Sensata Technologies

to turn the conference over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead.

Thank you, Jason, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata, and I'd like to welcome you to Sensata's first quarter 2025 earnings conference call. Joining me on today's call are Stefan von Schuchman, Sensata's Chief Executive Officer, 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'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 certain 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 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. Much 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, the appendices of our presentation materials, and in our SEC filings. Stefan will begin the call today with comments on the overall business. Brian will cover our detailed results for the first quarter of 2025 and our financial outlook for the second quarter of 2025. Stefan will then return her closing remarks. We will then take your questions. Now, I would like to turn the call over to Sensata's Chief Executive Officer, Stefan von Schuffman.

Thank you, James, and good afternoon, everyone. Let's begin on slide three. We delivered a strong first quarter 2025 with revenue, adjusted operating income, and adjusted earnings per share, all exceeding the high end of our guidance. We're pleased with these results, especially given a volatile and constantly evolving tariff environment, which continues to have daily impacts on key end markets. I want to thank our customers, suppliers, and our Sensata team for their efforts to work through unprecedented levels of change and uncertainty to deliver what I expect is the first of many strong quarters during my tenure. While I know tariffs are top of mind for many, I'd like to start the call today by going a little deeper on the three strategic imperatives that I shared earlier this year. These key pillars of improving our operational performance, optimizing our capital allocation, and returning Sensata to growth are my priorities and our core areas of focus. Much of my initial 100 days with Sensata have been spent observing, listening, and learning as I've traveled to our factories, spent time with our teams, and met many of you, our shareholders. I've watched how we manufacture and deliver our products, how we innovate and plan for future growth by winning new business opportunities, and have begun the process of taking a fresh look at our strategy. These efforts resulted in some key observations on which we are already taking action to drive progress on these pillars. Let me start with improving our operational performance. Last quarter, I clearly defined what it means to be operationally excellent, but it's important and warrants repeating. Operational excellence is not just about cost productivity and margin percentage. It means delivering a high-quality product to our customers on time at the lowest possible cost while we efficiently manage production capacity and optimize inventory levels. It also requires us to be excellent across all areas of our organization. Our manufacturing and production are at the forefront. We also strive to be best in class in our commercial, procurement, SG&A, engineering, and innovation teams. To ensure we are setting the right levels of ambition across the company, we are now continuously benchmarking Sensada internally and externally to remain the supplier of choice for our customers, affording us the opportunity to win new business and gain share. While Sensata has top quartile margins, the work we have done over my first 100 days has made clear that we have exciting opportunities to improve in pursuit of operational excellence. Over the last two decades, I've experienced what best-in-class lean manufacturing looks like And I know that we have untapped potential to leverage our strong teams at Sensata. If we dive a little deeper and give you some examples. First, consistency in operations. As I traveled to our factories, it was apparent that each location does certain things differently at Sensata rather than following a standardized production system. This results in sites implementing different standards from line concepts to floor management, leading to the same components being produced at varying cost levels. We want all our factories producing the same component at the lowest possible cost. To achieve this, we're implementing a standardized production system, much like the various derivatives of the Toyota production system adopted across the auto industry. Second, continued focused on inventory management. Our team made good progress in 2024, reducing absolute inventory dollar levels by nearly $100 million, or 14%. But we see opportunity to improve working capital, optimizing our inventory further. To enable this, we have kicked off a new initiative focused on integrated supply chain planning to gain a more accurate planning of part-level demand integrated through production and materials. Third, a more strategic approach to procurement. Over the past few years, our procurement organization became more tactical in adjusting to a highly inflationary environment, including working diligently over the last year to recover much of the cost increases that have absorbed during the worst of those inflationary times. While this certainly positioned us better than we otherwise would have been, we have not invested sufficiently to develop our suppliers to drive the same or better levels of productivity improvement through the supply chain. Accordingly, we have reorganized our operations group to allocate resources to supply development and improvement programs. These changes will increase our operating resiliency in 2025 and beyond. The savings we derive will enable us to embark on additional initiatives, setting the foundation to continue to expand margins. Let me now turn to my second pillar, capital allocation. Our focus here is simple, to ensure that we are effectively allocating capital to maximize return for our shareholders. The board and I take this responsibility to invest our shareholders' cash seriously. We're committed to meaningful improvement, and the first step is to increase free cash flow conversion. The group made great strides in free cash flow conversion in the first quarter as our conversion rate improved by 26% points year-over-year to 74%. Given the strong Q1 result, we used approximately $100 million of cash to repost this 3.5 million shares. We are confident in our ability to improve free cash flow and expect to follow the disciplined approach we took last year by returning cash to our shareholders through share repurchases, reducing our net leverage, and maintaining our current level of dividend. Finally, let me speak to returning Sansada to revenue growth over the medium and long term. To better understand our opportunity for growth, I've spent considerable time these last few months diving deep into our product innovation, our ability to attract and win new business, and our overall positioning within our end markets. Product innovation is critical, and we are seeing exciting opportunities across our portfolio to innovate and draw value for our customers. We spent considerable time over the last several quarters discussing our leak detection sensing capabilities in the HVAC space. Our industrial business is a clear leader in this new market segment and remain enthusiastic this will be a growth driver for Sensata over the next several years. The breadth and depth of our ice and electrification technologies are core strengths for Sensata across our auto and HVR businesses. We are well positioned to be the supplier of choice across areas such as braking, emissions and electrical protection and we are winning business in all regions. As an example, In the first quarter, we booked a significant win in Japan with Mazda for exhaust and fuel sensors. This follows important wins in 2024 with Toyota and other Japanese OEMs as we continue to make significant strides in this market. In China, we successfully secured several contact and TPMS business awards with market-leading local EV OEMs, as well as significant wins through leading local tiers serving the global market these wins demonstrate our capability to compete and win around the world as we look out to 2026 and 2027 we're excited about further growth opportunities from our portfolio of high voltage products now i'll take a moment to discuss how we manage tariff let's turn to slide four the direct and indirect effects from tariffs are the primary issue impacting us, our customers, and our end markets today. Over the last decade, we have positioned ourselves well by proactively focusing on a region for region strategy to align our supply chains and production with our customers. North America represents approximately 40% of our global revenue, of which we serve roughly 70% from production in Mexico. Since early March, when the 25% tariff on non-USMCA qualified components from Mexico took effect, we have been working diligently with our customers to minimize the impact of tariffs to their business and ours. For example, in early March, less than 50% of our products manufactured in Mexico were USMCA qualified. Our team has worked tirelessly to improve this, and today, 80% of our revenue source from Mexico is now USMCA qualified. We're working with customers to leverage our global footprint to deliver tariff mitigation solutions, such as changes to logistics, production, and sourcing. When we must incur tariff costs to supply our customers, our position is clear. Our customers must absorb these incremental costs. To effectuate this outcome, we have been in ongoing dialogue with our customers to secure their agreements to reimburse tariff costs. As of today, we have mitigated more than 95% of our gross tariff exposure in our auto and HPR business through a combination of tariff exemptions, customer agreements to reimburse tariff costs, and various other actions. Finally, Let me take a moment to discuss the ransomware incident that's inside in early April. The incident temporarily impacted our operations to varying degrees over a roughly two-week period. Thanks to the exceptional work of our operations, customer service, and IT teams, as well as a team of third-party cybersecurity professionals, we're happy to report that we are back to normal business operations. And let me turn the call over to Brian to provide greater detail on Q1 and our thoughts around the second quarter and full year.