Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and two fiscal quarters ended July 2, 2001.
Business Overview: The Company provides time-critical, one-stop manufacturing services for highly complex printed circuit boards (PCBs) to original equipment manufacturers and electronic manufacturing services providers. As of July 2, 2001, the Company served approximately 585 customers.
Key Financial Metrics
| Metric (in thousands) | Q2 2001 | Q2 2000 | YTD 2001 (2 Qtrs) | YTD 2000 (2 Qtrs) |
|---|---|---|---|---|
| Net Sales | $30,666 | $46,080 | $76,668 | $88,160 |
| Gross Profit | $7,761 | $15,052 | $26,058 | $27,330 |
| Gross Margin | 25.3% | 32.7% | 34.0% | 31.0% |
| Operating Income | $3,808 | $8,742 | $16,362 | $16,083 |
| Net Income | $2,178 | $3,015 | $9,740 | $5,138 |
| Diluted EPS | $0.06 | $0.09 | $0.25 | $0.16 |
| Cash & Equivalents (End of Period) | $26,447 | $565 | $26,447 | $565 |
| Total Debt (Current + Long-term) | $39,938 | $43,312 | $39,938 | $43,312 |
| Operating Cash Flow (YTD) | $27,060 | $12,087 | $27,060 | $12,087 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales for Q2 2001 decreased 33.4% ($15.4 million) compared to Q2 2000, driven by a decline in PCB production volume. However, YTD sales only decreased 13.0% due to stronger performance in Q1.
- Margin Compression (Q2): Q2 gross margin dropped to 25.3% from 32.7% in the prior year due to fixed expenses on a smaller sales base. Conversely, YTD gross margin improved to 34.0% from 31.0%, aided by a higher mix of quick-turn and advanced technology products.
- Profitability: Despite lower Q2 sales, Net Income for the first two quarters of 2001 increased 89.6% ($9.7 million vs. $5.1 million) compared to the same period in 2000. This was primarily driven by a significant reduction in interest expense following the repayment of debt with IPO proceeds.
- Expense Reduction: Operating expenses decreased significantly due to the elimination of management fees and deferred retention bonus amortization following the September 2000 IPO. Interest expense dropped $3.1 million in Q2 and $6.1 million YTD.
- Liquidity Improvement: Cash and cash equivalents increased from $9.3 million at year-end 2000 to $26.4 million at July 2, 2001, driven by strong operating cash flow ($27.1 million YTD) and a $20.4 million decrease in accounts receivable.
Guidance, Outlook, and Risks
- Outlook: Management expects a 36% effective tax rate for fiscal 2001. The Company anticipates that cash from operations and available credit facilities will be adequate for the next 12 months.
- Seasonality: The Company historically experiences lower sales in the second and third fiscal quarters due to customer capital budgeting cycles, particularly in the high-end computing segment.
- Key Risks:
- Customer Concentration: The top 10 customers accounted for 46% of Q2 2001 sales. Loss of major customers (e.g., ATL Ultrasound, Solectron, Compaq) could significantly harm results.
- Industry Dependence: Heavy reliance on the electronics industry (Networking, High-End Computing, Industrial/Medical) exposes the Company to economic cycles and demand fluctuations.
- Competition: Intense competition from Asian manufacturers with lower production costs and established competitors (DDi, Merix, Sanmina, Tyco).
- Operational Risks: Exposure to California power outages affecting the Santa Ana facility and potential environmental liabilities.
- Accounting Changes: Adoption of SFAS 141 and 142 (effective 2002) will stop goodwill amortization but require annual impairment testing, which could impact future earnings.
Investor Verification Checklist
- Verify the sustainability of the YTD gross margin improvement (34.0%) given the Q2 decline to 25.3%.
- Monitor the aging of accounts receivable, noting the $20.4 million decrease in the YTD period which significantly boosted operating cash flow.
- Assess the impact of the top 10 customers (46% of sales) on future revenue stability.
- Review the status of the California energy crisis and its potential impact on the Santa Ana facility's operations.
- Confirm the Company's compliance with debt covenants under the amended senior credit facility ($45M term loan, $25M revolver).