Operator: Good afternoon, and welcome to the Sensata Technologies Q3 2026 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead, sir.
James Entwistle: Thank you, operator, and good afternoon, everyone. I am James Entwistle, Senior Director of Investor Relations for Sensata, and I would like to welcome you to Sensata's Q3 2026 earnings conference call. Joining me on today's call are Stephan von Schuckmann, Sensata's Chief Executive Officer, and Andrew Lynch, Sensata's Chief Financial Officer. In addition to the financial results press release we issued earlier today, we will reference a slide presentation during today's call. A PDF of this presentation can be downloaded from Sensata's investor relations website. This conference call is being recorded, and we will post a replay on our investor relations website shortly after the call concludes.
James Entwistle: As we begin, I would 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.
James Entwistle: The company's actual results may differ materially from the projections described in those statements. Factors that might cause such differences include, but are not limited to, those discussed in our forms 10-Q and 10-K, as well as other filings with the SEC. We encourage you to review our GAAP financial statements in addition to today's presentation. Much of the information that we will discuss during today's call will relate to non-GAAP financial measures. Our GAAP and non-GAAP financials, including reconciliations, are included in our earnings release, in the appendices of our presentation materials, and in our SEC filings. Stephan will begin today's call with comments on the overall business. Andrew will then cover our detailed results for the Q3 and our financial outlook for the Q4. Stephan will then return for closing remarks. After that, we will take your questions.
James Entwistle: Now, I would like to turn the call over to Sensata's Chief Executive Officer, Stephan von Schuckmann.
Stephan von Schuckmann: Thank you, James, and good afternoon, everyone. Let's begin on slide 4. Sensata delivered an exceptionally strong Q3, with revenue, adjusted operating income, adjusted operating margin, and adjusted earnings per share all exceeding our expectations. These results included a $24 million program termination payment from a customer related to the cancellation of an electric vehicle program. Andrew will clarify the impact of this termination payment in greater detail when he covers our Q3 results. However, given the magnitude of the benefit from this payment, I want to highlight a few points up front. First, our underlying results met or exceeded the midpoint of our guidance ranges across all key metrics without the benefit from this payment. Second, the related program cancellation occurred last year, and there is no impact on our revenue outlook in connection with this payment.
Stephan von Schuckmann: And third, while the recovery stands out in the quarter, it was earned by the hard work of our automotive team to turn a challenging situation into a commercially viable outcome. This is consistent with a broader theme in our automotive business. The team has done an outstanding job of exercising pricing discipline to defend margins in an inflationary environment, much like we did with tariffs last year. With that said, my message for you today is that our core business is stronger, and we have growing conviction in our ability to accelerate long-term organic growth. Third quarter revenue grew approximately 8% year over year or 7% organically. Revenue and earnings growth were broad-based, with all three segments delivering year-over-year organic revenue growth, market outgrowth, and operating income growth.
Stephan von Schuckmann: During the quarter, we reduced net leverage to 2.1 times trailing 12 months adjusted EBITDA and completed $33 million of open market debt repurchases during the quarter. Free cash flow was exceptionally strong, with conversion at 119%, and our year-to-date free cash flow of $489 million is in line with 2025 full year free cash flow of $490 million. 2025 was an all-time record for free cash flow, and our extraordinary pace this year puts us on track for another record-breaking year. As our results continue to improve and our business is growing stronger each quarter, we are increasingly focused on cultivating multiple pathways to higher quality organic growth. Let's turn to slide 5 and take a broader look at how we are unlocking value in our business. Our transformation has never been just about improving margins or reducing debt.
Stephan von Schuckmann: It is about converting more of our earnings into cash and allocating that capital effectively so we can invest confidently in future growth. Our disciplined operating model is delivering exactly that improvement. We expect full year 2026 free cash flow conversion to exceed 100% of adjusted net income as our cash conversion cycle shortens and CapEx efficiency improves. Importantly, growth has accelerated alongside these improvements. Stronger cash generation and investment discipline have strengthened our balance sheet, reduced net interest expense, and supported equity value creation. From year-end 2024 through September 2026, we have reduced net debt from $2.6 billion to $1.9 billion. Over the same period, enterprise value grew 18%, while our equity market value grew 48%. While I'm encouraged by the value we have unlocked so far, I'm even more excited about the opportunity ahead of us.
Stephan von Schuckmann: Let's turn to slide 6 to discuss how we expect to accelerate value creating moving forward. Sensata has a differentiated technology platform built around mission-critical sensing and electrical protection, deep customer integration, leading market positions, and global scale. We see two clear pathways to accelerate growth. First, expanding core products into attractive adjacent markets, and second, innovating to solve increasingly complex customer challenges with our sensing and electrical protection expertise.
Stephan von Schuckmann: Turning to slide 7, let's take a look at the first pathway. We are extending motors and actuators into aerospace, contactors and isolation monitoring into high voltage data centers, and pressure and temperature sensing into power generation and liquid cooling. This is a capital efficient approach because it builds on technologies, manufacturing capabilities, and long-standing customer relationships. It requires minimal incremental capital, and the growth it generates creates capacity to fund our second pathway, innovation.
Stephan von Schuckmann: On slide 8, our motors and actuators product line illustrates this approach. Demand for compact, high-performance motion control is creating attractive aerospace opportunities. With more than 50 years of aerospace and defense experience, we have the in-flight pedigree that matters to our customers. Alongside that, our BEI Kimco motor brands brings proven designs and technical expertise to support next generation drone and UAV platforms. Rather than fit customer requirements to a commercial or modified off-the-shelf solution, we offer bespoke solutions for our customers, customizing torque, speed, efficiency, and form factor around the application. Our ability to deliver high torque and efficiency in compact, lightweight motors is valuable where space, weight, and power are constrained. With our US engineering and manufacturing footprint, we are able to meet high standards for supply chain risk mitigation.
Stephan von Schuckmann: As we go to market, we engage early in the RFP process, and we draw on proven designs, which enables us to deliver prototypes quickly, shorten development cycles, and reduce customer development risk. In fact, we are finding that speed is the most significant factor in securing new business, and we are meeting the challenge. New motor business wins reached a record this year, doubling our pace of wins from last year, and approximately triple our typical annual win rate from 2 years prior.
Stephan von Schuckmann: These wins support our participation in a global drone and UAV market, which is expected to grow at double digit CAGR over the balance of the decade. Moving ahead to slide 9, let's talk about innovation. As the motors example shows, a key differentiator is our ability to engineer solutions around evolving customer needs rather than rely solely on catalog products.
Stephan von Schuckmann: Sometimes that requires a small modification. Other times, we innovate to develop an entirely new product. Both draw on our technical expertise and close customer relationships. In automotive, we continue to innovate to address evolving efficiency, safety, cost, and weight requirements. For example, replacing actuation with force sensing and advancing contactors for more sophisticated electrical architectures. In aerospace defense and commercial equipment, we innovate to enable commercial vehicle electrification and next generation power systems. In industrials, we develop innovative solutions for new regulatory requirements, such as A2L leak detection, and for emerging customer needs, such as the ever-expanding need for data center-specific sensing and electrical protection solutions. I'll touch more on that in a moment. First, let's move to slide 10 to take a look at flow sensing as a recent example of innovation in our industrials business.
Stephan von Schuckmann: Earlier this year, we discussed our data center sensing portfolio and shared a new flow sensing solution we were developing for liquid cooling applications. Last week, we followed through on that development work and announced the launch of that product. Our FL Series uses ultrasonic sensing to deliver continuous, highly accurate coolant flow measurement. As computing density increases, that measurement becomes mission-critical. Too little flow can cause overheating and constrain processor performance, while excess flow wastes energy. Precise flow management helps customers maximize computing performance relative to power consumption, and that is exactly where we differentiate ourselves from competition. Our solution combines proven capabilities with targeted innovation to solve a complex customer problem and add content in an attractive market. We expect initial shipments by mid-2027, subject to final customer timing.
Stephan von Schuckmann: More broadly, our expanding data center portfolio positions us to meet a wider range of sensing and electrical needs, particularly with coolant distribution units or CDUs. Customers increasingly see Sensata as a one-stop shop for sensing and electrical protection solutions from grid to chip, and our longstanding system expertise earns us a position as a valued partner and preferred supplier to many of our customers. Turning to slide 11, let's look more closely at our data center growth. Data centers remain one of our most compelling long-term growth opportunities. Deployment timing remains dynamic, but demand for power management, sensing, electrical protection, and thermal management continues to strengthen, and our largest opportunities are still ahead. Our data center revenue from sensing and electrical protection spans two segments.
Stephan von Schuckmann: Our industrial segment supplies sensing and electrical protection components inside data centers, while aerospace, defense, and commercial equipment supply sensors for generators used for on-site power generation. Together, these businesses generated $27 million of revenue in 2025, and we expect $48 million of revenue in 2026, representing annual growth of 76%. While we are excited with this recent growth, it is important to recognize that this has largely been driven by existing products as we have built our commercial presence in data centers.
Stephan von Schuckmann: Notably, this does not include the opportunity we see with Dynapower, nor does it reflect revenue from our design wins with hyperscalers that we have achieved thus far. We now have a total of seven wins spanning six hyperscalers, including a win in China. That is up from five wins we shared last quarter and the single win we had at the start of the year.
Stephan von Schuckmann: As we discussed on prior earnings calls, we expect these wins to begin ramping mid-2027. Beyond these design wins, the market growth drivers that underpin them are highly compelling. As cooling moves from in-rack to in-row to support higher GPU demands, demand for our thermal management solutions, including our new flow sensor, increases. More effective cooling allows chips to handle more power, driving a transition to 800-volt data centers, which in turn increases the need for our contactors and isolation monitoring devices.
Stephan von Schuckmann: High-voltage data centers are in turn driving higher grid loads, creating demand for power and peak management, such as the inverters, converters, and rectifiers we sell under our Dynapower brand. As the grids work to adjust to higher loads, a backlog for grid connection has developed, creating demand for our on-site power generation, which in turn is driving demand for our pressure and temperature sensors.
Stephan von Schuckmann: All of this contributes to robust opportunities for the next several years, and we expect to participate meaningfully. There are four key tailwinds for our growth. First, underlying market growth rates in the mid-teens as data center construction accelerates. Second, a 1.5x to 2.5x expansion in our serviceable addressable market. Third, a stronger competitive position as sourcing shifts from opportunistic channel purchases to specification-driven decisions. Fourth, the need for power and peak management solutions with each new data center build. Sensata is well-positioned to benefit from every one of these tailwinds, and that is exactly why we have so much conviction in this opportunity. With that, I will turn the call over to Andrew.
Andrew Lynch: Thank you, Stephan. Let's move to slide 13. For clarity, unless otherwise specified, amounts are referenced in USD and rounded to whole millions, and growth percentages are approximate. We delivered exceptionally strong Q3 results with revenue, adjusted operating income, and adjusted earnings per share all above the high end of our guidance ranges. The quarter included a $24 million termination payment from a customer in connection with the cancellation of an electric vehicle program. We did not incorporate this payment into our Q3 guidance, and therefore, I want to make clear that our underlying results met or exceeded the midpoint of our guidance range without taking into consideration the benefit of this termination payment. Q3 revenue was $1.004 billion, an increase of $72 million or 8% from $932 million in Q3 2025.
Andrew Lynch: On an organic basis, revenue grew 7% year over year. Without the termination payment, revenue would have been $980 million, representing 5% reported growth and 4% organic growth. Adjusted operating income was $215 million, and adjusted operating margin was 21.5%, compared with $180 million and 19.3% in the prior year quarter. Without the termination payment, adjusted operating income would have been $191 million, and adjusted operating margin would have been 19.5%, representing an increase of 20 basis points year over year. Adjusted earnings per share was $1.13, an increase of $0.24 or 27% year over year. This was our fourth consecutive quarter of double-digit adjusted EPS growth. The result met the high end of our guidance range without the termination revenue and exceeded it by $0.16 as reported.
Andrew Lynch: Free cash flow was $198 million, an increase of $62 million or 46% year over year. Free cash flow conversion was 119% of adjusted net income, an increase of 14 percentage points compared with the prior year quarter. Let's turn to slide 14 to take a look at performance trends. The quarter extends the consistent progress we have made against our operating, capital allocation, and growth priorities. Adjusted operating margin expanded year over year for the fifth consecutive quarter. Trailing 12 months free cash flow conversion increased to 113%, and net leverage improved to 2.1 times.
Andrew Lynch: Top line organic growth was again in the mid-single digits territory, and earnings grew significantly faster than revenue. This combination of revenue growth, margin expansion, cash conversion, and deleveraging demonstrates the continued effectiveness of our operational rigor and disciplined strategy. Moving ahead to slide 15, let's review capital allocation.
Andrew Lynch: We ended the quarter with $553 million of cash on hand, and our $650 million revolving credit facility remains undrawn. In August, we returned approximately $17 million to shareholders through our quarterly dividend, and last week, we announced our Q4 2026 dividend of $0.12 per share, payable on 25 November 2026, to shareholders of record as of 11 November 2026. We continued to reduce gross debt, completing approximately $33 million of open market debt repurchases during the quarter. We ended the quarter with net leverage at 2.1 times and return on invested capital improved 80 basis points sequentially to 12.1%, representing 190 basis points of improvement since we began our transformation seven quarters ago. Turning to slide 16, let's take a closer look beyond ROIC to additional economic benefits we are seeing from deleveraging.
Andrew Lynch: First, we are meaningfully reducing net interest expense, which is driving cash savings and accelerating adjusted EPS growth. In 2025, this translated to approximately $0.06 of adjusted EPS compared to the prior year. In 2026, we expect another $0.10 of year-over-year adjusted EPS growth from interest savings. Second, by proactively retiring nearly 80% of our nearest term debt maturity due in 2029, we have reduced our refinancing exposure in a rising interest rate environment. Lower debt service costs and longer-term debt maturity profile position us well to invest in organic growth and innovation. Now let's turn to slide 17 to discuss our segments. Automotive revenue was $556 million, an increase of 4% on a reported basis and 3% organically, while production decreased 2%. In total, Automotive outgrew production by approximately 4% organically.
Andrew Lynch: Automotive segment revenue was $158 million, and segment operating margin was 28.4%, compared with 23.7% in the prior year quarter. Before the benefit of the termination payment, Automotive operating margin increased 150 basis points year over year to 25.2%, reflecting productivity and disciplined cost management. Industrials revenue was $210 million, an increase of 13% on a reported basis and 12% organically. Industrials operating income was $61 million, and segment operating margin was 28.8%, an increase of 160 basis points year over year. The improvement reflects strong volume growth and operating leverage, which enabled disciplined investment in attractive growth opportunities. Our data center growth initiative is primarily anchored to existing or derivative products and therefore does not require significant upfront investment, and we are therefore less sensitive to the precise timing of market developments.
Andrew Lynch: Aerospace, Defense, and Commercial Equipment revenue was $238 million, an increase of approximately 13% on a reported basis and an organic basis. This was the segment's third consecutive quarter of double-digit organic growth, led by Commercial Equipment. Segment operating income was $63 million, and segment operating margin was 26.7%, compared with 27.4% in the prior year quarter, with modest contraction attributable to growth investments and product mix.
Andrew Lynch: Let's turn to slide 18 for additional perspective on our end markets and Q4 assumptions. Higher fuel prices and financing costs are affecting automotive demand. Global light vehicle production fell approximately 2% in Q3, including 6% in China and 5% in North America. We expect a 4% year-over-year contraction in Q4, largely from China, and approximately 2% lower global production for the full year. Portfolio diversification and content gains support outgrowth, although China OEM mix remains a regional challenge.
Andrew Lynch: Despite this backdrop, automotive margins are expanding, pricing discipline is offsetting inflation, and content gains are driving outgrowth. We expect full year outgrowth of approximately 2%, outperforming every market except China. Our growth in India exceeds 30% against a 10% market growth. North America is delivering double-digit organic growth against an expected 2% market contraction. Outgrowth is accelerating to high single digits in Japan, with low single-digit outgrowth expected in Europe and Korea. In China, multinational OEMs are losing share at an accelerating pace. Our content gains with local OEMs have meaningfully narrowed the content gap, but pricing pressure continues to contribute to a revenue per vehicle gap. Local OEM revenue now exceeds multinational OEM revenue. We expect the next automotive growth wave from battery supplier wins as battery supplier-defined architectures gain traction.
Andrew Lynch: Meanwhile, our other segments are delivering strong growth in China, with Industrials expected to grow 15% this year and Aerospace Defense and Commercial Equipment expected to grow 8%. In our Global Industrial segment, US residential HVAC shipments have returned to growth after H1 weakness and manufacturing indicators show signs of stabilization.
Andrew Lynch: However, both remain below 2024 levels. Market recovery offers potential tailwinds for our core, while data center and energy applications are compelling growth opportunities. In Aerospace Defense and Commercial Equipment, aircraft backlogs and defense spending support a positive outlook.North American on-road trucks began recovering in Q3, with Class 8 production up approximately 50% year over year. We expect a recovery through year-end and into 2027. Data center infrastructure is driving growth in the construction vertical, while agriculture shows early signs of improvement. With that backdrop, let's move to slide 19 for our Q4 guidance.
Andrew Lynch: For Q4, we expect revenue of $942 million to $972 million, adjusted operating income of $185 million to $192 million, adjusted operating margin of 19.6% to 19.8%, adjusted net income of $140 million to $145 million, and adjusted earnings per share of $0.95 to $0.99. At the midpoint of these guidance ranges, we expect Q4 year-over-year revenue growth of approximately 5% and adjusted EPS growth of 10%. Before turning the call back to Stephan, allow me to put our guidance in context relative to consensus. It appears that recent automotive market developments are not yet fully reflected in revenue estimates, with some having moved towards $950 million, while others remain closer to $970 million. Our Q4 guide reflects the softer automotive production outlook and changing market dynamics in China.
Andrew Lynch: Despite these challenges, we expect to outgrow production and deliver another quarter of sequential and year-over-year margin expansion. $0.97 of EPS at the midpoint of our guide is consistent with street expectations. Looking ahead to 2027, I would like to offer a reminder regarding margin seasonality in Q1. Annual price reductions typically lower margins sequentially from Q4. Productivity generally offsets these reductions, but there is a lag as we sell through higher cost inventory on hand. As that inventory clears, margins typically improve sharply in Q2. With that frame, consensus estimates on margin in Q1 do not appear to fully reflect this dynamic, and we also note a wide spread on revenue estimates, seemingly reflecting varying market assumptions. While we are not providing formal Q1 guidance today, I would like to share our directional expectations.
Andrew Lynch: We do not expect revenue to increase sequentially from Q4 into Q1. Therefore, we do not expect sequential volume leverage to mitigate sequential margin seasonality in the same manner that it did last year. We do expect operating margins to expand modestly year over year in Q1. For the full year, our operating model will continue to target 20 basis points of full-year margin expansion that we have seen over the last two years. With that, I would like to turn the call back to Stephan for closing remarks.
Stephan von Schuckmann: Thank you, Andrew. Before we move to Q&A, I have just a few closing thoughts. Let's turn to slide 21. Our transformation has significantly strengthened Sensata. With more resilient margins, better cash conversion, and a healthier balance sheet, we have more capacity to invest in high-quality organic growth. Our new segment structure is working. Industrials and aerospace, defense, and commercial equipment each delivered double-digit organic growth, more than offsetting softer automotive end markets.
Stephan von Schuckmann: This is why we are pursuing multiple pathways to organic growth, expanding market presence for our existing products, and innovating to develop new products. Secular trends are in our favor. Markets are growing. Our SAM is expanding. Our right to win is compelling, and I am more confident than ever in our ability to deliver. I look forward to keeping you updated on our progress. I will now turn the call back to James for Q&A.
James Entwistle: Thank you, Stephan and Andrew. We will now begin Q&A. In order to allow all who wish to ask a question the opportunity to do so, we will limit each participant to one question. If you wish to ask an additional question, please reenter the queue. Operator, please introduce the first question.
Operator: Thank you. Our first question for today will come from Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good afternoon. Thank you very much for taking the question. I was hoping you could start with some additional commentary on how you are looking at the medium-term revenue outlook. You identified some nice progress the company has seen, especially in the data center market. Certain end markets are picking up cyclically as well.
Mark Delaney: Then you talked a little bit different China auto and you started to share some preliminary views on Q1 of next year. You are talking about more flattish into Q1, and I did not catch any sort of specific thoughts qualitatively of what is maybe causing that more flattish trajectory into Q1. So if you can kind of talk a little bit more on what is underpinning some of those comments around how you are seeing the revenue play out, not only for Q4, but some of the initial views you are trying to share for Q1. Thanks.
Andrew Lynch: Mark, thanks for the question. Yeah, the comment on Q1 seasonality on revenue is more just a function of the global production outlook, specifically for auto moving from Q4 into Q1. Despite some of the weakness that we are seeing regionally in the China market, it still is the seasonally strongest market in China, and we still expect a sequential step down in Q1 connected to the holiday in the first quarter. Third parties got that call at about a 2 million vehicle unit step down sequentially into the first quarter. That is really what frames our muted sequential outlook, specifically on automotive volume. I would not interpret that to mean anything about our growth prospects in the other segments or what we are seeing in terms of progress in data center. It is really specifically that automotive seasonality.
Mark Delaney: Thank you.
Operator: The next question will come from Joe Giordano with TD Cowen. Please go ahead.
Joe Giordano: Hey, guys. Thanks. Can you talk about what you are seeing just in terms of China automotive exports displacing local production elsewhere? I know not much of a thing in the US at this point, but in Europe and in other parts of the world, what are you seeing and how much of a headwind has that been or could it become?
Andrew Lynch: Sure, yeah. Let me just comment on what we see in our auto business broadly, and then I will let Stephan von Schuckmann comment on the China dynamic specifically. Yes, we are seeing challenges in China, but we are not concerned that this is going to be a headwind to our overall automotive outgrowth story. The reason for that is if you look across the rest of our automotive business and the rest of our regions, we are outgrowing in every single region. There are different drivers in each region.
Andrew Lynch: In Europe, stepping up content on EVs as our next generation vehicle platforms come to market. Innovative products like our switchable contactors are driving that. In North America, we continue to gain share in that market as our ability to supply the market locally, and the supply chain resilience plays in our favor.
Andrew Lynch: In Japan, we have been talking for several quarters about displacing local suppliers and gaining share in that market. Korea, we continue to have a long-standing successful relationship with the Korean OEMs, high content per vehicle, and some of those vehicles are very successful in the market. Rapid growth in the India market and rapid outgrowth. Yes, while China may lag in the short term, our view is that the rest of those regions are highly growthful, and we expect to continue to outgrow the automotive market.
Stephan von Schuckmann: Let me give you a bit more color around China. China auto is one market, but overall, that is not the whole story. The team around Jackie is managing the transition with discipline. They are winning new business with local OEMs, and they are growing across the rest of the business. Let me lay that a little bit deeper, because it is part of your question. Let me start with how the market is changing.
Stephan von Schuckmann: I think it is clear the market is shifting decisively towards Chinese OEMs with multinationals losing local share. Export growth also favors Chinese OEMs, as you have just mentioned, and JVs generally do not participate. That is obviously creating a further mixed headwind. Then if you exclude exports, the domestic market is down roughly 25%. Obviously at the same time, as you all know, pricing pressure remains intense.
Stephan von Schuckmann: Our response to that is actually to compete on value and stay disciplined on returns. That is the one side. The other topic is we are also winning with companies that are shaping China's future. Battery supplier wins really position us for growth as the architecture gains adoption. I would like to mention that includes sophisticated dual chemistry systems with global export potential, so that is where we can benefit as well. That is my point to the broader story around China. It extends well beyond China auto. Within China, industrial is expected to grow 10% this year and commercial equipment around 5%. That is just to give you a bit more color around what is happening in China for Sensata Technologies.
Operator: The next question will come from William Stein with Truist Securities. Please go ahead.
William Stein: Great. I really like the slide that you included in your presentation about the data center opportunity, especially the significant growth from 2025 to 2026. Can you comment on your expected growth over the next couple of years? There certainly seems to be significant growth opportunity from all the customers in this end market, and I am hoping you can comment on your growth outlook there beyond 2026. Thank you.
Stephan von Schuckmann: Let me frame the whole data center picture and explain to you why our data center business is growing today, but actually the larger opportunity lies ahead of us. It is much greater. First, the market is moving in our direction. The data center market is growing at 15%, same as doubling, and this obviously means an overall rising demand for exactly what we do, which is around thermal management, electrical protection, and energy management. We are winning in it. Those are the metrics that you have seen on that slide that you just mentioned. The 76% growth, from $27 million to $48 million. That growth is coming from our existing products, and an expanded commercial presence. These numbers exclude Dynapower, which offers another level of opportunity in the space. From there, the opportunity actually gets much bigger.
Stephan von Schuckmann: We have the seven wins and hyperscalers, which should ramp around 2027. That will really accelerate. Then we have technology shifts in the architectures around 800-volt architectures and liquid cooling, which expands the serviceable content from 1.5 times to 2.5 times per megawatt. What is even more compelling in my point of view is the increasing right to win. We will expect that that will translate into a meaningful higher take rate. I think overall for the growth perspective going forward, what sets us apart is the breadth of our portfolio.
Stephan von Schuckmann: With overall product portfolio, customers see us really as this one-stop shop from grid to chip. That is basically giving us a lot of opportunities going forward, and we can do that on assets that we already have. The market is moving our way, and we are already winning, and we can scale basically at low risk.
William Stein: That is very helpful, actually. It is a springboard to ask something about Dynapower, because you mentioned it. I think, since you acquired this might not have grown very much, but maybe the growth opportunity is still ahead of us in this end market specifically. Can you talk about how Dynapower has been doing lately and any other update or details about that business in the recent past and in the near future? Thank you.
Stephan von Schuckmann: Yeah, it is a good question. Dynapower is really a separate opportunity. Dynapower takes us beyond cooling and protection into the data center power itself. By the way, that is a deliberate strategic choice that we took. We have reset Dynapower's focus toward data center power needs. At the same time, we are currently continuing to pursue active clean energy projects. So it is both. It is clean energy and data center. Why it is so compelling in our point of view, because these rising power loads play directly into Dynapower. That creates opportunities for inverters, converters, and rectifiers, and those are used for power and peak management. I think it is important also to mention that when power is scarce, efficiency wins.
Stephan von Schuckmann: The Dynapower products convert energy with high efficiency, and that matters more and more as data centers compete for grid capacity, and as energy efficiency becomes more critical for today's AI economics. That is another reason why we have shifted strategically. So far, we have actually only scratched the surface. Dynapower is not included in these $48 million that we have in components wins. The opportunity is orders of magnitude larger, and it is all ahead of us. It is something that is basically coming mid-2027 and onwards. We have refocused data centers, differentiated on efficiency, and positioned basically for a much larger opportunity ahead of us.
William Stein: Great. That helps. Thank you.
Operator: The next question will come from Joe Spak with UBS. Please go ahead.
Joe Spak: Thanks, everyone. You talked about some of the inflationary pressure and your ability to help manage some of that pressure you are seeing. We have all seen the impact from electronics. I think, you do not buy a lot of memory, but it has obviously expanded the PCBs, et cetera. Can you just help us quantify or dimensionalize some of that pressure you are seeing? Maybe if it is weighing on some of that margin commentary you talked about for Q4 of this year or even Q1 of next year, and just remind us about, not only the sort of pricing process, but the recovery process or lag, if there is one on that.
Stephan von Schuckmann: Let me start with how we are managing it, and then Andrew can give you some more details on the numbers side. At Sensata, I would say inflation is being managed systematically, and our margins are protected, and Q4 will be no different. Looking forward, that is no different. I think it starts with knowing exactly where the exposure is. Memory is generally not an issue for us. It is boards and electronics that are more challenging. Then obviously the inflation is driven by data center demand. First, we take responsibility for our own costs. What does that mean? That means internal cost actions, VAVE, which is designing costs out of our products, and then close collaboration with our suppliers. Then in that process, then comes pricing, and prices are then adjusted to the new market reality.
Stephan von Schuckmann: And where costs cannot be designed out or offset with productivity, we work with our customers on appropriate price adjustments. In boards and electronics, supply is tight and pricing reflects that, we remain very disciplined on margins. I think this is an important point I have mentioned in other calls. That works because our products create real value for our customers. So they are mission-critical, they are designed in nature, that gives us resilience. That is exactly why our auto business for Sensata is so differentiated. So we are clear on exposure, discipline on cost, in the end, firm on pricing and resilient because our products are designed in.
Andrew Lynch: Yeah. Joe, on the dollar impact, it has been a bit of a moving target throughout the year. We have seen earlier in the year, metals were the story. We started to see some moderation there. We have seen electronics pick up. I think the more important point is that it is not dropping through in our margins. We are either designing the cost out or we are passing it through in price, but we are not seeing a margin impact. The various drivers have been moving from quarter to quarter, but the margins have held up.
Joe Spak: As a quick follow then, in the quarter, can you quantify what percent of the organic growth was just passing through some of that pricing?
Andrew Lynch: Yeah. Price was still a net headwind in the quarter of about 1.5% or so in auto. You would typically expect that to be in the 2% neighborhood. So it is either showing up in price or we are offsetting it in productivity, but it is net neutral.
Joe Spak: Thank you.
Operator: Again, if you have a question, please press star then 1. Our next question will come from Guy Hardwick with Barclays. Please go ahead.
Guy Hardwick: Hi. Good evening. If I got this correct, it looks like in auto outgrowth is kind of trended through this year, 2%, 1%, and then excluding the termination or liquidated damage would have been about 2% or 2 points in Q3. Guidance kind of implies around 1 point versus global production down 4%. Is that accurate, you believe, Andrew?
Andrew Lynch: Yeah, we see market down about 4%, and we see revenue down 3-ish in Q4, so net outgrowth of about 1%. Yep.
Guy Hardwick: Okay. Slightly confuses me is that China is expected to be almost 40% of Q4 global light vehicle production, looking at third-party estimates. Since I think you said in the past that China's, is it 20%, 25% of auto? Is that correct, or is it higher than that? I think you're underweight on a global basis. Shouldn't you be kind of benefiting from outgrowth from China being down 8% in the market for Q4?
Andrew Lynch: Yeah. China's about a quarter of our revenue. But when you look at the impact on outgrowth, there's really two elements. There's the end market element in terms of our performance in the China market, and then there's the global mix impact associated with China production relative to global production. When you net those two, under-growing in China, but then getting a tailwind on a global basis, combined with the growth that we see in other regions, we're netting to outgrowth.
Guy Hardwick: Okay. Thank you.
Operator: Your next question will come from Amit Daryanani with Evercore ISI. Please go ahead.
Victor Santiago: Thanks. This is Victor Santiago on for Amit Daryanani. Thanks for taking my question. I was hoping to get more color on aerospace and defense growth of 4%, which appeared weaker than industry trends and the high single-digit market growth that you cited in the deck. Can you talk about what drove the delta during the quarter and expectations moving forward?
Andrew Lynch: In aerospace and defense specifically?
Victor Santiago: Correct, yes.
Andrew Lynch: Yeah. I think we grew mid-singles in the quarter in aerospace and defense. Specifically, that is roughly in line with market. The broader segment grew stronger, and that is driven by what we are seeing in the truck market in terms of recovery in North America.
Victor Santiago: Got it, understood. Looking at the deck, the marking was that the end market grew high single-digit percent, high single digits versus that mid-single digit reported growth. It is just more so trying to get
Andrew Lynch: Sure, yeah.
Victor Santiago: a little more on the delta there.
Andrew Lynch: Yeah. Much like auto, aerospace outgrowth can be lumpy in any given quarter. What we have seen earlier in the year was an outgrowth tailwind driven by production mix with commercial light body aircraft. As we lap some of those comps, some of that outgrowth moderates, but this is still a very high-growth segment for us and still one that we would expect to be growth-full moving forward. With market outgrowth, it can be lumpy from quarter to quarter, depending on the prior year mix that you are comparing against, given different ship set values per aircraft.
Victor Santiago: Got it, understood. Thank you for the clarification.
Andrew Lynch: Thank you.
Operator: Your next question will come from Shreyas Patil with Wolfe Research. Please go ahead.
Shreyas Patil: Hey, thanks a lot for taking my question. Can I just confirm, so the auto outgrowth for the quarter of 4 points, that included the one-time payment that you received, the $24 million. If I remove that, I think it would imply that this quarter you are maybe down 1 point versus the market. Am I looking at that correctly?
Andrew Lynch: I think when we calculated it, we were about a half a percent of outgrowth, so we still had some net outgrowth in the quarter.
Shreyas Patil: Okay. Pivoting to the data center opportunity, it is impressive that you are already getting to $48 million this year. Can you just remind us how many of those seven awards will be launching next year? How do we think about the run rate for the business as you get towards the end of 2027?
Stephan von Schuckmann: A lot of those awards are based on the high voltage architectures. What we have been saying is that the start of revenue, depending on the build-out timing of these individual new architectures, is mid of next year. From then we start gradually growing our revenue based on our thermal management products, our energy management products, and so on. It basically starts in mid-2027, and from then it gradually grows.
Shreyas Patil: Okay. Is there any way just to kind of dimension, if you are doing roughly $50 million at the moment, with those added awards, by the time we exit 2027, could this be kind of a triple digit kind of business, or is it just too early to tell?
Stephan von Schuckmann: It is a bit too early to expose an exact number now. But as we have mentioned, the opportunities are great for Sensata, and we feel confident that we will achieve a high growth rate. We will keep you updated from call to call.
Shreyas Patil: Okay, great. Thank you.
Operator: Your next question will come from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Yes, thank you. Apologize, I am hopping between calls, so if you already answered this. Are there any other EV programs that are under review? Should we be thinking that there are potentially more of these kind of termination payments potentially, or was this a one-off that you do not expect really to recur?
Stephan von Schuckmann: We don't expect any reoccurrence in that dimension.
Wamsi Mohan: Okay. Thank you. Sorry, I missed that. Then just if we think about the Q4 guidance, I think last quarter you had said that Q4 would be roughly flat with Q3. If I take the midpoint of the new guide, it's about 2% below Q3 without the one-time. Could you just help bridge what has changed at the higher level that's creating a little bit of a different seasonality to the course of the rest of the year?
Andrew Lynch: Sure, Wamsi. It's really just two factors. One is outperformance in the third quarter as the market developed a little sooner than we expected. That creates a bit of a higher jump-off point. Then the other is the revision downward in China. You net those two out and you get to a number that reconciles to what we expected a quarter ago.
Wamsi Mohan: Okay. Thank you so much.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. James Entwistle for any closing remarks. Please go ahead.
James Entwistle: Thank you, operator. Thanks to everyone who joined today's call. Before we conclude, I would like to extend my gratitude to everyone who participated in our recent investor perception study. Your feedback clarifies shareholder priorities and opportunities to improve, helping to guide our path forward. To close, I am pleased to announce that this quarter we will be participating in two conferences. Andrew and Stephan will be attending the RW Baird Global Industrial Conference on Wednesday, 11 November in Chicago. Andrew and I will be attending the UBS Global Industrials and Transportation Conference on Wednesday, 2 December in Florida. We look forward to connecting with many of you there. Operator, you may now conclude the call.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
