Sensata(US:ST)2025-02-28 22:29Internal Control and Compliance - The company has identified material weaknesses in its internal control over financial reporting, impacting the accuracy and timeliness of financial results as of December 31, 2024 or 2023[178] - Remediation efforts are underway, including the engagement of third-party consultants and a risk assessment to strengthen internal controls[178] - The company faces risks related to compliance with environmental laws, which could adversely affect demand for its products and overall revenue[165] - Legal and regulatory risks, including potential violations of anti-bribery laws, could disrupt business operations and negatively impact financial condition[164] - The company is exposed to litigation risks that may result in significant expenses and could adversely affect financial results[176] - The company has discovered deficiencies in its trade compliance program, which could lead to governmental enforcement actions and negatively affect business operations[173] Taxation and Financial Impact - The company is subject to various tax regulations across multiple jurisdictions, which could lead to volatility in its global effective tax rate[157] - The implementation of the OECD's Pillar Two framework will establish a global minimum effective tax rate of 15% starting January 1, 2024, potentially increasing the company's tax liabilities[160] - The effective tax rate is expected to fluctuate due to various factors, including foreign tax rate differentials and changes in tax laws[261] - Future audits by tax authorities could impact the company's tax rate and financial condition[161] - The company’s deferred tax assets are recognized based on the likelihood of realization, with significant judgment required in assessing future taxable income and the need for a valuation allowance[372] Financial Performance - Net revenue for the year ended December 31, 2024, decreased by 3.0% compared to the prior year, with an organic decrease of 1.5% after excluding foreign currency exchange rate impacts and divestiture effects[270] - Operating income for the year was $149.3 million, representing 3.8% of total net revenue, a decrease from 4.5% in the previous year[268] - The company reported a net income of $128.5 million, or 3.3% of total net revenue, compared to a net loss of $3.9 million in the prior year[268] - Adjusted operating income for the same period was $748.5 million, resulting in an adjusted operating margin of 19.0%[312] - The adjusted net income for the year ended December 31, 2024, was $519.1 million, leading to an adjusted EPS of $3.44[312] Revenue Segmentation - Performance Sensing generated net revenue of $2,743.6 million, accounting for 69.8% of total net revenue, while Sensing Solutions contributed $1,061.3 million, or 27.0%[268] - Automotive end market net revenue increased by 0.6%, with an organic growth of 1.5% after adjusting for foreign currency changes, driven by content growth[272] - HVOR end market net revenue decreased by 2.7%, with an organic decline of 2.1% after excluding foreign currency effects, primarily due to market decline[273] - Sensing Solutions net revenue decreased by 8.2%, with a 7.9% organic decline after excluding foreign currency impacts, reflecting weakness in industrial content[274] Costs and Expenses - Total operating costs and expenses for the year ended December 31, 2024 were $3,783.5 million, representing 96.2% of net revenue, an increase from 95.5% in the prior year[276] - Operating income decreased by $32.4 million, or 17.8%, to $149.3 million, primarily due to a $150.1 million goodwill impairment charge and a $98.8 million loss on the sale of the Insights Business[286] - Interest expense amounted to $155.8 million, which is 4.0% of total net revenue, down from 4.5% the previous year[268] Goodwill and Impairment - The company recorded a $150.1 million non-cash goodwill impairment charge in Q3 2024, primarily due to a lower long-range financial forecast[283] - The company recorded a non-cash goodwill impairment charge of $321.7 million in Q4 2023 for the Insights reporting unit, representing the entire goodwill balance allocated to that unit[365] - The company evaluates goodwill for impairment annually, with the most recent assessment indicating that no reporting units, except Dynapower, are at risk of failing the goodwill impairment test[368] Cash Flow and Capital Management - Net cash provided by operating activities for fiscal year 2024 was $551.5 million, an increase from $456.7 million in 2023[329] - Free cash flow for fiscal year 2024 was $393.0 million, compared to $272.1 million in 2023[319] - The company anticipates capital expenditures of approximately $150.0 million in fiscal year 2025, funded by cash flows from operations[333] - The company repurchased approximately 1.9 million ordinary shares at a weighted average price of $36.19 during the year ended December 31, 2024, with $403.0 million remaining under the September 2023 share repurchase program[348] Accounting Standards and Disclosures - The company adopted ASU No. 2023-07 on January 1, 2024, which requires annual and interim disclosures of significant segment expenses and other segment items[374] - ASU No. 2023-09, effective after December 31, 2024, will enhance transparency in income tax disclosures, with key changes being assessed for implementation by the year ending December 31, 2025[375] - ASU No. 2024-03, issued in November 2024, mandates detailed disclosures of income taxes paid, including federal, state/local, and foreign taxes, effective for annual periods beginning after December 15, 2026[376] - The company is currently evaluating the impact of ASU No. 2024-03 on its consolidated financial statements and disclosures[377] - The new guidance under ASU No. 2023-07 will be applied retrospectively to all prior periods presented in the Annual Report on Form 10-K for the year ended December 31, 2024[374]