CTS CTS Corporation

CTS Corporation (NYSE: CTS), a leading global designer and manufacturer of custom engineered solutions that “Sense, Connect and Move,” today announced fourth quarter and full-year 2023 results.

“We made good progress in 2023 on our strategic priorities, adding content through several new products in transportation and achieving strong electrification awards. We continued to win new customers and applications in the non-transportation end markets that will support our long-term goal to further diversify and strengthen our business,” said Kieran O’Sullivan, CEO of CTS Corporation. “Our teams managed through a challenging year largely driven by headwinds in the industrial and distribution end-market as well as softening sales of commercial vehicle related products. Growth was solid in medical, and aerospace and defense end-markets. We continue to focus on operational improvements and prudent cost management in this environment. Looking ahead, we expect a soft first half, and an improving trend in the second half of 2024.”

CTS also announced that its Board of Directors approved a new share repurchase program that authorizes the company to repurchase up to $100 million of its common stock, replacing the existing program authorized in February 2023. The new share repurchase program has no scheduled termination date.

Fourth Quarter 2023 Results

• Sales were $125 million, down 12% year-over-year. Sales to non-transportation end markets decreased 22% driven by softness in sales to industrial and distribution customers. Sales to the transportation end market decreased 3% over the same period driven by a decline in sales of products for commercial vehicles.
• Net income was $15 million, or 12% of sales, compared to $15 million, or 11% of sales, in the fourth quarter of 2022.
• Earnings per diluted share were $0.49, compared to $0.47 in the fourth quarter of 2022.
• Adjusted earnings per diluted share were $0.47, down from $0.56 in the fourth quarter of 2022.
• Adjusted EBITDA margin was 22% compared to 23% in the fourth quarter of 2022.
• Operating cash flow was $32 million compared to $26 million in the fourth quarter of 2022.

Full-Year 2023 Results

• Sales were $550 million, down 6% year-over-year, driven by softness in the industrial and distribution end-market. Sales to the non-transportation end markets decreased by 12%, while sales to the transportation end-market decreased by 1% compared to 2022.
• Net income was $61 million, or 11% of sales, compared to $60 million, or 10% of sales in 2022.
• Earnings per diluted share were $1.92, compared to $1.85 in 2022.
• Adjusted earnings per diluted share were $2.22, down from $2.46 in 2022.
• Adjusted EBITDA margin was 22%, down from 23% in 2022.
• Operating cash flow was $89 million, down from $121 million in 2022. The 2022 results included $27 million in one-time cash related to the U.S. pension plan.

2024 Guidance

CTS expects full-year 2024 sales to be in the range of $530 - $570 million and adjusted diluted EPS to be in the range of $2.10 - $2.35.

CTS does not provide reconciliations of forward-looking non-GAAP financial measures, such as estimated adjusted diluted earnings per share, to the most comparable GAAP financial measures on a forward-looking basis because CTS is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, restructuring costs, environmental remediation costs, acquisition-related costs, foreign exchange rates and other non-routine costs. Each of such adjustments has not yet occurred, are out of CTS' control and/or cannot be reasonably predicted. For the same reasons, CTS is unable to address the probable significance of the unavailable information.

Conference Call and Supplemental Materials

As previously announced, the Company has scheduled a conference call for 10:00 a.m. (EST) today. The dial-in number for the U.S. and Canada is 844-200-6205 (+1 929-526-1599, if calling from outside the U.S. and Canada). The passcode is 889906. In addition, the Company will be using a supplemental slide presentation that will be referred to during the call. The presentation and a live audio webcast of the conference call will be available and can be accessed directly from CTS’ website at https://www.ctscorp.com/investors/events-presentations/.

About CTS

CTS Corporation (NYSE: CTS) is a leading designer and manufacturer of products that Sense, Connect and Move. CTS manufactures sensors, actuators and electronic components in North America, Europe and Asia, and provides engineered products to customers in the aerospace/defense, industrial, medical and transportation markets. For more information, visit www.ctscorp.com.

Safe Harbor

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management’s expectations, certain assumptions, and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties, and other factors, which could cause CTS’ actual results, performance, or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: supply chain disruptions; changes in the economy generally, including inflationary and/or recessionary conditions, and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition CTS’ business; rapid technological change; general market conditions in the transportation, as well as conditions in the industrial, aerospace and defense, and medical markets; reliance on key customers; unanticipated public health crises, natural disasters or other events; environmental compliance and remediation expenses; the ability to protect CTS’ intellectual property; pricing pressures and demand for CTS’ products; risks associated with CTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks (including, without limitation, the potential impact U.S./China relations and the conflict between Russia and Ukraine may have on our business, results of operations and financial condition); the amount and timing of any share repurchases; and the effect of any cybersecurity incidents on our business. Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of CTS’ most recent Annual Report on Form 10-K and other filings made with the SEC. CTS undertakes no obligation to publicly update CTS’ forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes. 

Contact Ashish Agrawal Vice President and Chief Financial Officer CTS Corporation 4925 Indiana Avenue Lisle, IL 60532 USA +1 (630) 577-8800 ashish.agrawal@ctscorp.com

CTS CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED(In thousands, except per share amounts)
		Three Months Ended								Twelve Months Ended
		December 31,2023				December 31,2022				December 31,2023				December 31,2022
Net sales		$	124,694			$	142,281			$	550,422			$	586,869
Cost of goods sold			82,630				91,277				359,563				376,331
Gross margin			42,064				51,004				190,859				210,538
Selling, general and administrative expenses			19,477				23,491				83,816				91,520
Research and development expenses			5,290				5,405				24,918				24,100
Restructuring charges			1,041				478				7,074				1,912
Operating earnings			16,256				21,630				75,051				93,006
Other (expense) income:
Interest expense			(822	)			(702	)			(3,331	)			(2,192	)
Interest income			1,538				716				4,625				1,326
Other income (expense), net			655				(873	)			(1,192	)			(11,403	)
Total other income (expense), net			1,371				(859	)			102				(12,269	)
Earnings before income taxes			17,627				20,771				75,153				80,737
Income tax expense			2,307				5,831				14,621				21,162
Net earnings		$	15,320			$	14,940			$	60,532			$	59,575
Earnings per share:
Basic		$	0.49			$	0.47			$	1.93			$	1.86
Diluted		$	0.49			$	0.47			$	1.92			$	1.85
Basic weighted – average common shares outstanding:			31,020				31,818				31,359				31,968
Effect of dilutive securities			219				224				220				270
Diluted weighted – average common shares outstanding:			31,239				32,042				31,579				32,238
Cash dividends declared per share		$	0.04			$	0.04			$	0.16			$	0.16

CTS CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands of dollars)
		(Unaudited)December 31, 2023				December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents		$	163,876			$	156,910
Accounts receivable, net			78,569				90,935
Inventories, net			60,031				62,260
Other current assets			16,873				15,655
Total current assets			319,349				325,760
Property, plant and equipment, net			92,592				97,300
Operating lease assets, net			26,425				22,702
Other Assets
Goodwill			157,638				152,361
Other intangible assets, net			103,957				108,053
Deferred income taxes			25,183				23,461
Other			16,023				18,850
Total other assets			302,801				302,725
Total Assets		$	741,167			$	748,487
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	43,499			$	53,211
Accrued payroll and benefits			14,585				20,063
Operating lease obligations			4,394				3,936
Accrued expenses and other liabilities			34,561				35,322
Total current liabilities			97,039				112,532
Long-term debt			67,500				83,670
Long-term operating lease obligations			24,965				21,754
Long-term pension obligations			4,655				5,048
Deferred income taxes			14,729				16,010
Other long-term obligations			5,457				3,249
Total Liabilities			214,345				242,263
Commitments and Contingencies
Shareholders’ Equity
Common stock			319,269				316,803
Additional contributed capital			45,097				46,144
Retained earnings			602,232				546,703
Accumulated other comprehensive loss			4,264				(671	)
Total shareholders’ equity before treasury stock			970,862				908,979
Treasury stock			(444,040	)			(402,755	)
Total shareholders’ equity			526,822				506,224
Total Liabilities and Shareholders’ Equity		$	741,167			$	748,487

CTS CORPORATION AND SUBSIDIARIESOTHER SUPPLEMENTAL INFORMATION - UNAUDITED(In millions of dollars, except percentages and per share amounts)

Non-GAAP Financial Measures

From time to time, CTS may use non-GAAP financial measures in discussing CTS’ business. These measures are intended to supplement, not replace, CTS’ presentation of its financial results in accordance with U.S. GAAP. CTS believes that the non-GAAP financial measures presented are commonly used by financial analysts and others in the industries in which CTS operates, and thus further provide useful information to investors. CTS’ definitions of these non-GAAP financial measures may differ from those terms as defined or used by other companies. Non-GAAP measures should not be used by investors or third parties as the sole basis for formulating investment decisions, as they may exclude a number of important cash and non-cash recurring items.

CTS has presented these non-GAAP financial measures as it believes that the presentation of its financial results that exclude (1) restructuring charges; (2) restructuring-related charges; (3) environmental charges; (4) acquisition-related costs; (5) inventory fair value step-up costs; (6) foreign exchange (gains) losses; (7) non-cash pension expenses (income); and (8) certain discrete tax items are useful and assist in comparing CTS’ current operating results with past periods and with the operational performance of other companies in its industry. Included below is a description of the expenses that CTS has determined are not normal, recurring cash operating expenses necessary to operate its business and the rationale for why providing financial measures for its business with such expenses excluded or adjusted is useful to investors as a supplement to the U.S. GAAP measures.

• Restructuring charges – costs primarily relating to workforce reduction costs, building and equipment relocation costs, asset impairment charges and other facility closure costs in connection with our continued optimization of our organization.
• Restructuring-related charges – costs related to restructuring actions that do not qualify as direct restructuring charges under US GAAP. These include duplicative expenses incurred due to the plant consolidation related transition activities such as excess rent, utilities, personnel related and other costs prior to start of production at the new location.
• Environmental charges – costs associated with our non-operating facilities that are unrelated to ongoing operations. Currently, none of these costs and accruals relate to sites that provide revenue generating activities for the Company.
• Acquisition-related costs – diligence and transaction costs related to acquisitions including related contingent earnout adjustments.
• Inventory fair value step-up costs – purchase accounting-related inventory costs from acquisitions.
• Foreign exchange (gains) losses – remeasurement income and expenses for non-U.S. subsidiaries with the U.S. dollar as the functional currency.
• Non-cash pension expenses (income) – pension income and expenses relating to the non-operating U.S. pension and post-retirement life insurance plans, including historical plan settlement activities.
• Discrete tax items – non-recurring, infrequent, or unusual tax adjustments (e.g., valuation allowances, uncertain tax position changes, unremitted assertion changes and discrete impacts associated with pre-tax non-GAAP items or due to tax law changes, etc.).

At times, the reconciliations below have been intentionally rounded to the nearest thousand, or $0.01 for EPS figures, and, therefore, may not sum.

Adjusted Gross Margin

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Gross margin		$	42.1			$	51.0			$	190.9			$	210.5			$	184.6
Net sales		$	124.7			$	142.3			$	550.4			$	586.9			$	512.9
Gross margin as a % of net sales			33.7	%			35.8	%			34.7	%			35.9	%			36.0	%
Adjustments to reported gross margin:
Restructuring related charges (b)			0.6				—				0.6				—				—
Inventory fair value step-up (b)			—				0.7				—				4.0				—
Adjusted gross margin		$	42.6			$	51.7			$	191.4			$	214.5			$	184.6
Adjusted gross margin as a % of net sales			34.2	%			36.3	%			34.8	%			36.5	%			36.0	%

Adjusted Operating Earnings

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Operating earnings		$	16.3			$	21.6			$	75.1			$	93.0			$	76.5
Net sales		$	124.7			$	142.3			$	550.4			$	586.9			$	512.9
Operating earnings as a % of net sales			13.0	%			15.2	%			13.6	%			15.8	%			14.9	%
Adjustments to reported operating earnings:
Restructuring charges (c)			1.0				0.5				7.1				1.9				1.7
Restructuring related charges (b)			0.6				—				0.6				—				—
Environmental charges (a)			0.4				1.0				3.5				2.8				2.3
Acquisition-related costs (a)			0.2				—				0.4				0.8				—
Inventory fair value step-up (b)			—				0.7				—				4.0				—
Total adjustments to reported operating earnings		$	2.2			$	2.2			$	11.5			$	9.5			$	3.9
Adjusted operating earnings		$	18.4			$	23.8			$	86.6			$	102.5			$	80.4
Adjusted operating earnings as a % of net sales			14.8	%			16.7	%			15.7	%			17.5	%			15.7	%

Adjusted EBITDA Margin

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Net earnings (loss)		$	15.3			$	14.9			$	60.5			$	59.6			$	(41.9	)
Net sales		$	124.7			$	142.3			$	550.4			$	586.9			$	512.9
Net earnings (loss) margin			12.3	%			10.5	%			11.0	%			10.2	%			-8.2	%
Depreciation and amortization expense			7.3				8.0				28.7				29.8				26.9
Interest expense			0.8				0.7				3.3				2.2				2.1
Tax expense (benefit)			2.3				5.8				14.6				21.2				(19.0	)
EBITDA			25.7				29.5				107.2				112.7				(31.8	)
Adjustments to EBITDA:
Restructuring charges (c)			1.0				0.5				7.1				1.9				1.7
Restructuring related charges (b)			0.6				—				0.6				—				—
Environmental charges (a)			0.4				1.0				3.5				2.8				2.3
Acquisition-related costs (a)			0.2				—				0.4				2.5				—
Inventory fair value step-up (b)			—				0.7				—				4.0				—
Non-cash pension and related expense (d)			—				—				—				4.8				132.4
Foreign currency (gain) loss (d)			(0.3	)			0.9				2.0				4.9				3.3
Total adjustments to EBITDA			1.8				3.1				13.5				20.9				139.7
Adjusted EBITDA		$	27.6			$	32.6			$	120.7			$	133.6			$	107.9
Adjusted EBITDA Margin			22.1	%			22.9	%			21.9	%			22.8	%			21.0	%

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share

		Three Months EndedDecember 31,
		2023				2023				2022				2022
						Per share								Per share
Net earnings (A)		$	15.3			$	0.49			$	14.9			$	0.47
Adjustments to reported net earnings:
Restructuring charges (c)			1.0				0.03				0.5				0.01
Restructuring related charges (a)			0.6				0.02				—				—
Environmental charges (a)			0.4				0.01				1.0				0.03
Acquisition-related costs (a)			0.2				0.01				—				—
Inventory fair value step-up (b)			—				—				0.7				0.02
Foreign currency (gain) loss (d)			(0.3	)			(0.01	)			0.9				0.03
Total pretax adjustments to reported net earnings		$	1.8			$	0.06			$	3.1			$	0.10
Income tax effect of above adjustments (f)			(0.8	)			(0.03	)			(0.4	)			(0.01	)
Total adjustments, tax affected (f) (B)		$	1.0			$	0.03			$	2.6			$	0.08
Tax adjustments:
Other discrete tax items (e)			(1.6	)			(0.05	)			0.2				0.01
Total tax adjustments (C)		$	(1.6	)		$	(0.05	)		$	0.2			$	0.01
Adjusted net earnings (A+B+C) and Adjusted net earnings per share		$	14.7			$	0.47			$	17.8				0.56
Net sales		$	124.7							$	142.3
Net earnings as a % of net sales			12.3	%							10.5	%
Adjusted net earnings as a % of net sales			11.8	%							12.5	%

		Twelve Months EndedDecember 31,
		2023				2023				2022				2022				2021				2021
						Per share								Per share								Per share
Net earnings (loss) (A)		$	60.5			$	1.92			$	59.6			$	1.85			$	(41.9	)		$	(1.30	)
Adjustments to reported net earnings (loss):
Restructuring charges (c)			7.1				0.22				1.9				0.06				1.7				0.06
Restructuring related charges (a)			0.6				0.02				—				—				—				—
Environmental charges (a)			3.5				0.11				2.8				0.09				2.3				0.07
Acquisition-related costs (a)			0.4				0.01				2.5				0.08				—				—
Inventory fair value step-up (b)			—				—				4.0				0.12				—				—
Non-cash pension and related expense (d)			—				—				4.8				0.15				132.4				4.10
Foreign currency loss (d)			2.0				0.06				4.9				0.15				3.3				0.10
Total pretax adjustments to reported net earnings (loss)		$	13.5			$	0.42			$	20.9			$	0.65			$	139.7			$	4.33
Income tax effect of above adjustments (f)			(2.4	)			(0.07	)			(1.6	)			(0.05	)			(31.1	)			(0.99	)
Total adjustments, tax affected (f) (B)		$	11.1			$	0.35			$	19.3			$	0.60			$	108.6			$	3.34
Tax adjustments:
Increase in valuation allowances (e)			—				—				—				—				0.9				0.03
Other discrete tax items (e)			(1.6	)			(0.05	)			0.2				0.01				(4.7	)			(0.14	)
Total tax adjustments (C)		$	(1.6	)		$	(0.05	)		$	0.2			$	0.01			$	(3.8	)		$	(0.11	)
Adjusted net earnings (A+B+C) and Adjusted net earnings per share		$	70.0			$	2.22			$	79.1				2.46			$	63.0				1.93
Net sales		$	550.4							$	586.9							$	512.9
Net earnings (loss) as a % of net sales			11.0	%							10.2	%							-8.2	%
Adjusted net earnings as a % of net sales			12.7	%							13.5	%							12.3	%

(a) Reflected in selling, general and administrative and other (expense) income, net.(b) Reflected in cost of goods sold.(c) Reflected in restructuring charges.(d) Reflected in other (expense) income, net.(e) Reflected in income tax expense (income). For 2021, the discrete tax items relate to items we deemed outside normal cash-generating operations including, $5.4 million of a stranded tax benefit from the U.S. Pension termination offset by $0.7 million of tax expense from tax costs associated with a one-time internal cash movement, and $0.9 million related to the addition of a valuation allowance for a foreign subsidiary. For 2022, the discrete tax items relate to the net impact to tax expense of expired R&D credits, including the release of associated reserves. For 2023, discrete tax items include adjusting for tax benefits resulting from $0.6 million for research and development tax credits from prior years, $0.8 million in foreign tax credits related to prior years from a 2023 tax law change, as well as $0.2m from the release of uncertain tax benefits.(f) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments. For all periods presented, we applied the statutory income tax rates to the taxable portion of all of our adjustments. Our acquisition costs and foreign currency gains and losses included in our non-GAAP adjustments were not deductible for income tax purposes; therefore, no statutory income tax rate was applied to such costs.

NOTE: CTS believes that adjusted gross margin, adjusted operating earnings, adjusted EBITDA margin, adjusted net earnings and adjusted diluted earnings per share provide useful information to investors regarding its operational performance because they enhance an investor’s overall understanding of CTS’ core financial performance and facilitate comparisons to historical results of operations, by excluding items that are not related directly to the underlying performance of CTS’ fundamental business operations (such as those items noted above in the paragraph titled “Non-GAAP Financial Measures”) or were not part of CTS’ business operations during a comparable period.

Controllable Working Capital

		December 31,
		2023				2022				2021
Net accounts receivable		$	78.6			$	90.9			$	82.2
Net inventory		$	60.0			$	62.3			$	49.5
Accounts payable		$	(43.5	)		$	(53.2	)		$	(55.5	)
Controllable working capital		$	95.1			$	100.0			$	76.2
Quarter sales		$	124.7			$	142.3			$	132.5
Multiplied by 4			4				4				4
Annualized sales		$	498.8			$	569.1			$	530.0
Controllable working capital as a % of annualized sales			19.1	%			17.6	%			14.4	%

NOTE: CTS believes the controllable working capital ratio is a useful measure because it provides an objective measure of the efficiency with which CTS manages its short-term capital needs.

Free Cash Flow

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Net cash provided by operating activities		$	32.1			$	25.5			$	88.8			$	121.2			$	86.1
Capital expenditures			(3.5	)			(5.1	)			(14.7	)			(14.3	)			(15.6	)
Free cash flow		$	28.6			$	20.4			$	74.1			$	106.9			$	70.5
Operating cash flow as a percentage of net earnings			209	%			170	%			147	%			203	%			-206	%
Free cash flow as a percentage of adjusted net earnings			195	%			115	%			106	%			135	%			112	%

NOTE: CTS believes that free cash flow is a useful measure because it demonstrates the company’s ability to generate cash. Free cash flow is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in the company's condensed consolidated statement of cash flows as a measure of liquidity.

Capital Expenditures

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Capital expenditures		$	3.5			$	5.1			$	14.7			$	14.3			$	15.6
Net sales		$	124.7			$	142.3			$	550.4			$	586.9			$	512.9
Capex as % of net sales			2.8	%			3.6	%			2.7	%			2.4	%			3.0	%

Additional Information

The following table includes other financial information not presented in the preceding financial statements.

		Three Months EndedDecember 31,								Twelve Months EndedDecember 31,
		2023				2022				2023				2022				2021
Depreciation and amortization expense		$	7.3			$	8.0			$	28.7			$	29.8			$	26.9
Stock-based compensation expense		$	0.5			$	1.9			$	5.2			$	7.7			$	6.1