Good morning and welcome to the Sensata Technologies’ Q1 2020 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jacob Sayer, Vice President of Finance. Please, go ahead.

Thank you, Keith. And good morning, everyone. I’d like to welcome you to Sensata’s first quarter 2020 earnings conference call. Joining me on today’s call are Jeff Cote, Sensata’s CEO and President; and Paul Vasington, Sensata’s Chief Financial Officer. We’re also joined by Paul Chawla, EVP of our Automotive Business and Vineet Nargolwala, EVP of our Industrial, HVR and Aerospace businesses, who will be available to provide additional market-specific insights during Q&A. In addition to the earnings release we issued earlier today, we will be referencing a slide presentation during today’s conference call. The PDF of this presentation could be downloaded from Sensata’s Investor Relations website. We will post a replay of today’s webcast shortly after the conclusion of today’s call. Before we begin, I’d like to reference Sensata’s Safe Harbor statement on slide two. During the course of this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company’s actual results may differ materially from projections described in such statements. Factors that might cause these differences include, but are not limited to, those discussed in our forms 10-Q and 10-K, as well as other subsequent SEC filings. On slide number three, we show Sensata’s GAAP results for the first quarter 2020. We encourage you to review our GAAP financial statement in addition to today’s presentation. Most of the subsequent information that we will discuss during today’s call will be related to non-GAAP financial measures. Reconciliation of our GAAP to non-GAAP financial measures are included in our earnings release and in our webcast presentation. The company provides details of its segment operating income on slides 11 and 12 of the presentation, which are the primary measures management uses to evaluate the business. Jeff will begin today’s call with a review of our overall business in the first quarter, particularly the impact from COVID-19 and our responses, as well as the strong financial position of the company. He will also discuss Sensata’s revenue outgrowth relative to underlying markets during Q1 and provide an update on recent progress in some of our key megatrend growth areas. Paul will then cover our detailed and provide insight into our financial model and describe leading economic indicators that we use to estimate the future performance of our businesses. We will 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, Jacob. As we shared with you earlier this month, you can see on slide four that we recognize the global impact of COVID-19 early, and took a wide range of steps across our organization, designed to first and foremost to ensure the safety and health of our employees, while also enabling us to serve critical customer needs and enhance our financial flexibility. These actions position Sensata to emerge from this worldwide disruption even stronger so we can better serve our customers, employees, shareholders, as well as our communities. Working with local, state, and federal government health agencies in many countries, we moved quickly to implement measures to help protect employees and minimize the spread of COVID-19. At a high level, these actions included sanitizing our facilities, instituting safe distancing for our central workforce, staggering work times, implementing health checks at our facilities, providing paid leave for affected employees, and mandating remote work as much as possible. While it’s been a challenge for all of us to learn how to work remotely with our colleagues, we recognize the importance of doing so, especially given that some of our employees are not able to work from home. I am pleased to report that our teams are stepping up and adapting to the new normal. As I speak today, after brief closures in certain locations, our manufacturing facilities are open, and we have sustained production adjusted for demand levels. Governments have issued shelter in place orders and closed non-essential businesses. By working with authorities in jurisdictions where we operate, most of our manufacturing facilities have been deemed essential. We manufacture critical products for industries such as essential transportation, defense, and medical equipment. So it is important that we keep operating during this crisis. We’re in a strong financial position, and we have taken steps to enhance our financial flexibility. We have lowered our operating expenses for the second quarter through management salary reductions and employee furloughs. Implemented reductions in discretionary spending and are ramping down production in certain facilities in line with expected end market demand. For the second quarter, I am taking a salary of $1, and we have reduced the cash portion of our non-employee director’s compensation by 50%. All members of senior management are taking a 25% reduction in pay, and we are seeking a similar reduction in pay through furloughs for all indirect employees. We are reducing capital expenditures and managing our working capital very carefully. We drew down on our revolving credit facility to enhance our cash position, more than $1.2 billion in total at the beginning of the second quarter. And we have temporarily suspended our share buyback program. We also withdrew our financial guidance for fiscal year 2020 in early April, as our visibility into the economic impact of this crisis became less clear. Paul will discuss leading indicators we are tracking to estimate future revenue shortly. Throughout these unprecedented times, we’ve proven ourselves to be a strong and reliable partner to our customers, as they too face uncertainty and disruption. We are continuing to make progress on our key initiatives around Smart & Connected and Electrification, which I will discuss in more detail momentarily. We have proven ourselves as good stewards of capital, rightsizing our organization to the environment, yet still investing in areas that offer significant long-term growth opportunities. We have demonstrated the integrity of our global supply chain and flexible cost structure, under the most difficult times. All of this gives us confidence in our strategic direction and our ability to continue to execute. The continued focus on our strategic direction remains central. And we are aggressively managing our operations during this unprecedented market environment. As shown on slide five, the rapidly escalating worldwide impacts of COVID-19 have adversely affected the global economy, our entire industry, especially our employees, suppliers, partners, customers, and the communities in which we operate around the world. I’m so proud of how our entire organization has responded to this crisis, locally and globally in extraordinary ways. The health and well-being of our employee base is our first concern, and we’re doing everything we can to protect them from the spread of the virus. Some examples of the extraordinary times in which we currently operate include that China reported a GDP decline of 6.8% year-over-year in the first quarter as the government shut businesses. This is the first decline in Chinese GDP since quarterly record keeping began in 1992. Globally, vehicle production in the first quarter dropped 20% year-over-year. And within our industrial markets, we also experienced a 15% decline in global market volumes in the first quarter, driven primarily by declines in China. Given that the response to the spread of COVID-19 came later in the first quarter for Europe and the US, we expect this slowdown to accelerate in the second quarter. According to the latest automotive production data released by IHS, global production for the second quarter is forecasted to decline 47% year-over-year, with Europe expected to decline 61%, China expected to decline 9%, and North America expected to decline 70%. Also according to IHS, for the full year 2020 global automotive production is now expected to decline 22%. In addition, a substantial decline in global GDP is predicted for Q2, which will impact our other end-markets. Despite these challenges, Sensata has demonstrated progress in the first quarter on our strategic goals for the year. We delivered significant end-market outgrowth despite substantial market declines. We are continuing to win new business and invest in opportunities that once were through this period of disruption will drive long-term growth for the company. Now let me discuss our performance by end-market for the first quarter of 2020. Overall volumes were substantially lower, and we reported revenues of $774.3 million, which represented an organic revenue decline of 10.4%. Slide six shows organic revenue performance by end-market for the first quarter. I’ll begin with our Heavy Vehicle & Off-Road business. HVOR posted an organic revenue decline of 10.7%, outperforming a 20% end-market decline. Our China on-road truck business continued to post better than expected growth, as a result of strong content performance driven by the adoption of NS6 emissions regulations. Industrial aerospace and other revenue declined 10.4% organically for the first quarter of 2020. Our aerospace business declined 2% organically, with continued content growth offsetting the grounding of flights, reduced production, and a roughly 6% market decline. Our industrial businesses declined 12.3% organically, driven by declines in China of more than 33% from extended pandemic-related shutdowns and a global industrial market slowdown of approximately 15%. Our automotive business posted an organic decline of 10.4% in the quarter. This was primarily driven by an end-market decline of 20%. The China automotive market declined 49% in the first quarter. However, strong content growth helped offset a significant portion of this decline. As facilities begin to reopen, and production ramps up in this region, we expect to see substantial recovery. In our North American and European automotive businesses, we saw meaningful revenue declines linked to our customers closing plants for the last two weeks of the quarter. Globally we still posted 600 basis points of market outgrowth. In addition, we saw OEMs primarily in China build inventory during the quarter, in part to ensure that they have supply when reopening their plants and ramping production. We estimate that could be approximately 310 basis points of growth coming from this inventory build, and we would expect this to unwind in the coming quarters. Despite the underlying challenges in the end-markets in the first quarter, we delivered significant revenue outgrowth, as shown on slide seven relative to our end-markets. Sensata serves high growth segments in all of our end-markets. Our competitive position is strong and sensor-rich solutions for efficient, connected subsystems, as well as cleaner and more electrified equipment. We have secured a significant number of new business wins in recent years that enable us to achieve secular growth and we are on pace to continue to outgrow underlying end-market production. Underlying most of our recent new business wins has been regulatory and consumer-driven trends towards safer, cleaner, and more efficient equipment, which are the fundamental long-term drivers of our business. Despite current end-market headwinds, we continue to demonstrate significant outgrowth relative to the end-markets that we serve in the first quarter, posting market outgrowth of 930 basis points in heavy vehicle off-road, 600 basis points in automotive, and 430 basis points in aerospace. The adoption of NS6 emissions regulations in China, and BS6 in India is driving significant new content for us with local HVOR in automotive OEMs. Similar to the EU6 regulations in Europe, these regulations are aimed at reducing emissions. To meet these regulations, OEMs are installing more advanced exhaust control systems that include our high temperature and differential pressure sensors. Similar trends in Europe and North America are driving strong market outgrowth in these regions as well. Moving to slide eight, I want to share some updates on key progress we are making in our megatrends initiatives. We continue to believe these investments will further our market diversification, increase our long-term growth rate, and provide important competitive advantages as these trends transform our world. Despite the impact of COVID-19, we see no evidence that customers are meaningfully slowing their investments in these areas. During Q1, we closed $15 million of new business with customers for sensing and vehicle area network solutions within our Smart & Connected initiative. This brings the total new business to over $90 million, with a further $75 million being quoted. We’re testing proof-of-concepts within Smart & Connected with some of the world’s leading fleet managers. Initial results of four active pilots demonstrate that our solution works very well in real-world environments, so far capturing more than 2 million miles of mission-critical data on trucks and trailers in our customers’ fleets in North America, providing them with information on vehicle readiness and reducing downtime and maintenance costs. On the Electrification front, we are expanding the products and solutions we provide, including those for critical applications for hybrid and battery electric vehicles, as well as other electric equipment, such as charging stations. During Q1 we closed $50 million in new business wins in the area of Electrification. As Electrification gradually increases its penetration, it represents an increased opportunity for our high voltage contactor, e-motor position, thermal management, and thermal runaway sensing offerings. The acquisition of GIGAVAC expanded our Electrification offerings into high voltage contactors and fast disconnect devices. We are quickly establishing ourselves as the premium standard for premium equipment, particularly for the most challenging applications with high current levels. During the first quarter, we began production of high voltage contactors in Aguascalientes, Mexico to facilitate growth with a new highly efficient production line. We are pleased with our demonstrated progress against these two initiatives, which offer important long-term diversification as well as significant new market opportunities for Sensata. I’d now like to turn the call over to Paul to review our first quarter 2020 results in more detail and to describe leading economic indicators that we track, after which I will provide some summary comments.

Thank you, Jeff. Key highlights for the first quarter as shown on slide 10 include, revenue of $774.3 million, a decrease of 11.1% from the first quarter of 2019. Changes in foreign currency decreased revenues by 0.7%. Excluding the impact of foreign currency, organic revenue declined 10.4% largely due to the impact of the COVID-19 pandemic. Adjusted operating income was $136.7 million, a decrease of 27.5% compared to the first quarter of 2019, primarily due to lower revenues, productivity headwinds from our manufacturing facilities running at significantly lower capacity, elevated costs to safeguard our employees, and local government restrictions, which altogether limited our ability to align our costs to the declining end market demand. Higher design and development spend to execute on new business wins and megatrend growth programs, as well as higher compensation costs to retain Sensata's top talent were mostly offset by savings from repositioning actions taken last year. Adjusted net income was $83.2 million, a decrease of 40.3% compared to the first quarter of 2019. Adjusted EPS was $0.53 in the first quarter, a decrease of 37.6% compared to the prior year quarter and slightly better than the decline in adjusted net income, due to the benefit of share repurchases. Now I’d like to comment on the performance of our two business segments in the first quarter of 2020. I will start with Performance Sensing on slide 11. Performance Sensing business reported revenue of $568.7 million in the first quarter of 2020, a decrease of 11.1% compared to the same quarter last year. Excluding the negative impact from foreign currency of 0.7%, Performance Sensing reported an organic revenue decline of 10.4%. Our Automotive business reported an organic revenue decline of 10.4% in the first quarter, but outpaced its end market by 600 basis points. In addition, organic revenue declined in each of our three major geographic regions. Our HVOR business reported an organic revenue decline of 10.7% in the first quarter, but outpaced its end market by 930 basis points, primarily due to sharp content growth in our China on-road truck business driven by the adoption of NS6 emission regulations. Performance Sensing operating income was $129.1 million in the first quarter of 2020, a decrease of 14.2% compared to the same quarter last year. Performance Sensing profit as a percent of revenue was 22.7% in the first quarter, a decline of 80 basis points for the same quarter last year. The decline in segment operating income was primarily driven by lower revenues, manufacturing facilities operating at significantly lower capacity, and higher design and development efforts to execute our new business wins and megatrend growth programs, somewhat offset by savings from repositioning actions taken last year. As shown on slide 12, Sensing Solutions reported revenues of $205.6 million in the first quarter of 2020, a decrease of 10.8% compared to the same quarter last year. Excluding the negative impact from foreign currency of 0.4%, Sensing Solutions organic revenue declined 10.4%. Revenue in our industrial business declined 12.3% organically in the first quarter, as industrial end markets declined 15%. Revenue in our aerospace business declined 2% organically in the first quarter, producing 430 basis points of growth above its end market, which declined 6.3%, facing OEM production delays and a weaker aftermarket. Sensing Solutions operating income was $55.9 million in the first quarter of 2020, a decrease of 25.4% from the same quarter last year. Sensing Solutions profit, as a percentage of revenue was 27.2% in the first quarter, a decline of 530 basis points from the same quarter last year. The decline in segment operating income was primarily due to lower revenues, manufacturing facilities operating at significantly lower capacity, and unfavorable product mix, somewhat offset by savings from restructuring actions taken last year. Corporate and other costs not included in segment operating income were $88.8 million in the first quarter of 2020, which includes a $29.2 million loss related to an intellectual property litigation judgment, which we intend to appeal. Higher compensation costs to retain and set our top down, and higher administrative expenses attributed to the higher corporate and other costs, as compared to the same quarter last year. Excluding charges added back to our non-GAAP results, Corporate and other costs were $47 million in the first quarter of 2020, an increase of $12.3 million in the same quarter last year, due primarily to higher compensation in administrative costs. Slide 13 shows Sensata’s first quarter 2020 GAAP results. Adjusted gross profit declined 17.2%, as compared to the same quarter last year to $243.9 million. The gross margins declined 230 basis points to 31.5%. The decline in gross profit and margin was primarily due to lower revenues, productivity headwinds from our manufacturing facilities running at significantly lower capacity, elevated costs to safeguard our employees, and local government restrictions, which altogether limited our ability to align our costs to the decline in market demand. We continue to increase design and development spend to execute on new business wins and megatrend growth programs, primarily in areas such as smart and connected, electrification. Despite the higher investment, R&D costs were down 1.8%, as compared to the same quarter last year, due to savings from repositioning actions and favorable changes in foreign exchange rates. Higher compensation to retain or incentivize our top talent was the primary driver of the $1.9 million increase in SG&A costs, as compared to the same quarter last year, representing a 2.9% increase. As a result, adjusted operating income was down 27.5% compared to the prior year quarter. Our tax rate as a percentage of adjusted profit before tax increased 410 basis points compared to the prior year, primarily due to jurisdictional profit mix. And finally, adjusted EPS was $0.53 down $0.32 or 37.6% as compared to the first quarter of 2019. On slide 14, during 2016 financial data, we provide a breakdown for the types of spans that make up our cost structure and their relative size to net revenue. The majority of our costs are variable in nature. The largest portion, which is material purchases powered by direct labor wages, rate and operating supplies. These types of costs scale directly with revenue and are reduced through continuous product design and cost productivity improvements. Some of the variable costs are comprised primarily of indirect salaries and benefits. Private spend, outside services, and utilities. These costs are more structural in nature and scale with revenue to some extent but require more specific management action to drive this outcome. These costs include items such as depreciation, facility leases, and licensing and support costs related to our enterprise operating systems. In the first quarter of 2020, we saw decremental margins higher than normal, as the COVID-19 pandemic restricted our operation and limited our ability to manage and align our costs to the rapid decline in demand and from our actions to protect our employees. Moreover, government mandates in certain locations required us to continue to pay our direct labor despite plant closures and freight costs increased dramatically as logistics supply chains were disrupted. We’ve taken a number of strong actions going into the second quarter to reduce our costs given the anticipated lower revenue. For example, as Jeff mentioned, we have reduced salaries for managers by 25% during the quarter and implemented furloughs across the employee base in line with regional and country-specific roles to achieve a similar savings across our indirect labor population. We are also closely examining all of our operating costs to ensure they are prioritized appropriately. We expect these actions to generate approximately $15 million to $20 million in cost savings during the second quarter. It’s also important to note that approximately 5% of our total operating costs are non-cash, such as depreciation expense, amortization expense, and equity compensation. In short, we are actively managing our business and cost structure to manage the impact of the operating challenges we are facing and the end-market declines we’re experiencing and anticipating, while continuing to invest in our people, our future, and to create increasing value for all of our stakeholders. Slide 15 demonstrates Sensata’s ability to manage down its net leverage and net leverage ratio, which has declined steadily from 4.6 times at the end of 2015 to 2.9 today, reflecting our strong cash generation and effective capital deployment. Having drawn down $400 million from our revolving line of credit on April 1, we enter the second quarter with $1.2 billion in cash on the balance sheet. We have substantial buffer to our leveraged covenants and our debt agreements, and the first outstanding maturity of our debt is not until October 2023 when the $500 million unsecured note becomes due. Consequently, we are confident about our liquidity position and our ability to manage through and adapt to the current market environment. Free cash flow was $69 million during the first quarter of 2020 or 83% of adjusted net income, which is a dramatic improvement when compared to 51% of adjusted net income in the same quarter last year. We are reducing capital expenditures by $45 million to $120 million to $130 million for the full year 2020 to further improve our financial flexibility. As announced earlier this month, we have withdrawn our full-year guidance as the negative impact of the COVID-19 pandemic on our business remains highly uncertain. However, based on current indicators of demand, revenue in the second quarter of 2020 will likely be down significantly from the first quarter of 2020. On slide 16, I show a number of economic indicators that we track to help assess future demand for our products and solutions. IHS is our primary source for information on future automotive production. Currently, they are predicting a 47% decline in global automotive production in the second quarter and a 22% decline for the full year. In addition, we track automotive plant closures and communicate routinely with our automotive customers to get alignment on future demand expectations, which strongly influences our view of the market. Each week of auto production in North America and Europe is worth approximately $25 million in revenue to Sensata. We estimate that during the second quarter, auto OEMs in these regions will shut down their production lines for an average of four to five weeks. For our heavy vehicle and off-road business, we use various production forecasts from third-party firms such as LMC to help us understand future production levels. For the second quarter, LMC is projecting a 60% decline in North America Class A production rates. We also evaluate economic indicators to gauge the health of our HVR customers and the markets they serve, and which we believe are strongly correlated to demand for our HVR products. These indicators include freight load factors, inventory sales ratios, building permits, industrial production, crop features, and farm machinery. Public statements from our large customers in the construction and ag sectors also help us form our view of the market. For our industrial business, we evaluate regional PMI data and forecasts for GDP and housing starts to develop a forward-looking view of industrial demand, given there’s a strong correlation with our historical industrial revenue. For aerospace, expectations for future OEM commercial and defense production and passenger miles flown are good indicators of future demand for our aerospace products and aftermarket services. In February, we expected a lower production and demand relating to COVID-19 will lower our revenue by $40 million and our operating profit by approximately $20 million in the first quarter of 2020. Those estimates proved to be insufficient as we experienced a drop in both revenue and operating profit of roughly twice of what we predicted as COVID-19 spread worldwide. Until we have a good sense for future levels of demand, it is difficult to accurately project revenue, operating profit, and other financial metrics. With that said, we will continue our efforts to align our costs to normalize demand levels that we anticipate to develop over the coming quarters while ensuring we are able to protect our employees and serve the needs of our customers.

In closing, I’ll echo Jeff’s comments that we are operating in unprecedented times. We’re fortunate that our employees are healthy and that as an organization, we have risen to meet the challenges this crisis has presented. While we cannot currently provide more comprehensive financial guidance for the remainder of 2020, we are all working diligently to ensure Sensata emerges from this time in a stronger financial position. I’ll turn the call back over to Jacob for summary remarks.

Thank you. Given the large number of listeners on the call, I’ll ask each of you to try to limit yourself to one question and then we’re going to circle back for follow-ups if time permits. Keith, please assemble the Q&A roster.

Yes, thank you. We will now begin the question-and-answer session. And the first question comes from Wamsi Mohan with Bank of America Merrill Lynch.

Yes. Thank you, good morning. Hey, Jeff, can you talk a little bit about how you view Sensata in this cycle versus the financial crisis, maybe talk about some of the things that have changed between the two cycles and maybe if you can contrast the peak or trough margin performance? I know you guys comment a little bit on decrementals being a little different. You know, what’s driving that? Thank you.

That’s great Wamsi. Thanks for the question. I think where we’re different is that we’re a more diversified business from both an end market geographic, and product category standpoint. So that’s an important area where we’re very different from where we were in ‘08 and ‘09. We’re obviously much less leveraged than we were in ‘08 and ‘09. Before our IPO, we were private equity-owned and we had a fair amount of debt on our balance sheet, a lot more than we have today for sure. I think the areas where we are the same are quite important. We still have a very variable cost model, our cash flow characteristics are very similar in terms of capital needed to drive our business. Paul went over the low amount of fixed costs in our business. And we also continue to focus on mission critical hard to do applications, so we’ve stayed very true to that which has showcased our overall margin profile. I think the other area where we’re the same is around our commitments to come out of this a stronger company and to do the things that we need to during this market cycle that will allow us to do that. So those are my thoughts on that one. I appreciate the question.

Hi, good morning. Thanks for taking my question. Jeff, I wanted to check in with you on the understanding of end market conditions at this point, but what kind of impact is that having on the launch cadence or launch plans for the back half given the current disruption, are you seeing any material slowdown there? And at the same time there is some talk about rollback and emission regulations in the US, are you seeing any other countries kind of follow the same path or likely to follow to ease the recovery? What kind of impact will that have?

Great. Well, I’ll hit this a little bit from a high level one, then I’ll ask Paul Chawla to give a little bit commentary in terms of what he’s seeing on the ground with his customers. I would direct you to look at sort of what we’ve produced in the first quarter in terms of outgrowth. That should suggest to you that, at least in the first quarter, and also my prepared comments around our confidence associated with continued outgrowth for the balance of the year, around the nature of how our customers will launch new platforms. We’re not seeing them change their perspective on this. And we’re continuing to feel very confident. There may be some push outs a month or two or three, associated with folks’ inability to collaborate or do things that they normally would, but we’re not seeing any meaningful change in terms of the long-term outlook. I’ll let Paul Chawla address the question associated with emissions regulation push outs and other factors that you mentioned.

Thank you, Jeff. Good morning. This is Paul Chawla. As Jeff correctly said, we are not seeing any major change on the landscape in front of us. In China in Q1 we had still very strong pull for National 6 content and that carries on happening. We are seeing the same in India for BS-VI. And also in Europe, despite their discussions of some delays around the CO2 potential penalties the industry will have to pay. Even though there are some delays, we’re not seeing anything in launches or content. Some model years, facelifts of vehicles and platforms could be shifting by two to six months. But especially in the electrification area, we’re still seeing very strong pull and business is normal.

Yes, thank you. Understanding you’re not providing specific guidance, but looking at kind of adjusted operating margin of 17.7% last quarter. Anything from a range that you’d expect in the coming quarters in terms of just kind of puts and takes us to think about the adjusted operating margin?

So, Paul Vasington, if you wouldn’t mind hitting on some points about that, that’d be great.

Sure. I think the big point here that we’ve made in the prepared remarks is the fact that we’re taking actions to reduce our cost structures through pay cuts, furloughs and watching our operating expenses, reducing any discretionary spend that’s not critical. And that’s what we’re making in Q1 – I’m sorry in Q2. As we look forward, we’re going to continue to look to align our cost structure to the anticipated demand that we’re going to see applying all the same tools, and maybe other tools to achieve that outcome.

Thanks for taking my question. I guess, maybe a comparable question, but on the revenue, so when I think about June quarter revenues, your – to your point, we can see what RSS production numbers look like on a year-over-year basis. What are the puts and takes to that as we go forward? And very specifically, a lot of your peers have talked about June being the trough and revenue starting to improve post that, would you endorse that belief system at this point?

Yeah. Amit, great question. Based upon what we’re hearing from third-party forecasters and some of the quotes that we provided, for instance, in the automotive market, given that Q2 is forecasted to be down so dramatically and the full year is clearly expecting a recovery from the Q2 rate. Obviously, we look at those third-party forecasts, we talked with our customers. If you look at the specifics around what’s happening in the second quarter associated with our customers, many of them are shutting down for a lot of quarters, four or five or six weeks, their production will be down. And so unless we see continued impact associated with quarantine measures, which force our customers to continue those, we would expect things to recover. I think the big question that relates back to the question that Craig asked, which is what is the normalized demand profile, and obviously we’ll be looking to align our cost structure to that, as opposed to a more depressed outlook in terms of any given quarter. So that’s sort of what we look at that, that would be our view as well that Q2 would be the lowest based upon where the third parties are forecasting, and we’ll continue to monitor that activity, as well as engagement with our customers still rates and so forth to better judge will come out of Q2. Thanks for the question.

Yes. Good morning. And thanks very much for taking the question. I was hoping if the company can provide an update on recent order trends that you’re seeing globally, and then also if you could specifically comment on what’s inside as seen in China in terms of orders and how the orders in China are comparing to pre-COVID levels.

Mark, thanks for the question. So I’ll give some very high level commentary regarding orders and then I’ll ask Vineet Nargolwala to amplify a little bit in terms of discussions with customers. I think from - I think you all know we tend to quote fill rate in the quarter. And what we’ve determined is fill rate given customers are shut down and their attention is on other matters, other than their fill rate that’s not a very reliable measure for us right now. And we’ve been working with them to manage through that. But certainly, you can see that because we built inventory or our customers built inventory in the first quarter, some of that is due to them building inventory to make sure they’re ready for recovery, some of it was EDI seeds and so forth that didn’t get shut off because their response didn’t happen quick enough. This was a very significant decline in a very short period of time and so the response rate took some time. Vineet, why don’t you provide a little bit more color in terms of what we’re hearing from our customers?

Sure, Jeff. Good morning, everybody. This is Vineet Nargolwala. So we are seeing China come back to normal though the export markets out of China continue to be challenged. Our customers in North America and Europe continue to be in various stages of lockdown, with plans of reopening their plants in a phased and gradual manner. We are also seeing significant disruptions in the overall supply chain, which is also affecting our customers' production plans. Despite this, we continue to be very engaged with our customers in terms of understanding the state of operations, and ultimately demand. As we think about our order books, especially in the industrial markets, they’re continuing to be pretty stable relative to our historicals. But what is not clear is how the demand shapes up once our customers come back and what is the follow-on demand trends look like. From an inventory standpoint, we are seeing some levels of inventory buildup in the channel as some customers took product to be ready for when the plants reopen. We expect that will draw down over the following quarter, as the plants reopen and the normalized demand pattern comes into view. But we continue to work with our customers on new business opportunities and providing them support to till their clients as they come back online.

Hi. Good morning. A quick clarification, and then a long-term question. The 600 basis points of outgrowth, does that include any of the benefits from the pre-buy activity or is that adjusted? And then second, just wondering if you’re seeing any kind of market share opportunities here during this downturn either other suppliers are unable to fulfill demand or some sought out executing in that maybe you can see some incremental outgrowth as we come out of this recession?

Yes. So let me hit on the market share question and then Paul Vasington can touch on the outgrowth. You know from our business that share doesn’t shift dramatically, we’re a long-cycle business. We’re designed into applications with our customers, and there’s a lot of engineering work that’s done to allow our products to enable the functionality and the systems that we go into. So share shift tends not to happen dramatically. In most of our end markets, there are some small pockets of our end markets that we serve where there is more shorter cycle, where there’s an opportunity to shift. I think the key here that we’re observing is that during these difficult times, customers look to the financial stability of their partners. And they look to whether or not we’re weathering the storm with them. And that’s what allows us to continue to build these longstanding relationships over a very long period of time, and customers remember that. And so we’ve been around for 100 years as a company, we’ve established these relationships for decades with our customers. And we’ll continue to do that, no major shift in share, but certainly the more we work with our customers through these tough times. We’ll put the thumb on the scale in terms of who they pick for their next opportunity, so that’s what we’re viewing as the biggest opportunity, work with them and they’ll continue to choose us more frequently than others in terms of opportunities. Paul, you want to hit on the outgrowth question?

Yeah. Quickly the 600 basis points of outgrowth and automotive does not include building inventory, but the building inventory would be incremental growth and that occurred mostly in China and a little bit in Europe.

Hey, good morning. An automotive question for me, Jeff, can you talk through the pre-buy 310 bps outperformance. That seems to indicate no more than 700,000 vehicles equal, is that even – is that math, even right? Can you help us provide your updated PPE and, relatedly, I think he indicated roughly a 3 million vehicle pre-buy work, I mean that itself was a rough estimate by the way, but can you help bridge that difference between the 3 million versus maybe 700,000 vehicles and maybe is that all driven by a product category of sensors or maybe your supply base being overweight in China, which itself had production hiccups in the quarter et cetera, anything - any color on that is helpful? Thank you.

Sure. Let me try to hit this high level and then if Paul – I get anything wrong in terms of what you’re seeing, please correct me or amplify it. So let me quantify first the magnitude of the inventory that we’ve observed and so this is a little bit. It’s not precise, right because we’re looking at production levels across a wide range of mix of customers geographically in at customers and we’re comparing that actual production to what our revenue look like, right? So we’re not getting specifics associated with we’ve built x amount of inventory. We’ve forecasted that to be about $20 million to $25 million of inventory build, so not a huge amount. Right? This 400 basis points of the automotive market that that Paul Vasington mentioned. We’ve also believed that that’s largely in China. And so when you look at the content per vehicle in China, which is about half of what it is in Europe and North America. That translates to about a million units. But again, it may not have ended up in vehicles, it might have just been in raw material or inventory at our customers, so they could continue to be ready to expand. And so those would be my thoughts. Maybe Paul, you could connect this to sort of what we’re seeing in terms of end market inventory days and the various markets that we have across the world.

So Paul Chawla here. We are seeing some inventory increases in China. It is on the slight to the higher side with respect to the quantity run rate we’re used to, but we do believe that will dilute over the next six months. North America inventory has also gone up, but it’s not on the highest peak level where it’s been historically at 4.1 million units. And again that’s been due to reduced morbidity of consumers and sales that have slowed down in the last six, seven weeks. So they - as Jeff I think correctly said our customers have been adopting mixed strategies around being ready for a comeback not knowing exactly when that will be in place, and making sure that in case the supply chain is disruptive, they had enough to start up with. We do believe that these peaks of inventory both at our customers in the dealerships and on the raw material side are going to dilute back as production comes through in the next two quarters.

Thanks. Good morning. I just - a little still a little confused by the China comments. But you’ve talked about, you know, sort of trying to return to normal from a production standpoint, but relative to where production is say today or last week. What does that mean relative, you know, in terms of demand? It seems like you know there’s a lot of inventory questions you’ve raised. And even though the factories can produce, it doesn’t seem like they’re producing a pre-Chinese New Year normal. So if he could just, sort of, help us understand that a little bit, I appreciate it. Thank you.

Yeah, that’s a good question. So, March was quite strong in China, and Paul may have the exact number in terms of specific to the automotive market, but we saw things come back pretty strong across all of our end markets in March. That’s a very good indication in terms of where we think Q2 is going to be. Obviously, what we’re looking at a number of other factors in terms of customer orders there, we’re looking at just the flow of people as you know we have significant presence both from a manufacturing standpoint, but also from, also from a business and engineering standpoint, on the ground in China. And by no means are they back to normal, but they’re certainly significantly advanced from where we are. We’re also seeing some incentives I guess is what you would call it, but in the form of relaxing rules around license plates and other things that are issued in major cities to incent more purchases. There are a number of other government incentives that are in the works, none of which I’m aware of that has launched yet but certainly when they relaxed regulations around where vehicle license plates can be issued, you can imagine that has a pretty strong impact on the overall demand. So listen, we’re not calling it out of this in China yet but certainly when we look at China versus other markets that we serve, it seems to be much more robust than what we’re seeing. Paul or Vineet if you have anything, you’d like to add to this, please do?

Just two points here. You’re right, retail year-over-year was down but definitely March was better than February. Wuhan, the dealership sales reopen, and actually the local team is turning out there, there’s some good sales pick up there. We’re monitoring two factors as Jeff said one is the local incentives, government incentives and dealership incentives. But also a potential trend where consumers now post-COVID could be using less public transportation and prioritizing again, an individual means of transportation. So those are two things we’re watching and whether they should bring back a stronger demand over the next three quarters.

Yes. Thanks and good morning. I wanted to just ask about the aerospace section. I know that’s a relatively small segment for you, but you’ve had nice mid-single-digit growth for the last few years there. And obviously, we’re seeing a big impact on demand in terms of what’s going on there. And your peers are also talking about really not seeing any signs of recovery anytime soon there. So could you talk about your footprint there and what you’re seeing, Jeff?

Yeah. So, then I’ll give some very high level and then Vineet, who runs this business can give a little bit more color. It’s always great when you have a business that has a date or 10-year order book, but it is also an end market that’s quite troubled right now. The passenger miles are weighed down in all end markets. China has recovered again not to keep going back to that, but China/Asia more broadly, has recovered back to, I believe somewhere around 50% of pre-COVID levels, whereas Europe and North America are down still vary dramatically and we’re looking very closely at what the longer-term impact would be associated with where we might be able to serve this market as it comes back, enhanced environmental systems on planes, and so forth that might be opportunities. But Vineet why don’t you provide a little bit more color on terms of the order book and what we’re seeing if you would.

Sure, Jeff. Hi everybody, this is Vineet again. So our aerospace business, we have three broad segments: one is commercial OEM, the second is defense and military, and the third is aftermarket and maintenance and repair operations or MRO. Our Defense and Military business is actually holding up pretty well and we’re seeing pretty strong resilience in that segment. As Jeff pointed out, it’s a long-term type of business from a commercial OEM standpoint, we’ve got a very strong order book. And we’re supporting both the major airplane manufacturers and the tiers. So far, we haven’t really seen a major impact to the order pattern in the commercial OEM space, other than what was already well known around the Boeing 737 MAX challenges, and I think that’s pretty public in terms of what’s out there. That was already factored into our plan. We are seeing an impact to our aftermarket business as flight hours come down dramatically. There is less need for spares and maintenance, and so we’re seeing an impact to our aftermarket segment. But I think broadly speaking, we continue to monitor and work very closely with our distributors in that space, as well as with our tiers and the commercial volume space to see if there are any changes to our long-term demand here. Thank you.

Thanks, good morning. I just wonder if we could circle back to maybe some of the factors that help explain the detrimental margin differential between Performance Sensing and Sensing Solutions in the quarter. Are there major differences in variable costs? Is Sensing Solutions more automated? And you also seem to be indicating that detrimental margins could be worse in the second quarter, maybe you could give a sense of what the last two weeks of March looked like as a guidepost for how to think about that?

Yes. So, there are differences between Performance Sensing and Sensing Solutions. The cost structure performance as well as the higher the variable costs a little bit higher. Variable costs in service business is lower. So the profit drop out on volume, we’re not able to try – not able to mitigate or influence those changes, has a bigger impact and so we laid out on the slide deck page to try to switch down lower variable, semi-variable and fixed costs. Variable costs move with volume. But we also have a year working to take those costs out through the product designs cost productivity initiatives and we’ve been very successful in the years in the past and continue – and will continue to be in future. The semi-variable piece is what we really target in terms of real productivity improvement around structural changes. And that takes time to do. It requires management to engage on productivity initiatives. And in this environment we’re struggling with being able to do that with the restrictions in terms of our operating conditions, the incremental costs that we’re incurring to safeguard the employees, disruption we’re seeing in the supply chain, and the duplicate salaries that we’re paying with a plant to – or I should say, the price we’re paying with the plants are closed, all those types of things are driving our costs higher and preventing our ability to drive the same level of productivity that we normally do, and that’s why you’re seeing the bigger dropout. The Sensing Solutions business also has some mix headwinds in the quarter, and we typically don’t see given a significant drop out in some of the higher margin industrial businesses, as well as in our heavy vehicle business. So hopefully that explains it. We tried to lay it out in the slides, provide some greater transparency of what we’re seeing in terms of the depth – the reduction in the margin rate on the volumes that were – declines that we’re seeing.

Yes. And Paul let me add a little bit on a point that I think Joe was getting at as well around Q2. We want to align our cost structure to more normalized run rate. If we – I think we’re hearing from every company that’s recording that Q2 is going to be tough sledding in terms of demand profile. But I don’t think anybody’s forecasting that Q2 levels are long-term normalized levels. And so I think you’re reading in correctly that as we look at Q2 and as we think about ways to align the cost structure in the business, we’re thinking about what that more normalized level would look like and I don’t think at this point we’re calling Q2 as a normalized level. But certainly there is a new normal in terms of where we entered the year versus where we think we’re going to end the year, but Q2 seems like it’s more negative than where we would expect the balance of the year, and that’s evidenced by obviously a lot of the third-party forecasts as well. Thanks for the question, Joe.

Yes, in your - in going, kind of, opening, you talked about coming out stronger. Can you tell us, are you seeing any – are you thinking about once the business stabilize M&A opportunities, your balance sheet reports are next leverage, obviously, if you could give if that’s going to deteriorate, it may limit cash sales, but you certainly have a stock that held up better than many. So is that something we can think about over the remainder of the year?

Yeah, absolutely. So we’re going to definitely aim to keep the pipeline full. As I think everyone knows there’s always a period of time, when there’s a market dislocation like this where buyer expectations align much more quickly than seller expectations, so you’ve got to go through an equilibrium process there that will eventually occur. But there are a number of things in the pipeline of varying sizes, but I want to be very clear there’s nothing that’s huge in our pipeline right now. That doesn’t mean that we won’t identify opportunities over the coming quarters where we will pursue opportunities, but the pipeline is more bite-size bolt-on type M&A related activity that I think it’s in our best interest to continue to pursue those to look forward to where the business is going. But at the same time, make sure that we’re doing the right thing around financial flexibility on the business. So clearly there’s been a slowdown more broadly in M&A related activity, we’re continuing to work very diligently on the pipeline and we’ll monitor it and keep you posted.

Okay, thanks. And can you do type deals with stock?

With $1.2 billion in cash available to us with a very strong financial position, we think that that’s the preferred currency in terms of what we would do with smaller deals. We don’t see our stock at this point as being the currency that we’d need to go to for deal activity.

Hi, good morning. Just quickly, could you provide some color on your supply chain, if you’re seeing any significant disruptions there and how you’re navigating the volatile environment with your supplier?

Yeah. So absolutely, the supply chain has been disrupted. The team has just done an absolute fabulous job of engaging with all of our supply chain. Vineet and Paul have provided commentary in terms of how we’ve been, we as suppliers to our customers and partners to our customers have engaged with them. And we’re doing the same thing with our suppliers. They’re all dealing with the exact same issues that we are. We haven’t had any significant changes in terms of our terms, so we haven’t had any large suppliers that have called us looking for financial assistance. Now that’s not to say that we won’t see that. But we’re, we’re going to make sure we do everything possible to maintain our very critical supply chain intact. And we’ve been navigating shortages of parts as we’ve continued our essential activity. But we’ve been able to manage through it quite nicely due to a lot of work on the part of the teams around the world to make sure it happens. But there’s been disruption there. And as well and Paul mentioned the logistics supply chain has been dramatically disrupted a large portion of logistics transport is in the belly of passenger jets, and with that down dramatically, we’ve navigated that aspect of it as well as trying to shift to other modes of transportation that would be more appropriate given the circumstances.

Hey, guys. Thanks for taking my questions. Just first I just wanted to clarify something real quick if you could. You mentioned the narrow business, the Defense the OEM, and the aftermarket if you could just break those down into like how big they are relative to the total aero. And then my question is, given just given the final assembly nature and how about your product and their cost nature. So what does that mean in light of social distancing in future from here, like it is just a menu and ideas that came through, is it shift your view like normalize decremental and ability to put through capacity in the facilities? Thank you.

Sure, Joe. So the way to think about our business is we’re roughly a third, a third, a third with commercial OEM, defense, military, and then our aftermarket and MRO business.

Thank you very much, Jeff, I just have one question. Some of the OEMs have talked about working back down the supply chain to get more cost efficiencies or pressuring prices for some of our suppliers. I’m just wondering, does that reach back to Sensata a little bit or just like dollar content for automobiles and trucks and vehicles just such a small part of the build materials that it doesn’t hit their radar screen? Thank you.

Jim. So, I think folks know that our contracts with our customers often have volume-related requirements associated with us. And they also have commercial concessions that we’ve contracted long-term. Now, granted, in a very difficult environment, every company is looking for its partners to work together to figure out to get in a win-win, so that we can all navigate through this. We have historically been able to and we would expect to continue to be able to navigate that quite well. Certainly, we’ve made concessions with customers in terms of getting them product when they need it, based upon the disruption that they’ve seen in their business working with them through that in terms of the drop out of their order rate. That was within a quarter fence frozen order fence that technically we could have contractually forced them to take the inventory, but we didn’t believe that was the right long-term answer. But in terms of the economic arrangement we have with our customers, we haven’t seen significant impact there historically when we see significant volume drops we’re able to do fare reasonably well from a financial standpoint in our customer contracts. Appreciate the question, Jim.

Thanks for taking the follow-up guys. I guess two quick ones. One, it was really focused on these detrimental margins that you guys are seeing in March quarter, is really Paul, perhaps slicer say what it would look like if this was a normal revenue delivered versus the incremental headwind you had from back to that you couldn’t control your restraint and controls by governments in place. I don’t know if there’s a way to slice those two numbers that would be great. And then maybe I missed this but free cash flow expectations for June quarter as well? Thank you.

Paul, do you want to take that?

Yeah, sure. Thanks for the question. So in the past, our drop out on volume was closer to in the 30% to 40% range depending on the different product lines in which they were moving up and down. The drop off that we’re seeing now, as I mentioned earlier, is just much more dramatic, given the restrictions that we’re seeing in the plans, the disruptions we’re seeing in the supply chain, the higher costs were elevated costs were incurring to protect employees to deal with disruptions to not know the social distance and the inability to have the plants running at the full level of capacity. All that is creating a whole bunch of disruption that is unusual, is driving the drop through in our revenue decline at a bigger percent and so that’s why you’re seeing that significant volume profit drop for the sake of volume decline that would be unusual given our past performance and experience. As sort of things begin to normalize, we will be able to manage those costs more effectively. We’ll be able to do more structural changes when we are able to fully operate the plants and the sites as we have done historically.

And on the free cash flow question, we did not provide guidance on Q2 for free cash flow but from a qualitative standpoint, the transparency around our cash structure, excuse me, our expense and cost structure, hopefully will be helpful there and we have a very keen focus on making sure that we manage our working capital. And we’ve taken a number of steps that will reduce our cash cost to the business in terms of the furloughs and the pay cuts and so forth on the indirect side, essentially, reducing that cost structure by about 15% on a net benefits basis because obviously when people take pay cuts they’re still the benefits side of the equation there. And so we’re focused on making sure that that we manage cash flow very aggressively during the second quarter, given the disruption that we’re seeing. Thanks for the question, Amit.

Yes, thanks for taking the follow up. Just to follow up on your comments Jeff on free cash flow, you noted both lower CapEx and managing working capital at any way they give us some guide rails around those cash conversion cycle maybe as we go through the course of the year and also, I don’t know if I missed this but can you give us some sense of the utilization rate so if you’re manufacturing sites in China now things seem to be more normalizing over there versus out of China. Thank you.

Yes, great, so I’ll hit the utilization question and then Paul if you could hit the cash flow point. Utilization obviously varies very dramatically around the different locations around the world. In China, I would say we’re running at about 70%, 75% utilization but at other locations around the world we’re running quite significantly lower than that. But I would say that in our larger sites, everything’s running at about 50% or better, and then some of our smaller sites where there hasn’t been as much of a demand. In Q2 we see instances where it might be a little bit lower than that, every one of our sites is operating at some level of capacity. And again, we’ve been working with local governments to make sure that we run at the rate that our customers need us. So we’re going to do everything we can to make sure that we deliver raw demand and we don’t see a supply chain disruption and an impact on revenue that’s caused by us. Paul you want to hit the cash flow point.

Sure. Wamsi, the cash flow was pretty good in Q1 that we talked about that $69 million of free cash flow in Q1, the rate was high, it was 83% which is very good. So far customers, we’ve been engaging with customers, they are paying on time. We’ve haven’t seen any major disruptions in terms of collections and receipts. And so, as it stands now, things feel pretty normal. I think DSO was about - was in the low 60s for the quarter, so things are progressing fairly normal on that front.

Thank you. Yes, that’s all the time we have for questions right now. We’d like to return to Jacob Sayer for any closing comments.

Thank you. I’d like to thank everyone for joining us this morning. Sensata will be participating in the upcoming JPMorgan TMC Investor Virtual Conference on May 13. Thank you all for joining us this morning and for your interest in Sensata.

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.