TTM Technologies, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 30, 2019 (52 weeks). The filing also reports fourth-quarter results. Unless otherwise noted, financial amounts are in U.S. dollars.
Business context
TTM manufactures printed circuit boards (PCBs), radio-frequency and microwave components, and electro-mechanical solutions. It operates PCB and E-M Solutions segments, serving markets including aerospace and defense, automotive, cellular phones, computing, medical and industrial products, and networking and communications. The company reported approximately 25,700 employees and 29 specialized facilities worldwide.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $2,689.3 million | $2,847.3 million |
| Gross profit / margin | $401.7 million / 14.9% | $457.0 million / 16.1% |
| Operating income / margin | $120.1 million / 4.3% | $159.1 million / 5.6% |
| Net income | $41.3 million | $173.6 million |
| Diluted EPS | $0.39 | $1.38 |
| Adjusted EBITDA | $376.2 million | $438.8 million |
| Cash from operating activities | $311.9 million | $273.1 million |
| Capital expenditures | $141.5 million | $115.0 million |
Fourth-quarter FY2019 sales were $719.3 million, gross profit $124.5 million, income before taxes $26.4 million, net income $25.3 million, and diluted EPS $0.21. Fourth-quarter FY2018 comparatives were $711.0 million, $122.6 million, $22.6 million, $52.5 million, and $0.42, respectively.
At year-end, cash and cash equivalents were $400.2 million, working capital was $396.0 million, and total current assets and liabilities were $1,342.7 million and $946.7 million. Debt carrying value, including current maturities, was $1,475.9 million; principal outstanding was approximately $1,500.9 million. This included $250.0 million of convertible notes due December 2020, a term loan due 2024, $375.0 million of senior notes due 2025, and $70.0 million drawn on asset-based credit lines. Approximately $349.0 million of cash was held by foreign subsidiaries, primarily in China. The company reported compliance with debt covenants and believed available cash and operating cash flow would meet anticipated needs for the next 12 months.
Changes versus the prior period
- FY2019 sales fell 5.5%; PCB sales declined 6.0%, while E-M Solutions sales were broadly flat. Management attributed the decline mainly to weaker commercial end markets, partly offset by stronger aerospace and defense demand.
- PCB shipment volume declined 16.7%, partly offset by a 10.0% increase in average selling price, primarily from product mix. PCB gross margin fell to 16.3% from 17.2%; E-M Solutions gross margin fell to 7.2% from 8.0%.
- PCB capacity utilization declined to 64% in Asia and 58% in North America, versus 75% and 60% in FY2018.
- Net income fell substantially, in part because FY2018 included a large tax benefit from releasing valuation allowances. FY2019 recorded a $4.9 million tax provision, compared with an $83.8 million tax benefit in FY2018; the latter included a $121.4 million valuation-allowance release.
- Operating cash flow increased despite lower earnings, primarily because of reduced working-capital investment. Investing cash outflow was much lower than FY2018, which included the Anaren acquisition.
Outlook, risks, and unusual items
- Management expected FY2020 capital expenditures of $130–$140 million. The filing did not provide specific full-year revenue or earnings guidance.
- The filing reported that the coronavirus outbreak in China had caused extended business closures and labor shortages, and management expected a negative effect on first-quarter 2020 financial results. The duration and ultimate impact were uncertain.
- On January 19, 2020, TTM entered an agreement to sell four subsidiaries in its Mobility business for a base price of $550 million in cash, subject to customary adjustments. The agreement excluded certain receivables, expected to provide an estimated additional $110 million in cash. The filing describes an agreement, not a completed sale.
- FY2019 included $7.0 million of restructuring charges. Goodwill impairment testing identified limited valuation cushions for two reporting units—8% for Automotive and Medical/Industrial/Instrumentation and 19% for Communications and Computing—but the annual test concluded goodwill was not impaired.
- Key risks include customer concentration (Apple represented 15% of FY2019 sales; the five largest OEM customers represented 33%), exposure to China and trade tariffs, cyclical electronics demand, pricing and capacity utilization, significant debt and the 2020 convertible-note maturity, raw-material and labor availability, and product quality, environmental, and regulatory requirements. The company also cited potential LIBOR transition and foreign-exchange risks.
- KPMG issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified goodwill impairment assessment and revenue audit evidence as critical audit matters.
Key facts for investors to verify
- Whether the Mobility business sale closed, the final proceeds after adjustments, and how proceeds were used.
- The effect of China-related disruptions on 2020 production, shipments, customer orders, and margins.
- How TTM refinanced, repaid, or otherwise addressed the $250 million convertible notes due in December 2020.
- Whether commercial demand, PCB shipment volumes, and capacity utilization recovered, and whether margin pressure persisted.
- Whether the goodwill valuation cushions and deferred tax asset assumptions remained supportable as operating results developed.
- The availability and location of cash, borrowing capacity, and covenant headroom in light of debt service and planned capital spending.