Executive Summary / Key Takeaways

• Strategic Diversification Drives Revenue Growth: CTS Corporation's deliberate pivot towards diversified end markets (Medical, Industrial, Aerospace & Defense) is yielding significant results, with these segments now constituting 59% of total revenue in Q3 2025, up from 52% in Q3 2024. This strategy is a primary engine for top-line expansion and margin improvement.
• Technological Leadership Enhances Competitive Moat: Proprietary material formulations, particularly in piezoelectric solutions, and new platforms like COBROS™ for electric motor control and Corvus technology for precise position sensing, provide tangible benefits such as simplified design, weight reduction, and enhanced control, strengthening CTS's competitive position.
• Solid Financial Performance Amidst Headwinds: In Q3 2025, CTS reported an 8% year-over-year sales increase to $143 million, driven by 22% growth in diversified markets. Adjusted gross margin expanded to 38.9%, reflecting operational efficiencies and a favorable sales mix.
• Cautious but Confident Outlook: The company narrowed its full-year 2025 sales guidance to $535 million to $545 million and adjusted diluted EPS to $2.20 to $2.25. This outlook anticipates continued growth in diversified markets, offset by softness in transportation and an unfavorable impact from recent U.S. tax legislation.
• Robust Cash Generation and Capital Allocation: CTS maintains a strong balance sheet with $110 million in cash and $91 million in long-term debt as of Q3 2025. The company generated $73 million in operating cash flow year-to-date and returned $44 million to shareholders through dividends and share buybacks, underscoring its commitment to shareholder value.

A Century of Evolution and Strategic Pivot

CTS Corporation, established in 1896 as a provider of telephone products and incorporated in 1929, has undergone a profound transformation. From its foundational role in telecommunications, CTS has strategically evolved into a global designer and manufacturer of advanced sensors, actuators, and electronic components. The company's vision is to be a leading provider of sensing and motion devices and connectivity components, enabling an intelligent and seamless world. This strategic pivot is evident in its focus on high-growth, high-quality end markets: Medical, Industrial, and Aerospace & Defense, collectively referred to as diversified end markets.

This diversification strategy is not merely a shift in product focus but a fundamental re-alignment of the company's business model to enhance margins and drive sustainable growth. By Q3 2025, diversified end market sales accounted for a significant 59% of overall company revenue, a notable increase from 52% in Q3 2024. This increasing proportion of revenue from higher-margin diversified segments is a critical driver of the company's improving profitability profile.

In the competitive landscape, CTS operates alongside larger players such as TE Connectivity , Amphenol , Vishay Intertechnology (VSH), and Littelfuse (LFUS). While these competitors often boast broader portfolios and greater scale, CTS carves out its niche through specialized, engineered solutions and deep technical expertise. For instance, in automotive and industrial applications, CTS differentiates itself with integrated solutions for connectivity and application-specific designs for temperature sensors and switches. The company's long history and proprietary technology in piezoelectric materials offer a competitive advantage, particularly in specialized segments like medical and defense, where precision and reliability are paramount. This allows CTS to command strong customer loyalty and potentially higher pricing power in these niche areas.

Technological Edge: The Foundation of Future Growth

CTS's competitive advantage is deeply rooted in its differentiated technology, particularly its material formulations and advanced sensing platforms. The company's core expertise in piezoelectric solutions is a cornerstone, enabling critical applications in therapeutic medicine and advanced ultrasound imaging. These solutions help deliver enhanced ultrasound images, making it easier for medical professionals to detect artery restrictions and deliver treatment medications, directly supporting life-saving solutions.

Recent innovations further underscore CTS's technological leadership. The company released its COBROS™ technology in Q3 2025, a new platform for electric motor control. This breakthrough technology eliminates the need for three discrete current sensors and a position sensor, resulting in a simplified design, significant weight reduction, and more precise control for electric motors. For investors, this translates into a stronger competitive moat, as COBROS™ offers a compelling value proposition for OEMs seeking efficiency and performance in electrification. Similarly, CTS has advanced its Corvus technology, which enables precise motor position sensing with high resolution. While specific quantifiable performance metrics for Corvus are not publicly detailed, its stated goal of high-resolution sensing directly contributes to the company's ability to offer superior control solutions in critical applications.

These technological advancements are not isolated initiatives but are integral to CTS's long-term growth strategy. The company is committed to investing in research and product development to drive organic growth, as evidenced by a 37.2% increase in R&D expenses in Q3 2025 compared to the prior year. This focus on innovation is crucial for sustaining growth and maintaining a competitive edge in the rapidly evolving electronics industry, allowing CTS to capitalize on emerging technologies and market trends.

Diversification in Action: Segment Performance and Drivers

CTS's strategic emphasis on diversification is clearly reflected in its recent financial performance across its key end markets.

This diversification strategy is not merely a shift in product focus but a fundamental re-alignment of the company's business model to enhance margins and drive sustainable growth. By Q3 2025, diversified end market sales accounted for a significant 59% of overall company revenue, a notable increase from 52% in Q3 2024. This increasing proportion of revenue from higher-margin diversified segments is a critical driver of the company's improving profitability profile.

Medical

The medical market is a significant growth driver, with sales increasing 22% in Q3 2025 compared to the prior year, reaching $21.957 million. For the nine months ended September 30, 2025, medical sales grew 14.2% to $60.264 million. This growth is fueled by strong demand in therapeutic products, with increased volumes expected into 2026, and multiple wins in diagnostic ultrasound, pacemakers, and ophthalmology applications. While some softness in diagnostic ultrasound, particularly from capital spending in Asia, is being monitored, the overall outlook for medical remains positive, with expectations for stronger bookings in Q4 2025.

Aerospace & Defense

This segment has shown robust expansion, significantly bolstered by the SyQwest, LLC acquisition in July 2024. Aerospace & Defense sales surged 23% in Q3 2025 to $25.362 million, and 30.6% for the nine months ended September 30, 2025, reaching $62.411 million. SyQwest alone contributed $8.8 million in Q3 2025 sales and $16.65 million for the nine-month period. The SyQwest team secured a sole-source naval defense contract with an initial value of $5 million for a naval munition application, with potential for additional platform awards within the next 12 months. This validates CTS's strategy of moving from a component supplier to a provider of sensors, transducers, and subsystems. The segment maintains a healthy backlog, with bookings up 29% in Q3 2025.

Industrial

The industrial market is experiencing a steady recovery, with sales up 21% year-over-year in Q3 2025 to $37.104 million, and a 9% sequential increase. For the nine months ended September 30, 2025, industrial sales increased 10.3% to $103.662 million. Bookings in Q3 2025 were up 29% from the prior year, driven by wins in industrial printing, EMC, temperature sensing for various applications, and a new customer for position sensing. Management anticipates healthy demand for the balance of 2025 as inventory levels normalize.

Transportation

In contrast to the diversified segments, transportation sales experienced a decline of 7.1% in Q3 2025 to $58.547 million, and 8.3% for the nine months ended September 30, 2025, reaching $177.710 million. This softness is primarily attributed to lower volumes of commercial vehicle-related products and China market dynamics. Despite these headwinds, CTS secured significant wins, including accelerator modules in Europe, South America, and China, passive safety and chassis ride height sensors, and a new brake sensing application with a North American OEM. The company's light vehicle products are largely agnostic to drivetrain technology, mitigating some concerns about the shift from internal combustion engines to EVs and hybrids. However, management expects general softness in commercial vehicle demand to persist through Q4 2025 and into 2026.

Financial Health and Operational Rigor

CTS Corporation's financial performance in Q3 2025 reflects its strategic focus on diversification and operational execution, even amidst external pressures. Net sales for the third quarter of 2025 reached $142.970 million, an 8% increase from the prior year, surpassing analyst expectations. This growth was predominantly fueled by a 22% surge in diversified end market sales. For the nine months ended September 30, 2025, net sales increased 4.1% to $404.047 million.

Profitability metrics demonstrate the positive impact of the diversification strategy. Adjusted gross margin improved to 38.9% in Q3 2025, up 66 basis points from 38.2% in Q3 2024. This expansion is attributed to an improved mix of sales by end market and operational enhancements. For the nine-month period, gross margin increased to 38.2% from 36.2% in 2024. Adjusted EBITDA margin, however, saw a slight decrease to 23.8% in Q3 2025 from 24.4% in the prior-year quarter.

GAAP net income for Q3 2025 was $13.687 million, or $0.46 per diluted share, down from $18.084 million, or $0.59 per diluted share, in Q3 2024. This decline was primarily due to an extraordinary $4.2 million charge related to an EPA past cost recovery claim and an unfavorable $0.03 impact on adjusted EPS from recent U.S. tax legislation. Adjusted diluted EPS for Q3 2025 was $0.60, a slight miss against analyst forecasts. For the nine months ended September 30, 2025, net earnings were $45.581 million, or $1.52 per diluted share.

The company maintains a strong liquidity position. As of September 30, 2025, cash and cash equivalents stood at $110.296 million, with a substantial $109.426 million held outside the United States. Long-term debt was $90.700 million, providing ample liquidity to support strategic acquisitions. Net cash provided by operating activities for the nine months ended September 30, 2025, was $72.893 million. CTS actively manages its capital structure, repurchasing 400,000 shares for approximately $17 million in Q3 2025, and returning a total of $44 million to shareholders through dividends and buybacks year-to-date. Approximately $21 million remains available under the current share repurchase program.

Outlook and Strategic Trajectory

CTS Corporation has narrowed its full-year 2025 guidance, projecting sales in the range of $535 million to $545 million and adjusted diluted EPS between $2.20 and $2.25. This revised outlook reflects management's confidence in top-line momentum, particularly from diversified markets, while acknowledging persistent profitability challenges. The company anticipates high single-digit growth in its diversified end markets, offsetting expected single-digit declines in transportation.

Key assumptions underpinning this guidance include continued strength in medical therapeutics and a gradual improvement in diagnostic ultrasound, solid revenue growth in aerospace and defense driven by order backlogs and the SyQwest acquisition, and a steady recovery in industrial and distribution sales as inventory levels normalize. The SyQwest acquisition is expected to contribute more significantly in the second half of 2025 due to seasonality influenced by U.S. government funding approvals.

The adjusted EPS guidance reflects an unfavorable impact from recent U.S. tax legislation, which is expected to continue into Q4 2025 and potentially result in a similar effective tax rate of 21-23% in 2026. Management's long-term strategic initiative, "Evolution 2030," aims to enhance sales growth, operational rigor, and employee engagement, reinforcing the company's commitment to a 5% organic and 5% inorganic growth target.

Risks and Competitive Dynamics

Despite its strategic progress, CTS operates within a dynamic and challenging global environment. Uncertainty over global tariffs and trade policies, including potential changes to the USMCA, remains a significant risk that could negatively impact results. While CTS actively works with customers and suppliers to mitigate tariff impacts and achieve cost neutrality, there is no assurance these efforts will be entirely successful.

Supply chain constraints and inflationary pressures, particularly concerning rare earth elements, minerals, and metals predominantly sourced from China, pose a threat to manufacturing capabilities and competitive standing. Geopolitical risks and conflicts in regions like Ukraine and the Middle East also contribute to market volatility.

In the transportation market, CTS faces competition, particularly in commercial vehicle products, which has contributed to sales softness. European production is also experiencing increased softness due to overcapacity pressure from Chinese OEMs. While CTS's light vehicle products are largely drivetrain-agnostic, the recalibration of EV investments by some OEMs could affect the timing of revenues from new products like the e-brake.

Environmental liabilities, such as the EPA's cost reimbursement claim for the Asheville Site, represent ongoing financial exposures. CTS has recorded a loss estimate of $5.970 million as of September 30, 2025, for this matter. The company acknowledges that the ultimate disposition of such claims could materially exceed accrued losses.

Compared to larger competitors like TE Connectivity (TEL) and Amphenol (APH), CTS's smaller scale could be a vulnerability in terms of R&D investment capacity and global operational reach. However, CTS's focus on niche, high-precision engineered solutions, particularly leveraging its piezoelectric technology, provides a distinct competitive advantage in specialized markets where customization and reliability are paramount. This allows CTS to maintain strong customer relationships and differentiate its offerings, even against larger rivals.

Conclusion

CTS Corporation is strategically transforming its business, with a clear narrative centered on diversification and technological innovation. The company's pivot towards high-growth diversified end markets, now representing a majority of its revenue, is demonstrably improving its financial profile through enhanced gross margins and robust sales growth. Proprietary technologies like COBROS™ and Corvus, alongside its established expertise in piezoelectric solutions, are foundational to its competitive differentiation and long-term growth prospects, offering tangible benefits in performance and efficiency.

While macroeconomic headwinds, particularly in the transportation sector, and the impact of U.S. tax legislation present near-term challenges to profitability, CTS's strong balance sheet, disciplined capital allocation, and commitment to R&D position it for continued resilience. The company's ability to execute its strategic initiatives, expand its technological leadership, and effectively manage external risks will be crucial for realizing its full potential and delivering sustained value to discerning investors.