CTS Corp (CTS) Q4 2020 Earnings Call Transcript

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CTS Corp (CTS 0.33%)
Q4 2020 Earnings Call
Feb 9, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day everyone, and thank you standing by. Welcome to CTS Corporation Fourth Quarter and Full-Year 2020 Earnings Call. [Operator Instructions]

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

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Thank you, Hannah, good morning. And thank you for joining us today and welcome to CTS's fourth quarter and full-year 2020 conference call. Sales in the fourth quarter were $123 million, up 7%, compared to the same period in 2019. Full-year sales were $424 million, compared to $469 million last year impacted by the pandemic in 2020. Today all of our plants are operational with varying levels of capacity from 85% to 100%.

Fourth quarter gross margin was up 110 basis points to 34.7% from the same period last year. EBITDA margin of 21.4% was up from 20.3% in the fourth quarter of 2019. Fourth quarter adjusted earnings per share of $0.43, were up 16% from $0.37 in the fourth quarter of 2019. Full-year adjusted earnings per share of $1.12 were down from $1.45 last year.

New business wins for the year were $442 million, down from the prior year as several OEMs push that sourcing decisions in 2020. Operating cash flow for 2020 was $77 million, up 19% and $64 million in 2019. In the fourth quarter, we acquired Sensor Scientific, a temperature sensing company, primarily serving medical customers.

Ashish Agrawal, our CFO is with me for today's call as usual and he'll take us through the Safe Harbor statement. Ashish?

Ashish Agrawal -- Vice President and Chief Financial Officer

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 under 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?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Thanks, Ashish. In the fourth quarter, our sales increased to $123 million, up 8% sequentially and up 7% from last year. For full-year 2020 sales were down 10% from 2019, driven lower by the impact of the pandemic. The quarter's performance was solid. However, we are operating cautiously as we enter 2021 and monitor for any new pandemic disruptions, semiconductor shortages for our OEM customers and the consistency of the recent robust recovery.

We continue to prioritize safety in our operations, our team's ability to effectively manage through the crisis, their resilience as well as the commitment and strength of the senior leadership team greatly helped us navigate these unprecedented market conditions this past year. The restructuring plan we announced last year is progressing with small delays due to the impact of COVID-19. We are still planning to deliver an annualized EPS improvement in excess of $0.22 by the second half of 2022.

More importantly, we're focused on returning to growth, building on our performance in the fourth quarter and leveraging the recent acquisition of Sensor Scientific. Sensor Scientific is a manufacturer of high quality thermistors and temperature sensor assemblies, serving OEMs for applications that require precision and reliability in medical, industrial and defense markets. Sensor Scientific's products are used in a variety of medical applications; including neonatal equipment, lab freezers, fluid warmers and analytical instruments. SSI has locations in Turkey and New Jersey and in the Philippines. The acquisition expands our temperature sensing portfolio has complementary capabilities with our existing platform and expand CTS's presence in medical.

The annualized revenue is in the range of $6 million, the purchase price was slightly less than 2 times revenue. I'm pleased to welcome the SSI team to CTS and excited by the addition of many talented individuals and the growth opportunities ahead.

We remain focused on our strategic growth investments as part of our planning for 2025. Growing our business and expanding our range of products that Sense, Connect, and Move is the priority. New business awards were $104 million for the quarter, we added six new customers in the quarter; four in transportation; one in medical and one in telecom. In Transportation, we were awarded passive safety sensor wins with three OEMs; one of the wins was with a North American customer for electric trucks, a new customer for CTS, this builds momentum on the large passive safety win we recorded last quarter with a Chinese electric vehicle application.

We have accelerated our module wins with several OEMs across China, Europe and North America. A few of these wins were on plug-in hybrid electric platforms. We also added the new customer for passive safety sensors in Asia and a new Chinese JV customer for accelerated modules. We continue to focus on electric vehicle applications and products that are technology-agnostic and are not impacted by the transition from internal combustion engines to EV's.

New electric vehicle applications in current temperature sensing and advanced E-break our innovation projects in our pipeline, as well as next-generation chassis right high sensing. Total EV wins for the year were in the range of 20% of new business awarded. In Europe, we continue to leverage our footprint and capabilities in Denmark and the Czech Republic with Tier 1 defense customers and are currently in sample qualification. In addition, we were awarded funding from a European Agency for the development of next-generation ceramic materials.

We saw softness in the medical market in the fourth quarter. However, we are making progress in applications and renewed business with three ultrasound customers in the quarter with one for a multi-year period. We also secured a win for sleep apnea control application and a win for a medical temperature application.

In other electronic components we had wins with application in EMC, as well as a Microactuator application. In Asia we secured a win for a two-wheeler throttle sensor application. With temperature sensing, we secured orders in pool and spa applications, which continue to be strong. We also have temperature wins in industrial for hatchback and a win for a satellite application. We are gaining momentum with our precision frequency product enabled by our reference design position. We secured wins for 5G applications linked to large telecom OEMs and shipped the quarter million of samples in the quarter.

More recently in January, our product was designed in for a 5G application selected by India's largest telecom provider. The low power crystal product is also in sample testing with a new North American customer. Building and strengthening our M&A pipeline is the priority. This is more challenging due to the COVID restrictions, we are actively building relationships with companies in line with our strategy. We seek to expand our range of technologies, products, customers and geographic reach, while we continue to diversify our end-market profile and enhance the future quality of earnings. Given our strong balance sheet, we seek to gain momentum with the right strategic fit and evaluation.

The focus 2025 initiatives, which we have previously highlighted has an important emphasis on building stronger customer relationships. As part of this initiative, we continue to focus on our go-to-market capabilities and skills. We are working to improve the quality of the sales funnel, optimize our target new accounts and align our functional areas to be more responsive and solution-oriented in line with our core values.

As we progressed into the first quarter of 2021, we've seen a positive start and expect a good first quarter given current customer demand. As I mentioned earlier, we remain cautious for the full-year in case of unexpected pandemic supply chain disruptions and the current semiconductor shortage. We are monitoring the consistency of demand in this recovery, given there may have been some pull forwarding demand in 2020. We are all aware of the backdrop of higher unemployment and the potential for depressed economic and consumer confidence.

Though, we are not experiencing it at this time. We are facing some headwinds on commodity pricing, higher freight charges, increased absenteeism due to the impact of COVID-19 and working diligently to offset these with our continuous improvement projects. We expect to stay within our targeted gross margin range.

For the US light vehicle transportation market, volume is expected to improve in the 14 million to 16 million unit range. On-hand days of supply are now at 59 days. Approximately 9% below the five-year average of 65 days. We currently see reasonable control of inventory levels, European sales are forecasted in the 18 million to 19 million unit level, though there is some uncertainty given the recent lockdowns throughout the region with some OEMs announcing volume reductions. Our exposure to the European market is lower. The Chinese market is expected to remain solid with volumes of 24 million to 26 million unit range this year.

The commercial vehicle market is on an improving trend that started last year. Larger backlogs and heavy duty are driven by increasing fleet orders. In the mid range and lower, demand has been driven by the increase in e-commerce deliveries. The medical end market is expected to remain soft in the first half of 2021, due to lower elective surgeries. We see good growth in industrial and defense markets.

In terms of guidance for full-year 2021, we expect sales to be in the range of $430 million to $490 million, and adjusted earnings are expected to be in the range of $1.20 to $1.60. We are closely monitoring the impact of COVID-19 supply chain disruptions and the broader level of economic activity. We expect to narrow the range as the year progresses.

In this more remote working environment, we continue to place an emphasis on connecting with our customers, monitoring products and development, effectively navigating supply chain improvements, innovations and importantly, our performance and results driven culture. Our employees globally continue to provide a tremendous support and demonstrate resilience to serve our customers, while operating safely. I want to thank them for their incredible support this past year.

We are confident in our strategy and are using this pandemic period to enhance our foundation, strengthen our core business and to advance our technology capabilities. Our 2025 initiatives is focused on four key areas: 10% annualized profitable growth with active portfolio management; working more closely with our customers, building relationships and aligning our technology and product road maps; number three building the foundation of CTS's operating system to execute globally on a consistent basis, while we enhance our continuous improvement capabilities; and finally, advancing organizational capability to leadership and culture aligned to our customers' needs, our business performance, our core values, supporting our communities and environmental priorities.

At this time Ashish will take us through the financial performance. Ashish?

Ashish Agrawal -- Vice President and Chief Financial Officer

Thank you, Kieran. Fourth quarter sales were $123 million, up 7%, compared to last year and up 8% sequentially. Sales to transportation customers increased by 12% versus the fourth quarter of 2019, sequentially we were up 17% in sales to transportation customers. Sales to other end markets were essentially flat year-over-year. We saw solid growth in sales to both the industrial and defense end markets and softness continued in the medical end market.

Our gross margin was 37% for the fourth quarter, up 230 basis points, compared to last quarter, and up 110 basis points, compared to last year. Adjusted EBITDA in the fourth quarter was 21.4%, up 240 basis points sequentially and up 110 basis points from last year.

Fourth quarter 2020 earnings were $0.46 per diluted share, adjusted earnings per diluted share were $0.43, compared to $0.37 last year and $0.34 last quarter. For full-year 2020, sales were $424 million, down 10% from 2019. Sales to transportation customers declined 19% and sales to other end markets increased by 7%. Industrial and aerospace & defense end markets sales experienced double-digit growth. Medical end market was soft, but sales down 7%.

Our gross margin was 32.8% for the year, down from 33.6% last year. The major driver was lower volume attributable to COVID-19, which was partially offset by temporary and other cost reductions implemented throughout the year. Our focus is to drive improvements and move toward the higher end of our target range of 34% to 37% gross margin. In the second half of 2020, we generated $0.05 of EPS and savings from our restructuring program announced in July 2020. Foreign currency rates impacted gross margin favorably in 2020 by approximately $3 million. Based on recent exchange rates currency could impact our 2021 gross margin unfavorably by approximately 100 basis points.

SG&A and R&D expenses were $92.1 million or 21.7% of sales for the year. Consistent with prior communication, we expect 2021 operating expenses to be higher as a result of the reinstatement of temporary cost measures. Our 2020 tax rate was 23.7%, we anticipate our 2021 tax rate to be in the range of 23% to 25%, excluding the discrete items. This is subject to change, due to the impact of any changes that may be introduced by the new US administration. 2020 earnings were $1.06 per diluted share, adjusted earnings per diluted share were $1.12, compared to $1.45 last year.

Now I'll discuss the balance sheet and cash flow. Our controllable working capital as a percentage of sales was 15.5% in the fourth quarter, improved slightly from the third quarter. We have made progress over the last couple of quarters, but still have more work to do. We are balancing improvements in working capital with having some safety stock to minimize risk of supply chain disruptions.

Capex was $14.9 million for the full-year, down from $21.7 million in 2019. We continue to manage capex carefully given the current environment. In 2021, we are expecting capex to be in the range of 4% to 4.5% of sales. The primary focus being on growth-related projects. We finished 2020 with a healthy balance sheet and a strong liquidity position.

Our operating cash flow in the quarter was $26 million, for the full-year operating cash flow was $77 million, compared to $64 million in 2019. The end of the year with $92 million in cash, compared to $100 million in December 2019. In the fourth quarter, we reduced our long-term debt balance to $55 million from $106 million at the end of the third quarter. Our debt to capitalization ratio was at 11.4% at the end of 2020, compared to 19.7% at the end of 2019. The combination of a strong balance sheet with a net cash position and access to over $240 million through our credit facility gives the flexibility to appropriately deploy capital toward our strategic objectives.

We are progressing on our SAP implementation as we communicated earlier, more than 80% of our revenue comes from sites that are running on SAP. We expect to complete the implementation in the second half of 2021. However, COVID-related restrictions could cause some delays.

This concludes our prepared comments. I'd like to open the line for questions at this time.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we'll go first to Justin Long from Stephens.

Justin Long -- Stephens Inc -- Analyst

Thanks and good morning and congrats on the solid quarter.

Ashish Agrawal -- Vice President and Chief Financial Officer

Thank you, Justin.

Justin Long -- Stephens Inc -- Analyst

And so maybe to start with the question on the 2021 guidance, I was wondering, if you could help us think through the cadence on a quarterly basis of revenue and earnings. If there is any color you can provide there? And there's just a lot of swing factors with the macro environment, the restructuring that you've talked about. So, just curious if you could give us a little bit more color as we think through updating our models?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Yes. Justin maybe not on the quarterly basis, but just in total because we guided for the year. And the way I would look at it is, if you look at the lower end of the range, so we're still concerned about some pandemic disruptions, we've seen a second wave in the European region. Yes, fortunately we haven't seen it here yet, but we're concerned that there could be some things there. And so far we haven't seen anything.

And the second thing is, if you get toward the mid of the range you can see good healthy just above single-digit or mid single-digit growth and obviously we're aiming to do with better than that with organic growth and acquisitions at the higher end. The other thing is on our mind are -- you're hearing in the automotive market with a shortage on semiconductors and we've been monitoring that pretty closely and I would say at this point in time, we see that the number of units have gone up from both 650,000 vehicles impacted to -- maybe 850,000 and our impact in the first quarter so far is minimal, it's less than maybe half a million in revenue. So we've got those things going on in the background.

And as you can imagine, we're also dealing with some supply chain disruptions. This pandemic is -- hurt to supply based and we got to make sure we can currently navigate through that as well.

Justin Long -- Stephens Inc -- Analyst

Okay. And thinking about the first quarter, you mentioned you're off to a strong start, any kind of directional commentary you could help us out with as we think about first quarter versus the fourth quarter? Do you think sequentially, revenue and earnings can be flat to up or any thoughts around that?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Yes. I would say flat and it could be plus or minus a little bit just depending on how things evolve here in February and March.

Justin Long -- Stephens Inc -- Analyst

Okay, very helpful. And last one for me. I wanted to ask about the acquisition pipeline, I know you just closed the deal at the end of the year. But any commentary on the level of activity you're seeing out there, that the likelihood that we see another deal here in the near-term? And is that something that's baked into this forecast?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

And -- Justin what I would say is obviously, this is our -- this one recently with Sensor Scientific, which we really like for its technical skills and capabilities and end market, especially in the medical, it's our second temperature acquisition. So you can tell, we've got some strategic plans in this area as we scale the product in the platform globally. And our pipeline, we're active in our pipeline, it's a bit more challenging because of COVID-19, we're not likely to do a deal without being on the ground and seeing everything, but that's certainly active, we've got a strong balance sheet and we want to deploy it for the right fit and the right valuation as well.

Justin Long -- Stephens Inc -- Analyst

Makes sense. I'll leave it at that. Thanks for the time.

Ashish Agrawal -- Vice President and Chief Financial Officer

Thanks, Justin.

Operator

And we'll go next to Karl Ackerman with Cowen.

Karl Ackerman -- Cowen & Company -- Analyst

Yes, good morning gentlemen. Hi, so my first question, could you discuss your order bookings on a year-over-year basis? I asked, because if you shipped March quarter based on just orders on hand, that would imply sales down, kind of, mid-teens. I appreciate the full-year outlook, but could you just comment again on -- I guess your order momentum heading into the March quarter?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Yes, certainly. Ashish do you want to add it, please. First of all, we reported -- I'm taking it if you're looking at the new business wins of $104 million and that was a little softer than we normally would have. And let me tell you that we had several OEMs push decisions on the transportation side, primarily. We probably had some, you know, something in the region of $50 million of decision is not made. And let me, kind of, add a lit of color on that by saying we're off to a good start in January and we didn't report, and if you look at the new business wins, we didn't report it year-over-year, because a year ago we were recording our book business and backlog, what we had there.

So we just wanted to make sure we're sticking consistently with what we've done in the past. We'd like to get back into reporting our backlog later this year as we get through the pandemic and things stabilize, but we feel, Karl, we feel pretty good that was a little soft in the fourth quarter, but it's not unusual, we've seen it -- I think twice in 2020 were some large OEMs in the transportation market just were slow with making decisions and they are deciding on platforms and what they're going to do. We are not at all panic about it. We feel like we're on a good trend and as I said, we're already off to a good start in January, and we've got some really good things working in the pipeline that we're -- that are promising for our future as well.

Ashish Agrawal -- Vice President and Chief Financial Officer

Karl, the other thing to keep in mind is the new business awards that we are reporting here are not the short-term purchase orders. What you would normally look at as a book-to-bill type of ratio, these are containing long-term contracts that go out two to three years in terms of generating revenue and then giving us revenue for the next four to five years beyond that. So most of these wins that we are reporting are more longer-term in nature. So a fluctuation in any given quarter doesn't really get us to worry. We do want to make sure stays healthy for the long run.

Karl Ackerman -- Cowen & Company -- Analyst

Alright, I appreciate that. So my follow-up question, ASPs are clearly benefiting from some supply chain tightness for discrete and passive devices. And several of your component peers have raised prices quite a bit, which I think should provide a strong umbrella to use against normalized price decline. So in that context you've also a higher input costs in your prepared remarks. So I guess in that context, how are these dynamics driving our discussions on both pricing and volume commitments with your customers? Thank you.

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Karl, I would say first of all on the ASP side of it with our customers we're not seeing anything significant in terms of ASP erosion that we would have seen in normal years. And on the supply side of it and we've -- this past year in 2020, we've actually raised prices and with a number of different end markets. And we're also seeing as you pointed out some semiconductor price increases and if they happen, therefore we will have the discussions with our customers to share the load.

Ashish Agrawal -- Vice President and Chief Financial Officer

And Karl, to your point, we've seen some commodity price increases as well that we are working with our customers to work through that equation.

Karl Ackerman -- Cowen & Company -- Analyst

Thank you.

Operator

We'll go next to John Franzreb with Sidoti.

John Franzreb -- Sidoti & Company -- Analyst

Yes, just on that list commodity [Phonetic] distribution on commodity pricing. How much are you taking into account for the full-year? Do you think you will pass the completely [Indecipherable]. And you also -- I think mentioned something about currency could work against you, I think you said to the tune of 100 basis points? Is that something -- is a near-term impact or later in the year?

Ashish Agrawal -- Vice President and Chief Financial Officer

John, the 100 basis points on currency that we talked about it's for the full-year based on what we have seen recently in the exchange rates. The biggest impact is from the appreciation of the Mexican peso and due to smaller extent, but also important is the Taiwanese Dollar both of those currencies have appreciated quite a bit, compared to 2020 averages and that's what we are talking about. And the commodity pricing is important, but the impact is not quite as large as the currency impact can be.

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

And John, I'd like to just reinforce on that message that we expect to stay within our gross margin range that we published out there too.

John Franzreb -- Sidoti & Company -- Analyst

Okay. Regarding the guide -- the high end is better than you were able to do in '18 and '19. But it's also -- pretty much the run rate of the fourth quarter. When I think about the high-end of the revenue guidance. Am I thinking that the current transportation outlook is stable and the balances of the business is stable? Or we thinking that maybe there'll be a step down in the transportation market and maybe we'll see a pickup in -- well either aero and industrials, since you indicated the medical's first half will be soft?

Ashish Agrawal -- Vice President and Chief Financial Officer

John, the way we are looking at it is we have been improving our exposure to industrial, defense, medical those end markets, and that will continue to provide our expectation is that, they'll continue to provide good momentum into 2021. And the range -- the higher end of the range will be influenced probably more by how the transportation end market performs, and probably on the low side as well it will be more influenced by the performance in the transportation end markets.

John Franzreb -- Sidoti & Company -- Analyst

Got it. And regarding your targeted gross margin, can you just talk about the ability to achieve it at -- when you're completed all your cost saving actions by next year?

Ashish Agrawal -- Vice President and Chief Financial Officer

Let me make sure I understand your question. Are you asking where the gross margin is expected to be after the completion of the restructuring action?

John Franzreb -- Sidoti & Company -- Analyst

Yes, sir.

Ashish Agrawal -- Vice President and Chief Financial Officer

So the range that we talked about, John is the 34% to 37% and in my comments I mentioned that we want to get toward the higher end of that range. And once we get through all the restructuring actions, the timing is getting slightly impacted because of COVID-related small delays and stuff, but our goal is to be toward that higher end of that range.

John Franzreb -- Sidoti & Company -- Analyst

Okay, thank you, Ashish.

Ashish Agrawal -- Vice President and Chief Financial Officer

But, you know, like we talked about currency, commodity some of those things can either help us or hurt us depending on how things are going.

John Franzreb -- Sidoti & Company -- Analyst

So, I mean, I'm sure Kieran is pressing a hard on it?

Ashish Agrawal -- Vice President and Chief Financial Officer

Squeezing.

Operator

[Operator Instructions] We'll go next to Hendi Susanto with Gabelli Funds.

Hendi Susanto -- Gabelli Funds -- Analyst

Good morning, Kieran and Ashish. And congratulation on strong Q4 performance.

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Thank you, Hendi.

Ashish Agrawal -- Vice President and Chief Financial Officer

Thank you, Hendi.

Hendi Susanto -- Gabelli Funds -- Analyst

Kieran, may I ask what products are you exercised it in 2021? And then could you also talk about your EV exposure in terms of how much exposure you have to pure EV? And then how much exposure you have to product that are agnostic, when we look at your, like transportation market segment?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Yes, Hendi, in terms of the year ahead, the ceramics business has been on a good trend, I think if you remember last year we had some challenges with the foundry, which the team has been making really good progress on. And we've got a lot more -- you hear me talk about the front end of the business, we've put a lot of emphasis on and improving the front end of the business or go-to-market. And so it's not just the products, which our ability to work with the customers and get new accounts, and we've been making changes in the organization and leadership in those areas too and across all of CTS, not just one area. So we see some good things happening there, it's good to see [Indecipherable] air and defense.

And when we look at the automotive side of it, obviously we're watching the market side of the equation in terms of the rebound and staying robust. We've had a lot of good momentum on passive safety and that's extending into different regions of the world, we feel good about that short-term. And of the longer term -- and from an accelerator module with the increase in autonomous capabilities of cars, we see the braking system becoming more electronic and that's something we're working on already, but it's unlikely even have a revenue benefit before 2024-'25, so those things are going.

On the temperature front, we've really been pleased with how we're performing and the acquisition from two years ago had a good growth year last year, continue to expand it, the new products and new customers. And so there's just some of the things that we see out there as we move forward.

And then to your question on the EV side of it. I keep referencing, I think, we said back in '17, '18, we said our exposure to products going away, due to EV was probably in the high single-digits and would be fully compensated our balanced by about '21, '22. So we are seeing that as a very, very low single-digit percentage at this point in time, so not a concern.

Hendi Susanto -- Gabelli Funds -- Analyst

Got it. And then, Kieran when we read news about, like shortages in automotive semiconductor. How should we relate that to CTS in -- earlier you mentioned that CTS exposure to European is less, like any guide post on how we should think about the supply chain shortages in automotive semiconductor, if it's improve or EBIT gets worse?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

So, Hendi two things, the first thing is we don't have any supplies ourselves for our products, that's the first thing I'd like to point out. So it's our OEM, so if they're getting the electronics or the semiconductors for their electronic control units and infotainment systems and other things, that's the watch. So we've seen things from General Motors and we don't have any -- you've seen things with Ford -- with other any big exposure with Ford. And we've said so far in the first quarter, we would see that at this point in time less than half a million impact.

So we haven't seen have the impact, we've seen the number of units impacted from the industry reports [Indecipherable] about 600,000 units to about 850,000 and that's something we're tracking live and you may see the next report before we do, but and haven't heard anything we know there's a lot of pressure out there from the OEMs and back to the suppliers in Taiwan and other areas to ramp up production, and I'm sure they're really focused on that at this point in time.

Hendi Susanto -- Gabelli Funds -- Analyst

Okay and then embedded in your 2021 guidance, you indicated that you expect like softness in medical market to continue in the first half of 2021? What is your assumption in that guidance for medical market in the second half, like do you expect like a gradual rebound or do you expect like a solid rebound?

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Hendi, we would say what we've seen in softness so far is -- and little bit higher than mid single-digits and we'd expect that to start flattening out in the second half of the year.

Hendi Susanto -- Gabelli Funds -- Analyst

Got it. Yes, and then a question for, Ashish. Ashish would you be able to share QTI sales contribution, so that we know what kind of growth QTI is having?

Ashish Agrawal -- Vice President and Chief Financial Officer

Hendi, we haven't disclosed that, but when you look at the run rate that acquisition is delivering, it is strong improvement and what really we are happy about is that is despite a good portion of their customer base, the restaurants and the foodservice industry being down last year. So that business has done a good job of getting new customers online to continue providing the growth momentum and as Kieran pointed out, that's what we are looking forward to in 2021 as well.

Hendi Susanto -- Gabelli Funds -- Analyst

Okay, yes. And Ashish with regard to your tax project, do you have any updates?

Ashish Agrawal -- Vice President and Chief Financial Officer

So Hendi, we completed a big portion of it in 2020. And there are some other pieces that we are working on. The challenge on the tax side is the uncertainty with what we might see in terms of changes in the US at this point in time. So we are watching that very, very carefully and we will talk about it once things become a little bit more clear in terms of what impact it could have on us.

Hendi Susanto -- Gabelli Funds -- Analyst

Okay. Thank you, Ashish. Thank you, Kieran.

Ashish Agrawal -- Vice President and Chief Financial Officer

Thank you, Hendi.

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Thanks, Hendi.

Operator

And that concludes today's question-and-answer session. I'd like to turn today's call back over to Mr. O'Sullivan for any additional or closing remarks.

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Great. Thank you, Hannah, and thank you all for your participation on today's call. We look forward to updating you again in April. Be safe. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Kieran O'Sullivan -- President, Chief Executive Officer and Chairman of the Board

Ashish Agrawal -- Vice President and Chief Financial Officer

Justin Long -- Stephens Inc -- Analyst

Karl Ackerman -- Cowen & Company -- Analyst

John Franzreb -- Sidoti & Company -- Analyst

Hendi Susanto -- Gabelli Funds -- Analyst

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