TTM Technologies, Inc. — Form 10-Q Summary
Reporting period: First quarter ended April 4, 2022; comparisons are with the quarter ended March 29, 2021. Financial statements are unaudited. Unless indicated otherwise, amounts below are in U.S. dollars.
Business context and results
TTM manufactures printed circuit boards (PCBs), backplane assemblies, and radio-frequency and specialty components for markets including aerospace and defense, automotive, data center computing, medical/industrial, and networking/communications.
| Metric | Q1 2022 | Q1 2021 | Change / comment |
|---|---|---|---|
| Net sales | $581.3 million | $526.4 million | Up 10.4% |
| Gross profit / margin | $90.9 million / 15.6% | $81.6 million / 15.5% | Margin up 0.1 percentage point |
| Operating income / margin | $25.9 million / 4.5% | $19.8 million / 3.8% | Higher operating income and margin |
| Net income (loss) | $17.2 million | $(3.2) million | EPS $0.17 versus $(0.03) |
| Operating cash flow | $36.0 million | $41.1 million | Down $5.2 million, primarily from higher working-capital investment |
| Capital expenditures and other asset purchases | $23.4 million | $21.8 million | Operating cash flow less these purchases was approximately $12.6 million |
Financial position and liquidity
- Cash and cash equivalents were $519.1 million at April 4, 2022, including $186.3 million held by foreign subsidiaries. Cash declined $18.6 million during the quarter.
- Debt principal outstanding was $935.9 million: $500.0 million of 4.00% senior notes due 2029, a $405.9 million term loan due 2024, and $30.0 million under the Asia ABL. Debt net of discount and issuance costs was $928.2 million. TTM reported compliance with debt covenants.
- Financing cash outflow was $31.1 million, mainly reflecting $30.2 million of share repurchases. Investing cash outflow was $23.4 million.
- Current assets were $1.434 billion and current liabilities were $586.6 million. Accounts receivable was $412.4 million and contract assets were $318.7 million.
Material changes and management commentary
- PCB sales rose 10.8% to $566.1 million, supported by higher demand in most commercial end markets, a 7.6% increase in shipment volume, and a 3.9% increase in average price per square foot. Aerospace and defense demand was weaker amid commercial aerospace softness and North American production challenges.
- RF and Specialty Components sales increased 19.7% to $15.2 million, primarily on stronger networking/communications demand. PCB segment operating income declined to $56.5 million from $57.2 million; RF and Specialty Components operating income increased to $5.8 million from $3.9 million.
- Overall gross margin was slightly higher year over year. PCB segment gross margin fell to 14.7% from 15.7%, reflecting North American labor and production challenges; management said pricing actions and manufacturing efficiencies helped offset material cost increases. RF and Specialty Components gross margin rose to 57.0% from 47.5%.
- Net income improved in part because Q1 2021 included a $15.2 million loss on extinguishment of debt. Q1 2022 also included a $2.0 million discrete tax benefit, mainly related to renewal of preferential tax status for two China subsidiaries and stock-based compensation tax benefits.
- COVID-related lockdowns in China, North American absences and labor shortages, supply constraints, and inflation continued to affect operations. Management said it was pursuing supplier diversification, efficiency measures, and customer price adjustments.
Outlook, risks, and unusual items
- Management expects 2022 capital expenditures of $110 million to $130 million and believes cash from operations, cash on hand, and available debt financing will meet anticipated needs for the next 12 months. The filing provides no specific revenue or earnings guidance.
- TTM announced plans for a new automated PCB facility in Penang, Malaysia, with expected capital spending of $130 million spread from 2022 through 2025; construction was expected to begin later in 2022.
- On April 18, 2022, TTM agreed to acquire Telephonics Corporation and ISC Farmingdale Corp. for $330 million in cash, subject to customary adjustments and closing conditions; closing was expected in Q2 2022. This is a subsequent event, not a completed transaction as of the reporting date.
- The $400 million interest-rate swap was due to expire June 1, 2022; management did not expect to enter a replacement arrangement. The filing estimates that, after the swap expires, a 100-basis-point increase in variable rates would increase annual interest costs by $4.4 million, based on debt outstanding at April 4.
- Key disclosed risks include supply-chain and raw-material cost pressures, labor availability and wage inflation, COVID-related disruption, customer concentration, capacity utilization, international and geopolitical exposure, and substantial debt. One customer accounted for approximately 10% of quarterly sales; the ten largest customers collectively accounted for 45%.
- Known legal matters were described as ordinary-course matters with no material accruals; the company said outcomes are difficult to predict and an adverse outcome could be material in a particular period. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm the status, closing conditions, funding, and expected integration costs of the $330 million Telephonics and ISC Farmingdale acquisition.
- Assess the expected effect of the June 2022 swap expiry on borrowing costs, and review refinancing and covenant headroom for debt due in 2024.
- Track whether labor, supply constraints, inflation, and North American capacity utilization improve or continue to pressure PCB margins and cash conversion.
- Reconcile a commodity-hedge disclosure inconsistency: the financial-statement note lists contract quantities of 0.5–0.7 metric tonnes, while MD&A lists 500–700 metric tonnes for corresponding periods.
- Monitor completion and spending for the Penang facility, which adds to planned capital requirements alongside the acquisition and share repurchases.