Sensata Technologies

Good day and welcome to the Sensata Technologies first quarter 2024 earnings conference call. All participants will be in a 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 Ms. Alexia Taxi-Arcos, Vice President, Corporate Communications. Please go ahead.

Thank you, Betsy, and good afternoon, everyone. I'm Alexia Taxi-Arcos, Vice President, Corporate Communications, and I would like to welcome you to Sensata's first quarter 2024 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President, and Brian Roberts, 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 on our Investor Relations website shortly after the conclusion of today's call. As we begin, I would like to reference and start a safe harbor statement on slide two. During this conference call, we will be making forward-looking statements regarding future events or the financial performance of the company that involves certain risks and uncertainties. The company's actual results may differ materially from the projection 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 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. Jeff will begin today with comments on our overall business. Ryan will cover our detailed financials for the first quarter of 2024, including our financial guidance for the second quarter of 2024. Jeff will then return for some closing remarks. We will then take your questions. Now, I'd like to turn the call over to Sensada CEO and President Jeff Cote.

Thank you, Alexia, and welcome, everyone. Upon being named CEO of Sensata in the first quarter of 2020, I set as a main priority to ensure that Sensata was prepared to partner with our customers to solve the complex engineering and operational challenges of the next 10 years and beyond. Our ability to help our customers solve these very demanding problems is core to our DNA. and underscores why Sensata has achieved success for more than 100 years. With more change expected over the next decade than has been seen in the last 50 years, it was critical to equip Sensata with the required capabilities to retain a trusted, relevant player in the markets we serve. And we did just that. We are at the early stages of a transformation to an electrified world, and Sensata is well positioned to capitalize on the opportunities that these new capabilities and our core broad sensing capabilities provide. We have invested in markets including high voltage contactors, current sensing, isolation monitoring, battery management systems, and power conversion systems. that allows us to participate in the unprecedented opportunity across the end markets we serve, from light vehicle and heavy vehicles to broad industrial markets, including the infrastructure needed to enable all this electrified equipment. The results to date have been impressive, as electrification revenue increased from less than 3% of total Sensata revenue in 2019 to more than 17 percent of revenue in 2023. Further, we are poised for continued future growth, recording over $2.3 billion in new business, with $1.3 billion of that new business in the area of electrification during the last three years. However, as we know, transformational change like we are seeing, for example, in the automotive industry, is not linear in nature. consumer preferences, global economic trends, and regulations are among the very many variables that can create short-term ebbs and flows in demand. The good news for Sensata is that while we do not control demand, we are well hedged against these fluctuations with our core safe and efficient business, which includes vital sensing products that have endured decades. and will without question continue to be highly relevant to our customers, providing Sensata lasting durability. While our automotive customers may not be developing the next generation internal combustion engine, they will continue to produce ICE vehicles for years to come. And Sensata content is on a great majority of these vehicles. This positions us very well to manage the volatility associated with this transformation. For example, in the first quarter, we noted in certain markets such as North America and Europe, the lower than forecasted levels of EVs was offset by higher than forecasted ICE production. Given our broad share position across ICE vehicles, this EV slowdown did not negatively impact our revenue. nor our ability to outgrow our end markets. In addition, we generated significant growth from new content, both from new business wins on EV platforms while ramping production, as well as on ICE vehicles, where we have taken share, resulting in year-over-year net revenue growth of more than 6% as compared to the IHS stated market that was down 1%. As we know, market outgrowth can vary from quarter to quarter due to mix and launch schedules, but we were certainly pleased to deliver approximately 700 basis points of market outgrowth in our automotive business in the first quarter of this year. We may debate the rate of change as the market fluctuates over time, but the number of plug-in hybrid and battery electric vehicles will only continue to increase. In 2023, EV penetration rates were 10% in North America, 15% in Europe, and 36% in China. In 2026, IHS forecast the penetration rate to almost double in all three of these regions, with penetration rates of 24%, 31%, and 60% for North America, Europe, and China, respectively. Our first quarter automotive business results underscores that Sensata is well prepared for both the coming wave of plug-in hybrid and battery electric vehicles, as well as the continued production of ICE vehicles to deliver for our customers and for our shareholders. Let me take a moment to discuss the rest of our business portfolio, which represents nearly half of our revenue and continues to drive solid results against challenging market conditions. Our heavy vehicle and off-road business is starting to benefit from new European regulations around tire pressure monitoring. Demand continues to increase, providing confidence that we will outgrow a market that is expected to decline in the mid single digits due to North American weakness partially offset by improving production in China. Our industrials business, which includes HVAC appliance and general industrial, continues to see inventory destocking and slow construction markets, impacting overall sales expectations. While this industrial down cycle will likely continue to pressure results throughout much of 2024, our A2L leak detection sensor, which we launched late last year, has been well received in the marketplace. and is delivering above expectations. Finally, our aerospace business continues to deliver solid results with single-digit year-over-year growth. In summary, against an overall market backdrop for 2024, which will likely be down 1% to 2% this year, we are confident in our ability to deliver outgrowth of approximately 300 to 400 basis points. While Brian will take you through the first quarter results in a moment, let me add that our first quarter performance is an important proof point as to the durability of the Sensata business, as we delivered revenue and adjusted operating margins at the high end of our guidance range provided in the fourth quarter call in early February. With that, let me turn the call over to Brian, who will take you through the first quarter results in greater detail. and provide guidance for the second quarter.