CTS(US:CTS)2025-02-26 22:25Sales and Market Performance - In 2024, net sales from non-U.S. operations accounted for 42.0% of total net sales, down from 45.0% in 2023 and 44.4% in 2022[39]. - The breakdown of net sales by end market in 2024 shows Transportation at 49%, Industrial at 23%, Medical at 14%, and Aerospace and Defense at 14%[21]. - Major customers include Toyota Motor Corporation at 12.2% and Cummins, Inc. at 11.7% of total net sales in 2024[33]. - Approximately 90% of 2024 net sales were attributable to sales engineers, with independent distributors accounting for about 6%[25]. - The SyQwest acquisition contributed $14,448 in net sales for 2024, enhancing the company's position in the defense market[169]. - Net sales for the year ended December 31, 2024, were $515,771, a decrease of $34,651 or 6.3% from 2023, primarily due to a 16.9% decline in transportation products[169]. Financial Performance - Gross margin for 2024 was $189,150, a decrease of $1,709 or 0.9% from 2023, influenced by lower sales volumes and partially offset by operational improvements[170]. - Selling, general and administrative expenses increased to $88,285, or 17.1% of sales in 2024, compared to $83,816, or 15.2% in 2023, driven by higher incentive compensation and the SyQwest acquisition[171]. - Cash and cash equivalents decreased to $94,334 at December 31, 2024, from $163,876 at December 31, 2023, with total debt rising to $91,253 from $67,500[177]. - Net cash provided by operating activities was $99,289 for 2024, compared to $88,811 in 2023, with net earnings of $58,114 contributing significantly[178]. - Net cash used in investing activities for 2024 was $140,556, primarily due to $121,912 for the SyQwest acquisition[182]. - The effective income tax rate decreased to 18.4% in 2024 from 19.5% in 2023, attributed to a change in the mix of earnings taxed at lower rates[175]. - Restructuring charges were $4,697 in 2024, down 33.6% from $7,074 in 2023, related to plant closure and consolidation activities[172]. Operational Risks and Challenges - In 2024, the company faced competitive risks typical in its end markets, including technical obsolescence and customer demands for lower costs and higher quality[37]. - Supply chain constraints, particularly shortages of semiconductor chips and resin, have impacted the company's ability to make scheduled shipments, potentially leading to revenue shortfalls[76]. - The ongoing Russia-Ukraine conflict has adversely affected the global economy and may continue to impact the company's operations and financial results[75]. - Inflationary pressures and increased costs of raw materials could negatively affect the company's gross margin and overall profitability[79]. - The company operates in cyclical industries, which may experience downturns that could materially affect its financial condition and operating results[80]. - A portion of the company's revenue is derived from defense-related products, which are subject to contract cancellations and delays, impacting revenue stability[81]. - The company faces risks from geopolitical tensions that could disrupt operations and supply chains, affecting financial performance[75]. - Fluctuations in operating results are common, influenced by demand changes, manufacturing efficiency, and component availability[83]. - The company may experience increased borrowing costs and limited access to capital markets due to economic downturns, impacting growth strategies[74]. - The company must navigate various risks, including labor disruptions and regulatory changes, that could adversely affect its business operations[82]. Strategic Initiatives and Acquisitions - The company has pursued acquisitions to complement its business, including TEWA, Meggitt, Maglab, and SyQwest, but may face challenges in completing these transactions and integrating new operations[84]. - Future acquisitions may lead to increased expenses and working capital requirements, potentially reducing return on invested capital and profitability[86]. - The company may consider divesting certain operations, which could involve risks such as management distraction and loss of customer relationships[87]. - Restructuring plans and capital projects have been initiated to improve cost structure and operational efficiency, but failure to execute these plans may lead to disruptions and higher costs[88]. Competitive Environment and Technology - The company operates in a highly competitive environment, facing risks of price erosion and technological change, which could adversely affect market share and profit margins[89]. - Rapid technological changes may render existing products obsolete, impacting the company's ability to recover research and development costs[90]. - Difficulties in developing and marketing new products could adversely affect the company's financial condition and operating results[91]. Regulatory and Compliance Issues - The company is subject to environmental regulations and potential liabilities, including a demand for reimbursement of $9.955 million related to environmental contamination[95]. - Changes in tax laws could materially affect the company's effective tax rate and future tax liabilities, impacting financial performance[97]. - The company is subject to the ongoing internal control provisions of the Sarbanes-Oxley Act, and any material weaknesses in internal control could affect financial reporting[132]. - The company may face adverse effects on its business and financial condition due to increasing scrutiny related to environmental, social, and governance (ESG) issues[133]. Cybersecurity and Technology Risks - Cybersecurity threats pose risks to the company's operations, potentially leading to financial losses and operational disruptions[103]. - The company has a multi-layered cybersecurity risk management strategy to mitigate threats and incidents[139]. - The company has experienced past cybersecurity incidents that have not materially impacted its business, but it anticipates facing additional threats in the future[143]. - Third-party cybersecurity incidents could harm the company's reputation and financial performance, as reliance on external service providers increases vulnerability[107]. - The integration of artificial intelligence technologies presents new risks, including regulatory scrutiny and potential reputational damage due to inaccuracies in AI outputs[108]. - The company faces risks related to maintaining and upgrading technology, which may require significant investment and could disrupt operations if not managed effectively[106]. Shareholder and Financial Management - The company has approved a share repurchase program authorizing the repurchase of up to $100 million of its common stock[136]. - Future dividends on the company's common stock may be restricted or eliminated based on earnings and cash flow[135]. - The company has a total credit facility availability of $400,000, with a balance outstanding of $91,253 as of December 31, 2024[186]. - The company was in compliance with all debt covenants as of December 31, 2024[188]. - The company will monitor future results for goodwill impairment and perform tests if indicators trigger a review[199]. Workforce and Employee Relations - The workforce consists of 3,549 employees, with 57% female and 43% male representation[43]. - The company faces challenges in attracting and retaining key personnel due to a competitive labor market, which may increase operating expenses and negatively impact growth[131]. International Operations and Risks - The company operates manufacturing facilities in North America, Asia, and Europe, with significant sales offices in multiple countries[18]. - The company faces risks associated with international operations, including political instability and currency fluctuations, which could adversely affect financial results[120]. - The company has $92,944 in foreign cash balances, with potential restrictions on timely and tax-efficient repatriation[189]. Inventory and Warranty Management - Over the last three years, product warranty reserves have ranged from 0.3% to 0.4% of net sales, indicating a stable reserve level[209]. - The company’s reserves for excess and obsolete inventories have ranged from 14.8% to 20.7% of gross inventory over the last three years[211]. Debt and Financial Obligations - The company uses interest rate swaps to convert a portion of its revolving credit facility's outstanding balance from a variable rate to a fixed rate, with contractual rates ranging from 1.49% to 2.49%[187]. - The commitment fee on the unused portion of the Revolving Credit Facility ranges from 0.175% to 0.25% based on the net leverage ratio[188]. - The company had minimum contractual future interest payments on hedged borrowings estimated to be $10,150 through maturity, with approximately $5,190 payable within 12 months[194]. - As of December 31, 2024, the outstanding principal on the Revolving Credit Facility was $91,253, with no amounts payable within 12 months[194].