Sensata Technologies Reports First Quarter 2018 Financial Results

Apr 24, 2018
Company reports 6.4% organic revenue growth, expands adjusted EBIT margins by 130 basis points on an organic basis, and delivers organic adjusted EPS growth of 15.5%

SWINDON, United Kingdom, April 24, 2018 (GLOBE NEWSWIRE) -- Sensata Technologies (NYSE:ST), an industrial technology company and a leading provider of sensors, today announced financial results for its first quarter ended March 31, 2018.

Revenue in the first quarter of 2018 was $886.3 million, an increase of $79.0 million, or 9.8%, from revenue of $807.3 million in the first quarter of 2017.  Excluding a 3.4% positive effect from changes in foreign exchange rates, Sensata reported organic revenue growth of 6.4% in the first quarter of 2018.

Net income in the first quarter of 2018 grew 26.1%, totaling $90.5 million, which was 10.2% of revenue or $0.52 per diluted share, compared to net income of $71.7 million in the first quarter of 2017, which was 8.9% of revenue or $0.42 per diluted share. Adjusted net income in the first quarter of 2018 grew 21.0%, totaling $147.0 million, which was 16.6% of revenue, or $0.85 per diluted share, compared to adjusted net income of $121.5 million in the first quarter of 2017, which was 15.0% of revenue or $0.71 per diluted share. Changes in foreign exchange rates increased Sensata's adjusted earnings per share by $0.03 in the first quarter of 2018 compared to the prior year period.

“Our strong organic revenue growth in the first quarter of 2018 reflects accelerating growth in our automotive business and sustained momentum in our industrial and heavy vehicle & off road businesses,” said Martha Sullivan, President and Chief Executive Officer.  “We reported 15.5% organic growth in adjusted EPS in the first quarter, which was driven by increasing our adjusted EBIT margins by 130 basis points on an organic basis.  During the quarter, we also completed the re-domicile to the United Kingdom, which will provide us greater optionality to return cash to shareholders through share repurchases.  As we look forward to the remainder of 2018, we expect to drive above market revenue growth, report robust margin expansion, deliver double-digit EPS growth, and effectively deploy capital to create value for shareholders."

Sensata’s ending cash balance at March 31, 2018 was $828.3 million, an improvement from $753.1 million as of December 31, 2017. During the first quarter ended March 31, 2018, Sensata generated operating cash flow of $123.3 million and free cash flow of $92.3 million.  The Company’s net debt at March 31, 2018 was $2,473.2 million, a reduction of $86.2 million from December 31, 2017.

Segment Performance

    Three months ended
$ in 000s                           March 31, 2018   March 31, 2017
Performance Sensing revenue   $ 662,829     $ 600,143  
Performance Sensing profit   169,410     151,736  
% of Performance Sensing revenue   25.6 %   25.3 %
         
Sensing Solutions revenue   $ 223,464     $ 207,128  
Sensing Solutions profit   71,884     67,438  
% of Sensing Solutions revenue   32.2 %   32.6 %

Performance Sensing’s profit as a percentage of revenue totaled 25.6% in the first quarter of 2018. Excluding the impact of changes in foreign exchange rates, Performance Sensing’s profit as a percentage of revenue was 26.0%, an increase of 70 basis points in the first quarter of 2018. Sensing Solutions’ profit as a percentage of revenue totaled 32.2% in the first quarter of 2018. Excluding the impact of changes in foreign exchange rates, Sensing Solutions’ profit as a percentage of revenue was 32.4%, a decrease of 20 basis points in the first quarter of 2018.

Guidance

For the second quarter ending June 30, 2018, Sensata anticipates revenue to total between $891 million and $915 million, compared to $839.9 million in the second quarter of 2017, representing organic revenue growth of 3 to 5 percent.  Additionally, the Company expects adjusted net income to be between $156 and $162 million and adjusted earnings per share to be between $0.90 and $0.94 in the second quarter of 2018, representing organic EPS growth of 5 to 10 percent.

Sensata anticipates revenue to be between $3.475 billion and $3.575 billion for full year 2018, which would represent organic revenue growth of between 3 and 5 percent.  For full year 2018, Sensata expects adjusted EBIT to be between $818 and $846 million.  Additionally, the Company expects adjusted net income to be between $617 million and $645 million and adjusted earnings per share to be between $3.57 and $3.73 for full year 2018, which would represent organic growth of 9 to 13 percent.  Sensata expects that changes in foreign currency exchange rates will increase revenues by approximately 2 to 3 percent and will increase adjusted earnings per share by $0.10 to $0.14 for full year 2018.

Conference Call & Webcast
Sensata will conduct a conference call today at 8:00 AM eastern time to discuss its first quarter financial results and its outlook for the second quarter and full year 2018. The dial-in numbers for the call are 1-844-784-1726 or +1-412-380-7411 and callers can reference the Sensata first quarter 2018 earnings call. A live webcast and a replay 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 May 1, 2018.  To access the replay dial 1-877-344-7529 or 1-412-317-0088 and enter confirmation code: 10117948.

About Sensata Technologies

Sensata Technologies is one of the world's leading suppliers of sensing, electrical protection, control and power management solutions with operations and business centers in twelve countries. Sensata's products improve safety, efficiency, and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, ventilation and air conditioning, data, telecommunications, recreational vehicle, and marine applications. 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 net income margin, adjusted earnings per share (“EPS”), adjusted earnings before interest and taxes (“EBIT”), adjusted EBIT margin, free cash flow, net debt, organic revenue growth, and segment profit margin measured on a constant currency basis.  We also refer to the change of certain non-GAAP measures, usually reported either as a percentage or number of basis points, between two periods and measured on either a reported or an organic basis, the latter of which excludes the impact of acquisitions, net of exited businesses that occurred within the previous 12 months and the effect of foreign currency exchange rate differences between the comparative periods.  Such changes are also considered non-GAAP measures.

Adjusted net income is defined as net income, determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are described in the accompanying reconciliation tables. Adjusted net income margin is calculated by dividing adjusted net income by net revenue. Adjusted EPS is calculated by dividing adjusted net income 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 the ongoing operations and in analysis of ongoing operating trends.

Adjusted EBIT is defined as net income, determined in accordance with U.S. GAAP, excluding interest expense, net, provision for/(benefit from) income taxes, and certain non-GAAP adjustments which are described in the accompanying reconciliation tables. Adjusted EBIT margin is calculated by dividing adjusted EBIT 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 operating activities, determined in accordance with U.S. GAAP, 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 repayment of debt obligations.

Net debt is defined as total debt, capital lease and other financing obligations, determined in accordance with U.S. GAAP, less cash and cash equivalents. We believe that this measure is useful to investors and management as an indicator of trends in our overall financial condition.

Organic revenue growth is defined as the reported percentage change in net revenue, determined in accordance with U.S. GAAP, excluding the impact of acquisitions, net of exited businesses that occurred within the previous 12 months and the effect of foreign currency exchange rate differences between the comparative periods. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Segment profit margin measured on a constant currency basis is defined as segment profit, excluding the favorable or unfavorable impact of foreign currency exchange rate differences with the comparative (prior) period, divided by segment revenue, also adjusted to exclude the favorable or unfavorable impact of foreign currency exchange rate differences with the comparative (prior) period. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Safe Harbor Statement

This earnings release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Sensata believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this earnings release, including, without limitation, risks associated with regulatory, legal, governmental, political, economic, and military matters; adverse conditions in the automotive industry; competition in our industry, including pressure from customers to reduce prices; supplier interruptions, which could limit access to manufactured components or raw materials; business disruptions due to natural disasters; labor disruptions; difficulties with or failures integrating acquired businesses; market acceptance of new products; and our level of indebtedness. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak to results only as of the date the statements were made; and we undertake no obligation to publicly update or revise any forward-looking statements, whether to reflect any future events or circumstances or otherwise. See "Risk Factors" in the Company's 2017 Annual Report on Form 10-K and other public filings and press releases. Copies of our filings are available from our Investor Relations department or from the SEC website, www.sec.gov.

 
 
 
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Operations
(Unaudited)

 

($ in 000s, except per share amounts)        
    For the three months ended
                                        March 31, 2018   March 31, 2017
Net revenue   $ 886,293     $ 807,271  
Operating costs and expenses:        
Cost of revenue   582,457     532,419  
Research and development   36,001     31,804  
Selling, general and administrative   81,322     70,114  
Amortization of intangible assets   35,069     40,258  
Restructuring and other charges, net   3,766     11,050  
Total operating costs and expenses   738,615     685,645  
Profit from operations   147,678     121,626  
Interest expense, net   (38,429 )   (40,277 )
Other, net   (4,633 )   4,719  
Income before taxes   104,616     86,068  
Provision for income taxes   14,126     14,332  
Net income   $ 90,490     $ 71,736  
         
Net income per share:        
Basic   $ 0.53     $ 0.42  
Diluted   $ 0.52     $ 0.42  
         
Weighted-average ordinary shares outstanding:    
Basic   171,404     170,947  
Diluted   172,856     171,905  
 
 
 

 

SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 

($ in 000s)        
    For the three months ended
                                  March 31, 2018   March 31, 2017
Net income   $ 90,490   $ 71,736  
Other comprehensive income, net of tax:        
Cash flow hedges   6,539   132  
Defined benefit and retiree healthcare plans   977   480  
Other comprehensive income   7,516   612  
Comprehensive income   $ 98,006   $ 72,348  

 

 
 
 
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(Unaudited)

 

($ in 000s)        
    March 31, 2018   December 31, 2017
Assets        
Current assets:        
Cash and cash equivalents   $ 828,266   $ 753,089
Accounts receivable, net of allowances   627,749   556,541
Inventories   459,699   446,129
Prepaid expenses and other current assets   102,868   92,532
Total current assets   2,018,582   1,848,291
Property, plant and equipment, net   753,965   750,049
Goodwill   3,005,464   3,005,464
Other intangible assets, net   885,569   920,124
Deferred income tax assets   33,615   33,003
Other assets   85,681   84,594
Total assets   $ 6,782,876   $ 6,641,525
         
Liabilities and shareholders’ equity        
Current liabilities:        
Current portion of long-term debt, capital lease and other financing obligations   $ 8,178   $ 15,720
Accounts payable   350,999   322,671
Income taxes payable   22,313   31,544
Accrued expenses and other current liabilities   284,419   259,560
Total current liabilities   665,909   629,495
Deferred income tax liabilities   341,550   338,228
Pension and other post-retirement benefit obligations   40,007   40,055
Capital lease and other financing obligations, less current portion   27,735   28,739
Long-term debt, net   3,221,676   3,225,810
Other long-term liabilities   35,058   33,572
Total liabilities   4,331,935   4,295,899
Total shareholders’ equity   2,450,941   2,345,626
Total liabilities and shareholders’ equity   $ 6,782,876   $ 6,641,525

 

 
 
 
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

($ in 000s)   For the three months ended
    March 31, 2018   March 31, 2017
Cash flows from operating activities:        
Net income   $ 90,490     $ 71,736  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation   27,855     28,795  
Amortization of debt issuance costs   1,805     1,857  
Share-based compensation   5,090     3,952  
Loss on debt financing   2,350      
Amortization of intangible assets   35,069     40,258  
Deferred income taxes   636     3,400  
Unrealized loss on hedges and other   8,819     2,120  
Changes in operating assets and liabilities   (48,859 )   (32,417 )
Net cash provided by operating activities   123,255     119,701  
         
Cash flows from investing activities:        
Additions to property, plant and equipment and capitalized software   (30,938 )   (33,059 )
Proceeds from the sale of assets       2,937  
Net cash used in investing activities   (30,938 )   (30,122 )
         
Cash flows from financing activities:        
Proceeds from exercise of stock options and issuance of ordinary shares   2,219     2,450  
Payments on debt   (11,325 )   (11,122 )
Payments to repurchase ordinary shares       (498 )
Payments of debt issuance costs   (5,813 )   (137 )
Other   (2,221 )    
Net cash used in financing activities   (17,140 )   (9,307 )
Net change in cash and cash equivalents   75,177     80,272  
Cash and cash equivalents, beginning of period   753,089     351,428  
Cash and cash equivalents, end of period   $ 828,266     $ 431,700  
                 
                 
                 

Revenue by Business, Geography, and End Market (Unaudited)

(% of total revenue)   Three months ended March 31,
                                                                    2018 2017
Performance Sensing                                                            74.8 % 74.3 %
Sensing Solutions   25.2 % 25.7 %
Total   100.0 % 100.0 %

 

 
(% of total revenue)   Three months ended March 31,
    2018 2017
Americas   42.0 % 42.3 %
Europe   30.3 % 31.3 %
Asia/Rest of World                                                                                                                              27.7 % 26.4 %
Total   100.0 % 100.0 %

 

     
(% of total revenue)   Three months ended March 31,
    2018 2017
Automotive*   61.3 % 62.0
Heavy vehicle and off-road   15.0 % 14.0
Appliance and heating, ventilation and air-conditioning                                                                            6.1 % 6.6
Industrial   9.3 % 9.5
Aerospace   4.7 % 4.7
All other   3.6 % 3.2
Total   100.0 % 100.0

*Includes $13.9M of revenue in Q1-18 reflected in Sensing Solutions segment

     
    Three months ended March 31, 2018
    Reported Growth Organic Growth End Market Growth*
Automotive   8.7 %   4.5 % (1.1 %)
Heavy vehicle and off-road                                                                    17.8 % 14.2 % 4.5 %

*Excludes Toyota, adjusted for Sensata's geographic mix
The following unaudited table reconciles Sensata’s net income to adjusted net income for the three months ended March 31, 2018 and 2017.

     
(In 000s, except per share amounts)   Three months ended March 31,
    2018   2017
Net income   $ 90,490   $ 71,736  
Restructuring related and other*   6,664   7,691  
Financing and other transaction costs   5,690    
Deferred loss/(gain) on other hedges   6,062   (5,340 )
Depreciation and amortization expense related to the step-up in fair value of fixed and
intangible assets and inventory
  35,630   41,994  
Deferred income tax and other tax expense/(benefit)   636   3,542  
Amortization of debt issuance costs   1,805   1,857  
Total adjustments   $ 56,487   $ 49,744  
Adjusted net income   $ 146,977   $ 121,480  
Weighted-average diluted shares outstanding   172,856   171,905  
Adjusted EPS   $ 0.85   $ 0.71  

*Restructuring related and other includes charges, net related to certain restructuring actions as well as other costs (or income), which we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results.  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.  Restructuring related and other does not, however, include charges related to the integration of acquired businesses, including such charges that are recognized as Restructuring and other charges, net in our condensed consolidated statements of operations

Sensata's definition of adjusted net income excludes the deferred provision for/(benefit from) income taxes and other tax expense/(benefit). Sensata's deferred provision for/(benefit from) income taxes 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 U.S. valuation allowance in connection with certain acquisitions. Other tax expense/(benefit) includes certain adjustments to unrecognized tax positions.

As Sensata treats deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items, above, would not change adjusted net income for any period presented.

The current income tax (benefit)/expense associated with the reconciling items above, which is included in adjusted net income, would be as follows: Depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets and inventory: ($0.0) million and ($0.0) million for the three months ended March 31, 2018 and 2017, respectively; and Restructuring and special charges of ($0.3) million and ($0.1) million for the three months ended March 31, 2018 and 2017, respectively.

The following unaudited table identifies where in the Condensed Consolidated Statements of Operations the adjustments to reconcile net income to adjusted net income were recorded for the three months ended March 31, 2018 and 2017.

     
($ in 000s)   Three months ended March 31,
    2018   2017
Cost of revenue   $ 4,339   $ 5,177  
Selling, general and administrative                                                                                          4,233   1,303  
Amortization of intangible assets   33,415   38,929  
Restructuring and other charges, net   3,647   4,276  
Interest expense, net   1,805   1,857  
Other, net   8,412   (5,340 )
Provision for income taxes   636   3,542  
Total adjustments   $ 56,487   $ 49,744  
               

The following unaudited table reconciles the Company’s net cash provided by operating activities to free cash flow.

         
($ in 000s)   Three months ended March 31,   % Change
    2018   2017    
Net cash provided by operating activities   $ 123,255     $ 119,701     3.0 %
Additions to property, plant and equipment and capitalized software   (30,938 )   (33,059 )   6.4 %
Free cash flow   $ 92,317     $ 86,642     6.5 %
                       

The following unaudited table reconciles Sensata’s diluted net income per share to organic adjusted EPS growth for the three months ended March 31, 2018 and 2017. The amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not sum due to the effect of rounding.

    Three months ended March 31,
    2018   2017
         
Diluted net income per share   $ 0.52     $ 0.42  
Non-GAAP adjustments:        
Restructuring related and other   0.04     0.04  
Financing and other transaction costs   0.03     0.00  
Deferred loss/(gain) on other hedges   0.04     (0.03 )
Depreciation and amortization expense related to the step-up in fair value of fixed and
intangible assets and inventory
  0.21     0.24  
Deferred income tax expense and other tax expense/(benefit)   0.00     0.02  
Amortization of debt issuance costs   0.01     0.01  
Adjusted EPS   $ 0.85     $ 0.71  
         
Percentage change in adjusted EPS   19.7 %    
Less: year-over-year impact due to:        
Foreign exchange rate differences   4.2 %    
Organic adjusted EPS growth   15.5 %    
           

The following unaudited table reconciles Sensata’s total debt, capital lease and other financing obligations to net debt.

         
    Balance as of    
($ in 000s)   March 31, 2018   December 31, 2017   Change ($)
Current portion of long-term debt, capital lease and other financing obligations   $ 8,178     $ 15,720     $ (7,542 )
Capital lease and other financing obligations, less current portion   27,735     28,739     (1,004 )
Long-term debt, net   3,221,676     3,225,810     (4,134 )
Total debt, capital lease and other financing obligations   3,257,589     3,270,269     (12,680 )
Less: Discounts   (17,233 )   (14,424 )   (2,809 )
Less: Deferred financing costs   (26,607 )   (27,758 )   1,151  
Gross indebtedness   3,301,429     3,312,451     (11,022 )
Less: Cash and cash equivalents   828,266     753,089     75,177  
Net debt   $ 2,473,163     $ 2,559,362     $ (86,199 )
                         

The following unaudited tables reconcile Sensata’s net income to adjusted EBIT for the three months ended March 31, 2018 and 2017. Percentage amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not sum due to the effect of rounding.

     
  $ in thousands % of net revenue
  Three months ended
March 31,
Three months ended
March 31,
  2018   2017 2018   2017
Net income $ 90,490     $ 71,736   10.2 %   8.9 %
Interest expense, net 38,429     40,277   4.3 %   5.0 %
Provision for income taxes 14,126     14,332   1.6 %   1.8 %
Earnings before interest and taxes (“EBIT”) 143,045     126,345   16.1 %   15.7 %
Non-GAAP adjustments:            
Restructuring related and other 6,664     7,691   0.8 %   1.0 %
Financing and other transaction costs 5,690       0.6 %    
Deferred loss/(gain) on other hedges 6,062     (5,340 ) 0.7 %   (0.7 %)
Depreciation and amortization expense related to the step-up in fair
value of fixed and intangible assets and inventory
35,630     41,994   4.0 %   5.2 %
Adjusted EBIT $ 197,091     $ 170,690   22.2 %   21.1 %
             
Year-over-year change 15.5 %     110 bps    
Less: year-over-year impact due to:            
Foreign exchange rate differences 2.7 %     (20 bps)    
Organic adjusted EBIT growth 12.8 %     130 bps    
               

The following unaudited table reconciles Sensata’s projected (GAAP) diluted net income per share to its projected adjusted EPS for the three months ended June 30, 2018 and full year ended December 31, 2018. The amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not sum due to the effect of rounding.

         
    Three months ended June 30, 2018   Full year ended December 31, 2018
    Low End   High End   Low End   High End
                 
Projected GAAP Earnings per diluted share   $ 0.62   $ 0.63   $ 2.50   $ 2.57
Restructuring related and other   0.02   0.03   0.06   0.10
Financing and other transaction costs     0.01   0.03   0.04
Deferred loss/(gain) on other hedges *       0.04   0.04
Depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets and inventory   0.20   0.20   0.80   0.80
Deferred income tax and other tax expense/(benefit)   0.05   0.06   0.10   0.14
Amortization of debt issuance costs   0.01   0.01   0.04   0.04
Projected Adjusted Net Income per diluted share   $ 0.90   $ 0.94   $ 3.57   $ 3.73
Weighted-average diluted shares outstanding (in 000s)   172,800   172,800   172,800   172,800

* We are unable to predict movements in commodity prices and, therefore, the impact of mark-to-market adjustments on our commodity forward contracts to our projected 2018 diluted net income per share. In prior periods, such adjustments have been significant to our reported GAAP earnings.

 

     
Contacts:    
     
Investors:   Media:
Joshua Young   Alexia Taxiarchos
(508) 236-2196   (508) 236-1761
Joshua.young@sensata.com   ataxiarchos@sensata.com

 

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Source: Sensata Technologies

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