Sensata Technologies Holding plc — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are U.S. dollars; financial statement amounts are in millions unless noted. Sensata reports Performance Sensing and Sensing Solutions segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $992.7 | $576.5 | $1,935.2 | $1,350.8 |
| GAAP operating income (margin) | $164.8 (16.6%) | $(1.9) ((0.3)%) | $322.2 (16.7%) | $56.7 (4.2%) |
| Net income (margin) | $112.9 (11.4%) | $(42.5) ((7.4)%) | $166.6 (8.6%) | $(34.1) ((2.5)%) |
| Diluted EPS | $0.71 | $(0.27) | $1.05 | $(0.22) |
- Q2 revenue grew 72.2%; first-half revenue grew 43.3%. Organic growth, excluding foreign exchange and acquisition effects, was 62.9% and 37.6%, respectively. Management reported market outgrowth of 1,140 basis points in Q2 and 940 basis points in the first half.
- Q2 segment revenue: Performance Sensing $741.9 million, up 92.6%; Sensing Solutions $250.8 million, up 31.1%. First-half segment revenue increased 52.7% and 20.6%, respectively.
- Gross margin, calculated from revenue less cost of revenue, was approximately 33.7% in Q2 and 33.2% in the first half, versus 28.5% and 27.5% in the comparable 2020 periods. GAAP operating margin improved substantially, aided by higher volume, improved gross margins, and lower restructuring charges.
- First-half operating cash flow was $267.9 million; capital expenditures and capitalized software were $63.6 million, yielding reported non-GAAP free cash flow of $204.4 million. Operating cash flow increased from $170.3 million a year earlier, while receivables and inventory uses of cash partly offset higher earnings.
- Cash and equivalents were $1,861.8 million at June 30, 2021, essentially unchanged from year-end. Total debt, finance leases, and other financing obligations were about $4.25 billion; reported net debt was $2,421.9 million and net leverage was 2.7x LTM adjusted EBITDA, down from 3.2x at year-end. The company reported $416.1 million available on its revolver and approximately $1.0 billion of accordion availability.
Material changes and unusual items
- Results rebounded from the heavily disrupted Q2 2020 comparison period. Revenue and profitability also benefited from market recovery, customer inventory replenishment, and continued outgrowth; the filing cautions that 2020 pandemic effects make comparisons distinctive.
- On April 1, Sensata acquired Xirgo Technologies for approximately $408.7 million, adding telematics and data-insight offerings. Preliminary purchase accounting included $184.3 million of goodwill and $249.6 million of acquired intangible assets. The first-half investing cash outflow also included the Lithium Balance acquisition.
- Sensata issued $1.0 billion of 4.0% senior notes due 2029 and redeemed $750 million of 6.25% notes due 2026. The refinancing extended debt maturities and reduced the cost of fixed-rate debt, according to management, but generated a $30.1 million first-half loss, including the redemption premium and write-off of financing costs.
- Restructuring and other charges were $5.0 million in Q2 and $9.6 million in the first half, versus $38.2 million and $42.7 million in 2020. The 2020 comparison included Wasica litigation-related charges; that litigation was settled in Q3 2020. The ongoing restructuring program had incurred $30.1 million cumulatively by June 30, 2021.
Outlook, management commentary, and risks
- Management anticipated continued improved and stable economic conditions in 2021, but expected normal seasonality: sequentially lower revenue in Q3 and flat revenue in Q4. The filing provides no clear consolidated full-year revenue or EPS guidance.
- Management’s targeted market outgrowth was 400–600 basis points for automotive and 600–800 basis points for HVOR. Global automotive production was forecast by third parties to grow 9% in 2021, with production slowdowns from the semiconductor shortage expected to continue.
- Management expected the chip shortage to continue adversely affecting operating costs and margins, including higher operating costs in Q3 versus Q3 2020; more severe or prolonged disruption could further impair results. Other cited risks include supplier and logistics interruptions, COVID-19 impacts, customer demand and pricing pressure, foreign exchange, acquisition integration, indebtedness and covenant compliance, litigation and product claims, cybersecurity, and regulatory and tax matters.
- Planned 2021 capital expenditures were approximately $160–170 million, funded from cash on hand. Expected 2021 megatrend spending was $50–55 million. Sensata said its Insights initiative was expected to generate more than $100 million in annualized revenue in 2021 and grow more than 20% annually over the following years; management also stated that orders covered all expected Insights revenue for the remainder of 2021.
- The Q2 2020 restructuring program was expected to reach approximately 840 affected positions, with remaining actions anticipated in Q3 2021. Expected lifetime severance charges were $27–29 million and facility/exit costs $6–8 million; the company expected to pay these costs from cash on hand.
- The $500 million share repurchase authorization remained suspended; approximately $302.3 million remained available. Management said resumption would depend on favorable market conditions. The company reported covenant compliance and no material expected adverse effect from ordinary-course litigation.
Important facts for investors to verify
- Whether semiconductor availability, supplier constraints, and vehicle-production interruptions develop as management anticipated, and how they affect margins and cash conversion.
- Whether Xirgo integration, preliminary purchase-price allocation, and expected Insights growth and orders translate into realized revenue and returns.
- Debt maturities, interest expense, covenant headroom, and the sustainability of the reported 2.7x net leverage ratio and cash liquidity.
- Progress and final costs of the restructuring program, and whether projected cost savings are realized without disrupting operations.
- Management’s market-outgrowth targets, seasonality assumptions, and capital-spending plans against actual results; these are forward-looking and subject to the risks described in the filing.