CTS earnings call analysis

NYSE:CTS Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Hello, everyone. Thank you for joining us and welcome to the CTS Corporation fourth quarter 2025 earnings call. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. I will now hand the call over to Kieran O'Sullivan. Please go ahead. Kieran O'Sullivan | Chief Executive Officer: Good morning and thank you for joining us today. I'm pleased to report another solid quarter for CTS. demonstrating the continued progress and strength of our diversification strategy and operational execution. For the fourth quarter, we delivered strong performance with revenue growth of 9% year over year, with our diversified end markets growing 16% versus the prior year period. I am particularly pleased with our diversification progress as these markets now represent almost 60% of overall company revenue. New business awards in transportation were strong, which will drive long-term growth in that end market. As we look to the year ahead, we see continued growth momentum across our diversified markets, increasing revenue and quality of earnings. In transportation, we continue to expand our portfolio of powertrain agnostic products. Prateek Trivedi, Chief Operating Officer, is also joining myself and Ashish Agarwal, our CFO for today's call. Ashish Agarwal | Chief Financial Officer: Ashish will now take us through the Safe Harbor Statement. Ashish. 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 with today's earnings press release and the supplemental slide presentation, which can be found in the investor section of the CTS website. I will now turn the discussion over to our CEO, Kirno Sullivan. Kieran O'Sullivan | Chief Executive Officer: Thank you, Ashish. We finished the fourth quarter with sales of 137 million, representing a solid 9% increase compared to the fourth quarter of 2024. Our diversified end markets were up 16%. Transportation sales were essentially flat. For the full year, sales were 541 million, up 5% from $515 million in 2024. Diversified end market sales were 59% of overall company revenue in the fourth quarter and 57% for the full year 2025. Our book-to-bill ratio for the fourth quarter was one, up 3% compared to the fourth quarter of 2024. For the full year 2025, the book-to-bill ratio was 1.04 compared to 1.01 in 2024, indicating sustained customer demand across our diversified portfolio of products. Looking at bookings performance, medical bookings showed robust growth, driven by continued strength in therapeutic applications. Industrial bookings were strong, driven by stabilized OEM demand and the recovery in distribution. Defense bookings were down, though our pipeline remained strong with backlog levels supporting future growth. We added three new customers in defense and one in the industrial market. In transportation, we had strong new business awards in the quarter. We added floor hinge accelerator technology to our portfolio and secured a first win. Our operational execution was evident. as we expanded our gross margin by 150 basis points in the fourth quarter and for the full year. We maintained strong cash flow generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders. Fourth quarter adjusted diluted earnings were 62 cents per share, up from 50 cents in the fourth quarter of 2024 as we continue to focus on driving profitable growth. For the full year 2025, adjusted diluted earnings were $2.23 per share, up from $2.12 in 2024. Ashish will add further color on our financial performance later in today's call. Our medical end market delivered strong performance in the fourth quarter, with sales increasing 41% versus the prior year period, reflecting the strong growth momentum across our medical portfolio, particularly in therapeutic applications where we're seeing robust demand. For full year 2025, sales were 85 million compared to 70 million in 2024, up 21%. Bookings in the quarter were up 37% compared to the prior year period. The book to bill ratio for 2025 was 1.07, similar to 2024, reflecting continued momentum in this end market. We continue to see growth prospects in minimally invasive applications where our precision sensors and transducers are enhancing ultrasound imaging capabilities for medical professionals. These technologies are critical in helping clinicians detect artery restrictions with greater accuracy while enabling more effective delivery of treatment medications directly to targeted areas. This represents meaningful advancement in patient care and clinical outcomes. Our teams are engaged in next generation product development to further enhance diagnostic and therapeutic capabilities with our customers. We are working closely with leading medical device manufacturers to integrate our advanced sensing technologies into their platforms, creating solutions that can provide even more detailed imaging and diagnostic information to healthcare providers. I want to emphasize the life-saving nature of the solutions we provide to the medical industry. We are proud to highlight that our products support solutions that help save lives. This mission-critical role in healthcare drives our commitment to the highest quality standards and continuous innovation. Additionally, our products aid blood analysis and flow, cancer treatment, and are incorporated into pacemakers and cochlear implants. Our therapeutic products enhance skin aesthetics, and in combination with other medical procedures, help improve skin tightness. During the fourth quarter, We had multiple wins across all regions for medical ultrasound. We also had a large win for therapeutic products and a win for a pacemaker application. Demand remains strong for therapeutic products and we expect increased volumes in 2026. Over time, we expect volume increases in portable ultrasound diagnostics as healthcare systems increasingly move to point of care solutions. Therapeutic products should continue to enhance our overall growth profile, supported by an aging population and minimally invasive treatment options. Aerospace and defense sales for full year 2025 were 83 million, up 20% from 69 million in 2024. Sales for the fourth quarter were down 4% from the fourth quarter of 2024 due to timing of certain programs. SideQuest revenues in the fourth quarter were $6 million as we navigated government funding cycles, which we expect to improve in 2026. While bookings were down in the fourth quarter, full year bookings were up 15%. Our pipeline remains strong with backlog levels supporting future growth. We are making progress on our strategy, moving from a component supplier to a supplier of sensors, transducers, and subsystems and is further validated by the Naval Award in the third quarter of 2025. We received multiple orders in the quarter for naval sonar and hydrophones. In addition, we had wins for RF filters with application in anti-jamming and in drones. Finally, we secured new awards deploying our frequency, vibration, and temperature sensing capabilities. In the quarter, we added three new customers for underwater locator beacons, and for Sono Buoy Electronics. The SideQuest operation continues to drive a pipeline of opportunities as we move into 2026. And as mentioned earlier, we expect decision-making and funding to improve this year. The long-term nature of defense programs provides revenue visibility and supports our diversification objectives. Our industrial end market demonstrated solid momentum in the fourth quarter, continuing the gradual recovery trend we've been tracking throughout 2025. We are seeing signs of stabilization and growth both from our OEM customers and distribution partners as industrial activity rebounds from previous cyclical lows. Sales in the fourth quarter were up 16% compared to the prior year period. underscoring our expectation of continued market strength. Full year 2025 sales were $140 million compared to $125 million in 2024, up 12%. Bookings in the quarter were up 22% from the same period last year. The book-to-bill ratio for the full year 2025 was 1.11 compared to 1 in 2024. We were successful with multiple wins across a diverse range of industrial applications in the quarter, including distribution components, industrial printing, and EMC applications where our components help ensure electromagnetic compatibility in industrial equipment. Temperature sensing applications represented another area with wins for heat pumps, pool and spa, and for commercial appliances. These applications leverage our expertise in precision sensing to help industrial customers optimize their operations and improve energy efficiency. We added a new customer in the quarter for a frequency application. Demand across the industrial end market is expected to remain healthy in 2026. We expect our industrial performance to benefit from the long-term megatrends of automation and connectivity that should enhance our growth prospects. the increasing digitization of industrial processes, push for greater energy efficiency, and the ongoing automation of manufacturing create expanding opportunities for our advanced sensing technologies. Transportation sales faced headwinds with sales of 234 million for 2025, compared with 250 million in 2024, down 7%, driven by the previously discussed market dynamics in China and in the commercial vehicle market. Fourth quarter sales were 56 million, essentially flat versus the same period last year. Despite sluggish market conditions, we secured new business awards of approximately 100 million in the fourth quarter. We gained significant awards across various product groups, including accelerator module wins with oems in china japan europe and north america as mentioned earlier we added floor hinge technology to our portfolio of products and secured a first win with revenue expected in 2028 floor hinge designs are expected to expand in ev applications especially in international markets in the quarter we secured a smaller award for a commercial vehicle actuator application. Across our sensor portfolio, we had wins for passive safety, braking, and transmission position sensing. We also secured an advanced development contract for our drive pad technology with a large Japanese OEM, adapting to future software-defined vehicle architectures. Overall, we continue to strengthen our footwell presence while adding powertrain agnostic sensing capabilities. Total book business was approximately 1 billion at the end of the quarter. Interest in our e-brake product offering weight and cost advantages continues across OEMs at a slower pace as certain OEMs continue to recalibrate EV investments and launch dates. The electronic brake market represents a growth opportunity as the industry moves toward more advanced driver assistance systems, and autonomous capabilities. Overall, our solutions deliver meaningful cost and weight benefits to OEMs, which become increasingly important as they balance performance, efficiency, and affordability requirements. We remain confident in the long-term growth prospects for our ebrake and other footwell products. These, along with existing and new sensor applications, will increase our ability to grow content. Turning to the outlook for 2026. For our diversified end markets, demand is expected to be solid. In the medical market, we see continued momentum in therapeutics where we have expanded capacity. In aerospace and defense, revenue is expected to grow given our backlog, side quest capabilities, and the normalization of government funding. Industrial and distribution sales are expected to be solid. Longer term, we expect our material formulations supported by three leading technologies and their derivatives to continue to drive growth in key high quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to be flat to marginally down given the tariff impact, consumer demand, and in line with global light vehicle volume forecasts from IHS. The North American light vehicle market is expected to be in the 15 to 16 million unit range. European production is forecasted in the 16 to 17 million unit range. China volumes are expected to be in the 32 million unit range. We continue to monitor potential impact from supply chain issues related to rare earth metals and semiconductors, although we are not seeing any significant immediate impact. We anticipate general softness in commercial vehicle demand in the first half of 2026, with the potential for improvement in the second half of the year. Qualification of our next generation smart actuator across our customers' platforms is progressing, and we plan to implement further product enhancements later in 2026. We continue to closely monitor and evaluate the tariff and geopolitical environment while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers as we navigate supply chain pressures. Our strong balance sheet, healthy cash generation, and experienced teams provide us with the tools necessary to manage these headwinds while continuing to invest in growth opportunities and also advancing innovation. Our increasingly diversified business model continues to enhance our growth and quality of earnings. Assuming the continuation of current market conditions for full year 2026, we expect sales in the range of 550 to 580 million and adjusted diluted EPS to be in the range of $2.30 to $2.45. Now I'll turn it over to Ashish who will walk us through our financial results in more detail. Ashish. Ashish Agarwal | Chief Financial Officer: Thank you, Kiran. Fourth quarter sales were $137 million, up 9% compared to the fourth quarter of 2024 and down 4% sequentially from the third quarter of 2025. Sales to diversified end markets increased 16% year over year. Sales to transportation customers were down 1% from the fourth quarter of last year. foreign currency changes impacted sales favorably by $2 million in the fourth quarter. Our adjusted gross margin was 39.1%, up 150 basis points compared to the fourth quarter of 2024, and up 20 basis points compared to the third quarter of 2025. The year-over-year improvement in gross margin was driven by operational improvements and the favorable impact of end market mix. Earnings were 67 cents per diluted share in the fourth quarter compared to 38 cents for the same period last year. Adjusted earnings for the fourth quarter were 62 cents per diluted share compared to 50 cents per diluted share for the same period last year. For the full year, revenue was $541 million, an increase of 5% compared to 2024. Diversified end markets were up 16% year-over-year. SyQuest added $22 million in revenue in 2025, which was lower than expected, mainly due to the timing of government contract awards. Excluding SyQuest, sales to diversified end markets grew 14%. Sales to the transportation end market were down 7%, mainly due to the lower sales of commercial vehicle products. Foreign currency impacted sales favorably by 3 million in 2025. Our adjusted gross margin was 38.5% in 2025, up 150 basis points compared to 2024. Primary drivers of the improved gross margin include the favorable impact of end market mix and operational improvements. Foreign currency rates also had a favorable impact of approximately $2 million in 2025. We remain focused on strengthening our gross margin profile by growing our diversified end markets, as well as continued operational improvements. Our adjusted EBITDA margin for the year was 22.8%, an improvement of 40 basis points from 2024. For the full year 2025, our earnings were $2.19 per diluted share. Adjusted earnings were $2.23 per diluted share compared to $2.12 per diluted share for 2024. The US tax legislation changes had an adverse impact of approximately 3 cents on adjusted earnings per diluted share for 2025. Moving to cash generation and the balance sheet, our cash flow was strong and we generated $29 million in operating cash flow for the fourth quarter of 2025 and $102 million for the full year. Our balance sheet remains strong with a cash balance of $82 million and borrowings of $58 million from our credit facility at the end of 2025. During the quarter, we repurchased 398,000 shares of CTS stock, totaling approximately $17 million. For the full year, we repurchased approximately 1.4 million shares, totaling $57 million. In total, we returned $62 million to shareholders through dividends and share buybacks in 2025. We have another $90 million remaining under our current share repurchase program. We remain focused on strong cash generation and appropriate capital allocation and continue to support organic growth, strategic acquisitions, and returning cash to shareholders. This concludes our prepared comments, and we would like to open the line for questions at this time. Operator | Conference Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. If you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. Your first question comes from the line of Hendy Sustento from Gabelli Funds. Your line is open. Please go ahead. Hendy Sustento | Analyst, Gabelli Funds: Good morning, Kieran and Aziz. Congratulations on finishing strong in 2025. Kieran O'Sullivan | Chief Executive Officer: Thanks, Hendy. Good morning, Hendy. Hendy Sustento | Analyst, Gabelli Funds: Kiran, I would like to ask your assumption within your 2026 guidance with regard to the smart actuator. Do you have more updates and insights into customer preference in terms of their dual sourcing approach? Kieran O'Sullivan | Chief Executive Officer: Yeah, Hendy, we're actually continuing on both the legacy platform and on the new platform, which we launched last year. And the new platform is getting launched across different engine platforms. And I think I mentioned in the prepared remarks that we're also enhancing the cost reduction efforts in that area in the second half of this year as well. So we feel pretty good about where we're going on that side of it. Hendy Sustento | Analyst, Gabelli Funds: Okay. And then... Any insight into new product in transportation or in other diversified end market that you have positive expectation for year 2026? Kieran O'Sullivan | Chief Executive Officer: Hendy, on the transportation side, you probably saw that we secured approximately 100 million in new business awards across all regions with accelerator modules. but also brought in some new products into the portfolio with brake applied sensing, floor hinge, which will add revenue in 2028 because of the longer development lifecycle. And we're advancing on current sensing. We've got an advanced development award, which we're very excited about with our dry pad, which links up to the software-defined vehicle architecture for the future. So we feel a lot of good things going there. On the medical side, a lot of momentum. We're making good progress on therapeutics. We're also making progress on diagnostics. You saw some other wins mentioned there as well. Prateek, do you want to elaborate on diagnostics, maybe, or therapeutics? Prateek Trivedi | Chief Operating Officer: We continue to see strong momentum in both the therapeutics as well as the aesthetics application. We have strong collaboration with some of our key customers at this point working jointly with their product development to launch products that has a strong potential in the future. At the same time, we also are launching products in the connectivity component space, especially in the aerospace and defense that has a strong potential in the future as well. Kieran O'Sullivan | Chief Executive Officer: Good. So, Hendi, hopefully that gives you some color about what we're doing. Hendy Sustento | Analyst, Gabelli Funds: Thank you. Thank you, Kiran and Narcisse. Let's get back to the queue. Ashish Agarwal | Chief Financial Officer: Thank you, Hendi. Operator | Conference Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Your next question comes from the line of John Franzrab with Sidoti & Co. John, your line is open. Please go ahead. John Franzrab | Analyst, Sidoti & Co: Good morning, everyone, and thanks for taking the questions. I'm curious about what you said about cyclists, Kieran. You said that there was maybe some deferrals in some of the jobs. Did you have actually revenue move from Q4 into Q1, or is it longer tail than that? Kieran O'Sullivan | Chief Executive Officer: No, John. I think what we're making reference to Just the timing of government funding in 2025, it was a little lighter than we expected. And we expect that to normalize here in 2026. And so revenue wasn't as robust as we would have liked it to have been. But you know us, we don't give up. And for 2026, we already have some good contracts coming through in the pipeline with some momentum. So still more work to do, but key for us going forward as well. John Franzrab | Analyst, Sidoti & Co: Got it. Got it. When we think about the revenue guidance for the year ahead, what is the maybe the net new product introduction relative to the offset of maybe some of the programs are going end of life? Do you have a sense of how much incremental revenue represents new products coming online in this year? Ashish Agarwal | Chief Financial Officer: John, I don't have a number to give you, John, but as you look at the different things that Kiran and Prateek both talked about, we get more revenue recognition quicker on the diversified side. On the transportation side, as we've talked about in the past, it takes two to three years. So the floor hinge that we had in Q4, we'll expect revenues from that in 2028. So as you see momentum on the diversified, a good portion of that is either coming from new products or new customers or new products with existing customers. And there's good momentum on growth activity as it relates to that. And Prateek also mentioned some of the traction that we are getting on the diagnostic side with portable ultrasound where we don't have meaningful revenues at this point, but we see that as a growth market. John Franzrab | Analyst, Sidoti & Co: Got it. Got it. And it also seems to me that you're becoming a little bit more confident in some of the industrial opportunities. Am I misreading that or is visibility improving versus say three months ago? Kieran O'Sullivan | Chief Executive Officer: John, we think it's improving. It's been a constant improvement quarter over quarter throughout 2025. And if you even look at the book-to-bill ratio of 1.11, And bookings were up 22%. So we feel like we're on a good, steady path of improving trend here. John Franzrab | Analyst, Sidoti & Co: Good. And regarding the outlook in the transportation sector, dare I say it, you're only down 1% in the fourth quarter. Do you feel like we're bottoming? Or what's your assessment of what you see in the transportation market? And really could kind of divvy up the two main parts for commercial versus the ground vehicle. Kieran O'Sullivan | Chief Executive Officer: Yeah, John, I think, you know, we're a little bit conservative. We haven't called it bottom. We'd like to get a quarter of data or two behind us, but you can tell we're definitely trending in that direction. And we've seen some improvement, small improvement in commercial legal in the fourth quarter. We think for 2026, the first half is going to be a little bit lighter than the second half, a little bit richer. There could be some pre-buy with the new emission standards coming out in 2027. and on the light vehicle side if you look at the market it's um just what people are saying out there it's a very mixed bag you got some people saying up two or three percent some people saying flat some people saying down a point or two we think somewhere between flat and slightly down is where the light vehicle market is going this year yeah i agree with you it seems like the um the numbers moving every other week almost um John Franzrab | Analyst, Sidoti & Co: can you talk a little bit about what you're seeing in the M&A market? I know that's a core part of the growth strategy. Maybe talk about what you're seeing as far as the opportunity pipeline. Kieran O'Sullivan | Chief Executive Officer: Yeah, John, we're actively working the pipeline, nothing to report today, but obviously the biggest focus is on diversification and expanding that diversification rate and some niche technologies for transportation. But, you know, Valuations are still high. We're looking for the right assets, and we're working it hard. John Franzrab | Analyst, Sidoti & Co: Okay, fair enough. And just one last question. You talked a little bit about China. Can you maybe give us an overall assessment of what you're seeing in the, you know, your other markets by geography, X transportation, if you will? Kieran O'Sullivan | Chief Executive Officer: Thank you. Ashish Agarwal | Chief Financial Officer: Yeah, when you look at the diversified markets, that was your question, John, right? Yes, yes, sir. We are expecting good momentum across the board in different parts. Activity is good. We are not seeing any concerns in any parts of the world from the diversified end markets. On the defense side, we are focused primarily in North America with some exposure in Europe that we are continuing to build. On the medical side, we are seeing good momentum across the world, as well as in industrial, we are seeing good momentum in all different parts. John Franzrab | Analyst, Sidoti & Co: Okay. That's good to hear. Thanks for taking my questions. I appreciate it. Kieran O'Sullivan | Chief Executive Officer: Thanks, John. Thank you. Operator | Conference Operator: Your next question comes from the line of Hendy Sosanto with Gabelli Funds. Your line is open. Please go ahead. Hendy Sustento | Analyst, Gabelli Funds: Hi, Kiran and Aziz. I have two more follow-up questions. In industrial and distributor, how do you characterize among your sales matching the end demand and then sales toward inventory rebuild at your customers? Kieran O'Sullivan | Chief Executive Officer: Hendy, what I would say through distribution, What we've seen is solid demand, good increases year over year, quarter over quarter. And we also see our customers actively managing their inventory. So some of them have their inventory levels down, some more optimized. But we feel good about demand there going forward. Hendy Sustento | Analyst, Gabelli Funds: And then, Kiran, what is your latest market assessment of China transportation markets? We know that transportation design cycle may take two to three years, but in China it's faster. So any strategic direction for 2026 in terms of your transportation business in China? Kieran O'Sullivan | Chief Executive Officer: Yes, Hendi, we would say we believe it's reached the new normal over there. We are with the transplant OEMs out of Japan and selectively with some local Chinese customers. The other thing when you talk about the speed over there, we have our local team for the Chinese market in China, and they're actively engaged with new products and development over there. So we feel good about the work we're doing there and obviously working that pretty hard because it's a tough market. Hendy Sustento | Analyst, Gabelli Funds: Thank you, Ashish. Thank you, Kiran. Ashish Agarwal | Chief Financial Officer: Thanks, Andy. Thank you, Andy. Operator | Conference Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 1 again. Please pick up your handset when asking a question, and if you're muted locally, please remember to unmute your device. There are no further questions at this time. I will now turn the call back to Karen O'Sullivan for closing remarks. Kieran O'Sullivan | Chief Executive Officer: Thanks, Elizabeth, and thank you all for your time today. Diversification remains a strategic priority to drive growth and margin expansion. In addition, we're expanding in vehicle powertrain agnostic solutions. We are guided by our Evolution 2030 strategic initiative to enhance our emphasis on growth, operational rigor, employee engagement, while also giving back to the communities where we operate. We look forward to updating you on our first quarter of 2026 results in April. Thank you. This concludes our call. Operator | Conference Operator: This concludes today's call. Thank you for attending. You may now disconnect. jsPDF 3.0.3 D:20260606090100-00'00'

NYSE:CTS Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Claire | Conference Call Coordinator: earnings call. My name is Claire and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand over to Kieran O'Sullivan to begin. Please go ahead. Kieran O'Sullivan | Chief Executive Officer: Good morning and thanks for joining us today. We delivered a quarter of strong double digit growth in our diversified end markets with sales up 22% versus the prior year period. Diversified sales for the quarter were 59% of overall company revenue. We also expanded gross margin by 66 basis points and had solid operating cash flow. Secondly, our SideQuest team was awarded a sole source naval defense contract with an initial value of $5 million and the potential to add additional platform awards within the next 12 months. Finally, in transportation, we had a strong quarter with winds of 130 million and added a new braking sensor application. Ashish | Chief Financial Officer: Ashish will take us through the safe harbor statement. Ashish? 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 with today's earnings press release and supplemental slide presentation, which can be found in the investors section of the CTS website. I will now turn the discussion over to our CEO, Kiran O'Sullivan. Kieran O'Sullivan | Chief Executive Officer: Thank you, Ashish. We finished the third quarter with sales of 143 million, up 8% from 132 million in the third quarter of 2024. For the quarter, diversified end market sales, including sales to medical, aerospace and defense, and industrial end markets were up 22%. Transportation sales were down 7% from the same period last year. Diversified end market sales were 59% of overall company revenue in the quarter, up from 52% in the third quarter of last year. Our book-to-bill ratio for the third quarter was slightly above 1 in comparison to the third quarter of 2024, where we were marginally below 1. Bookings for our diversified end markets were up double digits in industrial and defense, and an increase in the high single digits in medical on a year-over-year basis. We expect stronger medical bookings in the last quarter, especially for therapeutic products. Third quarter adjusted diluted earnings were 60 cents per share, down from 61 cents in the third quarter of 2024, primarily due to an unfavorable impact from the recent US tax legislation. Ashish will add further color on this and on our financial performance later in today's call. In the medical end market, third quarter sales were up 22% compared to the same period in 2024. Bookings in the quarter were up 8% compared to the prior year period. We are excited about the prospects for growth in minimally invasive applications where our products help deliver enhanced ultrasound images, and make it easier for medical professionals to detect artery restrictions. Our teams are engaged on next-generation product development to further enhance diagnostic capability with our customers. We are proud to highlight that our products support solutions that help save lives. Additionally, our products enable medication delivery for treatment of infected areas, aid blood analysis and flow, cancer treatments, and are incorporated in pacemakers and cochlear implants. Our therapeutic products enhance skin aesthetics and, in combination with other medical procedures, help improve skin tightness. During the third quarter, we had multiple wins for diagnostic ultrasound and had wins for therapeutics, pacemakers, and a win for an ophthalmology application. We are also developing samples for Doppler ultrasound for a vascular flow application. In addition, we added two new customers for diagnostic ultrasound. Demand remains strong for therapeutic products, and we expect increased volumes in 2026. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile as well as expansion to new applications. Aerospace and defense sales in the third quarter were up 23% from the third quarter of 2024. SideQuest revenues in the third quarter increased to 8.8 million, and we expect to maintain this momentum through the balance of this year. Bookings in the third quarter were up 29% from the prior year period as we maintain a healthy backlog, and we expect solid bookings in the last quarter of this year. Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers, and subsystems and is further validated by a recent naval award. We received multiple orders in the quarter for sonar applications. The order mentioned in my opening comments for the SideQuest business is for a naval munition application, and we expect additional platform awards as we move forward. SideQuest continues to drive a strong pipeline of opportunities. In the industrial market, we continue to see a steady recovery with OEMs as well as a stronger recovery with distribution customers. Sales in the third quarter were up 9% sequentially and up 21% compared to the prior year period, underscoring our expectation of a continued recovery. Bookings in the quarter were up 29% from the same period last year. We were successful with multiple wins in the quarter for industrial printing, EMC, temperature sensing wins for pool and spa, and the wind for an industrial heat pump application. We added one new customer in the quarter for position sensing. Demand across industrial end market is expected to remain healthy for the balance of 2025. The mega trends of automation, connectivity and efficiency enhance our longer term growth prospects. Transportation sales were 58.5 million in the third quarter, down approximately 7% from the same period last year, due to softness for commercial vehicle products. In the third quarter, we had awards across various product groups, including accelerator module wins with OEMs in Europe, South America, and China. Total book business was approximately $1 billion at the end of the quarter. We had various wins for passive safety and chassis ride height sensors across several regions. We added a new product to the portfolio for brake sensing, securing a business award with a North American OEM. This further strengthens our long-term capability to expand our footwell presence. We also had a large win in commercial vehicles for smart actuators with an existing customer. Additionally, during the quarter, we released our COBRIS technology, a new platform for electric motor control. This technology eliminates the need for three discrete current sensors and the position sensor, allowing for a simplified design, weight reduction, and more precise control. The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us, given our light vehicle products are mostly agnostic to the drivetrain technology. The trend towards increasing demand for hybrids with extended range capabilities remains robust. Interest in our e-brake product, offering weight and cost advantages, continues across OEMs at a slower pace, as certain OEMs recalibrate EV investments and launch dates. we remain confident in the longer-term growth prospects for our e-brake and other footwell products. These, along with existing and new sensor applications, will increase our ability to grow content. For our diversified end markets, subject to the uncertain tariff environment, demand in the medical market is expected to remain mixed with strength in therapeutics and softness in diagnostic ultrasound. In aerospace and defense, revenue is expected to grow giving the timing of orders and momentum from the side quest acquisition. Industrial and distribution sales are expected to improve. Longer term, we expect our material formulations, supported by three leading technologies and their derivatives, to continue to drive our growth in key high-quality end markets in line with our diversification strategy. Across transportation markets, Production volumes are expected to remain soft given the tariff impact and demand from customers. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 16 million unit range. China volumes are expected to be in the 30 million unit range. We are carefully monitoring for any potential impact from supply chain issues related to rare earth, aluminum, and semiconductors, although we are not seeing any immediate impact. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. There was a notable demand increase for EVs in September with the elimination of the vehicle subsidy for the North American market. We anticipate general softness in commercial vehicle demand in the fourth quarter. Shipments of our new commercial vehicle actuator continue to ramp as we prepare for 2026 where we will implement further product enhancements. As I mentioned in previous calls, revenue from the SideQuest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the US government. As reported, we saw an increase in revenue for SideQuest in the third quarter and expect to maintain this positive momentum through the end of this year. We continue to closely monitor and evaluate the tariff and geopolitical environment while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, we are narrowing our guidance for sales in the range of $535 to $545 million and adjusted diluted EPS to be in the range of $2.20 to $2.25. Now we'll turn it over to Ashish, who will walk us through our financial results in more detail. Ashish | Chief Financial Officer: Ashish. Thank you, Kiran. Sales in the third quarter were $143 million, up 6% sequentially and up 8% from last year. Sales to diversified end markets increased 22% year over year. SyQuest sales were $8.8 million during the quarter. As Kiran has highlighted, We expect the momentum to continue for sales from SyQuest in the fourth quarter. Sales to transportation customers were down 7% from the third quarter of last year due to the softness in sales related to commercial vehicle products. Foreign currency changes had a favorable impact on sales of approximately $1 million. Our adjusted gross margin was 38.9% in the third quarter, up 66 basis points compared to the third quarter of 2024 and up 12 basis points compared to the second quarter of 2025. Our global teams continue to focus on operational execution to deliver margin improvements. Tariffs had a minimal impact on profitability in the third quarter, and we continue to work closely with customers and suppliers to manage the impact. Adjusted EBITDA was 23.8% in the quarter. This is an improvement of 86 basis points sequentially and a reduction of 55 basis points compared to the third quarter of 2024. Earnings were 46 cents per diluted share for the third quarter. The third quarter results include a $4.2 million increase in reserve related to EPA's cost reimbursement claim for a prior environmental matter. Adjusted earnings were 60 cents per diluted share compared to $0.57 in the second quarter of 2025 and $0.61 in the third quarter of 2024. We had an unfavorable impact on our tax rate from changes in the mix of earnings. And in addition, the recent US tax legislation changes had an adverse impact of approximately $0.03 on adjusted earnings per diluted share for the third quarter. Moving to cash generation and the balance sheet, we generated $29 million in operating cash flow in the third quarter, compared to 35 million in the third quarter of 2024. Year to date, we have generated $73 million in operating cash flow. Our balance sheet remains strong with a cash balance of $110 million at the end of the quarter. Our long-term debt balance was $91 million leaving us good liquidity to support strategic acquisitions. During the quarter, we repurchased 400,000 shares of CTS stock for approximately $17 million. In total, we returned $44 million to shareholders through dividends and share buybacks in the three quarters of 2025. We have $21 million remaining under our current share repurchase program. Our focus remains on strong cash generation and appropriate capital allocation, and we continue to support organic growth, strategic acquisitions, and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time. Claire | Conference Call Coordinator: Thank you. To ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from John from Zodotti Company. Your line is now open. Please go ahead. John | Analyst, Zodotti Company: Good morning, guys, and thanks for taking the questions. I'd like to start with the guidance. It seems to me that you raised the midpoint on your revenue guidance, but lowered the midpoint on the EPS guidance. Now, I recognize that you've been suggesting it would be the low end of that EPS, but I guess I'm surprised at the dynamic of raising the revenue in light of that. Can you just walk us through what's going on there? Kieran O'Sullivan | Chief Executive Officer: Yeah, John. So, from a top-line perspective, we feel good about the direction we're going there. As I mentioned in the prepared comments, the four-quarter has some Headwinds on CV, but overall, we've got good progress in industrial, nice momentum in aerospace and defense, strength in therapeutics, and then some things we're monitoring on the diagnostic side. So that's it on the top line. And then on the bottom line, primarily, as Ashish mentioned in his prepared comments, there's the tax impact, and Ashish, you probably want to comment on that. Ashish | Chief Financial Officer: Yeah, so John, there are a couple of things that are having an adverse impact on our tax rate. Number one, the mix of earnings. And then the second piece, which is more pronounced, is the tax legislation. Given the mix of earnings we have, it actually has an adverse impact on our overall tax rate. So you saw that impacting our Q3 earnings in a meaningful way. And then that impact is expected to continue, obviously, smaller into Q4 as well. John | Analyst, Zodotti Company: Okay, understood. And Kieran, you just mentioned the CV market, so that begs the question, what are your transportation customers signaling about the 2026 production rates? Kieran O'Sullivan | Chief Executive Officer: John, for 2026, it's kind of a bit of a mixed market out there. You hear some OEMs, especially on the light vehicle side, talking more positive, some talking a little bit negative. So It's a very mixed story. What I would tell you is on the light vehicle side in this quarter, excluding Cummins, our large customer and CV, we saw a small incremental increase in low single digits. And we had solid bookings in the quarter, so we feel really good about the bookings and where we're going. So the market is going to be a bit mixed until next year from everything we hear on transportation, but feel very good about what we're doing in medical, aerospace and defense and industrial. John | Analyst, Zodotti Company: Agreed. Can I just maybe touch on the end markets as a whole? Because the gross margin improvement was nice to see. And I'm actually kind of curious, and maybe you can help me frame this better. But if you kind of rank your end markets on the gross margin contribution, or should we be thinking about it on the operating margin contribution? Um, how would you, I know you're not gonna give the actual margin profile, but how would you rank them? So as we can see the change on the go forward basis, we can think about the impact of profitability. Ashish | Chief Financial Officer: So John, um, we earn good margins on our diversified and markets pretty obviously. Um, I don't know if I would split the margins by end markets in terms of profile. They, they are pretty decent on the diversified side. medical, industrial, aerospace and defense. We are doing reasonably good margins on all of those. Transportation is obviously behind in terms of comparison, but we earn good margins on the transportation side as well. Kieran O'Sullivan | Chief Executive Officer: And John, the other thing I would comment on is you can see that you talked about the improvement in gross margin. Our diversification percentage is going up quarter and quarter as well. So I think that's what you're going to see is positive momentum there. John | Analyst, Zodotti Company: Yeah. Yeah. I was just, I mean, I guess I'm kind of curious as how much, I don't know, medical has a more of an impact versus say aerospace and defense. You know, I would, I would guess that industrial would be third in that ranking, but that would be me just guessing. Ashish | Chief Financial Officer: So John, it's a little bit more, I would say split by product line. You know, the margin profile on different product lines has, a different level in pretty much all the end markets. So, you know, for example, when you look at our piezo product lines, we have single crystal in there, tapecast and bulk, and the margin profile varies. So single crystal would be slightly higher margins than the other two. In frequency, we'll have a different level of margin, which is higher. And then so that that It's not so much where we are seeing distribution by end market as we are seeing distribution by product lines. John | Analyst, Zodotti Company: Thank you, Shishir. I appreciate that clarity, and I'll get back into Q&A if somebody else has a question. Thanks. Ashish | Chief Financial Officer: Great. Thanks, John. Claire | Conference Call Coordinator: Thank you. Our next question comes from Hendy Susanto from Gabelli Funds. Your line is now open. Please go ahead. Hendy Susanto | Analyst, Gabelli Funds: Good morning, Kiran and Ashish. Thank you for taking the questions. Good morning, Hendy. First question is for Ashish, the tax impact, the adverse tax impact, will it go away in 2026? Ashish | Chief Financial Officer: So, Hindi, we'll obviously be looking at areas that we can drive improvements. The specific change from the tax legislation that will continue to have a slight adverse impact But we'll continue looking at other areas of opportunity in terms of tax efficiency as we've always done. So I would expect at this point, the 2026 to be similar tax rate as 2025, but we'll continue working on it. Hendy Susanto | Analyst, Gabelli Funds: I see. And would you be able to spell out what tax rate estimate we should use for our model? Ashish | Chief Financial Officer: Yeah, so we are in the low 20% range right now. And we are talking about 21% to 23% type of ballpark on a go-forward basis. Hendy Susanto | Analyst, Gabelli Funds: Yeah. And then this question is for Kiran. Kiran, this morning, NXP Semiconductor reported it's September quarter. I know that it's an apple and orange comparison. They do say that Tier 1 inventory burn is getting closer and closer to be completed. How should we view the expectation that inventories in your channel for transportation is somewhat close to representing the end market demand, and then at some point they will need to build more inventories internally? How should we view that notion? Kieran O'Sullivan | Chief Executive Officer: Yeah, I didn't see the NXP data, but what I would look at, Hendi, is if you look at the days of supply on hand, it's probably trending on the light vehicle side around 50 days, which seems pretty normal. I wouldn't be concerned about it at all. There is obviously some further softness in the commercial vehicle market, and that's one where We're watching more closely, but not on the light vehicle side. Hendy Susanto | Analyst, Gabelli Funds: I see. And then looking back at SideQuest acquisitions and then your expectation, given we have insight into the quarterly revenue run rate for the last five quarters, would you be able to give some puts and takes and whether or not the company's revenue contribution meets or exceeds your target for this year? Kieran O'Sullivan | Chief Executive Officer: Yeah, so, Hendi, if I look at it quarter by quarter, we've always said the first half is going to have some seasonality, whether it's heavier in the second half, and that's what we're seeing now. So we've seen a step up in revenues from Q2 to Q3. And we expect that step up to continue. We will see some seasonality next year as well, first half, second half, due to government funding. And we're very pleased with the pipeline of opportunities. And we called out an award today in the Commons, sole sourced for a new platform with the first 5 million. And we expect other awards in the next 12 months and over the next several years as well. So we feel really good about that, and we want to build on that momentum. Hendy Susanto | Analyst, Gabelli Funds: Got it. One last question for us is the operating expense line. The SG&A is somewhat meaningfully larger this quarter. I know that you mentioned that's a $4.2 million increase in reserve. Is that the main reason of the increase in OPEX? Ashish | Chief Financial Officer: Yes, so, Hendi, that is by far the largest. We also have a year-over-year increase in equity-based compensation as, you know, going through the year, sometimes you have to make adjustments based on expected performance. And last year's number had a relatively larger reduction. So that is also causing the year-over-year comparison to look a little bit unfavorable in Q3 of 2025. Got it. Hendy Susanto | Analyst, Gabelli Funds: Thank you, Kiran. Thank you, Anish. Ashish | Chief Financial Officer: Thanks, Hendrik. I'm Hendrik. Claire | Conference Call Coordinator: Thank you. We now have a follow-up question from John Frinzap. Your line is now open. Please go ahead. John | Analyst, Zodotti Company: Yeah. I'm kind of curious about your comments on the industrial end markets. It seems like, to me, it seems like you're more positive than you've been in quite some time. Is that the case, or am I just reading too much into it? Kieran O'Sullivan | Chief Executive Officer: No, John. I think when we look at all the diversified end markets, we feel pretty good. And if I start with industrial, which you mentioned, we've seen a 9% sequential improvement, over 20% year-on-year. We've seen a strong increase in distribution-related sales. So we feel very good about the trend there. And then I also mentioned on medical, we expect bookings to increase in the fourth quarter, and the very same on aerospace and defense. So across the diversified markets and with industrial right up there, it feels very good. John | Analyst, Zodotti Company: And just on the medical, when you think bookings will increase, do you think the diagnostic side of the business will be coming back, or do you think that will remain weak on a go-forward basis? Kieran O'Sullivan | Chief Executive Officer: And the diagnostic side is a little weaker, but it's still solid overall, and we expect it will improve probably more so next year. But we've got strong momentum on therapeutics, and we feel that's going to continue not just in the fourth quarter, but in the next year as well, John. John | Analyst, Zodotti Company: Got it. And can you kind of walk me through how you're successfully navigating tariffs? A lot of companies I cover... anticipate a delay in being able to recover pricing from the customer base. But you seem to be doing extremely well. Can you talk about what's going on there? Ashish | Chief Financial Officer: So, John, we've talked about this in the past where a lot of what we do in Asia stays in Asia. What we do in Europe stays in Europe. And what we do in North America stays in North America. It's not 100% that way, but largely it is that way. And that helps us mitigate cross-border flows, which is where you see the impact of tariffs. That's a big portion of it. The other is where we do have tariff impact. We are working very closely with suppliers, with our customers to find ways to mitigate, but then also pass the cost on to our customers as we work through the impact. And so far, we've been able to manage well. We have talked about USMCA. That's where our exposure would increase if USMCA were to go away and it doesn't get replaced with something suitable. But, you know, other than that, we've been able to manage pretty well. John | Analyst, Zodotti Company: Very good. I guess one last question. The fire at the Ford aluminum supplier, does that have any impact on your company at all? Kieran O'Sullivan | Chief Executive Officer: John Novellis, that's the aluminum supplier, and then there's Nexperia on the chips. We haven't seen any direct impact, but it's something we're monitoring as we go through the fourth quarter. So nothing to report at this point. John | Analyst, Zodotti Company: Okay. Thanks for taking my follow-up, guys, and keep up the good work. Kieran O'Sullivan | Chief Executive Officer: All right. Thank you. Thank you. Claire | Conference Call Coordinator: Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad now. We currently have no further questions, so I'll hand back to Kieran for any closing remarks. Kieran O'Sullivan | Chief Executive Officer: Thank you, Claire, and thank you all for your time today. Despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain agnostic solutions. We look forward to updating you on our full year 2025 performance in February of 2026, Thank you again. This concludes our call. Claire | Conference Call Coordinator: This concludes today's call. Thank you for joining. You may now all disconnect your lines. jsPDF 3.0.3 D:20260606090101-00'00'

NYSE:CTS Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Adam | Operator: Good morning all, good afternoon all, and welcome to the CTS Corporation Second Quarter 2025 Learning School. My name is Adam and I'll be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your cell phone keypad to enter the queue. I will now hand the floor to Kieran O'Sullivan, Chairman, President and CEO to begin. So Kieran, please go ahead when you are ready. Kieran O'Sullivan | Chairman, President and CEO: Good morning and thank you for joining us today for our Second Quarter 2025 results. we delivered another quarter of double-digit growth in our diversified end markets. Diversified sales for the quarter were 55% of overall company revenue. In the quarter, our adjusted EBITDA expanded 250 basis points sequentially and 130 basis points compared to the second quarter of last year. Cashflow generation was also strong in the quarter. Our teams continued to execute on our diversification strategy to increase growth in diversified medical, industrial, aerospace, and defense markets. In transportation, we launched the next-generation smart actuator for the commercial vehicle market. Ashish will take us through the safe harbor statement. Ashish | Chief Financial Officer: Ashish? 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 with today's earnings press release and supplemental slide presentation, which can be found in the investors section of the CTS website. I will now turn the discussion back over to our CEO, Kiran O'Sullivan. Kieran O'Sullivan | Chairman, President and CEO: Thank you, Ashish. We finished the second quarter with sales of 135 million, up 4% from 130 million in the second quarter of 2025. For the quarter, diversified end market sales, including sales to medical, aerospace and defense, and industrial end markets, were up 13%, driven by a mix of organic growth and the SideQuest acquisition. Transportation sales were down 6% from the same period last year. Diversified end market sales were 55% of overall company revenue in the quarter. Our book-to-bill ratio for the second quarter was one, essentially flat in comparison to the second quarter of 2024. Bookings for our diversified end markets were down in medical, due to larger bookings earlier this year. Defense bookings were flat, while industrial bookings were up 22%. Second quarter adjusted diluted earnings were $0.57 per share, up approximately 30% from the first quarter and up 7% from the prior year period. Ashish will add further color on our financial performance later in today's call. In the medical end market, second quarter sales were up 8%, compared to the same period in 2024. We are excited about the prospects for growth in minimally invasive applications where our products help deliver enhanced ultrasound images, making it easier for medical professionals to detect artery restrictions and deliver treatment medications. Our teams are engaged on next generation development engineering to further enhance diagnostic capability with our customers. We are proud to highlight our product support solutions that help save lives. During the second quarter, we had wins for medical ultrasound across all regions and an award for a pacemaker application. In addition, we added a new customer for an ultrasound application. Demand for therapeutic products were up approximately 60% year over year. Bookings in the quarter were down 10% compared to the prior year period, due to softness in diagnostic bookings. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile. Aerospace and defense sales for the second quarter were up 34% from the second quarter of 2024. Excluding sales from the SideQuest acquisition, sales were up 6%. SideQuest revenues in the second quarter were 4.5 million, and we expect stronger sales in the second half of this year. Bookings in the second quarter were flat from the prior year period as we maintain a healthy backlog. Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers, and subsystems. We received multiple orders in the quarter for sonar transducers across North America and Europe, transducer refurbishments, and outboard electronic applications. The integration of the SideQuest business is progressing and the business continued to drive a strong pipeline of opportunities. In the industrial market, we continue to see a gradual recovery with OEMs as well as with distribution customers. Sales in the second quarter were up 5% sequentially and up 6% compared to the prior year period, underscoring our expectation of a continued recovery. Bookings in the quarter were up 22% from the same period last year. We were successful with multiple wins in the quarter for EMC, switches, industrial printing, and temperature sensing applications, where we won a new business award for EV charging stations in Europe. We added a new customer in the quarter for a millimeter wave small cell frequency application. Demand across the industrial market is expected to continue improving in the second half of 2025. The mega trends of automation, connectivity and efficiency enhance our longer term growth prospects. Transportation sales were 61 million in the second quarter, down approximately 6% from the same period last year due to the impacts of China market dynamics and softness for commercial vehicle products. In the second quarter, We had awards across various product groups, including accelerator module wins with customers in North America, Europe, and Asia. Additionally, we received a chassis ride height sensing award from a North American OEM. More recently, on the innovation front, we advanced our COBRIS technology, which enables precise position sensing with high resolution for motor position sensing. The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us, given our light vehicle products are mostly agnostic to the drivetrain technology. Total book business was approximately $1 billion at the end of the quarter. Interest in our e-brake product, offering weight and cost advantages, continues across OEMs at a slower pace, as certain OEMs recalibrate EV investments. Our team is proceeding with samples and design customizations for OEMs and Tier 1s. We remain confident in the longer-term growth prospects for this product line, given the cost and weight benefits for our customers, as well as the sentiment in the market from OEMs and Tier 1 chassis system suppliers. We expect our eBrick, other footwell products, existing and new sensor applications will increase our ability to grow content. For our diversified end markets, in line with our strategy, we aim to expand the customer base and range of applications. Subject to evolving trade tariffs and associated economic uncertainty, demand in the medical end market is expected to be mixed with strength in therapeutics and some softness in diagnostic ultrasound. In aerospace and defense, revenue is expected to grow given our backlog of orders and momentum from the SideQuest acquisition. Industrial and distribution sales are expected to improve. Longer term, we expect our material formulations, supported by three leading technologies, and their derivatives to continue to drive our growth in key high quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to decrease in 2025, given the tariff impact and the supply of rare earth for OEMs and tier one suppliers. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 60 million unit range and showing some increased softness due to pressure from Chinese OEMs. China volumes are expected to be in the 30 million unit range. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. More recently, our next generation commercial vehicle actuator commenced low volume production during the quarter. Overall, We are monitoring the potential for headwinds in transportation revenue due to trade tariffs and the China market dynamics. We anticipate softness in commercial vehicle-related revenue for the remainder of the year. As I mentioned in previous calls, revenue from the SideQuest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the U.S. government. With the recent budget approval, we expect revenues per cycle to improve in the second half of 2025. The impact of tariffs and the geopolitical environment are creating uncertainty. We continue to closely monitor and evaluate the situation while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, We are maintaining our guidance of sales in the range of $520 to $550 million and adjusted diluted EPS to be in the range of $2.20 to $2.35. Now I'll turn it over to Ashish who will walk us through the financial results in more details. Ashish | Chief Financial Officer: Ashish? Thank you, Kiran. Sales in the second quarter were $135 million, up 8% sequentially and up 4% from the last year. Sales to diversified end markets increased 13% year over year. SyQuest added $4.5 million in revenue during the quarter. As Kiran has highlighted, we are seeing seasonality in sales from SyQuest due to government funding patterns and expect a stronger second half. Sales to transportation customers were down 6% from the second quarter of last year due to softness in sales related to commercial vehicle products and reduced volumes due to China market dynamics. Our adjusted gross margin was 38.7% in the second quarter, up 296 basis points compared to the second quarter of 2024, and up 174 basis points sequentially compared to the first quarter of 2025. As we continue to work on diversification as a strategic priority, we are seeing a favorable mix impact on our profitability. In addition, our global teams continue to focus on operational execution to deliver margin improvements. We are working closely with customers and suppliers on tariffs and had a minimal impact on profitability in the second quarter. Exchange rate changes had a favorable impact of $1 million on gross margin. We achieved adjusted EBITDA of 23% in the quarter, An improvement of 250 basis points sequentially and 130 basis points compared to the second quarter of 2024. Earnings were $0.62 per diluted share for the second quarter. Adjusted earnings were $0.57 per diluted share compared to $0.44 in the first quarter of 2025 and $0.54 in the second quarter of 2024. Moving to cash generation and the balance sheet. We generated $28 million in operating cash flow in the second quarter compared to 20 million in the second quarter of 2024. Year to date, we have generated $44 million in operating cash flow. Our balance sheet remains strong with a cash balance of $99 million at the end of the quarter. Our long-term debt balance was $88 million, leaving us good liquidity to support strategic acquisition. During the quarter, we repurchased 412,000 shares of CTS stock for approximately $17 million. In total, we returned $26 million to shareholders through dividends and share buybacks so far in 2025. We have $38 million remaining under our current share repurchase program. Our focus remains on strong cash generation and appropriate capital allocation and we continue to support organic growth, strategic acquisitions, and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time. Adam | Operator: As a reminder, if you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. And our first question today comes from John Franzrup from Sidoti. John, please go ahead. Your line is open. John Franzrup | Analyst, Sidoti & Company: Good morning, everyone, and thanks for taking the questions. Kieran, I'd like to start with the medical market. It seems like there's maybe two different product lines going two different directions. Therapeutics, you said, was up 60%, I believe. But also, I think you issued a little bit of a warning about diagnostics. Can you talk a little bit about what's going on in the marketplace there for you? Kieran O'Sullivan | Chairman, President and CEO: Yeah, John. On the therapeutic side, on the last earnings call, we talked about a larger order, and that's obviously playing out here in the second quarter and for the balance of the year as well. We've seen some softness in diagnostics on the ultrasound side of it, mostly coming from capital spend in Asia and maybe tariff-related as well. So we will see some softness there, but overall on medical for the year, we will see growth. John Franzrup | Analyst, Sidoti & Company: Not good. That's good to hear. And you just touched on the tariff situation. What was the impact, if any, of tariffs on you in the quarter? Ashish | Chief Financial Officer: It was pretty nominal, John, as we mentioned in the prepared remarks. We are working closely with customers as well as suppliers. Overall, the impact is very, very minimal in the quarter. John Franzrup | Analyst, Sidoti & Company: You expected to stay that way? Ashish | Chief Financial Officer: Generally, under the current conditions, I would say yes, but there's a lot of changes happening, as you know. So we are continuing to monitor the situation. As we have talked about in the past, our bigger impact happens with any potential changes in the USMCA. John Franzrup | Analyst, Sidoti & Company: Okay, got it. And when you think about the transportation market, Karen, you're also signaling continued weakness. Any thoughts about when that market might bottom out for you? Kieran O'Sullivan | Chairman, President and CEO: John, obviously, yes, weakness this year. It's mixed across the regions. We've talked about softness in China being a factor for us in the commercial vehicle. We think it's bottomed out in China. but we're being a little bit just cautious on that. So we see the trend over a few quarters. On the light vehicle side, we did improve sequentially this quarter. And I would tell you, we've got a pipeline of both businesses really strong across multiple products that we're working. So it's a little bit mixed. John, I would just say the tariff situation is the one we're watching there. There was some pre-buy in Q2 in January, in April and May. It just feels a little tenuous for the next few quarters. John Franzrup | Analyst, Sidoti & Company: Makes sense, makes sense. And just on the cost side of the equation, how's the integration of SideQuest going? Is that fully complete? And are there any other cost measures you're currently active on outside of that? Kieran O'Sullivan | Chairman, President and CEO: John, the SideQuest acquisition is moving along well. A lot of the integration work's been done. There's still a little bit more to do. We're still running on different ERP systems. But the pipeline of opportunities is really strong. What I would tell you is the timing with the government and getting the budget approval has been something we've been watching carefully and glad to see that approved because we think that's going to be a momentum builder going forward. John Franzrup | Analyst, Sidoti & Company: Okay. And any other internal cost-saving actions that you're currently executing? Ashish | Chief Financial Officer: So on SideQuest, John, we are really not looking to drive cost-saving type of actions. The business is working on a strong pipeline, and we are shoring up capabilities from a production standpoint to make sure that we can drive that growth and do the revenue growth part of it more strongly in that part of the business. John Franzrup | Analyst, Sidoti & Company: Understood. Ashish, I was actually referencing legacy CTS. Ashish | Chief Financial Officer: Got it. Got it. So in terms of, you know, we are continuing to look at operational efficiency on an ongoing basis, like we always do, John. That was contributing to our gross margin expansion in the quarter that we talked about. But in terms of big things that we have in the works, There's not much that we've talked about publicly. You know, as we continue working on things, if there are bigger changes we are making, I'm sure we'll highlight those. John Franzrup | Analyst, Sidoti & Company: Great. Okay. I'll get back to you. Thanks for taking my questions. Hendi Susanto | Analyst, Gabelli Funds: Thanks, John. Adam | Operator: The next question comes from Hendi Susanto from Gabelli Funds. Hendi, your line is open. Please go ahead. Hendi Susanto | Analyst, Gabelli Funds: Good morning, Kiran and Ashish. I would like to ask similar questions, but hopefully deeper. The mixed dynamic in medical marketplace, in diagnostic and then in therapeutic, any guideposts on, let's say, how much the large order would sustain or generate a nice revenue upside? in the next coming quarters? And on the other hand, the softness in diagnostic, how much further should we expect? Kieran O'Sullivan | Chairman, President and CEO: Hendi, the softness in diagnostics may be for a quarter or two. We still feel very confident in the growth of that business in the mid to long term. On the therapeutic side, confident in the growth throughout the balance of this year, and then we would expect new purchase orders as we go ahead. So overall, as I mentioned earlier, we'll see growth in medical this year, and we're expecting growth as we go into the years ahead, too. Hendi Susanto | Analyst, Gabelli Funds: Okay, got it. And then, Aziz, may I ask how much revenue SciQuest generated in the same quarter a year ago so that we know – On a year-over-year comparison, what the numbers look like? Ashish | Chief Financial Officer: Yeah, Hendi, we closed on the acquisition towards the end of July last year. So the second quarter of 2025 was purely additive. Hendi Susanto | Analyst, Gabelli Funds: Yes, but can we know prior to acquisitions like how much the quarterly revenue in the second quarter of 2024? Ashish | Chief Financial Officer: Um, if we haven't talked about that, uh, handy in terms of, uh, pre acquisition revenues. So, um, you know, that's, that's something that, um, uh, we haven't talked about publicly. Yeah. Hendi Susanto | Analyst, Gabelli Funds: Um, and then, um, I think I asked like similar question in the past within transportation, how much is China? Ashish | Chief Financial Officer: Um, China. transportation as a percent of our overall revenue will be similar to what we have for the overall transportation as a percent of total CTS that will give you get you close enough in terms of how much revenue we have in China when you look at overall China we our last year's data that was published as part of the 10k we had revenues of about $80-plus million in total. Hendi Susanto | Analyst, Gabelli Funds: Okay. Got it. And then, Kiran, you talk about a strong pipeline of opportunities. Sorry. I think you said that in transportation, there are some solid, like, positive pipelines across products that you are working on. would you be able to mention which products can... Yes. Kieran O'Sullivan | Chairman, President and CEO: Yeah, Hendy, we would be working with customers on accelerator modules, passive safety sensors, new combination sensors, motor position sensing, just to give you a few examples in transportation. And we also have a strong pipeline in the diversified end markets as well. Hendi Susanto | Analyst, Gabelli Funds: And then within the transportation, those pipelines, are they more skewed toward North America and Europe? Kieran O'Sullivan | Chairman, President and CEO: Handy, I would certainly say we've been winning business in all regions. I would say the larger pipeline is in the North America region for sure, but some of these OEMs are operating globally too. Hendi Susanto | Analyst, Gabelli Funds: Okay, got it. Yeah. Okay. Okay. Thank you. Let me get back to the queue. Thank you, Andy. Adam | Operator: Thank you. As a reminder, that's star one on your telephone keypad. We return to the line from John from Sudeti. John, please go ahead. John Franzrup | Analyst, Sidoti & Company: Yep. Just a follow-up question. Can you talk a little bit about the acquisition market, what you're seeing out there, maybe the size of the opportunities that you're most focused on? Kieran O'Sullivan | Chairman, President and CEO: John, we're most focused on advancing our diversified end markets, that be aerospace and defense, industrial and medical. We're always working on a pipeline of opportunities. There's nothing to report at this point in time, but we certainly see some uptick in activity out there. John Franzrup | Analyst, Sidoti & Company: That's great. Something maybe within the next 12 months, or am I thinking too far ahead? Kieran O'Sullivan | Chairman, President and CEO: Well, John, if you look at how we talk about our growth 5% organic, 5% acquisitions, we would definitely like to do something in the next 12 months. John Franzrup | Analyst, Sidoti & Company: Okay. Good to hear. Thanks for taking my follow-up. Adam | Operator: Thank you, John. Thank you. Nothing further in the Q&A presence. As a final reminder, that's star followed by one on your telephone keypad. We have no further questions, so I'll hand it back to Kieran for some closing comments. Kieran O'Sullivan | Chairman, President and CEO: Thanks, Adam, and thank you all for your time today. Despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority. We launched our Evolution 2030 strategic initiative to enhance our emphasis on sales growth, operational rigor and employee engagement, while also giving back to the communities where we operate. We look forward to updating you on our third quarter 2025 performance in October. This concludes our call. Thank you. Adam | Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines. jsPDF 3.0.3 D:20260606090102-00'00'