Sensata Technologies

Today's event is being recorded. At this time, I'd like to turn the floor over to Mr. James Entwistle, Senior Director of Investor Relations. Sir, please go ahead.

Thank you, Jamie, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata, and I would like to welcome you to Sensata's second quarter 2025 earnings conference call. Joining me on today's call are Stefan von Schuchman, Sensata's Chief Executive Officer, and and Andrew Lynch, 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 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 10-Q and 10-K, 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, in the appendices of our presentation materials, and in our SEC filings. Stefan will begin the call today with comments on the overall business. Andrew will cover our detailed results for the second quarter of 2025, and our financial outlook for the third quarter of 2025. Stefan will then return for closing remarks. We will then take your questions. Now, I would like to turn the call over to Sunsetta's Chief Executive Officer, Stefan von Schiffman.

Thank you, James, and good afternoon, everyone. Before I begin discussing our results for the second quarter, I'd like to take a moment to congratulate Andrew Lynch, who was named our Chief Financial Officer last week. Andrew has been a valuable partner to me since I joined Sensata, and the board and I have full confidence in him. Andrew's extensive financial and operational experience at Sensata have prepared him well for this role. I'm excited to have him as a partner on Sensata's transformation journey. Now let's begin on slide three. We delivered a strong quarter of 2025 with revenue, adjusted operating income, and adjusted earnings per share all exceeding the high end of our guidance for the second consecutive quarter. This is an important proof point for the resilience of our business and our team's determination to execute in the face of challenges such as volatile end markets, geopolitical uncertainty, and the cybersecurity incident that we disclosed in April. When I first spoke to you in February, I introduced three key pillars which would serve as my initial focal points for shareholder value creation. Improving operational performance, optimizing capital allocation, and returning to growth. On my call, I provided an update on some of the specific work we are doing on each of these pillars, and much of the focus of the update was operational excellence. Today, I'll go a bit deeper on capital allocation and growth drivers. Before we get to capital allocation and growth, I'll share a brief update on operational excellence. We rolled out a number of initiatives over the last six months, and I'm pleased with our recent accomplishment on this journey. Our cash conversion rate in the second quarter was 91%, a significant step up from our first quarter 2025 conversion rate of 74%. This improvement reflects our focus on unlocking cash to execute our capital allocation strategy. With operational excellence initiatives, we are optimizing our working capital and creating margin resilience in our business, enabling us to deliver on our earnings commitments. Now, I'd like to go deeper on our next pillar, optimizing our capital allocation. Simply put, We will deploy capital in a manner designed to maximize shareholder returns. In the first quarter, we seized the opportunity to repurchase $100 million of shares. In the second quarter, we repurchased another $20 million of shares and funded our dividend while also accumulating an additional $74 million of incremental cash. In turn, We reduced our net leverage ratio from 3.1 times traveling 12-month adjusted EBITDA at the end of the first quarter to 3.0 times at the end of the second quarter. This further strengthened our already strong balance sheet. In the past, you've heard me talk a lot about benchmarking as we look to drive operational excellence. We are using external benchmarks for each of our key pillars. As we look at comparable companies across the market, our differentiated margins stand out and our cash conversion is improving. However, our capital structure and net leverage is a bit of an outlier. For the balance of this year and into 2026, you can expect us to continue to prioritize deleveraging. Now, I'm excited to share our progress on our growth pillar. Just like capital allocation, growth is enabled by operational excellence. Over my decades of experience in industry, I have learned that the right to win is earned by consistently serving customers on time at the lowest possible cost with high-quality products. Operational initiatives will ensure that we do exactly that. It is equally important that we are disciplined about the new business we pursue. We need to win with the right technologies, on the right platforms, the right customers. Over the last several months, I've worked with us inside our team to study our past business wins a bit deeper and to identify the characteristics of our most successful programs. We are using those learnings to be more selective about how and where we invest and what business opportunities we pursue. For us, it means the following. First, stick to our core product technologies, pressure, temperature, and electrical protection, and certain speciality sensing, such as force, position, flow, and leak. Next, prioritize platform-driven applications where high switching costs favor incumbency, and with an emphasis on regulated or mission-critical sockets. And finally, focus on the right-hand markets with exposure to clear secular tailwinds and appropriate diversification. As we apply these criteria, our priorities become clear. In our sensing solution segment, ATL gas leak detection is a recent example of a business opportunity that checked all the boxes for us. We were able to leverage our core sensing capabilities to win a regulated sensor socket on air conditioning system platforms. We established a market leadership position in the US, which we are continuing to grow. In 2025, this business is on track to deliver approximately $70 million of revenue, and we continue to increase our market share with a goal of well over $100 million of revenue next year. We look forward to leveraging our incumbency with key OEMs to win globally with similar regulatory requirements on the horizon in both Europe and Asia. In our performance sensing segment, we've spoken a lot about the content opportunities on both ICE and EV platforms, as well as the rapidly evolving new energy vehicle or NEV market in China. It is clear that we need to win in China to maintain and grow our global market share. A China market is opportunity rich with a rapid adoption of NEVs and growth of local OEMs. The high voltage applications on NEVs offer incremental content opportunities for us compared to the traditional ICE business. Our China team is actively driving business development with local OEMs in China to support their growth ambitions both in China and beyond. We have significantly increased our pace of new business wins in China, primarily on NEVs. Our customers are placing value on our product performance, proven field quality in the local market, cost competitiveness, and well-established production scale. More than 90% of these wins are with top local OEMs and leading NEV players. Due to shorter design cycles in the China market, We expect many of these business wins to materialize into revenue later this year and serve as the foundation for a return to more consistent market outgrowth in 2026. The content wins we are securing include any of these specific electrical protection as well as powertrain agnostic content such as tire pressure monitoring systems or TPMS. One of these recent TPMS wins featured new tire burst detection technology. And we are excited to share that we were the first to bring this technology to market for an active safety application. Tire burst detection enables the vehicle to activate its stability control features at the first sign of a tire rupture event, dramatically improving occupant safety. This is exactly the type of technological differentiation It gives us an edge in the market. Now that we've spoken about our key pillars, I'd like to talk a little bit more about what we are seeing in our end markets today. Let's turn to slide four. I will start with tariffs and trade policy. For a combination of reimbursement agreements with our customers and modifications to our supply chain, We have now successfully mitigated all of our tariff costs in the second quarter, compared to approximately 95% when we spoke to you in May. Since our last update, we've also seen a reduction to our exposures in connection with the de-escalation of tariff rates between the United States and China. Additionally, we are pleased to report that we have not seen significant impacts from recent tariff escalations on commodities or from export controls on rare earth materials. More broadly, in our end markets, we're seeing a mix of volatility, resilience, and growth. I'll share a few highlights now, and then Andrew will provide more specifics as he walks you through our results and guidance. On the performance sensing side, we are pleased with automotive production holding up stronger than initially expected when trade tensions escalated. Global production has grown in the first half as the market in China has been very strong. HVOR markets have been soft, particularly with on-road trucks, and we're starting to see off-road production slow down as well. As a result, we're managing our costs accordingly. In our sensing solution segment, we're seeing more growth, which highlights the advantages of our end market diversification. Our industrials business grew over 9% in the second quarter as markets have stabilized, and our new leak detection product is delivering meaningful outgrowth. In aerospace, we saw over 5% revenue growth in the second quarter against a market that grew roughly 3%. Our market outlook for both industrial and aerospace in the second half is largely consistent with what we saw in the second quarter. In summary, I am happy with what we have achieved so far this year, and our Q2 results demonstrate the progress we are making on our transformation plan built upon the three pillars. As we progress to the balance of 2025 and into the new year, we will maintain our focus and rigor on these initiatives to drive shareholder value. With that, I will turn the call over to Andrew to provide greater detail on Q2 financial results and our guidance for the third quarter.