TTM Technologies, Inc. - 10-Q Summary
Business Context and Reporting Period
TTM Technologies, Inc. is a provider of time-critical, multilayer printed circuit boards serving high-end commercial markets including networking/communications, high-end computing, and industrial/medical sectors. This report covers the quarterly period ended September 29, 2003, and the three fiscal quarters ended on that date. The results include the operations of Advanced Circuits, Inc., acquired in December 2002.
Key Financial Metrics
| Metric (in thousands) | Q3 2003 | Q3 2002 | YTD 3Q 2003 | YTD 3Q 2002 |
|---|---|---|---|---|
| Net Sales | $45,327 | $20,557 | $126,008 | $67,578 |
| Gross Profit | $9,456 | $3,101 | $20,428 | $7,888 |
| Gross Margin | 20.9% | 15.1% | 16.2% | 11.7% |
| Operating Income | $3,712 | $(446) | $3,111 | $(2,510) |
| Net Income | $2,505 | $(369) | $2,787 | $(1,931) |
| EPS (Diluted) | $0.06 | $(0.01) | $0.07 | $(0.05) |
| Cash & Equivalents | $31,314 | $18,879 | $31,314 | $24,490 |
| Working Capital | $45,566 | $40,405 | $45,566 | $40,405 |
| Long-Term Debt | $5,556 | $7,778 | $5,556 | $7,778 |
Note: YTD figures represent the three quarters ended September 29, 2003, and September 30, 2002.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 120.5% in Q3 and 86.5% YTD compared to the prior year. This growth is primarily attributed to the acquisition of Advanced Circuits, which accounted for over half of Q3 sales, alongside organic volume growth.
- Profitability: The company returned to profitability, reporting net income of $2.5 million in Q3 compared to a loss of $0.4 million in the prior year. Operating income improved from a loss of $0.4 million to $3.7 million in Q3.
- Margin Expansion: Gross margins improved significantly (from 15.1% to 20.9% in Q3) due to better absorption of manufacturing overhead, labor efficiency, and a shift in sales mix toward higher layer-count boards.
- Customer Concentration: Concentration increased significantly. The top 10 customers accounted for 64% of net sales in Q3 2003, compared to 40% in Q3 2002.
- Extraordinary Gains: The company recorded an extraordinary gain of $0.2 million in Q3 and $1.0 million YTD related to purchase accounting adjustments for the Advanced Circuits acquisition.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes cash from operations, available cash ($31.3 million), and the revolving credit facility ($15.8 million available) are sufficient to meet needs for the next 12 months.
- Debt Structure: The senior credit facility was amended in April 2003. The term loan ($10 million) is payable in quarterly installments. Interest rates are floating (LIBOR + 1.5% to 2.5%).
- Restructuring: A $0.2 million restructuring charge was taken in Q1 2003 for severance at the Redmond facility. The Burlington facility remains held for sale.
- Risk Factors:
- Customer Dependence: Heavy reliance on a small number of customers (top 10 = 64% of sales) creates vulnerability to order cancellations or insolvency.
- Competition: Intense competition from Asian manufacturers with lower production costs could pressure pricing and margins.
- Market Volatility: The electronics industry is cyclical; demand fluctuations and seasonality (typically lower in Q2/Q3) impact results.
- Acquisition Integration: Risks associated with integrating Advanced Circuits and realizing synergies.
Investor Verification Checklist
- Verify the sustainability of the 20.9% gross margin given the shift to higher layer-count boards and potential price competition from Asia.
- Monitor the concentration risk associated with the top 10 customers representing 64% of sales.
- Review the status of the Burlington facility held for sale and potential future impairment charges.
- Assess the impact of the floating interest rate on the $10 million term loan if LIBOR rates rise.
- Confirm the realization of deferred tax assets ($15.2 million net) given the company's recent history of losses.