Stoneridge, Inc. — 2020 Form 10-K
Business context and reporting period. Stoneridge designs and manufactures electronic and electrical systems for automotive, commercial, off-highway, motorcycle and agricultural vehicles. The fiscal year ended December 31, 2020. Its three segments are Control Devices, Electronics and Stoneridge Brazil. Results were significantly affected by COVID-19 and associated changes in customer production and supply chains.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $648.0 million | $834.3 million |
| Gross profit / margin | $154.2 million / 23.8% | $213.7 million / 25.6% |
| Operating income (loss) / margin | $(7.7) million / (1.2)% | $71.3 million / 8.5% |
| Net income (loss) / diluted EPS | $(8.0) million / $(0.29) | $60.3 million / $2.13 |
| Cash from operating activities | $28.6 million | $24.5 million |
| Capital expenditures | $27.7 million | $35.8 million |
| Cash and cash equivalents at year-end | $73.9 million | $69.4 million |
| Working capital at year-end | $188.6 million | $192.7 million |
| Revolving credit facility borrowings | $136.0 million | $126.0 million |
Cash used in investing activities was $33.9 million and cash provided by financing activities was $6.5 million. In addition to the revolving facility, $7.7 million of current debt was outstanding at year-end. The company reported $262.3 million of undrawn facility commitments. Its credit facility matures in June 2024; 94.7% of outstanding debt was floating-rate.
Material changes versus prior period
- Annual sales declined 22.3%. Sales decreased in all three segments: Control Devices by 20.6%, Electronics by 23.1% and Stoneridge Brazil by 29.4%.
- Gross margin fell 1.8 percentage points, largely reflecting lower volumes, fixed-cost deleverage and incremental pandemic-related operating costs.
- Operating results shifted from $71.3 million of income to a $7.7 million loss. Electronics reported a $3.7 million operating loss versus $25.0 million of income in 2019.
- 2019 results included a $33.6 million gain on disposal of non-core products and a $6.5 million Brazilian indirect-tax recovery; neither was repeated in 2020. Lower 2020 results were partly offset by a favorable $5.5 million earn-out fair-value adjustment and reduced restructuring costs.
- Quarterly results showed a recovery after the second-quarter downturn: Q4 sales were $189.7 million, operating income $5.7 million and net income $3.6 million. Q4 2019 sales were $190.4 million, operating income $1.1 million and net income $4.2 million.
Outlook, commentary, risks and unusual items
- Management expected 2021 sales to improve in Control Devices and Electronics on forecast vehicle production, program launches and MirrorEye deployments. It anticipated relatively flat served-market channels in Stoneridge Brazil.
- Management expected supply-chain production reductions to be limited in the first half of 2021 and largely recovered in the second half, but warned that semiconductor shortages, material spot buys, expediting and premium freight could pressure gross margin. The filing’s outlook is conditional and does not provide a specific full-year revenue or earnings forecast.
- The credit facility amendment suspended the maximum net leverage covenant during a relief period through delivery of the compliance certificate for the quarter ending June 30, 2021, and imposed liquidity and other restrictions. The company said it was compliant with covenants at December 31, 2020.
- The company recognized $3.4 million of expense for its planned particulate-matter sensor exit and estimated $2.8 million to $6.3 million of additional costs. The filing gives differing expected completion timing: the third quarter in one discussion and the fourth quarter of 2021 elsewhere.
- Other restructuring included $3.0 million of 2020 Canton closure costs and $2.4 million for Electronics restructuring. A $2.3 million impairment was recorded on PM-sensor assets in Tallinn, Estonia.
- Brazilian authorities’ CADE ruling included a $1.5 million fine, which the company is challenging. Other Brazilian civil, labor and non-income-tax contingencies of $8.4 million were considered reasonably possible, not probable; no provision was recorded. The company also disclosed uncertainty over its Brazilian indirect-tax credits.
- Other key risks include customer concentration (top ten customers represented 56% of sales), foreign-exchange exposure, vehicle-market cyclicality, pricing pressure, product warranty and recall exposure, and supplier availability. The year-end product warranty and recall reserve was $12.7 million.
Important facts for investors to verify
- Whether semiconductor and other component constraints, customer production schedules and higher input and freight costs materially affect 2021 sales and margins.
- Facility liquidity and covenant compliance as pandemic-related credit relief ends; assess debt service capacity and floating-rate exposure.
- The final cost and completion timing of the PM-sensor exit and other restructuring actions, given the filing’s different stated completion quarters.
- Developments in the CADE appeal, Brazilian tax-credit recovery and other disclosed legal or contingent exposures.
- Whether expected MirrorEye and other program launches convert awarded business into realized sales; estimated sourced future sales of $3.0 billion are not firm orders and may change.