Sensata Technologies

Good day and welcome to Sensata Technologies Q3 2022 earnings call. All participants will be on 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 touchtone phone. 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 Mr. Jacob Sayre, VP Finance. Please go ahead.

Thank you, Sarah, and good morning, everyone. I'd like to welcome you to Sensata's third 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. 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 involve risks and uncertainties. The company's actual results might differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussions on Forms 10-Q and 10-K, 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 are including reconciliations included in our earnings release and in the appendices of our presentation materials. The company provides details of its segment operating income on slides 9 and 10 of the presentation, which are the primary measures management uses to evaluate the performance of the business. Jeff will begin today with highlights of our business results during the third quarter. He will then provide updates on several of our growth initiatives. Paul will cover our detailed financials for the third quarter, and he'll also provide financial guidance for the fourth SIDES CEO and President, Jeff Cote.

Thank you, Jacob, and welcome, everyone. I'd like to start with some summary thoughts on our strong performance during the third quarter, which is outlined on slide three. Our underlying markets returned to growth in the quarter despite continued supply chain disruptions. We produced 650 basis points of market outgrowth and 330 basis points of acquired growth during the quarter. Despite foreign exchange currency exchange rate changes representing 330 basis points of headwind to revenue, we produced solid financial results for shareholders, delivering $1 billion, $18 million in revenue, up 7.1% from the prior year period, with higher margins sequentially. Excluding greater headwinds related to unfavorable foreign exchange rates, our results are above the high end of the guidance range we provided in July. Quoting activity for new business awards was extremely active during the quarter, as well as year to date. And as a result, we have already exceeded the 640 million record level of new business wins we were awarded in all of last year. securing $840 million of new business wins in the first nine months of this year. Approximately 70% of these wins are in our electrification growth vector, which translates into Sensata's future revenue outgrowth and are a direct outcome of our megatrend investments over the past several years. During your quarter, we close the previously announced acquisition of Dynapower, a leader in mission-critical, highly engineered power conversion solutions focused across renewable energy generation, industrial, and defense applications. Dynapower is on a run rate to generate more than $100 million in annualized revenue and approximately 20% operating margins this year. As we have mentioned, we expect market dynamics and Dynapower's offering to provide 30% revenue growth per year over the next several years. During the third quarter, we benefited from our resilient, flexible, and focused organization that continues to successfully navigate the fast-changing supply chain landscape and deliver on our customers' needs. Continued inflationary impacts on input costs have led us to become more agile to offset these costs with commercial pricing actions. As a result, our margins have steadily improved on a sequential basis, and we expect this to continue in the coming quarters. 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. We recognize that the economic outlook appears weaker today and we are closely monitoring with our customers across diverse business segments to understand their underlying demand. We are carefully managing our cost structure including targeted cost reductions to prepare the organization for uncertain market conditions. Sensata has a very experienced management team and we have weathered economic challenges successfully in the past. and we are confident we will emerge stronger and with even better growth prospects after any market disruptions. 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 electrification growth area. As we outlined during our electrification teach-in, We are participating in the global efforts to reduce greenhouse gas emissions that are leading to substantial investments in renewable power generation, better ways to store and use energy, and the ever increasing pace of conversion to battery electric light and heavy duty vehicles. IHS now expects nearly one-third of all light vehicles produced in 2026 will be battery electric or plug-in hybrids, up from one quarter at the beginning of this year. That's a multi-million unit vehicle production jump in just nine months. We intersect these growth areas with engineered solutions for our customers designing high voltage electrified systems. We also help our customers convert and store energy with high voltage converters, inverters, and rectifiers. to better meet the power demands placed on electricity grids by end users. In this rapidly growing area for Sensata, we have more than doubled our business wins from last year in the first nine months of this year. We continue to expect to increase our electrification revenue to more than 2 billion by 2026. As content on battery electric vehicles grows at twice that of traditional combustion engine vehicles, and as industrial electrification applications grow rapidly. We are well on track to achieving the near-term goal of electrification revenue growing 50% this year compared to last year, and we expect this growth rate to continue. On slide five, we highlight our progress in high-voltage junction boxes, a specific area of growth for Sensata within electrification. Sensata's high voltage junction boxes are system level solutions that enable customers to electrify their equipment. As we expand our capabilities in electrification, our customers and our customers refine their electrification architectures for the future, we are responding to demand for more integrated and thermally efficient system level solutions that meet increasing power requirements. We have previously announced meaningful business wins in this area with several global customers, including the single largest piece of business in Sensata's history last quarter. More recently, Sensata was chosen again by a large European heavy vehicle OEM to provide charging units for their electrified platforms that will launch starting in 2025, representing more than 60 million in annual revenue. This is an area of significant growth opportunity for Sensata. The addressable market is growing rapidly and is expected to reach $7 billion by 2030. In addition to the $250 million in annual business we've already won that will launch in the next few years, we are currently discussing with customers potential additional new business representing over $500 million of annual revenue. While we typically share more information about our new growth factors in these quarterly updates, it is important to note that our core safe and efficient growth drivers for Sensata are growing significantly and profitably, providing funding for other investments. Our heavy vehicle business has been outgrowing its markets for several years now, driven by global emissions regulations, increases in electronic control applications, and the expansion of our insights business. Looking forward, this business will also benefit from global tire pressure regulation in heavy vehicles. As you know, Sensata is a leader in tire pressure sensing, and we have one new heavy vehicle tire pressure sensing business for the past few years based upon the robustness of our solution and our ability to solve unique application challenges in the heavy vehicle market. These sensor programs are beginning to launch now. We expect more than 40% annual growth in this application over the next five years as it becomes a 100 million annual revenue stream, generating great margins for Sensata given our scale and leadership in this category. This is another example of how Sensata's core sensing activities continue to drive growth for the company. Now I'd like to turn the call over to Paul.