CTS(US:CTS)2023-10-26 21:02Financial Data and Key Metrics Changes - Sales for the third quarter were $135 million, down 11% compared to the same period last year [79] - Adjusted gross margin was 34.5%, down 210 basis points from the third quarter of 2022 [79] - Adjusted diluted earnings per share were $0.54, down $0.08 compared to the third quarter of 2022 [79] - The company updated its full-year sales guidance to a range of $545 million to $555 million, down from the previous range of $565 million to $585 million [87] Business Line Data and Key Metrics Changes - Transportation sales were $76 million in the third quarter, down approximately 3% year-over-year, driven by softness in commercial vehicle products [85] - Non-transportation sales declined 20% in the third quarter compared to the prior-year period, primarily due to decreased demand in industrial and distribution markets [95] - The company added eight new customers in the quarter, with a book-to-bill rate of 0.93 [6][79] Market Data and Key Metrics Changes - The North American light vehicle market is expected to be in the 15 million unit range, with European production forecasted in the 16 million to 17 million unit range [86] - China volumes are expected in the 26 million unit range, with increased competition impacting demand [21][86] Company Strategy and Development Direction - The company is focused on profitable growth through diversification and electrification in mobility markets [67] - Long-term goals include having more than 25% of light vehicle revenue come from electrified platforms by 2025 [73] - The company aims to expand its customer base and range of applications in industrial, medical, and defense end markets [74] Management's Comments on Operating Environment and Future Outlook - Management noted continued softness in industrial and distribution markets due to elevated customer inventory levels [2][82] - The UAW strike had a low impact in the third quarter but is expected to pressure sales further in the fourth quarter [82] - Management expressed confidence in the long-term prospects driven by megatrends of automation, connectivity, and energy efficiency [51] Other Important Information - The company generated $22 million in operating cash flow during the third quarter, with free cash flow of $19 million [76] - The balance sheet remains healthy, with a cash balance of $160 million at the end of September 2023 [12] Q&A Session Summary Question: Can you quantify the margin tailwind from the Mexico site consolidation? - Management indicated that the transition would not significantly change profitability but aims for more stability in production processes [16] Question: Is there a change in competition from China? - Management noted increased competition and pricing pressures in China, particularly affecting demand for EVs [21] Question: What is the impact of the UAW strike on future quarters? - The UAW impact was minimal in Q3 but is expected to be between $2 million to $4 million in Q4, with additional softness in commercial vehicle demand [98] Question: What are the expectations for commercial vehicle demand in 2024? - Management anticipates continued softness in commercial vehicle demand into 2024 [86][101] Question: How are operating costs being managed? - Management has implemented temporary cost reduction measures and expects a slight increase in operating expenses in Q4 compared to Q3 [96]