CTS 10Q 2024 Q1 Quarterly report

CTS (CTS) 10-Q2024 Q1 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 1-4639

CTS CORPORATION

(Exact name of registrant as specified in its charter)

35-0225010

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)


4925 Indiana Avenue
Lisle IL		60532
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (630) 577-8800

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, without par value	CTS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 22, 2024: 30,569,672.

CTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements	3

		Condensed Consolidated Statements of Earnings (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	3

		Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	4

		Condensed Consolidated Balance Sheets As of March 31, 2024 (Unaudited) and December 31, 2023	5

		Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	6

		Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	7

		Notes to Condensed Consolidated Financial Statements ‑ (Unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

	Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	30

	Item 1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 5.	Other Information	31

	Item 6.	Exhibits	32

SIGNATURES			33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED

(In thousands, except per share amounts)


	Three Months Ended
	March 31,			March 31,
	2024			2023
Net sales	$	125,750		$	145,994
Cost of goods sold		80,660			94,342
Gross margin		45,090			51,652
Selling, general and administrative expenses		22,260			21,979
Research and development expenses		6,601			6,586
Restructuring charges		1,693			912
Operating earnings		14,536			22,175
Other income (expense):
Interest expense		(801	)		(694	)
Interest income		1,386			1,063
Other (expense) income, net		(1,463	)		165
Total other (expense) income, net		(878	)		534
Earnings before income taxes		13,658			22,709
Income tax expense		2,539			4,365
Net earnings	$	11,119		$	18,344
Earnings per share:
Basic	$	0.36		$	0.58
Diluted	$	0.36		$	0.58
Basic weighted – average common shares outstanding:		30,742			31,634
Effect of dilutive securities		252			259
Diluted weighted – average common shares outstanding:		30,994			31,893
Cash dividends declared per share	$	0.04		$	0.04

See notes to unaudited condensed consolidated financial statements.

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS ‑ UNAUDITED

(In thousands of dollars)


	Three Months Ended
	March 31,			March 31,
	2024			2023
Net earnings	$	11,119		$	18,344
Other comprehensive earnings (loss):
Changes in fair market value of derivatives, net of tax		730			379
Changes in unrealized pension cost, net of tax		65			(34	)
Cumulative translation adjustment, net of tax		(2,121	)		1,024
Other comprehensive (loss) earnings	$	(1,326	)	$	1,369
Comprehensive earnings	$	9,793		$	19,713

See notes to unaudited condensed consolidated financial statements.

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)


	(Unaudited)
	March 31,			December 31,
	2024			2023
ASSETS
Current Assets
Cash and cash equivalents	$	162,425		$	163,876
Accounts receivable, net		80,663			78,569
Inventories, net		57,784			60,031
Other current assets		17,346			16,873
Total current assets		318,218			319,349
Property, plant and equipment, net		91,626			92,592
Operating lease assets, net		25,290			26,425
Other Assets
Goodwill		156,330			157,638
Other intangible assets, net		99,949			103,957
Deferred income taxes		25,563			25,183
Other		15,864			16,023
Total other assets		297,706			302,801
Total Assets	$	732,840		$	741,167
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	45,609		$	43,499
Operating lease obligations		4,399			4,394
Accrued payroll and benefits		13,363			14,585
Accrued expenses and other liabilities		32,577			34,561
Total current liabilities		95,948			97,039
Long-term debt		67,500			67,500
Long-term operating lease obligations		23,824			24,965
Long-term pension obligations		4,615			4,655
Deferred income taxes		14,423			14,729
Other long-term obligations		5,245			5,457
Total Liabilities		211,555			214,345
Commitments and Contingencies (Note 11)
Shareholders’ Equity
Common stock		321,858			319,269
Additional contributed capital		40,440			45,097
Retained earnings		612,124			602,232
Accumulated other comprehensive income (loss)		2,938			4,264
Total shareholders’ equity before treasury stock		977,360			970,862
Treasury stock		(456,075	)		(444,040	)
Total shareholders’ equity		521,285			526,822
Total Liabilities and Shareholders’ Equity	$	732,840		$	741,167

See notes to unaudited condensed consolidated financial statements.

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ‑ UNAUDITED

(In thousands of dollars)


	Three Months Ended
	March 31,			March 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	11,119		$	18,344
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		7,325			6,918
Pension and other post-retirement plan expense		84			31
Stock-based compensation		1,221			1,586
Deferred income taxes		(621	)		(236	)
Change in fair value of contingent consideration liability		(253	)		—
(Loss) gain on foreign currency hedges, net of cash		(299	)		192
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(2,985	)		(5,906	)
Inventories		1,656			(784	)
Operating lease assets		1,135			833
Other assets		792			(133	)
Accounts payable		2,835			857
Accrued payroll and benefits		(1,273	)		(8,818	)
Operating lease liabilities		(1,136	)		(851	)
Accrued expenses and other liabilities		(1,247	)		(797	)
Pension and other post-retirement plans		(42	)		(50	)
Net cash provided by operating activities		18,311			11,186
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(4,035	)		(4,540	)
Payments for acquisitions, net of cash acquired		—			(3,356	)
Net cash used in investing activities		(4,035	)		(7,896	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt		(167,500	)		(204,084	)
Proceeds from borrowings of long-term debt		167,500			200,675
Purchases of treasury stock		(11,958	)		(8,802	)
Dividends paid		(1,233	)		(1,272	)
Taxes paid on behalf of equity award participants		(3,117	)		(3,142	)
Net cash used in financing activities		(16,308	)		(16,625	)
Effect of exchange rate changes on cash and cash equivalents		581			(38	)
Net decrease in cash and cash equivalents		(1,451	)		(13,373	)
Cash and cash equivalents at beginning of period		163,876			156,910
Cash and cash equivalents at end of period	$	162,425		$	143,537
Supplemental cash flow information:
Cash paid for interest	$	739		$	926
Cash paid for income taxes, net	$	3,799		$	4,199
Non-cash financing and investing activities:
Capital expenditures incurred but not paid	$	1,733		$	1,400
Excise taxes on purchase of treasury stock incurred not paid	$	77		$	—

See notes to unaudited condensed consolidated financial statements.

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - UNAUDITED

(in thousands of dollars, except shares and per share amounts)

The following summarizes the changes in total equity for the three months ended March 31, 2024:


	Common Stock		Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2023	$	319,269	$	45,097		$	602,232		$	4,264		$	(444,040	)	$	526,822
Net earnings		—		—			11,119			—			—			11,119
Changes in fair market value of derivatives, net of tax		—		—			—			730			—			730
Changes in unrealized pension cost, net of tax		—		—			—			65			—			65
Cumulative translation adjustment, net of tax		—		—			—			(2,121	)		—			(2,121	)
Cash dividends of $0.04 per share		—		—			(1,227	)		—			—			(1,227	)
Acquired 271,939 shares of treasury stock		—		—			—			—			(12,035	)		(12,035	)
Issued shares on vesting of restricted stock units		2,589		(5,705	)		—			—			—			(3,116	)
Stock compensation		—		1,048			—			—			—			1,048
Balances at March 31, 2024	$	321,858	$	40,440		$	612,124		$	2,938		$	(456,075	)	$	521,285

See notes to unaudited condensed consolidated financial statements.

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - UNAUDITED

(in thousands of dollars, except shares and per share amounts)

The following summarizes the changes in total equity for the three months ended March 31, 2023:


	Common Stock		Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2022	$	316,803	$	46,144		$	546,703		$	(671	)	$	(402,755	)	$	506,224
Net earnings		—		—			18,344			—			—			18,344
Changes in fair market value of derivatives, net of tax		—		—			—			379			—			379
Changes in unrealized pension cost, net of tax		—		—			—			(34	)		—			(34	)
Cumulative translation adjustment, net of tax		—		—			—			1,024			—			1,024
Cash dividends of $0.04 per share		—		—			(1,260	)		—			—			(1,260	)
Acquired 198,271 shares of treasury stock		—		—			—			—			(8,802	)		(8,802	)
Issued shares on vesting of restricted stock units		1,982		(5,125	)		—			—			—			(3,143	)
Stock compensation		—		1,404			—			—			—			1,404
Balances at March 31, 2023	$	318,785	$	42,423		$	563,787		$	698		$	(411,557	)	$	514,136

See notes to unaudited condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(in thousands except for share and per share data)

March 31, 2024

NOTE 1 — Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by CTS Corporation (“CTS”, “we”, “our”, “us” or the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, notes thereto, and other information included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023.

The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently issued accounting pronouncements not yet adopted

ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure"

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments' significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as existing segment disclosures and reconciliation required under ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for the interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.

ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures"

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the reconciliation of the effective tax rate, as well as disclosure of income taxes paid, disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.

NOTE 2 – Revenue Recognition

The core principle of Accounting Standard Codification (“ASC”) (Topic 606): Revenue from Contracts with Customers is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle:

•

Identify the contract(s) with a customer

•

Identify the performance obligations

•

Determine the transaction price

•

Allocate the transaction price

•

Recognize revenue when the performance obligations are met

We recognize revenue when the performance obligations specified in our contracts have been satisfied, after considering the impact of variable consideration and other factors that may affect the transaction price. Our contracts normally contain a single performance obligation that is fulfilled on the date of delivery or shipment based on shipping terms stipulated in the contract. We usually expect payment within 30 to 90 days from the shipping date, depending on our terms with the customer. None of our contracts as of March 31, 2024 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method based on an analysis of historical experience and current facts and circumstances, which requires significant judgment. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Disaggregated Revenue

The following table presents revenues disaggregated by the major markets we serve:


	Three months ended
	March 31, 2024		March 31, 2023
Transportation	$	66,516	$	74,289
Industrial		31,064		40,249
Medical		16,901		17,033
Aerospace & Defense		11,269		14,423
Total	$	125,750	$	145,994

The end-market sales for the first quarter of 2023 were adjusted by immaterial amounts to align the classification of certain customers in connection with our most recent acquisitions with our enterprise-level end market information.

NOTE 3 – Business Acquisitions

Maglab AG Acquisition

On February 6, 2023, we acquired 100% of the outstanding shares of Maglab AG (”Maglab”). Maglab has deep expertise in magnetic system design and current measurement solutions for use in e-mobility, industrial automation, and renewable energy applications. Maglab’s domain expertise coupled with CTS’ commercial, technical and operational capabilities position us to advance our status as a recognized innovator in electric motor sensing and controls markets.

The final purchase price of $7,717 has been allocated to the fair values of assets and liabilities acquired as of February 6, 2023. The purchase price was increased by $3 for the final settlement of net working capital during the second quarter of 2023. The following table summarizes the final purchase price, the fair values of the assets acquired, and the liabilities assumed as of the date of acquisition:


	Consideration Paid
Cash paid, net of cash acquired of $14	$	4,153
Contingent consideration		3,564
Purchase price	$	7,717


	Fair Values at February 6, 2023
Accounts receivable	$	348
Inventory		43
Other current assets		41
Property, plant and equipment		35
Goodwill		4,997
Intangible assets		2,860
Fair value of assets acquired		8,324
Less fair value of liabilities acquired		(607	)
Purchase price	$	7,717

Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.

The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:


	Carrying Value		Weighted Average Amortization Period
Customer lists/relationships	$	2,800		13.0
Technology and other intangibles		60		3.0
Total	$	2,860

All contingent consideration is payable in cash and is based on success factors related to the integration process as well as upon the achievement of annual revenue and customer order targets through the fiscal year ending December 31, 2025. The Company recorded $3,564 as the acquisition date fair value of the contingent consideration based on the estimate of the probability of achieving the performance targets. This amount is also reflected as an addition to the purchase price. The contingent consideration has a maximum payout of $6,300.

Supplemental pro forma disclosures are not included as the amounts are deemed to be immaterial.

NOTE 4 – Accounts Receivable, net

The components of accounts receivable, net are as follows:


	As of
	March 31,			December 31,
	2024			2023
Accounts receivable, gross	$	81,389		$	79,500
Less: Allowance for credit losses		(726	)		(931	)
Accounts receivable, net	$	80,663		$	78,569

NOTE 5 – Inventories, net

Inventories, net consists of the following:


	As of
	March 31,			December 31,
	2024			2023
Finished goods	$	15,311		$	20,279
Work-in-process		21,985			19,213
Raw materials		34,325			33,187
Less: Inventory reserves		(13,837	)		(12,648	)
Inventories, net	$	57,784		$	60,031

NOTE 6 – Property, Plant and Equipment, net

Property, plant and equipment, net is comprised of the following:


	As of
	March 31,			December 31,
	2024			2023
Land and land improvements	$	536		$	536
Buildings and improvements		74,501			74,188
Machinery and equipment		263,188			261,435
Less: Accumulated depreciation		(246,599	)		(243,567	)
Property, plant and equipment, net	$	91,626		$	92,592

Depreciation expense for the three months ended March 31, 2024 and March 31, 2023 was $4,500 and $4,407, respectively.

NOTE 7 – Retirement Plans

Pension Plans

Net pension expense for our domestic and foreign plans included in other expense, net in the Condensed Consolidated Statements of Earnings is as follows:


	Three months ended
	March 31,		March 31,
	2024		2023
Net pension expense	$	52	$	67

The components of net pension expense for our domestic and foreign plans include the following:


	Domestic Pension Plans				Foreign Pension Plans
	Three Months Ended				Three Months Ended
	March 31,		March 31,		March 31,			March 31,
	2024		2023		2024			2023
Service cost	$	—	$	—	$	3		$	6
Interest cost		9		10		6			10
Expected return on plan assets(1)		—		—		(5	)		(7	)
Amortization of loss		6		5		33			43
Total expense, net	$	15	$	15	$	37		$	52

(1)

Expected return on plan assets is net of expected investment expenses and certain administrative expenses.

Other Post-retirement Benefit Plan

Net post-retirement expense for our other post-retirement plan includes the following components:


	Three Months Ended
	March 31,			March 31,
	2024			2023
Service cost	$	—		$	—
Interest cost		48			48
Amortization of gain		(16	)		(84	)
Total expense (income), net	$	32		$	(36	)

NOTE 8 – Goodwill and Other Intangible Assets

Goodwill

Changes in the net carrying amount of goodwill were as follows:


	Total
Goodwill as of December 31, 2023	$	157,638
Foreign exchange impact		(1,308	)
Goodwill as of March 31, 2024	$	156,330

Other Intangible Assets

Other intangible assets, net consist of the following components:


	As of
	March 31, 2024
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	143,652	$	(65,022	)	$	78,630
Technology and other intangibles		53,904		(32,585	)		21,319
Other intangible assets, net	$	197,556	$	(97,607	)	$	99,949


	As of
	December 31, 2023
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	144,671	$	(63,006	)	$	81,665
Technology and other intangibles		54,052		(31,760	)		22,292
Other intangible assets, net	$	198,723	$	(94,766	)	$	103,957

Amortization expense for the three months ended March 31, 2024 and March 31, 2023 was $2,825 and $2,511, respectively. The changes in the gross carrying amounts of intangible assets are due to foreign exchange impacts in the quarter.

Remaining amortization expense for other intangible assets as of March 31, 2024 is as follows:


	Amortization expense
2024	$	8,491
2025		10,639
2026		10,483
2027		10,424
2028		10,389
Thereafter		49,523
Total amortization expense	$	99,949

NOTE 9 – Costs Associated with Exit and Restructuring Activities

Restructuring charges are reported as a separate line within operating earnings in the Condensed Consolidated Statements of Earnings.

Total restructuring charges are as follows:


	Three Months Ended
	March 31, 2024		March 31, 2023
Restructuring charges	$	1,693	$	912

September 2020 Plan

In September 2020, we initiated a restructuring plan focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities (the "September 2020 Plan"). This plan includes transitioning certain administrative

functions to a shared service center, realignment of manufacturing locations, and certain other efficiency improvement actions. The restructuring cost of the September 2020 Plan is estimated to be in the range of $4,000 to $4,200, including workforce reduction charges, building and equipment relocation charges and other contract and asset-related costs. We have incurred $3,912 in program costs to date and expect the September 2020 Plan to be completed during the second quarter of 2024. During the three months ended March 31, 2024, we recorded $7 in workforce reduction costs and $9 in building and equipment relocation charges under the 2020 Plan. There is no restructuring liability associated with these actions as of March 31, 2024. The total restructuring liability associated with these actions was $83 as of December 31, 2023.

Closure and Consolidation of Juarez Manufacturing Facility and Operations

During the first quarter of 2023, we announced the shutdown of our Juarez manufacturing facility. As a part of this activity, operations from the Juarez plant are being consolidated into our expanded Matamoros facility (collectively, the “Matamoros Consolidation”). We expect the Matamoros Consolidation to be completed later this year. The total restructuring cost of the Matamoros Consolidation is now estimated to be in the range of $4,750 and $5,500, including workforce reduction charges, building and equipment relocation charges and other contract and asset-related costs. The total restructuring costs incurred as part of the Matamoros Consolidation are $4,687. In addition to these charges, we expect to incur an additional $1,200 and $2,000 of other costs relating to the Matamoros Consolidation that would not qualify as restructuring charges, but represent duplicative expenses arising from the transition process, such as excess rent, utilities, personnel-related expenses and other costs. We have incurred $1,051 in other costs relating to the Matamoros Consolidation.

During the three months ended March 31, 2024, we incurred $988 in restructuring costs associated with the Matamoros Consolidation, comprised of $215, $751, and $22 in workforce reduction, building and equipment relocation costs, and asset impairment and other charges, respectively. We also incurred $480 in other related costs. The restructuring liability associated with the Matamoros Consolidation was $204 and $194 as of March 31, 2024 and December 31, 2023, respectively.

Other Restructuring Activities

During the period ended March 31, 2024, we incurred total other restructuring charges of $689, comprised of $385, $286, and $18 in workforce reduction, building and equipment relocation costs, and asset impairment and other charges, respectively. The workforce reduction charges incurred are for restructuring activities used to adjust our business in response to reduced demand across certain locations and products. Restructuring charges incurred in relation to building and equipment relocation costs and other charges are for activities intended to consolidate operations across our site locations. The remaining liability associated with our other restructuring actions was $467 and $246 at March 31, 2024 and December 31, 2023, respectively.

The following table displays the restructuring liability activity included in accrued expenses and other liabilities for all plans for the three months ended March 31, 2024:


Restructuring liability at January 1, 2024	$	523
Restructuring charges		1,693
Costs paid		(1,537	)
Other activity(1)		(8	)
Restructuring liability at March 31, 2024	$	671

(1) Other charges include the effects of currency translation, non-cash asset write-downs, travel, legal and other charges.

NOTE 10 – Accrued Expenses and Other Liabilities

The components of accrued expenses and other liabilities are as follows:


	As of
	March 31,		December 31,
	2024		2023
Accrued product-related costs	$	2,069	$	2,183
Accrued income taxes		6,218		6,899
Accrued property and other taxes		1,427		1,542
Accrued professional fees		1,296		1,232
Accrued customer-related liabilities		2,316		2,167
Dividends payable		1,226		1,233
Remediation reserves		11,942		12,044
Derivative liabilities		289		747
Other accrued liabilities		5,794		6,514
Total accrued expenses and other liabilities	$	32,577	$	34,561

NOTE 11 – Commitments and Contingencies

Certain processes in the manufacture of our current and past products may create by-products classified as hazardous waste. As a result, we have been notified by the U.S. Environmental Protection Agency (“EPA”), state environmental agencies and in some cases, groups of potentially responsible parties, that we may be potentially liable for environmental contamination at several sites currently or formerly owned or operated by us. Currently, none of these costs and accruals relate to sites that provide revenue generating activities for the Company. Two of those sites, Asheville, North Carolina (the “Asheville Site”) and Mountain View, California, are designated National Priorities List sites under the EPA’s Superfund program. We accrue a liability for probable remediation activities, claims, and proceedings against us with respect to environmental matters if the amount can be reasonably estimated, and provide disclosures including the nature of a loss whenever it is probable or reasonably possible that a potentially material loss may have occurred but cannot be estimated. We record contingent loss accruals on an undiscounted basis.

A roll-forward of remediation reserves included in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets is comprised of the following:


	As of
	March 31,			December 31,
	2024			2023
Balance at beginning of period	$	12,044		$	11,048
Remediation expense		245			3,502
Net remediation payments		(348	)		(2,497	)
Other activity(1)		1			(9	)
Balance at end of the period	$	11,942		$	12,044

(1)

Other activity includes currency translation adjustments not recorded through remediation expense.

The Company operates under and in accordance with a federal consent decree, dated March 7, 2017, with the EPA for the Asheville Site. On February 8, 2023, the Company received a letter from the EPA (the “EPA Letter”) seeking reimbursement of its past response costs and interest thereon relating to any release or threatened release of hazardous substances at the Asheville Site in the aggregate amount of $9,955 from the three potentially responsible parties associated with the Asheville Site, including the Company. The Company expects its potential exposure to be between $1,900 and $9,955. We have determined that no point within this range is more likely than another and therefore we have recorded a loss estimate of $1,900 as of March 31, 2024 and December 31, 2023 in the Consolidated Balance Sheets.

Unrelated to the environmental claims described above, certain other legal claims are pending against us with respect to matters arising out of the ordinary conduct of our business.

We provide product warranties when we sell our products and accrue for estimated liabilities at the time of sale. Warranty estimates are forecasts based on the best available information and historical claims experience. We accrue for specific warranty claims if we believe that the facts of a specific claim make it probable that a liability in excess of our historical experience has been incurred and provide disclosures for specific claims whenever it is reasonably possible that a material loss may be incurred which cannot be estimated.

We cannot provide assurance that the ultimate disposition of environmental, legal, and product warranty claims will not materially exceed the amount of our accrued losses and adversely impact our consolidated financial position, results of operations, or cash flows. Our accrued liabilities and disclosures will be adjusted accordingly if additional information becomes available in the future.

NOTE 12 - Debt

Long-term debt is comprised of the following:


	As of
	March 31,			December 31,
	2024			2023
Total credit facility	$	400,000		$	400,000
Balance outstanding		67,500			67,500
Standby letters of credit		1,640			1,640
Amount available, subject to covenant restrictions	$	330,860		$	330,860
Weighted-average interest rate		6.60	%		6.07	%

On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility to $400,000, which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sub limits for letters of credit and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility. This unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired February 12, 2024.

Borrowings in U.S. dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%. Refer to Note 13, "Derivative Financial Instruments," for further discussion on the impact of interest rate swaps.

The Revolving Credit Facility includes a swingline sublimit of $20,000 and a letter of credit sublimit of $20,000. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio.

The Revolving Credit Facility requires, in addition to customary representations and warranties, that we comply with a maximum net leverage ratio and a minimum interest coverage ratio. Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility. We were in compliance with all debt covenants at March 31, 2024. The Revolving Credit Facility requires that we deliver quarterly financial statements, annual financial statements, auditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, the Revolving Credit Facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; and make stock repurchases and dividend payments.

We have debt issuance costs related to our long-term debt that are being amortized using the straight-line method over the life of the debt, which approximates the effective interest method. Amortization expense for the three months ended March 31, 2024 and March 31, 2023 were $48 and $48, respectively. These costs are included in interest expense in our Consolidated Statements of Earnings.

Note 13 - Derivative Financial Instruments

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts as well as interest rate and cross-currency swaps to manage our exposure to these risks.

The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.

The effective portion of derivative gains and losses are recorded in accumulated other comprehensive income (loss) until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. If it is probable that an anticipated hedged transaction will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive income (loss) to other income (expense), net.

We assess hedge effectiveness qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. No recognition of ineffectiveness was recorded in our Condensed Consolidated Statements of Earnings for the three months ended March 31, 2024.

Foreign Currency Hedges

We use forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Condensed Consolidated Balance Sheets at fair value.

We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At March 31, 2024, we had a net unrealized gain of $1,880 in accumulated other comprehensive income (loss), $1,845 of which is expected to be reclassified to earnings within the next 12 months. The notional amount of foreign currency forward contracts outstanding was $36,092 at March 31, 2024.

Interest Rate Swaps

We use interest rate swaps to convert a portion of our Revolving Credit Facility’s outstanding balance from a variable rate of interest to a fixed rate. As of March 31, 2024, we have agreements to fix interest rates on $50,000 of long-term debt until December 2026. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.

These swaps are treated as cash flow hedges and consequently, the changes in fair value are recorded in other comprehensive (loss) income. The estimated net amount of the existing gains that are reported in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings within the next twelve months is approximately $1,193.

Cross-Currency Swap

The Company has operations and investments in various international locations and is subject to risks associated with changing foreign exchange rates. In order to hedge the Krone-based purchase price for the acquisition of Ferroperm Piezoceramics, A.S. (“Ferroperm”), the Company entered into a cross currency interest rate swap agreement on June 27, 2022 that synthetically swapped $25,000 of variable

rate debt to Krone-denominated variable rate debt. Upon completion of the Ferroperm acquisition on June 30, 2022, the transaction was designated as a net investment hedge for accounting purposes and will mature on June 30, 2027.

Accordingly, any gains or losses on this derivative instrument are included in the foreign currency translation component of other comprehensive (loss) income until the net investment is sold, diluted or liquidated. At March 31, 2024 we had a net unrealized loss of $679 in accumulated other comprehensive income (loss). Interest payments received for the cross-currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense in the Condensed Consolidated Statements of Earnings. The assumptions used in measuring fair value of the cross-currency swap are considered level 2 inputs, which are based upon the Krone to U.S. Dollar exchange rate market.

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of March 31, 2024, are shown in the following table:


	As of
	March 31,			December 31,
	2024			2023
Interest rate swaps reported in Other current assets	$	1,193		$	1,121
Interest rate swaps reported in Other assets	$	1,128		$	706
Cross-currency swap reported in Accrued expenses and other liabilities	$	(289	)	$	(747	)
Foreign currency hedges reported in Other current assets	$	1,831		$	1,087

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were foreign currency derivative assets of $1,831 and no foreign currency derivative liabilities at March 31, 2024.

The effect of derivative instruments on the Condensed Consolidated Statements of Earnings is as follows:


	Three Months Ended
	March 31,		March 31,
	2024		2023
Foreign Exchange Contracts:
Amounts reclassified from AOCI to earnings:
Net sales	$	26	$	(34	)
Cost of goods sold		758		255
Total net gain reclassified from AOCI to earnings		784		221
Total derivative gain on foreign exchange contracts recognized in earnings	$	784	$	221
Interest Rate Swaps:
Income recorded in Interest expense	$	405	$	377
Cross-Currency Swap:
Income recorded in Interest expense	$	94	$	158
Total net gains on derivatives	$	1,283	$	756

NOTE 14 – Accumulated Other Comprehensive Income (Loss)

Shareholders’ equity includes certain items classified as accumulated other comprehensive income (loss) (“AOCI”) in the Condensed Consolidated Balance Sheets, including:

•

Unrealized gains (losses) on hedges relate to interest rate swaps to convert a portion of our Revolving Credit Facility's outstanding balance from a variable rate of interest into a fixed rate, foreign currency forward contracts used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies, as well as a cross-currency swap that synthetically converts our U.S. Dollar variable rate debt to Krone-denominated variable rate debt. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings. Further information related to our derivative financial instruments is included in Note 13 - Derivative Financial Instruments and Note 17 – Fair Value Measurements.

•

Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income (expense). Further information related to our pension obligations is included in Note 7 – Retirement Plans.

•

Cumulative translation adjustments relate to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. Dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income (loss).

Changes in exchange rates between the functional currency and the currency in which a transaction is denominated are foreign exchange transaction gains or losses. Transaction losses for the three months ended March 31, 2024 and March 31, 2023 were $1,507 and $68, respectively. The impact of these changes have been included in other income (expense) in the Condensed Consolidated Statements of Earnings.

The components of accumulated other comprehensive income (loss) for the three months ended March 31, 2024, are as follows:


							(Gain) Loss
	As of			Gain (Loss)			Reclassified			As of
	December 31,			Recognized			from AOCI			March 31,
	2023			in OCI			to Earnings			2024
Changes in fair market value of derivatives:
Gross	$	3,252		$	2,138		$	(1,189	)	$	4,201
Income tax benefit (expense)		(749	)		(492	)		274			(967	)
Net		2,503			1,646			(915	)		3,234
Changes in unrealized pension cost:
Gross		(1,126	)		—			69			(1,057	)
Income tax benefit		442			—			(5	)		437
Net		(684	)		—			64			(620	)
Cumulative translation adjustment:
Gross		2,445			(2,121	)		—			324
Income tax benefit (expense)		—			—			—			—
Net		2,445			(2,121	)		—			324
Total accumulated other comprehensive income (loss)	$	4,264		$	(475	)	$	(851	)	$	2,938

The components of accumulated other comprehensive income (loss) for the three months ended March 31, 2023, are as follows:


							(Gain) Loss
	As of			Gain (Loss)			Reclassified			As of
	December 31,			Recognized			from AOCI			March 31,
	2022			in OCI			to Earnings			2023
Changes in fair market value of derivatives:
Gross	$	3,911		$	1,090		$	(598	)	$	4,403
Income tax benefit (expense)		(899	)		(251	)		138			(1,012	)
Net		3,012			839			(460	)		3,391
Changes in unrealized pension cost:
Gross		(1,179	)		—			(47	)		(1,226	)
Income tax benefit (expense)		376			—			13			389
Net		(803	)		—			(34	)		(837	)
Cumulative translation adjustment:
Gross		(2,880	)		1,024			—			(1,856	)
Income tax benefit (expense)		—			—			—			—
Net		(2,880	)		1,024			—			(1,856	)
Total accumulated other comprehensive income (loss)	$	(671	)	$	1,863		$	(494	)	$	698

NOTE 15 – Shareholders’ Equity

Share count and par value data related to shareholders’ equity are as follows:


	As of
	March 31,		December 31,
	2024		2023
Preferred Stock
Par value per share	No par value		No par value
Shares authorized		25,000,000		25,000,000
Shares outstanding		—		—
Common Stock
Par value per share	No par value		No par value
Shares authorized		75,000,000		75,000,000
Shares issued		57,541,018		57,444,228
Shares outstanding		30,649,099		30,824,248
Treasury stock
Shares held		26,891,919		26,619,980

On February 9, 2023, the Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $50,000 of the Company’s common stock. The repurchase program had no set expiration date and replaced the repurchase program approved by the Board of Directors on May 13, 2021. The purchases under the program were made from time to time in the open market (including, without limitation, through the use of Rule 10b5-1 plans), depending on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the trading price of our common stock.

On February 2, 2024, our Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $100,000 of its common stock. The repurchase program has no set expiration date and supersedes and replaces the repurchase program approved by the Board of Directors in February 2023. The purchases may be made from time to time in the open market (including, without limitation, through the use of Rule 10b5-1 plans), depending on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the trading price of our common stock. The repurchase program may be extended, modified, suspended or discontinued at any time.

During the three months ended March 31, 2024, 271,939 shares of common stock were repurchased for $12,078 across both share repurchase programs. During the three months ended March 31, 2023, 198,271 shares of common stock were repurchased for $8,802. As of March 31, 2024, approximately $92,369 remains available for future purchases.

As of 2023, we are subject to a 1% excise tax on stock repurchases under the United States Inflation Reduction Act of 2022 which we include in the cost of stock repurchases as a reduction of shareholders’ equity. As of March 31, 2024 and December 31, 2023, we had $436 and $359, respectively, recorded in Accrued expenses and other liabilities in the Consolidated Balance Sheet.

A roll-forward of common shares outstanding is as follows:


	Three months ended
	March 31,			March 31,
	2024			2023
Balance at the beginning of the year		30,824,248			31,680,890
Repurchases		(271,939	)		(198,271	)
Restricted share issuances		96,790			98,536
Balance at the end of the period		30,649,099			31,581,155

Certain potentially dilutive restricted stock units are excluded from diluted earnings per share because they are anti-dilutive. The number of outstanding awards that were anti-dilutive for the three months ended March 31, 2024 and March 31, 2023 were 30,030 and 37,676, respectively.

NOTE 16- Stock-Based Compensation

At March 31, 2024, we had five active stock-based compensation plans: the Non-Employee Directors’ Stock Retirement Plan (“Directors’ Plan”), the 2004 Omnibus Long-Term Incentive Plan (“2004 Plan”), the 2009 Omnibus Equity and Performance Incentive Plan (“2009 Plan”), the 2014 Performance and Incentive Compensation Plan (“2014 Plan”), and the 2018 Equity and Incentive Compensation Plan (“2018 Plan”). Future grants can only be made under the 2018 Plan.

These plans allow or allowed (as applicable) for grants of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance shares, performance units, and other stock awards subject to the terms of the specific plans under which the awards are granted.

The following table summarizes the compensation expense included in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings related to stock-based compensation plans:


	Three months ended
	March 31,		March 31,
	2024		2023
Service-based RSUs	$	894	$	770
Performance-based RSUs		154		634
Cash-settled RSUs		173		182
Total	$	1,221	$	1,586
Income tax benefit		279		365
Net expense	$	942	$	1,221

The following table summarizes the unrecognized compensation expense related to unvested RSUs by type and the weighted-average period in which the expense is to be recognized:


	Unrecognized
	Compensation		Weighted-
	Expense at		Average
	March 31, 2024		Period (years)
Service-based RSUs	$	5,049		1.63
Performance-based RSUs		4,653		2.26
Total	$	9,702		1.93

We recognize expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The following table summarizes the status of these plans as of March 31, 2024:


	2018 Plan		2014 Plan		2009 Plan		2004 Plan		Directors' Plan
Awards originally available		2,500,000		1,500,000		3,400,000		6,500,000	N/A
Maximum potential awards outstanding		720,123		35,100		30,000		14,545		4,722
RSUs and cash-settled awards vested and released		620,116		—		—		—		—
Awards available for grant		1,159,761		—		—		—		—

Service-Based Restricted Stock Units

The following table summarizes the service-based RSU activity for the three months ended March 31, 2024:


	Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2023		280,966		$	30.36
Granted		86,240			43.19
Vested and released		(54,372	)		37.21
Forfeited		(2,648	)		41.74
Outstanding at March 31, 2024		310,186		$	32.63
Releasable at March 31, 2024		141,167		$	21.76

Performance-Based Restricted Stock Units

The following table summarizes the performance-based RSU activity for the three months ended March 31, 2024:


	Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2023		220,656		$	36.96
Granted		72,549			43.49
Attained by performance		55,272			33.37
Released		(112,907	)		33.85
Forfeited		(7,297	)		34.77
Outstanding at March 31, 2024		228,273		$	39.86
Releasable at March 31, 2024		—		$	—

Cash-Settled Restricted Stock Units

Cash-Settled RSUs entitle the holder to receive the cash equivalent of one share of common stock for each unit when the unit vests. These RSUs are issued to key employees residing in foreign locations as direct compensation. Generally, these RSUs vest over a three-year period. Cash-Settled RSUs are classified as liabilities and are remeasured at each reporting date until settled. At March 31, 2024 and December 31, 2023, we had 48,372 and 42,062 Cash-Settled RSUs outstanding, respectively. At March 31, 2024 and December 31, 2023, liabilities of $581 and $676, respectively, were included in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheets.

NOTE 17 — Fair Value Measurements

The table below summarizes our financial assets and liabilities that were measured at fair value on a recurring basis at March 31, 2024:


	Asset (Liability) Carrying Value at March 31, 2024			Quoted Prices in Active Markets for Identical (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest rate swaps	$	2,321		$	—	$	2,321		$	—
Foreign currency hedges	$	1,831		$	—	$	1,831		$	—
Cross-currency swap	$	(289	)	$	—	$	(289	)	$	—
Qualified replacement plan assets	$	12,950		$	12,950	$	—		$	—
Contingent consideration	$	(3,511	)	$	—	$	—		$	(3,511	)

The table below summarizes the financial assets and liabilities that were measured at fair value on a recurring basis at December 31, 2023:


	Asset (Liability) Carrying Value at December 31, 2023			Quoted Prices in Active Markets for Identical (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest rate swaps	$	1,827		$	—	$	1,827		$	—
Foreign currency hedges	$	1,087		$	—	$	1,087		$	—
Cross-currency swap	$	(747	)	$	—	$	(747	)	$	—
Qualified replacement plan assets	$	13,392		$	13,392	$	—		$	—
Contingent consideration	$	(3,764	)	$	—	$	—		$	(3,764	)

We use interest rate swaps to convert a portion of our Revolving Credit Facility’s outstanding balance from a variable rate of interest into a fixed rate and foreign currency forward contracts to hedge the effect of foreign currency changes on certain revenues and costs denominated in foreign currencies. The Company entered into a cross-currency swap agreement in order to manage its exposure to changes in interest rates related to foreign debt. These derivative financial instruments are measured at fair value on a recurring basis. The fair value of our interest rate swaps and foreign currency hedges were measured using standard valuation models using market-based observable inputs over the contractual terms, including forward yield curves, among others. There is a readily determinable market for these derivative instruments, but that market is not active and therefore they are classified within Level 2 of the fair value hierarchy.

The fair value of the contingent consideration requires significant judgment. The Company's fair value estimates used in the contingent consideration valuation are considered Level 3 fair value measurements. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and timing of events and activities that are expected to take place. Refer to Note 3 for further discussion on contingent consideration.

A roll-forward of the contingent consideration is as follows:




	Contingent Consideration
Balance at December 31, 2023	$	3,764
Change in fair value		(253	)
Balance at March 31, 2024	$	3,511

As of March 31, 2024, approximately $1,076 was recorded in accrued expenses and other liabilities with the remainder in other long-term obligations.

Our long-term debt consists of the Revolving Credit Facility, which is recorded at its carrying value. There is a readily determinable market for our long-term debt and it is classified within Level 2 of the fair value hierarchy as the market is not deemed to be active. The fair value of long-term debt approximates its carrying value and was determined by valuing a similar hypothetical coupon bond and attributing that value to our long-term debt under the Revolving Credit Facility.

The qualified replacement plan assets consist of investment funds maintained for future contributions to the Company’s U.S. 401(k) program. The investments are Level 1 marketable securities and are recorded in Other Assets on our Condensed Consolidated Balance Sheets.

NOTE 18 — Income Taxes

The effective tax rates for the three months ended March 31, 2024 and March 31, 2023 are as follows:


	Three Months Ended
	March 31,			March 31,
	2024			2023
Effective tax rate		18.6	%		19.2	%

The decrease in the effective income tax rate is primarily attributed to tax benefits recorded from a change in the mix of earnings by jurisdiction and a decrease in the impact of foreign withholding taxes. The first quarter 2024 and 2023 effective income tax rates were lower than the U.S. statutory federal income tax rate primarily due to tax benefits recorded upon vesting of RSUs.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

(in thousands of dollars, except percentages and per share amounts)

The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included under Item 1, as well as our Consolidated Financial Statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

CTS Corporation ("CTS", "we", "our" or "us") is a leading designer and manufacturer of products that Sense, Connect and Move. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products, technologies and talent within these categories.

We manufacture sensors, actuators, and connectivity components in North America, Europe, and Asia. CTS provides engineered products to OEMs and tier one suppliers in the aerospace and defense, industrial, medical, and transportation markets.

There is an increasing proliferation of sensing and motion applications within various markets we serve. In addition, the increasing connectivity of various devices to the internet results in greater demand for communication bandwidth and data storage, increasing the need for our connectivity products. Our success is dependent on the ability to execute our strategy to support these trends. We are subject to a number of challenges including, without limitation, periodic market softness, competition from other suppliers, changes in technology, and the ability to add new customers, launch new products or penetrate new markets. Many of these, and other risks and uncertainties relating to the Company and our business, are discussed in further detail in Item 1A. of our Annual Report on Form 10-K and other filings made with the SEC.

Results of Operations: First Quarter 2024 versus First Quarter 2023

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended March 31, 2024 and March 31, 2023:


	Three Months Ended
	March 31, 2024			March 31, 2023		Percent Change			Percentage of Net Sales – 2024			Percentage of Net Sales – 2023
Net sales	$	125,750		$	145,994		(13.9	)%		100.0	%		100.0	%
Cost of goods sold		80,660			94,342		(14.5	)		64.1			64.6
Gross margin		45,090			51,652		(12.7	)		35.9			35.4
Selling, general and administrative expenses		22,260			21,979		1.3			17.7			15.1
Research and development expenses		6,601			6,586		0.2			5.2			4.5
Restructuring charges		1,693			912		85.6			1.3			0.6
Total operating expenses		30,554			29,477		3.7			24.3			20.2
Operating earnings		14,536			22,175		(34.4	)		11.6			15.2
Total other (expense) income, net		(878	)		534		(264.4	)		(0.7	)		0.4
Earnings before income taxes		13,658			22,709		(39.9	)		10.9			15.6
Income tax expense		2,539			4,365		(41.8	)		2.0			3.0
Net earnings	$	11,119		$	18,344		(39.4	)%		8.8	%		12.6	%
Earnings per share:
Diluted net earnings per share	$	0.36		$	0.58

Net sales were $125,750 in the first quarter of 2024, a decrease of $20,244 or 13.9% from the first quarter of 2023. Net sales to non-transportation markets decreased $12,471 or 17.4% while net sales to transportation markets decreased $7,773 or 10.5%. The decline in

net sales was primarily driven by decreased volumes from our distribution and OEM customers in the industrial end market, lower volumes of commercial vehicle related products, and lower sales to transportation customers in China. Changes in foreign exchange rates also decreased net sales by $630 year-over-year primarily due to the U.S. Dollar appreciating compared to the Chinese Renminbi.

Gross margin was $45,090 in the first quarter of 2024, a decrease of $6,562 or 12.7% from the first quarter of 2023. The decrease in gross margin was driven by lower sales volumes. Changes in foreign exchange rates decreased gross margin by $797 year-over-year primarily due to the U.S. Dollar appreciating compared to the Mexican Peso. Income from our hedges materially offset the negative foreign exchange impact. See Note 13 “Derivative Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Our gross margin percentage increased from 35.4% for the first quarter of 2023 to 35.9% for the first quarter of 2024 primarily due to improved product mix and the impact of certain cost saving actions previously taken as discussed in Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Selling, general and administrative ("SG&A") expenses were $22,260 or 17.7% of net sales in the first quarter of 2024, versus $21,979 or 15.1% of net sales in the first quarter of 2023. The increase in SG&A expenses as a percentage of net sales was primarily driven by lower net sales in the first quarter of 2024.

Research and development (“R&D”) expenses were $6,601 or 5.2% of net sales in the first quarter of 2024 compared to $6,586 or 4.5% of net sales in the first quarter of 2023. Our R&D expenses are in line with our commitment to continue investing in research and product development to drive organic growth.

Restructuring charges were $1,693 or 1.3% of net sales in the first quarter of 2024 compared to $912 or 0.6% of net sales in the first quarter of 2023. The restructuring charges in the quarter ended March 31, 2024 were primarily related to costs associated with our plant closure and consolidation activities. See Note 9 “Costs Associated with Exit and Restructuring Activities” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information.

Other income and expense items are summarized in the following table:


	Three Months Ended
	March 31,			March 31,
	2024			2023
Interest expense	$	(801	)	$	(694	)
Interest income		1,386			1,063
Other (expense) income, net		(1,463	)		165
Total other (expense) income, net	$	(878	)	$	534

Other expense, net for 2024 is primarily driven by foreign currency losses primarily related to the Chinese Renminbi.


	Three Months Ended
	March 31,			March 31,
	2024			2023
Effective tax rate		18.6	%		19.2	%

Our effective income tax rate was 18.6% and 19.2% in the first quarters of 2024 and 2023, respectively. The decrease in the effective income tax rate is primarily due to tax benefits recorded from a change in the mix of earnings by jurisdiction and a decrease in the impact of foreign withholding taxes.

Liquidity and Capital Resources

We have historically funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our Revolving Credit Facility (as defined below). We believe that cash flows from operating activities and available borrowings under our Revolving Credit Facility will be adequate to fund our working capital needs, capital expenditures,

investments, and debt service requirements for at least the next twelve months and for the foreseeable future thereafter. However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.

Cash and cash equivalents were $162,425 at March 31, 2024, and $163,876 at December 31, 2023, of which $110,183 and $99,940, respectively, were held outside the United States. Total long-term debt was $67,500 as of March 31, 2024 and $67,500 as of December 31, 2023.

Cash Flow Overview

Cash Flows from Operating Activities

Net cash provided by operating activities was $18,311 during the three months ended March 31, 2024. Components of net cash provided by operating activities included net earnings of $11,119, depreciation and amortization expense of $7,325, other net non-cash items of $132, and a net cash outflow from changes in assets and liabilities of $265.

Net cash provided by operating activities was $11,186 during the three months ended March 31, 2023. Components of net cash provided by operating activities included net earnings of $18,344, depreciation and amortization expense of $6,918, other net non-cash items of $7,821, and a net cash outflow from changes in assets and liabilities of $15,649 primarily driven by 2022’s annual bonus payout and an increase in accounts receivables.

Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2024 was $4,035, driven by capital expenditures.

Net cash used in investing activities for the three months ended March 31, 2023 was $7,896, driven by payments for the Maglab acquisition and finalization of the TEWA Temperature Sensors SP. Zo.o. (“TEWA”) net working capital adjustment of $3,356 and capital expenditures of $4,540. See Note 3 “Business Acquisitions” in the Notes to the Condensed Consolidated Financial Statements.

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2024 was $16,308. The net cash outflow was the result of treasury stock purchases of $11,958 (net of excise taxes unpaid), dividends paid of $1,233, and taxes paid on behalf of equity award participants of $3,117.

Net cash used in financing activities for the three months ended March 31, 2023 was $16,625. The net cash outflow was the result of treasury stock purchases of $8,802, dividends paid of $1,272, taxes paid on behalf of equity award participants of $3,142, and net cash used in the paydown of long-term debt of $3,409.

Capital Resources

Revolving Credit Facility

Long‑term debt is comprised of the following:


	As of
	March 31,		December 31,
	2024		2023
Total credit facility	$	400,000	$	400,000
Balance outstanding		67,500		67,500
Standby letters of credit		1,640		1,640
Amount available, subject to covenant restrictions	$	330,860	$	330,860

On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility availability to $400,000, which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sub limits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional

flexibility. This new unsecured credit facility replaced the prior $300,000 unsecured credit facility, which would have expired on February 12, 2024.

Borrowings in U.S. Dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00% to 1.75%, based on our net leverage ratio. We use interest rate swaps to convert a portion of our revolving credit facility's outstanding balance from a variable rate of interest to a fixed rate. The contractual rate of these arrangements ranges from 1.49% to 2.49%.

The Revolving Credit Facility includes a swingline sublimit of $20,000 and a letter of credit sub limit of $20,000. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.175% to 0.25% based on our net leverage ratio. We were in compliance with all debt covenants at March 31, 2024.

Critical Accounting Policies and Estimates

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of the Condensed Consolidated Financial Statements, the Company uses estimates and makes judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates, and judgments are based on historical experience, current trends, and other factors the Company believes are relevant at the time it prepares the Condensed Consolidated Financial Statements.

The critical accounting policies and estimates are consistent with those discussed in Note 1, “Summary of Significant Accounting Policies”, to the Consolidated Financial Statements and the MD&A section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. During and as of the three months ended March 31, 2024, there were no significant changes in the application of critical accounting policies or estimates.

Significant Customers

Our net sales to customers representing at least 10% of total net sales is as follows:


	Three months ended
	March 31, 2024			March 31, 2023
Cummins Inc.		13.6	%		14.1	%
Toyota Motor Corporation		13.3	%		10.7	%

No other customer accounted for 10% or more of total net sales during these periods.

Forward‑Looking Statements

Readers are cautioned that the statements contained in this document regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are, or may be deemed to be, “forward-looking statements” as defined by the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995. Such statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included or incorporated in this document, including statements regarding our strategy, financial position, guidance, funding for continued operations, cash reserves, liquidity, projected costs, plans, projects, awards and contracts, and objectives of management, among others, are forward-looking statements. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “continued,” “project,” “plan,” “goals,” “opportunity,” “appeal,” “estimate,” “potential,” “predict,” “demonstrates,” “may,” “will,” “might,” “could,” “intend,” “shall,” “possible,” “would,” “approximately,” “likely,” “outlook,” “schedule,” “on track,” “poised,” “pipeline,” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements , but the absence of these words does not mean that a statement is

not forward-looking. These forward-looking statements are not guarantees of future performance, conditions or results. Forward-looking statements are based on management’s expectations, certain assumptions, and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties, and other factors, which could cause CTS’ actual results, performance, or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: supply chain disruptions; changes in the economy generally, including inflationary and/or recessionary conditions, and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition CTS’ business; rapid technological change; general market conditions in the transportation, as well as conditions in the industrial, aerospace and defense, and medical markets; reliance on key customers; unanticipated public health crises, natural disasters or other events; environmental compliance and remediation expenses; the ability to protect CTS’ intellectual property; pricing pressures and demand for CTS’ products; risks associated with CTS’ international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks (including, without limitation, the potential impact U.S./China relations and the conflict between Russia and Ukraine may have on our business, results of operations and financial condition); the amount and timing of any share repurchases; and the effect of any cybersecurity incidents on our business. Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of CTS’ most recent Annual Report on Form 10-K and other filings made with the SEC. CTS undertakes no obligation to publicly update CTS’ forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes. 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2023. During the three months ended March 31, 2024, there have been no material changes in our exposure to market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CTS have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting for the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in litigation with respect to matters arising from the ordinary conduct of our business, and currently certain claims are pending against us. In the opinion of management, we believe we have established adequate accruals pursuant to U.S. generally accepted accounting principles for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based on presently available information. However, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition, or cash flows.

See Note 11 "Commitments and Contingencies" in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no significant changes to our risk factors from those contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity and Use of Proceeds

On February 9, 2023, the Board approved a share repurchase program that authorizes the Company to repurchase up to $50 million of its common stock. The repurchase program had no set expiration date and superseded and replaces the repurchase program approved by the Board in May 2021.

On February 2, 2024, the Board approved a new share repurchase program that authorizes the Company to repurchase up to $100 million of its common stock. The new share repurchase program has no set expiration date and supersedes and replaces the repurchase program approved by the Board in February 2023.


					Total Number		Maximum Dollar
					of Shares		Value of Shares
					Purchased as		That May Yet Be
	Total Number				Part of Publicly		Purchased Under
	of Shares		Average Price		Announced		Publicly Announced
	Purchased		Paid per Share		Programs		Plans or Programs
January 1, 2024 – January 31, 2024		83,939	$	42.90		83,939	$	9,307,307
February 1, 2024 – February 29, 2024		98,000	$	44.81		98,000	$	96,454,603
March 1, 2024 – March 31, 2024		90,000	$	45.39		90,000	$	92,369,338
Total		271,939				271,939

Item 5. Other Information

During the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

Item 6. Exhibits



(31)(a)	Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

(31)(b)	Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

(32)(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

(32)(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

101.1	The following information from CTS Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 formatted in Inline XBRL: (i) Condensed Consolidated Statements of Earnings; (ii) Condensed Consolidated Statements of Comprehensive Earnings; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Shareholders’ Equity; (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104	The cover page from this Current Report on Form 10-Q formatted as inline XBRL

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CTS Corporation		CTS Corporation

/s/ Thomas M. White		/s/ Ashish Agrawal
Thomas M. White		Ashish Agrawal
Corporate Controller (Principal Accounting Officer)		Vice President and Chief Financial Officer (Principal Financial Officer)


Dated: May 1, 2024		Dated: May 1, 2024

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company