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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34652
_________________________________________________________________________________
SENSATA TECHNOLOGIES HOLDING PLC
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________
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England and Wales | | 98-1386780 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
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| | | | |
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529 Pleasant Street
Attleboro, Massachusetts, 02703, United States
(Address of principal executive offices, including zip code)
+1 (508) 236 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 |
Ordinary Shares - nominal value €0.01 per share | ST | New 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. Yes ☒ 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). Yes ☒ 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.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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| | | Emerging growth company | ☐ |
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 ☐ No ☒
As of July 16, 2024, 150,957,543 ordinary shares were outstanding.
TABLE OF CONTENTS
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PART I | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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PART II | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 5. | | |
| Item 6. | | |
| | | |
PART I—FINANCIAL INFORMATION
Item 1.Financial Statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,033,052 | | | $ | 508,104 | |
Accounts receivable, net of allowances of $18,379 and $28,980 as of June 30, 2024 and December 31, 2023, respectively | 809,411 | | | 744,129 | |
Inventories | 708,299 | | | 713,485 | |
Prepaid expenses and other current assets | 148,842 | | | 136,686 | |
| | | |
Total current assets | 2,699,604 | | | 2,102,404 | |
Property, plant and equipment, net | 884,155 | | | 886,010 | |
Goodwill | 3,542,713 | | | 3,542,770 | |
Other intangible assets, net of accumulated amortization of $2,600,447 and $2,522,760 as of June 30, 2024 and December 31, 2023, respectively | 806,977 | | | 883,671 | |
Deferred income tax assets | 128,744 | | | 131,527 | |
Other assets | 127,249 | | | 134,605 | |
Total assets | $ | 8,189,442 | | | $ | 7,680,987 | |
Liabilities and shareholders' equity | | | |
Current liabilities: | | | |
Current portion of long-term debt and finance lease obligations | $ | 702,701 | | | $ | 2,276 | |
Accounts payable | 475,573 | | | 482,301 | |
Income taxes payable | 22,861 | | | 32,139 | |
Accrued expenses and other current liabilities | 320,324 | | | 307,002 | |
| | | |
Total current liabilities | 1,521,459 | | | 823,718 | |
Deferred income tax liabilities | 360,437 | | | 359,073 | |
Pension and other post-retirement benefit obligations | 36,217 | | | 38,178 | |
Finance lease obligations, less current portion | 21,964 | | | 22,949 | |
Long-term debt, net | 3,170,804 | | | 3,373,988 | |
Other long-term liabilities | 67,009 | | | 66,805 | |
Total liabilities | 5,177,890 | | | 4,684,711 | |
Commitments and contingencies (Note 11) | | | |
Shareholders’ equity: | | | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 176,321 and 175,832 shares issued as of June 30, 2024 and December 31, 2023, respectively | 2,254 | | | 2,249 | |
Treasury shares, at cost, 25,365 and 25,090 shares as of June 30, 2024 and December 31, 2023, respectively | (1,223,212) | | | (1,213,160) | |
Additional paid-in capital | 1,846,062 | | | 1,901,621 | |
Retained earnings | 2,400,196 | | | 2,295,604 | |
Accumulated other comprehensive (loss)/income | (13,748) | | | 9,962 | |
| | | |
| | | |
Total shareholders' equity | 3,011,552 | | | 2,996,276 | |
Total liabilities and shareholders' equity | $ | 8,189,442 | | | $ | 7,680,987 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Net revenue | $ | 1,035,535 | | | $ | 1,062,112 | | | $ | 2,042,244 | | | $ | 2,060,287 | |
Operating costs and expenses: | | | | | | | |
Cost of revenue | 724,414 | | | 732,108 | | | 1,413,674 | | | 1,402,579 | |
Research and development | 45,325 | | | 44,857 | | | 90,639 | | | 90,796 | |
Selling, general and administrative | 93,273 | | | 91,312 | | | 181,319 | | | 177,462 | |
Amortization of intangible assets | 39,085 | | | 54,563 | | | 77,600 | | | 95,337 | |
Restructuring and other charges, net | 3,491 | | | 21,259 | | | 4,273 | | | 27,258 | |
Total operating costs and expenses | 905,588 | | | 944,099 | | | 1,767,505 | | | 1,793,432 | |
Operating income | 129,947 | | | 118,013 | | | 274,739 | | | 266,855 | |
Interest expense | (40,863) | | | (45,759) | | | (79,258) | | | (94,550) | |
Interest income | 5,802 | | | 7,654 | | | 9,540 | | | 16,354 | |
Other, net | 4,097 | | | (10,924) | | | (7,447) | | | (9,532) | |
Income before taxes | 98,983 | | | 68,984 | | | 197,574 | | | 179,127 | |
Provision for income taxes | 27,280 | | | 19,873 | | | 49,850 | | | 43,599 | |
Net income | $ | 71,703 | | | $ | 49,111 | | | $ | 147,724 | | | $ | 135,528 | |
Basic net income per share | $ | 0.48 | | | $ | 0.32 | | | $ | 0.98 | | | $ | 0.89 | |
Diluted net income per share | $ | 0.47 | | | $ | 0.32 | | | $ | 0.98 | | | $ | 0.88 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Net income | $ | 71,703 | | | $ | 49,111 | | | $ | 147,724 | | | $ | 135,528 | |
Other comprehensive (loss)/income: | | | | | | | |
Cash flow hedges | (14,768) | | | 8,686 | | | (5,526) | | | 11,493 | |
Defined benefit and retiree healthcare plans | 208 | | | 224 | | | 435 | | | 617 | |
Cumulative translation adjustment | (3,898) | | | — | | | (18,619) | | | — | |
Other comprehensive (loss)/income | (18,458) | | | 8,910 | | | (23,710) | | | 12,110 | |
Comprehensive income | $ | 53,245 | | | $ | 58,021 | | | $ | 124,014 | | | $ | 147,638 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| | | | | | | | | | | |
| For the six months ended |
| June 30, 2024 | | June 30, 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 147,724 | | | $ | 135,528 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 67,016 | | | 63,560 | |
Amortization of debt issuance costs | 3,193 | | | 3,421 | |
Gain on sale of business | — | | | (5,877) | |
Share-based compensation | 11,944 | | | 17,607 | |
Loss on debt financing | — | | | 857 | |
Amortization of intangible assets | 77,600 | | | 95,337 | |
Deferred income taxes | 6,056 | | | 13,449 | |
Loss on equity investments, net | 14,306 | | | 302 | |
Unrealized (gain)/loss on derivative instruments and other | (9,862) | | | 14,674 | |
Changes in operating assets and liabilities, net of the effects of acquisitions: | | | |
Accounts receivable, net | (69,440) | | | (30,045) | |
Inventories | 3,158 | | | (19,036) | |
Prepaid expenses and other current assets | (6,699) | | | (13,408) | |
Accounts payable and accrued expenses | 11,798 | | | (39,665) | |
Income taxes payable | (9,099) | | | (12,067) | |
Other | 2,248 | | | (3,615) | |
Acquisition-related compensation payments | — | | | (8,380) | |
Net cash provided by operating activities | 249,943 | | | 212,642 | |
Cash flows from investing activities: | | | |
| | | |
Additions to property, plant and equipment and capitalized software | (87,188) | | | (84,444) | |
Investment in debt and equity securities | 1,994 | | | (390) | |
Proceeds from the sale of business, net of cash sold | — | | | 19,000 | |
| | | |
| | | |
Net cash used in investing activities | (85,194) | | | (65,834) | |
Cash flows from financing activities: | | | |
Proceeds from exercise of stock options and issuance of ordinary shares | 4,605 | | | 5,346 | |
Payment of employee restricted stock tax withholdings | (6,980) | | | (11,470) | |
Proceeds from borrowings on debt | 500,000 | | | — | |
Payments on debt | (566) | | | (448,390) | |
Dividends paid | (36,148) | | | (35,113) | |
Payments to repurchase ordinary shares | (10,052) | | | (25,076) | |
Purchase of noncontrolling interest in joint venture | (79,393) | | | — | |
Payments of debt financing costs | (6,376) | | | (311) | |
| | | |
Net cash provided by/(used in) financing activities | 365,090 | | | (515,014) | |
Effect of exchange rate changes on cash and cash equivalents | (4,891) | | | — | |
Net change in cash and cash equivalents | 524,948 | | | (368,206) | |
Cash and cash equivalents, beginning of year | 508,104 | | | 1,225,518 | |
Cash and cash equivalents, end of period | $ | 1,033,052 | | | $ | 857,312 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | | | | | Total Shareholders' Equity |
| Number | | Amount | | Number | | Amount | | | |
Balance as of March 31, 2024 | 175,839 | | | $ | 2,249 | | | (25,365) | | | $ | (1,223,212) | | | $ | 1,837,647 | | | $ | 2,353,440 | | | $ | 4,710 | | | | | | | $ | 2,974,834 | |
Surrender of shares for tax withholding | — | | | — | | | (185) | | | (6,851) | | | — | | | — | | | — | | | | | | | (6,851) | |
Stock options exercised | 119 | | | 1 | | | — | | | — | | | 4,604 | | | — | | | — | | | | | | | 4,605 | |
Vesting of restricted securities | 548 | | | 6 | | | — | | | — | | | — | | | (6) | | | — | | | | | | | — | |
Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (18,092) | | | — | | | | | | | (18,092) | |
| | | | | | | | | | | | | | | | | | | |
Retirement of ordinary shares | (185) | | | (2) | | | 185 | | | 6,851 | | | — | | | (6,849) | | | — | | | | | | | — | |
Share-based compensation | — | | | — | | | — | | | — | | | 3,811 | | | — | | | — | | | | | | | 3,811 | |
| | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 71,703 | | | — | | | | | | | 71,703 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (18,458) | | | | | | | (18,458) | |
Balance as of June 30, 2024 | 176,321 | | | $ | 2,254 | | | (25,365) | | | $ | (1,223,212) | | | $ | 1,846,062 | | | $ | 2,400,196 | | | $ | (13,748) | | | | | | | $ | 3,011,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | |
Balance as of December 31, 2023 | 175,832 | | | $ | 2,249 | | | (25,090) | | | $ | (1,213,160) | | | $ | 1,901,621 | | | $ | 2,295,604 | | | $ | 9,962 | | | | | | | $ | 2,996,276 | |
Surrender of shares for tax withholding | — | | | — | | | (188) | | | (6,980) | | | — | | | — | | | — | | | | | | | (6,980) | |
Stock options exercised | 119 | | | 1 | | | — | | | — | | | 4,604 | | | — | | | — | | | | | | | 4,605 | |
Vesting of restricted securities | 558 | | | 6 | | | — | | | — | | | — | | | (6) | | | — | | | | | | | — | |
Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (36,148) | | | — | | | | | | | (36,148) | |
Repurchase of ordinary shares | — | | | — | | | (275) | | | (10,052) | | | — | | | — | | | — | | | | | | | (10,052) | |
Retirement of ordinary shares | (188) | | | (2) | | | 188 | | | 6,980 | | | — | | | (6,978) | | | — | | | | | | | — | |
Share-based compensation | — | | | — | | | — | | | — | | | 11,944 | | | — | | | — | | | | | | | 11,944 | |
Purchase of noncontrolling interest in joint venture | — | | | — | | | — | | | — | | | (72,107) | | | — | | | — | | | | | | | (72,107) | |
Net income | — | | | — | | | — | | | — | | | — | | | 147,724 | | | — | | | | | | | 147,724 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (23,710) | | | | | | | (23,710) | |
Balance as of June 30, 2024 | 176,321 | | | $ | 2,254 | | | (25,365) | | | $ | (1,223,212) | | | $ | 1,846,062 | | | $ | 2,400,196 | | | $ | (13,748) | | | | | | | $ | 3,011,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | |
Balance as of March 31, 2023 | 175,298 | | | $ | 2,243 | | | (22,781) | | | $ | (1,124,713) | | | $ | 1,876,168 | | | $ | 2,452,858 | | | $ | (13,064) | | | | | | | $ | 3,193,492 | |
Surrender of shares for tax withholding | — | | | — | | | (231) | | | (11,347) | | | — | | | — | | | — | | | | | | | (11,347) | |
Stock options exercised | 76 | | | 1 | | | — | | | — | | | 2,665 | | | — | | | — | | | | | | | 2,666 | |
Vesting of restricted securities | 650 | | | 7 | | | — | | | — | | | — | | | (7) | | | — | | | | | | | — | |
Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (18,336) | | | — | | | | | | | (18,336) | |
Repurchase of ordinary shares | — | | | — | | | (590) | | | (25,125) | | | — | | | — | | | — | | | | | | | (25,125) | |
Retirement of ordinary shares | (231) | | | (2) | | | 231 | | | 11,347 | | | — | | | (11,345) | | | — | | | | | | | — | |
Share-based compensation | — | | | — | | | — | | | — | | | 10,401 | | | — | | | — | | | | | | | 10,401 | |
| | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 49,111 | | | — | | | | | | | 49,111 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 8,910 | | | | | | | 8,910 | |
Balance as of June 30, 2023 | 175,793 | | | $ | 2,249 | | | (23,371) | | | $ | (1,149,838) | | | $ | 1,889,234 | | | $ | 2,472,281 | | | $ | (4,154) | | | | | | | $ | 3,209,772 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | |
Balance as of December 31, 2022 | 175,207 | | | $ | 2,242 | | | (22,781) | | | $ | (1,124,713) | | | $ | 1,866,201 | | | $ | 2,383,341 | | | $ | (16,264) | | | | | | | $ | 3,110,807 | |
Surrender of shares for tax withholding | — | | | — | | | (233) | | | (11,470) | | | — | | | — | | | — | | | | | | | (11,470) | |
Stock options exercised | 158 | | | 2 | | | — | | | — | | | 5,426 | | | — | | | — | | | | | | | 5,428 | |
Vesting of restricted securities | 661 | | | 7 | | | — | | | — | | | — | | | (7) | | | — | | | | | | | — | |
Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (35,113) | | | — | | | | | | | (35,113) | |
Repurchase of ordinary shares | — | | | — | | | (590) | | | (25,125) | | | — | | | — | | | — | | | | | | | (25,125) | |
Retirement of ordinary shares | (233) | | | (2) | | | 233 | | | 11,470 | | | — | | | (11,468) | | | — | | | | | | | — | |
Share-based compensation | — | | | — | | | — | | | — | | | 17,607 | | | — | | | — | | | | | | | 17,607 | |
| | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 135,528 | | | — | | | | | | | 135,528 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 12,110 | | | | | | | 12,110 | |
Balance as of June 30, 2023 | 175,793 | | | $ | 2,249 | | | (23,371) | | | $ | (1,149,838) | | | $ | 1,889,234 | | | $ | 2,472,281 | | | $ | (4,154) | | | | | | | $ | 3,209,772 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis 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."
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 these 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 and six months ended June 30, 2024, we presented interest income on the condensed consolidated statements of operations separate from interest expense. In the three and six months ended June 30, 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. New Accounting Standards
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. 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 do not expect the adoption of FASB ASU No. 2023-09 to have an impact on our results of operations or financial condition, but it is expected to increase the amount of disclosures required in the notes to the consolidated financial statements.
3. Revenue Recognition
The following tables present net revenue disaggregated by segment and end market for the three and six months ended June 30, 2024 and 2023 for our two reportable segments, Performance Sensing ("PS") and Sensing Solutions ("SS"), and other:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2024 | | For the three months ended June 30, 2023 (1) |
| | PS | | SS | | Other | | Total | | PS | | SS | | Other (1) | | Total |
Automotive (1) | | $ | 543,158 | | | $ | 32,389 | | | $ | — | | | $ | 575,547 | | | $ | 511,616 | | | $ | 28,202 | | | $ | — | | | $ | 539,818 | |
HVOR (1)(3) | | 180,763 | | | 7,530 | | | — | | | 188,293 | | | 181,947 | | | 7,740 | | | — | | | 189,687 | |
Industrial | | — | | | 126,636 | | | — | | | 126,636 | | | — | | | 185,202 | | | — | | | 185,202 | |
Appliance and HVAC (2) | | — | | | 55,003 | | | — | | | 55,003 | | | — | | | 50,952 | | | — | | | 50,952 | |
Aerospace | | — | | | 45,371 | | | — | | | 45,371 | | | — | | | 46,832 | | | — | | | 46,832 | |
| | | | | | | | | | | | | | | | |
Other (1) | | — | | | 1,142 | | | 43,543 | | | 44,685 | | | — | | | 12,132 | | | 37,489 | | | 49,621 | |
Total | | $ | 723,921 | | | $ | 268,071 | | | $ | 43,543 | | | $ | 1,035,535 | | | $ | 693,563 | | | $ | 331,060 | | | $ | 37,489 | | | $ | 1,062,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2024 | | For the six months ended June 30, 2023 (1) |
| | PS | | SS | | Other | | Total | | PS | | SS | | Other (1) | | Total |
Automotive (1) | | $ | 1,073,782 | | | $ | 64,797 | | | $ | — | | | $ | 1,138,579 | | | $ | 1,010,711 | | | $ | 54,125 | | | $ | — | | | $ | 1,064,836 | |
HVOR (1) | | 363,457 | | | 14,388 | | | — | | | 377,845 | | | 350,614 | | | 13,494 | | | — | | | 364,108 | |
Industrial | | — | | | 250,917 | | | — | | | 250,917 | | | — | | | 333,714 | | | — | | | 333,714 | |
Appliance and HVAC | | — | | | 102,058 | | | — | | | 102,058 | | | — | | | 98,426 | | | — | | | 98,426 | |
Aerospace | | — | | | 91,524 | | | — | | | 91,524 | | | — | | | 91,158 | | | — | | | 91,158 | |
| | | | | | | | | | | | | | | | |
Other (1) | | — | | | 2,226 | | | 79,095 | | | 81,321 | | | — | | | 23,593 | | | 84,452 | | | 108,045 | |
Total | | $ | 1,437,239 | | | $ | 525,910 | | | $ | 79,095 | | | $ | 2,042,244 | | | $ | 1,361,325 | | | $ | 614,510 | | | $ | 84,452 | | | $ | 2,060,287 | |
___________________________________
(1) 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 and six months ended June 30, 2023 have been retrospectively recast to reflect this change.
(2) Heating, ventilation and air conditioning.
(3) Heavy vehicle and off-road.
4. Share-Based Payment Plans
The following table presents the components of non-cash compensation expense related to our equity awards for the three and six months ended June 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Stock options | $ | 569 | | | $ | (205) | | | $ | 569 | | | $ | (86) | |
Restricted securities | 3,242 | | | 10,606 | | | 11,375 | | | 17,693 | |
Share-based compensation expense | $ | 3,811 | | | $ | 10,401 | | | $ | 11,944 | | | $ | 17,607 | |
Equity Awards
We granted the following restricted stock units ("RSUs" and each, an "RSU") and performance-based restricted stock units ("PRSUs" and each, a "PRSU") under the Sensata Technologies Holding plc 2021 Equity Incentive Plan during the six months ended June 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | |
Awards Granted To: | | Type of Award | | Number of Units Granted (in thousands) | | | | Weighted Average Grant Date Fair Value |
| | | | | | | | |
Directors | | RSU (1) | | 41 | | | | | $ | 39.08 | |
Various executives | | RSU (2) | | 350 | | | | | $ | 37.18 | |
Various executives and employees | | RSU (3) | | 646 | | | | | $ | 36.48 | |
Various executives and employees | | PRSU (4) | | 159 | | | | | $ | 36.53 | |
Various executives and employees | | PRSU (5) | | 159 | | | | | $ | 38.90 | |
____________________________________
(1) These RSUs cliff vest one year from the grant date (various dates between March 2025 and June 2025).
(2) These RSUs vest on various dates over the next 18 months depending on service or performance criteria.
(3) These RSUs vest ratably over three years, one-third per year beginning on the first anniversary of the grant date. These RSUs will fully vest on various dates between February 2027 and June 2027.
(4) These PRSUs vest on various dates between April 2027 and June 2027. The number of units that ultimately vest will be between 0% and 150% and is dependent on the achievement of certain performance criteria.
(5) These awards include certain PRSUs with market performance conditions that will be evaluated relative to the performance of certain peers as defined in the award agreement. The number of units that ultimately vest (in April 2027 and June 2027) will be from 0% to 150%, depending on achievement of these performance criteria. Total grant date value of these PRSUs is approximately $6.2 million and was valued using the Monte Carlo method.
5. Restructuring and Other Charges, Net
Q3 2023 Plan
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 510 positions. Over the life of the Q3 2023 Plan, we incurred restructuring charges of approximately $25.5 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 September 30, 2024.
These restructuring charges impacted our business segments and corporate functions as follows: | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Positions | | | Charges | | | | |
Performance Sensing | 160 | | | | 8,495 | | | | | |
Sensing Solutions | 150 | | | | 7,495 | | | | | |
Corporate and other | 200 | | | | 9,510 | | | | | |
Total | 510 | | | | 25,500 | | | | | |
Restructuring charges, net recognized in the three and six months ended June 30, 2024 resulting from the Q3 2023 Plan are presented by business segment and corporate functions below. No charges were recognized in the three and six months ended June 30, 2023. | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2024 | | For the six months ended June 30, 2024 |
(In thousands) | Severance | | Facility and other exit costs | | Severance | | Facility and other exit costs |
Performance Sensing | $ | (181) | | | $ | — | | | $ | 347 | | | $ | — | |
Sensing Solutions | 215 | | | 79 | | | (134) | | | 79 | |
Corporate and other | (416) | | | — | | | 3 | | | — | |
Q3 2023 Plan total | $ | (382) | | | $ | 79 | | | $ | 216 | | | $ | 79 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Spear Marine Business
On June 6, 2023, we announced that we had made the decision to exit the marine energy storage business (the "Marine Business") of Spear Power Systems (“Spear”). The exit of the Spear Marine Business was the result of a change in strategy with respect to the business and involved ceasing sales, marketing, and business operations. It resulted in the elimination of certain positions, primarily in the U.S. and the closure of operations in Belgium. The Spear Marine Business had been included in the Sensing Solutions reportable segment. Exiting the Spear Marine Business resulted in charges in the three and six months ended June 30, 2024 and 2023, as presented in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended | | For the six months ended |
| Location | | June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Accelerated amortization | Amortization of intangible assets | | $ | — | | | $ | 13,527 | | | $ | — | | | $ | 13,527 | |
Write-down of inventory | Cost of revenue | | — | | | 10,479 | | | — | | | 10,479 | |
Severance charges | Restructuring and other charges, net | | (254) | | | 1,168 | | | (328) | | | 1,168 | |
Write-down of property, plant and equipment | Restructuring and other charges, net | | — | | | 1,735 | | | 5 | | | 1,735 | |
Other charges, including contract termination costs | Restructuring and other charges, net | | 343 | | | 11,402 | | | (592) | | | 11,402 | |
Total | | | $ | 89 | | | $ | 38,311 | | | $ | (915) | | | $ | 38,311 | |
Other
In the three months ended June 30, 2024, we initiated certain actions related to restructuring of our IT operations and product lifecycle management including product line discontinuations, which, for the three and six months ended June 30, 2024, resulted in total costs of $15.9 million, including severance, contract termination costs, and inventory charges. Of the costs recognized, $13.2 million was included within cost of revenue and the remainder was included within restructuring and other charges, net.
Summary
The following table presents the charges and gains included as components of restructuring and other charges, net for the three and six months ended June 30, 2024, and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Q3 2023 Plan charges, net (1) | $ | (303) | | | $ | — | | | $ | 295 | | | $ | — | |
Other restructuring and other charges, net | | | | | | | |
Severance charges, net (2) | 2,464 | | | 4,749 | | | 2,455 | | | 8,962 | |
Facility and other exit costs | 32 | | | 310 | | | 200 | | | 535 | |
Gain on sale of business | — | | | — | | | — | | | (5,877) | |
Acquisition-related compensation arrangements (3) | 955 | | | 3,330 | | | 1,910 | | | 10,602 | |
Other (4) | 343 | | | 12,870 | | | (587) | | | 13,036 | |
Restructuring and other charges, net | $ | 3,491 | | | $ | 21,259 | | | $ | 4,273 | | | $ | 27,258 | |
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| | | | | | | |
| | | | | | | |
___________________________________
(1) Includes net severance charges and facility and other exit costs relating to the Q3 2023 Plan as detailed under the heading Q3 2023 Plan above.
(2) Each period presented includes severance charges, net of reversals, that do not represent the initiation of a larger restructuring plan. This includes, for the three and six months ended June 30, 2024, severance related to certain actions to restructure our IT operations. In addition, the three and six months ended June 30, 2024, include certain costs to exit the Spear Marine Business as detailed under the heading Spear Marine Business above.
(3) Acquisition-related compensation arrangements consist of incentive compensation to previous owners of companies we have acquired. Payment is generally tied to technical and/or financial targets termed at the time of acquisition.
(4) Represents charges that are not included in one of the other classifications. The three and six months ended June 30, 2023 primarily include charges related to the exit of the Spear Marine Business, as detailed under the heading Spear Marine Business above. The three and six months ended June 30, 2024, includes contract termination costs related to certain product lifecycle management activities.
The following table presents a rollforward of our severance liability for the six months ended June 30, 2024:
| | | | | | | | | | | | | | | | | |
| Q3 2023 Plan | | Other | | Total |
Balance as of December 31, 2023 | $ | 6,017 | | | $ | 769 | | | $ | 6,786 | |
Charges, net of reversals | 216 | | | 2,455 | | | 2,671 | |
Payments | (4,419) | | | (2,125) | | | (6,544) | |
Foreign currency remeasurement | (129) | | | (94) | | | (223) | |
Balance as of June 30, 2024 | $ | 1,685 | | | $ | 1,005 | | | $ | 2,690 | |
The severance liability as of June 30, 2024 and December 31, 2023 was entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.
6. Other, Net
The following table presents the components of other, net for the three and six months ended June 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Currency remeasurement gain/(loss) on net monetary assets | $ | 3,398 | | | $ | (9,307) | | | $ | 4,429 | | | $ | (10,566) | |
(Loss)/gain on foreign currency forward contracts | (1,837) | | | 4,423 | | | (1,157) | | | 4,607 | |
Gain/(loss) on commodity forward contracts | 4,977 | | | (6,269) | | | 6,076 | | | (4,370) | |
Loss on debt financing | — | | | (372) | | | — | | | (857) | |
Loss on equity investments, net (1) | (1,019) | | | (302) | | | (14,306) | | | (302) | |
Net periodic benefit cost, excluding service cost | (820) | | | (810) | | | (1,661) | | | (1,781) | |
Other | (602) | | | 1,713 | | | (828) | | | 3,737 | |
Other, net | $ | 4,097 | | | $ | (10,924) | | | $ | (7,447) | | | $ | (9,532) | |
___________________________________
(1) The six months ended June 30, 2024 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. Income Taxes
The following table presents the provision for income taxes for the three and six months ended June 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
| | | | | | | |
| | | | | | | |
Provision for income taxes | $ | 27,280 | | | $ | 19,873 | | | $ | 49,850 | | | $ | 43,599 | |
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.
8. Net Income per Share
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. For the three and six months ended June 30, 2024 and 2023 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Basic weighted-average ordinary shares outstanding | 150,845 | | | 152,700 | | | 150,663 | | | 152,609 | |
Dilutive effect of stock options | 8 | | | 55 | | | 4 | | | 103 | |
Dilutive effect of unvested restricted securities | 276 | | | 309 | | | 358 | | | 482 | |
Diluted weighted-average ordinary shares outstanding | 151,129 | | | 153,064 | | | 151,025 | | | 153,194 | |
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. These potential ordinary shares were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Anti-dilutive shares excluded | 1,239 | | | 1,625 | | | 1,501 | | | 1,003 | |
Contingently issuable shares excluded | 929 | | | 1,366 | | | 995 | | | 1,317 | |
9. Inventories
The following table presents the components of inventories as of June 30, 2024 and December 31, 2023:
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Finished goods | $ | 197,398 | | | $ | 223,972 | |
Work-in-process | 132,818 | | | 113,209 | |
Raw materials | 378,083 | | | 376,304 | |
Inventories | $ | 708,299 | | | $ | 713,485 | |
10. Debt
The following table presents the components of long-term debt, net and finance lease obligations as of June 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | Maturity Date | | June 30, 2024 | | December 31, 2023 |
| | | | | | |
| | | | | | |
| | | | | | |
5.0% Senior Notes (1) | | October 1, 2025 | | $ | 700,000 | | | $ | 700,000 | |
| | | | | | |
4.375% Senior Notes | | February 15, 2030 | | 450,000 | | | 450,000 | |
3.75% Senior Notes | | February 15, 2031 | | 750,000 | | | 750,000 | |
4.0% Senior Notes | | April 15, 2029 | | 1,000,000 | | | 1,000,000 | |
5.875% Senior Notes | | September 1, 2030 | | 500,000 | | | 500,000 | |
6.625% Senior Notes (1) | | July 15, 2032 | | 500,000 | | | — | |
Less: debt discount, net of premium | | | | (891) | | | (1,568) | |
Less: deferred financing costs | | | | (28,305) | | | (24,444) | |
Less: current portion (1) | | | | (700,000) | | | — | |
Long-term debt, net | | | | $ | 3,170,804 | | | $ | 3,373,988 | |
| | | | | | |
Finance lease obligations | | | | $ | 24,665 | | | $ | 25,225 | |
Less: current portion | | | | (2,701) | | | (2,276) | |
Finance lease obligations, less current portion | | | | $ | 21,964 | | | $ | 22,949 | |
___________________________________
(1) On June 6, 2024, our indirect, wholly-owned subsidiary, Sensata Technologies, Inc. ("STI"), completed the issuance and sale of $500.0 million aggregate principal amount of 6.625% senior notes due 2032 (the "6.625% Senior Notes"). On July 15, 2024, we used the proceeds from this issuance, together with cash on hand, for the redemption in full of the $700.0 million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), which were issued by our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"). Accordingly, we have presented the 5.0% Senior Notes within the current portion of long-term debt on our condensed consolidated balance sheet as of June 30, 2024.
Our indebtedness as of June 30, 2024 and December 31, 2023 consists of various tranches of senior unsecured notes, including the 5.0% Senior Notes, $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes), $750.0 million aggregate principal amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes), $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the "4.0% Senior Notes"), $500.0 million aggregate principal amount of 5.875% senior notes due 2030 (the "5.875% Senior Notes"), and the 6.625% Senior Notes. We also have secured credit facilities which provide for our $750.0 million revolving credit facility (the "Revolving Credit Facility") and incremental availability under which additional debt can be issued. Refer to Note 14: Debt of our 2023 Annual Report for additional information related to our indebtedness prior to the issuance of the 6.625% Senior Notes.
Revolving Credit Facility
As of June 30, 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 June 30, 2024, no amounts had been drawn against these outstanding letters of credit.
Debt Financing Transactions
Issuance of 6.625% Senior Notes
The 6.625% Senior Notes were issued under an indenture dated as of June 6, 2024 (the "6.625% Senior Notes Indenture") among STI, as issuer, The Bank of New York Mellon, as trustee, and our guarantor subsidiaries named therein (the "Guarantors").
The 6.625% Senior Notes bear interest at a rate of 6.625% per annum and mature on July 15, 2032. Interest is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2025. STI's obligations under the 6.625% Senior Notes are guaranteed by STBV and each of STBV's wholly-owned subsidiaries (other than STI) that is a Guarantor under STI's senior secured credit facilities (the "Senior Secured Credit Facilities") and an issuer or a guarantor under our existing senior notes as follows (collectively, the "Existing Notes"): STI's 4.375% Senior Notes due 2030 and 3.75% Senior Notes due 2031 and STBV's 4.0% Senior Notes due 2029 and 5.875% Senior Notes due 2030.
The 6.625% Senior Notes are STI’s, and the guarantees are the Guarantors’, senior unsecured obligations and rank equally in right of payment to all existing and future senior indebtedness of STI or the Guarantors, respectively, including indebtedness under the Senior Secured Credit Facilities, the Existing Notes and the 5.0% Senior Notes.
The 6.625% Senior Notes Indenture contains covenants that limit the ability of Sensata Technologies B.V. ("STBV") and its subsidiaries (including STI and the other Guarantors) to, among other things: incur liens; engage in sale and leaseback transactions; with respect to any subsidiary of STBV (other than STI), incur indebtedness without such subsidiary’s guaranteeing the 6.625% Senior Notes; or consolidate, merge with, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all or substantially all of their properties or assets to, another person. These covenants are subject to important exceptions and qualifications set forth in the 6.625% Senior Notes Indenture.
The guarantees of the 6.625% Senior Notes and certain of these covenants will be suspended if the 6.625% Senior Notes are assigned an investment-grade rating by either S&P Global Ratings or Moody’s Investors Service, Inc. and no default has occurred and is continuing. The guarantees of the 6.625% Senior Notes and the suspended covenants will be reinstated in the event that the 6.625% Senior Notes are rated below investment grade by both rating agencies or an event of default has occurred and is continuing at such time.
The 6.625% Senior Notes Indenture provides for events of default (subject in certain cases to customary grace and cure periods), which include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the 6.625% Senior Notes Indenture, defaults in payment of certain other indebtedness, certain events of bankruptcy or insolvency, failure to pay certain judgments, and failure of the guarantees of significant subsidiaries to remain in full force and effect. Generally, if an event of default occurs, the trustee or the holders of at least 25% in principal amount of the then outstanding 6.625% Senior Notes may declare the principal of and accrued but unpaid interest on all of the 6.625% Senior Notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to the 6.625% Senior Notes Indenture.
At any time, and from time to time, prior to July 15, 2027, STI may redeem the 6.625% Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 6.625% Senior Notes being redeemed, plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after July 15, 2027, STI may redeem the 6.625% Senior Notes, in whole or in part, at the following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to, but excluding, the redemption date:
| | | | | |
Period beginning July 15, | Price |
2027 | 103.313 | % |
2028 | 101.656 | % |
2029 and thereafter | 100.000 | % |
In addition, at any time prior to July 15, 2027, STI may redeem up to 40% of the principal amount of the outstanding 6.625% Senior Notes (including additional 6.625% Senior Notes, if any) with the net cash proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 106.625%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, provided that at least 60% of the aggregate principal amount of the 6.625% Senior Notes (including additional 6.625% Senior Notes, if any) remains outstanding immediately after each such redemption.
Upon the occurrence of certain changes in control, each holder of the 6.625% Senior Notes will have the right to require STI to repurchase the 6.625% Senior Notes at 101% of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Upon changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, STI may, at its option, redeem the 6.625% Senior Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, premium, if any, and all Additional Amounts (as defined in the 6.625% Senior Notes Indenture), if any, then due and which will become due on the date of redemption.
Redemption of 5.0% Senior Notes
On June 6, 2024, we announced that we intended to redeem in full the $700.0 million aggregate principal amount outstanding on our 5.0% senior notes due 2025 (the "5.0% Senior Notes"). Accordingly, we reflected the 5.0% Senior Notes as a current liability on our consolidated balance sheet as of June 30, 2024.
We redeemed the 5.0% Senior Notes on July 15, 2024 in accordance with the terms of the indenture under which the 5.0% Senior Notes were issued and the terms of the notice of redemption, at a redemption price equal to 101% of the aggregate principal amount of the outstanding 5.0% Senior Notes, plus accrued and unpaid interest to (but not including) the redemption date. In addition to the $700.0 million aggregate principal amount outstanding, at redemption we paid the $7.0 million premium and $10.1 million accrued interest.
Accounting for Debt Financing Transactions
We account for our debt financing transactions as disclosed in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2023 Annual Report.
In connection with the issuance of the 6.625% Senior Notes, we recognized $6.3 million of deferred financing costs, which are presented as a reduction of long-term debt on our condensed consolidated balance sheets.
Other Indebtedness
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 other indebtedness.
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 June 30, 2024 and December 31, 2023, accrued interest totaled $47.3 million and $45.2 million, respectively.
11. Commitments 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. Shareholders' Equity
Purchase of noncontrolling interest in joint venture
In February 2024, Sensata purchased the remaining 50% interest in the Company’s joint venture with Dongguan Churod Electronics Co., Ltd. for approximately $79.4 million. Prior to the transaction, the Company had been consolidating the joint venture. The purchase of the 50% 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 and six months ended June 30, 2024, we paid aggregate cash dividends of $18.1 million and $36.1 million, respectively, compared to $18.3 million and $35.1 million in the three and six months ended June 30, 2023, respectively. On July 18, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on August 28, 2024 to shareholders of record as of August 14, 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 $500.0 million ordinary share repurchase program (the “January 2022 Program”), which replaced the previous $500.0 million program approved in July 2019. On September 26, 2023, our Board of Directors authorized a new $500.0 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 June 30, 2024, we did not repurchase any shares under our share repurchase program. In the three months ended June 30, 2023, we repurchased 0.6 million ordinary shares for $25.1 million, under our share repurchase programs. In the six months ended June 30, 2024 and 2023, we repurchased 0.3 million and 0.6 million ordinary shares, respectively, for $10.1 million and $25.1 million, respectively, under our share repurchase programs. As of June 30, 2024, $461.8 million remained available for repurchase under the September 2023 Program.
Accumulated Other Comprehensive (Loss)/Income
The following table presents the components of accumulated other comprehensive (loss)/income for the six months ended June 30, 2024:
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| | Cash Flow Hedges | | Defined Benefit and Retiree Healthcare Plans | | Cumulative Translation Adjustment | | Accumulated Other Comprehensive (Loss)/Income |
Balance as of December 31, 2023 | | $ | 17,513 | | | $ | (28,499) | | | $ | 20,948 | | | $ | 9,962 | |
Other comprehensive (loss)/income before reclassifications, net of tax | | 6,872 | | | — | | | (18,619) | | | (11,747) | |
Reclassifications from accumulated other comprehensive (loss)/income, net of tax | | (12,398) | | | 435 | | | — | | | (11,963) | |
Other comprehensive (loss)/income | | (5,526) | | | 435 | | | (18,619) | | | (23,710) | |
Balance as of June 30, 2024 | | $ | 11,987 | | | $ | (28,064) | | | $ | 2,329 | | | $ | (13,748) | |
The following table presents the amounts reclassified from accumulated other comprehensive (loss)/income for the three and six months ended June 30, 2024 and 2023:
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| | For the three months ended June 30, | | For the six months ended June 30, | | Affected Line in Condensed Consolidated Statements of Operations |
Component | | 2024 | | 2023 | | 2024 | | 2023 | |
Derivative instruments designated and qualifying as cash flow hedges: | | | | | | |
Foreign currency forward contracts | | $ | (762) | | | $ | (4,394) | | | $ | (870) | | | $ | (11,033) | | | Net revenue (1) |
Foreign currency forward contracts | | (8,485) | | | (4,403) | | | (15,839) | | | (6,100) | | | Cost of revenue (1) |
| | | | | | | | | | |
Total, before taxes | | (9,247) | | | (8,797) | | | (16,709) | | | (17,133) | | | Income before taxes |
Income tax effect | | 2,386 | | | 2,269 | | | 4,311 | | | 4,420 | | | Provision for income taxes |
Total, net of taxes | | $ | (6,861) | | | $ | (6,528) | | | $ | (12,398) | | | $ | (12,713) | | | Net income |
| | | | | | | | | | |
Defined benefit and retiree healthcare plans | | $ | 271 | | | $ | 311 | | | $ | 567 | | | $ | 848 | | | Other, net |
| | | | | | | | | | |
| | | | | | | | | | |
Income tax effect | | (63) | | | (87) | | | (132) | | | (231) | | | Provision for income taxes |
Total, net of taxes | | $ | 208 | | | $ | 224 | | | $ | 435 | | | $ | 617 | | | Net income |
___________________________________
(1) Refer to Note 14: Derivative Instruments and Hedging Activities for additional information regarding amounts to be reclassified from accumulated other comprehensive (loss)/income in future periods.
13. Fair Value Measures
Measured on a Recurring Basis
The fair values of our assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 are shown in the below table.
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Assets | | | |
Cash equivalents (Level 1) | $ | 738,456 | | | $ | 138,749 | |
Foreign currency forward contracts (Level 2) | 18,417 | | | 28,871 | |
Commodity forward contracts (Level 2) | 5,503 | | | 1,457 | |
Total | $ | 762,376 | | | $ | 169,077 | |
| | | |
Liabilities | | | |
Foreign currency forward contracts (Level 2) | $ | 6,895 | | | $ | 8,996 | |
Commodity forward contracts (Level 2) | 400 | | | 795 | |
Total | $ | 7,295 | | | $ | 9,791 | |
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 six months ended June 30, 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 $143.4 million of goodwill to the new reporting unit in the three months ended March 31, 2024.
Financial Instruments Not Recorded at Fair Value
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 June 30, 2024 and December 31, 2023. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
| Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value |
Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
5.0% Senior Notes | $ | 700,000 | | | $ | 705,250 | | | $ | 700,000 | | | $ | 694,750 | |
| | | | | | | |
4.375% Senior Notes | $ | 450,000 | | | $ | 412,313 | | | $ | 450,000 | | | $ | 415,125 | |
3.75% Senior Notes | $ | 750,000 | | | $ | 648,750 | | | $ | 750,000 | | | $ | 656,250 | |
4.0% Senior Notes | $ | 1,000,000 | | | $ | 915,000 | | | $ | 1,000,000 | | | $ | 920,000 | |
5.875% Senior Notes | $ | 500,000 | | | $ | 487,500 | | | $ | 500,000 | | | $ | 495,000 | |
6.625% Senior Notes | $ | 500,000 | | | $ | 501,250 | | | $ | — | | | $ | — | |
___________________________________
(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 June 30, 2024 and December 31, 2023, we held equity investments under the measurement alternative of $6.3 million and $18.3 million, respectively, which are presented in other assets in the condensed consolidated balance sheets. In the six months ended June 30, 2024, we adjusted the carrying value of one of these equity investments as a result of an observable price change in the first quarter of 2024, resulting in a loss of $14.8 million.
14. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three and six months ended June 30, 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 June 30, 2024, we estimated that $17.5 million of net gains will be reclassified from accumulated other comprehensive (loss)/income to earnings during the twelve-month period ending June 30, 2025.
As of June 30, 2024, we had the following outstanding foreign currency forward contracts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional (in millions) | | Effective Date(s) | | Maturity Date(s) | | Index (Exchange Rates) | | Weighted-Average Strike Rate | | Hedge Designation (1) |
56.7 EUR | | June 26, 2024 | | July 31, 2024 | | Euro ("EUR") to USD | | 1.07 USD | | Not designated |
399.5 EUR | | Various from July 2022 to June 2024 | | Various from July 2024 to June 2026 | | EUR to USD | | 1.11 USD | | Cash flow hedge |
416.0 CNY | | June 25, 2024 | | July 31, 2024 | | USD to Chinese Renminbi ("CNY") | | 7.11 CNY | | Not designated |
331.3 USD | | Various from March 2024 to May 2024 | | Various from July 2024 to May 2026 | | USD to CNY | | 7.03 CNY | | Cash flow hedge |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
33,857.9 KRW | | Various from September 2022 to June 2024 | | Various from July 2024 to May 2026 | | USD to Korean Won ("KRW") | | 1,300.38 KRW | | Cash flow hedge |
| | | | | | | | | | |
23.6 MYR | | June 25, 2024 | | July 31, 2024 | | USD to Malaysian Ringgit ("MYR") | | 4.69 MYR | | Not designated |
| | | | | | | | | | |
186.0 MXN | | June 26, 2024 | | July 31, 2024 | | USD to Mexican Peso ("MXN") | | 18.37 MXN | | Not designated |
4,342.7 MXN | | Various from July 2022 to June 2024 | | Various from July 2024 to June 2026 | | USD to Mexican Peso ("MXN") | | 19.18 MXN | | Cash flow hedge |
10.1 GBP | | June 26, 2024 | | July 31, 2024 | | British Pound Sterling ("GBP") to USD | | 1.26 USD | | Not designated |
72.1 GBP | | Various from July 2022 to June 2024 | | Various from July 2024 to June 2026 | | GBP to USD | | 1.25 USD | | Cash flow hedge |
___________________________________
(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 June 30, 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:
| | | | | | | | | | | | | | | | | | | | |
Commodity | | Notional | | Remaining Contracted Periods | | Weighted-Average Strike Price Per Unit |
Silver | | 695,638 troy oz. | | July 2024 to May 2026 | | $26.13 |
| | | | | | |
| | | | | | |
| | | | | | |
Copper | | 5,983,236 pounds | | July 2024 to May 2026 | | $4.02 |
| | | | | | |
| | | | | | |
Financial Instrument Presentation
The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | June 30, 2024 | | December 31, 2023 | | Balance Sheet Location | | June 30, 2024 | | December 31, 2023 |
Derivatives designated as hedging instruments | | | | | | |
Foreign currency forward contracts | Prepaid expenses and other current assets | | $ | 15,501 | | | $ | 25,176 | | | Accrued expenses and other current liabilities | | $ | 3,487 | | | $ | 6,746 | |
Foreign currency forward contracts | Other assets | | 2,912 | | | 3,554 | | | Other long-term liabilities | | 3,020 | | | 1,806 | |
Total | | | $ | 18,413 | | | $ | 28,730 | | | | | $ | 6,507 | | | $ | 8,552 | |
Derivatives not designated as hedging instruments | | | | | | | | |
Commodity forward contracts | Prepaid expenses and other current assets | | $ | 4,453 | | | $ | 1,314 | | | Accrued expenses and other current liabilities | | $ | 161 | | | $ | 719 | |
Commodity forward contracts | Other assets | | 1,050 | | | 143 | | | Other long-term liabilities | | 239 | | | 76 | |
Foreign currency forward contracts | Prepaid expenses and other current assets | | 4 | | | 141 | | | Accrued expenses and other current liabilities | | 388 | | | 444 | |
Total | | | $ | 5,507 | | | $ | 1,598 | | | | | $ | 788 | | | $ | 1,239 | |
These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
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 June 30, 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 (Loss)/Income into Net Income | | Amount of Net Gain Reclassified from Accumulated Other Comprehensive (Loss)/Income into Net Income |
| 2024 | | 2023 | | | 2024 | | 2023 |
Foreign currency forward contracts | | $ | 5,675 | | | $ | 4,872 | | | Net revenue | | $ | 762 | | | $ | 4,394 | |
Foreign currency forward contracts | | $ | (16,407) | | | $ | 15,631 | | | Cost of revenue | | $ | 8,485 | | | $ | 4,403 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | Amount of Gain/(Loss) Recognized in Net Income | | Location of Gain/(Loss) Recognized in Net Income |
| 2024 | | 2023 | |
Commodity forward contracts | | $ | 4,977 | | | $ | (6,269) | | | Other, net |
Foreign currency forward contracts | | $ | (1,837) | | | $ | 4,423 | | | Other, net |
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 six months ended June 30, 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 (Loss)/Income into Net Income | | Amount of Net Gain Reclassified from Accumulated Other Comprehensive (Loss)/Income into Net Income |
| 2024 | | 2023 | | | 2024 | | 2023 |
Foreign currency forward contracts | | $ | 16,640 | | | $ | 1,284 | | | Net revenue | | $ | 870 | | | $ | 11,033 | |
Foreign currency forward contracts | | $ | (7,455) | | | $ | 31,339 | | | Cost of revenue | | $ | 15,839 | | | $ | 6,100 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | Amount of Gain/(Loss) Recognized in Net Income | | Location of Gain/(Loss) Recognized in Net Income |
| 2024 | | 2023 | |
Commodity forward contracts | | $ | 6,076 | | | $ | (4,370) | | | Other, net |
Foreign currency forward contracts | | $ | (1,157) | | | $ | 4,607 | | | Other, net |
Credit Risk Related Contingent Features
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 June 30, 2024, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $7.4 million. As of June 30, 2024, we had not 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. Segment Reporting
We present financial information for two 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 $143.4 million of goodwill from Performance Sensing to Sensing Solutions. Refer to Note 13: Fair Value Measures for additional information.
Prior to the three months ended March 31, 2024, the Performance Sensing reportable segment represented the aggregation of two 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.
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 and six months ended June 30, 2024 and 2023 (prior periods have been recast).
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
Net revenue: | | | | | | | |
Performance Sensing (1) | $ | 723,921 | | | $ | 693,563 | | | $ | 1,437,239 | | | $ | 1,361,325 | |
Sensing Solutions (1) | 268,071 | | | 331,060 | | | 525,910 | | | 614,510 | |
Other (1) | 43,543 | | | 37,489 | | | 79,095 | | | 84,452 | |
Total net revenue | $ | 1,035,535 | | | $ | 1,062,112 | | | $ | 2,042,244 | | | $ | 2,060,287 | |
Segment operating income (as defined above): | | | | | | | |
Performance Sensing (1) | $ | 177,033 | | | $ | 180,407 | | | $ | 362,165 | | | $ | 349,473 | |
Sensing Solutions (1) | 79,839 | | | 94,154 | | | 152,318 | | | 178,174 | |
Other (1) | 9,204 | | | 738 | | | 15,985 | | | 5,708 | |
Total segment operating income | 266,076 | | | 275,299 | | | 530,468 | | | 533,355 | |
Corporate and other | (93,553) | | | (81,464) | | | (173,856) | | | (143,905) | |
Amortization of intangible assets | (39,085) | | | (54,563) | | | (77,600) | | | (95,337) | |
Restructuring and other charges, net | (3,491) | | | (21,259) | | | (4,273) | | | (27,258) | |
Operating income | 129,947 | | | 118,013 | | | 274,739 | | | 266,855 | |
Interest expense | (40,863) | | | (45,759) | | | (79,258) | | | (94,550) | |
Interest income | 5,802 | | | 7,654 | | | 9,540 | | | 16,354 | |
Other, net | 4,097 | | | (10,924) | | | (7,447) | | | (9,532) | |
Income before taxes | $ | 98,983 | | | $ | 68,984 | | | $ | 197,574 | | | $ | 179,127 | |
___________________________________
(1) The amounts previously reported for the three and six months ended June 30, 2023 have been retrospectively recast to reflect the segment realignment as discussed in Note 1: Basis of Presentation.
16. Subsequent Events
Other than the subsequent event described in Note 10: Debt regarding the redemption of the 5.0% Senior Notes, there were no other subsequent events.
Cautionary Statements Concerning Forward-Looking Statements
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 June 30, 2024 was $1,035.5 million, a decrease of 2.5% compared to $1,062.1 million in the prior period. Excluding a decrease of 1.3% attributed to changes in foreign currency exchange rates, net revenue decreased 1.2% 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). Net revenue for the six months ended June 30, 2024 was $2,042.2 million, a decrease of 0.9% compared to $2,060.3 million in the prior period. Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates, net revenue increased 0.5% on an organic basis.
Operating income for the three months ended June 30, 2024 increased $11.9 million, or 10.1%, to $129.9 million (12.5% of net revenue) from $118.0 million (11.1% of net revenue) in the three months ended June 30, 2023. Operating income for the six months ended June 30, 2024 increased $7.9 million, or 3.0%, to $274.7 million (13.5% of net revenue) from $266.9 million (13.0% of net revenue) in the six months ended June 30, 2023.
Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three and six months ended June 30, 2024 compared to the prior year periods.
We generated $249.9 million of operating cash flows in the six months ended June 30, 2024, ending the quarter with $1,033.1 million in cash and cash equivalents. In the six months ended June 30, 2024, we used cash of approximately $87.2 million for capital expenditures, $36.1 million for payment of cash dividends, and $10.1 million for share repurchases as part of our share repurchase plan.
On June 6, 2024, our indirect, wholly-owned subsidiary, Sensata Technologies, Inc. ("STI"), completed the issuance and sale of $500.0 million aggregate principal amount of 6.625% senior notes due 2032 (the "6.625% Senior Notes"). We used the
proceeds from this issuance, together with cash on hand, for the redemption in full of the $700.0 million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), which were issued by our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"). This redemption was completed on July 15, 2024. We executed the issuance of the 6.625% Senior Notes and the subsequent redemption of the 5.0% Senior Notes to eliminate the near-term uncertainty related to the 5.0% Senior Notes, which would have been due in October 2025, to extend the maturity horizon of our capital structure, and to add flexibility to our liquidity position. On June 30, 2024, subsequent to the issuance of the 6.625% Senior Notes, our net leverage ratio was 3.2x, compared to 3.3x at March 31, 2024 and 3.2x at December 31, 2023.
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 and six months ended June 30, 2024 compared to the three and six months ended June 30, 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
| Amount | | Percent (1) | | Amount | | Percent (1) | | Amount | | Percent (1) | | Amount | | Percent (1) |
Net revenue: | | | | | | | | | | | | | | | |
Performance Sensing | $ | 723.9 | | | 69.9 | % | | $ | 693.6 | | | 65.3 | % | | $ | 1,437.2 | | | 70.4 | % | | $ | 1,361.3 | | | 66.1 | % |
Sensing Solutions | 268.1 | | | 25.9 | | | 331.1 | | | 31.2 | | | 525.9 | | | 25.8 | | | 614.5 | | | 29.8 | |
Other | 43.5 | | | 4.2 | | | 37.5 | | | 3.5 | | | 79.1 | | | 3.9 | | | 84.5 | | | 4.1 | |
Net revenue | 1,035.5 | | | 100.0 | | | 1,062.1 | | | 100.0 | | | 2,042.2 | | | 100.0 | | | 2,060.3 | | | 100.0 | |
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| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Operating costs and expenses | 905.6 | | | 87.5 | | | 944.1 | | | 88.9 | | | 1,767.5 | | | 86.5 | | | 1,793.4 | | | 87.0 | |
Operating income | 129.9 | | | 12.5 | | | 118.0 | | | 11.1 | | | 274.7 | | | 13.5 | | | 266.9 | | | 13.0 | |
Interest expense | (40.9) | | | (3.9) | | | (45.8) | | | (4.3) | | | (79.3) | | | (3.9) | | | (94.6) | | | (4.6) | |
Interest income | 5.8 | | | 0.6 | | | 7.7 | | | 0.7 | | | 9.5 | | | 0.5 | | | 16.4 | | | 0.8 | |
Other, net | 4.1 | | | 0.4 | | | (10.9) | | | (1.0) | | | (7.4) | | | (0.4) | | | (9.5) | | | (0.5) | |
Income before taxes | 99.0 | | | 9.6 | | | 69.0 | | | 6.5 | | | 197.6 | | | 9.7 | | | 179.1 | | | 8.7 | |
Provision for income taxes | 27.3 | | | 2.6 | | | 19.9 | | | 1.9 | | | 49.9 | | | 2.4 | | | 43.6 | | | 2.1 | |
Net income | $ | 71.7 | | | 6.9 | % | | $ | 49.1 | | | 4.6 | % | | $ | 147.7 | | | 7.2 | % | | $ | 135.5 | | | 6.6 | % |
___________________________________
(1) Represents the amount presented divided by total net revenue.
Net Revenue
Net revenue for the three months ended June 30, 2024 decreased 2.5% compared to the prior period. Net revenue decreased 1.2% on an organic basis, which excludes a decrease of 1.3% attributed to changes in foreign currency exchange rates. The decrease includes $26 million of one-time pass-through revenue in the three months ended June 30, 2023, related to our Sensing Solutions business.
Net revenue for the six months ended June 30, 2024 decreased 0.9% compared to the prior period. Net revenue increased 0.5% 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 June 30, 2024 increased 4.4% compared to the prior period. Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 6.1% on an organic basis, which was primarily due to content growth across both Automotive and HVOR.
Performance Sensing net revenue for the six months ended June 30, 2024 increased 5.6% compared to the prior period. Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 7.3% 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 June 30, 2024 decreased 19.0% compared to the prior period. Excluding a decline of 0.7% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 18.3% on an organic basis, which is primarily due to one-time pass-through revenue and inventory destocking in the industrial markets, partially offset by growth in the aerospace market.
Sensing Solutions net revenue for the six months ended June 30, 2024 decreased 14.4% compared to the prior period. Excluding a decline of 0.7% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 13.7% on an organic basis, which is primarily due to one-time pass-through revenue and inventory destocking in the industrial markets, partially offset by growth in the aerospace market.
Operating costs and expenses
Operating costs and expenses for the three and six months ended June 30, 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.
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| For the three months ended | | For the six months ended |
| June 30, 2024 | | June 30, 2023 | | June 30, 2024 | | June 30, 2023 |
| Amount | | Percent (1) | | Amount | | Percent (1) | | Amount | | Percent (1) | | Amount | | Percent (1) |
Operating costs and expenses: | | | | | | | | | | | | | | | |
Cost of revenue | $ | 724.4 | | | 70.0 | % | | $ | 732.1 | | | 68.9 | % | | $ | 1,413.7 | | | 69.2 | % | | $ | 1,402.6 | | | 68.1 | % |
Research and development | 45.3 | | | 4.4 | | | 44.9 | | | 4.2 | | | 90.6 | | | 4.4 | | | 90.8 | | | 4.4 | |
Selling, general and administrative | 93.3 | | | 9.0 | | | 91.3 | | | 8.6 | | | 181.3 | | | 8.9 | | | 177.5 | | | 8.6 | |
Amortization of intangible assets | 39.1 | | | 3.8 | | | 54.6 | | | 5.1 | | | 77.6 | | | 3.8 | | | 95.3 | | | 4.6 | |
Restructuring and other charges, net | 3.5 | | | 0.3 | | | 21.3 | | | 2.0 | | | 4.3 | | | 0.2 | | | 27.3 | | | 1.3 | |
Total operating costs and expenses | $ | 905.6 | | | 87.5 | % | | $ | 944.1 | | | 88.9 | % | | $ | 1,767.5 | | | 86.5 | % | | $ | 1,793.4 | | | 87.0 | % |
___________________________________
(1) Represents the amount presented divided by total net revenue.
Cost of revenue
For the three months ended June 30, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the net impacts of inflation on material and logistics costs and pricing recoveries from customers and (2) the impact of $13.2 million of inventory write-downs related to product line discontinuations, partially offset by the nonrecurrence of $10.5 million write-down of inventory in the three months ended June 30, 2023 as a result of our decision to exit the Marine Business. 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 write-downs related to product line discontinuations and charges related to the exit of the Spear Marine Business.
For the six months ended June 30, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, (2) the impact of $13.2 million of inventory write-downs related to product line discontinuations, and (3) the unfavorable effect of changes in foreign currency exchange rates, partially offset by the nonrecurrence of $10.5 million write-down of inventory in the three months ended June 30, 2023 as a result of our decision to exit the Marine Business.
Research and development expense
For the three and six months ended June 30, 2024, research and development ("R&D") expense did not fluctuate materially from the prior year periods.
Selling, general and administrative expense
For the three months ended June 30, 2024, selling, general and administrative ("SG&A") expense increased primarily due to (1) additional costs to remediate the material weaknesses identified in our internal controls over financial reporting for the year ended December 31, 2023 and (2) increased transaction costs, partially offset by lower compensations costs.
For the six months ended June 30, 2024, selling, general and administrative ("SG&A") expense did not fluctuate materially from the prior year period.
Amortization of intangible assets
For the three and six months ended June 30, 2024, amortization of intangible assets decreased from the prior periods, primarily due to (1) the non-recurrence of a $13.5 million charge for accelerated amortization of intangible assets in the three months ended June 30, 2023 as a result of our exit from the Spear Marine Business and (2) 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 June 30, 2024, restructuring and other charges, net decreased from the prior year period, primarily due to (1) the non-recurrence of charges related to the Spear Marine Business in the second quarter of 2023, (2) lower charges for acquisition-related incentive compensation and (3) lower severance charges.
In the six months ended June 30, 2024, restructuring and other charges, net decreased from the prior year period, primarily due to (1) the non-recurrence of charges related to the Spear Marine Business in the second quarter of 2023, (2) lower charges for acquisition-related incentive compensation and (3) lower severance charges, partially offset by the non-recurrence of a gain on sale of a 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 June 30, 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.
For the six months ended June 30, 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 and six months ended June 30, 2024, interest expense decreased from the prior periods, primarily due to lower interest expense on the 5.625% Senior Notes, which were redeemed in the fourth quarter of 2023, and the Term Loan, which was paid in full in the second quarter of 2023 and partially offset by interest expense on the 6.625% Senior Notes.
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 and six months ended June 30, 2024, interest income decreased from the prior periods, primarily due to lower average cash equivalent balances in the respective periods compared to the prior periods.
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 June 30, 2024, other, net represented a net gain of $4.1 million, a favorable impact on earnings of $15.0 million compared to a net loss of $10.9 million in the prior period. This favorable impact was primarily due to (1) the impact of foreign currency remeasurement of net monetary assets and (2) the net impact of forward contracts on commodities and foreign currency exchange rates that are not designated as accounting hedges.
For the six months ended June 30, 2024, other, net represented a net loss of $7.4 million, a favorable impact on earnings of $2.1 million compared to a net loss of $9.5 million in the prior period. This favorable impact was primarily due to (1) the impact of foreign currency remeasurement of net monetary assets and (2) the net impact of forward contracts on commodities and foreign currency exchange rates that are not designated as accounting hedges, partially offset by a loss of $14.8 million recognized in the first quarter of 2024 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 and six months ended June 30, 2024, the provision for income taxes increased $7.4 million and $6.3 million from the prior period, predominantly due to the increase in profit before tax and changes in our jurisdictional mix of earnings.
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, 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
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 adjustments 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.
Non-GAAP reconciliations
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 June 30, 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2024 | | |
(Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS | | | | | | | | |
Reported (GAAP) | | $ | 129.9 | | | 12.5 | % | | $ | 27.3 | | | $ | 71.7 | | | $ | 0.47 | | | | | | | | | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring related and other | | 26.8 | | | 2.6 | | | (0.8) | | | 26.0 | | | 0.17 | | | | | | | | | |
Financing and other transaction costs | | 2.5 | | | 0.2 | | | (1.0) | | | 2.5 | | | 0.02 | | | | | | | | | |
Step-up depreciation and amortization | | 37.6 | | | 3.6 | | | — | | | 37.6 | | | 0.25 | | | | | | | | | |
Deferred gain on derivative instruments | | (0.1) | | | (0.0) | | | 1.4 | | | (3.7) | | | (0.02) | | | | | | | | | |
Amortization of debt issuance costs | | — | | | — | | | — | | | 1.6 | | | 0.01 | | | | | | | | | |
Deferred taxes and other tax related | | — | | | — | | | 4.2 | | | 4.2 | | | 0.03 | | | | | | | | | |
Total adjustments | | 66.7 | | | 6.4 | | | 3.8 | | | 68.2 | | | 0.45 | | | | | | | | | |
Adjusted (non-GAAP) | | $ | 196.7 | | | 19.0 | % | | $ | 23.5 | | | $ | 139.9 | | | $ | 0.93 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the three months ended June 30, 2023 |
(Dollars in millions, except per share amounts) | | | | | | | | | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS |
Reported (GAAP) | | | | | | | | | | $ | 118.0 | | | 11.1 | % | | $ | 19.9 | | | $ | 49.1 | | | $ | 0.32 | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring related and other | | | | | | | | | | 31.1 | | | 2.9 | | | (0.6) | | | 30.4 | | | 0.20 | |
Financing and other transaction costs | | | | | | | | | | 4.3 | | | 0.4 | | | (0.1) | | | 3.9 | | | 0.03 | |
Step-up depreciation and amortization | | | | | | | | | | 53.3 | | | 5.0 | | | — | | | 53.3 | | | 0.35 | |
Deferred (gain)/loss on derivative instruments | | | | | | | | | | (0.9) | | | (0.1) | | | (1.1) | | | 4.2 | | | 0.03 | |
Amortization of debt issuance costs | | | | | | | | | | — | | | — | | | — | | | 1.7 | | | 0.01 | |
Deferred taxes and other tax related | | | | | | | | | | — | | | — | | | 6.4 | | | 6.4 | | | 0.04 | |
Total adjustments | | | | | | | | | | 87.7 | | | 8.3 | | | 4.6 | | | 100.0 | | | 0.65 | |
Adjusted (non-GAAP) | | | | | | | | | | $ | 205.7 | | | 19.4 | % | | $ | 15.3 | | | $ | 149.2 | | | $ | 0.97 | |
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 six months ended June 30, 2024 and 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2024 | | |
(Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS | | | | | | | | |
Reported (GAAP) | | $ | 274.7 | | | 13.5 | % | | $ | 49.9 | | | $ | 147.7 | | | $ | 0.98 | | | | | | | | | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring related and other | | 29.2 | | | 1.4 | | | (1.4) | | | 27.8 | | | 0.18 | | | | | | | | | |
Financing and other transaction costs | | 6.8 | | | 0.3 | | | (0.9) | | | 20.3 | | | 0.13 | | | | | | | | | |
Step-up depreciation and amortization | | 74.9 | | | 3.7 | | | — | | | 74.9 | | | 0.50 | | | | | | | | | |
Deferred (gain)/loss on derivative instruments | | (0.5) | | | 0.0 | | | 1.7 | | | (4.9) | | | (0.03) | | | | | | | | | |
Amortization of debt issuance costs | | — | | | — | | | — | | | 3.2 | | | 0.02 | | | | | | | | | |
Deferred taxes and other tax related | | — | | | — | | | 5.4 | | | 5.4 | | | 0.04 | | | | | | | | | |
Total adjustments | | 110.5 | | | 5.4 | | | 4.9 | | | 126.8 | | | 0.84 | | | | | | | | | |
Adjusted (non-GAAP) | | $ | 385.2 | | | 18.9 | % | | $ | 45.0 | | | $ | 274.5 | | | $ | 1.82 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the six months ended June 30, 2023 |
(Dollars in millions, except per share amounts) | | | | | | | | | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS |
Reported (GAAP) | | | | | | | | | | $ | 266.9 | | | 13.0 | % | | $ | 43.6 | | | $ | 135.5 | | | $ | 0.88 | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring related and other | | | | | | | | | | 34.0 | | | 1.7 | | | (1.3) | | | 32.7 | | | 0.21 | |
Financing and other transaction costs | | | | | | | | | | 8.5 | | | 0.4 | | | 2.8 | | | 11.5 | | | 0.08 | |
Step-up depreciation and amortization | | | | | | | | | | 92.5 | | | 4.5 | | | — | | | 92.5 | | | 0.60 | |
Deferred (gain)/loss on derivative instruments | | | | | | | | | | (3.2) | | | (0.2) | | | (0.2) | | | 0.9 | | | 0.01 | |
Amortization of debt issuance costs | | | | | | | | | | — | | | — | | | — | | | 3.4 | | | 0.02 | |
Deferred taxes and other tax related | | | | | | | | | | — | | | — | | | 13.2 | | | 13.2 | | | 0.09 | |
Total adjustments | | | | | | | | | | 131.8 | | | 6.4 | | | 14.5 | | | 154.3 | | | 1.01 | |
Adjusted (non-GAAP) | | | | | | | | | | $ | 398.6 | | | 19.3 | % | | $ | 29.1 | | | $ | 289.8 | | | $ | 1.89 | |
The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S. GAAP to free cash flow.
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
(In millions) | | 2024 | | 2023 | | |
Net cash provided by operating activities (GAAP) | | $ | 249.9 | | | $ | 212.6 | | | |
Additions to property, plant and equipment and capitalized software | | (87.2) | | | (84.4) | | | |
Free cash flow (non-GAAP) | | $ | 162.7 | | | $ | 128.2 | | | |
The following table provides a reconciliation of corporate and other expenses in accordance with U.S. GAAP to adjusted corporate and other expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Corporate and other expenses (GAAP) | | $ | (93.6) | | | $ | (81.5) | | | $ | (173.9) | | | $ | (143.9) | |
Restructuring related and other | | 24.3 | | | 13.1 | | | 26.8 | | | 11.7 | |
Financing and other transaction costs | | 1.5 | | | 1.0 | | | 4.9 | | | 3.6 | |
Step-up depreciation and amortization | | 0.3 | | | 0.3 | | | 0.5 | | | 0.3 | |
Deferred gain on derivative instruments | | (0.1) | | | (0.9) | | | (0.5) | | | (3.2) | |
Total adjustments | | 25.9 | | | 13.4 | | | 31.8 | | | 12.4 | |
Adjusted corporate and other expenses (non-GAAP) | | $ | (67.6) | | | $ | (68.1) | | | $ | (142.1) | | | $ | (131.5) | |
The following table provides a reconciliation of net income in accordance with U.S. GAAP to adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the three months ended June 30, | | For the six months ended June 30, |
(In millions) | | LTM | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 8.3 | | | $ | 71.7 | | | $ | 49.1 | | | $ | 147.7 | | | $ | 135.5 | |
Interest expense, net | | 142.4 | | | 35.1 | | | 38.1 | | | 69.7 | | | 78.2 | |
Provision for income taxes | | 28.0 | | | 27.3 | | | 19.9 | | | 49.9 | | | 43.6 | |
Depreciation expense | | 136.6 | | | 33.5 | | | 32.6 | | | 67.0 | | | 63.6 | |
Amortization of intangible assets | | 156.1 | | | 39.1 | | | 54.6 | | | 77.6 | | | 95.3 | |
EBITDA | | 471.4 | | | 206.6 | | | 194.3 | | | 411.9 | | | 416.2 | |
Non-GAAP adjustments | | | | | | | | | | |
Restructuring related and other | | 406.7 | | | 26.8 | | | 31.1 | | | 29.2 | | | 34.0 | |
Financing and other transaction costs | | 33.9 | | | 3.5 | | | 4.0 | | | 21.1 | | | 8.8 | |
Deferred (gain)/loss on derivative instruments | | (9.7) | | | (5.1) | | | 5.3 | | | (6.6) | | | 1.2 | |
Adjusted EBITDA | | $ | 902.2 | | | $ | 231.8 | | | $ | 234.7 | | | $ | 455.7 | | | $ | 460.2 | |
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.
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | June 30, 2024 | | December 31, 2023 | | |
Current portion of long-term debt and finance lease obligations | | $ | 702.7 | | | $ | 2.3 | | | |
Finance lease obligations, less current portion | | 22.0 | | | 22.9 | | | |
Long-term debt, net | | 3,170.8 | | | 3,374.0 | | | |
Total debt and finance lease obligations | | 3,895.5 | | | 3,399.2 | | | |
Less: debt discount, net of premium | | (0.9) | | | (1.6) | | | |
Less: deferred financing costs | | (28.3) | | | (24.4) | | | |
Total gross indebtedness | | $ | 3,924.7 | | | $ | 3,425.2 | | | |
Adjusted EBITDA (LTM) | | $ | 902.2 | | | $ | 906.6 | | | |
Gross leverage ratio | | 4.4 | | 3.8 | | |
| | | | | | |
Total gross indebtedness | | $ | 3,924.7 | | | $ | 3,425.2 | | | |
Less: cash and cash equivalents | | 1,033.1 | | | 508.1 | | | |
Net debt | | $ | 2,891.6 | | | $ | 2,917.1 | | | |
| | | | | | |
Adjusted EBITDA (LTM) | | $ | 902.2 | | | $ | 906.6 | | | |
Net leverage ratio | | 3.2 | | 3.2 | | |
Liquidity and Capital Resources
As of June 30, 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):
| | | | | | | | | | | |
(In millions) | June 30, 2024 | | December 31, 2023 |
United Kingdom | $ | 8.8 | | | $ | 12.6 | |
United States | 9.8 | | | 12.9 | |
The Netherlands | 749.6 | | | 158.2 | |
China | 185.7 | | | 250.8 | |
Other | 79.2 | | | 73.7 | |
Total | $ | 1,033.1 | | | $ | 508.1 | |
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | 1.9 | | | € | 0.3 | | | £ | 9.0 | | | ¥ | — | | | |
United States | 9.8 | | | 0.0 | | | — | | | — | | | |
The Netherlands | 743.5 | | | 5.4 | | | 0.1 | | | — | | | |
China | 81.5 | | | — | | | — | | | 757.0 | | | |
Other | 51.7 | | | 1.2 | | | — | | | — | | | |
Total | $ | 888.4 | | | € | 6.9 | | | £ | 9.1 | | | ¥ | 757.0 | | | |
USD Equivalent | | | $ | 7.4 | | | $ | 11.5 | | | $ | 104.2 | | | $ | 21.6 | |
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| As of December 31, 2023 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | 0.4 | | | € | 0.0 | | | £ | 11.9 | | | ¥ | — | | | |
United States | 12.9 | | | 0.0 | | | — | | | — | | | |
The Netherlands | 143.9 | | | 12.2 | | | 0.3 | | | — | | | |
China | 155.2 | | | — | | | — | | | 679.4 | | | |
Other | 58.3 | | | 2.5 | | | — | | | — | | | |
Total | $ | 370.7 | | | € | 14.7 | | | £ | 12.2 | | | ¥ | 679.4 | | | |
USD Equivalent | | | $ | 16.2 | | | $ | 15.6 | | | $ | 95.6 | | | $ | 10.0 | |
Cash Flows:
The table below summarizes our primary sources and uses of cash for the six months ended June 30, 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.
| | | | | | | | | | | |
| For the six months ended |
(In millions) | June 30, 2024 | | June 30, 2023 |
Net cash provided by/(used in): | | | |
Operating activities: | | | |
Net income adjusted for non-cash items | $ | 318.0 | | | $ | 338.9 | |
Changes in operating assets and liabilities, net | (68.0) | | | (117.8) | |
Cash operating activities | — | | | (8.4) | |
Operating activities | 249.9 | | | 212.6 | |
Investing activities | (85.2) | | | (65.8) | |
Financing activities | 365.1 | | | (515.0) | |
Effects of exchange rate differences | (4.9) | | | — | |
Net change | $ | 524.9 | | | $ | (368.2) | |
Operating activities. Net cash provided by operating activities for the six months ended June 30, 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 six months ended June 30, 2024 increased compared to the corresponding period of the prior year, primarily due to no cash received for divestitures in the six months ended June 30, 2024 (compared to $19.0 million in the prior year period). 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 from financing activities provided cash of $365.1 million for the six months ended June 30, 2024 compared to use of $515.0 million in the prior year period. This change is primarily due to $500.0 million cash received from the issuance of the 6.625% Senior Notes in the second quarter of 2024, combined with the impact of the prepayment of the
Term Loan in the first half of 2023. In addition, in we paid $79.4 million to repurchase the remaining equity interest in a former joint venture in the six months ended June 30, 2024. Refer to Note 12: Shareholders' Equity for additional information.
Indebtedness and Liquidity
As of June 30, 2024, we had $3.9 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.
On June 6, 2024, our indirect, wholly-owned subsidiary, Sensata Technologies, Inc. ("STI"), completed the issuance and sale of $500.0 million aggregate principal amount of 6.625% senior notes due 2032 (the "6.625% Senior Notes"). On July 15, 2024, we used the proceeds from this issuance, together with cash on hand, for the redemption in full of the $700.0 million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), which were issued by our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"). Refer to Note 10: Debt of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on these transactions and our overall debt.
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 June 30, 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 June 30, 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 June 30, 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 July 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 six months ended June 30, 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 June 30, 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 June 30, 2024. In the six months ended June 30, 2024, we repurchased 0.3 million ordinary shares under the September 2023 Program. In the six months ended June 30, 2023, we repurchased 0.6 million ordinary shares under the January 2022 Program
Dividends
In the six months ended June 30, 2024 and 2023, we paid aggregate cash dividends of $36.1 million and $35.1 million, respectively. On July 18, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on August 28, 2024 to shareholders of record as of August 14, 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 do not expect the adoption of FASB ASU No. 2023-09 to have an impact on our results of operations or financial condition, but it is expected to increase the amount of disclosures required in the notes to the consolidated financial statements.
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. The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise judgment in the process of applying our accounting policies. It also requires that we make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. No material changes to the Company’s critical accounting policies and estimates, as previously disclosed, have occurred during the first six months of 2024, except for the addition of the Company’s Definite-lived Intangible Assets policy as discussed below.
Definite-lived intangible assets
We perform reviews on a regular basis to determine whether facts or circumstances exist that indicate that the carrying values of our definite-lived intangible assets are impaired. If we determine that such facts or circumstances exist, we estimate the recoverability of the related asset or asset group (at the lowest level of identifiable cash flows) by comparing the projected undiscounted net cash flows associated with the asset or asset group to its carrying value. If the sum of the projected
undiscounted net cash flows is less than the carrying value of an asset or asset group, an impairment charge would be measured as the excess of the carrying value over the fair value of that asset or asset group. We determine fair value by using the appropriate income approach valuation methodology, depending on the nature of the definite-lived intangible asset.
As of June 30, 2024, we estimated the recoverability of the definite-lived intangible assets within our Insights reporting unit, which represents the asset group, by comparing the projected probability-weighted undiscounted net cash flows associated with the intangible assets to their carrying value. The total carrying value of the indefinite lived intangible assets within the Insights reporting unit was approximately $250 million. These probability-weighted cash flows included scenarios associated with a long-term hold and use of the reporting unit and scenarios associated with near term execution of strategic alternatives for the reporting unit. The sum of the projected probability-weighted undiscounted net cash flows exceeded the carrying value of the intangible assets within the asset group. However, if the probability of executing on a strategic alternative for the asset group were to increase, we may be required to recognize a material charge related to these definite-lived intangible assets.
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.
Evaluation of Disclosure Controls and Procedures
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 June 30, 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 June 30, 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 June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness Remediation Plan
We have devoted a significant amount of time and resources to work towards remediation of the material weaknesses. We will continue to execute on our remediation plan until the material weaknesses are remediated. Actions taken to date, and expected to be taken, include the following:
•Completion of an internal organizational assessment to identify gaps in knowledge and staffing levels and consider potential reorganization of our teams.
•Hiring of additional accounting and IT personnel, including a new Chief Accounting Officer in May 2024, with the appropriate level of knowledge, training, and experience to improve our internal control over financial reporting and IT capabilities. We continue to recruit for additional resources.
•Engaged a third party to assist in development and formalization of a risk assessment process across the organization to identify risks and design new controls or enhance existing controls responsive to such risks to ensure timely and accurate financial reporting based on criteria established in the COSO framework. We are in various stages of this risk assessment process and control development process, including assessing and documenting control gaps and developing remediation plans.
•Assessed the specific training needs for newly hired and existing personnel and developed and delivered training programs designed to uphold our internal controls standards.
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
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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) |
April 1 through April 30, 2024 | | 161,511 | | | $ | 36.65 | | | — | | | $ | 461.8 | |
May 1 through May 31, 2024 | | 14,177 | | | $ | 41.85 | | | — | | | $ | 461.8 | |
June 1 through June 30, 2024 | | 8,747 | | | $ | 38.63 | | | — | | | $ | 461.8 | |
Quarter total | | 184,435 | | | $ | 37.14 | | | — | | | $ | 461.8 | |
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(1) The number of ordinary shares presented 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.
Item 3.Defaults Upon Senior Securities.
None.
Item 5. Other Information
On May 15, 2024, Lynne Caljouw, Executive Vice President and Chief Administrative Officer, an officer for purposes of Section 16 of the Exchange Act, entered into a "Rule 10b5-1 trading arrangement" as such term is defined in Item 408(a) of Regulation S-K. This arrangement was entered into during an open trading window and provides for the potential sale of up to 63,232 ordinary shares contingent on attainment of certain price per share of our common stock. The earliest sell date is August 14, 2024 and the plan will terminate upon the earlier of May 30, 2025 or the date all ordinary shares under the plan are sold. In addition, Ms. Caljouw may terminate the plan at any time.
Item 6.Exhibits.
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Exhibit No. | | Description |
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3.1 | | |
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4.1 | | |
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4.2 | | |
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31.1 | | |
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31.2 | | |
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31.3 | | |
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32.1 | | |
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101.INS | | 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. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. * |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. * |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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* Filed herewith
SIGNATURES
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.
Date: July 29, 2024
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SENSATA TECHNOLOGIES HOLDING PLC |
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/s/ Martha Sullivan |
(Martha Sullivan) Interim President and Chief Executive Officer (Principal Executive Officer) |
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/s/ Brian Roberts |
(Brian Roberts) Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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/s/ Richard Siedel |
(Richard Siedel) Vice President and Chief Accounting Officer (Principal Accounting Officer) |
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