TTM Technologies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 28, 2020 (52 weeks); quarterly comparisons refer to the fourth quarter. Amounts are in U.S. dollars unless noted. Continuing-operations results exclude the Mobility business, which is reported as discontinued operations.
Business context
TTM manufactures printed circuit boards (PCBs), backplane assemblies, and radio-frequency (RF) components and systems. It serves aerospace and defense, automotive, computing, medical/industrial, and networking/communications markets. In 2020, TTM sold its Mobility business and began restructuring E-M Solutions, shifting its focus toward longer-cycle and higher-margin products. Following the sale, reported continuing-operations revenue was $2.105 billion; the filing cites approximately $2.0 billion in pro forma sales and approximately 16,700 employees after strategic divestitures.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $2,105.3 million | $2,133.2 million |
| Gross profit / margin | $359.0 million / 17.0% | $377.2 million / 17.7% |
| Operating income | $28.1 million | $109.6 million |
| Continuing-operations income (loss) | $(16.4) million | $31.9 million |
| Net income, including discontinued operations | $177.5 million | $41.3 million |
| Continuing-operations diluted EPS | $(0.15) | $0.30 |
| Operating cash flow from continuing operations | $247.7 million | $295.8 million |
| Capital expenditures | $72.3 million | $117.4 million |
The consolidated cash-flow statement reports $287.2 million of operating cash flow, including discontinued operations. The filing does not provide a directly comparable consolidated cash-flow figure in the MD&A discussion.
Fourth quarter: Net sales were $523.8 million versus $535.7 million in Q4 2019; gross profit was $88.0 million versus $100.2 million. Continuing-operations net income was $39.0 million versus $10.8 million, and total net income was also $39.0 million versus $25.3 million.
Liquidity and debt: Year-end cash and cash equivalents were $451.6 million, including $221.4 million held by foreign subsidiaries. Debt carrying value, net of discounts and issuance costs, was $842.9 million; principal outstanding was $850.9 million. Debt comprised $405.9 million of term loans, $375.0 million of 5.63% senior notes, and $70.0 million of ABL borrowings. The company had no current debt maturities at year-end, reported covenant compliance, and disclosed $98.7 million and $107.0 million of available capacity under its U.S. and Asia ABL facilities, respectively.
Changes versus prior periods
- FY2020 sales fell 1.3% year over year. PCB sales increased 3.3% to $1.905 billion, while E-M Solutions sales declined 31.3% to $155.4 million and RF&S Components sales declined 28.3% to $44.7 million.
- PCB growth reflected stronger aerospace and defense, medical/industrial, and computing demand. Average PCB price per square foot rose 15.2%, primarily from product mix, while shipment volume fell 10.1%.
- Gross margin declined 0.7 percentage points, and operating income fell substantially, including a $69.2 million goodwill impairment and $16.8 million of restructuring charges.
- Cash from continuing operations declined from $295.8 million to $247.7 million. Year-end cash increased, while debt carrying value fell from $1.476 billion to $842.9 million.
- Aerospace and defense rose to 36% of sales from 33%; automotive fell to 15% from 19%. One customer represented 11% of FY2020 sales; the five largest OEM customers represented 29%.
Outlook, commentary, risks, and unusual items
- Management forecast 2021 capital expenditures of $90 million to $110 million. The filing provides no specific revenue or earnings guidance and states that pandemic impacts and their duration remain uncertain.
- TTM completed the Mobility sale on April 17, 2020 for a final purchase price of $569.2 million, recognized a pretax gain of $237.3 million, and received $507.5 million of net cash proceeds. It used $400 million of proceeds to repay term debt and planned to reinvest the remaining proceeds.
- FY2020 continuing operations recorded a $29.9 million income tax benefit, mainly reflecting a $34.7 million release of uncertain tax positions, partly offset by other tax items. The Mobility sale and gain are included in discontinued operations; the sale contributed $193.9 million of after-tax discontinued-operations income.
- TTM recorded a $69.2 million RF&S Components goodwill impairment after government restrictions on sales of U.S.-designed products to certain Chinese customers, together with COVID-19 effects, reduced expected sales. The segment’s year-end goodwill was $108.0 million.
- TTM closed its Shenzhen and Shanghai E-M Solutions facilities in Q4 2020; the segment was to cease being reported in 2021. The filing cites the planned expropriation of the Shanghai facility’s land as an additional factor.
- Major risks include COVID-19 and supply-chain disruption; tariffs and geopolitical restrictions; customer concentration and cyclical demand; competition and capacity utilization; international, currency, and regulatory exposure; product quality and liability; and substantial debt. Management expects cash, operations, and available borrowing to cover anticipated needs for the next 12 months.
- The company authorized a share repurchase program of up to $100 million on February 3, 2021, after year-end. Repurchases are discretionary and not required.
Important facts for investors to verify
- How much of reported net income and EPS is attributable to the Mobility sale versus recurring continuing operations.
- Whether PCB volume, margins, and utilization improve enough to offset pressure from weaker RF&S Components and the E-M Solutions wind-down.
- Progress on reinvesting sale proceeds, debt repayment, and liquidity, including the effect of foreign-held cash and debt covenants.
- Whether government restrictions affecting RF product sales in China, COVID-19 impacts, and related goodwill assumptions change or trigger further impairment.
- Execution of the E-M Solutions restructuring, including remaining closure costs, the Shanghai land issue, and any customer or operational disruption.
- Actual 2021 capital spending and any share repurchases, compared with management’s stated plans and available cash.