Sensata Technologies Q3 2025 Earnings Report

Sensata Technologies EPS Results

• Actual EPS: $0.89
• Consensus EPS: $0.85
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.86

Sensata Technologies Revenue Results

• Actual Revenue: $931.98 million
• Expected Revenue: $918.83 million
• Beat/Miss: Beat by +$13.15 million
• YoY Revenue Growth: -5.20%

Sensata Technologies Announcement Details

• Quarter: Q3 2025
• Date: 10/28/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, October 28, 2025
• Conference Call Time: 5:00PM ET

Sensata Technologies (NYSE:ST) Holding plc (NYSE: ST) is an industrial technology company that develops and manufactures sensors, electrical protection components and control systems. Its products are designed to measure and manage conditions such as pressure, temperature, position, speed, force, current and fluid levels, helping equipment operate safely and efficiently.

The company serves a range of end markets, including automotive, commercial and off-highway vehicles, aerospace, industrial equipment, heating and air-conditioning systems, and energy management. Its offerings include pressure and temperature sensors, circuit breakers, contactors, battery monitoring systems, controllers and other components used in vehicle electrification, engine management, thermal management, safety systems and industrial automation.

Sensata traces its roots to sensor and control businesses developed by Texas Instruments and became an independent company after its acquisition by Bain Capital in 2006. It completed an initial public offering in 2010. Headquartered in Attleboro, Massachusetts, Sensata serves customers globally through operations and facilities across North America, Europe and Asia.

Sensata Technologies Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q3 performance beat expectations with revenue of $932M, adjusted operating margin of 19.3% (up 30 bps sequential), adjusted EPS of $0.89, and strong free cash flow of $136M with conversion exceeding 100%.
• Positive Sentiment: Sensata accelerated deleveraging, commencing cash tender offers to repurchase $350 million of long-term debt, reducing net leverage to 2.9x and holding $791M of cash on the balance sheet.
• Negative Sentiment: The company took a $259M non-cash charge in Q3, including an approximately $226M goodwill impairment for DynaPower after revising its clean-energy outlook and narrowing that business toward defense and data-center use cases.
• Positive Sentiment: Sensata highlighted growth catalysts — China design wins (including tire burst detection), HL gas leak detection (forecast to exceed $100M near-term), and aerospace tailwinds — supporting a return to low-single-digit organic outgrowth.

Presentation

[Operator]

Good day and welcome to the Sensata Technologies third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note that 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, Senior Director of Investor Relations at Sensata Technologies]

Thank you, Operator, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata Technologies, and I would like to welcome you to Sensata Technologies' third quarter 2025 financial results conference call. Joining me on today's call are Stephan von Schuckmann, Sensata Technologies' Chief Executive Officer, and Andrew Lynch, Sensata Technologies' Chief Financial Officer. In addition to the financial 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 Technologies' Investor Relations website. This conference call is being recorded, and we will post a replay on our Investor Relations website shortly after the conclusion of today's call. As we begin, I would like to reference Sensata Technologies' safe harbor statement on slide two.

[James Entwistle, Senior Director of Investor Relations at Sensata Technologies]

During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that can 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. 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 the call today with comments on the overall business.

[James Entwistle, Senior Director of Investor Relations at Sensata Technologies]

Andrew will cover our detailed results for the third quarter of 2025 and our financial outlook for the fourth quarter of 2025. Stephan will then return for closing remarks. We will then take your questions. Now, I would like to turn the call over to Sensata Technologies' Chief Executive Officer, Stephan von Schuckmann.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Thank you, James, and good afternoon, everyone. Let's begin on slide three. Before we get into the third quarter results, I'd like to start today by briefly reflecting on what we have accomplished so far this year and where we are in our transformation journey. In our first earnings call, after I joined Sensata Technologies at the beginning of 2025, I outlined the transformation ahead of us, built around three key pillars: operational excellence, capital allocation, and a return to growth. In each of our subsequent earnings calls, we provided updates on our transformational journey framed around these three pillars. I've been pleased with the incremental progress in each of these quarterly updates. With the Q3 results we are reporting today, we have reached a significant milestone in our transformation journey.

[Stephan von Schuckmann, CEO at Sensata Technologies]

While we have more work to do and plenty of challenges ahead, our exceptionally strong Q3 results give me confidence that we have meaningfully improved our core business. Our emphasis on operational excellence and margin resilience has positioned us to overcome challenges such as tariffs and end-market volatility. Our laser focus on free cash flow and optimizing capital allocation to reduce net leverage has been successful, and we are now well ahead of our net leverage and cash conversion targets. As a result, earlier today, we commenced cash tender offers to purchase $350 million of our long-term debt. Finally, with respect to growth, we've conducted a thorough assessment of our product portfolio, production capacity, and growth investments, and we are taking action to position our business to maximize the benefit from secular tailwinds. I'll now share some additional color on the third quarter through the lens of our key pillars.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Our Q3 results represent a compelling proof point in the progress we have made on operational excellence. For the third consecutive quarter, we delivered on expectations, reporting results at or above guidance ranges. Third quarter adjusted operating margins and adjusted EPS both expanded sequentially from Q2, despite seasonally lower revenues. We are now on path to expand the full-year adjusted operating margins on a year-over-year basis, excluding the dilutive impact of pass-through revenue. This is yet another compelling proof point in the progress our team has made with our 2025 full-year outlook standing in sharp contrast to the preceding three years when our business experienced year-over-year contraction in adjusted operating margins. Now let's turn to slide four, and I will discuss cash flow and capital allocation. Our near-term capital allocation strategy is simple. We are focused on rapidly deleveraging our business.

[Stephan von Schuckmann, CEO at Sensata Technologies]

While we are comfortable with our balance sheet, we believe that reducing leverage to a level more consistent with our peers removes a potential barrier for some investors, making Sensata Technologies a more compelling investment. Our operational excellence pillar has been a key enabler of this strategy as we optimize working capital and improve free cash flow conversion. After converting free cash flow at above 90% of adjusted net income last quarter, we made more progress in the third quarter, with conversion now exceeding 100%. As a result of our strong free cash flow generation and strong cash position, with $791 million of cash on the balance sheet as of September 30, we are taking decisive action to deploy capital and retire debt. Today, as I mentioned, we commenced cash tender offers to purchase $350 million of our long-term debt.

[Stephan von Schuckmann, CEO at Sensata Technologies]

More information about these cash tender offers can be found in the press release that we issued on this transaction earlier today. Discipline around our capital expenditures and reducing the capital intensity of our business has been a key driver of our progress toward improving cash flow conversion, and we are acting on these priorities without compromising on growth. In fact, as we look ahead towards growth, we have studied past capital allocation to ensure we are making the right investments going forward. On our July earnings call, we defined a three-part framework through which we would evaluate growth. Allow me to recap that again here today. First, we will stick to our core product technologies with sensing and electrical protection. Second, we will prioritize platform-driven applications with an emphasis on regulated or mission-critical sockets.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Third, we will focus on our key markets, prioritizing those with secular tailwinds and ensuring appropriate diversification. We will continuously evaluate our product portfolio using this framework, and where we identify areas where it is necessary to shift our strategy, we will be decisive. In our Dynapower business, which provides microgrid power inversion and rectification, it has become clear that the investment thesis and strategic plan around clean energy no longer offers the most compelling growth vector for this business as government policies have shifted and investment has slowed. That said, we do see other areas where Dynapower aligns to our growth framework, specifically in applications where grid stabilization and redundant power supply are mission-critical, such as defense and data center power delivery. Accordingly, we have recast our growth plans for this business, enabled by a more focused strategy.

[Stephan von Schuckmann, CEO at Sensata Technologies]

We believe this provides more compelling long-term growth with higher certainty of outcome. However, due to recent changes in clean energy policy and the anticipated slowdown in the clean energy sector, it was necessary to reevaluate the book value of this business today. As a result, we recorded a non-cash goodwill impairment charge in the third quarter, which Andrew will discuss in more detail in a few minutes. Now, let's turn to slide five, and I'd like to take a moment to highlight some of the recent additions to our executive leadership team as we embark on the next phase of our transformation journey. I'm pleased with the momentum we have built in our business through our operational excellence pillar.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Not only have we delivered on our quarterly targets, we have done so with demonstrable margin resilience as we continue to perform in the face of multiple challenges in our end markets. Given the relatively short period of time in which we have made this progress, it is clear that our most significant opportunities are ahead of us. At this juncture, it is imperative that we install the right leadership to ensure that we continuously unlock value by optimizing our cost structure, streamlining our production network, and serving our customers well. In the Form 8K that we issued along with our earnings press release today, we announced that Nicholas Bardot will join Sensata effective November 1st as Chief Operations Officer.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Nicholas has more than 20 years of operations leadership experience, including supply chain optimization, manufacturing excellence, and leading transformations, which will be a tremendous asset to Sensata as we strengthen our global operations footprint to meet the needs of changing and dynamic markets. Most recently, Nicholas served as Division Operations Officer at ZF Commercial Vehicle Solutions. Previously, he held leadership roles at WAPCO, including Chief Supply Chain Officer and Vice President of Sourcing and Purchasing. His accomplishments include leading several organizational transformations and applying innovative technologies to achieve measurable productivity and quality gains. With operations on solid footing and with accelerated progress on our capital allocation pillar, we're now ratcheting up the intensity of our focus on our third pillar, returning Sensata to growth. This too requires experienced leadership. Earlier this quarter, we announced that Patrick Hertzke joined Sensata as our Chief Growth and Transformation Officer.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Patrick has extensive automotive and industrial experience, both in industry as well as at McKinsey and Company, where he was a partner in the automotive practice. During Patrick's 13 years at McKinsey, he led projects including go-to-market strategy, enterprise transformations, and AI technology strategy. We also announced today that Jackie Chen has been promoted to Executive Vice President and President of Sensata China effective January 1, 2026. Jackie joined Sensata in January 2024 as Vice President and General Manager China Automotive, and has been instrumental in positioning Sensata to re-win market share and increase the localization of our business and supply chain. In his expanded role, Jackie will have P&L responsibility and primary management oversight of all of Sensata's business in China. Jackie's promotion underlines the importance of succeeding in China, and he has demonstrated that he is the right leader.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Under Jackie's leadership, our automotive business in China has returned to outgrowth, with double-digit growth over market in the third quarter, and 90% of our new business wins this year have been with local OEMs. Now, let's turn to slide six, and I will discuss some recent product innovations that will drive growth across multiple end markets. We previously mentioned that we were first to market with a tire burst detection solution for a vehicle stability control application. We continue to make progress here, and we have now secured business with two leading Chinese OEMs. We're proud to see our tire burst alert feature gaining traction in the market and becoming a trusted component in vehicle safety strategies. These wins highlight a common theme. As vehicles become more intelligent, so must the systems that support them, giving us a clear roadmap for how to expand content and win new business.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Looking ahead toward the medium term, it's clear that our path to expanding content will be driven by meeting the global shift towards sustainable mobility with smart, impactful solutions. One such example is our high-efficiency contactor, which simplifies EV charging by enabling vehicles to work seamlessly with both 400 and 800-volt architectures. As 800-volt vehicles launch in markets where the charging infrastructure is predominantly 400 volts, our contactor enables a switchable architecture. This product was recently recognized as a finalist for EV charging innovation at the 2025 Battery Throw in North America. As we have discussed on past earnings calls, global regulations are requiring more sustainable refrigerants in HVAC systems, and with that, demand for reliable gas leak detection is accelerating. Our HL gas leak detection products are helping customers across key markets detect and manage refrigerant leaks with speed and precision.

[Stephan von Schuckmann, CEO at Sensata Technologies]

By supporting compliance and improving system performance, this solution is becoming a trusted part of HVAC platforms. We have recently secured two customer agreements, solidifying our market leadership position for the next several years. As additional customer programs are awarded in the coming months, we foresee this business accelerating to more than $100 million of revenue in the near future, and we see expanded opportunities outside of the U.S. in the years ahead, making this product a potential growth driver for many years to come. Finally, as we look more broadly at secular tailwinds, we expect our aerospace business to emerge as a meaningful growth engine for Sensata Technologies going forward. Sensata's proven capability in this space and a clear right to win, as we have been selling into the defense sector since the 1940s. Looking ahead over the next decade, U.S.

[Stephan von Schuckmann, CEO at Sensata Technologies]

and allied nations' defense spending is expected to increase significantly from $1.7 trillion in 2025 to $2.8 trillion in 2035. The vast majority of this spend is expected outside of the U.S., primarily driven by EU defense spending. Given our global footprint and deep business relationships in Europe, we are focused on winning our share of this growth. While I'm excited by the additions to our leadership team, I would also like to acknowledge the exceptional progress from the whole Sensata team. Collectively, we embraced our three pillars approach and rallied to bring forward and build initiatives around these pillars. We have worked relentlessly in pursuit of value creation, guided by the pillars and enabled by the initiatives that underpin them, and we are getting results. We have turned a corner on financial performance, consistently meeting or exceeding our plan and delivering on our commitments.

[Stephan von Schuckmann, CEO at Sensata Technologies]

We have unlocked free cash flow and meaningfully accelerated our capital allocation strategy, and net leverage is improving. We returned to market outgrowth in the third quarter, with our automotive business outgrowing global vehicle production by approximately 1%, HVRR outgrowing its end market by approximately 5%, and our sensing solutions business delivering organic revenue growth of 2.5%, with approximately 1% outgrowth in industrials, while aerospace grew approximately 2%, roughly in line with the market. With that, I'll turn the call over to Andrew to provide greater detail on Q3 financial results, market outlook, and our guidance for the fourth quarter.

[Andrew Lynch, CFO at Sensata Technologies]

Thank you, Stephan, and good afternoon, everyone. Let's turn to slide eight. We delivered another strong quarter in Q3, once again achieving results that exceeded our expectations across all of our key metrics. We reported revenue of $932 million for the third quarter of 2025, which exceeded our expectations due to stronger global auto production, amplified by our return to outgrowth. Third quarter revenue of $932 million represented a decrease of $51 million, or 5.2%, as compared to $983 million for the third quarter of 2024, primarily due to our previously discussed divestitures and product lifecycle management actions. On an organic basis, revenue increased approximately 3% year-over-year. We delivered adjusted operating income of $180 million and adjusted operating margins of 19.3%, which is up 30 basis points sequentially from the second quarter of 2025 and up 10 basis points year-over-year.

[Andrew Lynch, CFO at Sensata Technologies]

Our adjusted operating margins were diluted by approximately 20 basis points due to $12 million of zero margin pass-through revenues related to tariff recovery. Excluding the dilutive impact of tariff pass-through, third quarter adjusted operating margins increased by 30 basis points year-over-year. Tariff pass-through revenues did not meaningfully impact sequential performance, as we recorded approximately equal levels of tariff costs and pass-through revenues in both the second and third quarter of 2025. Adjusted earnings per share of $0.89 in the third quarter of 2025 increased by $0.02 sequentially from the second quarter of 2025, despite seasonally lower revenues, as we delivered on our margin expansion plans. Adjusted earnings per share was flat with the third quarter of 2024 on lower revenue. Free cash flow generation has been a primary focus for us this year, and our improvements accelerate our capital allocation objectives.

[Andrew Lynch, CFO at Sensata Technologies]

I am pleased to report that we delivered free cash flow of $136 million in the third quarter, which was an increase of approximately 49% year-over-year. This represents an exceptionally strong conversion rate of 105% of adjusted net income, an increase of 14 percentage points compared to the second quarter of 2025, and 37 percentage points compared to the third quarter of 2024. Now, let's turn to slide nine, and I will discuss capital deployment. With our strong free cash flow, we reduced net leverage to 2.9 times, trailing 12 months Adjusted EBITDA compared to 3.0 times at the end of June. Last quarter, we indicated that our capital allocation strategy would prioritize deleveraging. Today, we took initiative to deploy capital in furtherance of this priority as we commenced cash tender offers to purchase $350 million of our long-term debt.

[Andrew Lynch, CFO at Sensata Technologies]

Our capital allocation strategy, combined with the performance of our business, is delivering returns, with return on invested capital increasing to 10.2%, which is an improvement of 10 basis points sequentially from the second quarter of 2025 and 20 basis points year-over-year compared to the third quarter of 2024. In the third quarter, we returned $17 million to shareholders through a regular quarterly dividend. Last week, we announced our fourth quarter dividend of $0.12 per share, payable on November 26 to shareholders of record as of November 12. Turning to slide 10, I'll talk through the results for our segments. Performance Sensing revenue in the third quarter of 2025 was $657 million, approximately flat year-over-year on a reported basis.

[Andrew Lynch, CFO at Sensata Technologies]

Organically, revenue increased 3.6% year-over-year as we outgrew our end markets in both automotive and HVR, consistent with the expected return to outgrowth in the second half of 2025 that we had communicated earlier this year. Performance Sensing adjusted operating income was $156 million, or 23.7% of Performance Sensing revenue, representing year-over-year margin expansion of 160 basis points, inclusive of any dilutive impact from tariffs. Sensing Solutions revenue in the third quarter of 2025 was $275 million, which was approximately flat year-over-year. Organically, revenue increased 2.5% year-over-year, driven by new content in our industrials business and growth in our aerospace business. This marks our third straight quarter of year-over-year organic growth. Sensing Solutions adjusted operating income was $85 million, or 30.9% of Sensing Solutions revenue, representing year-over-year margin expansion of 150 basis points, again inclusive of any dilutive impact from tariffs.

[Andrew Lynch, CFO at Sensata Technologies]

The margin expansion in both our Performance Sensing and Sensing Solutions segments represents the significant strides our teams have made in the last year in unlocking productivity, and I want to echo Stephan's comments regarding the great work being done by Team Sensata. Corporate and other adjusted operating expenses increased by $12 million compared to the third quarter of 2024, primarily driven by higher variable compensation due to better underlying performance. Finally, just a brief follow-up on the Dynapower topic that Stephan mentioned earlier. In the third quarter, we recorded $259 million in non-cash charges as a result of changes in clean energy policy and emissions regulations. This included a goodwill impairment charge of approximately $226 million related to the Dynapower business, as well as certain other non-cash charges, primarily due to excess capacity related to electrification.

[Andrew Lynch, CFO at Sensata Technologies]

These costs were excluded from adjusted operating income as they are non-cash and non-recurring in nature. More detail regarding the reconciliation of our GAAP and non-GAAP financial metrics is available in our SEC filings, in the appendix to today's earnings presentation, and on our Investor Relations website. Turning briefly to slide 11, I will share some high-level thoughts on our markets. Within Performance Sensing, we have been pleased with the durability of automotive demand. We are encouraged by the growth in China, where we continue to increase our share, and in North America, despite concerns around end market demand, production has lagged far and inventory levels remain relatively normal, indicating further durability. The HVR end market has been soft, particularly with on-road trucks in North America, though we have been pleased with our ability to expand margins overall, despite weakening end market demand in this high-margin business.

[Andrew Lynch, CFO at Sensata Technologies]

In Sensing Solutions, gas leak detection has provided meaningful growth against an end market that has not yet fully recovered. Given our exposure to HVAC and appliance, we look at housing recovery and interest rates as the likely catalysts for this end market. Lastly, in our aerospace business, we have seen reliable market growth in the low to mid-single-digit range all year, and we expect that to continue with strong order books across the sector. Before I discuss our fourth quarter expectations, let's turn to slide 12 for a brief update on tariffs. In the third quarter of 2025, we recorded approximately $12 million of tariff costs and associated pass-through revenues. This was approximately flat with the second quarter of 2025, and looking ahead, we expect the same exposures in the fourth quarter based on trade policies currently in effect. The vast majority of our imports into the U.S.

[Andrew Lynch, CFO at Sensata Technologies]

are from Mexico, and over 80% of those imports are USMCA qualified. We do not expect any meaningful changes in our USMCA qualification levels moving forward. Additionally, Sensata Technologies is not directly exposed to either the automotive parts nor heavy truck parts tariffs, as the products we produce are not included within the scope of these tariffs. Finally, just a brief reminder on our operating posture regarding tariffs. Sensata Technologies will produce to customer demand signals and will make product available to our customers at our production locations or deliver to any appropriate destination of our customers' choosing. Should our customers require that we import materials into any jurisdiction that applies the tariff to such imports, we will only do so with a reimbursement agreement in place. We are grateful to our customers and suppliers for their continued support in this process. Their partnership and collaboration has been invaluable.

[Andrew Lynch, CFO at Sensata Technologies]

With that, let's turn to slide 13, and I will walk through our expectations for the fourth quarter of 2025. We expect fourth quarter revenue of $890 million-$920 million, adjusted operating income of $172 million-$179 million, adjusted operating margins of 19.3%-19.5%, adjusted net income of $121 million-$127 million, and adjusted earnings per share of $0.83-$0.87. Our revenue guidance range reflects a cautious outlook in light of recent idiosyncratic events such as the Novelis factory fire and the potential supply disruptions related to Nexperia. To be clear, we have not projected any major disruptions to our business in connection with these events. However, we are taking a more cautious view on the market and our order book.

[Andrew Lynch, CFO at Sensata Technologies]

At the midpoint of our guidance range, we expect approximately 10 basis points of sequential margin expansion, and we have assumed the same level of tariff costs and pass-through revenues to what we incurred in the third quarter. As noted in our press release and earnings materials, our guidance and tariff assumptions are based on trade policies and tariff rates in effect as of October 28 and do not incorporate any impacts from proposed changes to trade policies. Finally, while we are not yet providing 2026 guidance, I would like to share initial thoughts on 2026. We are reasonably comfortable with consensus estimates for the full year. However, as we look at the quarters within 2026, we see a wider range of estimates, particularly in the first quarter. As a reminder, Q4 to Q1 margin seasonality is driven by pricing dynamics in our automotive business.

[Andrew Lynch, CFO at Sensata Technologies]

Specifically, contractual price downs to our customers typically take effect at the beginning of the year, as do our supplier price reductions. However, with approximately 90 days of inventory on hand, the majority of our first quarter sales reflect higher cost inventory. As we progress into the second quarter, margins normalize, and each quarter thereafter, we typically see margin expansion driven by productivity in our factories. This trend was observed in the years preceding the pandemic and the inflation that followed, and was observed again in 2025 as pricing returned to pre-pandemic norms. We expect similar seasonality moving forward. With that, I will turn the call back to Stephan.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Thank you, Andrew. As we look ahead, I'd like to leave you with a few parting thoughts. Over the last nine months, we have executed with consistency, laying a solid foundation on which to build. Beyond significantly improving our sale ratio, we have also improved underlying performance in our business, and our free cash flow conversion is a compelling proof point. Additionally, we have demonstrated a return to market outgrowth, beginning with our industrials and aerospace business earlier in the year with our third quarter results also in our automotive and heavy vehicle businesses. Lastly, we're acting decisively to set ourselves up for long-term shareholder value creation by installing the right leadership team, adjusting course on strategy as end markets change, and deploying capital to retire debt. I look forward to continuing to update you on our progress as we transition towards the next phase of our transformation.

[Stephan von Schuckmann, CEO at Sensata Technologies]

We'll now turn the call back to James for Q&A.

[James Entwistle, Senior Director of Investor Relations at Sensata Technologies]

Thank you, Stephan and Andrew. We will now move to Q&A. In order to ensure adequate time for all participants to ask a question, we will limit each participant to one question. Should you wish to ask a follow-up question, please re-enter the queue. Operator, please introduce the first question.

[Operator]

Your first question today will come from Wamsi Mohan with Bank of America. Please go ahead.

[Ashley Nguyen, Analyst at Bank of America]

Hi, this is Ashley Nguyen for Wamsi. Congrats on the results. Just one question from me. On the tire burst detection, last quarter, I believe it was mentioned that wins might be able to help contribute to revenues relatively quickly. Can you help us think through quantifying this revenue impact in China from these additional wins? Thanks.

[Andrew Lynch, CFO at Sensata Technologies]

Thank you, Ashley. In China, the design cycle tends to be much shorter than in the West. It can be as quick as six to nine months from a design win to start of production. With respect to individual wins, given that these are only at a couple of OEMs so far, we're unable to disclose the actual value of these wins. What I can say is that we expect to return to outgrowth in China in the third quarter, and we expect to continue to outgrow the market moving forward. These wins and other wins with local OEMs in China are a big reason why. We'd expect our outgrowth to be in the low single-digit market range, low single digits above market range initially.

[Ashley Nguyen, Analyst at Bank of America]

Great. Thank you. I'll pass it back.

[Operator]

Your next question today will come from Mark Delaney with Goldman Sachs. Please go ahead.

[Mark Delaney, Analyst at Goldman Sachs]

Yes, good afternoon. Thank you very much for taking the question. I also was hoping to better understand what the company is seeing in terms of its ability to outgrow the auto market. You outgrew globally in the third quarter. I think you said double digits in China. Your comments, Andrew, about outgrowth going forward is really where I was hoping to focus. As you look into 2026 and you think about the auto business more generally, both in Asia and in a global perspective, based on the wins you have and your discussions with customers, do you think your overall auto business can outgrow auto production next year? Thanks.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Mark, nice to hear you. Let me answer that question for you. Yes, you're absolutely right. We've had double-digit outgrowth in China. We've won fantastic business. As you heard in my script, we have a new President in China with Jackie, and he has really done a great job to win new business on the contactor side, but as you also just mentioned on the tire burst system. That has enabled us to outgrow in that market and given us an overall, I would say, modest outgrowth in Q3 of this year. Going forward with those wins and potential further wins that we're currently working on, we're looking at further outgrowth going forward into 2026.

[Mark Delaney, Analyst at Goldman Sachs]

Thanks. I'll pass it on.

[Operator]

Your next question today will come from Guy Hardwick with Barclays Capital. Please go ahead.

[Guy Hardwick, Analyst at Barclays Capital]

Hi, good evening.

[Andrew Lynch, CFO at Sensata Technologies]

Hi, Guy. Good evening.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Hi.

[Guy Hardwick, Analyst at Barclays Capital]

I'm just looking at the revenue by Ed Marcus. Am I reading this correctly that HVAC stepped up very considerably sequentially and quarter on quarter at 6% of revenues compared to just over 4% a year ago and 4.6% in Q2? It kind of implies almost 40% growth in the HVAC business. Is that being some segmental change or is that real growth?

[Stephan von Schuckmann, CEO at Sensata Technologies]

That's real growth. Definitely real growth. What's obviously fueling this growth is our so-called HL gas leak detection products. We've won new business, we've won two new businesses, and we're continuing to gain market share. We've got a substantial market share from today's perspective. That is basically fueling this growth and will also fuel the growth going forward. That's the main reason for that.

[Andrew Lynch, CFO at Sensata Technologies]

Guy, just for clarity, we presented the gas leak detection revenue in industrial last quarter. We've recast both on a Q3 and on a year-to-date basis into the HVAC segment. I think that may be what you're seeing in those end market disclosures.

[Guy Hardwick, Analyst at Barclays Capital]

Okay, thank you.

[Operator]

Your next question today will come from Joe Spak with UBS. Please go ahead.

[Joe Spak, Analyst at UBS]

Thanks, Andrew. There are three debt securities listed in the tender offer. Obviously, the five and seven days are the most expensive. Is there any reason to believe you wouldn't go after those first? Just somewhat related, is the lower interest expense considered in your fourth quarter EPS guidance? Thanks.

[Andrew Lynch, CFO at Sensata Technologies]

Yeah, given that the tender is still open, we're sort of limited in how much we can share about what notes we'd prefer to retire or anything like that. What I can share on the interest is we're earning roughly at parity between cash on the balance sheet and the interest expense that we're incurring on those 29 notes. Obviously, the other notes are a little bit more pricey. On balance, I wouldn't expect it to have a material impact on net interest in the fourth quarter, so nothing to consider from a guide perspective there.

[Andrew Lynch, CFO at Sensata Technologies]

Beyond that, we'd refer to the tender offer materials that we issued with the press release earlier today.

[Joe Spak, Analyst at UBS]

Thanks.

[Operator]

Your next question today will come from Joe Giordano with TD Cowen. Please go ahead.

[Joe Giordano, Analyst at TD Cowen]

Hey, guys. Nice job. As you think through the capital structure here, I think everyone probably likes what you're doing with the charges and taking down Dynapower and the debt reduction. How do you think, like, how do you marry the innovation internally that you're doing with, like, the desire to ultimately deploy more in the future? I know now we're talking about retiring debt and paying down and getting leverage down. What's the target where you start to feel comfortable enough that you can start to take iterative steps outside of the current portfolio again?

[Andrew Lynch, CFO at Sensata Technologies]

Sure. Thanks for the question. I think in the short term, we're very focused on our core business. We believe that we have all the building blocks that we need to grow, succeed in our end markets, and, you know, return to outgrowth, like Stephan mentioned. I want to be very clear, that's our core focus right now. A big part of that involves improving the cash generation in our core business and then prioritizing the deployment of that capital to reduce our leverage. I think you can look for that to be our primary focus for the near to medium term.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Let me add to that, Joe. Basically, yes, for now, the story that we've been continuously telling also in the last call is first on a delivery to the company. We use some excess cash to strengthen our operations. We've been very, you know, very busy around smart automation in our factories to increase productivity. That's proven to be the right investment, as you can see in the results, as one effect. Yes, going forward, obviously, we'll reevaluate if, you know, we'll deploy cash somewhere else. At this point in time, we're sticking very much to, you know, what we've been telling you and deleveraging the company and improving performance. That's the focus for the next quarters ahead.

[Joe Giordano, Analyst at TD Cowen]

Thank you, guys.

[Operator]

Your next question today will come from Luke Junk from Baird. Please go ahead.

[Luke Junk, Senior Analyst at Baird]

Good afternoon. Thanks for taking the question. Stephan, hoping you could just double-click on the aerospace portfolio, especially your IP and the innovation cycle in that business relative to your right-to-win comment in the prepared remarks. I guess if I look, it's been growing low single-digit plus in recent years. It seems like the market's been growing a little bit faster in aggregate. Just the levers that you see to growing that business more quickly into the future too. Thank you.

[Stephan von Schuckmann, CEO at Sensata Technologies]

First of all, let me reflect back on the growth. We've had steady growth, like you say, mid-single digit. This has basically been both in commercial and defense markets. In quarter three of this year, this was actually a record revenue result. I think, as Andrew Lynch mentioned in his script, it was basically the fifth straight quarter of positive outgrowth. One topic is well known, but I'd like to repeat it. We still have high customer backlogs. They still persist. They're still there. This persists, but in recent information that we received, FAA has now approved with one of our biggest customers an increase to 42 aircraft per month. As we can remember, back since January 2024, that was roughly 38 aircraft per month. That's going to increase our part of that growth. The other part of it is our exposure to defense business.

[Stephan von Schuckmann, CEO at Sensata Technologies]

That will be the other area we'll be growing in this business unit.

[Operator]

Your next question today will come from Shreyas Patil with Wolfe Research. Please go ahead.

[Shreyas Patil, Equity Research Analyst at Wolfe Research]

Hi. Thanks a lot for taking my question. I wanted to better understand the strategic positioning of Dynapower at this point. You talked a little bit about the potential for applications related to data centers. I wanted to maybe see if you could expand on that a little bit more. Are you seeing engagements from customers in some of those end markets, you know, either grid storage, utility, or grid applications, or even data center? Thanks.

[Stephan von Schuckmann, CEO at Sensata Technologies]

I think the main focus for now around Dynapower are the high-energy requirements, which for us create use cases around grid stabilization. That is the major use case around data centers from today's perspective.

[Operator]

Your next question today will come from Kosta Tasoulis with Wells Fargo. Please go ahead.

[Kosta Tasoulis, Equity Analyst at Wells Fargo]

Hey, guys. Thanks for taking my question. I think you guided organic growth over the next 12-18 months to be in the 2%-4% range. I think the commentary last quarter was a lot of that was being helped by the non-light vehicle business. I think H4 housing still looks kind of challenged. Can you just parse out how you're thinking about that now?

[Andrew Lynch, CFO at Sensata Technologies]

Sure. Happy to. I think first, obviously, we've seen a slowdown in some of our non-auto businesses this year. HVOR and specifically on-road truck in North America has slowed. While we're outgrowing that end market, the ability to grow with it is hampered by the lower levels of production. That's impacted organic growth a little bit this year. I think we're still on track for about a percent-ish organic growth if you look at where third parties are for the fourth quarter and then where the midpoint of our revenue guide is. Admittedly, that was a cautious guide given some of the risks that we see in the fourth quarter. We'll see how that all settles in terms of production levels, etc.

[Andrew Lynch, CFO at Sensata Technologies]

I think as you look forward, beyond the fourth quarter, certainly, again, we're not giving 2026 guidance, but the biggest outgrowth headwind we've had this year, which has challenged our organic growth rate, has been the China market. We turned a corner here in the third quarter where we're now outgrowing production in China. If end markets hold up and we continue to deliver the level of outgrowth that we've had here in the third quarter, we'd have very high confidence in our ability to grow organically, low single digits moving forward.

[Kosta Tasoulis, Equity Analyst at Wells Fargo]

Thank you.

[Operator]

Your next question today will come from William Stein with Truist. Please go ahead.

[William Stein, Equity Research Analyst at Truist]

Great. Thanks for taking my question. I'm hoping you can remind us of your longer-term margin outlook. I forget what you've targeted in the past, and I forget if it's a single-year outgrowth or expansion view or multi-year. Can you just catch us up on that, please? Thank you.

[Andrew Lynch, CFO at Sensata Technologies]

Thanks for the question, Will. You may recall on the last call, we talked about a margin floor of 19%. We're still committed to that floor. The reason that was an important data point for us is because there's obviously a lot of end-market volatility and challenges we're dealing with, mix matters in our business, certainly. We feel very comfortable in our ability to defend that floor on a full-year basis. Beyond that, I would point to, you know, we've demonstrated an ability to sequentially expand margins throughout the year as we've done this year. Lastly, I would just point out that two of our higher margin businesses, HVOR and industrial, are both in markets that are relatively soft right now. If and when those markets recover, certainly there's some margin help that we get with that.

[Andrew Lynch, CFO at Sensata Technologies]

Without clarity on that and without having guided 2026, where we stand today is that we're very comfortable defending a margin floor of 19%.

[William Stein, Equity Research Analyst at Truist]

Thank you.

[Operator]

Once again, if you would like to ask a question, please press star, then one. Your next question today will come from Rob Jamieson with Vertical Research Partners. Please go ahead.

[Rob Jamieson, Equity Research Analyst at Vertical Research Partners]

Hey, guys. Nice results tonight. Just had a couple on free cash flow. Just really strong conversion this quarter again. I just wonder if you could walk through some of the details on working capital improvements, cash discipline, it's driving this performance, and then just kind of your thoughts around the sustainability of this level. Stephan, just on some of the benchmarking initiatives that you talked about in terms of getting different manufacturing facilities to kind of get to best-in-class internally, just wanted to see what you're starting to see there in terms of early improvements.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Let me start with the second question. Thanks for the question. Look, we've continued with our benchmarking progress. First of all, the idea was to benchmark ourselves internally. From a product family perspective, we would take the best-in-class product from a cost perspective and then benchmark that against all the other factories where that product is produced. We've made good progress. We've reduced our cost significantly on each and every product, but we still have some way to go. The other view is obviously outside of Sensata Technologies. If we can obtain benchmarks where we find products being produced better than our factories, we'll take that benchmark and work ourselves off against that target, which we also do for certain product families. It's continuous progress. I think we've improved a lot, but still ongoing.

[Rob Jamieson, Equity Research Analyst at Vertical Research Partners]

Great. On the cash flow.

[Andrew Lynch, CFO at Sensata Technologies]

Yeah, on the cash flow question, the biggest lever there has been lower capital expenditures in our business. I think that's really reflective of the level of discipline we're applying to CapEx. We're certainly looking at things like the certainty of the production outlook on the programs that we're investing in, as well as the timing. That's driven a lower level of CapEx in our business. I'm comfortable that we can continue to convert free cash flow at a relatively healthy level. The number that we've committed to is greater than 80%. I don't think that our relatively low level of CapEx this year is a benchmark for where we're going to be indefinitely.

[Andrew Lynch, CFO at Sensata Technologies]

Certainly, as we're looking at EV production outlook that's a little bit uncertain, volumes that are maybe softer than where they were expected to be a few years ago, we're applying a lot more rigor on the CapEx that we're approving. That's showing up in our free cash flow conversion. I'm comfortable that we'll continue to convert at a high level. I think the year-to-date result has been reflective of CapEx discipline.

[Rob Jamieson, Equity Research Analyst at Vertical Research Partners]

Great, thank you.

[Operator]

Your next question today will come from Samik Chatterjee with J.P. Morgan. Please go ahead.

[Operator]

Hi, this is MP on for Samik Chatterjee. Thank you for taking my question. I just wanted to double-click on your return to growth pillar of the overall strategy. I just wanted to understand in terms of end markets, which end markets are strategically of higher importance in terms of returning to growth, or where do you expect the growth will be more skewed in terms of the overall end markets?

[Stephan von Schuckmann, CEO at Sensata Technologies]

From an end market perspective, I think Andrew has given some highlights on that. We see from Sensata's perspective strong market outgrowth on the HVRR sector. That is mainly driven due to construction and agricultural business, and that's basically offsetting the softness in that market. We also see, as I've mentioned earlier, with very, very strong order books in the aerospace area, we'll see a potential of growth going forward there as well. That is another area of high growth. Automotive, I would say, is rather soft with a slight outgrowth going forward. The two strong ones being aerospace and HVR. Industrial was the third one that I also wanted to mention, especially with our gas leak detection product that's enabling us to outgrow the market. Going forward, that will also be pushing growth.

[Stephan von Schuckmann, CEO at Sensata Technologies]

Understood. Thank you.

[Operator]

That concludes our question-and-answer session. I would like to turn the conference back over to Andrew Lynch for any closing remarks.

[Andrew Lynch, CFO at Sensata Technologies]

Thank you, Operator. Thank you all for joining today's presentation. We look forward to seeing you at various investor events later this quarter. We are currently expected to participate in the following events: the RW Baird Global Industrial Conference in Chicago on November 12th, the UBS Global Industrials and Transportation Conference in West Palm Beach on December 3rd, and the Oppenheimer Winter Industrial Summit, which is a virtual conference on December 11th. This concludes our third quarter earnings conference call. Operator, you may now end the call.

[Operator]

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

Participants

Executives

• Andrew Lynch, CFO
• James Entwistle, Senior Director of Investor Relations
• Stephan von Schuckmann, CEO

Analysts

• Luke Junk, Senior Analyst at Baird
• Guy Hardwick, Analyst at Barclays Capital
• Analyst at J.P. Morgan
• Shreyas Patil, Equity Research Analyst at Wolfe Research
• Joe Giordano, Analyst at TD Cowen
• Joe Spak, Analyst at UBS
• Mark Delaney, Analyst at Goldman Sachs
• Rob Jamieson, Equity Research Analyst at Vertical Research Partners
• William Stein, Equity Research Analyst at Truist
• Kosta Tasoulis, Equity Analyst at Wells Fargo
• Ashley Nguyen, Analyst at Bank of America