Sensata Technologies Holding plc — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Figures are in U.S. dollars; financial statement amounts are in millions unless noted otherwise.
Business context and results
Sensata reports two segments: Performance Sensing and Sensing Solutions. Q2 revenue growth reflected market outgrowth and acquisitions, while operating income and net income declined year over year. Management cited inflation, lower volumes, acquisition-related costs, and losses on investments and financial exposures.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,020.5 | $992.7 | $1,996.3 | $1,935.2 |
| Operating income / margin | $138.9 / 13.6% | $164.8 / 16.6% | $264.9 / 13.3% | $322.2 / 16.7% |
| Net income | $34.8 | $112.9 | $57.3 | $166.6 |
| Diluted EPS | $0.22 | $0.71 | $0.36 | $1.05 |
| Operating cash flow | Not separately presented | Not separately presented | $141.9 | $267.9 |
| Free cash flow (non-GAAP) | Not separately presented | Not separately presented | $67.8 | $204.4 |
Q2 revenue increased 2.8%; six-month revenue rose 3.2%. Organic revenue growth was 2.2% for Q2 and 1.1% for the half, excluding foreign exchange and acquisition/divestiture effects. Q2 Performance Sensing revenue grew 0.7%, while Sensing Solutions grew 9.1%. For the six months, segment revenue increased 0.6% and 11.1%, respectively.
At June 30, cash and equivalents were $1,558.6, down from $1,709.0 at year-end 2021. Long-term debt, net, was $4,213.5; total gross indebtedness including leases and other financing obligations was $4,276.7. Net debt was $2,718.1 and the company-reported net leverage ratio was 3.0x, versus 2.8x at December 31, 2021. The $750 million revolving facility had $746.1 million available; no letters of credit had been drawn.
Material changes and notable items
- Operating income fell 15.7% in Q2 and 17.8% for the six-month period. Q2 cost of revenue rose to 67.3% of revenue from 66.3%; management attributed the increase principally to inflation in material and logistics costs.
- Other, net was a loss of $39.2 in Q2 and $89.7 for the half. Six-month losses included $71.1 of mark-to-market losses on equity investments, primarily Quanergy, as well as currency remeasurement and commodity-hedge losses. The 2021 half included a $30.1 debt-refinancing loss that did not recur.
- Q2 net income also reflected higher income-tax expense, including effects of jurisdictional profit mix, nondeductible acquisition-related costs, and the inability to obtain a tax benefit for the Quanergy mark-to-market loss.
- Cash from operations declined as working capital absorbed cash, including increased inventory and receivables; management also cited supply-chain stocking, a $15.0 acquisition-incentive payment, and timing of supplier payments and customer receipts. Six-month capital spending was $74.1.
- Cash used in financing included $144.3 of share repurchases and $17.2 of dividends. The company paid a $0.11-per-share dividend in May and announced another $0.11 dividend for August. The $500 million repurchase program had $370.6 remaining at quarter-end.
Outlook, transactions, and risks
- Management expected 2022 capital expenditures of approximately $135–$145 million, to be funded with cash on hand. The filing does not provide a clear consolidated revenue or earnings guidance figure.
- Dynapower was acquired on July 12, 2022 for $580 million cash, subject to adjustments. Management said its 2022 annualized revenue was expected to exceed $100 million, with projected growth above 30% over the next several years; acquisition accounting was incomplete at filing.
- The Qinex semiconductor test and thermal business was sold in July 2022 for approximately $219 million, subject to adjustments. Sensata preliminarily expected a gain of approximately $125–$150 million; the final gain had not been determined.
- Management said available liquidity was expected to be sufficient for operations, capital spending, dividends, repurchases, and debt service for at least 12 months, but cautioned that operating cash flows and future borrowing availability are not assured. The company was in compliance with debt covenants at June 30.
- Risks highlighted include inflation, supply interruptions and parts shortages, lower volumes, foreign-exchange and commodity-price movements, acquisition and disposition execution, market conditions, and competition. Ordinary-course litigation was not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
- The revolving facility was amended in June: capacity increased to $750 million, maturity extended to June 2027 subject to a term-loan refinancing condition, and revolving-rate benchmarks transitioned from LIBOR to SOFR for U.S. dollar loans and SONIA for sterling loans.
Important facts for investors to verify
- Whether operating margins and cash conversion recover as inflation, supply constraints, and working-capital requirements evolve.
- The drivers and potential recurrence of Quanergy investment losses and foreign-exchange and commodity-related impacts.
- Final purchase accounting and realized performance for Dynapower, and the final Qinex sale gain and use of proceeds.
- Debt maturities, covenant headroom, net leverage, and liquidity after the Dynapower acquisition and Qinex divestiture.
- Whether acquisition-related incentive compensation, restructuring and other charges, and management’s non-GAAP adjustments materially affect reported-versus-adjusted results.