CTS Q3 Earnings Call Highlights

Key Points

• CTS reported strong third-quarter results: Sales rose 5% year over year to $149.6 million, while adjusted gross margin reached a record 42.2% and adjusted EPS increased to a record $0.77.
• Bookings and cash flow were solid: The total book-to-bill ratio was 1.18, operating cash flow reached $44 million, and free cash flow was approximately $41 million, supported by strength in diversified markets.
• CTS raised its 2026 outlook to $580 million-$590 million in sales and adjusted EPS of $2.78-$2.88. The recently completed $50 million Millar acquisition adds medical and industrial sensing capabilities and is expected to become EPS-accretive in the second half of 2027.

CTS NYSE: CTS reported third-quarter sales growth and record profitability, supported by higher revenue in its diversified end markets, favorable product mix and operational execution. The company also raised its full-year 2026 sales and adjusted earnings outlook and highlighted its recently completed acquisition of Millar, which expands its medical and industrial technology portfolio.

Third-quarter sales totaled $149.6 million, up 5% from the third quarter of 2025 and 3% sequentially. Diversified end-market sales rose 7% year over year and represented 60% of total revenue, compared with 59% in the prior-year quarter. Transportation sales increased 2%.

For the first nine months of 2026, diversified sales were up 12% from the prior-year period, while transportation sales were flat. The company reported a total third-quarter book-to-bill ratio of 1.18, including a 1.3 ratio in diversified markets, indicating bookings exceeded sales during the period.

Margins, Earnings and Cash Flow Reach Records

CTS posted a record adjusted gross margin of 42.2%, up 330 basis points from a year earlier and about 70 basis points sequentially. Adjusted EBITDA margin rose about 90 basis points year over year to 24.7%.

Chief Financial Officer Ashish Agrawal said the gross-margin improvement reflected operational execution, an approximately $1.4 million favorable foreign-exchange impact and an above-normal benefit from end-market mix related to the timing of certain projects. He said the company expects “some normalization in profitability” over the next few quarters, though it continues to expect favorable gross margins.

Adjusted diluted earnings reached a record $0.77 per share, compared with $0.60 per share in the third quarter of 2025. Foreign exchange contributed approximately $0.04 per share of favorability, according to Agrawal.

Operating cash flow was $44 million in the quarter, while capital expenditures were $2.4 million, resulting in approximately $41 million of free cash flow. CTS ended the quarter with $144 million in cash and $55 million in borrowings. It repurchased 57,000 shares for approximately $3.4 million during the quarter and had $75 million remaining under its authorized repurchase program.

Millar Acquisition Adds Medical, Sensing Capabilities

CTS completed the acquisition of Millar in October, deploying approximately $50 million in cash to fund the transaction. The company expects Millar to generate roughly $30 million in annual revenue and said the acquisition should become accretive to earnings per share in the second half of 2027.

Management described Millar as a complementary business that increases CTS’s exposure to medical and industrial markets. Its capabilities include pressure, chemical and electrochemical sensing, catheter-based technologies, microfabrication and precision manufacturing.

Agrawal said Millar’s gross margin is expected to be accretive to CTS’s overall gross margin. While Millar’s EBITDA contribution may not initially be accretive, he said CTS expects the business to develop healthy profitability as it pursues synergies and sales growth.

Millar has some customer concentration, Agrawal said, but he added that the concentration would not materially alter CTS’s overall customer profile or place a Millar customer among CTS’s largest customers. Management said it does not anticipate drastic structural changes at the acquired business and plans to balance integration efforts with preserving the company’s operating capabilities.

Medical, Industrial and Defense Bookings Support Outlook

Medical revenue was $27 million, up 21% year over year but down 4% sequentially, primarily due to order timing. The segment recorded a book-to-bill ratio of 0.66, also affected by timing, while CTS cited wins in implantable pacemakers, ultrasound diagnostics and therapeutic applications.

Aerospace and defense sales were $24 million, down 7% from a year earlier but up 30% from the prior quarter. The segment’s book-to-bill ratio was 1.91. CTS said it scaled production of a sensing solution for a U.S. Navy undersea warfare application and continues to expand into higher-value sensing solutions and integrated subsystems.

Industrial sales rose 7% year over year to $40 million, with a book-to-bill ratio of 1.36. The company cited design wins in distribution components, industrial printing, data centers, refrigeration, HVAC and industrial automation. CTS also added an industrial customer for temperature sensing in steam and condensate systems.

Transportation revenue totaled $60 million, up 2% from a year ago and 1% sequentially. Management said moderate growth included some improvement in commercial vehicles, while light-vehicle markets were flat to slightly down. The company reported approximately $1.2 billion in total booked business and added one new Tier 1 customer.

CTS said it continues to build interest in its eBrake technology for future hybrid and electric vehicle platforms. It also expects critical approvals for additional turbo smart actuator engine platforms around the middle of 2027, with deliveries potentially beginning one or two quarters later.

2026 Guidance Raised

Assuming current market conditions continue, CTS raised its 2026 outlook. The company now expects full-year sales of $580 million to $590 million and adjusted diluted earnings per share of $2.78 to $2.88.

Management expects diversified-market demand to remain solid, with medical momentum aided by Millar, strong aerospace and defense backlog, and healthy industrial demand. In transportation, CTS said global light-vehicle production is expected to be flat to modestly lower amid tariff, geopolitical and consumer-demand uncertainty.

About CTS (NYSE:CTS)

CTS Corporation NYSE: CTS is a designer and manufacturer of sensors, actuators, and electronic components for original equipment manufacturers and industrial customers. The company develops custom-engineered solutions that help measure, control, and manage electrical and mechanical functions in a range of products and systems.

Its offerings include position, pressure, temperature, and motion sensors; piezoelectric and electronic components; switches, controls, and actuators; and other sensing and mechatronic products.

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