What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-07-24 compared with 2025-04-30 · 95 added, 46 removed, 119 unchanged (54% of the section changed)

Management’s Discussion and Analysis of Fin ancial Condition and Results of Operations (“MD&A”)

(in thousands of dollars, except percentages and per share amounts)

(in thousands, except percentages and per share amounts)

The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included under Item 1, as well as our Consolidated Financial Statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

19 unchanged sentences

Results of Operations:

First Quarter 2025 versus First Quarter 2024

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended March 31, 2025 and March 31, 2024:

Second Quarter 2025 versus Second Quarter 2024

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended June 30, 2025 and June 30, 2024:

Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Percentage of Net Sales –

11 unchanged sentences

Diluted net earnings per share

Net sales were $125,769 in the first quarter of 2025, essentially flat with the first quarter of 2024.

Net sales to the diversified end markets increased $8,046 or 13.6% while net sales to transportation markets decreased $8,027 or 12.1%.

The SyQwest acquisition added net sales of $2,987.

Changes in foreign exchange rates also decreased net sales by $835 year-over-year primarily due to the U.S.

Dollar appreciating compared to the Euro.

Gross margin was $46,549 in the first quarter of 2025, an increase of $1,459 or 3.2% from the first quarter of 2024.

The increase in gross margin was primarily driven by improved mix of sales by end market.

Changes in foreign exchange rates increased gross margin by $1,739 year-over-year primarily due to the U.S.

Dollar depreciating compared to the Mexican Peso.

Losses from our hedges partially offset the positive foreign exchange impact.

See Note 11, “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

As a result, our gross margin percentage increased from 35.9% for the first quarter of 2024 to 37.0% for the first quarter of 2025.

Selling, general and administrative (“SG&A”) expenses were $23,623 or 18.8% of net sales in the first quarter of 2025, versus $22,260 or 17.7% of net sales in the first quarter of 2024.

The increase in SG&A expenses as a percentage of net sales was primarily driven by higher depreciation and amortization expense in the first quarter of 2025.

The SyQwest acquisition added additional depreciation and amortization expense of $1,378.

Research and development (“R&D”) expenses were $6,190 or 4.9% of net sales in the first quarter of 2025 compared to $6,601 or 5.2% of net sales in the first quarter of 2024.

Net sales were $135,309 in the second quarter of 2025, an increase of $5,147 or 4.0% from the second quarter of 2024.

Net sales to the diversified end markets increased $8,694 or 13.2%.

SyQwest added $4,468 in sales during the quarter.

We achieved growth in the medical end market and saw continued recovery in the industrial end market.

Net sales to the transportation end market decreased $3,547 or 5.5%, primarily driven by lower volumes of our commercial vehicle related products and lower sales to customers in China.

Net sales increased $952 year-over-year related to changes in foreign exchange rates, primarily due to the U.S.

Dollar depreciating compared to the Euro.

Gross margin was $52,431 in the second quarter of 2025, an increase of $6,059 or 13.1% from the second quarter of 2024.

Our gross margin percentage increased from 35.6% for the second quarter of 2024 to 38.7% for the second quarter of 2025 due to improved mix of sales by end market and operational improvements.

Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $959 primarily due to rate changes between the U.S.

Dollar and the Mexican Peso.

Selling, general and administrative (“SG&A”) expenses were $23,077 or 17.1% of net sales in the second quarter of 2025 versus $21,332 or 16.4% of net sales in the second quarter of 2024.

The increase in SG&A expenses was primarily driven by higher depreciation and amortization expense in the second quarter of 2025 from the SyQwest acquisition.

Research and development (“R&D”) expenses were $6,326 or 4.7% of net sales in the second quarter of 2025 compared to $6,086 or 4.7% of net sales in the comparable quarter of 2024.

Our R&D expenses are in line with our commitment to continue investing in research and product development to drive organic growth.

Restructuring charges were $451 or 0.4% of net sales in the first quarter of 2025 compared to $1,693 or 1.3% of net sales in the first quarter of 2024.

The restructuring charges in the quarter ended March 31, 2025 were primarily related to headcount reductions in response to softening demand in the transportation end market.

Restructuring charges were $297 or 0.2% of net sales in the second quarter of 2025 compared to $1,190 or 0.9% of net sales in the second quarter of 2024.

The restructuring charges in the quarter ended June 30, 2025 were primarily related to headcount reductions in response to softening demand in the transportation end market.

See Note 7 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

5 unchanged sentences

Total other expense, net

Interest income decreased due to lower investments of available cash into short-term, cash equivalent, high-yield deposit accounts as a result of the SyQwest acquisition in the third quarter of 2024.

Interest income decreased due to lower investments of available cash as a result of the SyQwest acquisition in the third quarter of 2024.

Interest expense increased due to higher borrowings to fund the SyQwest acquisition.

1 unchanged sentence

Effective tax rate

Our effective income tax rate was 17.1% and 18.6% in the first quarters of 2025 and 2024, respectively.

The decrease in the effective income tax rate is primarily attributed to a change in mix of earnings taxed at lower rates and the establishment of valuation allowances on certain tax credits in the first quarter of 2024.

Our effective income tax rate was 19.4% and 17.2% in the second quarters of 2025 and 2024, respectively.

The increase in the effective income tax rate is primarily attributable to a mix of earnings taxed at higher rates.

Results of Operations:

Six Months ended June 30, 2025 versus Six Months Ended June 30, 2024

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the six months ended June 30, 2025, and June 30, 2024:

Six Months Ended

June 30, 2025

June 30, 2024

Percentage of Net Sales –

Cost of goods sold

Selling, general and administrative expenses

Research and development expenses

Restructuring charges

Total operating expenses

Operating earnings

Total other income (expense), net

Earnings before income taxes

Income tax expense

Earnings per share:

Diluted net earnings per share

Net sales were $261,078 in the six months ended June 30, 2025, an increase of $5,166 or 2.0% from the six months ended June 30, 2024.

Net sales to the diversified end markets increased $16,741 or 13.4%.

SyQwest added $7,878 in sales during the first half of the year.

We have good growth momentum in the medical end market and the industrial end market continues to recover.

Net sales to the transportation market decreased $11,575 or 8.9%, primarily driven by lower volumes of our commercial vehicle related products and lower sales to customers in China.

Gross margin was $98,979 for the six months ended June 30, 2025, an increase of $7,517 or 8.2% from the six months ended June 30, 2024.

Our gross margin percentage was 37.9% for the first six months of 2025, an increase from 35.7% in the first six months of 2024 due to improved mix of sales by end market and operational improvements.

Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $2,026 primarily due to rate changes between the U.S.

Dollar and the Mexican Peso.

SG&A expenses were $46,700 or 17.9% of net sales for the six months ended June 30, 2025 versus $43,591 or 17.0% of net sales for the six months ended June 30, 2024.

The increase in SG&A expenses was primarily driven by higher depreciation and amortization expense in 2025 from the SyQwest acquisition.

R&D expenses were $12,515 or 4.8% of net sales for the six months ended June 30, 2025 compared to $12,687 or 5.0% of net sales for the six months ended June 30, 2024.

Restructuring charges were $749 or 0.3% of net sales for the six months ended June 30, 2025 compared to $2,884 or 1.1% of net sales for the six months ended June 30, 2024.

The restructuring charges in the six months ended June 30, 2025 were primarily related to headcount reductions in response to softening demand in the transportation end market.

See Note 7 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Other income and expense items are summarized in the following table:

Six Months Ended

Interest expense

Interest income

Other income (expense), net

Total other (expense) income, net

Interest income decreased due to lower investments of available cash into short-term, cash equivalent, high-yield deposit accounts as a result of the SyQwest acquisition in the third quarter of 2024.

Interest expense increased due to higher borrowings to fund the SyQwest acquisition.

Six Months Ended

Effective tax rate

Our effective income tax rate was 18.4% and 17.8% for the six months ended June 30, 2025 and 2024, respectively.

The increase in the effective income tax rate is primarily attributable to a mix of earnings taxed at higher rates.

Liquidity and Capital Resources

We historically have funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our Revolving Credit Facility (as defined below).

We have historically funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our Revolving Credit Facility (as defined below).

We believe that cash flows from operating activities and available borrowings under our Revolving Credit Facility will be adequate to fund our working capital needs, capital expenditures, investments, and debt service requirements for at least the next twelve months and for the foreseeable future thereafter.

However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.

Cash and cash equivalents were $90,288 at March 31, 2025, and $94,334 at December 31, 2024, of which $89,210 and $92,944, respectively, were held outside the United States.

Total long-term debt was $86,700 as of March 31, 2025 and $92,300 as of December 31, 2024.

Cash and cash equivalents were $99,440 at June 30, 2025, and $94,334 at December 31, 2024, of which $98,785 and $92,944, respectively, were held outside the United States.

Total long-term debt was $88,000 as of June 30, 2025 and $92,300 as of December 31, 2024.

Cash Flow Overview

Cash Flows from Operating Activities

Net cash provided by operating activities was $15,518 during the three months ended March 31, 2025.

Net cash provided by operating activities was $43,870 during the six months ended June 30, 2025.

Components of net cash provided by operating activities included net earnings of $31,891, depreciation and amortization expense of $17,045, other net non-cash items of $838, and a net cash outflow from changes in assets and liabilities of $5,904.

Net cash provided by operating activities was $18,311 during the three months ended March 31, 2024.

Net cash provided by operating activities was $37,940 during the six months ended June 30, 2024.

Components of net cash provided by operating activities included net earnings of $25,826, depreciation and amortization expense of $14,651, other net non-cash items of $629, and a net cash outflow from changes in assets and liabilities of $3,166.

Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 and the three months ended March 31, 2024 were $4,465 and $4,035, respectively.

Capital expenditures made up the investing activities for both periods.

Net cash used in investing activities for the six months ended June 30, 2025 was $7,745 for payments on capital expenditures.

Net cash used in investing activities for the six months ended June 30, 2024 was $8,672 for payments on capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2025 was $15,900.

The net cash outflow was the result of treasury stock purchases of $6,465 (net of excise taxes unpaid), dividends paid of $1,201, taxes paid on behalf of equity award participants of $2,634, and net cash used in the paydown of long-term debt of $5,600.

Net cash used in financing activities for the three months ended March 31, 2024 was $16,308.

The net cash outflow was the result of treasury stock purchases of $11,958 (net of excise tax), dividends paid of $1,233, and taxes paid on behalf of equity award participants of $3,117.

Net cash used in financing activities for the six months ended June 30, 2025 was $32,351.

The net cash outflow was the result of treasury stock purchases of $22,995, net cash payments of long-term debt of $4,300, taxes paid on behalf of equity award participants of $2,655, and dividends paid of $2,401.

Net cash used in financing activities for the six months ended June 30, 2024 was $32,059.

The net cash outflow was the result of treasury stock purchases of $22,892, net cash used in the paydown of long-term debt of $2,500, taxes paid on behalf of equity award participants of $3,131, dividends paid of $2,460, and payments of contingent consideration of $1,076.

Capital Resources

6 unchanged sentences

On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility availability to $400,000, which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sub limits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility.

This new unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired on February 12, 2024.

This new unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired February 12, 2024.

Borrowings in U.S.

3 unchanged sentences

The contractual rate of these arrangements ranges from 1.49% to 2.45%.

The Revolving Credit Facility includes a swingline sublimit of $20,000 and a letter of credit sub limit of $20,000.

The Revolving Credit Facility includes a swing-line sublimit of $20,000 and a letter of credit sublimit of $20,000.

We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility.

The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio.

We were in compliance with all debt covenants at March 31, 2025.

We were in compliance with all debt covenants at June 30, 2025.

Critical Accounting Policies and Estimates

3 unchanged sentences

The critical accounting policies and estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

During and as of the three months ended March 31, 2025, there were no significant changes in the application of critical accounting policies or estimates.

During and as of the three and six months ended June 30, 2025, there were no significant changes in the application of critical accounting policies or estimates.

Significant Customers

1 unchanged sentence

Three Months Ended

March 31, 2025

March 31, 2024

Six Months Ended

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

Toyota Motor Corporation

No other customer accounted for 10% or more of total net sales during these periods.

We continue to focus on broadening our customer base to diversify our non-transportation end market exposure.

Forward ‑ Looking Statements

11 unchanged sentences

unanticipated issues in integrating acquisitions including, without limitation the integration of SyQwest;

the funding of contracts by the US Government;

the results of actions to reposition CTS’ business;

6 unchanged sentences

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 impact of tariffs on China, Canada and Mexico, and other nations, the potential impact of U.S./China relations and the impact of the conflict between Russia and Ukraine may have on our business, results of operations and financial condition);

risks associated with CTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks (including, without limitation, the impact of tariffs on China, Canada and Mexico, and other nations, the potential impact of U.S./China relations and the impact of the conflicts in Ukraine, and the Middle East may have on our business, results of operations and financial condition);

the amount and timing of any share repurchases;

5 unchanged sentences

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2024.

During the three months ended March 31, 2025, there have been no material changes in our exposure to market risk.

During the six months ended June 30, 2025, there have been no material changes in our exposure to market risk.

Control s and Procedures

7 unchanged sentences

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting for the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting for the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHE R INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis