CTS - Earnings call transcript Q4 2017

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Operator

Good day and welcome to the CTS Corporation Fourth Quarter and Fiscal Year 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Kieran O’Sullivan. Please go ahead.

Kieran O’Sullivan

Thank you, Ashley. morning. Good joining year welcome XXXX for quarter CTS’ today full and conference us you to and fourth Thank call. We fourth had quarter. the good growth in and X.X% period customers. Sales the we XXXX up new added were X versus in same for Sales quarter million. were the $XXX X.X% were in up $XXX million Full year million, from sales $XXX XXXX.

of levels. that up at year to booked with from make products business profitable Fourth XX.X% move. billion by get of and XXXX. of growth earnings on continue connect share gross up in start per Fourth XX.X% gross We We rework XX%. the billion, up from adjusted of total the earlier discussed $X.XXX share need year of We primarily Full XXXX $X.XX around down margins were in $X.XXX margins back progress in sense, quarter $X.XX ended quarter at the XXXX. to XX.X%, executing were earnings fourth were were in the adjusted XXXX. adjusted per $X.XX margin $X.XX quarter driven to from XXXX. adjusted we gross year Full from improved

XXXX rate Our be to XX%. expected in tax to of range the is XX%

for to up XXXX. Cash improve beyond further We flow initiatives $XX XX% was our rate from tax advance continue from to $XX in operations XXXX million, XXXX. million

ERP for the highlighted the site future new and investments growth, These company. investments XXXX consolidations calls, for a last by our earnings driven capital introduction are As building of our in part the system. of in spending will an increase the foundation essential our of

of on XXXX. simplification first the remains half focus Our track in

in second of manufacturing into XXXX. We half manufacturing continues our finishing will Lisle, consolidate location operation crystal the here Elkhart single of in new transition the the corporate

CFO call. was me Ashish Agrawal, today’s on our joining

will us Safe the statement. Ashish Harbor take through

Ashish?

Ashish Agrawal

in materially risks the this cause expressed differ that forward-looking results actual like a of to These forward-looking number subject call listeners contains would to remind from uncertainties statements. and that statements our are conference those to I statements. could

relative can regarding in issued information company’s uncertainties refers that filings. and in SEC press be discussion found website. these contained the extent of release is now measures information discussion the our to will today’s in the G, turn required CTS any back to section the the available risks Additional more CEO, explanations and and today Investors I over non-GAAP the reconciliations To O’Sullivan. Regulation Kieran the to are

Kieran O’Sullivan

Ashish. Thanks,

I year the customers at the added we we X with on billion booked more quarter, full across for As billion, markets. than fourth mentioned we ended XXXX our new of growth. of and end up new several from end business year total the $X.XXX demonstrating progress $X.XXX earlier, the customers In XX added

which X.X% XXXX. last sales quarter was in organic. growth, X.X% X.X% Our ended with grew the We of

customer, We for ceramic first application. are excited by as of our shipment a we haptic products mobile up our ramp progress with

and defense to with as year continues last growth aerospace customers by X%. show Our progress sales we increased

crystal product line levels. and growing single at Our well is performing double-digit

applications defense. in pacemakers continuing aids include as in as the growth sales and well New hearing pipeline

sensor technology application We the water added customer our in and new have our quarter are in one advancing pumps. for cast last tape

have cast prototype in also We the two applications phase. tape

in continued of to Sales X OCXOs building Turkey seeing the a to We customer shipment the security million. in also filter and haptic a include to applications next customer annual with Asian to of run first additional product current growth with are of products to approval sensor the shipped of and sales samples grew RF grow have new XXXK products generation Other our rate applications, existing potential new products. an of in XXXX.

low-volume Europe. awarded to agreement time. a begin one China, fourth front in to increase provide security right pedal X product are two piezoceramic eight million application run wins five over and sensor we application, XXXX expected We programs, America. appliance with for in rate. will also The increasing recently accelerator device are in the signed seeing also Most were America awarded long-term a growing shipments We North demand quarter, hype-sensing in in X we transportation an were and in for North to

Our progress on to operating and move. sense, million ceramic last in is guided XXXX. that by of integration connect and technologies in continues products be strategy acquisition and from $X.X sales to contributing plan year our our performance European The and focus tracking our

add line with We and continued profile. work our end M&A to to our diversify technology our in pipeline, strategy market

and Although been better. sales, earnings have in increasing could performance operational we flow saw cash our XXXX,

and implementation of with the We system simplification several are of ERP ongoing a new handling the priorities business. our

in remain margins. base performance, hurricanes. to supply our We year’s issues resolved engaged particular Our improving gross our last from in operational teams dedicated our

remain and remain Medical, markets markets as infrastructure robust continues industrial telecom be end commercial Our to steady. vehicle soft.

in of and cautious backlog with have is overall strong balance. especially We the a decline provide And Europe outlook a our in should the markets positive quarter order Both transportation. several fourth wide days we Industry market saw were continue automotive reduced years. which North for positive. in China American on-hand first market remain where which we the a inventory in trend,

through to year expect of of $X.XX I results some $XXX be more $X.XX. will in to Ashish earnings detail. million. sales the be over Adjusted full million you are take We in XXXX range the to to the to $XXX in to hand expected range

Ashish?

Ashish Agrawal

you, X.X% up Thank sales quarter. Fourth Kieran. prior third X.X% were versus from year the up quarter and million, the $XXX.X

is the in sales X.X% to quarter sales million Related impacted reflected charge weakening operating fourth European accounting fourth of the Organic year-over-year quarter And charge X.X%. increased XX.X%. by customers the increased the completed Foreign reflected automotive margin expenses. $X.X the euro. due $X.X a plan over The the against to pension be the by $X.X million by million continues is to gross is our in excluding charge acquisition. growth of sales in RMB we this, entire and and components non-cash lump-sum window the participants took dollar offering In we an U.S. $XX.X to plan. Sales in from funded. to favorably currency of electronic ceramic million. sales was pension and balance

Excluding offset not the we margin to some a XX%. based expect expect to the as took benefit items. in gross impact quarter anticipated The these In of U.S. tax the the certain today. the charge the rate to This Due we million charge on us for foreign for credit discrete a we for the the liability. of result XXXX the non-cash the pension impact in was reform. of tax fourth tax our our of related of information estimate to reduction U.S. charge, one-time a to fourth enjoy our $XX have saw impact is We our as we quarter best utilize be is to do items tax reform, tax XXXX. of

XX% is our However, rate, in fourth approximately XXXX the of we nature the an will in to the and items XXXX our global still excluding loss We range which expected a discrete XX%. business. is of see per share be X% of an of tax improvement $X.XX tax improvement This rate, quarter. reflects to in against reported to X% our

per our currency of revenue part certain diluted to of is items. as share related costs EPS improvement gains, in impact earnings as and the fourth items adjusted $X.XX favorable earnings pension, tax of Excluding driven adjusted compared in from and growth XXXX. the per large to quarter share well one-time were tax $X.XX The restructuring

automotive by Now, XXXX. to from results. million, ceramic single-digits I year sales will from X.X% customers acquisition, sales European Full of discuss XXXX year-over-year, components XX.X%. mid $XXX sales the increased sales sales up and by full the year were electronic grew X.X% Organic excluding increased

the negatively production the Excluding pension resolved issues impacted charge XX.X% primarily by gross impact to rework XXXX by for that gross compared were were was that I margin year discussed XX.X% The in and margin the foreign XXXX. in exchange. of earlier,

million, EBITDA sales. in XX.X% adjusted representing $XX XXXX Our of was

projects results in these on we rate. this We our year. million in are $X related further expect and the fees the to XXXX, $X help of adjustment projects us improve report will In million continuing an to tax that to as throughout our spend earnings is will to to we range show work

We were improvement per effective adjusted of earnings per of starting share. expect earnings improve an to XXXX the per $X.XX of these our XX% adjusted from share earnings $X.XX in rate We tax reported XXXX in diluted $X.XX, XXXX. projects share

Now, December XX, sheet at $XXX.X discuss and compared balance XXXX the equivalents cash I cash $XXX.X at million will were flow. the million Cash XXXX. to and of end

$XX.X to bring Our million, The us was from back long-term XX, debt tax significant balance U.S. to U.S. flexibility additional December the at without reform the million tax XXXX. penalty. cash down gives $XX.X

$XX and to to have cash approximately of back remain foreign use consistent million brought the We cash We be to that domestic can fund foreign in acquisitions. our intent U.S. the will

The a safety related is sales was of up capital Our the fourth driver primary a of increase of XX.X% stock our in controllable percentage ago. XXXX, of build from quarter working transfers. as XX.X% manufacturing the year to the

The We down of Cash the XX.X% CapEx various Total to from investments end in XX% of down $XX.X was implementation inventory project as ERP to million work for XXXX. CapEx at end projects in the the end is was from expect of are debt lower and than to sales. Capital expenditures our transfers. of XXXX be million, as flow capitalization XXXX. up into the complete was towards The the X% were XXXX to at track $XX certain XXXX, we range XXXX. $XX shifted XXXX of expect on XXXX our from timing the X% levels operations expected progressing. in XX.X% million. we of

test Our to team the is design hard and system. working

sites We This like of expect for our prepared in in this the concludes at our SAP system open starting would quarter We comments. the questions line time. to to phases to rollout the second XXXX.

Operator

first our Instructions] And question. will go we please [Operator Caller, take ahead.

John Franzreb

Good hear me? you morning, everybody. Can

Kieran O’Sullivan

we Yes, hear can you. John,

John Franzreb

on. there. want make I growth is Karen, first the what’s just guess, we question organic presented I understand out numbers I sure Okay. have my going just that to

and I to blended a and X% auto the X.X% think of the said organically down bringing that XX% negative was electronic was components, that’s number what’s X%? number you

Ashish Agrawal

address me the for The Ashish. let This that. John, components XX.X% includes is electronic acquisition.

John Franzreb

Okay.

Ashish Agrawal

the the you about but mentioned, is we are they organic total the growth. So, that total that talked numbers individual X%

John Franzreb

Total growth.

timing the when said Okay, it, the rolling about that has think okay. And you bit you about the a so a Could the and for start total far the end, are what some little CapEx. quarter, since been the as do you of budget it is going you system in you there I when to ERP got ERP second entire you mentioned project? in pushback talk is rollout, making out of as changes think

Ashish Agrawal

the John, will start implementation second ERP quarter. in So, the

XXXX. For most be the will in our implementation sites, completed of

which number, sites talked expense earlier we on is especially but the overall project overall XXXX. those acquisition-related from Lisle as in call of might be mentioned our really that building smaller we are to Some of I it the haven’t consolidation, that that, The all CapEx we into the locations, to of project, push about the the X% items. growth projects, X% sales, the various of includes in manufacturing expecting it ERP included transition Elkhart,

John Franzreb

a this fair if X% wondering or drop jump to was back the I one-time size to is sizable this so in would assumption? number kind could I Yes, much in old ‘XX the is the that was than normal expect of CapEx, such versus a of how other? ‘XX it’s you the

Ashish Agrawal

year. Yes, calls, we to we getting spend more the that next the be it signaling few normal rates going John, were at and if been to back look last year you this increasing in have

John Franzreb

think booked to And more about up it’s a should want Karen, year-over-year, data it. number, think about us, how that? a what when XX%, about sequential out think behind we do basis, we at we the about that Should that sequentially more Got X% on of look of have we year we us it business number? up it’s or take got you

Kieran O’Sullivan

number products, it total out a what business. portion the of of winning backlog extending We the And out years is terms gets of see, is XXXX. feel on are in booked very into as good. as new out all, a which year applications transportation beyond new large some in that, large it’s new was the I that can adding take think we robust is ceramics John we portion orders the good really well. of you the and business, the our And marketplace can of about. and of feel A competing are of you several side first backlog

it and So, it we are feel signaling feels a year keep we want you like executing this had we to at strong level. and about good very obviously

John Franzreb

into down point as So, start it’s revenue? is us shipping ship Is orders, going it when this be some play? you hit to – tied that to to out start on is these you how

Kieran O’Sullivan

probably investor John Well, will it if as you look our at in you well. presentation updated see it, and

that already the $XXX portion look at million. backlog of XXXX, If shippable you is

we other into So, as start to a year that’s have very years of a solid course that subsequent chunk of the and well. that in

John Franzreb

I will someone I back else let Okay. get ask Thanks. will into queue. question. the

Kieran O’Sullivan

John. Thanks,

Operator

next take [Operator our will question. Caller, Instructions] go We please ahead.

Hendi Susanto

Ashish. Kieran and morning, Good

Kieran O’Sullivan

Hi, Hendi

Ashish Agrawal

morning, Good Hendi.

Hendi Susanto

So, margin products? you into expect Ashish we transitions kind including look also and have as variables, considering what like like gross XXXX, and Kieran, should we new trajectory of many

Kieran O’Sullivan

I Yes, to Hendi that’s more than by we point been the have more levels, impacted would to expect, in can us rework normal you a were so we back issues, of for see said get margin. past. running We gross where

too? little get to back those would obviously, normal to better we a want So, levels. And we do to expect

Ashish Agrawal

you be excluding numbers. from see numbers those our so excluded Hendi to from will EPS, the them the costs adjusted the we activities adjusted will restructuring related

Hendi Susanto

expect margin as QX? we improvement early as gross can So

Kieran O’Sullivan

We should throughout whole see the positive a trend year.

Hendi Susanto

quarter-after-quarter? So, it’s gradually

Ashish Agrawal

Yes.

start You QX. – gradual as you in year. improvement we the should then Kieran an see mentioned improvement along And as should seeing go a

Hendi Susanto

Okay. I the inquire electronics organic growth may And rates segment? Ashish of

Ashish Agrawal

your ask again? you question could Hendi,

Hendi Susanto

inquire organic the electronic segments growth alone? May I of rates

Ashish Agrawal

for Noliac slightly that and May Hendi, did is we in back acquisition excluding over fourth It’s the quarter. this X% the

Hendi Susanto

Kieran, Okay. to? end kind products what several your application prepared share remarks, security go could mentioned product of your in you you

Kieran O’Sullivan

Sorry, was question? Hendi of first that what the part

Hendi Susanto

and several of wondering mentioned kind end what You products? applications security am I

Kieran O’Sullivan

on disclose applications. But this think a new more the information it contract terms at to It’s modest that some And is portable Yes. it. in of any we about of multi-year signed. customer kind stage

Hendi Susanto

Could its industry? you mention

Kieran O’Sullivan

It’s actually and several end more have but markets, going in to one certainly about will applications be this communications. more

Hendi Susanto

increased to – XXXX look CapEx is X% what see and at latest X% today Kieran when am wondering corporate And am caused X%, is X%, investment growth for the associated like it and I X% presentation, mentioned? wondering with I to estimated they X% I at then it that I was whether to

Ashish Agrawal

to my Hendi there two earlier aspects were of that comments. are in expecting of in those we to to then there the is of but are from what QX are will on to we XXXX and the projects projects, be growth related some XXXX, help in additional us happen working transition. referred XXXX, part the outflow X% an CapEx And X% of which the I related balance cash the So that’s certain it, items to cash Elkhart largest outflows standpoint ERP, usual that happening will the the

see CapEx to in back You should go definitely normal levels XXXX.

Hendi Susanto

have it U.S. tax to you should may that expect am projects beyond wondering Ashish we when in your And Okay. of the independent the happen some that on we working tax or see outcome of of XXXX? we is I see expect should will XXXX reform, be projects to been tax

Ashish Agrawal

we government see bit we is it XXXX. make that we will Hendi in in there say involves XXXX. in expectation XXXX, to of a work agencies good because progress hesitant to through. definitely in the But is that countries am little a a timing will various benefit I benefit but should for us see on My uncertainty very

Hendi Susanto

Thank you. Got it.

Operator

we ahead. take next question. go please And will Caller, our

Ian Gilson

Hello.

Kieran O’Sullivan

Hi.

Ian Gilson

Hi, Could hear the items on you the through the I didn’t me. adjustment? the announce pension line go impact of

Ashish Agrawal

a So in the line. $X.X pension there million reflection the margin gross is of adjustment

our by be understated SG&A $X.X total $X.X Reg gross a in adjusted and margin number that is result well two million will And reflected margin QX our of gross those of in adjusted Gs year G. the is million you And as for total will then that. Reg between lines. between a OpEx and there So as as see R&D

Ian Gilson

relative and those equal R&D proportions items? of SG&A two Is the split between

Ashish Agrawal

again? ask you question your could Ian,

Ian Gilson

and Is the and or in operating level to towards of expenditures split biased SG&A? it in portion R&D cost expenses SG&A is

Ashish Agrawal

R&D. $X.X million SG&A in It’s and in million $X.X

Ian Gilson

okay. Okay,

forward Going talked about we that the initiatives move XXXX-XXXX? reduce rate, tax into on the to as you

Ashish Agrawal

That is correct.

Ian Gilson

U.S. occur of outside are areas, what inside for U.S.? or we looking that that the gains we to could rather be the In looking? laid Are

Ashish Agrawal

pretty outside will portion that activities small. and primary U.S. we from the of will benefit the portions are be The the come U.S. undertaking

Ian Gilson

with manage? Can those will be they penalty? And Okay. repatriated no

Ashish Agrawal

We are that of to guilty subject internationally. most the operating are companies as

that, there is pretty penalty – of bringing the foreign that the anticipate U.S. beyond that back cash U.S. minimal cost for we in a be there So, earnings, to should but that the

Ian Gilson

you much. Okay, you the Have very great. yet? filed Thank K

Ashish Agrawal

The later K will be in filed in February.

Ian Gilson

Okay, thank you.

Operator

[Operator Instructions] our next go will take question. please We Caller, ahead.

John Franzreb

Yes. correct? getting I the is fourth quarter line if pension million, I I I the occurred out am guess first that to only, on I in numbers on caller, $XX.X am numbers, the SG&A is last follow-on the some just roughly am getting I the and R&D if SG&A I the want mean, adjustment line, strange call right?

Ashish Agrawal

of once always be expenses. some the because always there be accounting The in at And pension are bit will SG&A. QX charge. little is there John, right, numbers a always you should exclude extra the looking how you in SG&A cost there works, timing that is of

John Franzreb

that’s R&D to expected would it than seems usually I than million Okay. number And was X.X%, it more just large, less the $X actually? expect drops would in adjustment, have I like

Ashish Agrawal

R&D development timing we we and projects influenced bit customers various in was anticipated certain for than that number that on be are with a get we little from by QX them. reimbursements working the our of lower can

the lower that the R&D So, QX was driver number. in of

John Franzreb

can firming we you what’s can’t little And the the economy that of I a for guess has any repatriate pricing of I some environment bit the talk received sort with imagine said gotten I some about get it’s will if other you? M&A but that you the follow-ups, you numbers, M&A, could and better

Kieran O’Sullivan

the M&A products our across working actively in the So, John, we pipeline are portfolio. still different

we with overseas in will our connect in move. U.S. that products or acquisitions got sense, And for obviously, strategy be the that can line have around the cash. and We it and deploy

certain focused parts where than have refresh we and that. we We on more nothing report to things of and the as are other different so portfolio, renew

John Franzreb

you more see potential foreign front likely acquisition operation? Do Okay. more the on or be to domestic a

Kieran O’Sullivan

are in we opportunities regions. all looking John, at

matter timing. all of it’s So,

John Franzreb

Okay.

China exposure, growth of kind in can those the you memories your different to earlier three possibly your Regarding of our you American North forward? – exposure your automotive of refresh market, the could what be to and kind economy that suggested going is Europe of to offset geographies exposure

Kieran O’Sullivan

to transportation a over be XX%. I are last say up the is volume pleased or $XX.X we overall million saw year North unit to this I in total a XX% million, we X in number was North balance pretty softness. in offset than the John We probably high on to our the that should last about think focused reason remain we why $XX the China. is decline the good So on million. years region by Europe should would from America in sales XX% million XX%, from transportation reason the where front to And And year range a $XX.X XX% down first on would $XX.X outfield XX%, gain year U.S. primarily the is Asia, shares our the why some coming see in that and American we the be year at cautious

Ashish Agrawal

for market. comment, do not our by regional of just the clarify We total to end sales is splits just end John for disclose Kieran’s split not the market. automotive business,

John Franzreb

Okay, of by of some surprised those. I was quite

taking for questions. Thanks guys. you, Thank alright. Okay, my

Kieran O’Sullivan

welcome. You’re

Operator

Caller, please go last our We will question. ahead. take

Hendi Susanto

towards you upper the Kieran, of share would drive your end growth Hi, your areas may what guidance? revenue again. that

Kieran O’Sullivan

Mostly some on a of is traction. seeing products newer we of Yes. lot are ceramic the where

pretty are us we area top the that that well, the got areas growth On we got over momentum about where have products years offset last that more see opportunity. as that is that’s good some been with number we have in that on some still as backlog having and that give we building share good of We that but new other we feel it well to and softness have robust of can gains.

Hendi Susanto

products it’s Kieran? aside backlog, newer from your mainly ceramic So

Kieran O’Sullivan

we have well Newer ceramic area as things, growth side rate electronic the built organic feel some we backlog got we up and that in on where products good are about also across and where components and the but that different the newer transportation markets. doing

Hendi Susanto

half Got estimate question, more it. is finished And there Elkhart see how you one in when the then so of improvement? may much point any basis XXXX, second transition

Ashish Agrawal

that the in communicated where have we finishing are Hendi year. of way The second is we half the

was be will going said we that last have remember you should to year line so million second million finish we half. by we $X If and so to months, be a three full we but said And on product won are give of year you region it. would full delayed in some still the XXXX, basis, the of savings year in sense that the first $X the

Hendi Susanto

got it. Okay,

Thank you. Okay.

Ashish Agrawal

Hendi. Thanks

Operator

conference over are remarks. like And no it time. back closing this Kieran additional or for there at turn would appears further any questions to I to the

Kieran O’Sullivan

Great, want participation today’s everybody to call. I for your thank just on

have areas a We lot made some several we areas with on. of focus in progress need to

back next it’s talking you. work in Lisle you to forward and to to So quarter. look here Thank

Operator

participation. And And that presentation. for you today’s once thank concludes now disconnect. your may again you all We

Kieran O’Sullivan	Chairman, President and Chief Executive Officer
Ashish Agrawal	Chief Financial Officer
John Franzreb	Sidoti & Company
Hendi Susanto	Gabelli
Ian Gilson	Zacks Investment Research

CTS (CTS) 6 Feb 182017 Q4 Earnings call transcript