Sensata Technologies

Good morning everyone and welcome to the Sensata Technologies Q3 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Jacob Sayre, VP of Finance. Sir, please go ahead.

Thank you, Jamie, and good morning, everyone. I'd like to welcome you to Sensata's third quarter 2020 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President, and Paul Vazicum, Sensata's Chief Financial Officer. In addition to the financial results press release we issued earlier today, who will be referencing a slide presentation during today's conference call. The PDF of this presentation can be downloaded from Sensata's investor relations website. We will post a replay of today's webcast shortly after the conclusion of today's call. As we begin, I would like to reference Sensata's safe harbor statement on slide two. During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involves certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K, as well as other subsequent filings with the SEC. On slide three, we show some sort of GAAP results for the third quarter of 2020. We encourage you to review our GAAP financial statements in addition to today's presentation. Most of the subsequent information that we will discuss during today's call will relate to our non-GAAP financial measures. Reconciliations of our GAAP to non-GAAP financial measures are included in our earnings release and in our presentation materials. The company provides details of its segment operating income on slides 10 and 11 of the presentation, which are the primary measures management uses to evaluate the business. Jeff will begin with key highlights of our business during the third quarter and first nine months of 2020. He will then provide an update on recent progress in our key smart and connected and electrification megatrend growth areas. Paul will cover our detailed financials for the third quarter of 2020, including organic and market outgrowth by business unit, describe our financial and balance sheet progress in the quarter, and then provide select financial guidance for the fourth quarter of 2020. We will then take your questions after our prepared remarks. Now I would like to turn the call over to Sensata's CEO and President, Jeff Kotek. Thank you, Jacob, and welcome everyone.

I'd like to start with some summary thoughts on our performance as outlined on slide four. The rebound from lockdowns and quarantines instituted by governments around the world was dramatic in our end markets during the third quarter. Our revenue grew 37% in the quarter sequentially to $788.3 billion, even higher than the updated financial guidance that we provided on September 8th. It is a strong testament to the flexibility and resiliency of our manufacturing model and supply chain that we were able to capitalize on improving markets and support our customers as they rapidly ramped up production during the quarter. I'd like to recognize the agility and hard work of our entire team in achieving these results. We continue to deliver strong market outgrowth For the first nine months of 2020, we delivered 840 basis points of outgrowth in our heavy vehicle off-road business and 610 basis points in our automotive business. We now believe that the inventory billed by our automotive customers in the first half of the year was consumed in the third quarter. We continue to be confident that we will sustain our market outgrowth for 2020 in the range of 600 to 800 basis points for our heavy vehicle off-road and 400 to 600 basis points for automotive, consistent with our long-term goals and supported by our higher levels of new business wins. During the quarter, we closed over 95 million of new business wins. bringing us to more than 320 million year to date. This pace is tracking ahead of last year and we believe our ability to close new business despite the disruptions of the pandemic or caused by the pandemic clearly demonstrates the mission critical nature of Sensata's products. Sensata today is in a very strong financial position. We generated 100 million in free cash flow in the third quarter and 213 million year to date. And we have taken several steps to enhance our financial position and flexibility. We are aligning our cost structure to demand levels through our restructuring program and cost controls, expected to generate savings of 60 to 65 million next year. During the quarter, we raised 750 million in unsecured debt through a 10-year note issued at historically low interest rate of 3.75%, lowering our overall cost of capital and extending the maturity of our capital structure. And we repaid our revolving line of credit, lowering our interest cost, giving improving financial markets and customer stability. Finally, as I will discuss in more detail momentarily, we continue to invest in our megatrend growth initiatives and achieve a meaningful milestone in smart and connected. We recently reached agreement with the first fleet manager to install and operate our smart and connected suite of hardware and data services within their heavy commercial vehicles on a subscription basis, enabling this effort to move from trials to commercialization. Additionally, our progress in our electrification megatrend continues to advance, not just in automotive and other electrified equipment, but also in areas of smart grid infrastructure. Year to date, we have closed 140 million in electrification business wins. On slide five, I want to provide an update on the meaningful milestone we achieved in our Smart and Connected initiative. As we've shared before, we have been testing proof of concepts of our full stack technology offering with several leading fleet managers for the past year. Recently, we signed our first commercial agreement in the smart and connected space with a top 25 North American fleet manager, demonstrating our ability to move from selling hardware to providing data insight. The fleet manager has opted for a full subscription model paying for the hardware, maintenance and support, and ongoing data analytics services on a monthly subscription basis per vehicle over the life of the agreement. While this initial award is small, we are planning to demonstrate the value we bring before fanning out across the remainder of their fleet. Several other proof of concept trials are also moving forward and toward commercialization. and we are confident that others will understand the value of our solution. On this basis, we continue to believe that our Smart and Connected Fleet Management Initiative opened $6 billion in addressable markets for Sensata by 2030. And we are very pleased that we've reached a new stage of initial commercialization with this exciting solution. In the new equipment space, we expect several leading OEMs to join this program, expanding the 90 million in new business wins announced to date for smart and connected solutions. Additionally, we are investing in expanding our technological know-how in smart and connected, moving beyond heavy commercial vehicles into light duty vehicle prognostics through third-party collaboration, adding to the long-term opportunities ahead of us with our differentiated solutions. Moving to slide six, in electrification, we are expanding the solutions we provide for critical applications across all end markets we serve. During the third quarter, we closed another 32 million in electrification new business wins, bringing our year-to-date total to 140 million. These business wins demonstrate important ongoing progress against our long-term target to transform the electrification megatrend from opportunity to material revenue for Sensata. This pace of business wins so far this year is much faster than last year, despite the pandemic, and these wins are expected to generate significant revenue growth for Sensata in the coming years. For example, We are expanding our capabilities in charging infrastructure and smart grid applications through third-party collaboration. As overall electrification trends accelerate, the increased opportunities for our solutions across all end markets represents an estimated $6.5 billion addressable market for Sensata by 2030. To date, we have closed electrification new business with some of the largest and the most innovative automotive OEMs around the globe. In our core markets, the average content on battery electric vehicle now materially exceeds that of the average internal combustion vehicle. Sensata generates approximately $50 in content in these battery electric vehicles as compared to 38 to 40 on average in internal combustion engine vehicles. representing a significant growth opportunity for the company as electrified vehicles increase and become a larger portion of the vehicle fleet worldwide. Sensata has the strongest offering in the segment for longer range and shorter charge time electric vehicles. All evidence indicates that this is where the industry is heading. While the automotive space will be a large beneficiary of electrified megatrends, the projected growth from winding electrification should benefit all of our end markets. We are pleased with our demonstrated progress against our megatrend initiatives and intend to continue these efforts to expand Sensata's applications for these areas organically through third-party collaboration and through acquisition. We see numerous opportunities to utilize our strong financial position and significant cash flow to meaningfully expand our addressable markets through serial bolt-on acquisitions within the megatrend areas. These acquisitions should bring unique offerings that position us to grow quickly in large and fast growing markets. We continue to believe that investments in electrification and smart and connected will further our end market diversification increase our long-term growth rate and provide important competitive advantages as these trends transform our world. I'd now like to turn the call over to Paul.