CTS Corporation Aktie

Thank you. Hello everyone. Thank you for joining us and welcome to CTS Corporation's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press start one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Prateek Trivedi. Prateek, please go ahead.

Good morning and thank you for joining us. As I begin my first earnings call as CEO, I want to thank Kiran O'Sullivan for his leadership and the strong foundation he built at CTS. The evolution 2030 strategy and our focus on diversification remain central to our value creation. We delivered a strong second quarter with revenue growing 7% to 145 million. Our diversified end markets increased 15% year over year and represented 59% of total sales. equally important, we converted that growth into record profitability, achieving gross margin of 41.5%, adjusted EBITDA margin of 25.4%, and adjusted diluted EPS of 74 cents. While the quarter benefited from certain unusual items that approximately 7 cents of favorable EPS impact, we still delivered record earnings per share. The first growth across our diversified end markets drove strong financial results and improved the quality of our earnings despite modest declines in transportation.

Combined with disciplined execution, this momentum gives us confidence in our ability to continue delivering profitable growth and long-term shareholder value. Ashish Agrawal, our CFO, will take us through the safe harbor statement. Ashish?.

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 available 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 our investor section of the CTS website. We'll now turn the discussion back over to Prateek. Thank you, Ashish.

We finished the second quarter with sales of 145 million, representing a 7% increase compared to the second quarter of 2025 and up 4% sequentially from the first quarter. Our diversified end markets were up 15% year-over-year, while transportation sales were down 2%. Diversified end market sales were 59% of overall company revenue in the quarter, up from 55% in the prior year period. For the first half of 2026, diversified sales were up 16 percent and transportation sales remained flat over the same period last year. Our book-to-bill ratio for the second quarter was 1.1, reflecting sustained customer demand across our portfolio. diversified bookings were particularly strong with a book to bill of 1.17. We added two new customers in the industrial end market and one new customer in the aerospace and defense end market. In transportation, we secured several new business awards, adding up to 163 million.

The wins include a large sensor award with a North American OEM and a new EV customer for our sensors portfolio. The strength of our operational execution was evident as we expanded adjusted gross margin to a record 41.5%. Up 270 basis points compared to the 2nd quarter of 2025. adjusted EBITDA margin reached 25.4%, an improvement of approximately 240 basis points year over year. We maintained strong cash generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders. Second quarter adjusted diluted earnings were a record 74 cents per share, up from 57 cents in the second quarter of 2025. Ashish will add further color on our financial performance later in today's call. The medical end market continued to be a significant growth driver in the second quarter, generating revenue of $28 million, an increase of 45% year-over-year and 14% sequentially. was fueled by broad-based demand across our sensing and actuation technologies, particularly in applications supporting advanced diagnostics and therapeutic treatments. business wins remained robust throughout the quarter, resulting in a book-to-bill ratio of 1.21 and reinforcing confidence in the sustainability of current demand trends.

We remain actively engaged in multiple next generation product development programs, with leading global medical equipment OEMs, positioning CTS to participate in future platform launches across a range of attractive healthcare innovations. Our technologies continue to enable critical capabilities in diagnostic imaging, therapeutics, and minimally invasive procedures where precision, reliability, and performance are essential. We believe that the medical market remains well positioned for sustained growth supported by power secular tailwinds, including demographic shifts, increasing healthcare spending, and ongoing advancements in medical technology. Aerospace and defense sales were 18 million in the second quarter, down 15% year-over-year, but up 4% sequentially, primarily reflecting the timing of program funding and government contract awards. While funding deployments have been gradual, we are beginning to see government funding flow into several key programs supporting increased customer activity and strengthening outlook. Demand fundamentals remain healthy, as evidenced by a 1.23 book-to-bill ratio and a growing backlog that supports future growth. We added one new customer in the aerospace and defense end market during the quarter that focuses on defense satellite communication solutions.

We continue to execute our strategy of expanding from a component supplier to a provider of high value sensors, transducers and integrated subsystems for naval sonar, undersea warfare and secure communications applications. In addition, we are actively engaged with several customers on next generation defense programs, including autonomous drone systems, electronic warfare, and anti-jamming technologies, where our sensing and RF expertise can provide differentiated performance. As government funding continues to be deployed and program awards progress, we expect a stronger second half of the year supported by robust bookings, an expanding opportunity pipeline, and increasing participation in both traditional and modern warfare platforms. Our industrial end market continued its strong momentum in the second quarter, with sales of 40 million increasing 16% year-over-year and 6% 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 1.11. During the quarter, we secured multiple design wins across a diverse set of applications, including distribution components, industrial printing, and EMI filters for communications infrastructure and industrial automation. We also had wins in temperature sensing solutions for heat pumps refrigeration systems, and pool and spa systems.

We added two new customers during the quarter, expanding our presence in process instrumentation and next generation cryogenic nano positioning applications. Looking ahead, we expect industrial demand to remain healthy through 2026, supported by favorable secular trends including 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 second quarter were 59 million, down 2% versus the prior year and down 2% sequentially. The new business awards were exceptional, with wins of approximately 163 million in the quarter, driven by strong awards across our sensor portfolio and food controls with OEMs in North America, Japan, China, and Europe. A key highlight was a win with a major North American OEM for approximately $100 million, which is a record for our sensors portfolio, utilizing our product in an integrated wheel speed accelerometer sensing application. We gained a new EV customer in North America for a seat track position sensor, enhancing the safety system in the vehicle.

We are delighted by the scale of our census portfolio wins this quarter, underscoring the strategic importance of our technologies across powertrain agnostic platforms. Total booked business was approximately 1.2 billion at the end of the quarter, up approximately 100 million from the first quarter. Turning to the outlook for 2026, for our diversified end markets, demand is expected to remain solid. In medical, we see continued momentum in therapeutics and diagnostics where we have expanded capacity. In aerospace and defense, revenue is expected to strengthen in the second half, given our strong bookings, backlog, and the improved flow of government funding. 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 expect the commercial vehicle market to have modest growth supported by improving freight fundamentals, and pre-buy activity ahead of upcoming emissions regulations. we continue to closely monitor and evaluate the tariff and geopolitical environment in including the new tariff announcements last week.

We are not anticipating any material impact from the recent tariff announcements and will monitor further developments. 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 full year 2026, we are raising our guidance with sales now expected in the range of 565 million to 585 million and adjusted diluted EPS in the range of $2.55 to $2.50. Now I'll turn it over to Ashish who will walk us through the financial results in more detail.

Thank you, Prateek. Second quarter sales were 144.8 million, up 7% compared to the second quarter of 2025, and up 4% sequentially from the first quarter of 2026. sales to diversified end markets increased 15% year over year. while sales to transportation customers were down 2%. Foreign currency changes impacted sales favorably by approximately $1.4 million in the quarter. Our adjusted gross margin was a record 41.5%, up 270 basis points compared to the second quarter of 2025, and up approximately 200 basis points sequentially. The year-over-year improvement was driven by operational execution, a favorable impact of end market mix, and a favorable impact of approximately $1 million from foreign currency changes. We continue to monitor the impact of Section 232 tariff changes, precious metal inflation, and input cost pressures. And our teams are partnering with customers and suppliers to keep the effect on our margins broadly cost neutral. We are also watching developments related to last week's tariff announcements and the USMCA negotiations.

Adjusted EBITDA margin was 25.4%, an improvement of approximately 240 basis points versus the prior year period. Our effective tax rate for the quarter was 21.8%, excluding discrete items. For the full year, we continue to expect our tax rate to be in the range of 21 to 23% excluding discrete items. Adjusted earnings for the second quarter were a record $0.74 per diluted share. up approximately 30% compared to 57 cents per diluted share for the same period last year. As Prateek mentioned earlier, our results this quarter included foreign currency favorability, as well as a larger customer reimbursement. These items add up to approximately $0.07 of favorable EPS impact. Moving to cash generation and the balance sheet, we generated strong operating cash flow of $33 million in the second quarter.

Capital expenditures were $4.6 million in the quarter, and free cash flow was approximately $29 million. Our balance sheet strengthened further with a cash balance of $108 million and borrowings of $55 million at the end of the quarter. During the quarter, we repurchased approximately 64,000 shares of CTS stock for $3.5 million. We have $78 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.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. pick up your handset while asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile our Q&A roster. Your first question comes from the line of John Franz Reb with Sidoti & Co. Please go ahead.

Good morning, everyone, and thanks for taking the questions. Congratulations, a great start out of the gate. I'm wondering if you talk a little bit about your observations since you joined CTS and maybe little thoughts about how you might differ from your predecessor on an ongoing basis.

Thank you, John. I've been with CTS now for a little over two years, John, and I had the opportunity to lead our diversified end market business. And what I learned during the two years was the exceptional growth opportunity that we have. to grow that side of the business. And as we think about Over the last two years, I had the opportunity to also develop the overall strategy for that business and work towards the execution as well. So that is what has been pretty remarkable for me in terms of trying to understand what opportunities do we have for the diversified end markets. Given that I have been with the business now for over two years and had the opportunity to shape the broader strategy, what we are trying to work towards is an acceleration of our growth strategy. across the diversified end markets at the same time stabilizing our transportation business. Our results in the quarter demonstrated that our strategy has been working. The strategy overall is also guided by our principles in evolution 2013 over CTS business system that we intend to accelerate going forward.

Got it, got it. Well, good luck with that. Reverting back to the results from the quarter, a couple questions there. First and foremost, you called out the one-time items in FX and it looks like reimbursement in the R&D line. As far as on a go-forward basis, should we be thinking about that R&D number reverting back to call it normal quarterly run rates? Or is there other reimbursements that are planned for the second half of the year we should be cognizant of?.

So John, this is Ashish. We continuously keep working with customers on different product development initiatives and the timing of customer reimbursements can fluctuate from time to time, as you know. So we do expect the R&D expenses to normalize going forward. But that doesn't mean we don't have any more customer reimbursements. We'll continue working towards as programs reach a certain level of activity, there can be further reimbursements. Overall, I would say though that we would expect R&D expenses to go get.

closer to normal levels. Got it. The medical side of the business had a sizable increase, you know, year over year and sequentially. Is it fair to assume that that business generates a higher gross margin than the other two sectors of the diversified end markets?.

Yes, John, I think you may have asked a similar question in one of the prior earnings calls. Generally, what we talk about is... The overall diversified and markets are more profitable in terms of the gross margin. Medical would definitely be stronger of all the diversified and markets, but we have pretty healthy margins in industrial and aerospace and defense as well.

Got it. You kind of addressed this in your prepared remarks that the second half is looking better for aerospace and defense. It sounds like you completed your expansion in medical. Did I read those comments properly?.

Let me make sure I get your question. Could you repeat the part where you talked about medical? What did you hear?.

Last quarter, you said you were doing an expansion in the medical side. It sounded like that expansion was completed in the second quarter. Or is there still more to come?.

that we are putting in place ahead of the demand. So, yes, that has already been in place. We continue to see a ramp up in the second quarter. We saw those ramp up. And we do expect, especially in the therapeutics application, volume start to get more normalized in the second half of the year. Okay.

Okay. You know what, with that, I'll let somebody else ask a question, but thank you, Patik. Thank you, Ishish. I'll get back into queue. Thank you, John.

Your next question comes from the line of Hendy Susanto from Gabelli Funds. Your line is open. Please go ahead.

Good morning, Pratik and Ashish. Congratulations and good results and upward revision on the full year guidance. Thank you, Andy. Thank you, Andy. Yes. Pratik and Ashish, may I check in with regard to the latest update and outlook for the remainder as topics like potential price increases, inflationary costs, and then negotiation with customers.

major updates on those? So, Hendi, we are continuing to work through those items and If you look at the range on the guidance, it's a sizable range for half a year, and that's kind of what's built into our program. the range of EPS estimates for the second half. You know, on the higher end, we would be looking to have some positive outcome from those discussions. On the lower end, we may be seeing more cost pressures. So that's kind of how we are trying to look at the current situation and how it might impact our earnings in the second half. But our teams are actively discussing pricing in terms of tariffs, precious metals, It's a regular ongoing discussion with the customer community as well as the supplier base.

So, Ashish, with regard to the timing, will it be mostly in the second half, meaning that we haven't seen much of those in the first half, and then we will see more, and then perhaps my impression is more on the favorable sides of setting some.

Let's say like cost pressure on the lower end one? So, Hendi, if you go back to the second half of 2025, we had already started seeing increase in precious metal pricing. So we have been working that a lot longer. Section 232 tariffs became a bigger burden late Q1, early Q2. So there's some discussions are still ongoing. So it's not a, you know, the same story for every part in terms of cost increases. There's different stories stages of discussion. I wouldn't call it a second half, we will see definitely some recovery, it's going to a range of outcomes that is what we are trying to build into our EPS estimate.

I see. And then the upward revision on the revenue, is it primarily on the medical or it's a combination of different end markets in the diversified market?.

sectors yes handy so just just looking back right I mean particularly pleased with our second quarter results and even the first half results and as we start to focus our outlook towards the second half of the year we We expect our diversified end markets to continue its growth trajectory across all three of the end markets, which are industrial, aerospace, and defense, and medical. Now in the transportation business, you know, the global light vehicle production volumes, they are forecasted to be flat to slightly down, driven by the current geopolitical environment, the tariffs, including the most recent announcement last week, and also the inflation and availability of critical components. So we believe that our guidance right now strikes the right balance between resilience and growth of our diversified end markets.

And a cautious stance on the light vehicle production trends. Got it. Thank you, Ashish. Thank you, Prateek. And then, Prateek, all the best for your new chapter of leadership at CTS.

Thank you, Hindi. Thank you, Hindi. Your next question comes from the line of John Franzrub with Sudoti & Co. Please go ahead.

Hi guys, I'm back again. I want to talk a little bit about the transportation segment. I guess one thing, I haven't done the math yet because I just got the numbers, but based on the book to bills you provided on the diversified end markets, does that suggest the book to bill on transportation was based on the book to bills?.

below 1.0 in the quarter? It's close to 1, John, and that's normally the case because the transportation orders are very short cycle so the book to bill is not a good representation on the transportation side But generally, you could look at the data every quarter. It's very, very close to one. It may be 0.99. It could be 1.01 or 1.02.

Got it. Got it. Thanks for that clarity. And can you remind me how much of revenue the commercial vehicle market was in 2025 as a percentage of the total sales?.

We've generally not called that out, John, but if you look at our public filings in the Qs and Ks, We do disclose if the sales to Cummins exceeds 10%, then that's disclosed. And that's a reasonably good approximation of our sales to commercial vehicle and market.

Okay. Is it also fair to assume, I mean, The Class A truck market through the first six months of the year, the order book is up 125%. I guess there's two questions here. One, are you seeing a similar type of booking number that suggests the second half is looking good for you? I don't know what comes specifically, and maybe some of the timing of that, and is that built into your revenue numbers? I guess there's multiple questions there. And I'll just start with that question.

Understood, John. So if you look at our commercial vehicle market outlook right now, we are expecting a modest growth in the second half of the year. That is based on the rising freight rates, improving spot and contract pricing. And then there is also a potential pre-buy that is related to the EPA 2027 emission.

change so that's how we've modeled the commercial vehicle volumes in our forecast yes John keep in mind that is definitely the story for the second half and we are also working through the second source that was launched by Cummins a year plus ago. in terms of their supply base. So that transition is still ongoing. Oh, is it? We expect to have a lot more clarity on the ongoing market share that we should have versus our competitor. As we have talked about that, we expect to have that visibility towards the end of the year.

Okay. I guess just one point of clarification. It's also fair to assume that despite the volumes returning, that would be a little bit of a dampener on the gross margin line.

as that business comes back. Is that a fair assumption? What happens generally in the transportation John, whenever you're launching a new program, the gross margin could be a little bit under pressure, but then you work on productivity improvements as you go along the life of that particular platform. So you could see that impact in the initial stages, but generally we'd be working towards getting margin improvements as we work our way through the lifecycle.

Got it. Got it. Thank you, Sheesh. Thanks for taking my follow-ups. Sure.

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

Thank you all for your time today. I'm proud of what our teams delivered this quarter and I'm confident in the path ahead. Diversification remains a strategic priority to drive growth and margin expansion, and we continue to expand our powertrain agnostic solutions in transportation. We remain guided by our Evolution 2030 strategic initiative with an emphasis on profitable growth, operational rigor, employee engagement, and giving back to the communities where we operate. We look forward to updating you on our third quarter 2026 results in October. This concludes our call.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, everyone. Thank you for joining us, and welcome to the CTS Corporation First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Kieran O'Sullivan. Kieran, please go ahead.

Good morning, and thank you for joining us today. I'm pleased to report a solid first quarter of 2026 for CTS with diversified sales up double digits as we continue to execute our diversification strategy. We also saw strong bookings momentum in the industrial and medical markets.

In transportation, we see stability in revenue with modest growth in the first quarter. Overall, with growth in key end markets and solid execution, we believe the company is well positioned to deliver on its strategic objectives. Ashish Agrawal, our CFO, will take us through the safe harbor statement and later through our financials. Pratik Trivedi, our COO, will provide an update on the progress in each of our end markets. Ashish?

I would like to remind our listeners that this 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 our CEO, Kieran O'Sullivan.

Thank you, Ashish. We finished the first quarter with sales of $139 million, representing a solid 11% increase compared to the first quarter of 2025. Our diversified end markets were up 18%. Transportation sales grew 3%. Our book-to-bill ratio for the first quarter was 1.1, up 4% compared to the first quarter of 2025.

Looking at bookings performance, Industrial bookings were strong, driven by stabilized OEM demand and the recovery in distribution. Medical bookings showed robust growth, driven by continued strength in diagnostics and therapeutic applications. In aerospace and defense, we continue to have a robust pipeline of opportunities even as bookings were down compared to last year as funding on various programs is expected to improve in the second half.

We added 2 new customers in the defense market. In transportation, we secured several new business awards, including current sensing in Europe and a larger award for foot controls with a European OEM in early April. We also added a new customer in the transportation market.

Our operational execution was evident as we expanded gross margin by 250 basis points in the first quarter. We maintained strong cash flow generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders.

First quarter adjusted diluted earnings were $0.62 per share, up from $0.44 in the first quarter of 2025 as we continue to focus on driving profitable growth. Ashish will add further color on our financial performance later in today's call.

Turning to the outlook for 2026. For our diversified end markets, demand is expected to be solid. In the medical market, we see continued momentum in therapeutics, where we have expanded capacity. In Aerospace and Defense, revenue is expected to grow given our backlog and the normalization of government funding.

Industrial OEM and distribution sales are expected to be solid. We continue to monitor the potential economic impact of the current geopolitical conflicts for the second half of the year. Longer term, we expect our material formulations supported by 3 leading technologies and their derivatives to continue to drive our growth in key high-quality end markets in line with our diversification strategy.

Across transportation markets, production volumes are expected to be down given the current geopolitical uncertainties and the potential impact on the economy. Global light vehicle volumes from IHS were recently forecasted to soften. The North American light vehicle market is expected to be in the 15 million unit range.

European production is forecasted to be in the 16 million to 17 million unit range. China volumes are expected to be in the 32 million unit range. We continue to monitor potential impact from the geopolitical situation, supply chain issues related to petroleum products, especially resin and other components such as rare earth, metals, and semiconductors. We anticipate commercial vehicle demand to improve in the second half of the year.

We are closely evaluating the Section 232 tariff changes and focusing on agility in adapting to cost and price adjustments in close collaboration with our customers and suppliers.

Our strong balance sheet, healthy cash generation and experienced teams provide us with the tools necessary to manage these headwinds while continuing to invest in growth opportunities and also advancing innovation. Our increasingly diversified business model continues to enhance our growth and quality of earnings.

Assuming the continuation of current market conditions, for full year 2026, we are narrowing our sales guidance in the range of $560 million to $580 million and adjusted diluted EPS to be in the range of $2.35 to $2.45.

Now I'll turn it over to Pratik, who will walk us through the end market performance. Pratik?

Thank you, Kieran. Our medical end market delivered strong performance in the first quarter with sales of $25 million, up 28% versus the prior year period, reflecting a sustained growth momentum across our medical portfolio, particularly in therapeutic applications where we see robust demand.

Bookings in the quarter were up 18% compared to the prior year period. The book-to-bill ratio for the first quarter was 1.2, reflecting continued momentum in this market. We continue to see growth prospects in diagnostic imaging, aesthetics and minimally invasive surgical systems where there is an increased demand for precision, reliability and patient monitoring.

Our precision sensors and transducers enable high-resolution imaging and precise energy delivery in applications such as ultrasound and intravascular diagnostics, supporting early detection, better visualization and more targeted patient treatments. In patient and medical equipment monitoring, our temperature and position sensors provide high accuracy and stability, supporting reliable vital sign measurement and device performance over extended life cycles.

Our therapeutic products enhance skin lifting and tightening through noninvasive aesthetic treatments that significantly improve patient experience over alternative procedures. During the first quarter, we had multiple wins across all regions for medical ultrasound and a large win for noninvasive aesthetics application.

Demand remains robust for ultrasound imaging and strong for therapeutic products. Knowing that our products support technologies used to save lives is central to our purpose in the medical market.

These mission-critical health care applications demand uncompromising quality and reliability, reinforcing our commitment to continuous innovation and operational excellence. With an aging population and innovations in health care supported by CTS products, the medical market will continue to enhance our growth profile. Aerospace and Defense sales for the first quarter were $17 million, up 11% compared to previous year. Book-to-bill ratio was less than 1.

We expect the defense bookings to pick up during the rest of the year. Our pipeline of new opportunities remains strong with backlog levels supporting future growth. Undersea warfare and surveillance are critical elements of modern defense strategy, requiring advanced sensing technologies to detect, track and classify increasingly quiet and sophisticated underwater threats.

CTS supports this domain through high-performance piezoelectric sensors, transducers and subsystems that convert acoustic signals into actionable intelligence. Our RF and EMC filters are mission-critical components in defense electronics, ensuring signal integrity and electromagnetic compatibility in secure communications, radar, missile control and avionics systems.

Our products also support unmanned systems and satellite platforms that rely on highly efficient lightweight technologies to operate in extreme environments with limited power.

During the quarter, we were awarded a significant underwater hull penetrator business win with a potential contract value of around $20 million over a 5-year period. We also registered multiple wins in the quarter for naval sonar and filter applications with several customers. In the quarter, we added 2 new customers for RF filters, specializing in providing secure communications, SATCOM connectivity and anti-jamming applications.

We are deeply engaged across multiple customer platforms and expect the government funding cycles to start to normalize in the second half of 2026 and the funds to flow through with the enactment of the full year appropriations bill in February.

Industrial end market performance remained strong with first quarter sales of $37 million, representing 14% year-over-year growth and supporting the broader recovery trend underway since 2025. Bookings in the quarter were up 28% from the same period last year, reflecting stable growth from our OEM customers as well as distribution partners.

The book-to-bill ratio was 1.29 compared to 1.15 in the first quarter of 2025. We were successful with multiple wins across a diverse range of industrial applications in the quarter, including distribution components, industrial printing and flow meter applications where our products help in accurately measuring the flow of liquids and gases in industrial systems. We also saw solid momentum in temperature sensing with wins in heat pumps, pool and spa systems and commercial appliances.

These applications underscore our role in enabling more energy-efficient and optimized industrial systems. Industrial demand is expected to remain strong in 2026, supported by secular tailwinds, including automation, connectivity and digitization. At the same time, the push for higher energy efficiency and continued manufacturing automation is expanding the addressable opportunity for our advanced sensing technologies.

Transportation sales in the first quarter at $60 million represents a 3% growth over the same period last year and a 7% sequential growth quarter-over-quarter, which appears to demonstrate early signs of stability.

Qualification of our next-generation smart actuator across our customers' platforms is progressing, and we plan to implement further product enhancements later in 2026. Our new business wins in the quarter were a good mix of sensors and foot control solutions across a diverse set of customers. We added accelerometer to our sensors product portfolio with an award from a North American OEM supporting safety, dynamics control, ride comfort and advanced driver assistance systems.

We gained a new customer with our current sensing solution where our products measure the flow of electrical current in vehicle systems to enable safe, efficient and reliable operation. As vehicles become more electrified and software controlled, current sensing has become a core enabling technology across higher voltage platforms. In the quarter, we secured multiple wins across the foot controls portfolio with OEMs in China, Japan, Europe and North America.

Overall, we continue to strengthen our footwell presence while broadening our sensing portfolio with powertrain-agnostic capabilities that support multiple vehicle architectures.

Total booked business was approximately $1.1 billion at the end of the quarter.

Over the long term, electronic braking remains a compelling opportunity as ADAS, vehicle electrification and autonomous capabilities continue to advance. Our products deliver meaningful cost and weight benefits, which are increasingly important for OEMs managing performance, efficiency and affordability trade-offs. We remain confident in the long-term growth outlook for our footwell products, along with our expanding sensor portfolio.

Based on recent IHS forecast, global light vehicle market is expected to be slightly down for 2026. The commercial vehicle market is expected to grow based on rising freight rates, improving spot and contract pricing and prebuy related to emission regulation changes in 2027.

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

Thank you, Pratik. First quarter sales were $139 million, up 11% compared to the first quarter of 2025 and up 1% sequentially from the fourth quarter of 2025.

Sales to diversified end markets increased 18% year-over-year, and the sales to transportation customers were up 3%. Foreign currency changes impacted sales favorably by $3 million in the first quarter. Our adjusted gross margin was 39.5%, up 250 basis points compared to the first quarter of 2025 and up 40 basis points compared to the fourth quarter of 2025.

The year-over-year improvement in gross margin was driven by operational improvements and the favorable impact of end market mix. Gross margin was also favorably impacted by $700,000 due to foreign currency changes. We are monitoring the impact of Section 232 tariff changes on steel and aluminum, inflation in precious metals and cost increases due to the higher oil prices.

Our teams are already working to mitigate these impacts and are partnering with customers and suppliers towards the goal of keeping the effect on our margins cost neutral. Our tax rate for the quarter was 20.7%, slightly better than expected due to the mix of earnings and certain discrete items.

For the full year, we expect our tax rate to be in the range of 21% to 23%. Earnings per diluted share for the first quarter were $0.59 compared to $0.44 for the same period last year. Adjusted earnings for the first quarter were $0.62 per diluted share compared to $0.44 per diluted share for the same period last year.

Moving to cash generation and the balance sheet. We generated $17 million in operating cash flow for the first quarter of 2026. Our cash balance was $91 million and borrowings were $63 million from our credit facility at the end of Q1 2026. During the quarter, we purchased 177,000 shares of CTS stock totaling approximately $9 million.

In total, we returned $10 million to shareholders through dividends and share buybacks in the first quarter of 2026. We have another $82 million remaining under our current share repurchase program. We remain focused on strong cash generation and appropriate capital allocation.

With a strong balance sheet, we 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 Instructions] Your first question comes from the line of John Franzreb with Sidoti & Co.

Congratulations on another great quarter. I'd like to start with actually the quarter itself that we just completed. A couple of really quick questions here. The revenue was better than I expected. I'm curious if any jobs revenue that pulled forward into the first quarter from the second. Anything like that happened in the period?

No, John, it was a really good quarter, nothing pulled forward.

Got it. Got it. Well, then looking back at maybe some of these numbers, I'm curious if the gross margin profile differential between some of the diversified end markets, and I guess we can include the transportation end market.

Is it significant that we should really be something cognizant of if medical is sizably better versus A&D? And how should we think about the puts and takes by end market?

Yes, John, in previous discussions, we have talked about our margin profile. In the diversified end markets, we have much better margin profile compared to transportation. And as we have talked about, we have pretty good margins on the transportation side as well, but the diversified markets are better.

Within the diversified markets, it's more, I would say, less evenly -- it's not as widely spread. So medical is definitely the strongest end market in terms of margin profile, but we do good in pretty much all the diversified end markets.

Okay. So industrial is relatively close to medical as...

There's not a big variation in the margin profile among the diversified end markets. Medical is definitely the strongest one, yes.

Okay. And the reason I'm kind of getting to all these questions here is I looked at the incremental operating contribution in the quarter, and it came to roughly 44%, if I did the back of the envelope math right.

I thought that was rather astonishing. And I'm looking at the revenue profile to me, it kind of lent itself that medical was the primary driver. And I just want to make sure if I was thinking about this properly and I'm thinking about the incremental margin profile properly. I'm wondering any thoughts about my conclusions here.

No, John, I think the way to look at it, and Ashish gave you the color on medical. The way to look at it is with our strategy, we've always said as we grow diversified markets, the quality of the earnings will improve, and that's what you're seeing here.

Right, right. Okay. Another quick question. It looked like debt ticked up in the quarter. Why was that the case?

So John, in the first quarter, we typically have lower operating cash flow as we do incentive comp payments and those types of things. We also continued our buybacks in the first quarter. So the combination of those 2 things and a slightly higher CapEx than we expect -- we were normally expecting, those were the key drivers.

The debt was up by about $5 million. But compared to where we are overall, we are continuing to make good progress. We have almost fully paid down the borrowings from the SyQwest acquisition at this point.

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

Congrats on good results. My first question is you mentioned capacity expansion in medical. And I would like to get more color in terms of how much more and if there's any statistics like up to how much sales you can take that would be -- I think that would be helpful.

Sure. Thank you, Hendi, for the question. So the capacity in our medical end market primarily refers to our aesthetics application. And we've got strong partnership with some of the customers here where they give us a long-term forecast, and we are able to install capacity ahead of the demand here.

We continue to see strong momentum in this end market, and we are expecting a double-digit growth year-over-year.

Double-digit growth in capacity or in sales?

In the sales, which means that we would need to have that capacity installed ahead of it.

And we are not seeing any concerns in our capability to meet the demand profile that we are seeing in that space.

I see. And then, Ashish, I have a question on the gross margin. So there's some mix benefit and the non-transportation or the diversified end market is a favorable tailwind.

On the other hand, there's also the challenge of high oil prices, component costs. How sustainable is the strong gross margin that we are seeing in Q1? Should we expect some headwinds because of those challenges? Or do you anticipate that Q1 gross margin can serve as a baseline that is sustainable?

Hendi, that's a good question. That's something that we look at very, very carefully. In addition to the topics that you mentioned, we also had a slight impact from favorable currency changes, which was about $700,000. So the currency can go in multiple different directions.

So we'll just continue watching the markets for that. We are experiencing cost pressures related to precious metals that has been going on since late last year, and we have been working closely with our customers to manage through the impact of that with pricing changes, with material substitutions, those types of things.

More recently, we are also seeing inflation related to oil-derived products like resin, epoxy, transportation costs, those types of things. That we are expecting to see more margin -- or sorry, cost pressures to late Q1 going into Q2. And our teams are already working with customers to manage through that and as well as suppliers to manage through that.

So we will see some headwinds. But at the same time, we are very, very focused on making sure that we can make the impact cost neutral on our margins. Now there can be some timing differences, which could impact margins in the short term, but we expect to be able to work through it as we have in the past several years.

Okay. And then may I ask more insight into the aerospace and defense expectations of funding of various programs will improve in the second half, booking will pick up.

And then considering that the government fiscal calendar of, let's say, like end of September, how should we expect, let's say, like new bookings, new funding to materialize in sales? I assume there would be some lag. I don't know whether Q4 starting point is somewhat a reasonable expectation.

Yes, Andy, I mean, if you look at for the aerospace and defense end market and just looking at the broader macro trend, right, overall, the defense spendings will continue to remain elevated due to the current geopolitical unrest as well as investments in the infrastructure, primarily around the naval side of defense.

What we are seeing right now is we are actively engaged in multiple platform discussions with a wide range of customers. However, what we've experienced in the first quarter is a delay in the government funding. But towards the end of the quarter, with the passage of the appropriations bill, we expect that funding pace to pick up in the second half of this year.

The other point to note here is that we usually also have a bit of a lumpiness in terms of how we get the orders on the defense side. So you could potentially have a quarter where our book-to-bill might be less than 1. However, then it makes it up in the remainder of the year.

Yes. And then last question for me. Any update on the smart actuator and then potential change in allocation by the customer?

Hendi, we continue to be on track with launching the revised version of the actuator with our customer. And we expect normalized modest growth in that particular product line for this year.

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

Yes. I'm actually curious about the growth that you saw in the transportation market in the first quarter. I guess, first, were you surprised by that?

John, I would say we were pleased with how we performed in the light vehicle demand and saw a little bit more positiveness in the commercial vehicle. And we think, as Pratik said, that's going to extend into the second half of the year.

As I'm sure you've seen the commercial truck market has seen a strong bookings profile over the last few months. A lot of people are suggesting that the benefits from those order profiles of a second half event. I'm curious if you -- if that's how you see it playing out? Or is it -- or does it affect you in any different way?

No, we do see it playing out the same way, John. I mean, as you can -- in the market right now, we are seeing cautious optimism here, primarily related to the rising freight rates, just improved pricing.

And then we've got in the second half of the year, the prebuy event due to EPA 2027. So we expect it to play out in a very similar manner.

Okay. So second half, got you. So then the expectation for the transportation to be down for the full year, I'm gathering that suggests you expect the global vehicle market to be continually to weaken for the balance of the year. Is that also a fair assessment?

John, what we would say on the light vehicle market is performing well so far. But in our prepared remarks, we said IHS had forecasted some softness in the second half of the year. And with the geopolitical situation, that's how we're thinking about it at the moment that some softness in the light vehicles, but strength on the commercial vehicle side, so balancing it out a little bit.

Got it. Got it. Okay. And one last question about capital allocation. You really -- you're buying back stock. As Ashish pointed out, you are paying down debt, albeit there was working capital needs in the first quarter. What is the outlook right now on the M&A side of the business? Are you in a period of consolidation and working on organic growth? Or are you still looking at acquisitions? Can you kind of discuss maybe the size of the markets that you're looking at?

Yes, John, just the key points for us from a capital allocation, first of all, is supporting the organic growth investments, which we have some nice opportunities, which Pratik touched on as well in Medical. We're still pursuing strategic acquisitions to advance our diversification and quality of earnings.

And while we have nothing to report today, we're very active in that area and then returning cash to shareholders is how we're approaching it.

There are no further questions at this time. I will now turn the call back to Kieran O'Sullivan for closing remarks.

Thank you all for your time today. Diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in-vehicle powertrain agnostic solutions.

We are guided by our Evolution 2030 strategic initiative to enhance our emphasis on growth, operational rigor, employee engagement while also giving back to the communities where we operate. We look forward to updating you on our second quarter 2026 results in July. This concludes our call.

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

Hello, everyone. Thank you for joining us, and welcome to the CTS Corporation Fourth Quarter 2025 Earnings Call.

[Operator Instructions]

I will now hand the call over to Kieran O'Sullivan. Please go ahead.

Good morning, and thank you for joining us today. I'm pleased to report another solid quarter for CTS, demonstrating the continued progress and strength of our diversification strategy and operational execution. For the fourth quarter, we delivered strong performance with revenue growth of 9% year-over-year, with our diversified end markets growing 16% versus the prior year period.

I am particularly pleased with our diversification progress as these markets now represent almost 60% of overall company revenue. New business awards in Transportation were strong, which will drive long-term growth in that end market. As we look to the year ahead, we see continued growth momentum across our diversified markets increasing revenue and quality of earnings. In transportation, we continue to expand our portfolio of powertrain agnostic products.

Pratik Trivedi, Chief Operating Officer, is also joining myself and Ashish Agrawal, our CFO, for today's call. Ashish will now take us through the safe harbor statement. Ashish?

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 and 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 over to our CEO, Kieran O'Sullivan.

Thank you, Ashish. We finished the fourth quarter with sales of $137 million, representing a solid 9% increase compared to the fourth quarter of 2024. Our diversified end markets were up 16%. Transportation sales were essentially flat. For the full year, sales were $541 million, up 5% from $515 million in 2024. Diversified end market sales were 59% of overall company revenue in the fourth quarter and 57% for the full year 2025.

Our book-to-bill ratio for the fourth quarter was 1, up 3% compared to the fourth quarter of 2024. For the full year 2025, the book-to-bill ratio was 1.04 compared to 1.01 in 2024, indicating sustained customer demand across our diversified portfolio of products.

Looking at bookings performance. Medical bookings showed robust growth driven by continued strength in therapeutic applications. Industrial bookings were strong driven by stabilized OEM demand and the recovery in distribution. Defense bookings were down, though our pipeline remains strong with backlog levels supporting future growth. We added 3 new customers in defense and 1 in the industrial market. In transportation, we had strong new business awards in the quarter. We added Floor Hinge Accelerator technology to our portfolio and secured a first win.

Our operational execution was evident as we expanded our gross margin by 150 basis points in the fourth quarter and for the full year. We maintained strong cash flow generation, supporting our balanced capital allocation approach that includes strategic investments in growth and returning cash to shareholders.

Fourth quarter adjusted diluted earnings were $0.62 per share, up from $0.50 in the fourth quarter of 2024, as we continue to focus on driving profitable growth. For the full year 2025, adjusted diluted earnings were $2.23 per share up from $2.12 in 2024. Ashish will add further color on our financial performance later in today's call.

Our medical end market delivered strong performance in the fourth quarter, with sales increasing 41% versus the prior year period, reflecting the strong growth momentum across our medical portfolio particularly in therapeutic applications where we're seeing robust demand.

For full year 2025, sales were $85 million compared to $70 million in 2024 and up 21%. Bookings in the quarter were up 37% compared to the prior year period. The book-to-bill ratio for 2025 was 1.07 similar to 2024, reflecting continued momentum in this end market.

We continue to see growth prospects in minimally invasive applications where our precision sensors and transducers are enhancing ultrasound imaging capabilities for medical professionals. These technologies are critical in helping clinicians detect artery restrictions with greater accuracy, while enabling more effective delivery of treatment medications directly to targeted areas. This represents meaningful advancement in patient care and clinical outcomes.

Our teams are engaged in next-generation product development to further enhance diagnostic and therapeutic capabilities with our customers. We are working closely with leading medical device manufacturers to integrate our advanced sensing technologies into their platforms, creating solutions that can provide even more detailed imaging and diagnostic information to health care providers.

I want to emphasize the life-saving nature of the solutions we provide to the medical industry. We are proud to highlight that our products support solutions that help save lives. This mission-critical role in health care drives our commitment to the highest quality standards and continuous innovation. Additionally, our products aid blood analysis and flow, cancer treatment and are incorporated into pacemakers and cochlear implants. Our therapeutic products enhanced skin aesthetics and in combination with other medical procedures help improve skin tightness.

During the fourth quarter, we had multiple wins across all regions for medical ultrasound. We also had a large win for therapeutic products and a win for a pacemaker application. Demand remains strong for therapeutic products, and we expect increased volumes in 2026. Over time, we expect volume increases in portable ultrasound diagnostics as health care systems increasingly move to point-of-care solutions. Therapeutic products should continue to enhance our overall growth profile, supported by an aging population and minimally invasive treatment options.

Aerospace and defense sales for full year 2025 were $83 million, up 20% from $69 million in 2024. Sales for the fourth quarter were down 4% from the fourth quarter of 2024 due to timing of certain programs. SciQuest revenues in the fourth quarter were $6 million as we navigated government funding cycles, which we expect to improve in 2026. While bookings were down in the fourth quarter, full year bookings were up 15%. Our pipeline remains strong with backlog levels supporting future growth. We are making progress on our strategy moving from a component supplier to a supplier of sensors, transducers and subsystems and and is further validated by the Naval award in the third quarter of 2025.

We received multiple orders in the quarter for naval sonar and hydrophones. In addition, we had wins for RF filters with application in anti-jamming and in drones. Finally, we secured new awards deploying our frequency, vibration and temperature sensing capabilities. In the quarter, we added 3 new customers for underwater locator beacons and for Sonobuoy Electronics. The Sciquest operation continues to drive a pipeline of opportunities as we move into 2026. And as mentioned earlier, we expect decision-making and funding to improve this year.

The long-term nature of defense programs provides revenue visibility and supports our diversification objectives. Our industrial end market demonstrated solid momentum in the fourth quarter continuing the gradual recovery trend we've been tracking throughout 2025. We are seeing signs of stabilization and growth both from our OEM customers and distribution partners as industrial activity rebounds from previous cyclical lows.

Sales in the fourth quarter were up 16% compared to the prior year period, underscoring our expectation of continued market strength. Full year 2025 sales were $140 million compared to $125 million in 2024, up 12%. Bookings in the quarter were up 22% from the same period last year. The book-to-bill ratio for the full year 2025 was 1.11 compared to 1 in 2024. We were successful with multiple wins across a diverse range of industrial applications in the quarter, including distribution components, industrial printing, and EMC applications for our components help ensure electromagnetic compatibility in industrial equipment.

Temperature sensing applications represented another area with wins for heat pumps, pool and spa and for commercial appliances. These applications leverage our expertise in precision sensing to help industrial customers optimize their operations and improve energy efficiency. We added a new customer in the quarter for a frequency application. Demand across the industrial end market is expected to remain healthy in 2026.

We expect our industrial performance to benefit from the long-term mega trends of automation and connectivity that should enhance our growth prospects. The increasing digitization of industrial processes, push for greater energy efficiency and the ongoing automation of manufacturing create expanding opportunities for our advanced sensing technologies.

Transportation sales faced headwinds with sales of $234 million for 2025 compared with $250 million in 2024, down 7%, driven by the previously discussed market dynamics in China and in the commercial vehicle market. Fourth quarter sales were $56 million, essentially flat versus the same period last year. Despite sluggish market conditions, we secured new business awards of approximately $100 million in the fourth quarter. We gained significant awards across various product groups, including accelerator module wins with OEMs in China, Japan, Europe and North America.

As mentioned earlier, we added Floor hinge technology to our portfolio of products and secured a first win with revenue expected in 2028. Floor Hinge designs are expected to expand in EV applications, especially in international markets. In the quarter, we secured a smaller award for a commercial vehicle actuator application. Across our sensor portfolio, we had wins for passive safety, breaking and transmission position sensing. We also secured an advanced development contract for our Drive pad technology with a large Japanese OEM, adapting to future software-defined vehicle architectures. Overall, we continue to strengthen our footwall presence while adding powertrain-agnostic sensing capabilities.

Total booked business was approximately $1 billion at the end of the quarter. Interest in our e-break product offering weight and cost advantages continues across OEMs at a slower pace as certain OEMs continue to recalibrate EV investments and launch dates. The electronic brake market represents a growth opportunity as the industry moves toward more advanced driver systems and autonomous capabilities. Overall, our solutions deliver meaningful cost and weight benefits to OEMs and which become increasingly important as they balance performance, efficiency and affordability requirements.

We remain confident in the long-term growth prospects for our e-break and other footwell products. These, along with existing and new sensor applications will increase our ability to grow content.

Turning to the outlook for 2026. For our diversified end markets, demand is expected to be solid. In the medical market, we see continued momentum in therapeutics where we have expanded capacity. In aerospace and defense, revenue is expected to grow given our backlog and site Quest capabilities and the normalization of government funding. Industrial and distribution sales are expected to be solid.

Longer term, we expect our material formulations supported by 3 leading technologies and their derivatives to continue to drive growth in key high-quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to be flat to marginally down given the tariff impact, consumer demand and in line with global light vehicle volume forecasts from IHS. The North American light vehicle market is expected to be in the 15 million to 16 million unit range. European production is forecasted in the 16 million to 17 million unit range. China volumes are expected to be in the 32 million unit range.

We continue to monitor potential impact from supply chain issues related to rare earth metals and semiconductors although we are not seeing any significant immediate impact. We anticipate general softness in commercial vehicle demand in the first half of 2026, with the potential for improvement in the second half of the year. Qualification of our next-generation smart actuator across our customers' platforms is progressing, and we plan to implement further product enhancements later in 2026. We continue to closely monitor and evaluate the tariff and geopolitical environment while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers as we navigate supply chain pressures.

Our strong balance sheet, healthy cash generation and experienced teams provide us with the tools necessary to manage these headwinds and while continuing to invest in growth opportunities and also advancing innovation. Our increasingly diversified business model continues to enhance our growth and quality of earnings. Assuming the continuation of current market conditions for full year 2026, we expect sales in the range of $550 million to $580 million and adjusted diluted EPS to be in the range of $2.30 to $2.45.

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

Thank you, Kieran. Fourth quarter sales were $137 million, up 9% compared to the fourth quarter of 2024 and down 4% sequentially from the third quarter of 2025. Sales to diversified end markets increased 16% year-over-year. Sales to transportation customers were down 1% from the fourth quarter of last year. Foreign currency changes impacted sales favorably by $2 million in the fourth quarter.

Our adjusted gross margin was 39.1%, and up 150 basis points compared to the fourth quarter of 2024 and up 20 basis points compared to the third quarter of 2025. The year-over-year improvement in gross margin was driven by operational improvements and the favorable impact of end market mix.

Earnings were $0.67 per diluted share in the fourth quarter compared to $0.38 for the same period last year. Adjusted earnings for the fourth quarter were $0.62 per diluted share compared to $0.50 per diluted share for the same period last year. For the full year, revenue was $541 million, an increase of 5% compared to 2024. Diversified end markets were up 16% year-over-year. Cyrus added $22 million in revenue in 2025, which was lower than expected, mainly due to the timing of government contract awards.

Excluding CyQuest Sales to diversified end markets grew 14%. Sales to the transportation end market were down 7%, mainly due to the lower sales of commercial vehicle products. Foreign currency impacted sales favorably by $3 million in 2025. Our adjusted gross margin was 38.5% in 2025, up 150 basis points compared to 2024. Primary drivers of the improved gross margin include the favorable impact of end market mix and operational improvements. Foreign currency rates also had a favorable impact of approximately $2 million in 2025.

We remain focused on strengthening our gross margin profile by growing our diversified end markets as well as continued operational improvements. Our adjusted EBITDA margin for the year was 22.8%, an improvement of 40 basis points from 2024. For the full year 2025, our earnings were $2.19 per diluted share. Adjusted earnings were $2.23 per diluted share compared to $2.12 per diluted share for 2024. The U.S. tax legislation changes had an adverse impact of approximately $0.03 and on adjusted earnings per diluted share for 2025.

Moving to cash generation and the balance sheet. Our cash flow was strong, and we generated $29 million in operating cash flow for the fourth quarter of 2025 and $102 million for the full year. Our balance sheet remains strong with a cash balance of $82 million and borrowings of $58 million from our credit facility at the end of 2025.

During the quarter, we repurchased 398,000 shares of CTS stock totaling approximately $17 million. For the full year, we repurchased approximately 1.4 million shares totaling $57 million. In total, we returned $62 million to shareholders through dividends and share buybacks in 2025. We have another $90 million remaining under our current share repurchase program.

We remain focused on strong cash generation and appropriate capital allocation and continue to support organic growth, strategic acquisitions and returning cash to shareholders.

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

[Operator Instructions] Your first question comes from the line of Hendi Susanto from Gabelli Funds.

And congratulations on finishing strong in 2025.

Thanks, Andy.

Kieran, I would like to ask your assumption within your 2026 guidance with regard to the smart actuator, do you have more updates and insights into customer preference in terms of their dual sourcing approach?

Yes, Hendi, we're actually continuing on both the legacy platform and on the new platform, which we launched last year, and the new platform is getting launched across different engine platforms. And I think I mentioned in the prepared remarks that we're also enhancing the cost reduction efforts in that area in the second half of this year as well. So we feel pretty good about where we're going on that side of it.

Okay. Okay. And then any insight into new product in transportation or in other diversified end market that you have a positive expectation for year 2026?

Hendi, on the transportation side, you probably saw that we secured approximately $100 million in new business awards across all regions with accelerator modules,but also brought in some new products into the portfolio with break applied sensing, floor hinge, which will add revenue in 2028 because of the longer development life cycle. And we're advancing on current sensing. We've got an advanced development award, which we're very excited about with our dry pad, which links up to the software-defined vehicle architecture for the future. So we feel a lot of good things going there.

On the medical side, a lot of momentum. We're making good progress on therapeutics. We're also making progress on diagnostics. You saw some other wins mentioned there as well.

Pratik, do you want to elaborate on diagnostics, maybe or therapeutics.

We continue to see strong momentum in both the therapeutics as well as the aesthetic application. We have strong collaboration with some of our key customers at this point, working jointly with their product development to launch products that has a strong potential in the future. At the same time, we also launched -- are launching products in the connectivity component space, especially in the aerospace and defense that has a strong potential in the future as well.

Good. So Hendi, hopefully, that gives you some color about what we're doing.

[Operator Instructions] Your next question comes from the line of John Franzreb with Sidoti & Co.

I'm curious what you said about Karen, you said that there may be some deferrals and some of the jobs. Is that -- did you have actually revenue moved from Q4 into Q1? Or is it longer tailed than that?

No, John, I think what we're making reference to just the timing of government funding in 2025. It was a little lighter than we expected, and we expect that to normalize here in 2026. And so revenue wasn't as robust as we would have liked it to be. But you know us, we don't give up. And for 2026, we already have some good contracts coming through in the pipeline with some momentum. So still more work to do but key for us going forward as well.

Got it. Got it. And when we think about the revenue guidance for the year ahead, what is the -- maybe the net new product introduction relative to the offset of maybe some of the programs are going end of life. Do you have a sense of how much incremental revenue represents new products coming online in this year? .

I don't have a number to give you, John, but as you look at the different things that Kieran and Pratik both talked about we get more revenue recognition quicker on the diversified side. On the transportation side, as we have talked about in the past, it takes 2 to 3 years. So the floor hinge win that we had in Q4 we'll expect revenues from that in 2028. So as you see momentum on the diversified, a good portion of that is either coming from new products or new customers or new products with existing customers, and there's good momentum on growth activity as it relates to that.

And Pratik also mentioned some of the traction that we are getting on the diagnostics side with portable ultrasound where we don't have meaningful revenues at this point, but we see that as a growth market.

Got it. Got it. And it also seems to me that your becoming a little bit more confident in some of the industrial opportunities. Am I misreading that? Or is the visibility improving versus say 3 months ago?

John, we think it's improving. It's been a constant improvement quarter-over-quarter throughout 2025. And if you even look at the book-to-bill ratio of 1.11 and bookings were up 22%. So we feel like we're on a good steady path of improving trend here.

Good. And regarding the outlook in the transportation sector, there, I say it, you're only down 1% in the fourth quarter. Do you feel like we're bottoming? Or what's your assessment of what you see in the transportation market? And maybe you could kind of day at the 2 main parts for commercial versus the ground vehicle?

Yes, John, I think we're a little bit conservative. We haven't called it bottom, we'd like to get a quarter of data or 2 behind us but you can tell we're definitely trending in that direction. And we've seen some improvement -- small improvement in commercial vehicle in the fourth quarter. We think for 2026, the first half is going to be a little bit lighter than the second half a little bit richer. There could be some prebuy with the new emission standards coming out in 2027. And on the light vehicle side, if you look at the market, it's just what people are saying out there, it's a very mixed bag. You've got some people saying up 2% or 3%, some people saying flat, some people saying down a point or 2, we think somewhere between flat and slightly down is where the light vehicle market is going this year.

Yes, I agree with you. It seems like the number is moving every other week almost. Can you talk a little bit about what you're seeing in the M&A market? I know that's a core part of the growth strategy. Maybe talk about what you're seeing as far as the opportunity pipeline.

Yes, John, we are actively working the pipeline. Nothing to report today but Obviously, the biggest focus is on diversification and expanding that diversification rate and some niche technologies for transportation. But valuations are still high. We're looking for the right assets, and we're working it hard.

Okay. Fair enough. And just 1 last question. You talked a little bit about China. Can you maybe give us an overall assessment of what you're seeing in the -- your other markets by geography, ex transportation, if you will?

Yes, on the -- when you look at the diversified markets, that was your question, John, right?

Yes. Yes, sir.

We are expecting good momentum across the board in different parts. Activity is good. We are not seeing any concerns from a -- in any parts of the world from the diversified end markets. On the defense side, we are focused primarily in North America with some exposure in Europe that we are continuing to build. On the medical side, we are seeing good momentum across the world as well as in industrial, we are seeing good momentum in all different parts.

Okay. That's good to hear. I appreciate it. .

Thanks, John. Thank you.

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

I have 2 more follow-up questions. In industrial and distributor, how do you characterize among yourselves matching the demand and then sells toward inventory rebuild at your customers?

Hendi, what I would say through distribution, what we've seen is solid demand, good increases year-over-year, quarter-over-quarter. And we also see our customers actively managing their inventory. So some of them have their inventory levels down some more optimized but we feel good about demand there going forward.

Okay. And then Kieran, what is your latest market assessment of China transportation market? We know that transportation design cycle may take 2 to 3 years, but in China is faster. So any strategic direction for 2026 in terms -- in terms of your transportation business in China?

Yes. Hendi, we would say we believe it's reached the new normal over there. We are -- with the transplant OEMs out of Japan and selectively with some local Chinese customers. The other thing when you talk about the speed over there we have our local team for the Chinese market in China, and they're actively engaged with new products and development over there. So we feel good about the work we're doing there and obviously working that pretty hard because it's a tough market.

[Operator Instructions] There are no further questions at this time. I will now turn the call back to Karen O'Sullivan for closing remarks.

Thanks, Elizabeth, and thank you all for your time today. Diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain agnostic solutions. We are guided by our Evolution 2030 strategic initiative to enhance our emphasis on growth, operational rigor, employee engagement, while also giving back to the communities where we operate. We look forward to updating you on our first quarter 2026 results in April.

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

Hello, everyone, and thank you for joining the CTS Corporation Third Quarter 2025 Earnings Call. My name is Claire and I will be coordinating your call today. [Operator Instructions]

I will now hand over to Kieran O'Sullivan to begin. Please go ahead.

Good morning, and thanks for joining us today. We delivered a quarter of strong double-digit growth in our diversified end markets, with sales up 22% versus the prior year period. Diversified sales for the quarter were 59% of overall company revenue. We also expanded gross margin by 66 basis points and had solid operating cash flow.

Secondly, our [indiscernible] team was awarded a sole-source naval defense contract with an initial value of $5 million and the potential to add additional platform awards within the next 12 months. Finally, in transportation, we had a strong quarter with wins of $130 million and added a new braking sensor application.

Ashish will take us through the safe harbor statement, Ashish.

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 supplemental slide presentation, which can be found in the Investors section of the CTS website.

I will now turn the discussion over to our CEO, Kieran O'Sullivan.

Thank you, Ashish. We finished the third quarter with sales of $143 million, up 8% from $132 million in the third quarter of 2024. For the quarter, diversified end market sales, including sales to medical, aerospace and defense and industrial end markets were up 22%. Transportation sales were down 7% from the same period last year. Diversified end market sales were 59% of overall company revenue in the quarter, up from 52% in the third quarter of last year.

Our book-to-bill ratio for the third quarter was slightly above 1 in comparison to the third quarter of 2024, where we were marginally below 1. Bookings for our diversified end markets were up double digits in industrial and defense and an increase in the high single digits in Medical on a year-over-year basis. We expect stronger medical bookings in the last quarter, especially for therapeutic products.

Third quarter adjusted diluted earnings were $0.60 per share, down from $0.61 in the third quarter of 2024, primarily due to an unfavorable impact from the recent U.S. tax legislation. Ashish will add further color on this and on our financial performance later in today's call.

In the medical end market, third quarter sales were up 22% compared to the same period in 2024. Bookings in the quarter were up 8% compared to the prior year period. We are excited about the prospects for growth in minimally invasive applications where our products help deliver enhanced ultrasound images and make it easier for medical professionals to detect order restrictions.

Our teams are engaged on next-generation product development to further enhance diagnostic capability with our customers. We are proud to highlight that our product support solutions that help save lives. Additionally, our products enable medication delivery for treatment of infected areas, aid blood analysis and flow, cancer treatments and are incorporated in pacemakers and cochlear implants.

Our therapeutic products enhance skin aesthetics and in combination with other medical procedures, help improve skin tightness. During the third quarter, we had multiple wins for diagnostic ultrasound and headwinds for therapeutics, pacemakers and a win for an ophthalmology application. We are also developing samples for doubler ultrasound for a vascular flow application.

In addition, we added 2 new customers for diagnostic ultrasound. Demand remains strong for therapeutic products, and we expect increased volumes in 2026. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile as well as expansion into new applications.

Aerospace and defense sales in the third quarter were up 23% from the third quarter of 2024. SyQwest revenues in the third quarter increased to $8.8 million, and we expect to maintain this momentum through the balance of this year. Bookings in the third quarter were up 29% from the prior year period as we maintain a healthy backlog, and we expect solid bookings in the last quarter of this year.

Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers and subsystems and is further validated by our recent Naval award. We received multiple orders in the quarter for sonar applications. The order mentioned in my opening comments for the [indiscernible] business is for a naval munition application, and we expect additional platform awards as we move forward. [indiscernible] continues to drive a strong pipeline of opportunities. In the industrial market, we continue to see a steady recovery with OEMs as well as a stronger recovery with distribution customers. Sales in the third quarter were up 9% sequentially and up 21% compared to the prior year period, underscoring our expectation of a continued recovery.

Bookings in the quarter were up 29% from the same period last year. We were successful with multiple wins in the quarter for industrial printing, EMC, temperature sensing wins for pool and spa and the win for an industrial heat pump application. We added 1 new customer in the quarter for physician sensing. Demand across industrial end market is expected to remain healthy for the balance of 2025. The mega trends of automation, connectivity and efficiency, enhance our longer-term growth prospects.

Transportation sales were $58.5 million in the third quarter, down approximately 7% from the same period last year due to softness for commercial vehicle profit. In the third quarter, we had awards across various product groups, including accelerator module wins with OEMs in Europe, South America and China.

Total booked business was approximately $1 billion at the end of the quarter. We had various wins for passive safety and chassis right hit sensors across several regions. We added a new product to the portfolio for brake sensing securing a business award with a North American OEM. This further strengthens our long-term capability to expand our footwell presence. We also have a large win in commercial vehicle for smart actuators with an existing customer.

Additionally, during the quarter, we released our Corus technology, a new platform for electric motor control. This technology eliminates the need for 3 discrete current sensors and the position sensor, allowing for a simplified design, weight reduction and more precise control. The near-term growth rates for iced versus AVs and hybrids are less of a concern for us given our light vehicle products are mostly agnostic to the drivetrain technology.

The trend towards increasing demand for hybrids with extended range capabilities remains robust. Interest in our e-break product, offering weight and cost advantages continues across OEMs at a slower pace as certain OEMs recalibrate EV investments and launch dates. We remain confident in the longer-term growth prospects for our e-break and other footwell products.

These, along with existing and new sensor applications will increase our ability to grow content. For our diversified end markets, subject to the uncertain tariff environment, demand in the medical market is expected to remain mixed with strength in therapeutics and softness in diagnostic ultrasound.

In Aerospace and Defense, revenue is expected to grow, given the timing of orders and momentum from the SyQwest acquisition. Industrial and distribution sales are expected to improve. Longer term, we expect our material formulations supported by 3 leading technologies and their derivatives to continue to drive our growth in key high-quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to remain soft given the tariff impact and demand from customers.

The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 16 million unit range. China volumes are expected to be in the 30 million unit range. We are carefully monitoring for any potential impact from supply chain issues related to rare earth, aluminum and semiconductors, although we are not seeing any immediate impact.

Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. There was a notable demand increase for EVs in September with the elimination of the vehicle subsidy for the North American market. We anticipate general softness in commercial vehicle demand in the fourth quarter.

Shipments of our new commercial vehicle actuator continue to ramp as we prepare for 2026, where we will implement further product enhancements. As I mentioned in previous calls, revenue from the SyQwest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the U.S. government.

As reported, we saw an increase in revenue for SyQwest in the third quarter and expect to maintain this positive momentum through the end of this year. We continue to closely monitor and evaluate the tariff and geopolitical environment, while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, we are narrowing our guidance for sales in the range of $535 million to $545 million and adjusted diluted EPS to be in the range of $2.20 to $2.25.

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

Thank you, Kieran. Sales in the third quarter were $143 million, up 6% sequentially and up 8% from last year. Sales to diversified end markets increased 22% year-over-year. SyQwest sales were $8.8 million during the quarter. As Kieran has highlighted, we expect the momentum to continue for sales from SyQwest in the fourth quarter.

Sales to transportation customers were down 7% from the third quarter of last year due to the softness in sales related to commercial vehicle products. Foreign currency changes had a favorable impact on sales of approximately $1 million. Our adjusted gross margin was 38.9% in the third quarter, up 66 basis points compared to the third quarter of 2024, and up 12 basis points compared to the second quarter of 2025.

Our global teams continue to focus on operational execution to deliver margin improvements. Tariffs had a minimal impact on profitability in the third quarter and we continue to work closely with customers and suppliers to manage the impact.

Adjusted EBITDA was 23.8% in the quarter. This is an improvement of 86 basis points sequentially and a reduction of 55 basis points compared to the third quarter of 2024. Earnings were $0.46 per diluted share for the third quarter. The third quarter results include a $4.2 million increase in reserves related to EPA's cost reimbursement claim for a prior environmental matter.

Adjusted earnings were $0.60 per diluted share compared to $0.57 in the second quarter of 2025 and $0.61 in the third quarter of 2024. We had an unfavorable impact on our tax rate from changes in the mix of earnings. And in addition, the recent U.S. tax legislation changes had an adverse impact of approximately $0.03 on adjusted earnings per diluted share for the third quarter.

Moving to cash generation and the balance sheet. We generated $29 million in operating cash flow in the third quarter compared to $35 million in the third quarter of 2024. Year-to-date, we have generated $73 million in operating cash flow. Our balance sheet remains strong with a cash balance of $110 million at the end of the quarter. Our long-term debt balance was $91 million, leaving us good liquidity to support strategic acquisitions.

During the quarter, we repurchased 400,000 shares of CTS stock for approximately $17 million. In total, we returned $44 million to shareholders through dividends and share buybacks in the 3 quarters of 2025. We have $21 million remaining under our current share repurchase program. Our focus remains on strong cash generation and appropriate capital allocation and we 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 Instructions] Our first question comes from John Franzreb from Sidoti Company.

I'd like to start with the guidance. It seems to me that you raised the midpoint on your revenue guidance, but lowered the midpoint on the EPS guidance. Now I recognize that you've been suggesting it would be at the low end of that EPS. But I guess I'm surprised to the dynamic of raising the revenue in light of that. Can you just walk us through what's going on there?

Yes, John. So from a top line perspective, we feel good about the direction we're going there. As I mentioned in the prepared comments that fourth quarter has some headwinds on CV. But overall, we've got good progress in industrial, nice momentum in aerospace and defense, strength in therapeutics and then some things we're monitoring on the diagnostic side. So that's it on the top line. And then on the bottom line, primarily, as Ashish mentioned in his prepared comments, there's the tax impact. And Ashish, you probably want to comment on that.

Yes. So John, there are a couple of things that are having an adverse impact on our tax rate. Number one, the mix of earnings, and then the second piece, which is more pronounced is the tax legislation, given the mix of earnings we have it actually has an adverse impact on our overall tax rate. So you saw that impacting our Q3 earnings in a meaningful way. And then that impact is expected to continue, obviously, smaller into Q4 as well.

Okay. Understood. And Kieran, you just mentioned the CV market. So that begs the question, what are your transportation customers signaling about the 2026 production rates?

John, for 2026, it's kind of a bit of a mixed market out there. You hear some OEMs, especially on the light vehicle side, talking more positive, some talking a little bit negative. So it's a very mixed story. What I would tell you is on the light vehicle side in this quarter, excluding Cummins or large customer CV, we saw an incremental -- small incremental increase in low single digits.

And we had solid bookings in the quarter. So we feel really good about the bookings and where we're going. So the market is going to be a bit mixed still next year from everything we hear on transportation, but feel very good about what we're doing in medical, aerospace and defense and industrial.

Agreed. Can I just maybe touch on the end markets as a whole because the gross margin improvement was nice to see. And I'm actually kind of curious and maybe you could help me frame this better. But if you kind of rank your end markets on the gross margin contribution or should we be thinking about it on the operating margin contribution? How do you -- I know you're not going to give the actual margin profile, but how would you rank them -- so as we can see the changes on a go-forward basis, we can think about the impact of profitability.

So John, we earned good margins on our diversified end markets pretty obviously. I don't know if I would split the margins by end markets in terms of profile. They are pretty decent on the diversified side. Medical, industrial, aerospace and defense, we are doing reasonably good margins on all of those. Transportation is obviously behind in terms of comparison, but we earn good margins on the transportation side as well.

And John, the other thing I would comment on is you can see that -- you talked about the improvement in gross margin. Our diversification percentage is going up quarter-on-quarter as well. So I think that's what you're going to see as positive momentum there.

Yes. I was just -- I mean, I guess I'm kind of curious as how much, I don't know, medical has more of an impact versus say aerospace and defense, I would guess that industrial will be third in that ranking, but that will be me discussing.

So John, it's a little bit more, I would say, split by product line. The margin profile on different product lines has a different level in pretty much all the end markets. So for example, when you look at our Piezo product lines, we have single crystal in there, tape cast and bulk. And the margin profile varies. So single crystal would be slightly higher margins than the other 2. In frequency, we'll have a different level of margin, which is higher. And then -- so that -- it's not so much where we are seeing distribution by end market as we are seeing distribution by product lines.

I appreciate that clarity, and I'll get back in the queue and let somebody else ask question.

Our next question comes from Hendi Susanto from Gabelli Funds.

First question is for Ashish is the tax impact, the adverse tax impact. Will it go away in 2026?

So Hendi, we'll obviously be looking at areas that we can drive improvements. The specific change from the tax legislation that will continue to have a slight adverse impact, but we'll continue looking at other areas of opportunity in terms of tax efficiency as we have always done. So I would expect at this point, in 2026 to be similar tax rate as 2025, but we'll continue working on it.

I see. And Ashish would you be able to spell out what tax rate estimate we should use for our the model?

Yes. So we are in the low 20% range right now, Hendi, we are talking about 21% to 23% type of ballpark on a go-forward basis.

Yes. And then this question is for Kieran. Kieran, this morning, NXP Semiconductor reported it's September quarter. I know that it's an apple and orange comparison. They do say that Tier 1 inventory burn is getting closer and closer to be completed. How should we view the expectation that inventories in your channel for transportation is close -- is somewhat close to representing the end market demand. And then at some point, they will need to build more inventories internally. How should we view that notion?

Yes, I didn't see the NXP data. But what I would look at, Hendi, is if you look at the days of supply on hand, it's probably trending on the light vehicle side around 50 days, which seems pretty normal. I wouldn't be concerned about it at all. There is obviously some further softness in the commercial Viva market, and that's one we're watching more closely, but not on the light vehicle side.

I see. And then looking at SyQwest acquisitions and then your expectation, given we have insight into the quarterly revenue run rate for the last 5 quarters? Would you be able to give some puts and takes and whether or not the company's revenue contribution meets or exceeds your target for this year?

Yes. So Hendi, if I look at it quarter-by-quarter, we've always said the first half is going to have some seasonality, whether it's heavier in the second half, and that's what we're seeing now. So we've seen a step-up in revenues from Q2 to Q3, and we expect that step-up to continue.

We will see some seasonality next year as well, first half, second half due to government funding. And we're very pleased with the pipeline of opportunities. And we called out an award today in the comments, sole-sourced for a new platform with the first $5 million. And we expect other awards in the next 12 months and over the next several years as well. So we feel really good about that, and we want to build on that momentum.

Got it. And then one last question for Ashish. The operating expense line -- the SG&A is somewhat meaningfully larger this quarter. I know that you mentioned that's $4.2 million increase in reserve. Is that the main reason of the increase in OpEx?

Yes. So Hendi, that is by far the largest. We also have a year-over-year increase in equity-based compensation as going through the year. Sometimes you have to make adjustments based on expected performance and last year's number had a relatively larger reduction. So that is also causing the year-over-year comparison to look a little bit unfavorable in Q3 of 2025.

We now have a follow-up question from John Franzreb.

Yes. Kieran kind of curious about your comments on the industrial end markets. It seems like to me, it seems like you're more positive than you've been in quite some time. Is that the case, or am I just reading too much into it?

No, John. I think when we look at all the diversified end markets, we feel pretty good. And if I start with industrial, which you mentioned, we've seen a 9% sequential improvement over 20% year-on-year. We've seen a strong increase in distribution-related sales. So we feel very good about the trend there. And then I also mentioned on Medical, we expect bookings to increase in the fourth quarter and the very same on aerospace and defense. So across the diversified markets with industrial right up there feel very good.

And just on the medical, you think bookings will increase, do you think the diagnostics side of the business will be coming back, or do you think that will remain weak on a go-forward basis?

The diagnostics side is a little weaker, but it's still solid overall, and we expect it will improve probably more so next year. But we've got strong momentum on therapeutics, and we feel that's going to continue not just in the fourth quarter, but into next year as well, John.

Got it. And can you kind of walk me through how you're successfully navigating tariffs. So a lot of companies I cover anticipate a delay in being able to recover pricing from the customer base. But you seem to be doing extremely well. Talk about what's going on there.

So John, we've talked about this in the past where a lot of what we do in Asia stays in Asia. What we do in Europe stays in Europe. And what we do in North America, stays in North America. It's not 100% that way, but largely, it is that way. And that helps us mitigate cross-border flows, which is where you see the impact of tariffs. That's a big portion of it.

The other is where we do have tariff impact. We are working very closely with suppliers, with our customers to find ways to mitigate, but then also pass the cost on to our customers as we work through the impact. And so far, we've been able to manage well. We have talked about USMCA that's where our exposure would increase if USMCA were to go away, and it doesn't get replaced with something suitable. But other than that, we've been able to manage pretty well.

Very good. I guess one last question. The fire at the Ford aluminum supplier, does that have any impact on your company at all?

John, Novelis, that's the aluminum supplier and then there's [indiscernible] on the chips. We haven't seen any direct impact, but it's something we're monitoring as we go through the fourth quarter. So nothing to report at this point.

Okay. Keep up the good work.

All right. Thank you.

[Operator Instructions] We currently have no further questions. So I'll hand back to Kieran for any closing remarks.

Thank you, Claire, and thank you all for your time today. despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain agnostic solutions. We look forward to updating you on our full year 2025 performance in February of 2026. Thank you again. This concludes our call.

This concludes today's call. Thank you for joining. You may now all disconnect your lines.