TTM Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended October 2, 2023; year-to-date figures cover the three quarters ended October 2, 2023. Comparisons are with the corresponding periods ended October 3, 2022. Amounts below are in millions of dollars unless stated otherwise.
Business context and performance
TTM manufactures printed circuit boards (PCBs), RF and specialty components, and mission systems for markets including aerospace and defense, data center computing, automotive, medical/industrial/instrumentation, and networking. The company reported two segments: PCB and RF&S Components.
| Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Net sales | $572.6 | $671.1 | $1,663.5 | $1,877.9 |
| Gross profit | $113.3 | $128.6 | $297.9 | $336.6 |
| Gross margin | 19.8% | 19.2% | 17.9% | 17.9% |
| Operating income (loss) | $(10.2) | $49.8 | $7.7 | $112.8 |
| Net income (loss) | $(37.1) | $43.5 | $(36.1) | $88.6 |
| Diluted EPS | $(0.36) | $0.42 | $(0.35) | $0.85 |
Q3 revenue fell 14.7% year over year. PCB sales declined 14.2% to $563.7 million, while RF&S Components sales fell 36.0% to $8.9 million. Aerospace and defense was the largest end market, at 45% of Q3 sales. PCB gross margin improved to 21.1% in Q3, while RF&S Components gross margin decreased to 56.4%.
Cash flow, balance sheet, and debt
- YTD operating cash flow was $139.8 million, down from $195.3 million. Investing cash outflow was $46.1 million; financing cash outflow was $87.9 million. Cash increased $5.6 million to $408.3 million.
- Capital expenditures and other asset purchases used $114.2 million of cash YTD. The company received $61.8 million from the Shanghai E-MS property sale and $6.0 million from the sale of its Shanghai Backplane Assembly subsidiary.
- At October 2, cash was $408.3 million, current assets $1,353.2 million, current liabilities $688.3 million, and total assets $3,266.5 million. Approximately $198.3 million of cash was held by foreign subsidiaries.
- Debt carrying value, net of discount and issuance costs, was $867.4 million: $500.0 million principal of 4.00% Senior Notes due 2029, $349.1 million principal of floating-rate Term Loan due 2030, and $30.0 million under the Asia ABL. The company reported covenant compliance.
- Available borrowing capacity, net of outstanding letters of credit, was $143.8 million under the U.S. ABL and $98.0 million under the Asia ABL. Management stated that cash, operating cash generation, and available borrowing sources should meet anticipated needs for the next 12 months.
Material changes and unusual items
- Q3 included a $44.1 million non-cash goodwill impairment charge in RF&S Components. The company cited lower-than-expected results, reduced future sales forecasts, and continued segment sales declines; further impairment is possible if assumptions or forecasts change.
- YTD results also included $19.1 million of restructuring charges, $47.8 million of definite-lived intangible amortization, and a $1.2 million loss on extinguishment of debt. YTD net loss reflects these and other items; the filing does not provide a single comparable adjusted earnings figure.
- Management attributed weaker revenue mainly to soft commercial-market demand and customer inventory reductions, including weakness in networking, medical/industrial/instrumentation, and automotive. Aerospace and defense demand remained strong; data center computing and aerospace and defense partly offset declines.
- PCB capacity utilization declined year over year: Q3 Asia 46% versus 72%, and North America 38% versus 45%. Management identified lower commercial production volumes as the principal factor in Asia.
- The company refinanced its maturing 2024 term loan in May 2023 with a $350 million secured term loan due 2030. It also amended and extended its U.S. and Asia ABL facilities.
- The company repurchased approximately 1.02 million shares for $14.6 million during the quarter. Approximately $85.4 million remained under its $100 million authorization.
Outlook, commitments, and risks
- Management described aerospace and defense demand as strong, while commercial-market bookings had stabilized at a low level amid inventory reductions and weaker end demand. The filing gives no specific revenue or earnings guidance.
- 2023 capital expenditures were expected to be $200–$220 million, including approximately $115 million for the new Penang, Malaysia plant.
- A planned New York high-tech PCB facility was estimated at $100–$130 million for phase one, including campus improvements, with work anticipated to run through 2026 and groundbreaking expected in the first half of 2024. Scope, timing, and investment commitments remained subject to funding and stakeholder terms.
- The company expects $22–$28 million of 2023 costs for closing three PCB facilities in Anaheim, Santa Clara, and Hong Kong; about 80% is expected to be cash. Hong Kong and Anaheim operations had ceased, with Santa Clara expected to close by year-end.
- The remaining $6.6 million receivable from the expropriated Shanghai E-MS property was expected before December 30, 2023. The sale generated a previously recorded $51.8 million gain.
- Key disclosed risks include volatile commercial demand and low facility utilization, customer concentration, competition and pricing pressure, supply-chain and labor constraints, foreign exchange and commodity exposure, geopolitical and regulatory uncertainty, and substantial debt and floating-rate exposure. A $250 million interest-rate swap fixed part of the floating-rate exposure through April 2027; the company estimated that a 100-basis-point rate change would alter annual interest cost by $1.3 million.
- Outstanding foreign industrial-cooperation offset obligations were approximately $28.0 million, some extending through 2028. Legal matters were described as ordinary-course matters; known probable and estimable accruals were not material, though adverse outcomes could be material in a particular period.
Important facts for investors to verify
- Whether commercial demand and PCB utilization recover, and whether aerospace and defense strength continues to offset weakness elsewhere.
- Whether the RF&S Components business stabilizes and whether further goodwill impairment is required.
- Progress and total funding requirements for the Penang expansion and proposed New York facility, including any commitments not yet finalized.
- Actual restructuring cash costs, facility-transfer execution, and whether anticipated profitability benefits are achieved.
- Debt service, ABL availability, covenant compliance, and sensitivity to rates, foreign exchange, and commodity prices.
- Collection of the remaining Shanghai property-sale proceeds and the company’s ability to sustain liquidity while funding capital spending and share repurchases.