Stoneridge, Inc. — Q1 2021 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Stoneridge designs and manufactures vehicle electrical and electronic products across Control Devices, Electronics and Stoneridge Brazil. Financial amounts below are in U.S. dollars; millions unless noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $193.8m | $183.0m; up 5.9% |
| Gross margin | 23.8% | 24.8% |
| Operating income | $2.1m; 1.0% margin | $3.7m; 2.0% margin |
| Net income | $0.13m; diluted EPS $0.00 | $3.49m; diluted EPS $0.13 |
| Operating cash flow | $(17.1)m | $(6.6)m |
| Cash and equivalents | $60.5m at March 31 | $73.9m at December 31, 2020 |
| Credit-facility borrowings | $153.5m | $136.0m at December 31, 2020 |
Investing cash flow was $(6.9)m, including $7.7m of capital expenditures and intangibles; financing cash flow was $12.8m. Cash declined $13.4m during the quarter. Current assets were $343.1m and current liabilities $144.7m. Total debt was approximately $158.7m, including $5.2m of current borrowings. The $400m revolving facility had $244.8m of undrawn commitments; the company reported total cash and undrawn commitments above $305m and compliance with facility covenants.
Changes versus the prior period
- Sales growth reflected higher Electronics sales and favorable currency translation, partly offset by lower Stoneridge Brazil sales. Control Devices sales also increased modestly.
- Segment sales: Control Devices $99.6m, up 2.9%; Electronics $82.8m, up 15.7%; Stoneridge Brazil $11.4m, down 21.7%.
- Operating income fell $1.6m. Cost of goods sold rose faster than sales, gross margin declined one percentage point, and design and development expense increased $2.4m to $14.7m.
- Net income fell $3.4m. Higher interest expense and the swing from prior-year foreign-currency gains to current-year other expense contributed to the decline; Q1 2021 also included a gain on the PM sensor asset disposal.
- Operating cash use worsened, principally from greater working-capital investment, especially accounts receivable, and lower net income.
Outlook, commentary and risks
- Management expected 2021 sales to benefit from recovering vehicle markets and program launches, including MirrorEye launches and expanded retrofit activity. The filing gives no specific full-year revenue or earnings guidance.
- Management expected semiconductor and other supply disruptions to weigh mainly on first-half production, with some volumes potentially recovered in the second half. It expected the full-year revenue impact to be limited but warned of lower gross margin from material spot buys, expediting and premium freight.
- COVID-19 effects remained uncertain. Other key exposures include customer and supplier disruptions, vehicle-production changes, pricing pressure, foreign-exchange movements, commodity inflation, and the ability to manage costs and product launches.
- The company was exiting its particulate matter sensor product line and agreed to sell related assets for $4.0m, subject to a post-closing inventory adjustment; Gen 2 asset transfer was expected after supply commitments, by year-end 2021. Q1 included $1.4m of exit-related expense. Management estimated a further $0.8m–$3.6m of costs through Q4 2021. Electronics restructuring could add up to $0.66m through Q4.
- Brazilian civil, labor and tax contingencies of approximately $8.4m were considered reasonably possible but not probable, so no provision was recorded. This includes a contested CADE fine. Separately, the company accrued $0.55m for environmental remediation and reported a $9.57m product warranty and recall liability.
- The credit-facility covenant relief period was scheduled to end after delivery of the Q2 2021 compliance certificate. During the relief period, liquidity could not fall below $150m, and acquisitions and restricted payments were subject to limitations. The company reported compliance at March 31.
Important facts for investors to verify
- Whether supply shortages, inflation and premium logistics costs materially affect production, revenue recovery and gross margins through 2021.
- Segment profitability trends, particularly the Electronics and Stoneridge Brazil operating losses in Q1.
- Working-capital cash usage and the effect of rising receivables and borrowings on liquidity and covenant headroom after the relief period.
- Final costs, timing and proceeds from the PM sensor exit, including the inventory adjustment and remaining Gen 2 transfer.
- Developments in Brazilian contingencies and the environmental remediation estimate, as well as actual warranty and recall claims.