Good day, and welcome to the Sensata Technologies' third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata, and I would like to welcome you to Sensata's third quarter 2025 financial results conference call. Joining me on today's call are Stefan von Schuchman, Sensata's Chief Executive Officer, and Andrew Lynch, Sensata's Chief Financial Officer. In addition to the financial results press release we issued earlier today, we will 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 will post a replay on our Investor Relations website shortly after the conclusion of today's call. As we begin, I would like to reference Sensata's safe harbor statement on slide two. During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that can involve certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our forms 10Q and 10K, as well as other filings with the sec we encourage you to review our gap financial statements in addition to today's presentation much of the information that we will discuss during today's call will relate to non-gap financial measures our gap and non-gap financials including reconciliations are included in our earnings release in the appendices of our presentation materials and in our sec filings stefan will begin the call today with comments on the overall business Andrew will cover our detailed results for the third quarter of 2025 and our financial outlook for the fourth quarter of 2025. Stefan will then return for closing remarks. We will then take your questions. Now, I would like to turn the call over to Sensata's Chief Executive Officer, Stefan von Schiffman.

Thank you, James, and good afternoon, everyone. Let's begin on slide three. Before we get into the third quarter results, I'd like to start today by briefly reflecting on what we have accomplished so far this year and where we are in our transformation journey. In our first earnings call after I joined SunSight at the beginning of 2025, I outlined the transformation ahead of us built around three key pillars. Operational excellence, capital allocation, and a return to growth. In each of our subsequent earnings calls, we provided updates on our transformational journey framed around these three pillars. I've been pleased with the incremental progress in each of these quarterly updates. The Q3 results we are reporting today, we have reached a significant milestone in our transformation journey. While we have more work to do and plenty of challenges ahead, our exceptionally strong Q3 results give me confidence that we have meaningfully improved our core business. our emphasis on operational excellence and margin resilience has positioned us to overcome challenges such as tariffs and end market volatility our laser focus on free cash flow and optimizing capital allocation to reduce net leverage has been successful and we are now well ahead of our net leverage and cash conversion targets as a result earlier today we commenced cash tender offers to purchase 350 million dollars of our long-term debt finally with respect to growth we've conducted a thorough assessment of our product portfolio production capacity and growth investments and we are taking action to position our business to maximize the benefit from secular tailwinds i'll now share some additional color from the third quarter through the lens of our key pillars. Our Q3 results represent a compelling proof point in the progress we have made on operational excellence. The third consecutive quarter, we delivered on expectations, reporting results at or above guidance ranges. Third quarter, adjusted operating margins and adjusted EPS both expanded sequentially from Q2 despite seasonally lower revenues. We are on path to expand the full-year adjusted operating margins on a year-over-year basis, excluding the dilutive impact of pass-through revenue. This is yet another compelling proof point in the progress our team has made with our 2025 full-year outlook standing in sharp contrast to the preceding three years when our business experienced year-over-year contraction in adjusted operating margin. Now, let's turn to slide four, and I will discuss cash flow and capital allocation. Our near-term capital allocation strategy is simple. We're focused on rapidly deleveraging our business. While we are comfortable with our balance sheet, we believe that reducing leverage to a level more consistent with our peers removes a potential barrier for some investors, making since out a more compelling investment our operational excellence pillar has been a key enabler of this strategy as we optimize working capital and improve free cash flow conversion after converting free cash flow at above 90 percent of adjusted net income last quarter we made more progress in the third quarter with conversion now exceeding 100 percent As a result of our strong free cash flow generation and strong cash position, $791 million of cash on the balance sheet as of September 30th, we're taking decisive action to deploy capital and retire debt. Today, as I mentioned, we commenced cash tender offers to purchase $350 million of our long-term debt more information about these cash tender offers can be found in the press release that we issued on this transaction earlier today discipline around our capital expenditures and reducing the capital intensity of our business has been a key driver of our progress toward improving cash flow conversion and we are acting on these priorities without compromising on growth in fact as we look ahead towards growth we have studied past capital allocation to ensure we are making the right investments going forward on our july earnings call we defined a three-part framework through which we would evaluate growth allow me to recap that again here today first we'll stick to our core product technologies with sensing and electrical protection Second, we'll prioritize platform-driven applications with an emphasis on regulated or mission-critical sockets. And third, we'll focus on our key markets, prioritizing those with secular tailwinds and ensuring appropriate diversification. We will continuously evaluate our product portfolio using this framework, and where we identify areas where it is necessary to shift our strategy, we will be decisive. In our Dynapower business, which provides microgrid power inversion and rectification, it has become clear that the investment thesis and strategic plan around clean energy no longer offers the most compelling growth factor for this business as government policies have shifted and investment has slowed. That said, we do see other areas where Dynapower aligns to our growth framework, specifically in applications where grid stabilization and redundant power supply are mission critical such as defense and data center power delivery accordingly we have recast our growth plans for this business enabled by a more focused strategy we believe this provides more compelling long-term growth with higher certainty of outcome however due to recent changes in clean energy policy and the anticipated slowdown in the clean energy sector was necessary to reevaluate the book value of this business today as a result we recorded a non-cash goodwill impairment charge in the third quarter which andrew will discuss in more detail in a few minutes now let's turn to slide five and i'd like to take a moment to highlight some the recent additions to our executive leadership team as we embark on the next phase of our transformation journey. I'm pleased with the momentum we have built in our business through our operational excellence pillar. Not only have we delivered on our quarterly targets, we have done so with demonstrable margin resilience as we continue to perform in the face of multiple challenges in our end markets. Given the relatively short period of time in which we have made this progress it is clear that our most significant opportunities are ahead of us at this juncture it is imperative that we install the right leadership to ensure that we continuously unlock value by optimizing our cost structure streamlining our production network and serving our customers well in the form 8k that we issued along with our earnings press release today we announced that Nicolas Bardot will join SASATA, effective November 1st, as Chief Operations Officer. Nicolas has more than 20 years of operations leadership experience, including supply chain optimization, manufacturing excellence, and leading transformations, which would be a tremendous asset to SASATA, as to strengthen our global operations footprint to meet the needs of changing and dynamic markets. Most recently, Nicolas served as division operations officer at ZDF Commercial Vehicle Solutions. Previously, he held leadership roles at WEPCO, including chief supply chain officer and vice president of sourcing and purchasing. His accomplishments include leading several organizational transformations and applying innovative technologies to achieve measurable productivity and quality gains. With operations on solid footing and with accelerated progress on our capital allocation pillar, we're now ratcheting up the intensity of our focus on our third pillar, returning Sensata to growth. This too requires experienced leadership. Earlier this quarter, we announced that Patrick Hertzke joined Sensata as our chief growth and transformation officer Patrick has extensive automotive and industrial experience both in industry as well as at McKinsey and Company where he was a partner in the automotive practice. During Patrick's 13 years at McKinsey he led projects including go-to market strategy enterprise transformations and AI technology strategy. We also announced today that Shaki Chen has been promoted to Executive Vice President and President of Sensata China effective January 1st, 2026. Jackie joined Sensata in January 2024 as Vice President and General Manager China Automotive and has been instrumental in positioning Sensata to re-win market share and increase the localization of our business and supply chain. In his expanded role, Jackie will have P&L responsibility and primary management oversight of all of Sinsada's business in China. Jackie's promotion underlines the importance of succeeding in China, and he has demonstrated that he is the right leader. Under Jackie's leadership, our automotive business in China has returned to outgrowth with double-digit growth over market in the third quarter, and 90% of our new business wins this year have been with local OEMs. Now, let's turn to slide six, and I will discuss some recent product innovations that will drive growth across multiple end markets. We previously mentioned that we were first to market with a tire burst detection solution for a vehicle stability control application. We continue to make progress here, and we have now secured business with two leading Chinese OEMs. We're proud to see our tire burst alert feature gaining traction in the market and becoming a trusted component in vehicle safety strategies. These wins highlight a common theme. As vehicles become more intelligent, so must the systems that support them, giving us a clear roadmap for how to expand content and win new business. Looking ahead toward the median term, it's clear that our path to expanding content will driven by meeting the global shift towards sustainable mobility with smart impactful solutions one such example is our high efficiency contactor which simplifies ev charging by enabling vehicles to work seamlessly with both 400 and 800 volt architectures as 800 volt vehicles launch in markets where the charging infrastructure is predominantly 400 volts our contact enables enables a switchable architecture. This product was recently recognized as a finalist for EV charging innovation at the 2025 battery show in North America. As we have discussed on past earnings calls, global regulations are acquiring more sustainable refrigerants in HVAC systems. And with that, demand for reliable gas leak detection is accelerating. Our ATL sensor is helping customers across key markets detect and manage refrigerant leaks with speed and precision. By supporting compliance and improving system performance, this solution is becoming a trusted part of HVA platforms. We have recently secured two customer agreements, solidifying our market leadership position for the next several years. As additional customer programs are awarded in the coming months, we foresee this business accelerating to more than $100 million of revenue in the near future, and we see expanded opportunities outside of the United States in the years ahead, making this product a potential growth driver for many years to come. Finally, as we look more broadly at secular trends, we expect our aerospace business to emerged as a meaningful growth engine for SunSADAR going forward. SADAR's proven capability in this space and a clear right to win as we have been selling into the defense sector since the 1940s. Looking ahead over the next decade, U.S. and allied nations defense spending expected to increase significantly from $1.7 trillion in 2025 to $2.8 trillion in 2035. The vast majority of this spend is expected outside of the U.S., primarily driven by EU defense spending. Given our global footprint and deep business relationships in Europe, we are focused on winning our share of this growth. While I'm excited by the additions to our leadership team, I would also like to acknowledge the exceptional progress from the Holston SADA team. collectively we embraced our three pillars approach and ready to bring forward and build initiatives around these pillars we have worked relentlessly in pursuit of value creation guided by the pillars and enabled by the initiatives that underpin them and we are getting results we have turned a corner on financial performance consistently meeting or exceeding our plan and delivering on our commitments we have unlocked free cash flow and meaningfully accelerated our capital allocation strategy and net leverage is improving and we return to market outgrowth in the third quarter with our automotive business outgrowing global vehicle production by approximately one percent hvr outgrowing its end market by approximately five percent and our sensing solutions business delivering organic revenue growth of two and a half percent with approximately one percent outgrowth in industrials while aerospace were approximately two percent roughly in line with the market with that i'll turn the call over to andrew to provide greater detail on q3 financial results market outlook and our guidance for the fourth quarter thank you

Stefan, and good afternoon everyone. Let's turn to slide eight. We delivered another strong quarter in Q3, once again achieving results that exceeded our expectations across all of our key metrics. We reported revenue of 932 million for the third quarter of 2025, which exceeded our expectations due to stronger global auto production amplified by our return to outgrowth. Third quarter revenue of 932 million represented a decrease of 51 million or 5.2 percent as compared to 983 million for the third quarter of 2024 primarily due to our previously discussed divestitures and product life cycle management actions on an organic basis revenue increased approximately three percent year over year we delivered adjusted operating income of 180 million and adjusted operating margins of 19.3%, which is up 30 basis points sequentially from the second quarter of 2025 and up 10 basis points year over year. Our adjusted operating margins were diluted by approximately 20 basis points due to $12 million of zero margin pass-through revenues related to tariff recovery. Excluding the dilutive impact of tariff pass-through, third quarter adjusted operating margins increased by 30 basis points year over year tariff pass-through revenues did not meaningfully impact sequential performance as we recorded approximately equal levels of tariff costs and pass-through revenues in both the second and third quarter of 2025 adjusted earnings per share of 89 cents in the third quarter of 2025 increased by two cents sequentially from the second quarter of 2025 despite seasonally lower revenues as we delivered on our margin expansion plans adjusted earnings per share was flat with the third quarter of 2024 on lower revenue free cash flow generation has been a primary focus for us this year and our improvements accelerate our capital allocation objectives i am pleased to report that we delivered free cash flow of 136 million in the third quarter which was an increase of approximately 49 percent year over year This represents an exceptionally strong conversion rate of 105% of adjusted net income, an increase of 14 percentage points compared to the second quarter of 2025, and 37 percentage points compared to the third quarter of 2024. for. Now, let's turn to slide nine and I will discuss capital deployment. With our strong free cash flow, we reduced net leverage to 2.9 times trailing 12 months adjusted EBITDA compared to 3.0 times at the end of June. Last quarter, we indicated that our capital allocation strategy would prioritize deleveraging. Today, we took initiative to deploy capital in furtherance of this priority as we commenced cash tender offers to purchase 350 million dollars of our long-term debt our capital allocation strategy combined with the performance of our business is delivering returns with return on invested capital increasing to 10.2 percent which is an improvement of 10 basis points sequentially from the second quarter of 2025 and 20 basis points year over year compared to the third quarter of 2024. In the third quarter, we returned $17 million to shareholders through our regular quarterly dividend. Last week, we announced our fourth quarter dividend of $0.12 per share, payable on November 26th to shareholders of record as of November 12th. Turning to slide 10, I'll talk through the results for our segments. performance sensing revenue in the third quarter of 2025 was 657 million approximately flat year-over-year on a reported basis organically revenue increased 3.6 percent year-over-year as we outgrew our end markets in both automotive and HVOR consistent with the expected return to outgrowth and the second half of 2025 that we had communicated earlier this year Performance Sensing Adjusted Operating Income was $156 million, or 23.7% of performance sensing revenue, representing year-over-year margin expansion of 160 basis points, inclusive of any dilutive impact from tariffs. Sensing Solutions revenue in the third quarter of 2025 was $275 million, which was approximately flat year-over-year. Organically, revenue increased 2.5% year-over-year, driven by new content in our industrials business and growth in our aerospace business. This marks our third straight quarter of year-over-year organic growth. Sensing Solutions Adjusted Operating Income was $85 million, or 30.9% of Sensing Solutions revenue, representing year-over-year margin expansion of 150 basis points, again, inclusive of any dilutive impact from tariffs. The margin expansion in both our performance sensing and sensing solution segments represents the significant strides our teams have made in the last year in unlocking productivity, and I want to echo Stefan's comments regarding the great work being done by Teams and SADA. corporate and other adjusted operating expenses increased by 12 million dollars compared to the third quarter of 2024 primarily driven by higher variable compensation due to better underlying performance just a brief follow-up on the dyna power topic that stefan mentioned earlier in the third quarter we recorded 259 million dollars in non-cash charges as a result of changes in clean energy policy and emissions regulations this included a goodwill impairment charge of approximately 226 million dollars related to the dyna power business as well as certain other non-cash charges primarily due to excess capacity related to electrification these costs were excluded from adjusted operating income as they are non-cash and non-recurring in nature more detail regarding the reconciliation of our gap and non-gap financial metrics is available in our SEC filings in the appendix to today's earnings presentation and on our investor relations website turning briefly to slide 11 I will share some high-level thoughts on our markets within performance sensing we have been pleased with the durability of automotive demand we are encouraged by the growth in China where we continue to increase our share. And in North America, despite concerns around end market demand, production has lagged SAR and inventory levels remain relatively normal, indicating further durability. The HVOR end market has been soft, particularly with on-road trucks in North America, though we have been pleased with our ability to expand margins overall, despite weakening end market demand in this high margin business in sensing solutions gas leak detection has provided meaningful growth against an end market that has not yet fully recovered given our exposure to HVAC and appliance we look at housing recovery and interest rates as the likely catalysts for this end market and lastly in our aerospace business we have seen reliable market growth in the low to mid single digit range all year and we expect that to continue with strong order books across the sector before i discuss our fourth quarter expectations let's turn to slide 12 for a brief update on tariffs in the third quarter of 2025 we recorded approximately 12 million dollars of tariff costs and associated pass-through revenues this was approximately flat with the second quarter of 2025 and looking ahead we expect the same exposures in the fourth quarter based on trade policies currently in effect the vast majority of our imports into the united states are from mexico and over 80 percent of those imports are usmca qualified we do not expect any meaningful changes in our usmca qualification levels moving forward additionally since ada is not directly exposed to either the automotive parts nor heavy truck parts tariffs as the products we produce are not included within the scope of these tariffs and finally just a brief reminder on our operating posture regarding tariffs since auto will produce the customer demand signals and will make product available to our customers at our production locations or deliver to any appropriate destination of our customers choosing should our customers require that we import materials into any jurisdiction that applies the tariff to such imports we will only do so with a reimbursement agreement in place we are grateful to our customers and suppliers for their continued support in this process their partnership and collaboration has been invaluable with that let's turn to slide 13 and i will walk through our expectations for the fourth quarter of 2025. We expect fourth quarter revenue of $890 million to $920 million, adjusted operating income of $172 million to $179 million, adjusted operating margins of 19.3% to 19.5%, adjusted net income of $121 million to $127 million, and adjusted earnings per share of $0.83 to 87 cents our revenue guidance range reflects a cautious outlook in light of recent idiosyncratic events such as the novellas factory fire and the potential supply disruptions related to next period to be clear we have not projected any major disruptions to our business in connection with these events however we are taking a more cautious view on the market and our order book At the midpoint of our guidance range, we expect approximately 10 basis points of sequential margin expansion, and we have assumed the same level of tariff costs and pass-through revenues to what we incurred in the third quarter. As noted in our press release and earnings materials, our guidance and tariff assumptions are based on trade policies and tariff rates in effect as of October 28, and do not incorporate any impacts from proposed changes to trade policies. Finally, while we are not yet providing 2026 guidance, I would like to share initial thoughts on 2026. We are reasonably comfortable with consensus estimates for the full year. However, as we look at the quarters within 2026, we see a wider range of estimates, particularly in the first quarter. As a reminder, q4 to q1 margin seasonality is driven by pricing dynamics in our automotive business specifically contractual price downs to our customers typically take effect at the beginning of the year as do our supplier price reductions however with approximately 90 days of inventory on hand the majority of our first quarter sales reflect higher cost inventory as we progress into the second quarter margins normalize and each quarter thereafter we typically see margin expansion driven by productivity in our factories this trend was observed in the years preceding

the pandemic and the inflation that followed and was observed again in 2025 as pricing returned to pre-pandemic norms we expect similar seasonality moving forward with that I will turn the call back to stefan thank you andrew as you look ahead i'd like to leave you with a few parting thoughts over the last nine months we've executed with consistency laying a solid foundation on which to build beyond significantly improving our say do ratio we have also improved underlying performance in our business and our free cash flow conversion is a compelling proof point Additionally, we have demonstrated a return to market outgrowth, beginning with our industrial and aerospace business earlier in the year, and with our third quarter results, also in our automotive and heavy vehicle businesses. And lastly, we're acting decisively to set ourselves up for long-term shareholder value creation by installing the right leadership team, adjusting course on strategy as end markets change and deploying capital to retire debt. Look forward to continuing to update you on our progress as we transition towards the next phase of our transformation. We'll now turn the call back to James for Q&A.

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

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

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

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

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

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

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

So, hey, Mark, nice to hear you. Let me answer that question for you. So, yes, I mean, you have to sit your right. We've had like double digit outgrowth in China. We've won a fantastic business. um i just you know as if you heard in my script uh we you know we have a new president in china with jackie um and he has really done a great job to win new business um on the contact side but as you know also just mentioned on the pipers uh system and that has enabled us to outgrowth in in that market and and given us an overall i would say modest outgrowth in quarter three of this year. And going forward with those wins and potential further wins that we're currently working on, we're looking at, you know, further outgrowth going forward into 2026.

Thanks. I'll pass it on. And your next question today will come from Guy Hardwick with Barclays Capital. Please go ahead.

Hi. Good evening. Hi, Guy. Good evening.

Hi.

The revenue by NMark is, am I reading this correctly, that HVAC stepped up very considerably, sequentially, and quarter-on-quarter, that's 6% of revenues over four a year ago and 4.6% kind of implies almost 40% growth in the end. Has there been some segmental change, or is that real growth?

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

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

And your next question today will come from Joe Speck with UBS. Please go ahead.

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

Yeah. So given that the tender is still open, we're sort of limited in how much we can share about what notes we prefer to retire or anything like that. But what I can share on the interest is we're earning roughly at parity between cash on the balance sheet and incurring on those 29 notes. And then obviously the other notes are a little bit more pricey, but on balance, I wouldn't expect it to have a material impact on net interest in the fourth quarter. And so nothing to consider from a guide perspective. And then beyond that, we've referred to the press release earlier today.

And your next question today will come from Joe Giordano with TD Cowan.

Please go ahead. hey guys nice job um you know as you think through as you think through the capital structure here i like i think everyone probably likes what you're doing with the the charging and the charges and taking down dynapower and the debt reduction but how do you think like how do you marry the innovation internally that you're doing with like uh the desire to ultimately deploy more in the future so i know now we're talking about retiring debt and paying down and getting leverage down but what's the target where you start to feel comfortable enough that you can start to take iterative steps outside of the current portfolio again sure thanks for the question so i i think

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

And let me add to that, Joe. So basically, I mean, yes, for now, the story that we've been continuously telling us on the last call is first wanted to leverage the company we use some excess cash for to strengthen our operations so we've been very you know um very busy around smart automation in our factories uh to increase productivity and that's proven to be the right investment as you as you can see in the results as one effect um yes and going forward obviously we'll reevaluate if you know we'll deploy cash somewhere else. But at this point in time, we're sticking very much to what we've been telling you and deleveraging the company and improving performance. And that's the focus for the next quarters ahead. Thank you, guys.

And your next question today will come from Luke Young with Barrett. Please go ahead.

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

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

And your next question today will come from Shreyas Patil with Wolf Research. Please go ahead.

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

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

And your next question today will come from Costa Tesolis with Wells Fargo. Please go ahead.

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

Sure. Happy to. So I think first, so obviously we've seen a slowdown in some of our non-auto businesses this year. HVOR and specifically on-road truck in North America has slowed. And so while we're outgrowing that end market, the ability to grow with it is hampered by the lower levels of production that's impacted organic growth a little bit this year. I think we're still on track for about a percent-ish organic growth if you look at where third parties are for the fourth quarter and then where the midpoint of our revenue guide is. And admittedly, that was a call of the risks that we see in the fourth quarter. So we'll see how that all settles in terms of production levels, et cetera. I think as you look forward beyond the fourth quarter, so certainly, again, we're not giving 2026 guidance, but the biggest outgrowth headwind we've had this year, which has challenged our organic growth rate, has been the China market. And we turned a corner here in the third quarter where we're now outgrowing production in China. So FN markets hold up and we continue to deliver the level of outgrowth that we've had here in the in the third quarter we'd have very high confidence in our ability to grow organically low single digits moving forward thank you and your next question today will come from william stein with truest please go ahead great thanks for taking my question i'm hoping you can remind us of your longer term margin outlook i forget what you've targeted in the past.

And I forget if it's a single year out or expansion view or multi-year. Can you just catch us up on that, please? Thank you.

Good question, Will. So you may recall on the last call, we talked about a margin floor of 19%. We're still committed to that floor. The reason that was an important data point for us is because there's obviously a lot of end market volatility and challenges. We're dealing with mixed matters in our business. So we feel very comfortable in our ability to defend that floor on a full year basis. And then beyond that, I would point to, you know, we've demonstrated an ability to sequentially expand margins throughout the year as we've done this year. And lastly, I would just point out that two of our higher margin businesses, HVOR and industrial, are both in markets that are relatively soft right now. So if and when those markets recover, certainly there's some margin help that we get with But without clarity on that and without having guided 2026, where we stand today is that we're very comfortable defending a margin floor of 19%.

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

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

Let me start with a second question. So thanks for the question. We've continued with our benchmarking progress. first of all the idea was to benchmark ourselves internally so from a product family perspective we would take the best-in-class product from a from a cost perspective and then benchmark that against all the other factories where that product is produced and we make good progress so we've reduced our cost significantly on each and every product but we still have some some way some way to go and then the other view is obviously outside of sunsata so if we can obtain benchmarks where we find products being produced better than our factories we'll take that benchmark

and work work off against work ourselves off against that target which we also do for certain product ceremonies so it's a continuous continuous progress um i think we've you know improved a lot but um still ongoing yeah and on the cash flow question uh so biggest lever there has been uh has been lower capital expenditures in our business and i think that's really reflective of the level of discipline we're applying to capex um we're uh we're certainly looking at things like the certainty of the production uh outlook on the programs that we're investing in as well as the timing, and that's driven a lower level of CapEx in our business. You know, I'm comfortable that we can continue to convert free cash flow at a relatively healthy level, and the number that we've committed to is greater than 80%. I don't think that our, you know, relatively low level of CapEx this year is a benchmark for where we're going to be indefinitely, but certainly as we're looking at, you know, EV production outlook that's a little bit uncertain, volumes that are maybe softer than where they were expected to be a few years ago. We're applying a lot more rigor on the capex that we're improving, and that's showing up in our free cash flow conversion. So I'm comfortable that we'll continue to convert at a high level, and I think the year-to-date result has been great.

Thank you. And your next question today will come from Simic Chatterjee with JP Morgan. Please go ahead.

Hi, this is MP on for Summit Chatterjee. Thank you for taking my question. I just wanted to double click on your return to growth pillar of the overall strategy.

Just wanted to understand in terms of end markets, which end markets are strategically of higher importance in terms of returning to growth or where do you expect the growth will be more skewed in terms of the overall end markets from an end market perspective um i think um andrew has given some highlights on that we're having um we see from society's perspective um strong market outgrowth on the hvr sector um that is mainly driven uh through to due to construction and uh agricultural business um and that's basically offsetting the softness in that market and we also see um as i've mentioned earlier you know with very very strong order books um in the aerospace um area we'll see a potential of growth going forward there as well that is another area of of high growth um automotive automotive i would say um is rather soft with um with a slight outgrowth going forward so the two strong ones being aerospace um and hvr and industrial sorry industrials industrial was a The third one that I also wanted to mention, especially, you know, with our gas leak detection product that's enabling us to outgrow the market, and going forward, that will also be pushing growth.

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

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

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