Stoneridge Reports Second-Quarter 2020 Results
NOVI, Mich., July 29, 2020 /PRNewswire/ --
2020 Second-Quarter Results
-- Loss per share ("EPS") of ($0.81)
-- Adjusted EPS of ($0.55)
-- Sales of $99.5 million
-- Gross profit of $13.3 million
-- Adjusted gross profit of $14.4 million (14.5% of sales)
-- Operating loss of ($26.8) million
-- Adjusted operating loss of ($19.1) million ((19.2%) of sales)
-- Adjusted EBITDA of ($11.4) million ((11.5%) of sales)
Outlook
-- Q3 revenue expected to be in line with run-rate at end of Q2 (June
revenue of $51.5 million). Full year 2020 end market production
forecast increased by 1.3% relative to previous expectations.
-- Expecting second half incremental contribution margins of approximately
35% vs. Q2
-- Q3 cash generation expected to at least offset increase in Q2 net debt
($11.1 million)
-- 2021 weighted average OEM end market production expected to increase by
16.0% vs. 2020
Stoneridge, Inc. (NYSE: SRI) today announced financial results for the second quarter ended June 30, 2020, with sales of $99.5 million and loss per share (EPS) of ($0.81). Adjusted EPS was ($0.55) for the second quarter, considering normalizing adjustments as outlined in the exhibits attached hereto.
For the second quarter of 2020, Stoneridge reported gross profit of $13.3 million and adjusted gross profit of $14.4 million (14.5% of sales) which was a reduction of 11.2% relative to the first quarter of 2020. Operating loss was ($26.8) million and adjusted operating loss was ($19.1) million ((19.2%) of sales). Adjusted EBITDA was ($11.4) million ((11.5%) of sales).
Jon DeGaynor, president and chief executive officer, commented, "In the second quarter, we continued to drive strong execution in response to the global COVID-19 pandemic and further align our resources with the greatest opportunities for the Company. We continued to invest the necessary capital and resources to ensure the successful launch of our strong backlog of new business and continue to build upon the technologies and platforms that will support future growth while reducing structural costs. Due to the cost reduction actions taken in the beginning of the second quarter, as well as our continued focus on operational improvement and working capital management, we were able to outperform our previously outlined expectations for cash flow in the quarter. Our decremental contribution margins on significantly reduced revenue were in line with our expectations at approximately 30% as we continued to focus on operational improvement and reduced costs in our facilities."
DeGaynor continued, "In the second quarter, we took several steps forward in our continued commercialization of MirrorEye®. We have expanded our fleet evaluations and completed additional installations at two of our evaluation partners, with another expected by the end of the third quarter. These three partners operate approximately 6,000 vehicles on the road today. Additionally, we are announcing our partnership with Daimler Trucks North America to provide vehicles pre-wired for MirrorEye retrofit systems, with orders expected to begin in the third quarter."
Second Quarter in Review
Control Devices sales totaled $48.6 million, a decrease of $49.6 million, or 50.5%, as a result of the COVID-19 pandemic relative to the first quarter of 2020. Second quarter adjusted operating margin was (11.5%).
Electronics sales totaled $47.6 million, a decrease of $32.2 million, or 40.4%, relative to the first quarter of 2020 primarily as a result of the COVID-19 pandemic. Second quarter adjusted operating margin was (17.1%).
Stoneridge Brazil sales totaled $7.0 million, a decrease of $7.6 million, or 51.9% to the prior quarter due to the COVID-19 pandemic causing lower volumes for our Argentina aftermarket channel and audio and alarm products. Stoneridge Brazil adjusted operating margin was (6.9%).
Cash and Debt Balances
At June 30, 2020, Stoneridge had cash and cash equivalents balances totaling $72.4 million. Total debt as of June 30, 2020 was $166.0 million. Total debt less cash and cash equivalents yielded a current net debt to trailing-twelve-month adjusted EBITDA ratio of approximately 2.3x. Due to the expected financial impact of the COVID-19 pandemic, the Company amended the existing credit facility which waives the net debt leverage compliance ratio until Q2 2021. The Company had approximately $237 million of undrawn commitments under the existing credit facility as of June 30, 2020, which resulted in total undrawn commitments and cash balances of $309 million.
Outlook
Bob Krakowiak, chief financial officer, commented, "Based on current production forecasts, our OEM weighted-average production levels increased slightly relative to our expectations on the first quarter call. Based on the continued ramp-up of global production, we expect third-quarter revenue to be in line with the run-rate we saw at the end of the second quarter. For the second quarter, we had downward adjusted contribution margin of 30.1%, which was in line with previously outlined expectations on reduced revenue. In the second half of the year, we are expecting incremental contribution margins of approximately 35% relative to the second quarter based on our current cost structure and continued gross margin improvement."
Krakowiak continued, "Despite the significant end market production disruption during the quarter, we were able to effectively manage our working capital and expenses to limit the impact on cash. During the quarter, net debt increased by approximately $11 million, which was better than the expectation that I outlined on our first quarter call of approximately $15-20 million. Furthermore, due in large part to our continued focus on inventory management and cash preservation, we expect that cash generation in the third quarter will at least offset the second quarter cash burn. We continue to evaluate opportunities to preserve cash in the short-term and adjust our cost structure as necessary to align with current and expected market conditions."
DeGaynor concluded, "As we look beyond 2020, we are starting to see signs of recovery with 2021 production forecasts implying 16% growth in our weighted-average end markets. In addition, new program launches are expected to create significant growth opportunities for the Company in 2021 and beyond. Stoneridge remains well positioned to capitalize on the industry megatrends that will drive outperformance of our underlying markets going forward."
Conference Call on the Web
A live Internet broadcast of Stoneridge's conference call regarding 2020 second-quarter results can be accessed at 9:00 a.m. Eastern Time on Thursday, July 30, 2020, at www.stoneridge.com, which will also offer a webcast replay.
About Stoneridge, Inc.
Stoneridge, Inc., headquartered in Novi, Michigan, is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems principally for the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets. Additional information about Stoneridge can be found at www.stoneridge.com.
Forward-Looking Statements
Statements in this release contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business, and (v) operational expectations. Forward-looking statements may be identified by the words "will," "may," "should," "designed to," "believes," "plans," "projects," "intends," "expects," "estimates," "anticipates," "continue," and similar words and expressions. The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:
-- the impact of COVID-19, or other future pandemics, on the global
economy, and on our customers, suppliers, employees, business and cash
flows;
-- the reduced purchases, loss or bankruptcy of a major customer or
supplier;
-- the costs and timing of business realignment, facility closures or
similar actions;
-- a significant change in automotive, commercial, off-highway, motorcycle
or agricultural vehicle production;
-- competitive market conditions and resulting effects on sales and
pricing;
-- the impact of changes in foreign currency exchange rates on sales, costs
and results, particularly the Argentinian peso, Brazilian real, Chinese
renminbi, euro, Mexican peso and Swedish krona;
-- our ability to achieve cost reductions that offset or exceed
customer-mandated selling price reductions;
-- customer acceptance of new products;
-- our ability to successfully launch/produce products for awarded
business;
-- adverse changes in laws, government regulations or market conditions,
including tariffs, affecting our products or our customers' products;
-- our ability to protect our intellectual property and successfully defend
against assertions made against us;
-- liabilities arising from warranty claims, product recall or field
actions, product liability and legal proceedings to which we are or may
become a party, or the impact of product recall or field actions on our
customers;
-- labor disruptions at our facilities or at any of our significant
customers or suppliers;
-- business disruption due to natural disasters or other disasters outside
of our control;
-- the ability of our suppliers to supply us with parts and components at
competitive prices on a timely basis, including the impact of potential
tariffs and trade considerations on their operations and output;
-- the amount of our indebtedness and the restrictive covenants contained
in the agreements governing our indebtedness, including our revolving
credit facility;
-- capital availability or costs, including changes in interest rates or
market perceptions;
-- the failure to achieve the successful integration of any acquired
company or business;
-- risks related to a failure of our information technology systems and
networks, and risks associated with current and emerging technology
threats and damage from computer viruses, unauthorized access,
cyber-attack and other similar disruptions; and
-- the items described in Part II Item 1A ("Risk Factors") of the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2020 and in
Part I, Item IA ("Risk Factors") of our 2019 10-K filed with the SEC.
The forward-looking statements contained herein represent our estimates only as of the date of this release and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.
Use of Non-GAAP Financial Information
This press release contains information about the Company's financial results which is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. The provision of these non-GAAP financial measures for 2020 and 2019 is not intended to indicate that Stoneridge is explicitly or implicitly providing projections on those non-GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.
Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations. In particular, management believes that adjusted sales, adjusted gross profit and margin, adjusted operating income (loss) and margin, adjusted net income (loss), adjusted earnings (loss) per share, adjusted EBITDA, net debt, adjusted income (loss) before tax and adjusted tax rate are useful measures in assessing the Company's financial performance by excluding certain items that are not indicative of the Company's core operating performance or that may obscure trends useful in evaluating the Company's continuing operating activities. Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods.
Adjusted sales, adjusted gross profit and margin, adjusted operating income (loss) and margin, adjusted net income (loss), adjusted earnings (loss) per share, adjusted EBITDA, net debt, adjusted income (loss) before tax and adjusted tax rate should not be considered in isolation or as a substitute for sales, gross profit, operating income (loss), net income (loss), earnings (loss) per share, debt, income (loss) before tax or tax rate prepared in accordance with GAAP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30,
June 30,
(in thousands, except per share
data) 2020 2019 2020 2019
---
Net sales $
99,545 $
222,241 $
282,511 $
440,538
Costs and expenses:
Cost of goods sold 86,291 165,414 223,860 322,858
Selling, general and
administrative 27,693 27,522 57,196 63,110
Gain on disposal of Non-core
Products, net (33,921) (33,599)
Design and development 12,384 14,040 24,619 27,284
Operating (loss) income (26,823) 49,186 (23,164) 60,885
Interest expense, net 1,410 1,001 2,440 2,004
Equity in loss (earnings) of
investee 231 (548) (226) (912)
Other income, net (9) (97) (1,626) (529)
(Loss) income before income
taxes (28,455) 48,830 (23,752) 60,322
(Benefit) provision for income
taxes (6,721) 9,066 (5,508) 10,901
Net (loss) income $
(21,734) $
39,764 $
(18,244) $
49,421
(Loss) earnings per share:
Basic $
(0.81) $
1.43 $
(0.67) $
1.75
Diluted $
(0.81) $
1.41 $
(0.67) $
1.72
Weighted-average shares
outstanding:
Basic 26,952 27,887 27,092 28,208
Diluted 26,952 28,294 27,092 28,716
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
(in thousands) 2020 2019
---
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $
72,412 $
69,403
Accounts receivable, less
reserves of $676 and $1,289,
respectively 97,404 138,564
Inventories, net 96,933 93,449
Prepaid expenses and other
current assets 29,894 29,850
Total current assets 296,643 331,266
Long-term assets:
Property, plant and equipment,
net 117,219 122,483
Intangible assets, net 50,968 58,122
Goodwill 35,942 35,874
Operating lease right-of-use
asset 20,038 22,027
Investments and other long-
term assets, net 36,409 32,437
Total long-term assets 260,576 270,943
Total assets $
557,219 $
602,209
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of debt $
4,831 $
2,672
Accounts payable 52,037 80,701
Accrued expenses and other
current liabilities 47,101 55,223
Total current liabilities 103,969 138,596
Long-term liabilities:
Revolving credit facility 161,000 126,000
Long-term debt, net 152 454
Deferred income taxes 11,193 12,530
Operating lease long-term
liability 16,200 17,971
Other long-term liabilities 15,443 16,754
Total long-term liabilities 203,988 173,709
Shareholders' equity:
Preferred Shares, without par
value, 5,000 shares
authorized, none issued
Common Shares, without par
value, 60,000 shares
authorized, 28,966 and 28,966
shares issued and 27,001 and
27,408 shares outstanding at
June 30, 2020 and December 31,
2019, respectively, with no
stated value
Additional paid-in capital 230,818 225,607
Common Shares held in treasury,
1,965 and 1,558 shares at June
30, 2020 and December 31,
2019, respectively, at cost (60,639) (50,773)
Retained earnings 188,298 206,542
Accumulated other comprehensive
loss (109,215) (91,472)
Total shareholders' equity 249,262 289,904
Total liabilities and
shareholders' equity $
557,219 $
602,209
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
(in thousands) 2020 2019
---
OPERATING ACTIVITIES:
Net (loss) income $
(18,244) $
49,421
Adjustments to reconcile
net income to net cash
provided by (used for)
operating activities:
Depreciation 13,242 11,819
Amortization, including
accretion and write-
off of deferred
financing costs 2,732 3,464
Deferred income taxes (7,018) 3,804
Earnings of equity
method investee (226) (912)
Loss (gain) on sale of
fixed assets 131 (26)
Share-based
compensation expense 2,110 3,594
Excess tax deficiency
(benefit) related to
share-based
compensation expense 40 (752)
Gain on disposal of Non-
core Products, net (33,599)
Property, plant and
equipment impairment
charge 2,326
Change in fair value of
earn-out contingent
consideration (233) 905
Change in fair value of
venture capital fund 139 16
Changes in operating
assets and liabilities,
net of effect of
business combination:
Accounts receivable, net 37,644 (13,440)
Inventories, net (6,295) (21,798)
Prepaid expenses and
other assets 992 (9,678)
Accounts payable (26,044) 13,604
Accrued expenses and
other liabilities (7,829) 242
Net cash (used for)
provided by operating
activities (6,533) 6,664
INVESTING ACTIVITIES:
Capital expenditures,
including intangibles (17,194) (17,479)
Proceeds from sale of
fixed assets 19 49
Proceeds from disposal
of Non-core Products 34,386
Investment in venture
capital fund (750) (1,200)
Net cash (used for)
provided by investing
activities (17,925) 15,756
FINANCING ACTIVITIES:
Revolving credit
facility borrowings 71,500 55,000
Revolving credit
facility payments (36,500) (47,500)
Proceeds from issuance
of debt 17,345 55
Repayments of debt (15,204) (999)
Earn-out consideration
cash payment (3,394)
Other financing costs (1,038) (873)
Common Share repurchase
program (4,995) (50,000)
Repurchase of Common
Shares to satisfy
employee tax
withholding (1,741) (3,209)
Net cash provided by
(used for) financing
activities 29,367 (50,920)
Effect of exchange rate
changes on cash and
cash equivalents (1,900) (1,089)
Net change in cash and
cash equivalents 3,009 (29,589)
Cash and cash
equivalents at
beginning of period 69,403 81,092
Cash and cash
equivalents at end of
period $
72,412 $
51,503
Supplemental disclosure
of cash flow
information:
Cash paid for interest $
2,344 $
2,198
Cash paid for income
taxes, net $
636 $
7,100
Regulation G Non-GAAP Financial Measure Reconciliations
Reconciliation to US GAAP
Exhibit 1 -Adjusted EPS
---
Reconciliation of Q2 2020 Adjusted EPS
---
(USD in millions) Q2 2020 Q2 2020 EPS
---
Net Loss $(21.7) $(0.81)
Add: After-Tax
Step-Up in Fair
Value of Earn-
Out (Stoneridge
Brazil) 0.4 0.01
Add: After-Tax
Restructuring
Costs 4.2 0.16
Add: After-Tax
Change in Fair
Value of Equity
Investment 0.1 0.00
Add: After-Tax
Business
Realignment Costs 2.2 0.08
Adjusted Net Loss $(14.9) $(0.55)
---
Exhibit 2 - Adjusted Operating Income (Loss) by Segment
---
Reconciliation of Control Devices Adjusted Operating
Income (Loss)
---
(USD in millions) Q1 2020 Q2 2020
---
Control Devices
Operating Income
(Loss) $7.3 $(9.7)
Add: Pre-Tax
Restructuring
Costs 2.2 3.0
Add: Pre-Tax
Business
Realignment Costs 0.4 1.0
Control Devices
Adjusted
Operating Income
(Loss) $9.9 $(5.6)
---
Reconciliation of Electronics Adjusted Operating Income
(Loss)
---
(USD in millions) Q1 2020 Q2 2020
---
Electronics
Operating Income
(Loss) $2.9 $(11.0)
Add: Pre-Tax
Restructuring
Costs 0.0 1.6
Add: Pre-Tax Business Realignment
Costs 1.3
Electronics
Adjusted
Operating Income
(Loss) $2.9 $(8.1)
---
Reconciliation of Stoneridge Brazil Adjusted Operating
Income (Loss)
---
(USD in millions) Q1 2020 Q2 2020
---
Stoneridge Brazil
Operating Income
(Loss) $0.9 $(0.9)
Add: Pre-Tax
Step-Up in Fair
Value of Earn-
Out (Stoneridge
Brazil) (0.6) 0.4
Add: Pre-Tax
Business
Realignment Costs 0.2
Stoneridge Brazil
Adjusted
Operating Income
(Loss) $0.4 $(0.5)
---
Exhibit 3 - Adjusted Operating Income (Loss)
---
Reconciliation of Adjusted Operating Income (Loss)
---
(USD in millions) Q1 2020 Q2 2020
---
Operating Income
(Loss) $3.7 $(26.8)
Add: Pre-Tax
Step-Up in Fair
Value of Earn-
Out (Stoneridge
Brazil) (0.6) 0.4
Add: Pre-Tax
Change in Fair
Value of Equity
Investment 0.0 0.1
Add: Pre-Tax
Restructuring
Costs 2.2 4.6
Add: Pre-Tax
Share-Based Comp
Accelerated
Vesting 0.1 0.0
Add: Pre-Tax
Business
Realignment Costs 0.6 2.6
Adjusted Operating
Income (Loss) $6.0 $(19.1)
---
Exhibit 4 - Adjusted EBITDA
---
Reconciliation of Adjusted EBITDA
---
(USD in millions) Q3 2019
Q4 2019 Q1 2020 Q2 2020
TTM Q2 2020
---
Income (Loss)
Before Tax $8.1 $(0.0) $4.7 $(28.5) $(15.7)
Interest expense,
net 1.1 1.2 1.0 1.4 4.8
Depreciation and
amortization 7.9 8.1 8.1 7.9 32.0
EBITDA $17.1 $9.3 $13.8 $(19.2) $21.0
---
Add: Pre-Tax
Step-Up in Fair
Value of Earn-
Out (Stoneridge
Brazil) 0.9 0.4 (0.6) 0.4 1.2
Add: Pre-Tax Change in Fair Value of
Equity Investment 0.2 0.0 0.1 0.4
Add: Pre-Tax
Restructuring
Costs 3.7 3.4 2.2 4.6 14.0
Add: Pre-Tax
Business
Realignment Costs 0.4 0.3 0.6 2.6 3.9
Add: Pre-Tax
Share-Based Comp
Accelerated
Vesting 0.2 0.1 0.0 0.3
Less: Pre-Tax
Capitalized
Software
Development
Expensed in Q1
and Q2 (0.8) (0.8)
Adjusted EBITDA $21.5 $13.7 $16.1 $(11.4) $39.9
---
Exhibit 5 - Adjusted Gross Profit
---
Reconciliation of Adjusted Gross Profit
---
(USD in
millions) Q1 2020 Q2 2020
---
Gross Profit 45.4 13.3
Add: Pre-Tax
Restructuring
Costs 1.5 0.2
Add: Pre-Tax
Business
Realignment
Costs 0.1 0.9
Adjusted Gross
Profit 47.0 14.4
Exhibit 6 - Adjusted Tax Rate
---
Reconciliation of Q2 2020 Adjusted Tax Rate
---
(USD in millions) Q2 2020
Loss Before Tax $(28.5)
Add: Pre-Tax Step-Up in
Fair Value of Earn-Out
(Stoneridge Brazil) 0.4
Add: Pre-Tax Change in
Fair Value of Equity
Investment 0.1
Add: Pre-Tax
Restructuring Costs 4.6
Add: Pre-Tax Business
Realignment Costs 2.6
Adjusted Loss Before Tax $(20.7)
--- ---
Income Tax Benefit $(6.7)
Add: Tax Impact From Pre-
Tax Adjustments 0.9
Adjusted Income Tax
Benefit $(5.8)
--- ---
Adjusted Tax Rate 28.0%
--- ---
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SOURCE Stoneridge, Inc.
