CTS Announces Third Quarter 2021 Results

Rhea-AI Summary

CTS Corporation reported third quarter 2021 sales of $122.4 million, an 8% increase year-over-year. Notably, sales to non-transportation markets surged 24%, while transportation sales fell 5%. The recent acquisition of Sensor Scientific contributed $1.8 million in revenue. However, the company faced a net loss of $63.9 million, or $(1.97) per diluted share, primarily due to a $76 million non-cash charge linked to pension plan termination. Management raised its sales guidance for 2021 to $495 – $505 million, reflecting optimism despite supply chain concerns.

Positive

• Sales increased 8% year-over-year to $122.4 million.
• Sales from non-transportation markets rose 24%.
• Adjusted diluted EPS improved to $0.46 from $0.34 in Q3 2020.
• New business wins totaled $179 million.
• Raised 2021 sales guidance to $495 – $505 million.

Negative

• Net loss of $63.9 million, compared to $11.1 million profit in Q3 2020.
• Transportation market sales decreased by 5%.
• Free cash flow declined to $17.2 million from $22.4 million YoY.

Solid Financial Results Driven by Long-Term Diversification of the Business

LISLE, Ill., Oct. 27, 2021 (GLOBE NEWSWIRE) -- CTS Corporation (NYSE: CTS) today announced third quarter 2021 results.

• Sales were $122.4 million, up 8% year-over-year. Sales to non-transportation end markets increased 24%, and sales to transportation end market decreased 5%. The Sensor Scientific acquisition added $1.8 million of sales in the third quarter of 2021.
• Net loss was $63.9 million, or $(1.97) per diluted share, versus $11.1 million, or $0.34 per diluted share, in the third quarter of last year. The third quarter net earnings were impacted by a non-cash charge of $76 million, net of taxes related to the previously disclosed termination of the U.S. pension plan.
• Adjusted diluted EPS was $0.46, up from $0.34 in the third quarter of 2020.
• Free cash flow was $17.2 million, down from $22.4 million in the third quarter of 2020.
• New business wins were $179 million.
  

“We continued to advance our diversification strategy during the third quarter, with non-transportation related revenue closer to 50% of total revenue for the quarter. Further, our third quarter results demonstrated the differentiation of our product portfolio, as well as the richness of our customer base, which allowed us to deliver growth ahead of the industry, despite a challenging supply chain environment. As we look forward, we believe the strong execution of our team, coupled with a robust pipeline will allow us to continue to capitalize on the opportunities in the industrial, medical, aerospace and defense end markets,” said Kieran O’Sullivan, CEO of CTS Corporation.

2021 Guidance

While management remains mindful of supply chain uncertainties, CTS has raised and narrowed its 2021 guidance for sales to $495 – $505 million from $480 – $500 million and for adjusted diluted EPS to $1.85 – $1.95 from $1.70 – $1.90.

Conference Call

As previously announced, the Company has scheduled a conference call at 10:00 a.m. (EST) today to discuss the third quarter financial results. The dial-in number is 800-309-1256 (323-347-3622, if calling from outside the U.S.). The passcode is 572446. A replay of the conference call will be available from 1:00 p.m. (EST) on Wednesday, October 27, 2021 through 1:00 p.m. (EST) on Wednesday, November 10, 2021. The telephone number for the replay is 888-203-1112 (719-457-0820, if calling from outside the U.S.). The replay passcode is 6028607. A live audio webcast of the conference call will be available and can be accessed directly from the Investors section of the website of CTS Corporation at www.ctscorp.com.

About CTS

CTS (NYSE: CTS) is a leading designer and manufacturer of products that Sense, Connect, and Move. The company manufactures sensors, actuators, and electronic components in North America, Europe, and Asia, and provides engineered products to customers in the aerospace/defense, industrial, medical, telecommunications/IT, and transportation markets. For more information, visit www.ctscorp.com.

Safe Harbor

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management's expectations, certain assumptions and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from those presented in the forward-looking statements. Many of these, and other, risks and uncertainties are discussed in further detail in Item 1A. of CTS’ Annual Report on Form 10-K. We undertake no obligation to publicly update our forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

Contact

Ashish Agrawal
Vice President and Chief Financial Officer
CTS Corporation
4925 Indiana Avenue
Lisle, IL 60532
USA
Telephone: +1 (630) 577-8800
E-mail: ashish.agrawal@ctscorp.com

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS - UNAUDITED
(In thousands of dollars, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Net sales		$	122,382			$	113,777			$	380,394			$	301,049
Cost of goods sold			76,720				76,871				244,446				204,677
Gross margin			45,662				36,906				135,948				96,372
Selling, general and administrative expenses			19,922				16,883				59,184				48,310
Research and development expenses			6,454				5,723				18,170				18,653
Restructuring charges			319				1,041				551				1,416
Operating earnings			18,967				13,259				58,043				27,993
Other (expense) income:
Interest expense			(514	)			(857	)			(1,577	)			(2,617	)
Interest income		230				217				689				852
Other (expense) income, net			(108,502	)			1,617				(132,786	)			(109	)
Total other expense, net			(108,786	)		977					(133,674	)			(1,874	)
(Loss) earnings before income taxes			(89,819	)			14,236				(75,631	)			26,119
Income tax expense			(25,923	)			3,163				(24,600	)			6,381
Net (loss) earnings			(63,896	)			11,073				(51,031	)		$	19,738
Earnings per share:
Basic		$	(1.97	)		$	0.34			$	(1.58	)		$	0.61
Diluted		$	(1.97	)		$	0.34			$	(1.58	)		$	0.61
Basic weighted – average common shares outstanding:			32,379				32,268				32,365				32,331
Effect of dilutive securities			—			241					—			270
Diluted weighted – average common shares outstanding:			32,379				32,509				32,365				32,601
Cash dividends declared per share		$	0.04			$	0.04			$	0.12			$	0.12

CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)

		(Unaudited)
		September 30, 2021				December 31, 2020
ASSETS
Current Assets
Cash and cash equivalents		$	128,527			$	91,773
Accounts receivable, net			78,210				80,981
Inventories, net			50,867				45,870
Other current assets			19,845				14,607
Total current assets			277,449				233,231
Property, plant and equipment, net			92,533				97,437
Operating lease assets, net			22,456				23,281
Other Assets
Prepaid pension asset			50,638				56,642
Goodwill			109,798				109,497
Other intangible assets, net			72,236				79,121
Deferred income taxes			24,663				24,250
Other			2,200				2,590
Total other assets			259,535				272,100
Total Assets		$	651,973			$	626,049
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	48,976			$	50,489
Operating lease obligations			3,354				3,294
Accrued payroll and benefits			17,069				12,978
Accrued expenses and other liabilities			35,673				38,171
Total current liabilities			105,072				104,932
Long-term debt			50,000				54,600
Long-term operating lease obligations			22,262				23,163
Long-term pension obligations			7,114				7,466
Deferred income taxes			6,907				7,010
Other long-term obligations			3,244				5,196
Total Liabilities			194,599				202,367
Commitments and Contingencies
Shareholders’ Equity
Common stock			314,351				311,190
Additional contributed capital			40,958				41,654
Retained earnings			484,368				539,281
Accumulated other comprehensive loss			(4,842	)			(95,921	)
Total shareholders’ equity before treasury stock			834,835				796,204
Treasury stock			(377,461	)			(372,522	)
Total shareholders’ equity			457,374				423,682
Total Liabilities and Shareholders’ Equity		$	651,973			$	626,049

CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION - UNAUDITED

Earnings Per Share

The following table reconciles GAAP diluted (loss) earnings per share to adjusted diluted earnings per share for the Company:

		Three Months Ended									Nine Months Ended
		September 30, 2021				September 30, 2020					September 30, 2021				September 30, 2020
GAAP diluted (loss) earnings per share		$	(1.97	)		$		0.34			$	(1.58	)		$	0.61
Tax affected charges to reported diluted (loss) earnings per share:
Restructuring charges			0.01					0.03				0.02				0.04
Foreign currency (gain) loss			0.03					(0.07	)			0.04				(0.06	)
Non-cash pension expense			2.54					0.01				3.10				0.04
Environmental charges			0.01					0.01				0.02				0.03
Discrete tax items			(0.16	)				0.02				(0.16	)			0.03
Adjusted diluted earnings per share		$	0.46				$	0.34			$	1.44			$	0.69

Free Cash Flow

The following table reconciles GAAP operating cash flow to free cash flow for the Company:

		Three Months Ended								Nine Months Ended
		September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Net cash provided by operating activities		$	21,332			$	25,573			$	60,117			$	49,297
Capital expenditures			(4,170	)			(3,196	)			(8,140	)			(10,441	)
Free cash flow		$	17,162			$	22,377			$	51,977			$	38,856

Additional Information

The following table includes other financial information not presented in the preceding financial statements.

		Three Months Ended								Nine Months Ended
		September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Depreciation and amortization expense		$	6,719			$	6,676			$	20,231			$	19,819
Stock-based compensation expense		$	987			$	1,119			$	4,106			$	2,164

Non-GAAP Financial Measures

From time to time, CTS may use non-GAAP financial measures in discussing CTS’ business. These measures are intended to supplement, not replace, CTS’ presentation of its financial results in accordance with GAAP. CTS’ management believes that non-GAAP financial measures can be useful to investors in analyzing CTS’ financial performance and results of operations over time. CTS recommends that investors consider both actual and adjusted measures in evaluating the performance of CTS with peer companies.

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share is a non-GAAP financial measure. The most directly comparable GAAP financial measure is diluted (loss) earnings per share.

CTS uses an adjusted earnings per share measure to evaluate overall performance, establish plans and perform strategic analysis. Using this measure avoids distortion in the evaluation of operating results by eliminating the impact of events which are not related to normal operating performance. Because this measure is based on the exclusion or inclusion of specific items, they may not be comparable to measures used by other companies which have similar titles. CTS' management compensates for this limitation when performing peer comparisons by evaluating both GAAP and non-GAAP financial measures reported by peer companies. CTS believes that this measure is useful to its management, investors and stakeholders in that it:

• provides a meaningful measure of CTS' operating performance,
• reflects the results used by management in making decisions about the business, and
• helps review and project CTS' performance over time.
  

Free Cash Flow

Free cash flow is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net cash provided by operating activities. CTS believes free cash flow is a useful measure of its ability to generate cash.

FAQ

What were the key financial highlights of CTS in Q3 2021?

In Q3 2021, CTS reported sales of $122.4 million, an 8% increase year-over-year, and an adjusted diluted EPS of $0.46.

How did the acquisition of Sensor Scientific impact CTS's financial results?

The acquisition contributed $1.8 million in sales for the third quarter.

What are the updated sales guidance figures for CTS for 2021?

CTS has raised its sales guidance to $495 – $505 million for 2021.

What was the net loss reported by CTS for Q3 2021?

CTS reported a net loss of $63.9 million, or $(1.97) per diluted share, for Q3 2021.

How did non-transportation sales perform for CTS in Q3 2021?

Non-transportation sales increased by 24% in Q3 2021.