What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-01 · 109 added, 96 removed, 274 unchanged (43% of the section changed)

5 unchanged sentences

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three and six months ended June 30, 2022, net revenue increased 2.8% and 3.2%, respectively, from the corresponding periods of fiscal year 2021.

This revenue growth was primarily driven by outgrowth to market and revenue from recent acquisitions.

In addition, we continued to drive new business wins, with a significant portion coming in areas representing our megatrend initiatives of Electrification and Insights, and which will help drive future revenue growth.

For the three and six months ended June 30, 2022, operating income decreased 15.7% and 17.8%, respectively, to $138.9 million (13.6% of net revenue) and $264.9 million (13.3% of net revenue), respectively, compared to $164.8 million (16.6% of net revenue) and $322.2 million (16.7% of net revenue), respectively, in the corresponding periods of fiscal year 2021.

For the three and six months ended June 30, 2022, income before taxes decreased to $54.9 million and $84.9 million, respectively, compared to $120.6 million and $194.6 million, respectively, in the corresponding periods of fiscal year 2021.

For the three and nine months ended September 30, 2022, net revenue increased 7.1% and 4.4%, respectively, from the corresponding periods of fiscal year 2021.

For the three and nine months ended September 30, 2022, operating income increased 56.8% and 7.1%, respectively, to $252.9 million (24.8% of net revenue) and $517.8 million (17.2% of net revenue), respectively, compared to $161.3 million (17.0% of net revenue) and $483.5 million (16.8% of net revenue), respectively, in the corresponding periods of fiscal year 2021.

For the three and nine months ended September 30, 2022, income before taxes increased to $186.7 million and $271.6 million, respectively, compared to $106.8 million and $301.4 million, respectively, in the corresponding periods of fiscal year 2021.

Refer to discussion of the drivers of these changes under the heading Results of Operations included elsewhere in this Item 2:

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Acquisitions and Dispositions

Refer to Note 16:

Acquisitions and Divestitures of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information related to the below.

In the first quarter of 2022, we completed the strategic acquisition of Elastic M2M for $51.6 million.

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This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment.

On July 12, 2022, we completed the acquisition of Dynapower, a leading provider of high-voltage power conversion solutions for clean energy segments, for an aggregate cash purchase price of $580 million, subject to working capital and other

Dynapower is a leader in power conversion systems including inverters, converters, and rectifiers for renewable energy generation, green hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and defense applications.

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Dynapower's revenue is expected to exceed $100 million on an annualized basis in 2022 with projected revenue growth in excess of 30% over the next several years.

In July 2022, we sold the Qinex Business to Boyd Corporation for total consideration of approximately $219.0 million, subject to working capital and other adjustments.

In July 2022, we sold the Qinex Business to LTI for total consideration of approximately $219.0 million , subject to working capital and other adjustments.

The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012.

The Qinex Business is included in our Sensing Solutions segment (and Industrial Solutions reporting unit).

We have not finalized the calculation of gain on the transaction but preliminarily expect it to be between approximately $125 million and $150 million.

The Qinex Business was included in our Sensing Solutions segment (and Industrial Solutions reporting unit).

We received consideration at Closing of approximately $198.8 million and recognized a pre-tax gain of approximately $135.1 million in the three months ended September 30, 2022.

Results of Operations

The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

We have derived the results of operations from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three months ended For the six months ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

For the three months ended For the nine months ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Amount Margin* Amount Margin* Amount Margin* Amount Margin*

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* Represents the amount presented divided by total net revenue.

Net revenue for the three months ended June 30, 2022 increased 2.8% compared to the three months ended June 30, 2021.

Excluding a decrease of 2.2% attributed to changes in foreign currency exchange rates and an increase of 2.8% due to the effect of acquisitions, net revenue for the three months ended June 30, 2022 increased 2.2% on an organic basis, representing market outgrowth of 650 basis points.

Net revenue for the six months ended June 30, 2022 increased 3.2% compared to the six months ended June 30, 2021.

Excluding a decrease of 1.3% attributed to changes in foreign currency exchange rates and an increase of 3.4% due to the effect of acquisitions, net revenue for the six months ended June 30, 2022 increased 1.1% on an organic basis, representing market outgrowth of 720 basis points.

Net revenue for the three months ended September 30, 2022 increased 7.1% compared to the three months ended September 30, 2021.

Excluding a decrease of 3.3% attributed to changes in foreign currency exchange rates and an increase of 3.3% due to the net effect of acquisitions and divestitures, net revenue for the three months ended September 30, 2022 increased 7.1% on an organic basis, representing market outgrowth of 650 basis points.

Net revenue for the nine months ended September 30, 2022 increased 4.4% compared to the nine months ended September 30, 2021.

Excluding a decrease of 2.1% attributed to changes in foreign currency exchange rates and an increase of 3.4% due to the net effect of acquisitions and divestitures, net revenue for the nine months ended September 30, 2022 increased 3.1% on an organic basis, representing market outgrowth of 700 basis points.

Organic revenue growth (or decline), discussed throughout this MD&A, is a financial measure not presented in accordance with U.S.

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Performance Sensing

Performance Sensing net revenue for the three months ended June 30, 2022 increased 0.7% compared to the three months ended June 30, 2021.

Excluding a decrease of 2.2% attributed to changes in foreign currency exchange rates and an increase of

3.0% due to the effect of acquisitions, Performance Sensing net revenue for the three months ended June 30, 2022 was flat on an organic basis.

Performance Sensing net revenue for the three months ended September 30, 2022 increased 6.8% compared to the three months ended September 30, 2021.

Excluding a decrease of 3.6% attributed to changes in foreign currency exchange rates and an increase of 3.2% due to the effect of acquisitions, Performance Sensing net revenue for the three months ended September 30, 2022 increased 7.2% on an organic basis.

Both automotive and HVOR contributed to these results as discussed below.

Automotive net revenue for the three months ended June 30, 2022 declined 2.3% compared to the three months ended June 30, 2021.

Excluding a decline of 2.4% attributed to changes in foreign currency exchange rates, Automotive net revenue for the three months ended June 30, 2022 grew 0.1% on an organic basis.

HVOR net revenue for the three months ended June 30, 2022 grew 7.7% compared to the three months ended June 30, 2021.

Excluding a decline of 1.7% attributed to changes in foreign currency exchange rates and an increase of 10.0% due to the effect of acquisitions, HVOR net revenue for the three months ended June 30, 2022 declined 0.6% on an organic basis.

Performance Sensing net revenue for the six months ended June 30, 2022 increased 0.6% compared to the six months ended June 30, 2021.

Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 3.9% due to the effect of acquisitions, Performance Sensing net revenue for the six months ended June 30, 2022 decreased 1.9% on an organic basis.

Automotive net revenue for the three months ended September 30, 2022 grew 7.6% compared to the three months ended September 30, 2021.

Excluding a decline of 4.3% attributed to changes in foreign currency exchange rates, Automotive net revenue for the three months ended September 30, 2022 grew 11.9% on an organic basis, primarily due to improved market performance and market outgrowth, partially offset by the net impacts of original equipment manufacturer efforts to replenish and reduce channel inventory in 2021 and 2022, respectively.

HVOR net revenue for the three months ended September 30, 2022 grew 5.0% compared to the three months ended September 30, 2021.

Excluding a decline of 2.2% attributed to changes in foreign currency exchange rates and an increase of 10.6% due to the effect of acquisitions, HVOR net revenue for the three months ended September 30, 2022 declined 3.4% on an organic basis.

This was primarily due to declining market conditions and the impacts of original equipment manufacturer efforts to replenish channel inventory in 2021, partially offset by market outgrowth.

Performance Sensing net revenue for the nine months ended September 30, 2022 increased 2.6% compared to the nine months ended September 30, 2021.

Excluding a decrease of 2.2% attributed to changes in foreign currency exchange rates and an increase of 3.7% due to the effect of acquisitions, Performance Sensing net revenue for the nine months ended September 30, 2022 increased 1.1% on an organic basis.

Both automotive and HVOR contributed to these results as discussed below.

Automotive net revenue for the six months ended June 30, 2022 declined 4.4% compared to the six months ended June 30, 2021.

Excluding a decrease of 1.5% attributed to changes in foreign currency exchange rates, automotive net revenue for the six months ended June 30, 2022 declined 2.9% on an organic basis, primarily as a result of the impacts of original equipment manufacturer efforts to replenish inventory channels in 2021.

HVOR net revenue for the six months ended June 30, 2022 grew 13.6% compared to the six months ended June 30, 2021.

Excluding a decrease of 1.2% attributed to changes in foreign currency exchange rates and an increase of 14.0% due to the effect of acquisitions, HVOR net revenue for the six months ended June 30, 2022 grew 0.8% on an organic basis.

Automotive net revenue for the nine months ended September 30, 2022 declined 0.6% compared to the nine months ended September 30, 2021.

Excluding a decrease of 2.4% attributed to changes in foreign currency exchange rates, automotive net revenue for the nine months ended September 30, 2022 grew 1.8% on an organic basis.

HVOR net revenue for the nine months ended September 30, 2022 grew 10.6% compared to the nine months ended September 30, 2021.

Excluding a decrease of 1.5% attributed to changes in foreign currency exchange rates and an increase of 12.8% due to the effect of acquisitions, HVOR net revenue for the nine months ended September 30, 2022 declined 0.7% on an organic basis.

Sensing Solutions

Sensing Solutions net revenue for the three months ended June 30, 2022 increased 9.1% compared to the three months ended June 30, 2021.

Excluding a decline of 1.9% attributed to changes in foreign currency exchange rates and an increase of 2.0% due to the effect of acquisitions, Sensing Solutions net revenue for the three months ended June 30, 2022 grew 9.0% on an organic basis.

The organic revenue growth primarily reflects the launch of new industrial electrification applications, partially offset by declines in the Industrial market.

Sensing Solutions net revenue for the six months ended June 30, 2022 increased 11.1% compared to the six months ended June 30, 2021.

Excluding a decline of 1.2% attributed to changes in foreign currency exchange rates and an increase of 2.0% due to the effect of acquisitions, Sensing Solutions net revenue for the six months ended June 30, 2022 grew 10.3% on an organic basis.

The organic revenue growth primarily reflects the launch of new industrial electrification applications, partially offset by declines in the Aerospace market.

Sensing Solutions net revenue for the three months ended September 30, 2022 increased 7.8% compared to the three months ended September 30, 2021.

Excluding a decline of 2.4% attributed to changes in foreign currency exchange rates and an increase of 3.3% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue for the three months ended September 30, 2022 grew 6.9% on an organic basis, which primarily reflects the launch of new industrial electrification applications.

Sensing Solutions net revenue for the nine months ended September 30, 2022 increased 10.0% compared to the nine months ended September 30, 2021.

Excluding a decline of 1.6% attributed to changes in foreign currency exchange rates and an increase of 2.5% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue for the nine months ended September 30, 2022 grew 9.1% on an organic basis, which primarily reflects the launch of new industrial electrification applications.

Operating costs and expenses

Operating costs and expenses for the three and six months ended June 30, 2022 and 2021 are presented, in millions of dollars and as a percentage of net revenue, in the following table.

Operating costs and expenses for the three and nine months ended September 30, 2022 and 2021 are presented, in millions of dollars and as a percentage of net revenue, in the following table.

Amounts and percentages in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three months ended For the six months ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

For the three months ended For the nine months ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Amount Margin* Amount Margin* Amount Margin* Amount Margin*

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Cost of revenue

For the three months ended June 30, 2022, cost of revenue as a percentage of net revenue increased from the three months ended June 30, 2021, primarily due to the impacts of inflation on material and logistics costs.

For the six months ended June 30, 2022, cost of revenue as a percentage of net revenue increased from the six months ended June 30, 2021, primarily due to the impacts of inflation on material and logistics costs, partially offset by the favorable effect of changes in foreign currency exchange rates.

For the three months ended September 30, 2022, cost of revenue as a percentage of net revenue increased from the three months ended September 30, 2021, primarily due to the impacts of inflation on material and logistics costs, the unfavorable impact of product mix, and the unfavorable effect of changes in foreign currency exchange rates.

For the nine months ended September 30, 2022, cost of revenue as a percentage of net revenue increased from the nine months ended September 30, 2021, primarily due to the impacts of inflation on material and logistics costs and the unfavorable impact of product mix.

Research and development expense

For the three and six months ended June 30, 2022, research and development ("R&D") expense increased from the three and six months ended June 30, 2021, primarily as a result of higher spend to support megatrend growth initiatives and incremental R&D expense related to acquired businesses, partially offset by the favorable effect of foreign currency exchange rates.

R&D expense related to megatrends during the three and six months ended June 30, 2022 was $17.6 million and $34.0 million, respectively, increases of $5.0 million and $10.1 million, respectively, from the three and six months ended June 30, 2021.

For the three and nine months ended September 30, 2022, research and development ("R&D") expense increased from the three and nine months ended September 30, 2021, primarily as a result of continued investment to support megatrend growth initiatives of Electrification and Insights and incremental R&D expense related to acquired businesses, partially offset by the favorable effect of foreign currency exchange rates.

R&D expense related to megatrends during the three and nine months ended September 30, 2022 was $17.0 million and $50.9 million, respectively, increases of $4.1 million and $14.1 million, respectively, from the three and nine months ended September 30, 2021.

Selling, general and administrative expense

For the three and six months ended June 30, 2022, selling, general and administrative ("SG&A") expense increased from the three and six months ended June 30, 2021, primarily as a result of (1) incremental SG&A expense related to acquired businesses, including related transaction costs, (2) higher selling costs to support growth and our ability to execute for our customers, and (3) higher share-based compensation, partially offset by the favorable effect of changes in foreign currency exchange rates.

For the three and nine months ended September 30, 2022, selling, general and administrative ("SG&A") expense increased from the three and nine months ended September 30, 2021, primarily as a result of (1) incremental SG&A expense related to acquired businesses, including related transaction costs, (2) higher selling costs to support growth and our ability to execute for our customers, and (3) higher share-based compensation, partially offset by the favorable effect of changes in foreign currency exchange rates.

Refer to Note 16:

Share-Based Payment Plans of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information related to our share-based compensation.

Acquisitions and Divestitures and Note 4:

Amortization of intangible assets

For the three and six months ended June 30, 2022, amortization expense increased from the three and six months ended June 30, 2021, primarily due to increased intangibles from recent acquisitions partially offset by the effect of the economic benefit amortization method.

For the three and nine months ended September 30, 2022, amortization expense increased from the three and nine months ended September 30, 2021, primarily due to increased intangibles from recent acquisitions partially offset by the effect of the economic benefit amortization method.

Refer to Note 16:

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Restructuring and other charges, net

For the three and six months ended June 30, 2022, restructuring and other charges, net increased from the three and six months ended June 30, 2021, primarily due to acquisition-related incentive compensation partially offset by a gain resulting from reduction of the liability for contingent consideration for Spear.

In addition, we did not incur restructuring charges related to the Q2 2020 Global Restructure Program in the three and six months ended June 30, 2022, compared to $3.8 million and $5.7 million in the three and six months ended June 30, 2021, respectively.

For the three and nine months ended September 30, 2022, restructuring and other charges, net included the gain on sale of the Qinex Business of $135.1 million in both periods, and $13.5 million and $15.6 million, respectively, of transaction-related charges to sell the Qinex Business.

The three and nine months ended September 30, 2022, also included acquisition-related incentive compensation of $7.4 million and $38.4 million, respectively.

These increases were partially offset by a gain resulting from reduction of the liability for contingent consideration for Spear in the nine months ended September 30, 2022.

Refer to Note 5:

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Operating income

For the three months ended June 30, 2022, operating income decreased compared to the three months ended June 30, 2021, primarily due to (1) increased acquisition-related incentive compensation, (2) higher spend to support our megatrends initiatives, (3) the impacts of lower volume, (4) increased transaction-related costs, (5) higher amortization due to acquired intangibles, (6) higher selling costs to support growth and our ability to execute for our customers, and (7) higher share-based compensation, partially offset by (1) a reduction in restructuring charges related to the Q2 2020 Global Restructure Program and (2) a gain recorded as a result of a reduction in the liability for contingent consideration due to Spear.

For the six months ended June 30, 2022, operating income decreased compared to the six months ended June 30, 2021, primarily due to (1) increased acquisition-related incentive compensation, (2) higher amortization due to acquired intangibles, (3) the impacts of inflation, (4) higher spend to support our megatrends initiatives, (5) the impacts of lower volume, (6) higher selling costs to support growth and our ability to execute for our customers, (7) increased transaction-related costs, and (8) higher share-based compensation, partially offset by (1) a gain recorded as a result of a reduction in the liability for contingent consideration due to Spear, (2) a reduction in restructuring charges related to the Q2 2020 Global Restructure Program, and (3) the favorable effect of changes in foreign currency exchange rates.

For the three months ended September 30, 2022, operating income increased compared to the three months ended September 30, 2021, primarily due to the gain on the sale of the Qinex Business, partially offset by (1) higher transaction-related charges, (2) the unfavorable effect of changes in foreign currency exchange rates, (3) higher acquisition-related incentive compensation, (4) higher amortization due to acquired intangibles, (5) higher spend to support our megatrends initiatives, and (6) higher selling costs to support growth and our ability to execute for our customers.

For the nine months ended September 30, 2022, operating income increased compared to the nine months ended September 30, 2021, primarily due to (1) the gain on the sale of the Qinex Business and (2) a gain recorded as a result of a reduction in the liability for contingent consideration due to Spear, partially offset by (1) higher acquisition-related incentive compensation, (2) higher amortization due to acquired intangibles, (3) higher transaction-related charges, (4) higher spend to support our megatrends initiatives, (5) higher selling costs to support growth and our ability to execute for our customers, (6) higher share-based compensation, and (7) the unfavorable of changes in foreign currency exchange rates.

Interest expense, net

For the three months ended June 30, 2022, interest expense, net decreased $0.4 million from the three months ended June 30, 2021, as increased interest rates impacted interest income earned on our cash equivalents balances slightly more than interest expense on our variable rate debt (the Term Loan).

For the six months ended June 30, 2022, interest expense, net increased $1.0 million from the six months ended June 30, 2021, primarily as a result of (1) a full six months of interest expense on the 4.0% Senior Notes in the six months ended June 30, 2022, which were issued on March 29, 2021 and April 8, 2021, and (2) increased interest expense on our variable rate debt resulting from higher interest rates in the period, partially offset by (1) reduced interest expense resulting from our March 5, 2021 redemption of the 6.25% Senior Notes and (2) increased interest income earned on our cash equivalents balances.

For the three months ended September 30, 2022, interest expense, net decreased $0.3 million from the three months ended September 30, 2021.

For the nine months ended September 30, 2022, interest expense, net increased $0.8 million from the nine months ended September 30, 2021.

Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, mark-to-market gains and losses on investments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost.

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Other, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more details related to the components of other, net.

For the three months ended June 30, 2022, other, net represented a net loss of $39.2 million, an unfavorable impact on earnings of $40.3 million compared to a net gain of $1.0 million in the three months ended June 30, 2021.

This was primarily due to (1) increased losses on commodity forward contracts, (2) increased currency remeasurement losses on net monetary assets, primarily related to CNY, and (3) $11.8 million in mark-to-market losses on equity investments, primarily related to Quanergy.

For the three months ended September 30, 2022, other, net represented a net loss of $21.4 million, an unfavorable impact on earnings of $12.0 million compared to a net loss of $9.4 million in the three months ended September 30, 2021.

This was primarily due to (1) increased currency remeasurement losses on net monetary assets, primarily related to CNY, (2) a loss on debt financing and (3) $4.0 million in mark-to-market losses on equity investments, primarily related to Quanergy, partially offset by a gain on foreign currency forward contracts.

Refer to Note 14:

Fair Value Measures of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for detailed information on our investment in Quanergy.

For the six months ended June 30, 2022, other, net represented a net loss of $89.7 million, an unfavorable impact on earnings of $51.3 million compared to a net loss of $38.4 million in the six months ended June 30, 2021.

This was largely due to (1) $71.1 million in mark-to-market losses on equity investments, primarily related to Quanergy, (2) increased losses on net monetary assets, primarily related to CNY, and (3) increased losses on commodity forward contracts, partially offset by the non-recurrence of a $30.1 million loss on debt financing related to the redemption of our 6.25% Senior Notes on March 5, 2021.

For the nine months ended September 30, 2022, other, net represented a net loss of $111.1 million, an unfavorable impact on earnings of $63.3 million compared to a net loss of $47.8 million in the nine months ended September 30, 2021.

This was largely due to (1) $75.1 million in mark-to-market losses on equity investments, primarily related to Quanergy, (2) increased losses on net monetary assets, primarily related to CNY, and (3) increased losses on commodity forward contracts, partially offset by (1) a reduction in loss on debt financings and (2) a gain on foreign currency forward contracts.

Provision for income taxes

For the three months ended June 30, 2022, the provision for income taxes increased $12.4 million from the three months ended June 30, 2021, predominantly related to the jurisdictional mix of profits, the impacts of nondeductible earnout and compensation expenses resulting from recent acquisitions, and the inability to benefit the mark-to market loss on our investment in Quanergy.

For the six months ended June 30, 2022, the provision for income taxes decreased $0.3 million from the six months ended June 30, 2021, predominantly related to the overall decrease in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate, offset by the impacts of nondeductible expenses resulting from our recent acquisitions and the inability to benefit the mark-to-market loss on our investment in Quanergy.

For the three months ended September 30, 2022, the provision for income taxes increased $24.6 million from the three months ended September 30, 2021, predominantly due to the increase in profit before tax as impacted by the jurisdictional mix of profits, including our recent Qinex Business sale, and the impacts of nondeductible expenses related to our recent acquisitions.

For the nine months ended September 30, 2022, the provision for income taxes increased $24.3 million from the nine months ended September 30, 2021, predominantly due to the impacts of nondeductible expenses related to our recent acquisitions and the inability to benefit the mark-to-market loss on our investment in Quanergy, partially offset by changes in income before tax, including the recent Qinex Business sale, as impacted by the jurisdictional mix of profits where we operate.

The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings;

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They should be considered as supplemental in nature and are not intended to be considered in isolation from, or as an alternative to, reported net revenue growth (or decline), operating income, operating margin, net income, diluted EPS, net cash provided by operating activities, total debt, finance lease and other financing obligations, respectively, calculated in accordance with U.S.

In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow,

net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.

In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.

Organic revenue growth (or decline)

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We define adjusted operating income as operating income, determined in accordance with U.S.

GAAP, excluding certain non-GAAP adjustments which are described below.

GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP adjustments below.

Adjusted operating margin is calculated by dividing adjusted operating income by net revenue determined in accordance with U.S.

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net income (or loss) determined in accordance with U.S.

GAAP, excluding certain non-GAAP adjustments which are described in Non-GAAP Adjustments below.

GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP Adjustments below.

Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average ordinary shares outstanding in the period.

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These initiatives have been modified from time to time to reflect changes in overall market conditions and the competitive environment facing our business.

These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain, or corporate activities, and

various financing transactions.

These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain, or corporate activities, and various financing transactions.

We describe these adjustments in more detail below, each of which is net of current tax impacts, as applicable.

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Amounts and percentages in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three months ended June 30, 2022 For the three months ended June 30, 2021

For the three months ended September 30, 2022 For the three months ended September 30, 2021

(Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS Operating Income Operating Margin Net Income Diluted EPS

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Step-up depreciation and amortization 39.0 3.8 39.0 0.25 32.7 3.4 32.7 0.20

Deferred loss on derivative instruments 1.2 0.1 15.4 0.10 2.6 0.3 1.1 0.01

Deferred (gain)/loss on derivative instruments (0.1) (0.0) 4.5 0.03 2.6 0.3 10.2 0.06

Amortization of debt issuance costs — — 1.8 0.01 — — 1.7 0.01

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Adjusted (non-GAAP) $ 197.3 19.4 % $ 131.0 $ 0.85 $ 201.0 21.1 % $ 138.6 $ 0.87

For the six months ended June 30, 2022 For the six months ended June 30, 2021

For the nine months ended September 30, 2022 For the nine months ended September 30, 2021

(Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS Operating Income Operating Margin Net Income Diluted EPS

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GAAP to free cash flow.

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2022 2021

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Free cash flow (non-GAAP) $ 125.3 $ 292.8

The following table provides a reconciliation of corporate and other expenses in accordance with U.S.

GAAP to adjusted corporate and other expenses.

For the three months ended September 30, For the nine months ended September 30,

(in millions) 2022 2021 2022 2021

Corporate and other expenses (GAAP) $ (76.4) $ (72.7) $ (228.9) $ (215.4)

Restructuring related and other 8.0 1.7 13.1 4.4

Financing and other transaction costs 5.0 2.5 11.5 7.5

Step-up depreciation and amortization 0.3 0.4 0.9 1.3

Deferred (gain)/loss on derivative instruments (0.1) 2.6 1.7 7.0

Total adjustments 13.1 7.0 27.3 20.1

Adjusted corporate and other expenses (non-GAAP) $ (63.3) $ (65.7) $ (201.6) $ (195.2)

The following table provides a reconciliation of net income in accordance with U.S.

GAAP to Adjusted EBITDA.

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(in millions) LTM (1)

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GAAP to net leverage ratio.

(Dollars in millions) June 30,

(Dollars in millions) September 30,

2022 December 31,

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Liquidity and Capital Resources

As of June 30, 2022 and December 31, 2021, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers;

As of September 30, 2022 and December 31, 2021, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers;

accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

(In millions) June 30,

(In millions) September 30,

2022 December 31,

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Our cash and cash equivalent balances are held in the following significant currencies:

As of June 30, 2022

As of September 30, 2022

(In millions) USD EUR GBP CNY Other

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USD Equivalent $ 12.0 $ 17.8 $ 243.1 $ 13.3

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2022 and 2021.

We have derived this summarized statements of cash flows from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2022 and 2021.

We have derived these summarized statements of cash flows from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Amounts in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the six months ended

(In millions) June 30, 2022 June 30, 2021

For the nine months ended

(In millions) September 30, 2022 September 30, 2021

Net cash provided by/(used in):

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Operating activities.

Net cash provided by operating activities for the six months ended June 30, 2022 decreased compared to the corresponding period of the prior year, primarily due to increased raw material purchases in order to maximize production flexibility given widespread parts shortages in our supply chain and in anticipation of volume increases later in the year, a cash payment of $15.0 million for earned acquisition-related incentive compensation related to Elastic M2M, and timing of supplier payments and customer receipts.

Net cash provided by operating activities for the nine months ended September 30, 2022 decreased compared to the corresponding period of the prior year, primarily due to lower net income, cash payments of $23.5 million for earned acquisition-related incentive compensation, and timing of supplier payments and customer receipts.

Investing activities.

Net cash used in investing activities for the six months ended June 30, 2022 decreased compared to the corresponding period of the prior year, primarily due to lower cash paid for acquisitions, which included Elastic M2M in the six months ended June 30, 2022 and Xirgo Technologies, LLC in the six months ended June 30, 2021.

This impact was partially offset by higher capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2022 increased compared to the corresponding period of the prior year, primarily due to higher cash paid for acquisitions (which included Dynapower and Elastic M2M in the nine months ended September 30, 2022 and Xirgo Technologies, LLC in the nine months ended September 30, 2021), and higher capital expenditures, partially offset by cash proceeds of $198.8 million from the divestiture of the Qinex Business.

For fiscal year 2022, we anticipate capital expenditures of approximately $135.0 million to $145.0 million, which we expect to fund with cash on hand.

Financing activities .

In the six months ended June 30, 2022, net cash used in financing activities was primarily driven by $144.3 million cash paid for share repurchases and $17.2 million paid for cash dividends, each of which did not have a comparable payment in the prior year.

In the six months ended June 30, 2021, cash provided by financing activities was primarily the result of the issuance of $1.0 billion of the 4.0% Senior Notes, partially offset by the redemption of $750.0 million of the 6.25% Senior Notes.

In addition, in fiscal year 2021 we used $33.0 million in cash related to debt financing transactions.

In the nine months ended September 30, 2022, net cash used in financing activities primarily comprised cash outflows of $241.9 million for share repurchases and $34.3 million for cash dividends, each of which did not have a comparable payment in the prior year.

We also issued the 5.875% Senior Notes and redeemed the 4.875% Senior Notes in the third quarter of 2022, the cash impact of which largely offset.

In the nine months ended September 30, 2021, cash provided by financing activities was primarily the result of the issuance of $1.0 billion of the 4.0% Senior Notes, partially offset by the redemption of $750.0 million of the 6.25% Senior Notes.

In addition, in the nine months ended September 30, 2022 we used $13.4 million in cash related to debt financing transactions, compared to $33.1 million in the prior year.

Indebtedness and Liquidity

As of June 30, 2022, we had $4.3 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.

As of September 30, 2022, we had $4.3 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.

Capital Resources

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(iii) released the Foreign Guarantors (as defined in the Credit Agreement), excluding STBV, from their obligations to guarantee the obligations of STI and the other Loan Parties (as defined in the Credit Agreement) relating to the Revolving Credit Facility and certain related obligations, subject to an obligation to reinstate such guaranties under certain conditions;

(iv) replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit loans denominated in U.S.

(iv) replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit

loans denominated in U.S.

dollars, an interest rate based on the SOFR published by the Federal Reserve Bank of New York and (b) for revolving credit loans denominated in pounds sterling, an interest rate based on the SONIA;

and (v) certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement were modified to provide STI and its affiliates increased flexibility and permissions thereunder.

On August 29, 2022, we issued $500.0 million aggregate principal amount of 5.875% Senior Notes.

On September 28, 2022, we redeemed the $500.0 million aggregate principal amount outstanding on the 4.875% Senior Notes, which would have matured in October 2023, at a redemption price of 101.0% of the aggregate principal amount outstanding, plus accrued and unpaid interest to (but not including) the redemption date.

Refer to Note 11:

Debt of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on these transactions and our overall debt.

Sources of liquidity

Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility.

As of June 30, 2022, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder.

As of September 30, 2022, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder.

Outstanding letters of credit are issued primarily for the benefit of certain operating activities.

As of June 30, 2022, no amounts had been drawn against these outstanding letters of credit.

As of September 30, 2022, no amounts had been drawn against these outstanding letters of credit.

Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures").

As of June 30, 2022, availability under the Accordion was approximately $0.6 billion.

As of September 30, 2022, availability under the Accordion was approximately $0.7 billion.

We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources of liquidity described above will be sufficient to fund our operations, capital expenditures, dividend payments, ordinary share repurchases, and debt service for at least the next twelve months.

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Our ability to raise additional financing, and our borrowing costs, may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios.

As of July 20, 2022, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a stable outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook.

As of October 20, 2022, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a stable outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook.

Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce availability under the Credit Agreement.

Restrictions and Covenants

The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under our senior secured credit facilities.

The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under our senior secured credit facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness).

These provisions were not triggered during the six months ended June 30, 2022.

We do not expect that the sale of the Qinex Business, which occurred subsequent to June 30, 2022, will trigger these provisions.

The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness).

These provisions were not triggered during the nine months ended September 30, 2022.

The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments.

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These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those programs.

As of June 30, 2022, we believe we were in compliance with all covenants and default provisions under our credit arrangements.

As of September 30, 2022, we believe we were in compliance with all covenants and default provisions under our credit arrangements.

Share repurchase programs

From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time.

We currently have an authorized $500.0 million share repurchase program (the "January 2022 Program") under which approximately $370.6 million remained available as of June 30, 2022.

On May 25, 2022, we paid a cash dividend of $0.11 per share, or $17.2 million in aggregate, to shareholders of record as of May 11, 2022.

On July 21, 2022, we announced that our Board had declared a quarterly dividend of $0.11 per share, payable on August 24, 2022 to shareholders of record as of August 10, 2022.

We currently have an authorized $500.0 million share repurchase program (the "January 2022 Program") under which approximately $272.2 million remained available as of September 30, 2022.

On August 24, 2022, we paid a cash dividend of $0.11 per share, or $17.0 million in aggregate, to shareholders of record as of August 10, 2022.

On October 20, 2022, we announced that our Board had declared a quarterly dividend of $0.11 per share, payable on November 23, 2022 to shareholders of record as of November 9, 2022.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis