Good morning, and welcome to the Sensata Technologies Holding N.V. First Quarter 2016 Earnings Webcast. At this time, I would like to inform you that this webcast is being recorded. For opening remarks and introductions, I'd like to turn the call over to Jacob Sayer, Vice President of Treasury and Investor Relations. Mr. Sayer, you may begin.

Thank you, Keith, and good morning, everyone. Earlier today, Sensata issued a press release describing its financial performance for the first quarter 2016. You may obtain a copy of the press release and the slide deck that we'll be referring to in today's webcast from the Investor Relations section of our website at sensata.com. A replay of today's webcast will also be available in the Investor Relations section of our website. Today's discussion will contain forward-looking statements based on the business environment as we currently see it and, as such, it does include certain risks and uncertainties. Please refer to our press release and our 10-Q and 10-K filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to Generally Accepted Accounting Principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between GAAP and non-GAAP measures are included in the tables found in today's press release, and slide deck, as well as in the Investor Relations section of our website under Financial Reports. Comments made during today's call will primarily refer to our non-GAAP financial results. On the call, with me today, are Martha Sullivan, Sensata's President and Chief Executive Officer; and Paul Vasington, Sensata's Chief Financial Officer. We'll hold questions until after our prepared remarks, but if you'd like to get in the queue, please do so by pressing the star key followed by the number one. I'll now turn the call over to Martha to review highlights from the quarter and trends in the end markets that we serve. Martha?

Thank you, Jacob, and thank you all for joining our first quarter 2016 conference call. Sensata's strategic goal is to win in sensing and, by doing so, to continue to create long-term value for our shareholders. During today's call, we'll highlight a number of ways this takes place. So, let's start with the first quarter results. We delivered 6% revenue growth, driven primarily by acquired revenue. We also grew adjusted net income by 8% before the impact of foreign currency exchange rates. This was due primarily to integration synergies and operational efficiency. This is a good start to the year, slightly above the midpoint of first quarter guidance and putting us on track for the full year. Sensata creates value for our shareholders by expanding margins. In addition to margin growth in the core business, we are on track with integration activities at each acquisition to deliver further margin expansion. While acquisitions dilute our margins during the integration phase, we are on track to achieve our long-term adjusted net income target margins of 20% to 23%. I'd also like to highlight a few key ways Sensata grows revenue. Our organic growth benefits from the ongoing increase in regulations, among other things, that push for safer and more fuel-efficient vehicles, as well as the cleaner environment. We are on a regulatory journey that underpins sensor content growth for years to come. In addition, acquisitions provide further revenue growth and propel Sensata into new sensing markets and technologies. The acquisition of the sensing businesses of CST closed in December and the integration of those businesses is proceeding according to plan. CST extends our end-market growth opportunities beyond automotive, adding 10% of non-automotive revenue. Encouragingly, we've already logged some early design wins, demonstrating the need for sensors among industrial customers. We are very…

Thank you, Martha. Key highlights for the first quarter as shown on slide eight include: net revenue of $796.5 million, an increase of 6% from the first quarter of 2015. Of this, acquisitions, less exited business, contributed 8.9%. Organic revenue was down 0.9%, and changes in foreign currency exchange rates, primarily the euro, represented a net revenue headwind of 1.9%, all consistent with our expectations. Adjusted net income was $113 million, or $0.66 per diluted share, and slightly better than expectations. When compared to the prior year, adjusted net income grew 2% in the first quarter, or 8% on a constant currency basis, primarily due to productivity improvements and integration synergies. Adjusted net income margins declined 60 basis points to 14.2% in the first quarter. However, excluding CST and the impact of foreign currency, adjusted net income margins expanded 130 basis points from the prior year, to 16.1%. In the core business, which excludes DeltaTech, Schrader, and CST, adjusted net income margins were 18.4% in the first quarter, or 19.6% on a constant currency basis, up about 80 basis points from the prior year. The unfavorable impact of foreign currency exchange rates was $0.04 in the first quarter. The first quarter included benefits from outstanding hedge contracts that will decline during the course of 2016. Consequently, we continue to believe there will be a detrimental impact from changes in foreign currency exchange rates of $0.17 to $0.21 for the full year. Integration costs were $3.5 million in the third quarter; restructuring and special charges of $3.6 million, added back to our non-GAAP numbers in the first quarter, were primarily related to improving operating efficiency and aligning our cost structure and business models to end market performance. These charges appear in the cost of revenue, selling, general and administrative and restructuring…

Thank you. Your first question comes from the line of Wamsi Mohan from Bank of America Merrill Lynch. Your line is open.

Yes. Thank you. Good morning. Martha, when we take a step back and just look at some of the largest headwinds in 2016, there were China industrial, it was HVOR and FX. And it seems from your comments that most of those are starting to stabilize. Could you share some color maybe in terms of the order patterns you're seeing in industrial in China in particular any comments on HVOR will be helpful? And I have a follow up.

Okay. Sure, Wamsi. I would say, on HVOR, it's really developing as expected. As you know it's the on-road piece that is the most beleaguered. We think our call is right. We think we are – have definitely seen things like inventories stabilize over time and we're performing really well. So if you look at how we're performing versus how down that market is, it really gives you a sense for the strength of Sensata's content growth. On China, for Sensata, it's a tale of two markets. So on the auto side, we've actually seen a rebound of the production rates, as we saw the inventory corrections in the third quarter and fourth quarter last year. We're watching it closely. We think that there may be some vehicle inventory building in the first quarter in China, that has played into our guide and as we look forward, but we've seen pretty substantial recovery in that market. On the industrial side, I would say much less so, again playing out as expected, so you're seeing sequential improvements in the industrial China part of our overall business, again that is what we expected. We're watching that PMI manufacturing index in China pretty closely and that has stabilized. And then, again, similarly for currency just given our hedge positions, we think that's well contained.

Great. Thanks, Martha. And as a follow-up, could you just give us some perspective on sort of LiDAR adoption, how do you think about it with respect to where solid-state LiDAR is priced today? Do you think the pricing needs to come down materially for adoption rates to pick up? And when you think about the incremental content that LiDAR can drive on the per vehicle basis, could you give us some sense of that as a – like in the $5 to $10 range or is the opportunity bigger? Thank you.

Sure. Wamsi, look at – if you look at what's out there today, it's really mechanical LiDAR, and that is just extremely higher priced. So, I think thousands and tens of thousands of dollars on a mechanical LiDAR system. So, solid-state LiDAR is really a phenomenon that needs to be commercialized and get to the quality and reliability performance that we need in auto, and it will be a game changer. So, now we're pricing in the hundreds of dollars. So, that figure alone ought to give you a sense of the content per vehicle and there are scenarios that have more than one solid-state LiDAR sensors onboard, say, a fully autonomous vehicle or at least one. And so, we started (23:53) to figure of a $1 billion market when we get into the 2020 through 2025 timeframe, those are some of the puts and takes that are driving that figure.

Thanks, Martha.

Thanks, Wamsi.

Your next question comes from the line of Steven Fox with Cross Research. Your line is open.

Thanks. Good morning. I was wondering you touched on China a little bit, but broadly speaking on industrial when you look at supply chain versus end demand, and your expectations for the rest of the year. I guess it sounds like it's tracking. But can you give a little bit more detail on how that you might see that play out over the rest of the year, especially as you get into the summer months. Thanks.

Yeah. We're watching inventory carefully there, and we think much of that has corrected, I would say one notable exception, and it's becoming a much smaller part of our business. But we supply into compressors for HVAC in China, and there is still a pretty high level of inventory of the HVAC compressors. So, that's one area where we continue to see higher inventory, and again have that played out coming down gradually month by month. The balance of our business in China and now I think $140 million in revenue in total in industrial in China, it is really moving along the bottom as expected at this point. We're now expecting a lot of recovery as we go through the year. We do get into more favorable comps year-over-year as we move into the second half of 2016.

Great. That's helpful. And then just to double-check on the acquisitions which again also seem to be proceeding as you expected, was there – is there any opportunity to pull-in some of the cost savings as you go through the year, or do you think when we look at this from the outside, we're not appreciating some of the complexities that you're dealing with? How would you sort of describe potential upside with the acquisitions, say, between now and year-end?

Yeah. I think important to understand is often that synergy comes through moving manufacturing, and so we're doing these in end markets where quality and validation are a big part of the overall process. For example, we announced the closure of our Tennessee plant related to the Schrader acquisition in the fourth quarter. So these are safety related componentry (26:23) that will be moving from Tennessee to our Mexico site. We look for every opportunity that we can to get that done more quickly, but we do have to work closely with our customers as well. So I think that there is opportunity. At the same time, it's really important that we do no harm as we integrate these acquisitions into Sensata.

Great. That's very helpful. Thanks so much.

Thanks, Steve.

Your next question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is open.

Hi. This is Vinayak calling in for Craig. I had a question on the Schrader business, right, you've talked about China regulation as a potential growth driver for that business in the future, like, what are your expectations for growth longer-term for that business? And as a housekeeping, can you just provide us, what was the EPS contribution for Schrader this quarter, and what is expectation for the full year?

It's very difficult, as we move forward and we get more intertwined with these acquired businesses, to break out EPS, something that's now been inside of Sensata for as long as Schrader has. At the same time, I will tell you, we actually delayed some of that integration because we had a ramp in Europe. So, we're spending on Schrader, I'd say, fairly significantly this year. To get back to your question about China regulations, we expect that to hit in early 2019, we expect the revenue associated with the regulation to hit in that timeframe. China now being one of the largest automotive markets, think 17 million vehicles, and a mandate across that fleet of four sensors per vehicle is a pretty large opportunity. And if we were to simply hold our share, we would expect to see at least 30% of that overall volume for Sensata. We have seen some interesting developments that may actually create some revenue for us in tire pressure sensing in China ahead of the mandate. There are insurance benefits now recognized to monitoring tire pressure sensing, and we're seeing some adoption from OEMs ahead of the regulation. So, as we look between now and 2019, we do expect TPMS is going to be a great growth driver for Sensata.

Got it. That's helpful. And, a high level question, when you look at the 2016 guidance, you're calling for organic growth between 0% and 3%. Is high-single-digit organic growth still viable for the business when you look at a normalized economic environment? And, when you look at next year, I know you're not providing 2017 guidance, but what do you think, at a high level, are the key drivers that will lead to a pickup in growth?

Yes. So, again, you're right, we're not providing guidance for 2017. But let's just look at some things that we have talked about, and they can give you a sense for it. We do think that strong organic growth is a really important investment thesis for Sensata, and it continues to hold very well, just given the design wins that we're seeing, and actually some of the early progress on the acquisitions related to top-line growth as well. So one of the things, I think, that has changed for Sensata, if we reflect on second half of 2015, we've recognized that there is a portion of our business in Sensing Solutions, call it more of the legacy controls business, represents about 12% of our revenue; that is not going to see China as the growth driver that it has been. And so that portion of the business will grow much more slowly, if at all. We've talked about 0% to 1% growth in that overall business, and that's the expectation we have for that portion of Sensing Solutions over the long-term. I will point out, though, that we see great – we continue to see great earnings potential, even in that business. So the combination of organic growth that's available and the balance of Sensata and continued good earnings growth in that portion of our Sensing Solutions, I think, is a great value opportunity for investors.

Got it. That's helpful. Thank you.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.

Thanks. Good morning. It seems like a lot of things are playing out just as you expected, perhaps even more so than normally. So I was just wondering, with the shifted dynamic in the auto cycle probably looking pretty mature, I'm wondering if that impacts the normal phase-in of the annual price-downs, or if that's just a carbon copy of recent years, how that layers into your model?

Yeah. Chris, this is developing very naturally, and so we're used to seeing the pricing hit early in the year, our first quarter generally is where we'll see that happen. You see that play out on the Performance Sensing side of the business ,where we have the multi-year contracts. And so, I would say, no, we're not seeing anything sort of cycle-driven that's changing the overall pricing dynamic.

Okay. And you're on track with all your sourcing initiatives to offset that and everything?

We are, very much so.

Okay. Great. And then, just as you've had a little experience with CST under the hood for a while now, just wondering how you feel about the overall critical mass of Sensata in the industrial side, how that feeds off the auto, and just the idea of the importance of critical mass facing the industrial markets, as oppose to the traditional automotive?

Right. It's a great question, and it's something that we think about, and we plan around a lot, when we make these acquisitions. It is a much more fragmented market, as you know, and even inside of sort of the verticals, call it aerospace, call it machinery, there are niches as well. And so what we think is really important is to find defensible barriers and applications and in portions of that overall market. At the same time, it gives us just a great line of sight on where we can intercept other niches, both organically and inorganically. So this industrial space is a really attractive one for Sensata.

Thanks.

Thanks, Chris.

Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yes. Good morning. Thanks very much for taking the questions. First question is a follow-up on Quanergy, can you talk about the financial implications of revenue as you start to realize it with that relationship, given that you're going to be selling a product design by somebody else, if you can help us think through the gross margin and operating margin profile of that business? And then, related to that, as you go forward, do you think there's an opportunity to jointly develop products using Quanergy's solid-state LiDAR as with some of Sensata's initial – on-hand sensors that you already have?

Yeah. I think the answer to the first question, we have to be a little bit careful here, but what the agreement calls for is, I'd say, a fairly even split of overall earnings, as we get to revenue over time. And so, while the core technology around LiDAR sensing is very much in the hands of Quanergy and some terrific experts that's inside of that entity. There are packaging challenges as well, and I/O challenges, in terms of different customers, where Sensata is going to bring some expertise, even to the core LiDAR sensing that would go into autonomous vehicles. When you think about margins, we think this fits really well with Sensata's overall margin profile and that's important, it was an important consideration for us as we look at the overall agreement. So, pretty attractive. And yes, I do think as we work together, there is opportunity to do more and to integrate over time. I will tell you, our approach to the market though is one of independent component level sensor suppliers, and we've got some great system levels partners inside of ADAS. We don't see ourselves operating at the system level.

That's helpful. And then a follow-up question is related to the earthquake in Japan. There's been some talk from our few of the auto companies about changing their production schedules, for a short period of time. Are you seeing any volatility related to that issue?

We have not yet seen volatility in the order demand, but we have reached out just to understand that dynamic a little bit better and to understand it might have an impact in the second quarter here. And as we understand it, the assembly plants where that's being impacted are operating below capacity, and there is good opportunity to recover that downtime inside of the quarter, given that they're doing it fairly early.

Thank you very much.

Thanks, Mark.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets. Your line is open.

Hey, Bob (35:55). Thanks a lot. Good morning, guys. Two questions from me as well. First, could you just talk about the AR increase that you guys saw in the quarter, what's drove that and was there anything with the linearity in the quarter that impacted it?

Amit, we're having trouble hearing you. Can we – can we hear that one again?

Hopefully, this is better.

Yeah, this is better.

I was wondering if you can just maybe start off talking about the accounts receivable increase that you guys saw in the quarter, was there something that drove that one-off or was there something to do with the linearity that you guys saw in the quarter?

It's linearity. We ship per our (36:25) customers' request and the revenue was something that...

Got it.

Nothing, no – no issues around collectability.

Perfect. And then I guess, just back to the strategic investment in Quanergy, could you just talk about what drove that decision versus perhaps trying to build out your own solution there as it relates to the autonomous market. Broadly I guess, is this strategic investment enough to give you a portfolio there or do you think we need to do further to broaden out the portfolio be that organically or through acquisitions as you go forward?

Yeah. So, to be clear, that if you look at the level of technology involved in LiDAR, particularly solid-state LiDAR, I mean that has been years and years on the making. So if you look at the background of some of the folks on the LiDAR team, particularly Louay himself, who's the founder of that business, that would take years to do on an organic basis. Given the overall value of that sensor, we think it's a great content position for Sensata, as we get to semi and full autonomous vehicles. At the same time, I would just remind you, we actually do have content today that plays into ADAS adoption, and we're seeing lift in that area as we look ahead. So one of the foundational systems that needs to be in place are things like advanced braking system and emergency braking. And that requires sensors and stability control systems where we're very well-positioned today. So there are some things that we're drawing on already inside of Sensata's core portfolio, the LiDAR play really allows us to play in that space as it goes autonomous in a very, very meaningful way.

Perfect. Thank you.

Thanks, Amit.

Your next question comes from the line of Jim Suva with Citi. Your line is open.

Thank you very much, and congratulations to you and your team. The recent PMI data out of China has been above 50 point. Is that been kind of in line with your expectations or better than expected? Because I believe that is kind of one of the leading indicators you look at. And then my follow-up question is, I assume that the oil pricing has a lot do to with this data of the heavy vehicles, meaning the lower the oil price, then the less heavy equipment is being purchased to extract raw materials and oil and precious metals and such like that. What type of level do you look at for reaccelerations in heavy machinery? Is it like above $50 per barrels, above $45 per barrels or how should we think about those metrics? Thank you.

Sure, Jim. On the PMI front, we look at the manufacturing component of that PMI in particular, and it's operating where we expect it to be. Our concerns have been if we saw that move down, we would have anticipated another round of the inventory cuts in China. And that said, it was not part of our thesis going forward. So, it's really playing out as expected. On the question of heavy truck, it's an interesting question. We've got two parts to our overall HVOR business, so that now comprises about 15% of the revenue of Sensata. About half of that is off-road, and then you get into a lot of fragmentation in that off-road piece. So, when you start to look at the piece of that that would be impacted by oil prices, it's a pretty small part of our overall off-road exposure, if you will. So, we're not spending a ton of time looking at recovery in that particular area. I think in general in the off-road part of the business, we're at least 18 months, 24 months to seeing meaningful recovery in things like agriculture, construction, probably comes a little bit sooner. And then, there is a long line of (40:30) tail beyond that mining and, as you talked about, things that would relate directly to oil. So pretty small part of the overall Sensata.

Got you. And then, can you just quickly update us on the timing for China tire pressure sensing regulations of, A, when those kick into the general mandates over there, plus I guess more importantly, when do those start to impact Sensata? I would assume you build before it fully rolls out? When should we start to see meaningful traction and those regulations kick in?

Yeah. We think that the time of meaningful revenue – the mandate itself would be around early 2019. We do expect to see some pull ahead on that. Generally, you begin to see that adoption, 12 months, 18 months ahead. That can be very economically influenced. So, not to get too longwinded here, but if you look at the Euro 6b ramp that we saw last year, that was regulation where OEMs waited until really the very last minute, because that was a down market in Europe. That's not what we're thinking about in China, but those are some of the things that can swing whether revenue comes sooner and whether it's really episodic.

Thank you and congratulations to you and your team at Sensata.

Thank you.

Thank you.

Thanks, Jim.

Your next question comes from the line of Shawn Harrison with Longbow Research. Your line is open.

Hi, good morning, everybody. Wanted to just, I guess, check on the free cash flow forecast for the year. Did that change? I thought it was previously $350 million to $400 million, but the $102 million you did in the first quarter, I think, is an all-time record. So just any update on how you think about free cash flow for the year?

Yeah. We're very excited about the cash flow in Q1. But, it's pretty much in line with what we expected to occur. We're still going to hold to the $350 million to $400 million for the full year, just given the volatility that can occur with things likes receivables. So, I think we feel good about the $350 million to $400 million.

Is there any target, I guess, exiting the year in terms of cash cycle days improvement throughout the year?

Say that one more time.

Cash cycle days. Are you targeting a certain number of decline in days for the year or just how you think about the cash cycle days for 2016?

At a high level, we continue to work inventory down. So, days on hand should continue to improve. Receivables have been holding pretty steady with what we saw last year quarter-by-quarter and we continue to work to improve our supplier terms on the payable side, so that should improve slightly over the course of the year.

Okay. And as a brief follow-up. Martha, I guess, are you still forecasting auto production to be less than where industry forecasters are at right now? I know you had some concerns last quarter. And then as a follow-up on auto as well, I think there was a comment, within the presentation, that you picked some content in Europe and China, maybe if you could just remind us what vehicle content is per region right now?

I think relative to the market, yeah, we are under-calling IHS on production in North America, in particular. I think they may have lined up in Europe, but as we gave our guide, we were below their call at that time as well. Relative to the content in Europe, it continues to be the highest point, the highest region for content in Sensata. We think that actually will start to change over time. When we start to look at some of the things driving, for example, sensors due to onboard diagnostics and sort of an embrace around the world on emissions enforcement under real world driving conditions, that's beginning to create content opportunities across the board in gasoline engines as well. China remains the lowest for us. So, we're just under $10 of content in China, so it continues to be a really nice opportunity as we look ahead.

Just to clarify, on annual production, are you still around 2% then, internally baked into your forecast?

Yeah, that's right. Exactly.

That's right.

Okay. Thank you so much.

Thanks, Shawn.

Your next question comes from the line of Richard Kwas from Wells Fargo Securities. Your line is open.

Hi. Good morning, everyone. I wanted to – just on – a follow-up on a question regarding regional production. Martha, are you in line with IHS now for Europe, around 3%, and then in China, are you still expecting low-single-digits for the year, in terms of production growth?

We are expecting low-single-digits in China. We think we're seeing vehicle inventory build there in this quarter. So, just despite – probably production a little ahead of that in the first quarter, we're seeing vehicle inventory on that side. On the – and in overall Europe, we're at about a 2% look, as we look ahead. So, those are....

Okay. Great. Thank you. And then, on the PMI. So, with the government data above 50, should we assume that the guidance for the year assumes that PMI stays above 50 for the balance of the year? And what are the risks if it goes back below 50, in terms of your outlook for the year for Sensing Solutions?

Yeah. I mean as – from what we've seen, it's not sort of a hard one-off switch, but that 50 point is important, it's one that – whether we're in a recessionary mode – or continue to be in a recessionary mode there or not. We've seen things sort of stabilize at just below 50 in the past ,where we haven't actually seen order rates drop off. And some of that is just understanding where we play, so making sure you're looking at the manufacturing PMI in particular. But that level is an important consideration for us.

Okay. And then last one for me, in longer-term, with regards to the business wins you announced in aerospace and with the chiller win, when does that start to come online, how far out are we from that?

Aerospace is long cycle, it's pretty similar to auto, if not longer. So, we're three years or four years out before that actually hits. Cycle on the industrial side a little bit shorter, more 18 months to 24 months. So, those ones begin to play out for us on top line.

Okay. Great. Thank you.

Thanks, Rich.

And our next question comes from the line of William Stein with SunTrust. Your line is open.

Hi. Great. Thank you for taking my question. I'm hoping you can talk a bit about a topic that hasn't been as prominent in the news lately, this VW emission scandal and sort of echoes of that that seem to potentially be coming from some of the other OEs. What is the current status of any impact on Sensata's business from that? And longer-term, do you anticipate this to be a net positive or negative for the business?

Sure. On Volkswagen, we had talked about $8 million to $10 million in revenue in the U.S. that would be impacted this year, that was in our guide, Will. And that's just vehicles that are not going to be sold in the U.S. market. So those are some of the very analytical puts and takes on that. When you look at what is happening now in the minds of regulators and with customers, this notion, again, of not just having vehicles perform cleanly at launch or through submitted information, but enforcing on it – in the field and in an ongoing basis, I think it's a – we think it's a very important development. We believe that it's an upside for Sensata, and we're having conversations right now about the sensor content that's demanded as you begin to look at ways of making sure your vehicle does not drift, in terms of performance over time. So it's a net positive for Sensata.

And one more, if I can. I apologize I joined late, so – if you already addressed this. But last quarter, there was an initial discussion about the company's position in all-electric vehicles. I'm wondering if you can update us on that, it's great to see sort of the company move into these other areas of automotive, like the ADAS investments in Quanergy, but I'm wondering if you can talk about the all-electric vehicle and whether that – whether there is any sort of incremental position there for the company?

Yeah. Just to reiterate what we talked about last time around, what we are seeing is the notion of the range of these vehicles becomes a really important competitive differentiator for all-electric vehicles. And so, when you look at what those OEMs are willing to do in those platforms to extend the range, we're seeing a lot more opportunity, honestly, than we expected in these subsystems. So we get to the point now where the content opportunity available to us is very similar on an all-electric vehicle compared to a standard overall gas engine. We talked about things like $30 of content on some very specific makes. And we continue to work those opportunities. So it's a development that's certainly interesting. We're getting pretty agnostic as to how the world actually plays out on that front, because we've got the content opportunity.

It's very helpful. Thank you.

Thanks, Will.

Your next question comes from the line of Samik Chatterjee with JPMorgan. Your line is open.

Hi. So, just had a question on CST, and I appreciate all of your comments today about the new business win there. But I think in the past you mentioned that you wouldn't see a lot of growth in that business because of the sort of lack of investment for growth on the previous ownership. So maybe if you can share thoughts about how long do you think it takes to build a pipeline there, where CST will grow at the level that you think it has the potential to grow at?

Sure. We think it's a two-year to three-year time horizon. And that's why getting on the ground and getting those wins underway right now is important, because they are long cycle, Samik. So that's part of the thinking here.

Okay. Great. And just the second question, just wanted to check, your leverage guidance for the end of the year does indicate you would be pretty focused on paying down debt, but did want to sort of get your thoughts on the balance of buybacks versus leverage and how you are thinking about that as you go through the year?

Yeah. So the leverage ratio coming down is a combination of debt repayment and growing our EBITDA. And as we stated before, we take a sort of balanced approach, holistic approach to how we deploy capital considering share repurchases, debt repayment and M&A.

Okay. Great. Thank you.

Thanks, Samik.

Your next question comes from the line of Jeremie Capron with CLSA. Your line is open.

Thanks. Good morning, everyone. I'd just like to go back to the Sensing Solutions margins, pretty impressive expansion here year-over-year despite the contraction in the business there. So, I wonder if you could unpack this margin expansion? I suppose the integration of CST is playing a role in here as well, but just some more color on here is appreciated? Thanks.

Yeah. It's primarily driven by our core business and Sensing Solutions. And so, with the recognition that a portion of that business was not going to enjoy secular top line growth, there is – I would say really a redoubling of effort on efficiencies on ways to create earnings potential to make sure that it's performing on the bottom line similar to Sensata. And, Paul, I don't know if you have anything to add to that?

So, over the course of last 6 months to 9 months, we've been taking steps to restructure...

Yeah.

...our cost structure to drive that kind of profitability and margin expansion.

So, how do we think about that trajectory through the remainder of the year, as you integrate CST as opposed to more spending on that front?

I think the challenge in answering that question is that we will continue to look for opportunities to accelerate the integration, and that could have us increasing integration spend or reducing spend quarter-to-quarter. So it's one of the reasons we're not necessarily guiding on our overall segments. We expect the profitability to absent integration to maintain its overall performance.

Understood. And, Paul, question on forex, the negative impact for this year is $0.17 to $0.21, it seems to be up a little bit from the prior guidance and explain to us the dynamics there and how do we think about the headwind going into 2017, as the hedges roll off?

Yeah. $0.17 to $0.21 is the guidance that we established at the beginning of the year, so that remained consistent. The first quarter of the four quarters will have the lowest impact, because the value of the hedges are in place, were more valuable in the first quarter, those will be behind us, and as we get into the rest of the year the value of those hedges become less. And so, the EPS impact will be bigger, in the second quarter, third quarter, and fourth quarter. As we look to 2017, the 2017 impact on our foreign exchange appears to look similar to what we saw in 2015, which is about $0.03 to $0.05.

Thank you very much (54:54).

But that will change over time as exchange rates move and our hedges are put in place, but that seems about a fair range.

Thank you.

There are no further questions at this time. I'll turn the call back over to the presenters.

Thanks, Keith. I'd like to thank you all for joining our first quarter of 2016 financial results call today. Later in the quarter, Sensata will be participating in Oppenheimer's Technology Investor Conference in New York on May 10 and Bank of America Merrill Lynch's Tech Investor Conference in San Francisco on June 1. We appreciate your continued interest in and support of Sensata and look forward to speaking with you on the road and again next quarter. Thank you and goodbye.

Ladies and gentlemen, this concludes our program for today. You may now disconnect and have a wonderful day.