Attached files
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| 8-K - 8-K - CTS CORP | jan2018investorpresentatio.htm |
January 2018
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 – 65%
▪ Industrial – 16%
▪ Medical – 9%
▪ Defense / Aerospace – 5%
▪ Information Technology – 3%
▪ Communications – 2%
Sales by Region:
▪ Americas – 56%
▪ Asia – 31%
▪ Europe – 13%
Our Company
Ticker: CTS (NYSE)
Founded: 1896
Business: CTS is a leading designer
and manufacturer of sensors,
actuators and electronic components.
Locations: 15 manufacturing locations
throughout North America, Asia and
Europe.
Number of Employees: ~3,000
Globally
Note: Sales by market and region based on trailing twelve months
sales as of September 30, 2017
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
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
6
Fuel Handling
▪ Contacting Fuel Level Card
Chassis / Driveline
▪ 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 SensorAutonomous Drive
▪ PLL module
Key Customers
Industrial Printers, HVAC, Automation and Safety Products
▪ Piezo micro-actuators
▪ Switches
▪ Encoders
▪ Frequency Control
▪ EMI Filters
▪ Flow meter transducers
▪ Thermal solution for LED high bay lighting
Product Applications in Industrial
7
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
8
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
9
Infusion Pumps
CPAP Machines
Ultrasound Equipment
Dental Equipment
Product Applications in Communications
10
Key Customers
Communications Products
▪ RF Filters
▪ EMI/RFI Filters
▪ Frequency Control
▪ Timing Modules
▪ Thermal Products
▪ Multilayer Piezo
Macro Cell Base Stations
Small Cell Base Stations
Satellite Communications
Backhaul CommunicationsWireless Infrastructure
Wireline Infrastructure
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
CTS Addressable Markets Expected to Grow Mid-Single Digits
12
▪ Hydrophones for sonar applications
▪ Military communication
Organic Growth Drivers
▪ 100GB & 400GB Wireline Networks
▪ Small Cell Deployment
▪ Haptics for Mobile Devices
▪ 3D and textile printing
▪ New products for industrial controls
▪ LED high bay lighting
▪ Actuators for harsh environments
▪ RF Sensing for particulate filters
▪ Autonomous drive
▪ Medical 3D/4D ultrasound
▪ HMI Control for medical devices
Def/Aero
Communications
Industrial / IT
Transportation
Market
Medical
SAM in $ Billions
$2.9
$1.2
$0.9
$0.3
$1.0
Organic Growth
13
$299
$484
$560
$488
2013 2014 2015 2016
New Business Awards
Organic Growth around
Sense, Connect and Move
1Q Not
Reported
Total Booked Business
Note: Total Booked Business represents open purchase orders, contractual commitments, and the total expected lifetime revenue from business
awarded to CTS in multi-year platform awards.
($ Millions)
Dec 2016 Sep 2017
$319
$103$1,518
$1,698
Expected to ship in 2017
Targeted Acquisitions
14
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
LV/CV
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
AD
M
O
15
Noliac Acquisition
Multilayer (Tape cast)
▪ Founded in 1997, facilities in Denmark and Czech Republic
▪ Designer and manufacturer of tape cast and bulk piezoelectric material as well as transducers for use in
the telecommunications, industrial, medical and defense industries
▪ Acquisition rationale:
‒ Tape cast capability – Doubles available market of piezoelectric material along with Bulk piezo
‒ European presence and customer base
‒ Transducer capability and expertise – vertical integration with higher value add and ASP
‒ Backup foundry capability – European foundry supplements existing US foundry
Wide range of stack and
multilayer actuators
16
Bulk
Hard and soft PZT materials
Transducers
Sensor and Transducer,
design and development
$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 October 26, 2017.
Annual Financial Performance Trend
17
$415
$1.18
$1.13
($ Millions except Adjusted Earnings Per Share)
Q3 YTD
Actual
$312
Booked
Business
$103
Q3 YTD
Actual
$0.84
Equity 81%
Debt 19%
$135
$157
$114 $116
$75
$91 $90
$82
2014 2015 2016 Q3 2017
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
$(60) $(66)
Current Capital Structure
DebtCash
$(24) $(34)
18
($ 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
AcquisitionsInvestment
Dividends & Buybacks
19
*6-8% in 2017 and 2018
Financial Framework
20
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)
*6-8% in 2017 and 2018
Appendix
21
CTS Core Values
22
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
$39.1
24.4%
$16.3
2014
$404.0
$0.97
$33.3
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
22.1%
$19.0
$77.4
19.5%
23
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%
Q3 2017
YTD
$312.1
$0.84
$47.0
19.2%
$15.1
$58.8
18.8%
$107.6
34.5%
Regulation G Schedules
($ Millions, except percentages)
Adjusted EBITDA
24
2017 2016 2017 2016 2016 2015 2014 2013 2012
Net earnings from continuing operations 9.6$ 3.7$ 28.1$ 26.1$ 34.4$ 7.0$ 26.5$ 2.0$ 13.5$
Depreciation and amortization expense 5.4 5.1 15.1 14.0 19.0 16.3 17.0 17.3 13.5
Interest expense 0.8 0.9 2.2 2.7 3.7 2.6 2.3 3.3 2.6
Tax expense 4.3 8.0 12.0 19.8 22.9 5.3 12.8 16.1 1.0
EBITDA from continuing operations 20.1 17.7 57.4 62.6 80.0 31.2 58.6 38.6 30.5
Charges (credits) to EBITDA from continuing operations:
Restructuring charges 1.4 2.0 2.9 2.2 3.0 15.2 7.9 11.8 4.5
Loss (gain) on sale-leaseback - - - 0.1 0.1 - - - (10.3)
Loss (gain) on sale of facilities, net of expenses 0.7 - 0.7 (11.1) (11.1) - - - -
Non-recurring environmental charge - - - - - 14.5 - - -
Foreign currency (gain) loss (1.0) 0.2 (2.5) 1.7 3.8 - - - -
Legal costs, transaction costs, and CEO search costs - - 0.3 0.8 0.8 - - 4.1 3.9
Lease termination charge - 0.8 - 0.8 0.8 - - - -
Total adjustments to reported operating earnings from continuing operations 1.1 3.0 1.4 (5.5) (2.6) 29.7 7.9 15.9 (1.9)
Adjusted EBITDA from continuing operations 21.2$ 20.7$ 58.8$ 57.1$ 77.4$ 60.9$ 66.5$ 54.5$ 28.6$
Sales from continuing operations 106.2$ 99.7$ 312.1$ 295.1$ 396.7$ 382.3$ 404.0$ 409.5$ 304.5$
Adjusted EBITDA as a % of sales from continuing operations 20.0% 20.8% 18.8% 19.3% 19.5% 15.9% 16.5% 13.3% 9.4%
Full YearQ3 Year-to-Date
Regulation G Schedules
Adjusted Diluted EPS
($ Millions, except percentages)
Total Debt to Capitalization
25
* Includes discontinued operations
2017 2016 2016 2015 2014 2013 2012
Total debt (A) 82.3$ 96.0$ 90.1$ 90.7$ 75.0$ 75.0$ 153.5$
Total shareholders' equity (B) 346.6$ 306.3$ 317.9$ 281.7$ 289.8$ 296.9$ 267.8$
Total capitalization (A+B) 428.9$ 402.3$ 408.0$ 372.4$ 364.8$ 371.9$ 421.3$
Total debt to capitalization 19.2% 23.9% 22.1% 24.4% 20.6% 20.2% 36.4%
As of December 31Q3
2017 2016 2017 2016 2016 2015 2014 2013 2012 2013 2012
Diluted earnings (loss) per share 0.29$ 0.11$ 0.84$ 0.79$ 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 charges 0.03 0.04 0.05 0.04 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 - 0.07 0.07 - 0.01 - - - -
Gain on sale-leaseback - - - - - - - - (0.23) - (0.23)
Loss (gain) on sale of facilities, net of expenses 0.01 - 0.01 (0.22) (0.22) - - - - - -
Legal costs, transaction costs, and CEO search costs - - 0.01 0.01 0.02 - - 0.07 0.09 0.07 0.09
Lease termination charge - 0.02 - 0.02 0.02 - - - - - -
EMS divestiture - - - - - - - - - 0.25 -
Non-recurring environmental charge - - - - - 0.27 - - - - -
Foreign currency (gain) loss (0.02) - (0.06) 0.04 0.09 - - - - - -
Tax impact of cash repatriation - - - - - 0.26 - 0.31 - 0.31 -
Tax impact of U.K. deferred tax asset write-off - - - - - - - 0.03 - 0.03 -
Increase (decrease) in recognition of valuation allowance - 0.04 (0.01) 0.04 0.03 0.10 - - - - -
Increase in reserve on uncertain tax benefits - - - - - 0.17 - - - - -
Tax impact of non-recurring stock compensation charge - - - - (0.02) - - - - - -
Change in treatment of certain foreign taxes - - - - - (0.48) - - - - -
Adjusted diluted earnings per share 0.31$ 0.28$ 0.84$ 0.79$ 1.08$ 0.93$ 0.97$ 0.75$ 0.35$ 0.82$ 0.64$
Full Year - From Continuing Operations Full Year - As Reported *Year-to-DateQ3