Stoneridge(SRI) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Unaudited statements show stable assets at $621.5 million, a significant drop in net income, and increased cash used for operations - The financial statements are unaudited and prepared according to SEC rules for interim reporting and should be read with the 2020 Form 10-K[21] Condensed Consolidated Balance Sheets Total assets remained stable at $621.5 million, with a decrease in cash and an increase in borrowings on the revolving credit facility Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $343,106 | $334,664 | | Total long-term assets | $278,371 | $286,744 | | Total assets | $621,477 | $621,408 | | Total current liabilities | $144,671 | $146,048 | | Total long-term liabilities | $192,134 | $178,726 | | Total shareholders' equity | $284,672 | $296,634 | | Total liabilities and shareholders' equity | $621,477 | $621,408 | Condensed Consolidated Statements of Operations Net sales increased to $193.8 million, but net income dropped sharply to $0.13 million due to higher costs and expenses Condensed Consolidated Statements of Operations (in thousands, except per share data) | Three months ended March 31 | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $193,795 | $182,966 | | Cost of goods sold | $147,709 | $137,569 | | Selling, general and administrative | $29,376 | $29,503 | | Design and development | $14,651 | $12,235 | | Operating income | $2,059 | $3,659 | | Income before income taxes | $549 | $4,703 | | Net income | $130 | $3,490 | | Diluted EPS | $0.00 | $0.13 | Condensed Consolidated Statements of Cash Flows Net cash used for operating activities increased significantly to $17.1 million, driven by changes in working capital Summary of Cash Flows (in thousands) | Three months ended March 31 | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used for operating activities | $(17,066) | $(6,562) | | Net cash used for investing activities | $(6,912) | $(7,132) | | Net cash provided by financing activities | $12,824 | $28,199 | | Net change in cash and cash equivalents | $(13,411) | $11,902 | Notes to Condensed Consolidated Financial Statements Notes detail revenue disaggregation, debt facilities, restructuring activities, and the sale of the PM sensor business assets - The company has three reportable segments: Control Devices, Electronics, and Stoneridge Brazil[30][31][32] - On March 8, 2021, the company entered into an Asset Purchase Agreement to sell its particulate matter (PM) sensor business assets for $4.0 million[112] - The company is undergoing several restructuring actions, including exiting the PM sensor product line and reorganizing its European Aftermarket business[90][91][93] Net Sales by Reportable Segment (in thousands) | Three months ended March 31 | 2021 | 2020 | | :--- | :--- | :--- | | Control Devices | $99,618 | $96,850 | | Electronics | $82,770 | $71,546 | | Stoneridge Brazil | $11,407 | $14,570 | | Total net sales | $193,795 | $182,966 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19 impacts, a 5.9% sales increase offset by lower margins, and adequate liquidity - The COVID-19 pandemic continues to disrupt the business, with a worldwide semiconductor supply shortage leading to higher costs and procurement delays[118][119] - The company amended its credit facility for covenant relief and maintained strong liquidity with $60.5 million in cash and $244.8 million in undrawn credit[120] - The company strategically exited its Control Devices particulate matter (PM) sensor product line, selling the assets in Q1 2021[140][139] Results of Operations Net sales increased by 5.9% to $193.8 million, while operating income fell 43.7% due to lower gross margins and higher D&D expenses - Gross margin fell to 23.8% from 24.8% in the prior year, primarily due to higher material costs from supply chain disruptions[153] - Design and Development (D&D) costs increased by $2.4 million, mainly in the Electronics segment, for new business programs[156] Net Sales Change by Segment (Q1 2021 vs Q1 2020) | Segment | Change ($M) | Change (%) | | :--- | :--- | :--- | | Control Devices | +$2.8 | +2.9% | | Electronics | +$11.2 | +15.7% | | Stoneridge Brazil | -$3.2 | -21.7% | | Total | +$10.8 | +5.9% | Operating Income Change by Segment (in thousands) | Segment | Q1 2021 | Q1 2020 | Change ($) | | :--- | :--- | :--- | :--- | | Control Devices | $10,165 | $7,322 | +$2,843 | | Electronics | $(873) | $2,872 | -$3,745 | | Stoneridge Brazil | $(48) | $859 | -$907 | | Total Operating Income | $2,059 | $3,659 | -$1,600 | Liquidity and Capital Resources The company maintains solid liquidity with $60.5 million in cash and $244.8 million available under its credit facility - As of March 31, 2021, the company had total liquidity of over $305.3 million, including cash and undrawn credit commitments[182] - The company's credit facility has an outstanding balance of $153.5 million and an amendment provides covenant relief through Q2 2021[167][168] - The company temporarily suspended its $50.0 million share repurchase program in April 2020 in response to COVID-19 uncertainty[179][144] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk disclosures from its 2020 Form 10-K - There have been no material changes to the Company's market risk disclosures from those previously presented in the 2020 Form 10-K[189] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation as of March 31, 2021, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective[190] - No changes occurred in the Company's internal control over financial reporting during the quarter that materially affected these controls[191] PART II – OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal actions not expected to have a material adverse effect - The company is subject to various legal actions incidental to its business but does not expect them to have a material adverse effect on its financial position[192] - The Stoneridge Brazil subsidiary has ongoing civil, labor, and tax contingencies for which loss is considered reasonably possible but not probable[83][192] Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's 2020 Form 10-K - There have been no material changes with respect to risk factors previously disclosed in the Company's 2020 Form 10-K[193] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the public program, while 67,475 shares were acquired from employees for tax withholding - During Q1 2021, 67,475 Common Shares were delivered by employees to the company as payment for withholding taxes due upon vesting of awards[193] Common Share Repurchases (Q1 2021) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | 1/1/21-1/31/21 | - | $ - | | 2/1/21-2/28/21 | 8 | $36.46 | | 3/1/21-3/31/21 | 67,467 | $34.78 | | Total | 67,475 | | Defaults Upon Senior Securities None - None[195] Mine Safety Disclosures None - None[196] Other Information None - None[197] Exhibits This section lists various agreements and required CEO/CFO certifications filed with the Form 10-Q - Exhibits filed include various grant agreements for the Directors' Restricted Shares Plan and Long-Term Incentive Plan for 2021[198] - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[198]