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

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. 

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.

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.

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

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.

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.