CTS CORP

Previous wording

Net sales were $130,162 in the second quarter of 2024, a decrease of $15,020 or 10.3% from the second quarter of 2023. Net sales to the transportation market decreased $17,800 or 21.7% while net sales to non-transportation markets increased $2,780 or 4.4%. The overall decline in net sales was primarily driven by decreased volumes from our commercial vehicle related products and lower sales to transportation customers in China. Changes in foreign exchange rates decreased net sales by $552 year-over-year primarily due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Euro.

Current wording

Net sales were $132,424 in the third quarter of 2024, a decrease of $2,128 or 1.6% from the third quarter of 2023. Net sales to the transportation market decreased $12,959 or 17.1% while net sales to other diversified end-markets increased $10,831 or 18.5%. The overall decline in net sales was primarily driven by decreased volumes from our commercial vehicle related products and lower sales to transportation customers in China. Partially offsetting the sales decline were sales from our acquisition of SyQwest of $3,615, as well as changes in foreign exchange rates. Net sales increased $508 year-over-year related to changes in foreign exchange rates primarily due to the U.S. Dollar depreciating compared to the Chinese Renminbi and Euro.

Previous wording

Our gross margin percentage increased from 35.0% for the second quarter of 2023 to 35.6% for the second quarter of 2024 primarily due to improved product mix and the impact of certain cost saving actions previously taken as discussed in Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $414 primarily from our Mexican Peso hedges. See Note 13 “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Current wording

Gross margin was $49,788 in the third quarter of 2024, an increase of $3,387 or 7.3% from the third quarter of 2023. Our gross margin percentage increased from 34.5% for the third quarter of 2023 to 37.6% for the third quarter of 2024 primarily due to improved end-market mix, operational improvements, and the impact of certain cost saving actions previously taken as discussed in Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $1,464 primarily due to rate changes between the U.S. Dollar and the Mexican Peso.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $21,332 or 16.4% of net sales in the second quarter of 2024 versus $23,694 or 16.3% of net sales in the second quarter of 2023. Research and development (“R&D”) expenses were $6,086 or 4.7% of net sales in the second quarter of 2024 compared to $6,721 or 4.6% of net sales in the comparable quarter of 2023.

Current wording

Selling, general and administrative (“SG&A”) expenses were $22,509 or 17.0% of net sales in the third quarter of 2024 versus $18,666 or 13.9% of net sales in the third quarter of 2023. This increase is primarily related to the reduction of incentive and equity-based compensation expense that occurred in the third quarter of 2023. Research and development (“R&D”) expenses were $5,031 or 3.8% of net sales in the third quarter of 2024 compared to $6,321 or 4.7% of net sales in the comparable quarter of 2023. This decrease is primarily related to the timing of non-recurring engineering expense reimbursement during the quarter.

Previous wording

Restructuring charges were $1,190 or 1.3% of net sales in the second quarter of 2024 compared to $1,895 or 1.3% of net sales in the second quarter of 2023. The restructuring charges in the quarter ended June 30, 2024 were primarily related to actions undertaken to better align our cost structure with lower end-market demand. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Current wording

Restructuring charges were $773 or 0.7% of net sales in the third quarter of 2024 compared to $3,226 or 2.4% of net sales in the third quarter of 2023. The restructuring charges in the quarter ended September 30, 2024 were primarily related to actions undertaken to better align our cost structure with lower end-market demand. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Previous wording

Other expense, net for the quarter ended June 30, 2024 is primarily driven by foreign currency losses, particularly related to the Chinese Renminbi and Mexican Peso, primarily offset by higher interest income from our cash and cash equivalent balances.

Current wording

Total other income (expense), net for the quarter ended September 30, 2024 is primarily driven by foreign currency gains, particularly related to the Chinese Renminbi, Euro and Mexican Peso, partially offset by higher interest expense from our increased debt position as a result of our recent acquisition of SyQwest during the quarter ended September 30, 2024.

Previous wording

Our effective income tax rate was 17.2% and 19.8% in the second quarters of 2024 and 2023, respectively. The decrease in the effective income tax rate is primarily attributable to a mix of earnings taxed at lower rates.

Current wording

Our effective income tax rate was 16.8% and 25.4% in the third quarters of 2024 and 2023, respectively. The decrease in the effective income tax rate is primarily attributable to a mix of earnings taxed at lower rates and tax benefits from the filing of the US federal income tax return..

Previous wording

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the six months ended June 30, 2024, and June 30, 2023:

Current wording

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the nine months ended September 30, 2024, and September 30, 2023:

Previous wording

Net sales were $255,912 in the six months ended June 30, 2024, a decrease of $35,264 or 12.1% from the six months ended June 30, 2023. Net sales to the transportation market decreased $25,572 or 16.4% while net sales to non-transportation markets decreased $9,692 or 7.2%. The decline in overall net sales was primarily driven by lower volumes of commercial vehicle related products, lower sales to transportation customers in China and decreased volumes from our OEM customers in the industrial end market. Changes in foreign exchange rates decreased net sales for the six months ended June 30, 2024 by $1,182 due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Euro.

Current wording

Net sales were $388,336 in the nine months ended September 30, 2024, a decrease of $37,392 or 8.8% from the nine months ended September 30, 2023. Net sales to the transportation market decreased $38,530 or 16.6% while net sales to other diversified end-markets increased $1,138 or 0.5%. The decline in overall net sales was primarily driven by lower volumes of commercial vehicle related products, lower sales to transportation customers in China and decreased sales in the industrial end market. Changes in foreign exchange rates decreased net sales for the nine months ended September 30, 2024 by $674 due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Euro.

Previous wording

Gross margin was $91,462 for the six months ended June 30, 2024, a decrease of $10,932 or 10.7% from the six months ended June 30, 2023. The year over year decrease in gross margin was primarily driven by lower sales volumes.

Current wording

Gross margin was $141,250 for the nine months ended September 30, 2024, a decrease of $7,545 or 5.1% from the nine months ended September 30, 2023. The year over year decrease in gross margin was primarily driven by lower sales volumes.

Previous wording

Our gross margin percentage increased from 35.2% in the first six months of 2023 to 35.7% for first six months of 2024 primarily due to improved product mix and the impact of certain cost saving actions previously taken as discussed in Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $400 primarily from our Mexican Peso hedges. See Note 13 “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Current wording

Our gross margin percentage was 36.4% for the first nine months of 2024, an increase from 35.0% in the first nine months of 2023 primarily due to improved end-market mix, operational improvements, and the impact of certain cost saving actions previously taken as discussed in Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $627. See Note 13 “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Previous wording

SG&A expenses were $43,591 or 17.0% of net sales for the six months ended June 30, 2024 versus $45,673 or 15.7% of net sales for the six months ended June 30, 2023. R&D expenses were $12,687 or 5.0% of net sales for the six months ended June 30, 2024 compared to $13,307 or 4.6% of net sales for the six months ended June 30, 2023.

Current wording

SG&A expenses were $66,100 or 17.0% of net sales for the nine months ended September 30, 2024 versus $64,339 or 15.1% of net sales for the nine months ended September 30, 2023. R&D expenses were $17,718 or 4.6% of net sales for the nine months ended September 30, 2024 compared to $19,628 or 4.6% of net sales for the nine months ended September 30, 2023.

Previous wording

Restructuring charges were $2,884 or 1.1% of net sales for the six months ended June 30, 2024 compared to $2,807 or 1.0% of net sales for the six months ended June 30, 2023. The restructuring charges were primarily related to actions undertaken to better align our cost structure with lower end-market demand. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Current wording

Restructuring charges were $3,657 or 0.9% of net sales for the nine months ended September 30, 2024 compared to $6,033 or 1.4% of net sales for the nine months ended September 30, 2023. The restructuring charges were primarily related to actions undertaken to better align our cost structure with lower end-market demand. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Previous wording

The reduction in total other expense, net was primarily driven by higher interest income from our short-term investments classified as cash equivalents and lower expense related to foreign exchange losses.

Current wording

The reduction in total other income (expense), net was primarily driven by higher interest income from our short-term investments classified as cash equivalents and lower expense related to foreign exchange losses.

Previous wording

Our effective income tax rate was 17.8% and 19.5% for the six months ended June 30, 2024 and 2023, respectively. The decrease in the effective income tax rate is primarily attributable to a mix of earnings taxed at lower rates.

Current wording

Our effective income tax rate was 17.4% and 21.4% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in the effective income tax rate is primarily attributable to a mix of earnings taxed at lower rates and tax benefits from the filing of the US federal income tax return.

Previous wording

Cash and cash equivalents were $161,246 at June 30, 2024, and $163,876 at December 31, 2023, of which $117,210 and $99,940, respectively, were held outside the United States. Total long-term debt was $65,000 as of June 30, 2024 and $67,500 as of December 31, 2023.

Current wording

Cash and cash equivalents were $94,875 at September 30, 2024, and $163,876 at December 31, 2023, of which $86,181 and $99,940, respectively, were held outside the United States. Total long-term debt was $102,700 as of September 30, 2024 and $67,500 as of December 31, 2023.

Previous wording

Net cash provided by operating activities was $37,940 during the six months ended June 30, 2024. Components of net cash provided by operating activities included net earnings of $25,826, depreciation and amortization expense of $14,651, other net non-cash items of $629, and a net cash outflow from changes in assets and liabilities of $3,166.

Current wording

Net cash provided by operating activities was $73,335 during the nine months ended September 30, 2024. Components of net cash provided by operating activities included net earnings of $44,508, depreciation and amortization expense of $22,644, other net non-cash items of $1,246, and a net cash inflow from changes in assets and liabilities of $4,940.

Previous wording

Net cash provided by operating activities was $34,607 during the six months ended June 30, 2023. Components of net cash provided by operating activities included net earnings of $31,241, depreciation and amortization expense of $14,175, other net non-cash items of $4,295, and a net cash outflow from changes in assets and liabilities of $15,104 primarily driven by 2022’s annual bonus payout and an increase in accounts receivable.

Current wording

Net cash provided by operating activities was $56,742 during the nine months ended September 30, 2023. Components of net cash provided by operating activities included net earnings of $45,212, depreciation and amortization expense of $21,425, other net non-cash items of $5,055, and a net cash outflow from changes in assets and liabilities of $14,950 primarily driven by 2022’s annual bonus payout and an increase in inventory primarily from pre-determined inventory builds, associated with plant closure and consolidation activities. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 was $8,672, driven by payments on capital expenditures.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $(134,456), driven by payments for the SyQwest acquisition of $(121,913) and for payments on capital expenditures of $(12,543).

Previous wording

Net cash used in investing activities for the six months ended June 30, 2023 was $(11,846), driven by payments for the Maglab acquisition, finalization of the TEWA Temperature Sensors SP. Zo.o. (“TEWA”) net working capital adjustment of $3,359 and capital expenditures of $8,487. See Note 3 "Business Acquisitions" in the Notes to the Condensed Consolidated Financial Statements.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2023 was $(14,595), driven by payments for the Maglab acquisition, finalization of the TEWA Temperature Sensors SP. Zo.o. (“TEWA”) net working capital adjustment of $3,359 and capital expenditures of $11,236. See Note 3 "Business Acquisitions" in the Notes to the Condensed Consolidated Financial Statements.

Previous wording

Net cash used in financing activities for the six months ended June 30, 2024 was $(32,059). The net cash outflow was the result of treasury stock purchases of $22,892, net cash used in the paydown of long-term debt of $2,500, taxes paid on behalf of equity award participants of $3,131, payments of contingent consideration of $1,076 and dividends paid of $2,460.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2024 was $(7,494). The net cash outflow was the result of treasury stock purchases of $(34,787), net cash cash borrowings of long-term debt of $35,200, taxes paid on behalf of equity award participants of $(3,154), payments of contingent consideration of $(1,076) and dividends paid of $(3,677).

Previous wording

Net cash used in financing activities for the six months ended June 30, 2023 was $(29,967). The net cash outflow was the result of treasury stock purchases of $17,562, net cash used in the paydown of long-term debt of $6,630, taxes paid on behalf of equity award participants of $3,240, and dividends paid of $2,535.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2023 was $(39,937). The net cash outflow was the result of treasury stock purchases of $(25,890), net cash used in the paydown of long-term debt of $(7,006), taxes paid on behalf of equity award participants of $(3,249), and dividends paid of $(3,792).

Previous wording

On July 29, 2024, we acquired substantially all of the assets of SyQwest, LLC (“SyQwest”), a leading designer and manufacturer of a broad set of sonar and acoustic sensing solutions primarily for naval applications, for $125 million, net of cash and debt and up to $15 million in future contingent consideration. The SyQwest acquisition will strengthen our strategy and scale in the defense end market.

Current wording

On July 29, 2024, we acquired 100% of the outstanding membership interests of SyQwest a leading designer and manufacturer of a broad set of sonar and acoustic sensing solutions primarily for naval applications, for $121.9 million, net of cash and up to $15 million in future contingent consideration. The SyQwest acquisition will strengthen our strategy and scale in the defense end market. The acquisition was funded from both cash on hand and borrowings on our Revolving Credit Facility.

Previous wording

The critical accounting policies and estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. During and as of the three and six months ended June 30, 2024, there were no significant changes in the application of critical accounting policies or estimates.

Current wording

The critical accounting policies and estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. During and as of the three and nine months ended September 30, 2024, there were no significant changes in the application of critical accounting policies or estimates.

Previous wording

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 including, without limitation the integration of SyQwest, LLC.; 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’ intellec…

Excerpt shortened here; the source contains the full paragraph.

Current wording

“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 including, without limitation the integration of SyQwest; 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.