Attached files
| file | filename |
|---|---|
| 8-K - 8-K - CTS CORP | q42016invpresentform8k.htm |
February 2017
Safe Harbor Statement
This presentation contains statements that are, or may be deemed to be, forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but
are not limited to, any financial or other guidance, statements that reflect our current expectations concerning
future results and events, and any other statements that are not based solely on historical fact. Forward-looking
statements are based on management's expectations, certain assumptions and currently available information.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily
are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties
and other factors, which could cause our actual results, performance or achievements to differ materially from
those presented in the forward-looking statements. Examples of factors that may affect future operating results
and financial condition include, but are not limited to: changes in the economy generally and in respect to the
businesses in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to
reposition our businesses; rapid technological change; general market conditions in the automotive,
communications, and computer industries, as well as conditions in the industrial, defense and aerospace, and
medical markets; reliance on key customers; unanticipated natural disasters or other events; the ability to protect
our intellectual property; pricing pressures and demand for our products; unanticipated developments that could
occur with respect to contingencies such as litigation and environmental matters as well as any product liability
claims; and risks associated with our international operations, including trade and tariff barriers, exchange rates
and political and geopolitical risks. Many of these, and other, risks and uncertainties are discussed in further detail
in Item 1A. of CTS’ Annual Report on Form 10-K. We undertake no obligation to publicly update our forward-
looking statements to reflect new information or events or circumstances that arise after the date hereof,
including market or industry changes.
2
2016 Sales: $397 Million
Sales by Market:
Transportation – 66%
Industrial – 17%
Medical – 7%
Defense / Aerospace – 4%
Information Technology – 4%
Communications – 2%
Sales by Region:
Americas – 57%
Asia – 31%
Europe – 12%
Our Company
Ticker: CTS (NYSE)
Founded: 1896
Business: CTS is a leading designer
and manufacturer of sensors,
actuators and electronic components.
Locations: 12 manufacturing locations
throughout North America, Asia and
Europe.
Number of Employees: ~2,800
Globally
Note: Sales by market and region based on trailing twelve months
sales as of December 31, 2016
3
Our History - 120 Years of Innovation
4
Our Vision and Value Proposition
We aim to be a leading provider of sensing and motion devices as well as
connectivity components, enabling an intelligent and seamless world.
5
CTS Addressable Markets Growing to $6B by 2020 with Mid-
Single Digit Growth Rates
6
Hydrophones for sonar applications
Military communication
Organic Growth Drivers
100GB & 400GB Wireline Networks
Small Cell Deployment
3D and textile printing
New products for industrial controls
Actuators for harsh environments
RF Sensing for particulate filters
Medical 3D/4D ultrasound
HMI Control for medical devices
Def/Aero
Communications
Industrial / IT
Transportation
Market
Medical
Product Categories
Product Applications in Passenger and Commercial Vehicles
Engine Efficiency
Accelerator Pedal Module
Current Sensor
Gear Position Sensor
Throttle Position Sensor
Turbo Actuator
Turbo Position Sensor
Variable Valve Lift Sensor
Key Customers
New
European
Customer #1
New
European
Customer #2
7
Fuel Handling
Contacting Fuel Level Card
Chassis / Driveline
Air Grill Shutter Actuator
Brake Pedal Sensor
Chassis Height Sensor
Transmission Speed
Sensor
Transmission Range
Sensor
Wheel Speed Sensor
Occupant Safety
Seat Belt Buckle Switch
Seat Belt Tension Sensor
Seat Track Position Sensor
Exhaust Management /
Aftertreatment
EGR Position Sensor
DPF RF Sensor
Key Customers
Industrial Printers, HVAC, Automation and Safety Products
Piezo micro-actuators
Switches
Encoders
Frequency Control
EMI Filters
Product Applications in Industrial
8
Industrial Inkjet Printers Industrial HVAC
Key Customers
Military Sonar and Communication Products
Piezo hydrophones
Piezo sonar arrays
Frequency Control
EMI Filters
Product Applications in Defense / Aerospace
9
Unmanned Aerial
Vehicles (UAV)
Maritime Applications
Product Applications in Medical
Key Customers
Ultrasound / IVUS, Infusion Pumps, CPAPs and other medical devices
Single Crystal Piezo
Bulk Piezo
Encoders
Frequency Control
Piezo micro-valves
Switches
Joysticks
10
Ultrasound Equipment
Infusion Pumps
CPAP Machines
Positioning for Growth with Fundamental Market Trends
11
Autonomous
Vehicle
SMART
Smart Home/
Building
Unmanned
Aerial Vehicles
(Drones)
Improved
Medical
Diagnosis
Fuel Efficiency/
Vehicle
Electrification
Miniaturization
Energy
Harvesting
EFFICIENT
Green Buildings
Diagnos
Remote
Monitoring
Industry 4.0
Internet of
Things
5G & Small
Cells
CONNECTED
Elec ifi io
Communications
Information
Technology
Transportation
IndustrialMedical
Defense &
Aerospace
Moni or
5G mall
emote
Organic Growth
12
$299
$484
$560
$488
2013 2014 2015 2016
New Business Awards
Organic Growth around
Sense, Connect and Move
1Q Not
Reported
[CATEGOR
Y NAME]
Shipment
s after
2017
$1,199
2017
Shipment
s $319
Total Booked Business
$1,518 as of 1/1/17
Note: Total Booked Business represents open purchase orders, contractual commitments, and the total expected lifetime revenue from business
awarded to CTS in multi-year platform awards.
($ Millions)
Targeted Acquisitions
13
Disciplined approach to acquisitions:
Returns in excess of cost of capital
Accretive to earnings
Maintain balance sheet strength
Synergy opportunities
Targeting 10% growth (both inorganic and organic)
Expand
Product
Range
Broaden
Geographic
Reach
Enhance
Technology
Portfolio
Strengthen
Customer
Relationships
The Road Ahead of Us
LV
I
M
CV
C/IT
AD
[CATE
GORY
NAME
]
I
C
AD
M
IT/O
LV
I
M
CV
C/IT
AD
30-50%
20-30%
10-20%
10-20%
10-20%
5-15%
Targeted End Markets
Light Vehicles
Industrial
Medical
Comm. / IT
Commercial Vehicles
Aviation/Defense
EMS Divestiture
Front End Refocus
New Customers
Regional Expansion
Organic Projects
M&A
Legend:
AD: Aviation/Defense
C: Communications
CV: Commercial Vehicles
I: Industrial
IT: Information Technology
LV: Light Vehicles
M: Medical
O: Others
Organic Growth
Innovation
M&A
LV/CV
I
C
DA
M
O
14
Single Crystal Technology Acquisition
Current Applications – 3D & 4D Ultrasound, IVUS Future Applications – Hearing Aid, Pacemaker
Founded in 1997, located in Bolingbrook, IL
The industry leader for the design and manufacture of piezoelectric single crystals for use in the
medical and defense industries; existing long-term relationships with blue chip OEM customers
The leading large scale, vertically integrated manufacturer of single crystals, having invested heavily in
proprietary production processes and equipment
High definition medical ultrasound market expected to grow at >10%
Wireless powering of
pacemakers
Implantable hearing aids to
replace cochlear implants
Intravascular Ultrasound (IVUS)
detects plaque that causes
heart disease
Single crystal technology creates high definition
imaging
15
Premium ultrasound machines
utilize the technology for real-
time 3D & 4D imaging of a fetus
$409 $404
$382
$397
2013 2014 2015 2016 2017E
Sales
$0.82
$0.97
$0.93
$1.08
2013 2014 2015 2016 2017E
Adjusted Earnings Per Share
$420
Note 1: Sales are from continuing operations.
Adjusted EPS is as reported.
Note 2: 2017E represents guidance provided on February 7, 2017.
Annual Financial Performance Trend
16
$405
$1.22
$1.12
($ Millions except Adjusted Earnings Per Share)
Booked
Business
$319
Equity 76%
[CATEGORY
NAME]
$124
$135
$157
$114
$75 $75
$91 $89
2013 2014 2015 2016
Note 1: Change in Cash/Debt in 2016 due to Single Crystal Acquisition
Note 2: Total available credit increased from $200M to $300M in 2Q 2016
Capital Structure
Cash and Debt
Net
Debt
$(49) $(60)
Current Capital Structure
Debt Cash
$(66) $(25)
17
($ Millions except percentages)
Capital Structure
Leverage = 1.0x - 2.5x EBITDA
Operating Cash Flow
Return Capital to
Shareholders
~4% of Sales
20-40% of Free Cash Flow
12-14% of Sales
60-80% of
Free Cash Flow
Target Capital Deployment – Disciplined Approach
Growth
Acquisitions Investment
Dividends & Buybacks
18
Financial Framework
19
2012
2016
Long-Term
Target Range
Gross Margin 30.0% 35.4% 34-37%
SG&A Expense 20.7% 15.5% 13-15%
R&D Expense 6.9% 6.1% 5-7%
CapEx 2.6% 5.2% ~4%
Targeting 10% Annual Growth (Organic + Inorganic)
Appendix
20
CTS Core Values
21
Financial Summary
Note 1: See Regulation G reconciliations from GAAP to Non-GAAP measures and adjustments.
Note 2: All figures are from continuing operations except for Adjusted Diluted EPS (As Reported), Operating Cash Flow and Total Debt / Capitalization
($ Millions, except percentages and Adjusted Diluted EPS)
Net Sales
Adjusted Diluted EPS (As Reported)
Operating Cash Flow
Total Debt / Capitalization
Depreciation and Amortization
2015
$382.3
$0.93
$38.6
24.4%
$16.3
2014
$404.0
$0.97
$32.4
20.6%
$17.0
2013
$409.5
$0.82
$37.6
20.2%
$17.3
2012
$304.5
$0.64
$41.7
36.4%
$13.5
Adjusted EBITDA
Adjusted EBITDA % of Sales
$60.9
15.9%
$66.5
16.5%
$54.5
13.3%
$28.6
9.4%
2016
$396.7
$1.08
$47.2
21.9%
$19.0
$77.4
19.5%
22
Gross Margin
Gross Margin % of Sales
$127.1
33.2%
$130.0
32.2%
$121.4
29.6%
$91.5
30.0%
$140.4
35.4%
Regulation G Schedules
($ Millions, except percentages)
Adjusted EBITDA
23
2016 2015 2016 2015 2014 2013 2012
Net earnings from continuing operations 8.3$ (13.7)$ 34.4$ 7.0$ 26.5$ 2.0$ 13.5$
Depreciation and amortization expense 5.0$ 4.3$ 19.0$ 16.3$ 17.0$ 17.3$ 13.5$
Interest expense 1.0$ 0.7$ 3.7$ 2.6$ 2.3$ 3.3$ 2.6$
Tax expense (benefit) 3.1$ 13.0$ 22.9$ 5.3$ 12.8$ 16.1$ 1.0$
EBITDA from continuing operations 17.4$ 4.3$ 80.0$ 31.2$ 58.6$ 38.6$ 30.5$
Charges (credits) to EBITDA from continuing operations:
Restructuring, restructuring-related, and asset impairment charges 0.9$ 9.5$ 3.0$ 15.2$ 7.9$ 11.8$ 4.5$
(Gain) Loss on sale-leaseback -$ -$ 0.1$ -$ -$ -$ (10.3)$
Gain on sale of facilities, net of expenses -$ -$ (11.1)$ -$ -$ -$ -$
Non-recurring environmental charge -$ -$ -$ 14.5$ -$ -$ -$
Foreign currency loss 2.1$ -$ 3.8$ -$ -$ -$ -$
Legal costs, acquisition-related costs, and CEO search costs -$ -$ 0.8$ -$ -$ 4.1$ 3.9$
Lease termination charge -$ -$ 0.8$ -$ -$ -$ -$
Total adjustments to reported operating earnings from continuing operations 3.0$ 9.5$ (2.6)$ 29.7$ 7.9$ 15.9$ (1.9)$
Adjusted EBITDA from continuing operations 20.4$ 13.8$ 77.4$ 60.9$ 66.5$ 54.5$ 28.6$
Sales from continuing operations 101.6$ 93.3$ 396.7$ 382.3$ 404.0$ 409.5$ 304.5$
Adjusted EBITDA as a % of sales from continuing operations 20.1% 14.8% 19.5% 15.9% 16.5% 13.3% 9.4%
Q4 Full Year
Regulation G Schedules
Adjusted Diluted EPS
($ Millions, except percentages)
Total Debt to Capitalization
24
2016 2015 2014 2013 2012
Total debt (A) 89.1 $ 90.7 $ 75.0 $ 75.0 $ 153.5 $
Total shareholders' equity (B) 317.9 $ 281.7 $ 289.8 $ 296.9 $ 267.8 $
Total capitalization (A+B) 407.0 $ 372.4 $ 364.8 $ 371.9 $ 421.3 $
Total debt to capitalization 21.9% 24.4% 20.6% 20.2% 36.4%
As of December 31
2016 2015 2016 2015 2014 2013 2012 2013 2012
Diluted earnings (loss) per share 0.25 $ (0.42) $ 1.03 $ 0.21 $ 0.78 $ 0.06 $ 0.39 $ (0.12) $ 0.59 $
Tax affected charges (credits) to reported diluted earnings per share:
Restructuring, restructuring-related, and asset impairment charges 0.02 $ 0.28 $ 0.06 $ 0.40 $ 0.18 $ 0.28 $ 0.10 $ 0.28 $ 0.19 $
Increase in valuation allowance and revaluation of deferred taxes as a
result of restructuring activities - $ - $ 0.07 $ - $ 0.01 $ - $ - $ - $ - $
(Gain) Loss on sale-leaseback - $ - $ - $ - $ - $ - $ (0.23) $ - $ (0.23) $
Gain on sale of facilities, net of expenses - $ - $ (0.22) $ - $ - $ - $ - $ - $ - $
Legal costs, acquisition-related costs, and CEO search costs - $ - $ 0.02 $ - $ - $ 0.07 $ 0.09 $ 0.07 $ 0.09 $
Lease termination charge - $ - $ 0.02 $ - $ - $ - $ - $ - $ - $
EMS divestiture - $ - $ - $ - $ - $ - $ - $ 0.25 $ - $
Non-recurring environmental charge - $ - $ - $ 0.27 $ - $ - $ - $ - $ - $
Foreign currency loss 0.05 $ - $ 0.09 $ - $ - $ - $ - $ - $ - $
Tax impact of cash repatriation - $ 0.27 $ - $ 0.26 $ - $ 0.31 $ - $ 0.31 $ - $
Tax impact of U.K. deferred tax asset write-off - $ - $ - $ - $ - $ 0.03 $ - $ 0.03 $ - $
(Decrease) increase in recognition of foreign valuation allowance (0.01) $ 0.07 $ 0.03 $ 0.10 $ - $ - $ - $ - $ - $
Increase in reserve on uncertain tax benefits - $ 0.01 $ - $ 0.17 $ - $ - $ - $ - $ - $
Tax impact of non-recurring stock compensation change (0.02) $ - $ (0.02) $ - $ - $ - $ - $ - $ - $
Change in treatment of certain foreign taxes - $ (0.01) $ - $ (0.48) $ - $ - $ - $ - $ - $
Adjusted diluted earnings per share 0.29 $ 0.20 $ 1.08 $ 0.93 $ 0.97 $ 0.75 $ 0.35 $ 0.82 $ 0.64 $
* Includes discontinued operations
Q4 Full Year - From Continuing Operations Full Year - As Reported *