TTM Technologies, Inc. - Q1 2003 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the fiscal quarter ended March 31, 2003 (90 days). TTM Technologies, Inc. manufactures time-critical, technologically complex, multilayer printed circuit boards for the electronics industry, including high-end computing, networking, and industrial/medical sectors. The quarter includes the full results of the Advanced Circuits acquisition completed in December 2002.
Key Financial Metrics
| Metric | Q1 2003 | Q1 2002 |
|---|---|---|
| Net Sales | $39.6 million | $23.7 million |
| Gross Profit | $4.5 million (11.4% margin) | $2.6 million (10.9% margin) |
| Operating Loss | $(1.3) million | $(0.2) million |
| Net Loss | $(0.2) million | $(0.3) million |
| Operating Cash Flow | $7.8 million | $3.9 million |
| Cash and Equivalents | $26.1 million | $24.5 million (beginning) |
| Total Debt | $10.0 million | $10.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 67% to $39.6 million, driven primarily by the inclusion of Advanced Circuits, which accounted for over half of total sales. This acquisition shifted the sales mix toward High-End Computing (41.0% vs. 14.4% in Q1 2002) and Networking.
- Operating Expenses: Total operating expenses rose to $5.9 million from $2.8 million. General and administrative expenses increased significantly due to corporate governance costs, integration expenses for Advanced Circuits, and higher IT costs.
- Restructuring: The company incurred a $0.2 million restructuring charge for severance and exit costs related to the layoff of 45 employees at the Redmond, Washington facility.
- Extraordinary Gain: A $0.8 million extraordinary gain was recorded, resulting from a working capital adjustment settlement related to the Advanced Circuits acquisition. Without this gain, the net loss would have been approximately $1.0 million.
- Customer Concentration: Sales to the top 10 customers increased from 45% of net sales in Q1 2002 to 66% in Q1 2003.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes cash from operations and available credit facilities ($12.8 million available under the revolving loan as of April 30, 2003) are sufficient for the next 12 months. The credit facility was amended in April 2003 to reschedule term loan payments and establish a borrowing base.
- Industry Conditions: The electronics industry continues to face a downturn with excess capacity and price competition. The company notes that excluding the Advanced Circuits acquisition, organic sales from remaining facilities declined due to lower volume and pricing pressure.
- Risks: Key risks include high customer concentration, potential impairment of goodwill and intangible assets if earnings do not recover, and the need to record valuation allowances against deferred tax assets ($16.7 million net asset) if future taxable income is insufficient.
- Legal Proceedings: The company is a defendant in a patent infringement lawsuit filed by the Lemelson Medical, Education and Research Foundation regarding "machine vision" patents. Management believes it has meritorious defenses and does not expect a material impact.
Investor Verification Checklist
- Verify the sustainability of the 66% customer concentration and the specific impact of the top two customers (18% and 17% of sales).
- Confirm the status of the $1.4 million working capital settlement from Honeywell, which was collected subsequent to the quarter-end.
- Monitor the valuation allowance on deferred tax assets ($11.6 million) and the potential for additional charges if profitability does not improve.
- Assess the integration progress of Advanced Circuits and the ability to realize synergies to offset the increased operating expense base.
- Review the terms of the amended credit facility regarding the borrowing base and financial covenants.