Sensata Technologies

Good day and welcome to the Sensata Technologies second quarter 2022 earnings call. All participants will be in 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 then one on your touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Jacob Thayer, Vice President of Finance and Best Relations. Please go ahead, sir.

Thank you, Cole. Good morning, everyone. I'd like to welcome you to Sensata's second quarter 2022 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President, and Paul Basington, 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. This conference call is being recorded and we will post a replay webcast on our investor relations website 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 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 10Q and 10K, as well as other subsequent filings with the SEC. 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. Our GAAP and non-GAAP financials, including reconciliation, are included in our earnings release and in the appendices of today's presentation. The company provides details of its segment operating income on slides 7 and 8 of the presentation. These are the primary measures that management uses to evaluate the performance of the business. Jeff will begin today with highlights of our business results during the second quarter. He will also provide an update on recent product developments. Paul will cover our detailed financials for the second quarter, including market outgrowth. and he'll also provide financial guidance for the third quarter and full year 2022. 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 Kotek. Thank you very much, Jacob, and welcome, everyone.

I'd like to start with some summary thoughts on our strong performance during the second quarter as outlined on slide three of the presentation. While our markets declined 90 basis points due to supply chain disruptions, shortages, and lockdowns, and foreign exchange rates represented a 220 basis point headwind to revenue. Our strong business model produced 650 basis points of market outgrowth and 280 basis points of acquired growth during the second quarter. As a result, we produced solid financial results for shareholders, delivering a record $1 billion, $21 billion in revenue, or growth of 2.8% from the prior year period, with revenue and margins in line with the guidance we provided in April. Quoting activity for new business awards was extremely active during the quarter, and we remain on track to exceed record levels of new business wins we secured last year. More than half of these new business wins are in the growth factors, including the largest single business win in our history, which I'll discuss more in a moment. And we expect these wins to translate into future revenue growth. Sensata's current revenue outlook is increasingly driven by by our rapidly growing positions in electrification and insights. And we're investing more in these areas, and we believe this increased organic and inorganic investment, which for the full year is expected to impact margin by 220 basis points, is the right trade-off to expand our exposure in these fast-growing areas. After the quarter ended, we closed the previously announced acquisition of Dynapower. They are a leader in mission-critical, highly engineered and differentiated solutions in DC to DC conversion, power inversion, and rectifier control. Most importantly, they are the only power control supplier to focus across renewable energy, industrial, and defense applications. Dynapower is currently on a run rate to generate more than $100 million in annualized revenue and approximately 20% operating margins, while growing more than 30% per year over the next several years. After the quarter ended, we also sold our Connex semiconductor thermal test and control business to Boyd Corporation for $219 million. with our growth strategies and will be better positioned as part of VOID. The impacts of both the Dynapower and Connex transactions are reflected in the industrial business and sensing solutions segment and are included in the updated financial guidance we're providing today. During the second quarter, we benefited from a resilient, flexible, and focused organization. that continues to successfully navigate the ever-changing supply chain landscape and deliver on our customers' needs. We continue to monitor the ongoing war in Ukraine and COVID-related lockdowns in China for further impacts on supply chains or customer production or consumer demand. Continued inflationary impacts on input costs have led us to become more agile to offset these costs with commercial pricing actions. We remain confident that the full year net impact will be limited and that our strong execution will enable us to deliver on our promise of strong differentiated operating profits. I'd like to recognize the innovation, agility, and hard work of our entire team and the support from our customers in achieving these strong results. Sunsada is in a very strong financial position today. We have more than $1.5 billion in cash on our balance sheet. We generate significant free cash flow each year. And our net debt to EBITDA ratio is within our target range at three times. We do recognize that the economic outlook is less certain today. and we are working closely with our customers across diverse business segments to understand their underlying demand, to carefully manage our cost structure, and preparing the organization for this uncertain market dynamic. The combination of our strong balance sheet, an experienced management team who have executed through previous market challenges, and our ability to tightly manage costs enables us to weather near-term pressures while continuing to drive our growth strategy. We are executing well in our growth areas, and we are confident that Sensato will emerge from any period of market turmoil stronger and better positioned to continue to grow. During the quarter, we published our second sustainability report detailing our greenhouse gas emissions progress on diversity, equity, and inclusion initiatives, and responsible sourcing efforts. I encourage you to review the report. We are committed to continuing progress in these areas going forward. Sensata is continuing to make excellent progress in utilizing in-house and acquired capabilities to better serve a broadening base of customers and win new business in our growth areas. On slide four, we outlined progress in one specific area that had led us to create a new product category, high voltage junction boxes. Sensata's high voltage junction boxes are system level solutions that perform critical functionality and enable customers to electrify their applications. As we expand our capabilities in electrification and our customers design architectures For the future, we are responding to demand for more system-level high-voltage solutions. These solutions take the form of power distribution units, DC charging units, and battery disconnect units, depending on the specific application, and they represent a significant growth opportunity. Sensata designs, pairs, and controls all components in the junction boxes while optimizing the layout to minimize weight and thermal profile while meeting customer power requirements. We are working with our tier and OEM customers to bring the best solutions to the market in this critical area. We have previously announced meaningful business wins in this area with several global customers. And in the second quarter of this year, we were awarded the single largest piece of business in Sensata's history to provide battery disconnect units to a leading North American customer. We are pleased to report that Sensata was chosen in a competitive process based upon our unique design capabilities. This program will launch in 2025 and represents more than $150 million in annual revenue thereafter. We are so proud of the entire team involved in this successful new business award. Another example of new product development in our core industrial business is the introduction of a line of gas sensors designed to be used with new environmentally friendly refrigerants. This is another new category for Sensata where we've already won our first piece of business with a leading customer worth more than 10 million annual revenue these gas sensors are specifically designed to detect leaks of a2l a3 and other new refrigerants being introduced in various markets due to the expected increased use of these refrigerants and safety requirements around their use this category of Now I'd like to turn the call over to Paul.