[Management View]
CTS Corporation reported significant growth in diversified end markets, which accounted for 59% of revenue in Q3 2025, up from 52% in Q3 2024. Management emphasized sustained momentum from the SyQwest acquisition and multiple end-market product wins, while highlighting ongoing strategic focus on portfolio diversification.

[Outlook]
Sales guidance for fiscal 2025 was narrowed to $535 million-$545 million, with adjusted diluted EPS guidance revised to $2.20-$2.25. Management expects continued growth in diversified end markets, particularly in medical, aerospace, and defense sectors, while monitoring potential impacts from supply chain issues and geopolitical factors.

[Financial Performance]
Revenue for Q3 2025 was $143 million, up 8% YoY and 6% sequentially. Adjusted gross margin was 38.9%, up 66 basis points YoY and 12 basis points sequentially. Adjusted EBITDA margin was 23.8%, up 86 basis points sequentially but down 55 basis points YoY. Adjusted diluted EPS was $0.60, compared to $0.61 in Q3 2024 and $0.57 in Q2 2025.

[Q&A Highlights]
Question 1: 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. Can you just walk us through what's going on there?
Answer: From a top line perspective, we feel good about the direction we're going. The 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 some things we're monitoring on the diagnostics side. On the bottom line, primarily, there's the tax impact due to changes in the mix of earnings and recent U.S. tax legislation.

Question 2: What are your transportation customers signaling about the 2026 production rates?
Answer: For 2026, it's a mixed market. Some OEMs are more positive, some are a little negative. On the light vehicle side, excluding Cummins, we saw a small incremental increase in low single digits and solid bookings in the quarter. The market is mixed, but we feel good about medical, aerospace and defense, and industrial.

Question 3: How should we rank your end markets on the gross margin contribution or operating margin contribution?
Answer: We earn good margins on diversified end markets, including medical, industrial, aerospace, and defense. Transportation is behind in comparison but still has good margins. The margin profile varies by product line rather than end market.

Question 4: Will the adverse tax impact go away in 2026?
Answer: The specific change from the tax legislation will continue to have a slight adverse impact, but we'll continue looking at other areas of opportunity for tax efficiency. Expect 2026 to have a similar tax rate as 2025.

Question 5: What tax rate estimate should we use for our model?
Answer: We are in the low 20% range, talking about 21% to 23% type of ballpark on a go-forward basis.

Question 6: How should we view the expectation that inventories in your channel for transportation are close to representing end market demand?
Answer: Days of supply on hand is trending around 50 days, which seems normal. There is some softness in the commercial vehicle market, but not on the light vehicle side.

Question 7: Would you be able to give some puts and takes on whether SyQwest's revenue contribution meets or exceeds your target for this year?
Answer: We saw a step-up in revenues from Q2 to Q3 and expect that to continue. We will see some seasonality next year due to government funding. We feel good about the pipeline of opportunities and expect additional awards over the next 12 months and several years.

Question 8: Is the $4.2 million increase in reserve the main reason for the increase in OpEx?
Answer: Yes, that is by far the largest reason. We also have a year-over-year increase in equity-based compensation, causing the year-over-year comparison to look unfavorable in Q3 2025.

Question 9: Are you more positive about the industrial end markets than you've been in quite some time?
Answer: We feel good about all diversified end markets. Industrial saw a 9% sequential improvement and over 20% year-on-year. We expect bookings to increase in medical and aerospace and defense in Q4.

Question 10: Do you think the diagnostics side of the medical business will be coming back or remain weak?
Answer: The diagnostics side is a little weaker but still solid overall. We expect it will improve more next year. Strong momentum on therapeutics will continue into next year.

Question 11: How are you successfully navigating tariffs?
Answer: A lot of what we do in Asia stays in Asia, Europe stays in Europe, and North America stays in North America, which helps mitigate cross-border flows. We work closely with suppliers and customers to manage impact and pass costs on to customers.

Question 12: Does the fire at the Ford aluminum supplier have any impact on your company?
Answer: We haven't seen any direct impact but are monitoring it as we go through the fourth quarter.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on the positive growth in diversified end markets and the company's ability to navigate challenges. Management maintained a confident tone, emphasizing strategic priorities and operational execution.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | Q2 2025 |
|---------------------------|---------|---------|---------|
| Revenue | $143M | $132M | $135M |
| Adjusted Gross Margin | 38.9% | 38.2% | 38.8% |
| Adjusted EBITDA Margin | 23.8% | 24.3% | 22.9% |
| Adjusted Diluted EPS | $0.60 | $0.61 | $0.57 |
| Operating Cash Flow | $29M | $35M | N/A |

[Risks and Concerns]
Recent U.S. tax legislation changes had an adverse impact on adjusted earnings per diluted share, expected to continue into 2026. Transportation sales declined due to softness in commercial vehicle products, with demand expected to remain soft into Q4 2025. The company is monitoring potential impacts from supply chain issues related to rare earth, aluminum, and semiconductors.

[Final Takeaway]
CTS Corporation demonstrated strong growth in diversified end markets, driven by strategic focus on portfolio diversification and operational execution. Despite challenges in the transportation sector and adverse tax impacts, the company maintained positive momentum in medical, aerospace, and defense sectors. Management's confident outlook and strategic priorities position CTS for continued growth, while closely monitoring potential risks and supply chain issues.