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DATE
Thursday, July 24, 2025 at 10 a.m. ET
CALL PARTICIPANTS
Chairman, President, and Chief Executive Officer — Kieran M. O'Sullivan
Vice President and Chief Financial Officer — Ashish Agrawal
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RISKS
Management expects transportation production volumes to decrease in 2025 due to tariffs and rare earth supply issues for OEMs and Tier 1 suppliers.
Softness in commercial vehicle-related revenue is anticipated for the remainder of the year, as stated by CEO O'Sullivan.
Total company bookings declined 10% year-over-year in Q2 2025, primarily due to reduced diagnostic bookings in the medical end market.
CEO O'Sullivan said, "it just feels a little tenuous for the next few quarters." regarding transportation market demand, citing ongoing tariff and regional uncertainty.
TAKEAWAYS
Total Sales: $135 million (GAAP), up 4% year-over-year and 8% sequentially from Q1 2025.
Diversified End Market Sales: 55% of revenue in Q2 2025, growing 13% year-over-year, driven by organic growth and the SideQuest acquisition.
Transportation Sales: Down 6% year-over-year in Q2 2025, impacted by softness in commercial vehicle products and the China market.
Aerospace and Defense Sales: Up 34% year-over-year in Q2 2025; up 6% excluding SideQuest.
SideQuest Acquisition Revenue: $4.5 million added in Q2 2025, with management expecting a stronger contribution in the second half of 2025.
Industrial Market Sales: Up 5% sequentially from Q1 fiscal year 2025 and up 6% year-over-year in Q2 fiscal year 2025; industrial bookings grew 22% year-over-year in Q2 fiscal year 2025.
Adjusted Gross Margin: Adjusted gross margin was 38.7% in Q2 2025, a 296-basis-point increase year-over-year and a 174-basis-point sequential gain.
Adjusted EBITDA Margin: Adjusted EBITDA was 23% in Q2 fiscal year 2025, up 250 basis points sequentially and 130 basis points year-over-year.
Adjusted Diluted EPS: $0.57, an increase of 30% from Q1 fiscal year 2025 and up 7% year-over-year.
GAAP Diluted EPS: $0.62 per diluted share for the second quarter.
Operating Cash Flow: $28 million in operating cash flow in the second quarter of fiscal year 2025, up from $20 million in the second quarter of fiscal year 2024; Year-to-date operating cash flow totaled $44 million in fiscal year 2025.
Shareholder Returns: 412,000 shares were repurchased for approximately $17 million in Q2 2025; $26 million returned through dividends and buybacks year-to-date 2025; $38 million remained under the repurchase program as of Q2 2025.
Book-to-Bill Ratio: 1.0 in the second quarter of fiscal year 2025, flat compared to the second quarter of fiscal year 2024.
Sales Guidance: Maintained at $520 million to $550 million for the full fiscal year 2025, with adjusted diluted EPS of $2.20 to $2.35.
Cash and Debt: $99 million in cash and $88 million in long-term debt as of Q2 2025.
New Business and Awards: Won a new customer for millimeter wave small cell applications and secured a business award for EV charging station temperature sensing in Europe.
SUMMARY
Management reaffirmed its focus on diversification, highlighting that over half of revenue now comes from non-transportation end markets. The SideQuest acquisition is expected to bring increased seasonality but a stronger revenue contribution in the second half, tied partially to government funding approvals. The company launched next-generation product platforms, including a smart actuator for commercial vehicles and advanced COBRA technology for precision motor position sensing. Guidance was held steady despite macro uncertainty, with recent cash generation supporting continued shareholder returns and acquisition capacity. Strategic pipeline strength in transportation and diversified end markets underpins confidence for medium- and long-term growth, tempered by near-term caution in transportation visibility due to tariffs and regional production pressure.
Defense bookings and backlog remain healthy, although new order rates were flat year-over-year in Q2 2025.
Industrial market momentum is evident, with bookings up 22% year-over-year and sales up 5% sequentially in the second quarter, supported by multiple customer wins in EMC, switches, and EV applications.
CEO O'Sullivan stated, "diversification remains a strategic priority." supported by the new Evolution 2030 initiative targeting operational rigor and expanded sales growth.
Management emphasized that "impact was very, very minimal in the quarter." though ongoing volatility is under close review.
The company signaled its intent to pursue further acquisitions within the next twelve months, focusing on diversified end markets as part of a stated 5% organic and 5% acquisition growth strategy.
INDUSTRY GLOSSARY
Book-to-Bill Ratio: A measure comparing the value of new orders ("bookings") received to sales shipped ("billings") during a specific period, indicating demand trends.
COBRA Technology: CTS's proprietary high-resolution position sensing technology for motor position applications.
Full Conference Call Transcript
Kieran M. O'Sullivan: Good morning, and thank you for joining us today for our second quarter 2025 results. We delivered another quarter of double-digit growth in our diversified end markets. Diversified sales for the quarter were 55% of overall company revenue. In the quarter, our adjusted EBITDA expanded 250 basis points sequentially and 130 basis points compared to the second quarter of last year. Cash flow generation was also strong in the quarter. Our teams continue to execute on our diversification strategy to increase growth in diversified medical, industrial, aerospace, and defense markets. In transportation, we launched the next generation smart actuator for the commercial vehicle market. Ashish will take us through the Safe Harbor statement. Ashish?
Ashish Agrawal: 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 Corporation website.
I will now turn the discussion back over to our CEO, Kieran M. O'Sullivan.
Kieran M. O'Sullivan: Thank you, Ashish. We finished the second quarter with sales of $135 million, up 4% from $130 million in the second quarter of 2024. Diversified end market sales were 55% of overall company revenue in the quarter.
Ashish Agrawal: For the quarter, diversified end market sales, including sales to medical, aerospace and defense, and industrial end markets, were up 13% driven by a mix of organic growth and the CyQuest acquisition. Transportation sales were down 6% from the same period last year. Our book-to-bill ratio for the second quarter was one, essentially flat in comparison to the second quarter of 2024. Defense bookings were flat, while industrial bookings were up 22%. Second quarter adjusted diluted earnings were $0.57 per share, and up approximately 30% from the first quarter and up 7% from the prior year period.
We are excited about the prospects for growth in minimally invasive applications where our products help deliver enhanced ultrasound images, making it easier for medical professionals to detect artery restrictions and deliver treatment medications. Our teams are engaged on next-generation development engineering to further enhance diagnostic capability with our customers. Bookings in the quarter were down 10% compared to the prior year period, due to softness in diagnostic bookings. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile. Aerospace and defense sales for the second quarter were up 34% from the second quarter of 2024. Excluding sales from the SideQuest acquisition, sales were up 6%.
SideQuest revenues in the second quarter were $4.5 million, and we expect stronger sales in the second half of this year. Bookings in the second quarter were flat from the prior year period as we maintain a healthy backlog. The integration of the SideQuest business is progressing, and the business continued to drive a strong pipeline of opportunities. In the industrial market, we continue to see a gradual recovery with OEMs as well as with distribution customers. Sales in the second quarter were up 5% sequentially and up 6% compared to the prior year period. Bookings in the quarter were up 22% from the same period last year.
We were successful with multiple wins in the quarter for EMC, switches, industrial printing, and temperature sensing applications where we won a new business award for EV charging stations in Europe. We added a new customer in the quarter for a millimeter wave small cell frequency application.
Kieran M. O'Sullivan: Demand across the industrial market is expected to continue improving in the second half of 2025. The megatrends of automation, connectivity, and efficiency enhance our longer-term growth prospects. Additionally, we received the Chassis Ride Height Sensing Award from a North American OEM. More recently, on the innovation front, we advanced our COBRA technology, which enables precise position sensing with high resolution for motor position sensing. The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us given our light vehicle products are mostly agnostic to the drivetrain technology. Total book business was approximately $1 billion at the end of the quarter.
Interest in our eBrake product offering weight and cost advantages continues across OEMs at a slower pace. Our team is proceeding with samples and design. We remain confident in the longer-term growth prospects for this product line given the cost and weight benefits for our customers as well as the sentiment in the market from OEMs and Tier 1 chassis system suppliers. We expect our eBrake and other future products, existing and new sensor applications, will increase our ability to grow content. For our diversified end markets, in line with our strategy, we aim to expand the customer base and range of applications.
Subject to evolving trade tariffs, associated economic uncertainty, demand in the medical end market is expected to be mixed with strength in therapeutics and some softness in diagnostic ultrasound. In aerospace and defense, revenue is expected to grow given our backlog of orders and momentum from the SideQuest acquisition. Across transportation markets, production volumes are expected to decrease in 2025 given the tariff impact and the supply of rare earth for OEMs and Tier 1 suppliers. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 16 million unit range, and showing some increased softness due to pressure from Chinese OEMs.
We anticipate softness in commercial vehicle-related revenue for the remainder of the year. As I mentioned in previous calls, revenue from the SideQuest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the US government. With the recent budget approval, we expect revenues for SideQuest will improve in the second half of 2025. The impact of tariffs and the geopolitical environment are creating uncertainty.
Ashish Agrawal: We continue to closely monitor and evaluate the situation while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, we are maintaining our guidance of sales in the range of $520 million to $550 million and adjusted diluted EPS to be in the range of $2.20 to $2.35. Industrial and distribution sales are expected to improve. Longer-term, we expect our material formulations, supported by three leading technologies, and their derivatives to continue to drive our growth in key high-quality end markets in line with our diversification strategy.
Kieran M. O'Sullivan: Thanks, Ashish. Now I will turn it over to you for a deeper dive into our financial results.
Ashish Agrawal: Thank you, Kieran. Sales in the second quarter were $135 million, up 8% sequentially and up 4% from last year. Sales to diversified end markets increased 13% year over year. SideQuest added $4.5 million in revenue during the quarter. As Kieran has highlighted, we are seeing seasonality in sales from SideQuest due to government funding patterns and expect a stronger second half. Sales to transportation customers were down 6% from the second quarter of last year due to softness in sales related to commercial vehicle products and reduced volumes due to China market dynamics.
Our adjusted gross margin was 38.7% in the second quarter, up 296 basis points compared to the second quarter of 2024, and up 174 basis points sequentially compared to the first quarter of 2025. As we continue to work on diversification as a strategic priority, we are seeing a favorable mix impact on our profitability. In addition, our global teams continue to focus on operational execution to deliver margin improvements. We are working closely with customers and suppliers on tariffs, and had a minimal impact on profitability in the second quarter. Exchange rate changes had a favorable impact of $1 million on gross margin.
We achieved adjusted EBITDA of 23% in the quarter, an improvement of 250 basis points sequentially and 130 basis points compared to the second quarter of 2024. Earnings were $0.62 per diluted share for the second quarter. Adjusted earnings were $0.57 per diluted share compared to $0.44 in the first quarter of 2025 and $0.54 in the second quarter of 2024. Moving to cash generation and the balance sheet. We generated $28 million in operating cash flow in the second quarter, compared to $20 million in the second quarter of 2024. Year to date, we have generated $44 million in operating cash flow.
Our balance sheet remains strong with a cash balance of $99 million at the end of the quarter. Our long-term debt balance was $88 million, leaving us good liquidity to support strategic acquisitions. During the quarter, we repurchased 412,000 shares of CTS Corporation stock for approximately $17 million. In total, we returned $26 million to shareholders through dividends and share buybacks so far in 2025. We have $38 million remaining under our current share repurchase program. Our focus remains on strong cash and we continue to support organic growth, strategic acquisitions, and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time.
Operator: And our first question today comes from John Edward Franzreb from Sidoti. John, please go ahead. Your line is open.
John Edward Franzreb: Good morning, everyone, and thanks for taking the questions. I'd like to start with the medical market. Seems like there's maybe two product lines going in some directions. Therapeutics, which you said was up 60%, I believe. And also, I think you issued a little bit of a warning about diagnostics. Can you talk a little bit about what's going on in the marketplace there for you?
Kieran M. O'Sullivan: Yeah, John. On the therapeutic side, on the last earnings call, we talked about a larger order and that's obviously playing out here in the second quarter and for the balance of the year as well. We've seen some softness in diagnostics, on the ultrasound side of it. Mostly coming from capital spend in Asia and maybe tariff related as well. If so, we will see some softness there, but overall on medical for the year, we will see growth.
John Edward Franzreb: Oh, good. That's good to hear. And you just touched on the tariff situation. What was the impact, if any, of tariffs on you in the quarter?
Ashish Agrawal: Well, it's pretty nominal. John, as we mentioned in the prepared remarks, we are working closely with customers as well as suppliers. Overall, the impact was very, very minimal in the quarter.
John Edward Franzreb: You expect it to stay that way?
Ashish Agrawal: Generally, under the current conditions, I would say yes, but there's a lot of changes happening as you know. So we are continuing to monitor the situation. As we have talked about in the past, our bigger impact happens with any potential changes in the USMCA.
John Edward Franzreb: Okay. Got it. And when you think about the transportation market, Kieran, you're also signaling continued weakness. Any thoughts about when that market might bottom out for you?
Kieran M. O'Sullivan: John, obviously, yes, weakness this year. It's mixed across the regions. We've talked about softness in China being a factor for us in the commercial vehicle. We think it's bottomed out in China, but we're being a little bit just cautious on that, so we see the trend over a few quarters. On the light vehicle side, we did improve sequentially this quarter. And I would tell you we've got a pipeline book business that is really strong across multiple products that we're working. So it's a little bit mixed, John. I would just say the tariff situation is the one we're watching there. There was some pre-buy in Q2 in April and May.
And it just feels a little tenuous for the next few quarters.
John Edward Franzreb: Makes sense. Makes sense. And just on the cost side of the equation, how's the integration of SideQuest going? Is that fully complete? And are there any other cost measures you're currently active on?
Kieran M. O'Sullivan: John, the SideQuest acquisition is moving along well. A lot of the integration work's been done. And there's still a little bit more to do. We're still running on different ERP systems. But the pipeline of opportunities is really strong. What I would tell you is the timing with the government and getting the budget approval has been something we've been watching carefully and glad to see that approved because we think that's going to be a momentum builder going forward.
John Edward Franzreb: Okay. And any other internal cost-saving actions that you're currently executing?
Ashish Agrawal: So on SideQuest, John, we are really not looking to drive cost-saving type of actions. The business is working on a strong pipeline and we are shoring up capabilities from a production standpoint to make sure that we can drive that growth and do the revenue growth part of it strongly in that part of the business.
John Edward Franzreb: I understood, Ashish. I was actually referencing legacy CTS Corporation.
Ashish Agrawal: Got it. Got it. So in terms of, you know, we are continuing to look at operational efficiency on an ongoing basis like we always do, John. That was contributing to our gross margin expansion in the quarter that we talked about. But in terms of big things that we have in the works, there's not much that we've talked about publicly. You know, as we continue working on things, if there are bigger changes we are making, I'm sure we'll highlight those.
John Edward Franzreb: Great. Okay. Yeah. I'll get back with you. Thanks for taking my questions.
Kieran M. O'Sullivan: Thanks, John.
Operator: The next question comes from Hendi Susanto from Gabelli Funds. Hendi, your line is open. Please go ahead.
Hendi Susanto: Good morning, Kieran and Ashish.
Kieran M. O'Sullivan: Morning, Hendi.
Hendi Susanto: Kieran, Ashish, I would like to ask similar questions, but hopefully deeper. The mix dynamic in the medical marketplace, in diagnostic, and then in therapeutic. Any guidepost on, let's say, how much the large order would sustain or generate a nice revenue upside in the next coming quarters? And then on the other hand, the softness in diagnostic. How much further should we expect?
Kieran M. O'Sullivan: Hendi, the softness in diagnostics may be for a quarter or two. We still feel very confident in the growth of that business in the mid to long term. On the therapeutic side, confident in the growth throughout the balance of this year, and then we would expect new purchase orders as we go ahead. So overall, as I mentioned earlier, we'll see growth in medical this year, and we're expecting growth as we go into the years ahead too.
Hendi Susanto: Okay. Got it. And then, Ashish, may I ask how much revenue SideQuest generated in the same quarter a year ago so that we know on a year-over-year comparison what the numbers look like?
Ashish Agrawal: Yeah. And we closed on the acquisition towards the end of July last year. So the second quarter of 2025 was purely additive.
Hendi Susanto: Yes. But can we know prior to acquisitions, like, how much the quarterly revenue in the second quarter of 2024?
Ashish Agrawal: We haven't talked about that, Hendi, in terms of pre-acquisition revenues. So, you know, that's something that we haven't talked about publicly.
Hendi Susanto: And then I think I asked a similar question in the past. Within transportation, how much is China?
Ashish Agrawal: China transportation as a percent of our overall revenue will be similar to what we have for the overall transportation as a percent of total CTS Corporation. That'll get you close enough in terms of how much revenue we have in China. If you look at overall China, our last year's data that was published as part of the 10-K, we had revenues of about $80 plus million in total.
Hendi Susanto: Okay. Got it. And then, Kieran, you talk about a strong pipeline of opportunities. Sorry. I think you said that in transportation. There are some solid positive pipelines across products that you are working on. Would you be able to mention which products?
Kieran M. O'Sullivan: Yep. Yeah. Hendi, we would be working with customers on accelerator modules, passive safety sensors, new combination sensors, motor position sensing, just to give you a few examples in transportation. And we also have a strong pipeline in the diversified end markets as well.
Hendi Susanto: And then within that transportation, those pipelines, are they more skewed toward North America and Europe?
Kieran M. O'Sullivan: Hendi, I would certainly say we've been winning business in all regions. I would say the larger pipeline is in the North America region, for sure, but some of these OEMs are operating globally too.
Hendi Susanto: Okay. Got it.
Kieran M. O'Sullivan: Yeah.
Hendi Susanto: Okay. Thank you. Let me get back to the queue.
Kieran M. O'Sullivan: Yeah. Thank you, Hendi.
Operator: As a reminder, that's star one on the telephone keypad. You return to the line from John Edward Franzreb from Sidoti. John, please go ahead.
John Edward Franzreb: Yep. Just a follow-up question. Can you talk a little bit about the acquisition market? What you're seeing out there and maybe the size of the opportunities that you're most focused on?
Kieran M. O'Sullivan: John, we're most focused on advancing our diversified end markets, that being aerospace and defense, industrial, and medical. We're always working on a pipeline of opportunities. There's nothing to report at this point in time. But we certainly see some uptick in activity out there.
John Edward Franzreb: That's great. Something maybe within the next twelve months, or am I thinking too far ahead?
Kieran M. O'Sullivan: Well, John, if you look at how we talk about our growth, 5% organic, 5% acquisitions, we would definitely like to do something in the next twelve months.
John Edward Franzreb: Okay. Good to hear. Thanks for taking my follow-up.
Operator: Thank you, John. Thank you. Nothing further in the queue or presence. Just a final reminder that star followed by one on your telephone keypad. We have no further questions, so I'll hand the call back to Kieran for some closing comments.
Kieran M. O'Sullivan: Thanks, Adam, and thank you all for your time today. Despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority. We launched our Evolution 2030 strategic initiative to enhance our emphasis on sales growth, operational rigor, and employee engagement while also giving back to the communities where we operate. We look forward to updating you on our third quarter 2025 performance in October. This concludes our call. Thank you.
Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.