TTM Technologies, Inc. — 2021 Third-Quarter Form 10-Q
Business context and period: The unaudited quarter ended September 27, 2021; year-to-date figures cover the three quarters ended that date. TTM manufactures printed circuit boards (PCBs), backplane assemblies, and radio-frequency and specialty components for markets including aerospace and defense, automotive, data-center computing, and communications. Results are for continuing operations unless stated otherwise; the Mobility business was sold in April 2020 and is reported as discontinued operations.
Financial performance and position
| Metric | Quarter | Three quarters |
|---|---|---|
| Net sales | $556.8 million, up 8.4% year over year | $1,650.6 million, up 4.4% |
| Gross profit / margin | $93.2 million / 16.7%, versus $89.3 million / 17.4% | $274.7 million / 16.6%, versus $271.1 million / 17.1% |
| Operating income | $32.2 million, versus a $40.3 million loss | $92.9 million, versus a $1.1 million loss |
| Net income from continuing operations | $21.0 million, or $0.19 diluted EPS; prior year loss of $61.5 million | $46.0 million, or $0.42 diluted EPS; prior year loss of $55.3 million |
| Operating cash flow | Not separately stated in the supplied filing text | $114.3 million from continuing operations, versus $192.2 million |
Cash and liquidity: Cash and cash equivalents were $529.8 million at September 27, 2021, up from $451.6 million at December 28, 2020; $174.6 million was held by foreign subsidiaries. Current assets were $1,423.3 million and current liabilities $567.4 million. Available borrowing capacity, after letters of credit, was $137.7 million under the U.S. ABL and $117.4 million under the Asia ABL.
Debt: Long-term debt, net of discount and issuance costs, was $926.9 million; principal outstanding was $935.9 million. Principal comprised $500 million of 4.0% notes due 2029, a $405.9 million term loan due 2024, and $30 million under the Asia ABL. TTM reported compliance with debt covenants. Management said available cash, operating cash flow, and borrowing sources should meet anticipated capital, debt-service, and working-capital needs for the next 12 months.
Material changes and management commentary
- Quarterly PCB sales rose 12.4%, led by automotive, data-center computing, and medical/industrial/instrumentation demand; PCB shipment volume increased 16.8%. RF and specialty component sales rose 33.4%. In the first three quarters, PCB shipment volume increased 25.8%.
- Gross margin declined year over year. Management cited unfavorable foreign exchange, higher raw-material and copper-related costs, and production and labor inefficiencies. Customer price increases and operating efficiencies helped offset cost pressures. North American PCB capacity utilization was 50% in the quarter, versus 61% a year earlier; Asia utilization was 91%, versus 63%.
- Interest expense fell, reflecting lower debt and refinancing. The company issued $500 million of 2029 notes in March, retired its remaining $375 million 2025 notes and repaid $40 million of U.S. ABL borrowings. The refinancing contributed a $15.2 million year-to-date debt-extinguishment loss.
- Year-to-date net income in 2020 included $193.9 million from discontinued operations, including a $237.3 million pre-tax gain on the Mobility sale. The 2020 quarter also included a $69.2 million goodwill impairment. These items make reported net income comparisons less representative of continuing operations.
- TTM repurchased 2.5 million shares for $35.1 million year to date; $64.9 million remained under its $100 million authorization. 2021 capital expenditures were expected to total $75 million to $95 million.
Outlook, risks, and contingencies
Management described continued supply-chain constraints, raw-material inflation, and difficulty attracting and retaining North American labor. It reported using supplier diversification, operating efficiencies, and quotation adjustments to mitigate these pressures. The company also warned of ongoing COVID-19 uncertainty and possible production disruption. Other principal risks include commodity and foreign-exchange movements, customer and end-market demand fluctuations, international operations and trade restrictions, capacity utilization, and substantial indebtedness. The $400 million interest-rate swap exposed the company to hedge-related fair-value changes; management noted LIBOR transition uncertainty. Known legal matters were not considered material based on current estimates, though an adverse outcome could materially affect a particular period. The filing provides no earnings or revenue guidance.
Investor verification priorities
- Track whether pricing and efficiency actions offset raw-material inflation, foreign-exchange effects, and labor costs, and whether gross margins recover.
- Monitor supply availability, delivery performance, and demand trends by end market, particularly automotive, aerospace and defense, and data-center computing.
- Verify cash conversion and working-capital needs; continuing-operations operating cash flow fell to $114.3 million year to date.
- Review debt service, covenant compliance, refinancing exposure, and LIBOR-to-SOFR transition arrangements.
- Assess capital spending against the $75 million to $95 million estimate and the pace of remaining share repurchases.