Sensata Technologies

good morning and welcome to the Sensata Technologies first quarter 2021 earnings conference call all participants will be in listen only mode should you need assistance please signal a conference specialist by pressing star then zero on your telephone keypad after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jacob Sayre, Vice President, Finance. Please go ahead.

Thank you, Andrew, and good morning, everyone. I'd like to welcome you to Sensata's first quarter 2021 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President, and Paul Dowsington, Sensata's Chief Financial Officer. In addition to the financial results, press release we issued earlier today, we 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'll post a replay of today's webcast shortly after the conclusion of today's call. As we begin, I'd like to reference in thought a safe harbor statement on slide two. During this conference call, we'll make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause differences include, and 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 GAAP's synthetic GAAP results for the first quarter of 2021. 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 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 12 and 13 of the presentation, which are the primary measure management uses to evaluate business. Jeff will begin today's call with highlights of our business during the first quarter of 2021. He will then provide an update on our recent progress in our key electrification and smart and connected megatrend growth areas. Paul will cover our detailed financials for the first quarter of 2021, including organic and market outgrowth by business unit, our segment reporting, and provide financial guidance for the second quarter and updated guidance for the full year of 2021. We'll then take your questions after our prepared remarks. Now I'd like to turn the call over to the side of the CEO and President, Jeff Cote.

Thank you, Jacob, and welcome everyone. I'd like to start with some summary thoughts on our performance during the first quarter of 2021 as outlined on slide four. The business recovery we experienced during the second half of 2020 gained steam during the first quarter. Our agile response to increased demand drove 22% revenue growth from the prior year period, a record $942.5 million. We delivered 198 million in operating income during the quarter, an increase of 61.4 million, and a 330 basis point expansion in margin from the prior year period. This growth is a testament to our leading market positions and the strength and flexibility of our manufacturing and commercial model. We continue to capitalize on improving markets and supported our customers as they returned to higher levels of production during the quarter. The combination of more robust demand, our strong market outgrowth, and the acquisition of Zergo has enabled us to raise our financial guidance for the full year. I'd like to recognize the innovation and hard work of our entire team in achieving these strong results. Looking at our performance year over year, we once again delivered strong market outgrowth. For the first quarter of 2021, we produced 1,070 basis points of outgrowth in our heavy vehicle off-road business and 910 basis points of outgrowth in our automotive business. Sensata is in a strong financial position. We generated $77 million in free cash flow in the first quarter, and we took additional steps to further enhance our financial position and flexibility. During the first quarter, we redeemed our six-and-a-quarter notes that were due in 2026 and issued new notes due in 2029 at a historically low interest rate of 4%. These transactions extended the average maturity and lowered our total cost of fixed debt by 80 basis points to 4.5%. We are confident that our new business wins in 2021 will exceed last year's level of $465 billion. This solidifies our ability to continue to deliver strong outgrowth in the coming years. In Smart and Connected, we closed the previously announced acquisition of Zergo Technologies on April 1st, greatly expanding our ability to provide data insights to transportation and logistics customers and adding a new customer base as well for these solutions. We continue to invest in our Megatrend growth initiatives and increased our organic investment to $12 million in the first quarter from $6 million in the first quarter of last year. These investments will allow us to pursue significant market opportunities. We also achieved a meaningful milestone in electrification through a joint venture with Sherrod Electronics, which I'll talk more about on the next slide. Moving to slide five, Sensata takes a holistic view of electrification and its growing impact on the markets we serve. Electrification is not just about electric light vehicles. to us but it includes heavy vehicles and charging infrastructure necessary to support this ecosystem we see additional opportunities in industrial and grid applications some of which are more nascent today since sada is already a leader a leading provider in high voltage protection on EVs and charging infrastructure, and we intend to participate in areas of the evolving market that enable electrification to become more widespread. Our joint venture with Sherrod Electronics extends our electrical protection capabilities to mass market EVs and other electrified equipment worldwide. Sherard will contribute access to its ceramic high levitation contactor intellectual property. These contactors are optimized for medium voltage applications in the 150 to 400 amp range, common in mass market vehicles. They will also dedicate engineering resources and contribute manufacturing equipment to the JV. Sensata will contribute $9.5 billion and dedicate application engineers and salespeople, and we plan to consolidate the financials of the JV in our P&L. The JV will provide medium voltage contactors to transportation OEMs in China, and Sensata will sell the product line to customers elsewhere in the world. This JV expands our contactor capabilities in the automotive market to vehicles that have shorter ranges and longer charging times, which are more common in Asia. This enables Sensata to offer a broader electrification solution set for electric vehicle manufacturers globally and increases our total addressable market by more than 500 million by 2030. We are enthusiastic about this new partnership and the opportunities it provides. As I mentioned, electrification to us is more than EVs, and Sensata seeks to be a partner of choice for heavy vehicle and industrial OEMs, transitioning to electrified solutions as well. Sensata is a leading provider of electrification solutions for charging station OEMs, including those shown on slide six. In addition, we recently signed exciting business wins. with new commercial EV powertrain supplier, Hyliion, and EV commercial truck manufacturer, Workhorse, extending our electrification efforts. During the first quarter, as previously announced, we completed the acquisition of lithium balance to add battery management systems to our product capabilities. We're expanding our capabilities in the e-mobility space beyond components by developing hardware and software solutions, including battery management solutions for heavy vehicle and industrial applications. This also represents an incremental $500 billion in addressable market for Sensata by 2030. Moving to slide seven, we are expanding the electrification solutions we provide for critical applications across all the end markets we serve, but especially in automotive. The rapid introduction of new electric vehicles provides a healthy tailwind for Sensata's revenue growth. Our content in EVs represent a 20% uplift in content value as compared to the internal combustion vehicles of similar class. This content uplift is derived from a broad array of Sensata sensors and other components that we design into battery electric vehicles, in many cases using the same underlying technology product families that we use in internal combustion vehicles. Additionally, certain sensors carry over directly from internal combustion vehicles, such as brake pressure or tire pressure sensors. We also design additional sensors or devices unique to EVs, such as contactors and electric motor position sensors. We are broadening and deepening our portfolio, our product portfolio, to support this expanding market. Our automotive addressable market is large today and growing rapidly. Applications in internal combustion vehicles make up most of our automotive addressable market today, and this space is expected to continue to grow over the next 10 years, even with the shift in type of vehicles produced. In addition, while the electrification applications that we serve represent a smaller market today, they're expected to grow very rapidly until they become an even larger opportunity than internal combustion engines for Sensata by 2030. As a result, we are expecting a doubling of our automotive addressable market by 2030. On slide eight, I want to provide an update on another meaningful milestone we achieved in our Smart and Connected initiative. We closed the acquisition of Zergo Technologies on April 1 and welcomed the Zergo team, its capabilities, and its customers to Sensata. Zergo is a leading telematics and data insight provider for fleet management across the transportation and logistics segments. They bring a comprehensive suite of telematics asset tracking devices, cloud-based data insight solutions, as well as emerging sensing applications and data services. Zergo is complementary to and meaningfully extends Sensata's organic smart connected solution for commercial fleet managers and is consistent with Sensata's strategy to move beyond serving vehicle OEMs and engaging with the broader transportation and logistics ecosystem. Zergo expands our smart and connected addressable markets to $15 billion by 2030 by adding cargo, container, and light vehicle fleet management to our heavy vehicle OEM and fleet focus. Zergo is a fast-growing business. It is expected to generate more than $100 million in annualized revenue in 2021 and grow in excess of 20% per year over the next several years. We already have committed orders for more than 80% of the revenue we expect Zergo to generate for the balance of 2021. Zergo is also very profitable with approximately 50% gross margins and 25% EBITDA margins and requires little capital expenditure. Also during the quarter, we were pleased to sign up another top 25 North American Fleet customer and began installation of our solution set, demonstrating our ability to move from selling hardware to providing data insight solutions on a monthly recurring subscription model. Later in the quarter, we'll webcast a teach-in for investors covering our transportation and logistics data insight initiative so listeners can better understand this offering, the evolving market, and our go-to-market strategies. I'm pleased with our progress against our megatrend initiatives, which supports our increased investment to pursue these large, fast-growing markets driven by secular trends. We intend to continue our efforts to expand Sensata solutions for these areas organically through third-party collaboration and through acquisitions. As I've said before, we see numerous opportunities to utilize our strong financial position, our engineering capabilities, supply chain, and customer relationships to meaningfully enlarge our addressable markets through organic efforts as well as bolt-on acquisitions and partnerships within these megatrends. Now I'd like to turn the call over to Paul. Paul.