Cts Corporation · NYSE:CTS

Cts — Investor Day (September 2016)

54 slides from Cts's investor day presentation, Sep 9, 2016

  1. Slide 1: 2016 Investor Day

    2016 Investor Day NYSE, New York, NY September 8, 2016

  2. Slide 2: Agenda

    2 Agenda 1. Overview 2. Transportation Product Lines 3. Ceramic Products Lines 4. Passive & Electromechanical Product Lines 5. Financial Overview 6. Closing Remarks 7. Questions & Answers

  3. Slide 3: Safe Harbor Statement

    Safe Harbor Statement 3 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, st

  4. Slide 4: Our Company

    CTS is a leading designer and manufacturer of sensors, actuators and electronic components. Our Company 4

  5. Slide 5: Our History

    Our History ‘sens Esabshed plans in Taian Retin satay to fous clecronc components Sol fs turnes Refined Strategy international markets Adapted to Evolving Television Market Globalized Business Chicago Telephone Supply Company established tert or TS Founded Listed on NYSE Responded to Renewed Identit

  6. Slide 6: Our Progress

    Our Progress 6 $9 $12 $15 $18 $21 1/2013 7/2013 1/2014 7/2014 1/2015 7/2015 1/2016 7/2016 +49% +70% CTS S&P 500 Gross Margin % Improvement (2012 – 1H 2016) 480 bps Doubled EBITDA % (2012 – 1H 2016) 920 bps Cash Returned to Shareholders (2013 – 1H 2016) > $65m

  7. Slide 7: Company Overview – FY2015

    7 Company Overview – FY2015 $382 Million 67% 14% 5% 4% 4% 3% 3% Sales By Market Other Transportation Industrial Aerospace & Defense Medical IT Telecom. Office Manufacturing Facility Sales by Region Note: Sales by market and region based on trailing twelve months sales as of June 30, 2016

  8. Slide 8: Our Vision and Value Proposition

    Our Vision and Value Proposition 8 We aim to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world.  Controls  Pedals  Piezoelectric Products  Sensors  Switches  Transducers  EMI/RFI Filters  Frequency Control Produ

  9. Slide 9: Targeting 10% Annual Growth

    Targeting 10% Annual Growth (Organic + Inorganic) 9 Blue Chip Customer Base New Business Awards $299 $484 $560 $253 2013 2014 2015 2016 Thru Q2 1Q Not Reported 16% Growth  Increasing customer base in regions and outside automotive  Investing in new product developments  Strengthening portfolio wi

  10. Slide 10: The Road Ahead of Us

    The Road Ahead of Us 10 Legend: AD: Aerospace & Defense CV: Commercial Vehicles I: Industrial IT: Information Technology LV: Light Vehicles M: Medical O: Others T: Telecommunications TR: Transportation (Incl. LV & CV) 30-50% 20-30% 10-20% 10-20% 10-20% 5-15% Targeted End Markets Light Vehicles Indus

  11. Slide 11: Transportation Product Lines

    Transportation Product Lines

  12. Slide 12: Transportation Product Lines Overview

     A leading provider of discrete position sensing solutions and application of actuators in harsh environments  Vertically integrated, providing highest quality and speed to market  Participating in mission critical and safety applications 12 Transportation Product Lines Overview

  13. Slide 13: Actuator Addressable Market Expected to be $2.5B by 2020

    Actuator Addressable Market Expected to be $2.5B by 2020  Turbo Actuator  Exhaust Actuator  Driveline Actuator  Air Grill Shutter Actuator 13 Market Sectors Relevant Products  Increasing turbo applications  Increasing fuel economy  Reducing emissions  Engine downsizing Market Sector Trends T

  14. Slide 14: Position Sensor Addressable Market Expected to be $1.7B by 2020

    Position Sensor Addressable Market Expected to be $1.7B by 2020  Chassis Height Sensor  Transmission Sensor  Seat Belt Buckle Switch  Clutch/Brake Sensor  Throttle Sensor 14 Market Sectors Relevant Products  Increasing turbo applications  Increasing fuel economy  Reducing emissions  Increas

  15. Slide 15: Electronic Pedal Addressable Market Expected to be $0.8B by 2020

    Electronic Pedal Addressable Market Expected to be $0.8B by 2020  Contacting pedal  Non-contacting pedal  E-Clutch pedal  Haptic pedal 15 Market Sectors Relevant Products  Conversion from contact to non- contact technology  Increasing demand for modular designs  Reducing weight  Improving fu

  16. Slide 16: Customer Success Story

    The Customer  A leading provider of turbochargers for the Commercial Vehicle market The Situation  Needed a very high torque actuator for a specialized application  Accelerated development time (3 to 4 times faster than standard) “Your Partner in Smart Solutions”  CTS developed a modular actuato

  17. Slide 17: The CTS Advantage

    17 Competitor Categories Competitor Strengths Competitor Weaknesses CTS Advantage Large Multinational  Large product portfolio  Competitiveness through volume/commonality  Large technical resources  Limited design flexibility  Slow to respond  Dispersed focus  Greater flexibility  Superior c

  18. Slide 18: RF Sensor Technology

     Acquired a start-up founded by two MIT Ph. D. graduates, located in the Boston area  Innovative sensing technology that uses a low power RF signal to measure soot and ash loading on diesel particulate filters (DPF) or gasoline particulate filters (GPF)  Suitable for aftertreatment systems in pas

  19. Slide 19: Transportation Product Lines Conclusion

     Engineering expertise and customer intimacy enables long term relationships with key customers  Expanding in new or underleveraged markets  Diversifying sensing portfolio organically and through acquisitions  As vehicles get smarter, more efficient and connected, they require more sensors and a

  20. Slide 20: Ceramic Product Lines

    Ceramic Product Lines

  21. Slide 21: Ceramic Product Lines Overview

     A leading provider of specialized piezoelectric and dielectric ceramic components  Mission critical ceramic based components driven by defense, industrial, medical and telecom system demands  Industry leading materials, processing and finishing capabilities enabling highest product performance i

  22. Slide 22: Industrial Addressable Market Expected to be $1.1B by 2020

    Industrial Addressable Market Expected to be $1.1B by 2020  Polycrystalline Piezoelectric Components  Single Crystal Piezoelectric Components  Transducers  EMI/RFI Filters 22 Market Sectors Inkjet Print Heads Commercial Sonar Fish Finders Relevant Products  On demand packaging  On demand patte

  23. Slide 23: Defense Addressable Market Expected to be $1.0B by 2020

    Defense Addressable Market Expected to be $1.0B by 2020  Polycrystalline Piezoelectric Components  Single Crystal Piezoelectric Components  Transducers  RF Filters 23 Market Sectors Sonobuoys Hydrophones Torpedo Target Acquisition Relevant Products  Increasing threat detection needs  Remote ve

  24. Slide 24: Telecom Addressable Market Expected to be $0.3B by 2020

    Telecom Addressable Market Expected to be $0.3B by 2020  RF Filters  EMI/RFI Filters 24 Market Sectors Relevant Products  Lower power consumption  Increasing data and voice bandwidth demand Smaller size Base Stations Macro Cell Base Stations Small Cell Base Stations Satellite Communication Back

  25. Slide 25: Medical Addressable Market Expected to be $0.2B by 2020

    Medical Addressable Market Expected to be $0.2B by 2020  Polycrystalline Piezoelectric Components  Single Crystal Piezoelectric Components 25 Market Sectors Ultrasonic Imaging Intra-Vascular Ultrasound Therapeutic Ultrasound Relevant Products  Improving diagnostic and predictive medicine  Medica

  26. Slide 26: Customer Success Story

    26 The Customer  Tier One defense contractor engaged in naval surface and subsurface systems development and manufacturing The Situation  Inability achieve hydrophones with consistent piezo performance characteristics in the volumes and at cost points necessary to supply the US Navy “Your Partner

  27. Slide 27: The CTS Advantage

    27 Competitor Categories Competitor Strengths Competitor Weaknesses CTS Advantage Piezoelectric Suppliers  High volume product capability  Competitive processes  Vertically integrated for transducer supply  Large suppliers are inflexible  Small suppliers are not competitive  Inconsistent quali

  28. Slide 28: Single Crystal Technology Applications

    Applications – 3D & 4D Ultrasound, IVUS 28 Single Crystal Technology  Founded in 1997, acquired in March 2016 and 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 relat

  29. Slide 29: Single Crystal Technology – Benefits & Growth Potential

    29 Single Crystal Technology – Benefits & Growth Potential Wireless Powering of Pacemakers Implantable Hearing Aids to Replace Cochlear Implants Material provides higher coupling performance than traditional polycrystalline materials  Increased transducer performance even at smaller component sizes

  30. Slide 30: Ceramic Product Lines Conclusion

     Only supplier of high volume polycrystalline and single crystal piezoelectric ceramics as well as dielectric components  Superior material formulations and process with a track record of quality and consistent performance leading to long term customer relationships  Ceramic components enable min

  31. Slide 31: Passive & Electromechanical Product Lines

    Passive & Electromechanical Product Lines

  32. Slide 32: Passive & Electromechanical Product Lines Overview

     Global expert in engineered and mission critical electronic components including:  Frequency Control products  Human Machine Interface (HMI)  Thermal management applications  Recognized customer-oriented, high quality, high reliability solutions provider  Successfully leveraging multiple sale

  33. Slide 33: Telecom Addressable Market Expected to be $0.9B by 2020

    Telecom Addressable Market Expected to be $0.9B by 2020  Frequency Control  Timing Modules  Thermal Products 33 Market Sectors Wireless Infrastructure Wireline Infrastructure Satellite Communications Relevant Products  Low power consumption  Internet of Things (IoT)  Increasing data and voice

  34. Slide 34: Industrial Addressable Market Expected to be $0.8B by 2020

    Industrial Addressable Market Expected to be $0.8B by 2020  Switches  Encoders  Potentiometers  Thermal Products 34 Market Sectors HVAC Security Systems Infrastructure LED Lighting Relevant Products  Internet of Things (IoT)  Increasing industrial automation  Energy efficiency Test and Measur

  35. Slide 35: Medical Addressable Market Expected to be $0.5B by 2020

    Medical Addressable Market Expected to be $0.5B by 2020  Frequency Control  Encoder  Potentiometer  Mini-joystick 35 Market Sectors CPAP Machines Medical Equipment Control Panel Mobility Scooters Relevant Products  Improving diagnostic and predictive medicine  Increasing medical devices in eme

  36. Slide 36: Customer Success Story

    36 The Customer  A leading European medical OEM The Situation  Customer wanted to redesign the controls for a new CPAP machine “Your Partner in Smart Solutions”  CTS engaged with the customer’s engineering team to develop a custom encoder  Integrated the encoder and achieved customer’s low profi

  37. Slide 37: The CTS Advantage

    37 Competitor Categories Competitor Strengths Competitor Weaknesses CTS Advantage Large Multinational  Large product portfolio  Competitiveness at high volumes  Long standing customer relationships  Limited design flexibility  Slow to respond  Long decision making process  Greater Flexibility

  38. Slide 38: Passive & Electromechanical Product Lines Conclusion

     Trusted by customers worldwide, from global leading OEMs and distributors to regional suppliers and innovators  Optimizing Product Line profitability by balancing an efficient global supply chain and vertical integration in best cost manufacturing locations  Competitive electronic components pro

  39. Slide 39: Financial Overview

    a Smart Solutions Financial Overview

  40. Slide 40: Improved Cost Structure

    ($ Millions except percentages) ~50% ~70% 2012 2015 Best Cost Footprint $63 $57 2012 2015 SG&A Cost Improved Cost Structure 40  Targeting 80% best cost manufacturing  Decommissioned 4 manufacturing sites  Current restructuring to be completed by mid-2018 20.7% 15.0%

  41. Slide 41: Annual Financial Performance Trend

    $0.64 $0.82 $0.97 $0.93 2012 2013 2014 2015 2016E Annual Financial Performance Trend $305 $409 $404 $382 2012 2013 2014 2015 2016E Adjusted Earnings Per Share $410 Note 1: Sales are from continuing operations. Adjusted EPS is as reported. Note 2: 2016E represents guidance provided on July 29, 2016.

  42. Slide 42: LTM Quarterly Financial Trend

    $90.6 $93.3 $96.7 $98.7 Q3 2015 Q4 2015 Q1 2016 Q2 2016 $14.7 $13.8 $17.8 $18.6 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Adjusted EBITDA ($ Millions) LTM Quarterly Financial Trend 42 16.2% 14.8% 18.4% 18.9% Sales Note: Sales are from continuing operations. Adjusted EPS is as reported.

  43. Slide 43: Peer Performance

    Peer Performance 43 Note: GM % and EBITDA % are based on LTM ending 6/30/16 Total Shareholder Return (TSR) based on returns from 1/1/2013 to 7/29/2016 Peer Analysis based on CTS’ Peer Group Source: S&P Capital IQ TSR %EBITDA %Gross Margin % Median 12.3% Median 28.7% CTS 34.2% CTS 17.6% CTS 86% Media

  44. Slide 44: Capital Structure

    Capital Structure Equity 73% Bank Debt 27% $124 $135 $157 $120 $75 $75 $91 $111 2013 2014 2015 2Q 2016 Note: Change in Cash/Debt in 2016 due to Single Crystal Acquisition Cash and Debt Current Capital Structure DebtCash ($ Millions except percentages) 44 Credit line increased from $200M to $300M in

  45. Slide 45: Target Capital Deployment – Disciplined Approach

    Target Capital Deployment – Disciplined Approach 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 Growth AcquisitionsInvestment Dividends & Buybacks 45

  46. Slide 46: Financial Framework

    Financial Framework 46 1H 2016 Target Range Gross Margin 34.8% 34-37% SG&A Expense 15.6% 13-15% R&D Expense 6.2% 5-7% CapEx 3.8% ~4% Targeting 10% Annual Growth (Organic + Inorganic)

  47. Slide 47: Closing Remarks

    a | ¢ tS Your Partner in Smart Solutions | Closing Remarks

  48. Slide 48: Targeting 10% Organic and Inorganic Growth

    Targeting 10% Organic and Inorganic Growth Expand Product Range Broaden Geographic Reach Enhance Technology Portfolio Strengthen Customer Relationships 48 Legend: AD: Aerospace & Defense CV: Commercial Vehicles I: Industrial IT: Information Technology LV: Light Vehicles M: Medical O: Others T: Telec

  49. Slide 49: Positioned for Growth with Fundamental Market Trends

    Autonomous Vehicle SMART Smart Home/ Building Unmanned Aerial Vehicles (Drones) Improved Medical Diagnosis Fuel Efficiency/ Vehicle Electrification Miniaturization Energy Harvesting EFFICIENT Green Buildings Remote Monitoring Industry 4.0 Internet of Things 5G & Small Cells CONNECTED Communications

  50. Slide 50: Investment Thesis

    Investment Thesis 50 Positioned for Growth Strong Competitive Position Successful Business Model  Fundamental market trends underpinning future growth  Improving New Business Awards  Complementing organic growth with targeted M&A  Flexible, responsive and customer oriented organization  Long st

  51. Slide 51: Questions & Answers

    a C L S Your Partner in Smart Solutions Questions & Answers

  52. Slide 52: Appendix

    a C L S Your Partner in Smart Solutions Appendix

  53. Slide 53: Adjusted Diluted EPS Regulation G Schedules

    Adjusted Diluted EPS Regulation G Schedules 53 2015 2014 2013 2012 Diluted earnings (loss) per share 0.21$ 0.78$ (0.12)$ 0.59$ Tax affected charges (credits) to reported diluted earnings per share: Restructuring, restructuring-related, and asset impairment charges 0.40$ 0.18$ 0.28$ 0.19$ (Gain) Loss

  54. Slide 54: Regulation G Schedules – Adjusted EBITDA

    ($ Millions, except percentages) Regulation G Schedules 54 Q2 Q1 Q4 Q3 2016 2016 2015 2015 Net earnings from continuing operations 14.5$ 7.9$ (13.7)$ (4.8)$ Depreciation and amortization expense 4.9$ 4.0$ 4.3$ 3.9$ Interest expense 1.0$ 0.8$ 0.7$ 0.7$ Tax expense 7.7$ 4.1$ 13.0$ (2.2)$ EBITDA from c

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