TTM Technologies, Inc. - 10-Q Filing Summary
Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 2, 2007 (First Fiscal Quarter)
Business Overview: TTM is a manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving aerospace, defense, networking, and commercial markets. The quarter reflects the full impact of the October 27, 2006, acquisition of the Tyco Printed Circuit Group (PCG), which positioned TTM as the largest PCB fabricator in North America.
Key Financial Metrics
| Metric (in thousands) | Q1 2007 | Q1 2006 |
|---|---|---|
| Net Sales | $176,897 | $72,688 |
| Gross Profit | $34,721 | $20,203 |
| Gross Margin | 19.6% | 27.8% |
| Operating Income | $17,794 | $12,960 |
| Net Income | $8,465 | $8,811 |
| Diluted EPS | $0.20 | $0.21 |
| Cash from Operations | $28,297 | $9,968 |
| Total Debt (Outstanding) | $150,000 | $200,000 (approx. prior to repayment) |
| Cash & Equivalents | $45,381 | $59,660 |
Material Changes vs. Prior Period
- Revenue Surge: Net sales increased 143.3% to $176.9 million, driven primarily by the inclusion of PCG facilities ($108.7 million in new sales), offset by a $4.5 million decline in legacy operations.
- Margin Compression: Gross margin decreased from 27.8% to 19.6%. This was caused by the lower-margin profile of the acquired commercial assembly business, increased material costs, and higher labor costs.
- Interest Expense: Interest expense rose significantly to $5.1 million (from $0.1 million) due to the $200 million term loan incurred to fund the PCG acquisition.
- Debt Reduction: The company repaid $50.7 million of long-term debt during the quarter, reducing total debt to $150 million.
- Segment Performance: The company now reports two segments: PCB Manufacturing (Sales: $152.2M; Op Income: $16.4M) and Commercial Assembly (Sales: $33.7M; Op Income: $2.5M).
Outlook, Risks, and Management Commentary
- Acquisition Integration: Management is actively integrating PCG, including closing the Dallas, Oregon facility (expected Q2 2007) and restructuring sales teams. Restructuring reserves of $2.2 million remain accrued.
- Debt Covenants: The company is subject to strict leverage and interest coverage ratios under its credit agreement. While currently compliant, future performance shortfalls could trigger mandatory debt repayments.
- Customer Concentration: The top 10 customers accounted for 45% of net sales in Q1 2007 (down from 60% in Q1 2006), though reliance on major OEMs remains a key risk.
- Environmental & Legal: The company faces ongoing environmental remediation obligations in Connecticut (estimated $1.0M - $1.2M) and a stayed patent infringement lawsuit (Lemelson Foundation) which management believes has meritorious defenses.
- Capital Expenditures: The 2007 capital plan is approximately $15 million to expand capacity and technology.
Investor Verification Checklist
- Debt Service Capacity: Verify the company's ability to meet the 1% annual mandatory principal repayment and excess cash flow provisions of the credit agreement.
- Margin Stabilization: Monitor whether gross margins stabilize as the integration of PCG completes and capacity utilization improves.
- Goodwill Valuation: Note that the purchase price allocation for the PCG acquisition is preliminary; further adjustments to goodwill ($133M recorded) may occur in 2007.
- Environmental Liabilities: Track the progress of the Connecticut environmental compliance plan and remediation costs to ensure they do not exceed current estimates.
- Customer Retention: Assess the retention rate of PCG's legacy customers post-acquisition to validate the revenue synergies.