CTS(US:CTS)2025-10-28 15:02Financial Data and Key Metrics Changes - Sales for the third quarter were $143 million, up 8% from $132 million in the same period last year [4][16] - Adjusted diluted EPS were $0.60 per share, down from $0.61 in the third quarter of 2024, primarily due to unfavorable tax impacts [5][17] - Adjusted gross margin was 38.9%, an increase of 66 basis points year-over-year [16][17] - Operating cash flow generated was $29 million, compared to $35 million in the third quarter of 2024 [18] Business Line Data and Key Metrics Changes - Diversified end market sales increased by 22% year-over-year, accounting for 59% of overall company revenue [4][5] - Transportation sales decreased by 7% from the same period last year, totaling $58.5 million [10][16] - SideQuest revenues increased to $8.8 million, with bookings up 29% from the prior year [8][16] Market Data and Key Metrics Changes - Book-to-bill ratio for the third quarter was slightly above 1, compared to marginally below 1 in the third quarter of 2024 [4] - Aerospace and defense sales rose by 23% year-over-year [7] - Industrial market sales were up 21% compared to the prior year, with a 9% sequential increase [9][49] Company Strategy and Development Direction - The company is transitioning from a component supplier to a supplier of sensors, transducers, and subsystems, validated by recent naval defense contract awards [8] - Focus remains on strong cash generation, appropriate capital allocation, and supporting organic growth and strategic acquisitions [19] - The company aims to enhance its growth profile through increased volumes in portable ultrasound diagnostics and therapeutics [7][12] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth prospects for medical, aerospace, and defense markets despite mixed signals in the transportation sector [25][49] - The company anticipates continued softness in commercial vehicle demand but expects strong performance in diversified end markets [14][12] - Management is closely monitoring the impact of tariffs and geopolitical factors while adapting to cost and price adjustments [14][51] Other Important Information - The company repurchased 400,000 shares for approximately $17 million during the quarter, returning $44 million to shareholders through dividends and buybacks year-to-date [18][19] - The company expects to maintain momentum in SideQuest revenues through the end of the year, with additional platform awards anticipated [8][42] Q&A Session Summary Question: Guidance on revenue and EPS - Management raised the midpoint on revenue guidance but lowered EPS guidance due to tax impacts from recent U.S. tax legislation [23][24] Question: Transportation production rates for 2026 - Transportation market signals are mixed, with some OEMs optimistic and others cautious; however, solid bookings were noted [25] Question: Gross margin contributions by end market - Margins are good across diversified end markets, with transportation trailing behind but still performing well [26][27] Question: Tax impact in 2026 - The adverse tax impact is expected to continue into 2026, with a projected tax rate in the low 20% range [37][38] Question: Inventory levels in transportation - Days of supply for light vehicles are around 50 days, which is considered normal; no concerns were raised [40][41] Question: SideQuest revenue contributions - SideQuest is expected to show seasonal revenue patterns, with a positive outlook for future awards [42] Question: Operating expenses increase - The increase in operating expenses was primarily due to a $4.2 million reserve increase and higher equity-based compensation [43]