick-turn work.
- Margin Expansion: Gross margin improved significantly from 23.2% to 29.7% due to higher pricing, greater operating efficiency, and increased absorption of fixed costs.
- Expense Management: General and administrative expenses decreased as a percentage of sales (5.0% vs 8.0%) primarily due to a $2.0 million loss contingency accrual recorded in Q3 2005 that did not recur.
- Accounting Changes: The company adopted SFAS No. 123R (Share-Based Payments) effective January 1, 2006. This resulted in a reduction of net income by $386,000 for the quarter and $945,000 for the year-to-date period due to recognized stock-based compensation expense.
Outlook, Risks, and Unusual Items
Major Acquisition (Subsequent Event)
On October 27, 2006, the company closed the acquisition of the Tyco Printed Circuit Group for approximately $225.6 million. The transaction was funded by $34.1 million of cash and new debt financing, including a $200 million senior secured term loan and a $40 million revolving credit facility. Results of the acquired business will be included in operations starting October 27, 2006.
Risk Factors
- Customer Concentration: The top 10 customers accounted for 61% of net sales in Q3 2006. The loss of a major customer would have a material adverse effect.
- Integration Risk: The recent Tyco acquisition introduces risks related to integration, retention of key employees, and realization of synergies.
- Competition: Intense competition from Asian manufacturers with lower production costs could pressure pricing and margins.
- Supply Chain: Reliance on suppliers for raw materials exposes the company to price increases and potential shortages.
Unusual Items
The Q3 2005 results included a $2.0 million loss contingency accrual related to a customer dispute, which significantly depressed operating income for that period. This item is not present in the current period.
Investor Verification Checklist
- Acquisition Integration: Verify the timeline and financial impact of integrating the Tyco Printed Circuit Group assets and nine new plants.
- Debt Covenants: Review the financial covenants (leverage ratio, interest coverage) associated with the new $240 million credit facility.
- Customer Concentration: Monitor the stability of the top 10 customers, who represent over 60% of revenue.
- Stock-Based Compensation: Assess the ongoing impact of SFAS 123R on future earnings, noting $5.0 million in unrecognized compensation costs.
- Deferred Tax Assets: Confirm the realizability of the $8.4 million net deferred tax assets, which are subject to a $2.5 million valuation allowance.