Stoneridge(US:SRI)2021-08-04 21:16PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021, and 2020, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and shareholders' equity, along with detailed notes Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $362,409 | $334,664 | | Total assets | $635,932 | $621,408 | | Total current liabilities | $163,480 | $146,048 | | Total long-term liabilities | $158,822 | $178,726 | | Total shareholders' equity | $313,630 | $296,634 | | Total liabilities and shareholders' equity | $635,932 | $621,408 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | (in thousands, except per share data) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $191,334 | $99,545 | $385,129 | $282,511 | | Operating income (loss) | $26,684 | $(26,823) | $28,743 | $(23,164) | | Net income (loss) | $19,798 | $(21,734) | $19,928 | $(18,244) | | Diluted earnings (loss) per share | $0.72 | $(0.81) | $0.73 | $(0.67) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Six months ended June 30 (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used for operating activities | $(22,641) | $(6,533) | | Net cash provided by (used for) investing activities | $21,049 | $(17,925) | | Net cash (used for) provided by financing activities | $(15,543) | $29,367 | | Net change in cash and cash equivalents | $(18,332) | $3,009 | Note 3: Revenue Revenue is recognized upon transfer of control, with total net sales reaching $385.1 million for the six months ended June 30, 2021, across three reportable segments Net Sales by Reportable Segment (Six Months Ended June 30) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Control Devices | $185,963 | $143,855 | | Electronics | $172,855 | $117,076 | | Stoneridge Brazil | $26,311 | $21,580 | | Total net sales | $385,129 | $282,511 | - Revenue recognition for OEM and Tier 1 supplier customers occurs when a customer release for a specific number of parts is received and control is transferred3334 - Aftermarket revenue is recognized at a point in time, while monitoring services revenue in Brazil is recognized over the life of the contract35 Note 7: Debt As of June 30, 2021, the company had $126.0 million outstanding on its $400.0 million Revolving Credit Facility, with temporary covenant relief obtained in June 2020, alongside other short-term credit lines Debt Summary (as of June 30, 2021) | Debt Instrument | Outstanding Amount (in thousands) | Maturity | | :--- | :--- | :--- | | Revolving Credit Facility | $126,000 | June 2024 | | Stoneridge Brazil short-term obligations | $269 | November 2021 | | Sweden short-term credit line | $4 | July 2021 | | Suzhou short-term credit line | $4,182 | Aug 2021 - May 2022 | - On June 26, 2020, the company amended its Credit Facility to provide covenant relief through the quarter ending June 30, 2021, including suspending the maximum net leverage ratio and modifying the minimum interest coverage ratio calculation65203 Note 12: Business Realignment and Restructuring The company is undergoing restructuring, including exiting the PM sensor product line, closing the Canton, MA facility, and realigning its Electronics segment, incurring related charges - The company committed to exiting the PM sensor product line in May 2020, resulting in $1.65 million in charges for the six months ended June 30, 2021, with an additional $1.7 million to $4.9 million anticipated through Q4 20218990 - The Canton, MA facility closure was completed on March 31, 2020, with minimal related charges of $13 thousand in the first six months of 2021 compared to $2.68 million in the prior-year period, and no further costs expected9192 - Restructuring in the Electronics segment, involving moving European Aftermarket sales and transferring a product line to China, incurred expenses of $0.22 million in the first six months of 2021, compared to $1.63 million in the prior-year period9495 Note 16: Disposals In 2021, the company completed two significant disposals, selling its PM sensor business for a $0.74 million gain and the Canton, MA facility for a $30.7 million net gain - The company sold its Canton, MA facility on June 17, 2021, for $37.9 million, resulting in net proceeds of $35.2 million and a gain of $30.7 million, recognized in the Control Devices segment122149 - The company entered into an Asset Purchase Agreement to sell its PM sensor business assets for $4.0 million, with the sale of Gen 1 assets closing on March 8, 2021, resulting in a gain of $740,000117118 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strong Q2 2021 recovery with 92% net sales growth and a $30.7 million gain from the Canton facility sale, despite ongoing semiconductor supply chain disruptions and cost pressures COVID-19 Impact and Supply Chain Uncertainties Despite market recovery, the company faces significant challenges from a worldwide semiconductor supply shortage, leading to higher costs, longer lead times, and production volatility - A surge in demand following the 2020 production slowdown has led to a worldwide semiconductor supply shortage, causing longer lead-times, higher costs, and procurement delays for other components127 - The company is working with suppliers and customers to minimize impacts but expects continued adverse effects on financial condition and results from the supply chain disruptions127144 Results of Operations (Q2 2021 vs Q2 2020) Q2 2021 net sales surged 92.2% to $191.3 million, resulting in a $26.7 million operating income, primarily driven by the Canton facility sale gain and higher sales volume despite supply chain costs Net Sales by Segment (Three Months Ended June 30) | Segment | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Control Devices | $86,345 | $47,005 | 83.7% | | Electronics | $90,085 | $45,530 | 97.9% | | Stoneridge Brazil | $14,904 | $7,010 | 112.6% | | Total | $191,334 | $99,545 | 92.2% | - Operating income for the Control Devices segment increased by $46.7 million, primarily due to the $30.7 million gain on the sale of the Canton Facility and higher gross margin from increased sales169170 - Gross margin improved to 22.4% in Q2 2021 from 13.3% in Q2 2020, driven by leverage of fixed costs on higher sales, despite material costs increasing as a percentage of sales due to supply chain issues163 Results of Operations (Six Months 2021 vs 2020) For the six months ended June 30, 2021, net sales increased 36.3% to $385.1 million, with operating income reaching $28.7 million due to asset disposals and higher sales volumes Net Sales by Segment (Six Months Ended June 30) | Segment | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Control Devices | $185,963 | $143,855 | 29.3% | | Electronics | $172,855 | $117,076 | 47.6% | | Stoneridge Brazil | $26,311 | $21,580 | 21.9% | | Total | $385,129 | $282,511 | 36.3% | - Operating income for the Control Devices segment increased by $49.6 million, driven by the $30.7 million gain on the Canton facility sale, a $0.7 million gain on the PM sensor business disposal, and higher gross margin189190 Liquidity and Capital Resources As of June 30, 2021, the company held $55.6 million in cash, with $126.0 million outstanding on its credit facility, and positive investing cash flow driven by asset sales, maintaining over $327.9 million in total liquidity Summary of Cash Flows (Six Months Ended June 30) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used for operating activities | $(22,641) | $(6,533) | | Net cash provided by (used for) investing activities | $21,049 | $(17,925) | | Net cash (used for) provided by financing activities | $(15,543) | $29,367 | - The company had $126.0 million outstanding on its $400.0 million credit facility as of June 30, 2021, with an amendment providing covenant relief through Q2 2021, and the company was in compliance with all covenants202205 - The company's share repurchase program, authorized in February 2020 for $50.0 million, remains temporarily suspended as of June 30, 2021213 Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk disclosures since its 2020 Form 10-K - There have been no material changes to the Company's market risk disclosures since its 2020 Form 10-K222 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2021, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective223 - There were no material changes in the company's internal control over financial reporting during the second quarter of 2021224 PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal actions and claims, including specific contingencies in Stoneridge Brazil, but does not anticipate a material adverse effect on its financial position - The company is subject to various legal actions but does not expect them to have a material adverse effect on its business or financial results226 - Specific contingencies exist in the Stoneridge Brazil segment, for which losses are deemed reasonably possible but not probable, and the company is also subject to potential product liability, warranty, and recall claims226 Risk Factors There have been no material changes to the risk factors disclosed in the Company's 2020 Form 10-K - There have been no material changes to the risk factors disclosed in the Company's 2020 Form 10-K227 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company did not repurchase shares under its program, with the only activity being 75 common shares delivered by employees for withholding taxes Common Share Repurchases (Q2 2021) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | 4/1/21-4/30/21 | 75 | $33.64 | | 5/1/21-5/31/21 | - | - | | 6/1/21-6/30/21 | - | - | | Total | 75 | | - The 75 shares purchased were delivered by employees as payment for withholding taxes due upon vesting of performance and share unit awards228 Defaults Upon Senior Securities None - None230 Mine Safety Disclosures None - None231 Other Information None - None232 Exhibits This section lists exhibits filed with the Form 10-Q, including amendments to the Canton facility sale agreement and CEO/CFO certifications - Exhibits filed include: - Amendments to the Real Estate Purchase and Sale Agreement (Exhibits 10.4, 10.5) - CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906 (Exhibits 31.1, 31.2, 32.1, 32.2) - XBRL financial data files (Exhibit 101 series)233