Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations supplements, and should be read in conjunction with, the discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report. The following discussion should also be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Amounts and percentages in the following discussions and tables have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
Overview
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: 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. GAAP. Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information regarding our use of organic revenue growth (or decline). 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: Basis of
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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 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
March 31, 2024 March 31, 2023
Amount Margin (1)
Amount Margin (1)
Net revenue:
Performance Sensing $ 713.3 70.9 % $ 667.8 66.9 %
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
Operating costs and expenses 861.9 85.6 849.3 85.1
Operating income 144.8 14.4 148.8 14.9
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
Income before taxes 98.6 9.8 110.1 11.0
Provision for income taxes 22.6 2.2 23.7 2.4
Net income $ 76.0 7.6 % $ 86.4 8.7 %
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(1) Represents the amount presented divided by total net revenue.
Net Revenue
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 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 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.
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Operating costs and expenses
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
March 31, 2024 March 31, 2023
Amount Margin (1)
Amount Margin (1)
Operating costs and expenses:
Cost of revenue $ 689.3 68.5 % $ 670.5 67.2 %
Research and development 45.3 4.5 45.9 4.6
Selling, general and administrative 88.0 8.7 86.2 8.6
Amortization of intangible assets 38.5 3.8 40.8 4.1
Restructuring and other charges, net 0.8 0.1 6.0 0.6
Total operating costs and expenses $ 861.9 85.6 % $ 849.3 85.1 %
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(1) Represents the amount presented divided by total net revenue.
Cost of revenue
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 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 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 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 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: Restructuring and Other Charges, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding the components of restructuring and other charges, net.
Operating income
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.
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Refer to Note 14: 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
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 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.
Provision for income taxes
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; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. 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 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, 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, corporate and other expenses, or total debt and finance lease obligations, respectively, calculated in accordance with U.S. GAAP. 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
Organic revenue growth (or decline) is defined as the reported percentage change in net revenue, calculated in accordance with U.S. GAAP, excluding the period-over-period impact of foreign currency exchange rate differences as well as the net impact of material acquisitions and divestitures for the 12-month period following the respective transaction date(s).
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
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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. Our weighted market growth is calculated using our regional and platform sales mix, as applicable, in the corresponding prior period. Market outgrowth is used to describe the impact of an increasing quantity and value of our products used in customer systems and applications above market growth. We believe this provides a more meaningful comparison of our revenue growth relative to the markets we serve.
Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS
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. GAAP. We define adjusted net income as follows: net income (or loss) determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP Adjustments below. Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average ordinary shares outstanding in the period.
We may also refer to certain of these measures, or changes in these measures, on a constant currency basis. Adjusted operating margin calculated on a constant currency basis is determined by stating revenues and expenses at prior period foreign currency exchange rates and excludes the impact of foreign currency exchange rates on all hedges. Adjusted EPS on a constant currency basis is determined in the same manner as adjusted operating margin, but also excludes the change in gain or loss on the remeasurement of monetary assets and liabilities.
Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS (and the constant currency equivalent of each) as measures of operating performance, for planning purposes (including the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies, in communications with our Board of Directors and investors concerning our financial performance, and as factors in determining compensation for certain employees. We believe investors and securities analysts also use these non-GAAP financial measures in their evaluation of our performance and the performance of other similar companies. These non-GAAP financial measures are not measures of liquidity.
Free cash flow
Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software. 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
Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S. 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, 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.
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.
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Net leverage ratio
Net leverage ratio represents net debt (total debt, finance lease and other financing obligations less cash and cash equivalents) divided by last twelve months ("LTM") adjusted EBITDA. We believe that the net leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.
Non-GAAP adjustments
Many of our non-GAAP adjustments relate to a series of strategic initiatives developed by our management aimed at better positioning us for future revenue growth and an improved cost structure. These initiatives have been modified from time to time to reflect changes in overall market conditions and the competitive environment facing our business. These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain or corporate activities, and various financing transactions. We describe these adjustments in more detail below, each of which is net of current tax impacts, as applicable.
• Restructuring related and other : 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. This type of activity occurs periodically, however each action is unique, discrete, and driven by various facts and circumstances. Such amounts are excluded from internal financial statements and analyses that management uses in connection with financial planning and in its review and assessment of our operating and financial performance, including the performance of our segments.
• 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.
• Deferred loss or gain on derivative instruments : includes unrealized losses or gains on derivative instruments that do not qualify for hedge accounting as well as the impact of commodity prices on our raw material costs relative to the strike price on our commodity forward contracts.
• Step-up depreciation and amortization : includes depreciation expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., property, plant and equipment and inventories) and amortization of intangible assets.
• Deferred taxes and other tax related : includes adjustments for book-to-tax basis differences due primarily to the step-up in fair value of fixed and intangible assets and goodwill, the utilization of net operating losses, and adjustments to our valuation allowance in connection with certain acquisitions and tax law changes. Other tax related items include certain adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings.
• Amortization of debt issuance costs: represents interest expense related to the amortization of deferred financing costs as well as debt discounts, net of premiums .
• Where applicable, the current income tax effect of non-GAAP adjustments.
Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related items described above. As we treat deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented.
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Non-GAAP reconciliations
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 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 March 31, 2024
(Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS
Reported (GAAP) $ 144.8 14.4 % $ 22.6 $ 76.0 $ 0.50
Non-GAAP adjustments:
Restructuring related and other 2.4 0.2 (0.6) 1.8 0.01
Financing and other transaction costs 4.4 0.4 0.1 17.7 0.12
Step-up depreciation and amortization 37.4 3.7 — 37.4 0.25
Deferred gain on derivative instruments
(0.4) (0.0) 0.3 (1.2) (0.01)
Amortization of debt issuance costs — — — 1.6 0.01
Deferred taxes and other tax related — — 1.3 1.3 0.01
Total adjustments 43.7 4.3 1.1 58.6 0.39
Adjusted (non-GAAP) $ 188.5 18.7 % $ 21.5 $ 134.6 $ 0.89
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
Non-GAAP adjustments:
Restructuring related and other 2.9 0.3 (0.7) 2.3 0.01
Financing and other transaction costs 4.2 0.4 2.9 7.6 0.05
Step-up depreciation and amortization 39.1 3.9 — 39.1 0.26
Deferred (gain)/loss on derivative instruments
(2.3) (0.2) 0.9 (3.3) (0.02)
Amortization of debt issuance costs — — — 1.7 0.01
Deferred taxes and other tax related — — 6.8 6.8 0.04
Total adjustments 44.1 4.4 9.8 54.2 0.35
Adjusted (non-GAAP) $ 192.9 19.3 % $ 13.9 $ 140.7 $ 0.92
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 three months ended March 31,
(In millions) 2024 2023
Net cash provided by operating activities (GAAP) $ 106.5 $ 96.9
Additions to property, plant and equipment and capitalized software (42.1) (36.9)
Free cash flow (non-GAAP) $ 64.4 $ 60.0
The following table provides a reconciliation of corporate and other expenses in accordance with U.S. GAAP to adjusted corporate and other expenses.
For the three months ended March 31,
(In millions) 2024 2023
Corporate and other expenses (GAAP) $ (80.3) $ (62.4)
Restructuring related and other 2.6 (1.4)
Financing and other transaction costs 3.4 2.6
Step-up depreciation and amortization 0.3 0.1
Deferred (gain)/loss on derivative instruments (0.4) (2.3)
Total adjustments 5.8 (1.0)
Adjusted corporate and other expenses (non-GAAP) $ (74.5) $ (63.4)
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The following table provides a reconciliation of net (loss)/income in accordance with U.S. GAAP to adjusted EBITDA.
For the three months ended March 31,
(In millions) LTM 2024 2023
Net (loss)/income $ (14.3) $ 76.0 $ 86.4
Interest expense, net 145.4 34.7 40.1
Provision for income taxes 20.6 22.6 23.7
Depreciation expense 135.7 33.5 30.9
Amortization of intangible assets 171.6 38.5 40.8
EBITDA 459.0 205.3 222.0
Non-GAAP adjustments
Restructuring related and other 410.9 2.4 2.9
Financing and other transaction costs 34.4 17.6 4.7
Deferred loss/(gain) on derivative instruments 0.7 (1.5) (4.1)
Adjusted EBITDA $ 905.0 $ 223.8 $ 225.5
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) March 31,
2024 December 31,
2023
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 and finance lease obligations 3,400.4 3,399.2
Less: debt discount, net of premium (1.2) (1.6)
Less: deferred financing costs (23.3) (24.4)
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
Less: cash and cash equivalents 460.4 508.1
Net debt $ 2,964.6 $ 2,917.1
Adjusted EBITDA (LTM) $ 905.0 $ 906.6
Net leverage ratio 3.3 3.2
Liquidity and Capital Resources
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,
2023
United Kingdom $ 11.2 $ 12.6
United States 15.7 12.9
The Netherlands 171.1 158.2
China 194.5 250.8
Other 67.9 73.7
Total $ 460.4 $ 508.1
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
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earned. 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.
In certain jurisdictions, our cash balances are subject to withholding taxes immediately upon withdrawal of funds to a different jurisdiction. In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax incentives, we are required to maintain minimum cash balances in these jurisdictions. 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 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 March 31, 2024
(In millions) USD EUR GBP CNY Other
United Kingdom $ 1.1 € 0.3 £ 11.4 ¥ —
United States 15.5 0.2 — —
The Netherlands 158.0 11.6 0.4 —
China 110.4 — — 608.3
Other 40.6 1.5 — —
Total $ 325.6 € 13.6 £ 11.8 ¥ 608.3
USD Equivalent $ 14.7 $ 14.9 $ 84.2 $ 21.0
As of December 31, 2023
(In millions) USD EUR GBP CNY Other
United Kingdom $ 0.4 € 0.0 £ 11.9 ¥ —
United States 12.9 0.0 — —
The Netherlands 143.9 12.2 0.3 —
China 155.2 — — 679.4
Other 58.3 2.5 — —
Total $ 370.7 € 14.7 £ 12.2 ¥ 679.4
USD Equivalent $ 16.2 $ 15.6 $ 95.6 $ 10.0
Cash Flows:
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. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
For the three months ended
(In millions) March 31, 2024 March 31, 2023
Net cash provided by/(used in):
Operating activities:
Net income adjusted for non-cash items
$ 169.4 $ 171.3
Changes in operating assets and liabilities, net (62.9) (71.4)
Cash operating activities — (3.0)
Operating activities 106.5 96.9
Investing activities (42.1) (22.9)
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 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.
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Investing activities. 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 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 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
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. In the first and second quarters of 2023, we repaid the Term Loan balance in full.
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 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 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 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. However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Further, our highly-leveraged nature may limit our ability to procure additional financing in the future.
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 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.
Restrictions and Covenants
The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under the Senior Secured Credit Facilities. 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 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. For a full discussion of these restrictions and covenants, refer to Part II, Item 7:
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources included in our 2023 Annual Report. 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 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 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.
Dividends
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
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. FASB ASU No. 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
For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates included in our 2023 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No significant changes to our market risk have occurred since December 31, 2023. For a discussion of market risks affecting us, refer to Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk included in our 2023 Annual Report.