Sensata Technologies Holding plc — Q1 2020 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2020, compared with Q1 2019. Sensata reports Performance Sensing and Sensing Solutions segments. The quarter was significantly affected by COVID-19 disruptions, initially in China and then across other regions.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net revenue | $774.3 million | $870.5 million |
| Operating income / margin | $58.6 million / 7.6% | $142.6 million / 16.4% |
| Net income | $8.4 million | $85.1 million |
| Diluted EPS | $0.05 | $0.52 |
| Operating cash flow | $98.5 million | $112.7 million |
| Capital expenditures and capitalized software | $29.5 million | $41.7 million |
- Revenue declined 11.1% reported and 10.4% organically. Performance Sensing revenue fell 11.1% and Sensing Solutions fell 10.8%.
- Cost of revenue was 73.2% of sales, versus 66.7%; the implied gross margin was 26.8%, versus 33.3%. The $29.2 million litigation charge and lower volumes and productivity headwinds contributed to the cost ratio increase.
- Segment operating income was $129.1 million for Performance Sensing and $55.9 million for Sensing Solutions, down from $150.5 million and $75.0 million, respectively. Corporate and other costs rose to $88.8 million from $41.4 million.
- Other, net was a $12.3 million expense, versus $3.2 million income, reflecting derivative losses and higher pension costs. The income tax line was a $1.5 million benefit; this included a $7.5 million deferred tax benefit related to the CARES Act.
- Cash and equivalents were $803.0 million at quarter-end. Gross indebtedness, including finance leases and other financing obligations, was $3.290 billion; long-term debt, net, was $3.220 billion. The revolving facility had $416.1 million available at March 31. On April 1, Sensata drew $400 million, reporting approximately $1.2 billion cash afterward.
Material changes, outlook, and risks
- Revenue declines reflected pandemic-related closures and reduced demand, alongside currency effects. Management said COVID-19 negatively affected Q1 results and expected a negative impact in Q2; the extent and duration remained highly uncertain.
- Management cited an external forecast of a 47% decline in automotive production in Q2 and a 22% decline for full-year 2020. It expected continued weakness in HVOR, industrial, and aerospace markets in Q2. These are market forecasts, not company revenue guidance.
- For Q2, the company expected $15 million to $20 million of savings from compensation reductions, furloughs or equivalent measures, and other cost actions. It also planned to reduce discretionary spending and capital expenditures, and align production with demand. Full-year 2020 capital expenditures were expected to be approximately $120 million to $130 million.
- The company temporarily suspended its share repurchase program effective April 1. It repurchased approximately $35.2 million of shares in Q1; about $302.3 million remained authorized at March 31.
- A jury found Schrader liable in a patent case and awarded $31.2 million. Sensata recorded a $29.2 million loss in cost of revenue and a $31.2 million accrual, intends to appeal, and continues to deny wrongdoing.
- COVID-19 risks included facility shutdowns, workforce and supplier constraints, logistics disruption, reduced customer demand, and uncertainty in capital markets. Sensata reported compliance with debt covenants at March 31, but warned that a prolonged downturn could challenge covenant compliance. Goodwill and intangible assets were assessed as not impaired at quarter-end.
Key facts for investors to verify
- Subsequent quarterly filings: actual COVID-19 impacts on sales, margins, operations, and the realization of expected cost savings.
- Cash and debt after the April 1 revolver draw, including liquidity, leverage, interest costs, and covenant headroom.
- Outcome and timing of the Wasica patent litigation appeal, potential payment, and any additional legal exposure.
- Whether the $120 million to $130 million capital expenditure outlook and market-demand forecasts were revised.
- Effects of foreign currency and commodity derivatives, pension costs, and any future impairment assessments.