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CTS CORP (CTS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $125.77M and diluted EPS $0.44; adjusted diluted EPS also $0.44. Diversified end markets grew 14% YoY to 53% of revenue, while transportation declined 12% YoY to $58M .
  • Wall Street consensus (S&P Global) was higher: EPS $0.49 vs actual $0.44 and revenue $128.72M vs actual $125.77M, leading to a modest double miss; adjusted EBITDA also came in below consensus ($27.05M vs $25.23M)*.
  • Management maintained FY25 guidance: sales $520–$550M and adjusted diluted EPS $2.20–$2.35; tax rate expected 19–21%. Minimal tariff impact in Q1, but caution on H2 demand and tariff trajectory .
  • Bookings and book-to-bill strengthened in diversified markets (book-to-bill 1.28), with medical, aerospace/defense, and industrial seeing order momentum; transportation saw continued China softness and commercial vehicle competition .
  • Potential stock reaction catalysts: maintained full-year guide despite macro uncertainty, strong diversified bookings, and visibility on SyQwest seasonality; tariff path and transportation softness remain swing factors .

What Went Well and What Went Wrong

What Went Well

  • Diversification progress: diversified end markets up 14% YoY and now 53% of revenue; management emphasized diversification as strategic priority (“focus on growing our revenues and quality of earnings…”) .
  • Strong bookings and book-to-bill in diversified markets (1.28), with medical book-to-bill at 1.3 and aerospace/defense bookings up 32% YoY; industrial bookings up 19% YoY .
  • Margin resilience: adjusted EBITDA margin 20.5% and adjusted gross margin 37.0%, helped by favorable FX ($1.1M); minimal tariff impact in Q1 due to customer collaboration .

What Went Wrong

  • Transportation end market down 12% YoY; Q1 transportation revenue $58M impacted by China market dynamics and commercial vehicle competition; eBrake launch timing for first customer moved out, timing of revenues unclear .
  • EPS and revenue missed S&P Global consensus; adjusted EPS down vs prior year ($0.44 vs $0.47) amid higher net interest costs (> $0.03 headwind) from SyQwest .
  • SG&A stepped up (integration, comp reset, intangibles amortization), prompting scrutiny on operating expense run-rate and need for gross margin improvement to offset .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$132.42 $127.44 $125.77
Diluted EPS ($)$0.61 $0.45 $0.44
Adjusted Diluted EPS ($)$0.63 $0.53 $0.44
Gross Margin % (GAAP)37.6% 37.6% 37.0%
Adjusted Gross Margin %38.6% 38.1% 37.0%
Adjusted EBITDA Margin %24.8% 23.9% 20.5%
Segment/End Market Detail (Q1 2025)Q1 2025
Transportation Revenue ($USD Millions)$58
Diversified End Markets as % of Company Revenue53%
Diversified End Markets YoY Sales Growth+14%
Transportation YoY Sales Growth-12%
SyQwest Revenue Contribution ($USD Millions)$3
KPIs (Q1 2025)Q1 2025
Company Book-to-Bill1.17
Diversified Markets Book-to-Bill1.28
Operating Cash Flow ($USD Millions)$16
Free Cash Flow ($USD Millions)$11.0
Cash Balance ($USD Millions)$90.29
Long-Term Debt ($USD Millions)$86.70
Estimates vs. ActualsQ4 2024Q1 2025
Revenue Consensus ($USD Millions)$132.80*$128.72*
Revenue Actual ($USD Millions)$127.44 $125.77
EPS Consensus ($)$0.54*$0.49*
Diluted EPS Actual ($)$0.53 (Adj) $0.44
EBITDA Consensus ($USD Millions)N/A$27.05*
EBITDA Actual ($USD Millions)N/A$25.23*

*Values retrieved from S&P Global

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Millions)FY 2025$520–$550 $520–$550 Maintained
Adjusted Diluted EPS ($)FY 2025$2.20–$2.35 $2.20–$2.35 Maintained
Tax RateFY 2025N/A19–21% (ex discrete) Newly disclosed detail
Capex (% of Sales)FY 2025N/A~4% of sales Newly disclosed detail
DividendQ2 2025Prior $0.04/qtr $0.04 per share; record 6/27; pay 7/25 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Tariffs/MacroPrepared to mitigate; monitoring Mexico/China; proactive with customers/suppliers Minimal Q1 tariff impact; collaborating to keep cost neutral; cautious H2 demand Heightened watch; currently manageable
MedicalQ4: inventory adjustment; strong book-to-bill; therapeutics demand strengthening Book-to-bill 1.3; wins across ultrasound/therapeutics; new AI-driven ultrasound customer Improving demand profile
Aerospace & Defense (SyQwest)Q4: strong YoY growth; integration on track; seasonality; backlog healthy Q1 sales up 39% YoY; bookings +32%; seasonality; stronger H2 expected Positive momentum; H2 weighted
IndustrialQ4: gradual recovery; normalized inventories Sales +4% YoY; bookings +19%; gradual improvement expected Gradual improvement
TransportationQ4: China softness; commercial vehicle competition; eBrake predev award; total booked ~$1.1B $58M revenue; China softness; competition; eBrake launch timing moved out; booked business ~$1B Ongoing softness; timing uncertainty
AI/Technology InitiativesN/ANew AI-driven ultrasound customer win Emerging
FX ImpactQ4: +$1.5M GM benefit Q1: +$1.1M GM benefit Supportive tailwind
Regional/Footprint & Tariff PositioningQ4: monitoring Mexico/China Footprint aligned (Mexico, Europe, China local); USMCA exemption key; mitigation via pricing/logistics/defense exemptions Prepared but dependent on policy

Management Commentary

  • “Our global teams continued to execute well in a challenging operating environment. We delivered double digit sales growth in our diversified markets.” — Kieran O’Sullivan, CEO .
  • “Assuming the continuation of current market conditions, we are maintaining our guidance of sales in the range of $520 million to $550 million and adjusted diluted EPS to be in the range of $2.20 to $2.35.” — Management .
  • “During the first quarter, we saw a very small impact from tariffs… We are working with customers to ensure that we can keep the impact of tariffs on our business cost neutral.” — Ashish Agrawal, CFO .
  • “Transportation sales were $58 million… due to the impact of China market dynamics and competition for commercial vehicle products.” — Kieran O’Sullivan .

Q&A Highlights

  • Bookings strength and tariff prebuy: No broad-based prebuy in diversified markets; some small instances; medical strongest bookings; diversified book-to-bill 1.28 .
  • Transportation outlook and cadence: Transportation assumptions unchanged; guide assumes “current conditions”; profit/margin profile expected to improve through year, helped by mix and SyQwest seasonality .
  • Tariff mitigation and footprint: Footprint largely regional (China for China, Europe for Europe, Mexico for NA); USMCA exemption critical; mitigation via pricing, logistics, defense exemptions; requalification needed if manufacturing location changes .
  • Expenses: SG&A increase driven by SyQwest and comp resets; discretionary spend under review; gross margin expected to improve to offset higher SG&A .
  • Capital allocation: Capex ~4% of sales; tax rate 19–21% midpoint; continued buybacks/dividends with strong liquidity (cash ~$90M, LTD ~$87M) .

Estimates Context

  • Q1 2025: EPS $0.44 vs consensus $0.49; revenue $125.77M vs consensus $128.72M; adjusted EBITDA margin 20.5% vs EBITDA consensus of $27.05M and actual $25.23M. This constitutes a modest miss on EPS and revenue; EBITDA below consensus as well*.
  • Q4 2024: Adjusted EPS $0.53 near consensus $0.54; revenue $127.44M below consensus $132.80M*.
  • Implication: Diversified growth and FX aided margins, but transportation headwinds and higher interest from SyQwest weighed on EPS; estimates may need to reflect continued transportation softness, H2 seasonality uplift from SyQwest, and tariff pass-through dynamics .

*Values retrieved from S&P Global

Key Takeaways for Investors

  • Diversified strength offsets transportation softness; bookings and book-to-bill in medical/aerospace/industrial support guide maintenance despite macro uncertainty .
  • Tariff impact was minimal in Q1 due to collaboration and pass-through pricing; risk remains skewed to H2 demand and tariff policy changes—USMCA exemption is a key watch .
  • Mix and SyQwest seasonality should lift margins and earnings as the year progresses; expect stronger H2, particularly in aerospace/defense .
  • Transportation remains a drag (China softness, commercial vehicle competition); eBrake timing shifted—visibility limited near term; hybrid adoption a relative positive .
  • Liquidity intact to support M&A and shareholder returns; Q1 buybacks/dividends totaled ~$8M; dividend maintained at $0.04 per share with July 25 pay date .
  • Near-term trading lens: modest miss could pressure shares, but narrative of strong diversified bookings and maintained guidance provides support; tariff headlines and transportation data points likely to drive day-to-day sentiment .
  • Medium-term thesis: Continued diversification, operational efficiency, and SyQwest integration underpin margin expansion; watch SG&A normalization and gross margin trajectory to meet FY EPS targets .