Sensata(US:ST)2020-07-28 12:30Financial Performance - In Q2 2020, the company's net revenue declined by 33.9% organically, with a sequential improvement expected in Q3 and Q4 unless further COVID-19 impacts occur [91]. - The company reported a net loss of $42.5 million for Q2 2020, compared to a net income of $73.4 million in Q2 2019 [100]. - For the three months ended June 30, 2020, industrial and other net revenue decreased by 15.5% year-over-year, with an organic decline of 14.6% after excluding foreign exchange impacts [114]. - Aerospace net revenue declined by 39.4% for the three months ended June 30, 2020, and by 21.1% for the six months ended June 30, 2020, on both reported and organic bases [116]. - Operating loss for the three months ended June 30, 2020, was $1.9 million, a decrease of $149.3 million or 101.3% compared to the prior year, primarily due to lower revenues and increased operating costs [132]. - The company reported a net loss/income adjusted for non-cash items of $160.7 million for the six months ended June 30, 2020, compared to $331.9 million in 2019 [144]. Cost Management and Restructuring - The company generated $170.3 million in operating cash flow for the six months ended June 30, 2020, while implementing cost reduction measures that saved approximately $21.8 million [94]. - The Q2 2020 Global Restructure Program is expected to impact approximately 980 positions and incur restructuring charges between $35.0 million and $39.0 million [95][96]. - Annualized savings from the Global Restructure Program are projected to be around $49 million by 2021, with expected savings of approximately $7 million in Q3 2020 [98]. - Restructuring charges related to the Q2 2020 Global Restructure Program are expected to be between $35.0 million and $39.0 million for reductions-in-force and between $8.0 million and $10.0 million for site closures [128]. - Total operating costs and expenses for the three months ended June 30, 2020, were $578.4 million, representing 100.3% of net revenue, compared to $736.3 million or 83.3% of net revenue in the same period of 2019 [119]. - Cost of revenue as a percentage of net revenue increased to 71.5% for the three months ended June 30, 2020, compared to 65.1% in the prior year [119]. Market Outlook - The automotive market in North America and Europe is expected to grow sequentially in the latter half of 2020, with China showing a 4.3% increase in the automotive end market in Q2 [107]. - The company expects HVOR end markets to improve sequentially in Q3 and Q4 2020, following better-than-expected growth in the China on-road truck market [109]. - The company expects industrial markets to continue to decline for the remainder of the year, but at a lesser rate than in the second quarter [115]. - The company anticipates that the aerospace aftermarket will return to growth as air traffic resumes, while defense production is expected to remain steady [117]. Cash and Liquidity - As of June 30, 2020, the company held cash and cash equivalents totaling $1,242.9 million, an increase from $774.1 million as of December 31, 2019 [142]. - Net cash provided by operating activities for the six months ended June 30, 2020 was $170.3 million, down from $252.2 million in the same period of 2019, primarily due to lower operating profitability [144]. - Net cash provided by financing activities included $400.0 million from the drawdown on the Revolving Credit Facility, with share repurchase payments decreasing from $168.2 million in 2019 to $35.2 million in 2020 [147]. - As of June 30, 2020, the company had $3,689.1 million in gross indebtedness, which includes finance lease and other financing obligations [148]. - The company believes its current liquidity sources will be sufficient to fund operations and capital expenditures for at least the next twelve months [152]. Impact of COVID-19 - The COVID-19 pandemic caused significant disruptions, including full or partial shutdowns of facilities, impacting operations globally [168]. - The company is experiencing supply chain interruptions and logistics challenges due to the pandemic, affecting overall business operations [169]. - The pandemic has increased the likelihood of financial downturns, potentially leading to increased bankruptcies and decreased sales in served industries [170]. - Transitioning employees to remote work has heightened cybersecurity risks, including increased phishing attacks and unauthorized information dissemination [170]. - The company may face challenges in obtaining a consistent supply of raw materials at stable pricing levels due to pandemic-related disruptions [170]. - There is uncertainty regarding the pandemic's long-term impact on financial performance, with potential material adverse effects on results [171]. Internal Controls and Compliance - As of June 30, 2020, the company's disclosure controls and procedures were deemed effective at the reasonable assurance level [162]. - No changes in internal control over financial reporting occurred during the three months ended June 30, 2020, that materially affected internal control [163]. - The inherent limitations of internal controls mean that even effective systems can only provide reasonable assurance regarding financial statement preparation [164]. - The company does not expect ongoing legal proceedings to materially affect its financial position or cash flows [165]. Research and Development - R&D expenses decreased due to temporary salary and furlough cost savings, as well as repositioning actions taken in 2019 [123]. - Anticipated capital expenditures for fiscal year 2020 are approximately $120.0 million to $130.0 million, expected to be funded from cash on hand [146].