CTS(US:CTS)2024-02-06 20:25Financial Data and Key Metrics - Q4 2023 sales were $125 million, down 12% YoY and 7% sequentially [13] - Full year 2023 sales were $550 million, down 6% from 2022 [100] - Q4 adjusted gross margin was 34.2%, down 215 basis points YoY [5][92] - Full year adjusted gross margin was 34.8%, down 177 basis points from 2022 [5] - Q4 adjusted diluted EPS was $0.47, down $0.09 YoY [83] - Full year adjusted diluted EPS was $2.22, down $0.24 from 2022 [83] - Operating cash flow for 2023 was $89 million, down from $121 million in 2022 [113] Business Line Performance - Transportation sales were $69 million in Q4, down 3% YoY [10] - Full year Transportation sales were $301 million, down 1% from 2022 [10] - Non-transportation sales declined 22% in Q4 and 12% for the full year [7][100] - Medical markets showed steady demand with multiple wins in diagnostic and therapeutic ultrasound [8] - Industrial and distribution markets saw softness, with sales declining due to inventory corrections [7][15] Market Performance - North American light vehicle market expected to be 15.5-16 million units in 2024 [108] - European production forecasted at 17 million units, China at 28 million units [108] - Defense and Medical markets expected to remain solid with continued growth momentum [12][106] - Commercial vehicle products expected to face softer demand in 2024 [10] Strategy and Industry Competition - Focus on profitable growth, diversification through advanced materials, and electrification in mobility markets [6] - Transition to electrification offers significant opportunities, with a potential SAM of over $1 billion [11] - Continued investment in R&D to drive future revenue growth, with higher operating expenses expected in 2024 [26][37] - Strategic acquisitions remain a priority, with a strong balance sheet to support both acquisitions and share buybacks [27][80] Management Commentary on Operating Environment and Future Outlook - 2023 was a challenging year, with a soft revenue environment expected to continue into Q1 2024 [4][5] - Industrial and distribution markets expected to remain soft in H1 2024, with potential recovery in H2 [9][15] - Pricing pressure expected in transportation markets, with a focus on operational and supply chain improvements [94][101] - Long-term growth driven by megatrends of automation, connectivity, efficiency, and minimally invasive medical procedures [88] Other Important Information - Completed consolidation of facilities in Denmark, with production transition from Juarez to Matamoros expected in H1 2024 [7][14] - Returned over $46 million to shareholders through dividends and share buybacks in 2023 [17] - Board approved a new $100 million share repurchase program [17][80] - Cash balance of $164 million as of December 31, 2023, up from $157 million in 2022 [95] Q&A Session Summary Question: Commercial vehicle demand outlook - Soft demand expected in 2024, with competitive pressures and a softer market anticipated [20] Question: Inventory correction in industrial markets - Inventory correction ongoing, with 60-70% of burn-down completed, softness expected in H1 2024 [21] Question: Revenue and operating expense trends - Q1 2024 revenue expected to be similar to Q4 2023, with a pickup in H2 2024 driven by industrial, medical, and defense markets [24][25] - Operating expenses expected to increase by 3% of revenue in Q1 2024 due to higher R&D spend [37] Question: Share buyback program - $100 million buyback authorization reflects strong cash flow and balance sheet, with a focus on strategic acquisitions [49][80] Question: Pricing pressure in transportation markets - Pricing pressure expected across both commercial and light vehicle markets, with a focus on cost management [64][94] Question: Transition from ICE to EV - Slower EV adoption in the short term, but long-term growth opportunities remain, with 95% of content transferable between ICE and EV [35][56] Question: Industrial and distribution market recovery - Industrial and distribution markets expected to rebound in H2 2024, with inventory levels normalizing [69][129] Question: R&D spend target for 2024 - R&D spend expected to be in the range of 5-6% of sales, with an increase in 2024 to support growth programs [76]