Q1 2024 Sensata Technologies Holding PLC Earnings Call

Good day and welcome to listen.

Unknown Executive: Good day, and welcome to the Sensata Technologies first quarter 2024 earnings conference call. All participants will be in a listen-only mode.

<unk> father technologies first quarter 'twenty 'twenty four earnings conference call.

All participants will be in a listen only mode.

Unknown Executive: 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 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Alexia Taxiarkos, Vice President, Corporate Communications. Please go ahead.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to MS. Alexia taxi Arcos, Vice President Corporate Communications. Please go ahead.

Alexia Arcos: Thank you Betsy and good afternoon, everyone I'm electrical tax yard House, Vice President corporate Communications and I would like to welcome. You. This is how does first quarter 'twenty 'twenty four earnings conference call. Joining me on today's call are Jeff Okay.

Alexia Taxiarkos: Betsy, and good afternoon everyone. I'm Alexia Taxiarchos, Vice President of Corporate Communications, and I would like to welcome you to Sensata's first quarter 2024 earnings competition. Joining me on today's call are Jeff Cote, Sensata's CEO and President, and Brian Roberts, Sensata's Chief Financial Officer. In addition to the financial results of the 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.

Alexia Arcos: Young President and Brian Roberts, Chief Financial Officer.

This isn't a financial results press release, we issued earlier today, we'll be referencing a slide presentation. During today's conference call. The PDF of this presentation can be downloaded from some sort of Investor Relations website. This conference call is being recorded and we will post a replay on our Investor Relations website. Shortly after the conclusion.

Alexia Taxiarkos: 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. Before we begin, I would like to reference Sensata's Safe Harbor Statement on slide 2.

Alexia Arcos: Today's call.

Alexia Arcos: As we begin I would like to reference inside a safe Harbor statement on slide two during this conference call, we will be making forward looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the projection.

Alexia Taxiarkos: During this conference call, we will be making forward-looking statements regarding future events or the financial performance of the company that 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.

Alexia Arcos: <unk> described in such statements.

Alexia Arcos: 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.

Alexia Taxiarkos: We encourage you to review our GAAP financial statements in addition to today's presentation because most 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 and in the appendices of our presentation material. Jeff will begin today with comments on our overall business. Brian will cover our detailed financials for the first quarter of 2024, including our financial guidance for the second quarter. Jeff will then return for some closing remarks. We will then take your questions. Now, I'd like to turn the call over to Sensata's CEO and President, Jeff Cote.

Alexia Arcos: Most of the information that we will discuss during today's call will relate to non-GAAP financial measures, our GAAP and non-GAAP financial including Reconciliations are included in our earnings release and in the appendices of our presentation material.

Jeff will begin today with comments on our overall business Ryan will cover our detailed financials for the first quarter of 'twenty 'twenty four including our financial guidance for the second quarter 'twenty 'twenty four.

Jeff will then return for some closing remarks, we will then take your questions now I'd like to turn the call over to <unk>, CEO and President Jeff Okay.

Jeffrey J. Cote: Thank you, Alexia, and welcome, everyone. Upon being named CEO of Sensata in the first quarter of 2020, I set as a main priority to ensure that Sensata was prepared to partner with our customers to solve the complex engineering and operational challenges of the next 10 years and beyond. Our ability to help our customers solve these very demanding problems is core to our DNA and underpins why Sensata has achieved success for more than 100 years.

Jeff: Thank you Alexia and welcome everyone.

Jeff: On being named CEO of some sort of in the fourth quarter of 2020.

Jeff: I said as a main priority to insurers that some solder was prepared to partner with our customers.

Jeff: To solve the complex engineering and operational challenges.

Jeff: Next 10 years and beyond.

Jeff: Our ability to help our customers solve these very demanding problems is core to our DNA.

And underscores Whitestone Sato has achieved success for more than 100 years.

Jeff: With more change your expected over the next decade that has been seen in the last 50 years it.

Jeffrey J. Cote: With more change expected over the next decade than has been seen in the last 50 years, it was critical to equip Sensata with the required capabilities to remain a trusted, relevant player in the markets we serve. And we did just that.

Jeff: It was critical to equip and sort of what the required capabilities to regain I trusted relative.

Jeff: Relevant player in the markets we serve.

Speaker Change: And we did just that.

Jeffrey J. Cote: We are at the early stages of a transformation to an electrified world, and Sensata is well positioned to capitalize on the opportunities that these new capabilities and our core broad sensing capabilities provide. We have invested in markets including high-voltage contactors, current sensing, isolation monitoring, battery management systems, and power conversion systems that allow us to participate in the unprecedented opportunity across the end markets we serve, from light vehicle and heavy vehicles to broad industrial markets, including the infrastructure needed to enable all this electrified equipment.

Speaker Change: We are at the early stages of a transformation to an electrified world.

Speaker Change: And since <unk> is well positioned to capitalize on the opportunities that these new capabilities in our core abroad sensing capabilities provide.

Speaker Change: We have invested in markets, including voltage contractors.

Sensing isolation monitoring battery management systems and power conversion systems.

Speaker Change: That allows us to participate in the unprecedented opportunity across the end markets we serve.

Speaker Change: From light vehicles, and heavy vehicles to broad industrial markets.

<unk> the infrastructure needed to enable all this electrified equipment.

The results to date have been impressive.

Jeffrey J. Cote: The results to date have been impressive, as electrification revenue increased from less than 3% of total Sensata revenue in 2019, to more than 17% of revenue in 2023. Furthermore, we are poised for continued future growth, recording over $2.3 billion in new business, with $1.3 billion of that new business being in the area of electrification during the last three years. However, as we know, transformational change, like we are seeing, for example, in the automotive industry, is not linear in nature.

Speaker Change: So electrification revenue increased from less than 3% of total since out of revenue in 2019.

Speaker Change: So more than 17% of revenue in 2023.

Speaker Change: Further we are poised for continued future growth recording over 2.3 billion of new business with 1.3 billion of that new business in the area of electrification during the last three years.

Speaker Change: However, as we know transformational change like we're seeing.

Speaker Change: Sample in the automotive industry is not linear in nature.

Jeffrey J. Cote: Consumer preferences, global economic trends, and regulations are among the very many variables that can create short-term ebbs and flows in demand. The good news for Sensata is that while we do not control demand, we are well-hedged against these fluctuations with our core safe and efficient business, which includes vital sensing products that have endured decades and will, without question, continue to be highly relevant to our customers, providing Sensata with lasting durability While our automotive customers may not be developing the next generation internal combustion engine, they will continue to produce ICE vehicles for years to come, and Sensata content is in a great majority of these vehicles.

Speaker Change: Consumer preferences global economic trends and regulations are among the very many variables that can create short term ebbs and flows and demand.

Speaker Change: The good news for us and sort of is that while we do not control demand we are well hedged against these fluctuations.

Speaker Change: Our core safe and efficient business, which includes vital sensing products that have endured decades without question continue to be highly relevant to our customers, providing some sort of lasting durability.

Speaker Change: Well, our automotive customers may not be developing the next generation internal combustion engine. They will continue to produce I C E vehicles for years to come.

Speaker Change: And there's some sort of content is on a great majority of these vehicles.

Jeffrey J. Cote: This positions us very well to manage the volatility associated with this transformation. For example, in the fourth quarter, we noted in certain markets, such as North America and Europe, the lower-than-forecasted levels of EVs were offset by higher-than-forecasted ICE production. Given our broad share position across ICE vehicles, this EV slowdown did not negatively impact our revenue nor our ability to outgrow our end market. In addition, we generated significant growth from new content, both from new business wins on EV platforms while ramping production, as well as on ICE vehicles, where we have taken share, resulting in year-over-year net revenue growth of more than 6% as compared to the IHS stated market that was down

Speaker Change: This positions us very well to manage through the volatility associated with this transformation.

Speaker Change: For example in the fourth quarter, we noted in certain markets, such as North America, and Europe lower than forecasted levels of Evs was offset by higher than forecasted IC production.

Speaker Change: Given our broad share position across Ice's vehicles. This EV slowdown did not negatively impact our revenue nor our ability to outgrow our end markets.

Speaker Change: In addition, we generated significant growth from new content.

Speaker Change: From new business wins on EV platforms, while ramping production.

Speaker Change: As well as on I C E vehicles.

Speaker Change: We have taken share.

Resulting in year over year net revenue growth of more than 6% as compared to the IHS stated market that was down 1%.

Speaker Change: As we know market outgrowth can vary from quarter to quarter due to mix and launch schedules.

Jeffrey J. Cote: As we know, market outgrowth can vary from quarter to quarter due to mix and launch schedules. But we were certainly pleased to deliver approximately 700 basis points of market outgrowth in our automotive business in the first quarter of this year. We may debate the rate of change as the market fluctuates over time.

But we were certainly pleased to deliver approximately 700 basis points of market outgrowth in our automotive business in the first quarter of this year.

Speaker Change: We made debate the rate of change as the market fluctuates over time.

Jeffrey J. Cote: But the number of plug-in hybrid and battery electric vehicles will only continue to increase; in 2023, EV penetration rates were 10% in North America, 15% in Europe, and 36% in China. In 2026, IHS forecast the penetration rate to almost double in all three of these regions, with penetration rates of 24%, 31%, and 60% for North America, Europe, and China, respectively.

Speaker Change: But the number of plug in hybrid and battery electric vehicles will only continue to increase.

Speaker Change: In 2023, EV penetration rates or 10% in North America, 15% in Europe, and 36% in China.

Speaker Change: In 2026, IHS forecast, our penetration rate to almost double in all three of these regions with penetration rates of 24%.

Speaker Change: 31% and 60% for North America, Europe, and China, respectively.

Speaker Change: Our first quarter automotive business results underscores that's insider is well prepared for both the coming wave of plug in hybrid and battery electric vehicles.

Jeffrey J. Cote: Our first quarter automotive business results underscore that Sensata is well prepared for both the coming wave of plug-in hybrid and battery electric vehicles, as well as the continued production of ICE vehicles, to deliver for our customers and for our shareholders. Let me take a moment to discuss the rest of our business portfolio, which represents nearly half of our revenue and continues to drive solid results against challenging market conditions. Our heavy vehicle and off-road business is starting to benefit from new European regulations around tire pressure monitoring.

Speaker Change: As well as the continued production of IC E vehicles.

Speaker Change: To deliver for our customers and for our shareholders.

Speaker Change: Let me take a moment to discuss the rest of our business portfolio, which represents nearly half of our revenue and continues to drive solid results against challenging market conditions.

Our heavy vehicle and off road business is starting to benefit from new European regulations around tire pressure monitoring.

Jeffrey J. Cote: Demand continues to increase, providing confidence that we will outgrow a market that is expected to decline in the mid-single digits due to North American weakness partially offset by improving production in China. Our industrials business, which includes HVAC, appliance, and general industrial, continues to see inventory de-stocking and a slow construction market, impacting overall sales expectations. While this industrial down cycle will likely continue to pressure results throughout much of 2024, our A2L leak detection sensor, which we launched late last year, has been well received in the marketplace and is delivering above expectations.

Speaker Change: Demand continues to increase providing confidence that we will outgrow a market that is expected to decline in the mid single digits due to north American weakness, partially offset by improving production in China.

Speaker Change: Our industrial business, which includes HVAC appliance and general industrial continues to see inventory destocking and slow construction markets impacting overall sales expectations.

Speaker Change: Well, there's industrial down cycle will likely continue to pressure results throughout much of 2024 are H well leak detection sensor, which we launched late last year has been well received in the marketplace and it is delivering above expectations.

Speaker Change: Finally, our aerospace business continues to deliver solid results with single digit year over year growth.

Jeffrey J. Cote: Finally, our aerospace business continues to deliver solid results with single-digit year-over-year growth. In summary, against an overall market backdrop for 2024, which will likely be down 1 to 2% this year, we are confident in our ability to deliver outgrowth of approximately 300 to 400 bases. While Brian will take you through the first quarter results in a moment, let me add that our first quarter performance is an important proof point as to the durability of the Sensata business as we delivered revenue and adjusted operating margins at the high end of our guidance range provided in the fourth quarter call in early February. With that, I will turn the call over to Brian, who will take you through the first quarter results in greater detail and provide guidance for the second quarter.

In summary against an overall market backdrop for 2024, which will likely be down 1% to 2% this year.

Speaker Change: We are confident in our ability to deliver outgrowth of approximately 300 to 400 basis points.

Speaker Change: Well, Brian will take you through.

Speaker Change: Our fourth quarter results in a moment, let me add that our first quarter performance is an important proof point as to the durability of this inside of business as we delivered revenue and adjusted operating margins at the high end of our guidance range provided in the fourth quarter call in early February.

Speaker Change: With that let me turn the call over to Brian will take you through the first quarter results in greater detail and provide guidance for the second quarter.

Brian K. Roberts: Thank you, Jeff. Good afternoon, everyone.

Brian K. Roberts: Thank you Jeff.

Brian K. Roberts: Good afternoon, everyone. Let me start on slide six.

Brian K. Roberts: Let me start on slide six. As Jeff noted, we had a solid first quarter with revenue and adjusted operating margins towards the high end of our guidance. We reported revenue of approximately $1.7 billion, as compared to revenue of about $998 million in the first quarter of 2020. This represents a 1% increase year over year.

As Jeff noted, we had a solid first quarter with revenue and adjusted operating margins towards the high end of our guidance ranges.

Brian K. Roberts: We reported revenue of approximately $1 billion 7 million as compared to revenue of about $998 million in the first quarter of 2023.

Brian K. Roberts: This represents a 1% increase year over year.

Brian K. Roberts: Organic revenue growth of 2.3%, partially offset by 140 basis points of unfavorable foreign exchange rates. Sequentially, revenue increased by 1.4% from the fourth quarter of 2020. Adjusted operating income was $188.5 million, or a margin of 18.7%. This represents a 20 basis point improvement from 18.5% for the fourth quarter of 2023. Foreign exchange rates proved to be a significant headwind to our adjusted operating margins, with a 70-basis point impact in the first quarter of 2024. On a constant currency basis...

Brian K. Roberts: Organic revenue growth of two 3%.

Brian K. Roberts: It was partially offset by a 140 basis points of unfavorable foreign exchange rates.

Brian K. Roberts: Sequentially revenue increased by 1.4% from the fourth quarter of 2023.

Brian K. Roberts: Adjusted operating income was $188 5 million or a margin of 18, 7%.

Brian K. Roberts: This represents a 20 basis point improvement from 18, 5% for the fourth quarter of 2023.

Brian K. Roberts: Foreign exchange rates proved to be a significant headwind to our adjusted operating margins with a 70 basis point impact in the first quarter of 2024.

On a constant currency basis, adjusted operating income margin was 19, 4% compared to 19, 3% in the first quarter of last year.

Brian K. Roberts: Adjusted operating income margin was 19.4% compared to 19.3% in the first quarter of last year. Adjusted earnings per share was $0.89 for the first quarter of 2024. This represents a three cent decrease from the first quarter of 2023. However, adjusted earnings per share exceeded our guidance by one cent. On a constant currency basis, earnings per share would have been 93 cents in the first quarter of 2024. Moving to slide seven. A key driver of margin tailwind or headwind in a given period is the revenue mix of our business. This slide helps to demonstrate this point.

Brian K. Roberts: Adjusted earnings per share was <unk> 89 cents for the first quarter of 2024.

Brian K. Roberts: This represents a three cent decrease from the first quarter of 2023.

Brian K. Roberts: Adjusted earnings per share exceeded our guidance by one set.

Brian K. Roberts: On a constant currency basis earnings per share would have been 93 cents in the first quarter of 2024.

Brian K. Roberts: Moving to slide seven.

Brian K. Roberts: A key driver of margin tailwind or headwind in a given period as the revenue mix of our business units.

This slide helps to demonstrate this point.

Brian K. Roberts: On the left is a graphical representation of our highest-margin business, Aerospace, down to our largest and lowest-margin business, Auto. While we continue to enjoy differentiated margins as compared to many in the automobile space, do note that a point of share that shifts from industrial to auto results in about a 25 basis point headwind for Sensata. Year-over-year, we experienced a three-point shift to auto from our higher-margin business. However, on a constant currency basis, our year-over-year adjusted operating margins increased in Q1 2024 despite this mixed shift, demonstrating productivity improvements across the organization.

Brian K. Roberts: On the left is a graphical representation of our highest margin business aerospace onto our large and lowest margin business auto.

Brian K. Roberts: While we continue to enjoy differentiated margins as compared to many in the automobile space. We do know that a point of share shifts from industrial to auto results in about a 25 basis point headwind that's insider.

Brian K. Roberts: Year over year, we experienced a three point shift to auto from our higher margin businesses.

Brian K. Roberts: On a constant currency basis, our year over year adjusted operating margins increased in Q1, 'twenty 'twenty four despite this mix shift demonstrating productivity improvements across the organization.

Brian K. Roberts: Turning to slide eight on segment performance.

Brian K. Roberts: Turning to slide 8 on segment performance, to better reflect how we are managing and operating the business, as well as to acknowledge the ongoing strategic review of our insights. We have reclassified insights from performance sense, creating another operating segment, which is reported in another. Prior periods have also been adjusted for purposes of comparability. For example, on a cost-adjusted basis, our performance sensing revenue increased in the first quarter of 2024 by approximately 7% year-over-year to approximately $713 million. Growth was primarily driven by strength in Europe due to higher-than-forecast ICE production coupled with strong results in both Japan and Korea.

To better reflect how we are managing and operating the business as well as to acknowledge the ongoing strategic review of our insights business. We have reclassified insights from performance sensing, creating another operating segment, which is reported in other.

Brian K. Roberts: Prior periods have also been adjusted for purposes of comparability.

Brian K. Roberts: This adjusted basis, our performance sensing revenue increased in the first quarter of 2024 by approximately 7% year over year to approximately $713 million.

Brian K. Roberts: Growth was primarily driven by strength in Europe due to higher than forecast I C. E production, coupled with strong results in both Japan and Korea.

Brian K. Roberts: Performance Sensing Operating Income was approximately $185 million, or 26% of performance sensing revenue. Operating margins increased by 70 basis points year over year, driven by revenue outgrowth and productivity. Sensing Solutions revenue decreased by 9% year over year to approximately $258 million, primarily due to the continued destocking challenges in the industrial business.

Brian K. Roberts: Performance sensing operating income was approximately $185 million or 26% of performance sensing revenue.

Operating margins increased by 70 basis points year over year, driven by revenue outgrowth and productivity.

Brian K. Roberts: Sensing solutions revenue decreased by 9% year over year to approximately $258 million, primarily due to the continued destocking challenges in the industrial business.

While we expect these market pressures to continue throughout much of the year. The launch of our new H O L leak detection business will partially offset some of the drop in the second half of 2024.

Brian K. Roberts: While we expect these market pressures to continue throughout much of the year, the launch of our new A2L leak detection business will partially offset some of the drop in the second half of 2024. Fencing Solutions' operating income was $72.5 million, with operating margins of 28.1%. This decrease of approximately 150 days, primarily due to lower industrial revenue. Turning to capital allocation on slide 9. Our priority remains to drive our net leverage down to under three times by the end of this year.

Brian K. Roberts: Then things solutions operating income was $72 5 million with operating margins of 28, 1%.

This decrease of approximately 150 basis points, primarily due to that lower industrial revenue.

Brian K. Roberts: Turning to capital allocation on slide nine.

Brian K. Roberts: Our priority remains to drive our net leverage down to under three times by the end of this year.

Brian K. Roberts: In addition, we announced last week our Q2 quarterly dividend of $0.12 per share, payable to shareholders of record as of May 8th, and we repurchased approximately 10 million Sensata shares in the first quarter of 2024.

Brian K. Roberts: In addition, we announced last week, our Q2 quarterly dividend of <unk> 12 per share payable.

Brian K. Roberts: Payable to shareholders of record as of May eight.

Brian K. Roberts: We repurchased approximately $10 million of Sensata shares in the first quarter of 2024.

Brian K. Roberts: We are focused on improving our free cash flow conversion in 'twenty 'twenty four to approximately 65% to 70% of adjusted net income.

Brian K. Roberts: We are focused on improving our free cash flow conversion in 2024 to approximately 65 to 70% of adjusted net income. As part of that effort, we expect to keep our 2024 capital expenditures flat with 2023 at about 4% of revenue and to reduce our inventory days on hand by approximately 10% this year. As shown on slide 10, we are providing financial guidance for the second quarter of 2024 as follows: the expected revenue is between $1,025,000,000 and $1,055,000,000.

Brian K. Roberts: Part of that effort, we expect to keep our 2020 for capital expenditures flat with 2023 and about 4% of revenue.

Brian K. Roberts: And to reduce our inventory days on hand by approximately 10% this year.

As shown on slide 10, we are providing financial guidance for the second quarter of 2024 as follows.

Brian K. Roberts: We expect revenue of $1.025 billion to $1.055 billion.

Brian K. Roberts: As expected, this represents a slight top-line decrease from the second quarter of 2023. You'll recall that Q2 2023 benefited from approximately $25 million in low-margin, one-time revenue at the midpoint of the revenue guidance range. We expect an adjusted operating margin of approximately 18.9% and adjusted earnings per share of $0.92. We expect foreign currency to negatively impact our second quarter results by 50 basis points compared to the prior year. Looking ahead to the second half of the year, we note that continued industrial de-stocking and unfavorable foreign exchange rates will likely continue to pressure revenue.

Brian K. Roberts: As expected this represents a slight top line decrease from the second quarter of 2023.

Brian K. Roberts: Youll recall that Q2 2023 benefited from approximately $25 million in low margin one time revenue.

At the midpoint of the revenue guidance range, we expect adjusted operating margin of approximately 18, 9% and adjusted earnings per share of 92 sets.

We expect foreign currency to negatively impact our second quarter results by 50 basis points compared to prior year.

Brian K. Roberts: Looking ahead to the back half of the year. We note that continued industrial destocking and unfavorable foreign exchange rates will likely continue to pressure revenue.

Brian K. Roberts: That said, we continue to expect revenue growth of approximately 2% for the full year 2024. Finally, within our peer group, we know that Sensata continues to deliver top quartile adjusted operating margins. Despite pricing pressure, as we return to a more normalized environment, our team continues to drive productivity through operational improvement. We remain committed to delivering Adjusted Operating Margin Improvement of 20 to 30 basis points per quarter for the remainder of the year. Now I would like to turn the call back.

That said, we continue to expect revenue growth of approximately 2% for the full year 2024.

Brian K. Roberts: Finally within our peer group, we know that's inside of continues to deliver top quartile adjusted operating margins.

Despite pricing pressure as we returned to a more normalized environment.

Brian K. Roberts: Our team continues to drive productivity through operational improvements.

Brian K. Roberts: We remain committed to delivering adjusted operating margin improvement of 20 to 30 basis points per quarter for the remainder of the year.

Brian K. Roberts: Now I'd like to turn the call back to Jeff.

Brian.

Jeffrey J. Cote: Alongside our earnings release today, we issued a separate release announcing my retirement from Sensata. Martha Sullivan, who will step into the role on an interim basis while the company undertakes a search process,

Alongside our earnings released today, we issued a separate release announcing my retirement from since auto.

Brian K. Roberts: Martha Sullivan, who step will step into the role on an interim basis, while the company undertakes a search process.

Jeffrey J. Cote: I know many of you are familiar with Martha, given her 35-year history with Sensata, including her time as CEO from 2013 to 2020 and her tenure on the board of directors. It has been a great honor to be the CEO of Sensata for the last four years and a member of the management team since 2006. I am proud of the progress we have made enabling our customers to solve their most challenging engineering and operational issues by developing a broad set of capabilities that is not only helping to transform our end markets but has transformed Sensata. As recently as 2017, IHS predicted that electric vehicles would comprise approximately 9% of the market in 2026. Now that forecast is 26%.

Jeff: I know many of you are familiar with Martha given her 35 year history with some charter, including her time as CEO from 2013 to 2020 and her tenure on the board of directors.

Jeff: It has been a great honor to be the CEO of since auto over the last four years and a member of the management team since 2006.

Jeff: I am proud of the progress we have made enabling our customers to solve their most challenging engineering and operational issues by developing a broad set of capabilities that is not only helping to transform our end markets, but also has transformed since start up.

Jeff: As recently as 2017, IHS predicted that electric vehicles would comprise approximately 9% of the market in 2026.

Jeff: Now that forecast is 26%.

Jeffrey J. Cote: Companies such as BYD and Tesla have become the largest EV manufacturers globally. Since 2019, Sensata has grown revenue by 17% to just over $4 billion in 2023. Basically, all of that growth has been in electrification.

Jeff: Companies, such as BYD and Tesla have become the largest EV manufacturers globally.

Jeff: Since 2019, this insider has grown revenue by 17%.

Jeff: To just over $4 billion.

Jeff: In 2023 base.

Jeff: Basically all of that growth has been in electrification.

Jeff: Well Theres significant opportunity has emerged we continue to navigate through an unprecedented micro environment.

Jeffrey J. Cote: While this significant opportunity has emerged, we continue to navigate through an unprecedented micro environment, commencing with the pandemic, followed by massive supply chain disruptions, and an inflationary cycle. We did our best to navigate through these choppy waters and are now poised to grow our top line and bottom line and improve our financial predictability. I know that Martha, Brian, and the whole team will continue to work tirelessly to deliver on Sensata's promising future.

Jeff: Commencing with the pandemic followed by massive supply chain disruptions.

In an inflationary cycle.

Jeff: We did our best to navigate through these choppy waters and are now poised to grow our topline and bottom line and improve our financial predictability.

Jeff: I know that Martha Bryan and the whole team will continue to work tirelessly to deliver on some saw those promising future.

Jeffrey J. Cote: As our first quarter results and second quarter guidance indicate, we are on the right path. We achieved revenue and adjusted operating margin results for the first quarter at the high end of our guidance range. And we are on track to deliver margin expansion in the second quarter. We continue to reduce net leverage, and we expect to be under three times leverage by the end of 2024. I want to thank our investors for your support through the good and challenging times.

Jeff: As our first quarter results and second quarter guidance indicates we are on the right path.

Jeff: We achieved revenue and adjusted operating margin results for the first quarter at the high end of our guidance range.

Jeff: And we are on track to deliver margin expansion in the second quarter.

Jeff: We continue to reduce net leverage and we expect to be under three times by the end of 2024.

Speaker Change: I want to thank our investors for your support through the good and challenging times.

Jeffrey J. Cote: I want to thank our board for giving me the great privilege of serving as CEO for these past four years. And, most importantly, I want to thank our customers and the more than 21,000 Sensata teammates that I've had the honor of working alongside for the last 18 years to deliver innovative solutions for our customers each and every day. I'll now turn the call back to the election.

Speaker Change: Want to thank our board for giving me a great privilege to serve as CEO for these past four years and.

Speaker Change: And most importantly, I want to thank our customers and.

Speaker Change: The more than 21, thousands and sort of teammates that I've had the honor of working alongside for the last 18 years.

Speaker Change: To deliver innovative solutions for our customers each and every day.

Speaker Change: I'll now turn the call back to Alexia.

Alexia Arcos: Thank you Jeff will now move to Q&A to allow all of those who wish to ask a question the opportunity to do so we will limit each participant to one question each.

Alexia Taxiarkos: Thank you, Jeff. We'll now move to Q&A. To allow all those who wish to ask a question the opportunity to do so, we will limit each participant to one question each. Betsy, please introduce the first question.

Alexia Arcos: Betsy.

Betsy: He was the first question.

Alexia Arcos: We will now begin the question and answer session.

Unknown Executive: We will now begin the question and answer session. To ask a question, please press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. The first question today comes from Wamsi Mohan with Bank of America. Please go ahead.

Speaker Change: Ask a question. Please press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing.

Speaker Change: Yeah.

Speaker Change: The first question today comes from warm to email him with Bank of America. Please go ahead.

Warm: Yes. Thank you so much Jeff it's been a great working with you over the years. So we'll all Miss you.

Wamsi Mohan: Yes, thank you so much. Jeff, it's been great working with you over the years, so we'll miss you. If I step back a little bit here, can you talk about the expectation for outgrowth this year in the automotive industry and how you are now thinking about the overall production and the EV mix? It feels like the EV mix kind of slowed in some areas. Just curious as you think about the progression through the course of the year and what we should think about that. Thank you. Yeah, Wamsi-

If I if I step back a little bit here can you talk about the expectation for outgrowth this year and in automotive and and how are you now thinking about.

Warm: The overall production and the E V. Max it it feels like the EV mix kind of slowed in some areas. Just curious as you think about the progression through the course of the year, how we should think about that thank you.

Jeffrey J. Cote: Yeah, Wamsi, thank you. It's been a pleasure working with you as well.

Speaker Change: Yeah. One G. Thank you it's been a pleasure working with you as well from an old girl standpoint, obviously for their first quarter automotive was quite strong at 700 basis points total company was about 300 basis points of outgrowth, that's not within the four to 600 basis point range, we have historically targeted but it's a significant.

Jeffrey J. Cote: From an outgrowth standpoint, obviously, for the first quarter, automotive was quite strong at 700 basis points, while total company was about 300 basis points of outgrowth. That's not within the 400 to 600 basis point range we have historically targeted, but it's a significant improvement from where we were last year, where we saw mix really impact the overall outgrowth, and there were quarters where we were growing slower than the IHS forecasted rate. So we feel really good about that.

Speaker Change: Difficult improvement from where we were last year, where we saw mix really impact the overall outgrowth, where there were quarters, where we were growing slower than the IHS forecasted rate. So we feel really good about that the continued N. B OS that we've won and the forecast that we see with customers would suggest that we'll continue to see in that.

Jeffrey J. Cote: The continued NBOs that we've won and the forecast that we see with customers would suggest that we'll continue to see in that range of 300 to 400 for the year. And again, hopefully, as those NBOs take hold over time, and if the mix goes in our way in terms of the mix of the automotive market, we'll continue to see that. So it's off to a good start here, Wamsi, and we're pleased with the outcome in terms of the overall growth rate.

Range of 300 to 400 for the year.

Speaker Change: And again, you know hopefully as those N b o's take take hold over time and if the mix goes in our way in terms of the mix of the automotive market will continue to see that so it's.

Speaker Change: It's off to a good start here onesie and <unk>, where we're pleased with the outcome in terms of the overall growth rate.

Speaker Change: The next question comes from Matt Sheerin with Stifel. Please go ahead.

Unknown Executive: The next question comes from Matt Sheerin with Spiefel. Please go ahead.

Matthew John Sheerin: Oh, yes. Thank you thanks very much and.

Matthew John Sheerin: Yes, thank you. Thanks very much.

Matthew John Sheerin: Jeff I guess I guess the one.

Jeffrey J. Cote: And so, Jeff, I guess one important question here from investors is why the change here in terms of the management change. I also noticed that there's some new board representation from an investment fund. So could you talk about maybe some of the reasons for the change and what we should expect in terms of new management as we go forward here? Yeah, I'd

Matthew John Sheerin: Important question you hear from investors is what why is the change here in terms of the management change I also noticed that there was some new board representation.

Matthew John Sheerin: From an investment and fun. So could you talk about maybe some of the reasons for the change and what we should expect in terms of a new management as we go forward here.

Speaker Change: Yeah, I'd be glad to address that so let me let me start with with what I stated in my opening comments that leading this company for the last four years as the CEO and being a part of the management team for the last 17 18 years is better as better huge honor.

Jeffrey J. Cote: Yeah, I'd be glad to address that. So, let me start with what I stated in my opening comments that leading this company for the last four years as the CEO and being part of the management team for the last 17, 18 years has been a huge honor. And I thank everyone for that honor. Based upon the capabilities that we see that we've developed, and the new business wins that we've actually achieved. We feel as though we've gone through a real, significant transformation here.

Speaker Change: And I, thank everyone for that honor based.

Speaker Change: Based upon the capabilities that we see that we've developed the new business wins that we've actually achieved.

Speaker Change: We feel as though we've gone through a real significant transformation here.

Jeffrey J. Cote: Personally, I've never been a huge fan of long goodbyes, to be honest with you, and we're very fortunate that we have Martha Sullivan on the board, and we're also very fortunate that she was willing to step into the role on an interim basis as we perform a search. You can certainly understand that given that Martha's been a part of the board, she's been very involved in the strategy. I think that she'll continue to look at the strategy and how we focus, and what we need to make sure that we execute on.

Speaker Change: Personally I've I've never been a huge fan of long goodbyes to be honest with you and we're very fortunate that we have Martha Sullivan on the board and we're also very fortunate that she was willing to step into the role on an interim basis as we perform a search.

Speaker Change: You can you can certainly understand that given that Martha has been a part of the board she's been very involved in the strategy I think that she'll continue to look at our strategy and how we focus on what we need to make sure that we execute on and when we hired new C. E O I'm sure that individuals will do the same but the.

Jeffrey J. Cote: And when we hire a new CEO, I'm sure that individual will do the same, but the progress that we've made and the success that we've achieved should speak for itself. I'm sure there'll be some tweaks along the way, but we feel as though we're executing well, and we're on a really nice glide path here in terms of continued progress in terms of executing on the strategy.

Speaker Change: Progress that we've made and the success that we've achieved should speak for itself I'm sure there'll be some tweaks along the way, but we feel as though we're executing well and we're on a real nice glidepath here in terms of continued progress in terms of executing on the strategy.

Speaker Change: I appreciate the question.

Unknown Executive: The next question comes from Mark Delaney with Goldman Sachs. Please go ahead.

Speaker Change: The next question comes from Mark Delaney with Goldman Sachs. Please go ahead.

Mark Trevor Delaney: Yes, thanks for taking my question. And Jeff, let me also thank you for all your help over the last many years and wish you the best in the future.

Mark Trevor Delaney: Yes, Thanks for taking my question and Jeff. Let me also thank you for all your help over the last many years and I wish you the best in the future.

Jeffrey J. Cote: I was hoping to get an update on how Sensata thinks it's tracking to the 2026 Target Financial Model, which from your investor day I think called for $5 to $5.3 billion of revenue and $550 to $630 of earnings. Maybe talk about how you see the automotive part of that shaping up, especially as it relates to EV. And you alluded to some shifts in how some of the OEMs are developing their EVs. And to the extent the EV business is somewhat slower, are there other businesses that maybe offset that, perhaps some with higher margins?

I was hoping to get an update on how some sort of thinks is tracking to the 2026, our target financial model, which from your Investor Day, I think called for five to $5 3 million of revenue and 550 to 630 of earnings maybe you can talk about how you see the automotive is a part of that shaping up, especially as it relates to E V and you alluded to some shifts in how some of the Oems are.

Mark Trevor Delaney: Developing their evs and to the extent the EV business is somewhat slower or are there other businesses that maybe offset that perhaps somewhat higher margins. Thanks.

Jeffrey J. Cote: Yeah, absolutely. So there's certainly a lot of change that's going on in the markets. We spoke to some of that in the first quarter of this year, where you saw EV production rates drop from the fourth quarter of last year, still up considerably from the first quarter of 2023, still a 20% plus growth rate. But fourth quarter EV production was about three and a half million, and first quarter was about 3.1. So there was a big shift there that was quite favorable, and Sensata benefits because of the hedge that we have, the natural hedge that we have.

Speaker Change: Yeah, absolutely, so and Theres certainly a lot of change that's going on in the markets. We spoke to some of that in the first quarter of this year, where you saw E V production rates dropped from the fourth quarter of last year still up considerably from the first quarter of 2023 is still a 20% plus growth rate.

Speaker Change: But fourth quarter EV production was about three and a half million in first quarter was about 3.1. So there was a mix shift there that was quite favorable and since a lot of benefits because of the hedge that we have the natural hedge that we have speaking specifically to the electrification business, what we've consistently talked about it as 2026, having a $2 billion.

Jeffrey J. Cote: Speaking specifically to the electrification business, what we've consistently talked about is 2026 having a $2 billion electrification business. We left 23 with a $700 million business, that's 17% of the company, and in 23, it grew by over 50%.

Speaker Change: Vacation business, we left 23 with a 700 million dollar business, that's 17% of the company and in 'twenty three it grew by over 50%, obviously, we don't need to grow that business at 50% to get to the 2 billion by 'twenty six.

Jeffrey J. Cote: Obviously, we don't need to grow that business at 50% to get to $2 billion by 26, but we feel really good about the wins that we have in our long cycle business. So remember, a very big portion of our business is long cycle, so we have a lot of visibility into that. We quote new business wins as the indicator for that, and we've said that we have 90% plus of the 1.2 automotive market sold with our customers. So that's a very high fill rate in terms of visibility to that outcome.

Speaker Change: But we feel really good about the wins that we have in our long cycle business. So remember very big portion of our business is long cycle. So we have a lot of visibility to that we quote new business wins as the indicator for that and we've said that we have 90% plus of the one point to automotive.

Speaker Change: <unk> sold with our customers. So that's at a very high fill rate in terms of visibility to that outcome, obviously, where E. V go will impact that outcome, but as was demonstrated in the fourth first quarter of this year. When there is a pivot toward more IC E. We benefit from that as well so.

Brian K. Roberts: Obviously, where EVs go will impact that outcome. But as was demonstrated in the first quarter of this year, when there is a pivot toward more ICE, we benefit from that as well. So it's not lost revenue if EV penetration doesn't grow at the same rate. So we feel good about where things are going, Mark, and we'll continue to monitor it and obviously make sure that we're pivoting our engineering investments to where our customers have long-term commitments regarding the direction that their businesses will go, which will obviously drive the direction of our business.

Speaker Change: It's not lost revenue if EV penetration doesn't grow at the same rate so.

Speaker Change: So we feel good about it in terms of where things are going Mark and we'll continue to monitor it and obviously make sure that we're pivoting our engineering investments to where our customers have long term commitment regarding the direction that their businesses will go which will obviously drive the direction of our business and Mark I'd just add.

Brian K. Roberts: And Mark, I just had a couple of quick additional comments to what Jeff said, specifically with regard to the auto. For example, certainly over the next couple of years, we'll move back to ICE, for example, and Europe will help us. As we've talked about, we have approximately two times the content on an ICE vehicle in Europe as compared to an EV vehicle. I'd also point out that, you know, if you think about kind of our safe and efficient business, while the revenue number may be a little bit lower, you know, due to that business, you know, due to the timing around easy, our profit profile is quite good.

Mark Trevor Delaney: No additional comments to add to what Jeff said, specifically within auto you know for example, certainly over the next couple of years, you'll move back to ICU for example in Europe helps us as we've talked about.

We have approximately two times the content on an icy E vehicle in Europe as compared to an EV vehicle I'd also point out that you know if you think about kind of our seafood efficient business, while the revenue number maybe a little bit lower due to that business due to the timing around easy or profit.

Profile is quite good there.

Brian K. Roberts: And so it's what we do. We have lean manufacturing. We have a lot of volume there, and we'll continue to. So it can help us, certainly, from a profitability point of view. And then, outside of the auto industry, I would just point out that although this industrial down cycle seems to be lingering longer than any of us would have planned or liked, at some point, it's going to start to turn, and that turn in 25 and 26, again, should certainly benefit us.

Mark Trevor Delaney: And so you know, it's what we do with lean manufacturing, we have a lot of volume there and will continue to so can help us certainly from a profitability side and then outside of auto I would just point to you. Although this industrial down cycle seems to be lingering longer than any of us would've planned or looking at some point, it's going to start to turn that turn in 'twenty five.

Mark Trevor Delaney: 26, again should certainly benefit the company.

Speaker Change: Thanks Mark.

Unknown Executive: The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Speaker Change: The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Christopher D. Glynn: Thanks, Jeff. Thanks for the partnership working alongside us for many years. All the best. I wanted to ask about the comment about taking share in the ice vehicle market, if you could describe that dynamic in a little bit more detail. And also, does the, you know, standard historical price down dynamic, does that change at all for your ice-focused sales, given the transition away from that technology?

Christopher D. Glynn: Thanks, Jeff and thanks to the partnership working alongside US for many years all the best wanted to ask about the comment about taking share in the used vehicle market. If you could describe that dynamic you know a little bit more detail and also.

Christopher D. Glynn: Does the you know standard historical price down dynamic does that change at all fear ice a focused sales.

Christopher D. Glynn: Given the transition away from that technology.

Jeff: Yeah. So it's been a pleasure working with you as well Chris on the share question.

Jeffrey J. Cote: Yeah, so it's been a pleasure working with you as well, Chris. On the share question...

Speaker Change: I can tell you with high level of confidence that every one of our customers wants to make sure that they're working with a partner that's got to be there for the whole time that they're producing internal combustion engines and they want to make sure that that partner is working right alongside them.

Jeffrey J. Cote: I can tell you with a high level of confidence that every one of our customers wants to make sure that they are working with a partner that's going to be there for the whole time that they're producing internal combustion engines, and they want to make sure that that partner is working right alongside them to be there as long as they need them to be there. And that's been an enormous benefit to us because we're such a critical supplier on the internal combustion side.

Speaker Change: To be there as long as they need them to be there and that's been an enormous benefit to us because we're such a critical supplier on the internal combustion side now that we have the capability to serve them on the E V platforms. It creates an advantage for us to be able to serve them on that side and so as.

Jeffrey J. Cote: Now that we have the capability to serve them on the EV platforms, it creates an advantage for us to be able to serve them on that side. And so, as our customers look to narrow their supply base, we're their key supplier for their legacy ICE engines. And as other suppliers drop off, we'll naturally get more of that share. That's a very profitable business, as Brian mentioned. And then it will give us that advantage as well to be successful on the new platform.

Speaker Change: Our customers look to narrow their supply base.

Speaker Change: Where they are a key supplier for their legacy IC engines and as other suppliers drop off will naturally get more of that share that's very profitable business as Brian had mentioned and then it will provide us that advantage as well to be successful on the new platform. So as this transition our coworkers.

Jeffrey J. Cote: So as this transition occurs, we're going to win on both sides of that equation. And we'll just work to make sure that we serve our customers, and we're there for them to be able to balance this as they move forward.

Speaker Change: We're going to win on both sides of that equation and we'll just work to make sure that we serve our customers and we're there for them to be able to balance this as they move forward and.

Brian K. Roberts: And on your price down question, you know, we certainly expect that, as we talked about last quarter, we're moving back to that kind of normalized productivity needs to offset a price reduction type environment. You know, this year here, we've seen pricing changes mostly in our, you know, yet last year, being able to get additional prices that would not repeat in 2024, not necessarily price drops per se this year, but just a year-over-year change. But we certainly expect as we move into 25 and 26 that we'll get back to that normalized environment. We're certainly taking the steps necessary to make sure that this happens.

Speaker Change: On your price down question, Yeah, We certainly expect a you know as we talked about last quarter, we're moving back to that kind of normalized productivity needs to offset a price reduction type of environment.

Speaker Change: You know this year here you know we've seen pricing changes mostly in the in our.

Yeah last year being able to get additional price that would not repeat in 2024.

Speaker Change: Not necessarily price downs per se this year, but just a year over year change, but we certainly expect as we move into 'twenty five and 26 that we'll get back to that normalized environment, where we're certainly taking the steps necessary to make sure. We can we'll be prepared for that.

Speaker Change: Thanks, Chris.

Speaker Change: The next question comes from <unk> Patel with Wolfe Research. Please go ahead.

Unknown Executive: The next question comes from Shreyas Patil with Wolf Research. Please go ahead.

Shreyas Patil: Hey, thanks a lot for taking my question. I want to just dig in a little bit more into the ICE to BEV transition. I think you've talked in the past about content, the content opportunity for BEVs being about two times that for ICE vehicles, and gross margins are pretty similar between the two product categories. But I do believe you have a lot of engineering spending on the EV side. So is there an opportunity for you to flex down on that engineering spending if we are going to be in a period where EV adoption is slowing?

Patel: Hey, Thanks, a lot for taking my question I wanted to dig in a little bit more into the ice to Bev transition I think you've talked in the past about content AR VR content opportunity on bats, being about two times that on ice vehicles.

Ankit Patel: And and and gross margins are pretty similar between the two product categories.

Ankit Patel: But I do believe you have a lot of engineering spending on that on the EV side. So is there an opportunity for you to flex down that engineering spending if we are going to be in a period, where EV adoption is slowly.

Shreyas Patil: Or is that more of a sticky cost? And then maybe, just also thinking about the EV opportunity more broadly, can you talk a little bit about DynaPower? What you're seeing from a growth perspective there, and how we should think about that as well? Thanks.

Ankit Patel: Or is that more of a sticky cost and then maybe just also.

Thinking about the opportunity more broadly can you talk a little bit about diner power.

Ankit Patel: What what youre seeing from a growth perspective, there and how we should think about that as well. Thanks.

Brian K. Roberts: Yeah, so it's Brian. Let me start with kind of the first part, and then I'll turn it over to Jeff to speak about DynaPower. You know, keep in mind, again, a lot of these new business wins that we wind up receiving are long cycles, right? So we're typically doing, and we're helping them build the product that's going to be unique to whatever the platform is, and we typically start that, you know, three to five years in advance of when the actual launch of the product's going to happen.

Ankit Patel: So it's Brian Let me, let me start with kind of the first part and then I'll turn it over to Jeff that speak about data power.

Ankit Patel: You know keep in mind again, a lot of these new business wins that we wind up receiving have are long cycles right. So we're typically doing and where we're helping them build the product that's going to be unique to whatever the platform is and we typically start that you have three to five years in advance of when the actual launch of the product is going to happen. So you know much of the engineering core.

Brian K. Roberts: So much of the engineering cost that we have today is going to support those new business launches that happen 25, 26, and beyond. So, for example, as we quote new business opportunities today, many times those are planned for launch in 2028 at this point. So I don't expect a real change in our engineering spend. Certainly, as the company grows and the electrification business does continue to grow, we will be able to spread that cost out over a bigger base and, therefore, gain more efficiency. But, you know, we certainly think the resources that we have to help us serve the opportunities that we've won as well as the ones that we hope to win.

Ankit Patel: <unk> that we have today is going to support those new business launches that happened 25, 26 and beyond So for example, as we quote new business opportunities today and many times. So those are planned for launch in 2028 at this point. So I don't expect a real change in our engineering spend you know certainly as the company grew.

Ankit Patel: Roes in the electrification business does continue to grow we will be able to kind of spread that cost out over a bigger base and therefore gain more efficiency there.

Ankit Patel: But we certainly think the resources that we have are needed in place to help us serve the opportunities that we've won as well as the ones that we hope to win here in the coming future.

Jeffrey J. Cote: And so let me speak to the DynaPower piece. And it's important, I apologize for a little bit of a wind-up on this, but it's important to understand what that business is doing.

Ankit Patel: And so let me speak to the diner power or piece and it's important I apologize for a little bit of a wind up on this but it's important to understand what that business is doing there they're developing industrial grade powered version.

Jeffrey J. Cote: They're developing industrial-grade power inversion so that whenever grid-related or PV or alternative energy-related installations require a step up or step down of DC to DC or AC to DC, there's dyna-power equipment in between that. And so if you think of the trend toward more renewable energy, if you look at the need for grid balancing on a global basis so that you're not having production of gas turbines or other generation capabilities for peak capacity, you need to have distributed generation and distributed storage globally in order to be able to manage that process.

Ankit Patel: So that whenever grid related or P V or alternative energy related installations require a step up or step down of D. C. The D C or a C or D C. They're stein of power equipment in between that and so if you think of the trend toward more renewable energy. If you look at the <unk>.

Ankit Patel: Need for grid balancing on a global basis, so that you're not having production of gas.

Ankit Patel: Gas turbines or other generation capabilities for peak capacity, you need to have distributed generation and distributed storage globally in order to be able to manage that process and diner power or is that the sweet spot of making that happen are.

Jeffrey J. Cote: And Dyna-power is at the sweet spot of making that happen. They also have some very important inverter products in the military area, which are doing very well. And there are also areas around electrolysis for hydrogen in terms of that process, so making green hydrogen. And so there's lots of opportunity there. It's a project-based business in the sense that it's a very complex ecosystem in terms of what's going on, because we're part of a major investment in energy infrastructure. And so you'll see a little bit of lumpiness associated with this business, but we're very confident it's long-term.

Ankit Patel: They also have some very important and burner products in the in the military area, which are doing very well and there are also areas around electrolysis for for hydrogen in terms of that process. So, making you know green hydrogen and so there there's lots of opportunity there it's a <unk>.

Ankit Patel: Project based business in the sense that it's a very complex ecosystem in terms of what's going on because we're part of a major investment in energy infrastructure and so you'll see a little bit of Lumpiness associated with this business, but we're very confident in its long term potential.

Unknown Executive: The next question comes from William Stein with Truist Securities. Please go ahead.

Ankit Patel: The next question comes from William Stein with <unk> Securities. Please go ahead.

William Stein: Great. I'm hoping you can elaborate on the low margin one.

William Stein: Great I'm, hoping you can elaborate on the low margin one time revenue that you had and I'd also.

Unknown Executive: [inaudible]

Brian K. Roberts: I'd also ask if you could comment on booking trends for the quarter. Thank you.

William Stein: Ask if you could comment on booking trends in the quarter. Thank you.

Unknown Executive: But, you know, so the low, low margin one-time revenue is effectively within the industrials business; we wound up leveraging our supply chain to effectively buy some one-time products on behalf of a customer, which is associated with an installation that we were. So, it was really almost, think of it as almost like pass-through revenue that was kind of one-time in nature. So, that was the revenue back in Q2 of 23, and again, it was around, you know, $25,000. The next question.

William Stein: Well you know so the low the low margin one time revenue was effectively.

William Stein: And then the industrials business, we wind up leveraging our supply chain to effectively by some onetime product on behalf of a customer which is associated with the with an installation that we were doing so it was really almost think of it as almost like pass through revenue.

William Stein: That was kind of onetime in nature. So that was that was the revenue back in in Q2 of 'twenty three and again it was around $25 million in total.

Speaker Change: The next question comes from semi that Oh, Gee with J P. Morgan. Please go ahead.

Samik Chatterjee: The next question comes from Samit Chatterjee with J.P. Morgan. Please go ahead. Hi, thank you for taking my question.

Speaker Change: Hi, Thank you for taking my question. This is M P on because I'm excited he.

Semi: Can you. Please highlight the key audit matters, which you touched upon in the recent 10-K filing.

Brian K. Roberts: The, uh, sorry, could you repeat that on the 10K filing? certain key audit matters that were highlighted by the auditors in the 10-K filing. Critical Economy Matters.

Thank you we are so sorry somebody could you could you repeat that on the 10-K filing.

Semi: So the key audit matters that were highlighted by the order he goes into I think you're fighting.

Oh, Oh critical client matters. So yeah. So you know with with the different acquisitions that were.

Brian K. Roberts: So, yeah, with the different acquisitions that were completed, we effectively have to go through, you know, goodwill and impairment analyses for each of those different acquisitions, basically looking at the purchase price versus the fair value of the assets as described by us and then audited through the firm. And ultimately, you know, that test is done on a routine basis, and they look at each of the different reporting units.

Semi: Completed we.

We effectively has to go through you know goodwill impairment analyses for each of those different acquisitions, you know basically looking at purchase price versus the fair value of the assets as described by US and then audited through the firm and ultimately that test is done on a routine basis and they look at each of the different reporting units that's what yeah.

Brian K. Roberts: That's what, you know, that effectively led to last year, the change that we made with the insights business. I'm not sure if you're speaking specifically about that, or if there was another piece that you're referring to. The other one may be around our internal controls, and I'll just, you know, hit it head-on. You know, certainly within our regions, as we went through our internal control, kind of testing and environment here in 2023, we found some different issues, specifically in the Americas, in our Mexico manufacturing sites, a lot of it around inventory and some of our account reconciliation work that was done by our shared services team that we felt needed to be upgraded.

Semi: Effectively what led to last year the change that we made with the insights business.

Semi: I'm not sure if you're speaking specifically to that or if there was if there was another piece that you're referring to the other one maybe around our internal controls and I'll just hit it head on you know certainly within our regions. It was we went through our internal control kind of testing and environment here in 2023, Yeah. We found some differ.

Issues, specifically in the Americas in our in our Mexico make sites a lot of it around inventory and some of our account reconciliation work that was done by our shared services team that we felt needed to be upgraded and so we're working through the process you know alongside Deloitte as well as you know leveraging third party advisors.

Brian K. Roberts: And so we're working through the process, you know, alongside Deloitte, as well as, you know, leveraging third-party advisors such as Price Waterhouse for us to be able to go through and make sure that internal control environment, the testing, the actual documentation of all those controls and the actions, you know, are up to the standards that we certainly set for ourselves, and we're working hard to make sure that, attempt to remediate that by the end of this calendar year.

Semi: Such as price Waterhouse for for us to be able to go through and make sure that internal control environment that testing the actual documentation of all those controls and the actions you are up to the standards that we serve you set for ourselves and we're working hard to make sure that we can attempt to remediate that by the end of this calendar year.

Semi: The next question comes from Luke junk with Baird. Please go ahead.

Unknown Executive: The next question comes from Luke Junk with Baird. Please go ahead. Good afternoon. Thanks for taking the question.

Luke L. Junk: Good afternoon, Thanks for taking the question and Jeff Good luck in the future I'm, just hoping you could maybe expand on what you're seeing in industrial or an H b a C. Right now just in terms of current dynamics working through the channel and whether Youre seeing any light at the end of the tunnel here in late April just given that it's such an important piece to the bottom line outlook.

Luke L. Junk: The next question comes from Luke Junk with Baird. Please go ahead. [inaudible]

Jeffrey J. Cote: Yeah, so when you think of things that have changed since February, the outlook for industrial is an area that's a little bit more negative than it historically was in February, that foreign exchange is both going the wrong way, and mix is going the positive way, offsetting the impact associated with both of those.

Semi: Yeah.

Semi: Yeah. So when you when you think of things that have changed since February the outlook for industrial is an area. That's a little bit more negative than historically was in February that foreign exchange are both going into the wrong way mixes going in a positive way offsetting the impact associated with both of those if you follow some of the.

Jeffrey J. Cote: If you follow some of the others that have shared their results prior to us, you know that the industrial business is now expected to go through a down cycle for the balance of 2024. And so we'll monitor that closely. It's a complex supply chain in terms of all the distributors and others that are there, but we are working very closely with our customers because, as Brian mentioned, when that business snaps back, not only do you have to deliver what the market demands, but you start to replenish the supply chain as well. So it snaps back pretty strong when it does.

Semi: The others that have.

Semi: Shared their results prior to us.

Semi: Know that the industrial business is now expected to go through a down cycle for the balance of 2024, and so we'll monitor that closely it's a complex supply chain in terms of all the distributors and others that are there but.

Semi: But we are working very closely with our customers because as Brian had mentioned when that business snaps back no.

Semi: Not only does do you have to deliver what the market is then you start to replenish the supply chain as well so it snaps back pretty pretty strong when it does so we'll keep a close eye on that on the positive side of the industrial business as Brian also also mentioned I think everyone kind of.

Jeffrey J. Cote: So we'll keep a close eye on it. On the positive side of the industrial business, as Brian also mentioned, I think everyone knows that there's new regulation associated with refrigerants and HVAC systems. We have, for the last two or three years, developed an A2L leak sensor, and we're engaged very closely with our customers as they're launching that. And 2024 has a meaningful portion of revenue associated with that. Just to be clear, when it's fully fanned out, it has an 80 to $100 million revenue opportunity for Sensata. So we feel really good about that piece of the pie. Hopefully, that helps.

Semi: Knows that there's new regulation associated with refrigerants and HVAC systems, we have for the last two or three years developed on a two well leak sensor and where are you engaged very closely with our customers as they were launching that and our 2024 has you know of.

Semi: A meaningful.

Semi: Portion of revenue associated with that just to be clear that that has a R. When it's fully fan Don when it has a $80 million to $100 million revenue opportunity first insider. So we feel really good about that piece of the industrial business.

Speaker Change: Hopefully that helps Luke.

Speaker Change: The next question comes from Joe Giordano.

Unknown Executive: The next question comes from Joe Giordani with TD Cowen. Please go ahead.

Joseph Craig Giordano: With P D. Cowen. Please go ahead.

Joseph Craig Giordano: Hi, guys.

Joseph Craig Giordano: Hi guys. I'll just echo everyone's comments. Jeff, thanks for everything along the way, and I wish you the best for whatever's next for you.

Joseph Craig Giordano: I'll just echo everyone's comments, Jeff Thanks for everything along the way and I wish you the best and for whatever reason that for you.

Brian K. Roberts: I just had a question on the corporate expense. It was decently lower than what we were modeling. I'm just curious, is this like a sustainable lower run rate now that some of this megatrend spend is either being moved into the segments and has true revenue associated with it or just kind of minimized and kind of rationalized out of the organization? Yeah, no, it's...

Joseph Craig Giordano: I just had a question on on the corporate expense I would you know decently lower than where we were when we were modeling I'm. Just curious is this is this like a sustainable lower run rate now that some of this megatrend spend is either being one like you know moved into the segments and has two revenue associated with it or just kind of minimizing kind of rationalize out of the organization from now.

Brian K. Roberts: Yeah, no, it's, I think we think this is probably a relatively consistent run rate. We do have an uptick that happens in the second quarter as merits go in as of April 1st. That's a little bit of a negative headwind when you think about corporate expenses for Q2. But overall, you know, we've really tried to rationalize, I would say, the megatrend spend as electrification became the opportunity for us to focus. And more and more of those resources are ultimately being, you know, serving new business opportunities now within the performance sensing unit. So I think it's probably a relatively consistent run rate going forward, maybe a slight uptick, like I said, in Q2, just given some normal kind of timing of the

Speaker Change: Yeah, No. It's I think we think this is probably a relatively consistent run rate. We do have an uptick that happens in the second quarter as merits a.

Speaker Change: Go in as of April one that's a little bit of a negative headwind when you think about corporate expenses for Q2.

Speaker Change: But overall you know we've we've really tried to rationalize I would say the mega trend spend as electrification became the opportunity for us to focus and more and more of those resources are ultimately being serving new business opportunities now within typically the performance sensing units. So I think it's probably a relatively consistent run rate going forward maybe slide.

Speaker Change: Like I said in Q2, just given the some normal kind of timing of expense.

Speaker Change: Thanks, Joe.

Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one you answered the question queue.

Unknown Executive: As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue. The next question comes from Amit Daryanani with Evercore ISI. Please go ahead.

Speaker Change: The next question comes from Amit <unk> with Evercore ISI. Please go ahead.

Amit Jawaharlaz Daryanani: Hi, thank you for the question. This is Irvin Liu on behalf of Amit.

Speaker Change: Okay Alright. Thank you for the question. This is irvin Liu on for Amit I'm, Jeff We wish you all the best.

Irvin Liu: Jeff, we wish you all the best. Not to be nitpicky, but Brian, if I heard correctly, you mentioned that 2024 revenue growth is expected to be 2% versus 2 to 3% last quarter. Can you give us any color on why you expect 2024 growth to be at the lower end of your prior range? Is this mostly a function of FX or what you're seeing in the industrial end mark? I think you're spot on. I mean, obviously still within the range that we were talking about.

Irvin Liu: Not to be nitpicky, but Brian if I heard correctly, you mentioned that 2020 for revenue growth is expected to be 2% versus 2% to 3% last quarter. Just can you give us any color on why you expect 120 for growth to be at the lower end of your prior range is this mostly a function of FX or what youre seeing in the industrial age.

Irvin Liu: Markets.

Brian K. Roberts: I think you're spot on. I mean, obviously still within the range that we were talking about last quarter. So, you know, I would say this is, you know, kind of a minor. I wouldn't call it a tweak, per se, but I think it's still within the range. The two things that are really driving it, though, you hit on both.

Speaker Change: I think you're spot on I mean, obviously still within the range that we were talking about last quarter. So you know I would say this as you know kind of a minor one.

We didn't call it a tweak per se I think it's still within the range. The the two things that are really driving at though you hit on both you know one is we had modeled or expected foreign exchange to be relatively you know kind of net zero or so in the back half of the year. Originally it looks like we're going to have about 40 to 50 basis points of margin headwind in the back half of the year kind of consistent with what we are.

Brian K. Roberts: You know, one is that we had modeled or expected foreign exchange to be relatively, you know, kind of net zero or so in the back half of the year. Originally, it looks like we're going to have about 40 to 50 basis points of margin headwind in the back half of the year, kind of consistent with what we're expecting in Q2 right now. And then, you know, second, we were hoping that industrial stocking would kind of end this down cycle by mid-year or so.

<unk> in Q2 right now.

Speaker Change: And then second you know we were hoping that industrial Destocking would you kind of ended and this down cycle by mid year, or so and that was pretty consistent with.

Brian K. Roberts: And that was pretty consistent with all the commentary we were hearing at year-end, as well as what we were seeing, certainly it looks like that it's gonna linger a little bit longer. And so we've tried to take both of those things into consideration as we looked at the guidance range for the full year.

Speaker Change: I think all the commentary we were hearing at year end as well as what we were seeing a you know certainly it looks like that that's going to linger a little bit longer and so we try to take both of those both of those things into consideration as we looked.

Speaker Change: I looked at the guidance range for full year 'twenty four.

Brian K. Roberts: This concludes our question and answer session. I would like to turn the conference back over to Brian Roberts for any closing remarks.

Speaker Change: Thanks very much.

Speaker Change: Yeah.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Brian Roberts for any closing remarks.

Brian K. Roberts: Thank you, Betsy, and thank you everyone for joining today's call. I want to just say I want to wish Jeff all the best in his retirement. He's a great leader, mentor, and friend. It's been a privilege to work with him again these past six months, and Sensata will miss him. I also look forward to seeing many of you at various investor events this quarter, including the Oppenheimer Virtual Investor Conference on May 7th. The T.D.

Brian K. Roberts: Thank you Beth and thank you everyone for joining today's call I wanted to just say I want to wish Jeff all the best in his retirement.

Brian K. Roberts: He's a great leader mentor and friend, it's been a privilege to work with them again these past six months and societal we'll miss him.

Brian K. Roberts: I also look forward to seeing many of you at various investor events this quarter, including the Oppenheimer Virtual Investor Conference on May 7th.

Brian K. Roberts: The TD Cowen <unk> annual Technology Media and Telecom Conference in New York on May 30th and the Bank of America Global Technology Conference in San Francisco on June 4th.

Brian K. Roberts: Cowan Annual Technology, Media, and Telecom Conference in New York on May 30th and the Bank of America Global Technology Conference in San Francisco on June 4th. That concludes our first quarter 2024 Earnings Conference call. Operator, you may now end the call. Thanks, everyone.

That concludes our fourth first quarter 2024 earnings conference call. Operator, you May now end the call. Thanks, everyone.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: [music] Yep.

Speaker Change: Okay.