CTS Corp (CTS) 2024 Q1 法說會逐字稿

Hello, all, and welcome to CTS Corporation's First Quarter 2024 Conference Call. My name is Lydia, and I'll be your operator today. (Operator Instructions) I'll now hand you over to Kieran O'Sullivan, CEO, to begin. Please go ahead.

大家好，歡迎參加 CTS Corporation 2024 年第一季電話會議。我叫莉迪亞，今天我將成為您的接線生。（操作員指示）現在我將把您交給執行長 Kieran O'Sullivan，讓您開始。請繼續。

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.

謝謝你，莉迪亞。早安，感謝您參加我們的 2024 年第一季財報電話會議。由於客戶庫存的持續減少，非運輸銷售開始穩定，因此本季的銷售額符合我們的預期。在本季度，我們也看到非交通市場的預訂趨勢有所改善。

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. 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?

由於需求疲軟和競爭更加激烈的環境，商用車市場的銷售量如預期下降。除中國外，大多數地區的輕型汽車銷售穩定，我們對移植整車廠的銷售較疲軟。雖然國防銷售下降主要是由於發貨時間所致，但我們預計 2024 年剩餘時間將出現良好勢頭。在醫療領域，我們看到了穩健的表現。我們的財務長 Ashish 將帶領我們了解安全港聲明。阿什什？

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 filings.

我想提醒我們的聽眾，本次電話會議包含前瞻性陳述。這些陳述受到許多風險和不確定性的影響，可能導致實際結果與前瞻性陳述中表達的結果有重大差異。有關這些風險和不確定性的更多資訊包含在今天發布的新聞稿中，更多資訊可以在該公司向 SEC 提交的文件中找到。

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, Kieran O'Sullivan.

如果今天的討論涉及 G 條例下的任何非 GAAP 措施，則所需的解釋和調節可在今天的收益新聞稿和補充幻燈片演示中找到，這些內容可以在 CTS 網站的投資者部分找到。現在我將把討論轉回給我們的執行長基蘭·奧沙利文 (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. Sequentially, non-transportation sales were up 7% as we see some early signs of recovery in the industrial end market. Sales to the transportation end market were down 4% versus the fourth quarter of 2023. I want to thank our teams for their support as we carefully managed operations while we navigate a challenging revenue environment.

謝謝，阿什什。我們第一季的銷售額為 1.26 億美元，比 2023 年第一季下降 14%。本季非運輸銷售年減 17%，運輸銷售較去年同期下降 10%。隨後，由於我們看到工業終端市場出現一些復甦的早期跡象，非交通運輸銷售額成長了 7%。與 2023 年第四季相比，運輸終端市場的銷售額下降了 4%。我要感謝我們的團隊在我們應對充滿挑戰的收入環境時精心管理營運的支持。

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. 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. However, inventories are still correcting and we will continue to monitor the order intake carefully.

我們第一季的訂單出貨比為 1.07，高於 2023 年第一季和第四季的 0.96。訂單出貨比的改善符合我們對分銷和 OEM 客戶的工業終端市場復甦的預期。這些早期跡象令我們感到鼓舞。然而，庫存仍在調整中，我們將繼續仔細監控訂單量。

Adjusted gross margin in the first quarter was 36.2%, up 86 basis points from the first quarter of 2023, driven by operational improvements and the mix shift to non-transportation sales. On the operations front, our teams worked on improvements to help offset the unfavorable impacts from lower volumes. We are still experiencing some cost pressures, especially for certain materials and from labor cost increases.

第一季調整後毛利率為 36.2%，較 2023 年第一季成長 86 個基點，主要得益於營運改善和向非運輸銷售的混合轉型。在營運方面，我們的團隊致力於改進，以幫助抵消產量下降的不利影響。我們仍然面臨一些成本壓力，特別是某些材料和勞動成本的增加。

We expect pricing pressure this year, particularly in transportation markets. 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. This has been a tremendous effort by our teams to advance this project while successfully supporting our customers.

我們預計今年的價格壓力，特別是在運輸市場。我們對提高供應鏈和製造工廠的效率以及提高營運績效和獲利能力的能力仍然充滿信心。我們還在將華雷斯工廠整合到墨西哥馬塔莫羅斯工廠方面取得了重大進展，並預計在第二季度完全退出華雷斯工廠。我們的團隊在成功支援客戶的同時為推進專案付出了巨大的努力。

First quarter adjusted diluted earnings per share of $0.47 were down from $0.61 in the same period last year. 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.

第一季調整後攤薄每股收益為 0.47 美元，低於去年同期的 0.61 美元。稍後，Ashish 將為我們的財務表現增添更多色彩。第一季非交通運輸銷售額年減 17%，但季增 7%。訂單出貨比高於 1，多個產品線的新訂單趨勢呈現正面趨勢。

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. 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 on 2 new programs for applications in blood analysis and therapeutic ultrasound. Additionally, we added 2 new customers, 1 for facial therapeutics and a second for a disposable blood analyzer.

在醫療市場，銷售額與 2023 年同期基本持平，但預訂量較去年同期均有所成長。我們看到需求穩定，預計 2024 年將進一步成長。本季我們在所有地區的診斷超音波方面取得了許多勝利，並獲得了血管內超音波應用的新訂單。我們參與了 2 個血液分析和治療超音波應用的新計畫。此外，我們還增加了 2 個新客戶，其中 1 個用於臉部治療，另一個用於一次性血液分析儀。

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 formulations.

在本季度，我們還與現有客戶合作開展了一個先進的開發項目，該項目有潛力透過利用我們的單晶技術的功能來擴展我們的血管內應用。鑑於我們增強的能力和材料配方，我們預計航空航太和國防終端市場的長期前景將是穩固的。

Aerospace and defense sales were down in the quarter, primarily due to the timing of shipments to some customers. 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 3 new programs in the quarter for AUVs and satellite RF filter applications. We also added 1 new customer for an application in aerospace and defense nondestructive testing. Additionally, we are getting traction on European defense growth with sample qualifications in progress, and we anticipate sales growth in 2025 on a multiyear opportunity.

本季航空航太和國防銷售額下降，主要是由於向某些客戶的出貨時間表所致。本季的預訂量很強勁，因為我們收到了多個水聽器、聲納浮標、水下無人應用、頻率控制和射頻濾波器的訂單。我們在本季針對 AUV 和衛星射頻濾波器應用添加了 3 個新項目。我們也增加了 1 個航空航太和國防無損檢測應用的新客戶。此外，我們正在透過正在進行的樣品資格認證來吸引歐洲國防的成長，並且我們預計 2025 年的銷售將在多年的機會中實現成長。

In the industrial market, overall sales were down from the prior year period. 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. We added 3 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.

工業市場整體銷售量年減。銷量和預訂量持續上升。我們在本季取得了多項銷售業績，包括工業列印、EMC 組件、溫度感測、流量計量和開關。本季我們增加了 3 個溫度和 EMC 應用領域的新客戶。雖然我們看到分銷銷售和預訂略有改善，但庫存減少仍在進行中。

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. 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. 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.

展望今年的非運輸終端市場，我們預計 2024 年下半年工業和分銷終端市場收入將有所改善。對於國防和醫療市場，我們預計環境穩定，並期望在為潛在新客戶提供產品的資格認證方面取得紮實進展。從長遠來看，我們預計我們的材料配方和內部專業知識將繼續支持我們在關鍵高品質終端市場的成長，符合我們的多元化策略。此外，我們預計自動化、連接性和效率的大趨勢以及微創醫療程序的成長將為我們在這些市場的持續擴張提供動力。

Transportation sales were $66.5 million in the first quarter, down approximately 10% from the same period last year and down 4% sequentially. We are experiencing softer demand -- we're experiencing a softer demand environment for commercial vehicle products in 2024, driven primarily by market softness and second-source competition.

第一季運輸銷售額為 6,650 萬美元，比去年同期下降約 10%，比上一季下降 4%。我們正在經歷需求疲軟——到 2024 年，我們將經歷商用車產品的需求疲軟環境，這主要是由市場疲軟和第二來源競爭所推動的。

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. 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.

在輕型汽車方面，正如我之前提到的，考慮到本土整車廠和移植整車廠之間的競爭，我們將繼續掌握中國市場份額的動態。鑑於我們的產品大多與傳動系統技術無關，因此我們不太關心內燃機汽車與電動車和混合動力車的成長率。

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 sensing. Total booked business was approximately $1.2 billion at the end of the quarter.

第一季度，我們在多個產品組中取得了勝利，包括加速度計模組、行駛高度感測器和被動安全感測器。我們在北美增加了一個新的電動車客戶，並正在與其他新客戶一起在電流感測的加速器模組和電動車母線應用方面取得高級開發獎。截至本季末，預訂業務總額約 12 億美元。

As we look to our 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 eBrake products offering weight and cost advantages, and the future introduction of our DrivePad 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.

當我們展望未來時，我們對向電氣化轉型提供的機會感到興奮，儘管滲透率短期內會發生調整。我們繼續將車輛中的腳部空間視為一個空間，我們希望透過傳統的加速器模組、觸覺模組、具有重量和成本優勢的新型eBrake 產品以及未來推出的DrivePad 技術（一種低行程）來擴展我們的產品範圍。我們預計這些和其他感測器應用將提高我們成長內容的能力，其潛在 SAM 超過 10 億美元。

Turning to our outlook for this year. The North American light vehicle market is expected to be in the 15.5 million 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. China volumes are expected in the 28 million unit range. Electric vehicle penetration rates have softened in most regions while hybrid adoption has improved. Overall, we anticipate a slightly down market for light vehicle production due to the China market dynamics. We expect softness in commercial vehicle-related revenue throughout 2024 primarily due to lower demand as well as the second-source competition.

轉向我們今年的展望。北美輕型汽車市場預計將在 1550 萬至 1600 萬輛之間，現有供應天數現已接近 300 萬輛的正常水平。歐洲產量預計在 1700 萬輛左右。中國銷售量預計在 2800 萬台左右。大多數地區的電動車普及率下降，而混合動力車的普及率則有所提高。總體而言，由於中國市場的動態，我們預計輕型汽車生產市場將略有下降。我們預計 2024 年商用車相關收入將疲軟，主要是因為需求下降以及第二來源競爭。

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. 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.

對於非交通市場，根據我們的多元化策略，我們的目標是擴大工業、醫療和國防終端市場的客戶群和應用範圍。我們上季提到的庫存水準調整和預訂改善等復甦跡象正在慢慢顯現，是 2024 年下半年潛在復甦的指標。正如我們在上次財報電話會議中概述的那樣，我們預計上半年運輸銷售將疲軟，近期將繼續面臨挑戰，同時我們預計非運輸銷售將走強，利潤率將有所改善。

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. 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.

隨著工業和分銷開始顯示出改善趨勢的早期跡象，國防和醫療市場的需求預計將保持強勁。我們的資產負債表強勁，流動性充足，並有強勁的現金產生能力支持，這使我們能夠專注於策略性收購並向股東返還現金。就 2024 年全年指引而言，我們維持先前的指引，預計銷售額在 5.3 億美元至 5.7 億美元之間，調整後的稀釋每股收益在 2.10 美元至 2.35 美元之間。

Now I'll turn it over to Ashish, who will walk us through the financial results in more detail. Ashish?

現在我將把它交給 Ashish，他將向我們介紹更詳細的財務表現。阿什什？

Thank you, Kieran. First quarter sales were $126 million, down 14% compared to the first quarter of 2023 and up 1% sequentially from the fourth quarter of 2023. 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 2023. 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.

謝謝你，基蘭。第一季銷售額為 1.26 億美元，較 2023 年第一季下降 14%，較 2023 年第四季環比成長 1%。運輸客戶的銷售額較去年第一季下降了 10%，這主要是由於與商用車產品相關的銷售以及對中國輕型汽車客戶的銷售疲軟。因此，與 2023 年第四季相比，運輸市場的銷售額下降了 4%。非運輸終端市場的銷售額年減 17%，主要是由於工業和分銷終端市場持續疲軟。與 2023 年第四季相比，對非運輸客戶的銷售額成長了 7%，因為我們看到對工業 OEM 客戶的銷售額有所改善。

Sales to the medical end markets were stable. 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.

醫療終端市場銷售穩定。儘管我們看到第一季航空航太和國防終端市場的銷售額有所下降，但我們預計 2024 年這兩個終端市場都將呈現強勁勢頭。

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 Kieran highlighted, we made good progress on our project to transition production from the Juarez location to our site in Matamoros. We expect completion of the transition in the second quarter of 2024.

我們第一季調整後毛利率為36.2%，較2023年第一季上升86個基點，較2023年第四季上升205個基點。這些改進是由客戶結構的有利變化以及我們製造業務的效率提高所推動的。正如 Kieran 所強調的那樣，我們在將生產從華雷斯工廠轉移到馬塔莫羅斯工廠的項目上取得了良好進展。我們預計過渡將於 2024 年第二季完成。

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. We restored these temporary cost measures in the first quarter of 2024. 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 to balance funding investments in programs that will drive future revenue growth for our company.

在我們應對充滿挑戰的收入環境時，我們在 2023 年第四季透過臨時成本削減措施減少了營運費用，並釋放了與激勵薪資相關的準備金。我們在 2024 年第一季恢復了這些臨時成本措施。結果，我們的營業費用增加了約 4% 的銷售額。我們的目標是確保我們適當地管理營運費用，同時考慮市場環境和平衡項目資金投資的重點，這些項目將推動我們公司未來的收入成長。

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

2024年第一季度，我們受惠於一些離散的涉稅項目，稅率提高至18.6%。2024 年整體而言，我們預計稅率將在 19% 至 22% 之間。第一季稀釋後每股收益為 0.36 美元。第一季調整後每股攤薄收益為 0.47 美元，而去年第一季攤薄後每股收益為 0.61 美元。

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.

接下來討論現金產生和資產負債表。2024 年第一季度，我們產生了 1,800 萬美元的營運現金流，而 2023 年第一季為 1,100 萬美元。截至 2024 年 3 月 31 日，我們的資產負債表依然強勁，現金餘額為 1.62 億美元，長期債務餘額為 6,800 萬美元。本季度，我們回購了約 272,000 股 CTS 股票，總價值約 1,200 萬美元。我們仍然專注於強勁的現金生成，並致力於維持健康的資產負債表，以繼續支持有機成長、策略性收購並向股東返還現金。

This concludes our prepared comments. We would like to open the line for questions at this time.

我們準備好的評論到此結束。我們現在想開通提問熱線。

(Operator Instructions) Our first question today comes from Josh Buchalter of TD Cowen.

（操作員說明）今天我們的第一個問題來自 TD Cowen 的 Josh Buchalter。

This is Sam on for Josh. It's good to see a positive book-to-bill for the non-transport side of the business. And I was wondering, based on your comments, it sounds like medical and A&D bookings were solid. But is your non-transport book-to-bill mostly driven, like entirely driven, by industrial? And then where do total bookings stand this quarter versus 2023's exiting at $1.36 billion? Was the $1.2 billion just for transportation?

這是山姆為喬許代言。很高興看到非運輸業務方面的訂單出貨比有正面變化。我想知道，根據您的評論，聽起來醫療和 A&D 預訂很可靠。但您的非運輸訂單到帳單是否主要由工業驅動，或完全由工業驅動？那麼，與 2023 年的 13.6 億美元相比，本季的預訂總額處於什麼水平？12億美元只是用於交通嗎？

Yes. The booked 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 come in a little bit lumpy. But I would tell you the book-to-build was very strong, and that's why we feel good about that for the full year period as well.

是的。預訂的業務又回到了運輸區。回到你的訂單到帳單和這裡的趨勢，工業佔總收入的很大一部分，正在以兩位數的速度連續增長。我們也看到醫療方面的進步。在所有領域，我們都看到訂單出貨量增加。在防禦方面，我們有一些發貨時間。其中一些訂單有點不穩定。但我要告訴你的是，預定建造量非常強勁，這就是為什麼我們對全年的情況也感覺良好。

Yes. Sam, on your question on the total booked 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 expectation of lower revenue because of the second source in the commercial vehicle products and also a smaller adjustment for the China OEM sales softness that we talked about just a moment ago.

是的。薩姆，關於您關於總預訂業務的問題，我們確實反映了這個數字 - 這反映了我們對運輸業務部分的長期收入預期。我們反映了與商用車產品第二來源導致的收入下降預期相關的調整，以及我們剛才談到的中國整車廠銷售疲軟的較小調整。

Understood. And then I think last quarter, I asked you all the progress of the burndown of the inventory in 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 you're still working through that. Do you have any kind of update directionally on that and how long that might take to clear the channel?

明白了。然後我想上個季度，我問了你們分銷通路庫存消耗的所有進度。我想你提到過或你注意到同行們當時正在談論 60% 或 70% 的燃盡率，聽起來你仍在解決這個問題。您對此有任何方向性的更新嗎？

Sam, probably the best way of describing it is 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.

薩姆，也許最好的描述方式是我們看到庫存繼續消耗。我想說，在過去的幾個季度中，我們的客戶的 POS 數量首次有所改善。我們的預訂量和銷售額也有了小幅改善。因此，趨勢是正確的，但目前要非常謹慎。請記住，它約占我們總銷售額的 10%。

Loud and clear. And last 1 for me. I think it's pretty well known that you're seeing a little bit of a shift from full BEV to hybrid. And I was just wondering, is that comment -- are you seeing that more in non-Chinese markets than the China market, the BEV market in China is still doing well and status quo versus 6 months ago? Or can you break that down for us to kind of give us the geographical split on what you're seeing?

響亮清晰。最後 1 對我來說。我認為眾所周知，您正在看到從純電動車到混合動力車的一些轉變。我只是想知道，這樣的評論是不是——您是否看到，在非中國市場而不是中國市場，中國的純電動汽車市場與 6 個月前相比仍然表現良好且保持現狀？或者您能否為我們分解一下，以便我們了解您所看到的內容的地理分佈？

Yes. Sam, I'd say on the BEV overall is North America, they have softened a little bit. Europe has gone a little bit flattish. I'm thinking North America in the 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've 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. It does have some impact on us. As we called out, the thing that concerns us is our transplant customers losing share in China. That's where we're mostly focused.

是的。山姆，我想說的是北美的純電動車，他們已經軟化了一點。歐洲的情況有些平淡。我認為北美在 7% 的範圍內，也許少一點，歐洲則在較低的兩位數範圍內。第一季中國有所上升，而中國則有所下降。但請記住，農曆新年即將到來，所以我認為這將在整體上得到糾正。我認為我們並不太擔心這一點，因為產品大多是不可知的。對我們確實有一些影響。正如我們所呼籲的，我們擔心的是我們的移植客戶在中國失去份額。這是我們最關注的地方。

Our next question comes from Justin Long of Stephens.

我們的下一個問題來自史蒂芬斯的賈斯汀朗。

Maybe to start with a 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 3 quarters?

也許首先要問一個有關指導的問題，聽起來您對工業的預期改善更偏向於下半年。因此，當我們考慮今年剩餘時間的收入和盈利節奏時，該指引是否假設第二季度看起來與第一季相似，然後我們在下半年有所回升？或者您能否就未來 3 個季度的業務進展提供更多資訊？

Yes, 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.

是的，我想說的是，只是為了給出一個整體背景，交通，由於其商業方面的原因，亞洲的輕型汽車全年都會面臨一些挑戰，但這一點已被考慮在內。改進，你會在第二季看到一些改進，但大部分是在後半段。但賈斯汀，你肯定會在第二季看到一些進步。

Justin, just to add that as we have previously communicated, we expect a softer second half for transportation and a recovery in the industrial business. So the mix should continue shifting towards the non-transportation revenue in the second half of the year.

賈斯汀，補充一下，正如我們之前所傳達的，我們預計下半年交通運輸將更加疲軟，工業業務將復甦。因此，下半年的收入結構應該會繼續轉向非交通收入。

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?

好的。我想在這一點上，Ashish，我們確實看到第一季毛利率（調整後毛利率）環比提高了約 200 個基點。其中有多少只是更好的產品組合與您討論的一些營運改進的結果？您能否幫助我們考慮一下這一毛利率水準未來的可持續性？

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 mix shift continuing to change as we go through the rest of the year, we do expect more favorable impact. And obviously, we'll continue focusing on operational efficiency at the same time as well.

是的。賈斯汀，無需贅述太多細節，我們確實看到了營運改善和客戶組合方面的一些改進。我要告訴你的是，隨著我們看到今年剩餘時間的結構轉變繼續發生變化，我們確實預計會產生更有利的影響。顯然，我們同時也會持續關注營運效率。

Okay, got it. And I guess the last 1 for me was around the competition from a second source in commercial vehicle. I'm just curious, is that 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 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?

好，知道了。我想對我來說最後一個是圍繞商用車第二來源的競爭。我只是好奇，這是新的發展嗎？當您最初提供指導時，您是否預計今年會出現這種情況？當我們試圖了解市場壓力和產量下降與第二個競爭對手的問題相比時，您是否可以提供更多關於由此帶來的阻力的資訊？

So Justin, it's a newer development. As you know, in commercial vehicle markets, 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, the relationship we have with the customer, we think we're going to have good business there going forward.

賈斯汀，這是一個較新的發展。如您所知，在商用車市場，甚至輕型汽車市場，擁有第二個來源並不罕見。我們已經準備好了。如果我們專注於產品的本質以及我們與客戶的關係，我們認為我們未來將會有良好的業務。

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. So obviously, we've got to compete. We've got to do a good job in 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.

然後關於運行率的問題，是否已經內建了柔軟度？是的，疲軟是固有的，但我們預計下半年會出現更多疲軟。顯然，我們必須競爭。我們必須做好創新和品質工作，這也是我們在所有其他市場所做的事情。所以這可能是總體描述它的最佳方式。

Yes. Justin, just to 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 honing in on in early part of 2024.

是的。賈斯汀，重申一下，當我們發布今年的指南時，這是在我們的銷售預期範圍內預期的。因此，從這個角度來看，這並不新鮮，但正如 Kieran 所說，這是我們在 2024 年初磨練的較新的開發成果。

Okay, that's helpful to clarify.

好的，這有助於澄清。

The next question comes from John Franzreb of Sidoti & Company.

下一個問題來自 Sidoti & Company 的 John Franzreb。

Just sticking to the topic of pricing pressure, is it limited to the second-source competition or are you seeing it in other end markets as well?

只是堅持定價壓力這個主題，它是否僅限於第二來源競爭，還是您在其他終端市場也看到了這種情況？

John, it's 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 Detroit 3 on 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 the non-transportation markets.

約翰，它主要涉及所有運輸市場。我們會這樣看待它，而不僅僅是商業上的。都是交通啊我們預計，從過去幾年的變化、底特律 3 的工會談判以及正在發生的其他事情來看，汽車價格將開始略有下降，但尚未完全下降。但我們預期運輸市場將面臨這種壓力。我們並不那麼擔心非交通市場。

Understood. 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 end market within the non-transportation businesses is probably going to be the first to recover in 2024?

明白了。在非運輸市場中，您提到，根據目前的預訂情況，您預計下半年會比上半年更好。非運輸業中的哪個終端市場可能會在 2024 年首先復甦？

John, the way I'd frame that a little bit is 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 that's where we expect the biggest improvement going into the second half.

約翰，我的框架是我們一直以來的情況——如果你看看非交通、醫療和國防去年全年都表現穩定，今年也是如此，我們希望它們能夠表現出色。工業一直是最大的阻力。我們已經看到銷售和預訂量持續改善，這就是我們預計下半年改善最大的地方。

And John, Kieran 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 2024.

John Kieran 也談到了第一季醫療以及航空航太和國防領域的強勁預訂量，因此我們預計醫療、航空航太和國防領域的這種勢頭將在 2024 年持續下去。

Understood. And just to ask, given the relocation of the facility, any update on capital spending for the year, what the budget looks like?

明白了。只是想問一下，考慮到設施的搬遷，今年資本支出的最新情況，預算是什麼樣的？

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

所以，約翰，我們通常會談論銷售額的 4%。有些年頭，會少一點。有些年頭，我們的水準更高了一些。展望 2024 年及以後，這對我們來說是正確的。

(Operator Instructions) Our next question comes from Hendi Susanto of Gabelli Funds.

（操作員說明）我們的下一個問題來自 Gabelli Funds 的 Hendi Susanto。

Kieran, I would like to ask further questions on the second-source competition in terms of, let's say, like, the timing of winning or losing shares. Are there some timing elements, meaning that when will CTS or your customers can regain shares back with regard to the second-source competition?

Kieran，我想就第二來源競爭提出更多問題，例如贏得或失去股票的時間。是否存在一些時間因素，即 CTS 或您的客戶何時才能重新獲得與第二來源競爭相關的份額？

So Hendi, I think 2 things there. 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 delivery, just like we do with the 20 other OEMs we do business with in transportation.

所以亨迪，我認為有兩件事。我提到，銷售額下降已經在我們的運行率中，但由於下半年市場疲軟，我們將看到進一步下降。所以這可能是描述你的問題的最佳方式。如您所知，在運輸領域，擁有第二來源並不罕見，因此我們必須確保我們在創新、品質和按時交貨方面做得很好，就像我們與其他 20 家 OEM 一樣我們與運輸業有業務往來。

And then in terms of like winning it back, can it happen any time or...?

然後就贏回它而言，它可以隨時發生還是......？

I understand your question. Look, we always aim to win. I would tell you, though, in most OEM situations, they always like to have some second-source capability. Sure, will we fight for more share? Absolutely, that's what we're here for. But I would expect an OEM to maintain some flexibility.

我明白你的問題。看，我們的目標始終是獲勝。不過，我想告訴您，在大多數 OEM 情況下，他們總是希望擁有一些第二來源的能力。當然，我們會爭取更多份額嗎？當然，這就是我們來這裡的目的。但我希望 OEM 能保持一定的彈性。

Okay. And then even in the light cycle markets, Chinese OEMs winning against transplant, what is the current strategy or current plans to expand your presence among the local Chinese OEMs? Like where are we now? And then what should we envision for the next several quarters?

好的。那麼，即使在輕循環市場，中國整車廠在移植中獲勝，目前的策略或計劃是什麼，以擴大您在中國本土整車廠的影響力？就像我們現在在哪裡？那麼我們應該對接下來的幾季有何展望？

Hendi, that's a good question. Thank you. It's a tough one because with some OEMs in China, we know we can expand not just over in that region but as they expand globally as well. On the other hand, there are some that we probably won't play with because they tend to do a lot of vertical integration versus taking your technology over time. So we're very careful where we play.

亨迪，這是個好問題。謝謝。這是一項艱難的任務，因為對於中國的一些原始設備製造商來說，我們知道我們不僅可以在該地區擴張，而且還可以隨著他們在全球擴張。另一方面，有些我們可能不會使用，因為它們往往會進行大量的垂直整合，而不是隨著時間的推移而採用您的技術。所以我們在比賽的地方非常小心。

And then the other thing we've been doing is because, as you know, the cycle there, if you lose a few million in revenue, it takes a few years to gain it back, but we've already been working on this. As I mentioned in the last -- one of the last few earnings calls, we had wins on accelerometers. So 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 in motor position sensing and eBrake applications. So that's where we're doubling down.

然後我們一直在做的另一件事是因為，正如你所知，那裡的循環，如果你損失了幾百萬的收入，需要幾年的時間才能收回，但我們已經在這方面努力了。正如我在最後幾次財報電話會議中提到的，我們在加速度計方面取得了勝利。因此，透過新產品以及我們在電流感測方面所做的工作，市場需要這些類型的產品，這樣我們就可以透過馬達位置感測和電子煞車應用來贏得市場。這就是我們要加倍努力的地方。

Got it. And then with regard to the pricing pressure in transportation, may I verify whether that has been factored in within your guidance?

知道了。那麼關於運輸的價格壓力，我可以核實一下您的指導中是否已考慮到這一點嗎？

Yes, we always factor that 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.

是的，我們總是將這一點納入我們的指導範圍內，Hendi。顯然，我們正在內部提高生產力，以確保我們正在改進並做正確的事情，以保持和改善我們的利潤狀況。

(Operator Instructions) We have no further questions, so I'll turn the call back over to Kieran O'Sullivan for any closing comment.

（操作員說明）我們沒有其他問題了，因此我會將電話轉回基蘭·奧沙利文 (Kieran O'Sullivan) 以徵求結束意見。

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.

謝謝你，莉迪亞，也謝謝大家抽出寶貴的時間。儘管面臨近期的不利因素，CTS 仍專注於未來的成長，在自動化、互聯性、能源效率和微創醫療創新等大趨勢的推動下。我們的客戶和機會管道的持續擴大增強了我們對未來的信心。感謝您今天加入我們的電話會議。我們的通話到此結束。

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

今天的電話會議到此結束。非常感謝您的加入。現在您可以斷開線路。