Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CTS Corp (CTS, Financial) completed the acquisition of SyQwest, LLC, which is expected to be accretive in 2025 and strengthens their position in the defense market.
- Non-transportation sales increased by 11% sequentially and 4% year-over-year, indicating growth in diversified markets.
- Aerospace and defense sales were up 33% from the prior year and 41% sequentially, with strong momentum expected for the rest of 2024.
- CTS Corp (CTS) achieved multiple wins in medical therapeutics and diagnostic ultrasound, adding new customers and expanding their market reach.
- The company maintains a strong cash balance of $161 million and continues to focus on cash generation, supporting organic growth and strategic acquisitions.
Negative Points
- Overall sales declined by 10% compared to the second quarter of 2023, with transportation sales down 22% year-over-year.
- The book-to-bill ratio decreased to 0.99 from 1.07 in the previous quarter, indicating potential challenges in future order intake.
- CTS Corp (CTS) faces pricing pressures, particularly in the transportation markets, with notable challenges in China.
- The company adjusted its full-year 2024 guidance to reflect more moderate growth expectations, with sales anticipated in the range of $525 million to $540 million.
- The SyQwest acquisition is expected to have a small unfavorable impact on EPS in 2024, with a dilution of $0.04 to $0.05.
Q & A Highlights
Q: Can you provide more details on expectations for the transportation market in the second half of the year?
A: Kieran O'Sullivan, CEO: We expect the commercial vehicle market to remain challenging, with sales down approximately $10 million on a run rate basis. The light vehicle market is stable in North America and Europe, but China remains a challenge. Overall, we anticipate a challenging environment for transportation in the second half of 2024.
Q: How do you expect industrial and other markets to perform in the second half of 2024?
A: Kieran O'Sullivan, CEO: We anticipate modest growth in non-transportation markets. From an organic perspective, we expect a few million in growth by quarter, with more modest growth rates in industrial and distribution markets.
Q: What is the outlook for gross margins in the second half of the year?
A: Ashish Agrawal, CFO: We expect some improvements in gross margins due to changes in business mix and continued improvements in factory efficiency. Pricing pressures are being managed, particularly in China, and we anticipate modest improvements in profitability.
Q: Can you provide more information on the SyQwest acquisition, including its growth and margin profile?
A: Kieran O'Sullivan, CEO: SyQwest has robust growth and a gross margin profile above the company average. It is installed in every US surface combatant ship or submarine, and we expect it to be accretive in 2025.
Q: Will the SyQwest acquisition impact EPS, and how will it affect operating expenses?
A: Ashish Agrawal, CFO: The acquisition will have a small unfavorable impact on EPS in 2024, around $0.04 to $0.05, but will be accretive in 2025. We are still working through the details of how it will affect operating expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
