Jacob A. Sayer - Vice President of Investor Relations and Global Communications Martha N. Sullivan - Chief Executive Officer, President and Executive Director Paul S. Vasington - Chief Financial Officer, Chief Accounting Officer and Executive Vice President.

Wamsi Mohan - BofA Merrill Lynch, Research Division Mark Trevor Delaney - Goldman Sachs Group Inc., Research Division Shawn M.

Harrison - Longbow Research LLC William Stein - SunTrust Robinson Humphrey, Inc., Research Division Jim Suva - Citigroup Inc, Research Division Richard Michael Kwas - Wells Fargo Securities, LLC, Research Division Ambrish Srivastava - BMO Capital Markets U.S. Christopher Glynn - Oppenheimer & Co.

Inc., Research Division Amit Daryanani - RBC Capital Markets, LLC, Research Division.

Good morning, and welcome to the Sensata Technologies Holding N.V. Second Quarter 2014 Earnings Conference Call.

At this time, I would like to inform you that this conference call is being recorded [Operator Instructions] For opening remarks and introductions, we'll turn the call over to Jacob Sayer, Vice President of Investor Relations and Corporate Communications. Mr. Sayer, you may begin..

Thank you, Stephanie, and good morning, everyone. Earlier today, Sensata issued a press release describing our financial performance for the second quarter of 2014. If you did not receive a copy, you may obtain it from the Investor Relations section of our website at sensata.com.

This call is being webcast live, and a replay will be also 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, 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 with Generally Accepted Accounting Principles. We believe these non-GAAP measures enhance the understanding of our performance.

Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release, 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, our President and Chief Executive Officer; and Paul Vasington, our Chief Financial Officer. Martha will review highlights from the quarter and then will discuss trends in the end markets that we serve.

Paul will provide a more detailed review of our financial results, including segment data for our Sensors and Controls business units for the second quarter. He will also outline our third quarter and updated full-year 2014 financial guidance.

We'll hold questions until after our prepared remarks [Operator Instructions] I'll now turn the call over to Martha Sullivan, our President and Chief Executive Officer.

Martha?.

Thank you, Jacob, and thank you, all, for joining our second quarter 2014 conference call. 2014 is shaping up well, as we drove better-than-expected net revenue growth and solid earnings performance in the quarter.

We continue to deliver on our promises to our shareholders of strong organic revenue growth, driven by increasing content, coupled with superior capital deployment through high-returning acquisitions and share repurchases.

Financial highlights for the quarter include, net revenue for the second quarter was a record $576 million, an increase of nearly 14% from net revenue of $506 million in the second quarter of 2013. We saw strong revenue growth broadly across our business, including over 8% organic growth and strong performance from recent acquisitions.

And adjusted net income for the second quarter was a record $106.8 million or $0.62 per diluted share, a substantial increase of approximately 15% from adjusted net income per diluted share of $0.54 last year.

The macroeconomic landscape continues to be slowly improving with positive GDP growth and growing production of light vehicles and heavy trucks globally. Moreover, new business wins continue to convert into product launches, providing an engine for strong organic revenue growth that outpaces the underlying market.

Our revenue in the second quarter, from the European automotive sector, was up 13% from the prior year. Significantly, outpacing production growth, primarily a result of strong sensing content growth. In addition, vehicle registrations were reported up 6.5% in the first half compared to last year, according to third-party data.

Registration data supports our expectation that light vehicle production in Europe will grow approximately 3% for the year. And thanks to recent new program launches we expect our revenue growth in the European automotive sector to outpace this.

Our sales in the North American automotive market segment grew 16%, as compared to the year-ago quarter, reflecting the impact of the Wabash acquisition and sensing content growth in the region, offset somewhat by the lingering effect of the OWS product obsolescence.

While OWS is now a small part of the overall business, its effects slow our revenue growth in the North American automotive end market compared to a year ago. We continue to perform well in Asian automotive markets, with revenue up 17% in the second quarter from last year.

This is driven by China, where revenue from the automotive sector is growing over twice production growth, demonstrating strong sensing content growth. In Japan, after the first quarter pull-in due to an increased consumption tax, sales of light vehicles fell in the quarter as expected.

This is expected to continue and, combined with lower exports, is expected to lead to production declines in Japan in the second half of 2014, continuing into next year. Our revenue from the heavy vehicle off-road market grew strongly again this quarter and now represents over 11% of overall revenue.

This is due to recent product launches, the impact of the Wabash acquisition and expanding production of heavy truck, especially in North America. The pending acquisition of DeltaTech will substantially increase our presence in the heavy vehicle and off-road market. We also serve appliance HVAC in industrial markets.

We believe a good leading indicator for these end markets is manufacturing Purchasing Managers Index data. In China, PMI has signaled contraction until recently. Consistent with this, we have seen weakness in the China domestic appliance and industrial markets.

Moreover, cooling days have been slightly lower in North America this year, driving lower HVAC demand and higher inventory in the channel. However, sensor content growth in HVAC has offset this during the quarter.

In addition, we saw a 20% revenue growth in our other end markets in the second quarter, propelled by strength in commercial aerospace and semiconductor manufacturing.

Sensata helps satisfy the world need for safety, energy efficiency and a cleaner environment by sensing physical phenomena and translating these into information in closed-loop control systems.

The increasing adoption and complexity of these systems, in part driven by regulatory requirements, propels sensor content growth over and above end market growth. We collaborate closely with customers to identify new applications at early stages of development and offer differentiated sensing solutions to improve performance and efficiency.

Moreover, we provide sensors to address regulatory requirements, such as the upcoming Euro 6 regulations that will significantly reduce tailpipe emissions, CAFE requirements in the U.S. that are driving improved fuel economy and China 4 requirements that mimic Europe in improving emission standards.

We have demonstrated our ability to move early at moments of market or technological disruption to establish incumbency within application. Recent examples of new product launches include new braking system sensors designed for start-stop application, which improve fuel economy and substantially improve manifold absolute pressure sensors.

Our new business wins continue to be robust and in line with our organic growth objectives. In markets outside of the passenger car markets, such as industrial, HVAC and aerospace, similar growth drivers of safety, energy efficiency and a cleaner environment propel sensor growth.

In addition, manufacturers of heavy vehicles face similar pressures to make their equipment cleaner and more efficient. This will be a market of increasing importance for Sensata.

In addition to deploying $170 million of capital to repurchase shares as part of our capital deployment strategy during the second quarter, we recently announced the acquisition of DeltaTech Controls to expand our ability to address the needs of heavy vehicle off-road OEMs. This transaction is subject to regulatory review in the U.S. and Germany.

But we are planning to close during the third quarter. DeltaTech builds on our magnetic sensing platform and expands our focus into sensor-rich areas of off-road vehicles, where we will be able to grow further content.

Through integration, we intend to improve DeltaTech's operations and grow revenue and margins by leveraging our global sourcing and manufacturing activities and by targeting additional OEM products.

As a result of our disciplined valuation and integration practices, we expect DeltaTech to deliver $0.11 to $0.13 of adjusted earnings per share once integrated and provide an attractive long-term return to shareholders.

Looking ahead, the M&A pipeline continues to be robust and we remain focused on businesses that are close to our core in terms of technology, growth drivers and end market exposures, while offering the potential for significant value creation and return to shareholders. We recently expanded our executive team in alignment with this M&A opportunity.

I am pleased to report that Hans Lidforss has joined us to run our strategy and M&A efforts. Hans brings many years of experience to Sensata. He was recently Head of Strategy at Taleo software and had previously been Vice President of Strategy and Corporate Development for Hewlett-Packard, in addition to working in private equity.

Before I turn the call over to Paul to review our second quarter results in more detail, I'd like to deeply thank our team at Sensata for a great first half of the year.

Paul?.

Thank you, Martha. Second quarter 2014 net revenue was $576 million, increased 13.7% compared to the second quarter of 2013. Of this, organic revenue growth was 8.1% and acquisitions contributed 5.4%. Adjusted EBITDA for the second quarter was $151 million or 26.2% of net revenue. Adjusted net income was $106.8 million or 18.6% of net revenue.

When compared to the prior year, profitability indices are lower due to the impact of recent acquisitions, which include integration cost of $3.1 million. Productivity gains continue to be robust and more than offset price declines and increased R&D investments for new business wins.

Cash taxes in the second quarter were approximately $8.3 million or 6% of adjusted EBIT, consistent with our overall target. Cash at June 30, 2014, was $185 million. For the second quarter, we generated $112 million in cash from operations, used $93 million in cash for investing activities and used $168 million in cash for financing activities.

Capital expenditures in the second quarter were $40 million as we continue to invest in growth and in our operating systems. Capital allocation is a strategic imperative for Sensata and we continue to prioritize the deployment of capital to acquisitions which have the potential to provide the greatest return to shareholders.

Our acquisition pipeline remains full and aligned with our strategic intent. Strong and stable cash generation and sound financial policies, combined with attractive debt capital markets, provides plenty of ready capital to fund our strategic pursuits. Share repurchase are also an important lever for delivering value to our shareholders.

During the second quarter, we used approximately $170 million to repurchase 4 million shares directly from our private equity sponsors who now own slightly less than 9% of our outstanding shares. As of June 30, our gross debt stood at $1.7 billion and our net debt was $1.5 billion.

Our net leverage ratio stood at 2.7x, in line with our long-term target of 2x to 3x adjusted EBITDA. Now I'd like to comment on the performance of our 2 business units.

Sensor's net revenue was $420 million for the second quarter, up 16.2% from the year-ago quarter, as a result of a robust pipeline of new product launches, new program launches, acquisitions and growth in production of cars and heavy trucks, partly offset by the ongoing decline in OWS shipments.

Sensors profit from operations was $120 million, or 28.5% of Sensors net revenue, which was lower than the second quarter of 2013, due to the impact of recent acquisitions.

However, volume leverage and operational efficiencies continue to drive margin expansion and outpace the impact of price declines and increased investments in research, development and engineering to execute our growing pipeline of new business wins.

Controls net revenue was $156 million for the second quarter, up 7.4% from the year-ago quarter, due to global market growth, and a strong backlog coming into the quarter, probably offset by domestic -- soft domestic demand in China. Controls profit from operations was $47 million or 30.1% of Controls net revenue.

This index is sequentially higher but slightly down from the same quarter last year due to increased investments for growth, including research development and engineering. We use a combination of third-party predictions for production growth as well as our own internal estimates in our planning processes.

Our outlook for light vehicle and heavy truck production remains broadly consistent with the guidance we provided earlier in the year and is consistent with third-party estimates with the exception of Europe.

In Europe, our internal estimate for light vehicle production growth remains at approximately 3% for 2014, while third-parties have been steadily increasing their estimates towards the 3% rate.

We are updating our guidance for the full year of 2014, which does not include the impact of the recently announced acquisition of DeltaTech Controls, which is expected to close in the third quarter.

We are raising our guidance for net revenue to a range of $2,180,000,000 to $2,230,000,000 or an increase at the midpoint of approximately 11% from the prior year. Adjusted EBITDA of $590 million to $602 million, approximately 27% of net revenue at the midpoint.

Adjusted net income of $412 million to $422 million, approximately 19% of net revenue at the midpoint. And adjusted net income per diluted share of $2.39 to $2.45 representing growth of approximately 13% at the midpoint and reflecting a fully diluted share count of 172.2 million shares.

Turning our attention to the third quarter of 2014, our financial guidance includes the following. Net revenue of $535 million to $555 million, which at the midpoint is an increase of approximately 9% from the third quarter of 2013. Our current flow rate stands at approximately 88% of the midpoint of this guidance.

Adjusted EBITDA of $147 million to $154 million, adjusted net income of $102 million to $108 million. And adjusted net income per diluted share of $0.60 to $0.63 representing growth of approximately 12% at the midpoint and reflecting a fully diluted share count of 170.7 million shares.

In summary, we are pleased to report that record second quarter results were near the top end of expectations and that we're raising our full-year revenue guidance based on the strength within acquired businesses.

Sensata continues to deliver on its promises of strong organic growth, combined with superior capital deployment through high returning acquisitions and share repurchases.

While acquisitions lower our overall margins in the short run as a result of lower starting margins combined with additional integration spend, they will contribute significantly to the earnings of Sensata in the long run. We would now like to open up the line for questions. Operator, please introduce the first question..

[Operator Instructions] Your first question comes from Wamsi Mohan with Bank of America Merrill Lynch..

Paul, you raised your revenue and EPS guide at the midpoint, but at the high-end you raised revenue but tightened the EPS range. How should we be thinking about any incremental expenses in the second half? And I have a follow-up..

In terms of the revenue, we're seeing stronger revenue growth from the acquired businesses, which we're very positive about. We think that's a very favorable outcome. Productivity gains will continue to be strong in the second half, as we signaled in the last time we got together.

And I think our expense levels will remain relatively intact and consistent with what we're seeing today..

Okay. Thanks. And as a follow-up....

Wamsi, just to add, given that that's coming from the acquired businesses, you don't see the same lift on EPS..

Also, on HVOR, you again had a very strong performance this quarter. So it's about 4 quarters now, of very strong performance and your comp start getting a little bit tougher here in the back half when you exclude the impact of the pending DeltaTech acquisition.

So how should we be thinking about HVOR over the next 12 months? From an end market and organic perspective, obviously, you'll get some acceleration because of DeltaTech..

Yes, we're confident that our content growth win in HVOR will keep that a double-digit grower for us. And obviously layering on the acquisitions is going to propel that a bit further. So continue to see strong double-digit.

You're right, the comparisons gets tougher, so that will probably drop down a bit from where it's been in the past 3 or 4 quarters..

Our next question comes from Mark Delaney from Goldman Sachs..

I was hoping you can elaborate a little bit more on what your expectations are in the fourth quarter. It seems like it's in the midpoint of your full-year 2013 revenue guidance, that you're expecting a slight sequential decline in the December quarter. And hoping you can elaborate on what you're expecting there..

Well, in the fourth quarter, I think the comps get more difficult when you compare it to last year. We're seeing production volumes coming down, they're going to be up in North American in the third quarter, they come down in the fourth quarter.

And so I think our guidance in the fourth quarter is prudent and I would couch it as somewhat being conservative..

The other comment I would make here, it a big different seasonality than we've had in the past. Generally, we would expect to see an increase and from third to fourth quarter. We're seeing strength in the third quarter driven by a reduced shutdown from the North American OEMs.

At the same time, we're seeing very slow but steady improvement, quarter-to-quarter, in places like Europe where there is recovery. So that's changing our normal seasonality a bit, and as a result, we see more flatness going from the third to the fourth quarter than we would've seen in prior years..

And then for a follow-up question, hoping you can elaborate a little bit more on the value proposition for DeltaTech and if any of that relates to being able to cross-sell some of your current products to the DeltaTech customers. And if you could also just elaborate on that topic.

I mean, by my math, for DeltaTech at $0.11 to $0.13 of accretion, it seems like the implied adjusted net income margins may be a little bit below the 22% to 23% that Sensata normally targets.

So I'm wondering, if I do assume some cross-selling of your current higher margin products, does that bring the overall profile of the business still within those longer-term adjusted net income target margins or maybe, over time, the DeltaTech accretion and end margins are higher than what's initially expected?.

Yes, so let's talk a bit about the value proposition there. There are a number of things that makes this a really compelling addition to our business. The first being that, in and of itself, it's tapping into a content tailwind where we're not participating today. And this is in the area of operator controls.

What we see happening in that space is a move towards more energy efficiency, or engine efficiency, if you will, that requires closed-loop load management control. That brings us into a new sensing space inside the off-road market in particular. And it calls upon our same technologies that we use in speed and position.

So it's highly complementary, it drives more content growth and it extends us further beyond the passenger car market. So we're pretty excited about it. Yes, you're right. There is an additional benefit where we do expect to do some cross-selling and to customers that were not highly present today.

And we're seeing some of that potential as we've made the announcement. So excited about that as well. Relative to the overall margin characteristics, I'm going to turn it over to Paul to talk to that..

I guess, our perspective continues to be that when we think about acquisitions, where [indiscernible] we think it takes 18 to 24 months to integrate the acquisition. At that time they should start performing at levels consistent with the core ANI margins for Sensata, and we continue to target that in the 20% to 23% range..

Yes. So, expectation. It gets, certainly, towards the low-end of our range as we get though [indiscernible]. As you know, that can take 18 to [indiscernible] inside Sensata, given the intensity of our integration..

Our next question comes from Shawn Harrison with Longbow Research..

Two questions on the quarter, in terms of just the growth sequentially related to SG&A.

Was there incremental investments made in the quarter or were there seasonal factors or other dynamics maybe associated with the prior M&A?.

If you look sequentially from Q1 to Q2, the increases that you're seeing are primarily related to our [indiscernible] compensation cycle and increases in our variable incentive compensation, with new restrictive [ph] awards and option awards. Those are the largest drivers of the cost sequentially.

Looking at year-over-year, acquisitions have an impact as well..

Okay.

And then, it looks -- maybe this is just timing, but incrementally, cash spend on M&A this quarter, maybe you could just talk about what was the incremental $60 million spent quarter-to-quarter?.

We did a bolt on complementary acquisition in our mobile power space, that we think was a very smart acquisition, very well performing business. Good business fundamentals..

Okay.

Do you have any, I guess, details on margin revenue profile, et cetera?.

All in terms of revenue and the....

Highly accretive, from a margin prospective, already at Sensata margins..

Okay.

I guess, maybe can I get a little more detail on, within mobile power, who would be the big customers for that business?.

You know, it's an extremely fragmented market. I can tell you that it helps us increase our power management solutions in areas like renewables and there's lots and lots of customers. And we are talking about revenue that's less than $20 million on an annualized basis. So quite small..

Our next question comes from William Stein from SunTrust Robinson Humphrey..

I'm hoping you can just remind us, please, of the return on invested capital targets relative to M&A and also the timing that you think it should typically take the company to achieve those targets on new M&A..

In general, we have been holding ourselves to very strong double-digit ROIC. So at 15%, call it 14% to 16%, over time. When we look at overall IRR, we're looking for returns that are somewhat higher than that and really looking to make sure there's distance between our cost of capital and obviously the acquisition return.

So we tend to be fairly ambitious in that space. In terms of timing, because we do intensively integrate, it takes longer and it takes investment. So we've talked, typically, about an 18- to 24-month period for integration.

We're well along that on the Wabash Technologies acquisition that we made in January and we have that same phasing that we expect on the DeltaTech acquisition..

And maybe one follow-up, if I can. You've previously highlighted a 6% to 7% content growth view for 2014. I think, at this point, you don't typically give us a '15 view. But certainly you have a pipeline full of design wins that were probably won even some time ago.

And I'm wondering if you can give us a view as to whether you think you're on track, perhaps to see this in your target range next year?.

Sure. Yes, you're correct. We have the expectation of 6% to 7% this year, when we look at the business wins that we've achieved as well as the launches we're having now, we're confident that we're going to delivered to the '14 commitment.

Looking ahead to '15, we've talked pretty specifically about the impact of Euro 6, which comes into the second half of the year in 2015. So high confidence that in that second half period, we'll be back in the overall range. We're not yet guiding on '15, so don't have comment beyond that.

But just given how closely we've tracked the Euro 6 impact, we do expect that to drive us back to our target range on content growth..

Your next question comes from Jim Suva with Citi..

If we were to compare the Wabash and the DeltaTech acquisitions, it looks like DeltaTech is about $50 million bigger in size of revenues, yet the EPS impact looks almost like identical between the 2.

So can you help us understand either why the DeltaTech margins or EPS accretions will be less than Wabash or was Wabash just a really, really great deal? But just seems that the size differences are there. And I do realize that one's in sensors and one's in controls, but the operating margins between the 2 segments really aren't that different.

So why the big EPS being similar yet the revenues being so much larger for DeltaTech? Shouldn't we expect a bigger EPS impact?.

Yes. Look, fair question, and I think over time you will see that drift up very similar to Wabash and the rest of Sensata. This is a business that's growing very well. And it needs to continue to grow at a double-digit pace.

And so when we look at the R&D investment in a DeltaTech versus a Wabash, that is really a very close extension to our MSP business. So we're getting a lot of leverage on existing R&D there. There is a difference between the 2. So it's less about cost of goods than it is about an ongoing investment in growth..

Okay, that make sense. Then you talked about increasing your M&A employees, which is fabulous because I think that's a good use of cash for M&A.

That does that mean we should expect the M&A frequency in size to increase or were there like some skill sets that were missing, that you just had to add in? How should we think about your increased investment in M&A and what we should expect going forward?.

Well, I think the first thing I would encourage you to do is take a look at our pace over the past 6 to 7 months. So you've seen that we've already clicked that up. What we recognize is important is that, this become a part of our core growth strategy, and it has.

Given that, we are really looking to up our game on all fronts, to continue to make sure that the pipeline is full and is moving and to make sure that are transaction execution is best-in-class and that we have an overall repeatable process. So our ambitions haven't changed. We talked about what we expect M&A to deliver for us over time.

We're just making sure now that we're building the team that sustains that over a long period of time, we're taking a very long view in what we're trying to establish here..

Great. And a housekeeping item, for tax rate, given you've recently increased your M&As. Should we expect the tax rate to change going forward or what type of tax rate long-term should we think about tax rate forward? Since Sensata has a very favorable tax rate yet you're layering in more acquisitions..

I think, for the foreseeable future, we're going to stay within the 4% to 6% range on the cash taxes as a percent of adjusted EBIT, but with guidance towards the upper-end of the range..

Our next question comes from Rich Kwas with Wells Fargo Securities..

Two questions on controls here, the margin decrease year-over-year. I think, Paul, you referenced increased investment in R&D.

Was that the entire -- did that represent the entire margin decline year-over-year?.

That's a large portion of it..

Okay. And then, Martha, in your comments on HVAC, it looks like in Q2 results, at least from the manufacturers, I know it varies a little bit, but there certainly were some decent numbers on the residential side the North America and it looks like commercial has picked up a little bit as well.

Your comments was -- in terms of excess inventory and then what you are seeing in your business, did that reference North America or was that a comment about China or could you provide some more color around that?.

Yes, happy to do that. Primarily about China, and that's the area where we're not getting much market help at all, and a bit of a headwind when we look at HVAC. In terms of the Commercial business in North America and China for that matter, I did mention that we've been able to offset some of that market headwind with increasing content in HVAC.

And that is helping us, but that's quite independent of the overall end market dynamic..

Okay, and then just a quick one on Euro 6. I think if I recall you were assuming about 10% take rate for '14. Any change in what you're seeing, in terms of take rates at this point? I realize it's early, but any thoughts around that would be helpful..

Yes. We've been tacking that closely, and the 10% was going to come from very -- sort of low single-digits at the beginning of the year and then increasing as we got into some of the new platforms in Europe, and I'm happy to say that, that is on track. So we're confident of being able to hit that 10% take rate..

[Operator Instructions] Our next question comes from Ambrish Srivastava from BMO..

My first question, just a clarification on the full-year guidance. The guidance implies -- and you mentioned acquisitions contributing to that. So, organically plus content, 6% to 7%, and the rest is coming from acquisitions.

Correct, Martha?.

Well, the way we've constructed it is that, yes, content 6% to 7%, market growth is somewhat offsetting -- offset by price. And the rest is acquisitions and a little bit of tailwind from Fx..

Sorry, I cut you off..

I think you've got our perspective on that one, Ambrish..

Okay. And then just following up on the price. And we haven't talked about price declines in a while.

Where are we? Is it still the normal cadence that we should be modeling for both the businesses?.

Yes, it's very much on track with our overall frame. So haven't seen any big changes on either business at this point. So we are still in the 1% to 2% on pricing..

Okay. And if I could sneak in one more.

As we go through the year, how should we be thinking about the gross margin profile?.

So the gross margin profile will continue to stay in the range it is today. We continue to benefit from volume leverage and productivity gains, offsetting the price declines that Martha just mentioned..

And, again, be mindful that when we -- again, when we're acquiring, we're starting at gross margins that are significantly lower than Sensata's. So that's the lay-on that you need to think about..

So, I continue to focus more on the adjusted net income, margin rates is, ultimately, the long-term target for the business..

Our next question comes from Christopher Glynn with Oppenheimer..

Paul, wanted to take a little deeper walk on the EPS change, the prior high-end was $2.48. We get about $0.04 from the lower shares, that walks us up to $2.52, but in the new guide the high end's $2.45.

Can we just address that $0.07 gap and what factors emerge that weren't in the earlier guide?.

So, the guide now, we've narrowed the income, the adjusted net income, to still stay at a $4.17 midpoint, which we think is appropriate. We definitely have received a benefit from the $0.04 from the deployment of capital through the share repurchases.

In terms of tightening the range, we feel a bit more confident about our ability to deliver in that range.

And as we've mentioned, the revenue upside is driven by the acquisitions which -- as we continue to integrate those acquisitions are not contributing any real incremental profit beyond what we originally anticipated, although, the revenue levels are a bit higher..

Okay, I'm not sure that helps me. We can follow-up off-line. And then just wondering if -- I think we're hearing some rumblings for, potentially major ramp, last few months of the year, Euro 6, and build ahead by the supply chain, and -- I'm wondering if you could comment on that observation.

And to what extent that's factored into that ramp to get 10% for the full-year?.

We're not seeing anything that we would describe as a strong ramp and no indication of build-ahead. So it's not even not clear what the logic would be for a build-ahead. As I mentioned earlier, our profile did have the expectation that the take rates would be very low at the beginning of the year and would ramp through the year.

With a bit of an inflection, as some new models come into play in Europe, that have to be compliant. So very much in line with our expectation and a part of our overall capacity plan as well..

Our next question comes from Amit Daryanani from RBC Capital Markets..

I guess a couple of questions. One, could you just maybe talk about the inventory levels exiting the June quarter? It looks like it was up 14% sequentially and you're looking for sales to be down 5% in September? So curious what drove the spike in inventory in the quarter..

Our inventory, we have continued to focus on buffer stock and safety stock to ensure that we continue to meet our customers' expectations and requirements, and have high levels of online delivery.

We're also building a little bit of inventory in preparation for the transition to our new Oracle R12 system so we're building some buffer stock for that as well..

In general, we'll go through periods where we're continuously optimizing our operations. And that can be footprint-related, that can be upgrades of tools that we use. So, in that context, we'll have, from time to time, a quarter where you will see some building in working capital. We do expect that to get to our targeted rates..

Got it. And then how do we think about OpEx or SG&A, I guess, as you get to back half. Given some of the emergency that spiked up the numbers in Q2.

Do you think you can sustain $44 million, $45 million run rate in the back half or does it stay at these levels?.

SG&A will either stay at these levels or be slightly less as we move into the second half..

I guess just finally on the DeltaTech acquisition. I get asked this by clients a lot, but it doesn't seem like the traditional sensor or a controls business for that matter, they seem to be making more sub systems like joy sticks and foot pedal.

Can you just talk about the rational of going from components into systems? And does that inherently impede this content growth story that you guys have historically had? And what's the current margin structure at DeltaTech?.

Yes, sure. I can talk to the first piece. We'll probably not going to get into the specific cost structures of our acquisitions. But as we think about the portfolio at DeltaTech, we're pretty excited about it. We think about it as being sensor-centric. And that's the key here.

And so, when you look at what happens in operator actuators over time, in what becomes much more control close-loop, very analogous to what we do in our other markets. And, yes, it's the case that, that embeddedness comes with some expertise around tactic controls, and operator interface.

As we have spent time understanding the competencies and competitive advantages, we think this is actually a great add-on to Sensata. So it feels very much aligned in terms of the problems we're solving for customers.

The sensor-centric nature of it, the fact that we know this customer base very well, and that in some cases, we're actually bringing new customers in the same market segment. So we're excited about it..

Our next question comes from Rich Kwas from Wells Fargo Securities..

Follow-ups. So, for the back half of the year, on Euro 6 for commercial, last year there was a bit of a pre-buy towards the end of the year.

Is that going to have any meaningful impact on your top line growth in HVOR, in the second half of the year, particularly fourth quarter?.

Okay, got it. So the question is more around commercial than it is around passenger car. And so that portion of HVOR is still quite a small segment for us. We don't think it's going to change from where we've guided in the past..

Okay, all right. And Martha, on the comment to an earlier question regarding content growth for next year, with Euro 6 ramping up as the year progresses in '15, and then the content growth being in that range for the second half.

So how do we think about that with regards to the longer-term 7% to 10%? Is this kind of a function where you're going to be potentially above 10% in the second half of the year, next year? And then, maybe a little bit lower than that in the first half? I just want to try to interpret those comments a little bit more..

Yes, look. We're going to be consistent here. I think we've been really clear about what the impact of overall Euro 6 is on our business. We think that takes us into the range that we've talked about. We're a long way from guiding into 2015, at this point, just given what time it is in the year and given some uncertainties on end market as well.

And we've seen in the past that, that can impact how content actually rolls out in different regions in the world. So, at this point, I think you've gotten pretty good guidance on what we think Euro 6 can do for us and then we get into that timeframe where it's all in, in the business. We're confident that will bring us back to the 7% to 10%..

As there are no more questions, I'd like to turn the conference call back over to Mr. Sayer for closing remarks. Mr.

Sayer?.

Thank you, Stephane. I'd like to thank you all for joining our second quarter 2014 financial results call today. Later in the quarter, Sensata will be participating in the Citigroup's Technology Investor Conference in New York on September 2 and Morgan Stanley's Industrial Investor Conference in Laguna Beach on September 16.

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..

That concludes the call for today. You may now disconnect..