Q3 2024 Sensata Technologies Holding plc Earnings Call
Good day and welcome to the Sensor Data Technologies Third Corps 2024 earnings call. All participants will be in a listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch tone 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 Mr. James and Twistle. Senior Director of Investor Relations. Please go ahead.
Thank you Betsy and good afternoon everyone. I'm James and I'm a soul senior director of Investor Relations for Sonsata and I would like to welcome you to Sonsata's third quarter, 2024 earnings conference call.
Joining me on today's call, our Martha Sullivan, since Ida's an interim president and CEO, and Brian Roberts, since Ida's chief financial officer.
Speaker Change: In addition to the financial results press release we issued earlier today, we will be referencing a slide presentation during today's conference call.
Speaker Change: The PDF of this presentation can be downloaded from Souta's Investor Relations website.
This conference call is being recorded and we will post a replay on our investor relations website shortly after the conclusion of the call.
As we begin, I would like to reference since I did 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 involve certain risks and uncertainties.
The company's actual results may differ materially from the projections described in such statements.
Factors that cause such differences include, but are not limited to, those discussed in our forms 10Q and 10K, as well as other filings with the FTC.
Speaker Change: We encourage you to review our Gap Financial Statements in addition to today's presentation.
Speaker Change: Most of the information that we will discuss during today's call will relate to non-gath financial measures.
Speaker Change: Our Gap and NonGap Financials, including Reconciliation, are included in our earnings release and in the appendices of our presentation materials.
Speaker Change: will begin today with comments on our overall business.
Brian will cover our detailed results for the third quarter of 2024 and our financial guidance for the fourth quarter of 2024. Martha will then return for some closing remarks. We will then take your questions.
Speaker Change: Now I would like to turn the call over to some sort of interim president and CEO Martha Sullivan.
Martha Sullivan: Thank you James and good afternoon everyone. Let me welcome James and we'll see you in our new Senior Director of Investor Relations.
Martha Sullivan: James joined us in September after spending the last 11 years at Salantas, including the last three years as their investor relations manager.
Speaker Change: Now, turning to slide three, our third quarter core operating results were in line with expectations and demonstrate positive early returns from our efforts to improve operational efficiency, drive execution and expand margins.
Speaker Change: For example, during the quarter there are three key developments.
First, we completed the sale of the insights business to a subsidiary of Bob Morrell's Fund.
Speaker Change: Second, we eliminated low-growth, low margin products of approximately $30 million of quarterly revenue.
Speaker Change: As expected, we were about 60% completed on our product life cycle management initiatives as of September 30 and expect to be nearly finished by year end.
As a reminder, in total, we had identified approximately $200 million of annualized revenue in connection with these efforts.
Speaker Change: Third, we commence several operational improvement initiatives focused on streamlining process, increasing automation, reducing overhead expense and aligning capital expenditures to a lower market reality.
Speaker Change: These steps will prove critical as we return in 2025 to a more normalized environment of operating productivity of setting price down with our OEM customers.
I am encouraged by our team's progress over the last 90 days and I'm confident that these ongoing initiatives will provide additional benefit as we continue to navigate a difficult and market environment, especially in our performance sensing segment.
Speaker Change: As we turn to slide four, for the third quarter both automotive and heavy vehicle off road markets decreased by approximately 5% year over year with further erosion likely in the fourth quarter.
Speaker Change: During my long tenure with Sonsata, we have weathered many challenging autofocus.
Speaker Change: And we have a track record of performing through periods of end-market volatility. We are taking actions to align our business to the demand environment as needed.
Speaker Change: Outgrowth in our performance sensing segment was flat in the third quarter. As an approximate percentage point of decline in automotive, primarily due to OEM share shift in China, was offset by outgrowth within HVOR, most notably in North American and European onroad trucks.
Martha Sullivan: Let me take a minute to walk through some of the trends we are experiencing in each of our key regions.
Martha Sullivan: The market in China continues to evolve with the large multi-national players losing share to local OEM.
By the end of the year, it is expected that nearly two thirds of market share will be held by local OEM.
Martha Sullivan: In comparison, that number was around 55% last year.
Today, this is a headwins for us. As our content for vehicle on local OEM is approximately half of our content for vehicle on a multinational.
Martha Sullivan: While we continue to win new business with key local OEMs, especially those with aspirations outside of China, this head one will likely impede our ability to outgrow the market in China for what we expect to be the next 12 to 18 months.
Martha Sullivan: Exploding China, our automotive business fair better in Q3 despite weakening markets as we recorded approximately 400 basis points of outgrowth.
Martha Sullivan: Nixon Europe was favorable as ICE vehicle production remains more robust on originally forecasted.
Martha Sullivan: Strong content for vehicle in North America driven by positive platform myths contributed to solid market outgrowth and other Asian markets such as Korea continue to perform and outperform.
Martha Sullivan: Looking ahead to Q4, based on our field rates discussions with customers and current inventory levels on hand at OEM and on dealer lots.
Martha Sullivan: We believe it to be highly likely that third party forecasts will make further, in-quarter, downward revisions to production forecasts
And we have taken the incremental downside risk into account and are updated fourth quarter guide.
Martha Sullivan: Within our heavy vehicle and off-road business, we have also seen significant revisions downward in the fourth quarter outlook for on-road truck.
Martha Sullivan: and North North America and Europe is KGP updated their forecast to be down approximately 20%.
Martha Sullivan: Year Over Year for both markets.
This growth race expectation is approximately 25% lower than their July report.
Speaker Change: New Regulations in Europe, which require tire pressure sensing, will help offset some of the market's softness.
Speaker Change: However, the lower production levels, coupled with continued sluddish construction and agricultural demand, has caused us to temper expectations for this segment in the near term.
Speaker Change: Now let me turn to sensing solutions.
Speaker Change: First, I will speak to our industrial business.
Speaker Change: While our expectations remain muted in industrial overall, given continued inventory destacking in a slow housing market.
Speaker Change: We are encouraged by our third quarter results which showed the business stabilized on a year over year basis and deliver approximately 2% growth sequentially.
Speaker Change: We remain excited about the opportunity for our new A2L Lead Detection Center as we continue to win incremental share in this new space. This product will ramp and cue for and into 2025.
Speaker Change: Additionally, as announced in September, our Dynapower Business gained approval for its new fifth-generation compact power systems family of power conversion technology, offering dual-purpose performance for both hydrogen production and fuel cells.
Speaker Change: We expect this system as well as data power family of power conversion, energy storage, and rectifier products to continue to drag growth across several important verticals such as hydrogen, and renewables, industrials, and emobility.
Speaker Change: While our expectations remain high for dinapower, this business has not been immune from the overall flow down and clean energy and electrification initiatives over the last 12 months.
Speaker Change: As such, the change in timing for these projects resulted in a non-cash, goodwill impairment charge of $150 million recorded in the quarter.
Speaker Change: We remain committed to the Dynapar Business and its Clean Energy Initiatives and its role as an important growth engine for Sonsata over the coming years.
Speaker Change: Next, speaking to our aerospace business within sensing solutions, this business continues to perform well. However, we are closely monitoring any exposures related to the ongoing labor and quality issues impacting our key customers.
Speaker Change: Before turning the call over to Brian, let me take a moment to update you on our CEO search.
Speaker Change: Our board and I have spent significant time over the last six months to find the right next leader of Cincinnati. We have been fortunate to meet highly qualified candidates who recognize the value of [inaudible]
Speaker Change: I am pleased to report that we are in the final stages of the search.
Speaker Change: And we expect to continue to land in the time frame that we had guided.
Speaker Change: Unknown Speaker. Thank you. Thank you.
Speaker Change: I will now turn the call over to Brian who will discuss our third quarter results in more detail as we provide guidance for the fourth quarter of 2024.
Speaker Change: Thank you, Martha. Good afternoon, everyone. Just a reminder for clarity that unless noted, all amounts are denominated in U.S. dollars.
Brian Roberts: Let me start on slide 6.
Speaker Change: As Martha stated, we delivered another solid quarter with results in line with expectations across our key core operating metrics.
Speaker Change: We reported revenue of approximately $983 million for the third quarter of 2024.
Speaker Change: As compared to revenue of $1 billion in the third quarter of 2023, a decrease of about 2%.
Speaker Change: Adjusting for approximately $30 million of revenue exited in Q3 2024 related to our product lifecycle management efforts, revenue year-over-year would have been up 1%.
Speaker Change: Justed Operating Income was $188 million, representing a margin of 19.2%, which was an improvement of 20 basis points sequentially from the second quarter of 2024.
Speaker Change: This is our third consecutive quarter of delivering Adjusted Operating Margin Expansion and is in line with our expectations to deliver margin expansion each quarter this year.
Speaker Change: Adjusted earnings per share of 86 cents in the third quarter was in line with expectations.
Speaker Change: Adjusted earnings per share were $0.91 in the third quarter of 2023.
Speaker Change: The year-over-year change was primarily driven by lower revenue and foreign currency fluctuation.
Speaker Change: Our Q3 2024 GAAP results include impacts from several discrete events, which have been excluded from our adjusted results.
Speaker Change: Let me take a moment to walk you through these items.
Speaker Change: First, as Martha noted, we recorded a non-cash charge of approximately $150 million to write down goodwill related to the DynaPower acquisition from 2022.
Speaker Change: While we remain excited for the future of DynaPower, the business experienced project delays as timelines related to clean energy and electrification shifted.
Speaker Change: The resulting delayed growth in cash flow expectations for the business necessitated the impairment of goodwill.
Speaker Change: Second, we completed the sale of our Insights business to a subsidiary of Balmoral Funds for $165 million.
Speaker Change: As a result of the transaction, we recorded a loss on the sale of approximately $110 million.
Speaker Change: Third, last quarter we commenced a series of actions to exit $200 million in annualized revenue comprised of products which may be mature in cycle, slow-growing, and at substandard margins.
Speaker Change: Approximately 80 to 85 percent of this revenue is in our performance sensing segment with the remainder in sensing solutions.
Speaker Change: Consistent with expectations, we eliminated approximately 60 percent of these products in the third quarter, with the remainder expected to be substantially completed by year end.
Speaker Change: As a result of this product lifecycle management effort, we recorded a charge of approximately $58 million.
Speaker Change: 31 million of which is recorded in restructuring and 27 million which is recorded within cost of sales.
Speaker Change: Finally, as part of our broader tax mitigation strategy, we released a valuation allowance related to certain intellectual property assets.
Speaker Change: Resulting in a discrete tax benefit of approximately $258 million.
Speaker Change: This tax benefit will amortize over 15 years and should help us keep our tax rates stable over the next few years.
Speaker Change: Turning to slide 7 on segment performance.
Speaker Change: Foreman sensing revenue in the third quarter of 2024 was approximately 660 million, a decrease of approximately 5% year-over-year.
Speaker Change: The decrease is attributable to our product lifecycle management actions, as well as the slowing automotive market.
Speaker Change: Just an operating margin for the segment of 24.5% was unchanged sequentially and down a percentage point year-over-year due primarily to regional share mix within auto.
Speaker Change: Sensing Solutions revenue in the third quarter of 2024 of approximately $274 million was flat with the prior year.
Speaker Change: While not yet returning to growth, our industrial business appears to have stabilized as continued destocking has been offset by the launch of our A2L leak detection sensor.
Speaker Change: Just-at-operating expenses of $65.2 million included within our corporate and others segment was down 3% sequentially from the second quarter and approximately flat year over year.
Speaker Change: We continue to actively manage our operating expenses and expect further reductions in upcoming quarters as we normalize corporate costs on a revenue base which excludes both Insights and the $200 million of annualized revenue related to our Product Life Cycle Management Act.
Speaker Change: Unknown Speaker.
Speaker Change: Moving ahead to slide 9.
Speaker Change: I'm pleased to note that our net leverage ratio drops at three times trailing 12-month EBITDA as of September 30, 2024, a drop from 3.2 times net leverage as of June 30, and consistent with our goal to drop below three times by year-end.
Speaker Change: Additionally, we repurchased slightly over a million shares in the third quarter totaling approximately $37 million use of cash.
Speaker Change: In July 2024, we redeemed $700 million in bonds that would have matured in October 2025.
Speaker Change: The repayment was funded by a combination of proceeds from our $500 million bond offering completed in June, along with approximately $200 million of cash on hand.
Speaker Change: Free Cash Flow Conversion as a Percentage of Adjusted Net Income.
Speaker Change: continues to show improvement as we achieve the level of 70% for the second consecutive quarter.
Speaker Change: This is a result of our renewed focus on working capital, including management of both inventory levels and spend on capital expenditures.
Speaker Change: We remain confident that we will see our conversion rate finish 2024 in the range of 65% to 70%
Speaker Change: Consistent with expectations.
Speaker Change: These many steps are translating to an improved return on invested capital, which increased to 9.9% in the third quarter, as compared to 9.8% in the prior quarter and in the prior year.
Speaker Change: Finally, we announced last week our quarterly Q4 dividend of $0.12 per share, payable to shareholders of record as of November 13.
Speaker Change: Let me now update you on our expectations for the fourth quarter of 2024 as shown on slide 10.
Speaker Change: We expect revenue to be in the range of $870 to $900 million in the fourth quarter.
Speaker Change: At the midpoint, this represents approximately a $100 million decrease sequentially from our third quarter revenue.
Speaker Change: The change is primarily attributable to three items.
Speaker Change: One, a $50 million decrease due to the sale of the Insights business, which closed on September 30.
Speaker Change: And three, a $30 million decrease due to lowered market expectations for our performance-sensing segment in North America and Europe, primarily driven by lower vehicle production, as OEMs address rising inventories.
Speaker Change: Despite the lower level of revenue.
Speaker Change: We continue to drive towards improved operational efficiency and believe that we will expand margins by approximately 20 basis points to 19.4% in the fourth quarter, consistent with our goal to deliver quarterly operating margin improvement each quarter this year.
Speaker Change: We continue to proactively adjust our business to the current demand environment.
Speaker Change: With that, let me turn the call back to Martha.
Martha Sullivan: Thank you, Brian. In summary, let me leave you with a few key messages as we reflect on the third quarter and look ahead to the fourth quarter and 2025.
Speaker Change: First, it's clear today we are faced with challenging market conditions across the sectors we serve.
Speaker Change: Volatility has been amplified, especially in auto, over the past several months, and it is likely to persist through Q4 and into early 2025 as OEMs modify production levels to adjust for inventory held by them or on dealer lots.
Speaker Change: We have been through many of these cycles over the years and are actively taking the necessary steps to respond to the current demand environment with a focus on improved execution and better operational efficiency.
Speaker Change: Second, we are building a solid foundation for 2025 and the future.
Speaker Change: I am more confident than ever that Sunsada has a winning long-term strategy built on high-value sensing and electrical protection solutions, allowing us to continue to win in a safer, cleaner, and more electrified world.
Speaker Change: As regulations increase and our customers look for help to solve complex new challenges, we are well positioned as the partner of choice in this period of transformational change.
Speaker Change: Third, we have an exceptional team in place globally that is committed to driving shareholder value, executing for our customers, and delivering on our mission.
Speaker Change: It has been a tremendous opportunity and privilege to connect with colleagues, new and old, who share our goal of developing best-in-class content, enabling our customers to lead in their respective markets.
Speaker Change: I will now turn the call back to Jane.
Jane: Thank you Martha. We 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. Betsy, please introduce the first question.
Betsy: As a reminder, to ask a question, you may press star then 1 on your touchtone phone.
Jane: If you are using a speakerphone, please pick up your handset before pressing the keys.
Jane: To withdraw your question, please press star then 2.
Speaker Change: We ask that you please limit yourself to one question.
Speaker Change: Transcription by ESO, translation by — Transcription by —
Speaker Change: The first question today comes from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Yes, thank you so much. Martha, you mentioned that you're baking in more downside to third-party estimates and expecting those to come down. Can you just talk about some magnitudes? What are you thinking is ultimately going to transpire from a production assumption standpoint or what's baked into your guidance? And given this weak exit rate in 2024, how should we think about 1Q seasonality as well? That'd be helpful. Thank you.
Martha Sullivan: Sure. Hi, Juan. Yeah, the way we're thinking about this is particularly North America and Europe.
Martha Sullivan: And so we are somewhere between 200 to 300,000 vehicle units below third party forecast at this point, as we look ahead to the fourth quarter.
Martha Sullivan: And we're not expecting a lot of health beyond that as we move into the first quarter. So in terms of normal seasonality, we would expect normal sort of cost seasonality inside of Sensata. We expect the market's going to not give us a whole lot of health in the first quarter.
Speaker Change: Unknown Speaker
Speaker Change: Okay. Thank you so much.
Speaker Change: The next question comes from Joe Giordano with TD Cowen. Please go ahead.
Joe Giordano: Hey guys, I have one question on China and then one like more high-level for Martha if I could. On China, just to your point of the share change and the significant shifts and where your content sits with the locals, like how do you balance what you want to keep investing in that region or like what's the, how does the strategy evolve given like the structural changing dynamics for you?
Speaker Change: Yes, it's an important question. So the way we're looking at the market is recognizing that there will be consolidation certainly at the at the local OEM level.
Speaker Change: We're focused particularly on locals that have aspirations outside of China and where our global position and our innovations are valued. And as we look at that opportunity, it's quite significant.
Speaker Change: And we continue to add content even on ICE Engines. So the market opportunity and the market position is still strong.
Speaker Change: And the investments make sense, given that we are really leveraging technologies across sensatas, and we're not making unique technology investments inside of China. So we feel good about that investment and the returns that it brings.
Speaker Change: Martha, if I could just follow, since you...
Joe Giordano: We're away from the CEO role, and I know you're still very involved with the company, but having like that time away and now coming back, like, how has it changed, like, your ability to kind of see things differently now that you were out of that seat for a bit here? And like, does it give you that, like, that distance, that time? Did it give you kind of different perspective into some of the things that you were seeing, you know, years ago?
Speaker Change: It did give me a different perspective and let's recognize that the world is not what it was, you know, almost five years ago when when I when I retired.
Speaker Change: Having said that, I would say that there is clarity that comes with
Speaker Change: Knowing the strength of Sensata and a sense of urgency to make sure that we're performing as well as we can for shareholders.
Speaker Change: I would also say it's been great. We've got a lot of really strong new talent on the team, including Brian, who's brought, I think, a really good cadence of improvement for our shareholders.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: The next question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good afternoon. Thanks for taking my question. With all the product exits and also the insights to Vestiture, I'm hoping to better understand what the full magnitude of EBIT margin improvement those various efforts may bring and how much more there may be off of the 19.2 to 19.5% EBIT margin guidance in the fourth quarter. Maybe it's the full run rate already, but if there's more to come, I'm hoping to understand the magnitude. And on the self-help margin topic, Brian, I think you said you expect to size OPEX appropriately to revenue in 2025. I don't know if you could be more specific around what level of OPEX to sales you think is appropriate and if you think you'll be at that ratio next year, even if end markets are cyclically soft. Thanks.
Speaker Change: Sure, Mark. Thanks for the question. So, just to run through the pieces.
Mark Delaney: We've talked about that if the margin completely fell to the bottom line immediately upon the exit of the $200 million of annualized products.
Speaker Change: You would see roughly about a 30 basis point improvement.
Speaker Change: Now, the challenge with that is it doesn't just fall in a vacuum to the bottom. And you can see...
Speaker Change: through our efforts that we do have expenses in the operating expenses.
Speaker Change: SG&A expenses that then have to be rationalized to be able to drive towards that lower revenue base. And that's what we're in the process of doing now.
Speaker Change: In the fourth quarter, we previously said that this could contribute a couple of ASIS points to the overall fourth quarter benefit, and so that's factored into the range that we've provided, which is roughly about 20 BASIS points.
Speaker Change: of the Center for Economic Co-operation and Development, which is consistent with the 20 to 30 basis points of quarterly improvement we've been talking about all year.
Speaker Change: So, we're working through that now. We do expect some of those cost initiatives to continue as we're moving forward and trying to adjust to what we think Q1 market environment may be.
Speaker Change: I'm not sure that there's incremental to be seen, as Martha mentioned, typically seasonality in Q1 is a challenging quarter for Sunsada as we do move back towards a historical price down environment.
Speaker Change: And we do offset that with productivity, but productivity comes in over time. So there's work to do still in our planning efforts to be able to get more clarity for both Q1 and 2025, and I'm sure we'll update you on that on next quarter's call.
Speaker Change: And just on the Insights piece, with the exit, can you help us understand the effect of that on EBIT margin, please? Yeah, I mean, Insights is actually a little, you know, believe it or not, a little bit of creative this year, just given some of the cleanup that happened with that business in preparing it for sale. So there's really no incremental benefit this year for it. But again, you know, overall, if you look at the level of operating and G&A expenses that came with that business, the level of investment that would continue to be required for us was just too high.
Speaker Change: It was one of the main drivers for us to decide to move on from them.
Speaker Change: Thank you.
Speaker Change: The next question comes from Christopher Glenn with Oppenheimer. Please go ahead.
Christopher Glenn: Thanks. Good afternoon.
Speaker Change: You know, obviously, you have the product line exits, but I mean, around, you know, how you
Speaker Change: Manage internal accounts, internal reporting channels, any production line changes, examples of that. What's going on behind the headlines that you're highlighting?
Speaker Change: Yeah, honestly, it's getting back on track to a lot of blocking and tackling that have been part of Sonsata for quite a while.
Speaker Change: And then just recognizing the disruptions that we went through, as many companies did around inflation, around COVID, around supply chain. It was really important that we get back on track with those processes, so lots of examples.
Speaker Change: things like smart automation, given that we've seen labor rates increase from where they've been, you know, even two or three years ago, and we get a really nice return on that investment. And those things can happen quickly inside of a year.
Speaker Change: We've done things like lane re-implementation in some of our production sites to ensure that we're looking at process mapping.
Speaker Change: and eliminating process steps that we don't need to do. That makes everybody more efficient, it makes them more cost effective, and it makes their jobs easier.
Speaker Change: So there's a lot of goodness that comes with this renewed focus.
Speaker Change: Some of those technologies have been around now for decades, and they're still very high margin products, and they stay that way because we invest in delivering design changes that reduce cost, make them competitive, and also ensure that we enhance our margins. So those are just some of the examples.
Speaker Change: Okay, thanks. And then on the exits, I was curious, are there any, you know, interesting cases where you've tested price on the way out, quote-unquote, and you know, found that those products will stay?
Speaker Change: Well, we were with you until you made the last comment. So, some of the exits do include just pricing our way out of the market. That's the smaller piece of the overall.
Speaker Change: But the reality is, when products get to this point in their life cycle, they're really beyond investment or go-to-market strategies that are going to change, because many of those things would have been exercised over the years.
Speaker Change: Okay, thank you.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: The next question comes from Straya Patil with Wolf Research. Please go ahead. Thanks. Maybe following up on some of the earlier questions, it looks like you're doing a really good job of reducing cost, and that's helping reduce the decremental margin impact.
Straya Patil: Even as revenue is under pressure, I'm curious if you can unpack some of the measures that you're taking. How much and how much runway do you have to further reduce?
Straya Patil: Cost from here, and I believe you mentioned price downs potentially normalizing more going forward So how should we think about that? Maybe slowing the pace at which you can continue to improve margin Assuming the end markets remain weak. Thanks
Speaker Change: Thanks, absolutely. So, you know, again...
Speaker Change: You know, this business and we've openly talked about is notoriously hard to grow margins in the first quarter. So, you know, sequentially, Q4 to Q1 is always a challenge in this business. And quite candidly, I expect it will be a challenge for this business.
Speaker Change: 2025. As we get back to that more normalized environment.
Speaker Change: Productivity efforts, many of which Martha just pointed to as examples, have been underway and a lot of that will help offset some of those costs that will come into our market, if you will, or in our business.
Speaker Change: But they take time. And so some of those layer in over a little bit of time and we have to adjust them.
Speaker Change: So, um, Thank you. Thank you.
Speaker Change: We're always looking for different ways to be able to get more efficient.
Speaker Change: You know, I think additionally to what Martha mentioned before, you know, we look very hard before we're adding costs. I think that's a level of discipline that we've brought to the company this year that has served us well, especially in a market environment that has certainly softened over here over the back half of the year.
Speaker Change: I think, again, for a 25 planning perspective, we've got a lot of work to do on our plan, so it'll probably become a little bit clearer how we're thinking about margins as we get into next year. I will say, and what we have said, is our goal for 2025 is to be able to have a plan that's a little bit more flexible, a little bit more efficient, a little bit more efficient
Speaker Change: to expand margins from where we are in 2024.
Speaker Change: Unknown Speaker
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Thank you for watching. See you next time.
Unknown Speaker: Thank you for watching. See you next time.
Speaker Change: The next question comes from Sameek Chatterjee with J.P. Morgan. Please go ahead.
Speaker Change: Hi, this is MP on for Summit Chatterjee. Thanks for taking my question. So I have a question around the electrification programs. So you mentioned that some of the delays related to electrification programs. Can you please expand on that? And also, how does this impact your ability to hit the electrification target of $2 billion by 2026? And I have a follow up.
Speaker Change: Yes, so the areas on the marketplace where we've seen the greatest delays are in North America and also in Europe.
Speaker Change: So, we do expect that the platforms will come back and electrification will continue to happen in the automotive, actually in the HVR market as well. We have some commercial truck applications that we're focused on.
Speaker Change: So, we expect this to be an important growth driver in automotive and commercial trucks. Also, quite frankly, in parts of our industrial end markets as well, where we are engaged with a similar
Speaker Change: Technologies, and meeting similar needs for efficiencies, whether they be heat pumps or infrastructure around charging stations.
Speaker Change: Okay, got it.
Speaker Change: And the follow up here I have is like, any early thoughts in 2025? How are you thinking about the business and like, what are your assumptions about the end market, like which are expected to be positive, which are expected to be negative, and something around that?
Speaker Change: Yeah, I would say at this point, you know, certainly through the first half of 2025, we're not expecting any help from the market.
Speaker Change: So, you know, as we have in the fourth quarter here, we've taken some judgment against third-party forecasters, and we're looking at those forecasts very critically as we roll into 2025, so we're not expecting help from any particular end market, at least through the first half of the year.
Speaker Change: Okay, thank you.
Speaker Change: The next question comes from Luke Young with Baird. Please go ahead.
Luke Young: Thank you. I wanted to ask a big picture question and kind of bridging on the electrification-related question we just had. And I'm just wondering, as the CEO search process now nears its conclusion, just what has it revealed to you about the strategic direction of the company from here? Does it inform reemphasizing auto and electrification? Does it maybe push towards diversifying the company and pushing more on some of the market opportunities within sensing solutions? Just any insights from the search process would be helpful. Thank you.
Speaker Change: Yeah, I think what I would reiterate are some of the characteristics that we've talked about that we believe are important in the next CEO of Sunsata. And those are certainly the ability to drive technology roadmaps, the ability to enhance innovation.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: The next question comes from William Stein with Truist Securities. Please go ahead.
William Stein: Great. Thank you for taking my questions. First, Martha, I think you said that you're expecting to fill that role in the same time frame that you outlined earlier. Can you remind us what you'd said in the past about that? Was that by the end of this year or a different time frame?
Martha Sullivan: Yes, when I came into the role on May 1st of this year, we spent some time looking at how long does it actually take, on average, to fill CEO roles when you're searching on the outside, and that ranges from 6 months to 12 months, so that's the timeline we're very confident of landing squarely in that time frame.
Speaker Change: Okay, thank you. And you.
Speaker Change: You clearly don't sound too...
Speaker Change: Unknown Speaker 08.01.2010
Speaker Change: at least through the first half of the year. I wonder if you might give us sort of your early views as to auto production growth for 2025 and maybe remind us of the outgrowth algorithm that you believe you could achieve on the top line. Thank you.
Speaker Change: So, you know, I think it's really early for us to be talking probably from a market perspective of what we think is going to happen in auto. I mean, as we've all seen, it's continued to change, not even month to month, but in some cases day by day. And so certainly a few more months worth of data will help us all, as I think we get a better picture on 25.
Speaker Change: you know for what outgrowth looks like.
Speaker Change: Welcome everybody.
Speaker Change: You know, I think, you know, again, what we're doing on our side is trying to make sure that we take we take action. We're trying to make sure that we're controlling what we can control. And as, as you know, Martha has pointed out, really focusing on execution and efficiency.
Speaker Change: We'll continue to react to it, to whatever the market drives.
Speaker Change: I think the only other thing I would add is that there are important product launches that are planned in 2025 that will bring value for our customers and for us. What we have seen in down markets and even in the volatility of the market given mixed changes across ICE, plug-in hybrids.
Speaker Change: changes on the commercial truck side. We have in the past seen that while they are planned early in the year, these things can push out. And so that's one of the reasons we're taking the time to really understand what our outgrowth can be and what that end market will be.
Speaker Change: Thank you.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: The next question comes from Stephen Fox with Fox Advisors. Please go ahead.
Stephen FOX: Hi, good afternoon. For my one question, I was just hoping we could dig a little bit more into the HVOR markets. You mentioned that there was another cut in terms of market forecasts.
Stephen FOX: I know it's been under pressure for a while now. I was just wondering if you could sort of describe where we're at versus a potential bottom, how this cycle is differing from prior cycles, et cetera. Thanks very much.
Speaker Change: in the second half of 2024. And, you know, have seen that accelerate a bit really in line in this case with, with what we're hearing from third party forecasts, and we use KGB, in particular. So
Speaker Change: You know, it's not a mystery when you look at where those production forecasts are. Yeah, I mean, on road China was a little bit stronger in the first half of the year. And I think our expectation was that that was going to normalize a little bit in the back half, which which seems to be
Speaker Change: I think the piece that we were, I won't say surprised by, but certainly have seen kind of come to fruition is that North America and Europe
Speaker Change: You know, haven't had the rebound that people were expecting and so that the negative year over year declines in both of those markets according to KGP as a third party sources.
Speaker Change: You know down 20% so it's a significant drop in volume from what? Where they were a year ago, and so you know hopefully you know we're nearing the bottom of that cycle And hopefully that will start to turn, but we're not sure exactly
Speaker Change: Great, that's helpful. Thank you.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Unknown Speaker
Speaker Change: The next question comes from Joseph Speck with UBS. Please go ahead.
Speaker Change: Hi, it's Zach Waldraus. We're on for Joe's back today. Think about Europe next year and the CO2 regulations going on there. Like any early thoughts about like either you'd be potentially going higher or less ICE vehicles being produced? Like how do you think SADA's position for that development, you know, kind of any puts or takes with that? Thank you.
Speaker Change: I think we're positioned quite well, frankly, just given our content on ice engines.
Speaker Change: and given the growing content that we have on BEVs.
Speaker Change: Today, we are still slightly less content on a BEV, so full electric vehicle in Europe.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Thank you for watching. See you next time.
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.
Speaker Change: Thank you Betsy and thank you everyone for joining the call today. We do look forward to seeing you at various investor events this quarter. We have a pretty pretty full agenda.
Speaker Change: At the moment, we're planning on to participate in the following events, November 12th, next Tuesday, at the RW Barrier 2024 Global Industrial Conference in Chicago, next Wednesday, the 13th at the J.P. Morgan Equity Opportunities Forum in Miami.
Speaker Change: On December 3rd, we'll be at the UBS Global Industrial and Transportation Conference in West Palm Beach.
Speaker Change: December 12th in New York City at the Melius Research Industrial Forum.
Speaker Change: And finally, I'll be participating virtually with both Evercore for a fireside chat on December 10th.
Speaker Change: and with Chris and the Oppenheimer team on December 11th. So pretty full agenda coming up. I appreciate everybody joining today and we look forward to speaking with you again over the conferences in next quarter. That concludes the third quarter earnings conference call. Operator, you may now end it.