CTS Announces First Quarter 2024 Results

Driving Operational Performance and Profitability; Continued Focus on Diversification

Lisle, IL, United States

LISLE, Ill., May 01, 2024 (GLOBE NEWSWIRE) -- CTS Corporation (NYSE: CTS), a leading global designer and manufacturer of custom engineered solutions that “Sense, Connect and Move,” today announced first quarter 2024 results.

“We achieved sales and earnings in line with our expectations. Our teams made progress on operational improvements in the first quarter, which helped offset the unfavorable impact from lower volumes. As anticipated, we are seeing some early signs of recovery in the industrial end market,” said Kieran O’Sullivan, CEO of CTS Corporation. “CTS is focused on future growth through continued diversification of our customer base and building our pipeline of opportunities. We remain committed to a disciplined capital structure to support organic growth, strategic acquisitions and returning cash to shareholders.”

First Quarter 2024 Results

  • Sales were $125.7 million, down 14% year-over-year, and up 1% sequentially compared to the fourth quarter of 2023. Sales to non-transportation end markets decreased 17% year-over-year and were up 7% sequentially. Sales to the transportation end market decreased 10% year-over-year and 4% sequentially.
  • Net income was $11 million, or 9% of sales, down from $18 million, or 13% of sales, in the first quarter of 2023.
  • Earnings per diluted share were $0.36, compared to $0.58 in the first quarter of 2023.
  • Adjusted earnings per diluted share were $0.47, down from $0.61 in the first quarter of 2023.
  • Adjusted EBITDA margin was 20.3%, compared to 21.9% in the first quarter of 2023.
  • Operating cash flow was $18 million up from $11 million in the first quarter of 2023.

2024 Guidance

CTS is maintaining its guidance of sales in the range of $530 - $570 million and adjusted diluted EPS to be in the range of $2.10 - $2.35.

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.

Conference Call and Supplemental Materials
As previously announced, the Company has scheduled a conference call for 10:00 a.m. (ET) today. The dial-in numbers for access from the U.S. are: +1-833-470-1428 (Toll-Free) and +1-404-975-4839 (Local), if calling from outside the U.S., please refer to Global Dial In Numbers to identify the applicable dial-in number for your location. The passcode is 494524. In addition, the Company 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://investors.ctscorp.com/news-events/events-and-presentations/.

Any replay, rebroadcast, transcript or other reproduction or transmission of this conference call, other than the replay accessible through the website noted above, has not been authorized by the Company and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents.

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.

Cautionary Statement Regarding Forward-Looking Statements

Readers are cautioned that the statements contained in this document regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are, or may be deemed to be, “forward-looking statements” as defined by the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995. Such statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included or incorporated in this document, including statements regarding our strategy, financial position, guidance, funding for continued operations, cash reserves, liquidity, projected costs, plans, projects, awards and contracts, and objectives of management, among others, are forward-looking statements. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “continued,” “project,” “plan,” “goals,” “opportunity,” “appeal,” “estimate,” “potential,” “predict,” “demonstrates,” “may,” “will,” “might,” “could,” “intend,” “shall,” “possible,” “would,” “approximately,” “likely,” “outlook,” “schedule,” “on track,” “poised,” “pipeline,” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements , but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements are not guarantees of future performance, conditions or results. 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, natural disasters or other events; environmental compliance and remediation expenses; the ability to protect CTS’ intellectual property; pricing pressures and demand for CTS’ products; 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); the amount and timing of any share repurchases; and the effect of any cybersecurity incidents on our business. 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.

 Ashish Agrawal
Vice President and Chief Financial Officer
CTS Corporation
4925 Indiana Avenue
Lisle, IL 60532 USA
+1 (630) 577-8800

(In thousands, except per share amounts)
 Three Months Ended 
 March 31,
  March 31,
Net sales$125,750  $145,994 
Cost of goods sold 80,660   94,342 
Gross margin 45,090   51,652 
Selling, general and administrative expenses 22,260   21,979 
Research and development expenses 6,601   6,586 
Restructuring charges 1,693   912 
Operating earnings 14,536   22,175 
Other (expense) income:     
Interest expense (801)  (694)
Interest income 1,386   1,063 
Other income (expense), net (1,463)  165 
Total other income (expense), net (878)  534 
Earnings before income taxes 13,657   22,709 
Income tax expense 2,539   4,365 
Net earnings$11,119  $18,344 
Earnings per share:     
Basic$0.36  $0.58 
Diluted$0.36  $0.58 
Basic weighted – average common shares outstanding: 30,742   31,634 
Effect of dilutive securities 251   259 
Diluted weighted – average common shares outstanding: 30,993   31,893 
Cash dividends declared per share$0.04  $0.04 

(In thousands of dollars)
March 31, 2024
  December 31, 2023 
Current Assets     
Cash and cash equivalents$162,425  $163,876 
Accounts receivable, net 80,663   78,569 
Inventories, net 57,784   60,031 
Other current assets 17,346   16,873 
Total current assets 318,218   319,349 
Property, plant and equipment, net 91,626   92,592 
Operating lease assets, net 25,290   26,425 
Other Assets     
Goodwill 156,330   157,638 
Other intangible assets, net 99,949   103,957 
Deferred income taxes 25,563   25,183 
Other 15,864   16,023 
Total other assets 297,706   302,801 
Total Assets$732,840  $741,167 
Current Liabilities     
Accounts payable$45,609  $43,499 
Accrued payroll and benefits 13,363   14,585 
Operating lease obligations 4,399   4,394 
Accrued expenses and other liabilities 32,577   34,561 
Total current liabilities 95,948   97,039 
Long-term debt 67,500   67,500 
Long-term operating lease obligations 23,824   24,965 
Long-term pension obligations 4,615   4,655 
Deferred income taxes 14,423   14,729 
Other long-term obligations 5,245   5,457 
Total Liabilities 211,555   214,345 
Commitments and Contingencies     
Shareholders’ Equity     
Common stock 321,858   319,269 
Additional contributed capital 40,440   45,097 
Retained earnings 612,124   602,232 
Accumulated other comprehensive loss 2,938   4,264 
Total shareholders’ equity before treasury stock 977,360   970,862 
Treasury stock (456,075)  (444,040)
Total shareholders’ equity 521,285   526,822 
Total Liabilities and Shareholders’ Equity$732,840  $741,167 

(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) restructuring-related charges; (3) environmental charges; (4) acquisition-related costs; (5) inventory fair value step-up costs; (6) foreign exchange (gains) losses; (7) non-cash pension expenses (income); and (8) 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 related to workforce reductions, building and equipment relocations, asset impairment charges and other facility closure activities in connection with our continued optimization of our organization.
  • Restructuring-related charges – costs related to restructuring actions that do not qualify as direct restructuring charges under U.S. GAAP. These include duplicative expenses arising from plant consolidation transition activities such as excess rent, utilities, and personnel-related and other costs incurred prior to the start of production at a new location.
  • Environmental charges – costs associated with our non-operating facilities that are unrelated to ongoing operations. Currently, none of these costs and accruals relate to sites that provide revenue generating activities for the Company.
  • Acquisition-related costs – diligence and transaction costs related to acquisitions including related contingent earnout adjustments.
  • 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 the functional currency.
  • Non-cash pension expenses (income) – pension income and expenses related 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 or due to tax law changes, 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.

Adjusted Gross Margin

 Three Months Ended
March 31,
  Twelve Months Ended
December 31,
 2024  2023  2023  2022  2021 
Gross margin$45.1  $51.7  $190.9  $210.5  $184.6 
Net sales$125.7  $146.0  $550.4  $586.9  $512.9 
Gross margin as a % of net sales 35.9%  35.4%  34.7%  35.9%  36.0%
Adjustments to reported gross margin:              
Restructuring-related charges (b) 0.5      0.6       
Inventory fair value step-up (b)          4.0    
Adjusted gross margin$45.6  $51.7  $191.5  $214.5  $184.6 
Adjusted gross margin as a % of net sales 36.2%  35.4%  34.8%  36.5%  36.0%

Adjusted Operating Earnings

 Three Months Ended
March 31,
  Twelve Months Ended
December 31,
 2024  2023  2023  2022  2021 
Operating earnings$14.5  $22.2  $75.1  $93.0  $76.5 
Net sales$125.7  $146.0  $550.4  $586.9  $512.9 
Operating earnings as a % of net sales 11.6%  15.2%  13.6%  15.8%  14.9%
Adjustments to reported operating earnings:              
Restructuring charges (c) 1.7   0.9   7.1   1.9   1.7 
Restructuring-related charges (b) 0.5      0.6       
Environmental charges (a) 0.2   0.6   3.5   2.8   2.3 
Acquisition-related costs (a) (0.3)  0.2   0.4   0.8    
Inventory fair value step-up (b)          4.0    
Total adjustments to reported operating earnings$2.2  $1.7  $11.5  $9.5  $3.9 
Adjusted operating earnings$16.7  $23.8  $86.6  $102.5  $80.4 
Adjusted operating earnings as a % of net sales 13.3%  16.3%  15.7%  17.5%  15.7%

Adjusted EBITDA Margin

 Three Months Ended
March 31,
  Twelve Months Ended
December 31,
 2024  2023  2023  2022  2021 
Net earnings (loss)$11.1  $18.3  $60.5  $59.6  $(41.9)
Net sales$125.7  $146.0  $550.4  $586.9  $512.9 
Net earnings (loss) margin 8.8%  12.6%  11.0%  10.2%  -8.2%
Depreciation and amortization expense 7.3   6.9   28.710   29.8   26.9 
Interest expense 0.8   0.7   3.340   2.2   2.1 
Tax expense (benefit) 2.5   4.4   14.640   21.2   (19.0)
EBITDA 21.8   30.3   107.2   112.7   (31.8)
Adjustments to EBITDA:              
Restructuring charges (c) 1.7   0.9   7.1   1.9   1.7 
Restructuring-related charges (b) 0.5      0.6       
Environmental charges (a) 0.2   0.6   3.5   2.8   2.3 
Acquisition-related costs (a) (0.3)  0.2   0.4   2.5    
Inventory fair value step-up (b)          4.0    
Non-cash pension and related expense (d)          4.8   132.4 
Foreign currency loss (gain) (d) 1.5   (0.1)  2.0   4.9   3.3 
Total adjustments to EBITDA 3.7   1.6   13.5   20.9   139.7 
Adjusted EBITDA$25.5  $31.9  $120.7  $133.6  $107.9 
Adjusted EBITDA Margin 20.3%  21.9%  21.9%  22.8%  21.0%

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share

 Three Months Ended
March 31,
 2024  2024  2023  2023 
    Per share     Per share 
Net earnings (A)$11.1  $0.36  $18.3  $0.58 
Adjustments to reported net earnings:           
Restructuring charges (c) 1.7   0.05   0.9   0.03 
Restructuring-related charges (a) 0.5   0.02       
Environmental charges (a) 0.2   0.01   0.6   0.02 
Acquisition-related costs (a) (0.3)  (0.01)  0.2   0.01 
Foreign currency loss (gain) (d) 1.5   0.05   (0.1)  (0.0)
Total pretax adjustments to reported net earnings$3.7  $0.12  $1.5  $0.04 
Income tax effect of above adjustments (f) (0.6)  (0.02)  (0.3)  (0.01)
Total adjustments, tax affected (f) (B)$3.1  $0.10  $1.3  $0.03 
Tax adjustments:           
Other discrete tax items (e) 0.3   0.01       
Total tax adjustments (C)$0.3  $0.01  $  $ 
Adjusted net earnings (A+B+C) and Adjusted net earnings per share$14.6  $0.47  $19.6  $0.61 
Net sales$125.7     $146.0    
Net earnings as a % of net sales 8.8%     12.6%   
Adjusted net earnings as a % of net sales 11.6%     13.4%   

 Twelve Months Ended
December 31,
 2023  2023  2022  2022  2021  2021 
    Per share     Per share     Per share 
Net earnings (loss) (A)$60.5  $1.92  $59.6  $1.85  $(41.9) $(1.30)
Adjustments to reported net earnings (loss):                 
Restructuring charges (c) 7.1   0.22   1.9   0.06   1.7   0.06 
Restructuring-related charges (a) 0.6   0.02             
Environmental charges (a) 3.5   0.11   2.8   0.09   2.3   0.07 
Acquisition-related costs (a) 0.4   0.01   2.5   0.08       
Inventory fair value step-up (b)       4.0   0.12       
Non-cash pension and related expense (d)       4.8   0.15   132.4   4.10 
Foreign currency loss (d) 2.0   0.06   4.9   0.15   3.3   0.10 
Total pretax adjustments to reported net earnings (loss)$13.5  $0.42  $20.9  $0.65  $139.7  $4.33 
Income tax effect of above adjustments (f) (2.4)  (0.07)  (1.6)  (0.05)  (31.1)  (0.99)
Total adjustments, tax affected (f) (B)$11.1  $0.35  $19.3  $0.60  $108.6  $3.34 
Tax adjustments:                 
Increase in valuation allowances (e)             0.9   0.03 
Other discrete tax items (e) (1.6)  (0.05)  0.2   0.01   (4.7)  (0.14)
Total tax adjustments (C)$(1.6) $(0.05) $0.2  $0.01  $(3.8) $(0.11)
Adjusted net earnings (A+B+C) and Adjusted net earnings per share$70.0  $2.22  $79.1   2.46  $63.0   1.93 
Net sales$550.4     $586.9     $512.9    
Net earnings (loss) as a % of net sales 11.0%     10.2%     -8.2%   
Adjusted net earnings as a % of net sales 12.7%     13.5%     12.3%   

(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). For 2021, the discrete tax items relate to items we deemed outside normal cash-generating operations including, $5.4 million of a stranded tax benefit from the U.S. Pension termination offset by $0.7 million of tax expense from tax costs associated with a one-time internal cash movement, and $0.9 million related to the addition of a valuation allowance for a foreign subsidiary. For 2022, the discrete tax items relate to the net impact to tax expense of expired research and development credits, including the release of associated reserves. For 2023, discrete tax items include adjusting for tax benefits resulting from $0.6 million for research and development tax credits from prior years, $0.8 million in foreign tax credits related to prior years from a 2023 tax law change, as well as $0.2m from the release of uncertain tax benefits. For the first quarter of 2024, the discrete tax items relate to items we deemed outside normal cash-generating operations including the addition of a valuation allowance for a foreign subsidiary.
(f) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments. For all periods presented, we applied the statutory income tax rates to the taxable portion of all of our adjustments. Our acquisition costs and foreign currency gains and losses included in our non-GAAP adjustments were not deductible for income tax purposes; therefore, no statutory income tax rate was applied to such costs.

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.

Controllable Working Capital

 March 31,  December 31, 
 2024  2023  2023  2022  2021 
Net accounts receivable$80.7  $97.7  $78.6  $90.9  $82.2 
Net inventory$57.8  $63.5  $60.0  $62.3  $49.5 
Accounts payable$(45.6) $(53.4) $(43.5) $(53.2) $(55.5)
Controllable working capital$92.8  $107.8  $95.1  $100.0  $76.2 
Quarter sales$125.7  $146.0  $124.7  $142.3  $132.5 
Multiplied by 4 4   4   4   4   4 
Annualized sales$503.0  $584.0  $498.8  $569.1  $530.0 
Controllable working capital as a % of annualized sales 18.5%  18.5%  19.1%  17.6%  14.4%

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
March 31,
  Twelve Months Ended
December 31,
 2024  2023  2023  2022  2021 
Net cash provided by operating activities$18.3  $11.2  $88.8  $121.2  $86.1 
Capital expenditures (4.0)  (4.5)  (14.7)  (14.3)  (15.6)
Free cash flow$14.3  $6.6  $74.1  $106.9  $70.5 
Operating cash flow as a percentage of net earnings 165%  61%  147%  203%  -206%
Free cash flow as a percentage of adjusted net earnings 98%  34%  106%  135%  112%

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.

Capital Expenditures

 Three Months Ended
March 31,
  Twelve Months Ended
December 31,
 2024  2023  2023  2022  2021 
Capital expenditures$4.0  $4.5  $14.7  $14.3  $15.6 
Net sales$125.7  $146.0  $550.4  $586.9  $512.9 
Capex as % of net sales 3.2%  3.1%  2.7%  2.4%  3.0%

Additional Information

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

 Three Months Ended
March 31,
 Twelve Months Ended
December 31,
 2024 2023 2023 2022 2021
Depreciation and amortization expense$7.3 $6.9 $28.7 $29.8 $26.9
Stock-based compensation expense$1.2 $1.6 $5.2 $7.7 $6.1