CTS (CTS) Sidoti September Small-Cap Virtual Conference summary

Business strategy and diversification

• Diversified revenue now split nearly 50-50 between transportation and other markets, with a goal to reach 60-70% in medical, industrial, aerospace, and defense over time.

• Recent SyQwest acquisition accelerates diversification and expands defense capabilities, moving up the value chain from components to subsystems.

• Focus remains on organic growth, targeted at 10% annually, with a mix of 5-6% organic and 4-5% from acquisitions.

• Capital allocation prioritizes acquisitions (60-80% of cash flow), with 20-40% for dividends and share repurchases.

• Acquisition targets are shifting to larger, high-quality companies, mainly in North America and Europe.

Market trends and product innovation

• Key growth drivers include automation, healthcare innovation (minimally invasive and therapeutic applications), and electrification.

• New transportation products like e-brake are expected to launch in 2027, targeting an $800 million market.

• Medical segment focuses on high-resolution ultrasound, wireless pacemakers, and drug delivery, with future growth expected from portable solutions.

• Aerospace and defense segment benefits from strong Navy relationships and new sonar and subsystem capabilities post-SyQwest acquisition.

• Industrial markets are rebounding from a prolonged destocking period, with sequential growth returning.

Financial performance and outlook

• Trailing 12-month revenue at $515 million, with EBITDA margin around 22% and EPS tracking to $2.03.

• Revenue guidance for the year is $525-540 million, with EPS expected between $2.05-2.25.

• Gross margins are expected to recover to 35-37% as diversification increases.

• Strong balance sheet supports ongoing acquisitions and shareholder returns.

• Industrial and transportation markets face headwinds, but medical and defense are showing robust growth.