Q2 2024 CTS Corp Earnings Call

Operator: Good morning or good afternoon, and welcome to the CTS Corporation's second quarter 2024 conference call. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I'll now hand the floor to CEO Kieran O'Sullivan to begin the clearing, so please go ahead when you

Good morning, or good afternoon, welcome to the Cts Corporation second quarter. Two went to turn school conference call. My name is that nobody ever printed today.

Operator: Good afternoon, welcome to the CTS Corporation, second quarter to 2024 conference school.

Adam: My name is Adam, and I'll be a reporter today.

Operator: If you'd like to ask a question at the Q&A portion of today's school, you may do so by pressing star followed by one on your telephone keypad.

Speaker Change: I'd like to ask a question in the Q&A portion of today's meeting you spoke a person can star followed by one on your telephone keypad.

Operator: No, no, hand the floor to CEO Karen or Sullivan to begin to clear. Please go ahead when you are ready.

Speaker Change: On the floor to CEO Kieran Osullivan Spaghetti Securities. Please go ahead, when you're ready.

Karen Sullivan: Thanks, Adam. Good morning, and thank you for joining our second quarter 2024 earnings call. We achieved earnings in line with our expectations. Despite softness in the transportation and market, CTS is focused on future growth through continued diversification of our customer base and end markets.

Kieran O'sullivan: Thanks, Adam. Good morning, and thank you for joining our second quarter 2024 earnings call. We achieved earnings in line with our expectations, despite softness in the transportation and market. CTS is focused on future growth through continued diversification of our customer base and end market. Yesterday, we completed the acquisition of SyQuest LLC, a leading designer and manufacturer of sonar and underwater acoustic sensing and electronic solutions, primarily for the U.S.

Kieran Osullivan: Thanks, Adam Good morning, and thank you for joining our second quarter.

Kieran Osullivan: 2024 earnings call, we achieved earnings in line with our expectations. Despite softness in the transportation end market.

Speaker Change: <unk> is focused on future growth through continued diversification of our customer base and end markets yesterday, we completed the acquisition of sequester LLC, a leading designer and manufacturer of sonar and underwater acoustic sensing and electronic solutions, primarily for the U S Naval defense market.

Karen Sullivan: Yesterday, we completed the acquisition of Cyquest LLC, a leading designer and manufacturer of sonar and underwater acoustic sensing and electronic solutions primarily for the U.S. Naval Defense Market. Cyquest products enable the sonar systems that guide and protect our submarines and surface ships. We extend a warm welcome to Bob Torini and the Cyquest team and look forward to leveraging our combined capabilities to drive growth in defense. The acquisition is expected to be accretive in 2025.

Speaker Change: It is.

Kieran O'sullivan: SideQuest products enable the sonar systems that guide and protect our submarines and surface ships. We extend a warm welcome to Bob Torini and the SideQuest team and look forward to leveraging our combined capabilities to drive growth in defense. The acquisition is expected to be accretive in 2025. Ashish will take us through the Safe Harbor Statement.

Speaker Change: <unk> products enable the sonar systems that guide and protect our submarines and surface ships.

Speaker Change: We extend a warm welcome to Bob <unk>, and the <unk> team and look forward to leveraging our combined capabilities to drive growth in defense.

Speaker Change: The acquisition is expected to be accretive in 2025.

Ashish Agrawal: Ashish will take us through the safe harbor state with Ashish.

Speaker Change: Ashish will take us through the Safe Harbor statement Ashish.

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

Ashish Agrawal: I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statement. 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 file, 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 back to our CEO, Kir

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.

ashish: 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.

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

Speaker Change: The extent that today's discussion refers to any non-GAAP measures under regulation G. The required explanations and reconciliations are available that todays earnings press release, and supplemental slide presentation, which can be found in the investors section of the Cts website I will now turn the.

Karen Sullivan: I will now turn the discussion back to our CEO, Karen on Sullivan. Thanks, Ashish. We finished the second quarter with sales of 130 million at a time of 10% from the second quarter of 2023. For the quarter, non-transportation sales were up 4% and transportation sales were down 22% from the same period last year. Sequentially non-transportation sales were up 11%; sales to the transportation and market were down 3% versus the first quarter of 2024. Non-transportation sales were 51% of overall company revenue in the second quarter. Our book-to-bill ratio was 0.99 in the second quarter, down from 1.07 in the first quarter of 2024.

Kieran O'sullivan: A discussion back to our CEO Kieran O'sullivan. Thanks, Ashish, we finished the second quarter with sales of 130 million a decline of 10% from the second quarter of 2023 for the quarter non transportation sales were up 4% and transportation sales were down 22% from the <unk>.

Kieran O'sullivan: Thanks Ashish. We finished the second quarter with sales of $130 million, a decline of 10% from the second quarter of 2023. For the quarter, non-transportation sales were up 4%, and transportation sales were down 22% from the same period last year. Sequentially, non-transportation sales were up 11%, sales to the transportation and market were down 3% versus the first quarter of 2024. Non-transportation sales were 51% of overall company revenue in the second quarter.

Kieran O'sullivan: Period last year.

Kieran O'sullivan: Sequentially non transportation sales were up 11%.

Kieran O'sullivan: Sales to the transportation end market were down 3% versus the first quarter of 2024.

Kieran O'sullivan: <unk> transportation sales were 51% of overall company revenue in the second quarter.

Kieran O'sullivan: Our book-to-bill ratio was 0.99 in the second quarter, down from 1.07 in the first quarter of 2024. The book-to-bill ratio reflects some positive improvement in the industrial and market segments with both OEM and distribution customers on a year-over-year basis and was flat sequentially. Medical bookings were down on a year-over-year basis and up sequentially.

Kieran O'sullivan: Our book to Bill ratio was <unk> 99 in the second quarter down from 1.07 in the first quarter of 2020 for.

Karen Sullivan: The book-to-bill ratio reflects some positive improvement in the industrial and market with both OEM and distribution customers on a year-over-year basis and was flat sequentially. Medical bookings were down on a year-over-year basis and up sequentially. Aerospace and defense bookings were up on a year-over-year basis and down sequentially due to the timing of orders. Overall, we continue to monitor the order intake carefully, given the challenging global economic environment. While we have seen a sequential improvement in non-transportation sales in the second quarter, the growth rate in the second half of 2024 is expected to be more modest than previously communicated.

Kieran O'sullivan: The book to Bill ratio reflects some positive improvement in the industrial end market with both OEM and distribution customers on.

Kieran O'sullivan: The year over year basis, and was flat sequentially.

Kieran O'sullivan: Medical bookings were down on a year over year basis and up sequentially.

Kieran O'sullivan: Aerospace and defense bookings were up on a year-over-year basis and down sequentially due to the timing of launch. Overall, we continue to monitor the order intake carefully, given the challenging global economic environment. While we have seen a sequential improvement in non-transportation sales in the second quarter, the growth rate in the second half of 2024 is expected to be more modest than previously communicated. Second quarter adjusted diluted earnings per share of 54 cents were down 10% year over year and up 14% sequentially.

Kieran O'sullivan: Aerospace and defense bookings were up on a year over year basis and down sequentially due to the timing of orders.

Kieran O'sullivan: Overall, we continue to monitor the order intake carefully given the challenging global economic environment.

Kieran O'sullivan: We have seen a sequential improvement in non transportation sales in the second quarter the growth rate in the second half of 2024 is expected to be more modest than previously communicated.

Karen Sullivan: Second quarter adjusted diluted earnings per share of 54 cents were down 10% year over year and up 14% sequentially. Ashish will add further color in our financial performance later in today's call.

Kieran O'sullivan: Second quarter adjusted diluted earnings per share of 54.

Kieran O'sullivan: We're down 10% year over year and up 14% sequentially Ashish will add further color on our financial performance later in today's call.

Kieran O'sullivan: Ashish will add further color and our financial performance later in today's call. As I mentioned in my opening comments, we acquired SyQuest, a supplier of robust acoustic sensing solutions for naval surface ships, submarines, autonomous underwater vehicles, and torpedoes. The products that SyQuest designs and manufactures include acoustic payloads, transducers, hydrophones, and outboard electronics. Located in Cranston, Rhode Island, SideQuest brings 60 new team members to CTS.

Karen Sullivan: As I mentioned in my opening comments, we acquired Cyquest, a supplier of robust acoustic sensing solutions for naval surface ships, submarines, autonomous underwater vehicles, and torpedoes. The products that Cyquest designs and manufactures include acoustic payloads, transducers, hydrophones, and outboard electronics. Located in Cranston, Rhode Island, Cyquest brings 16 new team members to CTS. Yes, this acquisition strengthens our strategy and scale in the defense end market. Further advances are diversification strategy and brings an addressable market of approximately 500 million. Our acquisition of Cyquest is estimated to add 10 to 14 million in revenue in the balance of this year.

ashish: As I mentioned in my opening comments, we acquired <unk>, a supplier of robust acoustic sensing solutions for naval surface ships.

ashish: Submarines autonomous underwater vehicles and torpedoes.

ashish: The products that <unk> designs and manufacturers include acoustic payloads transducers, Hydrophones and outboard electronics.

Speaker Change: Located in Cranston, Rhode Island, Sidequests brings 60, new team members to Cts.

Kieran O'sullivan: This acquisition strengthens our strategy and scale in the defense end market, further advances our diversification strategy, and brings an addressable market of approximately $500 million. Our acquisition of SideQuest is estimated to add $10-14 million in revenue during the balance of this year. I'm delighted to welcome Bob Torini and his capable team to CTS.

Speaker Change: This acquisition strengthens our strategy and scale in the defense end market further advances our diversification strategy and brings an addressable market of approximately $500 million.

Bob: Our acquisition of <unk> is estimated to add $10 million to $14 million in revenue in the balance of this year I'm delighted to welcome Bob <unk> and his capable team to Cts.

Karen Sullivan: I'm delighted to welcome Bob Terini and his capable team to CTS. Non-transportation sales continue to improve, increasing 11% sequentially and up 4% in the second quarter compared to the prior year period. In medical market sales were up 6% sequentially and 4% from the same period in 2023. We saw mixed signals, with some customers performing well and others showing some softness. Bookings in medical were also up sequentially, and we expect continued momentum in the second half. During the quarter, we had a large win for medical therapeutics, multiple wins for diagnostic ultrasound across all regions, and a win for temperature sensing.

Kieran O'sullivan: Non-transportation sales continue to improve, increasing 11% sequentially and up 4% in the second quarter compared to the prior year period. In medical markets, sales were up 6% sequentially and 4% from the same period in 2023. We saw mixed signals, with some customers performing well and others showing some softness.

Bob: Non transportation sales continued to improve.

Bob: Increasing 11% sequentially and up 4% in the second quarter compared to the prior year period.

Speaker Change: And medical market sales were up 6% sequentially and 4% from the same period in 2023, we saw mixed signals with some customers are performing well and others showing some softness.

Kieran O'sullivan: Bookings in medical were also up sequentially, and we expect continued momentum in the second half. During the quarter, we had a large win for medical therapeutics, multiple wins for diagnostic ultrasound across all regions, and a win for temperature sensing. We added two new customers in the quarter. The first was an important win for a new lead-free application in drug delivery.

Speaker Change: Bookings in medical were also up sequentially and we expect continued momentum in the second half.

Speaker Change: During the quarter, we had a large win for medical therapeutics.

Speaker Change: <unk> wins for diagnostic ultrasound.

Speaker Change: All regions and a win for temperature sensing.

Karen Sullivan: We added two new customers in the quarter, the first an important win for a new lead free application in drug delivery and the second a win for a minimally invasive optical application. Irrospacin defense sales were up 33% from the prior year period and up 41% sequentially. We expect good momentum for the rest of 2024 given the backlog of orders. We received multiple orders for hydropones, sonoboies, underwater unmanned applications, and RF filters. We continued to gain traction on European defense growth, securing an order for a new submarine program. We expect the long-term prospects for the aerospace and defense end market to be solid given our material formulations and the enhanced capabilities with the addition of Side Quest.

Speaker Change: We added two new customers in the quarter, the first and an important win for a new lead free application in drug delivery and the second a win for our minimally invasive optical application.

Kieran O'sullivan: And the second, a win for a minimally invasive optical application. Aerospace and defense sales were up 33% from the prior year period and up 41% sequentially. We expect good momentum for the rest of 2024, given the backlog of orders. We received multiple orders for hydrophones, solar buoys, underwater unmanned applications, and RF filters.

Speaker Change: Aerospace and defense sales were up 33% from the prior year period.

Speaker Change: And up 41% sequentially.

Speaker Change: We expect good momentum for the rest of 2024, given the backlog of orders.

Speaker Change: We received multiple orders for Hydrophones sonar buoys underwater unmanned applications and RF filters.

Kieran O'sullivan: We continue to gain traction in European defense growth, securing an order for a new submarine program. We expect the long-term prospects for the aerospace and defense end market to be solid, given our material formulations and the enhanced capabilities with the addition of SideQuest. In the industrial market, overall sales were up 4% sequentially as we continue to see a gradual recovery in distribution as well as OEM sales. However, sales were down 6% from the prior year period.

Speaker Change: We continue to gain traction on European defense growth, securing an order for a new submarine program.

Speaker Change: We expect the long term prospects for the aerospace and defense end market to be solid given our material formulations and the enhanced capabilities with the addition of southwest.

Karen Sullivan: In the industrial market, overall sales were up 4% sequentially as we continued to see a gradual recovery in distribution as well as with OEM sales. Sales were down 6% from the prior year period. Bookings were up year over year and flat sequentially, which is causing us to temper our growth expectations in the second half of 2024. We were successful with several wins in the quarter for industrial printing, EMC components, temperature sensing, flow metering, RF filters, and commercial appliances. We added one new customer in the quarter in Test and Measurement. While we saw a small sequential improvement in distribution sales and bookings, inventories continue to return to more normal levels, and distributor POS remain soft.

Speaker Change: In the industrial market overall sales were up 4% sequentially as we continue to see a gradual recovery in distribution as well as with OEM sales.

Speaker Change: Sales were down 6% from the prior year period bookings were up year over year, and flat sequentially, which is causing us to temper our growth expectations in the second half of 2024.

Kieran O'sullivan: Bookings were up year over year and flat sequentially, which is causing us to temper our growth expectations for the second half of 2024. We were successful with several wins in the quarter for industrial printing, EMC components, temperature sensing, flow metering, RF filters, and commercial appliances. We added one new customer in the quarter for test and measurement.

Speaker Change: We were successful with several wins in the quarter for industrial printing.

Speaker Change: AMC components temperature sensing flow metering, RF filters and commercial appliances.

Speaker Change: We added one new customer in the quarter in test and measurement.

Kieran O'sullivan: While we saw a small sequential improvement in distribution sales and bookings, inventories continue to return to more normal levels, and distributor POS remains soft. Looking ahead for the year in non-transportation and markets, we expected improvement in industrial and distribution and market revenue in the second half of 2024, but now expect more modest levels of growth. For medical markets, while we anticipate some softness with a few customers, we expect to continue growing in the second half. We also expect to make solid progress on the qualification of products for prospective new customers. Sales to defense customers are expected to remain solid.

Speaker Change: While we saw a small sequential improvement in distribution sales and bookings inventories continues to return to more normal levels and distributor Pos remained soft.

Karen Sullivan: Looking ahead for the year in non-transportation and markets, we expected improvement in industrial and distribution and market revenue in the second half of 2024, but now expect more modest levels of growth. For medical markets, while we anticipate some softness with a few customers, we expect to continue growing in the second half. We also expect to make solid progress on the qualification of products for prospective new customers. Sales to the defense customers are expected to remain solid. Longer term, we expect our material formulations and in-house know-how to continue to support our growth in key high quality and markets in line with our diversification strategy.

Speaker Change: Looking ahead for the year in non transportation end markets, we expected improvement in industrial and distribution end market revenue in the second half of 2024, but now expect more modest levels of growth.

Speaker Change: For medical markets, while we anticipate some softness with a few customers we expect to continue growing in the second half.

Speaker Change: We also expect to make solid progress on the qualification of products for prospective new customers.

Speaker Change: Sales to the defense customers are expected to remain solid.

Kieran O'sullivan: Longer term, we expect our material formulations and in-house know-how to continue to support our growth in key high-quality end markets in line with our diversification strategy. Additionally, we anticipate the megatrends of automation, connectivity, and efficiency, as well as growth in minimally invasive medical procedures, will provide us with momentum as we continue expansion in these markets. Transportation sales were $64.2 million in the second quarter, down approximately 22% from the same period last year and down 3% sequentially.

Speaker Change: Longer term, we expect our material formulations and in house Knowhow to continue to support our growth in key high quality end markets in line with our diversification strategy. Additionally, we anticipate the mega trends of automation connectivity and efficiency as well as growth in minimally invasive medical.

Karen Sullivan: Additionally, we anticipate the mega trends of automation, connectivity, and efficiency, as well as growth and minimally invasive medical procedures, will provide us momentum as we continue expansion in these markets. Transportation sales were $64.2 million in the second quarter, down approximately 22% from the same period last year and down 3% sequentially. We continue to experience a softer demand environment for commercial vehicle products in 2024. On the light vehicle front, as I mentioned earlier, we continue to navigate the market share dynamics in China, given the competition between local and transplant OEMs. Additionally, we see demand for light vehicles continuing to soften, consistent with most market analysts forecasting reduced bill rates.

Speaker Change: <unk> will provide us momentum as we continue expansion in these markets.

Speaker Change: Transportation sales were $64 2 million in the second quarter down approximately 22% from the same period last year and down 3% sequentially.

Kieran O'sullivan: We continue to expect a softer demand environment for commercial vehicle products in 2024. On the light vehicle front, as I mentioned earlier, we continue to navigate the market share dynamics in China given the competition between local and transplant OEMs. Additionally, we see demand for light vehicles continuing to soften, consistent with most market analysts forecasting reduced build rates. However, the near-term growth rates for ICE versus EVs and hybrids are less of a concern for us given our products are mostly agnostic to the drivetrain technology.

Speaker Change: We continue to experience a softer demand environment for our commercial vehicle products in 2024.

Speaker Change: On the light vehicle front as I mentioned earlier, we continue to navigate the market share dynamics in China, given the competition between local and transplant Oems. Additionally.

Speaker Change: Additionally, we see demand for light vehicles, continuing to soften consistent with most market analysts forecasting reduced bill rates.

Karen Sullivan: The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us given our products are mostly agnostic to the drivetrain technology. In the second quarter, we had wins across various product groups, including accelerator modules with OEMs in North America, Europe, and China. We had a sensor win in North America for a chassis ride height application. Across vehicle electrification, we had multiple wins for passive safety applications, and a win for current sensing in an off-road application with an existing customer. We continue to see OEMs delay sourcing decisions as they work to correct our powertrain mix given market changes.

Speaker Change: The near term growth rates for ice versus Evs and hybrids are less of a concern for us given our products are mostly agnostic to the drivetrain technology.

Kieran O'sullivan: In the second quarter, we had wins across various product groups, including accelerator modules with OEMs in North America, Europe, and China. We had a sensor win in North America for a chassis ride height application. Across vehicle electrification, we had multiple wins for passive safety applications and a win for current sensing in an off-road application with an existing customer.

Speaker Change: In the second quarter, we had wins across various product groups, including accelerator modules with Oems in North America, Europe and China.

Speaker Change: We had a sensor win in North America for a chassis right height application across vehicle electrification, we had multiple wins for passive safety applications.

Speaker Change: And a win for current sensing and in off road application with an existing customer.

Kieran O'sullivan: We continue to see OEMs delay sourcing decisions as they work to correct their powertrain mix given market changes. Our focus on adding new customers is progressing, and we expect further traction later this year. Interest in the e-brake product, offering weight and cost advantages, continues across several OEMs. We expect the e-brake and other sensor applications will increase our ability to grow content with a potential SAM of greater than one billion. Total booked business was approximately $1.1 billion at the end of the quarter.

Speaker Change: We continue to see Oems delays sourcing decisions as they work to correct, our powertrain mix given market changes.

Karen Sullivan: Our focus on adding new customers is progressing, and we expect further traction later this year. Interest in the e-brake product, offering weight and cost advantages, continues across several OEMs. We expect the e-brake and other sensor applications will increase our ability to grow content with a potential sum of greater than 1 billion. Total booked business was approximately 1.1 billion at the end of the quarter.

Speaker Change: Our focus on adding new customers is progressing and we expect further traction later this year.

Speaker Change: Interest in the <unk> product offering weight and cost advantages continues across several Oems, we expect the E brake and other sensor applications will increase our ability to grow content with a potential <unk> of greater than 1 billion total booked business was approximately $1 1 billion at the end of the quarter.

Karen Sullivan: Turning to our outlook for this year, the North American light vehicle market is expected to be in the 15.5 to 16 million unit range, with on-hand days of supply now back to more normal levels. European production is forecasted in the 17-million-unit range and showing some softness. China volumes are expected to be in the 28-million-unit range. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. Overall, we anticipated a down-market for light vehicle production due to the China market dynamics and other more recent regional build reductions. We expect softness and commercial vehicle-related revenue throughout 2024.

Speaker Change: Turning to our outlook for this year, the North American light vehicle market is expected to be in the 15 five to 16 million unit range with on hand days of supply now back to more normal levels.

Kieran O'sullivan: Turning to our outlook for this year, the North American light vehicle market is expected to be in the 15.5 to 16 million unit range with on-hand days of supply now back to more normal levels. European production is forecasted in the 17 million unit range, and showing some South, China volumes are expected to be in the 28 million unit range. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve.

European production is forecasted in the 17 million unit range and showing some softness China volumes are expected to be in the 28 million unit range.

Speaker Change: Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve.

Ashish Agrawal: Overall, we anticipate a down market for light vehicle production due to the Chinese market dynamics and other more recent regional build reductions. We expect softness in commercial vehicle-related revenue throughout 2024. For non-transportation markets, in line with our diversification strategy, we aim to expand the customer base and range of applications in the industrial, medical, and aerospace and defense end markets. The green shoots we mentioned last quarter in the form of inventory level corrections and improved bookings continue, but we anticipate a softer rate of recovery than we previously expected.

Speaker Change: Overall, we anticipate a down market for light vehicle production due to the China market dynamics and other more recent regional build reductions we expect softness in commercial vehicle related revenue throughout 2024.

Karen Sullivan: For non-transportation markets in line with our diversification strategy, we aim to expand the customer base and range of applications in the industrial, medical, and aerospace and defense end markets. The green shoots we mentioned last quarter in the form of inventory-level corrections and improved bookings continue, but we anticipate a softer rate of recovery than we previously expected. Demand in the defense market is expected to remain solid, and we expect continued growth in medical. With industrial OEMs in distribution, we expect a more modest revenue improvement in the near term as inventory levels normalize and POS improves. In terms of guidance for full year 2024, we expect a more moderate growth rate in the second half and are adjusting our prior guidance.

Speaker Change: For non transportation markets in line with our diversification strategy, we aim to expand the customer base and range of applications in the industrial medical and aerospace and defense end markets.

Speaker Change: The Green shoots we mentioned last quarter in the form of inventory level corrections and improved bookings continue but we anticipate a softer rate of recovery than we previously expected.

Ashish Agrawal: Demand in the defense market is expected to remain solid, and we expect continued growth in medics. With industrial OEMs in distribution, we expect a more modest revenue improvement in the near term as inventory levels normalize and POS improves. In terms of guidance for full year 2024, we expect a more moderate growth rate in the second half and are adjusting our prior guidance. We now anticipate sales in the range of $525 million to $540 million, and adjusted diluted earnings per share in the range of $2.05 to $2.25, including the expected impact from the SideQuest acquisition. Now I'll turn it over to Ashish, who will walk us through the financial results in more detail.

Speaker Change: And in the defense market is expected to remain solid and we expect continued growth in medical with industrial Oems and distribution, we expect a more modest revenue improvement in the near term as inventory levels normalize and Pos improves.

Speaker Change: In terms of guidance for full year 2024, we expect a more moderate growth rate in the second half and are adjusting our prior guidance. We now anticipate sales in the range of 525 million to $540 million and adjusted diluted earnings per share in the range of $2 <unk> to.

Karen Sullivan: We now anticipate sales in the range of 525 million to 540 million and adjusted diluted earnings per share in the range of $2.05 to $2.25, including the expected impact from the cyclist acquisition.

Speaker Change: $2 25.

Speaker Change: So did the expected impact from the <unk> acquisition.

Ashish Agrawal: Now I'll turn it over to a Sheesh who will walk us through the financial results in more detail. Thank you, Karen. Second quarter sales were $130 million. While sales were down 10% compared to the second quarter of 2023, we continued to see a modest recovery, with sales up 4% sequentially. As Karen mentioned, we are seeing softness in transportation and market sales. Non-transportation sales improved year-over-year as well as sequentially. For in-currency changes, impacted revenue unfavorably by approximately half a million dollars. Adjusted growth margin in the second quarter was 35.8%, an improvement of 80 basis points from the second quarter of last year, despite the drop in revenue.

ashish: Now I'll turn it over to Ashish, who will walk us through the financial results in more detail Ashish. Thank you Kieran second quarter sales were $130 million.

Ashish Agrawal: Thank you, Kiran. Second quarter sales were $130 million. While sales were down 10% compared to the second quarter of 2023, we continue to see a modest recovery with sales up 4% sequentially. As Kiran mentioned, we are seeing softness in transportation and retail sales.

ashish: While sales were down 10% compared to the second quarter of 2023, we continue to see a modest recovery with sales up 4% sequentially.

ashish: As Kieran mentioned, we are seeing softness in transportation end market sales non transportation sales improved year over year as well as sequentially.

Ashish Agrawal: Non-transportation sales improved year-over-year as well as sequentially, but foreign currency changes impacted revenue unfavorably by approximately half a million dollars. Adjusted gross margin in the second quarter was 35.8%, an improvement of 80 basis points from the second quarter of last year despite the drop in revenue. Our teams globally continue to focus on plant efficiency and cost improvement. However, sequentially, adjusted gross margin was down 45 basis points, mainly due to some one-time charges. We are still experiencing some cost pressures, especially for certain materials and from labor cost increases.

Speaker Change: Foreign currency changes impacted revenue unfavorably by approximately half a million.

Speaker Change: Adjusted gross margin in the second quarter was 35, 8% an improvement of 80 basis points from the second quarter of last year. Despite the drop in revenue.

Ashish Agrawal: Our teams globally continue to focus on plant efficiency and cost improvements. Sequentially, adjusted growth margin was down 45 basis points, mainly due to some one-time charges. We are still experiencing some cost pressures, especially for certain materials and from labor cost increases. We expect pricing pressures this year, particularly in the transportation markets. We already see pressures in the China transportation market. We remain confident in our ability to drive efficiencies in our supply chain and manufacturing sites to improve our operational performance and profitability. The consolidation of the Warris facility into our Mademois site in Mexico has been completed, and the focus now is to improve operating.

Speaker Change: Our teams globally continue to focus on plant efficiency and cost improvements.

Sequentially adjusted gross margin was down 45 basis points, mainly due to some one time charges.

Speaker Change: We are still experiencing some cost pressures, especially for certain materials and from labor cost increases.

Ashish Agrawal: We expect pricing pressure this year, particularly in the transportation market; we already see pressures in the Chinese transportation market. We remain confident in our ability to drive efficiencies in our supply chain and manufacturing sites to improve our operational performance and profitability. The consolidation of the Juarez facility into our Matamoros site in Mexico has been completed, and the focus now is to improve operating efficiency.

Speaker Change: We expect pricing pressure this year, particularly in the transportation markets, we already see pressures in the China transportation market.

Speaker Change: We remain confident in our ability to drive efficiencies in our supply chain and manufacturing sites to improve our operational performance and profitability.

Speaker Change: The consolidation of the Juarez facility into our Matamoros site in Mexico has been completed and the focus now is to improve operating efficiency.

Ashish Agrawal: Efficiency. During the second quarter of 2024, we benefited from some discrete tax-related items, and as a result, had a tax rate of 17.6%. For 2024 overall, we expect our tax rate to be in the range of 18 to 21%. Earnings per diluted share were 48 cents in the second quarter. Adjusted earnings for the second quarter were 54 cents per diluted share compared to 59 cents per diluted share for the second quarter of last year. Moving to cash generation and the balance sheet, we generated $20 million in operating cash flow in the second quarter of 2024 compared to $23 million in the second quarter of 2023.

Ashish Agrawal: During the second quarter of 2024, we benefited from some discrete tax-related items and, as a result, had a tax rate of 17.6%. For the year 2024, overall, we expect our tax rate to be in the range of 18 to 21 percent. Earnings per diluted share were $0.48 in the second quarter. Adjusted earnings for the second quarter were $0.54 per diluted share compared to $0.59 per diluted share for the second quarter of last year.

Speaker Change: During the second quarter of 2024, we benefited from some discrete tax related items and as a result had a tax rate of 17, 6% for 2024 overall, we expect our tax rate to be in the range of 18% to 21%.

Speaker Change: Earnings per diluted share were <unk> 48 in the second quarter.

Speaker Change: Adjusted earnings for the second quarter were <unk> 54 per diluted share compared to <unk> 59 per diluted share for the second quarter of last year.

Ashish Agrawal: Moving to cash generation and the balance sheet, we generated $20 million in operating cash flow in the second quarter of 2024 compared to $23 million in the second quarter of 2020. Our cash balance was $161 million as of June 30, 2024, and our long-term debt balance was $65 million. The PsyQuest acquisition was funded with approximately $80 million in cash, and the rest with borrowings from our existing credit facilities. We remain focused on strong cash generation and continue to support organic growth, strategic acquisitions, and returning cash to shareholders.

Speaker Change: Moving to cash generation and the balance sheet <unk>.

Speaker Change: We generated $20 million in operating cash flow in the second quarter of 2024.

Speaker Change: Compared to $23 million in the second quarter of 2023.

Ashish Agrawal: Our cash balance was $161 million as of June 30, 2024, and the long-term debt balance was $65 million. The cyclist acquisition was funded with approximately $80 million in cash and the rest with borrowings from our existing credit facility. We remain focused on strong cash generation and continue to support organic growth, strategic acquisition, and returning cash to shareholders. During the quarter, we repurchased 228,000 shares of CTS stock, totaling approximately $11 million.

Speaker Change: Our cash balance was $161 million as of June 32024, and the long term debt balance was $65 million.

Speaker Change: The <unk> acquisition was funded with approximately $80 million in cash and the rest with borrowings from our existing credit facility.

Speaker Change: We remain focused on strong cash generation.

Speaker Change: And continue to support organic growth strategic acquisitions, and returning cash to shareholders.

Ashish Agrawal: During the quarter, we repurchased 228,000 shares of CTS stock, totaling approximately $11 million. Year-to-date, we have returned $26 million to shareholders through share repurchases and dividends. This concludes our prepared comments. We would like to open the line for questions at this time.

Speaker Change: During the quarter, we repurchased 228000 shares of Cts stock totaling approximately $11 million.

Ashish Agrawal: Here to date, we have returned $26 million to shareholders through share repurchases and dividends.

Speaker Change: Year to date, we have returned $26 million to shareholders through.

Speaker Change: Through share repurchases and dividends.

Operator: This concludes our prepared comments. We would like to open the line for questions at this time. As a reminder, if you'd like to ask a question on today's call, please press StarFlood by one on your telephone keypad now to enter the queue. We would be very impressed with your question. Please ensure you are unmuted locally.

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

Operator: As a reminder, if you'd like to ask a question on today's call, please press star followed by 1 on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Joshua Buchalter from TD Cowan. Joshua, your line is open, please go ahead.

Speaker Change: As a reminder, if you'd like to ask a question on todays call. Please press star followed by one on your telephone keypad now in terms of the Q.

Speaker Change: To ask a question please ensure you're on mute locally.

Joshua Buchalter: Our first question comes from Joshua Bukalto from TD Cowan. Joshua, your line is open. Please go ahead.

Speaker Change: Our first question comes from Joshua concert from TD Cowen Joshua Your line is open. Please go ahead.

Joshua Buchalter: Hi, guys. Good morning.

Joshua Louis Buchalter: Hey guys, good morning, I guess for my first one. Hey, good morning. Any more details you can give us on expectations for transport into the back half of the year? I know it sounds like you're expecting it directionally down, but I'd be curious if you could maybe quantify that a bit more, in particular, so we can get a picture of what your expectations are for the non-transport growth that's going to offset that. Thank you.

Joshua: Hey, guys. Good morning, My question Good morning, Josh I guess for my first one.

Joshua Buchalter: I guess for my first, say, morning. Any more details you can give us on expectations for transport into the back half of the year? It sounds like you're expected directionally down, but I'm curious if you can maybe quantify that a bit more in particular so we can get a picture into what your expectations are for the non-transport growth that's going to offset that. Thank you.

Joshua: Hey, good morning.

Speaker Change: Any more details you can give us on expectations for transport into the back half of the year I know it sounds like Youre expecting directionally down.

Speaker Change: I'm just curious if you could maybe quantify that a bit more in particular, so we can get a picture into what your expectations are for the non transport growth thats going to offset that thank you.

Karen Sullivan: Joshua, I think there's two parts to it on the commercial vehicle side. We've seen a decrease in revenue there. We talked about the competition in that market. For the quarter, I think sales are down to approximately about 10 million on a run rate basis.

Kieran O'sullivan: Yeah, Josh, I think there's two parts to it. On the commercial vehicle side, we've seen a decrease in revenue there. We talked about the competition in that market. So for the quarter, I think sales were down approximately 10 million on a run rate basis.

Speaker Change: Yes, Josh I think there's two parts to it on the commercial vehicle side, we've seen a decrease in revenue there we talked about the competition in that market. So for the quarter I think sales were down approximately about $10 million on a run rate basis, and we expect.

Karen Sullivan: We expect that’s going to be a challenging market because the analysts and the reports out there are saying softening in the commercial vehicle market for the balance of 2024 and a more flat market in 2025.

Speaker Change: That's going to be a challenging market because.

Speaker Change: The analysts and the reports out there are seeing softening in the commercial vehicle market for the balance of 2024 and more flat market in 2025 on the light vehicle side.

Kieran O'sullivan: And we expect that's going to be a challenging market because, you know, the analysts and the reports out there are saying a softening in the commercial vehicle market for the balance of 2024 and a more flat market in 2025. On the light vehicle side, we feel good about North America, and we feel reasonable about Europe. China remains a challenge, and that's where we're really navigating as carefully as we can to make improvements. But that's probably how I'd describe it overall.

Karen Sullivan: On the light vehicle side, we feel good about North America. We feel reasonable about Europe. China remains a challenge, and that's where we're really navigating as carefully as we can to make improvements. But that's probably how I describe it overall.

Speaker Change: We feel good about North America, we feel reasonable about Europe, China remains a challenge and Thats, where were really navigating as carefully as we can to make improvements, but that's probably how I'd describe it overall.

Joshua Buchalter: Okay, I get to follow up on that. put in some modest assumptions for transport down sequentially to the back half. You've got sort of the industrial and other markets growing probably double digit half over half in the second half of 24.

Joshua Louis Buchalter: Okay, I guess to follow up on that, you know, if I put in some modest assumptions for transport down sequentially to the back half, you've got sort of the industrial and other markets growing, probably double digit, half over half in the second half of 2024. I guess how much of that is like kind of just coming back to normal versus actual demand improvement? Maybe you could help us with the visibility of what's driving the second half improvement. Thank you. Yeah

Speaker Change: Okay, I guess a follow up on that.

Speaker Change: Hi.

Speaker Change: But as the modest assumptions for transport down sequentially into the back half you've got sort of the industrial and other markets growing probably double digit app over happen.

Speaker Change: Second half of 284, I guess, how much of that is like panel just coming back to normal versus actual demand improvement maybe you could help us on the visibility as to what's driving the second half improvement. Thank you.

Joshua Buchalter: I guess how much of that is like channel is coming back to normal versus actual demand improvement. Maybe you could help us on the visibility is what's driving the second half improvement.

Joshua Buchalter: Thank you.

Kieran O'sullivan: Yeah, Joshua, probably the best way I'd describe the second half is, again, challenging on transportation and then more modest growth rates in the non-transportation area. So if we're looking from an organic perspective, you know, from where we finished in the second quarter, off a few million in terms of growth rate by quarter.

Karen Sullivan: Yeah, Joshua, probably the best way I describe the second half is again challenging on track. And then more modest growth rates in the non-transportation area. So if we're looking from an organic perspective, you know, from where we finished in the in the second quarter of a few million in terms of growth rate by quarter. Okay, thanks.

Speaker Change: Yes, Josh probably the best way I would describe the second half is again challenging on transportation and then more modest growth rates in the non transportation area. So if we're looking from an organic perspective.

Speaker Change: From where we finished in the second quarter off a few million dollars in terms of growth rates by quarter.

Joshua Louis Buchalter: Okay, thanks, man. I'll squeeze one more in.

Josh: Okay. Thanks, Greg I'll squeeze one more in.

Joshua Buchalter: I'll squeeze one more in on gross margin that she called out some one-time cost headwind in the second quarter, but also pricing pressure. I mean, if I do mount, you're still at 36% gross margin on a some modest growth this year. You're actually more of a flat of here.

Speaker Change: On gross margins you called out some one time cost headwinds in the second quarter.

Joshua Louis Buchalter: On gross margins, Ashish called out some one-time cost headwinds in the second quarter, but also pricing pressure. I mean, if I zoom out, you're still at 36% gross margin on some modest growth this year or actually more of a flattish here. It seems like pricing is hanging in okay. Is that sort of the right read? I know you called out some pricing pressure, but how should we think about gross margins in the second half of the year as that one-time cost headwind of eight. Thank you both.

Speaker Change: But also pricing pressure I mean, if I zoom out youre still at 36% gross margin on a some modest growth this year.

Greg: You heard me ask you more of a flatter here.

Joshua Buchalter: It seems like pricing hanging in okay. Is that sort of the right read?

Speaker Change: Seems like pricing hanging okay, that's sort of the right read I know you called out some pricing pressure.

Karen Sullivan: I know you called out some pricing pressure and how should we think about gross margins in the second half of the year as that one time cost headwind of eight. Thank you both.

Speaker Change: And how should we think about gross margins in the second half of the year is that one time cost headwind abate. Thank you both.

Speaker Change: So.

Karen Sullivan: So, Josh, I think you read on pricing is accurate. We are managing through it right now, but we expect the pressures to continue, and our teams are staying focused on managing it appropriately to make sure that we maintain good long-term relations with our customer base, but also navigate through winning business with them and preserving price as much as possible. So that equation is working.

Speaker Change: Josh I think your read on pricing is accurate we are managing through it right now, but we expect the pressures to continue and our teams.

Kieran O'sullivan: Josh, I think your read on pricing is accurate. We are managing through it right now, but we expect the pressures to continue. And our teams are staying focused on managing it appropriately to make sure that we maintain good long-term relationships with our customer base but also navigate through winning business with them and preserving price as much as possible. So that equation is working okay.

Speaker Change: <unk> focused on.

Speaker Change: Managing it appropriately to make sure that we maintain good long term relations with our customer base, but also navigate through winning business with them and preserving price as much as possible. So that equation is working okay.

Karen Sullivan: Okay. As I mentioned, there's a little bit more pressure in China than other regions, but the teams are overall managing.

Ashish Agrawal: As I mentioned, there's a little bit more pressure in China than other regions, but the teams are overall managing okay. In terms of the gross margin, we do expect some improvements in the second half, mainly because of the change in mix of the business, and we expect to continue driving improvements in our factory efficiency levels as we work through the completion of the Matamoros and Wattage transition and other improvements that we are driving through the non-transportation plants as well. So, expect modest improvements in profitability in the second half of the year.

Speaker Change: I mentioned, there is a little bit more pressure in China then.

Speaker Change: Other than other regions.

Speaker Change: But the teams are overall managing okay in the second half in terms of the gross margin.

Karen Sullivan: Okay. In the second half, in terms of the gross margin, we do expect some improvements, mainly because of the change in mix of the business. And we expect to continue driving improvements in our factory efficiency level as we work through the completion of the matter more than what is transition and other improvements that we're driving through the non transportation plants as well. So expect modest improvements in profitability in the second half of the year.

Speaker Change: We do expect some improvement mainly because of the change in mix of the business and we expect to continue driving improvements in our factory.

Speaker Change: Efficiency levels.

Speaker Change: As we work through the completion of the Matamoros and whether its transition.

Speaker Change: And other improvements that we're driving through the non transportation plants as well so.

Speaker Change: Specced modest improvements in profitability.

Speaker Change: In the second half of the year.

Joshua Louis Buchalter: Thank you Ashish, I appreciate it.

Speaker Change: Thank you Ashish I appreciate it.

Speaker Change: Yes.

Operator: The next question comes from John Franzreb from Siddheti. John, your line is open, please go ahead.

Speaker Change: The next question comes from John <unk> from Sidoti John Your line is open. Please go ahead.

Jonathan Franzerak: Next question comes from Jonathan Franzerak. From today's, he drawn your line. Is that please go ahead. Good morning, guys, and thanks for taking the questions. I'd like to start with the side quest acquisition. Could you tell us a little bit about maybe its recent growth profile and its margin profile before you acquired it. Yes, John, we're really happy to have Bob Torini and the team joined CTS. Your cyclist has one or more products installed in every US surface combat and ship or submarine, and the growth rate is quite robust. We really like it, and the gross margin profile would be above the average for the company.

John Edward Franzreb: Good morning, guys, and thanks for taking the questions. I'd like to start with the SideQuest acquisition. Could you tell us a little bit about, maybe, its recent growth profile and its margin profile before you acquired it?

John: Good morning, guys and thanks for taking my questions.

John: Well I think I'll start with the sequester acquisition could you tell us a little bit about maybe its recent growth profile and its margin profile before you acquired.

Kieran O'sullivan: Yeah, John, we're really happy to have Bob Torini and the team join CTS. YoCyclists has one or more products installed on every US surface combatant ship or submarine. And the growth rate is quite robust. We really like it, and the gross margin profile would be above the average for the company.

Speaker Change: Yes, John we're really happy to have Bob <unk> and the team join Cts.

Speaker Change: <unk> has one or more products installed in every U S surface combatant ship or submarine and the growth rate is quite robust we really like it in the gross margin profile would be above the average for the company.

Jonathan Franzerak: Okay, and can you share with us the the guy multiple you require the company.

Kieran O'sullivan: Okay, and can you share with us the ibogaine multiple you required the company for?

Speaker Change: Okay, and can you share with us.

Speaker Change: EBITDA multiple you acquired the company in fact.

Speaker Change: John.

Kieran O'sullivan: John. We don't specifically call that out, but when you look at the growth rate of the business, the profitability, and the EBITDA multiples, they make sense to us. And you know we normally don't like to overpay for businesses, so let me leave it at that. But I think internally, we are very pleased with the acquisition. We look at the growth momentum that the business has and the profitability that the business brings to us as well.

Karen Sullivan: John, we don't specifically call that out but you know when you look at the growth rate of the business, the profitability, the EBITDA multiples make sense to us and you know we normally don't like to overpay for businesses. So let me leave it at that but I think we are internally very pleased with the acquisition. We look to the growth momentum that the business has and the profitability that the business brings to us. As well, John, just to add to that, it's you know the products just like CTS are highly engineered. It up integrates us from components into sensors and systems and transducers. A very capable team, high quality business and we really like the momentum they have and we have in the defense markets and how it's got to really advance our diversification which is a key part of what we're doing as a company as well. So we've been very good about it and the team and capability.

John: We don't specifically call that out, but when you look at the <unk>.

John: Growth rate of the business the profitability the EBITDA multiples make sense to us.

Speaker Change: And you know, we normally don't like to overpay for businesses. So let me leave it at that but.

John: I think.

Speaker Change: We are internally we are very pleased with the acquisition we look to.

Speaker Change: The growth momentum that the business has and the profitability that the business brings to us as well John just to add to that it's the products just like Cts are highly engineered it up integrates us from components into sensors and systems and transducers, a very capable team high quality business and we really.

Kieran O'sullivan: John, just to add to that, the products, just like CTS, are highly engineered. It integrates us from components into sensors and systems and transducers, a very capable team, high-quality business, and we really like the momentum they have and we have in the defense markets and how it's going to really advance our diversification, which is a key part of what we're doing as a company as well. So we feel very good about it and the team and its capability.

John: The momentum they have and we have in the defense markets and how it's going to really advance our diversification, which is a key part of what we're doing as a company as well. So we feel very good about it and the team and capability.

Karen Sullivan: Okay I'll keep on sticking to Cycle last year are they exposed or overexposed to the Virginia Columbia class or any particular surface platform do you have any can you share sense of what they sell into what platform they sell into. John, as I mentioned, they're on every combatant ship and submarine, so Ohio, Virginia, there's several of them in there, and obviously, there's products that are being renewed there. One of the things we see is that the Navy, at this point in time, is at a critical point in terms of modernizing their fleet and their combat readiness as well, so we feel good about the slots they're in and the sockets they have.

Kieran O'sullivan: Okay, I'll keep sticking to PsyQuest here. Are they exposed or overexposed to the Virginia, Columbia class, or any particular surface platform? Do you have any, can you share a sense of what they sell into? What platforms they sell into?

Speaker Change: Okay.

Keep on sticking to cycle last year.

Speaker Change: Are they expose our overexposure.

Speaker Change: Sure.

Speaker Change: Virginia, Columbia class or any.

Speaker Change: In particular surface platform do you have any can share since or what.

Speaker Change: They sell into with platforms and some of them.

Kieran O'sullivan: John, as I mentioned, they're on every combatant ship and submarine, so Ohio, Virginia, there's several of them in there, and obviously, there are products that are being renewed there. One of the things we see is that the Navy, at this point in time, is at a critical point in terms of modernizing its fleet and its combat readiness as well, so we feel good about the slots they're in and the sockets they have.

Speaker Change: John.

Ron: I mentioned, the Ron every combatant ship and submarine.

Ohio, Virginia several of them in there and obviously there is products that are being renewed their one of the things. We see is that the navy at this point in time is that.

Ron: At a critical point in terms of modernizing their fleet and they are combat readiness as well. So we feel we feel good about the slots at arena the sockets they have.

Karen Sullivan: Okay, and can you take the sensor products and move them to adjacent applications, or are they protected under military restrictions?

Speaker Change: Okay and can you take their sensor products.

Kieran O'sullivan: And can you take the essence of products and move them to adjacent applications, or are they protected under military restrictions?

Move them to adjacent applications or are they protected.

Ron: On there.

Ron: Military restrictions.

Kieran O'sullivan: John, primarily, the group focus with us here will be defense, and we talked about the U.S. Navy, but obviously, with the cooperation the U.S. has with other countries internationally, there are opportunities there as well.

Karen Sullivan: Hey John, we're primarily the growth focus with us here will be in defense, and we talked about the US Navy, but obviously, with the cooperation the US has with other countries internationally, there are opportunities there as well.

Ron: John we primarily the growth focus with us here will be in defense and we talked about the U S. Navy.

Ron: But obviously with the cooperation of the U S has with other countries internationally there are opportunities there as well.

Jonathan Franzerak: Got it okay okay that's it for cyclists then I'm moving on to the legacy business and the industrial side of the market. You talked about slowing, but you didn't I didn't hear you call out what parts of the or subsets of the industrial market is slowing. If you did, I apologize, but can you talk about that a little bit. Yeah John, I mean sequentially the business was up 4%, and so we see some improvement there. But first of all, I think on industrial printing, and if you look at the building industry, the moment with H back and temperature, things are like flat lining a little bit there in those markets because demand is not up. So that's how I best describe it. And with distribution, we've seen some marginal improvement, and we feel like it will improve, but not at the rate we were expecting. So it's a pretty mixed bucket there.

John Edward Franzreb: Got it. Okay. Okay. That's it for cyclists, then.

Speaker Change: Got it okay. Okay, that's it for cyclists.

Speaker Change: Alright, moving on to the legacy business.

John Edward Franzreb: All right, moving on to the legacy business. On the industrial side of the market, you talked about slowing, but I didn't hear you call out what parts or subsets of the industrial market are slowing. If you did, I apologize, but can you talk about that a little bit?

Speaker Change: And the industrial side of the market you talked about slowing.

Speaker Change: But you didn't I didn't hear you call out what parts of the.

Speaker Change: Our subsets of the industrial market is slowing if.

Speaker Change: If you did I apologize, but can you talk about that a little bit.

Kieran O'sullivan: Yeah John, I mean sequentially the business was up 4% and so we see some improvement there but first of all I think on industrial printing and if you look at the building industry at the moment with HVAC and temperature things things are like flatlining a little bit there in those markets because demand is not up so that's how I best describe it and with distribution we've seen some marginal improvement and we feel like it will improve but not at the rate we were expecting so it's a pretty mixed bucket there.

Speaker Change: Yes, John I mean sequentially the business was up 4% and so we see some improvement there, but first of all I think.

Speaker Change: On industrial printing and if you look at the building industry at the moment with H back in temperature things things are flat lining a little bit there in those markets because demand is not up so that's how I'd best describe it in with distribution, we've seen some marginal improvement and we feel like it will improve but not at the rate we were expecting.

Speaker Change: So it's a pretty mixed bucket there.

Jonathan Franzerak: Got it, got it, and does that change any thoughts about your cash flow generation for the second half of the year relative to the first half?

John Edward Franzreb: Got it, got it. And does that change any thoughts about your cash flow generation for the second half of the year relative to the first half, given the slowing end markets?

Speaker Change: Got it got it and does that change any any thoughts about your cash flow generation for the second half of the year relative to the first half.

Karen Sullivan: I'm going to be slowing in market. John, generally, our cash flow generation is stronger in the second half of the year than in the first. At a high level, I would expect that trend to continue, but the expectations of the amount of cash we would generate would moderate based on the reduction in the sales expectation.

Speaker Change: Slowing end markets.

Speaker Change: So John generally our cash flow generation is stronger in the second half of the year than in the first.

Ashish Agrawal: So John, generally, our cash flow generation is stronger in the second half of the year than in the first. At a high level, I would expect that trend to continue, but the expectations of the amount of cash we would generate would moderate based on the reduction in sales expectations.

Speaker Change: At a high level I would expect that trend to continue but the expectations of the amount of cash we would generate would moderate based on the reduction in.

Speaker Change: Net sales expectation.

Jonathan Franzerak: Okay, thanks.

John Edward Franzreb: Okay, thanks guys, I'll get back in.

Speaker Change: Okay. Thanks.

Operator: Our guys are getting back into queue. Thanks, Joshua.

Speaker Change: Thanks, guys I'll get back into queue.

Joshua: Thank you Joshua.

Hendi Susanto: The next question comes from Hendi Susanto from Capelli Funds. Hendi, your lawn is open. Please go ahead.

Joshua: The next question comes from Hendi <unk> from Gabelli funds. Your line is open. Please go ahead.

Hendi Susanto: Good morning, Kieran and Ashish. My first question is about, my first question is what's high-quest. Would you be able to indicate whether the transaction will be a creative, neutral, or dilutive to EPS? Yes, it will be a creative in 2025, Hendi. Hendi, we expect a small, unfavorable impact in 2024 in the range of four to five cents, but then, as Kieran mentioned, in 2025, we're expecting it to be a creature.

Operator: Good morning, Kiran and Ashish. Morning, Hendi. Hi.

Hendi: Good morning, Kieran and Ashish.

Hendi: Good morning Hendi. My first question is about my first question is about as high quest was to be able to indicate whether the transaction will be accretive neutral or dilutive to EPS.

Hendi Susanto: Yep, it'll be accretive in 2025, Hendi. Hendi, we expect it.

Speaker Change: Yes, it will be accretive in 2025 Hendi <unk>.

Ashish Agrawal: Hendi, we expect a small, unfavorable impact in 2024 in the range of $0.04 to $0.05. But then, as Kiran mentioned, in 2025, we are expecting it to be positive.

Speaker Change: Hendi, we expect a small.

Speaker Change: Unfavorable impact in 2024 in the range of four to five.

Speaker Change: But then as Kieran mentioned in 2025, youre expecting it to be accretive.

Speaker Change: Okay, and then any indication on how much it will increase your opex.

Ashish Agrawal: Okay, and then any indication on how much it will increase your OPEC, Ashish?

Hendi Susanto: And then any indication of how much it will increase your opaque size?

Speaker Change: Yes.

Ashish Agrawal: Let us work through that, Hendi. It's a private business that was run differently than we would be looking to do the accounting and all that. So, what is gross margin? What are operating expenses? It'll take us a little bit of time to get all that sorted out. But I expect to have more clarity in the coming months.

Ashish Agrawal: Let us work through that, Hendi. It's a private business that was run differently than, you know, we would be looking to do the accounting and all that. So, what is draw smarter, and what is operating expenses will take us a little bit of time to get all that sorted out. So, I expect to have more clarity in the coming months.

Speaker Change: Let us work through that Hendi.

Speaker Change: It's <unk>.

Speaker Change: Private business that was.

Ron: Ron <unk>.

Speaker Change: Currently then we would be looking to do the accounting and all that so what is gross margin what is operating expenses.

Speaker Change: Take us a little bit of time to get all that sorted out so I expect to have more clarity in the coming months.

Hendi Susanto: Yeah.

Yes.

Hendi Susanto: And then Kevin, I have a question on, let's say, like a more modest expectation for the second half. Does that imply that things, as you have pointed in terms of softness, the softness will last through the end of the year, or whether certain things may see recovery sometime in the fourth quarter?

Karen Sullivan: And then, Kieran, I have a question on that, like, more modest expectation for the second half. Does that imply that things that you have pointed in terms of softness, the softness will last through the end of the year, or whether certain things may see recovery sometime in the fourth quarter? Hendi, so in non-transportation, we feel very good about defense; we feel good about medical. But the tone we're sending here is on the head expected earlier in the year. So, we'll see some growth, but, you know, at a much more modest level.

Speaker Change: And then Kevin I have a question on that sounds like more modest expectation for the second half.

Kevin: Does that imply that things.

Kevin: That's your point.

Kevin: That you have pointed in some sort of softness.

Speaker Change: We had a loss through <unk>.

Speaker Change: The end of the year or whether certain things may see recovery sometime in the fourth quarter.

Kieran O'sullivan: Hendi, so in non-transportation, we feel very good about defense, we feel good about medical, but the tone we're setting here is on the industrial side, a more modest growth rate than we had expected earlier in the year. So we'll see some growth, but at a much more modest level.

Hendi: And hendi, so a non transportation, we feel very good about defense, we feel good about medical what's the tone. We are setting here is on the industrial side, it's more modest growth rate than we had expected earlier in the year. So we'll see some growth, but at a much more modest level.

Hendi Susanto: And then any color on, let's say your expectation between the third quarter and fourth quarter, as of now. I know that fourth quarter is still months away. Yeah, I think, Hendi, if you take the profile where we're coming for with 130 million in the, on an organic basis of 130 million in the second quarter, I think you'll see a small few million improvement in the third and fourth quarter. Directionally is how I put it. Okay, got it.

Hendi Susanto: And then, any color on, let's say, your expectation between the third quarter and the fourth quarter? As of now, I know that the fourth quarter... is still months away.

Hendi: And then.

Speaker Change: Any color on let's say your expectation between third quarter and fourth quarter.

Speaker Change: As of now I know that.

Speaker Change: Quarter.

Speaker Change: It's still months away.

Kieran O'sullivan: Yeah, I think, Hendi, if you take the profile where we're coming in at $130 million on an organic basis, $130 million in the second quarter, I think you'll see a small few million improvement in the third and fourth quarters, directionally is how I'd put it.

Hendi: Yes, I think Hendi, if you take the profile, where we're coming for with $130 million in the on an organic basis to $130 million in the second quarter I think youll see a small few million improvement in the third and fourth quarter Directionally, how I put it.

Hendi: Okay got it.

Hendi Susanto: And then And then with regard to China, what is your expectation? When you said challenging, will it be challenging throughout the year, meaning that any type of improvement, we should be more patient and then expect that to be more in 2025?

Hendi Susanto: And then, with regard to China, is your expectation? When you said, like, challenging, will it be challenging throughout the year, meaning that any type of improvement we should be more patient and then expect that to be more in 2025? I think, Hendi, it's going to remain challenging throughout the rest of this year.

Speaker Change: And then.

Speaker Change: And then with regard to China.

Speaker Change: Is your expectation.

Speaker Change: When you said like challenging will be challenging throughout the year, meaning that any any type of improvement.

Speaker Change: Should be more patient and then expect that to be more in 2025.

Speaker Change: I think hendi its going to remain challenging throughout the rest of this year.

Kieran O'sullivan: I think, Hendi, it's going to remain challenging throughout the rest of this year. I read recently, and you probably saw it too, that the Chinese government has added new incentives going from, I think it was 7K RMB to 15K for light vehicles under two liters. So that'll provide some incentive and help for some of the transplant OEMs, but we think it'll just kind of level out the softness that's there rather than giving us gains.

Hendi Susanto: I've read recently, and you've probably saw too, that the Chinese government has added new incentives going from, I think, with seven KRMB to 15K for light vehicles under two liters. So, that will provide some incentive and help for some of the transplant OEMs, but we think it'll just kind of level out the softness that they're rather than giving us games. I see.

Speaker Change: I've read recently and you probably saw it too that the Chinese government has added new incentives going from I think it was seven K RMB to 15 K for light vehicles under two leaders. So that will provide some incentive in held for some of the transplant Oems, but we think it will just kind of level is the softness there rather than giving us gains.

Hendi Susanto: I see. Okay. And then last question for me, Kiran. Post-PSY-Q acquisition, are you still actively looking for potential acquisitions or should we expect that you will focus on integrating this business and then, therefore, you would be less active in your M&A pipeline?

Speaker Change: I see okay.

Hendi Susanto: Okay. And then last question for me, QN, post site, site Q, west acquisition, I used to actively looking for potential acquisitions or should we expect that you will focus on integrating this business and then therefore you would be less active on your M&A pipeline?

Kevin: And then last question for me Kevin.

Speaker Change: Post site <unk> West acquisition.

Speaker Change: I used to actively looking for potential acquisitions or should we expect that he will focus on integrating this business and then therefore you would be.

Speaker Change: Be less active on your M&A pipeline.

Karen Sullivan: So, Hendi, two parts to that question: number one, we're really delighted with this cyclist acquisition. The way it increases our diversification, quality of earnings, and the strength it gives us in the defense market. And this team is a very entrepreneurial team. We want to make sure we don't lose that as part of that, how we integrate together. So Bob, 3D, and the team have got excellent momentum there.

Speaker Change: So hendi.

Kieran O'sullivan: So Hendi, there are two parts to that question. Number one, we're really delighted with this SideQuest acquisition, the way it increases our diversification, quality of earnings, and the strength it gives us in the defense market. And this team is a very entrepreneurial team. We want to make sure we don't lose that as part of how we integrate together. So Bob Trini and the team have got excellent momentum there, and on the flip side, we're also active and working on our pipeline going forward. We've got a good balance sheet, so we want to make sure we're using it appropriately.

Speaker Change: Parts of that question number one we're really delighted with this <unk> acquisition to way it increases our diversification quality of earnings and the strength. It gives us into the defense market and this team is a very entrepreneurial team we want to make sure we don't lose that as part of the how we integrate together so Bob <unk> and the team have got X.

Speaker Change: <unk> momentum there and on the flip side.

Karen Sullivan: And on the flip side, we're also active on working our pipeline going forward. Okay.

Speaker Change: <unk> also active in working our pipeline going forward.

Speaker Change: Okay. Thank you Kevin we've got a good balance sheet. So we want to make sure we're using it appropriately.

Karen Sullivan: Thank you. We've got a good balance sheet, so we want to make sure we're using it appropriately. Yeah.

Speaker Change: Yes.

John Franzer: That's a reminder that staff, but one on your telephone keypad. We have a follower from John Franzer, from Sidoti, John Neuliner's icon. Please go ahead. Yeah, just to follow up on Hendi's question about the dilution and cyclist, I think you said four to five cents of the expectations, second half of the year, but it creative in 2025. So, can we assume it recaptures that four to five cents, or should we be thinking above that, the dilution number for next year? So, John, it will be in addition to that four to five cent loss that we are expecting in 2024.

Operator: As a reminder, that's a star followed by one on your telephone keypad. We have a follow-up from John Franzreb from Sidoti. John, your line is open, please go ahead.

Speaker Change: As a reminder, that star followed by one on your telephone keypad.

Speaker Change: We have a follow up from John <unk> from Sidoti John Your line is open. Please go ahead.

John Edward Franzreb: Yeah, just to follow up on Hendi's question about the dilution in Cyquest, I think you said $0.045 was the expectation in the second half of the year, but accretive in 2025. So can we assume it recaptures that $0.045, or should we be thinking above that, the dilution number for next year?

John: Just to follow up on Andy's question about.

John: Dilution sorry.

John: I think you said four to five census in expectation second half of the year, but accretive in 2025. So can we assume recaptures that four of our sensor or should we be thinking above that.

John: Dilution.

Speaker Change: Number for next year.

Ashish Agrawal: So, John, it will be in addition to that $0.04 to $0.05 loss that we are expecting in 2024.

John: So John.

John: It will be.

John: In addition to that 4% <unk> loss that we're expecting in 2024.

John Franzer: Okay. Just wanted to get that.

Speaker Change: Okay. Okay.

John Edward Franzreb: Okay, okay, just wanted to get that. Okay, thank you guys. Sure.

Speaker Change: Okay, just wanted to get that okay. Thank you guys.

Operator: Okay.

Operator: Thank you, guys. Sure.

Speaker Change: Sure.

Operator: I think, rather than the keypad as a final reminder, that staff followed by one on your telephone keypad now.

Operator: There are no further items in the queue, but as a final reminder, that's a star followed by one on your telephone keypad now. If you have any further questions, I'll hand the call back to the management team for any concluding remarks.

Speaker Change: Rather than keep it as a final reminder, that star followed by one on your telephone keypad now.

Operator: As we have any further questions, or how on the go back to the management team for any concluding remarks?

Speaker Change: Since we have no further questions I'll hand, the call back to the management team for any concluding remarks.

Kieran O'sullivan: Thanks, Adam, and thank you all for your time. At CTS, we remain focused on future growth, driven by the megatrends of increased automation, connectivity, energy efficiency, and minimally invasive medical innovation. The continued expansion of our customers and pipeline of opportunities underscore our confidence in our future. We're delighted to add the SideQuest team to CTS and excited about our future growth potential in defense applications. Thank you for joining us today. This concludes our call.

Karen Sullivan: Thanks, Adam, and thank you all for your time. At CTS, we remain focused on future growth, driven by the mega trends of increased automation, connectivity, energy efficiency, and minimally invasive medical innovation. The continued expansion of our customers and pipeline of opportunities underscore our confidence in our future.

Speaker Change: Thanks, Adam and thank you all for your time at Cts, we remain focused on future growth driven by the Mega trends of increased automation connectivity energy efficiency and minimally invasive medical innovation. The continued expansion of our customers and pipeline of opportunities underscore our confidence in our future. We're.

Karen Sullivan: We're delighted to add the side quest team to CTS, and excited about our future growth potential in defense applications.

Speaker Change: To add the SEAQUEST team to Cts and excited about our future growth potential in defense applications. Thank you for joining US today. This concludes our call.

Operator: Thank you for joining us today. This concludes our call.

Operator: This concludes today's call. Thank you very much for your attendance.

Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.

Operator: You may now disconnect your lawns.

Speaker Change: [music].

Speaker Change: Okay.