Good day, and welcome to the Sensata Technologies Q3 2023 Earnings Call. All participants will be in 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 o ne 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. Jacob Sayer, VP Finance. Please go ahead, sir. Thank you, Rocco, and good morning, everyone. I'd like to welcome you to Sensata's Q3 2023 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President, Paul Vasington, Sensata's Chief Financial Officer, and Brian Roberts, Sensata's incoming 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's Investor Relations website. This conference call is being recorded, and we'll post a replay on our Investor Relations website shortly after the conclusion of today's call. As we begin, I'd like to reference Sensata's Safe Harbor statement on slide two. During this conference call, we will make forward-looking statements regarding the future events or financial performance of the company, and these statements involve 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 subsequent filings with the SEC. We encourage you to review our GAAP financial statements in addition to today's presentation. Most of the information that we will discuss during today's call will relate to non-GAAP financial measures. Our GAAP to non-GAAP financials, including reconciliations, are included in our earnings release and the appendices of our presentation materials. The company provides details of its segment operating income on slides nine and 10 of the presentation, which are the primary measures management uses to evaluate the performance of business. Jeff will begin today with highlights of our business results during the Q3. He will then provide a few updates on new launches and exciting applications that we've discussed on prior calls, and then provide an update on our progress in electrification. Paul will cover our detailed financials for the Q3, updates on capital deployment, and he will discuss our financial guidance for the Q4 of 2023. We'll then take your questions after our prepared remarks. Now, I'd like to turn the call over to Sensata's CEO and President, Jeff Cote. Thank you. Thank you very much, Jacob, and welcome everyone. I'm very pleased to introduce Brian Roberts. As announced this morning, Brian will be joining Sensata and taking over the CFO responsibilities after the filing of our Form 10-Q next week. Brian is a seasoned financial executive with extensive public and private company executive experience. Brian most recently served as CEO of Tarveda Therapeutics, rising to the President and CEO spot from the CFO role. Brian previously served as a public company CFO at both Insulet and Digitas. He also brings significant public board experience, including eight years serving as Audit Committee Chair at ViewRay, Inc. The depth of his experience is described in the press release we issued this morning. We welcome Brian to Sensata and look forward to working with him. I'd like to thank Paul for his nearly 10 years of service to Sensata, and wish him well in his upcoming retirement. Paul has been instrumental in guiding Sensata through a significant strategic shift and navigating through the pandemic. We appreciate that Paul will be continuing as an advisor to me and Brian for the next several months to ensure a smooth transition of this very important role. Now, I'd like to move to some summary thoughts on our performance during the Q3, as outlined on slide three. During the Q3, we produced $1.1 billion revenue, down 1.7% from the prior year period and in line with our guidance range. Market outgrowth for the last 12 months remained within our target range at approximately 460 basis points and 660 basis points over the past three years. Strong recent business wins, new product development activities, and the upcoming launch schedules gives us confidence that our revenue growth will accelerate in the coming years. Adjusted operating income was $192 million or 19.1%, down 30 basis points compared to prior year on a reported basis and up 90 basis points on a constant currency basis. Adjusted net income moved higher by 5.5% to $138 million, and adjusted earnings per share grew 7% on a reported basis and 16.5% on a constant currency basis to $0.91 from the prior year period. During the quarter, we took a $21 million charge for our recently announced restructuring program. This program is expected to generate $40 million-$50 million in savings in 2024. As we continue to focus our strategy on electrification, harvest the investments of the past few years, and actively manage our cost structure, we expect to see the benefit drop to the bottom line. At the beginning of 2023, we shared with investors a shift in our capital deployment strategy based upon our confidence in our capabilities to effectively intersect the electrification growth vector and deliver innovative solutions to our customers without the need for significant new acquisitions. We continued to execute that strategy during the Q3, returning capital to shareholders through our dividend and share repurchases. Our capital allocation strategy reduces risk in our capital structure, lowers interest expense, and improves adjusted net income and earnings per share, as well as return on invested capital. Paul will detail this information shortly. On slide four, I want to provide an update on two exciting applications that we've mentioned in the past earnings calls. Recent government regulations implemented to reduce greenhouse gases and improve the environment require HVAC manufacturers to switch to new coolants with lower global warming impact, known as A2L or A3 refrigerants. Sensata has leveraged its leadership position in HVAC pressure sensing to create a new category of gas detection sensors that detect refrigerant leaks. Since we announced this application this past spring, we have already secured new business totaling $55 million in annual revenue from customers for sensors that will be launching later this quarter. Sensata was the first supplier to be awarded UL certification for our solution, which provides a critical benefit to customers and catapults Sensata into a leadership position in this very fast-growing sensor category, with a $500 million addressable market expected in the next five years. Another exciting area is electromechanical braking. During the Q3, we were awarded a large win with a second major brake system provider to support a leading global EV manufacturer. We are already a leader in brake pressure sensors, and these new wins secure a total of $30 million in future annual revenue, as well as our leadership position in force sensors for the next generation of braking solutions used on electric vehicles. Sensata is focused on continually innovating to help customers solve their mission-critical, hard-to-do engineering challenges on their path toward electrification. As shown on slide five, I'd like to share some thoughts on how we intend to reach our revenue goals within automotive electrification. We expect the combination of rapid EV adoption and the increased content on electrified vehicles to drive more than $1.2 billion in automotive electrification revenue for Sensata by 2026, up from approximately $380 million this year. Approximately 90% of this total is already booked, either through expected market growth as forecasted by IHS or incremental business wins already awarded. Our progress in North America is being realized, where we currently have approximately 1.5x the revenue per vehicle on an EV compared to an ICE platform. China and Europe remain as opportunities for us. In China, we currently have approximately 1.25 the revenue per vehicle on a local OEM EV compared to ICE platform. However, the revenue per vehicle on the local OEM EV is about half that of a multinational ICE sold into that market. Therefore, as share shifts to local OEMs from multinationals, Sensata will experience a headwind. This share appears to have stabilized at around 55% for local OEMs, and we will continue to monitor this closely. We have been increasing our pace of new business wins with local OEMs across many product categories, including the development of country-specific contactors through our joint venture with Churod. In Europe, we currently have approximately half the revenue per vehicle on EVs compared to the same ICE platforms. This will improve as NBO opportunities launch, and we continue to win new EV-specific opportunities in Europe. Sensata has established strong customer relationships across the e-mobility market. We supply almost every major automotive OEM and tier across the globe. We have also developed strong relationships with the emerging automakers. As we have shared, we think about the opportunity around electrification holistically. The opportunity does not stop with components to enable electrified equipment. It also covers the infrastructure needed to power all this equipment. In renewable power generation, energy developers and others are poised to benefit from global initiatives to decarbonize sources of energy, including last year's Inflation Reduction Act in the United States, which provides significant long-term funding to this industry. By addressing key needs for this important industry, Sensata revenues from its inverters, converters, and rectifiers are growing rapidly and in line with the investment case we laid out when we acquired Dynapower in mid-2022. Revenue in this area is growing by more than 30% per year. We are confident in this continued growth, given accelerated business bookings related to new projects, such as missile defense systems provided by General Dynamics, hydrogen separation and storage at sites being developed by Plug Power, and renewable energy materials development from Freeport-McMoRan, for example. Year-to-date, new business bookings in this area have been strong, with a book-to-bill ratio of 1.2 and improving. We remain bullish regarding our opportunities in this sector. Now, I'd like to turn the call over to Paul. Thank you, Jeff. Key highlights for the Q3, as shown on slide eight, include: revenue of $1.001 billion, a decrease of 1.7% from the Q3 of 2022. Adjusted operating income was $192 million, a decrease of 2.9% compared to the Q3 of 2022, primarily due to unfavorable movements in foreign currency, partially offset by pricing and productivity improvements. Adjusted operating margins improved 90 basis points from the prior year period on a constant currency basis due to operational improvements within the business. Adjusted earnings per share of $0.91 in the Q3 grew 7% from the prior year quarter, driven by our focus on cash flow, debt reduction, and return on capital to shareholders. On a constant currency basis, adjusted earnings per share would have been $0.99, representing 16.5% growth from the prior period. Now, I'd like to comment on the results of our two business segments in the Q3 of 2023, starting with Performance Sensing on slide nine. Our Performance Sensing business reported revenues of $754 million, an increase of 2% compared to the same quarter last year. Automotive revenue increased due to content launches and higher pricing, partially offset by unfavorable revenue mix in foreign currency. A decline in heavy vehicle off-road revenue reflects market contraction and unfavorable foreign currency, partially offset by content launches. Performance Sensing operating income was $186 million, with operating margins of 24.7%. Segment operating margins increased year-over-year, largely due to higher pricing, volumes, and productivity, partially offset by unfavorable foreign currency. Excluding the foreign currency impact, Performance Sensing operating margin would have been 25.8%. As shown on slide 10, Sensing Solutions reported revenues of $247.3 million in the Q3, a decrease of 11.3% as compared to the same quarter last year. Industrial revenue decreased due to weaker markets, especially in HVAC, appliance, and IT mobile, industry destocking, and unfavorable foreign currency. Aerospace revenue increased strongly in the quarter due to market, pricing, and content growth. Sensing Solutions operating income was $71.3 million, with operating margins of 28.8%. Segment operating margin was flat, primarily due to the decrease in industrial revenue and unfavorable foreign currency, offset by the growth in aerospace. Excluding the foreign currency impact, Sensing Solutions operating margin would have been 29%. On slide 11, corporate and other operating expenses not included in segment operating income were $75.1 million in the Q3 of 2023. Adjusted for charges excluded from our non-GAAP results, corporate and other costs were $64.2 million, a slight increase from the prior quarter, primarily reflecting higher employee costs. During the quarter, we announced a restructuring plan to better align our cost base with the weaker market environment we are seeing, to narrow our areas of investment to focus on electrification and to accelerate our margin recoveries. We recorded a charge of $21 million in the Q3 in relation to this restructuring program. We expect savings of $4 million-$6 million in Q4 as part of our guide, and savings of $40 million-$50 million in 2024. These actions are designed to help the company reach its stated goal of 20%-21% adjusted operating margins in 2024. Moving to slide 12. The capital deployment strategy we shared at the beginning of 2023 is already providing steady returns to shareholders, as underscored by our improving return on invested capital of 9.8%, up 50 basis points from the end of 2022. We generated $87 million in free cash flow during the Q3, up substantially from the prior period, and $401 million in free cash flow over the last twelve months, representing 70% conversion of adjusted net income. We are targeting free cash flow conversion to be approximately 75%-80% of adjusted net income by 2026, above Sensata's long-term average, reflecting improvements in working capital. Capital expenditures are expected to remain in the range of $170 million-$180 million for 2023. Our net leverage ratio was 3.1x at the end of September 2023, and we expect this metric to continue to decrease to a level below two times by the end of 2026, primarily through strong free cash flow generation. We also intend to repay the notes maturing late next year from cash on hand. During the quarter, we returned $35 million to shareholders in the form of share repurchases. In addition, we recently announced that we've reset our share repurchase authorization to $500 million, as well as our Q4 quarterly dividend of $0.12 per share, that is expected to be paid on 22 November to shareholders of record on 8 November. We are updating our financial guidance for the Q4 of 2023, as shown on slide 13, to reflect the latest IHS Automotive production estimates, given UAW strike activity. This impact is expected to be temporary. Our expectations are based upon the end market growth outlook shown on the right side of the page. We are aligned with IHS estimates for automotive production on a Sensata revenue-weighted basis. While currently, UAW has reached tentative agreements with the D3, which now need to be ratified by membership, the ultimate outcome and process to restart production remains somewhat uncertain. Based on IHS production estimates, we estimate the impact on Sensata's revenue as $35 million-$40 million this quarter, with a 60 basis point impact to adjusted operating margin. Foreign exchange represents an expected $11 million headwind to revenue, 60 basis point headwind to adjusted operating margin, and a $0.09 headwind to adjusted EPS in the Q4. Excluding the impact of foreign currency, adjusted operating income margin expectations for the Q4 represent a 50 basis point decline from the prior year period, largely driven by the UAW strike. Our current fill rate is approximately 91% of the revenue guidance midpoint for the Q4. Slide 14 contains a view of the implied full year 2023 outlook based on actuals to date in the Q4 guidance. A few notable observations. Organically, adjusted operating margin is expected to increase 100 basis points during the year and 60 basis points on a constant currency basis. Adjusted net income and earnings per share are benefiting from our capital deployment strategy of reducing leverage and buying back stock opportunistically. We now expect foreign exchange to be a $58 million headwind to revenue for the full year and a $0.26 headwind to adjusted earnings per share, given current exchange rates. I want to recognize the senior leadership team at Sensata for their support over the nearly 10 years I've served as CFO. I also appreciate the insights and support I've received from so many in the investment community. I look forward to passing the baton to Brian to ensure a smooth transition. Now, I'd like to turn this call back over to Jeff for closing comments. Thanks very much, Paul. Let me wrap up with a few key messages, as shown on slide 15. A replay of our investor event from late September is available on our investor relations website, and I encourage you to watch it if you have not done so already. During the event, we laid out the reasons why we believe Sensata represents a compelling investment opportunity. We have a 100-year-plus history of innovation and deep customer relationships. The core of our business, whose success has been driven by trends in safety and efficiency, is vital, innovative, and very profitable. We are addressing an unprecedented opportunity in electrification, supported by record new business wins, and we remain on track to achieve our goal of $2 billion in electrification revenue by 2026. Together, this is expected to drive our long-term financial performance for the benefit of our stakeholders. We are committed as a management team to continue to focus our strategy in electrification and prioritize our investments to enable us to monetize the opportunities we have invested in, to enable growth and drive higher margins. I'd now like to turn the call back to Jacob. Thank you, Jeff. We'll now move to Q&A. Rocco, would you please introduce the first question? Absolutely. As a reminder, everyone, if you'd like to ask a question, please press star then one. Today's first question comes from Mark Delaney with Goldman Sachs. Please go ahead. Yes, good morning. Thanks very much for taking the question. Paul, let me thank you for all of your help over the years, and, Brian, wishing you the best of luck in your new role. Thanks, Mark. Thank you. Jeff, I was hoping to dig a little bit deeper into the electrification target for 2026. You reiterated the $2 billion target. You know, even since your Investor Day in September, some of the major auto OEMs have talked about slowing down their EV ramp rate. M aybe help us better understand what you're seeing and what's giving you the confidence to reiterate the $2 billion target, just by some of the volatility in the ramp plans that we've heard announced here pretty recently. Yeah, absolutely, Mark. J ust to set the context, we set that goal back in April of 2021 when we did an electrification teach-in. At the time, it was a little bit of an ambitious goal, but we saw the line of sight and the accelerated trend of new business wins and engagement we were experiencing with our customers. A t that point in time, over the last three years prior to that, we had seen trends toward greater EV penetration right now s o that moves around. It ebbs and flows a little bit B ut based upon the engagement with customers, the NBO wins, we've seen third-party estimates regarding EV penetration, we feel very comfortable with the $1.2 billion of revenue in automotive. The balance of that will come from HVOR and the industrial business. A gain, 90% of that auto target is booked at this point. Now, to address your very specific question regarding customers' view on EV penetration, we're clearly seeing an accelerated trend associated with electrification, right? B ack in 2020, 3% of North America was electric. In 2023, it's expected to be 11%. In Europe, back in 2020, it was 4%. In 2023, it's expected to be 17%. I n China, there was a 6% new energy vehicle penetration in 2020, and in 2023, it's expected to be 36%, s o there may be puts and takes in terms of estimates based upon customer take rate, but it's very clear that the technology exists. There is demand for these vehicles, the infrastructure is being built, and so we're preparing for that. The last comment I would make on this is that we clearly, we've invested in this trend toward electrification b ut to the extent it slows, we have a very strong core business that will continue to prosper. I n fact, if OEMs slow down their EV penetration, they have to meet greenhouse gas emissions reductions in other ways, which would benefit Sensata so t he slowing does not worry us. It's also in a category of our business, which today enjoys much higher margins to the extent that slows, it will be good for Sensata either way. Might be a little bit slower top line growth going forward, but more achievable and more certain bottom line growth in terms of the overall company. We're prepared for both. I think that there will be ebbs and flows on individual customer forecast associated with it, but we believe in this as being a long-term trend in the industry. Thanks for the question, Mark. Thank you. Our next question today comes from Wamsi Mohan with Bank of America. Please go ahead. Yes, thank you so much, and I'd echo Mark's comments on both Brian and Paul. If I could, Jeff, maybe on the UAW impact being transitory, can you flesh that out a little bit in terms of how that's going to work into calendar Q1? Did you see any inventory or are you expecting inventory build up into Q4, and your guide is net of that, or is there no real inventory build up, and you should see about seasonal trends heading into Q1? I f I could on the incremental restructuring, it seems like that's gonna drive about 100 basis points of operating margin upside. If auto volumes were to go down, can you still get to 20%-21% operating margin in 2024? Just trying to calibrate what kind of revenue estimate you would need to get to that 20%-21% operating margin. Thank you so much. Great, Wamsi. Why don't I address the UAW piece of it, and then maybe Paul can address the margin question, given restructuring and volumes and so forth. A s we had anticipated, the UAW strike did not have any meaningful impact on the Q3. We landed essentially where we thought we were going to land. We knew it was going to be a Q4 issue. At the time of our Investor Day, we used IHS estimates in terms of the impact associated with the strike to develop our guide for $1 billion. We also looked to what we had indicated as more normalized seasonal patterns in the business, which from Q3 to Q4 typically would be flat or maybe up a percentage point or so. We used those data points to help us figure out where we needed to be. Obviously, things have changed, and they've been very dynamic over the last several years. Based upon IHS forecasts of production, we believe that there's about a $40 million Q4 impact, very specific to the D3, based upon production schedules, that aligns pretty tightly to what our order patterns have been from those customers. Recall that the D3 entered the Q4 or exited the third 30 September vehicle lot. Numbers were back to the 60 range, on average. Some were a little bit higher than others, but I think they were preparing the vehicle lot inventory to deal with the potential issues associated with the strike, going into that. I would expect that that might be down a little bit and will present an opportunity for us. I f the startup or the restartup, I think will be different by individual customer, but they're—we're there to work with them. We've had calls with all of those customers regarding what that startup will look like and making sure that we can be there to deliver the parts when they need them. A t this point, my sense would be it'll be a little choppy in the Q4, but it looks as though, you know, as we go into the Q1, things will normalize. One more comment that I would make on impact of UAW is I've commented on a $40 million revenue impact in the Q4 associated with the UAW strike. That obviously falls through a pretty significant decremental margins s o it's a 60 basis point impact, given that we know it, we felt strongly that it was temporary, so we did not adjust cost structure for that decline in revenue, because we wanted to make sure that our teams and our sites were prepared to be able to respond when it ended a nd that's turning out to be a good thing in terms of the preparedness on our side, but it does have a negative impact on Q4 margins to the tune of 60 basis points. Paul, do youwant to? Yeah, just so quickly, just going back to Investor Day and the three-year growth model on the top line. The revenue profile that we had in the model there was more back-end loading, just given the launches on electrification. Most of the growth in the model is around electrification and given the long cycle nature of the business, the back-end period of that three-year period is where the growth is higher s o we were expecting lower growth in 2024. We'll obviously give you more specifics when we guide in the beginning of 2024. The restructuring was done to strengthen our cost position and our margin recovery plan, and so that drives a lot of the improvement year-over-year in margin. We're not relying on volume to solve the problem of improving margins. We're gonna focus on cost control, focusing our investment dollars in the area of electrification, where we're having the greatest success a nd so the revenue will contribute, but it's not what we're relying on to deliver the margin improvement. Thank you. Thanks, Wamsi, for the question. Thank you. Our next question today comes from Samik Chatterjee with JP Morgan. Please go ahead. Yep. Hi, thank you for taking my question. Paul, congrats on the [inaudible] Thanks. Brian, welcome. On the outgrowth to the market, if I looked at the last 12 months number at 460 basis points, and last quarter, I think the last twelve-month number was around 535, so that's been moderating here. I'm just curious, when you sort of piece out the drivers there, why the outgrowth to the market is moderating? How much of that is the share shift in relation to China automotive market versus maybe lapping some of the price increases that you had taken, which was probably helping out performance? If you can piece out sort of what the drivers are and why that's moderating, that'll be helpful. A quick one for Paul. Paul, FX is always tough to model for you guys. I mean, can you just give us some guidance for next year based on where we are? How should we think about FX? Thank you. Yeah. L et me hit on the outgrowth and, more broadly, the secular growth story that you're commenting on and the impact to that, and then Paul can touch on the other topics. I f you look at the full year 2023, on a reported basis, the company will be about flat on revenue. On a constant currency basis, we'll be up 1.5%, while the global markets that we serve are down about 1% s o there is a secular growth story. We are growing faster than markets. When you break that down, automotive is up about 2%, Heavy Vehicle Off-Road is up about 1%, aerospace is up 28%, and the industrial market is down 9%. The big impact in terms of 2023 is really the industrial business in terms of that being down 9%. When you look at the auto market specifically, because that tends to be the market that we talk about when we talk about secular growth, but the reality is there's secular growth in all of the markets that we serve. If you look at the IHS forecast for the full year right now, it's about 3%, auto growth. We're at 1.5. When you consider constant currency, we're at 4% s o we are growing faster than the production growth rate as forecasted by IHS. There are a lot of moving parts in here, okay? But I think part of the challenge is we get into all of the details on it, which are many, but there are really two structural things that are impacting our growth to market in auto, and there are two temporary things. The structural items are the shift in China from multinational to local. That's a significant impact to Sensata, right? Now, that five percentage points share shift occurred during 2023, but as I had mentioned in my prepared comments, we believe that's stabilized now b ut we will watch that very closely, and the way that we will address it is by accelerating our new business opportunities with the local OEMs, not only on internal combustion engines, but on the EV platforms. We're making progress on that with 35% of their production during 2023 being EVs and us being higher revenue per vehicle on EVs. That demonstrates the progress that we're making there b ut in order to become more equivalent, multinational and local, we've got a lot of work to do, but that is our strategic focus. The second is the EV shift in Europe. A gain, in my prepared comments, I talked about the fact that because we were behind on the original sourcing associated with launches in Europe around EVs, we're about half the content or the half the revenue per vehicle in Europe on EVs versus internal combustion. We've got a number of wins that we've had that will materialize over the next several years, that will, that will address that issue, and we're not done. We are continuing to work with those customers to get more revenue per vehicle on the EV platforms as that take rate accelerates, s o those are the two structural, very strategic issues. There's a lot of other noise in the system associated with things that are going on, but those are the two things that are having the biggest impact in terms of structural. The two more transitory or temporary items are the launch delays that we've talked about. T here's a significant amount of launch delays that have happened during 2023 that we were counting on our revenue, that would have changed that outgrowth rate a nd again, we're working with customers around creating more certainty around those to make sure that they and we are ready to launch when we've intended a nd the second is around the D3 impact in the Q4. We have more revenue per vehicle with the D3, when that revenue goes down, it creates a mix problem for us. But those last two items will fix themselves with more engagement with our customers and the resolution on the UAW strike. T he other two we'll keep you posted on them. We've got to make sure that we continue to drive the strategy to address those issues. Hopefully, that gives you more color on that. On the FX, I mean, FX will continue to be a headwind next year. I would estimate somewhere around 50 basis points impact operating income and operating income margin, which is, which is in line with what we—I think, what we shared on Investor Day, just given. That's based on current rates. How we exit, you know, the year, rates stay the same. That's what I would expect. Thanks, Wamsi, for the question. Thank you. Our next question comes from Amit Daryanani with Evercore. Please, go ahead. Good morning. Thanks for taking my question, and talk to you as well. You know, first on the auto, on your December quarter expectations for automotive revenues to be down 10%, can you just talk about how do you think that stacks up across the various geographies for you? T hen any initial sense of what calendar 2024 production could look like across the key geos? Yeah, so on again, you know, I spoke to the auto production versus what our market rate was for the full year. If I remember correctly, in the Q1, we were growing faster than the market, than the IHS market, and second quarter, we were behind, Q3, we were about equivalent, and then the Q4, we are behind, and that's due to primarily the mix associated with D3 s o the expected drop in production on D3 has a revenue impact to us that's causing our adjusted market in auto. But across the year, Amit, we're pretty much on top of the IHS forecast. Mix will move around based upon OEMs that produce cars and the platforms that are produced, but across the market or across the year, it seems to be pretty stable. To clear up, in case there's any confusion, Amit, that the numbers that are on that slide are meant to be market growth numbers, not our revenue growth. Obviously, they are weighted for our revenue across OEMs and geographies, but they line up the auto number, at least lines up with the IHS forecast for production. Got it. T hen, Jeff, can I just go back to that discussion you had around the impact from the UAW strike? I totally understand why you have an outsized impact on your operating profit line in the December quarter. Is it fair to think that that should reverse back, i.e., the incremental margin should be much stronger as those revenues potentially come back in the first half of the year? Yes, definitely. Y eah, as that revenue comes back, it'll absorb the overhead we have associated with that, and we would expect the incrementals to come back just like they would go down in the Q4. W e're guiding to around 19% midpoint of guidance on operating income, we'd be, you know, at or slightly above what we had originally guided if not for the UAW strike. So yes, we're very focused on making sure we show continued progress toward our operating income index target. Thanks, Amit, for the question. Thank you. Our next question comes from Steven Fox at Fox Advisors. Please go ahead. Hi. Good morning. I had two questions as well. First of all, with regard to sort of the EV supply chain, there also seems to be concern, especially on the semiconductor front, with the level of inventories that some of the OEMs are sitting on as EV demand has kind of slowed a little bit here. Can you talk about, you know, how you inventory OEMs and how you think maybe your inventory sit there? T hen I had a follow-up. Yeah. L et me address it on our supply side and then on how we deal with the demand from our customer side. I'm hesitant to claim the end of supply chain challenges. It's been a very challenging couple of years, but clearly, things have abated considerably, in terms of the overall availability of parts. That's not a universal message, because I think when you talk about electronics, there are certain types of electronics that are still scarce and short on supply versus others. But generally, we're in a much better place, and we feel as though the inflationary pressures that were driven by that supply-demand dynamics are starting to balance out a little bit s o that's on the supply side. On the customer side, as we've talked about, we're a make-to-order, right? We're a just-in-time inventory model. There was a point in time when customers would quite literally take anything that we could produce to make sure that they had parts available to them. We feel as though that's reversed pretty dramatically due to changes in the market, but also because we feel as though we've been there for customers s o we have a proven track record of being able to deliver when they say they need it. I think we had estimated, it's very difficult to estimate, but I think we had estimated there's still maybe $15 million-$20 million of inventory, our parts in warehouses or in partially completed vehicles, but it's not a meaningful number anymore in terms of the long cycle OEM market, where we have more visibility, given the just-in-time inventory modeling that our customers have. On the industrial side, more short cycle businesses, it's much harder to get a really good read on that, and clearly, some of the decline that we've experienced during 2023 in that market, is not only market, but destocking that's happening. But that will have a, the positive impact when, when restocking does occur. It's been a tough year for that market. Specific to EVs, we don't see customers cutting orders because they have components specific to our, their EV production with Sensata. I think that we've stabilized in terms of, you know, shipping them parts they need to make the product for their customers. That's, that's really helpful, and that leads me into my second question, which was on industrial markets. It seems like these markets are getting worse, but everyone defines industrial differently across the supply chain s o can you sort of talk about off of these year-over-year declines that you're seeing? Like, what is sort of a path to recovery or whether we're not even in the recovery phase yet? Thanks. Yeah. W e do a lot of modeling. We have a long history in these markets that we serve to understand based upon PMI metrics and other third-party metrics that have a pretty good correlation to the demand for our product globally across the individual regions. Clearly, we've gone through a destocking period, Steve a nd so we've had order rates lower than where the market is a nd when you look at the 20-year history of that, it, you know, it snaps back when there's a recovery. The Q4 is down 19%, market-wise, industrial, quarter-over-quarter. That's accelerated from where it was in the Q3, so I'm not, I'm not claiming that the bottom has been achieved on that, but, it will, it will hit at some point. My, my hope would be that the Q4 would be the bottom of that, and then going into 2024, we'd start to see that recover. From a revenue basis standpoint, our industrial business is pretty flat, Q3 to Q4 s o from a sequential standpoint, it looks like it's stabilized, and then we'll start to see a recovery on that. Last point I'd, I'd make there is it might be the obvious, but that's a very hard margin business for us relative to our auto and HVOR business. So when that comes back, that will create some leverage in terms of incremental margin for the company as well. Great. Super helpful. Thank you. Thanks, Steve. Thanks, Steve. Our next question comes from Luke Junk with Baird. Please go ahead. Good morning. Thanks for taking the questions, and, Paul, best wishes in your retirement, as well. Thank you. Jeff, bigger picture, you cited an increased pace of new business wins with local OEMs in China, including country-specific contactors. I was just hoping you can expand on the increased traction that you're seeing there, specifically, I guess, within contactors, especially in what, you know, as we look out a few years from now, what a reasonable target might be for local EV content versus what your historical content has been with the multinationals on ICE platforms in China. Thank you. Yeah. S ome of you may remember that, in 2022, no, it was 2021. Late 2021, we entered into the JV with Churod. Yes. Right? Because what we had observed was that the vast majority of the vehicles in China, the electric vehicles in China that were being produced, were lower voltage. L et me quantify. Under 400-volt systems, whereas a lot of the newer systems in Europe and North America are above 400-volt. We had not invested in, we didn't have a great solution at the below 400-volt, so we partnered with our JV with Churod. We've seen accelerated progress there around specifically contactors. Now, we've made some progress on that, as evidenced by the fact that when you look at a local maker, a local OEM, we have, you know, 1.25x the revenue per vehicle on an electric vehicle versus on a combustion engine, but a lot more work to do to get that to the equivalent in the United States. But progress being made, it's not only going to be contactors, right? So there are other applications that we're serving that are EV specific, as you know, around braking, around tire pressure, around environmental control, that represent opportunities for us. Good progress there. Our goal, as we've talked about, is to have double the EV content by 2026 on a global basis. When you look across the globe by 2026, based upon where we are today, North America will be above that two times. China will be approaching the two times, and then Europe, I think, will be the one that will be not far behind, but will be, you know, accelerating to get there, to create the average of two times across the company. So continued progress, you know, more to come in terms of specific NBO wins in that area. Thanks for that. J ust to follow up in the near term, if I look back to strike impacts in the business in 2019, I think you said about $10 million in lost revenue in North America. Just hoping you could bridge that to the $40 million or so you're expecting this year. Just trying to see if there's something in terms of what's going on in the channel or just generally how this strike is different from a Sensata standpoint, given you did impacts that aren't as meaningfully different. Thank you. You're trying to reference back to the prior time [crosstalk] The UAW had struck in 2021? Is that, is that the question, Luke? Yeah, the 2019 strike, you'd cited about $10 million in lost revenue [crosstalk] I'm just trying to square that with 35-40 right now, given that the number of units are pretty similar. Yeah. Yeah. L isten, I mean, we're in our $40 million impact, we're looking at what IHS says ultimately the impact will be. As I had mentioned, that ties pretty closely with what the order rates are and where we are in a fill rate. I think we're 90-91% filled against the forecast that we have. That's pretty typical, and that too is normalizing s o I feel as though it's a pretty good estimate. You know, I think that, you know, how I mean, I think that how the union has dealt with this one under Shawn Fain's leadership has been anything but consistent with the past a nd so, you know, we're following based upon the production rates. The fact that they have tentative agreements, obviously very positive, but we'll watch closely the start up, to see whether or not we have that full $40 million impact or how that transitions as we go through the year, but yes, that's the math on the production rates, which is about. Remember, we had talked about $7-$8 million per week if everything shut down s o we're at the point where it's a little less than half the full quarter impact if everything had been shut down for the full quarter. Thanks, Luke, for the question. Thank you. Our next question today comes from William Stein with Truist. Please go ahead. Great. Thanks for taking my questions. Thanks, specifically to Paul. It's been great working with you over the last few years. I have a question for Brian. You're welcome. Yeah. I do have a question for Brian. I'm wondering if you can share with us any initial thoughts you have on the company, and specifically, what you think your priorities are likely to be in the near and longer term. I'm about an hour and a half in, so a little bit more time to be able to truly digest b ut I guess I would say, you know, what brought me to Sensata is, you know, I'm certainly very excited about the core business and the electrification trend that exists. You know, watching the Investor Day back in September, you know, certainly thinking that those targets that were laid out are achievable a nd really, you know, Paul's developed a great team, and there's a great management team here that I get to work with. So, you know, more to come over the coming months, but I'm excited to be here. Great. Thank you for that. You know, I think this question was just asked perhaps in a slightly different way, but, you know, I'm hoping, Jeff, perhaps you can discuss the variability of your print position across the local China EV companies. You know, it's one thing to talk about, you know, 1.25x the content of a local ICE, but where we as investors can often get into trouble is you quote these statistics, and they may be very correct relative to where you have design wins, but there is an issue relative to the breadth sometimes where, you know, maybe you're not making an explicit bet, but where you wind up getting bigger content wins, you know, those OEMs might not achieve the same growth or the growth they aspire to, and others, where you don't have as much positioning, might wind up ramping s o I'm hoping you can address the variability from OEM to OEM in China, maybe what percentage of them you're working with and how that 1.25 times content varies from OEM to OEM. Thank you. Yes. Y ou're absolutely right that the mix of the business matters, and engaging with the winners matters a nd that's candidly never been more challenging given the disruption that is occurring in the automotive market a nd so from an EV specific standpoint, it's very clear right now that the two global leaders are Tesla and BYD. We're very well-positioned with Tesla, we're very broadly a nd they're, they're above our average net revenue per vehicle, so that's a very good thing. BYD, I feel as though we're very well-positioned also, but the, the challenge with BYD is they are vertically integrated from a electrification-specific component standpoint. We're working with them very closely. To your broader question regarding China OEMs, we've, we've cast the net very wide in, in terms of who we're working with. I think clearly we could say the top five local Chinese OEMs we have good relationships with, but there are a lot of Chinese OEMs s o I can't definitively say that we're working with all of them, but I feel as though we're well-positioned with the ones that are gaining market share a nd the big question that we're grappling with as it relates specifically to China is, when will that consolidation happen, and where will the consolidation happen? And so I personally don't think that's going to happen anytime soon, but the evidence of who the winners will be, not only in the Chinese market, but potentially in the global market, is starting to develop in terms of share that's being accumulated a nd that's where we're focused. As we continue to focus the strategy and make sure that we're working with the folks that we know will be the winners, that's where we're making sure that we continue to win with the one, the players that have experience behind them, that demonstrates that. To the specific point of the 1.2x, that's year to date in 2023. When you look at collectively all of our revenue with local Chinese makers, and you split that between combustion engine platforms and EV platforms, that's the mix. When you look at the content or the revenue per vehicle on ICE, it's about $20, and you look at the EV makers, it's 1.25x that. But we will continue to monitor it, and our goal would be to make sure we accelerate that, given 35% of the vehicles produced in China this year are gonna be new energy vehicles. Thanks, Will, for the question. Thank you. Our next question comes from Shreyas Patil with Wolfe Research. Please go ahead. Hey, thanks so much for taking my questions, and thanks, Paul, for all the help over the years. Maybe coming back to the EV targets you've talked about strong content in North American OEMs, but the ones where we're seeing plan pushouts and where prior expectations appear to be evolving are really biggest with these North American automakers. You know, for example, GM previously talked about adding 600,000 units of EV large truck capacity by next year, and the entire industry seems to have been targeting something like 1.5 million units in that area by 2026. The entire market for large trucks is about 2.7 million. So it does, it does appear that there could be changes to those expectations. I guess what I'm, what I'm asking is, if that were to happen, would that create an outsized headwind to Sensata? Yeah. T he point is taken. You know, I am really watching closely to understand what their forecasts look like, you know, as we continue to progress forward, right? There's some outside dynamics that, you know, are causing some of the changes in their estimates right now in terms of negotiation with the UAW and other things. Certainly, consumer demand for electric vehicles, specifically as it relates to the truck market, you know, are causing our customers to think about that. But I'll go back to the comments I had made earlier, which is, clearly, if EV penetration in the North American market, which is where we have the greatest revenue per vehicle, slows, that will be, that will create a challenge in terms of achieving the $1.2 billion of revenue. The OEMs will need to do other things on those combustion engines to get to the emissions requirements over the next three to five years, and we're well-suited to go after that, right? They had stalled and paused all of their combustion engine development. If they change direction, they'll need to restart some of those, and that will represent opportunity for us and on an accelerated basis to make sure that we're addressing those issues. As I've also mentioned, that is an area where we have demonstrated margin profile that's superior to the electric vehicle component area. Now, we have a roadmap on the electric vehicle-specific components to get to company margins, but there's a lot of work that we need to do to get there so t here's a give-and-take. The delay or slowing of it will maybe have a little bit of impact on revenue, but it will have a positive bottom-line impact. Hopefully, that addresses your concerns. Okay, great. J ust, just one last quick one. I mean, anything that you're seeing on the Tier 2 supply chain, especially as the industry is starting to ramp back up following the UAW strike, you know, how confident are you that the Tier 2 supply base can ramp up as well? Yeah. A ll of our OEM customers have been very, t hey've communicated a lot with us and with all of their suppliers regarding readiness. I can't speak to what others have done in terms of making sure they're idling ready to go when that demand comes back. But I can tell you that we're ready to go, and if some tiers miss, it's not from a lack of communication on the part of their customers regarding being ready for their response, and I would also mention, where we are directed by or where we serve those tiers, we're having open dialogue with them as well. So we feel as though this, although the restart will have some bumps associated with it, I feel as though it's been well planned, where we'll be able to restart pretty effectively. Thanks, Shreyas, for the questions. Thank you. Our next question comes from Joe Giordano with TD Cowen. Please go ahead. Hey, guys. Good morning. Morning, Joe. Morning, Joe. I'm just juggling a bunch of calls, so apologies if this is asked. I'm just curious on the guide, right? So, like, in investor day, you just talked about the thought process and kinda going out of your way and giving a Q4 guide when there was already kind of, like, an uncertain market right now, and then, you know, it almost compounds having to cut it here. W hat was the thought process kinda going into that event as to, like, why you felt compelled to put it out then when there was still, like, the strike going on? Well, we obviously felt good about Q3, which we delivered, and so we felt we should give expectations on Q4, which we had pretty good confidence at the time based on our fill a nd we obviously put out a three-year guide that would be underpinned based on our 2023 estimates s o it all made sense to put that out. We were clear that our guide for Q4 was based on IHS estimates at the time, which had about $15 million of either lower production because of the strike or that they had built inventory that they would consume, and we felt that was a prudent assumption to use, which underpinned the guide. Now we're seeing the strike go on longer, and we're using IHS's current estimate, which gives us about a $40 million, $35 million-$40 million revenue impact. W e're using the third party as a way of developing the guide, and we're updating it based on new information. I think that's appropriate, and I felt it helps integrate performance in Q3 with the full year 2023, and then our three-year expectation that we provided s o I think it was the right thing to do, and I think what's driving our lower guide is, in fact, the UAW activity and how it's progressing. No one's gonna be able to know the number, right? I mean, whatever we put out there, you know, it's our best estimate based on the best estimators out there to provide that. When we get to the end of the quarter, we'll know for sure. We feel confident that this is the best estimate that we can put out there for Q4 at this time. Thanks, Jeff. Thanks, guys. Our next question today comes from Matt Sheerin at Stifel. Please go ahead. Yes, thanks, and good morning. Jeff, I'm hoping you can give us more color on what you're seeing in the HVOR market. I know that was down sequentially and year over year for you, and I know that market's been weak, but you've also been talking about in recent quarters about continued market outgrowth, s o could you share us what you're seeing in terms of outlook from customers and by region, and are you expecting it to recover any time next year? Yeah. I n the Q3, the market was up a little bit, call it 2%, Q3 versus Q3 of last year. When you look at what we're guiding to, it's down 1% or 2% versus the Q4 of last year. T hen on a sequential basis, it's a decline, but it's a typical seasonal decline, Q3 to Q4 in the HVOR market. To your broader question regarding that overall market, it's disproportionately impacted by China on-road. There's some strength in some of the other markets that we serve, and again, much like the comments that I've provided on the industrial market, it's been declining for, you know, 12-18 months at this point, and the expectation would be that it will come back. The seasonality of that business tends to be in that sort of 12-24 months time frame. Thanks, Matt. Thank you, and our next question comes from Chris Snyder at UBS. Please go ahead. Thank you. I wanted to ask on, on auto, you know, up 6% organic, you know, versus what seems like flattest production year-on-year. But let, let me know if you guys see that different. P retty, pretty solid outgrowth, probably one of the better outgrowth quarters we've had in a while. Was that just a function of comp too? Or maybe just kinda talk about, you know, why, you know, the outgrowth came in, you know, better from where it's been? Yeah, I mean, it, we've talked about the fact that outgrowth is a measure that we really should be looking at over a longer period of time rather than an in-quarter, because mix of what our customers actually make matters in terms of what that looks like. Ideally, we would have the exact same amount of revenue per vehicle across the globe, but we know that's not possible based upon, you know, the relationships, the individual relationships we have s o I would say, you know, there are a number of things that we know drive outgrowth in the automotive business in terms of not only EV penetration, but the fan-out of other applications that we serve, and there are many. But, I really would encourage folks to look at outgrowth across a longer period of time than a quarter, because a lot can change the dynamics in an individual quarter. Thanks for the question, Chris. Ladies and gentlemen, this does conclude our question and answer session. I'd like to turn the conference back over to the management team for any final remarks. Thank you, Rocco. I'd like to thank everyone for joining us this morning. We'll be participating in a few investor conferences later during the quarter in Q4. New York Stock Exchange is sponsoring an industrial virtual conference on 14 November that we'll participate in. We'll also join an Alliance Bernstein Industrial Investor Conference down in New York on the 28 November. Familius Industrial Investor Conference in New York again on 7 December, and Oppenheimer is sponsoring a Technology Investor virtual conference on 14 December, we'll be presenting. We look forward to seeing you at one of these events or on our Q4 earnings call in late January 2024. Thank you for joining us this morning and for your interest in Sensata. Rocco, you can now end the call. Thank you. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.