TTM Technologies, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and first three quarters ended September 28, 2020; comparative periods ended September 30, 2019. Amounts below are in millions unless noted. The filing presents the Mobility business as discontinued operations and recasts prior-period results.
Business context and results
TTM manufactures printed circuit boards (PCBs), backplane assemblies, and RF and microwave components. In April 2020, it completed the sale of its Mobility business unit, shifting its continuing business mix. Reportable segments are PCB, RF&S Components, and E-M Solutions.
| Metric | Q3 2020 | Q3 2019 | First 3 quarters 2020 | First 3 quarters 2019 |
|---|---|---|---|---|
| Net sales | $513.6 | $534.2 | $1,581.5 | $1,597.5 |
| Gross profit / margin | $89.3 / 17.4% | $85.3 / 16.0% | $271.1 / 17.1% | $276.9 / 17.3% |
| Operating income (loss) | $(40.3) | $21.1 | $(1.1) | $80.2 |
| Continuing-operations net income (loss) | $(61.5) | $2.4 | $(55.3) | $21.1 |
| Net income (loss), including discontinued operations | $(41.5) | $15.9 | $138.6 | $16.0 |
| Diluted earnings (loss) per share | $(0.39) | $0.15 | $1.31 | $0.15 |
Q3 PCB sales rose 2.4% to $463.7 million, while E-M Solutions sales fell 43.6% to $38.2 million and RF&S Components sales fell 13.9% to $11.7 million. For the first three quarters, PCB sales increased 4.6%, offset by declines in E-M Solutions and RF&S Components. Total sales declined 3.9% in Q3 and 1.0% year to date.
Cash flow, debt and liquidity
- Cash, cash equivalents and restricted cash totaled $663.3 million at September 28, 2020, including $250.0 million restricted for repayment of the December 2020 convertible notes. Unrestricted cash and equivalents were $413.3 million.
- Consolidated operating cash flow was $231.7 million for the first three quarters, versus $181.8 million a year earlier; this included $39.5 million from discontinued operations. Management reported continuing-operations operating cash flow of $192.2 million, up from $169.6 million.
- Investing cash flow was $423.0 million, including $507.5 million of net proceeds from the Mobility sale; financing cash flow was $(392.5) million, including $400.0 million of term-loan repayment. Continuing-operations capital expenditures were $74.5 million.
- Debt principal outstanding was $1,100.9 million ($1,090.0 million net of discount and issuance costs). The debt included $250.0 million of convertible notes due December 2020, $405.9 million term loan due 2024, $375.0 million senior notes due 2025, and $70.0 million of ABL borrowings.
- The company said it was compliant with debt covenants and believed available liquidity and operating cash flow would meet working-capital needs for at least 12 months. It expected 2020 capital expenditures of approximately $100 million.
Material changes, outlook and risks
- Mobility divestiture: The business was sold for final consideration of $569.2 million, excluding approximately $83 million of divested-business receivables. TTM recorded a $237.3 million pretax gain. Year-to-date discontinued-operations income was $193.9 million after tax; it materially drove reported total net income.
- Goodwill impairment: TTM recorded a $69.2 million noncash charge in RF&S Components after a permanent key-customer loss and COVID-19-related weaker results and sales. The segment reported a Q3 operating loss of $66.1 million. Further impairment could occur if forecasts or valuation assumptions weaken.
- Restructuring: TTM is winding down two E-M Solutions facilities and integrating another into PCB operations. Through September 28, it had incurred $14.7 million in restructuring charges and $5.7 million in accelerated depreciation; estimated total charges were approximately $18.5 million and $8.0 million, respectively.
- Operating conditions: Management cited pandemic-related demand, supply-chain and operational uncertainty. PCB capacity utilization improved year over year, but the company cautioned that demand changes or collection problems could reduce operating cash flow. No revenue or earnings guidance is provided in the supplied filing text.
- Other notable items: TTM disclosed an immaterial correction of an $11.0 million Mobility-sale transaction-cost error in the prior quarter, with prior-period amounts revised. It also reported one customer at approximately 13% of Q3 sales and 10% of year-to-date sales. The CEO and CFO concluded disclosure controls were effective; the ERP rollout caused material changes to internal controls, including implementation of additional controls.
- Key risks include COVID-19 and broader economic uncertainty, customer concentration, competition and pricing, international and China-related exposure, foreign exchange and interest-rate risk, substantial debt and the convertible-note maturity, and potential additional asset impairment. Legal matters were described as ordinary-course; management said known loss contingencies accrued were not material, while noting adverse outcomes could have a material effect in a particular period.
Important facts for investors to verify
- Whether the $250.0 million restricted balance fully addresses the December 2020 convertible-note principal and how that maturity is settled.
- Post-divestiture revenue, margins and cash generation, especially PCB performance and the continuing decline or closure costs in E-M Solutions and RF&S Components.
- Whether the assumptions supporting RF&S Components goodwill valuation remain reasonable and whether additional impairment is likely.
- Actual restructuring and accelerated-depreciation costs versus estimates, and whether facility transitions affect customer delivery or profitability.
- Cash availability and debt covenant headroom after planned reinvestment of Mobility proceeds, capex, and the required debt repayment provisions.
- COVID-19 effects on customer demand, supply continuity, receivable collections and operating liquidity, as well as execution and control risks from the ongoing ERP implementation.