Good day and welcome to Sensata Technologies’ Q4 2018 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I now turn the conference over to Mr. Joshua Young, Vice President, Investor Relations. Please go ahead.

Thank you very much, Keith and good morning everybody. I would like to welcome you to Sensata’s Fourth Quarter and Full-year 2018 Earnings Conference Call. Joining me on today’s call are Martha Sullivan, Sensata’s Chief Executive Officer, and Paul Vasington, Sensata’s CFO. 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 can be downloaded from Sensata’s Investor Relations website. We will also post a replay of today’s call shortly at the conclusion of today’s event. Before we begin, I would like to reference Sensata’s safe harbor statement on Slide number 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 risks and uncertainties. The Company’s actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to those discussed in our Forms 10-Q and 10-K as well as other subsequent SEC filings. On Slide number 3, we show Sensata’s GAAP results for the full-year 2018. We encourage you to review our GAAP financial statements 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. Reconciliations of our GAAP to our non-GAAP financial measures are included in our earnings release and in our webcast presentation. Additionally, the Company provides details of its segment performance on Slides 11 and 12 which are the primary measures management uses to evaluate the business. Martha will begin today’s call with an overview of our full-year and Q4 results. Paul will then discuss our fourth quarter and full-year financial performance in greater detail as well as provide guidance for the first quarter and full-year 2019. We will then take your questions after our prepared remarks. Now, I would like to turn the call over to Sensata’s CEO, Martha Sullivan.

Thank you, Joshua and thanks to everyone on the call for joining us this morning. I would like to start the call by covering Sensata’s financial performance for full-year 2018. More than one year ago at our Investor Day, we communicated a detailed plan to drive balanced operational performance in our business. This included accelerating our organic revenue growth, further expanding our industry-leading adjusted EBIT margins, generating double-digit adjusted EPS growth and creating more flexibility and capacity for value-creating capital deployment. On Slide 4, I show how we successfully executed against these objectives for full-year 2018 despite seeing some end-market softness at the end of the year, particularly in China. For 2018, we reported revenues of $3.5 billion and accelerated our organic revenue growth to 6% which was 200 basis points higher than the organic revenue growth we generated in 2017. The primary driver of this performance was strong, secular growth in both our HVOR and automotive businesses. Our HVOR business generated 15.5% organic revenue growth while our automotive business generated 4.5% organic growth in 2018 which is in line with our three-year guidance for the auto business to grow in the mid-single digits. We continue to outgrow underlying production in both the auto and HVOR end-markets due to strong secular growth. In 2018, we outgrew the HVOR end-market by 830 basis points and in auto we outgrew underlying production by 520 basis points. The primary drivers of this secular outgrowth continues to be the need for cleaner and more efficient products and increasing demand for more electrified products. We further expanded our adjusted EBIT margins reporting 60 basis points of margin expansion for full-year 2018. Over the past two years, we have expanded our adjusted EBIT margins by 160 basis points reflecting our continued commitment to further expand our…

Thank you, Martha. Key highlights for the fourth quarter as shown on Slide 8 include revenue of approximately $848 million in the quarter an increase of 0.9% from the fourth quarter of 2017. Of this growth, changes in foreign exchange rates decreased revenues by about 0.7% in the quarter. The net effect of our valves divestiture and the acquisition of GIGAVAC decreased revenues by 1.9% year-over-year. The net result was 3.5% organic revenue growth in the fourth quarter. Adjusted EBIT was $209 million in the quarter and grew 4.2% compared to the fourth quarter of 2017 or 5.1% organically. This organic adjusted EBIT growth resulted from higher volumes and lower compensation expense partly offset by the impact of tariffs. In an organic basis, adjusted EBIT margin expanded by 40 basis points compared to the fourth quarter of 2017. Adjusted net income was approximately $158 million in the quarter and grew 5.5% compared to the fourth quarter of 2017 or 7.1% organically. Adjusted net income margins were 18.6% of revenue, an increase of 80 basis points compared to the fourth quarter of 2017. Adjusted EPS was $0.95 in the fourth quarter of 2018, an $0.08 increase from the prior year quarter primarily driven by the higher adjusted EBIT and the favorable impact of share repurchases in previous quarters. Changes in foreign currency exchange rates added $0.02 to adjusted EPS in the quarter and divestiture of our valves business reduced adjusted EPS by $0.04 as compared to the prior year quarter. Now I would like to comment on our two business segments in the fourth quarter of 2018. I will start with Performance Sensing on Slide 11. Our Performance Sensing business reported revenues of $639 million for the fourth quarter of 2018, an increase of 0.7% compared to the same quarter last…

Thank you, Keith, please assemble the Q&A roster.

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Wamsi Mohan with Bank of America Merrill Lynch.

Yes. Thank you good morning. Can you comment on the seasonality and the implied pickup beyond 1Q that you are expecting given that you are starting the year flat-to-down on organic growth, but ending for the full-year you have got a 2% to 5% organic growth there is almost a 7-point change in trajectory. So can you help bridge that? And I have a follow-up.

Sure, Wamsi. From a seasonality standpoint, we are a little - coming out a little slower in the first quarter than we normally would. Point being some of the volatility that we saw in the fourth quarter around inventory corrections we expect to continue into the first, but we do expect to stabilize given the way we are calling end-markets. Secondly, when we look at our content growth those are very much tied to vehicle and equipment launches. And they are typically biased more toward the second half of the year, and then finally when we just look at the comps, we are going to be dealing with easier comps in the second half of the year and that is I think the high level of what lets us bridge to the guide that we have provided.

Okay. Thanks Martha. And then, in your EPS guide, if you saw on the year-on-year bridge you got $0.16 from share repurchases and $0.14 to $0.17 from FX. That itself gets you to the low end of your EPS range, but you are expecting some organic growth at the top line level. So why are you not seeing more leverage to the bottom line in 2019 from that, and what investments if any are going to offset that? Thank you.

Wamsi, the other piece would be the impact of the valves divestiture which significantly impacts year-over-year EPS growth. So that would be one thing that or I would guess the organic growth that we are expecting. So we are already expecting organic EBIT growth around 4.5% next year, on the 3.5%, so pretty good leverage and pretty good margin expansion year-over-year.

Thanks Paul. Just to clarify at the revenue level, I think you said that between the acquisition and divestiture, it’s roughly net neutral. Can you give us what it is at the EPS level as well? Thanks.

So I would say, it’s probably around $0.10 headwind.

Yeah, just as a reminder when you look at the gross margins, they are quite comparable. We are over-investing in OpEx and GIGAVAC just given tremendous response we are seeing from customers and that is what we expected to do. So we talked about very little accretion over the first couple of years of the acquisition.

Thank you. And the next question comes from Samik Chatterjee with JPMorgan.

Hi, good morning. Thanks for taking my questions. Martha, I just wanted to understand - I know I believe you have spoken about strong content growth in China in the past, and I think expectations have been that you grow content by roughly 50% over the three-year time horizon. In light of the weakness in the market itself or in the industry production itself, are you seeing any change in terms of your customers’ willingness to add content to the vehicles? Any change to your expectations on that front? Or is the content growth story largely impacting China?

Thanks Samik. It’s an important question and it’s one we keep our eye on, because in extreme recessionary environment, we have in the past seen some of those content ads slow down. We are watching that very carefully. We have not seen that, we are on-track with the content gains that we had expected, and actually as we move to the second half of 2018, we had some stronger content gains than we had anticipated in China. So they are continuing with content additions ahead of mandate and we are really seeing those mandates hold in terms of government enforcement and that is very important.

Okay. Got it, just a quick follow-up if I can on GIGAVAC. You spoke about good response or strong response from your customers. What is typically the lead time between getting an award win and putting something in a production vehicle on that front? When should we start to expect seeing this kind of strong response translate into revenues?

We see a typical design cycle that we would normally see in the automotive business, so not a lot of change there, and that is anywhere from 30 months to 48 months over time. The other comment I would make though is that a lot of the interest is also in China and the design cycles there tend to be a bit shorter. So that is more in the 24 month to 36 month time horizon. And having said that, we acquired a business that was growing strongly and we will continue to see the benefit of the organic growth that was already in place in GIGAVAC.

Got it. Thank you. Thanks for taking the questions.

Thank you. And the next question comes from Jed Dorsheimer with Canaccord Genuity.

Hi, thanks for taking my question. Two, I guess first one Martha if we take a look at the duration of your design wins versus the cadence of design wins it would imply - or at least my understanding is that you have a natural growth based upon the delta there. So as we look at this slight slowing here, I’m just curious if that is more - if that is a greater function of some end-of-life on - we saw some major announcements in 2018 of end-of-life on certain product lines, if that was the bigger issue or if it’s really just a matter of taking down the expectations on the SAAR numbers.

It’s actually independent of SAAR. So I appreciate the question and the chance to convey again why we track NBO closures and what they represent. So given our long design cycles that we have in the business, we monitor very carefully how much incremental new business wins are we getting, and those are really independent of end-market rates. So it’s the addition of new sensor content, protection subsystems on end unit equipment and that is how we are tracking it, to answer the question about the movement on that closure number, year-over-year, every year these now represent incremental revenue from the baseline, and so we are enjoying content gains right now based on wins that we had 3, 4, 5 years ago. So this is a very long-term leading indicator for the business. It’s - I think much more useful to look at it on averages over time, we mentioned that 2018 NBO closure rate was the second-highest over five years. So we are dealing with a moving average up on that NBO closure rate. We had a very high number in 2017 and that was based on the fact that we saw customers in China and in Europe pull ahead their contract decisions on some mandated content. They wanted to get that done in 2017. We had expected that would actually close in 2018 and it got very much accelerated into the late half of 2017 if that helps.

Thanks. That is useful and helpful. And maybe just as a segue and follow-up to that, as we look at the integration of GIGAVAC and we look at the portfolios of both EV, PEV, it’s still somewhere we can debate about but somewhere around 2% to 3% right now, and the range of forecasts are anywhere from 15% to 50% over the next 10 years. So you seem fairly well positioned for this transition. Combine that with decline in China, it would seem like you should have much greater content growth per unit for 2019. Would that be the case? And when will you be updating those figures?

See, the content growth piece as it relates to GIGAVAC again as you called out, the EV market itself is quite small today. So the number of vehicles is small, and it’s going to be I think in the next couple of years probably difficult to move the overall content rate needle just given what is a pretty small part of the overall end-market. If we simply looked at our content growth on EVs, it will be strong, but it’s a low denominator if you will. Our content growth rate was very strong in 2018. We are expecting that to be - to continue, strong momentum into 2019. And it’s the combination of What is happening in on commercial truck, off-road equipment, auto and gains that we are seeing on the industrial side of the business related to more efficient unitary air-conditioning, material handling opportunities, broad range of things happening in addition to I think the way we are positioned very strongly in electrification.

Thank you. And the next question comes from Steven Fox with Cross Research.

Thanks good morning. First of all I was wondering Martha could you just expand a little bit on the comment that you are seeing or expecting markets to stabilize now after some of the surprises in Q4? Especially like some of the more cyclical markets like auto and now Class 8 trucks. What are the tangible signs that you would point to that say it doesn’t get worse from here or maybe it gets a little bit better? And then I have a follow-up.

Yes. To be clear, we are actually expecting more end-market decline. So let me clarify my comment. When I’m talking about stabilizing, given the abrupt decline that we saw in China for example and given what we see as slowing order rate for North American Class 8 Truck, we saw inventory takeout in the fourth quarter. We expect that kind of turbulence to continue in the first quarter. So that is the element that impacts our demand that we would expect to stabilize once we move from the first quarter. Let’s separate that from what we think actual end-market production is going to do and we do expect end-market production to decline for example in China auto year-over-year. We are expecting that to be a down year from 2018. We are expecting Class 8 North America trucks to actually be a slower production rate overall in 2019 than in 2018. So I hope that that clarifies the remark about stabilization. There is end-market decline and then there is volatility. We saw a lot of volatility in the fourth quarter. We think we are going to continue to see some of that in the first quarter.

Got it. So mainly you are pointing to early part of the year the inventory cycle working itself out?

That is right.

Great. Thank you. And then just as a follow-up, given where you are guiding to revenues and now restating how you are looking at operating profit versus EBIT could we get a little help on what operating expenses in dollars could look like for the year versus what the Q4 reported number was? Thanks.

I mean, the changes are going to be relatively minor in terms of the dollar magnitude between the two measures. We just think it’s a more widely accepted consistent metric to use and so we will make that change, and we will provide you with the information you need in March so that you can restate your models.

Thank you. And the next question comes from Rich Kwas with Wells Fargo Securities.

Hi, good morning everyone. Just a follow-up in terms of the assumptions here. So down 3% to 4% on China, there are some out there some of your peers that one of them at least you listed in the back of your presentation assuming down 8% in China for the year. Is this just a function of comps as you mentioned Martha in the second half of the year getting more favorable? Or do you see some - how de-risked is this in your view at this point with the down 3% to 4%?

Yeah. When we look at our peers, I would say just pay attention to fiscal year versus calendar year, so in some cases their guide may include a really rough fourth quarter 2018, but to answer your question Rich, we are not actually factoring in any benefit of a stimulus. So we have looked at - as best we can, we have looked at where do we think inventory is sitting in terms of vehicle inventory, we have looked at what the overall production rates were. We have looked at demand in the Tier-1, Tier-2, Tier-3, Tier-4, Tier-5 cities because that is having an impact. We are I think below third-party forecast, and so we think that is appropriate. And so those are the elements that went into our overall thinking about the China auto market.

Okay. And then just as a follow-up, maybe this is for Paul. Restructuring how should we think about that for 2019? How do you feel about the cost structure given some of the headwinds at least in the early part of the year? And then is there an update on tariff? I think that was supposed to be neutralized for 2019? Just an update there would be appreciated. Thank you.

So in our press release, you can see what we are thinking about in terms of restructuring for 2019. Those are projections of what could happen, but clearly we continue to look at our cost structure to try to drive as much efficiency and to optimize them as much as possible. As related to tariffs we talked about $6 million to 8 million in 2018, in the second half and that is about where it came in, and for next year we expect to be at that same expense level. So net-net no impact year-over-year as it relates to tariff expense - tariff costs.

Thank you. [Operator Instructions]. And your next question comes from Shawn Harrison with Longbow Research.

Hi, good morning. Wanted to dig into the share buyback, you obviously exceeded the 25% target that was set a little bit a while ago in terms of free cash flow. Given the growth in net income you forecast for the year and an increase in free cash flow, do you think you would exceed that 25% of the $500 million plus again for 2019?

So we have an authorization just to restate for $250 million. We talked - we put that in place in the third - in the fourth quarter. It was up $250 million up to 18 months, and so as we look at our capital deployment opportunities, share repurchase will certainly feature as a piece of that and we expect to sort of be on-track to completing that authorization in the timeline that we suggested.

Okay. And then as a follow-up Martha you mentioned that some of the content items in China were on-track. I’m guessing that was referring to TPMS, but maybe you could highlight the expected revenues from that adoption in 2019? And what kind of the trailing number was exiting 2018, please?

So the content growth in China is much more than TPMS. We are seeing very strong pull for content related to emissions regulations that are very similar to what we see in Europe. So we are shipping into gas particulate filter applications, we are shipping into more vehicle stability control system. So it’s a - quite a broad range of content opportunities in China. I don’t have a number for you on TPMS. We should be getting to full deployment by the time we exit 2019. It’s an important part of the content growth story in China, it’s definitely not the only part.

Thank you. And the next question comes from Christopher Glynn with Oppenheimer.

Yeah. Thanks, good morning. As you take the measure of Europe and WLTP, wondering on your latest view if that becomes a favorable flush at some point and how the delays kind of fade if you see that as kind of a uniform industry trend or more staggered by OEMs?

We think we need to get through the end of the quarter for that to play out and it’s taking longer in some cases than we would’ve anticipated. So once they can stabilized, I don’t think it’s a huge tailwind, but it should help with the volatility issue that I talked about earlier on the call here.

Okay. And then looking at the free cash flow conversion of ANI last year in the guide, I’m just wondering if you previously had an 85% to 90% target. Wondering if 75% to 80% is a more realistic expectation given your rate of the new business wins and kind of investment that, that will entail.

So I think the two things that we continue to has changed the outlook a little bit in terms of conversion, the one is that capital is a little bit higher than we originally planned. Some of that is because of the acceleration of the need for gas particulate filters and things like that in Europe which is increasing our production capacity at a faster rate, and then the second is sort of an inventory management which we continue to make progress on, but not as fast as we originally anticipated. So those are probably the two big things that are different.

Thank you. And the next question comes from David Kelley with Jefferies.

Good morning. Thanks for taking my questions. Two quick ones for me and the first one you referenced the increased Performance Sensing R&D costs I think related to fast-growing mega trends. Was that in line with your expectations? Or are you seeing further acceleration in development? And I guess how should we think about the allocation of those dollars? Is it acceleration in electrification?

Well, let’s put it this way, the investment that we are making is in line with what we expected. So we continue to invest in intersecting those mega trends in all the win that - business that we have been winning that goes through the process of launching those over a couple of year periods. So it’s in line with our expectations, so nothing different there just that it’s a year-over-year increase as a - in terms of an expense.

The one comment I would make is with the acquisition of GIGAVAC and a very deliberate decision to continue What is been a strong growth rate in that business of 30% growth rate, we felt it was important to increase the OpEx as the R&D for that entity in particular, and that was an acquisition that we made at the end of the year. So on - the overall net effect of that would be stronger spend overall for Sensata R,D&E.

Okay. Great. That is helpful and then just one quick follow-up on Q1 organic growth guidance. Could you walk us through your underlying assumption for I guess the global auto market decline or the view there? And could you speak to China specifically as well? How you view particular market volumes in China given the recent slowdown?

Yeah, I think in the first quarter we are moving sideways on end-market. So we saw a China contraction of 15% in the fourth quarter in production. We are not looking for a lot of rebound there, some improvement, but really in line with the year that is down overall 3% to 4% in production. And then there is still this volatility issue particularly in Europe that we think will play out through the first quarter, and that is going to mean a very soft end-market picture in the first quarter. That is - that is the number one factor driving our guide as you look at our fourth to first transition.

Thank you. And the next question comes from William Stein with SunTrust.

Great. Thanks for taking my questions. First, Martha, you highlighted that in sort of the buildup of your demand view for the year, you are not expecting a stimulus, but you are also not expecting any sort of recessionary environment. Can you give us your view on - or what you assume your growth outlook as it relates to the trade conflict between the U.S. and China tariffs? Does your guidance assume that, that gets resolved in a constructive manner? Or does it matter maybe less to your business aside from the cost impacting [indiscernible]. Thanks.

Your last comment is correct. We don’t see a big demand impact in terms of the trade tension. Where we would look to that is how much of our business gets exported through customers out of China and into the U.S. And it’s not a large part of the business, it’s maybe $30 million to $40 million, and we have been living with that really all year long. So we are not expecting that to get better as we move from 2018 to 2019, and as it relates to the demand, the demand side of this, there is a lot of debate about how much that is actually impacting domestic demand in China which is the more important factor for us.

I appreciate that. As a follow-up, periodically you have updated us on your dollar content per electric vehicle versus internal combustion engine and gas versus diesel. Any update that you could provide us or a reminder of that split remains a sort of a I think a controversial issue with Sensata.

Boy, I would really point you back to our third quarter earnings call, do I have that right, Joshua?

Yes.

We gave very deliberate numbers on that. We would - it was really post the GIGAVAC announcement. So take a good look at that, we would not expect content numbers to change over the course of a quarter, so no big update on that, but it’s pretty, pretty clear that electrification is a strong tailwind for Sensata given What is been happening to our content growth there.

Thank you. And the next question comes from Brian Johnson with Barclays Capital.

Yeah. Just a couple of questions left. Within industrial could you give us a sense of your assumptions around aerospace and other industrial end-markets underlying the growth there?

Yes. What we are looking at in industrial just given that it is - it’s a fragmented market, China PMI is an important element there, so we are expecting that to remain in - below the 50-level for 2019. Just digging up the data here for aerospace. Keep in mind that is about 4% to 5% of our overall revenue. So not a huge part of the business. Some of the other markets again these are, they are all sort of small parts of our business. But when we look at all the indexes, we ship into semiconductor equipment, it’s about a $60 million to $70 million product family for us. That is going to be a down market in 2019. Housing is indirectly related as well. We don’t see a lot of contraction there, but not a lot of strength either. Is there anything else I missed?

We expect pretty good mid-single-digit growth in the aero business next year, so good end-markets continue.

Okay. And second question, so you think about the stepped up R&D is there any way just as we kind of think of modeling to separate the R part from the D part? Because D I assume it’s time to launches and the kind of pre-volumes getting ready to ramp up whereas the R is more of an ongoing investment in the future.

Yeah. I think the way to look at that in our financial framework, we break out R&D and that is more - that is more the intense technology development. We had - we talked about an R&D and E spend so Research Development and Engineering, and the engineering piece is embedded in our COGS. That combination gets you to about 6% to 7%.

A little bit about 7%...

Yes in total. You can see the breakout on the R&D as well for the engineering.

Thank you. And the next question comes from Mark Delaney with Goldman Sachs.

Yes, good morning. Thanks for taking the questions. First question is a follow-up on the comment about inventory reductions, Martha you mentioned it’s in the different end-markets the Company started seeing customers reducing inventory in the fourth quarter. Can you give us a bit of better sense about across different end-markets where inventory may be at this point, and any areas where it’s either higher or lower? And then related to the inventory question, I think in past periods of negative auto production, the auto supply chain was taking down inventory which was a partial offset to your content growth. I’m curious how Sensata thought about the inventory dynamic when it was thinking about the 2019 guidance?

Yes. We are - we have looked at that really as a first quarter phenomena, just given the abrupt drop that we saw in China in particular, so we have seen some inventory correction there. We think that is not so much on the auto side as we move into the first quarter, but we will continue to see it in industrial end-markets in China. We also saw some of that happening in Europe, again we think related to the WLTP and to a slowing production market. The customers are getting nervous and really trimming their overall inventories there. A little bit of that overhang into the first quarter, and then finally on North America Class 8 given the slowing order rates for trucks, we saw our customers tighten in the fourth quarter as well, and we are planning on that through the first quarter, but that should be behind us by the time we exit the first quarter.

Got it. That is helpful. Just a follow-up on the M&A opportunity, Martha you mentioned in your comments about you are continuing to look for bolt-on M&A and especially given how nice of a start GIGAVAC is off to. Any sense of what the pipeline looks like and whether or not we should think about Sensata potentially doing bolt-on M&A this year? Thanks.

Yeah, the pipeline is active. It’s biased much more outside of automotive. When we look at where we are positioned in the industrial landscape, we have nice visibility to a barely fragmented market. Valuations we are watching closely and we would expect that those should correct. And at the same time making sure that we maintain a healthy balance sheet. So the fourth quarter was a period of end-market volatility, but we had really good conviction around GIGAVAC and saw a nice return on that investment. As we see those opportunities, we will continue to execute.

Thank you. And the next question comes from Joe Giordano with Cowen.

Hey guys. Good morning. This is Tristan in for Joe. I’m looking at your three-year target for margin expansion of - sorry 250 basis points. I think you did 60 bps in 2018, it looks like your guide implies about 70 bps in 2019, so that leaves about 124 for year three which looks like high bar to clear, but definitely not impossible, am I thinking about this correctly?

Yes, you are thinking about that we have to deliver about 120 basis points to get there. We have delivered more than 100 basis points in prior years, so it’s something certainly we feel we have the ability to do, it’s going to be driven by our ability to continue to drive cost out, execute really well continue to see great growth. And we expect to be in line with our 4% to 6% over the three years based on our year 2020 based on where markets are today, so we think there is a clear path to get there we just have to execute to make it happen.

Thanks. And just a quick one on the LiDAR scene, it seems that there is a new company emerging almost every month, how do you keep track of the competitive environment there? And would you consider making maybe an investment in another company to sort of diversify your exposure there? Thank you.

You are right. It’s a very active landscape and we are really happy about where we are positioned in that landscape right now, I think we have - given that we were I think pretty early on in investing in the space, we have got a great insight into a number of use cases around LiDAR. And as you look at those use cases, they often imply different technologies. So we are already partnering for various use cases beyond our Quanergy investment, and we will continue to do so. The thing we keep our eye on is the time line to actually get to level three, level four, level five, driving in automotive, and that time line is somewhat pushed out. So we are trying to be prudent in terms of magnitude of investment aligned to the timing of the opportunity.

Thank you. And the next question comes from Matt Sheerin with Stifel.

Yes. Thank you. Just another question regarding how you are seeing the Sensing Solutions business play off there, specifically in the appliance and the HVAC market where I know there is China exposure. It sounds like you are seeing inventory pressures there as well. So how do you see that market playing out?

I think it’s going to play out as we have seen it in the past. So we went through the cycle in 2015. This feels very familiar, when we look at the part of our business that is exposed to that kind of dynamic, the difference I would point out between 2015 and where we sit now gives much more of our Sensing Solutions has a secular growth dimension. So the acquisition that we made of CST has put us into some nice positions in material handling. We are bringing more technology Sensing Solutions-type products into that environment. So you are not seeing as great a volatility impact on our overall business. If we would’ve had the same dynamics, we wouldn’t that we had in 2015 we would be predicting no growth, down growth in overall Sensing Solutions which is not our expectation for 2019.

Thank you. And the next question comes from Jim Suva with Citi.

Thank you very much. The subsidies we know that there is an impact to the SAAR number that gets sold. Is there any impact to subsidies and the changes of content that you have seen?

So Jim are you asking about incentives, when you say...

Yes. Yes.

Okay incentives. You know, no there really isn’t - they are sort of on the margins if there is any impact. One of the things you know we tracked really carefully is overall diesel engine production and diesel engine consumption. And to the extent that you have had municipalities for countries dis-incentivized that powertrain those have been played out I think pretty well, and we are seeing that decline in overall diesel take rates that we had talked about, but generally speaking those incentives have no impact on our content.

Thank you. And the next question comes from Craig Hettenbach with Morgan Stanley.

Yes, thank you. Martha, just a question on the heels of the GIGAVAC acquisition just how you are seeing the environment this year for other potential tuck-in type deals and then how you’d measure that versus the buyback of Sensata?

Yes. As I mentioned our pipeline is active. It’s very much concentrated around bolt-on, medium to small acquisitions that are focused in end-markets outside of auto. We still believe that is a great way to create returns for our shareholders, but we look at both options on a returns basis. So repurchase versus acquisition we are just drilling those down to the same returns analysis to make sure we are making the right call for our shareholders.

That is all the time we have allotted for today’s call. So I would like to turn the call back over to Joshua Young.

Thank you, Keith. I would like to thank everyone for joining us this morning. Sensata will be presenting at the Barclays Industrial Conference in Miami on February 20th, and the Citi Industrial Conference on February 21st. We would also welcome you the opportunity to visit us at our headquarters in Attleboro, Massachusetts. We appreciate your continued interest in Sensata. Thank you and good day.

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