Sensata Technologies Holding NV (NYSE:ST) Q2 2020 Earnings Conference Call - Final Transcript

Jul 28, 2020 • 08:00 am ET


Sensata Technologies Holding NV (NYSE:ST) Q2 2020 Earnings Conference Call - Final Transcript


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Jeffrey Cote

essential customer demand while enhancing our financial flexibility. Our focus on these priorities and quick action helped us navigate through this unprecedented environment. These actions will help position Sensata to emerge from this worldwide disruption stronger so that we can better serve our customers, employees and shareholders as well as the communities in which we operate.

The lockdowns and quarantines that were instituted by governments around the world in response to the spread of COVID-19 caused the end markets we serve to decline almost 40% during the quarter. Our strong market outgrowth during the quarter offset a portion of this market decline, which resulted in our net revenue contracting by 33.9% organically. For the first half, our net revenue decreased 22.3%. We delivered market outgrowth of 750 basis points in our heavy vehicle off-road business, and 890 basis points in our automotive business for the second quarter and 840 basis points and 750 basis points through the first half of 2020, respectively. Certain customers have delayed some of their product launches for the second half of the year, which will impact our market outgrowth in Q3 and Q4. However, we continue to be confident that our market outgrowth for 2020 and beyond will be sustained in the range of 600 basis points to 800 basis points for heavy vehicle off-road and 400 basis points to 600 basis points for automotive, in part due to our continued new business wins.

During the quarter, we closed over $125 million of new business wins, as part of $225 million in new business wins for the first half of 2020. This pace is faster than our average new business wins over the past five years and included $108 million in electrification wins. We believe these new business wins demonstrate the mission-critical nature of Sensata's products, as our customers have continued to award new business to us, even in the midst of COVID-19-related shutdowns.

From a demand standpoint, we saw improvements month-to-month during the second quarter, as customer sites reopened in May and ramped up production in June. This trajectory has continued for the first half of July. And on that basis, we anticipate sequential improvements in the third and fourth quarters this year. However, we remain cautious regarding the impact that potential COVID-19 surgeons-related shutdowns may have on this recovery trend. Despite the challenges, we believe we are in a strong financial position and have taken the steps necessary to enhance our financial flexibility. For example, we generated $45 million in free cash flow in the second quarter and $114 million year-to-date. We reduced capital expenditures for the year and aggressively managed our working capital. We lowered our operating expenses in the second quarter through a number of temporary measures and have since implemented permanent cost actions that will align our cost structure to more normalized demand. Paul will address these cost actions later. We are seeing enough stability in the markets we serve and our order book to provide financial guidance for the