Sensata Technologies Reports Third Quarter 2016 Financial Results

ALMELO, the Netherlands, Oct. 25, 2016 (GLOBE NEWSWIRE) — Sensata Technologies (NYSE:ST) today announced financial results for its third quarter and nine months ended September 30, 2016.

Revenue was $789.8 million in the third quarter of 2016, an increase of $62.4 million, or 8.6%, from revenue of $727.4 million in the third quarter of 2015. Excluding an 8.6% positive effect from acquisitions, net of exited businesses, and a 1.7% negative effect from changes in foreign exchange rates, Sensata reported organic revenue growth of 1.7% in the third quarter of 2016.

Net income was $69.8 million in the third quarter 2016, which was 8.8% of revenue, or $0.41 per diluted share. This compares to net income of $53.2 million in the third quarter 2015, which was 7.3% of revenue or $0.31 per diluted share. Adjusted net income was $126.3 million in the third quarter of 2016 which was 16.0% of revenue or $0.74 per diluted share. This compares to adjusted net income of $123.3 million in the third quarter of 2015, which was 17.0% of revenue, or $0.72 per diluted share.  Changes in foreign exchange rates reduced Sensata’s earnings per share by ($0.05) in the third quarter of 2016 compared to the prior year period.

On a sequential basis, Sensata’s adjusted net income margin of 16.0% for the third quarter increased by 100 basis points compared to an adjusted net income margin of 15.0% in the second quarter of 2016.  

Revenue for the nine months ended September 30, 2016 was $2.41 billion, an increase of $165.4 million, or 7.4% from $2.25 billion for the nine months ended September 30, 2015. Excluding an 8.7% positive effect from acquisitions, net of exited businesses, and a 1.6% negative effect from changes in foreign exchange rates, Sensata reported flat organic revenue growth in the first nine months of 2016.

Net income for the nine months ended September 30, 2016 was $195.9 million, which was 8.1% of revenue, or $1.14 per diluted share. This compares to net income for the nine months ended September 30, 2015 of $129.4 million, which was 5.8% of revenue, or $0.75 per diluted share. Adjusted net income for the nine months ended September 30, 2016 was $363.9 million which was 15.1% of revenue, or $2.12 per diluted share.  This was an increase of 1.4% compared to adjusted net income for the nine months ended September 30, 2015 of $358.7 million which was 16.0% of revenue, or $2.09 per diluted share.  Changes in foreign exchange rates reduced Sensata’s earnings per share by ($0.14) in the first nine months of 2016 compared to the prior year period. 

Sensata’s ending cash balance at September 30, 2016 was $299.9 million. During the first nine months of 2016, operating cash flow grew 9 percent year over year totaling $396.4 million and free cash flow grew 29% year over year, totaling $301.8 million. The Company’s total gross indebtedness at September 30, 2016 was $3.4 billion, a reduction of $296.4 million from December 31, 2015 as a result of debt repayment.

“We delivered strong sequential margin expansion and eleven percent year over year organic earnings growth in the third quarter despite sustained weakness in some of our markets,” said Martha Sullivan, President and Chief Executive Officer. “Our free cash flow has been strong, which has enabled us to pay down our debt and move closer toward achieving our targeted FY-16 net leverage ratio.  As we enter the fourth quarter, we are well-positioned to deliver on our full year 2016 earnings guidance and continue our trend of margin expansion and strong free cash flow.”

Segment Performance

    Three months ended Nine months ended
$ in 000s   September 
30, 2016
  September 
30, 2015
September 
30, 2016
  September 
30, 2015
Performance Sensing net revenue   $ 584,650     $ 576,476   $ 1,797,395     $ 1,774,081  
Performance Sensing profit from operations   155,228     150,782   453,540     447,662  
  % of Performance Sensing revenue   26.6 %   26.2 % 25.2 %   25.2 %
               
Sensing Solutions net revenue   $ 205,148     $ 150,884   $ 616,497     $ 474,409  
Sensing Solutions profit from operations   67,314     49,734   198,737     151,069  
  % of Sensing Solutions revenue   32.8 %   33.0 % 32.2 %   31.8 %

Performance Sensing’s profit from operations as a percentage of revenue totaled 26.6 percent in the third quarter of 2016.  Excluding the impact of changes in foreign exchange rates and the CST acquisition, Performance Sensing’s profit from operations as a percentage of revenue was 27.6 percent in the third quarter of 2016, representing an increase of 140 basis points from the third quarter of 2015.  Sensing Solutions’ profit from operations as a percentage of revenue totaled 32.8 percent in the third quarter of 2016.  Excluding the impact of changes in foreign exchange rates and the CST acquisition, Sensing Solutions’ profit from operations as a percentage of revenue was 33.8 percent in the third quarter of 2016, representing an increase of 80 basis points compared to the third quarter of 2015.

Guidance

Sensata anticipates revenue to be between $765 and $805 million in the fourth quarter of 2016 compared to $726.5 million in the fourth quarter of 2015. Additionally, the Company expects adjusted net income to be between $123 and $133 million and adjusted earnings per share to be between $0.71 and $0.77 in the fourth quarter of 2016.

For the full year 2016, the Company anticipates revenue to be between $3.18 and $3.22 billion compared to $2.98 billion in full year 2015. Additionally, the Company expects adjusted net income to be between $487 and $497 million and adjusted earnings per share to be between $2.84 and $2.90 for the full year 2016.  Changes in foreign exchange rates are expected to reduce adjusted earnings per share by ($0.19) to ($0.20) in 2016, compared to the previous year.

Conference Call & Webcast

The Company will conduct a conference call today at 8:00 AM eastern time to discuss the financial results and its outlook for the remainder of the year.  The dial-in numbers for the call are 1-877-486-0682 (toll-free) or +1-706-634-5536 (international) and the Conference ID is 85372621. A live webcast and a replay of the conference call will also be available on the investor relations page of the Company’s website at http://investors.sensata.com

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 thirteen countries.  Sensata’s products improve safety, efficiency and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, air-conditioning and ventilation, data, telecommunications, recreational vehicle and marine applications. For more information, please visit Sensata’s website at www.sensata.com

Use of Non-GAAP Financial Measures

A definition of non-GAAP measures and a reconciliation of GAAP to non-GAAP financial measures is provided in the financial tables accompanying this press release. The non-GAAP financial measures referenced by Sensata in this press release include organic revenue growth; adjusted net income; adjusted net income margin; adjusted net income per diluted share; organic earnings growth; and free cash flow.

Organic revenue growth is defined as the percentage change in net revenue calculated in accordance with U.S. GAAP, excluding the impact of acquisitions, net of exited businesses that occurred in the previous twelve months, and the effects of changes in foreign currency exchange rates.

Adjusted net income is defined as net income 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 net income per share is calculated by dividing adjusted net income by the number of diluted weighted average ordinary shares outstanding in the period.

We define organic earnings growth as the percentage change in adjusted net income per share, excluding the impact of acquisitions, net of exited businesses that occurred within the previous 12 months, and the effects of changes in foreign currency exchange rates.  We define free cash flow as net cash provided by operating activities less additions to property, plant, and equipment and capitalized software. 

There are limitations in using non-GAAP financial measures as they are not prepared in accordance with U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should be considered as supplemental in nature and are not intended to be considered in isolation or as a substitute for financial measures prepared in accordance with US GAAP.  We believe that the non-GAAP financial measures provide useful and supplementary information to investors regarding our quarterly and annual performance.  We regularly use non-GAAP financial measures internally to understand, manage, and evaluate our business results and make operating decisions.  We also measure our employees and compensate them, in part, based on such non-GAAP measures.  For the same reasons, we also use this information for our forecasting activities.

Safe Harbor Statement

This earnings release contains forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable, and our future prospects, developments, and business strategies. Such forward-looking statements include, among other things, our anticipated results for the fourth quarter and full year 2016. Such statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Factors that might cause these differences include, but are not limited to, risks associated with: adverse conditions in the automotive industry; competitive pressures that could require us to lower prices or could result in reduced demand for our products; integration of acquired companies, including CST and Schrader; the assumption of known and unknown liabilities in the acquisition of CST and Schrader; risks associated with our non-US operations and international business; litigation and disputes involving us, including the extent of intellectual property, product liability, warranty, and recall claims asserted against us; risks associated with our historical and future tax positions; risks associated with labor disruptions or increased labor costs; risks associated with our substantial indebtedness; and risks associated with breaches and other disruptions to our information technology infrastructure. 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. For a discussion of potential risks and uncertainties, please refer to the risk factors listed in our SEC filings.  Copies of our filings are available from our Investor Relations department or from the SEC website, www.sec.gov

SENSATA TECHNOLOGIES HOLDING N.V. 
Condensed Consolidated Statements of Operations 
(Unaudited)
                 
(In 000s, except per share amounts)                
    For the three months ended   For the nine months ended
    September 
30, 2016
  September 
30, 2015
  September 
30, 2016
  September 
30, 2015
Net revenue   $ 789,798     $ 727,360     $ 2,413,892     $ 2,248,490  
Operating costs and expenses:                
Cost of revenue   508,944     476,634     1,574,763     1,501,142  
Research and development   31,601     30,816     95,240     92,794  
Selling, general and administrative   75,046     66,233     224,637     203,637  
Amortization of intangible assets   50,562     45,184     151,572     136,068  
Restructuring and special charges   837     1,615     3,167     12,424  
Total operating costs and expenses   666,990     620,482     2,049,379     1,946,065  
Profit from operations   122,808     106,878     364,513     302,425  
Interest expense, net   (41,176 )   (29,706 )   (125,201 )   (96,029 )
Other, net   (726 )   (10,805 )   4,892     (44,647 )
Income before taxes   80,906     66,367     244,204     161,749  
Provision for income taxes   11,121     13,215     48,297     32,342  
Net income   $ 69,785     $ 53,152     $ 195,907     $ 129,407  
                 
Net income per share:                
Basic   $ 0.41     $ 0.31     $ 1.15     $ 0.76  
Diluted   $ 0.41     $ 0.31     $ 1.14     $ 0.75  
                 
Weighted-average ordinary shares outstanding:            
Basic   170,840     170,147     170,656     169,880  
Diluted   171,478     171,608     171,359     171,512  

SENSATA TECHNOLOGIES HOLDING N.V. 
Condensed Consolidated Statements of Comprehensive Income 
(Unaudited)
                 
($ in 000s)                
    For the three months
ended
  For the nine months
ended
    September 
30, 2016
  September 
30, 2015
  September 
30, 2016
  September 
30, 2015
Net income   $ 69,785     $ 53,152     $ 195,907     $ 129,407  
Other comprehensive loss, net of tax:                
Deferred loss on derivative instruments, net of reclassifications   (8,485 )   (17,430 )   (25,010 )   (13,058 )
Defined benefit and retiree healthcare plans   24     742     291     760  
Other comprehensive loss   (8,461 )   (16,688 )   (24,719 )   (12,298 )
Comprehensive income   $ 61,324     $ 36,464     $ 171,188     $ 117,109  

SENSATA TECHNOLOGIES HOLDING N.V. 
Condensed Consolidated Balance Sheets 
(Unaudited)
         
($ in 000s)        
    September
30, 2016
  December 31,
2015
Assets        
Current assets:        
Cash and cash equivalents   $ 299,887     $ 342,263  
Accounts receivable, net of allowances   532,571     467,567  
Inventories   372,968     358,701  
Prepaid expenses and other current assets   90,901     109,392  
Total current assets   1,296,327     1,277,923  
Property, plant and equipment, net   722,429     694,155  
Goodwill   3,008,894     3,019,743  
Other intangible assets, net   1,118,861     1,262,572  
Deferred income tax assets   34,102     26,417  
Other assets   70,380     18,100  
Total assets   $ 6,250,993     $ 6,298,910  
         
Liabilities and shareholders’ equity        
Current liabilities:        
Current portion of long-term debt, capital lease and other financing obligations   $ 14,475     $ 300,439  
Accounts payable   324,273     290,779  
Income taxes payable   17,566     21,968  
Accrued expenses and other current liabilities   265,631     251,989  
Total current liabilities   621,945     865,175  
Deferred income tax liabilities   410,019     390,490  
Pension and other post-retirement benefit obligations   34,518     34,314  
Capital lease and other financing obligations, less current portion   33,255     36,219  
Long-term debt, net of discount and deferred financing costs, less current portion   3,262,409     3,264,333  
Other long-term liabilities   34,610     39,803  
Total liabilities   4,396,756     4,630,334  
Total shareholders’ equity   1,854,237     1,668,576  
Total liabilities and shareholders’ equity   $ 6,250,993     $ 6,298,910  

SENSATA TECHNOLOGIES HOLDING N.V. 
Condensed Consolidated Statements of Cash Flows 
(Unaudited)
 
($ in 000s)   For the nine months ended
    September
30, 2016
  September 30,
2015
Cash flows from operating activities:        
Net income   $ 195,907     $ 129,407  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation   77,649     71,162  
Amortization of deferred financing costs and original issue discounts   5,501     4,755  
Currency remeasurement gain on debt   (66 )   (2,082 )
Share-based compensation   13,279     11,093  
Loss on debt financing       25,538  
Amortization of inventory step-up to fair value   2,319      
Amortization of intangible assets   151,572     136,068  
Deferred income taxes   15,706     11,237  
Unrealized loss on hedges and other non-cash items   726     13,541  
Changes in operating assets and liabilities, net of effects of acquisitions   (66,242 )   (37,006 )
Net cash provided by operating activities   396,351     363,713  
         
Cash flows from investing activities:        
Acquisition of CST, net of cash received   4,688      
Acquisition of Schrader, net of cash received       (958 )
Other acquisitions, net of cash received       3,881  
Additions to property, plant and equipment and capitalized software   (94,584 )   (130,243 )
Investment in equity securities   (50,000 )    
Proceeds from the sale of assets   751     102  
Net cash used in investing activities   (139,145 )   (127,218 )
         
Cash flows from financing activities:        
Proceeds from exercise of stock options and issuance of ordinary shares   3,306     15,361  
Proceeds from issuance of debt       1,795,120  
Payments on debt   (297,698 )   (1,970,685 )
Payments to repurchase ordinary shares   (4,672 )   (50 )
Payments of debt issuance costs   (518 )   (29,361 )
Net cash used in financing activities   (299,582 )   (189,615 )
Net change in cash and cash equivalents   (42,376 )   46,880  
Cash and cash equivalents, beginning of period   342,263     211,329  
Cash and cash equivalents, end of period   $ 299,887     $ 258,209  

Revenue by Business, Geography and End Market (Unaudited)
 
(% of total net revenue)   Three months ended September 30,   Nine months ended September 30,
    2016   2015   2016   2015
Performance Sensing                                                             74.0 %   79.3 %   74.5 %   78.9 %
Sensing Solutions   26.0 %   20.7 %   25.5 %   21.1 %
Total   100.0 %   100.0 %   100.0 %   100.0 %

(% of total net revenue)   Three months ended September 30,   Nine months ended September 30,
    2016   2015   2016   2015
Americas   43.7 %   42.7 %   43.2 %   41.1 %
Europe   31.1 %   33.3 %   32.6 %   33.6 %
Asia/Rest of World                                                                   25.2 %   24.0 %   24.2 %   25.3 %
Total   100.0 %   100.0 %   100.0 %   100.0 %

(% of total net revenue)1   Three months ended September 30,   Nine months ended September 30,  
    2016   2015   2016   2015  
European automotive   24.4 %   29.3 %   25.1 %   28.6 %  
North American automotive   20.6 %   22.5 %   20.3 %   21.7 %  
Asian automotive   17.5 %   16.2 %   16.7 %   16.9 %  
Rest of world automotive   0.3 %   0.9 %   0.3 %   0.9 %  
Heavy vehicle off-road   12.8 %   12.1 %   13.4 %   12.6 %  
Appliance and heating, ventilation and air-conditioning   6.1 %   5.8 %   5.8 %   6.0 %  
Industrial   9.1 %   5.3 %   9.4 %   5.3 %  
Aerospace   4.6 %   2.9 %   4.6 %   2.9 %  
All other   4.6 %   5.0 %   4.4 %   5.1 %  
Total   100.0 %   100.0 %   100.0 %   100.0 %  
                           
1 Reclassification of certain acquired product lines has led to retrospective adjustments of certain of end-market percentages.   
   Revenues have shifted from Industrial into the European, North American and Asian automotive end-markets.  

The following unaudited table reconciles the Company’s net income to adjusted net income for the three and nine months ended September 30, 2016 and 2015.

(In 000s, except per share amounts)   Three months ended
September 30,
  Nine months ended 
September 30,
    2016   2015   2016   2015
Net income   $ 69,785     $ 53,152     $ 195,907     $ 129,407  
Restructuring and special charges   4,197     8,502     10,997     31,681  
Financing and other transaction costs   452     3,659     1,508     29,455  
Deferred (gain)/loss on other hedges   (2,930 )   5,576     (24,497 )   12,038  
Depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets and inventory   52,531     46,403     158,288     140,057  
Deferred income tax and other tax expense/(benefit)   451     4,485     16,150     11,339  
Amortization of deferred financing costs   1,823     1,524     5,501     4,755  
Total adjustments   $ 56,524     $ 70,149     $ 167,947     $ 229,325  
Adjusted net income   $ 126,309     $ 123,301     $ 363,854     $ 358,732  
Weighted average diluted shares outstanding   171,478     171,608     171,359     171,512  
Adjusted net income per diluted share   $ 0.74     $ 0.72     $ 2.12     $ 2.09  

The Company’s definition of adjusted net income excludes the deferred provision for/(benefit from) income taxes and other tax expense/(benefit). The Company’s deferred provision for/(benefit from) income taxes includes adjustments for book-to-tax basis differences primarily related to the step-up in fair value of fixed and intangible assets and goodwill, 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 the Company treats deferred income tax and other tax expense/(benefit) 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 ($0.1) million for the three months ended September 30, 2016 and 2015, respectively, and ($0.1) million and ($0.4) million for the nine months ended September 30, 2016 and 2015, respectively; and Restructuring and special charges ($0.1) million and ($0.9) million for the three months ended September 30, 2016 and 2015, respectively, and ($0.4) million and ($2.0) million for the nine months ended September 30, 2016 and 2015, 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 and nine months ended September 30, 2016 and 2015.

($ in 000s)   Three months ended
September 30,
Nine months ended
September 30,
    2016   2015 2016   2015
Cost of revenue   $ 5,938     $ 8,654   $ 12,862     $ 31,980  
Selling, general and administrative   1,158     5,420   3,878     11,322  
Amortization of intangible assets   49,016     43,839   147,214     132,174  
Restructuring and special charges   268     651   1,972     10,596  
Interest expense, net   1,823     1,524   5,501     4,755  
Other, net   (2,130 )   5,576   (19,630 )   32,159  
Provision for income taxes   451     4,485   16,150     6,339  
Total adjustments   $ 56,524     $ 70,149   $ 167,947     $ 229,325  

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

($ in 000s)   Three months ended
September 30,
Nine months ended
September 30,
    2016   2015 2016   2015
Net cash provided by operating activities   $ 149,720     $ 151,514   $ 396,351     $ 363,713  
Additions to property, plant and equipment and capitalized software   (30,118 )   (43,442 ) (94,584 )   (130,243 )
Free cash flow   $ 119,602     $ 108,072   $ 301,767     $ 233,470  

The following unaudited table reconciles the Company’s diluted net income per share to organic earnings growth. The amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not foot due to the effects of rounding.

    Three months ended
September 30,
    2016   2015
         
Diluted net income per share   $ 0.41     $ 0.31  
Non-GAAP adjustments:        
Restructuring and special charges   0.02     0.05  
Financing and other transaction costs   0.00     0.02  
Deferred (gain)/loss on other hedges   (0.02 )   0.03  
Depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets and inventory   0.31     0.27  
Deferred income tax expense and other tax expense/(benefit)   0.00     0.03  
Amortization of deferred financing costs   0.01     0.01  
Adjusted net income per share   0.74     0.72  
         
Percentage change in adjusted earnings per share   2.8 %    
Non-GAAP adjustments:        
Effects of foreign currency exchange movements   (6.9 )%    
Acquisitions, net of exited businesses that occurred within the previous 12 months   (1.4 )%    
Organic earnings growth   11.1 %    

The following unaudited table reconciles the Company’s projected GAAP earnings per diluted share to projected adjusted net income per diluted share for the three months ended December 31, 2016 and full year ended December 31, 2016. The amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not add due to the effect of rounding.

    Three months ended 
December 31, 2016
  Full year ended
December 31, 2016
    Low End   High End   Low End   High End
                 
Projected GAAP earnings per diluted share   $ 0.33     $ 0.38     $ 1.48     $ 1.53  
Restructuring and special charges   0.01     0.02       0.07       0.08  
Financing and other transaction costs             0.01       0.01  
Deferred (gain)/loss on other hedges             (0.14     (0.14
Depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets and inventory   0.30     0.30       1.22       1.22  
Deferred income tax and other tax expense/(benefit)   0.06     0.06       0.16       0.16  
Amortization of deferred financing costs   0.01     0.01       0.04       0.04  
Projected Adjusted net income per diluted share   $ 0.71     $ 0.77     $ 2.84     $ 2.90  
Weighted average diluted shares outstanding   171,600     171,600       171,400       171,400  
CONTACT: Investors:
Joshua Young
(508) 236-2196
Joshua.young@sensata.com

Media:
Alexia Taxiarchos
(508) 236-1761
ataxiarchos@sensata.com

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