Sensata Technologies Holding plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Sensata reports two segments: Performance Sensing and Sensing Solutions. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $998.2 million | $975.8 million |
| Operating income / margin | $148.8 million / 14.9% | $125.9 million / 12.9% |
| Net income | $86.4 million | $22.4 million |
| Diluted EPS | $0.56 | $0.14 |
| Operating cash flow | $96.9 million | $47.4 million |
| Free cash flow (non-GAAP) | $60.0 million | $11.6 million |
- Revenue increased 2.3% reported and 4.7% organically; currency reduced growth by 2.3 percentage points, while acquisitions and divestitures reduced it by 0.1 point.
- Performance Sensing revenue rose 4.7% reported and 7.0% organically. Automotive and HVOR organic revenue grew 6.0% and 9.4%, respectively.
- Sensing Solutions revenue declined 4.4% reported and 1.5% organically, reflecting industrial market declines partly offset by aerospace improvement.
- Cost of revenue was 67.2% of revenue versus 67.3%. SG&A fell to $86.2 million from $95.7 million; amortization increased to $40.8 million from $37.4 million.
- Net income growth partly reflects the absence of the prior-year $59.3 million mark-to-market loss on equity investments. Other, net was a $1.4 million gain in Q1 2023 versus a $50.5 million loss in Q1 2022.
Cash, debt, and liquidity
- Cash and cash equivalents were $1.034 billion at March 31, down from $1.226 billion at year-end. Q1 cash use included $250.0 million of Term Loan principal repayment and $16.8 million of dividends.
- Gross indebtedness, including finance leases and other financing obligations, was $4.0 billion; net debt was $3.0 billion. The company reported a 3.3x net leverage ratio, versus 3.4x at December 31 (non-GAAP).
- Long-term debt, net, was $3.769 billion. The company had $746.1 million available under its revolving credit facility and reported compliance with debt covenants.
- Management said available liquidity should fund operations, capital spending, dividends, repurchases, and debt service for at least 12 months, while cautioning that future cash flows and borrowing availability are not assured.
Outlook, notable items, and risks
- Management expects 2023 capital expenditures of approximately $170–$180 million, funded with cash on hand. It announced an intention to repay the remaining $196.8 million Term Loan balance in Q2 2023.
- Management expects improving free cash flow to support lower leverage over time and said it intends to continue dividends and opportunistic share repurchases. The filing provides no clear formal revenue or earnings guidance.
- The quarterly dividend increased from $0.11 to $0.12 per share; the latter was announced after quarter-end. No shares were repurchased under the public program in Q1; $224.5 million remained authorized.
- Q1 restructuring and other charges were $6.0 million, including $4.2 million of severance, partly offset by a $5.9 million gain on a business sale. The Qinex divestiture transition period had ended by March 31.
- Risks identified include global-market instability, supplier disruption, industry conditions and competition, foreign-exchange effects, inflation, product liability and recalls, and the company’s highly leveraged position. Management reported no material changes to previously disclosed risk factors and no significant change in market risk.
- Ordinary-course litigation was not expected by management to have a material adverse effect. A partial U.S. interest-carryforward valuation allowance may be released if evidence supports it, but timing and amount are uncertain.
Important facts for investors to verify
- Whether organic growth in Performance Sensing continues to offset weakness in Sensing Solutions, particularly industrial markets.
- Execution and cash-flow effects of the planned Q2 Term Loan repayment, and progress toward lower leverage.
- Whether projected 2023 capital expenditures and the higher dividend remain supported by operating cash generation.
- The contribution of the prior-year equity-investment mark-to-market loss to the year-over-year increase in reported earnings; compare adjusted results with GAAP results.
- Final purchase-price allocation for Dynapower remains preliminary; monitor integration, acquired-asset amortization, and related costs.