Q1 2025 Sensata Technologies Holding PLC Earnings Call

Good afternoon, and welcome to the Sensata technologies first quarter 2025 earnings call.

Unknown Executive: Good afternoon, and welcome to the Sensata Technologies first quarter 2025 earnings All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by the star. After today's presentation, there will be an opportunity to ask questions.

Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll 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.

Unknown Executive: Question, you may press star then one on your touchtone phone to withdraw your Please note this event is being recorded.

Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to Mr. James that whistle senior director of Investor Relations. Please go ahead.

James Entwistle: I would now like to turn the conference over to Mr. James. Senior Director of Investor Relations. Please go ahead.

Speaker Change: Thank you, Jason and good afternoon, everyone I'm, James Edwards Senior director of Investor Relations for some thought and I'd like to welcome you into since how does first quarter 2025 earnings Conference call. Joining me on today's call are Stefan bond shipment, sometimes chief Executive Officer, and Brian Roberts since out as Chief Financial Officer.

James Entwistle: Jason, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata, and I'd like to welcome you to Sensata's first quarter 2025 earnings conference. Joining me on today's call are Stephan von Schuckmann, Sensata's Chief Executive Officer, and Brian Roberts, Sensata's Chief Financial Officer.

James Entwistle: In addition to the financial press results press release we issued earlier today, we will be referencing a slide presentation during today's conference call. The PDF of this presentation can be downloaded from Sensata's Investor Relations website.

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 for instance out of his investor Relations website.

James Entwistle: 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.

Speaker Change: 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.

Speaker Change: As we begin I'd like to reference <unk> 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 and involve certain risks and uncertainties.

James Entwistle: As we begin, I'd like to reference Sensata's Safe Harbor Statement on slide 2. 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 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.

Speaker Change: The company's actual results may differ materially from the projections described in such statements.

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.

James Entwistle: We encourage you to review our GAAP financial statements in addition to today's presentation. Much of the information that we will discuss during today's call will relate to non-GAAP financial measures. Our GAAP and non-GAAP financials, including reconciliations, are included in our earnings release, the appendices of our presentation materials, and in our SEC file.

Speaker Change: We encourage you to review our GAAP financial statements. In addition to today's presentation.

Speaker Change: Much of the information that we will discuss during today's call will relate to non-GAAP financial measures.

Speaker Change: Our GAAP and non-GAAP financials, including reconciliations are included in our earnings release, the appendices of our presentation materials and interesting SEC filings.

James Entwistle: Stephan will begin the call today with comments on the overall business.

Speaker Change: Stefan will begin the call today with comments on the overall business.

James Entwistle: Brian will cover our detailed results for the first quarter of 2025 and our financial outlook for the second quarter of 2025.

Speaker Change: Ryan will cover our detailed results for the first quarter of 2025, and our financial outlook for the second quarter of 2025.

James Entwistle: Stephan will then return for closing remarks. We will then take your questions.

Speaker Change: Stephane will then return for closing remarks, we will then take your questions now I would like to turn the call over to <unk>, Chief Executive Officer Stefan on shipments.

Stephan Schuckmann: Now I would like to turn the call over to Sensata's Chief Executive Officer, Stephan von Schuckmann. Thank you, James, and good afternoon, everyone. Let's begin on slide three. We delivered a strong first quarter 2025 with revenue, adjusted operating income, and adjusted earnings per share, all exceeding the high end of our guidance. I'm pleased with these results. Especially given a volatile and constantly evolving tariff environment, which continues to have daily impacts on key end markets. I want to thank our customers, suppliers, and our Sensata team for their efforts to work through unprecedented levels of change and uncertainty to deliver what I expect is the first of many strong quarters during my tenure.

Speaker Change: Thank you James and good afternoon, everyone, let's begin on slide three.

Speaker Change: We delivered a strong first quarter 'twenty to 'twenty five.

Speaker Change: Revenue adjusted operating income and adjusted earnings per share all.

Speaker Change: While exceeding the high end of our guidance.

Speaker Change: With these results, especially given the volatile and constantly evolving tariff environment, which continues to have daily impact on and key end markets.

Speaker Change: I want to thank our customers suppliers and awesome solid team for their efforts to work through unprecedented levels of change and uncertainty to deliver what I expect is the first of many strong quarters during my tenure.

Speaker Change: Although no terrorists are top of mind for many I'd.

Stephan Schuckmann: Well, I know tariffs are top of mind for many.

Stephan Schuckmann: I'd like to start the call today by going a little deeper on the three strategic imperatives that I shared earlier this year. These key pillars of improving our operational performance, optimizing our capital allocation and returning Sensata to growth are my priorities and our core areas of focus. Much of my initial 100 days with Sensata, I've been, I have been spent observing, listening and learning as I've traveled to our factories, spent time with our teams, and met many of you, our shareholders. I've watched how we manufacture and deliver our products, how we innovate and plan for future growth by winning new business opportunities and have begun the process of taking a fresh look at our strategy.

Speaker Change: I'd like to start the call today are going a little deeper on the three strategic imperatives.

Speaker Change: Earlier this year.

Speaker Change: These key pillars of improving our operational performance.

Speaker Change: Optimizing our capital allocation.

Speaker Change: And returning to sort of to growers.

Speaker Change: Our priorities and our core areas of focus.

Speaker Change: Much of my initial 100 days with some thought I've been I've been.

Speaker Change: <unk> spent observing listening and learning as I've traveled to our factories and spend time with our teams and met many of you our shareholders.

Speaker Change: I've watched how we manufacture and deliver our products.

Speaker Change: Innovate and plan for future growth by winning new business opportunities.

Speaker Change: Began the process of taking a fresh look at our strategy.

Speaker Change: Is that fence resulted in some key observations on which we are already taking action to drive progress on these pilots.

Stephan Schuckmann: These efforts resulted in some key observations on which we are already taking action to drive progress on these pillars. Let me start with improving our operational performance. Last quarter, I clearly defined what it means to be operationally excellent, but it's important and warrants repeating. Operational excellence is not just about cost productivity and margin percentage. It means delivering a high quality product to our customers on time at the lowest possible cost. while we efficiently manage production capacity and optimize inventory. It also requires us to be excellent across all areas of our organization. while manufacturing and production are at the forefront.

Speaker Change: Let me start with improving our operational performance.

Speaker Change: Last quarter, our clearly defined what it means to be operationally excellent.

Speaker Change: But it's important it warrants repeating.

Speaker Change: Operational excellence is not just about cost productivity and margin percentage.

Speaker Change: It means delivering a high quality product to our customers on time at the lowest possible cost.

Speaker Change: We efficiently managed production capacity and optimize inventory levels.

Speaker Change: It also requires us to be excellent across all areas of our organization.

Speaker Change: Manufacturing and production are at the forefront.

Stephan Schuckmann: We also strive to be best in class in our commercial, procurement, SG&A, engineering, and innovation. Ensure we are setting the right levels of ambition across the company. We are now continuously benchmarking Sensata internally and externally to remain the supplier of choice for our customers. forwarding us the opportunity to win your business and gain share. While Sensata is top quartile margin The work we have done over my first 100 days has made clear that we have exciting opportunities to improve in pursuit of operational excellence. Over the last two decades, I've experienced what best in class lean manufacturing looks like.

Speaker Change: We also strive to be best in cost you know commercial procurement.

Speaker Change: SG&A engineering and innovation teams.

Speaker Change: In short we are setting the right levels of ambition across the company right.

Speaker Change: And now continuously benchmarking and saw that internally and externally to remain the supplier of choice for our customers.

Speaker Change: Fortinet has the opportunity to win new business and gain share.

Speaker Change: Often thought of as top quartile margins. The work we have done over my first hundred days has made its.

Speaker Change: We have exciting opportunities to improve their pursuit of operational excellence.

Speaker Change: Over the last two decades.

Speaker Change: I've experienced what best in class lean manufacturing nuc side.

Stephan Schuckmann: And I know that we have untapped potential to leverage our strong teams at Sensata.

Speaker Change: And I know, it's we have untapped potential to leverage our strong teams that since auto.

Stephan Schuckmann: Let me dive a little deeper and give you some examples. First, consistency in operation. As I traveled to our factories, it was apparent that each location does certain things differently at Sensata rather than following a standardized production . This results in sites implementing different standards, from line concepts to floor management, leading to the same components being produced at varying cost levels. We want all our factories producing the same component at the lowest possible cost. To achieve this, we're implementing a standardized production system, much like the various derivatives of the Toyota production system adopted across the auto industry.

Speaker Change: If we dive a little deeper and give you some examples.

Speaker Change: First consistency in operations.

Speaker Change: As I traveled to our factories was apparent at each location does certain things differently had some start up rather than following a standardized production system.

Speaker Change: This results in five implementing different standards from lung concept before management, leading to the same components being produced at various varying cost levels.

Speaker Change: We want all of our factories producing the same component at the lowest possible cost.

Speaker Change: To achieve this.

Speaker Change: Implementing a standardized production system much like the various derivatives the PTO to production system adopted across the auto industry.

Ken: Hey, Ken.

Stephan Schuckmann: Second, continued focus on inventory management. Our team made good progress in 2024 reducing absolute inventory dollars levels by nearly $100 million or 14%. but we see opportunity to improve working capital, optimizing our inventory further. To enable this, we have kicked off a new initiative focused on integrated supply chain planning to gain a more accurate planning of part level demand integrated through production and materials.

Ken: Continued focus on inventory management.

Ken: Our team made good progress in 2024, reducing absolute inventory dollars levels by nearly $100 million of 14%.

Ken: But we see opportunity to improve working capital.

Ken: Optimizing our inventory further.

Ken: To enable this we have kicked off a new initiative focused on integrated supply chain planning to kind of more accurate planning a pocketable demand integrated through production and materials.

Ken: Third.

Stephan Schuckmann: Third, a more strategic approach to procurement. Over the past few years, our procurement organization became more tactical in adjusting to our highly inflationary environment, including working diligently over the last year to recover much of the cost increases that have absorbed during the worst of those inflationary times. While this certainly positioned us better than we otherwise would have been, we have not invested sufficiently to develop our suppliers to drive the same or better levels of productivity improvement through the supply chain. Accordingly, we have reorganized our operations group to allocate resources to supply development and improvement programs. These changes will increase our operating resiliency in 2025 and beyond.

Ken: A more strategic approach to procurement.

Ken: Over the past few years, our procurement organization became more tactical and adjusting to a highly inflationary environment.

Ken: <unk> working diligently over the last year to recover much of the cost increases and have absorbed during the worst of those inflationary times.

Ken: Well, there's certainly positioned us better and we otherwise would have been we have not invested sufficiently to develop our suppliers to drive the same or better levels of productivity improvement through the supply chain.

Ken: Accordingly, we have reorganized our operations group.

Ken: Locate resources to support development and improvement programs.

Ken: These changes will increase our operating resiliency in 2025 and beyond.

Stephan Schuckmann: The savings we derive will enable us to embark on additional initiatives, setting the foundation to continue to expand margin.

Ken: The savings, we derive will enable us to embark on additional initiatives setting the foundation to continue to expand margins.

Ken: Let me now turn to my second pillar capital allocation.

Stephan Schuckmann: Let me now turn to my second pillar, capital allocation. Our focus here is simple. to ensure that we are effectively allocating capital to maximize return for our shareholders. The board and I take this responsibility to invest our shareholders' cash seriously.

Ken: Our focus here is simple.

Ken: To ensure that we are effectively allocating capital to maximize return for our shareholders.

Ken: The board and I take this responsibility to invest our shareholders' cash seriously.

Stephan Schuckmann: Committed to Meaningful Improvement. The first step is to increase free cash flow conversions. We made great strides in free cash flow conversion in the first quarter, as our conversion rate improved by 26% points year-over-year to 74%. Given the strong Q1 results, We used approximately 100 million of cash to repurchase 3.5 million shares. We are confident in our ability to improve free cash flow and expect to follow the disciplined approach we took last year by returning cash to our shareholders through share repurchases, reducing our net leverage, and maintaining our current level of dividends.

Ken: We're committed to meaningful improvement in.

Ken: The first step is to increase free cash flow conversion.

Ken: <unk> made great strides in free cash flow conversion in the first quarter.

Ken: And our conversion rate improved by 26% points year over year to 74%.

Ken: Given the strong Q1 result.

Ken: We used approximately 100 million of cash to repurchase three and a half million shares.

Ken: We are confident in our ability to improve free cash flow and expect to follow this disciplined approach. We took last year are returning cash to our shareholders.

Ken: She repurchases.

Ken: Our net leverage and maintaining our current level of dividend.

Ken: Finally, let me speak to returning some sort up to revenue growth.

Stephan Schuckmann: Finally, let me speak to returning Sensata to revenue growth. over the medium and long term. To better understand our opportunity for growth. I've spent considerable time these last few months diving deep into our product innovation, our ability to attract and win new business. and our overall positioning within our end market. Product innovation is critical. And we are seeing exciting opportunities across our portfolio to innovate and drive value for our customers. We've spent considerable time over the last several quarters discussing our leak detection sensing capabilities in the HVAC space. Our industrials business is a clear leader in this new market segment and remain enthusiastic that this will be a growth driver for Sensata.

Ken: Over the medium and long term.

Ken: To be able to better understand the opportunity for growth I've spent considerable time. These last few months diving deep into our product innovation, our ability to attract and win new business.

Ken: And our overall positioning within our end markets.

Ken: Product innovation is critical and we're seeing exciting opportunities across our portfolio do we innovate and drive value for our customers.

Ken: We spent considerable time over the last several quarters to start discussing our leak detection sensing capabilities in the HVAC space.

Ken: Our industrial business as a clear leader in this new market segment.

Ken: I remain enthusiastic and this will be a growth driver for some of the.

Stephan Schuckmann: for the next several years. The breadth and depth of our ice and electrification technologies are our core strengths for Sensata across our auto and HBR businesses. We are well positioned to be the supplier of choice across areas such as braking, emissions and electrical protection and we are winning business in all regions. As an example, in the first quarter, we booked a significant win in Japan with MADSA for exhaust and fuel sensors. This follows important wins in 2024 with Toyota and other Japanese OEMs, as we continue to make significant strides in this market. In China, we successfully secured several contact and TPMS business awards with market leading local EV OEMs, as well as significant wins through leading local tiers serving the global market.

Ken: The next several years.

Ken: The breadth and depth of our ice and electrification technologies are core strengths for Sensata.

Ken: Cross sell auto and <unk> businesses.

Ken: We are well positioned to be the supplier of choice across areas such as breaking emissions.

Ken: Electrical protection and we are winning business in all regions.

Ken: As an example in.

Ken: In the first quarter, we booked a significant win in Japan with matched up for exhaust and fuel centers.

Ken: This follows important wins in 'twenty 'twenty four with two you are trying to other Japanese Oems.

Ken: As we continue to make significant strides in this market.

Ken: In China, we successfully secured several contact I N T. P. M. S business awards with market leader, leading local E V O EMS as well as significant wins for leading local T is serving the global market.

Ken: These wins demonstrate our capability to compete and win around the world.

Stephan Schuckmann: These wins demonstrate our capability to compete and win around the world.

Stephan Schuckmann: As we look out to 2026 and 2027, we're excited about further growth opportunities from our portfolio of high voltage products.

Ken: As we look out to 'twenty to 'twenty, six and 'twenty 'twenty seven.

Ken: Cited about further growth opportunities from a portfolio of high voltage products.

Ken: I'll take a moment to discuss how we manage tariff.

Stephan Schuckmann: Now I'll take a moment to discuss how we manage tariffs.

Stephan Schuckmann: Just turn to slide 4. The direct and indirect effects from tariffs are the primary issue impacting us, our customers, and our end markets today. Over the last decade, we have positioned ourselves well by proactively focusing on a region for region strategy to align our supply chains and production with our customers. North America represents approximately 40% of our global revenue, of which we serve roughly 70% from production in Mexico. Since early March, when the 25% tariff on non-USMCA qualified components from Mexico took effect, We have been working diligently with our customers to minimize the impact of tariffs to their business and ours.

Ken: Let's turn to slide four.

Ken: The direct and indirect effects from tariffs or the primary issue impacting us our customers.

Ken: Our end markets today.

Ken: Over the last decade, we have positioned ourselves well by proactively focusing on a region for region strategy to align our supply chains and production with our customers.

Ken: North America represents approximately 40% of our global revenue.

Ken: Of which we serve roughly 70% from production in Mexico.

Ken: Since early March when the 25% tariff on non U S. MCA qualified components from Mexico took effect.

Ken: We have been working diligently with our customers to minimize the impact of tariffs to the business and knowledge.

Stephan Schuckmann: For example, in early March, less than 50% of our products manufactured in Mexico were USMCA qualified. Our team has worked tirelessly to improve this, and today, 80% of our revenue source from Mexico is now USMCA qualified. We're working with customers to leverage our global footprint to deliver tariff mitigation solutions, such as changes to logistics, production, and source When we must incur tariff costs to supply our customers, our position is clear. Our customers must absorb these incremental costs. To effectuate this outcome, we have been in ongoing dialogue with our customers to secure their agreement to reimburse tariff costs.

Ken: For example in early March this and 50% of our products manufactured in Mexico, We're U S. MCA qualified.

Ken: Our team has worked tirelessly to improve this and today.

2% of our revenue source from Mexico is now U S. M C I quantified.

Ken: We're working with customers to leverage our global footprint to deliver tariff mitigation solutions, such as changes to logistics production and sourcing.

Ken: We must incur tariff costs to supply our customers our position is clear.

Ken: Our customers must absorb these incremental costs.

Ken: Terrific tried this outcome, we have been in ongoing dialogue with our customers to secure their agreement to reimburse tariff costs.

Stephan Schuckmann: As today, we've mitigated more than 95% of our gross tariff exposure in our auto and HVR business. through a combination of tariff exemptions, customer agreements to reimburse tariff costs.

Ken: As today, we have mitigated more than 95% of our gross tariff exposure, you know auto and H for our business.

Ken: Through a combination of tariff exemptions customer agreements to reimburse tariff costs.

Stephan Schuckmann: and various other.

Ken: And various other actions.

Ken: Finally, let me take a moment to discuss the ransomware incident, that's insider in early April.

Stephan Schuckmann: Finally, let me take a moment to discuss the ransomware incident at Sensata in early April. The incident temporarily impacted our operations to varying degrees over a roughly two-week period. Thanks to the exceptional work of our operations, customer service, and IT teams, as well as a team of third-party cybersecurity professionals, we're happy to report that we're back to normal business operations.

Ken: The incident temporarily impacted our operations to varying degrees of a roughly two week period.

Ken: Thanks to the exceptional work of our operations customer service and I T teams as well as a team of third party saw the security professionals.

Ken: Good to report that we are back to normal business operations.

Brian Roberts: I'd like to turn the call over to Brian to provide greater detail on Q1 and our thoughts around the second quarter and full year. Thank you, Stephan. Good afternoon everyone.

Ken: Now, let me turn the call over to Bryan to provide greater detail on Q1, and our thoughts around the second quarter and full year.

Bryan: Thank you Stefan and good afternoon, everyone.

Brian Roberts: For clarity and less noted, all amounts are denominated in U.S. dollars.

Speaker Change: Clarity unless noted all amounts are denominated in U S dollars, let me start on slide six.

Brian Roberts: Let me start on slide six. As Stephan noted, we delivered a strong first quarter, despite the macro uncertainty in our end markets, with revenue, adjusted operating income, and adjusted earnings per share all ahead of expectations. We reported revenue of $911 million for the first quarter of 2025 compared to revenue of $1.7 billion in Q1 of 2024.

Speaker Change: It's defined noted we delivered a strong first quarter. Despite the macro uncertainty in our end markets with revenue adjusted operating income and adjusted earnings per share all ahead of expectations. We.

Speaker Change: We reported revenue of 911 million for the first quarter of 2025 compared to revenue of $1 billion 7 million in Q1 of 2024.

Brian Roberts: Adjusting for the actions we shared last year to divest 200 million in annualized revenue related to various low-margin, low-growth products and the Q3 2024 sale of Insights. Revenue is approximately flat year-over-year and up sequentially 1%. Pass-through revenue related to tariffs recorded in Q1 was negligible at approximately $2 million. Adjusted operating income was $167 million, representing a margin of 18.3%, consistent with our expectations. While this denotes a year-over-year decrease of about 40 bates... It is, as expected, given a return to a more normalized seasonality pattern of margins related to the timing of pricing and productivity. Excluding approximately $2 million of net cost impacts from tariffs, our adjusted operating margin for Q1 would have been 18.6% above our guidance range.

Speaker Change: Adjusting for the actions, we shared last year to divest $200 million in annualized revenue related to various low margin low growth products and the Q3 2020 for sale of insights revenue was approximately flat year over year and up sequentially, 1%.

Speaker Change: Pass through revenue related to tariffs recorded in Q1 was negligible at approximately $2 million.

Speaker Change: Adjusted operating income was $167 million, representing a margin of 18, 3% consistent with our expectations.

Speaker Change: Well, that's the notes a year over year decrease of about 40 basis points. It is as expected given our return to a more normalized seasonality pattern of margins related to the timing of pricing and productivity.

Speaker Change: Excluding approximately 2 million of net cost impacts from tariffs our adjusted operating margin for Q1 would have been $18, 6% above our guidance range.

Brian Roberts: Stephan has made quite clear that our expectation is to pass through tariff costs to our customers. However, there may be some minimal quarterly impact due to the timing gap between tariff payment and cost for coverage. Adjusted earnings per share in the first quarter of 2025 was $0.78 compared to adjusted earnings per share of $0.89 in Q1 2024. The Q1 2025 result exceeded the midpoint of our guidance by 7 cents, or about 10%.

Speaker Change: It's the finest made quite clear that our expectation is to pass through tariff costs to our customers. However, there may be some minimal quarterly impact due to the timing gap between tariff payment and cost recovery.

Speaker Change: Adjusted earnings per share in the first quarter of 2025 was 78 cents compared to adjusted earnings per share of 89 cents in Q1 2024.

Speaker Change: The Q1, 2025 result exceeded the midpoint of our guidance by seven cents or about 10%.

Brian Roberts: This result was due to a combination of our strong operational performance, lower than expected taxes incurred, and the repurchase of approximately 3.5 million shares during the first quarter, reducing our overall shares outstanding.

Speaker Change: This result was due to a combination of our strong operational performance lower than expected taxes incurred and the repurchase of approximately $3 5 million shares during the first quarter, reducing our overall shares outstanding.

Brian Roberts: Now let's turn to slide seven to discuss. Sensing Solutions, which is comprised primarily of our industrial and aerospace businesses, delivered $261 million of revenue in the first quarter of 2025, up 3% year-over-year after adjusting for the various divested products. Stability across industrials and aerospace, combined with our growing A2L gas leak detection sensing products, contributed to the positive Q1 results.

Speaker Change: Now, let's turn to slide seven to discuss segments.

Speaker Change: Yeah.

Speaker Change: Sensing solutions, which is comprised primarily of our industrial and aerospace businesses delivering $261 million of revenue in the first quarter of 2025 up three.

Speaker Change: <unk>, 3% year over year after adjusting for the various divested products.

Speaker Change: Ability across industrials and aerospace combined with our growing eat two world gas leak detection sensing products contributed to the positive Q1 results.

Brian Roberts: This is the first period where we have seen year-over-year growth in sensing solutions since the second quarter of 2023. While we remain cautious in our outlook given the uncertain macro environment, we are encouraged by this progress. Sensing Solutions Operating Margins was 29.2% in the quarter, as compared to 28% in Q1 2024 as a result of operating efficiencies and improvements to the product portfolio.

Speaker Change: This is the first period, where we have seen year over year growth in sensing solutions since the second quarter of 2023.

Speaker Change: While we remain cautious in our outlook given the uncertain macro environment. We are encouraged by this progress.

Speaker Change: Sensing solutions operating margin was 29, 2% in the quarter as compared to 28% in Q1 2024, as a result of operating efficiencies and improvements to the product portfolio.

Speaker Change: Performance sensing, which includes our automotive and heavy vehicle off road businesses reported revenue of $650 million in the first quarter of 2025, a decrease of about 9% year over year or about 8% after adjusting for divested products.

Brian Roberts: Performance Sensing, which includes our automotive and heavy vehicle off-road businesses, reported revenue of $650 million in the first quarter of 2025, a decrease of about 9% year-over-year or about 8% after adjustment for divested products. We slightly undergrew the market in Q1 in auto, given our previously discussed mixed issues in China, as well as volatility in European OEM production schedules, driven by shifts in the regulatory outlook. This was partially offset by increased North American production ahead of tariffs for parts that were USMCA qualified. We continue to expect that outgrowth will normalize in the second half of 2025 as we lap the China year-over-year comparisons and see improved regulatory clarity in Europe.

Speaker Change: We slightly under grew the market in Q1 in auto given our previously discussed mixed it mix issues in China as well as volatility in European OEM production schedules driven by shifts in the regulatory outlook.

Speaker Change: This was partially offset by increased North American production ahead of tariffs for parts that were U S. M. C. A qualified.

Speaker Change: We continue to expect that outgrowth will normalize in the second half of 2025, as we lap the China year over year comparisons and see improved regulatory clarity in Europe.

Brian Roberts: HVOR orders slowed more than initially anticipated in Q1, corresponding to the weaker market outlook for this segment as tariffs and regulatory shifts impact customer demand. Conformance sensing adjusted operating margin was 22% in Q1 as compared to 23.7% in Q1 2024 as we return to normal seasonality and timing of price downs offset by productivity gains.

Speaker Change: H B O our orders slowed more than initially anticipated in Q1 corresponding to the weaker market outlook for this segment as tariffs and regulatory shifts impact customer demand.

Speaker Change: Performance sensing adjusted operating margin was 22% in Q1 as compared to 23, 7% in Q1 2024, as we return to normal seasonality and timing of price downs offset by productivity gains.

Brian Roberts: Corporate and other has been recast to exclude certain costs previously referred to as mega trend spend, which are now presented within the two reporting segments. Suggested corporate operating expenses were $52 million in the first quarter of 2025, a decrease of approximately 10%, or $6 million versus the first quarter of 2024, reflecting efficiencies gained because of the restructuring efforts taken in the second half of last year.

Speaker Change: Corporate and other has been recast to exclude certain costs previously referred to as Mega trends spend which are now presented within the two reporting segments.

Speaker Change: Adjusted corporate operating expenses were 52 million in the first quarter of 2025, a decrease of approximately 10% or 6 million versus the first quarter of 2024, reflecting efficiencies gained because of the restructuring efforts taken in the second half of last year.

Speaker Change: Turning to slide eight.

Brian Roberts: Turning to sliding. As Stephan noted, we remain laser-focused on improving our free cash flow conversion, and I'm pleased that we continued our momentum in the first quarter. Free cash flow conversion improved 26 percentage points year-over-year to 74% in the first quarter as compared to 48% in Q1 2024. Free cash flow is $87 million, up 35% from $64 million in the same quarter last year.

Speaker Change: It's defined noted we remain laser focused on improving our free cash flow conversion and I'm pleased that we continued our momentum in the first quarter.

Speaker Change: Free cash flow conversion improved 26 percentage points year over year to 74% in the first quarter as compared to 48% in Q1 2020 for.

Speaker Change: Free cash flow was $87 million of 35% from $64 million in the same quarter last year.

Brian Roberts: This strong Q1 result sets the foundation for Sensata to further improve free cash flow conversion in 2025 as compared to 2024. Net leverage in the first quarter was just above three times. This was as planned due to a lower trailing 12-month EBITDA denominator caused by the sale of Insights and the divested product. We were proactive around share repurchases in the first quarter, buying approximately 3.5 million shares for approximately $100 million of cash. In addition, we returned $18 million to shareholders in the first quarter through our quarterly dividend and have approved our second quarter dividend at the same $0.12 per share rate payable on May 28th to shareholders of record as of May 14th.

Speaker Change: This strong Q1 result sets the foundation for some sided to further improve free cash flow conversion in 2025 as compared to 2024.

Speaker Change: Net leverage in the first quarter was just above three times. This was as planned due to a lower trailing 12 month EBITDA denominator caused by the sale of insights and the divested products.

Speaker Change: We were proactive around share repurchases in the first quarter buying approximately $3 5 million shares for approximately $100 million of cash in.

Speaker Change: In addition, we returned $18 million to shareholders in the first quarter through our quarterly dividend and if approved our second quarter dividend at the same 12 cent per share rate payable on may 28 to shareholders of record as of May 14th.

Brian Roberts: These capital deployment actions yielded an improvement in our return on invested capital of a half point as ROIC increased to 10.2% for the 12 months ended March 31st, 2025, as compared to 9.7% for the 12 month period ended March 31st, 2024.

Speaker Change: These capital deployment actions yielded an improvement in our return on invested capital of a half point as ROIC increased to 10, 2%.

Speaker Change: <unk> months ended March 31, 2025, as compared to nine 7% for the 12 months period ended March 31 2024.

Speaker Change: Building upon <unk> earlier comments I'd now like to provide a brief overview of our current tariff exposure.

Brian Roberts: Building upon Stephan's earlier comments, I'd now like to provide a brief overview of our current tariff exposure. Our tariff considerations primarily fall into three main categories. Exposures Related to Products Produced in Mexico Exposures related to the escalated tariff rates between the U.S. and China. and exposure related to the potential for increased costs for reciprocal tariffs.

Speaker Change: Our tariff considerations, primarily fall into three main categories exposure.

Speaker Change: Exposures related to products produced in Mexico.

Speaker Change: Exposures related to the escalated tariff rates between the U S and China and.

Speaker Change: And exposure related to the potential for increased costs for reciprocal tariffs.

Brian Roberts: Currently, we are not exposed to tariffs specific to auto parts as our products are not in scope. Now let me take a moment to talk about each of these exposure categories. First Mexico. As we've discussed, approximately 70% of our North American production is imported from Mexico to the U.S. Currently approximately 80% of that Mexico-sourced revenue qualifies under USMCA and is not subject to tariffs. For other parts, we are working with our customers to help mitigate the cost by identifying alternative means of delivery, leveraging our global footprint, or pursuing alternative sourcing of materials. If no other options are available, we have been clear that our customers must absorb this cost.

Speaker Change: Currently we are not exposed to tariffs specific to auto parts as our products are not in scope.

Speaker Change: Now, let me take a moment to talk about each of these exposure categories.

Speaker Change: First Mexico.

Speaker Change: As we've discussed approximately 70% of our North American production is imported from Mexico to the U S.

Speaker Change: Currently approximately 80% of that Mexico source revenue qualifies under U S. M C E and is not subject to tariffs.

Speaker Change: For other parts, we are working with our customers to help mitigate the cost by identifying alternative means of delivery leveraging our global footprint, we're pursuing alternative sourcing of materials.

Speaker Change: No. Other options are available we have been clear that our customers must absorb this cost.

Brian Roberts: The escalation in rates between China and the U.S. has two main impacts on Sensata as between 5 and 10 percent of our core industrial revenue or 1 to 2 percent of total Sensata revenue is subject to these tariffs. In many cases, starting in the second quarter, distributors are putting some orders on hold, awaiting potential reduction in the current rates, which range up to 145%. We are hopeful that in the coming months China and the U.S. will reach an updated trade agreement reducing these rates and allowing us to ship these products. In advance, we have produced the required inventory such that if an agreement is reached, we will quickly be able to fulfill customer demand.

Speaker Change: The escalation in range between China, and the U S has two main impacts since insider as between five and 10% of our core industrial revenue or 1% to 2% of total since Sada revenue is subject to these tariffs.

In many cases, starting in the second quarter distributors are putting some orders on hold waiting potential reduction in the current rates, which range up to 145%.

Speaker Change: We are hopeful that in the coming months, China and the U S will reach an updated trade agreement, reducing these rates and allowing us to ship. These products in advance we have produced the required inventory such that if an agreement is reached we will quickly be able to fulfill customer demand.

Brian Roberts: The second exposure is related to certain raw materials that we source from the U.S. into China for products produced in China. For these raw materials, we are working on alternative sourcing and delivery options to mitigate this risk.

Speaker Change: The second exposure is related to certain raw materials that we source from the U S into China for products produced in China.

Speaker Change: For these raw materials, we are working on alternative sourcing and delivery options to mitigate this risk.

Brian Roberts: Finally, regarding the reciprocal tariffs, we will continue to monitor this closely over the next few months as elevated future tariffs in markets where we operate may restrict our ability to leverage our global footprint as efficiently as possible. Currently, reciprocal tariffs do not have a material impact on our business. Given the various executive orders in effect as of today, we anticipate incurring approximately $20 million of tariff costs in the second quarter. We expect to be able to offset this cost through incremental billings to customers and pricing actions to distributors. The end result should effectively be a net zero dollar impact to adjusted operating income.

Speaker Change: Finally regarding the reciprocal tariffs we will continue to monitor this closely over the next few months as elevated future tariffs in markets, where we operate may restrict our ability to leverage our global footprint as efficiently as possible.

Speaker Change: Currently reciprocal tariffs do not have a material impact on our business.

Speaker Change: Given the various executive orders in effect as of today, we anticipate incurring approximately $20 million of tariff cost in the second quarter.

Speaker Change: We expect to be able to offset this cost you incremental billings to customers and pricing actions to distributors. The end result should effectively be a net zero dollar impact to adjusted operating income.

Speaker Change: Turning to slide nine.

Brian Roberts: Turning to slide nine, we note that third-party auto production estimates were revised downward significantly in April by 1.6 million units over the remainder of 2025, with most of the decline attributable to North America. For the second quarter, the global expectation is down 2% with higher degrees of volatility by region, including Europe and North America down 6% and 10%, respectively, while China remains strong.

Speaker Change: We note that third party auto production estimates were revised downward significantly in April by one 6 million units over the remainder of 2025 with most of the decline attributable to North America.

Speaker Change: For the second quarter, the global expectation is down 2% with higher degrees of volatility by region, including Europe, and North America down, 6% and 10%, respectively, while China remains strong.

Brian Roberts: As we build our guidance expectation for Q2 and our thoughts for the second half of the year, we are aligning with these updated third-party efforts. We've also considered the incremental risk in industrial related to the China and U.S. tariffs.

Speaker Change: As we build our guidance expectation for Q2, and our thoughts for the second half of the year, you're aligning with these updated third party estimates.

Speaker Change: We've also considered the incremental risk in industrial related to the China and U S tariffs.

Brian Roberts: In summary, the team is doing an outstanding job to mitigate tariff risk wherever possible and ensure that any tariffs incurred will be offset by increased pricing or pass-through billing.

Speaker Change: In summary, the team is doing an outstanding job to mitigate tariff risk wherever possible and ensure that any terrorists incurred will be offset by increased pricing or pass through billings.

Speaker Change: Let me now turn to slide 10 to discuss our guidance for the second quarter of 2025 and provide some additional thinking for the second half of the year.

Brian Roberts: Let me now turn to slide 10 to discuss our guidance for the second quarter of 2025 and provide some additional thinking for the second half of the year. We currently expect revenue of $910 million to $940 million for the second quarter. This includes an expectation of approximately $20 million in tariff pass-through revenue. Adjusted operating income for the second quarter is expected in the range of $169 to $177 million and is not expected to be impacted by tariffs as any expense incurred would be offset by the pass-through tariff revenue. However, zero margin pass-through revenue will have a dilutive effect on adjusted operating margin index of about 40 basis points.

Speaker Change: We currently expect revenue of 910 to 940 million for the second quarter. This includes an expectation of approximately $20 million in tariff pass through revenue.

Speaker Change: Adjusted operating income for the second quarter is expected in the range of 169 to 177 million and is not expected to be impacted by tariffs is any expected expense incurred will be offset by the pass through tariff revenue.

Speaker Change: However, the zero margin pass through revenue will have a dilutive effect on adjusted operating margin index of about 40 basis points.

Brian Roberts: Including approximately $20 million in tariff revenue, we expect an adjusted operating margin index range of 18.6% to 18.8%. Again, for clarity, if we exclude approximately $20 million of anticipated pass-through tariff revenue in the second quarter, we would expect revenue of $890 million to $920 million, adjusted operating income unchanged at $169 million to $177 million, and an adjusted operating margin index range of 19 to 19.2 percent.

Speaker Change: Including approximately $20 million in tariff revenue, we expect an adjusted operating margin index range of $18 six to 18, 8%.

Speaker Change: Again for clarity, if we exclude approximately $20 million of anticipated pass through tariff revenue in the second quarter. We would expect revenue of 890 $920 million adjusted operating income unchanged at 169 to 177 million and an adjusted operating margin index rate.

Speaker Change: <unk> of 19 to 19, 2%.

Speaker Change: For the second half of 2025, we are preparing for the more significant cuts in automotive production currently forecasted by third party sources, which are highly concentrated in North America.

Brian Roberts: For the second half of 2025, we are preparing for the more significant cuts in automotive production currently forecasted by third-party sources, which are highly concentrated in North America. This will likely impact revenue by about $20-30 million per quarter in each of Q3 and Q4. At this level of revenue decrease, we remain confident in our ability to expand our pre-tariff adjusted operating income margin. by approximately 20 basis points per quarter over the course of the second half of the year.

Speaker Change: This will likely impact revenue by about 20 to 30 million per quarter in each of Q3 and Q4.

Speaker Change: At this level of revenue decrease we remain confident in our ability to expand our pre tariff adjusted operating income margins by approximately 20 basis points per quarter over the course of the second half of the year.

Brian Roberts: Like all of you, we are watching the macroenvironment closely for further regulatory and economic changes and will continue to update our expectations accordingly.

Speaker Change: Like all of you we're watching the macro environment closely for further regulatory and economic changes and we'll continue to update our expectations Accordingly.

Stephan Schuckmann: With that, I'd like to turn the call back to Stephan for closing. Thank you, Brian.

Speaker Change: I'd like to turn the call back to Stephane for closing remarks. Thank.

Stephane: Thank you Brian before me before I move to Q&A I'd like to leave you with some closing thoughts.

Stephan Schuckmann: Before we move to Q&A, I'd like to leave you with some closing thoughts. What I outline today is a glimpse into the significant transformation underway at Sensata. While we are still in the early days, I can state with confidence that after my first 100 days in the role, I'm even more optimistic than I was on day one. Foundation of the business is solid with much to build upon. Developing a high-performance organization and creating a culture of continuous improvement. And we're taking a benchmark-driven approach towards setting ambitious goals across all regions, functions, and product family. I am confident that the work we are doing here is creating a level of resiliency in our business that will continue to deliver meaningful results in the short term and in the future.

Stephane: Outlined today is a glimpse into the significant transformation underway at some sort of.

Stephane: Well, we're still in the early days I can state with confidence that after my first 100 days in the role I'm, even more optimistic than I was on day one.

Stephane: The foundation of the business is solid with much to build upon.

Stephane: By developing a high performance organization and creating a culture of continuous improvement.

Stephane: And we're taking a benchmark driven approach towards setting ambitious goals across all regions functions and product families.

Stephane: I am confident that the work we're doing here is creating a level of resiliency in our business that will continue to deliver meaningful results.

Stephane: Short term and in the future.

Stephan Schuckmann: Finally, with regard to tariffs. Thanks to the extraordinary work of our Sensata team and the collaborative approach from our customers and suppliers. We have now mitigated substantially all of our current tariff exposure.

Stephane: Finally.

Stephane: With regard to tariffs.

Stephane: Thanks to the extraordinary work of Austin solid team.

Stephane: The collaborative approach from our customers and suppliers.

Stephane: We have now mitigated substantially all of our current tariff exposure.

Stephan Schuckmann: With that.

Stephane: With that I'll turn.

James Entwistle: I'll turn the call back to James. Thank you.

James Edwards: Turn the call back to James Thank you.

James Entwistle: Thank you, Stephan and Brian. We will now move to Q&A.

Speaker Change: Thank you Stefan and Brian We will now move to Q&A, Jason Please introduce the first question.

James Entwistle: Jason, please introduce the first question. To ask a question, you may press star then 1 on your touch screen. If you're using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star.

Speaker Change: To ask a question you May press Star then one on you touched on a phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: And withdraw your question. Please press Star then two.

Wamsi Mohan: Our first question comes from Wamsi Mohan from Banco. Yes, thank you so much, and thanks for all the color around Terrace. I was wondering if you could help us think through your comment, Brian, on the second half impact of $20 to $30 million per quarter. How much of that is related? Transcripts provided by Transcription Outsourcing, LLC.

Ramsey El: And our first question comes from Ramsey El <unk> from Bank of America. Please go ahead.

Ramsey El: Hi, yes. Thank you so much and thanks for all the color around around tariffs. It's super helpful. I was wondering if you could help us think through your comment Brian on the second half impact of 20 to 30 million per quarter in Q3, and Q4, how much upside is related to straight production cuts worse.

Ramsey El: Says.

Ramsey El: Potentially.

Ramsey El: Outgrow trends in and maybe you can just help us think through those moving pieces as you as you think about the total revenue impact in the second half.

Brian Roberts: Sure, Wamsi, thank you for the question and good afternoon. We're basically making it 100% really on straight production cuts. So if you look at North America, which is forecast to be down somewhere between 500 and 600,000 units per quarter in Q3 and Q4, you know, that's that's the real driver of the change as we look through, as we look through the production expectations into the second half, we thought it prudent to be able to make sure that we were adjusting.

Ramsey El: Sure. Thank you for the question and good afternoon.

Ramsey El: We're basically making it 100% really on stream production cuts. So if you look at North America, which is forecast to be down somewhere between 500, and 600000 units per quarter in Q3 and Q4.

Ramsey El: That's the real driver of the change as we look through as we look through the production expectations are into the second half we thought it prudent to be able to make sure that we were adjusting for it now.

Speaker Change: Okay. Thanks for that and if I could quickly follow up yeah.

Brian Roberts: Thanks for that. And if I could quickly follow up, the sensing solutions growth that you saw, would you say any of that is attributed to any pull forward impact and demand that certain end markets have seen because of because of tariff? Yeah, I'll start, Stephan, if you want to jump in. From my perspective, no. You know, we hadn't really seen much in tariff impact in industrials, especially in the first quarter, as we had talked about last quarter when the tariff rates in China were roughly about 20%. It just wasn't material to the business. Obviously, there's been escalations of that since, which happened, you know, late in the quarter into early Q2.

Speaker Change: Yeah. The sensing solutions growth that you saw would you say any of that is attributed to any pull forward impact on demand that that there's certain end markets I've seen because of because of a tariff reasons. Thank you.

Speaker Change: Well I'll start and then Stephane if you Wanna jumping from my from my perspective, no. We havent really seen much tariff impact.

Stephane: In industrials, especially in the first quarter as we had talked about last quarter when the when the tariff rates in China were roughly about 20%. It just wasn't material to the business, obviously theres been escalations of that sense, which happened late in the quarter into early Q2, So really didnt see anything that happened from our Poland perspective there.

Brian Roberts: So really didn't see anything that happened from a pull-in perspective there. If anything, as those rates have escalated, you know, we have seen some things be put on hold here in Q2. And hopefully, again, if we can find a more reasonable compromise between the two countries, then, you know, we're certainly prepared to ship as soon as customers give the okay to release those orders.

Stephane: If anything as those rates have escalated we have seen some things to be put on hold here in Q2, and hopefully again, if we can find a more reasonable compromise between the two countries. Then we're certainly prepared to ship as soon as customers give us the okay to release those orders and I think what what time.

Stephan Schuckmann: And I think what I could add, Wamsi, you know, we're making good progress on our gas-sensing leak detection. And, you know, we've launched our A2L product range. And, you know, what you're seeing is the first level of growth impact. And that's basically one of the impacts of this growth within the industrial sector.

Stephane: Could I add two MZ, yet you know, we're making good progress on all gas sensing leak detection and you know we've launched so I hate to our product range and you know you you're what you're seeing is the first level of growth impact and that's basically one of the impacts of this growth within the industrial sector.

Stephane: Okay. Thank you so much.

Wamsi Mohan: Okay, thank you so much.

Stephane: Thank you.

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

Mark Delaney: Our next question comes from Mark Delaney from Goldman Sachs. Please go ahead. Good afternoon. Thank you very much for taking my questions, and thank you for all the details on your key priorities, Stephan, and also the Terrafin So Stephan, you mentioned in your prepared remarks progress in Asia with some Chinese local EV OEMs and also with some Japanese auto OEMs, and those are two customer sets that have historically been smaller for Sensata.

Mark Delaney: Yes. Good afternoon. Thank you very much for taking my questions and thank you for all the details on your key priorities justify it and also the tariff exposure.

Speaker Change: Stephane you mentioned in your prepared remarks progress in Asia with some Chinese local EV Oems and also with some Japanese auto Oems and those are two customer sets that have historically been smaller first and sort of can you help us better understand the size and scope of the wins. Thus far would you consider the bookings so far is still small but a good start to build on or do you think the award you already.

Mark Delaney: Can you help us better understand the size and scope of the wins thus far? Would you consider the bookings so far as still small but a good start to build on or do you think the awards you already have will ramp to a meaningful level of revenue?

Mark Delaney: Have will ramp to a meaningful level of revenue for the total company.

Mark Delaney: I don't believe so.

Stephan Schuckmann: Hello, Glynn. So... Unexplained like this, Mark, and first of all, thanks for your question. We've made good progress in China. The team has been very active in Southeast Asia, specifically in Japan. And those are the ones that I've mentioned around Mazda and with Toyota that we've won last year. I think it's important to say that we've also made good progress, especially in the EV sector in China, and it's it's pretty broad. So the team has not only won business with international OEMs, you know, being successful in China, but specifically also with Chinese OEMs. So we've had wins with local OEMs and that in all different product areas.

Mark Delaney: Unexplained like this a mark and first of all thanks for your question.

Mark Delaney: We've made good progress in China. The team has been very active in southeast Asia.

Mark Delaney: Timothy Stagia Services, specifically in Japan. And those are the wins that I've mentioned around Martha and with Toyota that we won last year.

Mark Delaney: I think it's important to say that we've also made good progress, especially in the EV sector in China and it's pretty broad.

Mark Delaney: So the team is not only one business with international OEMs being successful in China, but specifically also with Chinese OEMs.

Mark Delaney: So we've had wins with local OEMs, and they're in all different product areas.

Stephan Schuckmann: Okay, and just, I mean, as you think about what you've actually booked so far, I mean, are these still relatively small in terms of the revenue they'll represent over the next few years as they ramp up, or are these already pretty large? No, these are, I would say, small to medium-sized winds, so it's still pretty small overall, but growing step by step. So we've made some good improvements, but medium to small winds.

Mark Delaney: Okay, and just, I mean, as you think about what you've actually booked so far, I mean, are these still relatively small in terms of the revenue they'll represent over the next few years as they ramp up, or are these already pretty large? No, these are, I would say, small to medium-sized wins. So it's still pretty small overall, but growing step by step. So we've made some good improvements, but medium to small wins.

Mark Delaney: Very helpful, thank you.

Mark Delaney: My other question was around EBIT margins. The company had been anticipating EBIT margins for the year in the low 19% range. You're off to a good start based on what you spoke to for your expectations in the first half.

Speaker Change: Very helpful. Thank you. My other question was around EBIT margins. The company had been anticipating EBIT margins for the year in the low 19% range.

Speaker Change: You're off to a good start based on what you spoke to for your expectations in the first half. Brian, I believe you talked about still margin expansion in 2H, even on lower revenue, but could you speak a little bit more on your updated margin expectations for the year, in particular as you think through...

Brian Roberts: Brian, I believe you talked about still margin expansion in 2H, even on lower revenue, but could you speak a little bit more on your updated margin expectations for the year in particular, Any effects from tariffs and some of those revenue trends? Yeah, absolutely. So again, I mean, we're obviously going off the information we have currently, right? So I want to make sure that we were all clear that we're using, you know, April IHS effectively, or S&P Global Mobility for effectively some of the production data. And as we know, that may be volatile. So we'll obviously have to continue to update for that.

Speaker Change: Any effects from tariff and some of those revenue trends that you spoke to? [inaudible]

Thank you

Speaker Change: Yeah, absolutely. So again, I mean, we're obviously going off the information we have currently, right? So I want to make sure that we're all clear that we're using

Brian Roberts: But as we sit today, you know, we felt very good about our Q1 result. Again, excluding, you know, we wound up with a couple million dollars of net impact on tariffs in the first quarter. A lot of that, quite candidly, was things that were in transit when tariffs were first announced, and we couldn't turn things around or so in time. That's really kind of a one-time effect. If you exclude that out, we would have been 18.6 in Q1, which would have been a very strong result. As we're looking, again, excluding tariffs here as we talk about going forward, you know, Q2, we certainly still expect to be back into the 19 plus range.

Speaker Change: In the first quarter, a lot of that, quite candidly, was things that were entrant when tariffs were first announced and we couldn't turn things around or so in time. That's really kind of a one-time effect.

Speaker Change: If you exclude that out, we would have been 18, 16, Q1 which would have been a very strong result.

as we're looking again.

Excluding tariffs here, as we talk about going forward. Thank you very much.

Speaker Change: You're Q2, we certainly still expect to be back into the 19-plus range.

Brian Roberts: And then we're stair-stepping very similar to how we did last year in Q3 and Q4. So I think if you blend that all together, what we said last quarter still holds true that we think we're, you know, at or above where we were for 2024. So we're encouraged by that. Certainly a lot of the initiatives that Stefan's talking around about to be able to become more operationally excellent, those initiatives are going to help us.

Speaker Change: and then we're still stepping very similar to how we did last year in Q3 and Q4 so I think if you blend that all together but we said last quarter still holds true that we think we're at or above where we were for 2024 so we're encouraged by that.

Speaker Change: Certainly a lot of the initiatives that Stephan's talking around about to be able to become more operationally excellent. Those initiatives are going to help us

Brian Roberts: You know, certainly they can help us a little bit here in the back half of 25, but then they'll also start to set the table for us in 26.

Speaker Change: You know, certainly they can help us a little bit here in the back half of 25, but then they'll also start to set the table for us in 26. So we're certainly excited about that progress and what it's going to be able to do for us. To hopefully continue this margin expansion, you know, kind of run if you will going forward.

Brian Roberts: So we're certainly excited about that progress and what it's going to be able to do for us to hopefully continue this margin expansion, you know, kind of run, if you will, going forward.

Joe Giordano: The next question comes from Joe Giordano from TD Cowan. Please go ahead. Hey, guys, how you doing?

Thank you.

Speaker Change: The next question comes from Joe Giordano from TD Cowan. Please go ahead.

Joe Giordano: Hey, good, Brian, not to pin you down too much, but like the 20 to 30 20 to 30 million of like the incremental production cuts, like Is that being offset elsewhere, like industrial starting to grow again, you obviously get the tariff revenue, but like, just trying to square like that. Simply, we're not saying that revenue is down 20 to 30, it's just there is an impact. Q3 and Q4, roughly that's $25 million plus or minus of revenue impact to us. I think the rest of the business, obviously there can be risk that comes with the tariff exposures of just around production levels, but overall, I think especially on the sensing solution side, we feel very good about the progress and momentum we've made.

Joe Giordano: Hey guys, how you doing? Hey, Brian , not to pin you down too much, but like the 20 to 30.

Speaker Change: Is it 20 to 30 million of like the incremental production costs? Like...

Speaker Change: Is that being lost at elsewhere? Like industrial starting to grow again? You obviously get the terror from you, but like just trying to square like that...

to the ex-old, is that how we should think about it? [inaudible]

Speaker Change: Yeah, I mean again, from where we were three months ago when we started to talk about color for the full year, we've seen...

Speaker Change: You know, 1.6 million auto units effectively come out with the great majority of those being in North America and then another slug in Europe , right? So when you look at that, you know, that's just that many less light vehicles that are going to get produced that has an impact on the business.

Speaker Change: You know, I think the rest of the business, you know, obviously there can be risks that comes with, you know, with the tariff exposures of just around production levels. But overall, I think especially on the sense exclusion side, we feel very good about the progress and momentum we've made.

Brian Roberts: So again, we may see some distributor orders put on hold here in Q2 due to the tariff uncertainty, but we're working our way through that and the underlying foundation seems very solid.

Speaker Change: Day. So again, we made some distributor orders, put on holdier and Q2 due to the tariff uncertainty, but you know, we're working our way through that and the underlying foundation seems very solid.

Brian Roberts: And then on the ability to, you know, feel that good about margins, despite that headwind in the US on, you know, on profitable business. What are like the main buckets that's helping you and giving you that visibility? Is it like headcount and issues that have already happened or where are you pulling? Yeah, I mean, we're, I mean, I would say this is all really coming right now from operational productivity, right? So I mean, as we built our plan for 25 of where we were going to see growth, how we were going to continue to kind of work our way through the productivity, you know, math, if you will, to offset pricing and other things, you know, the teams have done a really good job of minimizing pricing impacts where possible, being able to continue to drive procurement, continue to drive just overall efficiency.

Speaker Change: And then on the ability to feel that good about margins despite that headwind in the US on profitable business, what are like the main buckets that's helping you and giving you that disability? Is it like headcounting issues that have already happened? Where are you pulling those levers?

Speaker Change: Yeah, I mean, I would say this is all really coming right now from operational productivity, right? So I mean, as we built our plan for 25 of where we were going to see growth, how we were going to continue to kind of work our way through the productivity.

Speaker Change: if you will, to offset pricing and other things. You know, the teams have done a really good job of minimizing pricing impacts where possible, being able to continue to drive procurement, continue to drive just overall efficiency. We're getting some of the benefits now from some of the restructuring.

Brian Roberts: We're getting some of the benefits now from some of the, you know, the, the restructuring charges that we took in the back half of 24. All of those things are leading to, I think, giving us more confidence in, you know, our margin plan moving forward.

Speaker Change: Chargers that we took in the back half of 24. All of those things are leading to, I think, giving us more confidence in our March and plan moving forward.

Joseph Spak: The next question comes from Joseph Spak from UBS, please go ahead. Thanks, everyone. Brian, I guess just going back to your comments on the back half, I mean, I understand what you know, those third party providers did, I would argue increasingly. That's looking pretty conservative based on some other commentary we've gotten from from companies. So, I mean, if that doesn't happen, I just doing some quick math, but like it would suggest that maybe that mark that quarter record margin expansion could be five to 10 basis points better than you indicated. Is that about right? I just want to sort of calibrate for potential upside if sort of that case doesn't play.

Thanks guys.

Joe Speck: The next question comes from Joseph Spak from UBS, please go ahead.

Thank you everyone.

Brian , I guess just going back to…

Your comments on the back half, I mean. [inaudible]

Joe Speck: I understand what, you know, those third-party providers did. I would argue, increasingly.

Joe Speck: That's looking pretty conservative based on some other commentary we've gotten from companies so...

Joe Speck: I mean, if that doesn't happen, I'm just doing some quick math, but it would suggest that...

Joe Speck: Maybe that Mark, that quarter required margin French could be five to ten basis points better than you indicated is that about right I just want to sort of calibrate for potential upside if sort of that case doesn't play out. [inaudible]

Brian Roberts: I'm going to hold off on trying to, you know, kind of recalculate on the margin side. What I would say is, obviously, if global production numbers are improved in the back half of the year as the tariff environment eases, for example, then, you know, we're certainly prepared to take advantage of that when that happens, right? So we can only go off of the data we have and, man, I'm really bad at predicting the lottery numbers, but, you know, that's kind of how we're thinking about it.

Joe Speck: I'm going to hold off on trying to recalculate on the margin. What I would say is obviously...

Joe Speck: If global production numbers are improved in the back half of the year as the tariff environment uses, for example, then we're certainly prepared to take advantage of that when that happens, right? So, where we can only go off of the data we have and

Joe Speck: Man, I'm really bad at predicting the lottery, no pressure, but that's kind of how we're thinking about it.

Joe Giordano: Fair enough. On the tariff, so the, you know, I understand you expect to sort of be fully compensated for that. Has that already, like, what percent of that's already been negotiated? How much is still in progress?

Speaker Change: Fair enough. On the tariffs though, I understand you expect to sort of be fully compensated for that. Has that already, like what percent of that's already been negotiated? How much is still in progress and needs to be done?

Brian Roberts: Yeah, no, look, sorry, go ahead, please. So basically, we've had a broad range of negotiations with with, I would say all of our customers in the HVR sector and also in the auto And as I mentioned, we've basically covered 95% through managed to mitigate 95% of the risk with these negotiations through these So if you want to put that in a dollar terms, Joe, right, you know, for booking 20 million of tariff, roughly in Q2, we're talking about a million dollars worth of exposures. Okay.

Yeah, no, look, sorry, go ahead, please.

Speaker Change: So basically we've had broad range of negotiations with I would say all of our customers in the age for our sector and also in the other sector.

Speaker Change: And as I mentioned, we've basically covered 95% through, managed to mitigate 95% of the risk with these negotiations.

through these negotiations.

Stephan Schuckmann: And then just, Stephan, now that you've had a little bit more time and appreciate your, you know, your three pillars update, just wondering if you have any more thoughts on the Sensata portfolio, whether there's any holes that you see, any other areas you think the company may be able to win, or maybe some products that, you know, under upon further review might might not be . So look, the focus in these first 100 plus days has been on these three pillars. So it's been on operational performance, and I've been focusing a lot around growth and everything else that I've mentioned.

Exposure to Silver Cup.

Okay, and then just Stephan.

Speaker Change: Now that you've had a little bit more time and appreciate your...

you know, your three pillars update.

Speaker Change: I'm just wondering if you have any more thoughts on the Sensata portfolio whether there's-

Speaker Change: any holes that you see, any other areas you think the company may be able to win, or maybe some products that, you know, under, upon further review might, might not be core.

Speaker Change: So the focus in these first 100 plus days has been on these three pillars. So it's been on operation performance and I've been focusing a lot around growth and everything else that I've mentioned. Thank you very much.

Stephan Schuckmann: everything else that I've mentioned so far and yes of course I'm looking at the portfolio I'm looking at the in industrials I'm also looking at the portfolio in in auto but up to date there's no change to that Thank you.

Speaker Change: Everything else that I've mentioned so far, and yes, of course, I'm looking at the portfolio, I'm looking at the industrial, I'm also looking at the portfolio in auto, but up to date there's no change to this at this point. [inaudible]

Thank you.

Christopher Glynn: The next question comes from Christopher Glynn from Oppenheimer, please go ahead. Hey, good afternoon, guys. I want to touch on the first pillar. Stephan Articulated, and Brian, you talked about, you know, setting the table for continued progress in 26. Curious if that comment reflects an expectation of kind of cumulative organizational builds. I know it's early days, but in terms of the vision, would this be anticipating some acceleration in the margin pacing by the time we phase into 26 or more about sustaining a steady moderate pace? You know, over time.

Thanks, Joe.

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

Take it afternoon, guys.

Chris

I want to touch on the first pillar.

Thank you.

Just curious at that comment, reflexion.

Expectation of kind of cumulative organizational builds.

Speaker Change: I know it's early days, but in terms of the vision, would this be anticipating some acceleration in the margin pacing by the time we phase into 26 or more about sustaining a steady moderate pace?

Brian Roberts: Just trying to get through Q2 here, Chris. You know, I think too early to tell, right? I mean, as we work through, you know, 26 planning in the back half of the year, we'll obviously have a lot more visibility and understanding around the environment. We'll certainly have a lot better visibility and understanding around, kind of, as we think about pricing for next year, and a lot of these initiatives that Stephan, you know, has kicked off with the teams and really trying to drive this concept of a standardized production system and operational excellence. So, I'd put that into the more to come category.

you know, over time.

Just trying to get through Q2 here, Chris.

Speaker Change: I think too early to tell, as we worked through 26 planning in the back half of the year, we'll obviously have a lot more visibility and understanding around the environment.

Speaker Change: We certainly have a lot better visibility and understanding around kind of how we think about pricing for next year, and a lot of these initiatives that Stephan has kicked off with the teams and really trying to drive this concept of a standardized production system and operational excellence, so I put that into the more to come category.

Brian Roberts: Certainly doing the things necessary now to give ourselves the best chance for further expansion going forward. It's volatile times, you know, we've got a lot of change, a lot of things that are unpredictable. So everything that we're doing at this point in time, you know, to try and improve operational performance with the examples that I've given is to be more resilient, you know, against these impacts that might come or might not come. Yeah, I appreciate it. It's early days.

Speaker Change: at this point, but certainly doing the things necessary now to give ourselves the best chance for further expansion going forward. And let me add to that, I think we mentioned it.

Speaker Change: It's one of a couple of times, you know, you've got a lot of change, a lot a lot a lot a lot of uh...

Things that aren't predictable.

Speaker Change: So, everything that we're doing at this point in time to try and improve operational performance with the examples that I've given is to be more resilient against these impacts that might come or might not come.

Brian Roberts: And you know, it was just meant, you know, the internals and in isolation, but appreciate it's early days and stay tuned for more to come.

Speaker Change: Yeah, I appreciate it. It's early days, and you know, it was just meant, you know, the internals in isolation, but appreciate it's early days and stay tuned for more to come. Brian , I assume the 20 basis points sequentially through the back half on the margin that assumes the

Brian Roberts: Brian, I assume the 20 basis points sequentially through the back half on the margin that assumes the 20 million zero margin pass through is static. Yeah, I mean, think of the numbers as kind of pre-tariff, right? So, you know, I mean, I think it'll be good practice for us so we can kind of stay apples to apples, given that clearly the tariff environment is volatile and will probably continue to change each quarter. You know, we'll continue to look at this kind of inclusive of tariff and then, you know, excluding tariff as well and give you both sets.

20 Million Zero Margin Pass through Estatic.

Speaker Change: Yeah, I mean, think of the numbers as kind of pre-tariff, right? So, I mean, I think it'll be good practice for us so we can kind of stay apples to apples given that clearly the tariff environment is volatile and we'll probably continue to change each quarter. We'll continue to look at this kind of...

Inclusive tariff, and then you'll... [inaudible]

Brian Roberts: But, you know, when we talk about 19 and 19-2 here in Q2, which is what we talked about last quarter, that's obviously excluding the tariffs and then, you know, 20 basis points plus or minus in Q3 and Q4. You can stair-step that, you know, really on both.

Speaker Change: Excluding tariff as well, and give you both sets. But when we talk about 19 and 19-2 here in Q-2, which is what we talked about last quarter, that's obviously excluding the tariffs, and then 20 basis points plus or minus in Q-3 and Q-4, you can stare stuff that.

Brian Roberts: Okay, and then on aerospace, your last couple quarters, most vendors, at least that we cover and follow have had, you know, negative OEM revenue, you talked about stable, you know, that stables like, you know, a point in time and a long term growth path for production.

You know, really on both I guess. [inaudible]

http://TheBusinessProfessor.com

Speaker Change: Okay, and then on aerospace, you last couple quarters, most vendors, at least a week covering follow up head, you know negative OEM revenue, you talked about stable, you know, that that stables like, you know, a point in time in a long term growth path. That's for sure.

Brian Roberts: Do you see that pivoting back as the OEM and the supply chain alignment? You know, I think a lot of companies have talked about it back to growth after the March quarter. So what, wondering if you're anticipating a pivot in the, you know, year over year revenue performance for Aero? I mean, I could say a few words. No, we don't, we don't see that. We see, you know, we see a strong development within our aerospace business. And we also expect a certain level of growth within 2025.

Speaker Change: Production. Do you see that pivoting back as the OEM in the supply chain?

Speaker Change: alignment you know I think a lot of companies have talked about it back to growth after the March quarter so what wondering if you're anticipating a pivot in the you know year-over-year revenue performance for Arrow

http://TheBusinessProfessor.com

Speaker Change: I mean, I could say a few words that, no, we don't see that, we see strong developments within our aerospace business.

Brian Roberts: But I'll pass on to Brian to say a few more details. Yeah, no, I think that's exactly right. I mean, you had some, you know, obviously, you know, certain customers have had some challenges in the aerospace area. But as those continue to resolve themselves, that bodes well for us. I think we have a very strong backlog in aerospace. And so, you know, we'll continue to show, you know, I call it kind of steady eddy growth in aerospace, both on the revenue side, as well as on the margin profile. Both our large customers have, you know, a good and solid backlog on which we can build and grow.

Speaker Change: And we also expect a certain level of growth within 2025.

Speaker Change: But I'll pass on to Brian to say a few more details. Yeah, no, I think that's exactly right. I mean, you and Sam.

Speaker Change: You know, obviously, you know, certain customers have had some challenges in the aerospace area, but as those continue to resolve themselves, that boats wealth for us, I think we have a very strong backlog.

Speaker Change: In Aerospace and so we'll continue to show, I call it kind of steady 80 growth in Aerospace, both on the revenue side as well as on the larger profile. Both our large customers have good and solid backlog on which we can build and grow.

Brian Roberts: Makes sense.

Brian Roberts: Thanks, guys. Thanks, Chris.

Makes sense. Thanks, guys.

Samik Chatterjee: This question comes from Samik Chatterjee from J.P. Morgan. Hi, thanks for taking my questions and congrats on the robust results here.

Thanks, Chris. Thank you

Speaker Change: The next question comes from Samik Chatterjee from JP Morgan. Please go ahead.

Sammy Chatterjee: Hi, thanks for taking my questions and congrats on the robust results here. Maybe if I can start with the second half color that you provided on the automotive volume sort of

Brian Roberts: Maybe if I can start with the second half color that you provided on the automotive volume sort of risk or the downside from a third-party forecast perspective, can you share any primary view here in terms of a similar either sort of changes in third-party forecast or your thinking at this stage relative to the heavy truck market and maybe to the extent that you can on the industrial side how the second half looks but interested in seeing if you are, if you have any thoughts in relation to sort of the risk from the macro in terms of those two areas and I have a follow-up.

Race or the downside from a third party forecast perspective, getting kicked.

Speaker Change: maybe to the to the extent that you can on the industrial side, how the second half looks, but interested in seeing if you are, if you have any thoughts in relation to sort of the risk from the macro in terms of those two areas, and I have a follow-up. Thank you.

Brian Roberts: Yeah, sure. Sam, I appreciate the question. Let me give you a little color. So yes, you're right. Auto, obviously, easy to track, just using third-party data there. And, you know, look, I mean, I hope that, you know, back to Joe's question, he was right that it ultimately prunes a little conservative, and that would be a good thing for all of us. When we think about HVOR, you know, that market outlook has clearly also worsened over the course of the last couple of months in this tariff environment. You know, we've seen weakness, you know, in on-road truck.

Sammy Chatterjee: Yeah, sure, Samik, appreciate the question. Let me give you a little color. So yes, you're right. I don't obviously use you to track.

just using third-party data there and.

Sammy Chatterjee: I hope that you back to Joe's question, he was right that it ultimately proves a little conservative and that would be a good thing for all of us.

when we think about HVOR.

You know, that market outlook is clearly also worsened.

Sammy Chatterjee: Over the course of the last couple of months in this tariff environment, we've seen weakness in on-road truck. I think some of the pre-bi that people expected to have come through due to potential regulatory changes around emissions. We've seen a lot of things that we've seen in the last couple of months in the tariff environment.

Brian Roberts: I think some of the pre-buy that people expected to have come through due to potential regulatory changes around emissions and other things in the U.S. likely being delayed, then coupled with the tariff environment, I think it certainly slowed any of those production expectations around pre-buy. You know, we've worked that into the model.

Brian Roberts: On the industrial side, again, you know, we've... We've got three quarters in a row now of what I call at least good solid stability there. We'll have to watch for if the demand environment changes a little bit due to the tariffs, especially if China and the U.S. can't reduce the rate that they're charging each other at the moment. But I think everybody is still hopeful that that'll resolve itself here in the coming periods. And, you know, the outlook, I think, in our industrial business is good. You know, I'd say solid. I don't want to get too far over our skis on it, but I think it's certainly been improving.

Sammy Chatterjee: We've got three quarters in a row now of what I call at least good solid stability there.

Sammy Chatterjee: We'll have to watch for the demand environment change a little bit due to the tariffs.

Specialty of China and the US can't reduce.

Sammy Chatterjee: The rate that they're charging each other at the moment, but you know, I think everybody's still hopeful that that'll resolve itself here in the coming, coming periods. And, you know, the outlook, I think, in our industrial businesses is, is, is.

Sammy Chatterjee: I'd say solid, I don't want to get too far over our skis on it, but I think it's certainly been improving. [inaudible]

Samik Chatterjee: Okay, got it.

Stephan Schuckmann: And then just in relation to the wins that you mentioned in your prepared remarks, and obviously, it's a pretty uncertain macro. So when you sort of are now looking at the pipeline of activity and engagement with customers, are you seeing any, and I'm referring to automotive customers, are you referring to seeing any push outs in terms of maybe the timelines of when you expect customers to decide on some of these engagements and wins, how they translate, or how quickly they translate into wins? Are you seeing any changes on that front, just given that they have multiple other things to sort of now take care of, I guess?

Speaker Change: Okay, and then just in relation to the wins that you mentioned in your prepared remarks and

Speaker Change: maybe the timelines of when you expect customers to decide on some of these engagements and how they translate or how quickly they translate into VINs. Are you seeing any changes on that front just given that they have multiple other things to sort of now take care of, I guess?

Stephan Schuckmann: I think I'd answer that question two-folded. So we've seen both. On the one hand, we've seen customers, you know, pushing out projects and postponing projects, especially around electrification. But on the other hand, depending on the region that you're in, we see customers that are extremely bullish, especially around China, and especially around EV platforms and applications, we see actually an acceleration of projects and basically no cancellations. So it's two-folded, depending on what region Thank you.

Speaker Change: I think I'll tell you that I'll answer that question twofold, so we've seen both [inaudible]

Speaker Change: On the one hand, we've seen customers pushing out projects and postponing projects [inaudible]

Especially around electrification.

Speaker Change: But on the other hand, depending on the region that you're in, we see customers are like extremely bullish especially around China and especially around EV platforms and applications. We see actually an acceleration of projects and basically no cancellations. So it's too full that they are depending on what region you look at.

Shreyas Patil: Thanks for taking the question.

Thank you. Thanks for taking the questions.

Shreyas Patil: The next question comes from Shreyas Patil from Wolfram. Please go ahead. Hey, thanks a lot for taking my question.

Unknown Speaker

Speaker Change: The next question comes from Shreyas Patil from Wolf Research. Please go ahead.

Brian Roberts: Maybe just starting on sensing solutions. So, you know, did the business return to grope here. Just wondering how we should think about the incremental margin. Assuming we can maintain. for their work. So, you know, I mean, clearly, if you go back to the segment numbers that we gave in, which is in the slide deck and in the queue, you know, good, strong operational margin improvement year over year, you know, we expect that trend to continue here over the next couple of quarters. Certainly a contributor to how we're thinking about, you know, the incremental margin expansion we're talking about for SudSat or in total, you know, given the outlook within that group as compared to, you know, a tougher environment on the auto industry.

Hey, thanks a lot for taking my questions.

Speaker Change: Maybe just starting on sensing solutions, so you noted the business has returned to growth here. Just wondering how we should think about the incremental margins in that business, assuming we can maintain further revenue increases.

So, I mean, clearly...

Speaker Change: If you go back to the segment numbers that we gave in which is in the slide deck and in the queue, you know, good strong operational margin improvement year over year, you know, we'd expect that trend to continue.

Stephan Schuckmann: Maybe just following up on the last question. because I believe. 2026, the plan, or at least the expectation was for. pretty significant increase in EV launches in Europe. So should we be assuming that those programs are getting pushed out or delayed, or is that just a reference to what you're saying? No, I don't see those programs being pushed out. In the contrary, I mean, most of the OEMs need to reach their CO2 targets and within the mix of the total production volumes that they have, they need to have a certain level of EVs. So what we're seeing here, in our view, is actually projects being launched or products being launched one after the other.

Thank you very much.

Okay.

and maybe just following up on the last question.

could I believe

Speaker Change: For 2026, the plan or at least the expectation was for a pretty significant increase in EV launches in Europe .

Speaker Change: So, should we be assuming that those programs are getting pushed out or delayed or is that just a reference to what you're seeing over the next few quarters?

No, I don't see those programs being pushed up. In the country, I mean the...

Speaker Change: Most of the OEMs need to reach their CO2 targets and within the mix of the total production volumes that they have, they need to have a certain level of EVs.

Speaker Change: So what we're seeing here in our view is actually project being launched, so product being launched one

Stephan Schuckmann: And I think 2026 and partially 2025 is a year where we are now seeing especially the second generation of electric vehicles being launched. So those are predominantly vehicles on 800 volt platforms with a higher range and higher charging speeds. So I don't think that those vehicles will be pushed out because they're technologically on the highest level. And I could expect that OEMs want to get these vehicles into the market because there'll be a higher end customer acceptance in comparison to first generation vehicles. So to be precise on your question, Europe wouldn't see much pushouts anymore.

And I think 26th and partially 2025 35

Speaker Change: In the year where we are now seeing especially the second generation of electric vehicles being launched. So those are...

predominantly vehicles on 800-volt platforms.

with higher range and higher charging speeds.

Speaker Change: So I don't think that those vehicles will be pushed out because they're technologically on the highest level and I could expect that OEMs want to get these vehicles into the market because there'll be a higher end customer acceptance in comparison to first generation vehicles. So, for...

Stephan Schuckmann: In the contrary, I think they will be launched at The push outs were related to projects previously. Okay, all right.

Speaker Change: To be precise on your question, Europe wouldn't see much push outs anymore in the country, I think there will be launch step by step.

The pushouts were related to projects previously launched.

Costa Desolas: Next question comes from Costa Desolas from Wells Fargo. Hey, everybody. Hey, Constant, how are you? Doing good. Good.

Okay. All right. Thank you.

Costa Desolas: The next question comes from Kasta Desolus from Wells Fargo. Please go ahead.

Hey, everybody.

Costa Desolas: A beautiful quarter.

Brian Roberts: I want to talk about free cash flow. And now another strong quarter of that.

Hey Costa, how are you?

Costa Desolas: Doing good, good, a beautiful quarter. I want to talk about free cash flow, another strong quarter of that. Brian , are all of the levers that look kind of a low hanging fruit that you can pull to improve free cash flow, kind of already done, or is there any, if you talk about maybe any other levers that are remaining to pull?

Brian Roberts: Brian, are all the levers that you look into the low hanging fruit that you can pull to improve free cash flow kind of already done? Or is there any, can you talk about maybe any other levers that are remaining to pull?

Stephan Schuckmann: Let me take the first part of the question and then I'll pass on to Brian. Look, I think, you know, improving your free cash flow and the example that I mentioned, especially around inventories, that's something you need to continuously work on, and that's what we're doing. So I wouldn't call it a low-hanging fruit, but I think it's something that you can improve step by step and, you know, make significant gains throughout 2025 and even beyond that, and that will drive a certain level of free cash flow improvement.

Speaker Change: Let me take the first part of the question and then I'll pass on to Brian .

Speaker Change: Look, I think, you know, improving a free cash flow and the example that I mentioned especially around inventories.

Speaker Change: There's something you need to continuously work on and that's what we're doing. So I wouldn't call it a low-hanging fruit.

Speaker Change: But I think it's something that you can prove step by step and make significant gains.

Speaker Change: Throughout 2025 and even beyond that, and that will drive a certain level of free cash flow improvement. But there are also other levels in that possible to Brian . Yeah, I mean, I think we obviously made a significant progress.

Brian Roberts: But there are also other levels, and I'll pass on to Brian. Yeah, I mean, I think we, you know, we've obviously made, you know, significant progress Year-over-year from 24 to 23 was 25, 26 percentage points. We continue that in Q1. Q1 is notoriously probably the most challenging quarter to grow cash. I absolutely agree with what Stephan just said. I think there's still a significant opportunity for us in the area of inventory. I do think we'll see a few ebbs and flows on that. I mentioned before, you know, we're building a little bit of inventory in our industrial area right now.

Speaker Change: Year over year from 24 to 23 was 25, 26 percentage point to continue that in Q1. Q1 is notoriously quite the most challenging quarter to grow cash.

Speaker Change: I absolutely agree with what Stephan just said. I think there's still a significant opportunity for us in the area of inventory. I do think we'll see a few ebbs and flows on that. I mentioned before, you know, we're building a little bit of inventory in our industrial area right now.

Brian Roberts: Assuming at some point this distributor demand is going to get released and we didn't want to get caught flat-footed on that. We want to be able to ship quickly. So, yeah, there can be slight ebbs and flows from a period to period, but overall, absolutely, I think the trend is still pointing in the right direction. We have more growth and more improvement to get in the area of cash flow.

Speaker Change: Assuming at some point this distributor demand is going to get released and we didn't want to get caught flat footed on that, we want to be able to shift quickly.

Speaker Change: So, yeah, there can be flying ebbs and flows from a period to period, but overall, absolutely, I think the trend is still pointing in the right direction. We have more growth.

Stephan Schuckmann: And let me add one more point to that. You know, we're challenging ourselves. So, I think we've made good progress, just as Brian mentioned. But we're looking outside of Sensata and we're looking at, you know, peers and competitors out there. And we're looking at who's really good, for example, in days on hand in inventory and in overall inventory levels. And we're comparing ourselves to that. And we're doing that in every region and through every plant.

Brian Roberts: More growth and more improvement to get in the area of cash flow. And let me add one more point to that, you know, we're challenging ourselves. So I think we've made good progress, just as Brian mentioned.

Brian Roberts: And we're comparing ourselves to that, and we're doing that in every region and through every plant, and we see certain levels of opportunities within that.

Stephan Schuckmann: And we see certain levels of opportunity.

Costa Desolas: That's great, guys.

Stephan Schuckmann: And then speaking of competitors, would you be able to provide any color on how your manufacturing footprint compares to your competitors? You mentioned you, you know, improved your USMCA compliance. Can you talk about, you know, how your position is relative to them and if that could be possibly the opportunity for you? Look, I think Sensata has a very competitive manufacturing footprint. The teams around production have done a fantastic job, first of all, in scaling up production and basically being very local for local. I think that is a strength of Sensata.

Speaker Change: That's great guys. And then, speaking of competitors, would you both provide any color on how you're manufacturing footprint compared to your competitors? You mentioned you, you know, improved your USMCA compliance. Can you talk about, you know, how your position is relative to them and if that could be possibly the opportunity for you?

Speaker Change: Look, I think Sensata has a very competitive manufacturing footprint. The teams around production

Speaker Change: In scaling up production and basically being very local for local, I think that is the strength of Sensata.

Stephan Schuckmann: I think the opportunity within production lies within the productivity of each facility. When we look out at our competitors, yes, of course, we look at manufacturing footprint, but what we especially look at is the productivity levels that we are on, and we look at what's best in class around productivity, and that's why we benchmark ourselves and we strive to be better. That's one of the initiatives that we're working on this year, and we'll also be working on through 2026 to get us onto that next level of productivity.

Speaker Change: I think the opportunity within production lies within the productivity of each facility, so when we look out at our competitors, yes of course we look at manufacturing footprint.

Speaker Change: But what we do, really special, look at is productivity levels that we are on.

and we look at what's best in class around productivity.

Speaker Change: And that's why we benchmark ourselves and we strive to be better.

Speaker Change: And that's one of the initiatives that we're working on this year.

Speaker Change: and we'll also be working on through 2026 to get us onto that next level of productivity. That's our target.

Stephan Schuckmann: That's our target.

Costa Desolas: Great, thanks for taking my questions. You bet.

Great things shaking my questions. That, thank you.

Guy Hardwick: The next question comes from Guy Hardwick from Freedom Capital Markets. Hi, good evening. I'm just wondering, based on the pillars that you target, whether you have a sense what you think the long term margin potential of the business is bear in mind what you said about second generation EVs from 2026. Look, Guy, I appreciate the question and, you know, everything to an extent will have an effect on margin and, and, and will have a positive effect on margin. But I think, you know, it's now 100 plus days, so quite early. So, you know, give me some time while I work through all these levers and while I'm trying to improve all the, you know, and all these levers for Sensata.

Speaker Change: The next question comes from Guy Hardwick from Freedom Capital Markets. Please go ahead.

Hi, good evening.

Speaker Change: Stephan, I'm just wondering based on the pillars of that you target, whether you have a sense for what you think the long-term margin potential for businesses, bear in mind what you said about second generation EVs from 2026.

Look, Guy, I appreciate the question and, you know,

Speaker Change: We're working on a lot of levers at this point in time, and the three pillars is the one side of it, and as you can recall from what I said

Speaker Change: We're going beyond that, we're working on S-GNA, we're looking at our structures.

Speaker Change: Now we're looking at commercial excellence, we're looking at how affectable procurement is. We're going into our engineering structures, we're looking at engineering efficiency.

Speaker Change: And then to a certain extent, obviously, that might not be too strongly related to margin, but also looking at our innovation and how we're moving ahead there.

everything

Speaker Change: To an extent we'll have an effect on margin and we'll have a positive effect on margin but I think you know it's now

Speaker Change: 100 plus days, so quite early, so give me some time while I work through all these levers and while I'm trying to improve all these levers for Sensata and I'm sure we'll have more details

Brian Roberts: And I'm sure we'll have more details and insight on Okay, thank you.

Brian Roberts: And just a quick one for Brian. Maybe I missed it because I missed the start of the call, but are there any sort of financial issues from the ransomware attack you reported a month ago? You'll see in Stephan's prepared remarks, you know, there was some obviously disruption to the business over the course of a couple of week period. That's all behind us now. The teams did a super job being able to work their way through it and get us back up and running. We don't expect it to have a material impact on the financial results for the quarter.

Speaker Change: Okay, thank you and just a quick one for Brian , maybe I missed it because I missed a start of the call but are there any sort of financial issues from the ransomware attack you reported a month ago?

Speaker Change: No, you'll see Instaphan's prepared remarks. There was some disruption to the business over the course of...

Speaker Change: A couple of week period that's all behind us now, the team's did a super job, being able to work their way through it and get us back up and running. We don't expect it to have a material impact on the financial results for the corner, so we're all systems go.

Brian Roberts: So we're we're all sustained.

James Entwistle: This concludes our question and answer session.

Thank you.

Brian Roberts: I would like to turn the conference back over to Brian Roberts for any questions. Thanks. Just want to thank everybody for joining today. Sorry that the call wound up a little later than our normal cadence. Part of that was just with the ransomware attack. Wanted to make sure we had appropriate time to get through our closing process. We'll get back to our normal schedule next quarter and look forward to updating you then again, again at that point. So take care, everybody. Thank you.

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: Thanks, just want to thank everybody for joining today. Sorry that the call wound up a little later, but our normal cadence, part of that was just with the ransomware attack, wanted to make sure we had appropriate time to get through our closing process. We'll get back to our normal schedule next quarter and look forward to updating you then again at that point. So take care everybody. Thank you very much.

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

Thank you.

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

Speaker Change: [music].