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Item 2. Management’s Discussion and Analysis

2024-04-29 compared with 2023-11-07 · 121 added, 173 removed, 261 unchanged (53% of the section changed)

5 unchanged sentences

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

Net revenue for the three months ended September 30, 2023 was $1,001.3 million, a decrease of 1.7% compared to $1,018.3 million in the prior period.

Excluding a decrease of 1.0% attributed to changes in foreign currency exchange rates, net revenue decreased 0.7% on an organic basis.

Net revenue for the three months ended March 31, 2024 was $1,006.7 million, an increase of 0.9% compared to $998.2 million in the prior period.

Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates, net revenue increased 2.3% on an organic basis.

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

1 unchanged sentence

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

Net revenue for the nine months ended September 30, 2023 was $3,061.6 million, an increase of 1.6% compared to $3,014.6 million in the nine months ended September 30, 2022.

Excluding a decrease of 1.5% attributed to changes in foreign currency exchange rates and an increase of 0.7% due to the net effect of acquisitions and divestitures, net revenue increased 2.4% on an organic basis.

In the fourth quarter of 2023, we expect the impacts of the United Auto Workers' ("UAW") strike to result in a revenue headwind of approximately $35 million to $40 million sequentially from the third quarter of 2023.

Operating income for the three months ended September 30, 2023 decreased $136.6 million, or 54.0%, to $116.3 million (11.6% of net revenue) from $252.9 million (24.8% of net revenue) in the three months ended September 30, 2022.

Operating income for the nine months ended September 30, 2023 decreased $134.7 million, or 26.0%, to $383.1 million (12.5% of net revenue) compared to $517.8 million (17.2% of net revenue) in the nine months ended September 30, 2022.

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three and nine months ended September 30, 2023 compared to the prior year periods.

We generated $351.6 million of operating cash flows in the nine months ended September 30, 2023, ending the quarter with $889.7 million in cash and cash equivalents.

In the nine months ended September 30, 2023, we used approximately $446.8

million to pay down the remaining balance on our variable-rate Term Loan, bringing our gross indebtedness to $3.8 billion as of September 30, 2023 (a net leverage ratio of 3.1x) compared to $4.3 billion as of December 31, 2022 (a net leverage ratio of 3.4x).

In the nine months ended September 30, 2023, we used cash of approximately $136.2 million for capital expenditures, $53.4 million for payment of dividends, and $60.3 million for share repurchases as part of our share repurchase plan.

We will continue to execute our capital allocation strategy that is currently designed to reduce our net leverage and return capital to shareholders through our dividend and opportunistic share repurchases.

This strategy reduces risk in our capital structure, lowers interest expense, and improves net income and earnings per share.

We expect improving free cash flow (cash from operations less capital expenditures) will naturally allow leverage to decline and returns on invested capital to improve over time.

In the three months ended September 30, 2023, we committed to a plan to reorganize our business (the “Q3 2023 Plan”).

The Q3 2023 Plan, consisting of voluntary and involuntary reductions-in-force, site closures, and other cost-savings initiatives, was commenced to adjust our cost structure and business activities to better align with weaker market demand we have been experiencing due to continued economic uncertainty in many of our end markets and to take active measures to accelerate margin recovery.

Our business strategy remains the same with increasing focus and effort in penetrating the fast-growing electrification trend where we are having great success with significant new business wins.

The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact 451 positions.

Over the life of the Q3 2023 Plan, we expect to incur restructuring charges of between $20.5 million and $25.5 million, primarily related to reductions-in-force.

The majority of the actions under the Q3 2023 Plan are expected to be completed on or before June 30, 2024.

In the three months ended September 30, 2023, we accrued $21.4 million of charges related to this program.

Refer to the discussion on restructuring and other related charges in Results of Operations below for further information.

As of September 30, 2023, our severance liability related to the Q3 2023 Plan was $17.2 million.

Operating income for the three months ended March 31, 2024 decreased $4.1 million, or 2.7%, to $144.8 million (14.4% of net revenue) from $148.8 million (14.9% of net revenue) in the three months ended March 31, 2023.

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, 2024 compared to the prior year periods.

We generated $106.5 million of operating cash flows in the three months ended March 31, 2024, ending the quarter with $460.4 million in cash and cash equivalents.

In the three months ended March 31, 2024, we used cash of approximately $42.1 million for capital expenditures, $18.1 million for payment of cash dividends, and $10.1 million for share repurchases as part of our share repurchase plan.

In the three months ended March 31, 2024, we realigned our business as a result of organizational changes that better allocate our resources to support changes to our business strategy.

The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights business out of Performance Sensing to a new operating segment, which is not aggregated within either of our reportable segments.

We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus.

We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers.

Prior year amounts in this Quarterly Report on Form 10-Q have been recast to reflect this realignment.

Refer to Note 1:

Restructuring and Other Charges, Net , of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

We expect that the actions taken in the Q3 2023 Plan will result in annualized savings of approximately $40 million to $50 million and we expect savings of personnel-related costs of approximately $4 million to $6 million in the fourth quarter of 2023.

Presentation and Note 15:

Segment Reporting included elsewhere in this Quarterly Report on Form 10-Q for additional information.

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

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, 2024 compared to the three months ended March 31, 2023.

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

Prior year periods have been recast to reflect the reorganization of segments as detailed in Note 1:

Basis of Presentation included elsewhere in this Report.

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, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount Margin (1)

For the three months ended

March 31, 2024 March 31, 2023

Amount Margin (1)

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Sensing Solutions 257.8 25.6 283.5 28.4

Other 35.6 3.5 47.0 4.7

Net revenue 1,006.7 100.0 998.2 100.0

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Operating income 144.8 14.4 148.8 14.9

Interest expense, net (36.9) (3.7) (44.9) (4.4) (115.1) (3.8) (135.1) (4.5)

Interest expense (38.4) (3.8) (48.8) (4.9)

Interest income 3.7 0.4 8.7 0.9

Other, net (11.5) (1.1) 1.4 0.1

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(1) Represents the amount presented divided by total net revenue.

Net revenue for the three months ended September 30, 2023 decreased 1.7% compared to the prior period.

Net revenue decreased 0.7% on an organic basis, which excludes a decrease of 1.0% attributed to changes in foreign currency exchange rates.

Net revenue for the nine months ended September 30, 2023 increased 1.6% compared to the prior period.

Net revenue increased 2.4% on an organic basis, which excludes a decrease of 1.5% attributed to changes in foreign currency exchange rates and an increase of 0.7% due to the net effect of acquisitions and divestitures.

Effective April 1, 2023, we moved our material handling products from the HVOR operating segment (in the Performance Sensing reportable segment) to the Sensing Solutions operating segment to align with new management reporting.

In the table above and the discussion below, the revenue previously reported for our Performance Sensing and Sensing Solutions reportable segments for the three and nine months ended September 30, 2022 have been retrospectively recast to reflect this change.

In addition, the nine months ended September 30, 2023 includes amounts for the three months ended March 31, 2023 that have been retrospectively adjusted for this change.

Net revenue for the three months ended March 31, 2024 increased 0.9% compared to the prior period.

Net revenue increased 2.3% on an organic basis, which excludes a decrease of 1.4% attributed to changes in foreign currency exchange rates.

Performance Sensing

Performance Sensing net revenue for the three months ended September 30, 2023 increased 2.0% compared to the prior period.

Excluding a decrease of 1.1% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 3.1% 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, 2023 grew 4.5% compared to the prior period.

Excluding a decline of 1.4% attributed to changes in foreign currency exchange rates, Automotive net revenue grew 5.9% on an organic basis, primarily due to content growth and higher pricing, partially offset by unfavorable revenue mix.

HVOR net revenue for the three months ended September 30, 2023 declined 4.2% compared to the prior period.

Excluding a decline of 0.4% attributed to changes in foreign currency exchange rates, HVOR net revenue declined 3.8% on an organic basis, primarily due to market contraction.

Performance Sensing net revenue for the nine months ended September 30, 2023 increased 3.5% compared to the prior period.

Excluding a decrease of 1.8% attributed to changes in foreign currency exchange rates and an increase of 0.1% due to the effect of acquisitions, Performance Sensing net revenue increased 5.2% 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, 2023 grew 4.0% compared to the prior period.

Excluding a decrease of 2.2% attributed to changes in foreign currency exchange rates, Automotive net revenue grew 6.2% on an organic basis, primarily due to market growth and higher pricing.

HVOR net revenue for the nine months ended September 30, 2023 grew 2.2% compared to the prior period.

Excluding a decrease of 1.0% attributed to changes in foreign currency exchange rates and an increase of 0.4% due to the effect of acquisitions, HVOR net revenue grew 2.8% on an organic basis, primarily due to market growth and outgrowth, partially offset by channel inventory de-stocking.

Performance Sensing net revenue for the three months ended March 31, 2024 increased 6.8% compared to the prior period.

Excluding a decrease of 1.8% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 8.6% on an organic basis, which was primarily due to content growth across both Automotive and HVOR.

Sensing Solutions

Sensing Solutions net revenue for the three months ended September 30, 2023 decreased 11.3% compared to the prior period.

Excluding a decline of 0.4% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 10.9% on an organic basis, which primarily reflects weakness in various markets, including appliance, HVAC, and IT/Telecom, partially offset by growth in the aerospace business, driven by market and content growth.

Sensing Solutions net revenue for the nine months ended September 30, 2023 decreased 3.4% compared to the prior period.

Excluding a decline of 1.0% attributed to changes in foreign currency exchange rates and an increase of 2.3% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue declined 4.7% on an organic basis, which primarily reflects weakness in our industrial markets, partially offset by growth in the aerospace business, driven by market and content growth.

Sensing Solutions net revenue for the three months ended March 31, 2024 decreased 9.0% compared to the prior period.

Excluding a decline of 0.7% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 8.3% on an organic basis, which primarily reflects inventory destocking in the industrial markets, partially offset by growth in the aerospace market.

Operating costs and expenses

Operating costs and expenses for the three and nine months ended September 30, 2023 and 2022 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, 2024 and 2023 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, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount Margin (1)

For the three months ended

March 31, 2024 March 31, 2023

Amount Margin (1)

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Cost of revenue

For the three months ended September 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the unfavorable effect of changes in foreign currency exchange rates, (2) the impact of certain actions taken as part of the Q3 2023 Plan, (3) unfavorable product mix, (4) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, and (5) volume leverage.

These drivers of higher cost of revenue as a percentage of net revenue were partially offset by cost savings as a result of repositioning actions taken in fiscal year 2022.

For the nine months ended September 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) unfavorable product mix, (2) the unfavorable effect of changes in foreign currency exchange rates, (3) the net unfavorable impacts of acquisitions and divestitures on gross margin, (4) the $10.5 million write-down of inventory as a result of our decision to exit the Spear Marine Business, and (5) the impact of certain actions taken as part of the Q3 2023 Plan, partially offset by (1) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage, and (2) cost savings as a result of repositioning actions taken in fiscal year 2022.

Refer to Note 5:

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding our exit of the Spear Marine Business and actions taken as part of the Q3 2023 Plan.

For the three months ended March 31, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the unfavorable effect of changes in foreign currency exchange rates, (2) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, and (3) unfavorable product mix.

Research and development expense

For the three months ended September 30, 2023, research and development ("R&D") expense decreased from the prior period, primarily due to cost savings as a result of repositioning actions taken in fiscal year 2022, partially offset by the unfavorable effect of changes in foreign currency exchange rates.

For the nine months ended September 30, 2023, R&D expense decreased from the prior period, primarily due to lower costs as a result of repositioning actions taken in fiscal year 2022, partially offset by higher spend to support increased revenue.

For the three months ended March 31, 2024, research and development ("R&D") expense did not fluctuate materially from the prior year period.

Selling, general and administrative expense

For the three months ended September 30, 2023, selling, general and administrative ("SG&A") expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022 and (2) lower compensation expense, partially offset by the unfavorable effect of changes in foreign currency exchange rates.

For the nine months ended September 30, 2023, SG&A expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022, (2) lower compensation expense, and (3) lower transaction costs as a result of reduced mergers and acquisitions activity, partially offset by increased SG&A expense from our acquisitions (net of divestitures).

Refer to Note 15:

Acquisitions and Divestitures of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding our acquisitions and divestitures.

For the three months ended March 31, 2024, selling, general and administrative ("SG&A") expense did not fluctuate materially from the prior year period.

Amortization of intangible assets

For the three months ended September 30, 2023, amortization of intangible assets decreased from the prior period, primarily due to (1) lower amortization in the third quarter of 2023 as a result of the acceleration of amortization in the second quarter of 2023 due to our exit from the Spear Marine Business and (2) the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset.

These impacts were partially offset by increased amortization due to newly acquired intangible assets.

For the nine months ended September 30, 2023, amortization of intangible assets increased from the prior period, primarily due to (1) increased amortization due to newly acquired intangible assets and (2) a charge of $13.5 million in the second quarter of 2023 for accelerated amortization of intangible assets due to our exit from the Spear Marine Business, partially offset by the effect of amortization of intangible assets in accordance with their expected economic benefit.

Refer to Note 5:

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding the charges related to the exit of the Spear Marine Business.

For the three months ended March 31, 2024, amortization of intangible assets decreased from the prior period, primarily due to the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset.

Restructuring and other charges, net

In the three months ended September 30, 2023, restructuring and other charges, net resulted in a net charge of $26.0 million, an unfavorable impact on earnings compared to a net gain of $(107.4) million in the three months ended September 30, 2022.

This change was primarily driven by (1) the non-recurrence of the $135.1 million gain on the sale of the Qinex Business in the third quarter of 2022, net of $13.5 million of transaction-related charges to sell the Qinex Business, and (2) charges incurred in the third quarter of 2023 as a result of the entry into the Q3 2023 Plan.

For the nine months ended September 30, 2023, restructuring and other charges, net resulted in a net charge of $53.3 million, an unfavorable impact on earnings compared to a net gain of $(80.8) million in the nine months ended September 30, 2022.

This change was primarily driven by the non-recurrence of the $135.1 million gain on the sale of the Qinex Business in the third quarter of 2022, net of $15.6 million of transaction-related charges to sell the Qinex Business, (2) charges incurred in the third quarter of 2023 as a result of the entry into the Q3 2023 Plan, and (3) charges incurred in the second quarter of 2023 as a result of our exit from the Spear Marine Business, partially offset by a reduction in expense for acquisition-related compensation arrangements.

In the three months ended March 31, 2024, restructuring and other charges, net decreased from the prior year period, primarily due to lower charges for acquisition-related incentive compensation and lower severance charges, partially offset by the non-recurrence of a gain on sale of business that occurred in the first quarter of 2023.

Refer to Note 5:

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Operating income

For the three months ended September 30, 2023, operating income decreased compared to the prior period, primarily due to (1) the non-recurrence of the gain on the sale of the Qinex Business in the third quarter of 2022, net of transaction-related charges to sell the Qinex Business, (2) charges incurred related to the Q3 2023 Plan, and (3) the unfavorable effect of changes in foreign currency exchange rates, partially offset by (1) cost savings as a result of repositioning actions taken in fiscal year 2022 and (2) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage.

For the nine months ended September 30, 2023, operating income decreased compared to the prior period, primarily due to (1) the non-recurrence of the gain on the sale of the Qinex Business in the third quarter of 2022, net of transaction-related charges to sell the Qinex Business, (2) $39.2 million of charges incurred as a result of our exit from the Spear Marine Business, (3) the unfavorable effect of changes in foreign currency exchange rates, (4) charges incurred related to the Q3 2023 Plan, (5) unfavorable product mix, and (6) increased amortization of intangible assets, partially offset by (1) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage, (2) cost savings as a result of repositioning actions taken in fiscal year 2022, and (3) lower expense for acquisition-related compensation arrangements.

Interest expense, net

For the three months ended September 30, 2023, interest expense, net decreased $7.9 million from the prior period, primarily due to (1) lower interest expense on the Term Loan due to the early payment on the Term Loan in the first and second quarters of 2023, (2) increased interest income as a result of increasing interest rates, and (3) lower interest expense due to the early redemption of the 4.875% Senior Notes on September 28, 2022, partially offset by higher interest expense on the 5.875% Senior Notes, which were issued on August 29, 2022.

For the nine months ended September 30, 2023, interest expense, net decreased $20.0 million from the prior period, primarily due to (1) increased interest income as a result of increasing interest rates and (2) lower interest expense on the Term Loan due to the early payment on the Term Loan in the first and second quarters of 2023.

For the three months ended March 31, 2024, operating income did not fluctuate materially from the prior year period, as lower gross margin as described under the heading Cost of revenue above was largely offset by lower restructuring charges.

Interest expense

For the three months ended March 31, 2024, interest expense decreased $10.4 million from the prior period, primarily due to the repayment of the Term Loan and 5.625% Senior Notes in the year ended December 31, 2023.

Refer to Note 14:

Debt of the audited consolidated financial statements and notes thereto included in the 2022 Annual Report and Note 10:

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

Debt of the audited consolidated financial statements and notes thereto included in the 2023 Annual Report for additional information regarding these debt transactions.

Interest income

For the three months ended March 31, 2024, interest income decreased from the prior period, primarily due to lower average cash equivalent balances in the first quarter of 2024 compared to the first quarter of 2023.

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.

For the three months ended September 30, 2023, other, net represented a net gain of $1.3 million, a favorable impact on earnings of $22.7 million compared to a net loss of $21.4 million in the prior period.

This favorable impact was primarily due to (1) the non-recurrence of a loss on debt financing recognized in the third quarter of 2022 related to the redemption of the 4.875% Senior Notes, (2) lower losses on commodity forward contracts, and (3) lower losses on equity investments, primarily related to the non-recurrence of mark-to-market losses on our investment in Quanergy Systems Inc.

("Quanergy"), in the third quarter of 2022.

For the nine months ended September 30, 2023, other, net represented a net loss of $8.2 million, a favorable impact on earnings of $102.9 million compared to a net loss of $111.1 million in the prior period.

This favorable impact was primarily due to (1) lower losses on equity investments, primarily related to the non-recurrence of mark-to-market losses on our investment in Quanergy, (2) lower losses on commodity forward contracts, (3) the combined impact of lower currency remeasurement loss on net monetary assets and higher gains on foreign currency forward contracts, and (4) the non-recurrence of a loss on debt financing related to the redemption of the 4.875% Senior Notes recognized in the third quarter of 2022.

For the three months ended March 31, 2024, other, net represented a net loss of $11.5 million, an unfavorable impact on earnings of $12.9 million compared to a net gain of $1.4 million in the prior period.

This unfavorable impact was primarily due to a loss of $14.8 million recognized as a result of observable price changes related to an equity investment held using the measurement alternative.

Refer to Note 13:

Fair Value Measures for additional information.

Refer to Note 6:

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

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Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.

For the three months ended September 30, 2023, the provision for income taxes decreased $28.6 million from the prior period, predominantly due to lower profit before tax.

For the nine months ended September 30, 2023, the provision for income taxes decreased $12.6 million from the prior period, predominantly due to lower profit before tax and the inability to benefit the 2022 mark-to-market loss on our investment in Quanergy in the prior year.

For the three months ended March 31, 2024, the provision for income taxes decreased $1.2 million from the prior period, predominantly due to lower income before taxes, the effective settlement of uncertain tax positions, and changes in our jurisdictional mix of profits.

Non-GAAP Financial Measures

This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors.

This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, adjusted corporate and other expenses, net debt, gross and net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors.

We use these non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance, and as a factor in determining compensation for certain employees.

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, 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.

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, corporate and other expenses, or total debt and finance lease 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, adjusted corporate and other expenses, gross and 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) and market outgrowth

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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.

Market outgrowth is calculated as organic revenue growth less our weighted market growth.

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

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

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.

We define adjusted operating income as operating income (or loss), determined in accordance with U.S.

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

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

We define adjusted net income as follows:

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We believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares, and (or) accelerate the repayment of debt obligations.

Adjusted corporate and other expenses

Adjusted corporate and other expenses is defined as corporate and other expenses calculated in accordance with U.S.

GAAP, excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses.

We believe adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP adjustments on operating expenses not allocated to our segments.

Adjusted EBITDA

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

Gross leverage ratio

Gross leverage ratio represents gross debt (total debt and finance lease obligations) divided by last twelve months ("LTM") adjusted EBITDA.

We believe that gross leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.

Net leverage ratio

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The following tables present reconciliations of certain financial measures calculated in accordance with U.S.

GAAP to the related non-GAAP financial measures for the three months ended September 30, 2023 and 2022.

GAAP to the related non-GAAP financial measures for the three months ended March 31, 2024 and 2023.

Refer to the Non-GAAP Adjustments section above for additional information regarding these adjustments.

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, 2023

For the three months ended March 31, 2024

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

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Adjusted (non-GAAP) $ 188.5 18.7 % $ 21.5 $ 134.6 $ 0.89

For the three months ended September 30, 2022

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

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

The following tables present reconciliations of certain financial measures calculated in accordance with U.S.

GAAP to the related non-GAAP financial measures for the nine months ended September 30, 2023 and 2022.

For the nine months ended September 30, 2023

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

Reported (GAAP) $ 383.1 12.5 % $ 61.5 $ 198.3 $ 1.30

Non-GAAP adjustments:

Restructuring related and other 65.6 2.1 (2.7) 62.9 0.41

Financing and other transaction costs 14.2 0.5 2.8 17.6 0.11

Step-up depreciation and amortization 131.3 4.3 — 131.3 0.86

Deferred (gain)/loss on derivative instruments (3.9) (0.1) (0.2) 0.8 0.01

Amortization of debt issuance costs — — — 5.1 0.03

Deferred taxes and other tax related — — 12.1 12.1 0.08

Total adjustments 207.2 6.8 12.0 229.7 1.50

Adjusted (non-GAAP) $ 590.3 19.3 % $ 49.5 $ 428.1 $ 2.80

For the nine months ended September 30, 2022

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

Reported (GAAP) $ 517.8 17.2 % $ 74.0 $ 197.5 $ 1.26

Non-GAAP adjustments:

Restructuring related and other 24.4 0.8 (0.6) 24.3 0.15

Financing and other transaction costs (80.6) (2.7) 2.8 5.2 0.03

Step-up depreciation and amortization 110.3 3.7 — 110.3 0.70

Deferred loss on derivative instruments 1.7 0.1 (3.4) 13.0 0.08

Amortization of debt issuance costs — — — 5.3 0.03

Deferred taxes and other tax related — — 28.5 28.5 0.18

Total adjustments 55.8 1.9 27.3 186.5 1.19

Adjusted (non-GAAP) $ 573.6 19.0 % $ 46.7 $ 384.0 $ 2.45

The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S.

GAAP to free cash flow.

For the nine months ended September 30,

For the three months ended March 31,

(In millions) 2024 2023

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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) 2024 2023

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Adjusted corporate and other expenses (non-GAAP) $ (74.5) $ (63.4)

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

The following table provides a reconciliation of net (loss)/income in accordance with U.S.

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 2024 2023

Net income $ 311.5 $ 62.8 $ 140.3 $ 198.3 $ 197.5

Net (loss)/income $ (14.3) $ 76.0 $ 86.4

Interest expense, net 145.4 34.7 40.1

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Financing and other transaction costs 34.4 17.6 4.7

Deferred (gain)/loss on derivative instruments (13.5) (0.2) 5.7 1.0 16.3

Deferred loss/(gain) on derivative instruments 0.7 (1.5) (4.1)

Adjusted EBITDA $ 905.0 $ 223.8 $ 225.5

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GAAP to net leverage ratio.

(Dollars in millions) September 30,

(Dollars in millions) March 31,

2024 December 31,

Current portion of long-term debt, finance lease and other financing obligations $ 1.9 $ 256.5

Finance lease and other financing obligations, less current portion 23.5 24.7

Current portion of long-term debt and finance lease obligations $ 2.3 $ 2.3

Finance lease obligations, less current portion 22.6 22.9

Long-term debt, net 3,375.5 3,374.0

Total debt, finance lease and other financing obligations 3,797.2 4,240.1

Total debt and finance lease obligations 3,400.4 3,399.2

debt discount, net of premium (1.2) (1.6)

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Total gross indebtedness $ 3,424.9 $ 3,425.2

Adjusted EBITDA (LTM) $ 905.0 $ 906.6

Gross leverage ratio 3.8 3.8

Total gross indebtedness $ 3,424.9 $ 3,425.2

cash and cash equivalents 460.4 508.1

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Liquidity and Capital Resources

As of September 30, 2023 and December 31, 2022, 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, 2024 and December 31, 2023, 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) March 31,

2024 December 31,

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The amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal course of business.

Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were earned.

Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were

We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot be recovered in a tax-free manner.

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Our cash and cash equivalents 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 September 30, 2023

As of March 31, 2024

(In millions) USD EUR GBP CNY Other

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USD Equivalent $ 16.2 $ 15.6 $ 95.6 $ 10.0

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2023 and 2022.

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2024 and 2023.

We have derived these summarized statements of cash flows from the unaudited 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, 2023 September 30, 2022

For the three months ended

(In millions) March 31, 2024 March 31, 2023

Net cash provided by/(used in):

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Financing activities (107.9) (265.4)

Effects of exchange rate differences (4.2) —

Net change $ (47.7) $ (191.4)

Operating activities.

Net cash provided by operating activities for the nine months ended September 30, 2023 increased compared to the corresponding period of the prior year, primarily due to higher cash generated from earnings and timing of supplier payments and customer receipts.

Net cash provided by operating activities for the three months ended March 31, 2024 increased compared to the corresponding period of the prior year, primarily due to timing of supplier payments and customer receipts.

Investing activities.

Net cash used in investing activities for the nine months ended September 30, 2023 decreased compared to the corresponding period of the prior year, primarily due to (1) lower cash paid for acquisitions (there were no acquisitions in the nine months ended September 30, 2023, while in the prior period we acquired Elastic M2M and Dynapower) and (2) lower cash paid for investments in debt and equity securities, partially offset by (1) lower cash received from sales of businesses and (2) an increase in cash paid for capital expenditures.

In the nine months ended September 30, 2023, we received cash proceeds of $19.0 million from the sale of a business, compared to $198.8 million in the nine months ended September 30, 2022.

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.

Net cash used in investing activities for the three months ended March 31, 2024 increased compared to the corresponding period of the prior year, primarily due to (1) no cash received for divestitures in the three months ended March 31, 2024 (compared to $14.0 million in the prior year period) and (2) an increase in cash paid for capital expenditures.

For fiscal year 2024, we anticipate capital expenditures of approximately $175.0 million, which we expect to fund with cash on hand.

Financing activities .

Net cash used in financing activities for the nine months ended September 30, 2023 increased primarily due to (1) the early payment of the entire Term Loan balance in the nine months ended September 30, 2023 and (2) an increase in cash paid to shareholders in the form of cash dividends, partially offset by lower cash paid to repurchase ordinary shares as part of our share repurchase program.

Net cash used in financing activities for the three months ended March 31, 2024 decreased from the prior year period.

The prior year period included an early payment of $250.0 million on the Term Loan balance, which did not have a corresponding payment in the three months ended March 31, 2024.

Partially offsetting this decrease was payment of $79.4 million to repurchase the remaining equity interest in a joint venture.

Refer to Note 12:

Shareholders' Equity for additional information.

Indebtedness and Liquidity

As of September 30, 2023, we had $3.8 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, 2024, we had $3.4 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.

Capital Resources

Senior Secured Credit Facilities

On August 22, 2023, we entered into the Thirteenth Amendment of the Credit Agreement, which (i) released the Specified Foreign Guarantors from all of their remaining obligations as guarantors and securing parties under the Credit Agreement, subject to an obligation to reinstate the guarantees under certain conditions, and (ii) modified certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement to provide us increased flexibility and permissions thereunder.

The Credit Agreement provides for the Senior Secured Credit Facilities, which consist 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.

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

As of September 30, 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.

As of March 31, 2024, 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, 2023, no amounts had been drawn against these outstanding letters of credit.

As of March 31, 2024, 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, 2023, availability under the Accordion was approximately $1.2 billion.

As of March 31, 2024, availability under the Accordion was approximately $2.0 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, 2023, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a positive outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook.

As of April 20, 2024, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a positive 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, 2023.

These provisions were not triggered during the three months ended March 31, 2024.

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.

These restrictions and covenants were not materially modified in the Thirteenth Amendment.

As of September 30, 2023, we believe we were in compliance with all covenants and default provisions under our credit arrangements.

As of March 31, 2024, 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 authorization for the January 2022 Program, under which

approximately $164.2 million remained available as of September 30, 2023.

In the nine months ended September 30, 2023 and 2022, we repurchased 1.5 million and 5.2 million ordinary shares, respectively, under the January 2022 Program.

On September 26, 2023, our Board of Directors authorized a new $500.0 million ordinary share repurchase program (the “September 2023 Program”), which replaced the January 2022 Program, effective October 1, 2023.

In the second quarter of 2022, we began paying cash dividends of $0.11 per share to our shareholders.

In the second quarter of 2023, we increased the dividends to $0.12 per share.

In the nine months ended September 30, 2023 and 2022, we paid aggregate cash dividends of $53.4 million and $34.3 million, respectively.

On October 26, 2023, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on November 22, 2023 to shareholders of record as of November 8, 2023.

We currently have authorization for the September 2023 Program, under which approximately $461.8 million remained available as of March 31, 2024.

In the three months ended March 31, 2024, we repurchased 0.3 million ordinary shares under the September 2023 Program.

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

In the three months ended March 31, 2024 and 2023, we paid aggregate cash dividends of $18.1 million and $16.8 million, respectively.

On April 24, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on May 22, 2024 to shareholders of record as of May 8, 2024.

Recently Issued Accounting Pronouncements

There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.

In November 2023, the FASB issued Accounting Standards Update ("ASU") No.

2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures , to improve disclosures about a public entity's reportable segments.

This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items" included in the determination of segment operating income.

The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting , in interim periods, and that a public entity provide the title and position of the chief operating decision maker.

Other requirements of the guidance are not expected to be material.

There is no change to the guidance for identification or aggregation of operating or reportable segments.

2023-07 will be effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The guidance must be applied retrospectively to all prior periods presented.

We adopted the guidance in FASB ASU No.

2023-07 on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.

In December 2023, the FASB issued ASU No.

2023-09, Income taxes (Topic 740):

Improvements to Income Tax Disclosures , to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures.

For public business entities, the standard is effective for annual periods beginning after December 15, 2024.

We are currently evaluating the impact on our income tax related disclosures.

Critical Accounting Policies and Estimates

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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