CTS Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow comparison. Monetary amounts below are in millions of U.S. dollars unless otherwise stated.
Business context
CTS designs and manufactures sensors, connectivity components and actuators for transportation, industrial, medical, and aerospace and defense customers. It operates as one reportable segment. Transportation generated 55% of 2023 sales; industrial 24%, medical 12%, and aerospace and defense 9%. Cummins and Toyota accounted for 15.0% and 12.5% of sales, respectively.
Financial results and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $550.4 | $586.9 | (6.2%) |
| Gross profit / margin | $190.9 / 34.7% | $210.5 / 35.9% | Profit down 9.3% |
| Operating earnings / margin | $75.1 / 13.6% | $93.0 / 15.8% | Down 19.3% |
| Net earnings / margin | $60.5 / 11.0% | $59.6 / 10.2% | Up 1.6% |
| Diluted EPS | $1.92 | $1.85 | Up $0.07 |
| Operating cash flow | $88.8 | $121.2 | Down $32.4 |
| Capital expenditures | $14.7 | $14.3 | Up $0.4 |
Cash and cash equivalents were $163.9 at year-end, including $99.9 held outside the U.S. Debt was $67.5, down from $83.7; the revolving facility had $330.9 available subject to covenant restrictions. The weighted-average debt interest rate was 6.07%, versus 2.96% in 2022. CTS reported compliance with debt covenants and stated that operating cash flow and facility availability should fund needs for at least the next 12 months. Dividends declared were $0.16 per share.
Material changes and unusual items
- Sales fell primarily because of lower industrial and commercial-vehicle product volumes. Non-transportation sales declined 12.1%; transportation sales declined 0.8%. Sales from acquisitions partly offset the decline.
- Gross margin contracted as lower volume and foreign-exchange movements weighed on results. SG&A decreased to $83.8 from $91.5, while R&D increased to $24.9 from $24.1.
- Restructuring charges rose to $7.1 from $1.9, primarily reflecting plant closure and consolidation activity. CTS is consolidating its Juarez operations into Matamoros, expects completion in 2024, and estimates $4.0–$5.0 of restructuring costs plus $1.5–$2.5 of other transition costs.
- Net earnings increased despite lower operating earnings, helped by total other income of $0.1 compared with $12.3 of net other expense in 2022. The prior-year expense included $6.8 of pension-plan excise taxes and $1.8 of acquisition-related derivative losses. The effective tax rate declined to 19.5% from 26.2%.
- Operating cash flow was lower, with 2022 benefiting from a $34.0 pension-plan asset transfer. 2023 investing outflow was $18.1, including $14.7 of capital spending and acquisition-related payments; financing outflow was $65.4, including $40.9 of treasury-stock purchases and $16.2 of net debt repayments.
- CTS acquired Maglab in February 2023 for a stated purchase price of $7.7, including contingent consideration. Its maximum contingent payout is $6.3, tied to integration and performance targets through 2025.
Outlook, risks and contingencies
No quantified 2024 revenue or earnings guidance is provided in the supplied filing text. Management described market softness, competition, technological change, and customer and product diversification as ongoing business challenges. Key risks include dependence on major customers, cyclical end markets, order cancellations or delays, supply availability and inflation, foreign-exchange exposure, geopolitical disruption, and cybersecurity threats. The company said past cybersecurity incidents had not materially affected its business and that it was not aware of a threat likely to have a material effect as of the filing date.
Environmental remediation reserves were $12.0 at year-end. For the Asheville Superfund site, the EPA sought $10.0 from three potentially responsible parties; CTS estimated its exposure at $1.9–$10.0 and recorded a $1.9 loss estimate. Management cautioned that ultimate environmental, legal, or warranty costs could exceed accrued amounts. CTS’s annual goodwill assessment found no impairment. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded internal controls were effective.
After year-end, the Board approved a new share repurchase authorization of up to $100 million in February 2024, replacing the prior program. Repurchases remain discretionary and subject to market, financial, and other considerations.
Important facts for investors to verify
- Whether industrial and commercial-vehicle demand stabilizes, and whether customer concentration—especially Cummins and Toyota—changes.
- Whether the Matamoros consolidation finishes in 2024 within the estimated costs, and whether it delivers the expected operating efficiencies.
- Cash-flow generation, debt paydown, borrowing costs, and the availability of foreign cash for U.S. needs.
- The final costs and allocation of environmental liabilities, particularly CTS’s Asheville exposure, and any changes in remediation estimates.
- Maglab’s performance against revenue and customer-order targets, including contingent consideration, and the returns from prior acquisitions.
- How the new $100 million repurchase authorization is used relative to liquidity, investment needs, and debt obligations.