Sensata Technologies Reports Fourth Quarter and Full Year 2023 Financial Results
Sensata Technologies (NYSE: ST), a global industrial technology company and leading provider of sensors, sensor-rich solutions, and electrical protection devices used in mission-critical systems that ...
SWINDON, England: Sensata Technologies (NYSE: ST), a global industrial technology company and leading provider of sensors, sensor-rich solutions, and electrical protection devices used in mission-critical systems that create valuable business insights for customers, today announced financial results for its fourth quarter and full year ended December 31, 2023.
"Our capital allocation strategy to reduce net leverage and return cash to shareholders is showing strong early returns as adjusted EPS of $3.61 in 2023 increased 6.2% year over year (14.4% on a constant-currency basis) and gross leverage declined to 3.8x from 4.7x,” said Jeff Cote, CEO and President of Sensata. "Our ability to deliver solutions for our customers in an increasingly electrified world represents an unprecedented opportunity for Sensata and we are well-positioned for success. In 2023, Sensata's electrification revenue grew by nearly 50% to approximately $700 million. Over the last three years, we have won over $1.3 billion in electrification opportunities, much of it in our long-cycle businesses, giving me great confidence that electrification will drive Sensata’s growth in the coming years.”
Operating Results - Fourth Quarter
Operating results for the fourth quarter of 2023 compared to the fourth quarter of 2022 are summarized below. These results include non-GAAP financial measures, each of which is defined and reconciled to the most directly comparable GAAP measure later in this press release.
Revenue:
- Revenue was $992.5 million, a decrease of ($22.2) million, or (2.2%), compared to $1,014.7 million in the fourth quarter of 2022.
- Revenue decreased (1.3%) on an organic basis, which excludes a decrease of (0.9%) from foreign currency exchange rates versus the prior year period.
Operating (loss)/income:
- Operating loss was ($201.4) million, or (20.3%) of revenue, a decrease of ($353.8) million compared to operating income of $152.4 million, or 15.0% of revenue, in the fourth quarter of 2022.
- Operating loss includes a $321.7 million non-cash goodwill impairment charge related to the Insights reporting unit.
- Adjusted operating income was $183.7 million, or 18.5% of revenue (19.1% on a constant currency basis), a decrease of ($20.6) million, or (10.1%), compared to adjusted operating income of $204.3 million, or 20.1% of revenue, in the fourth quarter of 2022.
(Loss)/earnings per share:
- Loss per share was ($1.34), a decrease of $(2.08) compared to earnings per share of $0.74 in the fourth quarter of 2022.
- Adjusted earnings per share was $0.81, a decrease of ($0.15), or (15.6%) (decrease of (4.2%) on a constant currency basis), compared to adjusted earnings per share of $0.96 in the fourth quarter of 2022.
Sensata generated $105.1 million of operating cash flow and $56.7 million of free cash flow in the fourth quarter of 2023. In the quarter, Sensata used cash to reduce debt by $400 million, repurchase shares valued at approximately $28.1 million, and paid $18.2 million in dividends to shareholders.
Operating Results - Full Year
Operating results for the year ended December 31, 2023 compared to the year ended December 31, 2022 are summarized below. These results include non-GAAP financial measures, each of which is defined and reconciled to the most directly comparable GAAP measure later in this press release.
Revenue:
- Revenue was a record $4,054.1 million, an increase of $24.8 million, or 0.6%, compared to $4,029.3 million in the year ended December 31, 2022.
- Revenue increased 1.5% on an organic basis, which excludes a decrease of (1.4%) from foreign currency exchange rates and an increase of 0.5% from acquisitions, net of divestitures, each versus the prior year.
Operating income:
- Operating income was $181.7 million, or 4.5% of revenue, a decrease of ($488.5) million, or (72.9%), compared to operating income of $670.1 million, or 16.6% of revenue, in the year ended December 31, 2022.
- Operating income includes a non-cash goodwill impairment charge related to our Insights reporting unit, charges related to the Q3 2023 Restructuring Plan, and charges related to the exit of the Spear Marine Business.
- Adjusted operating income was $774.0 million, or 19.1% of revenue (19.7% on a constant currency basis), a decrease of ($3.9) million, or (0.5%), compared to adjusted operating income of $777.9 million, or 19.3% of revenue, in the year ended December 31, 2022.
(Loss)/earnings per share:
- Loss per share was ($0.03), a decrease of ($2.02), or (101.5%), compared to earnings per share of $1.99 in the year ended December 31, 2022.
- Adjusted earnings per share was $3.61, an increase of $0.21, or 6.2% (increase of 14.4% on a constant currency basis), compared to adjusted earnings per share of $3.40 in the year ended December 31, 2022.
Sensata generated $456.7 million of operating cash flow and $272.1 million of free cash flow in the year ended December 31, 2023. During 2023, Sensata reduced debt by $850 million, repurchased shares valued at approximately $88.4 million, and paid $71.5 million of dividends to shareholders.
Segment Performance
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| For the three months ended |
| For the full year ended | ||||||||||||
$ in 000s |
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| 2023 |
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| 2022 |
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| 2023 |
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|
| 2022 |
|
Performance Sensing (1) |
|
|
|
|
|
|
|
| ||||||||
Revenue |
| $ | 753,028 |
|
| $ | 746,604 |
|
| $ | 3,002,728 |
|
| $ | 2,920,393 |
|
Operating income |
| $ | 184,353 |
|
| $ | 192,870 |
|
| $ | 744,246 |
|
| $ | 728,308 |
|
% of Performance Sensing revenue |
|
| 24.5 | % |
|
| 25.8 | % |
|
| 24.8 | % |
|
| 24.9 | % |
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|
|
|
|
|
|
|
| ||||||||
Sensing Solutions (1) |
|
|
|
|
|
|
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| ||||||||
Revenue |
| $ | 239,466 |
|
| $ | 268,072 |
|
| $ | 1,051,355 |
|
| $ | 1,108,869 |
|
Operating income |
| $ | 68,219 |
|
| $ | 78,443 |
|
| $ | 299,032 |
|
| $ | 323,347 |
|
% of Sensing Solutions revenue |
|
| 28.5 | % |
|
| 29.3 | % |
|
| 28.4 | % |
|
| 29.2 | % |
(1) | Effective April 1, 2023, we reorganized our reportable segments to move material handling products from Performance Sensing to Sensing Solutions to align with new management reporting. Prior year amounts have been reclassified. | |
Guidance
"We anticipate our end markets to be relatively flat year over year given the current IHS automotive outlook, weakness in Europe and North America heavy vehicle and off road production, and continued destocking in industrials," said Brian Roberts, EVP and CFO of Sensata. "Given that market backdrop, we expect revenue to be flat to down slightly in the first and second quarters of 2024 before rebounding in the second half of the year as new and ramping product launches drive growth. We expect adjusted operating margins to be flat in the first quarter and then increase sequentially by approximately 20 – 30 basis points per quarter."
Q1 2024 Guidance |
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|
|
$ in millions, except EPS | Q1-24 Guidance | Q1-23 | Y/Y Change |
Revenue | $970 - $1,010 | $998.2 | (3%) - 1% |
organic growth |
|
| (2%) - 2% |
Adjusted Operating Income | $178 - $190 | $192.9 | (8%) - (2%) |
Adjusted Net Income | $124 - $134 | $140.7 | (12%) - (5%) |
Adjusted EPS | $0.82 - $0.88 | $0.92 | (11%) - (4%) |
Versus the prior year period, Sensata expects that changes in foreign currency exchange rates will decrease revenue by approximately ($7) million at the midpoint and decrease adjusted EPS by approximately ($0.05) at the midpoint in the first quarter of 2024.
Conference Call and Webcast
Sensata will conduct a conference call today at 8:00 a.m. Eastern Time to discuss its fourth quarter and full year 2023 financial results and its outlook for the first quarter of 2024. The dial-in numbers for the call are 1-844-784-1726 or 1-412-380-7411. Callers should reference the "Sensata Q4 2023 Financial Results Conference Call." A live webcast of the conference call will also be available on the investor relations page of Sensata’s website at http://investors.sensata.com. Additionally, a replay of the call will be available until February 13, 2024. To access the replay, dial 1-877-344-7529 or 1-412-317-0088 and enter confirmation code: 5379784.
About Sensata Technologies
Sensata Technologies is a leading industrial technology company that develops sensors, sensor-based solutions, including controllers and software, and other mission-critical products to create valuable business insights for customers and end users. For more than 100 years, Sensata has provided a wide range of customized, sensor-rich solutions that address complex engineering requirements to help customers solve difficult challenges in the automotive, heavy vehicle & off-road, industrial, and aerospace industries. With approximately 19,400 employees and operations in 16 countries, Sensata’s solutions help to make products safer, cleaner and more efficient, more electrified, and more connected. For more information, please visit Sensata’s website at www.sensata.com.
Non-GAAP Financial Measures
We supplement the reporting of our financial information determined in accordance with U.S. generally accepted accounting principles (“GAAP”) with certain non-GAAP financial measures. 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. We believe presenting non-GAAP financial measures is useful for period-over-period comparisons of underlying business trends and our ongoing business performance. We also believe presenting these non-GAAP measures provides additional transparency into how management evaluates the business.
Non-GAAP financial measures should be considered as supplemental in nature and are not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as, or comparable to, similar non-GAAP measures presented by other companies.
The non-GAAP financial measures referenced by Sensata in this release include: adjusted net income, adjusted earnings per share (“EPS”), adjusted operating income, adjusted operating margin, free cash flow, organic revenue growth, market outgrowth, adjusted corporate and other expenses, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), net debt, and net leverage ratio. We also refer to changes in certain non-GAAP measures, usually reported either as a percentage or number of basis points, between two periods. Such changes are also considered non-GAAP measures.
Adjusted net income (or loss) is defined as net income (or loss), determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are detailed in the accompanying reconciliation tables. Adjusted EPS is calculated by dividing adjusted net income (or loss) by the number of diluted weighted-average ordinary shares outstanding in the period. We believe that these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
Adjusted operating income (or loss) is defined as operating income (or loss), determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are detailed in the accompanying reconciliation tables. Adjusted operating margin is calculated by dividing adjusted operating income (or loss) by net revenue. We believe that these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
Free cash flow is defined as net cash provided by/(used in) operating activities less additions to property, plant and equipment and capitalized software. We believe that this measure is useful to investors and management as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to fund acquisitions, repurchase ordinary shares, or for the accelerated repayment of debt obligations.
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 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 this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
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 gain or loss on derivative instruments. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
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.
Gross leverage ratio is defined as gross debt 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 debt is defined as total debt, finance lease, and other financing obligations less cash and cash equivalents. We believe net debt is a useful measure to management and investors in understanding trends in our overall financial condition.
Net leverage ratio is defined as net debt divided by last twelve months (LTM) adjusted EBITDA. We believe the net leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
In discussing trends in our performance, we may refer to certain non-GAAP financial measures or the percentage change of certain non-GAAP financial measures in one period versus another, calculated on a constant currency basis. Constant currency 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 and, as applicable, net monetary assets. We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
Safe Harbor Statement
This earnings release 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, trends, 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 in our most recent Annual Report on Form 10-K and as may be updated from time to time in Item 1A: Risk Factors 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.
SENSATA TECHNOLOGIES HOLDING PLC |
Condensed Consolidated Statements of Operations |
(In thousands, except per share amounts) |
(Unaudited) |
|
| For the three months ended |
| For the full year ended | ||||||||||||
|
|
| 2023 |
|
|
| 2022 |
|
|
| 2023 |
|
|
| 2022 |
|
Net revenue |
| $ | 992,494 |
|
| $ | 1,014,676 |
|
| $ | 4,054,083 |
|
| $ | 4,029,262 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
| ||||||||
Cost of revenue |
|
| 702,287 |
|
|
| 673,830 |
|
|
| 2,792,825 |
|
|
| 2,712,048 |
|
Research and development |
|
| 42,623 |
|
|
| 47,446 |
|
|
| 178,867 |
|
|
| 189,344 |
|
Selling, general and administrative |
|
| 87,532 |
|
|
| 87,622 |
|
|
| 350,655 |
|
|
| 370,644 |
|
Amortization of intangible assets |
|
| 38,553 |
|
|
| 39,302 |
|
|
| 173,860 |
|
|
| 153,787 |
|
Goodwill impairment charge |
|
| 321,700 |
|
|
| — |
|
|
| 321,700 |
|
|
| — |
|
Restructuring and other charges, net |
|
| 1,238 |
|
|
| 14,111 |
|
|
| 54,500 |
|
|
| (66,700 | ) |
Total operating costs and expenses |
|
| 1,193,933 |
|
|
| 862,311 |
|
|
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