TTM Technologies, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended January 1, 2018 (52 weeks). The prior year ended January 2, 2017 and contained 53 weeks, including an estimated $29.2 million of additional revenue and $1.1 million of additional operating income. Fiscal 2017 Q4 figures are included below; this is an annual filing, not a standalone quarterly report.
Business context and results
TTM is a global manufacturer of printed circuit boards (PCBs) and electro-mechanical solutions, operating PCB and E-M Solutions segments with 25 facilities in North America and China. It reported approximately 29,000 employees and served about 2,000 customers.
| Metric | FY 2017 | FY 2016 | Change / context |
|---|---|---|---|
| Net sales | $2,658.6 million | $2,533.4 million | Up 4.9% |
| Gross profit / margin | $429.6 million / 16.2% | $423.6 million / 16.7% | Profit up 1.4%; margin down 0.5 percentage points |
| Operating income / margin | $212.8 million / 8.0% | $173.5 million / 6.8% | Up 22.7% |
| Net income attributable to TTM shareholders | $124.2 million | $34.9 million | Basic EPS $1.22; diluted EPS $1.04, versus $0.35 and $0.34 |
| Adjusted EBITDA | $388.6 million | $395.4 million | Down 1.7%; non-GAAP measure |
| Cash from operating activities | $332.8 million | $298.3 million | Up $34.4 million |
PCB sales excluding inter-segment sales increased 4.9%, primarily from cellular phone, computing and aerospace and defense demand; networking/communications demand declined. PCB shipments were essentially flat, while average selling price rose 4.9%, mainly reflecting more complex cellular products. E-M Solutions sales rose 5.8%, mainly on automotive demand. PCB gross margin declined to 17.2% from 17.7%; E-M Solutions gross margin declined to 8.1% from 9.1%.
In Q4 2017, sales were $739.3 million versus $706.5 million in Q4 2016; net income was $49.3 million versus a $1.8 million loss. The prior-year quarter included an extra fiscal week and a $47.8 million debt-extinguishment loss.
Liquidity, debt and capital
- At year-end, cash and cash equivalents were $409.3 million, including $294.2 million held by foreign subsidiaries. Working capital was $501.0 million, up from $323.8 million.
- Net cash used in investing was $124.1 million; purchases of property, plant and equipment were $151.3 million. Management’s FY 2018 capital expenditure plan was $150–$170 million.
- Year-end debt principal was approximately $1.023 billion, compared with $1.062 billion a year earlier; the balance-sheet carrying amount, net of discount and issuance costs, was $980.1 million. Debt included $250 million of 1.75% convertible notes due 2020, $349.1 million of term loans due 2024, $375 million of 5.63% senior notes due 2025, and $47 million drawn under asset-based facilities.
- Available borrowing capacity, after outstanding letters of credit, was $175.4 million under the U.S. ABL and $76.9 million under the Asia ABL. The company reported compliance with debt covenants. Approximately 61.3% of long-term debt was fixed-rate; management estimated that a 100-basis-point change in variable rates would alter annual interest cost by $4.0 million.
Material developments, outlook and risks
- Anaren acquisition: TTM agreed to acquire Anaren for $775 million in cash, subject to customary adjustments, and expected completion in the first half of 2018. The planned financing included a $600 million incremental term loan plus cash on hand. HSR waiting-period termination had been received, but CFIUS approval remained outstanding as of the filing. Failure to close could entail costs and, in specified circumstances, a $31 million termination fee; integration and synergy realization are uncertain.
- Revenue recognition: Adoption of the new customer-contract revenue standard in FY 2018 was expected to change recognition from shipment-based point-in-time recognition to recognition over time. TTM estimated a $30–$40 million increase in retained earnings and $250–$270 million of contract assets for 2017 under the transition method; the filing says the accounting was not yet complete.
- Demand indicators: Backlog was $481.9 million at January 1, 2018, versus $405.3 million at FY 2016 year-end; substantially all was expected to convert to sales in Q1 2018. The company noted seasonal strength in the third and fourth quarters and typically lower first-quarter activity around Chinese New Year.
- Significant exposures: Apple represented 20% of FY 2017 sales, and the five largest OEM customers represented 37%. TTM recorded a $22.8 million foreign-exchange loss, primarily from RMB appreciation. Other risks include pricing and raw-material pressure, customer demand volatility, variable-rate debt, labor and capacity utilization, and reliance on international operations.
- Environmental and tax matters: Some China facilities were not yet fully compliant with recently adopted environmental regulations; remediation plans and related investment were underway. The Tax Cuts and Jobs Act accounting remained provisional; TTM remeasured deferred tax items for the lower U.S. tax rate with no net tax expense or benefit because of an offsetting valuation-allowance reduction.
- Management stated cash, operating cash generation and available borrowing were expected to meet anticipated capital, debt-service and working-capital needs for the next 12 months. The company did not provide specific FY 2018 revenue or earnings guidance in the provided filing text.
Important facts for investors to verify
- Whether the Anaren acquisition closed, its final purchase price and financing, and realized integration benefits.
- How the revenue-recognition transition affected reported revenue, contract assets, retained earnings and subsequent cash conversion.
- Whether sales growth translates into sustained margin improvement, particularly given FY 2017 gross-margin compression and lower Adjusted EBITDA.
- Debt levels, variable-rate exposure, refinancing needs and the potential dilution or cash settlement associated with the convertible notes.
- Customer concentration, especially Apple’s 20% sales share, and the durability of backlog conversion and end-market demand.
- Progress and costs of China environmental compliance, and any finalized Tax Act accounting adjustments.