What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-28 compared with 2025-07-24 · 86 added, 64 removed, 150 unchanged (50% of the section changed)

22 unchanged sentences

Results of Operations:

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:

Third Quarter 2025 versus Third Quarter 2024

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

Three Months Ended

June 30, 2025

June 30, 2024

September 30, 2025

September 30, 2024

Percentage of Net Sales –

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Diluted net earnings per share

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 were $142,970 in the third quarter of 2025, an increase of $10,586 or 8.0% from the third quarter of 2024.

Net sales to the diversified end markets increased $15,070 or 21.7%.

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.

SyQwest accounted for $8,772 in sales in the third quarter of 2025, compared to $3,575 in the third quarter of 2024.

We achieved growth in the aerospace & defense and medical end markets and saw continued recovery in the industrial end market.

Net sales to the transportation end market decreased $4,484 or 7.1%, primarily driven by lower volumes of our commercial vehicle related products.

Changes in foreign exchange rates had a net benefit on sales of $1,005, 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.

Gross margin was $55,341 in the third quarter of 2025, an increase of $6,152 or 12.5% from the third quarter of 2024.

Our gross margin percentage increased from 37.2% for the third quarter of 2024 to 38.7% for the third quarter of 2025 due to improved mix of sales by end market and operational improvements.

Amortization of the inventory step-up related to the SyQwest acquisition also adversely impacted gross margin in the third quarter of 2024.

See Note 3 “Business Acquisitions” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Selling, general and administrative (“SG&A”) expenses were $27,222 or 19.0% of net sales in the third quarter of 2025 versus $22,509 or 17.0% of net sales in the third quarter of 2024.

The increase in SG&A expenses was primarily driven by increased environmental expense in the third quarter of 2025.

See Note 10 “Commitments and Contingencies” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Research and development (“R&D”) expenses were $6,901 or 4.8% of net sales in the third quarter of 2025 compared to $5,031 or 3.8% of net sales in the comparable quarter of 2024.

The increase during the three months ended September 30, 2025 is due to the timing of certain spend and recoveries from customers.

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 $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.

Restructuring charges were $280 or 0.2% of net sales in the third quarter of 2025 compared to $773 or 0.6% of net sales in the third quarter of 2024.

The restructuring charges in the quarter ended September 30, 2025 were primarily related to changes to adjust our business in response to demand changes across certain locations and products.

See Note 8 “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.

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Three Months Ended

September 30,

Interest expense

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Total other expense, net

Other (expense) income, net is due to foreign currency losses, primarily related to the Chinese Renminbi, Euro and Mexican Peso.

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.

Three Months Ended

September 30,

Effective tax rate

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.

Our effective income tax rate was 30.6% and 16.8% in the third quarters of 2025 and 2024, respectively.

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

See Note 17 “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

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

Nine Months ended September 30, 2025 versus Nine Months Ended September 30, 2024

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

Nine Months Ended

September 30, 2025

September 30, 2024

Percentage of Net Sales –

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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 were $404,047 in the nine months ended September 30, 2025, an increase of $15,751 or 4.1% from the nine months ended September 30, 2024.

Net sales to the diversified end markets increased $31,810 or 16.4%.

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.

SyQwest accounted for $16,650 in sales for the nine months ended September 30, 2025 compared to $3,575 for the nine months ended September 30, 2024.

We achieved growth in the aerospace & defense and medical end markets and saw continued recovery in the industrial end market.

Net sales to the transportation market decreased $16,059 or 8.3%, primarily driven by lower volumes of our commercial vehicle related products.

Changes in foreign exchange rates had a net benefit on sales of approximately $1,082 primarily due to rate changes between the U.S.

Dollar and Euro.

Gross margin was $154,320 for the nine months ended September 30, 2025, an increase of $13,669 or 9.7% from the nine months ended September 30, 2024.

Our gross margin percentage was 38.2% for the first nine months of 2025, an increase from 36.2% in the first nine months of 2024 due to improved mix of sales by end market and operational improvements.

Amortization of the inventory step-up related to the SyQwest acquisition also adversely impacted gross margin in the third quarter of 2024.

See Note 3 “Business Acquisitions” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Additionally, changes in foreign exchange rates had a net benefit on our gross margin of approximately $2,061 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.

Dollar, Mexican Peso and Euro.

SG&A expenses were $73,922 or 18.3% of net sales for the nine months ended September 30, 2025 versus $66,100 or 17.0% of net sales for the nine months ended September 30, 2024.

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

See Note 10 “Commitments and Contingencies” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

R&D expenses were $19,416 or 4.8% of net sales for the nine months ended September 30, 2025 compared to $17,718 or 4.6% of net sales for the nine months ended September 30, 2024.

The increase during the nine months ended September 30, 2025 is due to the pursuit of growth opportunities in the transportation end-market and lower recoveries from customers.

Restructuring charges were $1,028 or 0.3% of net sales for the nine months ended September 30, 2025 compared to $3,657 or 0.9% of net sales for the nine months ended September 30, 2024.

The restructuring charges in the nine months ended September 30, 2025 were primarily related to changes to adjust our business in response to demand changes across certain locations and products.

See Note 8 “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

Nine Months Ended

September 30,

Interest expense

4 unchanged sentences

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

Six Months Ended

Other income (expense), net is driven by foreign currency gains primarily related to the Chinese Renminbi, Euro and Mexican Peso.

Nine Months Ended

September 30,

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.

Our effective income tax rate was 22.5% and 17.4% for the nine months ended September 30, 2025 and 2024, respectively.

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

See Note 17 “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Liquidity and Capital Resources

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

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 and cash equivalents were $110,296 at September 30, 2025, and $94,334 at December 31, 2024, of which $109,426 and $92,944, respectively, were held outside the United States.

Total long-term debt was $90,700 as of September 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 $43,870 during the six months ended June 30, 2025.

Net cash provided by operating activities was $72,893 during the nine months ended September 30, 2025.

Components of net cash provided by operating activities included net earnings of $45,580, depreciation and amortization expense of $25,880, other net non-cash items of $1,567, and a net cash outflow from changes in assets and liabilities of $362.

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

Net cash provided by operating activities was $73,335 during the nine months ended September 30, 2024.

Components of net cash provided by operating activities included net earnings of $43,909, depreciation and amortization expense of $22,644, other net non-cash items of $1,246, and a net cash outflow from changes in assets and liabilities of $5,536.

Cash Flows from Investing Activities

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.

Net cash used in investing activities for the nine months ended September 30, 2025 was $12,542 for payments on capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2024 was $134,455, driven by payments for the SyQwest acquisition of $121,912 and payments on capital expenditures of $12,543.

Cash Flows from Financing Activities

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

Net cash used in financing activities for the nine months ended September 30, 2025 was $47,404.

The net cash outflow was the result of treasury stock purchases of $39,546, net cash payments of long-term debt of $1,600, taxes paid on behalf of equity award participants of $2,675, and dividends paid of $3,583.

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.

Net cash used in financing activities for the nine months ended September 30, 2024 was $7,494.

The net cash outflow was the result of treasury stock purchases of $34,787, net cash cash borrowing of long-term debt of $35,200, taxes paid on behalf of equity award participants of $3,154, dividends paid of $3,677, and payments of contingent consideration of $1,076.

Capital Resources

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Long‑term debt is comprised of the following:

September 30,

Total credit facility

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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 June 30, 2025.

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

Critical Accounting Policies and Estimates

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with U.S.

generally accepted accounting principles.

In connection with the preparation of the Condensed Consolidated Financial Statements, the Company uses estimates and makes judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures.

1 unchanged sentence

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

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

Significant Customers

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Three Months Ended

Six Months Ended

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

Nine Months Ended

September 30, 2025

September 30, 2024

September 30, 2025

September 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.

We continue to focus on broadening our customer base to grow our non-transportation end market exposure at a faster rate.

Forward ‑ Looking Statements

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Examples of factors that may affect future operating results and financial condition include, but are not limited to:

supply chain disruptions;

supply chain disruptions (including, but not limited to, the availability of rare earth elements, minerals and metals);

changes in the economy generally, including inflationary and/or recessionary conditions and increased tariffs, and in respect to the business in which CTS operates;

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

the funding of contracts by the US Government;

the funding of contracts by the U.S.

the results of actions to reposition CTS’ business;

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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 conflicts in Ukraine, and the Middle East may have on our business, results of operations and financial condition);

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;

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

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

Control s and Procedures

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Changes in 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.

There were no changes in our internal control over financial reporting for the quarter ended September 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