CTS 10-K & 10-Q changes, risk factors and insider trading

In addition, our customers may request that manufacturing of their products be transitioned from one of our facilities to another to achieve cost reductions and other objectives. Such transfers may result in short-term inefficiencies and costs due to resulting excess capacity and overhead at one facility and capacity constraints and the inability to fulfill all orders at another. In addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. Changes in demand for our customers’ products may reduce our ability to estimate future customer requirements accurately. This may make it difficult to schedule production and maximize utilization of our manufacturing capacity. Anticipated orders may not materialize, and delivery schedules may be deferred as a result of changes in demand for our products or our customers' products. We often increase staffing and capacity and incur other expenses to meet the anticipated demand of our customers, which causes reductions in our gross margin if customer orders are delayed or canceled. On occasion, customers may require rapid increases in production, which may stress our resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers' demands. In addition, CTS CORPORATION 9 because many of our costs and operating expenses are relatively fixed over the short term, a reduction in customer demand could harm our gross margin and operating income until such time as adjustments can be made to activity and operating levels or to structural costs.

We compete around the world in various geographic regions and product markets. Global economic and political conditions affect our business and the businesses of our customers and suppliers. Recessions, economic downturns, price instability, increased tariffs, inflation, slowing economic growth and social and political instability in the markets where we compete could negatively affect our revenues and financial performance, and adversely impact our ability to grow or sustain our business. These uncertainties could impact the expected cash flows to be generated by an asset or group of assets and may result in an impairment of those assets. For example, current macroeconomic and political instability caused by the ongoing conflict between Russia and Ukraine (which we refer to as the "Russia-Ukraine conflict (as discussed below"), global supply chain disruptions and inflation have adversely impacted and could continue to adversely impact our business and financial results.

The ongoing conflict between Russia and Ukraine (which we refer to as the “Russia-Ukraine conflict”) has adversely affected the global economy, and the geopolitical tensions and conflicts it generates may continue to negatively impact our operations. It has resulted in heightened economic sanctions from the U.S., the U.K., the European Union (the "E.U.") and the international community. Even though we have no physical assets in Russia, the impact of the Russia-Ukraine conflict could have a material adverse effect on our business, financial condition, results of operations, supply chain, availability of critical supplies, intellectual property, partners, or customers. Further escalation of geopolitical tensions related to the Russia-Ukraine conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions, and volatility in foreign exchange rates, interest rates and financial markets, any of which may adversely affect our business and supply chain. More broadly, there could be additional negative impacts to our financial results if the Russia-Ukraine conflict worsens, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures, including with respect to energy and supply chain cost increases or shortages, or the geographic proximity of the conflict relative to the rest of Europe. Similar geopolitical tensions and political and/or armed conflicts, including tensions between the U.S. and China,China and China and Taiwan, and the conflict between Israel and PalestineTaiwan could adversely impact our employees, financial performance, and global operations, including by, among other things, jeopardizing the safety of our employees and facilities, disrupting our and our partners’ production, supply chain and logistics and communications, and causing market volatility, which could adversely impact our sales and/or amplify or affect many of our other risks described elsewhere in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

The impacts of supply chain constraintsconstraints, increased tariffs and inflationary pressures could adversely impact our operating results.

Our business has been, and may continue to be, impacted by supply chain constraints, including as a result of raw materials and electronic component shortages, including, in particular, shortages of semiconductor chips and resin, longer lead times, port congestion, increased freight costs and the uncertain economic environment worldwide. These supply chain constraints have and may in the future prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments could cause us to experience a shortfall in revenue, increase our costs and adversely affect our relationship with affected customers and our reputation as a reliable supplier. We may be required to pay higher prices for raw materials or electronic components in short supply and order these raw materials or electronic components in greater quantities to compensate for variable delivery times. We may also be required to pay higher prices for raw materials or electronic components due to increased inflationary trends regardless of supply. In addition, current proposed or future governmental policies (including with respect to tariffs and other trade policies) mayhave increaseincreased the risk of inflation, whichand couldhave further(and may continue to) increase the costs of raw materials and other components for our business. The supply and price of our key raw materials and electronic components can be affected by a number of factors beyond our control, including market demand, inflation, alternative sources for suppliers, global geopolitical events, global or regional disease outbreaks or pandemics, trade agreements among producing and consuming nations and governmental regulations.

Similarly, if the cost of goods continue to increase, our suppliers may seek price increases from us. If we are unable to mitigate the impact of these matters through price increases, cost savings to offset cost increases, hedging arrangements, or other measures, our CTS CORPORATION 10 results of operations and financial condition could be adversely impacted. If our competitors maintain or substantially lower their prices, we may lose customers or have to reduce prices. Our profitability may be impacted by prices that do not offset the inflationary pressures, which may impact our gross margin. Even if we are able to raise the prices of our products, we may not be able to sustain such price increases. Temporary or sustained price increases may also lead to a decrease in demand for our products as competitors may not adjust their prices which could lead to a decline in sales volume and loss of market share. Our projections may not accurately predict the volume impact of price increases, which could adversely affect our business, financial condition and results of operations.

We sell products to customers in the aerospace and defense end market. A portion of these customers operate under contracts with the U.S. Government, which are vulnerable to termination at any time, for convenience or default. Some of the reasons for cancellation include, but are not limited to, budgetary constraints or re-appropriation of government funds, timing of contract awards, violations of legal or regulatory requirements, and changes in political agenda. If cancellations were to occur, it would result in a reduction in our revenue. Furthermore, significant reductions to defense spending could occur over the next several years due to government spending cuts, which could have a significant adverse impact on us. For example, delaysDelays in sales of products for defense applications and/or push-outs may adversely impact our results of operations, including quarterly earnings.

On an ongoing basis we explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer us growth opportunities. For example, over the last few years, we have acquired TEWA Temperature Sensors SP. Zo.o. (“TEWA”), Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”), maglab AG ("Maglab"), and SyQwest, LLC ("SyQwest"). We may have difficulty finding suitable acquisition opportunities or, if we do identify these opportunities, we may not be able to complete the transactions for any number of reasons including a failure to secure financing. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage newly acquired businesses such as CTS CORPORATION 11 TEWA, Ferroperm, Maglab, and SyQwest including their operations or employees. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of management's attention from our existing business to integrate the operations and personnel of the acquired or combined business; possible adverse effects on our operating results during the integration process; difficulties managing and integrating operations in geographically dispersed locations; increases in our expenses and working capital requirements, which could reduce our return on invested capital; exposure to unanticipated liabilities of acquired companies; and our possible inability to achieve the intended objectives of the transaction. Even if we are initially successful in integrating a new operation, we may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of additional debt. These and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or realize other anticipated benefits of an acquisition and could adversely affect our business and operating results.

We have announced and initiated restructuring plans or capital projects at various times in the recent past designed to revise and consolidate certain aspects of our operations for the purpose of improving our cost structure and operational efficiency. We may incur restructuring and impairment charges in the future if circumstances warrant, which could be material. Additionally, if we are unsuccessful in implementing restructuring plans or in executing capital projects, we may experience disruptions in our operations and higher ongoing costs, which may materially adversely affect our business, financial condition and operating results.

We maintain high quality control and quality assurance processes. However, defects may occur in the products we manufacture due to design or manufacturing errors, supplier quality issues, or component failure. Product defects could result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects could result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. As we grow our business, the risk of exposure to product liability litigation increases. We may be required to participate in a recall involving products which are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability; however, costs related to product defects and the costs of such claims, including costs of defense and settlement, may exceed our available coverage. Accordingly, our results of operations, cash flow and financial position could be adversely affected.

We have been notified by the U.S. Environmental Protection Agency (the “EPA”), state environmental agencies and, in some cases, groups of potentially responsible parties, that we are potentially liable for environmental contamination at several sites currently and formerly owned or operated by us, including sites designated as National Priorities List sites under the EPA’s Superfund program. Superfund liability is joint and several and we may be held responsible for more than our share of contamination at a site. On February 8, 2023, we received a demand letter from the EPA seeking reimbursement of its past response costs and interest thereon in the amount of $9,955 relating to the CTS of Asheville, Inc. Superfund Site, from the three potentially responsible parties associated with the site, including the Company. See Note 11, "Commitments and Contingencies," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. Although we estimate our potential environmental liability and reserve for such matters, including the Asheville site,matters we cannot assure you that our reserves will be sufficient to cover the actual costs that we incur as a result of these matters.

Protectionist trade legislation in the United States, the E.U., the U.K., Canada, China or Mexico, such as anew changeor inincreased current tarifftariffs structures, export or import compliance laws, or other trade policies could adversely affect our supply chain, business and results of operations. Similarly, further changes to United States and foreign trade and tax policies, including heightened import restrictions, import and export licenses, new or increased tariffs, trade embargoes, government sanctions, and trade barriers could have a similar impact. Increased tariffs could require us to increase our prices, which could decrease demand for our products. In addition, other countries may limit their trade with the United States or retaliate through their own restrictions and/or new or increased tariffs, which could affect our ability to export products and therefore adversely affect our sales. Many of these challenges, particularly tariffs, are present, or may arise in commerce with the E.U., China, and Mexico markets in which we operate and with which we do business. While we believe we have taken steps to mitigate their potential effects, our mitigation activities may prove to be ineffective or detrimental to our business. There exists substantial uncertainty as to whether such tariffs will be fully implemented or sustained. There can be no assurances that such tariffs will not be implemented or increased in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in U.S. tariff structures or other trade policy affect our business and results of operations will be influenced by the specific details of the changes in tariffs or other trade policies, their timing and duration, and our effectiveness in deploying tools and strategies to address these issues.

Risks Related to TechnologyTechnology, Cybersecurity and Data Privacy

From time to time, we and the service providers or other business partners that we depend on to host our data and support or provide our systems and business operations, are the target of, and periodically respond to, cybersecurity threats, including phishing and denial-of-service attacks, which, if successful, could result in a loss of business or customer information, systems interruption or the disruption of our operations, among other things. The techniques that are used to obtain unauthorized access, disable or degrade service or sabotage systems and data change frequently, have continued to increase in recent years and such efforts may be difficult to detect for long periods of time. As a result, we monitor our systems to protect our technology infrastructure and data. In addition, we further attempt to mitigate these risks by employing a number of other measures, including employee training, aan breachincident response plan, and maintenance of backup and protective systems. Further, while we maintain insurance coverage that is intended to address certain aspects of cybersecurity risks, such insurance coverage may not cover all losses or all types of claims that arise. Notwithstanding these measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity threats, any of which could have a material adverse effect on our business operations and financial performance. We have in the past been subject to cybersecurity events and incidents whichof havevarying not had a material impact on our business or financial conditiondegrees and expect that we will be subject to additional cybersecurity events and incidents in the future. To date however, none of the incidents or events have had a material impact on us.

Recent technological advances in artificial intelligence (“AI”) and machine-learning technology present new opportunities and also pose new risks. Our introduction of these technologies into our internal processes may result in new or expanded risks and liabilities. Such risks and liabilities include enhanced governmental or regulatory scrutiny, litigation, compliance issues, ethical concerns, confidentiality or security risks, as well as other factors that could adversely affect our business, reputation, and financial results. The utilization of AI could also result in loss of intellectual property and subject us to heightened risks related to intellectual property infringement or misappropriation. The use of AI can lead to unintended consequences, including generating content that is inaccurate, misleading or otherwise flawed, or that results in unintended biases and discriminatory outcomes, which could harm our reputation and expose us to risks related to inaccuracies or errors in the output of such technologies. Additionally, to the extent our competitors successfully adopt AI and experience enhanced efficiencies and/or reduced costs, we may be at a competitive disadvantage that could adversely impact our business operations or financial performance.

illness to our employees or their families or governmental restrictions on such employees' ability to travel or perform necessary business functions; or CTS CORPORATION 16 as a result of the need for us or our suppliers to operate our respective businesses with substantial modifications to employee travel and employee work locations.

Because we have significant international operations, our operating results and financial condition could be materially adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may materially adversely affect us, including: political and economic instability in countries in which our products are manufactured; expropriation or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions and tariffs; earnings repatriation and expatriation restrictions; exposure to different legal standards, including related to intellectual property; health conditions and standards; currency controls; fluctuations in exchange rates; increases in the duties and taxes we pay; inflation or deflation; greater difficulty in collecting accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters, and business operations; and communication among and with management of CTS CORPORATION 17 international operations. In addition, these same factors may also place us at a competitive disadvantage compared to some of our foreign competitors.

We depend on our senior executive officers and other key personnel to run our business. We do not have long-term employment contracts with our key personnel. The loss of any of these officers or other key personnel could adversely affect our operations. Our future success depends on our ability to identify, attract, and retain qualified personnel on a timely basis. If we were to experience turnover of senior management or if a member of our senior management were to become ill or incapacitated, our stock price, our results of operations, CTS CORPORATION 18 our commercial and supply chain operations and our vendor or customer relationships could each be adversely impacted, and such events may make recruiting for future management positions more difficult. The labor market for many of our employees is very competitive, and wages and compensation costs continue to increase. Our ability to attract and retain key talent has been, and may continue to be, impacted by challenges in the labor market, particularly in the U.S., which has recently been experiencing wage inflation, labor shortages, and the impacts of remote work. If we face labor shortages and/or increased labor costs as a result of increased competition for employees, higher employee turnover rates, or increases in employee benefits costs, our operating expenses could increase, which could negatively impact our growth and results of operations. Labor shortages, and higher employee turnover rates could also lead to disruptions in our business. In addition, we must successfully integrate any new management personnel that we hire within our organization, or who join our organization as a result of an acquisition, in order to achieve our operating objectives, and changes in other key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business.

We may be subject to various legal and business challenges due to actions instituted by shareholder activists or an unsolicited third-party offer. Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with vendors, customers, prospective and current employees and others. Proposed or future laws and regulations may increase the chance we become the target of shareholder activist campaigns, including ESG-relatedenvironmental, social, and governance-related actions. If shareholder activist campaigns are initiated against us, our response to such actions could be costly and time-consuming, which could divert the attention and resources of our Board of Directors, Chief Executive Officer and senior management from the pursuit of our business strategies, which could harm our business, negatively impact our stock price, and have an adverse effect on our business and financial results.

In FebruaryNovember 2024,2025, our Board of Directors approved a new share repurchase program that authorizesauthorizing the Company to repurchase up to $100 million of its common stock. AnyThis purchasesprogram replaces the prior share repurchase program that was approved in February 2024. The program has no set expiration date and allows for repurchases from time to time in the open market or through privately negotiated transactions. The timing and actual amount of share repurchases, if any, will depend 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. A reduction in, or the completion of, our repurchase program could have a negative effect on our stock price. We can provide no assurance that we will repurchase our common stock at favorable prices, or at all.

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

Gross margin was $189,150$208,026 for the year ended December 31, 2024,2025, aan decreaseincrease of $1,709,$20,471, or 0.9%,10.9%, from the year ended December 31, 2023.2024. The decreaseincrease in gross margin was primarily driven by lower sales volumes partially offset by the favorable impact of changes in end market mix,continued operational improvements asand wellan asimproved favorable impacts in foreign exchange ratesmix of $1,102sales primarilyby dueend to the U.S. Dollar appreciating compared to the Peso.market.

Selling, general and administrative ("SG&A") expenses were $88,285,$98,720, or 17.1%18.2% of sales for the year ended December 31, 2024,2025, versus $83,816$88,285 or 15.2%17.2% of sales in 2023.2024. The increase in SG&A expenses was primarily driven by increasedhigher incentiveamortization compensationexpense andin 2025 from the SyQwest acquisition.acquisition and a one-time charge related to the potential settlement of prior period costs with the U.S. Environmental Protection Agency (the "EPA").

Research and development expenses were $25,268, or 4.7% of sales in 2025, compared to $23,388, or 4.5% of sales in 2024,2024. comparedWe continue to $24,918, or 4.5% of sales in 2023, in line with our commitment to continue investinginvest in research and product development to drive long-term organic growth.

Restructuring charges were $1,396, or 0.3% of net sales in 2025, compared to $4,697, or 0.9% of net sales in 2024, compared to $7,074, or 1.3% of net sales in 2023.2024. The restructuring charges in the year ended December 31, 2024,2025 were primarily related to costschanges associatedto withadjust our plantbusiness closurein response to demand changes across certain locations and consolidation activities and severance expenses related thereto.products. See Note 9, “Costs Associated with Exit and Restructuring Activities,” in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

The effective income tax rate in 20242025 was 18.4%22.0% compared to 19.5%18.4% in the prior year. The decreaseincrease in the effective income tax rate is primarily dueattributable to a change in mix of earnings taxed at lowerhigher rates.rates and the impact of the One Big Beautiful Bill Act (the "OBBBA"). See Note 19 “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

Cash and cash equivalents were $82,295 at December 31, 2025 and $94,334 at December 31, 2024 and $163,876 at December 31, 2023,2024, of which $92,944$75,943 and $99,940,$92,944, respectively, were held outsidein theour Unitedforeign States.affiliates. Total debt as of December 31, 20242025 and December 31, 20232024 was $91,253$57,500 and $67,500,$92,300, respectively.

Net cash provided by operating activities was $88,811$102,105 during the year ended December 31, 2023.2025. Components of net cash provided by operating activities included net earnings of $60,532,$65,317, depreciation and amortization expense of $28,710,$34,538, other net non-cash items CTS CORPORATION 25 totaling $3,108,$750, offset byand a net cash outflowinflow from changes in assets and liabilities of $(3,539)$3,694 primarily driven by reductionsincreases in accrued expenses and other liabilities, accounts payable and accrued payroll andpartially benefits.offset by an increase in accounts receivable.

Net cash used in investing activities for the year ended December 31, 20242025 was $140,556,$18,514, driven by $121,912 of acquisition payments for the SyQwest acquisition and capital expenditures of $18,643.$15,731 Seeand Note 3, "Business Acquisitions," in the Notescontributions to theshort-term Consolidatedinvestments Financialof Statements in this Annual Report on Form 10-K.$2,783.

Net cash used in investing activities for the year ended December 31, 20232024 was $18,097,$140,556, driven by $121,912 of acquisition payments for the SyQwest acquisition and capital expenditures of $14,738 and $3,359 of acquisition payments, primarily for the Maglab acquisition as well as final working capital adjustments from the TEWA Temperature Sensors SP. Zo.o and Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S) acquisitions.$18,644. See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Net cash used by financing activities for the year ended December 31, 2023,2025, was $65,399.$98,438. The net cash outflow was the result of debt payments net of borrowings of $34,800, treasury stock purchases of $40,926, net cash for debt paydowns of $16,170,$56,178, dividend payments of $5,040,$4,750, and taxes paid on behalf of equity award participants of $3,263.$2,710.

On DecemberNovember 15,24, 2021,2025, we entered into a second amended and restatednew five-year revolving credit agreement with a group of banks (the “Revolving Credit Facility”) towith (i)a increasegroup theof banks for a total credit facility availability toof $400,000$300,000 which may be increased by $200,000up atto the request of the Company,$125,000, subject to the administrative agent's approval,approval. (ii)The extend the maturity of thenew Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interestmatures on theNovember loans24, under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit,2030 and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modifymodified the financial and non-financial covenants to provide the Company additional flexibility. ThisThe new Revolving Credit Facility is unsecured credit facilityand replaced the prior $300,000$400,000 unsecuredrevolving credit facility, which would have expired Februaryon 12,December 2024.15, 2026.

The Revolving Credit Facility includes a swing line sublimit of $20,000 and$20,000, a letter of credit sublimit of $20,000.$20,000 and an alternative currency sublimit of $150,000. 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 December 31, 2024.2025.

On July 29, 2024, we acquired 100% of the outstanding membership interests of SyQwest for $121,912 in cash subject to additional earnout payments based on future performance. The acquisition was funded from both cash on hand and borrowings under our Revolvingprevious Creditrevolving Facility.credit facility.

Critical Accounting EstimatesPolicies and PoliciesEstimates

For 2024,2025, we elected to perform the qualitative assessment on two of our reporting units, and the quantitative assessment.assessment on our third reporting unit. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2024.2025. We will monitor future results and will perform a test if indicators trigger an impairment review.

(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, 2025.

We design, manufacture, and sell a broad line of sensors, connectivity components, and actuators primarily to original equipment manufacturers (“OEMs”), tier one suppliers and distributors for the aerospace and defense, industrial, medical, and transportation markets, and the U.S. Government. 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.

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 changes in the economy generally, including inflationary and/or recessionary conditions and increased tariffs, geopolitical conflicts, availability and cost of rare earth elements, minerals, and metals, as well as 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: FirstSecond Quarter 2026 versus FirstSecond Quarter 2025

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025:

Net sales were $139,230$144,780 in the firstsecond quarter of 2026, an increase of $13,461$9,471, or 10.7%7.0%, from the firstsecond quarter of 2025. Net sales to the diversified end markets increased $11,792$10,894, or 17.5%14.6%. We achieved continued growth in the medical and industrial end markets, while netthe aerospace and defense end market declined primarily due to the timing of contract awards. Net sales to the transportation marketsend increasedmarket $1,669decreased $1,423 or 2.9%.2.3%. Changes in foreign exchange rates increased net sales by $2,898,$1,354, net of hedges, due to the U.S. Dollar depreciating compared to the Euro.hedges.

Selling, general and administrative (“SG&A”) expenses were $25,984$28,390, or 18.7%19.6% of net salessales, in the firstsecond quarter of 2026,2026 versus $23,623$23,077, or 18.8%17.1% of net salessales, in the firstsecond quarter of 2025. The increase in SG&A expenses iswas primarily relateddriven by higher incentive compensation expense in the second quarter of 2026 due to company performance and a reduction to an increaseacquisition earnout liability in incentivethe compensationsecond expense.quarter of 2025.

Research and development (“R&D”) expenses were $6,634$4,763, or 4.8%3.3% of net salessales, in the firstsecond quarter of 2026 compared to $6,190$6,326, or 4.9%4.7% of net salessales, in the firstcomparable quarter of 2025. Our R&D expenses arewere lower in linethe withsecond ourquarter commitmentof 2026 due to continuea investing$1,634 inone-time researchcustomer and product development to drive organic growth.reimbursement.

Restructuring charges were $386$94 or 0.3%0.1% of net sales in the firstsecond quarter of 2026 compared to $451$297 or 0.4%0.2% of net sales in the firstsecond quarter of 2025. The restructuring charges in the quarter ended March 31, 2026 were primarily related to efficiency enhancements. See Note 7,7 “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.

Our effective income tax rate was 20.7%27.0% and 17.1%19.4% in the firstsecond quarters of 2026 and 2025, respectively. The increase in the effective income tax rate is primarily attributedattributable to athe change in mixestablishment of earningsvaluation taxedallowance atagainst highercertain rates.tax credits.

Cash and cash equivalents were $90,851$107,536 at MarchJune 31,30, 2026, and $82,295 at December 31, 2025, of which $89,576$97,612 and $75,943, respectively, were held outside the United States. Total long-term debt was $62,500$55,000 as of MarchJune 31,30, 2026 and $57,500 as of December 31, 2025.

Net cash provided by operating activities was $15,518$50,735 during the threesix months ended MarchJune 31,30, 2025.2026. Components of net cash provided by operating activities included net earnings of $13,367,$36,361, depreciation and amortization expense of $8,494,$17,589, other net non-cash items of $1,339,$7,329, and a net cash outflow from changes in assets and liabilities of $7,682.$10,544.

Net cash used in investing activities was $2,109 for the threesix months ended MarchJune 31,30, 2026,2026 drivenwas by$6,689 for capital expenditures of $4,997$9,577 partially offset by the maturity of short term investments of $2,888.

Net cash used in investing activities was $4,465 for the threesix months ended MarchJune 31,30, 2025,2025 drivenwas entirely by capital expenditures.$7,745.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 20252026 was $15,900.$18,704. The net cash outflow was the result of treasury stock purchases of $6,465$11,967, (net cash payments of exciselong-term taxesdebt unpaid),of $2,500, dividends paid of $1,201,$2,296, and taxes paid on behalf of equity award participants of $2,634, and net cash used in the paydown of long-term debt of $5,600.$1,941.

On November 24, 2025, we entered into a five-year revolving credit agreement (the “Revolving Credit Facility”) with a group of banks for a total credit facility availability of $300,000, which may be increased by at least $125,000 pursuant to the Revolving Credit Facility subject to the administrative agent's approval. The Revolving Credit Facility is unsecured and replaced the prior $400,000 revolving credit facility, which would have expired on December 15, 2026. The Revolving Credit Facility matures on November 24, 2030 and modified the financial and non-financial covenants to provide the Company additional flexibility.

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 2.45% to 3.36%.

The Revolving Credit Facility includes a swingline sublimit of $20,000 and a$20,000, letter of credit sublimit of $20,000$20,000, and an alternative currency sublimit of $150,000. 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 MarchJune 31,30, 2026.

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP.generally accepted accounting principles. 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, 2025. ReferDuring toand Note 1, “Basisas of Presentation”the forthree updatesand tosix months ended June 30, 2026, there were no significant changes in the Company’sapplication of critical accounting policies andor estimates during the three months ended March 31, 2026.estimates.

No other customer accounted for 10% or more of total net sales during these periods. We continue to focus on broadening our customer base to grow our non-transportation end market exposure at a faster rate.

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 (including, but not limited to, the availability and cost of rare earth elements, minerals and metals); changes in the economy generally, including inflationary and/or recessionary conditions and increased tariffs, and in respect to the businesses in which CTS operates; unanticipated issues in integrating acquisitions; the funding of contracts by the U.S. Government; 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, trade pacts, including the future of the USMCA, exchange rates and political and geopolitical risks (including, without limitation, the impact of tariffs on China, Canada and Mexico, and other nations); the potential impact of U.S./China relations and the impact of geopolitical conflicts may have on our business, results of operations and financial condition; write offs of goodwill on our balance sheet; 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’s 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.