Q1 2024 CTS Corp Earnings Call

Operator: Hello all, and welcome to CTS Corporation's first quarter 2024 conference call. My name is Lydia, and I'll be your operator today. All lines have been placed on mute to prevent any background noise, and after the prepared remarks, there'll be an opportunity to ask questions. If you'd like to ask a question, you can do so by pressing the star followed by 1 on your telephone keypad. I'll now hand you over to Kieran O'Sullivan, CEO, to begin. Please go ahead.

Hello, and welcome to Cts Corporation first quarter 2020 full conference call.

Lydia: My name is Lydia and there will be your operator today.

All lines have been placed on mute to prevent any background noise and after the prepared remarks, there'll be an opportunity to ask questions.

If you'd like to ask a question you can do side by pressing star followed by one on your telephone keypad.

I'll now hand, you over to Kieran Osullivan CEO to begin please go ahead.

Kieran O'sullivan: Thank you, Lydia. Good morning, and thank you for joining our first quarter 2024 earnings call. Sales were in line with our expectations for the quarter as non-transportation sales started to stabilize from the ongoing reduction in customer inventory. In the quarter, we also saw an improved booking trend for non-transportation markets. Sales to commercial vehicle markets declined as expected, driven by softer demand and a more competitive environment. Light vehicle sales were stable across most regions except in China, where our sales to transplant OEMs were softer.

Kieran Osullivan: Thank you Lydia good morning, and thank you for joining our first quarter 2024 earnings call.

Kieran Osullivan: Sales were in line with our expectations for the quarter as non transportation sales started to stabilize from the ongoing reduction in customer inventory in the quarter. We also saw an improved booking trend for non transportation markets.

Sales to commercial vehicle markets declined as expected driven by softer demand in a more competitive environment light vehicle sales were stable across most regions, except in China, where our sales to transplant Oems were softer.

Kieran O'sullivan: While defense sales were lower, due primarily to the timing of shipments, we expect good momentum for the rest of 2024. Across medical, we saw solid performance. Ashish, our CFO, will take us to the safe harbor statement.

Kieran Osullivan: While defense sales were lower due primarily to the timing of shipments we expect good momentum for the rest of 2024 across medical we saw solid performance Ashish, our CFO will take us through the safe Harbor statement Ashish.

Ashish Agrawal: I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued today, and more information can be found in the company's SEC filing, to the extent that today's discussion refers to any non-GAAP measures under Regulation G. The required explanations and reconciliations are available with today's earnings press release and supplemental slide presentation, which can be found in the investors section of the CTS website. I'll now turn the discussion back over to our CEO, Kiran Sullivan.

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

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

ashish: To the extent that today's discussion refers to any non-GAAP measures under regulation G.

ashish: The required explanations and reconciliations are available with today's earnings press release, and supplemental slide presentation, which can be found in the investors section of the Cts website.

Kieran O'sullivan: I'll now turn the discussion back over to our CEO Kieran O'sullivan.

Kieran O'sullivan: Thanks Ashish. We finished the first quarter with sales of $126 million, a decline of 14% from the first quarter of 2023. For the quarter, non-transportation sales were down 17% and transportation sales were down 10% from the same period last year. However, sequentially, non-transportation sales were up 7% as we see some early signs of recovery in the industrial end market. Sales to the transportation and end market were down 4% versus the fourth quarter of 2023.

Kieran O'sullivan: Thanks, Ashish we finished the first quarter with sales of 126 million a decline of 14% from the first quarter of 2023.

Kieran O'sullivan: For the quarter non transportation sales were down 17% and transportation sales were down 10% from the same period last year.

Kieran O'sullivan: Sequentially non transportation sales were up 7% as we see some early signs of recovery in the industrial end market.

Kieran O'sullivan: Sales to the transportation end market were down 4% versus the fourth quarter of 2023.

Kieran O'sullivan: I want to thank our teams for their support as we carefully managed operations while we navigated a challenging revenue environment. Our book-to-bill ratio was 1.07 in the first quarter, up from 0.96 in the first quarter and the fourth quarter of 2023.

Speaker Change: Wanted to thank our teams for their support as we carefully managed operations, while we navigate a challenging revenue environment.

Kieran O'sullivan: Our book to Bill ratio was 1.07 in the first quarter up from <unk> 96 in the first quarter and the fourth quarter of 2023.

Kieran O'sullivan: The improvement in the book-to-bill ratio is in line with our expectations of recovery in the industrial end market with both distribution and OEM customers. We are encouraged by these early signs, but inventories are still correcting, and we will continue to monitor the order intake carefully. Adjusted gross margin in the first quarter was 36.2 percent, up 86 basis points from the first quarter of 2023, driven by operational improvements and the mixed shift to non-transportation sales.

Kieran O'sullivan: The improvement in the book to Bill ratio is in line with our expectations of recovery in the industrial end market with both distribution and OEM customers.

Kieran O'sullivan: We are encouraged by these early signs however, inventories are still correcting and we will continue to monitor the order intake carefully.

Kieran O'sullivan: Adjusted gross margin in the first quarter was 36, 2%.

ashish: Up 86 basis points from the first quarter of 2023.

ashish: Driven by operational improvements and the mix shift to non transportation sales.

Kieran O'sullivan: On the operations front, our teams worked on improvements to help offset the unfavorable impacts from lower volumes. However, we are still experiencing some cost pressures, especially for certain materials and from labor cost increases. We expect pricing pressure this year, particularly in the transportation market. However, we remain confident in our ability to drive efficiencies in our supply chain and manufacturing sites and to improve our operational performance and profitability. We also made significant progress on the consolidation of the Juarez facility into the Matamoros site in Mexico and expect to fully exit the Juarez location in the second quarter.

ashish: On the operations front. Our team has worked on improvements to help offset the unfavorable impacts from lower volumes.

ashish: We are still experiencing some cost pressures, especially for certain materials and from labor cost increases.

ashish: We expect pricing pressure this year, particularly in transportation markets.

ashish: We remain confident in our ability to drive efficiencies in our supply chain and manufacturing sites and to improve our operational performance and profitability.

ashish: We also made significant progress on the consolidation of the Juarez facility into the map the Matamoros site in Mexico and expect to fully exit the juarez location in the second quarter.

Kieran O'sullivan: This has been a tremendous effort by our teams to advance this project while successfully supporting our customers. First quarter adjusted diluted earnings per share of 47 cents were down from 61 cents in the same period last year.

ashish: This has been a tremendous effort by our teams to advance this project while successfully supporting our customers.

ashish: First quarter adjusted diluted earnings per share of <unk> 47.

ashish: We're down from 61 in the same period last year.

Kieran O'sullivan: Later, Ashish will add further color on our financial performance. Non-transportation sales decreased 17% in the first quarter compared to the prior year period but were up 7% sequentially. The book-to-bill ratio was above 1, and new order trends were positive across several product lines. In medical markets, sales were essentially flat from the same period in 2023, but bookings were up sequentially, as well as from the same period last year. We are seeing steady demand and expect further growth in 2024.

ashish: Labour Ashish will add further color on our financial performance.

ashish: Non transportation sales decreased 17% in the first quarter compared to the prior year period, but we're up 7% sequentially.

ashish: The book to Bill ratio was above one and new order trends were positive across several product lines.

ashish: In medical markets sales were essentially flat from the same period in 2023, but bookings were up sequentially as well as from the same period last year.

ashish: We are seeing steady demand and expect further growth in 2024.

Kieran O'sullivan: We had multiple wins in the quarter for diagnostic ultrasound across all regions and secured a new order for an intravascular ultrasound application. We were engaged in two new programs for applications in blood analysis and therapeutic ultrasound.

ashish: We had multiple wins in the quarter for diagnostic ultrasound across all regions and secured a new order for an intravascular ultrasound application.

ashish: We were engaged on two new programs for applications in blood analysis and therapeutic ultrasound.

Kieran O'sullivan: Additionally, we added two new customers, one for facial therapeutics and a second for a disposable blood analyzer. In the quarter, we also partnered with an existing customer on an advanced development project that has the potential to expand our intravascular applications by leveraging the capabilities of our single crystal technology. We expect the long-term prospects for the aerospace and defense end market to be solid given our enhanced capabilities and material formulation. Aerospace and defense sales were down in the quarter, primarily due to the timing of shipments to some customers.

Kieran O'sullivan: Additionally, we added two new customers one for facial therapeutics and a second for a disposable blood analyzer.

ashish: In the quarter. We also partnered with an existing customer on an advanced development project that has the potential to expand our intravascular applications by leveraging the capabilities of our single Crystal technology.

Kieran O'sullivan: We expect the long term prospects for the aerospace and defense end market to be solid given our enhanced capabilities.

Kieran O'sullivan: And material formulations.

Kieran O'sullivan: Aerospace and defense sales were down in the quarter, primarily due to the timing of shipments to some customers.

Kieran O'sullivan: Bookings were strong in the quarter as we received multiple orders for hydrophones, sonar buoys, underwater unmanned applications, frequency controls, and RF filters. We added three new programs in the quarter for AUVs and satellite RF filter applications. We also added one new customer for an application in aerospace and defense non-destructive testing. Additionally, we are getting traction on European defense growth with sample qualifications in progress, and we anticipate sales growth in 2025 on a multi-year opportunity. In the industrial market, overall sales were down from the prior year period.

ashish: Bookings were strong in the quarter as we received multiple orders for Hydrophones sonar buoys underwater unmanned applications.

ashish: Frequency controls and RF filters.

ashish: We added three new programs in the quarter for <unk> and satellite RF filter applications.

Kieran O'sullivan: We also added one new customer for an application in aerospace and defense non destructive testing.

ashish: Additionally, we are getting traction on European defense growth with sample qualifications in progress and we anticipate sales growth in 2025 on a multi year opportunity.

ashish: In the industrial market overall sales were down from the prior year period sale.

Kieran O'sullivan: Sales and bookings were up sequentially. We were successful with several sales wins in the quarter, including for industrial printing, EMC components, temperature sensing, flow metering, and switching. We added three new customers in the quarter for temperature and EMC applications. While we saw a small sequential improvement in distribution sales and bookings, inventory reduction is still in progress.

ashish: Sales and bookings were up sequentially, we were successful with several sales wins in the quarter, including for industrial printing EMC components temperature sensing flow metering and switches.

Kieran O'sullivan: We added three new customers in the quarter for temperature and EMC applications.

Kieran O'sullivan: While we saw a small sequential improvement in distribution sales and bookings inventory reduction is still in progress.

Kieran O'sullivan: Looking ahead for the year, in non-transportation markets, we expect improvement in our industrial and distribution and market revenue in the second half of 2024. For defense and medical markets, we anticipate a stable environment, and we expect to make solid progress on the qualification of products for prospective new customers. Longer term, we expect our material formulations and in-house know-how to continue to support our growth in key, high-quality end markets in line with our diversification strategy.

Kieran O'sullivan: Looking ahead for the year in non transportation end markets, we expect improvement in our industrial and distribution end market revenue in the second half of 2024.

Kieran O'sullivan: For defense and medical markets, we anticipate a stable environment and we expect to make solid progress on the qualification of products for prospective new customers.

Kieran O'sullivan: Longer term, we expect a material formulations and in house Knowhow to continue to support our growth in key high quality end markets in line with our diversification strategy.

Kieran O'sullivan: Additionally, we anticipate the megatrends of automation, connectivity, and efficiency, as well as growth in minimally invasive medical procedures, will provide us momentum as we continue expansion in these markets. Transportation sales were $66.5 million in the first quarter, down approximately 10% from the same period last year and down 4% sequentially.

Kieran O'sullivan: Additionally, we anticipate the mega trends of automation connectivity and efficiency as well as growth in minimally invasive medical procedures will provide us momentum as we continue expansion in these markets.

Kieran O'sullivan: Transportation sales were $66 5 million in the first quarter down approximately 10% from the same period last year and down 4% sequentially. We.

Kieran O'sullivan: We are experiencing softer demand; we will experience a softer demand environment for commercial vehicle products in 2024, driven primarily by market softness and second source competition. On the light vehicle front, as I mentioned earlier, we continue to navigate the market share dynamics in China, given the competition between local and transplant OEM. The growth rates for ICE versus EVs and hybrids are less of a concern for us given our products are mostly agnostic to dry crane technology.

Kieran O'sullivan: We are experiencing softer demand we are experiencing a softer demand environment for our commercial vehicle products in 2024, driven primarily by market softness in second source competition.

Kieran O'sullivan: On the light vehicle front as I mentioned earlier, we continue to navigate the market share dynamics in China, given the competition between local and transplant Oems.

Kieran O'sullivan: The growth rates for ice versus Evs and hybrids are less of a concern for us given our products are mostly agnostic to the drivetrain technology.

Kieran O'sullivan: In the first quarter, we had wins across various product groups, including accelerometer modules, ride height sensors, and passive safety sensors. We added a new EV customer in North America and are progressing on advanced development awards, with other new customers for accelerator modules and EV busbar applications for current sensors. Total book business was approximately $1.2 billion at the end of the quarter.

ashish: In the first quarter, we had wins across various product groups, including accelerometer modules right height sensors in passive safety sensors, we added a new EV customer in North America and are progressing on advanced development awards with other new customers for accelerator modules and EV bus bar applications.

Kieran O'sullivan: For current sensing.

Kieran O'sullivan: Total booked business was approximately $1 2 billion at the end of the quarter.

Kieran O'sullivan: As we look to the future, we are excited by the opportunity the transition to electrification offers us, even as penetration rates adjust near term. We continue to see the footwell in the vehicle as a space where we expect to expand our product offering with traditional accelerator modules, haptic modules, new e-brake products offering weight and cost advantages, and the future introduction of our dry pad technology, a low-travel pedal product. We expect these and other sensor applications will increase our ability to grow content with a potential SAM of greater than 1 billion.

Kieran O'sullivan: As we look to our future. We are excited by the opportunity to transition to electrification offers us even as penetration rates adjust near term.

Kieran O'sullivan: We continue to see the footwell and the vehicle as the spirits space, where we expect to expand our product offering with traditional accelerator modules haptic modules, new E brake products offering weight and cost advantages.

Kieran O'sullivan: In the future introduction of a dry patch technology, although travel pedal product.

Kieran O'sullivan: We expect these and other sensor applications will increase our ability to grow content with a potential <unk> of greater than $1 billion.

Kieran O'sullivan: Turning to our outlook for this year, the North American light vehicle market is expected to be in the 15.5 to 16 million unit range, with on-hand days of supply now approaching normalized levels of 3 million units. European production is forecasted in the 17 million unit range. Chinese volumes are expected in the 28 million unit range. Electric vehicle penetration rates have softened in most regions while hybrid adoption has improved.

Kieran O'sullivan: Turning to our outlook for this year, the North American light vehicle market is expected to be in the 15 five to 16 million unit range.

Kieran O'sullivan: With on hand days of supply now approaching normalized levels of 3 million units.

Kieran O'sullivan: European production is forecasted in the 17 million unit range.

Kieran O'sullivan: China volumes are expected in the 28 million unit range.

Kieran O'sullivan: Electric vehicle penetration rates have softened in most regions, while hybrid adoption has improved.

Kieran O'sullivan: Overall, we anticipate a slightly down market for light vehicle production due to the Chinese market dynamics. We expect softness in commercial vehicle-related revenue throughout 2024, primarily due to lower demand, as well as second source competition. For the non-transportation markets, in line with our diversification strategy, we aim to expand the customer base and range of applications in the industrial, medical, and defense end markets. The green shoots we mentioned last quarter in the form of inventory level corrections and improved bookings are slowly becoming apparent and are indicators of a potential recovery in the second half of 2024.

Kieran O'sullivan: Overall, we anticipate a slightly down market for light vehicle production due to the China market dynamics.

Kieran O'sullivan: We expect softness in commercial vehicle related revenue throughout 2024, primarily due to lower demand as well as a second source competition.

Kieran O'sullivan: For the non transportation markets in line with our diversification strategy, we aim to expand the customer base and range of applications in the industrial medical and defense end markets.

Kieran O'sullivan: The Green shoots we mentioned last quarter in the form of inventory level corrections and improved bookings are slowly becoming apparent and are indicators of a potential recovery in the second half of 2024.

Kieran O'sullivan: As we outlined in our last earnings call, we expect a soft first half and continued near-term challenges in transportation sales, while we see strengthening in non-transportation sales and an improved margin profile. Demand in defense and medical markets is expected to remain solid as industrial and distribution begins to demonstrate early signs of an improving trend. Our balance sheet is strong with ample liquidity, supported by strong cash generation, which enables us to focus on strategic acquisitions and returning cash to shareholders.

Kieran O'sullivan: As we outlined in our last earnings call. We expect a soft first half and continued near term challenges in transportation sales, while we see strengthening in non transportation sales and an improved margin profile.

Kieran O'sullivan: Demand in defense and medical markets is expected to remain solid as industrial and distribution begins to demonstrate early signs of an improving trend.

Kieran O'sullivan: Our balance sheet is strong with ample liquidity supported by strong cash generation, which enables us to focus on strategic acquisitions and returning cash to shareholders.

Kieran O'sullivan: In terms of guidance for full year 2024, we are maintaining our prior guidance and anticipate sales in the range of $530 million to $570 million and adjusted diluted earnings per share in the range of $2.10 to $2.35. Now I'll turn it over to Ashish, who will walk us through the financial results in more detail. Thank you, Kiran.

Kieran O'sullivan: In terms of guidance for full year 2024, we are maintaining our prior guidance and anticipate sales in the range of 530 million to $570 million and adjusted diluted earnings per share in the range of $2 10 to $2 35.

Kieran O'sullivan: Now I'll turn it over to Ashish, who will walk us through the financial results in more detail Ashish. Thank you Kieran first quarter sales were $136 million.

Ashish Agrawal: Thank you, Kiran. First quarter sales were $126 million, down 14% compared to the first quarter of 2023 and up 1% sequentially from the fourth quarter of 2029. Sales to transportation customers were down 10% from the first quarter of last year due primarily to the softness in sales related to commercial vehicle products and sales to our light vehicle customers in China. Sequentially, sales to the transportation market were down 4% compared to the fourth quarter of 2020. Sales to non-transportation end markets decreased 17% year-over-year, driven mainly by continued softness in the industrial and distribution end markets. Compared to the fourth quarter of 2023, sales to non-transportation customers increased 7% as we saw some improvements in sales to industrial OEM customers. However, sales to the medical end market were stable.

Ashish Agrawal: Down 14% compared to the first quarter of 2023.

Ashish Agrawal: And up 1% sequentially from the fourth quarter of 2023.

Ashish Agrawal: Sales to transportation customers were down 10% from the first quarter of last year due primarily to the softness in sales related to commercial vehicle products and sales to our light vehicle customers in China.

Ashish Agrawal: Sequentially sales to the transportation market were down 4% compared to the fourth quarter of 2023.

Ashish Agrawal: Sales to non transportation end markets decreased 17% year over year, driven mainly by continued softness in the industrial and distribution end markets.

Ashish Agrawal: Compared to the fourth quarter of 2023 sales to non transportation customers increased 7%.

Ashish Agrawal: We saw some improvement in sales to industrial OEM customers.

Ashish Agrawal: Sales to the medical end market were stable.

Ashish Agrawal: And although we saw lower sales in the aerospace and defense end market in the first quarter, we expect to have strong momentum in both these end markets in 2024. Our adjusted gross margin was 36.2% in the first quarter, up 86 basis points compared to the first quarter of 2023 and up 205 basis points compared to the fourth quarter of 2023. The improvements were driven by a favorable change in customer mix as well as efficiency improvements in our manufacturing operations. As Kiran highlighted, we made good progress on our project to transition production from the Juarez location to our site in Matamoros.

Ashish Agrawal: And although we saw lower sales in the aerospace and defense end market in the first quarter, we expect to have strong momentum in both these end markets in 2024.

Ashish Agrawal: Our adjusted gross margin was 36, 2% in the first quarter up 86 basis points compared to the first quarter of 2023, and up 205 basis points compared to the fourth quarter of 2023 they.

Ashish Agrawal: The improvements were driven by a favorable change in customer mix.

Ashish Agrawal: As well as efficiency improvements in our manufacturing operations at.

Ashish Agrawal: As Kieran highlighted we made good progress on our project to transition production from the waters location to our site in Matamoros.

Ashish Agrawal: We expect completion of the transition in the second quarter of 2024. As we navigate this challenging revenue environment, we reduced operating expenses in the fourth quarter of 2023 through temporary cost-reduction measures and released reserves related to incentive compensation. We restored these temporary cost measures in the first quarter of 2024, and as a result, we saw an increase of approximately 4% of sales in our operating expenses. Our objective is to ensure we manage operating expenses appropriately, considering both the market environment and the focus on funding investments in programs that will drive future revenue growth for our company.

Ashish Agrawal: We expect completion of the transition in the second quarter of 2024.

Ashish Agrawal: As we navigate the challenging revenue environment, we reduced operating expenses in the fourth quarter of 2023 through temporary cost reduction measures and released reserves related to incentive compensation.

Ashish Agrawal: Restored these temporary cost measures in the first quarter of 2024.

Ashish Agrawal: As a result, we saw an increase of approximately 4% of sales in our operating expenses.

Ashish Agrawal: Our objective is to ensure we manage operating expenses appropriately considering both the market environment and the focus to balanced funding investments in programs that will drive future revenue growth for our company.

Ashish Agrawal: During the first quarter of 2024, we benefited from some discrete tax-related items and, as a result, had an improved tax rate of 18.6%. For the year 2024, overall, we expect our tax rate to be in the range of 19 to 22 percent. Earnings per diluted share were $0.36 in the first quarter. Adjusted earnings for the first quarter were $0.47 per diluted share, compared to $0.61 per diluted share for the first quarter of last year.

Ashish Agrawal: During the first quarter of 2024, we benefited from some discrete tax related items and as a result had an improved tax rate of 18, 6%.

Ashish Agrawal: For 2024 overall, we expect our tax rate to be in the range of 19% to 22%.

Ashish Agrawal: Earnings per diluted share were 36 in the first quarter adjusted earnings for the first quarter were <unk> 47 per diluted share compared to <unk> 61 per diluted share for the first quarter of last year.

Ashish Agrawal: Moving on to cash generation and the balance sheet, we generated $18 million in operating cash flow in the first quarter of 2024 compared to $11 million in the first quarter of 2023. Our balance sheet remains strong, with a cash balance of $162 million as of March 31, 2024, and the long-term debt balance was $68 million. During the quarter, we repurchased approximately 272,000 shares of CTS stock, totaling approximately $12 million. We remain focused on strong cash generation and are committed to maintaining a healthy balance sheet to continue to support organic growth, strategic acquisitions, and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time.

Speaker Change: Moving on to cash generation and the balance sheet.

Ashish Agrawal: We generated $18 million in operating cash flow in the first quarter of 2024 compared to $11 million in the first quarter of 2023.

Ashish Agrawal: Our balance sheet remains strong with a cash balance of $162 million as of March 31, 2024, and the long term debt balance was $68 million.

Ashish Agrawal: During the quarter, we repurchased approximately 272000 shares of Cts stock totaling approximately $12 million.

Ashish Agrawal: We remain focused on strong cash generation and are committed to maintaining a healthy balance sheet to continue to support organic growth strategic acquisitions, and returning cash to shareholders.

Ashish Agrawal: This concludes our prepared comments, we would like to open the line for questions at this time.

Speaker Change: Thank you.

Operator: If you'd like to ask a question, please press star followed by the number 1 on your telephone keypad and ensure your device is unmuted locally when it's your turn to speak. If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number 2. Our first question today is, what do you think is the most important thing in the history of the United States?

Speaker Change: If you'd like to ask a question. Please press star followed by the number one on your telephone keypad and ensure your devices Amit.

Operator: As for to anticipate it.

Operator: Can you remind me your question has already been on thank you for your question. My question followed by the number today.

Unnamed: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Operator: Our first question today comes from Josh <unk> with Delta of TD Cowen. Your line is open. Please go ahead.

Joshua Louis Buchalter: All right, good morning, guys. This is Sam, Uncle Josh.

Unnamed: Alright. Good morning, guys. This is Sam on for Josh.

Joshua Louis Buchalter: Good morning. It's good to see a positive book to build for the non-transport side of the business. And I was wondering, based on your comments, it sounds like medical and A&E bookings were solid, but is your non-transport book to build mostly driven, like entirely driven by, industrial? And then. Where do total bookings stand this quarter versus 2023, ending at $1.36 billion? Was the $1.2 billion just for transportation?

Sam: Good morning, good to see a positive book to Bill. Good morning, It's good to see a positive book to Bill for the non transport side of the business.

Joshua Louis Buchalter: And I was wondering based on your comments it sounds like medical and A&D bookings were solid.

Joshua Louis Buchalter: But is your non transport book to Bill, mostly driven like entirely driven by industrial and then.

Joshua Louis Buchalter: Or do you total bookings stand this quarter versus 2023 exiting at 136 billion was the $1 2 billion for transportation.

Joshua Louis Buchalter: Yes.

Kieran O'sullivan: The book business is back in the transportation area, back to your book-to-bill, and the trend here. The industrial, being a larger part of the overall revenue, is improving sequentially by double digits. We also saw improvements in medical, and in all areas, we saw an increased book-to-bill. On the defense side of it, we had some timing of shipments, some of those orders came in a little bit lumpy, but I would tell you the book-to-bill was very strong, and that's why we feel good about that for the full year period as well.

Joshua Louis Buchalter: The book business is back in the transportation area back to your book to Bill and the trend here.

Kieran O'sullivan: The industrial being a larger part of the overall revenue is improving sequentially by double digits. We also saw improvements in.

Kieran O'sullivan: And medical and in all areas. We saw an increased book to Bill on the defense side of it we had some timing of shipments some of those orders come in a little bit lumpy, but I would tell you. The book to Bill was very strong and Thats why we feel good about that for the full year period as well.

Ashish Agrawal: Sam, on your question about the total book business, we did reflect in that number the revenue expectation for the transportation part of our business, and we reflected adjustments related to the expectation of lower revenue because of the second source in the commercial vehicle product, and also a smaller adjustment for the China OEM sales softness that we talked about just a moment ago.

Kieran O'sullivan: Sam on your question on the total book business, we did reflect in that number that reflects our long term revenue expectation for the transportation part of our business and we reflected adjustments related to the.

Ashish Agrawal: The expectation of.

Ashish Agrawal: Lower revenue because of the second source at in the commercial vehicle products and also a smaller adjustment for the.

Ashish Agrawal: China OEM sales softness that we talked about just a moment ago.

Joshua Louis Buchalter: understood. Thank you.

Sam: Understood. Thank you.

Speaker Change: And then I think last quarter.

Joshua Louis Buchalter: As you all the progress of the burn down of inventory in the distribution channel I think you mentioned, where you noted that peers, we're talking about 60 or 70% burn down at a time and it sounds like we're still working through that do you have any kind of update directionally on that.

Joshua Louis Buchalter: And then I think last quarter, I asked you all about the progress of the burndown of the inventory and the distribution channel. And I think you mentioned or you noted that peers were talking about 60 or 70% burndown at the time, and it sounds like we're still working through that. Do you have any kind of update directionally on that? And you know, how long that might take to clear the channel?

Joshua Louis Buchalter: Long that might take to clear the channel.

Kieran O'sullivan: And Sam, probably the best way of describing it is that we're seeing inventories continue to burn down for the first time in the last few quarters with our customers. Their POS numbers have improved, and we've seen a small improvement in our bookings and also in our sales. So, trending in the right direction, but just being very cautious here at the moment. And remember, it's about 10% of our overall sales.

Joshua Louis Buchalter: And Sam probably the best way of describing it is.

Kieran O'sullivan: We're seeing inventories continue to burn down for the first time I would say in the last few quarters with our customers. Their Pos numbers have improved and we've seen a small improvement in our bookings and also in our sales so trending in the right direction, but just being very cautious here at the moment and remember it's about 10% of our overall sales.

Joshua Louis Buchalter: Loud and clear, thanks guys. And last one for me.

Kieran O'sullivan: This allowed them clear thanks, Scott It and last one for me.

Speaker Change: I think it's pretty well known that youre seeing a little bit of a shift from <unk>.

Speaker Change: <unk>, its a hybrid and that.

Speaker Change: Just wondering does that comment are you seeing that more in non Chinese market when the China market.

Joshua Louis Buchalter: The beer market in China is still doing well.

Speaker Change: Squall versus six months ago, or can you break that down for us to kind of give us the geographical split on what youre, saying.

Kieran O'sullivan: I think it's pretty well known that you're seeing a little bit of a shift from full BUV to hybrid. And I was just wondering, does that comment, are you seeing that more in non-Chinese markets and the Chinese market? The BUV market in China is still doing well and, you know, status quo versus six months ago? Or can you break that down for us to kind of give us a geographical split on what you're seeing?

Speaker Change: Yes, Sam I stay on the BD overall is in North America, and they have softened a little bit Europe gone, a little bit flattish I'm thinking North America and <unk>.

Kieran O'sullivan: Yes, Sam, what I'd say on the BEV overall is North America may have softened a little bit, and Europe has gone a little bit sluggish. I'm thinking North America in the 7% range, maybe a little less. Europe is more in the low double digits. China has been higher, and China was lower in the first quarter, but remember you've got the Chinese New Year, so I think that will correct itself overall. I think we're not so worried about that because the products are mostly agnostic. It does have some impact on us. As we call it, the thing that concerns us is our transplant customers losing share in China. That's where we're mostly focused.

Kieran O'sullivan: 7% range, maybe a little less Europe more in the low double digits, China has been higher and China was lower in the first quarter, but remember you have got the Chinese new year. So I think that will correct itself. Overall I think we're not so much worried about that because of the products are mostly agnostic and it does have some impact.

Kieran O'sullivan: <unk> on us as we call that the thing that concerns us is our transplant customers, losing share in China, that's where we're mostly focused.

Joshua Louis Buchalter: Understood. Thank you, gentlemen. I'll hop back into queue.

Speaker Change: Understood. Thank you gentlemen, I'll hop back in the queue.

Joshua Louis Buchalter: Thanks.

Justin Trennon Long: Our next question comes from Justin Long of Stephen. Please go ahead.

Joshua Louis Buchalter: Our next question comes from Justin Long with Stephens. Please go ahead.

Justin Trennon Long: Yeah.

Justin Trennon Long: Thanks and good morning. Maybe to start with the question on the guidance, it sounds like the improvement you're expecting in industrial is more weighted towards the second half. So as we think about the cadence of both revenue and earnings over the rest of the year, does the guidance assume that the second quarter looks similar to the first and then we pick up in the back half, or is there any more color you can provide around the progression of the business over the next three quarters?

Justin Trennon Long: Thanks, and good morning.

Justin Trennon Long: Maybe to start with the question on the guidance it sounds like the improvement you're expecting in industrial is more weighted towards the second half. So as we think about the cadence of both revenue and earnings over the rest of the year does the guidance assume that the second quarter look.

Justin Trennon Long: Similar to the first and then we pick up in the back half or is there any more color you can provide around the progression of the business over the next three quarters.

Kieran O'sullivan: Yeah, I would say, just to give an overall context on it, transportation, because of the commercial side of it, light vehicle in Asia is going to be a little bit of a challenge all year, but that's factored in. The improvement, you'll see some improvement in the second quarter, but most of it in the back half. But you definitely will see some improvement in the second quarter, Justin.

Speaker Change: Yes, I would say.

Kieran O'sullivan: Just to give an overall context on it and transportation because of the commercial side of it light vehicle in Asia is going to be a little bit of a challenge all year, but thats factored in the.

Kieran O'sullivan: Improvement and you'll see some improvement in the second quarter and but most of it in the back half, but you definitely will see some improvement in the second quarter adjusted.

Ashish Agrawal: Justin, just to add to that, as we have previously communicated a soft second half for transportation and the recovery in the industrial business, so the next, should continue shifting towards non-transportation revenue in the second half of the year.

Kieran O'sullivan: Yes, Justin just okay. That's helpful.

Speaker Change: As we have previously communicated.

Speaker Change: We expect.

Ashish Agrawal: Software second half for transportation and the recovery in the industrial business. So the mix should continue shifting towards the non transportation revenue in the second half of the year.

Justin Trennon Long: Okay. And I guess on that point, Ashish, we did see about a 200 basis point improvement in gross margins, adjusted gross margins sequentially in the first quarter. How much of that was just a function of better product mix versus some of the operational improvements that you discussed? And can you help us think about just the sustainability of this gross margin level going forward?

Justin: Okay, and I guess on that point Ashish, we did see about a 200 basis point improvement in gross margins adjusted gross margins sequentially in the first quarter.

Justin Trennon Long: Much of that was just a function of better product mix versus some of the operational improvements that you discussed and can you help us think about just the sustainability of this gross margin level going forward.

Ashish Agrawal: Yes, Justin, without going into too much detail there, we do see some improvement from operational improvements as well as the customer mix. What I would tell you is that as we see the next shift continuing to change as we go through the rest of the year, we do expect more favorable impacts, and obviously, we'll continue focusing on operational efficiency at the same time as well.

Ashish Agrawal: Yes, Justin and without going into.

Ashish Agrawal: Too much detail there, but we do see some improvement from.

Ashish Agrawal: Operational improvements as well as the customer mix, what I would tell you is that as we see the mix shift continuing to change as we go through the rest of the year.

Ashish Agrawal: We do expect more favorable impact.

Ashish Agrawal: And obviously, we'll continue focusing on operational efficiency at the same time as well.

Ashish Agrawal: Yes.

Justin Trennon Long: Okay, got it. And I guess the last one for me was around the competition from a second source and commercial vehicle. I'm just curious, is that a new development? Is that something that you anticipated coming into this year when you initially gave guidance? And, you know, is there any more color you can provide on what the headwind from that could look like as we try to understand how much of the pressure is coming from the market and lower production versus issues with the second competitor.

Speaker Change: Okay got it and I guess the last one for me was around.

Justin Trennon Long: Around the competition from <unk>.

Justin Trennon Long: Second source and commercial vehicle I'm, just curious is that.

Justin Trennon Long: New development is that something that you anticipated coming into this year. When you initially gave guidance and is there any more color you can provide on what.

Justin Trennon Long: The headwind from that could look like as we try to understand how much of the pressure is coming from the market and lower.

Justin Trennon Long: Production versus.

Justin Trennon Long: Issues with the second competitor.

Justin Trennon Long: Yeah.

Speaker Change: Yes so.

Kieran O'sullivan: Yes, so, Justin, it's a newer development. As you know, in commercial vehicle markets, it's, or even in automotive light vehicles, it's not unusual to have a second source. We're ready for that.

Speaker Change: Justin it's a newer development.

Speaker Change: As you know in commercial vehicle markets.

Speaker Change: Or even automotive light vehicle, it's not unusual to have second source, we're ready for that and if we look at the nature of the product.

Kieran O'sullivan: And if we look at the nature of the product, and the relationship we have with the customer, we think we're gonna have good business there going forward. And then to your question on the run rate, has the softness been built in? Yes, the softness is built in, but we anticipate some more softness in the second half of the year.

Kieran O'sullivan: The relationship we have with the customer we think we're going to have good business. There going forward and then to your question on the run rate has the softness being built in yes. The softness is built in but we anticipate some more softness in the second half of the year and.

Kieran O'sullivan: So obviously, we've got to compete, we've got to do a good job of innovation and quality, and that's what we do in all our other markets as well. So that's probably the best way of describing it overall.

Kieran O'sullivan: So obviously, we've got a compete we've got to do good job in innovation and quality and that's what we do in all of our other markets as well so thats, probably the best way of describing it overall, yes, Justin just to.

Ashish Agrawal: Yeah, Justin, just to reiterate, when we put the guide out for the year, this was anticipated in the range of our sales expectations. So from that perspective, it's not new, but as Kiran said, it is the newer development that we were honing in on in the early part of 2024.

Ashish Agrawal: Reiterate when we put the guide out for the year. This was anticipated in the range of our sales expectation. So from that perspective, it's not new but as Kieran said it is a newer development that we were putting on in early part of 2024.

Justin Trennon Long: Okay, that's helpful to clarify. I think that's it for me. Thank you so much for your time.

Speaker Change: Okay. That's helpful that clarify I think thats. It for me. Thank you so much for the time.

Unnamed: Thank you, Justin. Thank you, Justin.

Speaker Change: Thank you Justin Thanks, Jason.

John Edward Franzreb: The next question comes from John Franzreb of Sidoti & Company. Please go ahead.

Speaker Change: The next question.

Unnamed: Comes from John from drop of Sidoti <unk> Company. Please go ahead.

John Edward Franzreb: Yeah, just sticking to the topic of pricing pressure; is it limited to second source competition, or are you seeing it in other end markets as well?

John Edward Franzreb: Just sticking to the topic of <unk>.

John Edward Franzreb: Pricing pressure is.

John Edward Franzreb: Is it limited to the second source competition or you're seeing in other end markets as well.

Kieran O'sullivan: John, it's primarily across all transportation markets. We would look at it that way, not just commercial.

John Edward Franzreb: John.

Kieran O'sullivan: Primarily across all transportation markets, we would look at it that way not just commercial it's all transportation, we expect from the changes in the last few years, what's happened with the Detroit three on Union negotiations and different things that are happening at.

Kieran O'sullivan: It's all transportation. We expect from the changes in the last few years, what happened with the Detroit 3 in union negotiations and different things that are happening, vehicle prices will start to drop a little bit, not completely yet, but we expect that pressure to build in the transportation market. We're not as concerned about non-transportation.

Kieran O'sullivan: Diego prices will start to drop a little bit not completely yet, but we expect that pressure to build in the in the transportation market were not as concerned about the non transportation markets.

John Edward Franzreb: And in the non-transportation markets, you alluded to the fact that you expect the second half to be better than the first half based on current bookings profiles, which and market within the non-transportation businesses is probably going to be the first to recover in 2024.

Speaker Change: Understood and then.

John Edward Franzreb: Transportation markets.

John Edward Franzreb: Allude to the fact that you expect the second half could be better than the first half.

John Edward Franzreb: On current bookings profiles, which.

John Edward Franzreb: End market within the <unk>.

John Edward Franzreb: Non transportation business is probably going to be the first to recover in 2024.

Kieran O'sullivan: John, the way I frame that a little bit is, if you look at the non-transportation, medical, and defense sectors, they have been doing steady all last year and this year as well, and we expect them to perform. Industrial has been the big headwind, and we've seen sequential improvement in sales and bookings, and that's where we expect the biggest improvement going into the second.

Speaker Change: John the way I frame that a little bit as we've been if you look at the non transportation medical and defense have been doing steady all last year. This year as well and we expect them to perform industrial has been the big headwind and we've seen sequential improvement in sales and bookings and Thats, where we expect the biggest improvement going into the second half.

Ashish Agrawal: And John Kiernan also talked about strong bookings in medical as well as in aerospace and defense in the first quarter. So we expect that momentum in medical and aerospace and defense to continue in 2021.

Kieran O'sullivan: Yes.

Kieran O'sullivan: And John Kerry and also talked about strong bookings and medical as well as in the <unk>.

Ashish Agrawal: In defense in the first quarter, so we expect that momentum in.

Ashish Agrawal: In medical and aerospace and defense to continue in 2024.

John Edward Franzreb: And just to ask, given the relocation of the facility, any update on capital spending for the year, and what the budget looks like?

Speaker Change: Understood and just.

John Edward Franzreb: To ask.

John Edward Franzreb: Evan.

John Edward Franzreb: The location of the facility any update on capital spending for the year with the budget looks like.

Kieran O'sullivan: So John, we typically talk about 4% of sales. Some years it's a little less; some years it's a little higher. That feels about right for us as we look at 2024 and beyond.

Speaker Change: So John we typically talk about 4% of sales.

Kieran O'sullivan: Some years, it's a little less some years, we've been a little higher that feels about right for us.

Speaker Change: Look at 2024 and beyond.

John Edward Franzreb: Okay, guys. Thank you. I'll get back into view.

Speaker Change: Okay, guys. Thank you I'll get back into queue.

Speaker Change: Great. Thank you.

Operator: Thank you. And as a reminder, if you would like to ask a question, it's a star followed by one to join the queue. Our next question comes from Hendi Susanto of Gabelifan. Please go ahead, your line is open. Good morning.

Speaker Change: Thank you and as a reminder, if you would like to ask a question follow up I wanted to join the queue.

Hendi Susanto: Our next question comes from Hyundai Santa of Gabelli funds.

Hendi Susanto: Please go ahead your line is open.

Hendi Susanto: Good morning, Kiran and Ashish. Morning, Hendi. Kiran, I would like to ask further questions on the second source competition in terms of, let's say, the timing of winning or losing shares. Are there some timing elements meaning that when will CTS or your customers can get back years back with regard to the second source competition?

Hendi Susanto: Good morning, Kieran and Ashish.

Hendi Susanto: Good morning Hendi.

Hendi Susanto: Kieran I would like to us for the question on the second source competition.

Speaker Change: Get them all.

Hendi Susanto: Let's say like the timing of winning or losing shares.

Hendi Susanto: Or are there some timing elements, meaning that.

Hendi Susanto: When we'll see.

Hendi Susanto: Or your customers can regain.

Hendi Susanto: Shares back with me.

Hendi Susanto: It got to the second source competition.

Hendi Susanto: So hendi I think two things there.

Kieran O'sullivan: So Hendi, I think two things there. I mentioned that the sales drop is already in our run rate, but we will see some further drop due to market softness in the second half of the year. So probably that's the best way to characterize your question. And as you know, in transportation, it is not unusual to have a second source. So we've got to make sure we do a good job of innovation, quality, and on-time delivery, just like we do with 20 other OEMs we do business with in transportation.

Kieran O'sullivan: And I mentioned that from the sales drop is already in our run rate, but we will see some further drop due to market softness in the second half of the year. So probably that's the best way to characterize your question and as you know in transportation not unusual to have second source. So we've got to make sure. We're doing a good job in innovation quality on time.

Kieran O'sullivan: Delivery, just like we do with the.

Kieran O'sullivan: 20, other Oems, we do business with and transportation.

Kieran O'sullivan: And in terms of, like, winning it back, can it happen at any time, or not? Oh, I understand the question. Yeah. Yeah. [inaudible] Yeah. In the current light vehicle market, Chinese OEMs are winning again.

Kieran O'sullivan: And then in terms of like winning it back cannot happen.

Kieran O'sullivan: Anytime.

Speaker Change: Two questions here.

Kieran O'sullivan: Okay.

Kieran O'sullivan: This ability.

Kieran O'sullivan: Okay.

Kieran O'sullivan: And even in the light vehicle markets Chinese Oems winning again.

Kieran O'sullivan: Doing that with new products and what we're doing the current sensing.

Kieran O'sullivan: Doing that with new products and what we're doing with current sensing, those types of products are needed in the market. So we can win in the market with that and motor position sensing and ebrake application. So that's where we're doubling down.

Kieran O'sullivan: And those types of products are needed in the market. So we can win in the market with that and motor position sensing and E brake applications. So that's where we're doubling down.

Hendi Susanto: I've got it, yeah. And then, with regard to the pricing pressure on transportation, may I verify whether that has been factored in within your guidance?

Speaker Change: Got it.

Kieran O'sullivan: Okay.

Hendi Susanto: And then.

Hendi Susanto: With regard to the pricing pressure in transportation.

Hendi Susanto: Are you fairly Phi whether that has been factored in.

Speaker Change: We can do a guidance.

Kieran O'sullivan: Yeah, we always factor that in within our guidance, Hendi, and obviously, we're driving productivity internally to make sure we're improving and doing the right things to preserve and improve our margin profile as well. Thank you.

Hendi Susanto: Yes, we always factor that within our guidance.

Kieran O'sullivan: And obviously, we're driving productivity internally to make sure we're improving and.

Kieran O'sullivan: Doing the right things to preserve and improve our margin profile as well.

Hendi Susanto: Thank you, Kiran. Thank you, Ashish. Thank you, Hendi. Thank you.

Speaker Change: Thank you Kieran Thank you ashes.

Hendi Susanto: Sure.

Speaker Change: Thanks Anna.

Operator: Thank you. And as a final reminder, if you'd like to ask a question today, it's a star followed by one on your telephone keypad. We have no further questions, so I'll turn the call back over to Kieran O'Sullivan for any closing comments.

Speaker Change: Thank you and as a final reminder, if you'd like to ask a question today. It still followed by one on your telephone keypad.

Operator: We have no further questions. So I'll turn the call back over to Kieran O'sullivan for any closing comments.

Kieran O'sullivan: Thank you, Lydia, and thank you, everyone, for your time. Despite the near-term headwinds, CTS is focused on future growth, driven by the megatrends of increased automation, connectivity, energy efficiency, and minimally invasive medical innovation. The continued expansion of our customers and pipeline of opportunities underscore our confidence in our future. Thank you for joining us today on the call. This concludes our call.

Kieran O'sullivan: Thank you Lydia and thank you everyone for your time and despite the near term headwinds Cts is focused on future growth driven by the Mega trends of increased automation connectivity energy efficiency and minimally invasive medical innovation. The continued expansion of our customers and pipeline of opportunities.

Kieran O'sullivan: Underscore our confidence in our future. Thank you for joining us today on the call. This concludes our call.

Operator: This concludes today's call. Thank you very much for joining us. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you very much for joining you may now disconnect your line.

Operator: Yeah.

Operator: Okay.

Operator: Yeah.