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Edited Transcript of CTS earnings conference call or presentation 6-Feb-18 4:00pm GMT

Q4 2017 CTS Corp Earnings Call

ELKHART Mar 25, 2019 (Thomson StreetEvents) -- Edited Transcript of CTS Corp earnings conference call or presentation Tuesday, February 6, 2018 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish Agrawal

CTS Corporation - CFO and VP

* Kieran M. O'Sullivan

CTS Corporation - Chairman, CEO and President

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Conference Call Participants

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* Hendi Susanto

G. Research, LLC - Research Analyst

* Ian Trevor Gilson

Zacks Investment Research, Inc. - Senior Special Situations Analyst

* John Edward Franzreb

Sidoti & Company, LLC - Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the CTS Corporation Fourth Quarter and Fiscal Year 2017 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Kieran O'Sullivan. Please go ahead.

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [2]

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Thank you, Ashley. Good morning. Thank you for joining us today, and welcome to CTS's Fourth Quarter and Full Year 2017 Conference Call. We had good growth in the fourth quarter. Sales were up 9.2% versus the same period in 2016, and we added 6 new customers. Sales for the quarter were $111 million. Full year sales were $423 million, up 6.6% from $397 million in 2016. We continue to make progress on profitable growth around products that sense, connect and move. We ended the year with total booked business of $1.737 billion, up 14.4% from $1.518 billion at the start of 2017.

Fourth quarter adjusted gross margins were 34%. Full year adjusted gross margins were 34.3%, down from 35.4% in 2016, driven primarily by the rework we discussed earlier in 2017. We need to get back to executing at improved gross margin levels.

Fourth quarter adjusted earnings per share of $0.39 were up from $0.29 in the fourth quarter of 2016. Full year adjusted earnings per share of $1.23 were up from $1.08 in 2016. Our 2018 tax rate is expected to be in the range of 26% to 27%. We continue to advance initiatives to further improve our tax rate beyond 2018. Cash flow from operations for 2017 was $58 million, up 23% from $47 million in 2016.

As highlighted in our last earnings calls, our capital spending will increase in 2018, driven by our investments for growth, site consolidations and the introduction of a new ERP system. These investments are an essential part of building the foundation for the future of our company.

Our simplification focus remains on track. In the first half of 2018, we will consolidate the single crystal manufacturing operation into our new corporate location here at Lisle. The transition of Elkhart manufacturing continues finishing in the second half of 2018.

Ashish Agrawal, our CFO, is joining me on today's call. Ashish will take us through the safe harbor statements. Ashish?

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Ashish Agrawal, CTS Corporation - CFO and VP [3]

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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.

To the extent that today's discussion refers to any non-GAAP measures relative to Regulation G, the required explanations and reconciliations are available in the Investors section of the CTS website.

I will now turn the discussion back over to our CEO, Kieran O'Sullivan.

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [4]

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Thanks, Ashish. As I mentioned earlier, we ended the year with total booked business of $1.737 billion, up from $1.518 billion at the end of 2016, demonstrating our progress on growth.

In the fourth quarter, we added 6 new customers, and for the full year, we added more than 20 new customers across several end markets. Our sales grew 6.6% in 2017. We ended the last quarter with 9.2% growth, of which, 6.2% was organic. We're excited by our progress as we ramp up shipment of ceramic products for our first customer with a mobile haptic application. Our growth with defense and aerospace customers continues to show progress as we increased sales last year by 9%. Our single crystal product line is performing well and growing at double-digit levels. New applications in the pipeline include hearing aids and pacemakers as well as continuing sales growth in defense.

We are advancing our tape cast technology, and in the last quarter have added one new customer for our sensor application in water pumps. We also have 2 tape cast applications in the prototype phase. We are seeing continued growth for our RF filter product sales and have also shipped approval samples to a new Asian customer with the potential to grow to 500,000 in 2018. Other new products include additional haptic applications, sensor applications and security, and the next generation of existing products.

Sales of current products grew with the first shipment of OCXOs to a customer in Turkey, building to an annual run rate of $1 million. We are also seeing increasing demand for an appliance sensor, growing to a $1 million run rate.

On the transportation front, in the fourth quarter, we were awarded wins with 8 Accelerator Pedal programs, 5 in China, 2 in North American and 1 in Europe. We were also awarded 1 ride height-sensing application in North America.

Most recently, we signed a long-term agreement to provide a piezoceramic product for a device security application. Low-volume shipments will begin in 2018 and are expected to increase over time. Our progress continues to be guided by our strategy and focus on technologies and products that sense, connect and move. The integration and performance of our European ceramic acquisition from last year is tracking to our operating plan, contributing $7.1 million in sales in 2017.

We continue to work our M&A pipeline, in line with our strategy to add technology and diversify our end market profile. Although we saw increasing sales, earnings and cash flow in 2017, our operational performance could have been better. We are handling several priorities with the implementation of a new ERP system and the ongoing simplification of our business. Our teams remain engaged and dedicated to improving our operational performance, in particular, our gross margins. We resolved our supply base issues from last year's hurricanes. Our end markets remain steady. Medical, industrial and commercial vehicle markets remain robust as telecom infrastructure continues to be soft.

We have a strong order backlog for transportation, and we remained cautious in our outlook, especially in the North American market where we saw the first decline in several years. Industry-wide, on-hand days of automotive inventory were reduced in the fourth quarter, which is a positive. Both Europe and China markets continue with a positive trend, which should provide overall market balance. We expect full year 2018 sales to be in the range of $435 million to $455 million. Adjusted earnings are expected to be in the range of $1.32 to $1.44.

I'll hand over to Ashish to take you through the results in some more detail. Ashish?

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Ashish Agrawal, CTS Corporation - CFO and VP [5]

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Thank you, Kieran. Fourth quarter sales were $110.9 million, up 9.2% versus the prior year and up 4.4% from the third quarter. Foreign currency impacted sales favorably by $1.2 million in the fourth quarter due to the U.S. dollar weakening against the RMB and euro. Organic sales growth was 6.2% year-over-year, excluding sales from the European ceramic acquisition. Sales to automotive customers increased by 7.3%, and sales of electronic components increased by 12.7%.

In the fourth quarter, we completed a lump-sum window offering to participants in our pension plan. Related to this, we took an accounting charge of $13.4 million. The entire charge is noncash, and the pension plan continues to be overfunded. $4.8 million of the charge is reflected in gross margin; and the balance, $8.6 million, is reflected in operating expenses. Excluding the impact of the pension charge, our gross margin for the fourth quarter was 34%.

In the fourth quarter, we took a onetime charge of $18 million related to the impact of the U.S. tax reform. This charge is our best estimate based on the information we have today. The impact is anticipated to be noncash for us as we expect to utilize our foreign tax credits to offset the tax liability. We saw a reduction in our tax rate for 2017 as a result of certain discrete items. Due to the U.S. tax reform, we do not expect to enjoy the benefit of some of these items in 2018; however, we will still see an improvement in our 2018 tax rate, which is expected to be in the range of 26% to 27%. This is an improvement of approximately 5% to 6% against our 2017 tax rate, excluding discrete items, and reflects the global nature of our business.

We reported a loss of $0.41 per share in the fourth quarter. Excluding the impact of currency gains, restructuring costs and onetime items related to tax and pension, adjusted earnings per diluted share were $0.39 compared to adjusted earnings of $0.29 per quarter -- per share in the fourth quarter of 2016. The EPS improvement is driven in large part from our revenue growth as well as certain favorable tax items.

Now I'll discuss the full year results. Full year 2017 sales were $423 million, up 6.6% from 2016. Organic sales grew mid-single digits year-over-year, excluding sales from the European ceramic acquisition. Sales to automotive customers increased by 4.8%, and sales of electronic components increased by 10.2%.

Excluding the impact of the pension charge that I discussed earlier, gross margin for the year was 34.3% compared to 35.4% in 2016. The gross margin was negatively impacted primarily by production rework issues that were resolved in 2017 and by foreign exchange.

Our adjusted EBITDA in 2017 was $80 million, representing 18.9% of sales. We are continuing to work on projects that will help us further improve our tax rate. In 2018, we expect to spend in the range of $1 million to $2 million in fees related to these projects, and we'll show this as an adjustment to our earnings as we report results throughout the year. We expect these projects to improve our effective tax rate, starting in 2019.

We reported earnings of $0.43 per share in 2017. Adjusted earnings per diluted share were $1.23, an improvement of 14% from the 2016 adjusted earnings of $1.08 per share.

Now I'll discuss the balance sheet and cash flow. Cash and cash equivalents were $113.6 million at December 31, 2017, compared to $113.8 million at the end of 2016. Our long-term debt balance was $76.3 million, down from $89.1 million at December 31, 2016. The U.S. tax reform gives us the flexibility to bring cash back to the U.S. without significant additional tax penalty. We will have approximately $50 million of foreign cash that can be brought back to the U.S. We remain consistent in our intent to use the cash to fund domestic and foreign acquisitions.

Our controllable working capital as a percentage of sales was 13.1% in the fourth quarter of 2017, up from 12.6% a year ago. The primary driver of the increase is the build of safety stock related to our manufacturing transfers. We expect to work our inventory levels down towards the end of 2018 as we complete the transfers.

Cash flow from operations for 2017 was $58 million, up 23% from $47 million in 2016. Capital expenditures were $18.1 million. CapEx was lower than expected in 2017 as the timing of certain investments shifted into 2018. The various projects are on track, and we expect our 2018 CapEx to be in the range of 7% to 9% of sales. Total debt to capitalization was 18.2% at the end of 2017, down from 22.1% at the end of 2016.

The ERP implementation project is progressing. Our team is working hard to design and test the system. We expect to roll out the SAP system to our sites in phases, starting in the second quarter of 2018.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [2]

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Can you hear me?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [3]

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Yes, John, we can hear you.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [4]

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Okay. Kieran, I guess my first question is the organic growth numbers that you just presented out there. I just want to make sure I understand what's going on. I think you said it was 6.2% organically, and 7% of that was auto and 12% was that -- was electronic components. What's the negative number that's bringing down the blended number to 6%?

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Ashish Agrawal, CTS Corporation - CFO and VP [5]

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John, let me address that. This is Ashish. The 12.7% for electronic components includes the acquisition. So the total organic is the 6% that you mentioned, but the individual numbers that we talked about, they are total growth.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [6]

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Total growth. Okay. And when you think about the changes you're making as far as rolling out the ERP system and you said that there's been a push back in some of the CapEx, can you talk a little bit about timing of the ERP roll out? You mentioned it's going to start in second quarter. When is it going to end? And what do you think the total budget is for the entire project?

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Ashish Agrawal, CTS Corporation - CFO and VP [7]

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So John, the ERP implementation will start in the second quarter. For most of our sites, the implementation will be completed in 2018. Some of the smaller locations, especially acquisition-related sites, we might push that into 2019. The overall project expense, we haven't really talked about that, but it is included in our overall CapEx number, which -- as I mentioned earlier on the call, we are expecting it to be in the 7% to 9% of sales. That includes the ERP project, various growth projects, the transition of manufacturing from Elkhart, the Lisle building consolidation, all of those items.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [8]

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And since there's such a sizeable jump in the CapEx, I was wondering if you could kind of size how much was onetime versus the other? I'd expect you to drop back to the normal 5% or so in '19 [than it's] the old number '18. Is that a fair assumption?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [9]

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Yes, John, if you look at it in the last few calls, we've been signaling that we were going to be increasing the spend this year and getting back to more normal rates next year.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [10]

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Got it, got it. And Kieran, when we look at the booked business number, I mean, we've got about a year of data behind us, how should we think about that? Should we think about that on more a sequential basis? It's up now 2% sequentially, or we think about it more -- year-over-year it's at 14%. Now what do you want us to take out of that number?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [11]

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I think, John, what you can take out of the number is first of all, it was a robust year in terms of competing in the marketplace and winning new business. And on the backlog side of that, or the total booked business, it's extending out several years. Some of the orders are out beyond 2022. We feel really good. A large portion of that is transportation. A large portion of the ceramics gets into the backlog as well. And as you can see, we're adding new applications and new products, which we feel very good about. So we're signaling, we're -- we'll be likely at a very strong year and feel good about it, and obviously, want to keep executing at this level.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [12]

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So does this number at some point -- when you start shipping these orders, is it [term] orders? Do we see it get down as you start to ship out into revenue? Is that how it's going to play out?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [13]

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Well if you look at it, John -- and you'll probably see it in our updated Investor presentation as well -- if you look at 2018, the shippable portion of that backlog is already $351 million. So it's a very solid start into the year, and of course, we have a chunk of that in other years subsequent to that as well.

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Operator [14]

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(Operator Instructions) We'll take our next question.

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Hendi Susanto, G. Research, LLC - Research Analyst [15]

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So Ashish and Kieran, as we look into 2018, what kind of gross margin trajectory we should expect considering, like, many variables, including transitions and you also have, like, new products?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [16]

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Yes, I would expect, Hendi, to us -- for us to get back to more normal levels where we've been running in the past. We said we were impacted by rework issues, so you can see that's more than 1 point of gross margin. So we would expect to get back to those normal levels; and obviously, we want to do a little better, too.

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Ashish Agrawal, CTS Corporation - CFO and VP [17]

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Hendi, the costs related to the restructuring activities, we will be excluding them from our adjusted EPS. So you'll see those numbers excluded from the adjusted numbers.

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Hendi Susanto, G. Research, LLC - Research Analyst [18]

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So can we expect gross margin improvement as early as Q1?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [19]

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We should see a positive trend throughout the whole year.

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Hendi Susanto, G. Research, LLC - Research Analyst [20]

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So it's gradually, quarter after quarter?

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Ashish Agrawal, CTS Corporation - CFO and VP [21]

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Yes, you should see -- you should start seeing an improvement in Q1. And then, as Kieran mentioned, a gradual improvement as we go along the year.

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Hendi Susanto, G. Research, LLC - Research Analyst [22]

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Okay. And Ashish, may I inquire organic growth rate of the electronic segment?

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Ashish Agrawal, CTS Corporation - CFO and VP [23]

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Hendi, could you ask your question again?

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Hendi Susanto, G. Research, LLC - Research Analyst [24]

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May I inquire organic growth rate of the electronic segment alone?

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Ashish Agrawal, CTS Corporation - CFO and VP [25]

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It's slightly over 4%, Hendi, excluding the Noliac acquisition that we did back in May. And this is for the fourth quarter.

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Hendi Susanto, G. Research, LLC - Research Analyst [26]

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Okay. Kieran, you mentioned several security application in your prepared remarks. Could you share what kind of end products your product go to?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [27]

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Sorry, Hendi, what was the first part of that question?

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Hendi Susanto, G. Research, LLC - Research Analyst [28]

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You mentioned several security applications, and I'm wondering what kind of end products.

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [29]

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Yes, it's a new multiyear contract that we signed. And the customer, at this stage, doesn't want us to disclose any more information on it, but think about it in terms of some kind of portable applications.

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Hendi Susanto, G. Research, LLC - Research Analyst [30]

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Could you mention which industry?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [31]

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It's actually going to have applications in several end markets, but this one would certainly be more mobile communications.

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Hendi Susanto, G. Research, LLC - Research Analyst [32]

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And then, Ashish, when I look at the latest corporate presentation, CapEx was estimated at 6% to 8% for 2018, and today, it is, like, 7% to 9%. I'm wondering what caused the increase to 7% and 9%. I'm wondering whether it is associated with growth investment that Kieran mentioned.

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Ashish Agrawal, CTS Corporation - CFO and VP [33]

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So Hendi, there are 2 aspects of it. Certain items that we were expecting the cash outflow to happen in 2017, those cash outflows are happening in Q1 of 2018 and balance of 2018; that's what I referred to earlier in my comments. And then there will be some additional CapEx related to the growth projects. But the largest part of the 7% to 9% from an unusual standpoint is related to the projects that we are working on, which will help us -- the ERP, the Elkhart transition. You should definitely see CapEx go back to normal levels in 2019.

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Hendi Susanto, G. Research, LLC - Research Analyst [34]

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And Ashish, you have been working on tax projects that is independent of the U.S. tax reform. I'm wondering when we may see the outcome of that. Should we expect to see some of your tax projects to happen in 2018? Or should we expect it will be beyond 2018?

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Ashish Agrawal, CTS Corporation - CFO and VP [35]

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Hendi, there is a little bit of uncertainty on the timing because it involves government agencies in various countries for us to work through. My expectation is that we'll make very good progress in 2018, but I'm hesitant to say that we will see a benefit in 2018. But we should definitely see a benefit in 2019.

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Operator [36]

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And we'll take our next question.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [37]

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I didn't hear the -- announce me. Could you go through beginning of the end [part] on the line items of the pension adjustment?

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Ashish Agrawal, CTS Corporation - CFO and VP [38]

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So the pension adjustment, there's a reflection of $4.8 million in the gross margin line. So the gross margin for Q4 and total year is understated by $4.8 million as a result of that. And then between SG&A and R&D, there's a total of $8.6 million between those 2 lines. And you will see in our Reg G, an adjusted gross margin as well as a adjusted OpEx number that'll be reflected in our Reg G.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [39]

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All right. Is the split between SG&A and R&D equal relative proportion of those 2 items?

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Ashish Agrawal, CTS Corporation - CFO and VP [40]

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Ian, could you ask your question again?

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [41]

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Is the cost and operating expenses split in proportion to level of expenditures in R&D and SG&A? Or is it biased towards SG&A?

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Ashish Agrawal, CTS Corporation - CFO and VP [42]

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It's $6.5 million in SG&A and $2.1 million in R&D.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [43]

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Okay. Going forward on the tax rate, you talked about initiatives to reduce that as we move into what? 2019, 2020?

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Ashish Agrawal, CTS Corporation - CFO and VP [44]

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That is correct.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [45]

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In what areas are we looking? Are we looking for that to occur outside of the U.S? Or are there gains that could be made inside the U.S?

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Ashish Agrawal, CTS Corporation - CFO and VP [46]

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The primary portion of the benefit will come from activities that we're undertaking outside the U.S., Ian. The U.S. portions will be pretty small.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [47]

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Okay. And will those manage? Or can they be repatriated with no penalty?

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Ashish Agrawal, CTS Corporation - CFO and VP [48]

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We are subject to GILTI as most other companies are that are operating internationally. So there is a penalty in the U.S. for foreign earnings, but beyond that, we anticipate that there should be pretty minimal cost to bringing that cash back to the U.S.

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Ian Trevor Gilson, Zacks Investment Research, Inc. - Senior Special Situations Analyst [49]

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Okay, great. Have you filed a K yet?

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Ashish Agrawal, CTS Corporation - CFO and VP [50]

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The K will be filed later in February.

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Operator [51]

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(Operator Instructions) We'll take our next question.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [52]

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Yes, I guess just, first, I want to follow on, on the last caller. If I pull out the pension numbers on the SG&A line and the R&D line, I mean, it just occurred in the fourth quarter only, if I'm correct. I'm getting some strange numbers. I'm getting SG&A roughly $18.5 million. Is that right?

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Ashish Agrawal, CTS Corporation - CFO and VP [53]

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John, there will be always some timing of SG&A expenses. The numbers that you're looking at should be right once we exclude the pension charge. And there's always -- because of how the accounting works, there's always a little bit extra cost in Q4 in SG&A.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [54]

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Okay. And the R&D number drops to [4.6%]. That's unusually large. It seems like it was more than I would have expected an adjustment. I would expect less than $1 million actually. So I just wanted to...

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Ashish Agrawal, CTS Corporation - CFO and VP [55]

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Yes. R&D number was a little bit lower in Q4 than we anticipated. And that can be influenced by the timing of certain reimbursements we get from our customers for various development projects that we are working on with them. So that was the driver in Q4 of the lower R&D number.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [56]

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And I guess now -- I'll get some of the other numbers (inaudible) in the follow-up. But can you talk a little bit about M&A? You said that if you could repatriate (inaudible) sort of what's the M&A environment? I can't imagine with the economy firming that it -- the price has gotten any better for you, Kieran?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [57]

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So John, we're still actively working our M&A pipeline across the different products in the portfolio. We've got the cash and, obviously, we can deploy that for acquisitions overseas or in the U.S. And it'll be in line with our strategy around products that sense, connect and move. We've certain things we're focused on and as we renew and refresh different parts of the portfolio. So nothing more to report other than that.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [58]

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Okay. Do you see a potential acquisition more on the domestic front or more likely to be a foreign operation?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [59]

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John, we're looking at opportunities in all regions, so it kind of -- it's all a matter of timing.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [60]

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Okay. Regarding your exposure, you kind of suggested earlier that growth in China and possibly Europe could offset your exposure to the North American -- to the economy of the North American automotive market. Can you kind of refresh our memories of what your exposure is to those 3 different geographies going forward?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [61]

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So I think, overall, our total sales in North America are over 50%, probably through 54%, 55%. And John, the reason why we focus on that -- Europe is up, I should say, from the last 2 years by 12% to 14%, 15% range and the balance then is Asia, primarily in China. And the reason why we remain cautious of the U.S. is, on the transportation front, last year was the first year we saw a decline in unit volume coming down from 17.5 million to 17.2 million. We would be pretty pleased this year to see a transportation number in the North American region of high 16s, 16.7 million to 17 million; that would be a good year. And with our gain shares, we should be able to offset some of the softness.

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Ashish Agrawal, CTS Corporation - CFO and VP [62]

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John, just to clarify Kieran's comment. The split of sales is for our total business, not just for the automotive end market. We do not disclose regional splits by end market.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [63]

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Okay, I was kind of surprised by some of those. Okay.

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [64]

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No, they're total.

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Operator [65]

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And we'll take our last question.

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Hendi Susanto, G. Research, LLC - Research Analyst [66]

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Again, Kieran, would you share what growth areas that may drive your revenue toward the upper end of your guidance?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [67]

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Yes. Mostly on some of the newer ceramic products is where we're seeing a lot of traction. We've still got good growth on the other areas as well. But we're having more new products in that area and that's where we see that we've got some opportunity.

On top of that, that backlog that we've been building over the last number of years is pretty robust. And we feel good about that as well to offset softness and even give us some momentum with share gains.

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Hendi Susanto, G. Research, LLC - Research Analyst [68]

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So it's mainly your ceramic products aside from your backlog, Kieran?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [69]

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Newer ceramic products, newer electronic components in that area as well where we're doing some things. But also on the transportation side, where we've got that backlog built up; and we feel good about the organic growth rate and across the different markets.

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Hendi Susanto, G. Research, LLC - Research Analyst [70]

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Got it. And then one more question. So when transition of Elkhart finish in the second half 2018, is there any estimate how much basis point you may see improvement?

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [71]

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The way we've communicated that, Hendi, is we're finishing in the second half of the year. If you remember last year, we said we had one product line that was delayed by 3 months but still was finished in the second half. And we said the savings are going to be in the region of $6 million to $8 million on a full year basis. So the first full year would be 2019. So that should give you some sense of it.

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Operator [72]

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And it appears there are no further questions at this time. I'd like to turn the conference back over to Kieran for any additional or closing remarks.

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Kieran M. O'Sullivan, CTS Corporation - Chairman, CEO and President [73]

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Great. I just want to thank everybody for your participation on today's call. We've made a lot of progress in several areas. We have some areas we need to focus on. So it's back to work here in Lisle, and look forward to talking to next quarter. Thank you.

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Operator [74]

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And once again, that concludes today's presentation. We thank you all for your participation, and you may now disconnect.