CTS - Earnings call transcript Q2 2019

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Operator

Good day, and welcome to the CTS Corporation Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kieran O'Sullivan. Please go ahead.

Kieran O'Sullivan

Thank you, Dorothy. for XXXX today, Conference you CTS' welcome thank Quarter Second Call. morning, joining and us to Good

Second quarter quarter last in X% were billion, to share margins sales of million to second up compared in were in year. XXXX. $XXX.X the million, Total same XX.X% year. from last $X.XX up Adjusted to period earnings year. second Gross the were per last $X.XX compared billion the XX.X% quarter same $X.XXX of from period booked the $X.X in of business $XXX increased

for Ashish the Agrawal, our today's CFO, call statement. harbor will is through with us me take and safe

Ashish?

Ashish Agrawal

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

the and issued information can be risks press Additional these regarding in release SEC uncertainties is the more information in company's contained filings. today, and found

To the required discussion the the over CEO, G, the reconciliations now available are CTS I under and Investors O'Sullivan. will to refers non-GAAP in measures back website. extent Kieran turn to of explanations Regulation the any discussion that section our today's

Kieran O'Sullivan

by quarter XXXX, second the market In Ashish. Thanks, saw our X.X%. sales softness some being of impacted tariffs. grew customers We with industrial in by Chinese

saw Gross by performance The million. sales distributors, impacting operational we delayed our is ceramics $X.X foundry. inventory performance sales. by which We impacted also to foundry with burn-off rates sales a shipments. impacted our continue unfavorably of see was as at Currency challenges weaker margin impacted

ended in XXXX. being third and basis quarter necessary strategic with adjusted XX of not actions the managed, which quarter. quarter to expense growth. we on EBITDA, XX.X% Operating focused expect correct the to has We second up are profitable the this drive compared team priorities is at points the of but to expenses issue, the improvement The

sensing in by driven applications. the saw to added in $X.XXX customers quarter. Total We new business improved transitioning to our and billion the X strong second one regulation in defense are for contract fuel booked as in China increased injection industrial to OEMs takes the quarter, National two these emission electronic in wins for the two effect market bookings We new emission July. systems throttle IV in models. meet wheeler requirements module Asia

China We which for increase it potential vehicles VI as to Crystal will our exploration XXXX. implemented is a have potential customers is has new geometry for development emission application with two regulations and we be in power for a customer OEMs. received low in orders OCXO demand product. This testing for important the product, seismic actuator variable National turbocharger two in product another us for from undersea

guiding award RF year application $X.X for contract in of with future a gyroscopic we $X.X provide million million. several an were $X sonobuoy medical, valued a million an awarded in and We program ultrasound piezoelectric four with were at customers. approximately rings In approximately $X for received revenues of with aerospace defense a This to We of new intravascular application an test filters for $XX system defense million OEM. million. a awarded also range for will contract the samples

received we one in in three application microactuators China. North telecom, products America data two in automotive, awards for for high-speed In an an sensor received million $X.X in for of order and new We switching.

a for several North One OEMs new vehicle American application. awards of awards and We is awards secured of battery one platform a OEM. the largest two Japanese modules, for were accelerator electric the with with

technology customer warranty be emission OEMs sensing this investments systems. These along fuel These treatment received funding joint agreements, from we in for the management for customer our and two that development quarter, needs will after our drive systems, customers second vehicle with improve RF the will improve to with better ensure program their consumption the performance. aligned the are development of seeking marketplace. our In

sensing to NOx emission has our address the RF enable XXXX potential ultralow next-generation customers Essentially, to their technology requirements. our

our We remains continue to X% work growth. through and our X% M&A acquisitions growth pipeline, objectives organic through

driving committed through are and our profitable We to technologies products connect strategy move. that of and growth sense,

see our in and profile, priority transportation so evolve is defense market. the industrial, continue capabilities aerospace markets, to prioritize evolve growth Our while our us in product end-market portfolio you our of we will to

better the for we X June advantage growth. trade are Russian year. in China markets is to a European with challenging pace, higher XX.X of American improved June, the and End XX%. Though down took X% X% only million down volumes XXXX to market market XX.X volumes market. to inventories to XX% perform the X% than The demonstrating remain first to X% down buyers North towards to distribution. million this continue softer, of disputes due soft, automotive to vehicle are The continues unit market months in passenger Sales somewhat through discounts. be as tracking

quarter, were strong double in the digits. improving Defense by markets

the a this priorities us about markets capital growth, market volumes deployment improvement, remain months. the over We watch appropriate for and on are trends year. cautious margin next XX XX Profitable keeping close in remain end ERP implementation to various and

initiatives new XXXX addition, CTS. performance for In have towards we goals begun

be will this are be to financial the of million. $X.XX. of guidance $X.XX we in $XXX time, earnings to are compared sales to Ashish to expected year to the million $X.XX of through $XXX guidance guidance performance. compared in the the the full $XXX million, us prior a now $X.XX XXXX, walk range At $XXX a tightening to prior Adjusted expect to of our range to and million For

Ashish?

Ashish Agrawal

Thank Kieran. you,

rates X.X% Currency compared impacted markets. million. industrial, sorry, last sales to $X.X medical by to softness by to in increased decreased million, X.X% to Sales and quarter and sales industrial, markets the medical up were customers end Second other $XXX.X transportation defense year. and IT sales by unfavorably X.X% due IT end --

XX.X% second decline. $X.X the our Our These gross in of for manufacturing cost related XXXX. quarter versus second savings and were were the partially transitions. quarter main the challenges increases and Execution foundry by operation million to offset approximately wage margin for was drivers material XX.X% ceramic in in the

reduction full manufacturing XX.X% the R&D savings Exchange to $X of to is XX.X% in of compared cost of second XXXX impacted margins were lower expenses from $XX.X range The million transfers or year. related expenses expenses spending X.X%. expect $X in million. be unfavorably to onetime rates certain year and to and gross the of We sales approximately $X.X in SG&A quarter last million by the approximately remaining million. timing included expenses.

we through challenging expenses conditions. as We market remain managing work focused on

expense to income quarter down XXXX a year's second tax cash effective the distribution a rate million was related Last last tax Taiwan. in year. Our $X.X included XX.X%, of from tax from onetime XX.X% rate

we range in communicated previously, of items. expect As full have to XXXX the XX%, discrete excluding we to year rate XX% be tax

quarter second quarter earnings were diluted last earnings Our from were year. XXXX share. in share the per per Adjusted second diluted up of $X.XX $X.XX $X.XX,

discuss sheet and the balance I'll cash flow. Now

were controllable the had percentage sales early capital a delayed that We July. working as some in Our customers of from was in second payments received XX% quarter.

of softer focused the are for markets. levels in second Our adjust end down year have we improving and we on higher half inventory planned, the inventories than as

X% X% in from the was spent of our We XX, $X.X XXXX. of of $XXX.X compared million range XXXX of our down to million X% end June to to X%. range sales, the $XXX.X previous at Cash XXXX, in be at now million was million $XX.X have CapEx in expect quarter. we operating generated in to CapEx the $X.X cash Year-to-date, CapEx. We second million.

long-term Our at $XX end debt flat balance XXXX. June, was of December million the with

to XX.X% the of at Our XXXX. compared debt-to-capitalization end XX.X% was ratio at

the million. quarter, our XXX,XXX During for stock repurchased shares second we of $X.X

in million We our under $XX.X approved remaining by repurchase have plan the board February.

our ongoing SAP on implementation. focused remain We

previously, is complete the goal XXXX. first communicated we our the remaining to our in to sites half As of rollout

would This you We this will for like progress. at our prepared informed keep to our questions the time. concludes line We open of comments.

Operator

[Operator we'll our And question Ackerman Cowen. instructions] first with from Karl take

Karl Ackerman

out end giant to and given many The this your to peers should and providers But is particularly narrowing on year, automotive impressive space. that your from it in policy decline year. midpoint seems mid-single headwinds low demand the many that large outlook called this monetary have maybe some you outlook outperform actually the market within crosscurrents digits based trade, should automotive, global your production the of of somewhat the

brushless if So too I'm existing motors you enabling you Europe? or sensors, well-publicized curious are accelerator geographical the China also given and that of may And this DC strength interested maybe areas discuss pedals global or challenges year? particularly within production programs in the or I'm outpace across actuators new to

Kieran O'Sullivan

few points, seeing. we feel market few the few good all, Karl, perform there in and than quarters if better you been of And, what have questions we you. we're down have morning first market is a to a that's that as for a saying got now, the we'll and

We 'XX, 'XX the strength and point from lot a work and we this time. in done fruit 'XX are in that's at seeing really bearing of have that

funding about asked actuators, is on the as the plus now in that, and are RF know those we acquisition that products well. next-generation things with that momentum that well. the we XXXX with second development. good in still customers. added exciting customer, existing customers, as development be beyond we revenue gained You are has excited well news in small customer a and about back are is until also And news this And quarter sensing from did with won't two we XXXX We but which moving

we feel getting down but transportation the with to that it's been we to regions, especially as of challenging we in doing has that's I we the look in for OEMs been last the Europe said, us we have market. gaining market. everybody. So been North When number momentum, years work America, the across seen have have X% X%,

are there, gain customers lot China and strong that transplants pretty to really worked market about And We are have opportunities pursue has with pressure, added share. the the have past a continue where new and getting and us. for some we people we Japanese talked in of well that in the

performance. gives that some color hopefully the around So market you

Karl Ackerman

second year, OpEx half Given the how of you broadly management opportunistic thinking and speaking, the are the variability M&A? in about trade-offs between the

Kieran O'Sullivan

our of the prudent will portfolio we on focused at of our right M&A we're it, fit those of And always on the that we strategy, not side been to end in and hard. very managing of making it, side expense continue work that and have about strategic our very terms cost, products but the very OpEx markets Well, choices.

Karl Ackerman

me, for floor. I'll one and the cede Last

toward little industrial sales particularly within impact distribution, for think your have on exposure inventory understand in channel how thoughts given your channel, you destocking the from the we its you distribution Regarding and outlook? indirect long that automotive. about But any very may last CTS

Kieran O'Sullivan

more percentage it's of two that to burn you, we take little time tell going the would And about right think it's be quarters of you're differences adjust bit Karl, to that another a there or still to would maybe take some going I to to overall all across business. inventory. there's off a bit Yes, but the little inventory, our going regions,

Operator

We'll John & take our next question Franzreb Company. Sidoti from with

John Franzreb

down me. there has Making bit, a what hear made sure revenue guess, you that's been a end want in revenue Kieran, the regarding will the your can look to markets top line the you change reassess guidance, I tapping fundamental like?

Kieran O'Sullivan

that are points it obviously, And of side going. heavy-duty. cautious perspective and commercial of little things terms We on where and vehicle an the John, strong maybe had a automotive just progress we're in to bit a in from mid- few

We going forward. maybe that in -- some seen some softness have

they caught thing that Chinese we on industrial staying have comments one that's or regionally very that side, when hit not but mind, are So the other have by being on Europe, what you the my are is might America is going they we North tariffs something our and in It's good the two seen and in much were their opening China, customers growth to tariffs. expected.

end So have things caused bit. top to of us are adjust some the there little the that a

John Franzreb

has got either and linger? resolved to the a it. the continue quarter that the the on you margin problem the you gross And implications or been quarter? mentioned on through the me of revenue And it ceramic just problem on at a in foundry. it, Got does then line or Could actually in that walk revenue

Kieran O'Sullivan

we part. it. about are so in Yes, not It's poor happy execution our

therefore, have probably can impact somewhere you it's it's And what region perspective, we our the it full of and material, formulations get tell if got attention. impacts variation inefficiency impacts impacts the in if of X% quarter. from it material and is So And environment. production yields, it sales in yields, finishing, the in our we our on had in creates a some sales our it the

pleased know it's We full by So But got it's told again, to and, fix it just again, not I it. us. be in is, we poor situation attention. our what can execution this

any to want you color? Ashish, add

Ashish Agrawal

obviously it us margin half. would Yes. the the sales, in John, on to in probably look similar has X% second to impact range. we the negative on recovery And a side

focus Kieran on As mentioned, there is strong it.

We several through are working challenges.

QX see expect improvements to fourth quarter. and some We more the in in

John Franzreb

guess, back catch quarter? up, and outperforming been automotive were board up but the of as to your kind just you didn't I and I the a I sales just in number the it? And have provide to transportation you topic, whole, much the sector you how mentioned that missed Did you were

Kieran O'Sullivan

auto think I John, sales X%. Yes, we up said, were over

John Franzreb

X%?

Ashish Agrawal

customers. transportation to X.X%

John Franzreb

year? it. got or in plans something deferral next from change in reduction spending. this the The one question. Is sir, that to And last Yes year from CapEx a

Ashish Agrawal

making just the choices it some of John, where being conditions. is us CapEx the carefully spent, end-market tougher given managing So is

deferring, clarity accomplish the is ERP, as that the some have we'll what clarity In then working provide we closer, and XXXX, into XXXX launches so -- through for CapEx we are year. as second more into in more expectations that also we'll the gets on get of on it half, hoping be And on more line that we of XXXX. of some to deferred are were various we deferred some next projects working of time

Operator

Instructions] [Operator our Hendi question Susanto from next G. take from Research. We'll

Hendi Susanto

it at think year-over-year second of represents annual wide I guidance, the X% decline How If positive should between your divergence growth. X% look those and about we range? half

Ashish Agrawal

there the about of about various side. quarter. in those Hendi, on comments, is evolution -- the and in both as We the softness the some we industrial in saw markets second uncertainty medical end the still talked Kieran's

that market still watching half The is well. are we we largest for distribution. remain about how So carefully in well, and as the end that is us concerned as evolving automotive second

Hendi Susanto

scenario will if I where the come of that year-over-year a may growth that revisit In positive growth Ashish, second from? in So X% question. half,

Ashish Agrawal

well you launches If with win fronts new we sales, business product as traction. getting see many in different getting about we where talked programs Kieran of that are our traction terms on new as are

be So that you a will want key Kieran, part. did to...

Kieran O'Sullivan

Hendi, I we pick RF said, for forward. as sensing quarter. continue second was like throttle are good. we the our is little side things that the think, good inventory be some pointed good gain Europe market new maybe expect continue continue defense Yes, products soft been traction. products a up module in that the were year some but Ashish we far out and adjustments of good the gaining And has -- of And medical to and traction, to of in There going there, this seeing orders so will and it, to

Hendi Susanto

working increase XXXX. the know or would you Can like And capital of put with like ERP ERP? then, cost long efficiency? have your more savings now it. like more first half your you Kieran, new ERP you you new like that can Got I what and system by then In produce new run, the that do

Kieran O'Sullivan

more capital We happy where us. And And we because tell message data because are are can that's moment. implement, -- we to at, with making sure on it's you for and have going definitely the and problems And are through around obviously, will companies has at very that gives much we're doing us are it we our I efficiency. we the company. implementation not increase a our focus investment robustly here. the been this, are and we the making when Hendi, carefully but working

some see we'll that but as it talk XXXX talked to about a relate the and, of internal make have We progress goals, set about, we talked simplification I we we years, as haven't the things over will ahead and have as lot but last those we ERP still of opportunity done number about, well.

Operator

I And further appears remarks. in things at any O'Sullivan, or it would questions back there this queue turn you to like are the no for time. to Mr. additional closing

Kieran O'Sullivan

to in forward And I again performance. just joining you. this wanted October you on Thank for we morning. us thank to everybody our look updating

Ashish Agrawal

you. Thank

Operator

you conclude participation. does your call. today's Thank This for

now disconnect. may You

CTS (CTS) 26 Jul 192019 Q2 Earnings call transcript