CTS CTS Corporation

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 25, 2023

 

 

CTS CORPORATION

(Exact name of Registrant as Specified in Its Charter)

 

 

Indiana			1-4639	35-0225010
(State or Other Jurisdiction of Incorporation)			(Commission File Number)	(IRS Employer Identification No.)
4925 Indiana Avenue
Lisle, Illinois				60532
(Address of Principal Executive Offices)				(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (630) 577-8800

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		CTS		The New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On July 25, 2023, CTS Corporation (the "Registrant") issued a press release providing certain results for the second quarter ended June 30, 2023, as more fully described in the press release. A copy of the press release is attached hereto as Exhibit 99.l and is incorporated by reference herein.

The information contained in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.l hereto, is being "furnished" to the Securities and Exchange Commission and shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ) or otherwise subject to the liabilities of that section. Furthermore, such information shall not be deemed to be incorporated by reference into any filing made by the Registrant under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure.

As disclosed in the press release furnished as Exhibit 99.1, the Registrant will hold a live web cast on July 25, 2023, relating to the Registrant’s financial results for the second quarter ended June 30, 2023. A copy of the slides to be presented during the Registrant’s web cast and discussed in the conference call relating to such financial results is being furnished as Exhibit 99.2 to this Current Report on Form 8-K.

By filing this Current Report on Form 8-K and furnishing the information contained herein, the Registrant makes no admission as to the materiality of any information in this report that is required to be disclosed solely by reason of Regulation FD.

The information contained in Item 7.01 of this Current Report on Form 8-K and Exhibit 99.2 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. Furthermore, such information shall not be deemed to be incorporated by reference into any filing made by the Registrant under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit		Description
99.1		Earnings Release dated July 25, 2023
99.2		Slides of CTS Corporation, 2nd Quarter 2023, dated July 25, 2023
104		Cover Page Interactive Data File (embedded within the Inline XBRL Document)

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: July 25, 2023		CTS CORPORATION
	By:	/s/ Thomas M. White
		Thomas M. White
		Corporate Controller

 

 

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Exhibit 99.1

 

 

July 25, 2023	FOR IMMEDIATE RELEASE

 

 

CTS Announces Second Quarter 2023 Results

Advancing Strategic Priorities While Navigating Macroeconomic Conditions

Lisle, Ill. - CTS Corporation (NYSE: CTS), a leading global designer and manufacturer of custom-engineered solutions that “Sense, Connect and Move,” today announced second quarter 2023 results.

“In the second quarter, our transportation sales were up double digits, offsetting continued softness in distribution and the industrial end-market. In this challenging environment, we remain focused on operational execution and strategic capital deployment,” said Kieran O’Sullivan, CEO of CTS Corporation. “We made progress on our long-term priorities with strong business wins in the quarter. We received our first eBrake™ award and had significant wins on multiple EV platforms. Advancing our diversification efforts, we added several new customers in the non-transportation end markets.”

Second Quarter 2023 Results

2023 Guidance

CTS expects continued softness in distribution and the industrial end market for the remainder of 2023. As a result, the company now expects full-year 2023 sales to be in the range of $565 – $585 million, down from $580 – $640 million and adjusted diluted EPS in the range of $2.20 – $2.40, down from $2.40 – $2.70.

CTS does not provide reconciliations of forward-looking non-GAAP financial measures, such as estimated adjusted diluted earnings per share, to the most comparable GAAP financial measures on a forward-looking basis because CTS is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, restructuring costs, environmental remediation costs, acquisition-related costs, foreign exchange rates and other non-routine costs. Each of such adjustments has not yet occurred, are out of CTS' control and/or cannot be reasonably predicted. For the same reasons, CTS is unable to address the probable significance of the unavailable information.

www.ctscorp.com

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Conference Call and Supplemental Materials

As previously announced, CTS has scheduled a conference call for 10:00 a.m. (EDT) today. The dial-in number for the U.S. and Canada is 833-470-1428 (+1 929-526-1599, if calling from outside the U.S. and Canada). The passcode is 292049. In addition, CTS will be using a supplemental slide presentation that will be referred to during the call. The presentation and a live audio webcast of the conference call will be available and can be accessed directly from CTS’ website at https://www.ctscorp.com/investors/events-presentations/.

About CTS

CTS Corporation (NYSE: CTS) is a leading designer and manufacturer of products that Sense, Connect and Move. CTS manufactures sensors, actuators and electronic components in North America, Europe and Asia, and provides engineered products to customers in the aerospace/defense, industrial, medical and transportation markets. For more information, visit www.ctscorp.com.

Safe Harbor

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management’s expectations, certain assumptions, and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties, and other factors, which could cause CTS’ actual results, performance, or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: supply chain disruptions; changes in the economy generally, including inflationary and/or recessionary conditions, and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition CTS’ business; rapid technological change; general market conditions in the transportation, as well as conditions in the industrial, aerospace and defense, and medical markets; reliance on key customers; unanticipated public health crises (including the ultimate impact of the COVID-19 pandemic on CTS’ business, results of operations or financial condition), natural disasters or other events; environmental compliance and remediation expenses; the ability to protect CTS’ intellectual property; pricing pressures and demand for CTS’ products; and risks associated with CTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks (including, without limitation, the potential impact U.S./China relations and the conflict between Russia and Ukraine may have on our business, results of operations and financial condition). Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of CTS’ most recent Annual Report on Form 10-K and other filings made with the SEC. CTS undertakes no obligation to publicly update CTS’ forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

Contact

Ashish Agrawal

Vice President and Chief Financial Officer

CTS Corporation

4925 Indiana Avenue

Lisle, IL 60532 USA

+1 (630) 577-8800

ashish.agrawal@ctscorp.com

 

www.ctscorp.com

 

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED

(In thousands, except per share amounts)

 

 

		Three Months Ended								Six Months Ended
		June, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Net sales		$	145,182			$	144,982			$	291,176			$	292,677
Cost of goods sold			94,440				93,134				188,782				186,489
Gross margin			50,742				51,848				102,394				106,188
Selling, general and administrative expenses			23,694				22,238				45,673				44,026
Research and development expenses			6,721				6,294				13,307				12,488
Restructuring charges			1,895				630				2,807				942
Operating earnings			18,432				22,686				40,607				48,732
Other (expense) income:
Interest expense			(818	)			(602	)			(1,512	)			(1,148	)
Interest income			1,072				263				2,135				443
Other expense, net			(2,606	)			(5,425	)			(2,441	)			(5,359	)
Total other expense, net			(2,352	)			(5,764	)			(1,818	)			(6,064	)
Earnings before income taxes			16,080				16,922				38,789				42,668
Income tax expense			3,183				4,324				7,548				9,831
Net earnings		$	12,897			$	12,598			$	31,241			$	32,837
Earnings per share:
Basic		$	0.41			$	0.39			$	0.99			$	1.02
Diluted		$	0.41			$	0.39			$	0.98			$	1.02
Basic weighted – average common shares outstanding:			31,488				32,039				31,560				32,096
Effect of dilutive securities			197				204				224				218
Diluted weighted – average common shares outstanding:			31,685				32,243				31,784				32,314
Cash dividends declared per share		$	0.04			$	0.04			$	0.08			$	0.08

 

 

 

 

 

 

 

www.ctscorp.com

 

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

 

		(Unaudited) June 30, 2023				December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents		$	150,878			$	156,910
Accounts receivable, net			97,519				90,935
Inventories, net			62,556				62,260
Other current assets			18,924				15,655
Total current assets			329,877				325,760
Property, plant and equipment, net			94,956				97,300
Operating lease assets, net			25,768				22,702
Other Assets
Goodwill			155,931				152,361
Other intangible assets, net			108,717				108,053
Deferred income taxes			22,831				23,461
Other			17,826				18,850
Total other assets			305,305				302,725
Total Assets		$	755,906			$	748,487
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	53,119			$	53,211
Operating lease obligations			4,293				3,936
Accrued payroll and benefits			14,389				20,063
Accrued expenses and other liabilities			35,381				35,322
Total current liabilities			107,182				112,532
Long-term debt			77,040				83,670
Long-term operating lease obligations			24,534				21,754
Long-term pension obligations			5,017				5,048
Deferred income taxes			15,780				16,010
Other long-term obligations			4,958				3,249
Total Liabilities			234,511				242,263
Commitments and Contingencies
Shareholders’ Equity
Common stock			319,111				316,803
Additional contributed capital			43,488				46,144
Retained earnings			575,422				546,703
Accumulated other comprehensive income (loss)			3,691				(671	)
Total shareholders’ equity before treasury stock			941,712				908,979
Treasury stock			(420,317	)			(402,755	)
Total shareholders’ equity			521,395				506,224
Total Liabilities and Shareholders’ Equity		$	755,906			$	748,487

 

 

www.ctscorp.com

 

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CTS CORPORATION AND SUBSIDIARIES

OTHER SUPPLEMENTAL INFORMATION - UNAUDITED

(In millions of dollars, except percentages and per share amounts)

 

Non-GAAP Financial Measures

From time to time, CTS may use non-GAAP financial measures in discussing CTS’ business. These measures are intended to supplement, not replace, CTS’ presentation of its financial results in accordance with U.S. GAAP. CTS believes that the non-GAAP financial measures presented are commonly used by financial analysts and others in the industries in which CTS operates, and thus further provide useful information to investors. CTS’ definitions of these non-GAAP financial measures may differ from those terms as defined or used by other companies. Non-GAAP measures should not be used by investors or third parties as the sole basis for formulating investment decisions, as they may exclude a number of important cash and non-cash recurring items.

CTS has presented these non-GAAP financial measures as it believes that the presentation of its financial results that exclude (1) restructuring charges; (2) environmental charges; (3) acquisition-related costs; (4) inventory fair value step-up costs; (5) foreign exchange (gains) losses; (6) non-cash pension expenses (income); and (7) certain discrete tax items are useful and assist in comparing CTS’ current operating results with past periods and with the operational performance of other companies in its industry. Included below is a description of the expenses that CTS has determined are not normal, recurring cash operating expenses necessary to operate its business and the rationale for why providing financial measures for its business with such expenses excluded or adjusted is useful to investors as a supplement to the U.S. GAAP measures.

At times, the reconciliations below have been intentionally rounded to the nearest thousand, or $0.01 for EPS figures, and, therefore, may not sum.

www.ctscorp.com

 

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Adjusted Gross Margin

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Gross margin		$	50.7			$	51.8			$	102.4			$	106.2			$	210.5			$	184.6			$	139.1
Net sales		$	145.2			$	145.0			$	291.2			$	292.68			$	586.9			$	512.9			$	424.1
Gross margin as a % of net sales			35.0	%			35.8	%			35.2	%			36.3	%			35.9	%			36.0	%			32.8	%
Adjustments to reported gross margin:
Inventory fair value step-up (b)		$	—			$	0.5			$	—			$	1.1			$	4.0			$	—			$	—
Adjusted gross margin		$	50.7			$	52.4			$	102.4			$	107.3			$	214.5			$	184.6			$	139.1
Adjusted gross margin as a % of net sales			35.0	%			36.1	%			35.2	%			36.7	%			36.5	%			36.0	%			32.8	%

Adjusted Operating Earnings

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Operating earnings		$	18.4			$	22.7			$	40.6			$	48.7			$	93.0			$	76.5			$	45.1
Net sales		$	145.2			$	145.0			$	291.2			$	292.7			$	586.9			$	512.9			$	424.1
Operating earnings as a % of net sales			12.7	%			15.6	%			13.9	%			16.6	%			15.8	%			14.9	%			10.6	%
Adjustments to reported operating earnings:
Restructuring charges (c)			1.9				0.6				2.8				0.9				1.9				1.7				1.8
Environmental charges (a)			2.2				0.9				2.7				1.5				2.8				2.3				2.8
Acquisition-related costs (a)			—				0.3				0.2				0.8				0.8				—				0.3
Inventory fair value step-up (b)			—				0.5				—				1.1				4.0				—				—
Total adjustments to reported operating earnings		$	4.1			$	2.3			$	5.7			$	4.3			$	9.5			$	3.9			$	4.9
Adjusted operating earnings		$	22.5			$	25.0			$	46.3			$	53.0			$	102.5			$	80.4			$	50.0
Adjusted operating earnings as a % of net sales			15.5	%			17.3	%			15.9	%			18.1	%			17.5	%			15.7	%			11.8	%

 

 

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Adjusted EBITDA Margin

		Three Months Ended June 30,								Six Months Ended June 30,							Twelve Months Ended December 31,
		2023				2022				2023			2022				2022				2021				2020
Net earnings (loss)		$	12.9			$	12.6			$	31.2		$	32.8			$	59.6			$	(41.9	)		$	34.7
Net sales		$	145.2			$	145.0			$	291.2		$	292.7			$	586.9			$	512.9			$	424.1
Net earnings (loss) margin			8.9	%			8.7	%			10.7	%		11.2	%			10.2	%			-8.2	%			8.2	%
Depreciation and amortization expense			7.3				7.0				14.2			13.8				29.8				26.9				26.7
Interest expense			0.8				0.6				1.5			1.1				2.2				2.1				3.3
Tax expense (benefit)			3.2				4.3				7.5			9.8				21.2				(19.0	)			10.8
EBITDA			24.2				24.5				54.5			57.6				112.7				(31.8	)			75.4
Adjustments to EBITDA:
Restructuring charges (c)			1.9				0.6				2.8			0.9				1.9				1.7				1.8
Environmental charges (a)			2.2				0.9				2.7			1.5				2.8				2.3				2.8
Acquisition-related costs (a)			—				2.0				0.2			2.5				2.5				—				0.3
Inventory fair value step-up (b)			—				0.5				—			1.1				4.0				—				—
Non-cash pension and related expense (d)			—				—				—			—				4.8				132.4				2.5
Foreign currency loss (gain) (d)			2.8				3.8				2.7			3.5				4.9				3.3				(5.3	)
Total adjustments to EBITDA			6.8				7.9				8.4			9.6				20.9				139.7				2.1
Adjusted EBITDA		$	31.0			$	32.5			$	62.9		$	67.2			$	133.6			$	107.9			$	77.5
Adjusted EBITDA Margin			21.3	%			22.4	%			21.6	%		22.9	%			22.8	%			21.0	%			18.3	%

 

 

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Adjusted Net Earnings

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Net earnings (loss) (A)		$	12.9			$	12.6			$	31.2			$	32.8			$	59.6			$	(41.9	)		$	34.7
Net sales		$	145.2			$	145.0			$	291.2			$	292.7			$	586.9			$	512.9			$	424.1
Net earnings (loss) as a % of net sales			8.9	%			8.7	%			10.7	%			11.2	%			10.2	%			-8.2	%			8.2	%
Adjustments to reported net earnings (loss):
Restructuring charges (c)			1.9				0.6				2.8				0.9				1.9				1.7				1.8
Environmental charges (a)			2.2				0.9				2.7				1.5				2.8				2.3				2.8
Acquisition-related costs (a)			—				2.0				0.2				2.5				2.5				—				0.3
Inventory fair value step-up (b)			—				0.5				—				1.1				4.0				—				—
Non-cash pension and related expense (d)			—				—				—				—				4.8				132.4				2.5
Foreign currency loss (gain) (d)			2.8				3.8				2.7				3.5				4.9				3.3				(5.3	)
Total adjustments to reported net earnings (loss)		$	6.8			$	7.9			$	8.4			$	9.6			$	20.9			$	139.7			$	2.1
Total adjustments, tax affected (B)		$	5.9			$	7.3			$	7.2			$	8.7			$	19.3			$	108.6			$	0.4
Tax adjustments:
Increase in valuation allowances (e)			—				—				—				—				—				0.9				0.2
Other discrete tax items (e)			—				—				—				—				0.2				(4.7	)			1.2
Total tax adjustments (C)		$	—			$	—			$	—			$	—			$	0.2			$	(3.8	)		$	1.4
Adjusted net earnings (A+B+C)		$	18.8			$	19.9			$	38.4			$	41.5			$	79.1			$	63.0			$	36.5
Adjusted net earnings as a % of net sales			13.0	%			13.7	%			13.2	%			14.2	%			13.5	%			12.3	%			8.6	%

 

(a) reflected in selling, general and administrative and other (expense) income, net.
(b) reflected in cost of goods sold.
(c) reflected in restructuring charges.

(d) reflected in other (expense) income, net.

(e) reflected in income tax expense (income).

 

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Adjusted Diluted Earnings Per Share

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
GAAP diluted earnings (loss) per share		$	0.41			$	0.39			$	0.98			$	1.02			$	1.85			$	(1.30	)		$	1.06
Tax affected charges to reported diluted earnings (loss) per share:
Restructuring charges			0.05				0.02				0.07				0.03				0.05				0.06				0.04
Foreign currency (gain) loss			0.08				0.12				0.08				0.11				0.15				0.10				(0.16	)
Non-cash pension expense			—				—				—				—				0.16				3.13				0.06
Environmental charges			0.05				0.02				0.07				0.03				0.07				0.05				0.07
Acquisition-related costs			—				0.05				—				0.07				0.07				—				0.01
Inventory fair value step-up			—				0.02				—				0.03				0.10				—				—
Discrete tax items			—				—				—				—				0.01				(0.11	)			0.04
Adjusted diluted earnings per share		$	0.59			$	0.62			$	1.20			$	1.29			$	2.46			$	1.93			$	1.12

 

NOTE: CTS believes that adjusted gross margin, adjusted operating earnings, adjusted EBITDA margin, adjusted net earnings and adjusted diluted earnings per share provide useful information to investors regarding its operational performance because they enhance an investor’s overall understanding of CTS’ core financial performance and facilitate comparisons to historical results of operations, by excluding items that are not related directly to the underlying performance of CTS’ fundamental business operations (such as those items noted above in the paragraph titled “Non-GAAP Financial Measures”) or were not part of CTS’ business operations during a comparable period.

 

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Controllable Working Capital

		June 30,								December 31,
		2023				2022				2022				2021				2020
Net accounts receivable		$	97.5			$	98.9			$	90.9			$	82.2			$	81.0
Net inventory		$	62.6			$	64.2			$	62.3			$	49.5			$	45.9
Accounts payable		$	(53.1	)		$	(60.7	)		$	(53.2	)		$	(55.5	)		$	(50.5	)
Controllable working capital		$	107.0			$	102.4			$	100.0			$	76.2			$	76.4
Quarter sales		$	145.2			$	145.0			$	142.3			$	132.5			$	123.0
Multiplied by 4			4				4				4				4				4
Annualized sales		$	580.7			$	579.9			$	569.1			$	530.0			$	492.1
Controllable working capital as a % of annualized sales			18.4	%			17.7	%			17.6	%			14.4	%			15.5	%

NOTE: CTS believes the controllable working capital ratio is a useful measure because it provides an objective measure of the efficiency with which CTS manages its short-term capital needs.

 

Free Cash Flow

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Net cash provided by operating activities		$	23.4			$	16.1			$	34.6			$	35.4			$	121.2			$	86.1			$	76.8
Capital expenditures			(3.9	)			(3.6	)			(8.5	)			(7.0	)			(14.3	)			(15.6	)			(14.9	)
Free cash flow		$	19.5			$	12.5			$	26.1			$	28.4			$	106.9			$	70.5			$	61.9

NOTE: CTS believes that free cash flow is a useful measure because it demonstrates the company’s ability to generate cash. Free cash flow is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in the company's condensed consolidated statement of cash flows as a measure of liquidity.

 

 

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Capital Expenditures

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Capital expenditures		$	3.9			$	3.6			$	8.5			$	7.0			$	14.3			$	15.6			$	14.9
Net sales		$	145.2			$	145.0			$	291.2			$	292.7			$	586.9			$	512.9			$	424.1
Capex as % of net sales			2.7	%			2.5	%			2.9	%			2.4	%			2.4	%			3.0	%			3.5	%

Additional Information

The following table includes other financial information not presented in the preceding financial statements.

 

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended December 31,
		2023				2022				2023				2022				2022				2021				2020
Depreciation and amortization expense		$	7.3			$	7.0			$	14.2			$	13.8			$	29.8			$	26.9			$	26.7
Stock-based compensation expense		$	1.6			$	1.6			$	3.2			$	3.6			$	7.7			$	6.1			$	3.4

 

 

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CTS Corporation 2nd Quarter2023 Earnings Call July 25, 2023

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Forward-Looking Statements This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management’s expectations, certain assumptions, and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties, and other factors, which could cause CTS’ actual results, performance, or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: supply chain disruptions; changes in the economy generally, including inflationary and/or recessionary conditions, and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition CTS’ business; rapid technological change; general market conditions in the transportation, as well as conditions in the industrial, aerospace and defense, and medical markets; reliance on key customers; unanticipated public health crises (including the ultimate impact of the COVID-19 pandemic on CTS’ business, results of operations or financial condition), natural disasters or other events; environmental compliance and remediation expenses; the ability to protect CTS’ intellectual property; pricing pressures and demand for CTS’ products; and risks associated with CTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks (including, without limitation, the potential impact U.S./China relations and the conflict between Russia and Ukraine may have on our business, results of operations and financial condition). Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of CTS’ most recent Annual Report on Form 10-K and other filings made with the SEC. CTS undertakes no obligation to publicly update CTS’ forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

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Advancing Strategic Priorities While Navigating Macroeconomic Conditions 10 new non-Transportation customers Won first eBrakeTM award 13 new EV platform wins $145.2M Revenue +0.1% YoY 35.0% Adjusted Gross Margin1 (120) bps YoY $0.59 Adj. Earnings Per Share1 $(0.03) YoY Q2 2023 Financials Highlights Notes: All comparisons vs. same period in prior year unless otherwise noted. 1 Adj. Gross Margin and Adj. Earnings per Share are non-GAAP financial measures. Refer to Appendix for reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Q2 2023 Highlights – Significant New Business Momentum Across End Markets

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Diversifying into Attractive Non-transportation End Markets Industrial Aerospace & Defense Medical Revenue ($ Millions) Revenue ($ Millions) Revenue ($ Millions) Tailwinds from Megatrends Support Long-Term Outperformance Key New Wins HVAC Preventive Maintenance Broadband Telecom Oceanic Climate Temp. Monitoring Medical Therapeutics Medical Diagnostics Minimally Invasive Surgery Health Monitoring Sonar Gyroscopes Communications Mars Rover

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Continued Progress in Transportation – Won First eBrakeTM Award ($ Millions) Revenue Total Booked Business ($ Billions) Chassis Height Sensor Accelerator Modules Brake Position Sensor Belt Tension Sensor Seat Track Position Sensor Seat Belt Buckle Switch Sensor 95% of existing light vehicle portfolio transitions to EVs New products expand future content per vehicle Significant Growth Opportunity from Electrification 13 New EV Platform Wins in Q2 2023 Content Per Vehicle Grows to >2x With EV-Focused New Products AC Motor Current Sensor AC Motor Position Sensor eBrake™ Drive-Pad ™ First Award Secured Secured Awards In Dev In Dev

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$2.40 $2.20 Notes: 1 CAGR based on mid point of 2023 guidance 2 Adjusted Diluted EPS is a non-GAAP financial measure. Refer to Appendix for reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. FY 2023 Guidance Revenue ($ Millions) Adjusted Diluted EPS2 $565 $585 2020-2023 CAGR 11% 1 Stable demand from medical & aerospace/defense customers Softness in industrial end market and distribution channel expected to continue through end of 2023 Light vehicle market forecasts - NA 15M, China 26M, Europe 16-17M units Tax rate in the range of 20-23% excluding discrete items Key Outlook Assumptions 2020-2023 CAGR 27% 1

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2nd Quarter Financial Results

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Notes: All comparisons vs. same period in prior year unless otherwise noted. 1 Adj. Diluted EPS, Adj. Gross Margin and Adj. EBITDA Margin are non-GAAP financial measures. Refer to Appendix for reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Revenue flat with Q2 2022 Acquisitions added $6.5 million FX unfavorable impact $1.1 million Transportation revenue up 10% Recovery from supply chain related issues Non-transportation revenue down 10% Continued softness in distribution, industrial end-market Adjusted Gross Margin down 120 bps Unfavorable end-market mix FX unfavorable impact $1.7 million Net Income $12.6 $12.9 Diluted EPS $0.39 $0.41 Adj. Diluted EPS1 $0.62 $0.59 Adj. Gross Margin1 36.1% 35.0% Adj. EBITDA Margin1 22.4% 21.3% Revenue Q2 2023 Financial Summary Results ($ Millions, except EPS) Highlights

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Cash and Debt2 $20M Returned to Shareholders YTD Q2 2023 $26M YTD Q2 2023 Free Cash Flow3 Strong Balance Sheet Solid Foundation for Strategic M&A $8M YTD Q2 2023 Capital Expenditures Borrowed Total Facility Operating Cash Flow1 Prioritizing strong cash flow generation ($ Millions) ($ Millions) Notes: 1 2022 results include $27m from US pension plan termination 2 Cash and Debt balance as of June 30, 2023 3 Free Cash Flow is a non-GAAP financial measure. Refer to Appendix for reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

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Q & A

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Appendix

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Non-GAAP Financial Measures From time to time, CTS may use non-GAAP financial measures in discussing CTS’ business. These measures are intended to supplement, not replace, CTS’ presentation of its financial results in accordance with U.S. GAAP. CTS believes that the non-GAAP financial measures presented are commonly used by financial analysts and others in the industries in which CTS operates, and thus further provide useful information to investors. CTS’ definitions of these non-GAAP financial measures may differ from those terms as defined or used by other companies. Non-GAAP measures should not be used by investors or third parties as the sole basis for formulating investment decisions, as they may exclude a number of important cash and non-cash recurring items. CTS has presented these non-GAAP financial measures as it believes that the presentation of its financial results that exclude (1) restructuring charges; (2) environmental charges; (3) acquisition-related costs; (4) inventory fair value step-up costs; (5) foreign exchange (gains) losses; (6) non-cash pension expenses (income); and (7) certain discrete tax items are useful and assist in comparing CTS’ current operating results with past periods and with the operational performance of other companies in its industry. Included below is a description of the expenses that CTS has determined are not normal, recurring cash operating expenses necessary to operate its business and the rationale for why providing financial measures for its business with such expenses excluded or adjusted is useful to investors as a supplement to the U.S. GAAP measures. • Restructuring charges - costs primarily relating to workforce reduction costs, building and equipment relocation costs, asset impairment charges and other facility closure costs in connection with our continued optimization of our organization. • Environmental charges - costs associated with our non-operating facilities that are unrelated to ongoing operations. • Acquisition-related costs - diligence and transaction costs related to acquisitions. • Inventory fair value step-up costs - purchase accounting-related inventory costs from acquisitions. • Foreign exchange (gains) losses - remeasurement income and expenses for non-U.S. subsidiaries with the U.S. dollar as its functional currency. • Non-cash pension expenses (income) - pension income and expenses relating to the non-operating U.S. pension and post-retirement life insurance plans, including historical plan settlement activities. • Discrete tax items - non-recurring, infrequent, or unusual tax adjustments (e.g., valuation allowances, uncertain tax position changes, unremitted assertion changes and discrete impacts associated with pre-tax non-GAAP items, etc.). At times, the reconciliations below have been intentionally rounded to the nearest thousand, or $0.01 for EPS figures, and, therefore, may not sum. CTS does not provide reconciliations of forward-looking non-GAAP financial measures, such as estimated adjusted diluted earnings per share, to the most comparable GAAP financial measures on a forward-looking basis because CTS is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, restructuring costs, environmental remediation costs, acquisition-related costs, foreign exchange rates and other non-routine costs. Each of such adjustments has not yet occurred, are out of CTS' control and/or cannot be reasonably predicted. For the same reasons, CTS is unable to address the probable significance of the unavailable information.

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Adjusted Diluted EPS Regulation G Schedules 2023 2022 2023 2022 2022 2021 2020 Diluted earnings (loss) per share 0.41 $ 0.39 $ 0.98 $ 1.02 $ 1.85 $ (1.30) $ $1.06 Restructuring charges 0.05 0.02 0.07 0.03 0.05 0.06 0.04 Foreign currency (gain) loss 0.08 0.12 0.08 0.11 0.15 0.10 (0.16) Non-cash pension expense - - - - 0.16 3.13 0.06 Environmental charges 0.05 0.02 0.07 0.03 0.07 0.05 0.07 Acquisition-related costs - 0.05 - 0.07 0.07 - 0.01 Inventory fair value step-up - 0.02 - 0.03 0.10 - - Discrete tax items - - - - 0.01 (0.11) 0.04 Adjusted diluted earnings per share 0.59 $ 0.62 $ 1.20 $ 1.29 $ 2.46 $ 1.93 $ $1.12 Tax affected adjustments to reported diluted earnings (loss) per share: Full Year Year-to-Date Q2

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Regulation G Schedules ($ Millions) Adjusted EBITDA Margin 2023 2022 2023 2022 2022 2021 2020 Net earnings (loss) 12.9 $ 12.6 $ 31.2 $ 32.8 $ 59.6 $ (41.9) $ 34.7 $ Net sales 145.2 $ 145.0 $ 291.2 $ 292.7 $ 586.9 $ 512.9 $ 424.1 $ Net earnings (loss) margin 8.9% 8.7% 10.7% 11.2% 10.2% -8.2% 8.2% Depreciation and amortization expense 7.3 7.0 14.2 13.8 29.8 26.9 26.7 Interest expense 0.8 0.6 1.5 1.1 2.2 2.1 3.3 Tax expense (benefit) 3.2 4.3 7.5 9.8 21.2 (19.0) 10.8 EBITDA 24.2 24.5 54.5 57.6 112.7 (31.8) 75.4 Adjustments to EBITDA: Restructuring charges 1.9 0.6 2.8 0.9 1.9 1.7 1.8 Environmental charges 2.2 0.9 2.7 1.5 2.8 2.3 2.8 Acquisition-related costs - 2.0 0.2 2.5 2.5 - 0.3 Inventory fair value step-up - 0.5 - 1.1 4.0 - - Non-cash pension and related (income) expense - - - - 4.8 132.4 2.5 Foreign currency (gain) loss 2.8 3.8 2.7 3.5 4.9 3.3 (5.3) Total adjustments to EBITDA 6.8 7.9 8.4 9.6 20.9 139.7 2.1 Adjusted EBITDA 31.0 $ 32.5 $ 62.9 $ 67.2 $ 133.6 $ 107.9 $ 77.5 $ Adjusted EBITDA margin 21.3% 22.4% 21.6% 23.0% 22.8% 21.0% 18.3% Full Year Q2 Year-to-Date

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Regulation G Schedules ($ Millions) Adjusted Gross Margin 2023 2022 2023 2022 2022 2021 2020 Gross margin 50.7 $ 51.8 $ 102.4 $ 106.2 $ 210.5 $ 184.6 $ 139.1 $ Net sales 145.2 $ 145.0 $ 291.2 $ 292.7 $ 586.9 $ 512.9 $ 424.1 $ Gross margin as a % of net sales 35.0% 35.8% 35.2% 36.3% 35.9% 36.0% 32.8% Adjustment to reported gross margin: Inventory fair value step-up - 0.5 - 1.1 4.0 - - Adjusted gross margin 50.7 $ 52.4 $ 102.4 $ 107.3 $ 214.5 $ 184.6 $ 139.1 $ Adjusted gross margin as a % of net sales 35.0% 36.1% 35.2% 36.7% 36.5% 36.0% 32.8% Full Year Q2 Year-to-Date

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Regulation G Schedules 2023 2022 2023 2022 2022 2021 2020 Net earnings (loss) (A) 12.9 $ 12.6 $ 31.2 $ 32.8 $ 59.6 $ (41.9) $ 34.7 $ Net sales 145.2 $ 145.0 $ 291.2 $ 292.7 $ 586.9 $ 512.9 $ 424.1 $ Net earnings (loss) as a % of net sales 8.9% 8.7% 10.7% 11.2% 10.2% -8.2% 8.2% Adjustments to reported net earnings (loss): Restructuring charges 1.9 0.6 2.8 0.9 1.9 1.7 1.8 Environmental charges 2.2 0.9 2.7 1.5 2.8 2.3 2.8 Acquisition-related costs - 2.0 0.2 2.5 2.5 - 0.3 Inventory fair value step-up - 0.5 - 1.1 4.0 - - Non-cash pension and related (income) expense - - - - 4.8 132.4 2.5 Foreign currency loss (gain) 2.8 3.8 2.7 3.5 4.9 3.3 (5.3) Total adjustments to reported net earnings (loss) 6.8 $ 21.2 $ 8.4 $ 9.5 $ 20.9 $ 139.7 $ 2.1 $ Total adjustments, tax affected (B) 5.9 $ 7.3 $ 7.2 $ 8.7 $ 19.3 $ 108.6 $ 0.4 $ Tax adjustments: Increase in valuation allowances - - - - - 0.9 0.2 Other discrete tax items - - - - 0.2 (4.7) 1.2 Total tax adjustments (C) - $ - $ - $ - $ 0.2 $ (3.8) $ 1.4 $ Adjusted net earnings (A+B+C) 18.8 $ 19.9 $ 38.5 $ 41.5 $ 79.1 $ 63.0 $ 36.5 $ Adjusted net earnings as a % of net sales 13.0% 13.7% 13.2% 14.2% 13.5% 12.3% 8.6% Full Year Q2 Year-to-Date ($ Millions) Adjusted Net Earnings

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($ Millions) Free Cash Flow Regulation G Schedules 2023 2022 2023 2022 2022 2021 2020 Net cash provided by operating activities 23.4 $ 16.1 $ 34.6 $ 35.4 $ 121.2 $ 86.1 $ 76.8 $ Capital expenditures (3.9) (3.6) (8.5) (7.0) (14.3) (15.6) (14.9) Free cash flow 19.5 $ 12.5 $ 26.1 $ 28.4 $ 106.9 $ 70.5 $ 61.9 $ Full Year Q2 Year-to-Date ($ Millions) Controllable Working Capital 2023 2022 2022 2021 2020 Net accounts receivable 97.5 $ 98.9 $ 90.9 $ 82.2 $ 81.0 $ Net inventory 62.6 $ 64.2 $ 62.3 $ 49.5 $ 45.9 $ Accounts payable (53.1) $ (60.7) $ (53.2) $ (55.5) $ (50.5) $ Controllable working capital 107.0 $ 102.4 $ 100.0 $ 76.2 $ 76.4 $ Quarter sales 145.2 $ 145.0 $ 142.3 $ 132.5 $ 123.0 $ Multiplied by 4 4 4 4 4 4 Annualized sales 580.7 $ 579.9 $ 569.1 $ 530.0 $ 492.1 $ Controllable working capital as a % of annualized sales 18.4% 17.7% 17.6% 14.4% 15.5% Full Year Q2

v3.23.2

Document And Entity Information	Jul. 25, 2023
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Jul. 25, 2023
Entity Registrant Name	CTS CORPORATION
Entity Central Index Key	0000026058
Entity Emerging Growth Company	false
Securities Act File Number	1-4639
Entity Incorporation, State or Country Code	IN
Entity Tax Identification Number	35-0225010
Entity Address, Address Line One	4925 Indiana Avenue
Entity Address, City or Town	Lisle
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60532
City Area Code	(630)
Local Phone Number	577-8800
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, no par value
Trading Symbol	CTS
Security Exchange Name	NYSE

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