CTS(CTS) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for CTS Corporation for Q2 and H1 2022 and 2021 are presented, including key financial statements and detailed notes Condensed Consolidated Statements of Earnings Net earnings significantly increased in Q2 2022 to $12.6 million and for H1 to $32.8 million, driven by higher sales and reduced other expenses Condensed Consolidated Statements of Earnings (Unaudited) | (In thousands of dollars, except per share amounts) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $144,982 | $129,585 | $292,677 | $258,012 | | Gross margin | $51,848 | $47,696 | $106,188 | $90,287 | | Operating earnings | $22,686 | $20,579 | $48,732 | $39,077 | | Net earnings | $12,598 | $875 | $32,837 | $12,865 | | Diluted earnings per share | $0.39 | $0.03 | $1.02 | $0.39 | Condensed Consolidated Balance Sheets Total assets increased to $729.6 million by June 30, 2022, primarily due to acquisitions, with corresponding increases in liabilities and equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands of dollars) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $278,550 | $289,089 | | Total Assets | $729,634 | $664,462 | | Total current liabilities | $115,376 | $114,066 | | Long-term debt | $91,027 | $50,000 | | Total Liabilities | $243,687 | $200,884 | | Total shareholders' equity | $485,947 | $463,578 | Condensed Consolidated Statements of Cash Flows Net cash decreased by $42.7 million for H1 2022, as significant cash used for acquisitions outweighed operating and financing inflows Cash Flow Summary for Six Months Ended June 30 (Unaudited) | (In thousands of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,352 | $38,785 | | Net cash used in investing activities | $(103,519) | $(4,225) | | Net cash provided by (used in) financing activities | $24,392 | $(9,015) | | Net (decrease) increase in cash and cash equivalents | $(42,726) | $25,624 | Notes to Condensed Consolidated Financial Statements Detailed notes provide context for financial statements, including revenue segmentation, significant acquisitions, pension plan effects, and credit facility information Disaggregated Revenue by Market (Six Months Ended June 30) | (In thousands of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Transportation | $153,824 | $147,410 | | Industrial | $81,409 | $62,075 | | Medical | $32,897 | $24,078 | | Aerospace & Defense | $24,547 | $24,449 | | Total | $292,677 | $258,012 | - The company acquired TEWA Temperature Sensors for $24.5 million on February 28, 2022, and Ferroperm Piezoceramics for $72.0 million on June 30, 2022[27][33] - In Q2 2021, the company recognized a non-cash, non-operating settlement charge of $20.1 million related to its U.S. pension plan termination, significantly impacting year-over-year comparisons[47] - Goodwill increased from $109.8 million at year-end 2021 to $139.6 million at June 30, 2022, due to acquisitions[54] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2022 performance, noting increased sales driven by acquisitions, a slight gross margin decrease, and sufficient liquidity despite acquisition-related cash usage Results of Operations Q2 2022 net sales increased 11.9% to $145.0 million, driven by non-transportation markets and acquisitions, while gross margin slightly declined due to inflation Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $144,982K | $129,585K | 11.9% | | Gross Margin | 35.8% | 36.8% | -1.0 p.p. | | Operating Earnings | $22,686K | $20,579K | 10.2% | | Diluted EPS | $0.39 | $0.03 | n/a | - The decrease in Q2 2022 gross margin was primarily driven by increased material and freight costs and supply chain interruptions, particularly global semiconductor shortages[125] - The significant reduction in 'Total other expense, net' in Q2 2021 compared to Q2 2022 is mainly because the 2021 period included a large non-cash pension settlement expense[131] Liquidity and Capital Resources Liquidity decreased due to significant cash used for acquisitions, partially funded by increased long-term debt, though a substantial credit facility remains available - Cash and cash equivalents decreased by $42.7 million during the first six months of 2022, primarily due to acquisition payments[142] - Net cash used in investing activities was $103.5 million, driven by $96.5 million for the TEWA and Ferroperm acquisitions and $7.0 million in capital expenditures[145] Revolving Credit Facility Status | (In thousands of dollars) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total credit facility | $400,000 | $400,000 | | Balance outstanding | $91,027 | $50,000 | | Amount available | $307,333 | $348,260 | Significant Customers Two customers, Cummins Inc. and Toyota Motor Corporation, each accounted for over 10% of net sales in H1 2022, highlighting customer concentration Customers >10% of Net Sales (Six Months Ended June 30) | Customer | 2022 % of Sales | 2021 % of Sales | | :--- | :--- | :--- | | Cummins Inc. | 15.9% | 15.0% | | Toyota Motor Corporation | 11.4% | 13.3% | Quantitative and Qualitative Disclosures About Market Risk No material changes in the company's market risk exposure were reported for Q2 2022 compared to the prior annual report - There have been no material changes in the company's exposure to market risk during the second quarter of 2022[159] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of Q2 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of Q2 2022[161] - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2022, that would have a material effect[163] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal matters and has established adequate accruals for expected liabilities - The company is subject to routine litigation and believes it has established adequate accruals for expected liabilities[163] Risk Factors No significant changes to the company's risk factors were reported compared to the prior annual report - No significant changes to the company's risk factors were reported compared to the 2021 Form 10-K[165] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 216,252 shares in Q2 2022, with approximately $29.5 million remaining available under the share repurchase program Share Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | April 2022 | 50,796 | $34.38 | | May 2022 | 75,425 | $37.02 | | June 2022 | 90,031 | $35.65 | | Total | 216,252 | - | - As of June 30, 2022, $29,546,000 remained available for share repurchases under the authorized program[167] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial data in Inline XBRL format - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[169] - Financial statements and notes are provided in Inline XBRL format as required[170] Signatures The quarterly report was signed on July 26, 2022, by the Principal Financial Officer and Principal Accounting Officer - The report was signed on July 26, 2022, by the company's Principal Financial Officer and Principal Accounting Officer[174]