CTS Corporation (NYSE:CTS) Q1 2026 Earnings Call Transcript

CTS Corporation (NYSE:CTS) Q1 2026 Earnings Call Transcript April 29, 2026

CTS Corporation beats earnings expectations. Reported EPS is $0.62, expectations were $0.52.

Operator: Hello everyone. Thank you for joining us and welcome to the CTS Corporation First Quarter 2026 Earnings Call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Kieran O’Sullivan. Kieran, please go ahead.

Kieran O’Sullivan: Good morning, and thank you for joining us today. I am pleased to report a solid 2026 for CTS Corporation with diversified sales up double digits as we continue to execute our diversification strategy. We also saw strong bookings momentum in the industrial and medical markets. In transportation, we see stability in revenue with modest growth in the first quarter. Overall, with growth in key end markets and solid execution, we believe the company is well positioned to deliver on its strategic objectives. Ashish Agrawal, our CFO, will take us through the safe harbor statement and later through our financials. Pratik Trivedi, our COO, will provide an update on the progress in each of our end markets. Ashish?

Ashish Agrawal: I would like to remind our listeners that this 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 the 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 O’Sullivan.

Kieran O’Sullivan: Thank you, Ashish. We finished the first quarter with sales of $139 million, representing a solid 11% increase compared to 2025. Our diversified end markets were up 18%. Transportation sales grew 3%. Our book-to-bill ratio for the first quarter was 1.1, up 4% compared to 2025. Looking at bookings performance, industrial bookings were strong, driven by stabilized OEM demand and the recovery in distribution. Medical bookings showed robust growth driven by continued strength in diagnostics and therapeutic applications. In aerospace and defense, we continue to have a robust pipeline of opportunities even as bookings were down compared to last year, as funding on various programs is expected to improve in the second half.

We added two new customers in the defense market. In transportation, we secured several new business awards including current sensing in Europe, and a larger award for foot controls with a European OEM in early April. We also added a new customer in the transportation market. Our operational execution was evident as we expanded gross margin by 250 basis points in the first quarter. We maintained strong cash flow generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders. First quarter adjusted diluted earnings were $0.62 per share, up from $0.44 in 2025 as we continue to focus on driving profitable growth. Ashish will add further color on our financial performance later in today’s call.

Turning to the outlook for 2026, for our diversified end markets, demand is expected to be solid. In the medical market, we see continued momentum in therapeutics where we have expanded capacity. In aerospace and defense, revenue is expected to grow given our backlog and the normalization of government funding. Industrial OEM and distribution sales are expected to be solid. We continue to monitor the potential economic impact of the current geopolitical conflicts for the second half of the year. 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. Across transportation markets, production volumes are expected to be down given the current geopolitical uncertainties and the potential impact on the economy.

Global light vehicle volumes from IHS were recently forecasted to soften. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted to be in the 16 million to 17 million unit range. China volumes are expected to be in the 32 million unit range. We continue to monitor potential impact from the geopolitical situation, supply chain issues related to petroleum products, especially resin, and other components such as rare earth metals and semiconductors. We anticipate commercial vehicle demand to improve in the second half of the year. We are closely evaluating the Section 232 tariff changes and focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers.

Our strong balance sheet, healthy cash generation, and experienced teams provide us with the tools necessary to manage these headwinds while continuing to invest in growth opportunities and also advancing innovation. Our increasingly diversified business model continues to enhance our growth and quality of earnings. Assuming the continuation of current market conditions, for full year 2026, we are narrowing our sales guidance to the range of $560 million to $580 million and adjusted diluted EPS to be in the range of $2.35 to $2.45. Now I will turn it over to Pratik, who will walk us through the end market performance. Pratik?

Pratik Trivedi: Thank you, Kieran. Our medical end market delivered strong performance in the first quarter with sales of $25 million, up 28% versus the prior year period, reflecting a sustained growth momentum across our medical portfolio, particularly in therapeutic applications where we see robust demand. Bookings in the quarter were up 18% compared to the prior year period. The book-to-bill ratio for the first quarter was 1.2, reflecting continued momentum in this market. We continue to see growth prospects in diagnostic imaging, aesthetics, and minimally invasive surgical systems where there is an increased demand for precision, reliability, and patient monitoring. Our precision sensors and transducers enable high-resolution imaging and precise energy delivery in applications, such as ultrasound and intravascular diagnostics, supporting early detection, better visualization, and more targeted patient treatments.

In patient and medical equipment monitoring, our temperature and position sensors provide high accuracy and stability supporting reliable vital sign measurement and device performance over extended life cycles. Our therapeutic products enhance skin lifting and tightening through noninvasive aesthetic treatments that significantly improve patient experience over alternative procedures. During the first quarter, we had multiple wins across all regions for medical ultrasound and a large win for a noninvasive aesthetics application. Demand remains robust for ultrasound imaging and strong for therapeutic products. Knowing that our products support technologies used to save lives is central to our purpose in the medical market. These mission-critical healthcare applications demand uncompromising quality and reliability, reinforcing our commitment to continuous innovation and operational excellence.

With an aging population and innovations in healthcare supported by CTS Corporation products, the medical market will continue to enhance our growth profile. Aerospace and defense sales for the first quarter were $17 million, up 11% compared to the previous year. Book-to-bill ratio was less than one. We expect defense bookings to pick up during the rest of the year. Our pipeline of new opportunities remains strong, with backlog levels supporting future growth. Undersea warfare and surveillance are critical elements of modern defense strategy, requiring advanced sensing technologies to detect, track, and classify increasingly quiet and sophisticated underwater threats. CTS Corporation supports this domain through high-performance piezoelectric sensors, transducers, and subsystems that convert acoustic signals into actionable intelligence.

Our RF and EMC filters are mission-critical components in defense electronics, ensuring signal integrity and electromagnetic compatibility in secure communications, radar, missile control, and avionic systems. Our products also support unmanned systems and satellite platforms that rely on highly efficient, lightweight technologies to operate in extreme environments with limited power. During the quarter, we were awarded a significant underwater hull penetrator business win with a potential contract value of around $20 million over a five-year period. We also registered multiple wins in the quarter for naval sonar and filter applications with several customers. In the quarter, we added two new customers for RF filters specializing in providing secure communications, SATCOM connectivity, and anti-jamming applications.

We are deeply engaged across multiple customer platforms and expect the government funding cycles to start to normalize in 2026 and the funds to flow through with the enactment of the full-year appropriations bill in February. Industrial end market performance remained strong, with first quarter sales of $37 million, representing 14% year-over-year growth and supporting the broader recovery trend underway since 2025. Bookings in the quarter were up 28% from the same period last year, reflecting stable growth from our OEM customers as well as distribution partners. The book-to-bill ratio was 1.29 compared to 1.15 in 2025. We were successful with multiple wins across a diverse range of industrial applications in the quarter, including distribution components, industrial printing, and flow meter applications where our products help in accurately measuring the flow of liquids and gases in industrial systems.

We also saw solid momentum in temperature sensing with wins in heat pumps, pool and spa systems, and commercial appliances. These applications underscore our role in enabling more energy-efficient and optimized industrial systems. Industrial demand is expected to remain strong in 2026, supported by secular tailwinds including automation, connectivity, and digitization. At the same time, the push for higher energy efficiency and continued manufacturing automation is expanding the addressable opportunity for our advanced sensing technologies. Transportation sales in the first quarter at $60 million represent a 3% growth over the same period last year and a 7% sequential growth quarter over quarter, which appears to demonstrate early signs of stability.

Qualification of our next-generation smart actuator across our customers’ platforms is progressing, and we plan to implement further product enhancements later in 2026. Our new business wins in the quarter were a good mix of sensors and foot control solutions across a diverse set of customers. We added an accelerometer to our sensors product portfolio with an award from a North American OEM, supporting safety, dynamics control, ride comfort, and advanced driver assistance systems. We gained a new customer with our current sensing solution, where our products measure the flow of electrical current in vehicle systems to enable safe, efficient, and reliable operation. As vehicles become more electrified and software controlled, current sensing has become a core enabling technology across higher voltage platforms.

In the quarter, we secured multiple wins across the foot controls portfolio with OEMs in China, Japan, Europe, and North America. Overall, we continue to strengthen our footwell presence while broadening our sensing portfolio with powertrain-agnostic capabilities that support multiple vehicle architectures. Total booked business was approximately 1.1 billion at the end of the quarter. Over the long term, electronic braking remains a compelling opportunity as ADAS, vehicle electrification, and autonomous capabilities continue to advance. Our products deliver meaningful cost and weight benefits, which are increasingly important for OEMs managing performance, efficiency, and affordability trade-offs. We remain confident in the long-term growth outlook for our footwell product along with our expanding sensor portfolio.

Based on recent IHS forecasts, the global light vehicle market is expected to be slightly down for 2026. The commercial vehicle market is expected to grow based on rising freight rates, improving spot and contract pricing, and pre-buy related to emission regulation changes in 2027. Now I will turn it over to Ashish, who will walk us through the financials in detail.

Ashish Agrawal: Thank you, Pratik. First quarter sales were $139 million, up 11% compared to 2025 and up 1% sequentially from 2025. Sales to diversified end markets increased 18% year over year, and sales to transportation customers were up 3%. Foreign currency changes impacted sales favorably by $3 million in the first quarter. Our adjusted gross margin was 39.5%, up 250 basis points compared to 2025 and up 40 basis points sequentially. The year-over-year improvement in gross margin was driven by operational improvements and the favorable impact of end market mix. Gross margin was also favorably impacted by 700 thousand due to foreign currency changes. We are monitoring the impact of Section 232 tariff changes on steel and aluminum, inflation in precious metals, and cost increases due to higher oil prices.

Our teams are already working to mitigate these impacts and are partnering with customers and suppliers towards the goal of keeping the effect on our margins cost neutral. Our tax rate for the quarter was 20.7%, slightly better than expected due to the mix of earnings and certain discrete items. For the full year, we expect our tax rate to be in the range of 21% to 23%. Earnings per diluted share for the first quarter were $0.59 compared to $0.44 for the same period last year. Adjusted earnings for the first quarter were $0.62 per diluted share compared to $0.44 per diluted share for the same period last year. Moving to cash generation and the balance sheet, we generated $17 million in operating cash flow for 2026 year to date. Our cash balance was $91 million, and borrowings were $63 million from our credit facility at the end of Q1 2026.

During the quarter, we purchased 177 thousand shares of CTS Corporation stock totaling approximately $9 million. In total, we returned $10 million to shareholders through dividends and share buybacks in 2026. We have another $82 million remaining under our current share repurchase program. We remain focused on strong cash generation and appropriate capital allocation. With a strong balance sheet, 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.

Q&A Session

Operator: We will now open the call for questions. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Franzreb with Sidoti & Co. Your line is open. Please go ahead.

John Franzreb: Good morning, everyone, and congratulations on another great quarter. I would like to start with the quarter itself that we just completed. A couple really quick questions here. The revenue was better than I expected. I am just curious if any jobs revenue got pulled forward into the first quarter from the second? Did anything like that happen in the period?

Kieran O’Sullivan: No, John. It was a really good quarter. Nothing pulled forward.

John Franzreb: Got it. Got it. Well, then looking back at maybe some of these numbers, I am curious if the gross margin profile differential between some of the diversified end markets—I guess we can include the transportation end market—is it significant that we should really be cognizant of if, you know, medical is sizably better versus A&D? You know, how should we think about the puts and takes by end market?

Ashish Agrawal: Yeah. John, in previous discussions, we have talked about our margin profile. In the diversified end markets, we have a much better margin profile compared to transportation. And as we have talked about, we have pretty good margins on the transportation side as well, but the diversified markets are better. Within the diversified markets, it is more, I would say, less evenly—it is not as widely spread. So medical is definitely the strongest end market in terms of margin profile, but we do well in pretty much all the diversified end markets.

John Franzreb: Okay. So industrial is relatively close to medical, is what you are saying, Ashish?

Ashish Agrawal: There is not a big variation in the margin profile among the diversified end markets. Medical is definitely the strongest one. Yes.

John Franzreb: Okay. And the reason I am getting to all these questions here is I looked at the incremental operating contribution in the quarter, and it came to roughly 44% if I did the back-of-the-envelope math right. I thought that was rather astonishing. And looking at the revenue profile, to me, it kind of lent itself that medical was the primary driver. I just want to be sure if I was thinking about this properly, you know, thinking about incremental margin profile properly. I am wondering any thoughts about my conclusions here?

Kieran O’Sullivan: No, John. I think the way to look at it is, as Ashish gave you the color on medical, the way to look at it is with our strategy, we have always said as we grow diversified markets, quality of the earnings will improve, and that is what you are seeing here.

John Franzreb: Right. Right. Okay. Another quick question. It still looks like debt ticked up in the quarter. Why was that the case?

Ashish Agrawal: So, John, in the first quarter, we typically have lower operating cash flow as we do incentive comp payments and those types of things. We also continued our buybacks in the first quarter. So the combination of those two things and a slightly higher CapEx than we normally expect, those are the key drivers. The debt was up by about $5 million. But compared to where we are overall, we are continuing to make good progress. We have almost fully paid down the borrowings from the SyQuest acquisition at this point.

John Franzreb: Right. Right. Okay. I think I have monopolized the call enough. I am going to get back in the queue. Thank you, guys.

Kieran O’Sullivan: Thanks, John.

Operator: Your next question comes from the line of Hendi Susanto with Gabelli Funds. Your line is open. Please go ahead.

Hendi Susanto: Good morning, Kieran, Ashish, and Pratik. Congrats on good results. My first question is you mentioned capacity expansion in medical, and I would like to get more color in terms of how much more, and if there are any statistics like up to how much sales you can take—that would be helpful.

Pratik Trivedi: Sure. Thank you, Hendi, for the question. The capacity in our medical end market primarily refers to our aesthetics application. We have strong partnerships with some of the customers here where they give us a long-term forecast, and we are able to install capacity ahead of the demand. We continue to see strong momentum in this end market, and we are expecting double-digit growth year over year.

Hendi Susanto: Double-digit growth in capacity or in sales?

Pratik Trivedi: In sales, which means that we would need to have that capacity installed ahead of it. And we are not seeing any concerns in our capability to meet the demand profile that we are seeing in that space.

Hendi Susanto: I see. And then, Ashish, I have a question on the gross margin. So there is some mix benefit, and the non-transportation or the diversified end market is a favorable tailwind. On the other hand, there is also the challenge of high oil prices and component costs. How sustainable is the strong gross margin that we are seeing in Q1? Should we expect some headwinds because of those challenges? Or do you anticipate that Q1 gross margin can serve as a baseline that is sustainable?

Ashish Agrawal: Hendi, that is a good question. That is something that we look at very, very carefully. In addition to the topics that you mentioned, we also had a slight impact from favorable currency changes, which was about 700 thousand. Currency can go in multiple different directions, so we will just continue watching the markets for that. We are experiencing cost pressures related to precious metals that have been going on since late last year, and we have been working closely with our customers to manage through the impact of that with pricing changes and materials, those types of things. More recently, we are also seeing inflation related to oil-derived products like resin, epoxy, transportation costs, those types of things.

We are expecting to see more cost pressures from late Q1 going into Q2, and our teams are already working with customers to manage through that, as well as with suppliers. So we will see some headwinds, but at the same time, we are very, very focused on making sure that we can make the impact cost neutral on our margins. There can be some timing differences which could impact margins in the short term, but we expect to be able to work through it as we have in the past several years.

Hendi Susanto: Okay. And then may I ask more insight into the aerospace and defense expectations of funding? Various programs will improve in the second half. Booking will pick up. Considering the government fiscal calendar ending in September, how should we expect new bookings and new funding to materialize in sales? I assume there would be some lag. I do not know whether a Q4 starting point is somewhat a reasonable expectation.

Pratik Trivedi: Yeah, Hendi, for the aerospace and defense end market and just looking at the broader macro trend, overall, defense spending will continue to remain elevated due to the current geopolitical unrest as well as investments in the infrastructure, primarily around the naval side of defense. What we are seeing right now is we are actively engaged in multiple platform discussions with a wide range of customers. However, what we experienced in the first quarter is a delay in government funding. But towards the end of the quarter, with the passage of the appropriations bill, we expect that funding pace to pick up in the second half of this year. The other point to note is that we usually also have a bit of lumpiness in terms of how we get the orders on the defense side. So you could potentially have a quarter where our book-to-bill might be less than one; however, then it makes it up in the remainder of the year.

Hendi Susanto: Yep. And then last question for me. Any update on the smart actuator and potential change in allocation by the customer?

Pratik Trivedi: Hendi, we continue to be on track with launching the revised version of the actuator with our customer, and we expect normalized modest growth in that particular product line for this year.

Hendi Susanto: Okay. Got it. Thank you.

Kieran O’Sullivan: Great. Thanks, Hendi. Thanks, Hendi.

Operator: Your next question comes from the line of John Franzreb with Sidoti & Co. Your line is open. Please go ahead.

John Franzreb: Yeah. I am actually curious about the growth that you saw in the transportation market in the first quarter. Firstly, were you surprised by that?

Kieran O’Sullivan: John, I would say we were pleased with how we performed in the light vehicle demand and saw a little bit more positiveness in the commercial vehicle. We think, as Pratik said, that is going to extend into the second half of the year.

John Franzreb: As I am sure you have seen, the commercial truck market has seen a strong bookings profile over the last few months. A lot of people are suggesting that the benefits from those order profiles are a second-half event. I am curious if that is how you see it playing out or if it affects you in any different way?

Pratik Trivedi: No, we do see it playing out the same way, John. In the market right now, we are seeing cautious optimism here, primarily related to rising freight rates, improved pricing, and then we have, in the second half of the year, the pre-buy event due to EPA 2027. So we expect it to play out in a very similar manner.

John Franzreb: Okay. So second half. Gotcha. So then the expectation for the market to be down for the full year—I am gathering that suggests you expect the global vehicle market to continue to weaken for the balance of the year. Is that also a fair assessment?

Kieran O’Sullivan: John, what we would say on the light vehicle market is it is performing well so far. But in our prepared remarks, we said IHS had forecast some softness in the second half of the year. With the geopolitical situation, that is how we are thinking about it at the moment—some softness in light vehicle, strength on the commercial vehicle side—so balancing it out a little bit.

John Franzreb: Got it. Got it. Okay. And one last question about capital allocation. You are buying back stock. As Ashish pointed out, you are paying down debt, albeit there were working capital needs in the first quarter. What is the outlook right now on the M&A side of the business? Are you in a period of consolidation and working on organic growth, or are you still looking at acquisitions? Can you discuss maybe the size of the markets that you are looking at?

Kieran O’Sullivan: Yes, John. The key points for us from capital allocation, first of all, are supporting the organic growth investments, which we have some nice opportunities in, which Pratik touched on as well in medical; still pursuing strategic acquisitions to advance our diversification and quality of earnings—while we have nothing to report today, we are very active in that area; and then returning cash to shareholders is how we are approaching it.

John Franzreb: Okay, Kieran. That is all I have. Thanks for taking the questions.

Ashish Agrawal: Thank you, John.

Operator: There are no further questions at this time. I will now turn the call back to Kieran O’Sullivan for closing remarks.

Kieran O’Sullivan: Thank you. Thank you all for your time today. Diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain-agnostic solutions. We are guided by our Evolution 2030 strategic initiative to enhance our emphasis on growth, operational rigor, and employee engagement, while also giving back to the communities where we operate. We look forward to updating you on our second quarter 2026 results in July. This concludes our call.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.