Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.27M
2: EX-10.1 EX-10.1 Brian Wilkie Amended and Restated HTML 97K
Employment Agreement
11: EX-10.10 EX-10.10 Severance and Change in Control HTML 105K
3: EX-10.2 EX-10.2 Jennifer Slater Amended and Restated HTML 97K
Employment Agreement
4: EX-10.3 EX-10.3 Form of Rsu Award Agreement Under 2021 HTML 51K
Equity Plan
5: EX-10.4 EX-10.4 Form of Prsu Award Agreement Under 2021 HTML 99K
Equity Plan
6: EX-10.5 EX-10.5 Cooperation Agreement HTML 112K
7: EX-10.6 EX-10.6 Retirement and Release of Claims Agreement HTML 76K
Jeff Cote
8: EX-10.7 EX-10.7 Offer Letter to Martha Sullivan HTML 41K
9: EX-10.8 EX-10.8 Rsu Award Agreement Martha Sullivan HTML 49K
10: EX-10.9 EX-10.9 Amendment to Award Agreement Brian Roberts HTML 27K
12: EX-31.1 Certification of CEO Pursuant to Section 302 HTML 28K
13: EX-31.2 Certification of CFO Pursuant to Section 302 HTML 28K
14: EX-32.1 Certification of Ceo, and CFO Pursuant to Section HTML 26K
906
20: R1 Cover Page HTML 77K
21: R2 Condensed Consolidated Balance Sheets HTML 131K
22: R3 Condensed Consolidated Balance Sheets HTML 38K
(Parenthetical)
23: R4 Condensed Consolidated Statements of Operations HTML 93K
24: R5 Condensed Consolidated Statements of Comprehensive HTML 53K
Income
25: R6 Condensed Consolidated Statements of Cash Flows HTML 115K
26: R7 Condensed Consolidated Statements of Changes in HTML 91K
Shareholders' Equity
27: R8 Basis of Presentation HTML 30K
28: R9 New Accounting Standards HTML 38K
29: R10 Revenue Recognition HTML 74K
30: R11 Share-Based Payment Plans HTML 34K
31: R12 Restructuring and Other Charges, Net HTML 72K
32: R13 Other, Net HTML 39K
33: R14 Income Taxes HTML 33K
34: R15 Net Income per Share HTML 37K
35: R16 Inventories HTML 31K
36: R17 Debt HTML 50K
37: R18 Commitments and Contingencies HTML 27K
38: R19 Shareholders' Equity HTML 71K
39: R20 Fair Value Measures HTML 62K
40: R21 Derivative Instruments and Hedging Activities HTML 102K
41: R22 Segment Reporting HTML 60K
42: R23 Subsequent Events HTML 26K
43: R24 Basis of Presentation (Policies) HTML 34K
44: R25 Revenue Recognition (Tables) HTML 72K
45: R26 Share-Based Payment Plans (Tables) HTML 33K
46: R27 Restructuring and Other Charges, Net (Tables) HTML 72K
47: R28 Other, Net (Tables) HTML 39K
48: R29 Income Taxes (Tables) HTML 30K
49: R30 Net Income per Share (Tables) HTML 39K
50: R31 Inventories (Tables) HTML 32K
51: R32 Debt (Tables) HTML 48K
52: R33 Shareholders' Equity (Tables) HTML 63K
53: R34 Fair Value Measures (Tables) HTML 59K
54: R35 Derivative Instruments and Hedging Activities HTML 106K
(Tables)
55: R36 Segment Reporting (Tables) HTML 53K
56: R37 Revenue Recognition (Details) HTML 77K
57: R38 Share-Based Payment Plans - Share-Based HTML 38K
Compensation Expense (Details)
58: R39 Restructuring and Other Charges, Net - Narrative HTML 37K
(Details)
59: R40 Restructuring and Other Charges, Net - Expected HTML 48K
Restructuring Charges by Impacted Segment
(Details)
60: R41 Restructuring and Other Charges, Net - HTML 39K
Restructuring Charges by Impacted Segment
(Details)
61: R42 Restructuring and Other Charges, Net - Components HTML 46K
of Restructuring and Other Charges, Net (Details)
62: R43 Restructuring and Other Charges, Net - Schedule of HTML 43K
Severance Liability (Details)
63: R44 Other, Net (Details) HTML 40K
64: R45 Income Taxes (Details) HTML 27K
65: R46 Net Income per Share - Schedule of Weighted HTML 36K
Average Number of Shares (Details)
66: R47 Net Income per Share - Schedule of Antidilutive HTML 31K
Securities Excluded from Computation of Earnings
Per Share (Details)
67: R48 Inventories (Details) HTML 33K
68: R49 Debt - Schedule of Long-term Debt, Net and Finance HTML 62K
Lease Obligations (Details)
69: R50 Debt - Narrative (Details) HTML 47K
70: R51 Shareholders' Equity - Narrative (Details) HTML 58K
71: R52 Shareholders' Equity - Accumulated Other HTML 52K
Comprehensive Income Roll forward (Details)
72: R53 Shareholders' Equity - Accumulated Other HTML 67K
Comprehensive Income Reclassifications (Details)
73: R54 Fair Value Measures - Schedule of Fair Value, HTML 57K
Assets and Liabilities Measured on Recurring Basis
(Details)
74: R55 Fair Value Measures - Narrative (Details) HTML 35K
75: R56 Fair Value Measures - Financial Instruments Not HTML 53K
Recorded at Fair Value (Details)
76: R57 Derivative Instruments and Hedging Activities - HTML 26K
Narrative (Details)
77: R58 Derivative Instruments and Hedging Activities - HTML 74K
Schedule of Derivative Instruments (Details)
78: R59 Derivative Instruments and Hedging Activities - HTML 52K
Fair Value (Details)
79: R60 Derivative Instruments and Hedging Activities - HTML 43K
Income Statement Disclosures (Details)
80: R61 Derivative Instruments and Hedging Activities - HTML 27K
Credit Risk Related Contingent Features (Details)
81: R62 Segment Reporting - Schedules of Segment Reporting HTML 76K
(Details)
83: XML IDEA XML File -- Filing Summary XML 138K
86: XML XBRL Instance -- st-20240331_htm XML 1.53M
82: EXCEL IDEA Workbook of Financial Report Info XLSX 121K
16: EX-101.CAL XBRL Calculations -- st-20240331_cal XML 175K
17: EX-101.DEF XBRL Definitions -- st-20240331_def XML 500K
18: EX-101.LAB XBRL Labels -- st-20240331_lab XML 1.12M
19: EX-101.PRE XBRL Presentations -- st-20240331_pre XML 798K
15: EX-101.SCH XBRL Schema -- st-20240331 XSD 131K
84: JSON XBRL Instance as JSON Data -- MetaLinks 407± 604K
85: ZIP XBRL Zipped Folder -- 0001477294-24-000065-xbrl Zip 415K
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i529 Pleasant Street
iAttleboro, iMassachusetts,
i02703, iUnited States
(Address of principal executive offices, including zip code)
+1 (i508)
i236 3800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of exchange on which registered
iOrdinary Shares - nominal value €0.01 per share
iST
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
As of April 16, 2024, i150,738,907 ordinary shares were outstanding.
Other
intangible assets, net of accumulated amortization of $i2,561,367 and $i2,522,760 as of March 31, 2024 and
December 31, 2023, respectively
i845,555
i883,671
Deferred
income tax assets
i127,491
i131,527
Other
assets
i117,808
i134,605
Total assets
$
i7,615,950
$
i7,680,987
Liabilities
and shareholders' equity
Current liabilities:
Current portion of long-term debt, finance lease and other financing obligations
$
i2,340
$
i2,276
Accounts
payable
i469,342
i482,301
Income taxes payable
i33,762
i32,139
Accrued
expenses and other current liabilities
i288,525
i307,002
Total
current liabilities
i793,969
i823,718
Deferred income tax liabilities
i361,172
i359,073
Pension
and other post-retirement benefit obligations
i38,053
i38,178
Finance
lease obligations, less current portion
i22,587
i22,949
Long-term
debt, net
i3,375,511
i3,373,988
Other long-term
liabilities
i49,824
i66,805
Total liabilities
i4,641,116
i4,684,711
Commitments
and contingencies (Note 11)
i
i
Shareholders’ equity:
Ordinary shares, €ii0.01/
nominal value per share, ii177,069/ shares authorized, and i175,839
and i175,832 shares issued as of March 31, 2024 and December 31, 2023, respectively
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. iBasis
of Presentation
The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company,""Sensata,""we,""our," or "us."
i
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the "SEC")
on February 29, 2024 (the "2023 Annual Report").
In the three months ended March 31, 2024, we realigned our business as a result of organizational changes that better allocate our resources to support changes to our business strategy. The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights business out of Performance Sensing to a new operating segment, which is not aggregated within either of our reportable segments. We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus. We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together,
by allowing us to scale core capabilities and better serve our customers. Prior year amounts in this Quarterly Report on Form 10-Q have been recast to reflect this realignment. Refer to Note 15: Segment Reporting for additional information
In the three months ended March 31, 2024, we presented interest income on the condensed consolidated statements of operations separate from interest expense. In the three months ended March 31, 2023, interest income had been included in interest expense, net. Accordingly, we reclassified prior period interest income to a separate caption in the condensed consolidated statements of operations to conform to current period presentation.
All U.S. dollar ("USD") and share amounts presented,
except per share amounts, are stated in thousands, unless otherwise indicated.
2. iNew Accounting Standards
i
In
November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity's reportable segments. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items" included in the determination of segment operating income. The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods, and that a public entity provide the title and position of the chief operating decision
maker. Other requirements of the guidance are not expected to be material. There is no change to the guidance for identification or aggregation of operating or reportable segments. FASB ASU No. 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The guidance must be applied retrospectively to all prior periods presented. We adopted the guidance in FASB ASU No. 2023-07 on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.
In
December 2023, the FASB issued ASU No. 2023-09, Income taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact on our income tax related disclosures.
The
following tables present net revenue disaggregated by segment and end market for the three months ended March 31, 2024 and 2023 for our iitwo/
reportable segments, Performance Sensing ("PS") and Sensing Solutions ("SS"), and other:
(3) In the three months ended March 31, 2024, we realigned our segments, as discussed further in Note 1: Basis of Presentation and Note 15: Segment Reporting. As a result, certain revenue in the Automotive and HVOR end markets have been moved from Performance Sensing to Sensing Solutions. In addition, Insights revenue was moved from the HVOR end market (in Performance Sensing) to the other end market in a separate operating segment that is not aggregated within either of our reportable segments. The three months ended March 31, 2023 have been retrospectively recast
to reflect this change.
/
(4) Effective April 1, 2023, we moved our material handling products from Performance Sensing to Sensing Solutions operating segment to align with new management reporting. As a result, material handling revenue was moved from the HVOR end market to the Industrial end market. The three months ended March 31, 2023 have been retrospectively recast to reflect this change.
4. iShare-Based
Payment Plans
i
The following table presents the components of non-cash compensation expense related to our equity awards for the three months ended March 31, 2024 and 2023:
In the three months ended September 30, 2023, we committed to a plan to reorganize our business (the “Q3 2023 Plan”). The Q3 2023 Plan, consisting of voluntary and involuntary reductions-in-force, site closures, and other cost-savings initiatives, was
commenced to adjust our cost structure and business activities to better align with weaker market demand and continued economic uncertainty in many of our end-markets and to take active measures to accelerate our margin recovery.
The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact i510 positions. Over the life of the Q3 2023 Plan, we
expect to incur restructuring charges of between $i20.5 million and $i25.5 million, primarily related to reductions-in-force. The majority of the actions under the Q3 2023 Plan are expected to
be completed on or before June 30, 2024. We expect to settle these charges with cash on hand.
i
We expect these restructuring charges to impact our business segments and corporate functions as follows:
Charges
(Dollars
in thousands)
Positions
Minimum
Maximum
Performance Sensing
i160
i7,043
i8,495
Sensing
Solutions
i150
i5,214
i7,495
Corporate
and other
i200
i8,243
i9,510
Total
i510
i20,500
i25,500
Restructuring
charges, net recognized in the three months ended March 31, 2024 resulting from the Q3 2023 Plan are presented by business segment and corporate functions below.
(In thousands)
Severance
Facility and other exit costs (1)
Performance
Sensing
$
i528
$
i—
Sensing
Solutions
(i349)
i—
Corporate
and other
i419
i—
Q3
2023 Plan total
$
i598
$
i—
___________________________________
(1) Includes
site closures.
/
Summary
The following table presents the charges and gains included as components of restructuring and other charges, net for the three months ended March 31, 2024 and 2023:
The
severance liability as of March 31, 2024 and December 31, 2023 were entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.
6. iOther, Net
i
The
following table presents the components of other, net for the three months ended March 31, 2024 and 2023:
(1) Primarily
includes a loss on an equity investment that does not have a readily determinable fair value for which we use the measurement alternative prescribed in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments—Equity Securities. Refer to Note 13: Fair Value Measures for additional information.
/
7. iIncome
Taxes
i
The following table presents the provision for income taxes for the three months ended March 31, 2024 and 2023:
The
provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.
Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. iFor
the three months ended March 31, 2024 and 2023 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
Certain
potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. iThese potential ordinary shares were as follows:
Our
debt as of March 31, 2024 and December 31, 2023 consists of various tranches of senior unsecured notes. We also have secured credit facilities which provide for our $ii750.0/ million
revolving credit facility (the "Revolving Credit Facility") and incremental availability under which additional debt can be issued. Refer to Note 14: Debt of the audited consolidated financial statements and notes thereto included in the 2023 Annual Report for additional information regarding our existing indebtedness.
As of March 31, 2024, we had $i746.1
million available under the Revolving Credit Facility, net of $i3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31, 2024, ino
amounts had been drawn against these outstanding letters of credit.
Accrued Interest
Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of March 31, 2024 and December 31, 2023, accrued interest totaled $i44.7 million and $i45.2
million, respectively.
11. iCommitments and Contingencies
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse
effect on our results of operations, financial condition, and/or cash flows.
12. iShareholders' Equity
Purchase of noncontrolling interest in joint venture
In February 2024, Sensata purchased the remaining i50%
interest in the Company’s joint venture with Dongguan Churod Electronics Co., Ltd. for approximately $i79.4 million. Prior to the transaction, the Company had been consolidating the joint venture. The purchase of the i50%
non-controlling interest was accounted for as an equity transaction. No gain or loss was recognized in the condensed consolidated statements of operations. The difference between the fair value of the consideration paid and the amount by which the non-controlling interest was adjusted was recognized as a reduction of additional paid in capital recorded in equity.
Cash Dividends
In the three months ended March 31, 2024 and 2023, we paid aggregate cash dividends of $i18.1 million
and $i16.8 million, respectively. On April 24, 2024, we announced that our Board of Directors approved a quarterly dividend of $i0.12 per share, payable on May 22, 2024 to shareholders
of record as of May 8, 2024.
Foreign Currency Translation
Prior to October 1, 2023, the functional currency of the Company's wholly-owned subsidiaries in China was USD. Effective October 1, 2023, as a result of significant changes in economic facts and circumstances in the operations of our China foreign entities, the functional currency of the Company's wholly-owned subsidiaries
in China changed to the CNY. The changes in economic facts and circumstances caused a permanent change to our strategy in China toward a more self-contained model, making China the primary economic environment in which these subsidiaries operate. This change was accounted for prospectively and does not impact prior period financial statements.
As a result of this change, in the fourth quarter of 2023, we started recording an adjustment to translate these subsidiaries' financial statements from CNY to USD (our reporting currency). These adjustments are included in other comprehensive income and are presented under the heading Accumulated Other Comprehensive Income/(Loss) below.
Treasury
Shares
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by the Board at any time. Under these programs, we may repurchase ordinary shares at such times and in amounts to be determined by our management, based on market conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated transactions, provided that such transactions were completed pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting. Ordinary shares repurchased by us are recognized, measured at cost, and presented as treasury shares on our consolidated balance sheets, resulting in a reduction of shareholders' equity.
On January 20, 2022, our Board of Directors authorized a $i500.0 million
ordinary share repurchase program (the “January 2022 Program”), which replaced the previous $i500.0 million program approved in July 2019. On September 26, 2023, our Board of Directors authorized a new $i500.0 million
ordinary share repurchase program (the “September 2023 Program”), which replaced the January 2022 Program and became effective on October 1, 2023.
In the three months ended March 31, 2024, we repurchased i0.3
million ordinary shares for $i10.1 million. These repurchases were made under the September 2023 Program. We did inot repurchase any shares in the three months ended March 31, 2023.
As of March 31, 2024, $i461.8 million remained available for repurchase under the September 2023 Program.
Accumulated Other Comprehensive Income
i
The
following table presents the components of accumulated other comprehensive income for the three months ended March 31, 2024:
(1) Refer to Note 14: Derivative Instruments and Hedging Activities for additional information regarding amounts to be reclassified from accumulated other comprehensive income in future periods.
/
13. iFair
Value Measures
Measured on a Recurring Basis
i
The fair values of our assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are shown in the below table.
Refer to Note 14: Derivative Instruments and Hedging Activities for additional information regarding our forward contracts. Cash equivalents consist of U.S. Government Treasury money market funds and are classified as Level 1 as they are exchange traded in an active market.
Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2023 and determined that our Insights reporting unit was impaired. Refer to additional information in our 2023 Annual Report. No events or changes in circumstances occurred in the three months
ended March 31, 2024 that would have triggered the need for an additional impairment review of our goodwill and other indefinite-lived intangible assets.
In the three months ended March 31, 2024, we made the decision to reorganize our segments, as discussed in more detail in Note 1: Basis of Presentation. This reorganization resulted in the creation of a new reporting unit for a business that was previously part of the Automotive reporting unit, which was moved to the Sensing Solutions segment. We reassigned assets and liabilities, including goodwill, from the Automotive reporting unit to the new reporting unit as required by FASB ASC Topic 350. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and formation
of these reporting units and determined that they were not impaired. As a result of this reorganization, we allocated $i143.4 million of goodwill to the new reporting unit.
Financial Instruments Not Recorded at Fair Value
i
The following table presents the carrying
values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
(1) Excluding
any related debt discounts, premiums, and deferred financing costs.
/
In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. As of March 31, 2024 and December 31, 2023, we held equity investments under the measurement alternative of $i6.3 million
and $i18.3 million, respectively, which are presented in other assets in the condensed consolidated balance sheets. In the three months ended March 31, 2024, we adjusted the carrying value of one of these equity investments as a result of an observable price change, resulting in a loss of $i14.8 million.
14.
iDerivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three months ended March 31, 2024 and 2023, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of March 31,
2024, we estimated that $i29.6 million of net gains will be reclassified from accumulated other comprehensive income to earnings during the twelve-month period ending March 31, 2025.
(1) Derivative
financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes. We may also enter into intercompany derivative instruments with our wholly-owned subsidiaries in order to hedge certain forecasted expenses.
/
Hedges of Commodity Risk
As of March 31, 2024, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting
treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging:
The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:
These
fair value measurements were all categorized within Level 2 of the fair value hierarchy.
i
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2024 and 2023:
Derivatives
designated as hedging instruments
Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive (Loss)/Income
Location of Net Gain Reclassified from Accumulated Other Comprehensive Income into Net Income
Amount of Net Gain Reclassified from Accumulated Other Comprehensive Income into Net Income
We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations.
As of March 31, 2024, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was
$i2.8 million. As of March 31, 2024, we had inot posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness
as described above, we could be required to settle our obligations under the derivative agreements at their termination values.
15. iSegment Reporting
We present financial information for itwo
reportable segments, Performance Sensing and Sensing Solutions. In the three months ended March 31, 2024, we realigned our segments as a result of organizational changes that better allocate our resources to support changes to our business strategy. Refer to Note 1: Basis of Presentation for additional information. This realignment added an "other" segment that represents the aggregation of immaterial operating segments. As a result of this reorganization,
we moved $i143.4 million
of goodwill from Performance Sensing to Sensing Solutions. Refer to Note 13: Fair Value Measures for additional information.
Effective April 1, 2023, we moved our material handling products from the HVOR operating segment (in the Performance Sensing reportable segment) to the Sensing Solutions operating segment to align with new management reporting. Prior year amounts in the table below have been recast to reflect these realignments.
Prior to the three months ended March 31, 2024, the Performance Sensing reportable segment represented the aggregation of itwo
operating segments, Automotive and HVOR. As a result of the segment realignment, Performance Sensing now represents one operating segment, as does Sensing Solutions. Other immaterial operating segments are aggregated in other, which was created as part of the segment realignment.
Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance. An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs or credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation
expense associated with assets recognized in connection with acquisitions. Corporate and other expenses excluded from an operating (and reportable) segment’s performance are separately stated below and also include costs that are related to functional areas such as finance, information technology, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable segments are materially consistent with those described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2023 Annual Report.
i
The
following table presents net revenue and segment operating income for our reportable segments and other operating results not allocated to our reportable segments for the three months ended March 31, 2024 and 2023 (prior periods have been recast).
(1) The
amounts previously reported for the three months ended March 31, 2023 have been retrospectively recast to reflect the move of the material handling products between operating segments in the second quarter of 2023 and to reflect the recasting of the Aftermarkets business and the radar products from Performance Sensing to Sensing Solutions.
/
(2) The amounts previously reported for the three months ended March 31, 2023 have been retrospectively recast to reflect the segment realignment as discussed in Note 1: Basis of Presentation.
On April 26, 2024, Jeff Cote informed our Board of his decision to retire as Chief Executive Officer ("CEO") and President and resign from the Board effective April 30, 2024. The Board has appointed Martha Sullivan as Interim President and CEO effective May 1, 2024 and has established
a CEO Search Committee to identify a new permanent CEO.
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terminology such as "may,""will,""could,""should,""expect,""anticipate,""believe,""estimate,""predict,""project,""forecast,""continue,""intend,""plan,""potential,""opportunity,""guidance," and similar terms or phrases. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services, share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. These statements are subject to risks, uncertainties, and other important factors relating to our operations and business environment, and we can give no assurances that these forward-looking statements will prove to be correct.
A
wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements, including, but not limited to, risks related to public health crises, instability and changes in the global markets, supplier interruption or non-performance, the acquisition or disposition of businesses, adverse conditions or competition in the industries upon which we are dependent, intellectual property, product liability, warranty and recall claims, market acceptance of new product introductions and product innovations, labor disruptions or increased labor costs, and changes in existing environmental or safety laws, regulations, and programs.
Investors and others should carefully consider the foregoing factors and other uncertainties, risks, and potential events including, but not limited to, those described in Item
1A: Risk Factors included in our 2023 Annual Report and as may be updated from time to time in Item 1A: Risk Factors included in our quarterly reports on Form 10-Q or other subsequent filings with the United States Securities and Exchange Commission. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations supplements, and should be read in conjunction with, the discussion
in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report. The following discussion should also be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Amounts and percentages in the following discussions and tables have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
Overview
Net revenue for the three months ended March 31,
2024 was $1,006.7 million, an increase of 0.9% compared to $998.2 million in the prior period. Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates, net revenue increased 2.3% on an organic basis. Organic revenue growth (or decline), discussed throughout this Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A"), is a financial measure not presented in accordance with U.S. GAAP. Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information regarding our use of organic revenue growth (or decline). Operating income for the three months ended March 31, 2024 decreased $4.1 million, or 2.7%, to $144.8 million (14.4% of net revenue) from $148.8 million (14.9% of net revenue) in the three months
ended March 31, 2023. Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three months ended March 31, 2024 compared to the prior year periods.
We generated $106.5 million of operating cash flows in the three months ended March 31, 2024, ending the quarter with $460.4 million in cash and cash equivalents. In the three months ended March 31, 2024, we used cash of approximately $42.1 million for capital expenditures, $18.1 million for payment of cash dividends, and $10.1 million for share repurchases as part of our share repurchase plan.
In the three months ended
March 31, 2024, we realigned our business as a result of organizational changes that better allocate our resources to support changes to our business strategy. The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights business out of Performance Sensing to a new operating segment, which is not aggregated within either of our reportable segments. We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus. We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers. Prior year amounts in this Quarterly Report on Form 10-Q have been recast to reflect this realignment.
Refer to Note 1: Basis of
Presentation and Note 15: Segment Reporting included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Results of Operations
The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three months ended March 31,
2024 compared to the three months ended March 31, 2023. We have derived the results of operations from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Prior year periods have been recast to reflect the reorganization of segments as detailed in Note 1: Basis of Presentation included elsewhere in this Report. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
(1) Represents
the amount presented divided by total net revenue.
Net Revenue
Net revenue for the three months ended March 31, 2024 increased 0.9% compared to the prior period. Net revenue increased 2.3% on an organic basis, which excludes a decrease of 1.4% attributed to changes in foreign currency exchange rates.
Performance Sensing
Performance Sensing net revenue for the three months ended March 31, 2024 increased 6.8% compared to the prior period. Excluding a decrease of 1.8% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 8.6% on an organic basis, which was primarily due to content growth across both Automotive and HVOR.
Sensing
Solutions
Sensing Solutions net revenue for the three months ended March 31, 2024 decreased 9.0% compared to the prior period. Excluding a decline of 0.7% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 8.3% on an organic basis, which primarily reflects inventory destocking in the industrial markets, partially offset by growth in the aerospace market.
Operating costs and expenses for the three months ended March 31,
2024 and 2023 are presented, in millions of dollars and as a percentage of net revenue, in the following table. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
(1) Represents the amount presented divided by total net revenue.
Cost
of revenue
For the three months ended March 31, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the unfavorable effect of changes in foreign currency exchange rates, (2) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, and (3) unfavorable product mix.
Research and development expense
For the three months ended March 31, 2024, research and development ("R&D") expense did not fluctuate materially from the prior year period.
Selling, general and administrative expense
For the three months ended March 31,
2024, selling, general and administrative ("SG&A") expense did not fluctuate materially from the prior year period.
Amortization of intangible assets
For the three months ended March 31, 2024, amortization of intangible assets decreased from the prior period, primarily due to the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset.
Restructuring and other charges, net
In the three months ended March 31, 2024, restructuring and other charges, net decreased from the prior year period, primarily due to lower charges for
acquisition-related incentive compensation and lower severance charges, partially offset by the non-recurrence of a gain on sale of business that occurred in the first quarter of 2023.
Refer to Note 5: Restructuring and Other Charges, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding the components of restructuring and other charges, net.
Operating income
For the three months ended March 31, 2024, operating income did not fluctuate materially from the prior year period, as lower gross margin as described under the heading Cost of revenue above was largely offset by lower restructuring
charges.
Interest expense
For the three months ended March 31, 2024, interest expense decreased $10.4 million from the prior period, primarily due to the repayment of the Term Loan and 5.625% Senior Notes in the year ended December 31, 2023.
Refer to Note 14: Debt of the audited consolidated financial statements and notes thereto included in the 2023 Annual Report for additional information regarding these debt transactions.
Interest
income
For the three months ended March 31, 2024, interest income decreased from the prior period, primarily due to lower average cash equivalent balances in the first quarter of 2024 compared to the first quarter of 2023.
Other, net
Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, mark-to-market gains and losses on investments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost.
For the three months ended March 31,
2024, other, net represented a net loss of $11.5 million, an unfavorable impact on earnings of $12.9 million compared to a net gain of $1.4 million in the prior period. This unfavorable impact was primarily due to a loss of $14.8 million recognized as a result of observable price changes related to an equity investment held using the measurement alternative. Refer to Note 13: Fair Value Measures for additional information. Refer to Note 6: Other, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more details regarding the components of other, net.
Provision for income taxes
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions
with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.
For the three months ended March 31, 2024, the provision for income taxes decreased $1.2 million from the prior period, predominantly due to lower income before taxes, the effective settlement of uncertain tax positions, and changes in our jurisdictional mix of profits.
Non-GAAP
Financial Measures
This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, adjusted corporate and other expenses, net debt, gross and net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors. We use these non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance, and as a factor in determining compensation for certain employees.
The use of our non-GAAP financial measures has limitations. They should be considered as
supplemental in nature and are not intended to be considered in isolation from, or as an alternative to, reported net revenue growth (or decline), operating income, operating margin, net income, diluted EPS, net cash provided by operating activities, corporate and other expenses, or total debt and finance lease obligations, respectively, calculated in accordance with U.S. GAAP. In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, adjusted corporate and other expenses, gross and net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.
Organic revenue growth (or decline) and market outgrowth
Organic revenue growth (or decline) is defined as the reported percentage change in net
revenue, calculated in accordance with U.S. GAAP, excluding the period-over-period impact of foreign currency exchange rate differences as well as the net impact of material acquisitions and divestitures for the 12-month period following the respective transaction date(s).
We believe that organic revenue growth (or decline) provides investors with helpful information with respect to our operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations as well as for internal planning and forecasting purposes. We believe that organic revenue growth (or decline) provides useful information in
evaluating
the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.
Market outgrowth is calculated as organic revenue growth less our weighted market growth. Our weighted market growth is calculated using our regional and platform sales mix, as applicable, in the corresponding prior period. Market outgrowth is used to describe the impact of an increasing quantity and value of our products used in customer systems and applications above market growth. We believe this provides a more meaningful comparison of our revenue growth relative to the markets we serve.
Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS
We define adjusted operating income as operating income (or loss), determined
in accordance with U.S. GAAP, adjusted to exclude certain non-GAAP adjustments which are described under the heading Non-GAAP Adjustments below. Adjusted operating margin is calculated by dividing adjusted operating income (or loss) by net revenue determined in accordance with U.S. GAAP. We define adjusted net income as follows: net income (or loss) determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP Adjustments below. Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average ordinary shares outstanding in the period.
We may also refer to certain of these measures, or changes in these measures, on a constant currency basis. Adjusted operating margin calculated on a constant currency basis is determined by stating
revenues and expenses at prior period foreign currency exchange rates and excludes the impact of foreign currency exchange rates on all hedges. Adjusted EPS on a constant currency basis is determined in the same manner as adjusted operating margin, but also excludes the change in gain or loss on the remeasurement of monetary assets and liabilities.
Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS (and the constant currency equivalent of each) as measures of operating performance, for planning purposes (including the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies, in communications with our Board of Directors and investors concerning our financial performance, and as factors in determining compensation for certain employees. We believe
investors and securities analysts also use these non-GAAP financial measures in their evaluation of our performance and the performance of other similar companies. These non-GAAP financial measures are not measures of liquidity.
Free cash flow
Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software. We believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares, and (or) accelerate the repayment of debt obligations.
Adjusted corporate and other expenses
Adjusted corporate and other expenses is defined as corporate
and other expenses calculated in accordance with U.S. GAAP, excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses. We believe adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP adjustments on operating expenses not allocated to our segments.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S. GAAP, excluding interest expense, net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following non-GAAP adjustments, if applicable: (1) restructuring related and other, (2) financing and other transaction costs, and (3) deferred loss or gain on derivative instruments. Refer to Non-GAAP Adjustments below for additional
discussion of these adjustments. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
Gross leverage ratio
Gross leverage ratio represents gross debt (total debt and finance lease obligations) divided by last twelve months ("LTM") adjusted EBITDA. We believe that gross leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
Net leverage
ratio represents net debt (total debt, finance lease and other financing obligations less cash and cash equivalents) divided by last twelve months ("LTM") adjusted EBITDA. We believe that the net leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
Non-GAAP adjustments
Many of our non-GAAP adjustments relate to a series of strategic initiatives developed by our management aimed at better positioning us for future revenue growth and an improved cost structure. These initiatives have been modified from time to time to reflect changes in overall market conditions and the competitive environment facing our business. These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain or corporate activities, and various financing transactions. We describe
these adjustments in more detail below, each of which is net of current tax impacts, as applicable.
•Restructuring related and other: includes net charges related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results. Such costs include charges related to optimization of our manufacturing processes to increase productivity. This type of activity occurs periodically, however each action is unique, discrete, and driven by various facts and circumstances. Such amounts are excluded from internal financial statements and analyses that management uses in connection with financial planning and in its review and assessment of our operating and financial performance, including the performance of our segments.
•Financing and other transaction costs: includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction, mark-to-market losses or gains on our equity investments, expenses related to compensation arrangements entered into concurrent with the closing of an acquisition, and gains related to changes in the fair value of acquisition-related contingent consideration amounts.
•Deferred loss or gain on derivative instruments: includes unrealized losses or gains on derivative instruments that do not qualify for hedge accounting as well as the impact of commodity prices
on our raw material costs relative to the strike price on our commodity forward contracts.
•Step-up depreciation and amortization: includes depreciation expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., property, plant and equipment and inventories) and amortization of intangible assets.
•Deferred taxes and other tax related: includes adjustments for book-to-tax basis differences due primarily to the step-up in fair value of fixed and intangible assets and goodwill, the utilization of net operating losses, and adjustments to our valuation allowance in connection with certain acquisitions and tax law changes. Other tax related
items include certain adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings.
•Amortization of debt issuance costs:represents interest expense related to the amortization of deferred financing costs as well as debt discounts, net of premiums.
•Where applicable, the current income tax effect of non-GAAP adjustments.
Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related items described above. As we treat deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period
presented.
The following tables present reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the related non-GAAP financial measures for the three months ended March 31, 2024 and 2023. Refer to the Non-GAAP Adjustments section above for additional information regarding these adjustments.
Amounts and percentages in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
The following table provides a reconciliation of net (loss)/income in accordance with U.S. GAAP to adjusted
EBITDA.
For the three months ended March 31,
(In millions)
LTM
2024
2023
Net
(loss)/income
$
(14.3)
$
76.0
$
86.4
Interest expense, net
145.4
34.7
40.1
Provision
for income taxes
20.6
22.6
23.7
Depreciation expense
135.7
33.5
30.9
Amortization
of intangible assets
171.6
38.5
40.8
EBITDA
459.0
205.3
222.0
Non-GAAP
adjustments
Restructuring related and other
410.9
2.4
2.9
Financing and other transaction costs
34.4
17.6
4.7
Deferred
loss/(gain) on derivative instruments
0.7
(1.5)
(4.1)
Adjusted EBITDA
$
905.0
$
223.8
$
225.5
The
following table provides a reconciliation of total debt, finance lease and other financing obligations in accordance with U.S. GAAP to net leverage ratio.
Current
portion of long-term debt and finance lease obligations
$
2.3
$
2.3
Finance lease obligations, less current portion
22.6
22.9
Long-term debt, net
3,375.5
3,374.0
Total
debt and finance lease obligations
3,400.4
3,399.2
Less: debt discount, net of premium
(1.2)
(1.6)
Less: deferred financing costs
(23.3)
(24.4)
Total
gross indebtedness
$
3,424.9
$
3,425.2
Adjusted EBITDA (LTM)
$
905.0
$
906.6
Gross leverage ratio
3.8
3.8
Total
gross indebtedness
$
3,424.9
$
3,425.2
Less: cash and cash equivalents
460.4
508.1
Net debt
$
2,964.6
$
2,917.1
Adjusted
EBITDA (LTM)
$
905.0
$
906.6
Net leverage ratio
3.3
3.2
Liquidity and Capital Resources
As
of March 31, 2024 and December 31, 2023, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
The
amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal course of business. Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were
earned. We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot be recovered in a tax-free manner.
In certain jurisdictions, our cash balances are subject to withholding taxes immediately
upon withdrawal of funds to a different jurisdiction. In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax incentives, we are required to maintain minimum cash balances in these jurisdictions. The transfer of cash from these jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material.
Our cash and cash equivalents balances are held in the following significant currencies (amounts in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2024 and 2023. We have derived these summarized statements of cash flows
from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
Operating activities. Net cash provided by operating activities for the three months ended March 31, 2024 increased compared to the corresponding period of the prior year, primarily due to timing of supplier payments and customer receipts.
Investing activities. Net cash used in investing activities for the three months ended March 31, 2024 increased compared to the corresponding period of the prior year, primarily due to (1) no cash received for divestitures in the three months ended March 31, 2024 (compared to $14.0 million in the prior year period) and (2) an increase in cash paid for capital expenditures. For fiscal year 2024, we anticipate capital expenditures of approximately $175.0 million, which we expect to fund with cash on hand.
Financing activities. Net cash used in financing activities for the three months ended March 31, 2024 decreased from the prior year period. The prior year period
included an early payment of $250.0 million on the Term Loan balance, which did not have a corresponding payment in the three months ended March 31, 2024. Partially offsetting this decrease was payment of $79.4 million to repurchase the remaining equity interest in a joint venture. Refer to Note 12: Shareholders' Equity for additional information.
Indebtedness and Liquidity
As of March 31, 2024, we had $3.4 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.
Capital Resources
Senior Secured Credit Facilities
The
Credit Agreement provides for the Senior Secured Credit Facilities, which consist of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances. In the first and second quarters of 2023, we repaid the Term Loan balance in full.
Sources of liquidity
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. As of March 31, 2024, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31,
2024, no amounts had been drawn against these outstanding letters of credit. Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures"). As of March 31, 2024, availability under the Accordion was approximately $2.0 billion.
We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources
of liquidity described above will be sufficient to fund our operations, capital expenditures, dividend payments, ordinary share repurchases, and debt service for at least the next twelve months. However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Further, our highly-leveraged nature may limit our ability to procure additional financing in the future.
Our ability to raise additional financing, and our borrowing costs, may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of April 20, 2024, Moody’s
Investors Service’s corporate credit rating for STBV was Ba2 with a positive outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook. Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce availability under the Credit Agreement.
Restrictions and Covenants
The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each
case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the three months ended March 31, 2024.
The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources included in our 2023 Annual Report. These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those programs. As of March 31, 2024, we believe we were in compliance with all covenants and default provisions under our credit arrangements.
Share repurchase programs
From time to time, our Board of Directors
has authorized various share repurchase programs, which may be modified or terminated by our Board at any time. We currently have authorization for the September 2023 Program, under which approximately $461.8 million remained available as of March 31, 2024. In the three months ended March 31, 2024, we repurchased 0.3 million ordinary shares under the September 2023 Program. We did not repurchase any shares in the three months ended March 31, 2023.
Dividends
In the three months ended March 31, 2024 and 2023, we paid aggregate cash dividends of $18.1 million and $16.8 million, respectively. On April 24,
2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on May 22, 2024 to shareholders of record as of May 8, 2024.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity's reportable segments. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items"
included in the determination of segment operating income. The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods, and that a public entity provide the title and position of the chief operating decision maker. Other requirements of the guidance are not expected to be material. There is no change to the guidance for identification or aggregation of operating or reportable segments. FASB ASU No. 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The guidance must be applied retrospectively to all prior periods presented. We adopted the guidance in FASB ASU No. 2023-07
on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.
In December 2023, the FASB issued ASU No. 2023-09, Income taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard
is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact on our income tax related disclosures.
Critical Accounting Policies and Estimates
For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates included in our 2023 Annual Report.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
No
significant changes to our market risk have occurred since December 31, 2023. For a discussion of market risks affecting us, refer to Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk included in our 2023 Annual Report.
Item 4.Controls and Procedures.
The required certifications of our Chief Executive Officer and Chief Financial Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and changes in internal control over financial reporting referred to in these certifications.
These certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.
With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls
and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level because of the existence of material weaknesses as described below. As of December 31, 2023, we identified material weaknesses in maintaining an appropriate internal control environment. Management did not specify objectives with sufficient clarity to enable an appropriate level of risk assessment and monitoring. Additionally, our control activities did not adequately and consistently establish policies,
procedures, information protocols and communications to design and operate effective controls, due in part, to a lack of appropriate accounting personnel, impacting areas such as inventory and account reconciliation processes in our Americas Accounting and Shared Services teams located in Mexico.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Although these material weaknesses did not result in a material misstatement to our audited consolidated financial statements for the year ended December 31, 2023, they have been identified as material weaknesses because there is a possibility
that they could lead to a material misstatement of account balances or disclosures.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness Remediation Plan
We have developed and are executing on a remediation plan, which includes:
•The engagement of third-party consultants to evaluate and help formalize internal controls design and framework;
•The
completion of a risk assessment to determine areas within the internal control structure to strengthen, document and execute.
•The augmentation, reorganization or replacement of personnel where necessary to ensure appropriate levels of knowledge and execution to support internal control structure assessment, design and execution.
We are committed to the remediation of these material weaknesses and expect to successfully implement enhanced control processes. However, as we continue to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when these material weaknesses will be remediated, that additional actions will not be required to remediate these material weaknesses, or the
costs of any such additional actions.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations to the effectiveness of any system of internal control over financial reporting. Accordingly, even an effective system of internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation and presentation in accordance with United States generally accepted accounting principles. Our internal controls over financial reporting are subject to various inherent limitations, including cost limitations, judgments used in
decision
making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.
PART II—OTHER INFORMATION
Item 1.Legal Proceedings.
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although
it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows.
Item 1A.Risk Factors.
Information regarding risk factors appears in Part I, Item 1A: Risk Factors, included in our 2023 Annual Report. There have been no material changes to the risk factors disclosed therein.
Item 2.Unregistered
Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased (in shares) (1)
Weighted-Average Price Paid per Share
Total Number
of Shares Purchased as Part of Publicly Announced Plan or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions)
(1) The total number of ordinary shares purchased includes ordinary shares that were withheld upon the vesting of restricted securities to cover payment of employee withholding tax. These withholdings took place outside of a publicly announced repurchase plan. There were 347, 719, and 2,528 ordinary shares withheld in January
2024, February 2024, and March 2024, respectively, representing a total aggregate fair value of $0.1 million based on the closing price of our ordinary shares on the date of withholdings.
Item 3.Defaults Upon Senior Securities.
None.
Item 5. Other Information
Retirement of President and Chief Executive Officer; Appointment of Interim President and Chief Executive Officer
The Board of Directors (the “Board”) of Sensata Technologies plc (the “Company”) has appointed Martha Sullivan
to succeed Jeffrey Cote as Interim President and Chief Executive Officer (“CEO”) effective May 1, 2024. Ms. Sullivan, 67, held the position of President of the Company from 2010 to 2019 and CEO of the Company from 2013 to 2020. In addition, Ms. Sullivan has served on the Board since 2013 and will continue to serve in such role. Additional background information on Ms. Sullivan can be found on page 12 of the Company’s 2024 Definitive Proxy Statement, filed with the Securities and Exchange Commission on April 29, 2024, which is incorporated herein by reference.
In connection with her appointment, Ms. Sullivan has entered into an offer letter with the Company providing for an annual base salary of $1.05 million, an annual incentive opportunity at 135% of her annual base salary (to be prorated based on target performance in the event a successor commences employment as permanent CEO before December 31, 2024), an equity incentive award with a grant date fair value of $6 million (vesting in equal monthly installments, while serving as Interim President and CEO) and eligibility to participate in employee benefits and perquisites generally made available to executive officers of the Company. Ms. Sullivan is not eligible for severance benefits and will not receive compensation
for her service on the Board during her time as Interim President and CEO.
On April 26, 2024, Sensata Technologies, Inc. and Mr. Cote entered into a Retirement and Release of Claims Agreement (the “Retirement and Release Agreement”) pursuant to which Mr. Cote retired from his role as President and Chief Executive Officer (“CEO”) of the Company effective April 30, 2024. On the same day, Mr. Cote also resigned from the Board.
Mr.
Cote will be entitled to the retirement benefits payable in accordance with the existing terms of his employment agreement and applicable equity award agreements, including the continued vesting of unvested restricted stock units (“RSUs”) and the accelerated vesting of performance-based RSUs (“PRSUs”), based on actual performance for years prior to 2024 and prorated vesting at target for 2024. In addition, the Retirement and Release Agreement provides that Mr. Cote’s outstanding vested stock options will remain exercisable for the duration of their existing term. In consideration for these retirement benefits, Mr. Cote has agreed to a release of claims in favor of the Company and related parties and to comply with various restrictive covenants in his employment agreement and award agreements.
Adoption of Severance and Change
in Control Plan
On April 26, 2024, the Board adopted the Sensata Technologies Holding plc Severance and Change in Control Plan (the “Plan”) for employees with the title of CEO, Executive Vice President (“EVP”), Senior Vice President (“SVP”) or Vice President (“VP”) or otherwise designated by the Compensation Committee of the Board (the “Committee”) to be eligible to receive benefits under the Plan (each, an “Eligible Employee”). An interim CEO, including Ms. Sullivan, will not be eligible to participate in the Plan unless otherwise determined by the Committee. Capitalized terms used in the following description are as defined in the Plan, unless otherwise indicated.
The Plan provides for the payment of severance and other benefits upon a termination of employment by the
Company without Cause (other than as a result of death or Disability) or, solely in the case of the CEO, an EVP or an SVP, a resignation by the Eligible Employee for Good Reason (a “Covered Termination”). Subject to customary releases and agreements, the Plan provides for the payment of benefits (the “Change in Control Severance Payments”) upon a Covered Termination that occurs within 24 months after the date of a Change in Control (the “Change in Control Period”) as follows:
•a lump sum cash payment equal to base salary for 36 months for the CEO, 24 months for EVPs and SVPs and 12 months for VPs (such number of months, the “Change in Control Severance Period”);
•a lump sum equal to 300% of average bonus (200% for EVPs and SVPs and 100% for VPs);
•for
the CEO, EVPs and SVPs only, continued participation throughout the Change in Control Severance Period in their health and dental benefit plans; and
•for the CEO, EVPs and SVPs only, a resignation for Good Reason will be treated as an involuntary termination without Cause for all purposes under the award agreements applicable to their outstanding equity incentive awards.
The Plan also provides for severance payments that are lower than the Change in Control Severance Payments upon a Covered Termination outside of a Change in Control Period. None of the Company’s named executive officers are currently eligible for these benefits.
On April 1, 2024, the Company entered into an RSU award agreement (the “RSU Award Agreement”) and a performance-based RSU award agreement (the “PRSU Award Agreement”) with Brian Roberts, the Company’s Chief Financial Officer, while making its annual equity incentive awards. Effective on April 26, 2024, the Company amended each of the RSU Award Agreement and the PRSU Award Agreement to provide, upon a Qualifying Termination (as defined in the respective agreement), accelerated
vesting of (i) unvested RSUs that would have vested within twelve months of termination and (ii) unvested PRSUs that would have vested within twelve months of termination at the sum of (x) the banked amounts for those performance years completed plus (y) the target amount for any uncompleted performance year.
Cooperation Agreement with Elliott Investment
On April 29, 2024, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with Elliott Investment Management L.P., Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott”).
Pursuant to the Cooperation Agreement, the
Company agreed, among other things, to appoint Mr. Phillip Eyler (the “New Independent Director”) to the board of directors of the Company (the “Board”), effective as of July 1, 2024. Mr. Eyler shall serve as a director until the Company’s 2025 Annual General Meeting of Shareholders (the “2025 Annual Meeting”) (including any adjournments or postponements thereof) or his earlier resignation or removal from office. In connection with Mr. Cote’s
retirement
and resignation from the Board, the size of the Board was decreased to 10 directors. Upon the appointment of Mr. Eyler, effective as of July 1, 2024, the size of the Board will be increased to 11 directors.
Pursuant to the Cooperation Agreement, the Company also established a Chief Executive Officer Search Committee (the “CEO Search Committee”) to conduct a search to identify candidates for and assist the Board in selecting the Company’s next chief executive officer and president (the “New CEO”). The CEO Search Committee will be chaired by Mr. Andrew Teich and will also include Ms. Martha Sullivan and Mr. John Mirshekari and, upon his appointment to the Board, Mr. Eyler.
The
Cooperation Agreement also includes procedures regarding the replacement of the New Independent Director. If Mr. Eyler fails to be appointed to the Board as of July 1, 2024, or if the New Independent Director resigns, is removed or ceases to serve as a director for any other reason prior to the Expiration Date (as defined below), Elliott has a right to participate in the selection of a mutually agreeable replacement for the New Independent Director, including on the CEO Search Committee, subject to, among other things, Elliott beneficially owning a “net long position” of, or having aggregate “net long” economic exposure to, at least 2% of the Company’s then outstanding Ordinary Shares.
As used herein, the term “Expiration Date” means February
28, 2025, except that the Expiration Date shall be at least 30 days prior to the earlier of (i) the record date for the determination of shareholders who are entitled to notice of and to vote at the Company’s 2025 Annual Meeting, (ii) the date of the Company’s notice of annual meeting and proxy statement for the 2025 Annual Meeting and (iii) the deadline for shareholders to deliver notice of a resolution (including with respect to the election of directors) in connection with the 2025 Annual Meeting.
Pursuant to the Cooperation Agreement, Elliott agreed to cause all of the ordinary shares that Elliott or any of its affiliates has the right to vote as of the applicable record date to be voted, during the period starting on the effective date of the
Cooperation Agreement until the Expiration Date (such period, the “Cooperation Period”), in accordance with recommendations by the Board on all proposals that may be the subject of shareholder action, subject to certain exceptions (including, among others, that Elliott and its affiliates may vote in their sole discretion on any proposal related to an Extraordinary Transaction (as defined in the Cooperation Agreement)).
Under the terms of the Cooperation Agreement, during the Cooperation Period, Elliott also agreed to abide by certain standstill provisions (subject to certain exceptions) and the parties agreed to mutual non-disparagement provisions.
The foregoing summary of the Cooperation Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Cooperation Agreement, including the Form of Press
Release attached as an exhibit to the Cooperation Agreement, a copy of which is attached as Exhibit 10.5 to this Quarterly Report on Form 10-Q.
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
