Sensata Technologies

Good day and welcome to the Sensata Technologies third quarter 2025 earnings 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 a touch tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, operator, 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 third quarter 2025 financial results conference call. Joining me on today's call are Stephan von Schuchman, Sensata's Chief Executive Officer, 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 can involve 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 third quarter of 2025 and our financial outlook for the fourth 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 Sunseta's Chief Executive Officer, Stefan Von Schuffman.

Thank you, James, and good afternoon, everyone. Let's begin on slide three. Before we get into the third quarter results, I'd like to start today by briefly reflecting on what we have accomplished so far this year and where we are in our transformation journey. Our first earnings call after our joints inside at the beginning of 2025 outlined the transformation ahead of us all around three key pillars. Operational excellence, capital allocation, and a return to growth. In each of our subsequent earnings calls, we provided updates on our transformational journey framed around these three pillars. I've been pleased with the incremental progress in each of these quarterly updates. With the Q3 results we are reporting today, we have reached a significant milestone in our transformation journey. While we have more work to do and plenty of challenges ahead, our exceptionally strong Q3 results give me confidence that we have meaningfully improved our core business. My emphasis on operational excellence and margin resilience has positioned us to overcome challenges such as tariffs and in-market volatility. Our laser focus on free cash flow and optimizing capital allocation to reduce net leverage has been successful, and we are now well ahead of our net leverage and cash conversion targets. As a result, earlier today we commenced cash tender offers to purchase $350 million of our long-term debt. Finally, With respect to growth, we've conducted a thorough assessment of our product portfolio, production capacity, and growth investments. And we are taking action to position our business to maximize the benefit from secular tailwinds. I'll now share some additional color in the third quarter through the lens of our key pillars. Our Q3 results represent a compelling proof point in the progress we have made on operational excellence. The third consecutive quarter, we delivered on expectations, reporting results at or above guidance ranges. Third quarter adjusted operating margins and adjusted EPS both expanded sequentially from Q2 despite seasonally lower revenues. to expand the full-year adjusted operating margins on a year-over-year basis, excluding the dilutive impact of pass-through revenue. This is yet another compelling proof point in the progress our team has made with our 2025 full-year outlook standing in sharp contrast to the preceding three years when our business experienced year-over-year contraction in adjusted operating margin. Now let's turn to slide four. and I will discuss cash flow and capital allocation. A near-term capital allocation strategy is simple, but focused on rapidly deleveraging our business. While we are comfortable with our balance sheet, we believe that reducing leverage to a level more consistent with our peers removes a potential barrier for some investors, making Sensada a more compelling investment. Our operational excellence pillar has been a key enabler of the strategy as we optimize working capital and improve free cash flow conversion. After converting free cash flow at above 90% of adjusted net income last quarter, we made more progress in the third quarter with conversion now exceeding 100%. As a result of our strong free cash flow generation and strong cash position, $791 million of cash on the balance sheet as of September 30th by taking decisive action to deploy capital and retire debt. Today, as I mentioned, we commenced cash tender offers to purchase $350 million of our long-term debt. More information about these cash tender offers can be found in the press release that we issued on this transaction earlier today. Discipline around our capital expenditures and reducing the capital intensity of our business has been a key driver of our progress toward improving cash flow conversion, and we are acting on these priorities without compromising on growth. In fact, as we look ahead towards growth, we have studied past capital allocation to ensure we are making the right investments going forward. On our July earnings call, We defined a three-part framework through which we would evaluate growth. Allow me to recap that again here today. First, we'll stick to our core product technologies with sensing and electrical protection. Second, we'll prioritize platform-driven applications with an emphasis on regulated or mission-critical sockets. And third, we'll focus on our key markets prioritizing those with secular tailwinds and ensuring appropriate diversification. We will continuously evaluate our product portfolio using this framework, and where we identify areas where it is necessary to shift our strategy, we will be decisive. In our Dynapower business, which provides microgrid power inversion and rectification, it has become clear that the investment thesis and strategic plan around clean energy no longer offers the most compelling growth vector for this business as government policies have shifted and investment has slowed that said we do see other areas where data power lines to our growth framework specifically in applications where grid stabilization and redundant power supply are mission critical such as defense and data center power delivery accordingly We have recast our growth plans for this business enabled by a more focused strategy. We believe this provides more compelling long-term growth with higher certainty of outcome. However, due to recent changes in clean energy policy and the anticipated slowdown in the clean energy sector, it was necessary to reevaluate the book value of this business today. As a result, we recorded a non-cash goodwill impairment charge in the third quarter which Andrew will discuss in more detail in a few minutes. Now, let's turn to slide five, and I'd like to take a moment to highlight some of the recent additions to our executive leadership team as we embark on the next phase of our transformation journey. I'm pleased with the momentum we have built in our business through our operational excellence pillar. Not only have we delivered on our quarterly targets, we have done so with demonstrable margin resilience as we continue to perform in the face of multiple challenges in our end markets. Given the relatively short period of time in which we have made this progress, it is clear that our most significant opportunities are ahead of us. At this juncture, it is imperative that we install the right leadership to ensure that we continuously unlock value by optimizing our cost structure, streamlining our production network, and serving our customers well. In the Form 8K that we issued along with our earnings press release today, we announced that Nicolas Bardot will join Societa Effective November 1st as Chief Operations Officer. Nicolas has more than 20 years of operations leadership experience, including supply chain optimization, manufacturing excellence, and leading transformations to be a tremendous asset to Sensata as we strengthen our global operations footprint to meet the needs of changing and dynamic markets. Most recently, Nicolas served as division operations officer at ZF Commercial Vehicle Solutions. Previously, he held leadership roles at WAPCO, including chief supply chain officer and vice president of sourcing and purchasing. The accomplishments include leading several organizational transformations and applying innovative technologies to achieve measurable productivity and quality gains. With operations on solid footing and with accelerated progress on our capital allocation pillar, we're now ratcheting up the intensity of our focus on our third pillar, returning Sensada to growth. This too requires experienced leadership. Earlier this quarter, we announced that Patrick Hertzke joins us as our Chief Growth and Transformation Officer. Patrick has extensive automotive and industrial experience, both in industry, as well as at McKinsey and Company, where he was a partner in the automotive practice. During Patrick's 13 years at McKinsey, he led projects including go-to-market strategy, enterprise transformations, and AI technology strategies. We also announced today that Jackie Chen has been promoted to Executive Vice President and President of Sensada China, effective January 1st, 2026. Jackie joined Sensada in January 2024 as Vice President and General Manager, China Automotive, and has been instrumental in positioning Sensada to re-win market share and increase the localization of our business and supply chain. In his expanded role, Jackie will have P&L responsibility and primary management oversight of all of Sensata's business in China. Jackie's promotion underlines the importance of succeeding in China, and he has demonstrated that he is the right leader. Under Jackie's leadership, automotive business in China has returned to outgrowth with double-digit growth over market in the third quarter and 90% of our new business wins this year have been with local OEMs. Now let's turn to slide six. Now we'll discuss some recent product innovations that will drive growth across multiple end markets. We previously mentioned that we were first to market with a tire burst detection solution for a vehicle stability control application. We continue to make progress here. and we have now secured business with two leading Chinese OEMs. We're proud to see our Tire Burst Alert feature gaining traction in the market and becoming a trusted component in vehicle safety strategies. These wins highlight a common theme. As vehicles become more intelligent, so must the systems that support them, giving us a clear roadmap for how to expand content and win new business. Looking ahead toward the median term, clear that our path to expanding content will be driven by meeting the global shift towards sustainable mobility with smart, impactful solutions. One such example is our high efficiency contactor, which simplifies EV charging by enabling vehicles to work seamlessly with both 400 and 800 volt architectures. As 800 volt vehicles launch in markets where the charging infrastructure is predominantly 400 volt, contactor enables a switchable architecture this product was recently recognized as a finalist for eb charging innovation at the 2025 battery show north america as we have discussed on past earnings calls global regulations are requiring more sustainable refrigerants in hvac systems and with that demand for reliable gas leak detection is accelerating our hl sensor is helping customers across key markets detect and manage refrigerant leaks with speed and precision. By supporting compliance and improving system performance, this solution is becoming a trusted part of HVA platforms. We have recently secured two customer agreements solidifying our market leadership position for the next several years. As additional customer programs are awarded in the coming months, We foresee this business accelerating to more than $100 million of revenue in the near future, and we see expanded opportunities outside of the United States in the years ahead, making this product a potential growth driver for many years to come. Finally, as we look more broadly at secular trends, we expect our aerospace business to emerge as a meaningful growth engine for Sensada going forward. That has proven capability in this space and a clear right to win as we have been selling into the defense sector since the 1940s. Looking ahead over the next decade, U.S. and allied nations defense spending expected to increase significantly from $1.7 trillion in 2025 to $2.8 trillion in 2035. The vast majority of the spend is expected outside of the U.S. primarily driven by EU defense spending. Given our global footprint and deep business relationships in Europe, we are focused on winning our share of this growth. While I'm excited by the additions to our leadership team, I would also like to acknowledge the exceptional progress from the Holst & Sala team. Collectively, we embraced our three pillars approach and ready to bring forward and build initiatives around these pillars. We have worked relentlessly in pursuit of value creation, guided by the pillars and enabled by the initiatives that underpin them, and we are getting results. We have turned a corner on financial performance, consistently meeting or exceeding our plan and delivering on our commitments. We have unlocked free cash flow and meaningfully accelerated our capital allocation strategy, and net leverage is improving. And we returned to market outgrowth in the third quarter with our automotive business outgrowing global vehicle production by approximately 1%, HVRR outgrowing its end market by approximately 5%, and our sensing solutions business delivering organic revenue growth of 2.5% with approximately 1% outgrowth in industrials, while aerospace were approximately 2%, roughly in line with the market. With that, I'll turn the call over to Andrew to provide greater detail on Q3 financial results, market outlook, and our guidance for the fourth quarter.