TTM Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended October 3, 2022; comparisons are with the quarter ended September 27, 2021. Year-to-date figures cover the first three quarters of each fiscal year. Financial statements are unaudited. Amounts below are in USD millions unless stated otherwise.
Business context
TTM manufactures printed circuit boards (PCBs), RF components and assemblies, and engineered systems for aerospace and defense, automotive, data center, medical/industrial, and networking markets. On June 27, 2022, it acquired Gritel and ISC Farmingdale, including Telephonics, for $298.3 million in cash. Telephonics’ results were included from the acquisition date; it contributed $68.3 million of Q3 and year-to-date sales.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First three quarters 2022 | First three quarters 2021 |
|---|---|---|---|---|
| Net sales | $671.1 | $556.8 | $1,877.9 | $1,650.6 |
| Gross profit / margin | $128.6 / 19.2% | $93.2 / 16.7% | $336.6 / 17.9% | $274.7 / 16.6% |
| Operating income / margin | $49.8 / 7.4% | $32.2 / 5.8% | $112.8 / 6.0% | $92.9 / 5.6% |
| Net income | $43.5 | $21.0 | $88.6 | $46.0 |
| Diluted EPS | $0.42 | $0.19 | $0.85 | $0.42 |
| Operating cash flow | — | — | $195.3 | $114.3 |
Q3 sales rose 20.5%; year-to-date sales rose 13.8%. PCB sales increased 8.8% in Q3 and 9.9% year to date, while RF&S Components sales declined 11.2% in Q3 and increased 7.0% year to date. Management attributed PCB growth and improved margins mainly to product mix, higher pricing, and premium revenue; PCB shipment volume fell 4.3% in Q3 and was approximately unchanged year to date. Higher labor costs partly offset margin improvement.
Year-to-date investing cash outflow was $374.7 million, including the acquisition and $76.2 million of capital spending. Financing cash outflow was $21.3 million. Cash declined $202.1 million from the start of the fiscal year to $335.6 million at October 3, 2022. Accounts receivable and inventory increased versus January 3, 2022, to $480.8 million and $205.4 million, respectively.
Debt, liquidity, and capital allocation
Cash and cash equivalents were $335.6 million; debt principal was $935.9 million ($929.0 million net of discount and issuance costs), implying approximately $600.3 million of net debt on a principal basis. Debt comprised $500.0 million of 4.00% senior notes due 2029, $405.9 million of floating-rate term debt due 2024, and $30.0 million under the Asia ABL. The company reported covenant compliance and said cash, operating cash generation, and available financing should meet anticipated needs over the next 12 months. It reported $4.4 million of annual interest-cost sensitivity to a 100-basis-point change in variable rates; its $400 million interest-rate swap expired in June 2022.
Year-to-date share repurchases were $35.4 million; no shares were repurchased in Q3. The $100 million authorization was fully used, with no authorization remaining at quarter end.
Outlook, risks, and unusual items
- TTM expected fiscal 2022 capital expenditures of $100–$120 million. Its new Penang, Malaysia PCB facility was expected to begin operations in late 2023, with approximately $130 million of spending through 2025; customer deposits and long-term agreements were expected to support over 60% of planned capacity.
- Remaining performance obligations for long-term contracts were $303.0 million; approximately 64% was expected to be recognized over the next 12 months. The filing provides no specific earnings or revenue guidance.
- Management cited continuing supply constraints, inflation, labor shortages, and COVID-related disruptions, including China lockdown risk. It also highlighted potential recession and customer-demand weakness, elevated raw-material costs, foreign-exchange exposure, and higher interest rates.
- Q3 other income was $10.3 million, primarily reflecting foreign-currency gains, helping reduce net other expense to $0.6 million. Year-to-date acquisition-related professional and bank fees were $11.0 million. Prior-year year-to-date results included a $15.2 million loss on extinguishment of debt.
- Telephonics’ purchase-price allocation remained preliminary. The company reported $32.0 million of outstanding offset obligations, some extending through 2028; potential penalties were not considered estimable or probable. Management said known legal matters and accrued contingencies were not material, while noting adverse outcomes could affect results in a particular period.
- Disclosure controls were deemed effective. The company was still reviewing Telephonics’ internal controls and excluded the acquired business from its internal-control assessment under SEC transition guidance.
Most important facts for investors to verify
- Whether acquired Telephonics operations integrate as expected and whether its preliminary purchase-price allocation, including goodwill, changes materially.
- Whether operating cash flow and working-capital trends support planned capital spending, debt service, and the Penang project.
- How margin performance responds to labor inflation, capacity utilization, supply constraints, and pricing; Q3 PCB utilization was 78% in Asia and 45% in North America.
- Exposure to floating interest rates after the swap expired, including the term loan and Asia ABL, and the transition away from LIBOR.
- Execution and cash implications of the $32.0 million in offset agreements and $104.9 million of Telephonics-related purchase obligations.
- Customer concentration: the ten largest customers represented 45% of Q3 sales; aerospace and defense represented 38%.