TTM Technologies, Inc. - Q1 2011 10-Q Summary
Business Context and Reporting Period
TTM Technologies, Inc. is a global provider of printed circuit board (PCB) products and backplane assemblies. This report covers the quarterly period ended March 28, 2011. The quarter consisted of 87 days. The company operates in two segments: North America and Asia Pacific. The Asia Pacific segment, acquired in April 2010, is now fully consolidated in the current period, significantly impacting year-over-year comparisons.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Sales | $342.8 million | $138.2 million |
| Gross Profit | $81.9 million | $27.0 million |
| Gross Margin | 23.9% | 19.5% |
| Operating Income | $45.7 million | $9.9 million |
| Net Income (Total) | $29.1 million | $4.5 million |
| Net Income (Attributable to TTM) | $27.1 million | $4.5 million |
| Diluted EPS | $0.33 | $0.10 |
| Cash and Equivalents | $202.3 million | $102.9 million |
| Long-Term Debt (Net) | $260.6 million | $313.0 million |
| Convertible Senior Notes (Net) | $146.7 million | $145.3 million |
| Operating Cash Flow | $37.1 million | $6.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by $204.6 million (148%) primarily due to the inclusion of the Asia Pacific segment (PCB Subsidiaries) acquired in April 2010. North America sales grew modestly by 3.0%.
- Profitability: Gross margin expanded to 23.9% from 19.5%, driven by higher margins in the Asia Pacific segment and facility closures in North America.
- Expenses: Operating expenses increased significantly due to the acquisition, including a $3.4 million rise in intangible amortization. However, as a percentage of sales, selling and marketing expenses decreased.
- Tax Rate: The effective tax rate decreased to 27.9% from 36.6%, attributed to a higher proportion of earnings generated in lower-tax jurisdictions (China/Hong Kong) via the Asia Pacific segment.
- Debt Reduction: The company repaid $17.5 million of long-term debt and $14.6 million of revolving loans during the quarter.
Outlook, Risks, and Contingencies
- Capital Expenditures: The 2011 capital expenditure plan is approximately $136.0 million, with $115.0 million allocated to the Asia Pacific segment to expand capacity.
- Liquidity: Management believes cash from operations and available borrowings ($87.5 million revolving loan and $65.0 million factoring facility) are adequate for the next 12 months.
- Convertible Notes: $175 million in 3.25% Convertible Senior Notes are outstanding, maturing in May 2015. Conversion criteria were not met as of March 28, 2011.
- Subsequent Event: On May 4, 2011, the company entered a letter of intent to acquire the remaining 20% interest in a subsidiary for approximately $21.1 million and exchange its 10% stake in a Finnish company for shares of the parent company.
- Risks: Key risks include customer concentration (top 10 customers accounted for 46% of sales), foreign currency fluctuations, and the impact of seasonal demand in the consumer electronics sector.
Investor Verification Checklist
- Verify the sustainability of the 23.9% gross margin, specifically the contribution from the Asia Pacific segment's product mix (HDI PCBs).
- Monitor the $348 million term loan maturity in November 2013 and the company's refinancing strategy.
- Assess the impact of the subsequent event regarding the acquisition of the remaining 20% stake in the subsidiary and the exchange of the Oulu stake.
- Review customer concentration risks, noting that one customer accounted for 13% of sales in Q1 2011.
- Track the execution of the $136 million capital expenditure plan and its effect on future capacity utilization.