Sensata Technologies

Good day, and welcome to the Sensato Technologies Q2 2023 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, this event is being recorded. And now we'll turn the conference over to Mr. Jacob Sayre, Vice President of Finance. Please go ahead.

Thank you, Keith. And good morning, everybody. I'd like to welcome you to Sensata's second quarter 2023 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 for 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'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 uncertainty. 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. We encourage you to review our GAAP financial statements in addition to today's presentation. Most of the information that we will discuss during today's call will relate to non-GAAP financial measures. Our GAAP and non-GAAP financials, including reconciliations, are included in our earnings release and in the appendices of our presentation materials. The company provides details of its segment operating income on slides 7 and 8 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 second quarter. He will then provide a few updates on exciting electrification product launches. Paul will cover our detailed financials for the second quarter, updates on capital deployment, and he will discuss our financial guidance for the third quarter of 2023. We'll then take your questions after our prepared remarks. Now, I'd like to turn the call over to Sensata's CEO and President, Jeff Cote.

Thank you, Jacob, and welcome, everyone. I'll start with some summary thoughts on our robust performance during the second quarter, as outlined on slide three. During the second quarter, we produced a record $1,062,000,000 in revenue, up 4.1% from the prior year period and above our guidance range, despite a 140 basis point headwind from foreign currency. Adjusted operating income of $206 million was at the top end of our range. Adjusted operating income margins increased by 40 basis points from the prior year period, or 110 basis points on a constant currency basis. As we continue to focus on improving our margins, adjusted net income moved higher by 15% to $149 million. and adjusted earnings per share grew 17% from the prior period, or 23% on a constant currency basis, to a record 97 cents. Our customers' supply chains show meaningful signs of returning to normal. Consequently, we believe customers reduced channel inventory to better align material on hand with their production. We estimate this impact was approximately 20 million or 200 basis points across the company in the second quarter, concentrated in automotive and heavy vehicle off-road. Taking that into account, market outgrowth for the last 12 months remained within our target range of approximately 535 basis points. As we've said, outgrowth can be lumpy at any quarter, and the second quarter results continue to be impacted by electric vehicle launch schedules. We remain confident in our long-term outgrowth range, given our business wins, new product development activities, and future launch schedules. Outgrowth to market since the beginning of 2020 has averaged 735 basis points. I'm also pleased that we remain on track to achieve our long-term goal of $2 billion in electrification revenue across the company by 2026, with that revenue growing strongly in the second quarter. In a moment, I will outline exciting new product launches that will help further propel that growth. At the beginning of 2023, we outlined a shift in our capital deployment strategy based upon our confidence in our capabilities to effectively intersect the electrification growth factor and deliver innovative solutions to our customers. We continue to execute that strategy during the second quarter, removing variable rate debt from our balance sheet and returning capital to shareholders in the form of debt repayments, a dividend, and share repurchases. Considering current interest rate trends, that decision has made strong business sense. Our capital allocation strategy reduces risk in our capital structure, lowers interest expense, improves adjusted net income and earnings per share, as well as return on invested capital. The end markets Sensata serves are expected to experience significant change over the next 10 years as our customers transform their businesses and product portfolios to adjust to decarbonization trends. Electrification will impact all the end markets we serve. And as we have done repeatedly over our history, we've adapted to market trends. Sensata is focused on continually innovating to help customers solve their mission-critical, hard-to-do engineering challenges on this path toward electrification. As shown on slide four, I'd like to share some thoughts on new products that will help drive our electrification revenue going forward. In renewable power generation, solar energy developers and others are poised to benefit from global initiatives to decarbonize sources of energy, including last year's Inflation Reduction Act in the United States, which provides significant long-term funding to this industry. To address a key need for this industry, we are launching a fifth generation line of inverters that contain three times the power density of its predecessor, creating a highly attractive value proposition for customers. These products, which are launching this quarter, are designed to enable new solar and other renewable energy installations to connect seamlessly to the electricity grid. Serving the needs of these installations represents a fast growing $2.5 billion addressable market for Sensata. In addition, we have launched a new battery management system to help address the electrification needs of material handling work truck and bus OEMs. The BMS is an intelligent component of the battery pack, responsible for advanced monitoring and management of current. Think of it as the brain behind the battery. It plays a critical role in assessing the battery's safety performance, charge rates, and longevity. Sensata's N3 battery management system is ASIL-C and ISO certified off the shelf and offers software flexibility, thus reducing development time and cost for customers. These battery management systems seamlessly manage the very high power requirements that OEMs face and represent a $350 million addressable market by 2028. I'll now turn the call over to Paul.