Sensata Technologies Holding plc — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Sensata develops and manufactures sensors, electrical protection components, and related solutions for automotive, heavy vehicle and off-road (HVOR), industrial, clean energy, fleet, and aerospace markets. Its reportable segments are Performance Sensing and Sensing Solutions.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $3.821 billion | $3.046 billion |
| Operating income / margin | $633.2 million / 16.6% | $337.7 million / 11.1% |
| Net income / diluted EPS | $363.6 million / $2.28 | $164.3 million / $1.04 |
| Cash from operations | $554.2 million | $559.8 million |
| Free cash flow (non-GAAP) | $409.7 million | $453.1 million |
- Revenue increased 25.5%; excluding currency and acquisitions, organic revenue grew 20.7%. Cost of revenue was 66.5% of sales versus 69.6%, implying gross margin of 33.5% versus 30.4%.
- Performance Sensing revenue rose 28.1% to $2.848 billion; Sensing Solutions rose 18.4% to $972.9 million. Segment operating margins were 27.3% and 30.1%, respectively.
- Operating cash flow was nearly flat despite higher earnings, as working capital absorbed cash, notably inventory purchases to manage shortages. Capital expenditures and capitalized software were $144.4 million.
- Year-end cash was $1.709 billion; gross debt was $4.280 billion and net debt $2.571 billion. Net leverage was 2.8x adjusted EBITDA (non-GAAP), down from 3.2x. The $420 million revolver had $416.1 million available; the company reported covenant compliance and expected liquidity to cover at least 12 months.
- Current assets were $3.077 billion and current liabilities $836.3 million. Sensata does not currently pay dividends.
Changes and significant items
- Results rebounded from pandemic-affected 2020. Automotive revenue increased 17.6%, HVOR 63.3%, and Sensing Solutions 18.4%. Global light-vehicle production grew only 1.2%, while HVOR production in markets served grew about 24%.
- Management attributed the operating-income improvement to higher organic volume, improved manufacturing utilization, the nonrecurrence of the 2020 Wasica litigation charge, and lower restructuring costs. Global supply-chain shortages, procurement and logistics inflation, higher growth investment, and incentive compensation partly offset the improvement.
- Net income included a $30.1 million loss on redemption of the 6.25% senior notes, primarily the redemption premium. Sensata redeemed $750 million of those notes and issued $1.0 billion of 4.0% notes due 2029, extending maturities and lowering the fixed-rate cost relative to the redeemed debt.
- Five acquisitions broadened clean-energy and fleet-data offerings: Lithium Balance, Xirgo, Spear, SmartWitness, and Sendyne. Cash paid for acquisitions, net of cash received, was $736.1 million. Certain purchase-price allocations, including Spear and SmartWitness, remained preliminary.
- Share repurchases resumed in November; 0.8 million shares were repurchased for $47.8 million in FY2021. A new $500 million program was authorized in January 2022. The company also announced a $10.9 million current tax expense related to repatriation of certain Asian earnings.
Outlook, commentary, and risks
- Management expected low-single-digit end-market growth in 2022, including approximately 7% automotive production growth and flat HVOR production, with vehicle supply constraints easing gradually. It estimated that customer orders above production contributed about $90 million of 2021 revenue that would not recur in 2022.
- Management targeted annual market outgrowth of 400–600 basis points and inorganic revenue growth of 400–600 basis points through acquisitions. These are stated targets, not a detailed 2022 revenue or earnings guidance range. It expected $165–$175 million of 2022 capital expenditures and software additions, and $60–$70 million of megatrend investment, mostly R&D.
- Key risks include persistent semiconductor and other supply shortages, higher input and logistics costs that may be difficult to pass on, COVID-19 disruption, automotive cyclicality (54% of FY2021 revenue), geopolitical and trade exposure, and acquisition integration and execution. Cybersecurity, product liability and recalls, tax uncertainty, and foreign-exchange and commodity volatility are also identified risks.
- Goodwill was $3.5 billion and goodwill plus other intangible assets totaled about $4.4 billion, or 52% of total assets. No impairment was recorded in the 2021 test; future impairments remain possible if forecasts or valuation assumptions deteriorate.
- Ordinary-course litigation was disclosed; management did not expect pending matters, individually or in aggregate, to have a material adverse effect, and reported no material pending litigation or claims at year-end. No threatened or pending material environmental investigation, lawsuit, or claim was identified.
- The auditor issued an unqualified opinion on the financial statements and internal controls. The acquired businesses Xirgo, Spear, and SmartWitness were excluded from the year-end internal-control assessment; together they represented approximately 1.2% of assets and 2.0% of revenue.
Key facts for investors to verify
- Whether supply constraints, inflation, and the nonrecurrence of the estimated $90 million customer over-ordering affect 2022 sales and margins as management anticipated.
- Cash conversion, inventory levels, and free-cash-flow trends, given operating cash flow declined slightly and free cash flow fell year over year.
- Debt maturities, refinancing capacity, covenant headroom, and the sustainability of 2.8x net leverage amid acquisitions and share repurchases.
- Acquisition integration, realized growth and synergies, and final purchase accounting for acquisitions with preliminary valuations.
- Goodwill and intangible-asset valuation assumptions, uncertain tax positions, and the potential impact of tax-law changes.