Sensata Technologies

Good afternoon and welcome to the Sensata Technologies second quarter 2026 earnings call. All participants will be in 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 touch-tone 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 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 would like to welcome you to Sensata's second quarter 2026 earnings conference call. Joining me on today's call are Stephan Von Schuckmann, 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 reference the 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 today's call concludes. 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 those 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. Stephan will begin today's call with comments on the overall business. Andrew will then cover our detailed results for the second quarter of 2026 and our financial outlook for the third quarter. Stephan will then return for closing remarks. After that, we will take your questions. Now, I would like to turn the call over to Sunsada's Chief Executive Officer, Stephan Von Schuckmann.

Thank you, James, and good afternoon, everyone. Let's begin on slide three, and I'll share a few highlights from the quarter. We are pleased to report exceptionally strong Q2 results, with each of our key metrics exceeding expectations and demonstrating accelerating financial performance, both sequentially and year over year. Revenue grew 5% or 4.4% organically with organic growth in all three segments. Q2 is the fourth consecutive quarter of organic growth. Adjusted operating margin expanded 50 basis points year over year to 19.5% and adjusted earnings per share came in at 98 cents, a year over year increase of over 12%. Free cash flow continues to strengthen as our structural improvements in working capital take hold in our business. The second quarter, we delivered free cash flow of $186 million and our year-to-date conversion is 108%. The strong cash flow enabled us to continue to leveraging the company with net leverage now at 2.4 times trading 12 months to adjusted EBITDA. and we retired $406 million of debt in the quarter. Our second quarter results demonstrate that we continue to make efficiency gains in our business. As we become more efficient, we are systematically strengthening our balance sheet and our disciplined growth framework is working and growth is inflicting upwards. Let's turn to slide four and take a closer look at these trends and what they mean as we look ahead. Since we laid out our key pillars and our associated performance metrics, we have demonstrated not only an ability to deliver on our commitments, but to compound gains and accelerate progress. Adjusted operating margins have consistently expanded and the magnitude of these margin gains is increasing. On a trailing 12 month basis, Free cash flow conversion has accelerated every quarter since we made this a priority. Similarly, in the second quarter last year, we committed that we would deleverage the company with urgency with the target of getting below 2.5 time net leverage in 2026, and we delivered that two quarters ahead of schedule. Additionally, we indicated that we would strengthen our balance sheet by reducing gross debt which improves our earnings resilience through market cycles. We have now executed two debt retirement transactions and reduced gross indebtedness by more than $760 million. We also laid out a disciplined framework for how we would return Sansara to growth over time. This framework meant being patient and deliberate in the opportunities we pursue to ensure that we are delivering high quality, sustainable growth that will compound value for our shareholders over time. We are pleased to report that a trend has emerged. In each of the last four quarters, year over year growth accelerated and for the last two quarters, we have been in mid single digit territory. Importantly, earnings are growing faster than revenue and we now have three consecutive quarters of double digit year-over-year adjusted EPS growth. Simply put, there is a clear momentum in our business across every metric that we identified and our progress on growth has the organization increasingly energized. Each site I visit, I see examples of our team proactively identifying emerging or unmet needs for sensing and electrical protection engaging with customers and rapidly bringing products to market. There are countless examples of this across our business and in each of our segments. So with that, let's turn to slide five and we can take a closer look at how our reorganized business is enabling growth starting with automotive. In our automotive business, three key factors enable us to deliver market outgrowth. First, our diversified portfolio provides balanced exposure across ICE, EV, and powertrain agnostic applications enabling growth across regions regardless of varying EV adoption trends. Second, product innovation allows us to adapt to evolving EV architectures which create demand for customized solutions where we have developed differentiated products and one significant business with Global OEMs. And third, localization. Our in-region, for-region strategy aligns with customer demand for local content, supporting conquest wins. In the second quarter, these factors enabled us to deliver market outgrowth of 2% and further reinforce our ability to grow across regions with different powertrain adoption trends. In fact, We outgrew both ICE and EV production in both North America and Europe. In North America, our EV revenues were approximately flat in a market where EV production decreased by more than 30% year over year. We expect electrification revenue to continue outperforming EV production in North America, supported by the new fault break contactor, which launched in the second quarter and will ramp in future quarters. Outgrowth in North America was not limited to the EV category. We also outgrew ice production with ice revenue growth of approximately 14% against the market and increased 2% year over year. In aggregate, this represented double-digit net outgrowth in North America. In Europe, recent electrification winds have narrowed the content gap between ice vehicles and EVs and we outgrew EV production by 20% delivering 30% growth in EV revenues against the market which grew 10%. New business wins on ICE platforms enabled 5% ICE outgrowth in Europe and mid single digits net outgrowth for the region. In China, while the domestic market has softened, we continue to win local business that supports future growth. This quarter, more than 90% of our NBOs were again with local OEMs, helping offset mixed headwinds from the share shift towards local Chinese OEMs. We're also gaining traction with Tier 1 battery manufacturers by integrating into their system designs, giving us broader access to multiple OEMs. Over time, we expect this to create a flywheel effect as our business ramps and OEMs converge around fewer battery supplier defined architectures. Performance across the rest of Asia was exceptionally strong with broad growth supporting by increasing content with Japanese OEMs and a rapidly expanding presence in India. In fact, we saw over 40% revenue growth in India in the second quarter and over 50% revenue growth year to date. Earlier this quarter, I traveled to India along with most of our senior leadership team. We visited our engineering center in Pune where we announced that we would be opening a new manufacturing facility in Chennai as we begin to localize production for this fast-growing market. Let's turn to slide six. Our aerospace defense and commercial equipment segment delivered exceptional performance in the quarter with double digit growth for the second consecutive quarter. We're encouraged by the near-term momentum across this business and are continuing to invest in the medium and long-term growth opportunities that can sustain that performance. In aerospace and defense, for example, we recently showcased a broad range of our high-power density motors at the Farnborough Airshow and we are very encouraged by the customer response. We expect our expanded portfolio of motors, actuators and cockpit controls, including our digital flight and scepter, to support continued growth and further strengthen our position against a favorable market backdrop for commercial and defense production over the next several years. Commercial equipment, robust North American on-road truck orders and our strong second quarter results reinforce our expectation for a second half recovery. We also saw sensors supporting on-site power generation for data centers contribute nearly one point of growth in the quarter, and we expect that contribution to continue in the second half and accelerate in 2027. As on-site power becomes more common in new data center builds, it is creating attractive demand for our diesel engine solutions, including cylinder pressure and high temperature sensing. Let's turn to slide seven to discuss industrials. In our industrial business, we continue to navigate mixed end market conditions while building convection around several attractive growth opportunities. We secured another A2L gas leak detection win in North America, supporting our line of sight to more than $100 million of annual A2L revenue. Internationally, we see a similar structural opportunity developing Particularly in Europe, rising temperatures and low historical air condition penetration are increasing demand for efficient heating and cooling solutions. At the same time, Europe's transition to next-generation refrigerants increases the need for reliable leak detection and safety-critical HVAC sensing. Together, these trends create a meaningful long-term growth opportunity across our HVAC portfolio. Beyond HVAC, we are gaining traction in our data center business with a growing base of revenue in 2026 meaningfully contributing to organic growth in the year. With that growth comes increased conviction in our right to win future business. In fact, during the second quarter, we were specified into three additional new hyperscaler concepts for a total of five platform concept wins year to date. Additionally, We were named a preferred vetted vendor to a major hyperscaler. Each incremental specification win increases our credibility and improves our reach among hyperscalers, ODMs, and EPCs, expanding our ability to win new business. This quarter, one hyperscaler spec-in led to a significant award with an ODM for pressure and temperature sensors in our coolant distribution units, with shipments expected to begin the first quarter of 2027. With that, let's turn to slide eight as I would like to elaborate on these data center opportunities and where we are gaining traction. We frame our data center opportunity in three categories. First is electrical protection inside the data center, including circuit breakers and high voltage contactors that protect and control power across PDUs, sidecars, power conversion systems, and next generation racks. As architectures move towards 400 and 800 volt systems, demand for reliable switching interruption and protection increases. Our solutions are well positioned whether higher voltage DC is converted back to AC and sidecars or brought directly into server racks. Second is thermal management, including air and liquid cooling applications that use pressure, temperature, leak, and flow sensors, along with protection components to operate safely and reliably. As rack power density rises, liquid cooling and coolant distribution units are becoming more common, increasing demand for precision sensing and protection in higher density data centers. The interdependency of liquid cooling systems and high voltage goes beyond each enabling the other. The presence of liquid in high voltage architecture raises the stakes regarding electrical protection requirements and plays further into Sensada's credibility as a supplier into safety critical and mission critical automotive applications. Third is power and peak management. As AI workloads drive larger and faster swings in power demand, operators need resilient solutions to manage peak loads and use grid and onsite power more efficiently. DynaPower's converters, inverters, and related technologies are well positioned for UPS systems, battery storage, peak shaving, and onsite generation, helping data centers support high intensity compute loads and deploy faster where grid interconnections are constrained. As our data center opportunities convert into design wins, we recognize the focus on the potential scale of this opportunity for Sensata. Ultimately, that scale will depend on both the size of our addressable market and our participation rate. While we are still early in the hyperscale design and process, and are not yet prepared to disclose expected market share or content per megawatt, we are increasingly confident in the opportunity. Let's turn to slide nine and I will elaborate on how we see this opportunity developing. As data center architectures shift towards higher voltage, liquid cooling and more onsite power generation, we expect our addressable market to expand by 1.5 to 2.5 times. This expectation for SAM expansion is on a per megawatt basis and is in addition to the expected market growth from capacity deployments. In addition to market growth and SAM expansion, we see the potential for higher participation as our differentiated sensing, protection, and power conversion technologies become more relevant. This is clearly an exciting high growth opportunity. However, As you have seen with EVs, the pace of change and market adoption can vary. We are focused on what we can control, securing design wins with high quality hyperscalers and making use of our existing product portfolio and capacity to minimize at risk investments. The ability to participate in this growth factor without significant investment is a distinct advantage for Sensata. Our data center strategy does not require capital deployment for inorganic growth, capital intense launches, nor lengthy development cycles. We see ample opportunity to grow by leveraging existing products and developing derivative solutions from our core technology platforms. Data center architectures are evolving rapidly and the opportunity to secure specifications is unfolding in real time. Our recent wins demonstrate that our team is moving with urgency to accelerate development and sample delivery well ahead of the longer cycle timelines we see in other areas of the business. Now let me turn the call over to Andrew to provide greater detail on the second quarter and our guidance for the third quarter.