CTS Q4 2024 Earnings Report

CTS EPS Results

• Actual EPS: $0.53
• Consensus EPS: $0.59
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: N/A

CTS Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $132.80 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CTS Announcement Details

• Quarter: Q4 2024
• Date: 2/4/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, February 4, 2025
• Conference Call Time: 10:00AM ET

CTS (NYSE:CTS) manufactures and sells sensors, actuators, and connectivity components in North America, Europe, and Asia. The company provides encoders, rotary position sensors, slide potentiometers, industrial and commercial rotary potentiometers. It also provides non-contacting, and contacting pedals; and eBrake pedals. In addition, the company offers flow meters, hydrophones, non-destructive testing, sonar, ultrasonic imaging, piezoelectric materials, piezoelectric sense products, and bulk products. Further, it provides eMobility, chassis, current sensors, clutch, brake, position sensors, stroke sensor, seating, speed, throttle, transmission, turbo, temperature sensors, and technical related products. Additionally, the company offers DIP, rotary selector, tactile, rotary DIP, and toggle switches, as well as provides transducer related products. Furthermore, it provides EMI, RFI, and RFI products; specialty and resistors; and frequency control products. The company sells and markets its products through its sales engineers, independent manufacturer representatives, and distributors. CTS Corporation was founded in 1896 and is based in Lisle, Illinois.

CTS Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, everyone, and thank you for joining the CTS Corporation 4th Quarter and Full Year 20 24 Earnings Call. My name is Marie, and I will be coordinating your call today. During the presentation, you can register your question I will now hand over to your host, Kieran M. Sullivan, Chairman, President and CEO to begin. Please go ahead.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Good morning and thank you for joining us today for our Q4 and full year 2024 results. We continue to execute on our diversification strategy to accelerate growth in our diversified medical, industrial, aerospace and defense markets while also progressing on electrification in mobility. Revenue from our diversified markets accounted for 56% of overall company revenue in the 4th quarter 51% for the full year 2024. We had 6 wins in electrification from our portfolio of existing powertrain agnostic products. Diversification will continue to be a strategic priority.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

We expect further progress in 2025 with a full year of revenue contribution from the SideQuest acquisition. Our strategic focus also improves the quality of earnings as reflected by our adjusted gross margin for the full year 2024, which was up 243 basis points from 2023. Driving revenue growth in a challenging macroeconomic backdrop through organic initiatives and by leveraging our strong balance sheet for appropriate acquisitions remains top of mind for the CTS leadership team. Ashish will take us through the safe harbor statement. Ashish?

[Ashish Agrawal, VP & CFO at CTS]

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, Kieran O'Sullivan.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Thank you, Ashish. We finished the Q4 with sales of $127,000,000 up 2% from the Q4 of 2023. For the full year sales were $516,000,000 down 6% from 2023. For the quarter, diversified end market sales including sales to medical, aerospace and defense and industrial end markets were up 28% while transportation sales were down 18% from the same period last year. Excluding the SideQuest acquisition, diversified end market sales for the Q4 were up 8% compared to the Q4 in 2023.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Diversified end market sales were 56% of overall company revenue in the 4th quarter and 51% for the full year 2024. Our book to bill ratio for the 4th quarter remained at 0.96 similar to the Q4 of 2023. For the full year 2024, the book to bill ratio was 1.01 versus 0.97 in 2023. We achieved solid improvements in profitability with gross margin up 3.94 basis points in the 4th quarter and 2.43 basis points for the full year. 4th quarter adjusted diluted earnings per share of $0.53 were up 14% year over year.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

For the full year 2024, adjusted diluted earnings per share were $2.17 down from $2.22 in 2023. Ashish will add further color on our financial performance later in today's call. In the medical market, full year 2024 sales were $70,000,000 compared to $68,000,000 in 2023, up 3%. In line with our expectations, 4th quarter sales were down sequentially as customers adjusted their inventory levels. The book to bill ratio in the 4th quarter was 1.22 compared to 0.86 in the Q4 of 2023.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

We are excited by the prospects for growth in minimally invasive applications where our products help deliver enhanced ultrasound images, which make it easier for medical professionals to detect artery restrictions and deliver treatment medications. We are proud to highlight that our product support solutions that help save lives. During the Q4, we had wins for medical ultrasound across all regions and secured a large order for an application used in medical therapeutics. Additionally, we had a temperature win for a medical laboratory application. We added 3 new customers, one for an echocardiograph application, a second application for treatment of liver tumors and another customer for a veterinary ultrasound application.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Over time, we expect the volume growth in portable ultrasound diagnostics and therapeutics will enhance our growth profile. As I already mentioned, we are seeing strengthening in demand for therapeutic products. Aerospace and defense sales for the full year 2024 were $70,000,000 up 37% from $51,000,000 in 2023. Excluding sales from our SideQuest acquisition, sales were up 8% for the full year. Bookings in the 4th quarter were down 6% from the prior year period, mainly due to timing of orders as we maintain a healthy backlog.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers and subsystems. We also expect to expand our product range and market opportunity after a period of integration. We received multiple orders in the quarter for solar applications in North America and Europe. We also had wins for RF filters in anti jamming applications and the win for temperature sensing. The integration of the SciQuest business is tracking to plan and the business continued to drive its opportunity funnel.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

During the Q4, we completed first article work on 3 naval platforms. In the industrial market, we see a gradual recovery in distribution as well as with OEMs. Sales in the 4th quarter were up 2% sequentially and up 26% compared to the prior year period, underscoring our expectation of a gradual recovery in the industrial end market. For the full year 2024, sales were $125,000,000 compared to $129,000,000 in 2023. Bookings in the quarter were up 5% from the same period last year.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Inventory levels now appear to be more normalized. We were successful with multiple wins in the quarter for EMC applications, industrial printing, temperature sensing for pool and spa as well as wins for industrial switches, home appliances, turn sensing and distribution. We added a new customer in the quarter for a broadband communications application. Demand across the industrial market is expected to rebuild in 2025. The megatrends of automation, connectivity and efficiency enhanced our longer term growth prospects.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Transportation sales were $57,000,000 in the 4th quarter, down approximately 18% from the same period last year. For the full year 2024, sales were 250,000,000 dollars down from $301,000,000 in 2023, primarily driven by demand softness for transplant OEMs in China and competition in the commercial vehicle market. In the 4th quarter, we had wins across various product groups including sensor wins for chassis ride height sensing, seat position sensing and exhaust sensing. We had accelerator module wins with OEMs in China, Europe and North America. During the Q4, we added a new customer in North America for our modular accelerator design and had 6 EV platform wins for accelerator modules.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

As mentioned on our last earnings call, we received a pre development award from a premium European OEM for our e brake product. The near term growth rates for ICE versus EVs and hybrids are less of a concern for us given our products are mostly agnostic to the drivetrain technology. Total book business was approximately $1,100,000,000 at the end of the quarter. OEMs have continued to delay sourcing decisions, but we expect this to improve in 2025 as they get more clarity on government policy and initiatives. Recently, EV sales have increased in North America, likely in anticipation of subsidy changes from the new administration.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Going forward, we expect hybrid sales to increase. Interest in our e brake product offering weight and cost advantages continues across several OEMs, where our team is proceeding with samples and design customizations. We expect our e brake and other sensor applications will increase our ability to grow content. Turning to the outlook for 2025. For our diversified end markets in line with our strategy, we aim to expand the customer base and range of applications.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Demand in the medical market may be soft in the Q1 of 2025 and is expected to strengthen in the remainder of the year, driven primarily by medical ultrasound and therapeutic volume growth. In aerospace and defense, demand is expected to remain solid given our backlog of orders and momentum from the SideQuest acquisition. Industrial and distribution sales are expected to improve gradually now that inventory levels have normalized. Longer term, we expect our material formulations supported by 3 leading technologies 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 be mixed in 2025.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

The North American light vehicle market is expected to be in the range of 50,000,000 units down from last year with on hand days of supply growing. Some OEMs are reducing production build rates in the first half to burn down inventory levels. European production is forecasted in the 16,500,000 unit range and showing some increased softness due to overcapacity pressure from Chinese OEMs. China volumes are expected to be in the 29,000,000 unit range. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Overall, we anticipate headwinds in our transportation revenue due to the China market dynamics and other regional factors. We expect our next generation commercial vehicle actuator to go into production in the second quarter. However, we anticipate softness in commercial vehicle revenue throughout 2025. The 1st full year of revenue from our SideQuest acquisition will introduce some seasonality

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

where

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

the timing of revenue may be influenced by approval of funding by the U. S. Government. We expect the revenues for SideQuest will be stronger in the second half of twenty twenty five. For full year 2025, we expect sales in the range of $520,000,000 to $550,000,000 and adjusted diluted EPS to be in the range of $2.20 to $2.35 Now I'll turn the call over to Ashish, who will walk us through the financial results in more detail.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Ashish?

[Ashish Agrawal, VP & CFO at CTS]

Thank you, Kieran. 4th quarter sales were $127,000,000 up 2% compared to the Q4 of 2023 and down 4% sequentially from the Q3 of 2024. Sales to diversified end markets increased 28% year over year. Syquest added $11,000,000 in revenue during the quarter. Organic revenue growth for diversified end markets was 8%.

[Ashish Agrawal, VP & CFO at CTS]

Sales to transportation customers were down 18% from the Q4 of last year due to the softness in sales related to commercial vehicle products and reduced volumes due to China market dynamics. Our adjusted gross margin was 38.1% in the 4th quarter, up 3.94 basis points compared to the Q4 of 2023 and down 50 basis points compared to the Q3 of 2024. The year over year improvement in gross margin was driven by the favorable impact of changes in end market mix, operational improvements as well as a $1,500,000 favorable impact from exchange rate changes. Earnings were $0.45 per diluted share for the Q4. Adjusted earnings for the Q4 were $0.53 per diluted share compared to $0.47 per diluted share for the same period last year.

[Ashish Agrawal, VP & CFO at CTS]

For the full year, revenue was $516,000,000 a decrease of 6% compared to 2023. Sales to diversified end markets were up 7% year over year. Syquest continues to perform in line with our expectation and added $14,000,000 in revenue in 2024. Sales to the transportation end market were down 17% due to the softening of sales to our customers in China and competition in sales of commercial vehicle products. Our adjusted gross margin was at 37.2 percent in 2024, up 243 basis points compared to 2023.

[Ashish Agrawal, VP & CFO at CTS]

Primary drivers of the improved gross margin include the favorable impact of end market mix and operational improvements. Foreign currency rates also impacted us favorably by approximately $2,100,000 in 2024. We remain focused on strengthening our gross margin profile by growing our diversified end markets as well as continued operational improvements. For the full year 2024, our earnings were $1.89 per diluted share. Adjusted earnings for the full year 2024 were $2.17 per diluted share compared to $2.22 per diluted share for 2023.

[Ashish Agrawal, VP & CFO at CTS]

Our adjusted EBITDA margin for the year was 22.7 percent, an improvement of 80 basis points from 2023. Moving to cash generation and the balance sheet. We generated $26,000,000 in operating cash flow for the Q4 of 2024 $99,000,000 for the full year, up from $89,000,000 in 2023. Our balance sheet remains strong with a cash balance of $94,000,000 as of December 31, 2024. Our long term debt balance was $91,000,000 at the end of 2024, leaving us good liquidity to support strategic acquisitions.

[Ashish Agrawal, VP & CFO at CTS]

During the quarter, we repurchased approximately 154,000 shares of CTS stock totaling approximately $8,000,000 For the full year, we repurchased 898,000 shares totaling approximately $43,000,000 In total, we returned over $48,000,000 to shareholders through dividends and share buybacks in 2024. We have another $61,000,000 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. We would like to open the line for questions at this time.

[Operator]

We have a question from John Franzreb of Sidoti. Your line is now open. Please go ahead.

[John Franzreb, Senior Equity Analyst at Sidoti & Company]

Good morning, everybody, and thanks for taking the questions.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Good morning, John.

[John Franzreb, Senior Equity Analyst at Sidoti & Company]

I'd like to start with Kieran, maybe your overview of the hot topic of the week. Could you talk a little bit about the tariffs potential impact and what you've kind of maybe game played as far as how CTS could react or could not react to any notable changes in the tariff outlook?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

John, just at an overall level, yes, we're working with our customers, we're working with our suppliers to mitigate the impact. We've got a good track record on that. And of course, from a supply chain perspective, we're always looking at even since the prior time on tariffs adjusting and adapting our supply chain. So we feel like we're ready to handle it. We've been Hey,

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

John, when

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

John, when you look at our footprint on a global basis and what was called out in the last few days, obviously, Mexico was something we were preparing for. That's been walked back for 30 days. We've got some impact coming out of China, which we're already addressing. That's probably the parts that at the moment. And obviously, given the comments on Europe, we're keeping a close watch on that as well.

[John Franzreb, Senior Equity Analyst at Sidoti & Company]

Got it. Understood. And regarding the guidance, I guess, two questions there. Part one is how much of you embedded in the SideQuest revenue contribution for the full year? And secondly, maybe can you talk a little bit about your thoughts of how the Class 8 truck market kind of plays out in 2025?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Yes, Jonathan, I understood your question on SideQuest. You saw in our prepared remarks the revenue contribution for 2024. We expect solid growth there going forward. We feel good about it as well. And if you look at our guide overall, you can see we're going from a 1% growth to a 7% growth.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

To give you a little bit of color on that, we expect some single digit declines in transportation and we expect high single digit growth in our other end markets. To your question on the commercial vehicle market, we think from everything we hear, first half may be more stable than the second half softness, but we said softness throughout the year. We're dealing with some competition there. We're introducing our product as well. And then just while we're talking about the guide overall, I wanted to also mention we don't guide by quarter, but just to give you a sense because we talked about seasonality with the Syquest acquisition, that revenue tends to be heavier in the second half.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

We just talked about in the last earnings call and covered it today as well, softness in the Q4 to a few percentage points on medical. We expect that to continue into the Q1 and then strengthen on an overall year basis. So with the SideQuest, with the medical in the Q1, with the Chinese New Year, we expect the Q1 to be flat to marginally up, but then solid for the whole year. So hopefully that gives you some good color.

[John Franzreb, Senior Equity Analyst at Sidoti & Company]

Yes, Yes, that's kind of what I was looking for. Actually, Kieran, I'm going to get back into queue with somebody else to take a question. Thank you.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Okay. Thanks, John.

[Operator]

We have a question from Hendi Susanto of Dibelez Funds. Please go ahead.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

Good morning, Kieran and Massees.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Good morning, Hendi.

[Ashish Agrawal, VP & CFO at CTS]

Hi, Hendi.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

Kieran, I want to ask about the gradual recovery with distribution and OEMs in Industrials. So you saw high year over year growth in Q4.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

What are the puts and takes and compare and contrast with other companies in terms of timing and recovery roadmap? If I see industrial, it has seen like significant decline since like 200 sorry, like 2022. I'm wondering whether you saw that earlier compared to others and then therefore the recovery may be sooner versus other companies?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Yes. Hendi, just when you look at that period from 2022, I would say I've had a lot of discussions and understanding the market and what's happening with other companies. I think everybody was going to tell you the same story. The overstocking, the burn down of inventories has taken way longer than expected several quarters more. So much so that I would tell you on the quarter on the guidance last year, I was expecting recovery, which didn't really materialize.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

So to your question then on a go forward basis, you'll see we clearly called out a 26% improvement year over year. But in our prepared remarks, we said we tempered that because it was a 2% improvement sequentially. So what we're seeing is a gradual improvement now. We see inventories back at the right levels. We see an improvement in book to bill.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

We're still looking for more positive POS sales, but we're expecting a gradual improvement now as we move forward and feel reasonably confident about that.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

And then second question, can you remind us and share more colors on eBreake in terms of the timing of ramp up sales and unit shipment, dollar contents and expected adoption by different regions?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Yes. Hendi, a few points on that. First of all, from prior earnings call, we talked about a win with 1 OEM. We've talked about the today on the call, the predevelopment win with a premium European OEM. In the past, we've talked about revenues in the 'twenty eight, 'twenty seven to 'twenty eight time period.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

We are watching that very closely, Hendi, because of the OEMs and the new administration here and what's going on to see if that shifts back and forth. So that's something that's really on our radar at the moment. And that's something where we've seen some at one stage some movement to pull ahead, some other conversations around will it delay a little bit. So that's really something we're keeping a close eye on. The more important thing I would say is this trend with eBreake, we feel very good about longer term.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Not in the next 6 months, but in terms of revenue going forward, we think it's going to be something that will steadily grow and we'll keep adding customers as we go forward as well.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

You mentioned like 2026 to 2028? May I clarify that?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

27 to 2028 is what we talked about in the past. Yes. And to give you a sense with the first customer, we talked in the range of $5,000,000 to $10,000,000 in the 1st year.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

Okay. And then the predevelopment, how soon can it go toward, let's say, like design win or work?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

I wish I could give you a solid answer on that, Hendi. It varies. Sometimes it could be 6 months. Sometimes it could be a year. It all depends.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

And again, the overarching watch for me here is 2 things. Number 1, the trend is real. It will happen, we believe, in this product line. Just with the whole shift in powertrains and mix, that's just something I think every OEM, and you're probably close to this as well, is just making they're making decisions on end. We're waiting for clarification.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

Okay. And then one more question about e brake. Which light is it light vehicle market? Or is it like how universal can it be among like different subsegment of transportation markets?

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Yes. We see it primarily in this early stages in the light vehicle market handy and really driven by electrification as well.

[Hendi Susanto, VP & Portfolio Manager at Gabelli Funds]

Okay. Thank you, Kieran. Thank you, Assis. Let's get back to the queue.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

You're welcome, Hendi.

[Operator]

We currently have no further questions. So I will hand back to Kieran

[Operator]

O'Sullivan for closing remarks.

[Kieran O'Sullivan, Chairman, President & CEO at CTS]

Great. Thank you, Murray, and thank you all for your time today. We look forward to updating you on our Q1 2025 performance in April. This concludes the call. Thank you.

[Operator]

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

Participants

Executives

• Kieran O'Sullivan, Chairman, President & CEO
• Ashish Agrawal, VP & CFO

Analysts

• John Franzreb, Senior Equity Analyst at Sidoti & Company
• Hendi Susanto, VP & Portfolio Manager at Gabelli Funds