Company Overview
TTM Technologies, Inc. (TTMI) is a leading global manufacturer of technology solutions, including mission systems, radio frequency (RF) components, RF microwave/microelectronic assemblies, and quick-turn and technologically advanced printed circuit boards (PCBs). The company has undergone a remarkable transformation over the years, evolving from a traditional PCB manufacturer to a diversified technology solutions provider, catering to a wide range of industries.
Historical Background
Founded in 1978 in Santa Ana, California, TTM Technologies started as a small PCB manufacturer based in the United States. Over the decades, the company has expanded its global footprint, with a presence in over 60 countries and a diverse customer base that includes original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers, original design manufacturers (ODMs), distributors, and government agencies.
Strategic Transformation
One of the key drivers of TTM's growth has been its strategic focus on diversifying its product portfolio and end-market exposure. In the early 2000s, the company began to shift its emphasis from commodity PCBs to more advanced, value-added products and services. This shift was driven by the recognition that commodity PCBs were becoming increasingly commoditized, leading to intense price competition and margin erosion.
To counter this trend, TTM embarked on a journey of strategic acquisitions and organic investments. In 2015, the company acquired Anaren, a leading provider of RF and microwave components and assemblies, further strengthening its capabilities in the aerospace and defense (A&D) market. This acquisition was followed by the purchase of Telephonics in 2021, a provider of highly sophisticated intelligence, surveillance, and communications solutions.
These strategic moves have transformed TTM's business model, with over 50% of its A&D revenues now generated from engineered and integrated electronic products, while PCBs contribute less than 50% of the overall A&D revenues. This diversification has not only helped to mitigate the cyclicality inherent in the PCB industry but also has enabled the company to capture a larger share of the value chain, ultimately improving its profitability and resilience.
Manufacturing Expansion
Alongside its acquisitions, TTM has also invested heavily in expanding its manufacturing capabilities. In 2024, the company announced the construction of a new state-of-the-art, highly automated PCB manufacturing facility in Penang, Malaysia, to serve its commercial end markets, such as data center computing, networking, and medical/industrial/instrumentation. This new facility is expected to help the company better meet the growing demand in these sectors and further strengthen its competitive position.
Financial Performance
TTM's financial performance has been noteworthy. In the latest reported quarter (Q3 2024), the company delivered strong results, with net sales of $616.5 million, up from $572.6 million in the same quarter of the previous year, representing a year-over-year revenue growth of 7.7%. This increase in revenue was primarily due to growth in the aerospace & defense and data center computing end markets, partially offset by declines in the automotive, medical/industrial/instrumentation end markets. Gross margin improved to 22%, compared to 20.8% in the prior-year period, driven by higher sales volumes and improved operational execution. The company's adjusted EBITDA for the quarter was $84.4 million, or 13.7% of net sales, compared to $84.1 million, or 14.7% of net sales, in the same quarter of 2023.
For the most recent fiscal year, TTM reported revenue of $2.23 billion and a net loss of $18.72 million. The company's operating cash flow for the fiscal year was $187.28 million, with free cash flow of $27.04 million.
Cash Flow and Liquidity
TTM's cash flow performance has been robust, with the company generating $65.1 million in cash flow from operations during the third quarter of 2024. Free cash flow for the quarter was $24.19 million. As of September 30, 2024, TTM had a strong balance sheet, with $469.5 million in cash and cash equivalents and a net debt to EBITDA ratio of 1.4x, well within the company's targeted range of 1.5x to 2x.
The company's liquidity position remains strong, with a debt-to-equity ratio of 0.592, a current ratio of 1.998, and a quick ratio of 1.699. TTM also has access to a $350 million asset-based revolving credit facility, of which $80 million was drawn as of the most recent quarter.
Segment Performance
TTM operates through two main reportable segments: PCB and RF & Specialty Components (RFS Components).
The PCB segment, which accounts for over 90% of TTM's total net sales, focuses on the manufacture of quick-turn and technologically advanced printed circuit boards. This segment saw a 7.6% increase in net sales in the third quarter of 2024 and an 8.0% increase in the first three quarters of 2024, compared to the same periods in the prior year. This growth was primarily driven by demand in the aerospace and defense and data center computing end markets. The segment's gross margin improved to 21.9% in Q3 2024 from 21.1% in Q3 2023, due to higher sales volume and improved operational execution.
The RFS Components segment, which focuses on the design, manufacture, and sale of radio frequency components and microwave/microelectronic assemblies, experienced a 9.4% increase in net sales in Q3 2024 but a 7.4% decrease in the first three quarters of 2024, compared to the same periods in the prior year. This was primarily due to lower demand in the networking end market. The segment's gross margin decreased to 50.4% in Q3 2024 from 56.4% in Q3 2023, primarily due to unfavorable product mix and lower sales volume.
Future Outlook
Looking ahead, TTM's management has provided guidance for the fourth quarter of 2024, projecting net sales in the range of $610 million to $650 million and non-GAAP earnings per share between $0.44 and $0.50. This guidance reflects the company's continued momentum in its A&D and data center computing end markets, as well as the ramp-up of production at its new Penang facility.
For Q4 2024, TTM expects SG&A expense to be about 9.5% of net sales and R&D to be about 1.3% of net sales. The company estimates its effective tax rate will be between 10% and 14%. Depreciation is expected to be approximately $26.6 million, amortization of intangibles approximately $9.2 million, stock-based compensation expense approximately $8.3 million, and non-cash interest expense approximately $0.5 million.
It's worth noting that TTM has delivered revenues above the midpoint of their guided range for three consecutive quarters, representing consistent year-over-year growth. The company's overall book-to-bill ratio for Q3 2024 was 1.20, with the aerospace and defense book-to-bill ratio at 1.26 for the second consecutive quarter, indicating strong demand in these sectors.
Challenges
However, the company is not without its challenges. The automotive end market has been a source of weakness, with TTM experiencing a year-over-year decline in this segment due to ongoing inventory adjustments and soft demand from several customers. Management has indicated that the automotive market is expected to remain challenged in the near term.
Additionally, TTM has faced some operational headwinds related to the ramp-up of its new Penang facility, which has resulted in a drag of approximately 180 basis points on the company's operating margins. The management team has stated that they expect this facility to reach break-even in the middle of 2025, at which point the margin impact should dissipate.
Long-term Prospects
Despite these challenges, TTM's long-term growth prospects remain promising. The company's strategic focus on diversification, technological innovation, and operational excellence has positioned it well to capitalize on the growing demand for advanced technology solutions across various end markets. Its strong financial position and robust cash flow generation also provide the company with the resources to continue investing in its future.
The global printed circuit board (PCB) market, which is a key part of TTM's business, is expected to grow at a compound annual growth rate (CAGR) of approximately 5-7% over the next 5 years. This growth is expected to be driven by increasing demand from end markets such as aerospace & defense, data center, and automotive, aligning well with TTM's strategic focus areas.
In conclusion, TTM Technologies has evolved from a traditional PCB manufacturer to a diversified technology solutions provider, leveraging strategic acquisitions and organic investments to drive its transformation. The company's focus on innovation, end-market diversification, and operational efficiency has enabled it to navigate the challenges of the PCB industry and position itself for long-term success. As TTM continues to execute on its growth strategy, investors will be closely watching the company's ability to capitalize on the emerging trends and opportunities in the global technology landscape.