What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-01 · 97 added, 131 removed, 252 unchanged (48% of the section changed)

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

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:

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

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.

Elastic M2M is a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments.

Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users.

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 $577.7 million, subject to certain post-closing items.

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.

Dynapower also provides aftermarket sales and service to maintain its equipment in the field.

We acquired Dynapower as a foundational addition to our Clean Energy Solutions strategy and complement to our recent acquisitions of GIGAVAC, Lithium Balance, and Spear.

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 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 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.

Net revenue increased 2.3% in the three months ended March 31, 2023 compared to the prior year period.

Net revenue increased 4.7% on an organic basis, which excludes a decrease of 2.3% attributed to changes in foreign currency exchange rates and a decrease of 0.1% due to the net effect of acquisitions and divestitures.

This reflects organic revenue growth of 7.0% in Performance Sensing and organic revenue decline of 1.5% in Sensing Solutions.

Organic revenue growth (or decline), discussed throughout this Item 2:

Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A"), is a financial measure not presented in accordance with U.S.

generally accepted accounting principles ("GAAP").

Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information related to our use of organic revenue growth (or decline).

Operating income for the three months ended March 31, 2023, increased $22.9 million, or 18.2%, to $148.8 million (14.9% of net revenue) compared to $125.9 million (12.9% of net revenue) in the prior year period.

This increase was primarily due to (1) lower selling, general and administrative ("SG&A") expense, primarily related to reduced compensation in the first quarter of 2023 as a result of restructuring actions taken in fiscal year 2022, (2) margin improvements driven by organic revenue growth partially offset by the unfavorable effect of changes in foreign currency exchange rates, and (3) lower restructuring and other charges, net.

These increases were partially offset by an increase in amortization expense as a result of intangibles recently acquired.

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three months ended March 31, 2023 compared to the prior year period.

We have sufficient cash to operate the business effectively.

We generated $96.9 million of operating cash flow in the three months ended March 31, 2023, ending the quarter with $1.0 billion in cash and cash equivalents.

In the three months ended March 31, 2023, we used approximately $16.8 million for payment of cash dividends and we have announced an increase in cash dividends for the second quarter to $0.12 per share.

In the first quarter of 2023, we prepaid $250.0 million of principal on the balance outstanding of the Term Loan and we intend to pay down the remaining principal balance on the Term Loan in the second quarter of 2023.

In fiscal year 2023, we will continue to return capital to shareholders through our dividend and

opportunistic share repurchases.

We expect improving free cash flow will naturally allow leverage to decline and returns on invested capital to improve over time.

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 nine months ended September 30, 2022 compared to the three and nine months ended September 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 months ended March 31, 2023 compared to the three months ended March 31, 2022.

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 nine months ended

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

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

For the three months ended

March 31, 2023 March 31, 2022

Amount Margin* Amount Margin*

Performance Sensing $ 751.5 75.3 % $ 717.7 73.6 %

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* Represents the amount presented divided by total net revenue.

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.

Refer to the section entitled Non-GAAP Financial Measures below for additional information related to our use of organic revenue growth (or decline).

Net revenue for the three months ended March 31, 2023 increased 2.3% compared to the three months ended March 31, 2022.

Net revenue for the three months ended March 31, 2023 increased 4.7% on an organic basis, which excludes a decrease of 2.3% attributed to changes in foreign currency exchange rates and a decrease of 0.1% due to the net effect of acquisitions and divestitures.

This represents market outgrowth of 20 basis points.

We use the term "market outgrowth" to describe the impact of an increasing quantity and value of our products used in customer systems and applications above external market growth.

It is only loosely correlated to normal unit demand fluctuations in the markets we serve.

Performance Sensing

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 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.

Performance Sensing net revenue for the three months ended March 31, 2023 increased 4.7% compared to the three months ended March 31, 2022.

Excluding a decrease of 2.7% attributed to changes in foreign currency exchange rates and an increase of 0.4% due to the effect of acquisitions, Performance Sensing net revenue for the three months ended March 31, 2023 increased 7.0% on an organic basis.

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

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.

Automotive net revenue for the three months ended March 31, 2023 grew 2.9% compared to the three months ended March 31, 2022.

Excluding a decline of 3.1% attributed to changes in foreign currency exchange rates, Automotive net revenue for the three months ended March 31, 2023 grew 6.0% on an organic basis, primarily due to improved market performance.

HVOR net revenue for the three months ended March 31, 2023 grew 9.0% compared to the three months ended March 31, 2022.

Excluding a decline of 1.7% attributed to changes in foreign currency exchange rates and an increase of 1.3% due to the effect of acquisitions, HVOR net revenue for the three months ended March 31, 2023 grew 9.4% on an organic basis, primarily due to market outgrowth.

Sensing Solutions

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.

Sensing Solutions net revenue for the three months ended March 31, 2023 decreased 4.4% compared to the three months ended March 31, 2022.

Excluding a decline of 1.5% attributed to changes in foreign currency exchange rates and a decline of 1.4% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue for the three months ended March 31, 2023 declined 1.5% on an organic basis, which primarily reflects market declines in our industrial business, partially offset by improvements in the aerospace markets.

Operating costs and expenses

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.

Operating costs and expenses for the three months ended March 31, 2023 and 2022 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 nine months ended

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

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

For the three months ended

March 31, 2023 March 31, 2022

Amount Margin* Amount Margin*

Operating costs and expenses:

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Cost of revenue

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.

For the three months ended March 31, 2023, cost of revenue as a percentage of net revenue decreased slightly from the three months ended March 31, 2022, as the net impacts of (1) pricing recoveries from customers, (2) inflation on material and logistics costs, and (3) volume leverage was largely offset by (1) product mix and (2) the unfavorable effect of changes in foreign currency exchange rates.

Research and development expense

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.

For the three months ended March 31, 2023, research and development ("R&D") expense decreased slightly from the three months ended March 31, 2022, due to lower costs as a result of repositioning activities in fiscal year 2022 and the favorable effect of changes in foreign currency exchange rates.

Selling, general and administrative expense

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.

For the three months ended March 31, 2023, SG&A expense decreased from the three months ended March 31, 2022, primarily as a result of (1) reduced compensation in the first quarter of 2023, primarily the result of restructuring actions taken in fiscal year 2022, (2) the favorable effect of changes in foreign currency exchange rates, and (3) lower costs related to mergers and acquisitions activity.

Refer to Note 15:

Acquisitions and Divestitures and Note 4:

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 acquired businesses and share-based compensation, respectively.

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

Amortization of intangible assets

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.

For the three months ended March 31, 2023, amortization expense increased from the three months ended March 31, 2022, primarily due to increased intangibles from recent acquisitions.

Refer to Note 15:

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Restructuring and other charges, net

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.

For the three months ended March 31, 2023, restructuring and other charges, net decreased from the three months ended March 31, 2022 primarily due to (1) a reduction in expense for acquisition-related compensation arrangements and (2) the gain on sale of a business in the first quarter of 2023, partially offset by (1) the impact of the non-recurrence of a gain recognized in the first quarter of 2022 related to the reduction of the liability for contingent consideration for Spear and (2) an increase in severance charges that were not the result of initiation of a larger restructuring plan.

Refer to Note 5:

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Operating income

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.

For the three months ended March 31, 2023, operating income increased compared to the three months ended March 31, 2022, primarily due to (1) lower SG&A expense, primarily related to reduced compensation in the first quarter of 2023 as a result of restructuring actions taken in fiscal year 2022, (2) margin improvements driven by organic revenue growth partially offset by

the unfavorable effect of changes in foreign currency exchange rates, and (3) lower restructuring and other charges, net.

These increases were partially offset by an increase in amortization expense as a result of intangibles recently acquired.

Interest expense, net

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.

For the three months ended March 31, 2023, interest expense, net decreased $5.4 million from the three months ended March 31, 2022 primarily due to increased interest income as a result of increasing interest rates partially offset by (1) increased interest expense on the Term Loan (partially mitigated by the $250.0 million prepayment on the Term Loan in the first quarter of 2023) and (2) the net impact of the early redemption of the 4.875% Senior Notes and the issuance of the 5.875% Senior Notes in the third quarter of 2022.

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 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 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.

For the three months ended March 31, 2023, other, net represented a net gain of $1.4 million, a favorable impact on earnings of $51.8 million compared to a net loss of $50.5 million in the three months ended March 31, 2022.

This impact was primarily due to the non-recurrence of mark-to-market losses on equity investments, primarily related to our investment in Quanergy Systems Inc., in the first quarter of 2022, partially offset by lower gains on commodity forward contracts.

Provision for income taxes

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.

For the three months ended March 31, 2023, the provision for income taxes increased $16.1 million from the three months ended March 31, 2022, predominantly due to the increase in profit before tax as impacted by the jurisdictional mix of profits.

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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The use of our non-GAAP financial measures has limitations.

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.

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, or 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.

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We believe that organic revenue growth (or decline) provides investors with helpful information with respect to our operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations as well as for internal planning and forecasting purposes.

We believe that organic revenue growth (or decline) provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.

We believe that organic revenue growth (or decline) provides useful information in

evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.

Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS

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GAAP, excluding interest expense, net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following non-GAAP adjustments, if applicable:

(1) restructuring related and other, (2) financing and other transaction costs, (3) deferred gain or loss on derivative instruments, and (4) step-up inventory amortization.

(1) restructuring related and other, (2) financing and other transaction costs, and (3) deferred loss or gain on derivative instruments.

Refer to Non-GAAP Adjustments below for additional discussion of these adjustments.

We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Net leverage ratio

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• Restructuring related and other :

includes charges, net related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results.

includes net charges related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results.

Such costs include charges related to optimization of our manufacturing processes to increase productivity.

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• Financing and other transaction costs :

includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction, mark-to-market losses or gains on our equity investments, expenses related to compensation arrangements entered into concurrent with the closing of an acquisition, and gains related to changes in the fair value of acquisition-related contingent consideration amounts.

our equity investments, expenses related to compensation arrangements entered into concurrent with the closing of an acquisition, and gains related to changes in the fair value of acquisition-related contingent consideration amounts.

• Deferred loss or gain on derivative instruments :

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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 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

For the three months ended March 31, 2023

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

Reported (GAAP) $ 148.8 14.9 % $ 23.7 $ 86.4 $ 0.56

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Step-up depreciation and amortization 39.1 3.9 — 39.1 0.26

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

Deferred gain on derivative instruments (2.3) (0.2) 0.9 (3.3) (0.02)

Amortization of debt issuance costs — — — 1.7 0.01

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Adjusted (non-GAAP) $ 192.9 19.3 % $ 13.9 $ 140.7 $ 0.92

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

For the three months ended March 31, 2022

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

Reported (GAAP) $ 125.9 12.9 % $ 7.6 $ 22.4 $ 0.14

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Step-up depreciation and amortization 35.9 3.7 — 35.9 0.23

Deferred loss on derivative instruments 1.7 0.1 13.0 0.08 7.0 0.2 13.5 0.08

Deferred loss/(gain) on derivative instruments 0.7 0.1 1.8 (7.0) (0.04)

Amortization of debt issuance costs — — — 1.7 0.01

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GAAP to free cash flow.

For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2023 2022

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GAAP to adjusted corporate and other expenses.

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

For the three months ended March 31,

(in millions) 2023 2022

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GAAP to Adjusted EBITDA.

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

For the three months ended March 31,

(in millions) LTM 2023 2022

2022 2021 2022 2021

Net income $ 374.7 $ 86.4 $ 22.4

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Financing and other transaction costs (62.9) 4.7 75.1

Deferred loss on derivative instruments 14.2 5.7 9.1 16.3 13.5

Deferred loss/(gain) on derivative instruments 6.5 (4.1) (8.8)

Adjusted EBITDA $ 914.5 $ 225.5 $ 214.9

___________________________________

(1) Last twelve months

The following table provides a reconciliation of total debt, finance lease and other financing obligations in accordance with U.S.

GAAP to net leverage ratio.

(Dollars in millions) September 30,

(Dollars in millions) March 31,

2023 December 31,

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Liquidity and Capital Resources

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) September 30,

As of March 31, 2023 and December 31, 2022, we held cash and cash equivalents in the following regions:

(In millions) March 31,

2023 December 31,

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The transfer of cash from these jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material.

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

As of September 30, 2022

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

As of March 31, 2023

(In millions) USD EUR GBP CNY Other

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USD Equivalent $ 14.0 $ 13.2 $ 115.2 $ 20.8

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

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2023 and 2022.

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.

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

For the nine months ended

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

For the three months ended

(In millions) March 31, 2023 March 31, 2022

Net cash provided by/(used in):

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Operating activities.

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.

Net cash provided by operating activities for the three months ended March 31, 2023 increased compared to the corresponding period of the prior year, primarily due to higher net income and timing of supplier payments and customer receipts.

We also paid approximately $17.0 million in additional interest in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Investing activities.

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.

Net cash used in investing activities for the three months ended March 31, 2023 decreased compared to the corresponding period of the prior year, primarily due to no cash paid for acquisitions (compared to $48.4 million paid for Elastic M2M in the three months ended March 31, 2022) and no cash paid for investments in debt and equity securities (compared to $6.9 million in the three months ended March 31, 2022), partially offset by cash proceeds of $14.0 million from the divestiture of a business in the three months ended March 31, 2023.

For fiscal year 2023, we anticipate capital expenditures of approximately $170.0 million to $180.0 million, which we expect to fund with cash on hand.

Financing activities .

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.

Net cash used in financing activities for the three months ended March 31, 2023 increased primarily due to the $250.0 million payment on the Term Loan made in the three months ended March 31, 2023 and $16.8 million paid to shareholders in the form of cash dividends paid, partially offset by lower cash paid to repurchase ordinary shares as part of our share repurchase program.

On April 25, 2023, we announced that we intended to pay down $196.8 million (the remaining outstanding balance) on the Term Loan in the second quarter of 2023, which will be presented as a cash outflow within financing activities.

Indebtedness and Liquidity

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.

As of March 31, 2023, we had $4.0 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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The Credit Agreement provides for Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.

On June 23, 2022, certain of our indirect, wholly-owned subsidiaries, including STI, STIHBV, and STBV, entered into the Eleventh Amendment to the Credit Agreement and the Foreign Guaranty, dated as of May 12, 2011.

Among other changes to the Credit Agreement, the Eleventh Amendment (i) increased the aggregate principal amount of the Revolving Credit Facility to $750.0 million;

(ii) extended the maturity date of the Revolving Credit Facility to June 23, 2027 (which could be accelerated to June 22, 2026 if, prior to June 22, 2026, the Term Loan is not refinanced with a maturity date that is on or after June 23, 2027);

(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.

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.

In the first quarter of 2023, we paid $250 million on the Term Loan.

We intend to repay the remaining outstanding balance in the second quarter of 2023.

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 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.

As of March 31, 2023, 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 September 30, 2022, no amounts had been drawn against these outstanding letters of credit.

As of March 31, 2023, 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 September 30, 2022, availability under the Accordion was approximately $0.7 billion.

As of March 31, 2023, availability under the Accordion was approximately $1.0 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 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.

As of April 21, 2023, 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.

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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.

These provisions were not triggered during the three months ended March 31, 2023.

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

As of March 31, 2023, 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 $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.

We currently have an authorized $500.0 million share repurchase program (the "January 2022 Program") under which approximately $224.5 million remained available as of March 31, 2023.

We did not repurchase any ordinary shares under this program in the three months ended March 31, 2023.

In the three months ended March 31, 2022, we repurchased 1.1 million ordinary shares under the January 2022 Program.

On February 22, 2023, we paid a cash dividend of $0.11 per share, or $16.8 million in aggregate, to shareholders of record as of February 8, 2023.

On April 13, 2023, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on May 24, 2023 to shareholders of record as of May 10, 2023.

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