Teleconferencia de resultados del 3T de 2026 de CTS Corporation: margen récord y aumento de previsiones

Puntos clave

• Las ventas del tercer trimestre de 2026 aumentaron un 5% interanual y un 3% en comparación con el trimestre anterior, hasta alcanzar los 149,6 millones de dólares, impulsadas por un crecimiento del 7% en los mercados finales diversificados y del 2% en el sector de transporte.
• El margen bruto ajustado alcanzó el nivel récord del 42,2%, lo que supone un incremento de 330 puntos básicos en tasa interanual. El margen EBITDA ajustado aumentó aproximadamente 90 puntos básicos hasta el 24,7%.
• El BPA diluido ajustado aumentó hasta la cifra récord de 0,77 dólares, frente a los 0,60 dólares del tercer trimestre de 2025. El tipo de cambio aportó aproximadamente 0,04 dólares por acción.
• Los mercados finales diversificados representaron el 60% de las ventas. Los ingresos del sector médico crecieron un 21% hasta los 27 millones de dólares, mientras que los ingresos del sector industrial subieron un 7% hasta los 40 millones de dólares.
• CTS elevó sus previsiones para 2026 a unas ventas de entre 580 y 590 millones de dólares y un BPA diluido ajustado de entre 2,78 y 2,88 dólares, asumiendo que se mantengan las condiciones actuales del mercado.
• La adquisición de Millar aporta aproximadamente 30 millones de dólares en ingresos anuales y amplía la presencia de CTS en los sectores médico e industrial, así como en la detección avanzada de presión. La dirección prevé que el BPA empiece a ser acrecentador en el segundo semestre de 2027.

Datos financieros principales

Las variaciones en las divisas aumentaron las ventas trimestrales en aproximadamente 0,5 millones de dólares y favorecieron el margen bruto ajustado en aproximadamente 1,4 millones de dólares.

Rendimiento comercial y operativo

Sector médico

Los ingresos del sector médico aumentaron un 21% interanual hasta los 27 millones de dólares, aunque bajaron un 4% en comparación trimestral debido principalmente a la programación de los pedidos. La demanda se mostró sólida y generalizada en las tecnologías de detección y actuación utilizadas en diagnóstico avanzado y tratamientos terapéuticos.

El ratio book-to-bill del sector médico fue de 0,66. CTS logró adjudicaciones en marcapasos implantables, diagnóstico por ultrasonidos y aplicaciones terapéuticas en todas las regiones.

Aeroespacio y defensa

Las ventas de aeroespacio y defensa fueron de 24 millones de dólares, un 7% menos en tasa interanual, pero un 30% más en variación trimestral. El ratio book-to-bill alcanzó 1,91, impulsado por los pedidos de contratos gubernamentales y la financiación de programas.

CTS aumentó la producción a gran escala de una solución de detección crítica para una aplicación de guerra submarina de la Armada de Estados Unidos. La empresa también se está expandiendo hacia soluciones de detección de mayor valor y subsistemas integrados para sonar naval, guerra submarina y comunicaciones seguras.

Sector industrial

Las ventas del sector industrial subieron un 7% interanual y un 1% respecto al trimestre anterior, hasta situarse en 40 millones de dólares. El segmento registró un ratio book-to-bill de 1,36 y logró contratos de diseño en impresión industrial, centros de datos, refrigeración, sistemas de climatización (HVAC) y automatización industrial.

CTS sumó un nuevo cliente para sensores de temperatura en sistemas industriales de vapor y condensados. La dirección prevé que la demanda siga respaldada por la automatización, la conectividad, la digitalización, las aplicaciones para centros de datos y la eficiencia energética.

Sector de transporte

Las ventas del sector de transporte aumentaron un 2% interanual hasta los 60 millones de dólares. El moderado crecimiento incluyó una mejora en vehículos comerciales, mientras que el mercado de vehículos ligeros se mantuvo plano o ligeramente a la baja durante el trimestre.

Las nuevas adjudicaciones cubrieron controles de pedal y aplicaciones de detección. CTS entró en el mercado de rieles de asientos con fabricantes de equipos originales (OEM) japoneses y expandió su negocio de pedales articulados al suelo hacia China. La cartera total de pedidos contratados se situó en aproximadamente 1.200 millones de dólares al cierre del trimestre.

Para su actuador inteligente de turbo, CTS busca conseguir aprobaciones clave en plataformas de motores adicionales hacia mediados de 2027. La dirección indicó que las entregas podrían comenzar uno o dos trimestres después de obtener la aprobación.

Adquisición de Millar

CTS pagó aproximadamente 50 millones de dólares en efectivo por Millar. Se espera que el negocio adquirido genere aproximadamente 30 millones de dólares en ingresos anuales y añade capacidades de detección de presión, química y electroquímica, junto con tecnologías basadas en catéteres.

La dirección señaló que Millar debería ser acrecentadora para el margen bruto de CTS. Su contribución al EBITDA será positiva, aunque en un principio podría no elevar el margen porcentual. CTS prevé un impacto acrecentador en el BPA en el segundo semestre de 2027 a medida que busque el crecimiento de las ventas y sinergias.

Previsiones de la dirección

CTS elevó sus previsiones para todo el año 2026, asumiendo que se mantengan las condiciones actuales del mercado:

La dirección prevé que la demanda de los mercados diversificados se mantenga sólida. El impulso del sector médico se beneficiará de Millar, se espera que los ingresos de aeroespacio y defensa sigan siendo fuertes en el T4 debido a la cartera de pedidos pendientes, y se prevé que la demanda industrial se mantenga saludable.

La dirección prevé que la producción mundial de vehículos ligeros se mantenga estable o disminuya ligeramente en medio de la incertidumbre en torno a los aranceles, el contexto geopolítico y la demanda de los consumidores.

Riesgos y factores a seguir

• La dirección prevé que la rentabilidad se normalice en los próximos trimestres, ya que el T3 se benefició de una combinación de mercados finales inusualmente favorable, el calendario de ejecución de proyectos y los tipos de cambio.
• Las reservas del sector médico se vieron afectadas por la programación de pedidos, lo que resultó en un ratio book-to-bill de 0,66.
• Los pedidos de aeroespacio y defensa pueden ser irregulares debido a que la financiación de programas y la adjudicación de contratos se reciben en grandes bloques.
• Los aranceles, las condiciones geopolíticas y la incertidumbre en la demanda de los consumidores siguen siendo riesgos para los mercados de transporte.
• Los volúmenes de actuadores inteligentes de turbo dependen en parte de la asignación de suministros de los clientes entre CTS y sus competidores, por lo que la producción del cliente no se traduce directamente en volumen para CTS.
• Millar presenta cierta concentración de clientes, aunque la dirección señaló que la adquisición no cambiaría de forma sustancial el perfil general de concentración de CTS ni la colocaría en su lista de clientes principales.

Puntos destacados de la sesión de preguntas y respuestas con analistas

• Rentabilidad de Millar: La dirección prevé que la adquisición mejore el margen bruto consolidado. El EBITDA será positivo, pero puede que no sea acrecentador en un principio, mientras que el impacto acrecentador en el BPA se prevé para el segundo semestre de 2027.
• Financiación de la adquisición: CTS financió la operación de Millar íntegramente con efectivo y no prevé cambios drásticos en la estructura operativa de la empresa adquirida.
• Cartera de pedidos de defensa: Por lo general, los ingresos se reconocen a lo largo del tiempo según el porcentaje de avance. La sólida cartera de pedidos respalda el T4, pero el impulso futuro dependerá de la financiación adicional.
• Sostenibilidad del margen bruto: La dirección prevé márgenes sólidos en los próximos trimestres, pero advirtió que el resultado del 42,2% en el T3 se benefició de una combinación inusualmente favorable y podría no repetirse de inmediato.
• Asignación de capital: CTS recompró 57.000 acciones por aproximadamente 3,4 millones de dólares durante el trimestre y le quedaban 75 millones de dólares dentro de su autorización.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Hello, everyone. Thank you for joining us, and welcome to CTS Corporation's Third Quarter 2026 Earnings Call.

[Operator Instructions]

I will now hand the conference over to Pratik Trivedi. Pratik, please go ahead.

Pratik Trivedi

Good morning, and thank you for joining us. We delivered a strong third quarter with revenue growing 5% to $150 million. Our diversified end markets increased 7% year-over-year and represented 60% of total sales. Strong execution drove record profitability and robust cash generation with gross margin of 42.2%, adjusted EBITDA margin of 24.7% and adjusted diluted EPS of $0.77. While transportation sales increased modestly, continued growth across our diversified end markets enabled strong financial results and improved the quality of our earnings.

As announced last Friday, we are excited about the acquisition of Millar, a highly complementary business that strengthens our position in diversified end markets, primarily medical, and expands our portfolio in advanced pressure sensing technologies.

Ashish Agrawal, our CFO, will take us through the safe harbor statement. Ashish?

Ashish Agrawal

I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued today and more information can be found in the company's SEC filings.

To the extent that today's discussion refers to any non-GAAP measures under Regulation G, the required explanations and reconciliations are available with today's earnings press release and the supplemental slide presentation, which can be found in the Investors section of the CTS website.

I will now turn the discussion back over to Pratik.

Pratik Trivedi

Thank you, Ashish. We finished the third quarter with sales of $150 million, representing a 5% increase compared to the third quarter of 2025 and up 3% sequentially from the second quarter. Our diversified end markets were up 7% year-over-year, while transportation sales were up 2%. Diversified end market sales were 60% of overall company revenue in the quarter, up from 59% in the prior year period.

For 2026 year-to-date, diversified sales were up 12% and transportation sales remained flat over the same period last year. Our book-to-bill ratio for the third quarter was 1.18, reflecting sustained customer demand across our portfolio. Diversified bookings were particularly strong with a book-to-bill of 1.3.

We added one new customer in the industrial end market and one in the transportation end market. The strength of our operational execution and favorable product mix was evident as we expanded gross margin to a record 42.2%, up 330 basis points compared to the third quarter of 2025.

Adjusted EBITDA margin reached 24.7%, an improvement of approximately 90 basis points year-over-year. Third quarter adjusted diluted earnings were a record $0.77 per share, up from $0.60 in the third quarter of 2025. We maintained strong cash generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders. Ashish will add further color on our financial performance later in today's call.

The recently completed acquisition of Millar represents another important step in our strategy to reshape CTS towards a more diversified portfolio of high-value differentiated technologies serving attractive end markets. The acquisition meaningfully increases our exposure to medical and industrial markets while expanding our capabilities into pressure, chemical and electrochemical sensing and differentiated catheter-based technologies. Millar's vertically integrated capabilities, spanning design, microfabrication and precision manufacturing enable differentiated solutions for demanding applications.

Beyond the strategic fit, we see compelling opportunities to accelerate growth by leveraging complementary technologies, expanding customer relationships and bringing CTS' broader engineering and commercial capabilities to the Millar platform. We expect Millar to generate revenues of approximately $30 million on an annual basis. The acquisition is expected to be accretive in the second half of 2027.

The medical end market continued to be a significant growth driver in the third quarter, generating revenue of $27 million, an increase of 21% year-over-year and a decrease of 4% sequentially, mainly due to timing of orders. Performance was fueled by broad-based demand across our sensing and actuation technologies, particularly in applications supporting advanced diagnostics and therapeutic treatments.

New business wins were impacted by timing of orders in the quarter, resulting in a book-to-bill ratio of 0.66. During the quarter, we had key wins in implantable pacemaker applications, ultrasound diagnostics and therapeutic applications across all regions. We continue to partner with leading global medical OEMs on next-generation programs across diagnostic imaging, therapeutics and several emerging applications. These opportunities, combined with favorable demographics and continued medical innovation, reinforce our confidence in the long-term growth of the market.

Aerospace and defense sales were $24 million in the third quarter, 7% below prior year, but 30% higher quarter-over-quarter, reflecting the flow of program funding and government contract orders. Orders remained very healthy as reflected in our 1.91 book-to-bill ratio, providing strong support for future growth. We continue to move up the value chain, expanding from components to higher-value sensing solutions and integrated subsystems for naval sonar, undersea warfare and secure communications applications.

During the quarter, we achieved an important win by successfully scaling production of a critical sensing solution for a U.S. Navy undersea warfare application. Increasing investments in traditional defense infrastructure as well as our customer engagements in modern warfare applications position us well for the long-term growth in this end market. Our industrial end market continued its strong momentum in the third quarter with sales of $40 million, increasing 7% year-over-year and 1% sequentially, further extending the recovery trend that began in 2025. Growth was broad-based across OEM customers and distribution partners and bookings remained healthy with a book-to-bill ratio of 1.36.

During the quarter, we secured multiple design wins across a diverse set of applications, including distribution components, industrial printing, data center applications, refrigeration, HVAC systems and industrial automation. We added one new customer during the quarter, expanding our presence for temperature sensing in industrial steam and condensate systems.

Looking ahead, we expect industrial demand to remain healthy, supported by favorable secular trends, including data center applications, automation, connectivity, digitalization and the increasing focus on energy efficiency. These trends continue to expand the addressable market for our industrial portfolio, positioning us well for sustained growth.

Transportation sales in the third quarter were $60 million, up 2% versus the prior year and up 1% sequentially. We secured important new business wins across our transportation portfolio, particularly in foot controls and sensing applications. These wins expand our presence across global vehicle platforms, establish our entry into the seat track market with Japanese OEMs and extend our floor-hinged pedal business into China, creating additional opportunities for future growth.

Total booked business was approximately $1.2 billion at the end of the quarter. We added one new Tier 1 customer during the quarter. We continue to build momentum around our e-brake technology with multiple customer opportunities progressing across future hybrid and electric vehicle platforms. Positive customer feedback, continued product development and upcoming vehicle demonstrations are building customer momentum and positioning e-brake for broader adoption.

Turning to the outlook for 2026. For our diversified end markets, demand is expected to remain solid. In medical, we see continued momentum, especially with the acquisition of Millar. In aerospace and defense, revenue is expected to remain strong in the fourth quarter given our robust order backlog. In industrial, OEM and distribution demand is expected to remain healthy. Across transportation markets, global light vehicle production volumes are forecasted to be flat to modestly down given ongoing tariff, geopolitical and consumer demand uncertainties.

We continue to closely monitor and evaluate the tariff and geopolitical environment. Our focus remains on agility in adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions for the full year 2026, we are raising our guidance with sales now expected in the range of $580 million to $590 million and adjusted diluted EPS in the range of $2.78 to $2.88.

Now I'll turn it over to Ashish, who will walk us through the financial results in more details.

Ashish Agrawal

Thank you, Pratik. Third quarter sales were $149.6 million, up 5% compared to the third quarter of 2025 and up 3% sequentially from the second quarter of 2026. Sales to diversified end markets increased 7% year-over-year, while sales to transportation customers were up 2%. Foreign currency changes impacted sales favorably by approximately $0.5 million in the quarter.

Our adjusted gross margin was a record 42.2%, up 330 basis points compared to the third quarter of 2025 and up approximately 70 basis points sequentially. The year-over-year improvement was driven by operational execution, a favorable impact of approximately $1.4 million from foreign currency changes and an above-normal favorable impact of end market mix driven by timing of certain projects. We expect some normalization in profitability in the next few quarters.

Gross margin from the Millar acquisition is expected to be accretive to our overall gross margin. Adjusted EBITDA margin was 24.7%, an improvement of approximately 90 basis points versus the prior year period. Our effective tax rate for the quarter was 18.9%, excluding discrete items. For the full year, we continue to expect our tax rate to be in the range of 20% to 22%, excluding discrete items. Adjusted earnings for the third quarter were a record $0.77 per diluted share, up from $0.60 per diluted share in the third quarter of 2025. Our EPS this quarter includes foreign currency favorability of approximately $0.04.

Moving to cash generation and the balance sheet. We generated strong operating cash flow of $44 million in the third quarter. Capital expenditures were $2.4 million in the quarter and free cash flow was approximately $41 million. Our balance sheet strengthened further with a cash balance of $144 million and borrowings of $55 million at the end of the quarter. In October, we deployed approximately $50 million in cash towards the acquisition of Millar.

During the quarter, we repurchased 57,000 shares of CTS stock for approximately $3.4 million. We have $75 million remaining under our current share repurchase program. We remain focused on strong cash generation and disciplined capital allocation and will continue to support organic growth, strategic acquisitions and returning cash to shareholders.

This concludes our prepared comments. We would like to open the line for questions at this time.

Operator

[Operator Instructions] Your first question comes from the line of Gary Prestopino with Barrington.

Preguntas y respuestas

Gary Prestopino

I wanted to ask you a question on Millar. You kind of answered it partially. The gross margin is going to be accretive. What about the adjusted EBITDA margin? Is that accretive as well?

Ashish Agrawal

So, Gary, we are talking about on the call, like you heard us say, the gross margin is accretive. The EBITDA will be positive, obviously, but maybe not quite accretive at the beginning. But as we work through the synergies and sales growth in the business, we expect it to be very healthy as we move forward. And we also expect EPS accretion in the second half of 2027.

Gary Prestopino

Could you maybe talk about what their historic sales growth rate has been and where you think you can take it and what you have to do to get the growth higher?

Ashish Agrawal

So, Gary, the historical sales, we generally don't get into that with the acquisitions. What I would say to you is that they have a very strong play in advanced medical treatment with a strong base amongst the customers that are providing that kind of facilities. And we expect good growth. Their technology is well respected in the industry. And the primary driver for us to be looking at Millar is to drive revenue growth as we look ahead.

Operator

Your next question comes from the line of Jaeson Schmidt with Lake Street.

Jaeson Schmidt

Just sticking with the acquisition, curious if you could comment if Millar has any significant customer concentration?

Ashish Agrawal

Mostly in the medical market, Jaeson, we expect -- they've got a good profile of customers. They do have some customer concentration. But when you look at the total CTS level, that concentration will not look materially different from what we have today. It will not make it to our top customer list.

Jaeson Schmidt

Okay. That's helpful. And then just as a follow-up, really nice to see the rebound in the transportation market. Curious if that growth here in Q3 was driven by 1 or 2 particular customers or if it was more broad-based?

Pratik Trivedi

Jaeson, I would say that the growth in Q3, which was a very moderate growth, was a combination of some growth in our commercial vehicle segment, but we still -- the automotive or the light vehicle market was still pretty much flat to slightly down for the quarter.

Operator

Your next question comes from the line of John Franzreb with Sidoti & Co.

John Franzreb

I guess I just want to go back to the Millar and the financing of the deal. Did I hear you properly and that was entirely cash? Or did you borrow in addition to doing that?

Ashish Agrawal

It was entirely cash, John.

John Franzreb

And another good backlog number in A&D. What does the delivery schedule look like in that business? How should we think about that on a go-forward basis?

Ashish Agrawal

So, John, in defense, we generally have an over time revenue recognition approach where we recognize revenue based on percentage of completion. So Pratik already mentioned, we have a healthy backlog going into Q4. It positions us well, and we want to see the momentum continue with additional funding.

Pratik Trivedi

Maybe just to add, it's also another reflection of the lumpiness that we've described in the previous quarters around that when we get the orders, we get in lumps and then there are quarters where the book-to-bill is below 1. So it's just a reflection of that timing of those orders.

John Franzreb

Right. I know the volatility. I just wanted to see if I could kind of expand and maybe some clarity how to model it all. And just quickly, does the acquisition require any kind of consolidation into the business or it's going to be run as a stand-alone? Does it change the spend rate maybe on your R&D?

Ashish Agrawal

No, we're not expecting any sudden changes to the structure or anything, John. It's a great business. We are excited about the team joining us. They've got a good talent pool that is running the business today, and we hope to leverage them to leverage their capabilities and our capabilities to drive growth. From an integration standpoint, we will look at some things we do very quickly in terms of cash transactions and things like that. Some things we take a little bit longer time to make sure that we are getting the right balance between cultural integration as well as systems and processes and things like that. But we are not expecting any drastic changes in how the business is being run.

Operator

Your next question comes from the line of Hendi Susanto with Gabelli Funds.

Hendi Susanto

I would like to congratulate on a very strong gross margin, 42.2%. And then any puts and takes? I know that margin is influenced by the mix. So the diversified end markets now is already like 60%. Any puts and takes that we should keep in mind when we think of gross margin coming ahead?

Ashish Agrawal

Yes. Hendi, in the prepared comments, we mentioned that we have an unusually favorable mix even within the diversified markets based on the timing of certain projects. We do expect good gross margins in the next few quarters, but maybe not quite at the same level as the 42%. We were very happy with what we were able to deliver. It reflects strong performance by our global teams on execution and also growth in the right areas. So in the mid- to long term, we will look to continue expanding gross margins. But from quarter-to-quarter, there can be changes that hold us back from straight up north movement every single quarter.

Hendi Susanto

I see. And then, Pratik, do you have any update on the turbo smart actuator business in terms of customer allocation?

Pratik Trivedi

Hendi, so, as it relates to the actuator, we continue to work towards getting approvals on additional engine platforms. And while our customer production provides a pretty important demand indicator, the volumes can vary based on the sourcing mix between CTS and the competitor. So as a result, the production volumes do not necessarily translate directly into comparable changes for CTS volumes.

Hendi Susanto

And Pratik, may I ask further, like, when you mentioned working towards like new products, what kind of timing are we looking?

Pratik Trivedi

So we are working on the products to qualify additional engine platforms, Hendi, and we are looking at somewhere around the middle of 2027 for some critical approvals.

Hendi Susanto

So approval in, let's say, like in 2027? And then how soon will, like, delivery following the approval process?

Ashish Agrawal

It should be a quarter or 2 after that.

Pratik Trivedi

A quarter or 2 after that, Hendi.

Operator

There are no further questions at this time. I will now turn the call back to Pratik Trivedi for closing remarks.

Pratik Trivedi

Thank you all for your time today. I am proud of our team's performance this quarter, and the results reflect strong execution of our strategy of driving sustainable organic growth, diversifying our portfolio, delivering consistent operational execution and deploying capital strategically. The acquisition of Millar represents another important step in our portfolio transformation, expanding our presence in the medical and industrial end markets. The CTS business system provides the foundation for how we execute these priorities with a focus on growth, operational rigor, employee engagement and supporting our communities. We look forward to updating you on our fourth quarter and full year results in February.

Thank you for joining us today.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.