Sensata Technologies

Good afternoon, everyone, and welcome to the Sensata Technologies Q1 2026 earnings call. All participants will be in a listen-only mode. Should you need assistance, please send to 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 and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. I would now like to turn the conference call over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead.

Thank you, operator, 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 2026 earnings conference call. Joining me on today's call are Stefan 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. A 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 some sort of 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 earnings 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. Stephon will begin the call today with comments on the overall business. Andrew will then cover our detailed results for the first quarter of 2026 and our financial outlook for the second quarter of 2026. Stefan will then return for closing remarks. After that, we will take your questions. Now, I would like to turn the call over to CINSA's Chief Executive Officer, Stefan von Schuchten.

Thank you, James, and good afternoon, everyone. Let's begin on slide three. As I typically do at the start of our earnings calls, I'd like to begin today with an update on Sensada's transformation journey. When we talk about transformation at Sensada, what we mean is that we have embarked on a journey to unlock untapped potential across our organization. We are encouraged that the market has taken notice of the progress we are making. However, what I find even more exciting is the vast opportunity ahead of us. Tapping into that opportunity means maximizing value for our shareholders sustainably over the short and long term. We like to think of this as a pursuit of excellence over multiple phases, and that we are still early in this journey. The initial phase, which we completed last year, was to define what excellence looks like and systematically build it into the foundation of our business. Our next phase is one of acceleration, expanding on the foundation by delivering incrementally better performance and increasing focus on strategic initiatives in pursuit of our aspiration to be best in class. And finally, transformation maturity means achieving and sustaining best in class performance and market leadership. Last year, As we embarked on the first phase of our journey, we defined what excellence looks like for us, and we deployed a key pillars framework designed to maximize value creation. As we built up a systematic around those pillars, we focused on consistency of execution, sequentially improving each quarter, and creating value for our shareholders. When I updated you in February on our year-end call, I shared that this framework is now foundational to everything that we do and is deeply ingrained in our business. As we advance to the next phase of our journey, our priorities framework is, first, to retain the consistency of execution and margin resilience that we installed in the business over the past year. To continuously compound value by delivering year-over-year growth and margin expansion, not only in aggregate, but now also at segment level. And third, to fulfill our growth mandate by delivering on our near-term growth targets, while also importantly priming our future growth engine as we work on the strategic growth initiatives we laid out for each of our segments. In this phase of our transformation, these priorities are all equally important. Balancing strategy, growth, and executing effectively is the standard to which we hold ourselves. Just as we did last year, each quarter we will update you with proof points of our progress. Before we get to the first quarter proof points, allow me to set the stage with where we have made progress these last few months. Our new leadership team is gaining meaningful momentum in their respective areas. Nicholas and our operations team are making progress on inventory reduction and supplier payment terms optimization, which is evident in our first quarter cash conversion. Similarly, with improved focus on factory performance, productivity is accelerating, which is demonstrated in our first quarter margin expansion. Marcus, Alice, and Brian have hit the ground running in their respective roles, and I will share more color on this as I provide segment updates in just a few moments. Before we get to the segments, let's turn to slide four, and I will briefly cover our strong first quarter results, which clearly demonstrate the continued and consistent progress that we are making. We delivered revenue and adjusted operating income at the high end of our guidance range, and we exceeded our expectations on adjusted EPS and free cash flow. Free cash flow of $105 million was again a bright spot, and this represented 83% conversion, outpacing the first quarter of 2025, which is particularly noteworthy, as 2025 was a record year for Sensata. With our improved free cash flow, we progressed further on our deleveraging journey. The results of the quarter are indicative of the progress we are making on our transformation journey and demonstrate that our strategy is creating value for shareholders. This is evident not only in the quarterly results, but also in the sustained improvement in return on invested capital, which has continuously increased and now stands at 10.8%. Last year, I spoke a lot about margin resilience, which requires operating our business with an inherent understanding that headwinds will arise. To prepare for this, we continuously make structural improvements which increase our underlying earnings power. Margin resilience not only positions us to manage through headwinds, it also ensures we maximize the benefits from tailwinds. Our Q1 results are an example of margin resilience in action. Despite multiple headwinds, including precious metals inflation of over 100%, our first quarter adjusted operating margins improved by 30 basis points year over year to 18.6%. This stands in sharp contrast to the first quarter of 2025 when our results decreased 40 basis points from the prior year. While I'm pleased with our consolidated results for the first quarter, I'm even more excited by the performance we are seeing in our segments with our reorganized business. Growth is our clear strategic focus, and our Q1 results are indicative of the progress that we are making as we delivered organic growth in each of our segments. Let's turn to slide five, and I will take you through a few highlights for each of our segments. In our automotive business, we again delivered market outgrowth, demonstrating our ability to grow regardless of powertrain mix. As you may recall, we returned to market outgrowth in the back half of 2025 after several challenging quarters. Our outgrowth accelerated to 4% in the first quarter as we were gaining traction on multiple fronts. For example, in Europe, we are outgrowing production as our content per EV continues to improve. In the U.S., we are outgrowing production as our ICE portfolio benefits from the resurgence of truck and SUV production. We are also securing future growth, stacking electrification winds with innovative new products, such as our high-efficiency contactor, or HECC, and our fault break contactor, where we have secured meaningful new business wins in both Europe and the US. For example, in Europe, we secured a design win on an EV platform at a large German automotive OEM, leveraging our HEC to enable switching between 400 and 800 volt charging architectures. In China, Our local contact volume continues to ramp as we expand our business with key local OEMs, and we are now gaining traction with battery and battery systems manufacturers. Japan and Korea continue to be growth accelerators for us as we enjoy our highest content per vehicle in Korea, and we continue to grow our market share with leading OEMs in Japan. We're also seeing green shoots of our next wave of growth in automotive with our performance in India. We have significantly outgrowing production in this vast growing market, and our revenue with a key OEM more than doubled year over year. Andrew will cover our detailed Q2 guidance and a full year outlook in these remarks. But as I speak about automotive, I want to take the opportunity to assure you that while we are thrilled with our first quarter results and excited about our second quarter outlook, we are also keenly aware of some of the end market demand risks that are posed by geopolitical events and the effects on oil prices. In the spirit of margin resilience, we have developed plans for a number of scenarios and we are prepared to act swiftly to preserve our margins in the event that automotive end markets deteriorate. Our aerospace, defense, and commercial equipment segment was a star performer in the quarter with double-digit organic growth. While truck production remains soft, particularly in North America, we're seeing an increased demand for build slots in the back half of the year. Given the longer lead times for these vehicles, we are now entering a replenishment cycle. We also observed an increase in demand from our diesel engine and power generation customers, as they are benefiting from the demand for generator sets tied to data center construction. Aerospace and defense continues to experience steady mid-single digit growth, driven by both strong commercial backlogs and increased military spending. In addition to ramping up to supply the market-driven growth, we're focused on securing our share of wallet on near-term content growth opportunities in defense applications. We recently secured a circuit breaker win from a German manufacturer of armored ground transport vehicles for a defense application in Europe, and we have similar opportunities in Europe in our pipeline. We're also closely monitoring recently publicized developments around the U.S. government, asking traditional automotive OEMs to support defense production. It's still too early to quantify any impacts, but we will update you should opportunities materialize. Our industrial business continues to experience end market softness, particularly in HVAC and for unit shipments in the North American market increased in the first quarter. Nonetheless, we delivered modest organic growth, primarily through share gain. We booked two additional HAL leak detection wins in the first quarter, further expanding our market leadership position as this product line continues to be a growth accelerator in North America. We remain focused on expanding this product offering into Europe and Asia. In the near term, European heat pump demand has returned to growth, supported by elevated fossil fuel prices alongside policy incentives, energy security concerns, and improving cost economics. We expect this combination to be a positive demand driver for us over time. Let's turn to slide six, as I'd like to elaborate on the data center opportunities in our industrial business. We have increased conviction around our right to win in data centers, building on our existing data center business. I'd like to provide more color on the opportunity and general time frame for growth acceleration. Inside the data center, electrical protection sockets in power distribution units and sensing sockets in coolant distribution units create demand for our products. Outside the data center, There are meaningful opportunities for our Dynapower product in uninterrupted power supply or UPS systems, and HVAC demand grows with the cooling needs for each data center. We are incumbent in data centers today with both low-voltage AC electrical protection as well as with sensing and HVAC applications. With this incumbency, we are already benefiting from secular growth. As we look at the technological roadmap for data centers, we see a major inflection point in the data center ecosystem. The opportunity for Sensata is significant, and our right to win is compelling. This inflection point is driven by the rapid evolution of GPU platforms and the associated changes in power and thermal management requirements. Allow me to elaborate. Most deployed data centers rely on low-voltage AC electrical architectures where air cooling meets current thermal requirements. Industry roadmaps from leading GPU manufacturers point towards higher-voltage DC power systems, including 800-volt DC, which drive substantially higher rack densities and accelerate the need for liquid cooling solutions. These transitions increase demand for high voltage contactors and for pressure, temperature, and flow sensors. These application areas are closely aligned with our portfolio, where our performance, reliability, and application expertise support a strong competitive position. In parallel with our EPC and distribution partnerships, were engaging earlier in the design cycle with hyperscalers and ODMs to support upfront specifications. This approach strengthens downstream pull-through by enabling EPCs and channel partners to deliver against predefined customer requirements. Since our last update, the strategy has resulted in our products being specced by two hyperscalers and our new flow sensor product has advanced from development to customer validation. From a timing perspective, industry roadmaps indicate that adoption of liquid cooling is expected to accelerate beginning around mid-2027, particularly in high-density AI and high-performance computing deployments. As these systems scale, leading GPU and infrastructure suppliers anticipate a subsequent shift towards higher voltage power architectures. While the revenue opportunity is medium term, the time to get spec'd in is now, and that's exactly where our focus is. This is what's inside us as well, and it is the call to our automotive legacy. In parallel, Our Dynapower business is actively bidding on several large programs with an extensive opportunity pipeline for UPS projects. The highlights I just shared are just a peek into the growth engine that we are priming at Sensato. I have even more conviction in our growth prospects than I did just a quarter ago. With our new segmentation, Marcus, Alice, and Brian each have clear growth mandates for their respective businesses. They, along with their strong teams, are bringing the end market focus that is required to deliver on our growth mandate. With that, I would like to extend my gratitude to Teams Insata for their collective commitment to our transformation and consistency of execution. Now let me turn the call over to Andrew to provide greater detail on the first quarter and our thoughts around the second quarter and full year.