CTS Corp. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Diversification Progress: Diversified end markets now represent almost 60% of overall company revenue. Full year 2025 sales were $541 million, up 5% from $515 million in 2024.
• Financial Performance: Fourth quarter sales were $137 million, a 9% increase year over year. Adjusted diluted earnings per share were $0.62 in the fourth quarter of 2025, up from $0.50 in 2024. Full year 2025 adjusted diluted earnings per share were $2.23, up from $2.12 in 2024.
• Book-to-Bill Ratio: Q4 2025 book-to-bill ratio was 1.03, and full year 2025 book-to-bill ratio was 1.04, indicating sustained customer demand.
• Medical Insights: Strong momentum in therapeutics and diagnostics. Had multiple wins across regions for medical ultrasound, therapeutic products, and pacemaker applications. Expect increased volumes in therapeutic products and portable ultrasound diagnostics.
• Aerospace and Defense: Moving from component supplier to sensor, transducer, and subsystem supplier. SideQuest revenues were $6 million in the fourth quarter. Pipeline remains strong with backlog supporting future growth.
• Industrial Insights: Continued gradual recovery with stabilization and growth from OEM customers and distribution partners. Wins in diverse industrial applications, including distribution components and temperature sensing for heat pumps and appliances.

Segment Performance

• Medical: Fourth quarter sales increased 41% year over year. Full year 2025 sales were $85 million, up 21% from $70 million in 2024. Bookings in the quarter were up 37%. Represents strong growth in therapeutic applications and diagnostics.
• Aerospace and Defense: Full year 2025 sales were $83 million, up 20% from $69 million in 2024. Fourth quarter sales were down 4% year over year. Full year bookings were up 15%. Pipeline remains strong with backlog supporting future growth.
• Industrial: Fourth quarter sales were up 16% year over year. Full year 2025 sales were £140 million, up 12% from £125 million in 2024. Book-to-bill ratio for full year 2025 was 1.11. Demonstrated solid momentum with wins across diverse industrial applications.
• Transportation: 2025 sales were $234 million, down 7% from $250 million in 2024. Fourth quarter sales were CHF 56 million, essentially flat year over year. Secured new business awards of approximately $100 million in the fourth quarter, including accelerator module wins and addition of Floor Hinge technology.

Guidance

• Full Year 2026 Outlook: Expect sales in the range of $550 million to $580 million and adjusted diluted EPS in the range of $2.30 to $2.45.
• Market Expectations: Solid demand expected in diversified end markets. Transportation market expected to be flat to marginally down due to tariff impact, consumer demand, and global light vehicle volume forecasts. Monitoring supply chain issues related to rare earth metals and semiconductors.
• Product Development: Qualification of next-generation smart actuator across customers' platforms progressing, with further product enhancements planned in H2 2026.

Risks

• Supply Chain Issues: Potential impact from supply chain issues related to rare earth metals and semiconductors.
• Tariff and Geopolitical Environment: Impact on transportation market and overall business operations.
• SideQuest Funding: Normalization of government funding for SideQuest, as 2025 funding was lighter than expected.

Question and Answer

Q: Given your assumption within your 2026 guidance with regard to the smart actuator. Do you have more updates and insights into customer preference in terms of their dual sourcing approach?

A: Kieran O'Sullivan said they're continuing on legacy and new platforms, enhancing cost reduction efforts in H2 2026.

Q: Curious about what you said about SideQuest, Kieran. You said that there were maybe some deferrals in some of the jobs. Did you have actual revenue move from Q4 into Q1, or is it longer-tailed than that?

A: Kieran O'Sullivan said it was timing of government funding in 2025, expected to normalize in 2026.

Q: When we think about the revenue guidance for the year ahead, what is the maybe the net new product introduction relative to the offset of maybe some of the programs that are going end of life?

A: Ashish Agrawal said diversified side has more immediate revenue recognition, transportation takes longer, e.g., Floor Hinge win revenue in 2028.

Q: And it also seems to me that you're becoming a little bit more confident in some of the industrial opportunities. Am I misreading that, or is the visibility improving versus, say, three months ago?

A: Kieran O'Sullivan said visibility improving, book-to-bill ratio 1.11 in 2025, bookings up 22%.

Q: Regarding the outlook in the transportation sector, dare I say it, you're only down 1% in the fourth quarter. Do you feel like we're bottoming, or what's your assessment of what you see in the transportation market?

A: Kieran O'Sullivan said trending in positive direction, first half 2026 lighter than second half, light vehicle market flat to slightly down.

Q: Can you talk a little bit about what you're seeing in the M&A market? I know that's a core part of the growth strategy. Maybe talk about what you're seeing as far as the opportunity pipeline.

A: Kieran O'Sullivan said actively working pipeline, focusing on diversification, valuations high, looking for right assets.

Q: You talked a little bit about China. Can you maybe give us an overall assessment of what you're seeing in your other markets by geography, excluding transportation, if you will?

A: Ashish Agrawal said good momentum across diversified markets, no concerns from regions, defense focused in NA and Europe, medical and industrial good globally.

Q: In industrial and distributor, how do you characterize among your sales matching the end demand and then sales toward inventory rebuild at your customers?

A: Kieran O'Sullivan said solid demand, customers actively managing inventory, some optimized.

Q: What is your latest market assessment of the China transportation market? We know that transportation design cycles may take two to three years, but in China, it's fast. So any strategic direction for 2026 in terms of your transportation business in China?

A: Kieran O'Sullivan said China market reached new normal, working with transplant OEMs and local Chinese customers, local team engaged in new products development.