CTS Corporation Q2 FY2026 earnings call

• New CEO Leadership & Strategic Direction

  • This was the first earnings call for new CEO Pratik Trivedi, who reaffirmed commitment to the existing Evolution 2030 strategy and focus on end market diversification for long-term value creation. Trivedi plans to accelerate growth across diversified end markets while stabilizing the transportation business.
  • The company's core strategic priority remains expanding its diversified end market portfolio to improve earnings quality and margin profile.

• Operational & Profitability Highlights

  • Overall adjusted gross margin reached a record 41.5% (up 270 basis points YoY), adjusted EBITDA margin hit 25.4% (up 240 basis points YoY), and adjusted diluted EPS was a record 74 cents (up 30% YoY). Approximately 7 cents of the EPS result came from favorable one-time items.
  • Company-wide book-to-bill ratio was 1.1, indicating sustained customer demand. Diversified end markets delivered a 1.17 book-to-bill, with medical at 1.21 and aerospace and defense at 1.23, all signaling strong backlog growth.
  • The company generated $33 million in operating cash flow and $29 million in free cash flow in the quarter, ending with $108 million in cash and $55 million in debt.
  • CTS repurchased 64,000 shares for $3.5 million in the quarter, with $78 million remaining under its current share repurchase authorization.

• New Business Wins

  • CTS added 2 new industrial customers and 1 new aerospace and defense customer in the quarter.
  • Total transportation new business awards hit $163 million in the quarter, including a record $100 million sensor win with a North American OEM and a new seat track sensor win with a North American EV customer. Total company booked business reached $1.2 billion at quarter end, up $100 million from Q1 2026.

Total company Q2 2026 revenue was $145 million, a 7% year-over-year (YoY) increase and 4% sequential increase. Diversified end markets (medical, aerospace and defense, industrial) represented 59% of total revenue, up from 55% in Q2 2025, and grew 15% YoY. By segment: 1) Medical: $28 million in revenue, 45% YoY growth and 14% sequential growth, contributing ~19.3% of total revenue. 2) Aerospace and Defense: $18 million in revenue, 15% YoY decrease and 4% sequential growth, contributing ~12.4% of total revenue. 3) Industrial: $40 million in revenue, 16% YoY growth and 6% sequential growth, contributing ~27.6% of total revenue. 4) Transportation: $59 million in revenue, 2% YoY decrease and 2% sequential decrease, contributing 41% of total revenue.

• CTS management raised its full year 2026 guidance, updating the expected revenue range to $565 million to $585 million and adjusted diluted EPS range to $2.55 to $2.70.
  • Demand is expected to remain solid across all diversified end markets: continued momentum in medical, strengthening revenue growth in aerospace and defense during the second half of 2026 due to improving government funding flow, and healthy ongoing demand in industrial.
  • Global light vehicle production volumes are forecasted to be flat to modestly down for the full year, while the commercial vehicle market is expected to deliver modest growth supported by improving freight fundamentals and pre-buy activity ahead of upcoming emissions regulations.
  • The full-year effective tax rate (excluding discrete items) is expected to remain in the range of 21% to 23%.

• Uncertainty around global light vehicle production due to ongoing geopolitical tensions, tariff changes, and weak consumer demand.
  • Input cost pressures from precious metal price inflation and existing and new tariff changes, which could impact margins if cost pass-through to customers is slower than expected.
  • Ongoing supply chain transition for the Cummins commercial vehicle program, with full clarity on CTS's final market share not expected until the end of 2026; new program launches can create near-term margin pressure for transportation business.
  • Fluctuation in customer R&D reimbursements, which can create variability in quarterly operating results.

Q: What changes under new CEO leadership can investors expect, after your time leading CTS's diversified business? / A: Trivedi stated he will maintain the Evolution 2030 strategy and foundation built by the prior CEO. His core priority is accelerating growth across CTS's diversified end markets while stabilizing the transportation business, an approach already proven out by Q2 2026 strong results.

Q: Is the upward full-year guidance revision driven primarily by medical segment growth, or by broader performance across diversified end markets? / A: Trivedi explained the guidance upgrade reflects expected continued growth across all three diversified segments (medical, industrial, aerospace & defense), balanced against a cautious forecast for the light vehicle portion of the transportation segment, which is projected to be flat to modestly down due to geopolitical and tariff uncertainty.

Q: Is CTS's transportation segment book-to-bill ratio below 1.0 for Q2 2026? / A: The CFO stated the transportation segment book-to-bill is very close to 1.0, usually hovering between ~0.99 and ~1.02. He added that transportation orders are short-cycle, so the book-to-bill ratio is not a meaningful indicator of future performance for this segment, unlike for diversified end markets.

Q: How does CTS plan to address ongoing cost pressures and price negotiations with customers for the second half of 2026? / A: The CFO noted that pricing and cost discussions with customers and suppliers are ongoing, and the wide range in the updated EPS guidance reflects the possible range of outcomes from these talks. The higher end of the guidance assumes favorable outcomes, while the lower end accounts for ongoing cost pressure.