CTS (CTS) 29 Oct 242024 Q3 Earnings call transcript

Hello everyone, and welcome to the CTS Corporation Third Quarter 2024 Earnings Call. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions]. I will now hand over to your host, Kieran O'Sullivan, President and CEO, to begin. Kieran, please go ahead.

for today. thanks and morning, joining us Good

Let's some key the quarter. highlights for start with

saw $XXX revenue earnings quarter third First, of of per million $X.XX. share adjusted and

from our Second, progress of XX% next expect a in will strategy execute strategic continue Diversification revenue now on year. quarter. to we with for to overall revenue further continue diversified the approximately priority, markets accounting we diversification be and

foreign in exchange overall adjusted gross by the Third quarter, finally, points including we expanded and favorability. XXX margin basis

excited enables are in patient where procedures, We the by medical, diagnosis, improve lives. our momentum ultrasound critical and products experience helping minimally enable and save our technology invasive

in subsystems, accelerated up to the are capability and which defense our products. eBrake current pre-development softness, premium sensing. navigating market the with with to in moves expand have a October, into with the recently, OEM SyQwest a And across continues electrification for us chain an premium platform. we a for more where market award for new the industrial new modules in accelerator our acquisition, additional transportation, we near-term and in North customer longer-term, a European We truck on early value Demand interest and wins rebuild has growth transducers In slowly. added product America sensors, continues

Ashish will take us harbor safe through the statement.

Ashish?

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

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

finished We quarter of Ashish. XXXX. down sales you, third third the X.X% the with of quarter million, Thank $XXX from

quarter, the down defense, last medical, and medical, period while sales year. industrial were from in aerospace XX% quarter. XX% transportation revenue XX%, aerospace industrial diversified For sales same and of the Diversified and were were the sales overall company and third defense, up

to reflects X in to and market up year-over-year. inventories bookings was SyQwest ratio the in basis, end end excluding year-over-year the X.XX continue improve. Bookings of industrial third were defense quarter basis. a industrial in customers on were on improvement OEM book-to-bill compared of year-over-year on XX% Aerospace distribution a acquisition. with third year-over-year up XX% Medical the market Our basis ratio as in impact and quarter some the XXXX. were up a The the positive the book-to-bill XX% bookings both

Third earnings quarter were up XX% per of share adjusted $X.XX diluted year-over-year.

our to third Ashish continued performance year up the color sales further Diversified the prior period. today's call. in XX% in will add improve, quarter later on to compared financial

In medical year-over-year. sales XXXX. from Excluding in same the the markets, period XX% diversified sales up quarter SyQwest were third grew acquisition, X%

We expect quarter as softness in customers inventories. manage the year-end fourth

on application. medical application and During customers and of with correction win further one vision several an advancing a we our delivery a with a project wins ultrasound. We the for medical a drug ultrasound key innovation customer had customers, for for quarter, device new capability pacemaker made for progress added

prior of provides XX% for from real-time and new dimensions Finally, sales to the lumen a we application. catheter application up and sonic received period. tomography, year an defense order disposable veins which using the a artery Aerospace support were

in grew sales acquisition, SyQwest the the from third impact the XX% Excluding year-over-year quarter.

America North for rest momentum the sonar received backlog orders and of multiple given We the orders. We customers of XXXX good for applications Europe. in expect with

to We SyQwest wins team. make filter progress to customer a on our anti-jamming and added continue in new RF

to down, expect long-term integration given aerospace of our business opportunity be and the across funnel printing, Demand successful well valve the its We SyQwest capabilities a as material market the plan, We see and platforms. China, qualification countermeasure The solid application. wins a defense exposure to and X% formulations addition Sales continues year-over-year. inventory continued business recovery customer by with to sensing. inventory underwater flow distribution new in in to end in be prospects a management. the new with recovery were up of tracking with for the and OEMs. temperature industrial multiple Europe SyQwest. for two In industrial is added the tightening metering burn switches, gradual for were of We tempered control and OEMs expand work EMC, to quarter a market, and as we the communication enhanced with with piezo

we Looking improvement expect the ahead revenue. the in for balance the distribution year in market, and industrial end of

fourth softness market move the but with markets, quarter we we year. medical in overall next customers, as For anticipate growth into some

for We of on the prospective also products make progress customers. expect solid new qualification to

excited enable applications deliver medical growth medications. our restrictions enhanced with the by where for are professionals products treatment ultrasound artery images, and prospects We in invasive detect minimally

in solutions Sales growth We growth the will therapeutics expect our time, ultrasound save are are volume remain profile. expected and highlight lives.  Over customers that proud support defense to portable that to our diagnostics solid. to enhance products we

a moving and of transducers strategy Our from is supplier sensors, component subsystems. focused to supplier a on

end with growth expect line same were and quarter, key product XX% approximately formulations sales in and to million markets also enhance growth X expect to our down in technologies of by $XX our material period efficiency from connectivity our range the supported We we Longer-term, market leading in continue opportunity. Transportation The applications. year. the third automation, in our to expand diversification high-quality industrial drive last megatrends strategy.

experiencing XXXX. vehicle in a environment demand for We are commercial softer products

and between OEMs. vehicle navigate competition market light the the continue given local On transplant we China in dynamics the front, to share

ride OEMs OEMs. a sensing, to win a with that with product for sensor passive they given sensing mostly market are vehicles Chinese, drivetrain had to brake analysts we position Tier for wins module European sourcing as soften. had third including is less In decisions regional their forecasting delay safety Additionally, quarter, wins the for Japanese, consistent rates. us, changes. build technology. the market height work the for sensing given ICE concern chassis reduced X rates we and mix hybrids demand near-term products growth American agnostic our with accelerator current powertrain are of light see This to and groups, sensing. a The and We supplier. continue North win most EVs across We European are continuing versus had various to an correct

these However, making been even we with dynamics, areas. key in have progress

a added example, American our module an platform. the new new For North quarter truck deploying after modular design for accelerator premium close, customer for a we future

several and our received quarter continues In product European brand. and a across OEMs, offering weight predevelopment eBrake cost a award post advantages in addition, interest we end with premium

increase We and ability sensor applications content. grow will expect eBrake to our the other

was the EV in a customer billion quarter, added China business end mostly at third we the quarter. Total X During booked of the new Europe. and $X.X platform and approximately had wins,

our to outlook the for Turning year.

line we softened other volumes and the customer is medical Across have SyQwest soften XX expect with and in the The fourth XX.X the quarter adjustments. in transportation is are to Demand fourth the pressure North volumes to to aerospace in of units the continues For XX-million-unit market IHS some for inventory solid improve. serving supply we on-hand year of increased near-term the Chinese XX-million-unit of with production soften to expected recent shown and medical, and acquisition. stabilize production China some the due defense of the backlog to is analysts. anticipate remain government defense, dynamics In industry the in and vehicle market base in light markets, markets, days upcoming range our in Industrial by reflected market emission China subsidies in overcapacity soft recent aim to a be American due to sequentially, to in vehicle industry this growing. continue. the demand. Electric aerospace applications. from the and other has orders to market have as small in vehicle expected expand XXXX. due softened strategy, is our production and OEMs Overall, X range changes industrial, regions, European to in and with demand expected expected showing we the demand adoption light given momentum million reports and forecasted with range diversification softness improvement hybrid Euro quarter the to from penetration full range million rates regional to reductions. only also while build

commercial remainder the in of the XXXX. revenue expect We throughout softness vehicle-related

prior compared our performance, $XXX range guidance for updating to the XXXX, million range of in range full $XXX to diluted $XXX $X.XX be million to operational are in year of are adjusted the million on Based to $XXX the of we the EPS For guidance sales reiterating the $X.XX. to we million.

through Ashish, in turn more walk financial will us I'll the over Now it to results detail. who

Ashish?

Thank you, Kieran.

million. sales quarter Third were $XXX

mentioned, softness end transportation seeing are with market Kieran we year-over-year. As the sales in XX% down

third diversified quarter to to compared sales end grew XXXX. Our XX% of the markets

million $X.X SyQwest, acquisition, revenue quarter. recent in Our the during contributed

quarter and of end continue The currency approximately the We to of the improvement Foreign XX.X%, XXX gross also efficiency $X.X third of away basis sequential quarter.  Our in plant second points impact on teams margins million. end cost over the currency approximately impacted points the improvement margin million of improvements Adjusted from and $X.X market year, gross revenue market focus contributed a XXX changes in favorably from third an favorable the was favorably. quarter mix foreign by change basis expansion. impacted margin last had globally changes. transportation to from that from

XXXX, result, of of approximately of XX.X%. onetime a During the as EPS, third had items from worth $X.XX and a quarter benefited some tax we tax rate

for $X.XX compared quarter tax rate the we $X.XX in per be our quarter. third of the $X.XX the from to third For were in the XXXX XX%.  Earnings earnings last share of diluted quarter were overall, to expect per Adjusted share to year. XX% diluted third range

$XX Now XXXX operating focusing quarter XXXX. compared to cash quarter of $XX sheet. on third of in We cash the flow balance generation third and generated million in the the in million

our combination improvements and completed a borrowings business, capital hand of the debt our and We $XX balance during continue quarter focused in our to usage from remain shareholders. cash using credit million. focus during working cash SyQwest the the and controllable to continue quarter, quarter. on $XXX returning within driving the and strategic on of generation efficiency cash to cash strong third saw the organic acquisition the the and We We cash growth, balance on was million, was acquisitions facility.  At end of long-term and support

concludes our approximately During totaling time. to Year-to-date, for shares and of shareholders stock the open questions comments. have we repurchases This this $XX would prepared quarter, CTS XXX,XXX million share we at line $XX million. returned the We dividends. through to like repurchased

[Operator Instructions]. to John And our John, Co. ahead. Sidoti first Franzreb of go question & goes please

like I'd quarter things the me. stood of guess itself. to of couple third and in A out I start kind to with of

was the puts you little and margin the profile? my First better margin and takes the on foremost, expectations. are bit in talk gross gross a what going Can about than that's

Yes, well, Ashish. strategy. John, over gross this direction and move The capital results and margin driving in seeing is mix diversification change the strategically in approach in a our terms materialize the allocation to hand this at a as to just from high driver level, I'll here. We've been you're primary of the

So, Ashish?

the a of parts we thing and contributed to extremely of as other through about well. impact meaningful currency things, improvement is And the the part talked foreign then as quarter. change, about different our the John, that improvement across for other driving continuous our that's favorable of had way in which $X.X margin important factories, culture gross million business Yes. our a

moving And other on go good my here, I path direction. as saw a point add it John, is comments as would in forward, you well, we the in one diversification

We next to it expect improve year.

expect we to level, as margin keep but maybe we So, at forward. upper improvement, completely to this not gross improving go this be

anything there in that was you the kind has of Or just cash? dropped going are other stood reimbursements me sequentially all and to year dropping long. item been unusual R&D quarter? Is on the in out conserving The

It's reimbursements, John. primarily the of related to timing customer

R&D we the customer want quarter, We continuing that that is to the gross -- driven ones fund, the the focus for the spend the you're of are growth don't that ones that But in timing obviously, the seeing we on opportunities, to by fluctuation primarily to fund. want prioritizing reimbursements. the

Okay.

day dilutive you accretive little the or the quarter, how Regarding contribution SyQwest, of talk business' the sales can the it was only during not the end a about mix? And the at for the side, on it's bit but impacted quarter?

were So, John, sales in there, quarter with The team about well. and Bob is the SyQwest, $X.X the million. very integration overall, with the going

$XX said well last with in $XX earnings comments. team and to it still for Ashish is be really the applications. highlighted expect undersea million to countermeasures that. for call, And on We to that we year, I the the tracking his think is qualifications doing next sonar million the and in the also range

So, very but with lot in pleased got it it. we've good do happy the really still Ashish, moving work a direction. with along. And moving on here, it's of is how We're a to Obviously, margin?

Yes.

and when is look numbers. definitely EBITDA our you John, business margin level, accretive So, the the at gross to

level year, the expect everything, slightly second dilutive the and in year. at and next is With interest this expense of EPS the burden half we EPS accretion

be the bit, other into Can about except are I'll you in the customers is uncertainty. thoughts market? to We're end telling to XXXX? call get markets and of year a little your Got you medical. where expectations looking non-transportation markets your What most it. that the seems everyone are weaker on I are did of seems transportation your point planning a question, guess that getting Kieran, ahead. There your lot one out back talk last It about queue. improve, certainly What you? to

high-level out? how ahead year see, what you the you Just some see playing thoughts about

growth we'll diversification really John, level, just there. in better XXXX next So, to at doing a well a you from picture commented, of touch some a things with on we're quarter on our But the perspective, update. give macro

fourth in move that that year. most revenue, and a those industrial in a going like to touched Some we're are expect an we It well as strong the we well. And this different bit story, some but We down have this X% their as this we feel a stage. growth you softness. been next market you and customers story quarters, next of we on, going a year forward for quarter. fourth in the have improvement into well. backlog then and bit saw positive several got a continue about adjusting we've revenue markets the near-term, just of said would doing very have overall quarter, we for of be much good will people. as to little quarter, transportation to on about thought the Medical, It's year little been tell at side, hard Defense,

add people in the but for you are haven't out reports this next general, year about industry that pleased the and years, customer customer, I X% If I about, good talking a and though, wanted think we on read which to about very a there, that. in point electrification, -- we're new with would this feel adding tell we growth, time. you, progress guide eBrake, given a for at X we we were really last the

to more So, come.

to goes next Funds. Instructions]. Hendi Gabelli the Susanto And question [Operator of

My market China. first in transportation the question about

you are Chinese agnostic, OEMs? emerging wondering, opportunity say, And are new see think OEMs example, growth are pockets for really with local including, where certain opportunities, say, I like I'm if let's let's with do players. products peddles like there well. the So, of doing local

So, terms would share China puts opportunities in takes you transportation of especially your with and the what local market, players? in

to will are Chinese selectively that OEM we're just a that's working in and be customers we Yes, mostly and We going we run talked we've tough with or think long OEMs market. bit in terms there of that North sphere. American our think transplant, X quarters in and don't facing some headwinds a grind, Japanese of local for those X headwinds believe facing Hendi, are the are probably away. going the the be in but We now European

and I expect best to well done we probably So continue with that in area, electrification it, that's way the how phrase that we've and improve. to

work general, I may think in time then win Kieran, cycle. product let's like in a life lifetime, then when And terms long design In it say, product you long OEMs China, takes take? and how automotive new the with of,

I electrification of be the to we anything market. Hendi, much China you, product. I our even tell on from And when development periods would X But sensing months And that in type years maybe production faster can XX in in be period to or we market have the depending of solutions, it solutions after and be of want electrification, comes development China, think traditionally for can to if outside you compete. some a X less. see it you years to

Ashish. And for then question a

may not SyQwest I I'm think I rate? the expected wondering, revenue catch Ashish, run

Yes.

that So, say, year, of $XX ownership end $XX our Hendi, the the to a through period under had we starting, million. are for the million of talked from XXXX in August about range they

do then the you run last terms XX information have rate? And in of revenue any months

but Hendi, pretty pointed you from expect a XXXX. that period We as has haven't will them Kieran have it, we momentum disclosed we we extrapolating range. publicly, And look into decent give ahead the that growth out, as good

have follow-up Co. Sidoti Franzreb & We from a John of

Yes.

diversification additional curious and time front? SyQwest Or consolidate you're step about maybe purchase? aggressive a and efforts. you going be Do back your the on take think that I'm thoughts about to to your you the are Just M&A M&A it's still going

industrial, be the defense, and transportation, medical. some strategy. products can this the future, nice investing chance disciplined We're as John, our our for to pipeline, in going diversification winners our enhance at we to see a for got be actively working aerospace growth in making advance we're and and the and we're end too. key same where we've us time, diversification And our markets of in sure that

end you to going to be the you you'd repayment? And next about on ratios like debt on aggressive bit of thoughts that your a Okay. targets year? any Fair enough. little talk at Do be front? you're have leverage How can debt by on

Kieran to capital as the priority So, pipeline. M&A allocation, we are on mentioned, work John, the continuing

on standpoint, of point. capital excess have have still then the at point. that's not have a elevated of biggest in down lot focus debt a this priorities this priority don't We that cash, at buybacks But on debt. an level at, we debt allocation the From look well. It's first increase as those we'll and We'll if we we debt the a obviously, X acquisition. pay SyQwest then after feel modest the

of question another have Gabelli Hendi from Susanto Funds. We

we that expense Ashish, I kind have What of additional question debt. one for rate model? should interest

our some you debt So, I'm X% of X%. rate internally public range those Hendi, hedged our of The in to overall that filings. using see details in and can is already is the

We have to no for comments. closing further questions. Kieran back hand I'll any

Nadia. Great, for Thank you, us everybody, this joining morning.

improve next We to of advance look quarter. on forward and our strategy to will our earnings, updating and the electrification you. the you continue diversification in quality Thank we to

Thank concludes you joining. now you. all call. today's This Thank for

now may lines. You your disconnect