CTS Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. CTS designs and manufactures sensors, actuators and connectivity components for transportation, industrial, medical, and aerospace and defense markets.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparator |
|---|---|---|
| Net sales | $125.8 million | $146.0 million; down 13.9% |
| Gross margin | $45.1 million; 35.9% | $51.7 million; 35.4% |
| Operating earnings | $14.5 million; 11.6% of sales | $22.2 million; 15.2% of sales |
| Net earnings | $11.1 million | $18.3 million; down 39.4% |
| Diluted EPS | $0.36 | $0.58 |
| Operating cash flow | $18.3 million | $11.2 million |
| Capital expenditures | $4.0 million | $4.5 million |
Gross margin percentage improved by 0.5 percentage points, which management attributed mainly to product mix and cost-saving actions; lower volumes reduced gross-margin dollars. Other expense was $0.9 million, versus $0.5 million of other income a year earlier, primarily reflecting foreign-currency losses, especially related to the Chinese Renminbi. The effective tax rate was 18.6%, compared with 19.2%.
At March 31, cash and cash equivalents were $162.4 million, long-term debt was $67.5 million, and unused revolving-credit availability was $330.9 million, subject to covenant restrictions. Cash less reported debt was approximately $94.9 million. CTS reported $18.3 million of operating cash flow and $16.3 million of net cash used in financing. Cash declined $1.5 million from year-end to $162.4 million. The $400 million unsecured revolver matures December 15, 2026; CTS was in compliance with its debt covenants.
Material changes and management commentary
- Sales declined in both transportation and non-transportation markets. Management cited weaker industrial distribution and OEM volumes, lower commercial-vehicle-related volumes, and lower transportation sales in China. Foreign exchange reduced sales by $0.6 million year over year.
- Sales by end market were transportation $66.5 million, industrial $31.1 million, medical $16.9 million, and aerospace and defense $11.3 million. Industrial sales fell to $31.1 million from $40.2 million; transportation sales fell to $66.5 million from $74.3 million.
- SG&A rose 1.3% to $22.3 million, and R&D was essentially flat at $6.6 million. As a share of sales, SG&A increased to 17.7% from 15.1% and R&D to 5.2% from 4.5%, reflecting lower sales.
- Restructuring charges increased to $1.7 million from $0.9 million. The charges mainly related to plant closure and consolidation activity, including the Juarez-to-Matamoros consolidation and other restructuring actions.
- Cash flow from operations improved year over year despite lower earnings, partly because the prior-year period included larger working-capital outflows. Q1 2024 investing cash use was lower and included no acquisition payments.
Outlook, risks, and unusual items
- No numerical revenue or earnings guidance is provided in the filing. Management stated that operating cash flow and available revolver capacity should be adequate for working capital, capital expenditures, investments, and debt service for at least the next 12 months and thereafter. This is subject to risks and uncertainties.
- The Matamoros consolidation was expected to be completed later in 2024. Estimated restructuring costs are $4.75–$5.5 million, of which $4.687 million had been incurred; CTS also expects $1.2–$2.0 million of related costs that do not qualify as restructuring charges. The September 2020 restructuring plan was expected to finish in Q2 2024.
- Environmental remediation reserves were $11.9 million. For the Asheville site, CTS estimated potential exposure of $1.9–$10.0 million and accrued $1.9 million because no amount within the range was considered more likely than another. The filing cautions that environmental, legal, and warranty outcomes could exceed accruals; ordinary-course legal claims are also pending.
- CTS repurchased 271,939 shares for approximately $12.1 million in Q1. A new $100 million repurchase authorization was approved in February 2024; approximately $92.4 million remained available at quarter-end. The quarterly dividend declared was $0.04 per share.
- Customer concentration remains notable: Cummins represented 13.6% of sales and Toyota 13.3%. Other disclosed risks include market softness, customer dependence, competition, technology change, foreign exchange and geopolitical exposure, supply-chain disruption, and environmental costs.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no significant change in risk factors from the 2023 Form 10-K.
Key facts for investors to verify
- Whether demand and order trends in industrial, commercial vehicle, and China transportation markets stabilize, and how they affect sales and operating leverage.
- Progress and final costs of the Juarez/Matamoros consolidation and other restructuring actions, including expected non-restructuring transition costs.
- Developments in the Asheville environmental matter and whether remediation or other legal liabilities could exceed recorded reserves.
- Use of the share-repurchase authorization relative to cash needs, capital investment, and the $67.5 million debt balance; monitor covenant compliance and borrowing costs.
- Foreign-exchange impacts, including the Chinese Renminbi, and the performance and accounting effects of CTS’s hedges.
- Execution against any future outlook: the filing gives no specific numerical sales or earnings forecast.