Annual
Report
2020
www.ctscorp.com
Our Vision
“We aim to be a leading provider of sensing and
motion devices as well as connectivity components,
enabling an intelligent and seamless world.”
Our Values
Play to Win
Be ambitious for customers and ourselves.
Seize opportunities to create outcomes that benefit everyone.
Be prepared to challenge in order to get the best results.
Act with humility, intelligence and integrity at all times.
Responsiveness
Be nimble and act fast, but never at the expense of quality.
Take the time to understand our customers’ needs.
Respect the views and needs of others.
Work with a sense of urgency that helps us exceed our customers’ expectations.
Simplicity
Be straightforward and easy to deal with.
Reduce bureaucracy and complexity to keep things simple.
Use language our customers understand.
Focus on delivering solutions efficiently and effectively, time after time.
Solution Oriented
Stay curious and resourceful.
Embrace the challenge of solving our customers’ problems.
Put yourself in the customers’ shoes to understand their challenges.
Find new and better ways of working together to deliver greater value.
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Dear Shareholders,
2020 was a challenging year – our resilience as individuals and as a
business was tested thoroughly. Operating a global business through
these turbulent times taught us many lessons. We learned from the
experience! I am confident these learnings have made us a stronger
team as we move forward. I want to thank our employees for their
tremendous leadership and efforts to support our customers, partners,
suppliers, and company throughout the year. As we continue to
navigate through this COVID-19 pandemic, the need to continue to be
prepared to adapt and change remains vitally important. As always,
our focus on safety is our number one priority. We appreciate the
leadership and prioritization of safety at all our global sites to ensure
our employees’ well-being as we strive to serve our customers. I want
to wish each of you a healthy year ahead.
Kieran M. O’Sullivan
Chairman, President and Chief Executive Officer
Results
CTS delivered adjusted EBITDA margin of 18.3%* and improved operating cash flow to $77M, up 19% from 2019. Full-
year sales were $424M, down 10% driven primarily by the impact of the pandemic. Transportation sales declined 19%
but rebounded strongly in the fourth quarter. Electronic Component sales were up 7%, driven by double-digit growth
in industrial and defense markets. Medical and telecom experienced more muted demand. At the end of the year, we
strengthened our temperature sensing platform with the acquisition of Sensor Scientific, Inc. This acquisition expands
our capabilities in the medical market. As a company, we continue to adhere to our strategy to drive profitable growth
around products that Sense, Connect and Move by expanding our technologies, product portfolio and geographic reach.
Simplification
Simplification and competitiveness are core to the transformation of our company and end-market profile. We are making
progress on a restructuring plan that is expected to deliver $0.22 to $0.26 of annualized earnings per share improvement
by the second half of 2022.** As part of this plan, we recently consolidated our Manesar, India manufacturing location into
our Zhongshan, China facility. We continued the deployment of our SAP S/4Hana system and expect to be substantially
complete by the end of 2021. Through this implementation, we anticipate better supply chain performance, analytical
capabilities, and improved operating margins.
Revenue
($ millions)
Adjusted EBITDA Margin
(Non-GAAP)*
Operating Cash Flow
($ millions)
$470
$469
$424
19.6%
19.1%
18.3%
$77
$64
$58
2018
2019
2020
2018
2019
2020
2018
2019
2020
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CTS CorporationAnnual Report 2020 Creating Long-Term Value for our Shareholders
CTS’ results-driven culture has enabled us to substantially improve our financial performance and strengthen our balance
sheet over the last decade. The combination of a strong balance sheet with a net cash position, and access to over $240M
through our credit facility, gives us the flexibility to deploy capital towards our strategic objectives. We are working to
deliver next-level performance by deploying Focus 2025, our five-year strategic plan focused on four key initiatives.
Profitable Growth
Our strategy to drive profitable growth is built on the following global megatrends: safety, sustainability, electrification,
connectivity, industrial IOT, 5G communications, miniaturization, and greater efficiency in components. Our goal is to
deliver 10% annualized growth by executing our strategic plan while actively managing our existing portfolio.** Our
targeted 10% growth is also supported by our capability to effectively deploy capital for strategic acquisitions. We plan
to continue to expand our customer base, grow regionally, diversify our end-market profile, which will enable us to
improve the quality of our earnings and provide financial stability for our employees. We continue to focus on highly
engineered solutions that help our customers solve their most difficult challenges. The diversification of our end-market
profile also enables us to better navigate end-market cycles.
10% Our goal is to deliver 10% annualized growth by executing our
strategic plan while actively managing our existing portfolio.**
Customer Focus
We are confident we remain well-positioned
to meet the changing needs of our customers.
leading technologies, global footprint,
Our
and talented employees position us well for
continued long-term growth. However, we are
keenly aware of the need to nurture and improve
relationships with our existing
important
customers while expanding to new accounts
and applications. The collaboration between our
sales, product management, and engineering
teams is vital to developing innovative products
and technologies to solve complex problems and
deliver solutions for our customers. Impactful
that meet our
technology developments
customers’ needs will advance our reputation and brand awareness. Business longevity relies on satisfied customers, while
satisfied customers strengthen our company culture through improved sentiment and employee motivation to win.
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CTS CorporationAnnual Report 2020 CTS Operating System
An important part of our culture is supporting a
continuous improvement mindset that delivers
year-over-year improvement in the cost of goods
sold and enhances all aspects of our enterprise.
With this in mind, we are implementing an
operating system company-wide to train our
employees, provide the required tools, and
encourage our workforce to be more empowered
in solving problems. Collaborating globally to
continually raise the level of performance in
support of our customers builds a stronger and
more sustainable improvement mindset.
Leadership, Talent & Culture
We derive purpose and satisfaction from knowing our innovations and products impact people’s lives around the world.
CTS has more than 3,700 employees globally, many of whom give back to the communities in which we operate. We
value our people and want to enable them to constantly develop, learn and grow in a safe and rewarding environment.
We believe in fostering a culture of empowerment and personal accountability to positively impact our customers,
partners, and colleagues while deriving satisfaction from a job well done. We are devoting more time and resources
towards building and developing our organization through our talent initiatives and feedback surveys. An inclusive
environment where employees are empowered, valued for their contributions, and have a shared sense of purpose is
our goal. Investing in our employees is critical to the long-term success of our company.
CTS has more than
3,700 employees
globally.
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CTS CorporationAnnual Report 2020 Sustainability
Our company’s transformation continues, and
our Focus 2025 initiative outlined in this letter
serves as our guideline as we advance into the
decade.
Environmentally, many of our products enable
a greener and safer world. We continue to
be focused on reducing our overall impact
on the environment by reducing our water
consumption, recycling, and ensuring that we
operate our facilities in an environmentally
compliant manner. Furthermore, protecting
our employees’ well-being is paramount. We
continue to demonstrate our commitment to
our employees’ safety and well-being through
our safety initiatives, measurement of incidents, and incorporating measures to protect against the spread of COVID-19.
Our teams are playing their part in our communities as we give back to those less fortunate in our world.
We are committed to maintaining good governance with our diverse and talented Board. I am pleased to have two new
members join our Board of Directors over the past year: Ye Jane Li, former Chief Operating Officer of Huawei Enterprise
USA, Inc., and Donna Costello, former CFO of C&D Technologies, Inc.
With the full commitment and care of the leadership team and every CTS employee around the globe, we will continue
to drive our company forward to deliver superior performance for our customers, shareholders, and employees. I want
to thank our valued customers, employees, shareholders, business partners, and Board of Directors for their support
this past year. I look forward to reporting on our continued progress next year.
Kieran O’Sullivan
Chairman, President and Chief Executive Officer
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CTS CorporationAnnual Report 2020 *The information included in this letter to shareholders includes the non-GAAP financial measure of adjusted EBITDA margin. From time to
time, the company may use non-GAAP financial measures in discussing its business. These measures are intended to supplement, not replace,
the company’s presentation of its financial results in accordance with U.S. GAAP. The company’s management believes that non-GAAP financial
measures can be useful to investors in analyzing its financial performance and results of operations over time. Adjusted EBITDA margin is calculated
as adjusted EBITDA divided by net sales for the applicable period. A reconciliation of the non-GAAP financial measure of adjusted EBITDA for fiscal
years 2018-2020 to the most directly comparable financial measure for those fiscal years calculated and presented in accordance with US GAAP
is as follows:
Net earnings
Depreciation and amortization expense
Interest expense
Tax expense
EBITDA
Adjustments to EBITDA:
Restructuring charges
Environmental charges
Legal settlement
Transaction costs
Costs of tax improvement initiatives
Non-cash pension expense
Foreign currency (gain)
Total adjustments to EBITDA
Adjusted EBITDA
Net sales
Adjusted EBITDA as a % of net sales
$
$
$
2020
34.7
26.7
3.3
10.8
75.4
1.8
2.8
-
0.3
-
2.5
(5.3)
2.1
77.5
424.1
18.3%
2019
$
36.1
$
24.6
2.6
14.1
77.5
6.9
2.3
(0.5)
0.7
0.1
0.8
1.8
$
$
12.0
89.5
469.0
19.1%
$
$
2018
$46.5
22.5
2.1
11.6
82.7
4.6
1.0
-
-
1.2
-
2.6
9.4
92.1
470.5
19.6%
**This letter to shareholders contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance,
statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on
historical fact. 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 our 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
conditions include, but are not limited to: changes in the economy generally and in respect to the business in which our company operates;
unanticipated issues in integrating acquisitions; the results of actions to reposition our business; rapid technological change; general market
conditions in the transportation, telecommunications, and information technology industries, 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 our intellectual property; pricing pressures and demand for our products; and risks
associated with our international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks. Many of these,
and other risks and uncertainties, are discussed in further detail in Item 1A. of our Annual Report on Form 10-K. We undertake no obligation to
publicly update our forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including
market or industry changes.
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CTS CorporationAnnual Report 2020