Sensata Technologies

Good day and welcome to Sensato Technologies' second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please sit in with conference specialists 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 then one on your touch-tone phone. To try your question, please press star then two. Please note, this event is being recorded. Now let's turn the conference over to Mr. Jacob Sayre, Vice President of Finance. Please go ahead, sir.

Thank you, Keith. Good morning, everyone. I'd like to welcome you to Sunsata's second quarter 2021 earnings conference call. Joining me on today's call are Jeff Cote, Sunsata's CEO and President, and Paul Basington, Sunsata'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 call. The PDF of this presentation can be downloaded from Sensata's investor relations website. This conference call is being recorded and will post a replay webcast on our investor relations website shortly after the conclusion of today's call. As we begin, I'd 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 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 GAAP, some thought of GAAP results for the second 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 the earnings release and in our presentation materials. The company provides details of its segment operating income on slides 11 and 12 of the presentation, which are the primary measures management uses to evaluate the performance of business. Jeff will begin today with highlights of our business during the second quarter of 2021. We will then provide an update on our recent progress, in our key Sensata's insights and electrification strategic growth areas. Paul will cover our detailed financials for the second quarter of 2021, including organic and market outgrowth by business unit, our segment reporting, and provide financial guidance for the third quarter and updated financial guidance for the full year of 2021. We will then take your questions after our prepared remarks. Now I'd like to turn the call over to Sensata's CEO and President, Jeff Kotech.

Thank you, Jacob, and welcome, everyone. I'd like to start with some summary comments on our strong performance during the second quarter of 2021, as outlined on slide four. The business recovery we have experienced beginning in mid-year 2020 continued during the second quarter. We responded effectively to increased customer demand. which drew 72% revenue growth from the prior year to a record $993 billion, slightly above the guidance range we provided in April. While automotive and heavy vehicle production for the period came in lower than expectations because of the semiconductor chip shortage, the industrial business was somewhat stronger. In addition, we benefited during the second quarter from OEM efforts to replenish channel inventories. We delivered $209 million in adjusted operating income during the quarter, representing 21.1% operating margin, higher sequentially as well as substantially higher than prior year period. This underscores our leading industry positions, our success in pursuing strategic growth factors, and the strength and flexibility of our manufacturing and commercial model. I'd like to recognize the innovation and hard work of the entire team in achieving these strong results during the second quarter. Looking at our performance year over year, we once again delivered strong market outgrowth. well above our target ranges. For the second quarter of 2021, we produced 2,850 basis points of outgrowth in our heavy vehicle off-road business and 990 basis points of outgrowth in our automotive business, excluding estimated inventory growth. Since the beginning of 2018, we have produced 950 basis points of outgrowth on average in our heavy vehicle off-road business, and 615 basis points of outgrowth on average in our automotive business. Paul will discuss our revenue outgrowth in more detail. Sensato today is in a substantially stronger financial position, in part because of our excellent performance over the past year. For example, we generated 127 million in free cash flow in the second quarter, Our current cash balance of $1.9 billion positions Sensata well to continue to acquire businesses that will expand our presence in the critical growth factors of insights and electrification, where we have already shown important initial success. Based on our business wins in the first half of this year and the robust forward pipeline, we are confident that our new business wins in 2021 will exceed last year's strong level of $465 billion. These new business wins demonstrate customer confidence in Sensata and fuel our ability to deliver strong outgrowth in the coming years. We continue to invest in our growth initiatives in areas driven by underlying megatrends and increased our organic investment to $14 million in the second quarter from $7 million in the second quarter of last year. These investments allow us to pursue significant opportunities and expand our product portfolio in high-growth areas. On slide five, I share an update on our meaningful progress in Sensata Insights. I'll remind you that we provided a teach-in on our strategy and positioning in this area in early June. A replay of that presentation remains on our website. The Insights Initiative addresses a market that is large and fast-growing, and we are pleased by the traction we are gaining already with both current and new customers across various sectors. Our revenue is on pace. to achieve 100 million annualized in 2021 and grow in excess of 20% per year over the next several years. We have a substantial pipeline of over 800 million of business opportunities that have been identified, and we are working diligently to close these opportunities to fuel growth. Our efforts in this area enabled us to close 20 million of recent new business awards At this point, we have a very strong backlog of committed orders representing 100% of the revenue we expect to generate from Insights for the balance of 2021. These accomplishments demonstrate the value we generate for our customers. Included in those new business wins is a large win with a global transportation services business to track their refrigerated containers. This win alone is worth over $10 million in revenue per year on average as it rolls out. In addition, we were awarded a $6 million order from a large insurance carrier to drive growth of their usage-based insurance offering. This important win represents an instance where we displaced an incumbent supplier. And yet another example, Sensata Insights recently won wireless gateway and wheel-end sensor business from a leading North American heavy-duty trailer suspension manufacturer to enable tire inflation and monitoring in a contract worth over $9 million in annual revenue once that program launches. These wins will fan out over time. generating recurring revenue for our business as our customers adopt our solution set. Moving to slide six, Sensata is making excellent progress in winning new business in electrification, in part because we take a holistic view of electrification and its growing impact on all the segments we serve. While electric light vehicles capture a lot of attention, To us, electrification also includes electrified heavy vehicles and the charging infrastructure necessary to support this ecosystem. Sensata is already a leading provider of high voltage protection on EVs and charging infrastructure. As the underlying industries that enable electrification become more widespread, we intend to be a key participant supporting our growing base of customers. Across our businesses, we have developed a substantial pipeline of over 600 million in electrification new business opportunities that our sales and engineering teams are cultivating. In the past two years, that pipeline has generated over 280 million in design wins that are in the development phase and in the coming years are expected to be incremental to our more than 200 million in estimated revenue from electrification solutions in 2021. We continue to win new electrification business at an accelerated pace. During the quarter, a large premier European heavy vehicle OEM awarded Sensata the design for a power distribution unit to help power their future electric commercial vehicles. Power distribution units, combined contactors, fuses, and battery management systems, all provided by Sensata. The strategically important business win is worth over $11 million in annualized revenue once it launches. Our joint venture with Sherrod Electronics announced last quarter extends our electrical protection capabilities to mass market vehicles. and other electrified equipment requiring medium voltage electrical protection. This JV is already being awarded new design wins, including the battery protection contactor business of a large European OEM intending to produce EVs for the China market worth over $6 million in annual revenue. In addition, at the higher voltage end, we recently were awarded and contactor design from a North American OEM using these contactors for their electrified pickup trucks worth more than $18 million in annual revenue. This utilizes the GigaVac robust solution. Later in the year, we will webcast a teach-in covering our electrification initiatives so that listeners can gain a better understanding of our offerings in this space, the evolving market, and our go-to-market strategies in this key growth vector for Sensata. In sum, I'm pleased with our progress against these initiatives, which supports our increased investment to pursue these large, fast-growing markets driven by secular trends. 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. I'd now like to turn the call over to Paul.