CTS Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Sales $135M, up 4% y-o-y. Adjusted diluted earnings $0.57 per share, up 30% q-o-q and 7% y-o-y. Adjusted EBITDA 23%, up 250bps q-o-q and 130bps y-o-y. Gross margin 38.7%, up 296bps y-o-y. Operating cash flow $28M in Q2 2025, up from $20M in Q2 2024.
• Medical: Excited about minimally invasive applications, product support solutions, wins in medical ultrasound, and therapeutic demand growth. Engaged in next-generation development engineering.
• Aerospace and Defense: SyQwest integration progressing, strong pipeline of opportunities, moving to sensor/subsystem supply. Expect stronger sales in second half of 2025 due to government funding approval.
• Industrial: Gradual recovery with OEMs and distribution customers, bookings up 22%, wins in various applications, expectation of continued improvement in second half of 2025.
• Transportation: Impacted by China market and commercial vehicle softness, but pipeline of booked business strong. Awards in accelerator modules, chassis ride height sensing, and advanced Corvus technology.
• Strategic Initiatives: Diversification strategy, Evolution 2030 initiative for sales growth, operational rigor, and community engagement.

Segment Performance

• Medical: Second quarter sales up 8% compared to same period in 2024. Therapeutic products demand up ~60% y-o-y, but bookings down 10% due to soft diagnostic bookings. Wins in medical ultrasound across regions, pacemaker award, and new customer for ultrasound application. Sales growth in minimally invasive applications.
• Aerospace and Defense: Sales up 34% y-o-y (excluding SyQwest, up 6%). SyQwest contributed $4.5M in Q2 2025. Bookings flat, working on moving from component supplier to sensor, transducer, and subsystem supplier. Strong pipeline of opportunities from SyQwest integration.
• Industrial: Sales up 5% sequentially and 6% y-o-y. Bookings up 22% y-o-y. Wins in EMC, switches, industrial printing, temperature sensing, and new customer for millimeter wave application. Expectation of continued recovery.
• Transportation: Sales $61M, down 6% y-o-y due to China market dynamics and commercial vehicle softness. Awards in various product groups, advanced Corvus technology for precise position sensing.
• Diversified end markets: 55% of overall revenue, up 13% y-o-y driven by organic growth and SyQwest acquisition. Book-to-bill ratio 1, flat y-o-y. Bookings in medical down, defense flat, industrial up 22%.

Guidance

• Maintaining sales guidance of $520M to $550M and adjusted diluted EPS of $2.20 to $2.35.
• SyQwest expected to have stronger sales in the second half of 2025.
• Expectation of continued growth in diversified end markets, with industrial and distribution sales expected to improve.

Risks

• Impact of trade tariffs and geopolitical uncertainties affecting profitability and sales.
• Seasonality in SyQwest sales due to government funding patterns.
• Softness in diagnostic ultrasound bookings in medical due to Asia capital spend and tariffs.
• China market dynamics affecting transportation sales.

Question and Answer

• **Q: Talk about the medical market, specifically diagnostics and therapeutics.

A: Therapeutic products demand is up ~60% year-over-year, but diagnostics have seen softness due to capital spend in Asia and tariff-related factors. However, the medical end market is expected to see growth this year, with confidence in mid- to long-term growth for both segments.**

• **Q: What was the impact of tariffs on the second quarter?

A: The impact of tariffs on the quarter was very nominal. The company is working closely with customers and suppliers, and while monitoring the situation, bigger impacts could come from potential changes in the USMCA.**

• **Q: When might the transportation market bottom out?

A: The transportation market has seen weakness this year, with mixed regional performances. While China's commercial vehicle situation is seen as bottomed out, the tariff situation is being watched, and the pipeline of booked business is strong but the next few quarters remain a bit tenuous.**

• **Q: How is the integration of SyQwest going and any cost-saving actions?

A: The SyQwest acquisition is moving along well with strong pipeline opportunities. There are no major cost-saving actions focused on SyQwest; instead, the focus is on shoring up production capabilities to drive growth in that business. On legacy CTS, ongoing operational efficiency efforts contribute to margin expansion.**

• **Q: SyQwest revenue comparison to prior year?

A: The second quarter of 2025 was purely additive as the acquisition of SyQwest closed towards the end of July last year, so prior year Q2 revenue for SyQwest isn't applicable as it's a new addition.**

• **Q: China transportation revenue percentage?

A: China transportation revenue as a percent of overall CTS revenue is similar to overall transportation's percent of total CTS revenue. Last year's 10-K reported total revenues in China of about $80-plus million.**

• **Q: Transportation product pipelines and regions?

A: In transportation, pipelines include accelerator modules, passive safety sensors, new combination sensors, motor position sensing, etc. The larger pipeline is in the North America region, but OEMs operate globally.