UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20232024
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34652
_________________________________________________________________________________
SENSATA TECHNOLOGIES HOLDING PLC
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________
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England and Wales | | 98-1386780 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
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529 Pleasant Street
Attleboro, Massachusetts, 02703, United States
(Address of principal executive offices, including zip code)
+1 (508) 236 3800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Ordinary Shares - nominal value €0.01 per share | ST | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 14, 2023, 152,894,40616, 2024, 150,738,907 ordinary shares were outstanding.
TABLE OF CONTENTS
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PART I | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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PART II | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 5. | | |
| Item 6. | | |
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PART I—FINANCIAL INFORMATION
Item 1.Financial Statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Assets | Assets | | | |
Current assets: | Current assets: | |
Current assets: | |
Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,034,134 | | | $ | 1,225,518 | |
Accounts receivable, net of allowances of $23,675 and $24,246 as of March 31, 2023 and December 31, 2022, respectively | 759,752 | | | 742,382 | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Accounts receivable, net of allowances of $21,851 and $28,980 as of March 31, 2024 and December 31, 2023, respectively | |
Inventories | Inventories | 658,562 | | | 644,875 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 187,747 | | | 162,268 | |
| Total current assets | Total current assets | 2,640,195 | | | 2,775,043 | |
Total current assets | |
Total current assets | |
Property, plant and equipment, net | Property, plant and equipment, net | 848,033 | | | 840,819 | |
Goodwill | Goodwill | 3,902,862 | | | 3,911,224 | |
Other intangible assets, net of accumulated amortization of $2,393,587 and $2,352,813 as of March 31, 2023 and December 31, 2022, respectively | 959,469 | | | 999,722 | |
Other intangible assets, net of accumulated amortization of $2,561,367 and $2,522,760 as of March 31, 2024 and December 31, 2023, respectively | |
Deferred income tax assets | Deferred income tax assets | 98,230 | | | 100,539 | |
Other assets | Other assets | 136,065 | | | 128,873 | |
Total assets | Total assets | $ | 8,584,854 | | | $ | 8,756,220 | |
Liabilities and shareholders' equity | Liabilities and shareholders' equity | | | |
Current liabilities: | Current liabilities: | |
Current liabilities: | |
Current liabilities: | |
Current portion of long-term debt, finance lease and other financing obligations | |
Current portion of long-term debt, finance lease and other financing obligations | |
Current portion of long-term debt, finance lease and other financing obligations | Current portion of long-term debt, finance lease and other financing obligations | $ | 198,696 | | | $ | 256,471 | |
Accounts payable | Accounts payable | 529,941 | | | 531,572 | |
Income taxes payable | Income taxes payable | 50,869 | | | 43,987 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 329,960 | | | 346,942 | |
| Total current liabilities | Total current liabilities | 1,109,466 | | | 1,178,972 | |
Total current liabilities | |
Total current liabilities | |
Deferred income tax liabilities | Deferred income tax liabilities | 369,897 | | | 364,593 | |
Pension and other post-retirement benefit obligations | Pension and other post-retirement benefit obligations | 37,883 | | | 36,086 | |
Finance lease and other financing obligations, less current portion | 24,471 | | | 24,742 | |
Finance lease obligations, less current portion | |
Long-term debt, net | Long-term debt, net | 3,768,627 | | | 3,958,928 | |
Other long-term liabilities | Other long-term liabilities | 81,018 | | | 82,092 | |
Total liabilities | Total liabilities | 5,391,362 | | | 5,645,413 | |
Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | | | |
Shareholders’ equity: | Shareholders’ equity: | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 175,298 and 175,207 shares issued as of March 31, 2023 and December 31, 2022, respectively | 2,243 | | | 2,242 | |
Treasury shares, at cost, 22,781 and 22,781 shares as of March 31, 2023 and December 31, 2022, respectively | (1,124,713) | | | (1,124,713) | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 175,839 and 175,832 shares issued as of March 31, 2024 and December 31, 2023, respectively | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 175,839 and 175,832 shares issued as of March 31, 2024 and December 31, 2023, respectively | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 175,839 and 175,832 shares issued as of March 31, 2024 and December 31, 2023, respectively | |
Treasury shares, at cost, 25,365 and 25,090 shares as of March 31, 2024 and December 31, 2023, respectively | |
Additional paid-in capital | Additional paid-in capital | 1,876,168 | | | 1,866,201 | |
Retained earnings | Retained earnings | 2,452,858 | | | 2,383,341 | |
Accumulated other comprehensive loss | (13,064) | | | (16,264) | |
Accumulated other comprehensive income | |
| Total shareholders' equity | Total shareholders' equity | 3,193,492 | | | 3,110,807 | |
| Total shareholders' equity | |
| Total shareholders' equity | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 8,584,854 | | | $ | 8,756,220 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
| | |
| |
| |
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
Net revenue | Net revenue | $ | 998,175 | | | $ | 975,770 | | |
Net revenue | |
Net revenue | |
Operating costs and expenses: | |
Operating costs and expenses: | |
Operating costs and expenses: | Operating costs and expenses: | | |
Cost of revenue | Cost of revenue | 670,471 | | | 657,080 | | |
Cost of revenue | |
Cost of revenue | |
Research and development | |
Research and development | |
Research and development | Research and development | 45,939 | | | 45,980 | | |
Selling, general and administrative | Selling, general and administrative | 86,150 | | | 95,680 | | |
Selling, general and administrative | |
Selling, general and administrative | |
Amortization of intangible assets | |
Amortization of intangible assets | |
Amortization of intangible assets | Amortization of intangible assets | 40,774 | | | 37,367 | | |
Restructuring and other charges, net | Restructuring and other charges, net | 5,999 | | | 13,733 | | |
Restructuring and other charges, net | |
Restructuring and other charges, net | |
Total operating costs and expenses | |
Total operating costs and expenses | |
Total operating costs and expenses | Total operating costs and expenses | 849,333 | | | 849,840 | | |
Operating income | Operating income | 148,842 | | | 125,930 | | |
Interest expense, net | (40,091) | | | (45,445) | | |
Operating income | |
Operating income | |
Interest expense | |
Interest expense | |
Interest expense | |
Interest income | |
Interest income | |
Interest income | |
Other, net | |
Other, net | |
Other, net | Other, net | 1,392 | | | (50,456) | | |
Income before taxes | Income before taxes | 110,143 | | | 30,029 | | |
Income before taxes | |
Income before taxes | |
Provision for income taxes | |
Provision for income taxes | |
Provision for income taxes | Provision for income taxes | 23,726 | | | 7,588 | | |
Net income | Net income | $ | 86,417 | | | $ | 22,441 | | |
Net income | |
Net income | |
Basic net income per share | |
Basic net income per share | |
Basic net income per share | Basic net income per share | $ | 0.57 | | | $ | 0.14 | | |
Diluted net income per share | Diluted net income per share | $ | 0.56 | | | $ | 0.14 | | |
Diluted net income per share | |
Diluted net income per share | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
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| |
| |
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
Net income | Net income | $ | 86,417 | | | $ | 22,441 | | |
Other comprehensive income: | | |
Net income | |
Net income | |
Other comprehensive (loss)/income: | |
Other comprehensive (loss)/income: | |
Other comprehensive (loss)/income: | |
Cash flow hedges | |
Cash flow hedges | |
Cash flow hedges | Cash flow hedges | 2,807 | | | 2,850 | | |
Defined benefit and retiree healthcare plans | Defined benefit and retiree healthcare plans | 393 | | | 428 | | |
Other comprehensive income | 3,200 | | | 3,278 | | |
Defined benefit and retiree healthcare plans | |
Defined benefit and retiree healthcare plans | |
Cumulative translation adjustment | |
Cumulative translation adjustment | |
Cumulative translation adjustment | |
Other comprehensive (loss)/income | |
Other comprehensive (loss)/income | |
Other comprehensive (loss)/income | |
Comprehensive income | Comprehensive income | $ | 89,617 | | | $ | 25,719 | | |
Comprehensive income | |
Comprehensive income | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| | | For the three months ended | | For the three months ended |
| | March 31, 2023 | | March 31, 2022 | | March 31, 2024 | | March 31, 2023 |
Cash flows from operating activities: | Cash flows from operating activities: | | | |
Net income | Net income | $ | 86,417 | | | $ | 22,441 | |
Net income | |
Net income | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation | |
Depreciation | |
Depreciation | Depreciation | 30,948 | | | 31,531 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 1,734 | | | 1,716 | |
Gain on sale of business | Gain on sale of business | (5,877) | | | — | |
Share-based compensation | Share-based compensation | 7,206 | | | 6,540 | |
Loss on debt financing | Loss on debt financing | 485 | | | — | |
Amortization of intangible assets | Amortization of intangible assets | 40,774 | | | 37,367 | |
Deferred income taxes | Deferred income taxes | 6,491 | | | (340) | |
Acquisition-related compensation payments | (3,000) | | | (7,500) | |
Mark-to-market loss on equity investments, net | — | | | 59,279 | |
Unrealized loss/(gain) on derivative instruments and other | 3,107 | | | (517) | |
Loss on equity investments, net | |
Unrealized (gain)/loss on derivative instruments and other | |
Changes in operating assets and liabilities, net of the effects of acquisitions: | Changes in operating assets and liabilities, net of the effects of acquisitions: | |
Accounts receivable, net | |
Accounts receivable, net | |
Accounts receivable, net | Accounts receivable, net | (17,370) | | | (49,821) | |
Inventories | Inventories | (13,687) | | | (53,004) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (19,668) | | | (8,807) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | (27,586) | | | 13,488 | |
Income taxes payable | Income taxes payable | 6,882 | | | (7,268) | |
Other | Other | 32 | | | 2,250 | |
Acquisition-related compensation payments | |
Net cash provided by operating activities | Net cash provided by operating activities | 96,888 | | | 47,355 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | |
Acquisitions, net of cash received | — | | | (48,441) | |
| Additions to property, plant and equipment and capitalized software | Additions to property, plant and equipment and capitalized software | (36,882) | | | (35,711) | |
Investment in debt and equity securities | — | | | (6,853) | |
| Additions to property, plant and equipment and capitalized software | |
| Additions to property, plant and equipment and capitalized software | |
| Proceeds from the sale of business, net of cash sold | |
Proceeds from the sale of business, net of cash sold | |
Proceeds from the sale of business, net of cash sold | Proceeds from the sale of business, net of cash sold | 14,000 | | | — | |
| Other | — | | | 152 | |
| Net cash used in investing activities | |
| Net cash used in investing activities | |
| Net cash used in investing activities | Net cash used in investing activities | (22,882) | | | (90,853) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | |
Proceeds from exercise of stock options and issuance of ordinary shares | |
Proceeds from exercise of stock options and issuance of ordinary shares | |
Proceeds from exercise of stock options and issuance of ordinary shares | Proceeds from exercise of stock options and issuance of ordinary shares | 2,762 | | | 13,348 | |
Payment of employee restricted stock tax withholdings | Payment of employee restricted stock tax withholdings | (123) | | | (135) | |
| Payments on debt | Payments on debt | (250,944) | | | (2,931) | |
Payments on debt | |
Payments on debt | |
Dividends paid | Dividends paid | (16,777) | | | — | |
Payments to repurchase ordinary shares | Payments to repurchase ordinary shares | — | | | (67,258) | |
| Purchase of noncontrolling interest in joint venture | |
Payments of debt financing costs | Payments of debt financing costs | (308) | | | — | |
| Net cash used in financing activities | Net cash used in financing activities | (265,390) | | | (56,976) | |
Net cash used in financing activities | |
Net cash used in financing activities | |
Effect of exchange rate changes on cash and cash equivalents | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (191,384) | | | (100,474) | |
Cash and cash equivalents, beginning of year | Cash and cash equivalents, beginning of year | 1,225,518 | | | 1,708,955 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 1,034,134 | | | $ | 1,608,481 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
(unaudited)
| | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity |
Balance as of December 31, 2022 | 175,207 | | | $ | 2,242 | | | (22,781) | | | $ | (1,124,713) | | | $ | 1,866,201 | | | $ | 2,383,341 | | | $ | (16,264) | | | | $ | 3,110,807 | |
| | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | | | | | Total Shareholders' Equity |
| |
Balance as of December 31, 2023 | |
Balance as of December 31, 2023 | |
Balance as of December 31, 2023 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | (2) | | | (123) | | | — | | | — | | | — | | | | (123) | |
Stock options exercised | 82 | | | 1 | | | — | | | — | | | 2,761 | | | — | | | — | | | | 2,762 | |
| Vesting of restricted securities | |
Vesting of restricted securities | |
Vesting of restricted securities | Vesting of restricted securities | 11 | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Cash dividends paid | Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (16,777) | | | — | | | | (16,777) | |
| Repurchase of ordinary shares | |
Retirement of ordinary shares | Retirement of ordinary shares | (2) | | | — | | | 2 | | | 123 | | | — | | | (123) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 7,206 | | | — | | | — | | | | 7,206 | |
| Purchase of noncontrolling interest in joint venture | |
Net income | Net income | — | | | — | | | — | | | — | | | — | | | 86,417 | | | — | | | | 86,417 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 3,200 | | | | 3,200 | |
Balance as of March 31, 2023 | 175,298 | | | $ | 2,243 | | | (22,781) | | | $ | (1,124,713) | | | $ | 1,876,168 | | | $ | 2,452,858 | | | $ | (13,064) | | | | $ | 3,193,492 | |
Other comprehensive loss | |
Balance as of March 31, 2024 | |
| | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity |
Balance as of December 31, 2021 | 174,287 | | | $ | 2,232 | | | (16,438) | | | $ | (832,439) | | | $ | 1,812,244 | | | $ | 2,132,257 | | | $ | (19,560) | | | | $ | 3,094,734 | |
| | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | | | | Total Shareholders' Equity |
| |
Balance as of December 31, 2022 | |
Balance as of December 31, 2022 | |
Balance as of December 31, 2022 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | (3) | | | (135) | | | — | | | — | | | — | | | | (135) | |
Stock options exercised | Stock options exercised | 290 | | | 4 | | | — | | | — | | | 12,713 | | | — | | | — | | | | 12,717 | |
Vesting of restricted securities | Vesting of restricted securities | 9 | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Repurchase of ordinary shares | — | | | — | | | (1,138) | | | (67,258) | | | — | | | — | | | — | | | | (67,258) | |
Cash dividends paid | |
| Retirement of ordinary shares | |
Retirement of ordinary shares | |
Retirement of ordinary shares | Retirement of ordinary shares | (3) | | | — | | | 3 | | | 135 | | | — | | | (135) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 6,540 | | | — | | | — | | | | 6,540 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 22,441 | | | — | | | | 22,441 | |
Net income | |
Net income | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 3,278 | | | | 3,278 | |
Balance as of March 31, 2022 | 174,583 | | | $ | 2,236 | | | (17,576) | | | $ | (899,697) | | | $ | 1,831,497 | | | $ | 2,154,563 | | | $ | (16,282) | | | | $ | 3,072,317 | |
Balance as of March 31, 2023 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," or "us."
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the U.S. Securities and Exchange Commission (the "SEC") on February 13, 202329, 2024 (the "2022"2023 Annual Report").
In the three months ended March 31, 2024, we realigned our business as a result of organizational changes that better allocate our resources to support changes to our business strategy. The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights business out of Performance Sensing to a new operating segment, which is not aggregated within either of our reportable segments. We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus. We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers. Prior year amounts in this Quarterly Report on Form 10-Q have been recast to reflect this realignment. Refer to Note 15: Segment Reporting for additional information
In the three months ended March 31, 2024, we presented interest income on the condensed consolidated statements of operations separate from interest expense. In the three months ended March 31, 2023, interest income had been included in interest expense, net. Accordingly, we reclassified prior period interest income to a separate caption in the condensed consolidated statements of operations to conform to current period presentation.
All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated.
2. New Accounting Standards
ThereIn November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity's reportable segments. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are no recently issued accounting standards that have been adoptedregularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items" included in the current perioddetermination of segment operating income. The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods, and that a public entity provide the title and position of the chief operating decision maker. Other requirements of the guidance are not expected to be material. There is no change to the guidance for identification or aggregation of operating or reportable segments. FASB ASU No. 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The guidance must be applied retrospectively to all prior periods presented. We adopted the guidance in futureFASB ASU No. 2023-07 on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.
In December 2023, the FASB issued ASU No. 2023-09, Income taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods that have had orbeginning after December 15, 2024. We are expected to have a materialcurrently evaluating the impact on our consolidated financial position or resultsincome tax related disclosures.
3. Revenue Recognition
The following table presentstables present net revenue disaggregated by segment and end market for the three months ended March 31, 2024 and 2023 for our two reportable segments, Performance Sensing ("PS") and 2022:Sensing Solutions ("SS"), and other:
| | For the three months ended March 31, 2023 | | For the three months ended March 31, 2022 |
| Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total |
| | For the three months ended March 31, 2024 | |
| | For the three months ended March 31, 2024 | |
| | For the three months ended March 31, 2024 | |
| | PS | |
| | PS | |
| | PS | |
Automotive | |
Automotive | |
Automotive | Automotive | | $ | 516,884 | | | $ | 8,134 | | | $ | 525,018 | | | $ | 502,362 | | | $ | 9,285 | | | $ | 511,647 | |
HVOR (1) | HVOR (1) | | 234,641 | | | — | | | 234,641 | | | 215,335 | | | — | | | 215,335 | |
HVOR (1) | |
HVOR (1) | |
Industrial | |
Industrial | |
Industrial | Industrial | | — | | | 135,255 | | | 135,255 | | | — | | | 114,619 | | | 114,619 | |
Appliance and HVAC (2) | Appliance and HVAC (2) | | — | | | 47,474 | | | 47,474 | | | — | | | 58,825 | | | 58,825 | |
Appliance and HVAC (2) | |
Appliance and HVAC (2) | |
Aerospace | Aerospace | | — | | | 44,326 | | | 44,326 | | | — | | | 33,270 | | | 33,270 | |
Aerospace | |
Aerospace | |
| Other | |
| Other | |
| Other | Other | | — | | | 11,461 | | | 11,461 | | | — | | | 42,074 | | | 42,074 | |
Total | Total | | $ | 751,525 | | | $ | 246,650 | | | $ | 998,175 | | | $ | 717,697 | | | $ | 258,073 | | | $ | 975,770 | |
Total | |
Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2023 | | |
| | PS | | SS | | Other (3) | | Total | | | | | | | | |
Automotive (3) | | $ | 499,095 | | | $ | 25,923 | | | $ | — | | | $ | 525,018 | | | | | | | | | |
HVOR (3)(4) | | 168,667 | | | 5,754 | | | — | | | 174,421 | | | | | | | | | |
Industrial (4) | | — | | | 148,512 | | | — | | | 148,512 | | | | | | | | | |
Appliance and HVAC | | — | | | 47,474 | | | — | | | 47,474 | | | | | | | | | |
Aerospace | | — | | | 44,326 | | | — | | | 44,326 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other (3) | | — | | | 11,461 | | | 46,963 | | | 58,424 | | | | | | | | | |
Total | | $ | 667,762 | | | $ | 283,450 | | | $ | 46,963 | | | $ | 998,175 | | | | | | | | | |
(1) Heavy vehicle and off-roadoff-road.
(2) Heating, ventilation and air conditioningconditioning.
(3) In the three months ended March 31, 2024, we realigned our segments, as discussed further in Note 1: Basis of Presentation and Note 15: Segment Reporting. As a result, certain revenue in the Automotive and HVOR end markets have been moved from Performance Sensing to Sensing Solutions. In addition, Insights revenue was moved from the HVOR end market (in Performance Sensing) to the other end market in a separate operating segment that is not aggregated within either of our reportable segments. The three months ended March 31, 2023 have been retrospectively recast to reflect this change.
(4) Effective April 1, 2023, we moved our material handling products from Performance Sensing to Sensing Solutions operating segment to align with new management reporting. As a result, material handling revenue was moved from the HVOR end market to the Industrial end market. The three months ended March 31, 2023 have been retrospectively recast to reflect this change.
4. Share-Based Payment Plans
The following table presents the components of non-cash compensation expense related to our equity awards for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
Stock options | $ | — | | | $ | 119 | | | | | |
Restricted securities | 8,133 | | | 7,087 | | | | | |
Share-based compensation expense | $ | 8,133 | | | $ | 7,206 | | | | | |
5. Restructuring and Other Charges, Net
Q3 2023 Plan
In the three months ended September 30, 2023, we committed to a plan to reorganize our business (the “Q3 2023 Plan”). The Q3 2023 Plan, consisting of voluntary and 2022:
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
Stock options | $ | 119 | | | $ | 307 | | | | | |
Restricted securities | 7,087 | | | 6,233 | | | | | |
Share-based compensation expense | $ | 7,206 | | | $ | 6,540 | | | | | |
involuntary reductions-in-force, site closures, and other cost-savings initiatives, was
5. commenced to adjust our cost structure and business activities to better align with weaker market demand and continued economic uncertainty in many of our end-markets and to take active measures to accelerate our margin recovery.
The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact 510 positions. Over the life of the Q3 2023 Plan, we expect to incur restructuring charges of between $20.5 million and $25.5 million, primarily related to reductions-in-force. The majority of the actions under the Q3 2023 Plan are expected to be completed on or before June 30, 2024. We expect to settle these charges with cash on hand.
We expect these restructuring charges to impact our business segments and corporate functions as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | Charges | | |
(Dollars in thousands) | Positions | | Minimum | | Maximum | | | | |
Performance Sensing | 160 | | | 7,043 | | | 8,495 | | | | | |
Sensing Solutions | 150 | | | 5,214 | | | 7,495 | | | | | |
Corporate and other | 200 | | | 8,243 | | | 9,510 | | | | | |
Total | 510 | | | 20,500 | | | 25,500 | | | | | |
Restructuring charges, net recognized in the three months ended March 31, 2024 resulting from the Q3 2023 Plan are presented by business segment and Other Charges, Netcorporate functions below. | | | | | | | | | | | | | | | |
(In thousands) | Severance | | Facility and other exit costs (1) | | | | |
Performance Sensing | $ | 528 | | | $ | — | | | | | |
Sensing Solutions | (349) | | | — | | | | | |
Corporate and other | 419 | | | — | | | | | |
Q3 2023 Plan total | $ | 598 | | | $ | — | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Includes site closures.
Summary
The following table presents the charges and gains included as components of restructuring and other charges, net for the three months ended March 31, 20232024 and 2022:2023:
| | For the three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| Severance costs, net | $ | 4,213 | | | $ | 587 | | |
| For the three months ended | |
| For the three months ended | |
| For the three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
Q3 2023 Plan charges, net (1) | |
Q3 2023 Plan charges, net (1) | |
Q3 2023 Plan charges, net (1) | |
Other restructuring and other charges, net | |
Other restructuring and other charges, net | |
Other restructuring and other charges, net | |
Severance charges, net (2) | |
Severance charges, net (2) | |
Severance charges, net (2) | |
Facility and other exit costs | |
Facility and other exit costs | |
Facility and other exit costs | Facility and other exit costs | 225 | | | 1,048 | | |
Gain on sale of business | Gain on sale of business | (5,877) | | | — | | |
Acquisition-related compensation arrangements (1) | 7,272 | | | 18,255 | | |
Other (1)(2) | 166 | | | (6,157) | | |
Gain on sale of business | |
Gain on sale of business | |
Acquisition-related compensation arrangements | |
Acquisition-related compensation arrangements | |
Acquisition-related compensation arrangements | |
Other | |
Other | |
Other | |
Restructuring and other charges, net | |
Restructuring and other charges, net | |
Restructuring and other charges, net | Restructuring and other charges, net | $ | 5,999 | | | $ | 13,733 | | |
|
(1) We have reclassified acquisition-related compensation arrangements for the three months ended March 31, 2022 from the "other" caption within restructuringIncludes severance charges, net and facility and other charges, net,exit costs relating to correspond to current period presentation.the Q3 2023 Plan as detailed under the heading Q3 2023 Plan above.
(2) The three months ended March 31, 2022 primarilyEach period presented includes gains related to changes inseverance charges, net of reversals, that do not represent the fair valueinitiation of acquisition-related contingent consideration amounts.a larger restructuring plan.
The following table presents a rollforward of our severance liability for the three months ended March 31, 2023:2024:
| | | | | | | | | | | |
| | | | | Severance |
Balance as of December 31, 2022 | | | | | $ | 8,617 | |
Charges, net of reversals | | | | | 4,213 | |
Payments | | | | | (5,635) | |
Foreign currency remeasurement | | | | | 139 | |
Balance as of March 31, 2023 | | | | | $ | 7,334 | |
| | | | | | | | | | | | | | | | | |
| Q3 2023 Plan | | Other | | Total |
Balance as of December 31, 2023 | $ | 6,017 | | | $ | 769 | | | $ | 6,786 | |
Charges, net of reversals | 598 | | | (9) | | | 589 | |
Payments | (3,296) | | | (369) | | | (3,665) | |
Foreign currency remeasurement | (97) | | | (13) | | | (110) | |
Balance as of March 31, 2024 | $ | 3,222 | | | $ | 378 | | | $ | 3,600 | |
The severance liability as of March 31, 20232024 and December 31, 2022 was2023 were entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.
6. Other, Net
The following table presents the components of other, net for the three months ended March 31, 20232024 and 2022:2023:
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
Currency remeasurement loss on net monetary assets | $ | (1,259) | | | $ | (67) | | |
Gain/(loss) on foreign currency forward contracts | 184 | | | (1,243) | | |
| |
| |
| |
| |
Currency remeasurement gain/(loss) on net monetary assets | |
Currency remeasurement gain/(loss) on net monetary assets | |
Currency remeasurement gain/(loss) on net monetary assets | |
Gain on foreign currency forward contracts | |
Gain on foreign currency forward contracts | |
Gain on foreign currency forward contracts | |
Gain on commodity forward contracts | |
Gain on commodity forward contracts | |
Gain on commodity forward contracts | Gain on commodity forward contracts | 1,899 | | | 9,424 | | |
Loss on debt financing | Loss on debt financing | (485) | | | — | | |
Mark-to-market loss on equity investments, net | — | | | (59,279) | | |
Loss on debt financing | |
Loss on debt financing | |
Loss on equity investments, net (1) | |
Loss on equity investments, net (1) | |
Loss on equity investments, net (1) | |
Net periodic benefit cost, excluding service cost | |
Net periodic benefit cost, excluding service cost | |
Net periodic benefit cost, excluding service cost | Net periodic benefit cost, excluding service cost | (971) | | | (755) | | |
Other | Other | 2,024 | | | 1,464 | | |
Other | |
Other | |
Other, net | Other, net | $ | 1,392 | | | $ | (50,456) | | |
Other, net | |
Other, net | |
(1) Primarily includes a loss on an equity investment that does not have a readily determinable fair value for which we use the measurement alternative prescribed in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments—Equity Securities. Refer to Note 13: Fair Value Measures for additional information.
7. Income Taxes
The following table presents the provision for income taxes for the three months ended March 31, 20232024 and 2022:2023:
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| | | | | | | |
| | | | | | | |
Provision for income taxes | $ | 23,726 | | | $ | 7,588 | | | | | |
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| | | | | | | |
| | | | | | | |
Provision for income taxes | $ | 22,570 | | | $ | 23,726 | | | | | |
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss
carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.
We recorded a partial valuation allowance against certain interest carryforwards in the U.S. at both December 31, 2022 and December 31, 2021. We are continually evaluating both the positive and negative evidence for this partial valuation allowance. We believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion
8. Net Income per Share
Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three months ended March 31, 20232024 and 20222023 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
| |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
Basic weighted-average ordinary shares outstanding | |
Basic weighted-average ordinary shares outstanding | |
Basic weighted-average ordinary shares outstanding | Basic weighted-average ordinary shares outstanding | 152,518 | | | 157,422 | | |
Dilutive effect of stock options | Dilutive effect of stock options | 151 | | | 473 | | |
Dilutive effect of stock options | |
Dilutive effect of stock options | |
Dilutive effect of unvested restricted securities | |
Dilutive effect of unvested restricted securities | |
Dilutive effect of unvested restricted securities | Dilutive effect of unvested restricted securities | 655 | | | 735 | | |
Diluted weighted-average ordinary shares outstanding | Diluted weighted-average ordinary shares outstanding | 153,324 | | | 158,630 | | |
Diluted weighted-average ordinary shares outstanding | |
Diluted weighted-average ordinary shares outstanding | |
Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares were as follows:
| | For the three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| For the three months ended | |
| For the three months ended | |
| For the three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
Anti-dilutive shares excluded | |
Anti-dilutive shares excluded | |
Anti-dilutive shares excluded | Anti-dilutive shares excluded | 381 | | | 4 | | |
Contingently issuable shares excluded | Contingently issuable shares excluded | 1,268 | | | 1,002 | | |
Contingently issuable shares excluded | |
Contingently issuable shares excluded | |
9. Inventories
The following table presents the components of inventories as of March 31, 20232024 and December 31, 2022:2023:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Finished goods | Finished goods | $ | 217,181 | | | $ | 202,531 | |
Work-in-process | Work-in-process | 115,608 | | | 117,691 | |
Raw materials | Raw materials | 325,773 | | | 324,653 | |
Inventories | Inventories | $ | 658,562 | | | $ | 644,875 | |
10. Debt
The following table presents the components of long-term debt, net and finance lease and other financing obligations as of March 31, 20232024 and December 31, 2022:2023:
| | | Maturity Date | | | | Maturity Date | | March 31, 2024 | | December 31, 2023 |
| | | Maturity Date | | March 31, 2023 | | December 31, 2022 |
Term Loan (1) | | September 20, 2026 | | $ | 196,834 | | | $ | 446,834 | |
| 5.625% Senior Notes | | November 1, 2024 | | 400,000 | | | 400,000 | |
5.0% Senior Notes | 5.0% Senior Notes | | October 1, 2025 | | 700,000 | | | 700,000 | |
| | 5.0% Senior Notes | |
| 5.0% Senior Notes | |
| 4.375% Senior Notes | |
4.375% Senior Notes | |
4.375% Senior Notes | 4.375% Senior Notes | | February 15, 2030 | | 450,000 | | | 450,000 | |
3.75% Senior Notes | 3.75% Senior Notes | | February 15, 2031 | | 750,000 | | | 750,000 | |
4.0% Senior Notes | 4.0% Senior Notes | | April 15, 2029 | | 1,000,000 | | | 1,000,000 | |
5.875% Senior Notes | 5.875% Senior Notes | | September 1, 2030 | | 500,000 | | | 500,000 | |
| Less: debt discount, net of premium | Less: debt discount, net of premium | | (2,831) | | | (3,360) | |
Less: debt discount, net of premium | |
Less: debt discount, net of premium | |
Less: deferred financing costs | Less: deferred financing costs | | (28,542) | | | (29,916) | |
Less: current portion | | (196,834) | | | (254,630) | |
| Long-term debt, net | |
Long-term debt, net | |
Long-term debt, net | Long-term debt, net | | $ | 3,768,627 | | | $ | 3,958,928 | |
| Finance lease and other financing obligations | | $ | 26,333 | | | $ | 26,583 | |
Finance lease obligations | |
Finance lease obligations | |
Finance lease obligations | |
Less: current portion | Less: current portion | | (1,862) | | | (1,841) | |
Finance lease and other financing obligations, less current portion | | $ | 24,471 | | | $ | 24,742 | |
Finance lease obligations, less current portion | |
(1) On February 6, 2023, we prepaid $250.0 million of outstanding principal on our Term Loan balance. Accordingly, that portion of the principal balance outstanding on the Term Loan has been presented as current portion of long-termOur debt on our consolidated balance sheet as of December 31, 2022. On April 25, 2023, we announced that we intend to pay down the remaining balance on the Term Loan in the second quarter of 2023. Accordingly, the remaining principal balance outstanding on the Term Loan has been presented as current portion of long-term debt on our condensed consolidated balance sheet as of March 31, 2023.
Our debt2024 and December 31, 2023 consists of secured credit facilities and various tranches of senior unsecured notes. Refer to Note 14: Debt of our 2022 Annual ReportWe also have secured credit facilities which provide for additional information related to our existing indebtedness.
As of March 31, 2023, we had $746.1 million available under our $750.0 million revolving credit facility (the "Revolving Credit Facility"), and incremental availability under which additional debt can be issued. Refer to Note 14: Debt of the audited consolidated financial statements and notes thereto included in the 2023 Annual Report for additional information regarding our existing indebtedness.
As of March 31, 2024, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31, 2023,2024, no amounts had been drawn against these outstanding letters of credit.
Accrued Interest
Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of March 31, 20232024 and December 31, 2022,2023, accrued interest totaled $54.4$44.7 million and $50.1$45.2 million, respectively.
11. Commitments and Contingencies
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows.
12. Shareholders' Equity
Purchase of noncontrolling interest in joint venture
In February 2024, Sensata purchased the remaining 50% interest in the Company’s joint venture with Dongguan Churod Electronics Co., Ltd. for approximately $79.4 million. Prior to the transaction, the Company had been consolidating the joint venture. The purchase of the 50% non-controlling interest was accounted for as an equity transaction. No gain or loss was recognized in the condensed consolidated statements of operations. The difference between the fair value of the consideration paid and the amount by which the non-controlling interest was adjusted was recognized as a reduction of additional paid in capital recorded in equity.
Cash Dividends
On February 22,In the three months ended March 31, 2024 and 2023, we paid aaggregate cash dividenddividends of $0.11 per share, or$18.1 million and $16.8 million, in aggregate, to shareholders of record as of February 8, 2023.respectively. On April 13, 2023,24, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on May 24, 202322, 2024 to shareholders of record as of May 10, 2023.8, 2024.
Foreign Currency Translation
TablePrior to October 1, 2023, the functional currency of Contentsthe Company's wholly-owned subsidiaries in China was USD. Effective October 1, 2023, as a result of significant changes in economic facts and circumstances in the operations of our China foreign entities, the functional currency of the Company's wholly-owned subsidiaries in China changed to the CNY. The changes in economic facts and circumstances caused a permanent change to our strategy in China toward a more self-contained model, making China the primary economic environment in which these subsidiaries operate. This change was accounted for prospectively and does not impact prior period financial statements.
As a result of this change, in the fourth quarter of 2023, we started recording an adjustment to translate these subsidiaries' financial statements from CNY to USD (our reporting currency). These adjustments are included in other comprehensive income and are presented under the heading
Accumulated Other Comprehensive Income/(Loss) below.Treasury Shares
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by the Board at any time. Under these programs, we may repurchase ordinary shares at such times and in amounts to be determined by our management, based on market conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated transactions, provided that such transactions were completed pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting. Ordinary shares repurchased by us are recognized, measured at cost, and presented as treasury shares on our consolidated balance sheets, resulting in a reduction of shareholders' equity.
On January 20, 2022, we announced that our Board of Directors had authorized a new $500.0 million ordinary share repurchase program (the “January 2022 Program”), which replaced the previous $500.0 million program approved in July 2019. On September 26, 2023, our Board of Directors authorized a new $500.0 million ordinary share repurchase program (the “September 2023 Program”), which replaced the January 2022 Program and became effective on October 1, 2023.
In the three months ended March 31, 2024, we repurchased 0.3 million ordinary shares for $10.1 million. These repurchases were made under the September 2023 Program. We did not repurchase any ordinary shares under this program in the three months ended March 31, 2023. In the three months ended March 31, 2022, we repurchased 1.1 million ordinary shares under the January 2022 Program. As of March 31, 2023, $224.52024, $461.8 million remained available for repurchase under the January 2022September 2023 Program.
Accumulated Other Comprehensive LossIncome
The following table presents the components of accumulated other comprehensive lossincome for the three months ended March 31, 2023:2024:
| | | | | | | | | | | | | | | | | | | | |
| | Cash Flow Hedges | | Defined Benefit and Retiree Healthcare Plans | | Accumulated Other Comprehensive Loss |
Balance as of December 31, 2022 | | $ | 15,665 | | | $ | (31,929) | | | $ | (16,264) | |
Other comprehensive income before reclassifications, net of tax | | 8,992 | | | — | | | 8,992 | |
Reclassifications from accumulated other comprehensive loss, net of tax | | (6,185) | | | 393 | | | (5,792) | |
Other comprehensive income | | 2,807 | | | 393 | | | 3,200 | |
Balance as of March 31, 2023 | | $ | 18,472 | | | $ | (31,536) | | | $ | (13,064) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash Flow Hedges | | Defined Benefit and Retiree Healthcare Plans | | Cumulative Translation Adjustment | | Accumulated Other Comprehensive Income |
Balance as of December 31, 2023 | | $ | 17,513 | | | $ | (28,499) | | | $ | 20,948 | | | $ | 9,962 | |
Other comprehensive income before reclassifications, net of tax | | 14,779 | | | — | | | (14,721) | | | 58 | |
Reclassifications from accumulated other comprehensive income, net of tax | | (5,537) | | | 227 | | | — | | | (5,310) | |
Other comprehensive income | | 9,242 | | | 227 | | | (14,721) | | | (5,252) | |
Balance as of March 31, 2024 | | $ | 26,755 | | | $ | (28,272) | | | $ | 6,227 | | | $ | 4,710 | |
The following table presents the amounts reclassified from accumulated other comprehensive lossincome for the three months ended March 31, 20232024 and 2022:2023:
| | For the three months ended March 31, | | | Affected Line in Condensed Consolidated Statements of Operations |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | | | | | Affected Line in Condensed Consolidated Statements of Operations |
Component | Component | | 2023 | | 2022 | | Affected Line in Condensed Consolidated Statements of Operations | | |
Derivative instruments designated and qualifying as cash flow hedges: | |
Derivative instruments designated and qualifying as cash flow hedges: | |
Derivative instruments designated and qualifying as cash flow hedges: | Derivative instruments designated and qualifying as cash flow hedges: | | | | | | | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (6,639) | | | $ | (4,264) | | | | Net revenue (1) |
Foreign currency forward contracts | Foreign currency forward contracts | | (1,697) | | | (2,629) | | | | Cost of revenue (1) |
Foreign currency forward contracts | | | $ | (108) | | | $ | (6,639) | | | | | | | Net revenue (1) |
Foreign currency forward contracts | | Foreign currency forward contracts | | (7,354) | | | (1,697) | | | | | | | Cost of revenue (1) |
| Total, before taxes | |
Total, before taxes | |
Total, before taxes | Total, before taxes | | (8,336) | | | (6,893) | | | | Income before taxes | | (7,462) | | | (8,336) | | (8,336) | | | | | | | Income before taxes | | | | | | Income before taxes |
Income tax effect | Income tax effect | | 2,151 | | | 1,778 | | | | Provision for income taxes | Income tax effect | | 1,925 | | | 2,151 | | 2,151 | | | | | | | Provision for income taxes | | | | | | Provision for income taxes |
Total, net of taxes | Total, net of taxes | | $ | (6,185) | | | $ | (5,115) | | | | Net income | Total, net of taxes | | $ | (5,537) | | | $ | | $ | (6,185) | | | | | | | Net income | | | | | | Net income |
| Defined benefit and retiree healthcare plans | Defined benefit and retiree healthcare plans | | $ | 537 | | | $ | 611 | | | | Other, net |
Defined benefit and retiree healthcare plans | |
Defined benefit and retiree healthcare plans | | | $ | 296 | | | $ | 537 | | | | | | | Other, net |
| Income tax effect | Income tax effect | | (144) | | | (183) | | | | Provision for income taxes |
| Income tax effect | |
| Income tax effect | | | (69) | | | (144) | | | | | | | Provision for income taxes |
Total, net of taxes | Total, net of taxes | | $ | 393 | | | $ | 428 | | | | Net income | Total, net of taxes | | $ | 227 | | | $ | | $ | 393 | | | | | | | Net income | | | | | | Net income |
(1) Refer to Note 14: Derivative Instruments and Hedging Activities for additional information onregarding amounts to be reclassified from accumulated other comprehensive lossincome in future periods.
13. Fair Value Measures
Measured on a Recurring Basis
The fair values of our derivative assets and liabilities measured at fair value on a recurring basis as of March 31, 20232024 and December 31, 20222023 are shown in the below table. All fair value measures presented in the table below are categorized in Level 2
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Assets | | | |
Cash equivalents (Level 1) | $ | 144,804 | | | $ | 138,749 | |
Foreign currency forward contracts (Level 2) | 33,997 | | | 28,871 | |
Commodity forward contracts (Level 2) | 2,113 | | | 1,457 | |
Total | $ | 180,914 | | | $ | 169,077 | |
| | | |
Liabilities | | | |
Foreign currency forward contracts (Level 2) | $ | 2,462 | | | $ | 8,996 | |
Commodity forward contracts (Level 2) | 248 | | | 795 | |
Total | $ | 2,710 | | | $ | 9,791 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | | | |
Foreign currency forward contracts | $ | 33,583 | | | $ | 31,126 | |
Commodity forward contracts | 5,091 | | | 4,181 | |
Total | $ | 38,674 | | | $ | 35,307 | |
| | | |
Liabilities | | | |
Foreign currency forward contracts | $ | 10,438 | | | $ | 9,866 | |
Commodity forward contracts | 2,734 | | | 4,671 | |
Total | $ | 13,172 | | | $ | 14,537 | |
Refer to Note 14: Derivative Instruments and Hedging Activities for additional information related toregarding our forward contracts.
As of March 31, 2023 and December 31, 2022, we also held cash Cash equivalents of $653.3 million and $860.0 million, respectively, consistingconsist of U.S. Government Treasury money market funds thatand are categorized inclassified as Level 1 of the fair value hierarchy.as they are exchange traded in an active market.
Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 20222023 and determined that they were notour Insights reporting unit was impaired. Refer to additional information in our 2023 Annual Report. No events or changes in circumstances occurred in the three months ended March 31, 20232024 that would have triggered the need for an additional impairment review of our goodwill and other indefinite-lived intangible assets.
In the three months ended March 31, 2024, we made the decision to reorganize our segments, as discussed in more detail in Note 1: Basis of Presentation. This reorganization resulted in the creation of a new reporting unit for a business that was previously part of the Automotive reporting unit, which was moved to the Sensing Solutions segment. We reassigned assets and liabilities, including goodwill, from the Automotive reporting unit to the new reporting unit as required by FASB ASC Topic 350. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and formation of these reporting units and determined that they were not impaired. As a result of this reorganization, we allocated $143.4 million of goodwill to the new reporting unit.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of March 31, 20232024 and December 31, 2022.2023. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value |
Liabilities | Liabilities | | | | | | | |
Term Loan | $ | 196,834 | | | $ | 196,343 | | | $ | 446,834 | | | $ | 443,483 | |
| 5.625% Senior Notes | $ | 400,000 | | | $ | 398,000 | | | $ | 400,000 | | | $ | 398,000 | |
| 5.0% Senior Notes | 5.0% Senior Notes | $ | 700,000 | | | $ | 685,125 | | | $ | 700,000 | | | $ | 684,250 | |
| | 5.0% Senior Notes | |
| 5.0% Senior Notes | |
| 4.375% Senior Notes | |
4.375% Senior Notes | |
4.375% Senior Notes | 4.375% Senior Notes | $ | 450,000 | | | $ | 408,375 | | | $ | 450,000 | | | $ | 400,500 | |
3.75% Senior Notes | 3.75% Senior Notes | $ | 750,000 | | | $ | 648,750 | | | $ | 750,000 | | | $ | 626,250 | |
4.0% Senior Notes | 4.0% Senior Notes | $ | 1,000,000 | | | $ | 897,500 | | | $ | 1,000,000 | | | $ | 875,000 | |
5.875% Senior Notes | 5.875% Senior Notes | $ | 500,000 | | | $ | 490,625 | | | $ | 500,000 | | | $ | 473,750 | |
|
(1) Excluding any related debt discounts, premiums, and deferred financing costs.
In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321, Investments—Equity Securities.321. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. As of March 31, 20232024 and December 31, 2022,2023, we held a $15.0 million equity investment usinginvestments under the measurement alternative of $6.3 million and $18.3 million, respectively, which isare presented as a component ofin other assets in the condensed consolidated balance sheets. There were no impairments or changes resulting from observable transactions for this investment inIn the three months ended March 31, 2023 and 2022 and no adjustments have been made to its2024, we adjusted the carrying value of one of these equity investments as a result of March 31, 2023 and December 31, 2022.an observable price change, resulting in a loss of $14.8 million.
14. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three months ended March 31, 20232024 and 2022,2023, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of March 31, 2023,2024, we estimated that $21.8$29.6 million of net gains will be reclassified from accumulated other comprehensive lossincome to earnings during the twelve-month period ending March 31, 2024.2025.
As of March 31, 2023,2024, we had the following outstanding foreign currency forward contracts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional (in millions) | | Effective Date(s) | | Maturity Date(s) | | Index (Exchange Rates) | | Weighted-Average Strike Rate | | Hedge Designation (1) |
20.033.5 EUR | | March 29, 202326, 2024 | | April 28, 202330, 2024 | | Euro ("EUR") to USD | | 1.09 USD | | Not designated |
364.3407.2 EUR | | Various from April 20212022 to March 20232026 | | Various from April 20232024 to March 20252026 | | EUR to USD | | 1.10 USD | | Cash flow hedge |
474.0624.0 CNY | | March 28, 202326, 2024 | | April 28, 202330, 2024 | | USD to Chinese Renminbi ("CNY") | | 6.857.10 CNY | | Not designated |
530.0 CNY66.9 USD | | Various in January 2023from February 2024 to March 2024 | | Various from April 20232024 to September 2023March 2026 | | USD to CNY | | 6.767.01 CNY | | Cash flow hedge |
| | | | | | | | | | |
609.01,145.0 JPY | | March 29, 202326, 2024 | | April 28, 202330, 2024 | | USD to Japanese Yen ("JPY") | | 131.83150.62 JPY | | Not designated |
| | | | | | | | | | |
19,364.034,691.4 KRW | | Various from June 2021May 2022 to March 20232024 | | Various from April 20232024 to February 20252026 | | USD to Korean Won ("KRW") | | 1,248.391,291.93 KRW | | Cash flow hedge |
| | | | | | | | | | |
25.018.0 MYR | | March 28, 202325, 2024 | | April 28, 202330, 2024 | | USD to Malaysian Ringgit ("MYR") | | 4.374.71 MYR | | Not designated |
| | | | | | | | | | |
20.0109.0 MXN | | March 29, 202325, 2024 | | April 28, 202330, 2024 | | USD to Mexican Peso ("MXN") | | 18.2316.84 MXN | | Not designated |
3,616.34,380.2 MXN | | Various from April 20212022 to March 20232024 | | Various from April 20232024 to March 20252026 | | USD to Mexican Peso ("MXN") | | 19.45 MXN | | 21.76 MXN | | Cash flow hedge |
6.39.6 GBP | | March 29, 202326, 2024 | | April 28, 202330, 2024 | | British Pound Sterling ("GBP") to USD | | 1.231.27 USD | | Not Designateddesignated |
57.673.7 GBP | | Various from April 20212022 to March 20232024 | | Various from April 20232024 to March 20252026 | | GBP to USD | | 1.241.25 USD | | Cash flow hedge |
(1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes. We may also enter into intercompany derivative instruments with our wholly-owned subsidiaries in order to hedge certain forecasted expenses.
Hedges of Commodity Risk
As of March 31, 2023,2024, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging:
| | | | | | | | | | | | | | | | | | | | |
Commodity | | Notional | | Remaining Contracted Periods | | Weighted-Average Strike Price Per Unit |
Silver | | 869,069746,290 troy oz. | | April 20232024 to January 2025March 2026 | | $22.8424.44 |
| Gold | | 7,119 troy oz. | | April 2023 to January 2025 | | $1,875.71
| Nickel | | 207,887 pounds | | April 2023 to January 2025 | | $11.24
| Aluminum | | 3,904,000 pounds | | April 2023 to January 2025 | | $1.21
Copper | | 7,591,3336,667,782 pounds | | April 20232024 to January 2025March 2026 | | $4.033.90 |
| Platinum | | 9,563 troy oz. | | April 2023 to January 2025 | | $969.95
| Palladium | | 1,237 troy oz. | | April 2023 to January 2025 | | $2,100.68
Financial Instrument Presentation
The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of March 31, 20232024 and December 31, 2022:2023:
| | | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
| | Balance Sheet Location | | March 31, 2023 | | December 31, 2022 | | Balance Sheet Location | | March 31, 2023 | | December 31, 2022 | | Balance Sheet Location | | March 31, 2024 | | December 31, 2023 | | Balance Sheet Location | | March 31, 2024 | | December 31, 2023 |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | | | | | |
Foreign currency forward contracts | Foreign currency forward contracts | Prepaid expenses and other current assets | | $ | 28,404 | | | $ | 27,114 | | | Accrued expenses and other current liabilities | | $ | 7,023 | | | $ | 6,586 | |
Foreign currency forward contracts | Foreign currency forward contracts | Other assets | | 5,057 | | | 3,763 | | | Other long-term liabilities | | 3,247 | | | 3,280 | |
Foreign currency forward contracts | |
Foreign currency forward contracts | |
Total | Total | | $ | 33,461 | | | $ | 30,877 | | | $ | 10,270 | | | $ | 9,866 | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | |
Commodity forward contracts | Commodity forward contracts | Prepaid expenses and other current assets | | $ | 3,328 | | | $ | 2,542 | | | Accrued expenses and other current liabilities | | $ | 2,504 | | | $ | 4,066 | |
Commodity forward contracts | Commodity forward contracts | Other assets | | 1,763 | | | 1,639 | | | Other long-term liabilities | | 230 | | | 605 | |
Commodity forward contracts | |
Commodity forward contracts | |
Foreign currency forward contracts | Foreign currency forward contracts | Prepaid expenses and other current assets | | 122 | | | 249 | | | Accrued expenses and other current liabilities | | 168 | | | — | |
Total | Total | | $ | 5,213 | | | $ | 4,430 | | | $ | 2,902 | | | $ | 4,671 | |
These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended March 31, 20232024 and 2022:2023:
| Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Amount of Deferred (Loss)/Gain Recognized in Other Comprehensive Income | | Location of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | | Amount of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | Derivatives designated as hedging instruments | | Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive (Loss)/Income | | Location of Net Gain Reclassified from Accumulated Other Comprehensive Income into Net Income | | Amount of Net Gain Reclassified from Accumulated Other Comprehensive Income into Net Income |
| 2023 | | 2022 | | 2023 | | 2022 | | 2024 | | 2023 | | | 2024 | | 2023 |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (3,588) | | | $ | 5,586 | | | Net revenue | | $ | 6,639 | | | $ | 4,264 | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | 15,708 | | | $ | 5,145 | | | Cost of revenue | | $ | 1,697 | | | $ | 2,629 | |
|
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Amount of Gain/(Loss) Recognized in Net Income | | Location of Gain/(Loss) Recognized in Net Income | Derivatives not designated as hedging instruments | | Amount of Gain Recognized in Net Income | | Location of Gain Recognized in Net Income |
| 2023 | | 2022 | |
Commodity forward contracts | Commodity forward contracts | | $ | 1,899 | | | $ | 9,424 | | | Other, net |
Commodity forward contracts | |
Commodity forward contracts | | | $ | 1,099 | | | $ | 1,899 | | | Other, net |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | 184 | | | $ | (1,243) | | | Other, net | Foreign currency forward contracts | | $ | 680 | | | $ | | $ | 184 | | | Other, net | | Other, net |
Credit Risk Related Contingent Features
We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations.
As of March 31, 2023,2024, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $13.3$2.8 million. As of March 31, 2023,2024, we had not posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values.
15. Acquisitions and Divestitures
Acquisitions
Elastic M2M
On February 11, 2022, we acquired all of the equity interests of Elastic M2M Inc. ("Elastic M2M") for an aggregate cash purchase price of $51.6 million, subject to certain post-closing items. In addition to the aggregate cash purchase price, the previous shareholders of Elastic M2M are entitled to up to $30.0 million of additional acquisition-related incentive
compensation, which was pending the completion of certain technical milestones in fiscal year 2022 and achievement of financial targets in fiscal years 2022 and 2023. All technical milestones were completed in fiscal year 2022. As of December 31, 2022, we had recognized $24.7 million of this acquisition-related incentive compensation. In three months ended March 31, 2023, we recognized an additional $3.3 million of this acquisition-related incentive compensation. This incentive compensation is recorded in restructuring and other charges, net.
Elastic M2M was a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users. This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment. We are integrating Elastic M2M into the Performance Sensing reportable segment.
The allocation of the purchase price related to this acquisition was finalized in the three months ended March 31, 2023. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
| | | | | | | | |
Net working capital, excluding cash | | $ | 35 | |
Goodwill | | 28,211 | |
Other intangible assets | | 27,700 | |
Deferred income tax liabilities | | (5,925) | |
Fair value of net assets acquired, excluding cash and cash equivalents | | 50,021 | |
Cash and cash equivalents | | 1,597 | |
Fair value of net assets acquired | | $ | 51,618 | |
The goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes.
In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted-average lives:
| | | | | | | | | | | | | | |
| | Acquisition Date Fair Value | | Weighted-Average Lives (years) |
Acquired definite-lived intangible assets | | | | |
Customer relationships | | $ | 17,500 | | | 13 |
Completed technologies | | 10,200 | | | 10 |
| | | | |
| | | | |
Total definite-lived intangible assets acquired | | $ | 27,700 | | | 12 |
The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships.
Dynapower
On July 12, 2022, we completed the acquisition of all of the outstanding equity interests of DP Acquisition Corp ("Dynapower"), a leader in power conversion systems including inverters, converters, and rectifiers for renewable energy generation, green hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and defense applications, for an aggregate cash purchase price of $577.5 million, subject to certain post-closing items. Dynapower also provides aftermarket sales and service to maintain its equipment in the field.
Dynapower is a foundational addition to our Clean Energy Solutions strategy and complements our recent acquisitions of GIGAVAC, Lithium Balance, and Spear. We are integrating Dynapower into our Sensing Solutions reportable segment.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
| | | | | | | | |
Net working capital, excluding cash | | $ | 13,487 | |
Property, plant and equipment | | 1,846 | |
Goodwill | | 418,257 | |
Other intangible assets | | 164,400 | |
Other assets | | 1,656 | |
Deferred income tax liabilities | | (25,548) | |
Other long-term liabilities | | (1,035) | |
Fair value of net assets acquired, excluding cash and cash equivalents | | 573,063 | |
Cash and cash equivalents | | 4,410 | |
Fair value of net assets acquired | | $ | 577,473 | |
The allocation of purchase price of Dynapower is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes.
In connection with the preliminary allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted-average lives:
| | | | | | | | | | | | | | |
| | Acquisition Date Fair Value | | Weighted-Average Lives (years) |
Acquired definite-lived intangible assets | | | | |
Customer relationships | | $ | 37,000 | | | 13 |
Backlog | | 7,100 | | | 2 |
Completed technologies | | 86,100 | | | 12 |
Tradenames | | 34,200 | | | 18 |
| | | | |
Total definite-lived intangible assets acquired | | $ | 164,400 | | | 13 |
The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships.
Divestiture - Qinex Business
On May 27, 2022, we executed an asset purchase agreement (the "APA") whereby we agreed to sell various assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business") to LTI Holdings, Inc. ("LTI") in exchange for consideration of approximately $219.0 million, subject to working capital and other adjustments. Concurrent with the execution of the APA, the parties entered into a Contract Manufacturing Agreement ("CMA") and a Transition Services Agreement ("TSA"), each for nominal consideration.
The CMA commenced at closing of the transaction ("Closing") and had a term of either six or nine months, depending on the manufacturing site. LTI also had the option of extending each contract for an additional three months. The period from Closing to the end of the CMA term (including extensions, if any) is referred to as the "Transition Period." The terms of the CMA required that we provide manufacturing and distribution services for the Transition Period. The TSA commenced at Closing and had a term that varied depending on the nature of the support services, ranging from one month to the entirety of the Transition Period. The terms of the TSA required that we provide various forms of commercial, operational, and back-office support to LTI. As of March 31, 2023, the Transition Period has ended.
Closing occurred in July 2022, at which time assets of approximately $70 million (including allocated goodwill of $45 million) and liabilities of approximately $2 million transferred to LTI. Transferred assets and liabilities excluded inventories and accounts payable, which transferred to LTI at the end of the Transition Period. We received cash consideration of
$198.8 million at Closing and recognized a pre-tax gain of $135.1 million. Cash consideration received at Closing excluded amounts held in escrow until various milestones were met through the Transition Period.
The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012. The Qinex Business was included in our Sensing Solutions segment (and Industrial Solutions reporting unit). We allocated goodwill to the Qinex Business based on its fair value relative to the total fair value of the Industrial Solutions reporting unit.
16. Segment Reporting
We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. TheIn the three months ended March 31, 2024, we realigned our segments as a result of organizational changes that better allocate our resources to support changes to our business strategy. Refer to Note 1: Basis of Presentation for additional information. This realignment added an "other" segment that represents the aggregation of immaterial operating segments. As a result of this reorganization,
we moved $143.4 million of goodwill from Performance Sensing to Sensing Solutions. Refer to Note 13: Fair Value Measures for additional information.
Effective April 1, 2023, we moved our material handling products from the HVOR operating segment (in the Performance Sensing reportable segment) to the Sensing Solutions operating segment to align with new management reporting. Prior year amounts in the table below have been recast to reflect these realignments.
Prior to the three months ended March 31, 2024, the Performance Sensing reportable segment consistsrepresented the aggregation of two operating segments, Automotive and HVOR,HVOR. As a result of the segment realignment, Performance Sensing now represents one operating segment, as does Sensing Solutions. Other immaterial operating segments are aggregated in other, which meetwas created as part of the criteria for aggregation in FASB ASC Topic 280, Segment Reporting. The Sensing Solutions reportable segment is also an operating segment.realignment.
Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance.
An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs or credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation expense associated with assets recognized in connection with acquisitions. Corporate and other costsexpenses excluded from an operating (and reportable) segment’s performance are separately stated below and also include costs that are related to functional areas such as finance, information technology, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable segments are materially consistent with those described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 20222023 Annual Report.
The following table presents net revenue and segment operating income for our reportable segments and other operating results not allocated to our reportable segments for the three months ended March 31, 2024 and 2023 (prior periods have been recast).
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
Net revenue: | | | | | | | |
Performance Sensing (1)(2) | $ | 713,318 | | | $ | 667,762 | | | | | |
Sensing Solutions (1)(2) | 257,839 | | | 283,450 | | | | | |
Other (2) | 35,552 | | | 46,963 | | | | | |
Total net revenue | $ | 1,006,709 | | | $ | 998,175 | | | | | |
Segment operating income (as defined above): | | | | | | | |
Performance Sensing (1)(2) | $ | 185,132 | | | $ | 169,066 | | | | | |
Sensing Solutions (1)(2) | 72,479 | | | 84,020 | | | | | |
Other (2) | 6,781 | | | 4,970 | | | | | |
Total segment operating income | 264,392 | | | 258,056 | | | | | |
Corporate and other | (80,303) | | | (62,441) | | | | | |
Amortization of intangible assets | (38,515) | | | (40,774) | | | | | |
Restructuring and other charges, net | (782) | | | (5,999) | | | | | |
Operating income | 144,792 | | | 148,842 | | | | | |
Interest expense | (38,395) | | | (48,791) | | | | | |
Interest income | 3,738 | | | 8,700 | | | | | |
Other, net | (11,544) | | | 1,392 | | | | | |
Income before taxes | $ | 98,591 | | | $ | 110,143 | | | | | |
(1) The amounts previously reported for the three months ended March 31, 2023 have been retrospectively recast to reflect the move of the material handling products between operating segments in the second quarter of 2023 and 2022:to reflect the recasting of the Aftermarkets business and the radar products from Performance Sensing to Sensing Solutions.
| | | | | | | | | | | | | | | |
| For the three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
Net revenue: | | | | | | | |
Performance Sensing | $ | 751,525 | | | $ | 717,697 | | | | | |
Sensing Solutions | 246,650 | | | 258,073 | | | | | |
Total net revenue | $ | 998,175 | | | $ | 975,770 | | | | | |
Segment operating income (as defined above): | | | | | | | |
Performance Sensing | $ | 188,377 | | | $ | 180,638 | | | | | |
Sensing Solutions | 69,679 | | | 72,515 | | | | | |
Total segment operating income | 258,056 | | | 253,153 | | | | | |
Corporate and other | (62,441) | | | (76,123) | | | | | |
Amortization of intangible assets | (40,774) | | | (37,367) | | | | | |
Restructuring and other charges, net | (5,999) | | | (13,733) | | | | | |
Operating income | 148,842 | | | 125,930 | | | | | |
Interest expense, net | (40,091) | | | (45,445) | | | | | |
Other, net | 1,392 | | | (50,456) | | | | | |
Income before taxes | $ | 110,143 | | | $ | 30,029 | | | | | |
(2) The amounts previously reported for the three months ended March 31, 2023 have been retrospectively recast to reflect the segment realignment as discussed in Note 1: Basis of Presentation.
16. Subsequent Events
On April 26, 2024, Jeff Cote informed our Board of his decision to retire as Chief Executive Officer ("CEO") and President and resign from the Board effective April 30, 2024. The Board has appointed Martha Sullivan as Interim President and CEO effective May 1, 2024 and has established a CEO Search Committee to identify a new permanent CEO.
Cautionary Statements Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," "potential," "opportunity," "guidance," and similar terms or phrases. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services, share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. These statements are subject to risks, uncertainties, and other important factors relating to our operations and business environment, and we can give no assurances that these forward-looking statements will prove to be correct.
A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements, including, but not limited to, risks related to public health crises, instability and changes in the global markets, supplier interruption or non-performance, the acquisition or disposition of businesses, adverse conditions or competition in the industries upon which we are dependent, intellectual property, product liability, warranty and recall claims, market acceptance of new product introductions and product innovations, labor disruptions or increased labor costs, and changes in existing environmental or safety laws, regulations, and programs.
Investors and others should carefully consider the foregoing factors and other uncertainties, risks, and potential events including, but not limited to, those described in Item 1A: Risk Factors included in our 20222023 Annual Report and as may be updated from time to time in Item 1A: Risk Factors included in our quarterly reports on Form 10-Q or other subsequent filings with the United States Securities and Exchange Commission. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations supplements, and should be read in conjunction with, the discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 20222023 Annual Report. The following discussion should also be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Amounts and percentages in the following discussions and tables have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
Overview
Net revenue increased 2.3% infor the three months ended March 31, 20232024 was $1,006.7 million, an increase of 0.9% compared to $998.2 million in the prior year period. Net revenue increased 4.7% on an organic basis, which excludesExcluding a decrease of 2.3%1.4% attributed to changes in foreign currency exchange rates, and a decrease of 0.1% due to the net effect of acquisitions and divestitures. This reflectsrevenue increased 2.3% on an organic revenue growth of 7.0% in Performance Sensing and organic revenue decline of 1.5% in Sensing Solutions.basis. Organic revenue growth (or decline), discussed throughout this Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A"), is a financial measure not presented in accordance with U.S. generally accepted accounting principles ("GAAP").GAAP. Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information related toregarding our use of organic revenue growth (or decline).
Operating income for the three months ended March 31, 2023, increased $22.92024 decreased $4.1 million, or 18.2%2.7%, to $144.8 million (14.4% of net revenue) from $148.8 million (14.9% of net revenue) compared to $125.9 million (12.9% of net revenue) in the prior year period. This increase was primarily due to (1) lower selling, general and administrative ("SG&A") expense, primarily related to reduced compensation in the first quarter of 2023 as a result of restructuring actions taken in fiscal year 2022, (2) margin improvements driven by organic revenue growth partially offset by the unfavorable effect of changes in foreign currency exchange rates, and (3) lower restructuring and other charges, net. These increases were partially offset by an increase in amortization expense as a result of intangibles recently acquired.three months ended March 31, 2023. Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three months ended March 31, 20232024 compared to the prior year period.periods.
We have sufficient cash to operate the business effectively. We generated $96.9$106.5 million of operating cash flowflows in the three months ended March 31, 2023,2024, ending the quarter with $1.0 billion$460.4 million in cash and cash equivalents. In the three months ended March 31, 2023,2024, we used cash of approximately $16.8$42.1 million for capital expenditures, $18.1 million for payment of cash dividends, and we have announced an increase in cash dividends$10.1 million for the second quarter to $0.12 per share. share repurchases as part of our share repurchase plan.
In the first quarterthree months ended March 31, 2024, we realigned our business as a result of 2023, we prepaid $250.0 millionorganizational changes that better allocate our resources to support changes to our business strategy. The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights business out of principalPerformance Sensing to a new operating segment, which is not aggregated within either of our reportable segments. We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus. We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers. Prior year amounts in this Quarterly Report on the balance outstandingForm 10-Q have been recast to reflect this realignment. Refer to Note 1: Basis of the Term Loan and we intend to pay down the remaining principal balance on the Term Loan in the second quarter of 2023. In fiscal year 2023, we will continue to return capital to shareholders through our dividend and
opportunistic share repurchases. We expect improving free cash flow will naturally allow leverage to declinePresentation and returnsNote 15: Segment Reporting included elsewhere in this Quarterly Report on invested capital to improve over time.Form 10-Q for additional information.
Results of Operations
The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three months ended March 31, 20232024 compared to the three months ended March 31, 2022.2023. We have derived the results of operations from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Prior year periods have been recast to reflect the reorganization of segments as detailed in Note 1: Basis of Presentation included elsewhere in this Report. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
| | Amount | | Margin* | | Amount | | Margin* | |
| |
| |
| |
| Amount | |
| Amount | |
| Amount | |
Net revenue: | |
Net revenue: | |
Net revenue: | Net revenue: | | | | | | | | |
Performance Sensing | Performance Sensing | $ | 751.5 | | | 75.3 | % | | $ | 717.7 | | | 73.6 | % | |
Performance Sensing | |
Performance Sensing | |
Sensing Solutions | Sensing Solutions | 246.7 | | | 24.7 | | | 258.1 | | | 26.4 | | |
Sensing Solutions | |
Sensing Solutions | |
Other | |
Other | |
Other | |
Net revenue | |
Net revenue | |
Net revenue | Net revenue | 998.2 | | | 100.0 | | | 975.8 | | | 100.0 | | |
| Operating costs and expenses | Operating costs and expenses | 849.3 | | | 85.1 | | | 849.8 | | | 87.1 | | |
| Operating costs and expenses | |
| Operating costs and expenses | |
Operating income | Operating income | 148.8 | | | 14.9 | | | 125.9 | | | 12.9 | | |
Interest expense, net | (40.1) | | | (4.0) | | | (45.4) | | | (4.7) | | |
Operating income | |
Operating income | |
Interest expense | |
Interest expense | |
Interest expense | |
Interest income | |
Interest income | |
Interest income | |
Other, net | |
Other, net | |
Other, net | Other, net | 1.4 | | | 0.1 | | | (50.5) | | | (5.2) | | |
Income before taxes | Income before taxes | 110.1 | | | 11.0 | | | 30.0 | | | 3.1 | | |
Income before taxes | |
Income before taxes | |
Provision for income taxes | |
Provision for income taxes | |
Provision for income taxes | Provision for income taxes | 23.7 | | | 2.4 | | | 7.6 | | | 0.8 | | |
Net income | Net income | $ | 86.4 | | | 8.7 | % | | $ | 22.4 | | | 2.3 | % | |
Net income | |
Net income | |
* (1) Represents the amount presented divided by total net revenue.
Net Revenue
Net revenue for the three months ended March 31, 20232024 increased 2.3%0.9% compared to the three months ended March 31, 2022.prior period. Net revenue for the three months ended March 31, 2023 increased 4.7%2.3% on an organic basis, which excludes a decrease of 2.3%1.4% attributed to changes in foreign currency exchange rates and a decrease of 0.1% due to the net effect of acquisitions and divestitures. This represents market outgrowth of 20 basis points. We use the term "market outgrowth" to describe the impact of an increasing quantity and value of our products used in customer systems and applications above external market growth. It is only loosely correlated to normal unit demand fluctuations in the markets we serve.rates.
Performance Sensing
Performance Sensing net revenue for the three months ended March 31, 20232024 increased 4.7%6.8% compared to the three months ended March 31, 2022.prior period. Excluding a decrease of 2.7%1.8% attributed to changes in foreign currency exchange rates, and an increase of 0.4% due to the effect of acquisitions, Performance Sensing net revenue for the three months ended March 31, 2023 increased 7.0% on an organic basis. Both automotive and HVOR contributed to these results as discussed below.
Automotive net revenue for the three months ended March 31, 2023 grew 2.9% compared to the three months ended March 31, 2022. Excluding a decline of 3.1% attributed to changes in foreign currency exchange rates, Automotive net revenue for the three months ended March 31, 2023 grew 6.0%8.6% on an organic basis, which was primarily due to improved market performance. HVOR net revenue for the three months ended March 31, 2023 grew 9.0% compared to the three months ended March 31, 2022. Excluding a decline of 1.7% attributed to changes in foreign currency exchange ratescontent growth across both Automotive and an increase of 1.3% due to the effect of acquisitions, HVOR net revenue for the three months ended March 31, 2023 grew 9.4% on an organic basis, primarily due to market outgrowth.HVOR.
Sensing Solutions
Sensing Solutions net revenue for the three months ended March 31, 20232024 decreased 4.4%9.0% compared to the three months ended March 31, 2022.prior period. Excluding a decline of 1.5%0.7% attributed to changes in foreign currency exchange rates, and a decline of 1.4% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue for the three months ended March 31, 2023 declined 1.5%8.3% on an organic basis, which primarily reflects market declinesinventory destocking in ourthe industrial business,markets, partially offset by improvementsgrowth in the aerospace markets.market.
Operating costs and expenses
Operating costs and expenses for the three months ended March 31, 20232024 and 20222023 are presented, in millions of dollars and as a percentage of net revenue, in the following table. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
| | | For the three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
| | Amount | | Margin* | | Amount | | Margin* | |
| |
| |
| |
| Amount | |
| Amount | |
| Amount | |
Operating costs and expenses: | |
Operating costs and expenses: | |
Operating costs and expenses: | Operating costs and expenses: | | | | | | | | |
Cost of revenue | Cost of revenue | $ | 670.5 | | | 67.2 | % | | $ | 657.1 | | | 67.3 | % | |
Cost of revenue | |
Cost of revenue | |
Research and development | |
Research and development | |
Research and development | Research and development | 45.9 | | | 4.6 | | | 46.0 | | | 4.7 | | |
Selling, general and administrative | Selling, general and administrative | 86.2 | | | 8.6 | | | 95.7 | | | 9.8 | | |
Selling, general and administrative | |
Selling, general and administrative | |
Amortization of intangible assets | |
Amortization of intangible assets | |
Amortization of intangible assets | Amortization of intangible assets | 40.8 | | | 4.1 | | | 37.4 | | | 3.8 | | |
Restructuring and other charges, net | Restructuring and other charges, net | 6.0 | | | 0.6 | | | 13.7 | | | 1.4 | | |
Restructuring and other charges, net | |
Restructuring and other charges, net | |
Total operating costs and expenses | Total operating costs and expenses | $ | 849.3 | | | 85.1 | % | | $ | 849.8 | | | 87.1 | % | |
Total operating costs and expenses | |
Total operating costs and expenses | |
* (1) Represents the amount presented divided by total net revenue.
Cost of revenue
For the three months ended March 31, 2023,2024, cost of revenue as a percentage of net revenue decreased slightlyincreased from the three months ended March 31, 2022, as the net impacts ofprior period, primarily due to (1) pricing recoveries from customers, (2) inflation on material and logistics costs, and (3) volume leverage was largely offset by (1) product mix and (2) the unfavorable effect of changes in foreign currency exchange rates.rates, (2) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, and (3) unfavorable product mix.
Research and development expense
For the three months ended March 31, 2023,2024, research and development ("R&D") expense decreased slightlydid not fluctuate materially from the three months ended March 31, 2022, due to lower costs as a result of repositioning activities in fiscalprior year 2022 and the favorable effect of changes in foreign currency exchange rates.period.
Selling, general and administrative expense
For the three months ended March 31, 2023, 2024, selling, general and administrative ("SG&A&A") expense decreaseddid not fluctuate materially from the prior year period.
Amortization of intangible assets
For the three months ended March 31, 2022,2024, amortization of intangible assets decreased from the prior period, primarily asdue to the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset.
Restructuring and other charges, net
In the three months ended March 31, 2024, restructuring and other charges, net decreased from the prior year period, primarily due to lower charges for acquisition-related incentive compensation and lower severance charges, partially offset by the non-recurrence of a resultgain on sale of (1) reduced compensationbusiness that occurred in the first quarter of 2023, primarily the result of restructuring actions taken in fiscal year 2022, (2) the favorable effect of changes in foreign currency exchange rates, and (3) lower costs related to mergers and acquisitions activity. 2023.
Refer to Note 15: Acquisitions5: Restructuring and DivestituresOther Charges, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information related to acquired businesses.
Amortization of intangible assets
For the three months ended March 31, 2023, amortization expense increased from the three months ended March 31, 2022, primarily due to increased intangibles from recent acquisitions. Refer to Note 15: Acquisitions and Divestitures of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information related to recent acquisitions.
Restructuring and other charges, net
For the three months ended March 31, 2023, restructuring and other charges, net decreased from the three months ended March 31, 2022 primarily due to (1) a reduction in expense for acquisition-related compensation arrangements and (2) the gain on sale of a business in the first quarter of 2023, partially offset by (1) the impact of the non-recurrence of a gain recognized in the first quarter of 2022 related to the reduction of the liability for contingent consideration for Spear and (2) an increase in severance charges that were not the result of initiation of a larger restructuring plan. Refer to Note 5: Restructuring and Other Charges, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information onregarding the components of restructuring and other charges, net.
Operating income
For the three months ended March 31, 2023,2024, operating income increased compared todid not fluctuate materially from the prior year period, as lower gross margin as described under the heading Cost of revenue above was largely offset by lower restructuring charges.
Interest expense
For the three months ended March 31, 2022,2024, interest expense decreased $10.4 million from the prior period, primarily due to (1) lower SG&A expense, primarily related to reduced compensationthe repayment of the Term Loan and 5.625% Senior Notes in the first quarter of 2023 as a result of restructuring actions taken in fiscal year 2022, (2) margin improvements driven by organic revenue growth partially offset byended December 31, 2023.
Refer to Note 14: Debt of the unfavorable effect of changesaudited consolidated financial statements and notes thereto included in foreign currency exchange rates, and (3) lower restructuring and other charges, net. These increases were partially offset by an increase in amortization expense as a result of intangibles recently acquired.the 2023 Annual Report for additional information regarding these debt transactions.
Interest expense, netincome
For the three months ended March 31, 2023,2024, interest expense, netincome decreased $5.4 million from the three months ended March 31, 2022prior period, primarily due to increased interest income as a result of increasing interest rates partially offset by (1) increased interest expense on the Term Loan (partially mitigated by the $250.0 million prepayment on the Term Loanlower average cash equivalent balances in the first quarter of 2023) and (2)2024 compared to the net impact of the early redemption of the 4.875% Senior Notes and the issuance of the 5.875% Senior Notes in the thirdfirst quarter of 2022.2023.
Other, net
Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, mark-to-market gains and losses on investments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost.
For the three months ended March 31, 2024, other, net represented a net loss of $11.5 million, an unfavorable impact on earnings of $12.9 million compared to a net gain of $1.4 million in the prior period. This unfavorable impact was primarily due to a loss of $14.8 million recognized as a result of observable price changes related to an equity investment held using the measurement alternative. Refer to Note 13: Fair Value Measures for additional information. Refer to Note 6: Other, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more details related toregarding the components of other, net.
For the three months ended March 31, 2023, other, net represented a net gain of $1.4 million, a favorable impact on earnings of $51.8 million compared to a net loss of $50.5 million in the three months ended March 31, 2022. This impact was primarily due to the non-recurrence of mark-to-market losses on equity investments, primarily related to our investment in Quanergy Systems Inc., in the first quarter of 2022, partially offset by lower gains on commodity forward contracts.
Provision for income taxes
For the three months ended March 31, 2023, the provision for income taxes increased $16.1 million from the three months ended March 31, 2022, predominantly due to the increase in profit before tax as impacted by the jurisdictional mix of profits.
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.
For the three months ended March 31, 2024, the provision for income taxes decreased $1.2 million from the prior period, predominantly due to lower income before taxes, the effective settlement of uncertain tax positions, and changes in our jurisdictional mix of profits.
Non-GAAP Financial Measures
This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, adjusted corporate and other expenses, net debt, gross and net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors. We use these non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance, and as a factor in determining compensation for certain employees.
The use of our non-GAAP financial measures has limitations. They should be considered as supplemental in nature and are not intended to be considered in isolation from, or as an alternative to, reported net revenue growth (or decline), operating income, operating margin, net income, diluted EPS, net cash provided by operating activities, corporate and other expenses, or total debt and finance lease and other financing obligations, respectively, calculated in accordance with U.S. GAAP. In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, adjusted corporate and other expenses, gross and net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.
Organic revenue growth (or decline) and market outgrowth
Organic revenue growth (or decline) is defined as the reported percentage change in net revenue, calculated in accordance with U.S. GAAP, excluding the period-over-period impact of foreign currency exchange rate differences as well as the net impact of material acquisitions and divestitures for the 12-month period following the respective transaction date(s).
We believe that organic revenue growth (or decline) provides investors with helpful information with respect to our operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations as well as for internal planning and forecasting purposes. We believe that organic revenue growth (or decline) provides useful information in
evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.
Market outgrowth is calculated as organic revenue growth less our weighted market growth. Our weighted market growth is calculated using our regional and platform sales mix, as applicable, in the corresponding prior period. Market outgrowth is used to describe the impact of an increasing quantity and value of our products used in customer systems and applications above market growth. We believe this provides a more meaningful comparison of our revenue growth relative to the markets we serve.
Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS
We define adjusted operating income as operating income (or loss), determined in accordance with U.S. GAAP, excludingadjusted to exclude certain non-GAAP adjustments which are described under the heading Non-GAAP adjustmentsAdjustments below. Adjusted operating margin is calculated by dividing adjusted operating income (or loss) by net revenue determined in accordance with U.S. GAAP. We define adjusted net income as follows: net income (or loss) determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP Adjustments below. Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average ordinary shares outstanding in the period.
We may also refer to certain of these measures, or changes in these measures, on a constant currency basis. Adjusted operating margin calculated on a constant currency basis is determined by stating revenues and expenses at prior period foreign currency exchange rates and excludes the impact of foreign currency exchange rates on all hedges. Adjusted EPS on a constant currency basis is determined in the same manner as adjusted operating margin, but also excludes the change in gain or loss on the remeasurement of monetary assets and liabilities.
Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS (and the constant currency equivalent of each) as measures of operating performance, for planning purposes (including the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies, in communications with our Board of Directors and investors concerning our financial performance, and as factors in determining compensation for certain employees. We believe investors and securities analysts also use these non-GAAP financial measures in their evaluation of our performance and the performance of other similar companies. These non-GAAP financial measures are not measures of liquidity.
Free cash flow
Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software. We believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares, and (or) accelerate the repayment of debt obligations.
Adjusted corporate and other expenses
Adjusted corporate and other expenses is defined as corporate and other expenses calculated in accordance with U.S. GAAP, excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses. We believe adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP adjustments on operating expenses not allocated to our segments.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S. GAAP, excluding interest expense, net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following non-GAAP adjustments, if applicable: (1) restructuring related and other, (2) financing and other transaction costs, and (3) deferred loss or gain on derivative instruments. Refer to Non-GAAP Adjustments below for additional discussion of these adjustments. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
Gross leverage ratio
Gross leverage ratio represents gross debt (total debt and finance lease obligations) divided by last twelve months ("LTM") adjusted EBITDA. We believe that gross leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
Net leverage ratio
Net leverage ratio represents net debt (total debt, finance lease and other financing obligations less cash and cash equivalents) divided by last twelve months ("LTM") adjusted EBITDA. We believe that the net leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
Non-GAAP adjustments
Many of our non-GAAP adjustments relate to a series of strategic initiatives developed by our management aimed at better positioning us for future revenue growth and an improved cost structure. These initiatives have been modified from time to time to reflect changes in overall market conditions and the competitive environment facing our business. These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain or corporate activities, and various financing transactions. We describe these adjustments in more detail below, each of which is net of current tax impacts, as applicable.
•Restructuring related and other: includes net charges related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results. Such costs include charges related to optimization of our manufacturing processes to increase productivity. This type of activity occurs periodically, however each action is unique, discrete, and driven by various facts and circumstances. Such amounts are excluded from internal financial statements and analyses that management uses in connection with financial planning and in its review and assessment of our operating and financial performance, including the performance of our segments.
•Financing and other transaction costs: includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction, mark-to-market losses or gains on
our equity investments, expenses related to compensation arrangements entered into concurrent with the closing of an acquisition, and gains related to changes in the fair value of acquisition-related contingent consideration amounts.
•Deferred loss or gain on derivative instruments: includes unrealized losses or gains on derivative instruments that do not qualify for hedge accounting as well as the impact of commodity prices on our raw material costs relative to the strike price on our commodity forward contracts.
•Step-up depreciation and amortization: includes depreciation and amortization expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., property, plant and equipment definite-livedand inventories) and amortization of intangible assets, and inventories).assets.
•Deferred taxes and other tax related: includes adjustments for book-to-tax basis differences due primarily to the step-up in fair value of fixed and intangible assets and goodwill, the utilization of net operating losses, and adjustments to our valuation allowance in connection with certain acquisitions and tax law changes. Other tax related items include certain adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings.
•Amortization of debt issuance costs: represents interest expense related to the amortization of deferred financing costs as well as debt discounts, net of premiums.
•Where applicable, the current income tax effect of non-GAAP adjustments.
Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related items described above. As we treat deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented.
Non-GAAP reconciliations
The following tables present reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the related non-GAAP financial measures for the periods presented.three months ended March 31, 2024 and 2023. Refer to the Non-GAAP adjustmentsAdjustments section above for additional information related toregarding these adjustments. Amounts and percentages in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
| | |
| | | | For the three months ended March 31, 2023 | |
(Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS | |
(Dollars in millions, except per share amounts) | |
(Dollars in millions, except per share amounts) | |
Reported (GAAP) | |
Reported (GAAP) | |
Reported (GAAP) | Reported (GAAP) | | $ | 148.8 | | | 14.9 | % | | $ | 23.7 | | | $ | 86.4 | | | $ | 0.56 | | |
Non-GAAP adjustments: | Non-GAAP adjustments: | | |
Non-GAAP adjustments: | |
Non-GAAP adjustments: | |
Restructuring related and other | |
Restructuring related and other | |
Restructuring related and other | Restructuring related and other | | 2.9 | | | 0.3 | | | (0.7) | | | 2.3 | | | 0.01 | | |
Financing and other transaction costs | Financing and other transaction costs | | 4.2 | | | 0.4 | | | 2.9 | | | 7.6 | | | 0.05 | | |
Financing and other transaction costs | |
Financing and other transaction costs | |
Step-up depreciation and amortization | |
Step-up depreciation and amortization | |
Step-up depreciation and amortization | Step-up depreciation and amortization | | 39.1 | | | 3.9 | | | — | | | 39.1 | | | 0.26 | | |
Deferred gain on derivative instruments | Deferred gain on derivative instruments | | (2.3) | | | (0.2) | | | 0.9 | | | (3.3) | | | (0.02) | | |
Deferred gain on derivative instruments | |
Deferred gain on derivative instruments | |
Amortization of debt issuance costs | |
Amortization of debt issuance costs | |
Amortization of debt issuance costs | Amortization of debt issuance costs | | — | | | — | | | — | | | 1.7 | | | 0.01 | | |
Deferred taxes and other tax related | Deferred taxes and other tax related | | — | | | — | | | 6.8 | | | 6.8 | | | 0.04 | | |
Deferred taxes and other tax related | |
Deferred taxes and other tax related | |
Total adjustments | |
Total adjustments | |
Total adjustments | Total adjustments | | 44.1 | | | 4.4 | | | 9.8 | | | 54.2 | | | 0.35 | | |
Adjusted (non-GAAP) | Adjusted (non-GAAP) | | $ | 192.9 | | | 19.3 | % | | $ | 13.9 | | | $ | 140.7 | | | $ | 0.92 | | |
Adjusted (non-GAAP) | |
Adjusted (non-GAAP) | |
| | |
| | | | | For the three months ended March 31, 2022 | | | | For the three months ended March 31, 2023 |
(Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS | (Dollars in millions, except per share amounts) | | | | | | | | | | Operating Income | | Operating Margin | | Income Taxes | | Net Income | | Diluted EPS |
Reported (GAAP) | Reported (GAAP) | | | $ | 125.9 | | | 12.9 | % | | $ | 7.6 | | | $ | 22.4 | | | $ | 0.14 | |
Non-GAAP adjustments: | Non-GAAP adjustments: | | | |
Restructuring related and other | Restructuring related and other | | | 4.1 | | | 0.4 | | | (0.1) | | | 4.0 | | | 0.03 | |
Restructuring related and other | |
Restructuring related and other | |
Financing and other transaction costs | Financing and other transaction costs | | | 15.8 | | | 1.6 | | | (0.5) | | | 74.6 | | | 0.47 | |
Step-up depreciation and amortization | Step-up depreciation and amortization | | | 35.9 | | | 3.7 | | | — | | | 35.9 | | | 0.23 | |
Deferred loss/(gain) on derivative instruments | | | 0.7 | | | 0.1 | | | 1.8 | | | (7.0) | | | (0.04) | |
Deferred (gain)/loss on derivative instruments | |
Amortization of debt issuance costs | Amortization of debt issuance costs | | | — | | | — | | | — | | | 1.7 | | | 0.01 | |
Deferred taxes and other tax related | Deferred taxes and other tax related | | | — | | | — | | | (8.3) | | | (8.3) | | | (0.05) | |
Total adjustments | Total adjustments | | | 56.6 | | | 5.8 | | | (7.2) | | | 101.0 | | | 0.64 | |
Adjusted (non-GAAP) | Adjusted (non-GAAP) | | | $ | 182.5 | | | 18.7 | % | | $ | 14.8 | | | $ | 123.4 | | | $ | 0.78 | |
The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S. GAAP to free cash flow.
| | For the three months ended March 31, |
(in millions) | | 2023 | | 2022 | |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | |
(In millions) | |
Net cash provided by operating activities (GAAP) | |
Net cash provided by operating activities (GAAP) | |
Net cash provided by operating activities (GAAP) | Net cash provided by operating activities (GAAP) | | $ | 96.9 | | | $ | 47.4 | | |
Additions to property, plant and equipment and capitalized software | Additions to property, plant and equipment and capitalized software | | (36.9) | | | (35.7) | | |
Additions to property, plant and equipment and capitalized software | |
Additions to property, plant and equipment and capitalized software | |
Free cash flow (non-GAAP) | Free cash flow (non-GAAP) | | $ | 60.0 | | | $ | 11.6 | | |
Free cash flow (non-GAAP) | |
Free cash flow (non-GAAP) | |
The following table provides a reconciliation of corporate and other expenses in accordance with U.S. GAAP to adjusted corporate and other expenses.
| | For the three months ended March 31, | |
(in millions) | | 2023 | | 2022 | |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | |
| | For the three months ended March 31, | |
(In millions) | |
(In millions) | |
(In millions) | |
Corporate and other expenses (GAAP) | Corporate and other expenses (GAAP) | | $ | (62.4) | | | $ | (76.1) | | |
| Corporate and other expenses (GAAP) | |
Corporate and other expenses (GAAP) | |
Restructuring related and other | |
Restructuring related and other | |
Restructuring related and other | Restructuring related and other | | (1.4) | | | 2.5 | | |
Financing and other transaction costs | Financing and other transaction costs | | 2.6 | | | 3.7 | | |
Financing and other transaction costs | |
Financing and other transaction costs | |
Step-up depreciation and amortization | |
Step-up depreciation and amortization | |
Step-up depreciation and amortization | Step-up depreciation and amortization | | 0.1 | | | 0.3 | | |
Deferred (gain)/loss on derivative instruments | Deferred (gain)/loss on derivative instruments | | (2.3) | | | 0.7 | | |
Deferred (gain)/loss on derivative instruments | |
Deferred (gain)/loss on derivative instruments | |
Total adjustments | |
Total adjustments | |
Total adjustments | Total adjustments | | (1.0) | | | 7.2 | | |
Adjusted corporate and other expenses (non-GAAP) | Adjusted corporate and other expenses (non-GAAP) | | $ | (63.4) | | | $ | (68.9) | | |
Adjusted corporate and other expenses (non-GAAP) | |
Adjusted corporate and other expenses (non-GAAP) | |
The following table provides a reconciliation of net (loss)/income in accordance with U.S. GAAP to Adjustedadjusted EBITDA.
| | For the three months ended March 31, | |
(in millions) | | LTM | | 2023 | | 2022 | |
Net income | | $ | 374.7 | | | $ | 86.4 | | | $ | 22.4 | | |
| | | | For the three months ended March 31, | |
| | | | For the three months ended March 31, | |
| | | | For the three months ended March 31, | |
(In millions) | |
(In millions) | |
(In millions) | |
Net (loss)/income | |
Net (loss)/income | |
Net (loss)/income | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | Interest expense, net | | 173.5 | | | 40.1 | | | 45.4 | | |
Provision for income taxes | Provision for income taxes | | 102.2 | | | 23.7 | | | 7.6 | | |
Provision for income taxes | |
Provision for income taxes | |
Depreciation expense | |
Depreciation expense | |
Depreciation expense | Depreciation expense | | 126.6 | | | 30.9 | | | 31.5 | | |
Amortization of intangible assets | Amortization of intangible assets | | 157.2 | | | 40.8 | | | 37.4 | | |
Amortization of intangible assets | |
Amortization of intangible assets | |
EBITDA | |
EBITDA | |
EBITDA | EBITDA | | 934.1 | | | 222.0 | | | 144.4 | | |
Non-GAAP adjustments | Non-GAAP adjustments | | |
Non-GAAP adjustments | |
Non-GAAP adjustments | |
Restructuring related and other | |
Restructuring related and other | |
Restructuring related and other | Restructuring related and other | | 36.8 | | | 2.9 | | | 4.1 | | |
Financing and other transaction costs | Financing and other transaction costs | | (62.9) | | | 4.7 | | | 75.1 | | |
Financing and other transaction costs | |
Financing and other transaction costs | |
Deferred loss/(gain) on derivative instruments | |
Deferred loss/(gain) on derivative instruments | |
Deferred loss/(gain) on derivative instruments | Deferred loss/(gain) on derivative instruments | | 6.5 | | | (4.1) | | | (8.8) | | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 914.5 | | | $ | 225.5 | | | $ | 214.9 | | |
Adjusted EBITDA | |
Adjusted EBITDA | |
The following table provides a reconciliation of total debt, finance lease and other financing obligations in accordance with U.S. GAAP to net leverage ratio.
| (Dollars in millions) | (Dollars in millions) | | March 31, 2023 | | December 31, 2022 | |
Current portion of long-term debt, finance lease and other financing obligations | | $ | 198.7 | | | $ | 256.5 | | |
Finance lease and other financing obligations, less current portion | | 24.5 | | | 24.7 | | |
(Dollars in millions) | |
(Dollars in millions) | |
Current portion of long-term debt and finance lease obligations | |
Current portion of long-term debt and finance lease obligations | |
Current portion of long-term debt and finance lease obligations | |
Finance lease obligations, less current portion | |
Finance lease obligations, less current portion | |
Finance lease obligations, less current portion | |
Long-term debt, net | Long-term debt, net | | 3,768.6 | | | 3,958.9 | | |
Total debt, finance lease and other financing obligations | | 3,991.8 | | | 4,240.1 | | |
Less: discount, net of premium | | (2.8) | | | (3.4) | | |
Long-term debt, net | |
Long-term debt, net | |
Total debt and finance lease obligations | |
Total debt and finance lease obligations | |
Total debt and finance lease obligations | |
Less: debt discount, net of premium | |
Less: debt discount, net of premium | |
Less: debt discount, net of premium | |
Less: deferred financing costs | |
Less: deferred financing costs | |
Less: deferred financing costs | Less: deferred financing costs | | (28.5) | | | (29.9) | | |
Total gross indebtedness | Total gross indebtedness | | 4,023.2 | | | 4,273.4 | | |
Total gross indebtedness | |
Total gross indebtedness | |
Adjusted EBITDA (LTM) | |
Adjusted EBITDA (LTM) | |
Adjusted EBITDA (LTM) | |
Gross leverage ratio | |
Gross leverage ratio | |
Gross leverage ratio | |
| Total gross indebtedness | |
| Total gross indebtedness | |
| Total gross indebtedness | |
Less: cash and cash equivalents | Less: cash and cash equivalents | | 1,034.1 | | | 1,225.5 | | |
Less: cash and cash equivalents | |
Less: cash and cash equivalents | |
Net debt | |
Net debt | |
Net debt | Net debt | | $ | 2,989.0 | | | $ | 3,047.9 | | |
| Adjusted EBITDA (LTM) | Adjusted EBITDA (LTM) | | $ | 914.5 | | | $ | 903.9 | | |
| Adjusted EBITDA (LTM) | |
| Adjusted EBITDA (LTM) | |
Net leverage ratio | Net leverage ratio | | 3.3 | | 3.4 | |
Net leverage ratio | |
Net leverage ratio | |
Liquidity and Capital Resources
As of March 31, 20232024 and December 31, 2022,2023, we held cash and cash equivalents in the following regions:regions (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
| (In millions) | (In millions) | March 31, 2023 | | December 31, 2022 | (In millions) | March 31, 2024 | | December 31, 2023 |
United Kingdom | United Kingdom | $ | 17.0 | | | $ | 15.7 | |
United States | United States | 16.0 | | | 16.1 | |
The Netherlands | The Netherlands | 669.7 | | | 861.3 | |
China | China | 228.9 | | | 210.0 | |
Other | Other | 102.5 | | | 122.5 | |
Total | Total | $ | 1,034.1 | | | $ | 1,225.5 | |
The amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal course of business. Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were
earned. We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot be recovered in a tax-free manner.
In certain jurisdictions, our cash balances are subject to withholding taxes immediately upon withdrawal of funds to a different jurisdiction. In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax incentives, we are required to maintain minimum cash balances in these jurisdictions. The transfer of cash from these jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material.
Our cash and cash equivalentequivalents balances are held in the following significant currencies (amounts in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
| | As of March 31, 2023 |
| As of March 31, 2024 | | | As of March 31, 2024 |
(In millions) | (In millions) | USD | | EUR | | GBP | | CNY | | Other | (In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | United Kingdom | $ | 0.1 | | | € | 0.0 | | | £ | 12.9 | | | ¥ | — | | | |
United States | United States | 15.8 | | | 0.2 | | | — | | | — | | |
United States | |
United States | |
The Netherlands | |
The Netherlands | |
The Netherlands | The Netherlands | 660.2 | | | 7.7 | | | 0.4 | | | — | | |
China | China | 84.0 | | | — | | | — | | | 997.0 | | |
China | |
China | |
Other | |
Other | |
Other | Other | 75.2 | | | 2.3 | | | — | | | — | | |
Total | Total | $ | 835.3 | | | € | 10.2 | | | £ | 13.4 | | | ¥ | 997.0 | | |
Total | |
Total | |
USD Equivalent | USD Equivalent | | | $ | 11.1 | | | $ | 16.5 | | | $ | 144.9 | | | $ | 26.4 | |
USD Equivalent | |
USD Equivalent | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | 2.7 | | | € | 0.0 | | | £ | 10.7 | | | ¥ | — | | | |
United States | 16.1 | | | — | | | — | | | — | | | |
The Netherlands | 848.6 | | | 10.9 | | | 0.2 | | | — | | | |
China | 95.0 | | | — | | | — | | | 794.4 | | | |
Other | 99.9 | | | 2.3 | | | — | | | — | | | |
Total | $ | 1,062.3 | | | € | 13.2 | | | £ | 10.9 | | | ¥ | 794.4 | | | |
USD Equivalent | | | $ | 14.0 | | | $ | 13.2 | | | $ | 115.2 | | | $ | 20.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | 0.4 | | | € | 0.0 | | | £ | 11.9 | | | ¥ | — | | | |
United States | 12.9 | | | 0.0 | | | — | | | — | | | |
The Netherlands | 143.9 | | | 12.2 | | | 0.3 | | | — | | | |
China | 155.2 | | | — | | | — | | | 679.4 | | | |
Other | 58.3 | | | 2.5 | | | — | | | — | | | |
Total | $ | 370.7 | | | € | 14.7 | | | £ | 12.2 | | | ¥ | 679.4 | | | |
USD Equivalent | | | $ | 16.2 | | | $ | 15.6 | | | $ | 95.6 | | | $ | 10.0 | |
Cash Flows:
The table below summarizes our primary sources and uses of cash for the three months ended March 31, 20232024 and 2022.2023. We have derived these summarized statements of cash flows from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
| | | For the three months ended | | For the three months ended |
(In millions) | (In millions) | March 31, 2023 | | March 31, 2022 | (In millions) | March 31, 2024 | | March 31, 2023 |
Net cash provided by/(used in): | Net cash provided by/(used in): | | | |
Operating activities: | Operating activities: | |
Operating activities: | |
Operating activities: | |
Net income adjusted for non-cash items | |
Net income adjusted for non-cash items | |
Net income adjusted for non-cash items | Net income adjusted for non-cash items | $ | 168.3 | | | $ | 150.5 | |
Changes in operating assets and liabilities, net | Changes in operating assets and liabilities, net | (71.4) | | | (103.2) | |
Cash operating activities | |
Operating activities | Operating activities | 96.9 | | | 47.4 | |
Investing activities | Investing activities | (22.9) | | | (90.9) | |
Financing activities | Financing activities | (265.4) | | | (57.0) | |
Effects of exchange rate differences | |
Net change | Net change | $ | (191.4) | | | $ | (100.5) | |
Operating activities. Net cash provided by operating activities for the three months ended March 31, 20232024 increased compared to the corresponding period of the prior year, primarily due to higher net income and timing of supplier payments and customer receipts. We also paid approximately $17.0 million in additional interest in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Investing activities. Net cash used in investing activities for the three months ended March 31, 2023 decreased2024 increased compared to the corresponding period of the prior year, primarily due to (1) no cash paidreceived for acquisitions (compared to $48.4 million paid for Elastic M2Mdivestitures in the three months ended March 31, 2022)2024 (compared to $14.0 million in the prior year period) and no(2) an increase in cash paid for investments in debt and equity securities (compared to $6.9 million in the three months ended March 31, 2022), partially offset by cash proceeds of $14.0 million from the divestiture of a business in the three months ended March 31, 2023.capital expenditures. For fiscal year 2023,2024, we anticipate capital expenditures of approximately $170.0 million to $180.0$175.0 million, which we expect to fund with cash on hand.
Financing activities. Net cash used in financing activities for the three months ended March 31, 2023 increased primarily due to2024 decreased from the prior year period. The prior year period included an early payment of $250.0 million payment on the Term Loan madebalance, which did not have a corresponding payment in the three months ended March 31, 2023 and $16.82024. Partially offsetting this decrease was payment of $79.4 million paid to shareholders in the form of cash dividends paid, partially offset by lower cash paid to repurchase ordinary shares as part of our share repurchase program. On April 25, 2023, we announced that we intendedthe remaining equity interest in a joint venture. Refer to pay down $196.8 million (the remaining outstanding balance) on the Term Loan in the second quarter of 2023, which will be presented as a cash outflow within financing activities.Note 12: Shareholders' Equity for additional information.
Indebtedness and Liquidity
As of March 31, 2023,2024, we had $4.0$3.4 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.
Capital Resources
Senior Secured Credit Facilities
The Credit Agreement provides for the Senior Secured Credit Facilities, consistingwhich consist of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances. In the first quarterand second quarters of 2023, we paid $250 million onrepaid the Term Loan. We intend to repay the remaining outstandingLoan balance in the second quarter of 2023.full.
Sources of liquidity
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. As of March 31, 2023,2024, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31, 2023,2024, no amounts had been drawn against these outstanding letters of credit. Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures"). As of March 31, 2023,2024, availability under the Accordion was approximately $1.0$2.0 billion.
We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources of liquidity described above will be sufficient to fund our operations, capital expenditures, dividend payments, ordinary share repurchases, and debt service for at least the next twelve months. However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Further, our highly-leveraged nature may limit our ability to procure additional financing in the future.
Our ability to raise additional financing, and our borrowing costs, may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of April 21, 2023,20, 2024, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a stablepositive outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook. Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce availability under the Credit Agreement.
Restrictions and Covenants
The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the three months ended March 31, 2023.2024.
The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources included in our 20222023 Annual Report. These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those programs. As of March 31, 2023,2024, we believe we were in compliance with all covenants and default provisions under our credit arrangements.
Share repurchase programs
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time. We currently have an authorized $500.0 million share repurchase program (the "January 2022 Program")authorization for the September 2023 Program, under which approximately $224.5$461.8 million remained available as of March 31, 2023.2024. In the three months ended March 31, 2024, we repurchased 0.3 million ordinary shares under the September 2023 Program. We did not repurchase any ordinary shares under this program in the three months ended March 31, 2023.
Dividends
In the three months ended March 31, 2022, we repurchased 1.1 million ordinary shares under the January 2022 Program.
Dividends
On February 22,2024 and 2023, we paid aaggregate cash dividenddividends of $0.11 per share, or$18.1 million and $16.8 million, in aggregate, to shareholders of record as of February 8, 2023.respectively. On April 13, 2023,24, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on May 24, 202322, 2024 to shareholders of record as of May 10, 2023.8, 2024.
Recently Issued Accounting Pronouncements
ThereIn November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity's reportable segments. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are no recently issued accounting standards that have been adoptedregularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items" included in the current perioddetermination of segment operating income. The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods, and that a public entity provide the title and position of the chief operating decision maker. Other requirements of the guidance are not expected to be material. There is no change to the guidance for identification or aggregation of operating or reportable segments. FASB ASU No. 2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The guidance must be applied retrospectively to all prior periods presented. We adopted the guidance in futureFASB ASU No. 2023-07 on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.
In December 2023, the FASB issued ASU No. 2023-09, Income taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods that have had orbeginning after December 15, 2024. We are expected to have a materialcurrently evaluating the impact on our consolidated financial position or results of operations.income tax related disclosures.
Critical Accounting Policies and Estimates
For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates included in our 20222023 Annual Report.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
No significant changes to our market risk have occurred since December 31, 2022.2023. For a discussion of market risks affecting us, refer to Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk included in our 20222023 Annual Report.
Item 4.Controls and Procedures.
The required certifications of our Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and changes in internal control over financial reporting referred to in these certifications. These certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.
Evaluation of Disclosure Controls and Procedures
With the participation of our Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023.2024. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S.United States Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of March 31, 2023,2024, our Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.level because of the existence of material weaknesses as described below. As of December 31, 2023, we identified material weaknesses in maintaining an appropriate internal control environment. Management did not specify objectives with sufficient clarity to enable an appropriate level of risk assessment and monitoring. Additionally, our control activities did not adequately and consistently establish policies, procedures, information protocols and communications to design and operate effective controls, due in part, to a lack of appropriate accounting personnel, impacting areas such as inventory and account reconciliation processes in our Americas Accounting and Shared Services teams located in Mexico.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Although these material weaknesses did not result in a material misstatement to our audited consolidated financial statements for the year ended December 31, 2023, they have been identified as material weaknesses because there is a possibility that they could lead to a material misstatement of account balances or disclosures.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 20232024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness Remediation Plan
We have developed and are executing on a remediation plan, which includes:
•The engagement of third-party consultants to evaluate and help formalize internal controls design and framework;
•The completion of a risk assessment to determine areas within the internal control structure to strengthen, document and execute.
•The augmentation, reorganization or replacement of personnel where necessary to ensure appropriate levels of knowledge and execution to support internal control structure assessment, design and execution.
We are committed to the remediation of these material weaknesses and expect to successfully implement enhanced control processes. However, as we continue to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when these material weaknesses will be remediated, that additional actions will not be required to remediate these material weaknesses, or the costs of any such additional actions.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations to the effectiveness of any system of internal control over financial reporting. Accordingly, even an effective system of internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation and presentation in accordance with U.S. GAAP.United States generally accepted accounting principles. Our internal controls over financial reporting are subject to various inherent limitations, including cost limitations, judgments used in
decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.
PART II—OTHER INFORMATION
Item 1.Legal Proceedings.
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows.
Item 1A.Risk Factors.
Information regarding risk factors appears in Part I, Item 1A: Risk Factors, included in our 20222023 Annual Report. There have been no material changes to the risk factors disclosed therein.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
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Period | | Total Number of Shares Purchased (in shares) (1) | | Weighted-Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions) |
January 1 through January 31, 2023 | | 701 | | | $ | 43.37 | | | — | | | $ | 224.5 | |
February 1 through February 28, 2023 | | 1,361 | | | $ | 52.64 | | | — | | | $ | 224.5 | |
March 1 through March 31, 2023 | | 399 | | | $ | 50.78 | | | — | | | $ | 224.5 | |
Quarter total | | 2,461 | | | $ | 49.70 | | | — | | | $ | 224.5 | |
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Period | | Total Number of Shares Purchased (in shares) (1) | | Weighted-Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions) |
January 1 through January 31, 2024 | | 274,891 | | | $ | 36.61 | | | 274,544 | | | $ | 461.8 | |
February 1 through February 28, 2024 | | 719 | | | $ | 36.19 | | | — | | | $ | 461.8 | |
March 1 through March 31, 2024 | | 2,528 | | | $ | 35.56 | | | — | | | $ | 461.8 | |
Quarter total | | 278,138 | | | $ | 36.60 | | | 274,544 | | | $ | 461.8 | |
(1) The total number of ordinary shares presentedpurchased includes ordinary shares that were withheld upon the vesting of restricted securities to cover payment of employee withholding tax. These withholdings took place outside of a publicly announced repurchase plan. There were 347, 719, and 2,528 ordinary shares withheld in January 2024, February 2024, and March 2024, respectively, representing a total aggregate fair value of $0.1 million based on the closing price of our ordinary shares on the date of withholdings.
Item 3.Defaults Upon Senior Securities.
None.
Item 5.Other Information.Information
Retirement of President and Chief Executive Officer; Appointment of Interim President and Chief Executive Officer
The Board of Directors (the “Board”) of Sensata Technologies plc (the “Company”) has appointed Martha Sullivan to succeed Jeffrey Cote as Interim President and Chief Executive Officer (“CEO”) effective May 1, 2024. Ms. Sullivan, 67, held the position of President of the Company from 2010 to 2019 and CEO of the Company from 2013 to 2020. In addition, Ms. Sullivan has served on the Board since 2013 and will continue to serve in such role. Additional background information on Ms. Sullivan can be found on page 12 of the Company’s 2024 Definitive Proxy Statement, filed with the Securities and Exchange Commission on April 29, 2024, which is incorporated herein by reference.
In connection with her appointment, Ms. Sullivan has entered into an offer letter with the Company providing for an annual base salary of $1.05 million, an annual incentive opportunity at 135% of her annual base salary (to be prorated based on target performance in the event a successor commences employment as permanent CEO before December 31, 2024), an equity incentive award with a grant date fair value of $6 million (vesting in equal monthly installments, while serving as Interim President and CEO) and eligibility to participate in employee benefits and perquisites generally made available to executive officers of the Company. Ms. Sullivan is not eligible for severance benefits and will not receive compensation for her service on the Board during her time as Interim President and CEO.
On April 28, 2023,26, 2024, Sensata Technologies, Inc. (“STI”), a wholly-owned subsidiary of Sensata Technologies Holding plc (the “Company”),and Mr. Cote entered into a mutually agreed SeparationRetirement and Release of Claims Agreement (the “Separation“Retirement and Release Agreement”) pursuant to which Mr. Cote retired from his role as President and Chief Executive Officer (“CEO”) of the Company effective April 30, 2024. On the same day, Mr. Cote also resigned from the Board.
Mr. Cote will be entitled to the retirement benefits payable in accordance with Hans Lidforss,the existing terms of his employment agreement and applicable equity award agreements, including the continued vesting of unvested restricted stock units (“RSUs”) and the accelerated vesting of performance-based RSUs (“PRSUs”), based on actual performance for years prior to 2024 and prorated vesting at target for 2024. In addition, the Retirement and Release Agreement provides that Mr. Cote’s outstanding vested stock options will remain exercisable for the duration of their existing term. In consideration for these retirement benefits, Mr. Cote has agreed to a release of claims in favor of the Company and related parties and to comply with various restrictive covenants in his employment agreement and award agreements.
Adoption of Severance and Change in Control Plan
On April 26, 2024, the Board adopted the Sensata Technologies Holding plc Severance and Change in Control Plan (the “Plan”) for employees with the title of CEO, Executive Vice President (“EVP”), Senior Vice President Chief Strategy and Corporate Development Officer, which amends Mr. Lidforss’s Amended and Restated Employment Agreement with STI, dated as of March 5, 2020 (the “Employment Agreement”(“SVP”). Pursuant to or Vice President (“VP”) or otherwise designated by the termsCompensation Committee of the Separation Agreement, Mr. Lidforss will serve in his current position through June 30, 2023, during which period he will be eligibleBoard (the “Committee”) to continue to receive his regular salary and benefits. He will then transition to an Advisor role beginning July 1, 2023 through August 31, 2023, or such earlier date as may be agreed between Mr. Lidforss and the Company (the “Separation Date”). In connection with his continued service as Advisor, Mr. Lidforss will be eligible to receive a monthly base salary of $40,937 and may continuebenefits under the Plan (each, an “Eligible Employee”). An interim CEO, including Ms. Sullivan, will not be eligible to participate in the Plan unless otherwise determined by the Committee. Capitalized terms used in the following description are as defined in the Plan, unless otherwise indicated.
The Plan provides for the payment of severance and other benefits upon a termination of employment by the Company without Cause (other than as a result of death or Disability) or, solely in the case of the CEO, an EVP or an SVP, a resignation by the Eligible Employee for Good Reason (a “Covered Termination”). Subject to customary releases and agreements, the Plan provides for the payment of benefits (the “Change in Control Severance Payments”) upon a Covered Termination that occurs within 24 months after the date of a Change in Control (the “Change in Control Period”) as follows:
•a lump sum cash payment equal to base salary for 36 months for the CEO, 24 months for EVPs and SVPs and 12 months for VPs (such number of months, the “Change in Control Severance Period”);
•a lump sum equal to 300% of average bonus (200% for EVPs and SVPs and 100% for VPs);
•for the CEO, EVPs and SVPs only, continued participation throughout the Change in Control Severance Period in their health and dental benefit plans; and
•for the CEO, EVPs and SVPs only, a resignation for Good Reason will be treated as an involuntary termination without Cause for all purposes under the award agreements applicable to their outstanding equity incentive awards.
The Plan also provides for severance payments that are lower than the Change in Control Severance Payments upon a Covered Termination outside of a Change in Control Period. None of the Company’s benefits programs,named executive officers are currently eligible for these benefits.
Amendment to Award Agreements with Brian Roberts
On April 1, 2024, the Company entered into an RSU award agreement (the “RSU Award Agreement”) and a performance-based RSU award agreement (the “PRSU Award Agreement”) with Brian Roberts, the Company’s Chief Financial Officer, while making its annual equity incentive awards. Effective on April 26, 2024, the Company amended each of the RSU Award Agreement and the PRSU Award Agreement to provide, upon a Qualifying Termination (as defined in the respective agreement), accelerated vesting of (i) unvested RSUs that would have vested within twelve months of termination and (ii) unvested PRSUs that would have vested within twelve months of termination at the sum of (x) the banked amounts for those performance years completed plus (y) the target amount for any uncompleted performance year.
Cooperation Agreement with Elliott Investment
On April 29, 2024, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with Elliott Investment Management L.P., Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott”).
Pursuant to the Cooperation Agreement, the Company agreed, among other things, to appoint Mr. Phillip Eyler (the “New Independent Director”) to the board of directors of the Company (the “Board”), effective as of July 1, 2024. Mr. Eyler shall serve as a director until the Company’s 2025 Annual General Meeting of Shareholders (the “2025 Annual Meeting”) (including any adjournments or postponements thereof) or his earlier resignation or removal from office. In connection with Mr. Cote’s
retirement and resignation from the Board, the size of the Board was decreased to 10 directors. Upon the appointment of Mr. Eyler, effective as of July 1, 2024, the size of the Board will be increased to 11 directors.
Pursuant to the Cooperation Agreement, the Company also established a Chief Executive Officer Search Committee (the “CEO Search Committee”) to conduct a search to identify candidates for and assist the Board in selecting the Company’s next chief executive officer and president (the “New CEO”). The CEO Search Committee will be chaired by Mr. Andrew Teich and will also include Ms. Martha Sullivan and Mr. John Mirshekari and, upon his appointment to the Board, Mr. Eyler.
The Cooperation Agreement also includes procedures regarding the replacement of the New Independent Director. If Mr. Eyler fails to be appointed to the Board as of July 1, 2024, or if the New Independent Director resigns, is removed or ceases to serve as a director for any other reason prior to the Expiration Date (as defined below), Elliott has a right to participate in the selection of a mutually agreeable replacement for the New Independent Director, including on the CEO Search Committee, subject to, among other things, Elliott beneficially owning a “net long position” of, or having aggregate “net long” economic exposure to, at least 2% of the Company’s then outstanding Ordinary Shares.
As used herein, the term “Expiration Date” means February 28, 2025, except that the Expiration Date shall be at least 30 days prior to the earlier of (i) the record date for the determination of shareholders who are entitled to notice of and to vote at the Company’s 2025 Annual Meeting, (ii) the date of the Company’s notice of annual meeting and proxy statement for the 2025 Annual Meeting and (iii) the deadline for shareholders to deliver notice of a resolution (including with respect to the election of directors) in connection with the exception2025 Annual Meeting.
Pursuant to the Cooperation Agreement, Elliott agreed to cause all of accruing vacation pay.the ordinary shares that Elliott or any of its affiliates has the right to vote as of the applicable record date to be voted, during the period starting on the effective date of the Cooperation Agreement until the Expiration Date (such period, the “Cooperation Period”), in accordance with recommendations by the Board on all proposals that may be the subject of shareholder action, subject to certain exceptions (including, among others, that Elliott and its affiliates may vote in their sole discretion on any proposal related to an Extraordinary Transaction (as defined in the Cooperation Agreement)).
Under the terms of the SeparationCooperation Agreement, Mr. Lidforss will receiveduring the following payments (collectively,Cooperation Period, Elliott also agreed to abide by certain standstill provisions (subject to certain exceptions) and the “Separation Payments”): (1) a lump sum paymentparties agreed to mutual non-disparagement provisions.
The foregoing summary of the Cooperation Agreement does not purport to be complete and is qualified in the amount of $409,368 (an amount equal to 10 months of his annual base salary); (2) a lump sum payment in the amount of $359,176 (an amount equalits entirety by reference to the average annual bonus paidfull text of the Cooperation Agreement, including the Form of Press Release attached as an exhibit to Mr. Lidforss in 2022 and 2023 for the two completed fiscal years immediately preceding the date hereof )); and (3)Cooperation Agreement, a lump sum payment in the amountcopy of $28,467 (an amountwhich is attached as Exhibit 10.5 to assist Mr. Lidforss with replacing health and dental benefits in fulfillment of his Employment Agreement). The Separation Payments are to be made within 30 days following the Separation Date. Mr. Lidforss’s separation will be treated as a “Covered Retirement” under the terms of his equity award agreements. Under the Separation Agreement and consistent with the Employment Agreement, Mr. Lidforss has granted a general release of claims in favor of STI and the Company and has agreed to certain cooperation, confidentiality, non-competition, and non-solicitation covenants.this Quarterly Report on Form 10-Q.
Item 6.Exhibits.
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Exhibit No. | | Description |
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3.1 | | |
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10.1 | | |
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10.2 | | |
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10.3 | | |
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10.4 | | |
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10.5 | | |
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10.5 | | |
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10.6 | | |
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10.7 | | |
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10.8 | | |
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10.9 | | |
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10.10 | | |
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31.1 | | |
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31.2 | | |
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31.3 | | |
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32.1 | | |
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101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. * |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. * |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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* Filed herewith
† Indicates management contract or compensatory plan, contract, or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2023April 29, 2024
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SENSATA TECHNOLOGIES HOLDING PLC |
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/s/ Jeff Cote |
(Jeff Cote) Chief Executive Officer and President (Principal Executive Officer) |
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/s/ Paul VasingtonBrian Roberts |
(Paul Vasington)Brian Roberts) Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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/s/ Maria Freve |
(Maria Freve)
Vice PresidentOfficer and Chief Accounting Officer
(Principal Accounting Officer)
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