Sensata Technologies Reports Third Quarter 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 create valuable business insights for customers, today announced financial results for its third quarter ended September 30, 2023.

"Sensata's results in the third quarter were in line with our guidance and reflect our commitment to deliver as we transition with our customers to widespread Electrification. Sensata remains on track to achieve its long-term growth goals, including scaling its Electrification business to $2 billion in revenue by 2026,” said Jeff Cote, CEO and President of Sensata.  "Our ability to innovate and problem-solve across our rich history, as highlighted in our investor day last month, supports our commitment to our focused strategy on improving margins and delivering solutions for our customers in an increasingly electrified world."

Operating Results - Third Quarter

Operating results for the third quarter of 2023 compared to the third 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 $1,001.3 million, a decrease of $17.0 million, or (1.7%), compared to $1,018.3 million in the third quarter of 2022.
  • Revenue decreased (0.7%) on an organic basis, which excludes a decrease of (1.0%) from foreign currency exchange rates versus the prior year period.

Operating income:

  • Operating income was $116.3 million, or 11.6% of revenue, a decrease of $136.6 million, or (54.0%), compared to operating income of $252.9 million, or 24.8% of revenue, in the third quarter of 2022. The third quarter of 2022 included a one-time gain of $135.1 million related to the sale of the Qinex business.
  • Adjusted operating income was $191.6 million, or 19.1% of revenue (20.3% on a constant currency basis), a decrease of $5.7 million, or (2.9%), compared to adjusted operating income of $197.3 million, or 19.4% of revenue, in the third quarter of 2022.

Earnings per share:

  • Earnings per share was $0.41, a decrease of $0.50, or (54.9%), compared to earnings per share of $0.91 in the third quarter of 2022.
  • Adjusted earnings per share was $0.91, an increase of $0.06, or 7.1% ($0.99 or an increase of 16.5% on a constant currency basis), compared to adjusted earnings per share of $0.85 in the third quarter of 2022.

Sensata generated $138.9 million of operating cash flow in the third quarter of 2023, compared to $93.8 million in the prior year period. Sensata's free cash flow totaled $87.2 million in the third quarter of 2023 compared to $57.5 million in the prior year period.

During the third quarter of 2023, Sensata returned approximately $18.3 million to shareholders through its quarterly dividend of $0.12 per share paid on August 23, 2023, and repurchased shares valued at approximately $35.2 million.

Operating Results - Nine Months

Operating results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 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 $3,061.6 million, an increase of $47.0 million, or 1.6%, compared to $3,014.6 million in the nine months ended September 30, 2022.
  • Revenue increased 2.4% on an organic basis, which excludes a decrease of (1.5%) from foreign currency exchange rates and an increase of 0.7% from acquisitions, net of divestitures, each versus the prior year.

Operating income:

  • Operating income was $383.1 million, or 12.5% of revenue, a decrease of $134.7 million, or (26.0%), compared to operating income of $517.8 million, or 17.2% of revenue, in the nine months ended September 30, 2022. The nine months ended September 30, 2022 included a one-time gain of $135.1 million related to the sale of the Qinex business.
  • Adjusted operating income was $590.3 million, or 19.3% of revenue (19.9% on a constant currency basis), an increase of $16.7 million, or 2.9%, compared to adjusted operating income of $573.6 million, or 19.0% of revenue, in the nine months ended September 30, 2022.

Earnings per share:

  • Earnings per share was $1.30, an increase of $0.04, or 3.2%, compared to earnings per share of $1.26 in the nine months ended September 30, 2022.
  • Adjusted earnings per share was $2.80, an increase of $0.35, or 14.3% ($2.97 or an increase of 21.2% on a constant currency basis), compared to adjusted earnings per share of $2.45 in the nine months ended September 30, 2022.

Sensata generated $351.6 million of operating cash flow in the nine months ended September 30, 2023, compared to $235.7 million in the prior year period. Sensata's free cash flow totaled $215.4 million in the nine months ended September 30, 2023 compared to $125.3 million in the prior year period.

During the first nine months of 2023, Sensata repaid its variable rate Term Loan, returned approximately $53.4 million to shareholders through its quarterly dividend, and repurchased shares valued at approximately $60.3 million.

Segment Performance

 

 

For the three months ended

September 30,

 

For the nine months ended

September 30,

$ in 000s

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Performance Sensing (1)

 

 

 

 

 

 

 

 

Revenue

 

$

753,988

 

 

$

739,449

 

 

$

2,249,700

 

 

$

2,173,789

 

Operating income

 

$

186,006

 

 

$

181,931

 

 

$

559,893

 

 

$

535,438

 

% of Performance Sensing revenue

 

 

24.7

%

 

 

24.6

%

 

 

24.9

%

 

 

24.6

%

 

 

 

 

 

 

 

 

 

Sensing Solutions (1)

 

 

 

 

 

 

 

 

Revenue

 

$

247,314

 

 

$

278,819

 

 

$

811,889

 

 

$

840,797

 

Operating income

 

$

71,345

 

 

$

80,251

 

 

$

230,813

 

 

$

244,904

 

% of Sensing Solutions revenue

 

 

28.8

%

 

 

28.8

%

 

 

28.4

%

 

 

29.1

%

(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 are adjusting our fourth quarter guidance to reflect updated third party estimates for automotive production in the quarter due to the UAW strike. While the strike's impact is likely temporary, its impact on our results may vary from current expectations," said Paul Vasington, EVP and CFO of Sensata. "For the fourth quarter of 2023, we now expect revenue of $950 to $1,000 million and adjusted EPS of $0.79 to $0.89."

Q4-2023 Guidance

 

 

 

$ in millions, except EPS

Q4-23 Guidance

Q4-22

Y/Y Change

Revenue

$950 - $1,000

$1,014.7

(6%) - (1%)

organic growth

 

 

(5%) - 0%

Adjusted Operating Income

$176 - $194

$204.3

(14%) - (5%)

Adjusted Net Income

$120 - $136

$146.5

(18%) - (7%)

Adjusted EPS

$0.79 - $0.89

$0.96

(18%) - (7%)

Versus the prior year period, Sensata expects that changes in foreign currency exchange rates will decrease revenue by approximately ($11) million at the midpoint and decrease adjusted EPS by approximately ($0.09) at the midpoint in the fourth quarter of 2023.

CFO Transition

Separately today, Sensata announced that Paul Vasington, EVP and CFO, has decided to retire and will be stepping down from these roles following the publication of the third quarter 10-Q in early November, and that Brian Roberts has been appointed to begin serving as EVP and CFO of Sensata as of that date. Mr. Vasington will remain an advisor to Sensata until April 2024 to ensure a smooth transition.

Conference Call and Webcast

Sensata will conduct a conference call today at 8:00 a.m. Eastern Time to discuss its third quarter 2023 financial results and its outlook for the fourth quarter of 2023. The dial-in numbers for the call are 1-844-784-1726 or 1-412-380-7411. Callers should reference the "Sensata Q3 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 November 7, 2023. To access the replay, dial 1-877-344-7529 or 1-412-317-0088 and enter confirmation code: 1055825.

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 21,000 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 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.

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, 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 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

September 30,

 

For the nine months ended

September 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Net revenue

 

$

1,001,302

 

 

$

1,018,268

 

 

$

3,061,589

 

 

$

3,014,586

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

687,959

 

 

 

694,535

 

 

 

2,090,538

 

 

 

2,038,218

 

Research and development

 

 

45,448

 

 

 

47,947

 

 

 

136,244

 

 

 

141,898

 

Selling, general and administrative

 

 

85,661

 

 

 

90,013

 

 

 

263,123

 

 

 

283,022

 

Amortization of intangible assets

 

 

39,970

 

 

 

40,313

 

 

 

135,307

 

 

 

114,485

 

Restructuring and other charges, net

 

 

26,004

 

 

 

(107,441

)

 

 

53,262

 

 

 

(80,811

)

Total operating costs and expenses

 

 

885,042

 

 

 

765,367

 

 

 

2,678,474

 

 

 

2,496,812

 

Operating income

 

 

116,260

 

 

 

252,901

 

 

 

383,115

 

 

 

517,774

 

Interest expense, net

 

 

(36,908

)

 

 

(44,856

)

 

 

(115,104

)

 

 

(135,143

)

Other, net

 

 

1,317

 

 

 

(21,371

)

 

 

(8,215

)

 

 

(111,067

)

Income before taxes

 

 

80,669

 

 

 

186,674

 

 

 

259,796

 

 

 

271,564

 

Provision for income taxes

 

 

17,868

 

 

 

46,421

 

 

 

61,467

 

 

 

74,029

 

Net income

 

$

62,801

 

 

$

140,253

 

 

$

198,329

 

 

$

197,535

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

0.91

 

 

$

1.30

 

 

$

1.27

 

Diluted

 

$

0.41

 

 

$

0.91

 

 

$

1.30

 

 

$

1.26

 

 

 

 

 

 

 

 

 

 

Weighted-average ordinary shares outstanding:

 

 

 

 

 

 

Basic

 

 

152,046

 

 

 

154,474

 

 

 

152,421

 

 

 

156,124

 

Diluted

 

 

152,379

 

 

 

154,943

 

 

 

152,922

 

 

156,855

 

SENSATA TECHNOLOGIES HOLDING PLC

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 
 

 

September 30,

2023

 

December 31,

2022

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

889,703

 

$

1,225,518

Accounts receivable, net of allowances

 

 

766,835

 

 

742,382

Inventories

 

 

683,646

 

 

644,875

Prepaid expenses and other current assets

 

 

152,981

 

 

162,268

Total current assets

 

 

2,493,165

 

 

2,775,043

Property, plant and equipment, net

 

 

874,126

 

 

840,819

Goodwill

 

 

3,864,490

 

 

3,911,224

Other intangible assets, net

 

 

921,444

 

 

999,722

Deferred income tax assets

 

 

93,858

 

 

100,539

Other assets

 

 

141,252

 

 

128,873

Total assets

 

$

8,388,335

 

$

8,756,220

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt, finance lease and other financing obligations

 

$

1,888

 

$

256,471

Accounts payable

 

 

515,095

 

 

531,572

Income taxes payable

 

 

28,399

 

 

43,987

Accrued expenses and other current liabilities

 

 

327,291

 

 

346,942

Total current liabilities

 

 

872,673

 

 

1,178,972

Deferred income tax liabilities

 

 

389,551

 

 

364,593

Pension and other post-retirement benefit obligations

 

 

39,131

 

 

36,086

Finance lease and other financing obligations, less current portion

 

 

23,456

 

 

24,742

Long-term debt, net

 

 

3,771,810

 

 

3,958,928

Other long-term liabilities

 

 

66,533

 

 

82,092

Total liabilities

 

 

5,163,154

 

 

5,645,413

Total shareholders' equity

 

 

3,225,181

 

 

3,110,807

Total liabilities and shareholders' equity

 

$

8,388,335

 

$

8,756,220

 

SENSATA TECHNOLOGIES HOLDING PLC

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
 

 

For the nine months ended

September 30,

 

 

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

Net income

 

$

198,329

 

 

$

197,535

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation

 

 

96,877

 

 

 

94,562

 

Amortization of debt issuance costs

 

 

5,110

 

 

 

5,256

 

Gain on sale of business

 

 

(5,877

)

 

 

(135,112

)

Share-based compensation

 

 

24,454

 

 

 

24,180

 

Loss on debt financing

 

 

857

 

 

 

5,468

 

Amortization of intangible assets

 

 

135,307

 

 

 

114,485

 

Deferred income taxes

 

 

12,323

 

 

 

3,313

 

Loss on equity investments, net

 

 

678

 

 

 

75,135

 

Unrealized loss on derivative instruments and other

 

 

15,712

 

 

 

40,702

 

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

(109,573

)

 

 

(166,291

)

Acquisition-related compensation payments

 

 

(22,620

)

 

 

(23,500

)

Net cash provided by operating activities

 

 

351,577

 

 

 

235,733

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Acquisitions, net of cash received

 

 

 

 

 

(632,683

)

Additions to property, plant and equipment and capitalized software

 

 

(136,224

)

 

 

(110,424

)

Investment in debt and equity securities

 

 

(390

)

 

 

(7,773

)

Proceeds from the sale of business, net of cash sold

 

 

19,000

 

 

 

198,841

 

Other

 

 

 

 

 

152

 

Net cash used in investing activities

 

 

(117,614

)

 

 

(551,887

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from exercise of stock options and issuance of ordinary shares

 

 

5,346

 

 

 

16,460

 

Payment of employee restricted stock tax withholdings

 

 

(12,067

)

 

 

(7,834

)

Payments on debt

 

 

(448,640

)

 

 

(507,968

)

Dividends paid

 

 

(53,380

)

 

 

(34,271

)

Payments to repurchase ordinary shares

 

 

(60,290

)

 

 

(241,903

)

Payments of debt financing costs

 

 

(747

)

 

 

(13,369

)

Net cash used in financing activities

 

 

(569,778

)

 

 

(288,885

)

Net change in cash and cash equivalents

 

 

(335,815

)

 

 

(605,039

)

Cash and cash equivalents, beginning of period

 

 

1,225,518

 

 

 

1,708,955

 

Cash and cash equivalents, end of period

 

$

889,703

 

 

$

1,103,916

 

 

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

(percent of total revenue)

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Performance Sensing (1)

 

75.3 %

 

72.6 %

 

73.5 %

 

72.1 %

Sensing Solutions (1)

 

24.7 %

 

27.4 %

 

26.5 %

 

27.9 %

Total

 

100.0 %

 

100.0 %

 

100.0 %

 

100.0 %

 

(percent of total revenue)

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Americas

 

45.3 %

 

43.8 %

 

45.6 %

 

41.9 %

Europe

 

25.6 %

 

25.9 %

 

26.5 %

 

26.1 %

Asia/Rest of World

 

29.1 %

 

30.3 %

 

27.9 %

 

32.0 %

Total

 

100.0 %

 

100.0 %

 

100.0 %

 

100.0 %

 

(percent of total revenue)

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Automotive (2)

 

55.8 %

 

52.4 %

 

53.0 %

 

51.8 %

Heavy vehicle and off-road (1)

 

20.5 %

 

21.0 %

 

21.4 %

 

21.3 %

Industrial (1)

 

13.0 %

 

16.0 %

 

15.1 %

 

14.2 %

Appliance and HVAC

 

4.8 %

 

5.1 %

 

4.8 %

 

5.6 %

Aerospace

 

4.9 %

 

3.7 %

 

4.6 %

 

3.6 %

All other

 

1.0 %

 

1.8 %

 

1.1 %

 

3.5 %

Total

 

100.0 %

 

100.0 %

 

100.0 %

 

100.0 %

(1)

Effective April 1, 2023, we reorganized our structure to move material handling products from the Performance Sensing reportable segment to the Sensing Solutions reportable segment to align with new management reporting. Accordingly, material handling revenue, which has historically been presented in the HVOR end-market, is now presented in the Industrial end-market. Prior period amounts for revenue by business and end market have been reclassified above.

(2)

Includes amounts reflected in the Sensing Solutions segment as follows: $10.4 million and $8.6 million of revenue in the three months ended September 30, 2023 and 2022, respectively, and $28.0 million and $27.8 million of revenue in the nine months ended September 30, 2023 and 2022, respectively.

 

Market Outgrowth (Unaudited)

 

 

For the three months ended

 

For the nine months ended

 

 

September 30, 2023

 

September 30, 2023

 

 

Reported

Growth

 

Organic

Growth

 

End Market

Growth

 

Reported

Growth

 

Organic

Growth

 

End Market

Growth

Sensata

 

(1.7%)

 

(0.7%)

 

(4.7%)

 

1.6%

 

2.4%

 

0.7%

Market outgrowth, or organic revenue growth less end market growth, can be lumpy during individual quarters due to timing of customer production launches, channel inventory, customer or platform mix, and changes in market share. For the last twelve months, market outgrowth is estimated to have been 460 bps and 660 bps for the past three years.

GAAP to Non-GAAP Reconciliations

The following unaudited tables provide a reconciliation of the difference between each of the non-GAAP financial measures referenced herein and the most directly comparable U.S. GAAP financial measure. Amounts presented in these tables may not appear to recalculate due to the effect of rounding.

Operating income and margin, income tax, net income, and earnings per share

($ in thousands, except per share amounts)

For the three months ended September 30, 2023

 

Operating

Income

 

Operating

Margin

 

Income

Taxes

 

Net

Income

 

Diluted

EPS

Reported (GAAP)

$

116,260

 

 

11.6

%

 

$

17,868

 

 

$

62,801

 

 

$

0.41

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

Restructuring related and other (1)

 

31,549

 

 

3.2

%

 

 

(1,363

)

 

 

30,186

 

 

 

0.20

 

Financing and other transaction costs

 

5,662

 

 

0.6

%

 

 

 

 

 

6,038

 

 

 

0.04

 

Step-up depreciation and amortization

 

38,825

 

 

3.9

%

 

 

 

 

 

38,825

 

 

 

0.25

 

Deferred gain on derivative instruments

 

(663

)

 

(0.1

%)

 

 

39

 

 

 

(148

)

 

 

0.00

 

Amortization of debt issuance costs

 

 

 

%

 

 

 

 

 

1,688

 

 

 

0.01

 

Deferred taxes and other tax related

 

 

 

%

 

 

(1,122

)

 

 

(1,122

)

 

 

(0.01

)

Total adjustments

 

75,373

 

 

7.5

%

 

 

(2,446

)

 

 

75,467

 

 

 

0.50

 

Adjusted (non-GAAP)

$

191,633

 

 

19.1

%

 

$

20,314

 

 

$

138,268

 

 

$

0.91

 

(1)

Includes $28.9 million of charges related to the Q3 2023 Plan incurred in the third quarter of 2023, $21.4 million of which was recorded in restructuring and other charges, net. Refer to our Quarterly Report on Form 10-Q for additional information on the Q3 2023 Plan.

 

($ in thousands, except per share amounts)

For the three months ended September 30, 2022

 

Operating

Income

 

Operating

Margin

 

Income

Tax

 

Net

Income

 

Diluted

EPS

Reported (GAAP)

$

252,901

 

 

24.8

%

 

$

46,421

 

 

$

140,253

 

 

$

0.91

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

Restructuring related and other

 

16,394

 

 

1.6

%

 

 

(427

)

 

 

15,967

 

 

 

0.10

 

Financing and other transaction costs (1)

 

(110,883

)

 

(10.9

%)

 

 

3,761

 

 

 

(97,619

)

 

 

(0.63

)

Step-up depreciation and amortization

 

39,001

 

 

3.8

%

 

 

 

 

 

39,001

 

 

 

0.25

 

Deferred (gain)/loss on derivative instruments

 

(102

)

 

0.0

%

 

 

(1,170

)

 

 

4,501

 

 

 

0.03

 

Amortization of debt issuance costs

 

 

 

%

 

 

 

 

 

1,823

 

 

 

0.01

 

Deferred taxes and other tax related

 

 

 

%

 

 

27,121

 

 

 

27,121

 

 

 

0.18

 

Total adjustments

 

(55,590

)

 

(5.5

%)

 

 

29,285

 

 

 

(9,206

)

 

 

(0.06

)

Adjusted (non-GAAP)

$

197,311

 

 

19.4

%

 

$

17,136

 

 

$

131,047

 

 

$

0.85

 

(1)

Includes a gain of $135.1 million on the sale of the Qinex Business in the third quarter of 2022, partially offset by $7.4 million of expense related to compensation arrangements entered into concurrent with the closing of various acquisitions and $13.5 million of transaction-related charges to sell the Qinex Business, each of which were recorded in restructuring and other charges, net. Also includes a $5.5 million loss related to the redemption of the 4.875% Senior Notes in the third quarter of 2022 and $4.0 million of mark-to-market losses on our equity investments, primarily our investment in Quanergy Systems, Inc, each of which is recorded in other, net.

 

($ in thousands, except per share amounts)

For the nine months ended September 30, 2023

 

Operating

Income

 

Operating

Margin

 

Income

Tax

 

Net

Income

 

Diluted

EPS

Reported (GAAP)

$

383,115

 

 

12.5

%

 

$

61,467

 

 

$

198,329

 

$

1.30

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

Restructuring related and other (1)

 

65,568

 

 

2.1

%

 

 

(2,667

)

 

 

62,901

 

 

0.41

Financing and other transaction costs

 

14,175

 

 

0.5

%

 

 

2,776

 

 

 

17,568

 

 

0.11

Step-up depreciation and amortization (2)

 

131,281

 

 

4.3

%

 

 

 

 

 

131,281

 

 

0.86

Deferred (gain)/loss on derivative instruments

 

(3,860

)

 

(0.1

%)

 

 

(198

)

 

 

788

 

 

0.01

Amortization of debt issuance costs

 

 

 

%

 

 

 

 

 

5,107

 

 

0.03

Deferred taxes and other tax related

 

 

 

%

 

 

12,102

 

 

 

12,102

 

 

0.08

Total adjustments

 

207,164

 

 

6.8

%

 

 

12,013

 

 

 

229,747

 

 

1.50

Adjusted (non-GAAP)

$

590,279

 

 

19.3

%

 

$

49,454

 

 

$

428,076

 

$

2.80

(1)

Includes $28.9 million of charges related to the Q3 2023 Plan incurred in the third quarter of 2023, $21.4 million of which was recorded in restructuring and other charges, net, with the remainder primarily in cost of revenue. Also includes $25.7 million of charges related to the exit of the Spear Marine Business in the second quarter of 2023, $15.2 million of which was recorded in restructuring and other charges, net, with the remainder primarily in cost of revenue. Refer to our Quarterly Report on Form 10-Q for additional information on the Q3 2023 Plan and the exit of the Spear Marine Business.

(2)

Includes $13.5 million of accelerated amortization related to the exit of the Spear Marine Business in the second quarter of 2023.

 

($ in thousands, except per share amounts)

For the nine months ended September 30, 2022

 

Operating

Income

 

Operating

Margin

 

Income

Tax

 

Net

Income

 

Diluted

EPS

Reported (GAAP)

$

517,774

 

 

17.2

%

 

$

74,029

 

 

$

197,535

 

$

1.26

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

Restructuring related and other

 

24,431

 

 

0.8

%

 

 

(563

)

 

 

24,310

 

 

0.15

Financing and other transaction costs (1)

 

(80,624

)

 

(2.7

%)

 

 

2,767

 

 

 

5,218

 

 

0.03

Step-up depreciation and amortization

 

110,264

 

 

3.7

%

 

 

 

 

 

110,264

 

 

0.70

Deferred loss on derivative instruments

 

1,740

 

 

0.1

%

 

 

(3,372

)

 

 

12,971

 

 

0.08

Amortization of debt issuance costs

 

 

 

%

 

 

 

 

 

5,256

 

 

0.03

Deferred taxes and other tax related (2)

 

 

 

%

 

 

28,455

 

 

 

28,455

 

 

0.18

Total adjustments

 

55,811

 

 

1.9

%

 

 

27,287

 

 

 

186,474

 

 

1.19

Adjusted (non-GAAP)

$

573,585

 

 

19.0

%

 

$

46,742

 

 

$

384,009

 

$

2.45

(1)

Includes gains on the sale of the Qinex Business in the third quarter of 2022 and changes in the fair value of acquisition-related contingent consideration amounts of $135.1 million and $9.4 million, respectively, partially offset by $38.4 million of expense related to compensation arrangements entered into concurrent with the closing of an acquisition and $15.6 million of transaction-related charges to sell the Qinex Business, each of which were recorded in restructuring and other charges, net. Also includes $75.1 million of mark-to-market losses on our equity investments, primarily our investment in Quanergy Systems, Inc., recorded in other, net.

(2)

Includes $11.4 million of current tax expense related to the repatriation of profit from certain Asian subsidiaries to their parent companies in the Netherlands and the United States. The decision to repatriate these profits was the result of our goal to reduce our balance sheet exposure and corresponding earnings volatility related to changes in foreign currency exchange rates as well as to fund our deployment of capital.

 

Non-GAAP adjustments by location in statements of operations

(in thousands)

For the three months

ended September 30,

 

 

For the nine months

ended September 30,

 

 

2023

 

 

 

 

2022

 

 

 

 

2023

 

 

 

2022

 

Cost of revenue (1)

$

7,208

 

 

 

$

8,687

 

 

 

$

15,572

 

 

$

12,062

 

Selling, general and administrative

 

3,727

 

 

 

 

4,461

 

 

 

 

7,749

 

 

 

15,191

 

Amortization of intangible assets (2)

 

38,434

 

 

 

 

38,703

 

 

 

 

130,581

 

 

 

109,369

 

Restructuring and other charges, net (3)

 

26,004

 

 

 

 

(107,441

)

 

 

 

53,262

 

 

 

(80,811

)

Operating income adjustments

 

75,373

 

 

 

 

(55,590

)

 

 

 

207,164

 

 

 

55,811

 

Interest expense, net

 

1,688

 

 

 

 

1,823

 

 

 

 

5,107

 

 

 

5,256

 

Other, net (4)

 

852

 

 

 

 

15,276

 

 

 

 

5,463

 

 

 

98,120

 

Provision for income taxes (5)

 

(2,446

)

 

 

 

29,285

 

 

 

 

12,013

 

 

 

27,287

 

Net income adjustments

$

75,467

 

 

 

$

(9,206

)

 

 

$

229,747

 

 

$

186,474

 

(1)

The three and nine months ended September 30, 2023 include a charge of $7.0 million to write down inventory in the third quarter of 2023 as a result of business reorganization decisions made as part of the Q3 2023 Plan. The nine months ended September 30, 2023 includes a charge of $10.5 million to write down inventory related to the exit of the Spear Marine Business in the second quarter of 2023.

(2)

The nine months ended September 30, 2023 includes $13.5 million of accelerated amortization related to the exit of the Spear Marine Business in the second quarter of 2023.

(3)

The three and nine months ended September 30, 2023 include $21.4 million of charges related to the Q3 2023 Plan incurred in the third quarter of 2023. The nine months ended September 30, 2023 includes $15.2 million of charges related to the exit of the Spear Marine Business in the second quarter of 2023. The three and nine months ended September 30, 2023 and 2022 include $3.8 million, $7.4 million, $14.4 million, and $38.4 million, respectively, of expense related to compensation arrangements entered into concurrent with the closing of certain acquisitions. The three and nine months ended September 30, 2022 include a gain of $135.1 million on the sale of the Qinex Business. This gain was partially offset in the three and nine months ended September 30, 2022 by $13.5 million and $15.6 million, respectively, of transaction-related charges to sell the Qinex Business. The nine months ended September 30, 2022 also includes $9.4 million of gains related to changes in the fair value of acquisition-related contingent consideration amounts.

(4)

The three and nine months ended September 30, 2022 include a mark-to-market loss on our equity investments, primarily in Quanergy Systems, Inc, of $4.0 million and $75.1 million, respectively, and a $5.5 million loss related to the redemption of the 4.875% Senior Notes in the third quarter of 2022.

(5)

The nine months ended September 30, 2022 includes $11.4 million of current tax expense related to the repatriation of profit from certain Asian subsidiaries to their parent company in the Netherlands. The decision to repatriate these profits was the result of our goal to reduce our balance sheet exposure and corresponding earnings volatility related to changes in foreign currency exchange rates as well as to fund our deployment of capital.

 

Free cash flow

 

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

($ in thousands)

 

 

2023

 

 

 

2022

 

 

% △

 

 

2023

 

 

 

2022

 

 

% △

Net cash provided by operating activities

 

$

138,935

 

 

$

93,845

 

 

48.0

%

 

$

351,577

 

 

$

235,733

 

 

49.1

%

Additions to property, plant and equipment and capitalized software

 

 

(51,780

)

 

 

(36,355

)

 

(42.4

%)

 

 

(136,224

)

 

 

(110,424

)

 

(23.4

%)

Free cash flow

 

$

87,155

 

 

$

57,490

 

 

51.6

%

 

$

215,353

 

 

$

125,309

 

 

71.9

%

 

Adjusted corporate and other expenses

 

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

(in thousands)

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Corporate and other expenses (GAAP)

 

$

(75,117

)

 

$

(76,409

)

 

$

(219,022

)

 

$

(228,894

)

Restructuring related and other

 

 

9,234

 

 

 

7,964

 

 

 

20,915

 

 

 

13,125

 

Financing and other transaction costs

 

 

1,973

 

 

 

4,988

 

 

 

5,566

 

 

 

11,493

 

Step-up depreciation and amortization

 

 

391

 

 

 

298

 

 

 

700

 

 

 

895

 

Deferred (gain)/loss on derivative instruments

 

 

(663

)

 

 

(102

)

 

 

(3,860

)

 

 

1,740

 

Total adjustments

 

 

10,935

 

 

 

13,148

 

 

 

23,321

 

 

 

27,253

 

Adjusted corporate and other expenses (non-GAAP)

 

$

(64,182

)

 

$

(63,261

)

 

$

(195,701

)

 

$

(201,641

)

 

Adjusted EBITDA

 

 

 

 

For the three months

ended September 30,

 

For the nine months

ended September 30,

(in thousands)

 

LTM

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

2022

Net income

 

$

311,479

 

 

$

62,801

 

 

$

140,253

 

 

$

198,329

 

$

197,535

Interest expense, net

 

 

158,780

 

 

 

36,908

 

 

 

44,856

 

 

 

115,104

 

 

135,143

Provision for income taxes

 

 

73,455

 

 

 

17,868

 

 

 

46,421

 

 

 

61,467

 

 

74,029

Depreciation expense

 

 

129,499

 

 

 

33,317

 

 

 

31,680

 

 

 

96,877

 

 

94,562

Amortization of intangible assets

 

 

174,609

 

 

 

39,970

 

 

 

40,313

 

 

 

135,307

 

 

114,485

EBITDA

 

 

847,822

 

 

 

190,864

 

 

 

303,523

 

 

 

607,084

 

 

615,754

Non-GAAP Adjustments

 

 

 

 

 

 

 

 

 

 

Restructuring related and other

 

 

78,708

 

 

 

31,549

 

 

 

16,394

 

 

 

65,568

 

 

24,873

Financing and other transaction costs

 

 

19,845

 

 

 

6,038

 

 

 

(101,380

)

 

 

14,792

 

 

2,451

Deferred (gain)/loss on derivative instruments

 

 

(13,480

)

 

 

(187

)

 

 

5,671

 

 

 

986

 

 

16,343

Adjusted EBITDA

 

$

932,895

 

 

$

228,264

 

 

$

224,208

 

 

$

688,430

 

$

659,421

 

Net debt and leverage

 

 

As of

($ in thousands)

 

September 30,

2023

 

December 31,

2022

Current portion of long-term debt, finance lease and other financing obligations

 

$

1,888

 

 

$

256,471

 

Finance lease and other financing obligations, less current portion

 

 

23,456

 

 

 

24,742

 

Long-term debt, net

 

 

3,771,810

 

 

 

3,958,928

 

Total debt, finance lease, and other financing obligations

 

 

3,797,154

 

 

 

4,240,141

 

Less: discount, net of premium

 

 

(1,994

)

 

 

(3,360

)

Less: deferred financing costs

 

 

(26,196

)

 

 

(29,916

)

Total gross indebtedness

 

 

3,825,344

 

 

 

4,273,417

 

Less: cash and cash equivalents

 

 

889,703

 

 

 

1,225,518

 

Net debt

 

$

2,935,641

 

 

$

3,047,899

 

 

 

 

 

 

Adjusted EBITDA (LTM)

 

$

932,895

 

 

$

903,886

 

Net leverage ratio

 

 

3.1

 

 

 

3.4

 

 

Guidance

 

For the three months ending December 31, 2023

($ in millions, except per share amounts)

Operating Income

 

Net Income

 

EPS

 

Low

 

High

 

Low

 

High

 

Low

 

High

GAAP

$

132.7

 

$

146.5

 

$

70.1

 

$

80.8

 

$

0.46

 

$

0.53

Restructuring related and other

 

2.3

 

 

3.5

 

 

2.3

 

 

3.5

 

 

0.02

 

 

0.02

Financing and other transaction costs

 

1.0

 

 

3.0

 

 

1.0

 

 

3.0

 

 

0.01

 

 

0.02

Step-up depreciation and amortization

 

40.0

 

 

41.0

 

 

40.0

 

 

41.0

 

 

0.26

 

 

0.27

Deferred (gain)/loss on derivative instruments(1)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt issuance costs

 

 

 

 

 

1.6

 

 

1.7

 

 

0.01

 

 

0.01

Deferred taxes and other tax related

 

 

 

 

 

5.0

 

 

6.0

 

 

0.03

 

 

0.04

Non-GAAP

$

176.0

 

$

194.0

 

$

120.0

 

$

136.0

 

$

0.79

 

$

0.89

Weighted-average diluted shares outstanding (in millions)

 

 

 

 

 

 

152.0

 

 

152.0

(1)

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 operating results. In prior periods such adjustments have been significant to our reported GAAP earnings.

 

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