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CTS CORP (CTS)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue beat: Q3 2025 net sales were $143.0M, up 8% y/y; vs S&P Global consensus of $136.4M, a clear top-line beat . EPS was $0.46 GAAP and $0.60 adjusted; adjusted EPS modestly missed consensus of $0.61 due to tax headwinds and an EPA charge . Revenue consensus/estimates from S&P Global: $136.4M*, EPS $0.61*; values retrieved from S&P Global.
  • Mix shift continues: Diversified end markets (industrial, aerospace & defense, medical) grew 22% y/y and comprised 59% of revenue; transportation fell 7% on commercial vehicle softness .
  • Guidance tightened: FY25 revenue raised/narrowed to $535–$545M (prior $520–$550M); adjusted EPS lowered/narrowed to $2.20–$2.25 (prior $2.20–$2.35). Tax rate assumption now 21–23% (ex-discrete) .
  • Cash generation solid: Operating cash flow $29.0M; free cash flow $24.2M; controllable working capital improved to 16.1% of annualized sales .
  • Stock reaction catalysts: Top-line beat and stronger diversified momentum vs slight adjusted EPS miss (tax/EPA), plus FY revenue guidance raised but EPS midpoint trimmed; incremental clarity on transportation softness and tax rate may drive near-term moves .

What Went Well and What Went Wrong

What Went Well

  • Diversified growth and mix: Diversified end markets up 22% y/y and now 59% of revenue, supporting margin expansion and reduced cyclicality .
  • Aerospace & defense momentum: Q3 sales $25M (+23% y/y); bookings +29%; SyQwest revenue $8.8M and new $5M sole-source naval award underpin backlog strength .
  • Operational execution and cash flow: Adjusted gross margin expanded 66 bps y/y to 38.9%; operating cash flow $29.0M with free cash flow $24.2M .
  • Management emphasis: “Diversification remains a strategic priority to drive growth and margin expansion,” and “solid profitability and strong cash generation,” CEO Kieran O’Sullivan .

What Went Wrong

  • EPS pressure from tax and EPA: Adjusted EPS $0.60 vs $0.61 y/y; unfavorable ~$0.03 from U.S. tax legislation and an extraordinary $4.2M EPA past cost recovery charge .
  • Transportation weakness: Transportation sales $59M (-7% y/y), driven by softness in commercial vehicle products; management anticipates continued near-term softness .
  • SG&A uptick: Year-over-year SG&A increased, driven primarily by the $4.2M EPA reserve and higher equity compensation adjustments, pressuring operating income .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$132.4 $135.3 $143.0
GAAP Diluted EPS ($)$0.59 $0.62 $0.46
Adjusted Diluted EPS ($)$0.61 $0.57 $0.60
Adjusted Gross Margin (%)38.2% 38.7% 38.9%
Adjusted EBITDA Margin (%)24.4% 23.0% 23.8%
Net Income ($USD Millions)$18.1 $18.5 $13.7
Operating Cash Flow ($USD Millions)$35.4 $28.4 $29.0
Segment (Q3 2025)Sales ($USD Millions)YoY Change
Medical$22 +22%
Aerospace & Defense$25 +23%
Industrial$37 +21%
Transportation$59 -7%
KPIsQ3 2025Notes
Book-to-bill ratio1.00 Slightly above 1 per management
Total booked business (Transportation)~$1B At end of Q3 2025
Free Cash Flow ($USD Millions)$24.2 Q3
Controllable Working Capital (% of annualized sales)16.1% Q3
Cash ($USD Millions)$110 9/30/2025
Long-term debt ($USD Millions)$90.7 9/30/2025

Estimate comparison (Q3 2025, S&P Global):

MetricConsensusActual
Revenue ($USD)$136,397,000*$142,970,000
Primary EPS ($)$0.61*$0.60 (Adjusted EPS)
EBITDA ($USD)$32,115,000*$29,700,000
Primary EPS - # of Estimates1*—
Revenue - # of Estimates1*—

Values marked with * are retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$520–$550M $535–$545M Raised midpoint (+$5M); narrowed range
Adjusted Diluted EPSFY 2025$2.20–$2.35 $2.20–$2.25 Lowered midpoint (-$0.05); narrowed range
Tax Rate (ex-discrete)FY 2025~19–21.5% (implied) 21–23% Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Diversification & marginsQ1: Diversified revenue +14%, strategy to expand high-quality end markets ; Q2: Diversified +13%, margin expansion with mix Diversified +22%, 59% of revenue; adj. GM +66 bps y/y Positive momentum
Tariffs/macroQ1: Minimal impact, focus on pricing/logistics, USMCA exposure ; Q2: Minimal impact, monitoring Minimal tariff impact in Q3; monitoring geopolitical environment Managed, watch USMCA
Transportation outlookQ1: CV softness; eBrake timing unclear; strong bookings pipeline ; Q2: Down 6% y/y; CV softness persists; ~$1B total booked Down 7% y/y; CV softness; awards in brake sensing and actuators; ~$1B booked Mixed; near-term soft, pipeline intact
Medical diagnostics vs therapeuticsQ1: Strong bookings; therapeutics volumes strengthening ; Q2: Diagnostics soft; therapeutics +~60% y/y Diagnostics softer; therapeutics strong; added customers; bookings +8% Therapeutics strength, diagnostics gradual recovery
Aerospace & Defense (SyQwest)Q1: Seasonality; strong bookings; integration progressing ; Q2: +34% y/y (6% ex-SyQwest); stronger H2 expected Q3 sales $25M (+23%); bookings +29%; $8.8M SyQwest; $5M sole-source award Strong growth, backlog solid
Industrial recoveryQ1: Gradual recovery; bookings +19% ; Q2: Bookings +22%; sequential +5% Q3 sales +21% y/y; bookings +29%; new position sensing customer Accelerating recovery
Tax rateQ1: ~19–21.5% midpoint cited ; Q2: No change discussedAdverse impact on EPS; guide 21–23% going forward Slightly higher tax rate headwind

Management Commentary

  • CEO: “Our business had another quarter of strong growth with sales up 22% year over year in the diversified end markets… Diversification remains a strategic priority to drive growth and margin expansion.”
  • CEO: “We finished the third quarter with sales of $143 million… diversified end market sales were 59% of overall company revenue… book-to-bill ratio was slightly above 1.”
  • CFO: “Adjusted gross margin was 38.9%… tariffs had a minimal impact… third quarter results include a $4.2M increase in reserve related to EPA’s cost reimbursement claim… U.S. tax legislation changes had an adverse impact of approximately $0.03 on adjusted EPS.”
  • Segment detail: “SyQwest revenue $8.8M in Q3… sole source naval defense contract with initial value of $5M…”
  • Transportation awards: “Secured new brake sensing application… large extension award for actuators (2028–2030)… ~$1B total booked business at end of Q3.”

Q&A Highlights

  • Guidance dynamics: PM/analyst noted revenue midpoint up while EPS midpoint down; management cited tax mix and U.S. tax legislation as primary EPS headwind, persisting into Q4 .
  • Tax rate clarity: CFO guided low-20s tax rate, ~21–23% going forward; adverse impact likely to persist into 2026 with efforts to optimize .
  • Transportation outlook 2026: Mixed views across OEMs; CV expected soft near term; bookings strong; light vehicle demand showing stability .
  • Tariff mitigation: Regionalized production footprint limits cross-border exposure; working closely with customers/suppliers; USMCA risk noted; minimal Q3 impact .
  • SG&A/OpEx: SG&A increase driven by $4.2M EPA reserve and higher equity comp adjustments .
  • External supply issues: No direct impact from Ford aluminum supplier fire/Nexperia chips; monitoring .

Estimates Context

  • Revenue beat vs consensus: $143.0M actual vs $136.4M consensus*, driven by diversified strength and SyQwest contribution .
  • Adjusted EPS slight miss vs consensus: $0.60 actual vs $0.61 consensus*, with ~$0.03 drag from U.S. tax legislation and EPA reserve .
  • EBITDA below consensus: $29.7M actual vs $32.1M consensus*, reflecting EPA-related expenses and mix effects .
  • Coverage remains thin (# of estimates = 1 for revenue/EPS)*, increasing sensitivity to single-analyst revisions.

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Diversified momentum and margin mix are intact; continued strength in industrial, aerospace & defense, and medical therapeutics supports medium-term thesis .
  • Transportation softness (commercial vehicle) is the key near-term headwind; watch for 2026 content wins (brake sensing, actuators) and ~$1B booked business as offsets .
  • FY25 guidance implies top-line resilience but acknowledges tax-rate drag; EPS midpoint lowered despite higher revenue—model tax at 21–23% near term .
  • Non-GAAP adjustments matter: EPA charge ($4.2M) and tax legislation (-$0.03 EPS) masked underlying performance—adjusted metrics show sequential improvement .
  • Cash generation strong; liquidity ($110M cash; $90.7M debt) enables opportunistic M&A and buybacks ($44M returned YTD) .
  • Near-term trading: Expect reaction to revenue beat vs minor EPS miss and guidance mix shift; updates on tariffs/USMCA and transportation demand are key catalysts .
  • Medium-term: Execution on SyQwest pipeline, diversified customer additions, and product innovation (COBRA/eBrake/footwell sensors) underpin growth and margin trajectory .