Good morning, and welcome to the Sensata Technologies First Quarter 20 2 Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Jacob Sayer, Vice President, Finance. Please go ahead.
Thank you, Andrew, and good morning, everyone. I'd like to welcome you to Sensata's Q1 2021 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President and Paul Bathington, Sensata's Chief Financial Officer. In addition to the financial results Press release we issued earlier today, we will be referencing a slide presentation during today's conference call. The PDF of this presentation can be downloaded from As we begin, I'd like to reference Sensata's Safe Harbor statement on Slide 2.
During this conference call, we'll make forward looking statements regarding Future events or the financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the projections described Factors that might cause differences include, but are not limited to, those discussed in our Forms 10 Q and 10 ks as well as other On Slide 3, we show some positive GAAP results for the Q1 of 2021.
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, we will relate to non GAAP financial measures. Reconciliations of our GAAP to non GAAP financial measures are included in our earnings release and in our presentation materials. The company provides details of its segment operating income on Slides 1213 of the presentation, which are the primary measure management uses to evaluate the business. Jeff will begin today's call with highlights of our business during the Q1 of 2021.
You will then provide an update on our recent progress in Key electrification and smart and connected megatrend growth areas. Paul will cover our detailed financials for the Q1 of 20
Thank you, Jacob, and welcome everyone. We'll then take your questions after our prepared remarks.
Now I'd like to turn the call over to Sensata's CEO and President,
Thank you, Jacob, and welcome, everyone. I'd like to start with some summary thoughts on our performance During the Q1 of 2021 as outlined on Slide 4, the business recovery we 20 2nd quarter. Our agile response to increased demand We drove 22% revenue growth from the prior year period, a record 942,500,000 We delivered $198,000,000 in operating income during the quarter, an increase of 61,400,000 and a 330 basis point expansion in margin from the prior year period. This growth is to our leading market positions and the strength and flexibility of our manufacturing and commercial model. We continue to capitalize on improving markets and supported our customers as they return to higher levels of production during the quarter.
The combination of more robust demand, our strong market outgrowth and the acquisition of Zurgo has enabled us to raise our financial guidance for the full year. I'd like to recognize the innovation and hard work Our entire team in achieving these strong results. Looking at our performance year over year, we once again Delivered strong market outgrowth. For the Q1 of 2021, we produced 10.70 basis points outgrowth in our vehicle off road business and 9 10 basis points of outgrowth in our automotive business. Sensata is in a strong financial position.
We generated $77,000,000 of free cash flow in the Q1 And we took additional steps to further enhance our financial position and flexibility. During the Q1, we redeemed our 6.25 notes that were due in 2026 and issued new notes due in 2029 at a historically low interest rate of 4%. These transactions extended the average maturity It lowered our total cost of fixed debt by 80 basis points to 4.5%. We are confident that our new business wins in 2021 will exceed last year's level of $465,000,000 This solidifies our ability to continue to deliver Strong outgrowth in the coming years. In Smart and Connected, we closed the previously announced acquisition of ZURGO Technologies on April 1, Greatly expanding our ability to provide data insights through transportation and logistics customers and adding a new customer base as well for these solutions.
We continue to invest in our megatrend growth initiatives and increased our organic investment to $12,000,000 in the Q1 from $6,000,000 in the Q1 of last year. These investments will allow us to pursue significant market opportunities. We also achieved a meaningful milestone through a joint venture with Sherrod Electronics, which I'll talk more about on the next slide. Moving to Slide 5. Sensata takes a holistic view of electrification and its growing on the markets we serve.
Electrification is not just about electric light vehicles to us, but it includes heavy vehicles applications, some of which are more nascent today. Sensata is already a leader, a leading provider in high voltage protection on EVs and charging infrastructure, and we intend to participate in areas of the evolving market that enable Electrification to become more widespread. Our joint venture with Sherrod Electronics extends our electrical protection capabilities to mass market EVs and other electrified equipment worldwide. Sherrard will contribute access to its ceramic high levitation contactor Intellectual property. These contactors are optimized for medium voltage applications in the 150 to 400 amp range common in mass market vehicles.
They will also dedicate engineering resources and contribute manufacturing equipment to the JV. Sensata will contribute $9,500,000 and dedicate application engineers and salespeople, And we plan to consolidate the financials of the JV in our P and L. The JV will provide medium voltage contactors to Transportation OEMs in China and Sensata will sell the product line to customers elsewhere in the world. This JV expands our contactor capabilities in the automotive market to vehicles that have shorter ranges and longer charging times, which are more common in Asia. This enables Sensata to offer a broader electrification solution set for electric vehicle manufacturers globally and increases our total addressable market by more than $500,000,000 by 2,030.
We are enthusiastic about this new partnership and the opportunities it provides. As I mentioned, electrification is To us is more than EVs and Sensata seeks to be a partner of choice for heavy vehicle and industrial OEMs Transitioning to electrified solutions as well. Sensata is a leading provider of electrification solutions for charging station OEMs, including those shown on Slide 6. In addition, we recently signed exciting business wins With new commercial EV powertrain supplier, Hylion and EV commercial truck manufacturer, Workhorse, Extending our electrification efforts. During the Q1, as previously announced, we completed the acquisition of Lithium Balance To add battery management systems to our product capabilities, we're expanding our capabilities in the e mobility space Beyond components by developing hardware and software solutions, including battery management solutions for heavy vehicle and industrial applications.
This also represents an incremental $500,000,000,000 in addressable market for Sensata by 2,000 Moving to Slide 7, we are expanding the electrification solutions we provide Our critical applications across all the end markets we serve, but especially in automotive. The rapid introduction of new electric vehicles Provides a healthy tailwind for Sensata's revenue growth. Our content in EVs represent a 20% uplift in content value as compared to the internal combustion vehicles of similar class. Its content uplift is derived From a broad array of Sensata sensors and other components that we design into battery electric vehicles, in many cases using the same from internal combustion vehicles such as brake pressure or tire pressure sensors. We also designed additional sensors For devices unique to EVs such as contactors and electric motor position sensors.
We are broadening and deepening our portfolio, our Our automotive addressable market is large today and growing rapidly. Applications in internal combustion vehicles make up most of our automotive addressable market today, and this space is expected As a result, we are expecting a doubling of our automotive addressable market by 2,000 and 3rd. On Slide 8, I want to provide an update on another meaningful milestone we achieved in our Smart and Connected initiative. We closed the acquisition of Zurgo Technologies on April 1 and welcome the Zurgo team, its capabilities and its customers to Sensata. Sergo is a leading telematics and data insight provider for fleet management across the transportation and logistics as well as emerging sensing applications and data services.
Zurgo is complementary to and meaningfully extends Sensata's organic smart connected solution for commercial fleet managers And is consistent with Sensata's strategy to move beyond serving vehicle OEMs and engaging with the broader transportation and logistics Zurgo expands our smart and connected addressable markets to $15,000,000,000 by 2,030 by adding cargo, container and light vehicle fleet management to our heavy vehicle OEM and fleet focus. Sergo is a fast growing business. It is expected to generate more than $100,000,000 in annualized revenue in 2021 and grow in excess of 20 percent per year over the next several years. We already have committed orders for more than 80% Of the revenue we expect XERGO to generate for the balance of 2021. XERGO is also very profitable Approximately 50% gross margins and 25% EBITDA margins and requires little capital expenditure.
Also during the quarter, we were pleased to sign up another top 25 North American fleet customer and began installation of our solution set, demonstrating our ability to move from selling hardware to providing data insights on a monthly recurring subscription model. Later in the quarter, we'll webcast a teach in for investors covering our transportation and logistics data insight initiative, so listeners can better understand this offering, The evolving market and our go to market strategies. I'm pleased with our progress against our megatrend initiatives, which supports our increased investment to pursue these large fast growing markets driven by secular trends. We intend to continue our efforts to expand Sensata solutions for these areas organically through third party collaboration and through acquisitions. As I've said before, we see numerous opportunities to utilize our strong financial position, our engineering capabilities, supply chain and customer To meaningfully enlarge our addressable markets through organic efforts as well as bolt on acquisitions and partnerships within these megatrends.
I'd now like to turn the call over to Paul. Paul?
Thank you, Jeff. Key highlights for the Q1, as shown on Slide 10, include record revenue of 942,500,000 an increase of 21.7 percent from the Q1 of 2020. Organic revenue increased 18.8% and changes in foreign currency increased revenue by 2.9%. Adjusted operating income was $198,100,000 an increase of 44.9% compared to the Q1 of 2020, primarily due to higher revenues, Savings from cost reduction programs and favorable foreign currency, partially offset by elevated costs related to the industry wide semiconductor chip shortage, higher spend to support megatrend growth initiatives, Higher incentive compensation aligned to improve financial performance. Adjusted net income was $137,600,000 an increase of 65.4% compared to the Q1 of 2020, largely due to higher revenues and improved operating performance in the quarter.
Adjusted EPS was $0.86 in the first quarter, an increase of 62.3% compared to the prior year quarter. Now we'll discuss our performance by end markets in
revenue increase of 18.8 percent year on year.
This compares with overall end market growth of approximately 10.9%, representing market outgrowth of 7.90 basis points for Sensata. Our heavy vehicle off road business posted an organic revenue increase of 32.8 percent, representing end market growth of 22.1% and 10.70 basis points Our China on road truck business continued to post better than expected growth on the adoption of NS6 emissions, Regulations. And we are also benefiting from a wave of electromechanical operator controls being installed in new off road equipment. For the past Our automotive business posted organic revenue increase of 19.3%. Automotive production rebounded from the year ago period, Growing 10.2%, our automotive business product market outgrowth of 9 10 basis points in the Q1, led by continued new product launches in powertrain emissions, safety and electrification related applications and systems.
For the past 3 years, automotive has delivered an average 5 60 basis points of market outgrowth. Our industrial business increased 16.8% organically as global industrial end markets continued to recover in the quarter. Strong growth in heating, ventilation and air conditioning, new electrification launches and supply chain restocking benefited our Industrial business. Our Aerospace business decreased 22.4 percent organically, reflecting reduced OEM production and much lower air traffic, which continues to negatively impact our aerospace aftermarket business. New product launches, primarily in defense, partially offset the significant aerospace market decline this quarter.
Now I'd like to comment on the performance of our 2 business segments in The Q1 of 2021, starting with Performance Sensing on Slide 12. Our Performance Sensing business reported record revenues Excluding the positive impact from foreign currency of 3.2%, Performance Sensing organic revenue increased 22.4%. Performance judging operating income was $195,800,000 an increase of 45% as compared to the same quarter last year, with operating margin of 27.4%. The increase in segment operating income was primarily due to higher revenues, Savings from cost reduction actions and favorable foreign currency, somewhat offset by elevated costs related to the industry wide semiconductor chip shortage. Performance Sensing generated incremental margin of 42% in the 1st quarter on higher revenue as compared to the prior year period.
As shown on Slide 13, Sensing Solutions reported revenues of $228,000,000 in the Q1 of 2021, an increase of 10.9% as compared to the same quarter last year. Excluding the positive impact from foreign currency of 2.1%, Sensing Solutions organic revenue increased 8.8%. Sensing Solutions' operating income was $66,900,000 an increase of 18.4% for the same quarter last year, with operating margin of 29.3%. Like Performance Sensing, the increase in segment operating income is primarily due to higher revenues and savings from cost reduction actions, somewhat offset by LOA costs from the industry wide semiconductor chip shortage. Sensing Solutions generated incremental margin of 46% in the Q1 and higher revenue as compared to the prior year period.
On Slide 14, corporate and other costs, not including segment operating income were $68,600,000 in the Q1 of 2021. Excluding charges added back to our non GAAP results, Corporate and other costs were $61,800,000 an increase of $8,600,000 from the prior year quarter, primarily due to higher research and development Business Development Spend to support our megatrend growth initiatives and higher global incentive compensation costs aligned to our improving financial performance. We currently expect approximately $50,000,000 to $55,000,000 in megatrend related spend in 2021 To design and develop differentiated sensor rich and data insight solutions for the fast growing and transformational megatrend vectors of electrification And Smart Connected. Slide 15 shows Sensata's Q1 2021 non GAAP results. Adjusted operating income was up 44.9% compared to the same quarter last year and adjusted operating margin increased 330 basis points to 21%.
The increase in both adjusted gross margin and adjusted operating margin, margin reflects a rapid increase in revenue from depressed levels Experienced last year due to the impact of COVID-nineteen pandemic, we acted early during the pandemic to reduce our cost structure While continuing to invest in megatrends, they're shaping our end market that we believe will enable us to deliver long term sustainable growth. We've included an operating income margin walk from the Q1 of 2020 to the Q1 of 2021, showing the margin benefits and increased volume and productivity as well as the impact of certain cost increases, including Costs associated with the global shortage of semiconductors, COVID related costs, higher incentive compensation costs and increased investments in our megatrend initiatives. As shown on Slide 16, We generated $77,000,000 of free cash flow during the Q1, representing a 56% conversion rate of adjusted net income, which was tempered by rising accounts receivable from higher revenues and the timing of 2020 cash bonuses paid to employees during the Q1 of this year. For the full year, we expect free cash flow conversion to be approximately 85% of adjusted net income. For the full year 2021, we expect capital expenditures
to be in the
range of $160,000,000 to 170,000,000 Sensata's net debt to EBITDA ratio was 2.9x at the end of March. Through increasing earnings and free cash flow generation, We expect our net leverage ratio to be near the bottom of our target operating range of 2.5 times to 3.5 times by the end of the year, Thanks for further acquisitions. We're providing financial guidance for the Q2 of 2021 as shown on Slide 17. As a result of improving economic conditions, stronger outgrowth and the acquisition of XERGO, We expect to generate revenues between $960,000,000 $990,000,000 for the Q2 of 2021, representing a reported revenue increase between 67% 72% compared to the Q2 of 2020. At the midpoint of guidance, we expect that foreign currency will increase revenues year over year by approximately 23,000,000 Excluding the impact of foreign currency, we expect an organic revenue increase of 58% to 63% in the 2nd quarter.
Our current fill rate is approximately 96% of the revenue guidance midpoint for the 2nd quarter. Our fill rate appears stronger as compared to previous quarters, as some customers have extended their order lead time in order to better ensure supply. We expect to report adjusted operating income between $195,000,000 205,000,000 At the midpoint, operating income margin is expected to be 20.5%, which includes A 150 basis point increase in our operating costs from the global semiconductor chip shortage Based on the entire auto supply chain as well as other sectors. On the bottom line, we expect to report adjusted net income between $34,000,000 to $144,000,000 and adjusted EPS between $0.84 $0.90 which includes a $0.01 increase of foreign currency at the guidance midpoint. At the bottom of the slide, we have provided an operating income margin walk from the Q2 of 2020 to the Q2 of 2021.
This includes expected benefits from volume and productivity as well as higher costs associated with the semiconductor shortage, Increased incentive compensation for our employees, increased megatrend investments and unfavorable foreign exchange. As a reminder, the Q2 of 2020 included one time savings of approximately 22,000,000 From furloughs to temporary salary pay cuts. We are increasing financial guidance for the full year 2021 as On Slide 18. For the full year 2021, while a degree of market uncertainty remains and in particular, the impact of the industry wide semiconductor shortage, we are anticipating a continuation of improved We are also anticipating a return of normal seasonality, which includes sequentially lower revenue in the 3rd quarter as compared to the 2nd quarter. And finally, higher 4th quarter revenue as compared to the 3rd quarter.
In addition, our financial guide now includes financial contribution of zergo. Accordingly, we now expect to generate revenues between $3,675,000,000 and $3,825,000 for the full year 2021, representing reported revenue increase between 21% and 20.6% year on year. At the midpoint of guidance, we expect that foreign currency will increase revenues year over year by $58,000,000 Excluding the impact of foreign currency, we expect an organic revenue increase of 16% to 21% in 2021. We expect To report adjusted operating income between $755,000,000 $805,000,000 which includes the expected impact of the global semiconductor chip shortage now anticipated to continue throughout the year. At the midpoint, operating income margin is expected to be 20.8%.
On the bottom line, we expect to report adjusted net income between $509,000,000 and $557,000,000 We expect to report adjusted EPS between $3.20 $3.50 which includes a $0.03 increase from foreign currency at the midpoint of guidance. At the bottom of the slide, we provide an operating income margin walk from 2020 to 2021 to show the moving pieces impacting margins. While improving revenue and associated productivity have the greatest impact on our operating income margins, costs related to the semiconductor shortage, COVID related costs, incentive compensation for our employees and megatrend investments also have a meaningful impact on our operating income margin. On Slide 19, we provide our revised estimates for OEM production growth for 2021 as compared to our initial guide in early February. Automotive production is expected to rebound sharply this year from last year, but at a pace slightly lower than expected in February given further production slowdowns caused by the global semiconductor shortage.
Global automotive production is now expected to grow 12%. However, our heavy vehicle off road and industrial end markets are now expected to grow faster in 2021 that we have communicated in February. These market assumptions underpin our current outlook for higher revenue and earnings this year. In sum, TESATA delivered an excellent Q1 despite broad supply chain disruptions. We expect the strong performance to continue through 2021 as demonstrated by the financial guidance we're providing today.
Driving its performance is our continued ability to achieve our growth targets, including the secular long term market outgrowth targets of 400 to 600 basis points for our automotive business and 600 to 800 basis points for heavy vehicle offer of business. Now let me turn the call back to Jeff
Thank you, Paul. And let me wrap up with a few key messages, which are outlined on Slide 20. Sensata has responded very well to the rapid improvements in many of our markets, demonstrating the strength, Our ability to respond quickly to shifting demand positions us well as a trusted resource for our customers. We are delivering attractive end market outgrowth. We remain confident in our ability to sustain this and market outgrowth into the future based upon our strong levels of new business wins.
We continue to invest in megatrends We are making excellent progress in electrification as evidenced by our new business wins as well as In Smart and Connected, we are very pleased to have completed the acquisition of ZERGO Technologies and to welcome that team and that customer base We continue to believe that the overall market environment may provide interesting opportunities to further strengthen our portfolio Through strategically important value creating acquisitions and or joint ventures. In addition, we are pursuing new technology collaborations and partnerships with third parties to expand our capabilities and accelerate our megatrend growth. We expect to continue to deliver industry leading margins for our shareholders, while also investing in our growth and our people. And finally, I'm excited about Sensata's long standing mission to help create a cleaner, safer and more connected world, Not just for our customers' products, but also through our own operations. We believe we are having a meaningful contribution to a better world.
We are incorporating ESG considerations into our strategy to help ensure the long term Sustainability and success of the company for all stakeholders. We look forward to report more on this topic in the future. Now I would like to turn the call back to Jacob.
Thank you, Jeff. Given the large number of listeners on the call, let's try to limit ourselves to one question each, please. Andrew, please assemble the Q and A roster.
Thank you. We will now begin the question and answer session. The first question comes from Craig Hettenbach of Morgan Stanley. Please go ahead.
Yes, thanks. Jeff, can you just talk about the design activity, how it's trending in EVs compared to last year? And then also on the charging front, I don't think that gets as much attention, but you mentioned a couple of wins and activity there, if you can just expand on that.
Yes, I'd be glad to. So all of our customers are investing heavily in the electrification trends that are occurring. And the governments around the world as they put together plans for investment in these areas, It just builds on the momentum that we're seeing. And so there are a lot of conversations going on with customers across all of our end markets on this front. It's a really exciting time as we build our capabilities and we have more to talk with our customers about.
And so we see that trend continuing to accelerate. It is important to note, Craig, and we talked about it in our comments, There are roadmaps product roadmaps associated with core products that our customers already have that will We continue to provide opportunity for us that we're investing in. And what I'm referring to is internal combustion engines as well. But we're really trying to do the best we can to balance the investments in the things we're serving for our customers that are already on the books That will propel growth with the things that will generate growth in the future and we think we're doing a good job balancing that. Thanks, Craig.
The next question comes from Hamik Tederjee of JPMorgan. Please go ahead.
Good morning, guys. This is Vignesh on to Sameet Pataly. Thanks for the update. Can you hear me?
Hey, Tanya.
Yes. So if you could give me some color on the Would this be an incremental market you're looking to address with Sherrod? Or is this a step towards solidifying market share for
Yes. So let me touch on the Sherrard joint venture. First, it's bringing to us A new aspect of high voltage contactors, which have a high levitation feature that many of our customers are requesting as part of their RF as we work with them. So it's a key product capability that they bring. And as I mentioned, it adds This mid voltage, amperage 150 to 400, which is something we've talked about as not having addressed with We were focused on the higher voltage applications, which we continue to believe will be the future for electric vehicles, but There's going to be a point in time here where the transition from internal combustion engines to electrified vehicles, there'll be a big market associated with this Mid voltage range.
And this allows us to go after a broader segment of the market. The JV will focus on China and we have the right to use this technology outside of China and North America and Europe. And as we mentioned, we will consolidate the results of this in our financials and then we'll show a minority interest in the financial statements to transfer the It's going to start building over time. We're already engaging with customers on selling this product portfolio, But it will build over time and we're excited about the future in terms of what this JV can bring to us as a combined company for both us and for For both, I'll say it for sure. Thanks for the question.
The next question comes from Wamsi Mohan with Bank of America. Please go ahead.
Yes,
I was wondering if you could comment on the semi Shortages, you clearly are baking in some cost headwind here that you're seeing from that. Are you baking in Any revenue headwinds as well? And related to that, when I look at your guidance, you obviously have very strong performance both in 1Q and guiding very strongly for 2Q. When I think about the full year, the organic revenue beat seems to be about Upside seems to be about $80,000,000 for the second half, but earnings seem to be somewhat down on organic basis for the second half, the incremental earnings associated with that. So I was just wondering if you could help us think through what are the incremental costs that you're baking in, in the second half of the year?
Thank you.
Yes. Great, Wamsi. So why don't I address the semi shortage and then Paul can So on the semi side, obviously, our video is at this point is an industry challenge, On a Sensata specific one, I would say that I think there were many that were hoping that this would Disappained a little bit in terms of concern mid part of this year. I think my view would be that this is going to be something that's going to be around until at least mid next Rather than going away, we've taken many steps as we've talked about in terms of extending our orders With our suppliers to make sure that we have surety of supply. And one other thing I would mention is that There's a bigger impact associated with standard ASICs.
And given that it's we're not immune to this, right? We're We're impacted by the shortage, but because a large portion of our products are specific designs, we have customized ASICs. And so when there is customized ASICs, there is very specific manufacturing capacity that's set up for this. And so I think that Because of that high level of design and customization, we may be feeling a little bit less of this And some maybe is associated with those that pull on more standard ASICs. It's part of the business model.
It's not something We plan to do, but it's a fortunate benefit associated with the very design and nature of our product categories.
Paul, you want to hit on that? Yes, Wamsi, just Trying to keep it simple, we laid out what the impact of the chip shortage would be for the year. It was about 1% And it's mostly around logistics cost expedited, it's supply chain, it's compressed. So we're expediting inbound and outbound to serve our customers. If you look at the margin profile for the year, 1st half and second half are pretty flat.
And if you look at year over year, when you start to appeal the And you look at the conversion of profit by incremental revenue year on year, you adjust for the acquisitions, currency and chip shortage, we're running in the Incremental margin in the mid-40s. So I think it's very strong performance. I think it's good productivity, good operating leverage, good cost management In the midst of a very disruptive semiconductor supply chain shortfall.
Thank you, Wamsi, for the questions.
The next question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Yes, good morning. Thanks for taking the question. Does the company have details they can provide on whether the higher outgrowth that Sensata reported in the auto segment is being sold through rather than And I think investors are asking about the potential for inventory being built up of electronic components, because perhaps auto OEMs are stuck waiting for semi chips that they're still buying products like sensors and contactors or maybe they just want to be building that buffer of electronic products more broadly given some of the uncertainties related to the global supply chain?
Mark, great question. We're spending a fair amount of time understanding whether or not ultimately the demand that we're seeing from our Customers is raw demand. I think that's the crux of your question. We're looking at 3rd party indications regarding Overall demand, if you look at things like IHS estimates of vehicles production and So we look at PMI indicators, which are record high in Europe 62, U. S.
At 59, China still in So there are a lot of indications associated with what would drive raw demand for our customers' products. So those are all quite strong. We're seeing no indication that there's any meaningful supply chain Even replenishment or buildup, other than maybe even the industrial segment, we see a tiny bit. But an indication
I would give you is
you look at North American Automotive Vehicle Days, we're at 39 days at the end of The Q1, we're at 48 at the end of the year. This is extraordinarily low. And I think we're all Seeing the impact of this as consumers in terms of lead times to get products, not just vehicles, but other electronics and so forth. We're watching this very closely because we obviously don't want to be whipsawed by this. We're having extensive conversations with our customers to make sure that we understand raw demand as we Prioritize where the manufacturing needs to be emphasized to make sure we serve our customers and we'll continue to report on that.
But The short ended short story is we're not seeing any meaningful buildup in the supply chain at this point. Thank you, Mark.
The next question comes from Luke Junk with Baird. Please go ahead.
Good morning, Jeff. Hoping you could talk about the ZURGO deal, especially any initial feedback that you've gotten with fleet customers. I know it's still early, but Wondering about the thesis around channels to market playing out thus far as you start to engage with those customers. Yes. So we just closed on April 1.
Obviously, we had some engagement with them, but we were very careful during That period where we were waiting for regulatory clearance, but you know that we've worked with them The past year and a half, so we know the management team, we know we're working on some joint customers. It's been received very well. This is an acquisition that is very tightly aligned to our strategy. We've been talking about our initiative associated with Smart Of what this brings to us opens up a much bigger market in terms of not only the offering, but the market segments that we'll be able to go after. And it's So as we've talked about, it's a very attractive business in terms of the growth trajectory.
And the data points that we see Now that we have a couple of 3 weeks in and we're able to look more closely at how that the rest of the year is panning out, I mentioned that more than 80% The 2021 revenue is already in orders from customers. So we're seeing very positive feedback. We're having a lot of engagement With customers who were their customers or our customers who are joint customers and excited about doing this teach in The next couple of months so that we can have that management team spend some more time with our investor base to explain in more detail what we're seeing.
Thanks, Luke.
The next question comes from Matt Sheerin with Stifel. Please go ahead.
Yes, thanks and good morning. Jeff, I wanted to ask Another question regarding the strength you're seeing in the heavy truck and HVOR market. You talked about some catalysts and drivers in China. But could you talk about what you're seeing in other markets? And I know that 2019 and into 2020 was in the down cycle and there was talk about an up cycle, an investment cycle.
Is that what you're seeing? Or is just a rebound off of the bottom here?
Yes, I think it's a combination of all of the above to be honest with you. So Let me touch on Q1 first, and let me first touch on the market for heavy vehicle. Across our segments within heavy vehicle, we saw 1st quarter to 1st quarter expansion, pretty meaningful expansion in all markets other than European On Road, which was still down about 14% versus Q1 of last year, but broadly 22% market recovery across the HBOR market. And then coupled with what is just really, really strong outgrowth, over 1,000 basis points of outgrowth given acceleration and continued investment and rollout on a variety of Programs that our customers have, NS VI in China is obviously an impact, but Paul mentioned in the prepared comments also the continued migration from So all the investments that we've made over the past 3, 4, 5 years in trends that were What is a 35%, 36% growth year over year and obviously Q2 was even greater, 110 percent growth with about 56% market growth. As we go into Q2, the only markets segment within HVOR that we see declining quarter over quarter is China.
It's down a tiny bit, maybe 1% versus Q2 of last year. And similarly, on the full year, we Growth across market growth across all the segments with the exception of China, which is not new. We had forecasted that ultimately that would be Down a little bit for 2021 versus 2020.
Thanks, Matt.
The next question comes from Jim Suva with Citi. Please go ahead.
Thank you. And great results and outlook. When you mentioned your fill rate, I believe it was like in a 90% is quite high. Does that impact Pricing for your company products and margins, what I mean by that is, do customers actually pay the same amount or pay a little More or a little bit less if they have more visibility and secured supply in a time of uncertainty? And can you actually get above 100% like by running an extra overtime shift or does it just simply not work that way?
Thank you.
So it's Paul. I'll take it Jim. It does not affect pricing specifically. We're not charging to let people get in the front of the line. We're operating under our purchase orders or contracts that we have with our customers.
The fill is stronger. We're seeing on the industrial side, a faster fill rate and the learning there that our customers are ordering Sooner in the process to ensure that they get the security supply they're looking for. So the matter really is ordering behavior More than pricing or any other economic behavior. We serve all the demand that we can for our customers. So to the extent they order, we're going to serve it.
And so It could get to 100% if everything was ordered by the time we have this earnings release, but typically that's not the case. We're normally in the have been running in the low 90s. So this is a little bit hotter, But it's been identified as to why based on our interactions with our customers. Thanks, Jim.
The next question comes from Michael Filipov with Berenberg Capital. Please go ahead.
Thanks for taking my question guys. Just a quick one on Sharad. I understand that your content per vehicle for EVs in China is obviously a lot lower than it is in North America and Europe. And that's mainly due to the sort of lower voltage EVs you have in that market. I'm wondering how does the Sherrod acquisition change that content outlook for you guys in China and what that will look like going forward?
Yes. You're hitting on one of the major thesis of why we did this joint venture. It's about expanding The product capabilities and it's a capability set that candidly is just in higher demand in China right now and I would expect it would be For the next 10 or 15 years as that market continues to evolve. And so and that's why the JV is focused on that end market, right? So I mentioned The JV itself is going to focus on the China end market, but we were able to negotiate the ability to bring That capability into the other markets that we serve and clearly we're having those conversations as well.
But it's just Listen, when every automaker out there has a different product strategy in terms of how they're going to go about this and the more capability we This definitely has the potential to drive the content per vehicle in China in the very positive direction. So That's where we are on that one. Thanks. Thanks, Michael.
The next question comes from Joe Giordano with Cowen. Please go ahead.
Hi, guys. It's Rob on for Joe. Thanks for taking my questions. Just two quick ones for me. First, given the strong 1Qb And full year guidance, I just wanted to see, given that production excellence were a little bit handicapped, just curious If there's anything incremental that we should be aware of that gives you a little bit more caution for the rest of the year than you had coming into Q1?
And then just on backlog, how much backlog do you have from orders received the last few quarters that you've been unable to ship? I believe you all have been under
Well, this quarter, we actually don't see much Inventory dislocation was pretty balanced. So when we look at our revenue and we try to unpack it, In automotive, which I think is what you speak specifically to, we look at production, we look at our outgrowth, which is our content growth, which we track by far a number that That's launching as a new platform and again pricing headwinds. And so the math worked out quite well where we were serving the market and we are also outgrowing the market based on our new business wins and the launch of those new business wins in the quarter. So it's a pretty balanced quarter. In the past, we've seen some inventory In terms of serving demand, we're serving I think the team has done an unbelievable job in the current conditions and certainly demand is out there.
And our fill rate is the best indicator we can provide In terms of what the demand is and our ability to serve that demand as of a point in time.
Thanks, Joe.
The next question comes from Amit Daryanani with Evercore ISI. Please go ahead.
Good morning. Thanks for taking my question. I guess, I want to go back to the Calendar 2021 EPS guide and I guess as I think about it versus 90 days ago, you've taken up the guide by $0.11 or so, but The Q1 beat alone was $0.14 and then I think FX in 0.0 my mouth will add about $0.10 or $0.11 versus 19 days ago. So, in my head, I would have thought, Jeff, you had raised the EPS guide by $0.25 not $0.11 Maybe just touch on what are some of the offsets here that are not enabling that expansion? And then on the semiconductor shortages, and I know you talked a fair bit about this, I feel like if I walk into auto dealership, prices are going up.
So I'm curious what is your ability to pass price increases to your customers to offset some of these challenges over here?
I mean, the biggest one is the chip shortage.
I mean, that's over $30,000,000
I mean, ZURGO certainly has somewhere in that $75,000,000 revenue, low 20 percent op income. I think currency is a little bit favorable, but then you call those out. But the biggest issue is the chip shortage, right? So that's impacting our costs. We called it out.
We had about
$8,000,000 to $10,000,000 or so
in the Q1. We're going to have another $30,000,000 in the rest of the 9 months. And it's also impacting our ability to hit some of the productivity goals that we're looking Because we're dealing with a very compressed supply chain, hand to mouth in many cases. And so we're not able to get at some of the things we wanted to work on, but we saw clear line of sight to keep my savings. So those things will get deferred into 2022.
But again, I go back and look at the year over year, if you look at Incremental revenue, the incremental profit, it's very strong. If you adjust for acquisitions and food shortage and And we're in the like I said, we're in the mid-40s conversion of revenue, of top line revenues. I think it's really strong performance. And we've tried to lay it out in the margin box to give you as much information as we possibly can to let you understand how the margin is progressing for 2020 to 2021.
And I think that's the new information from the last time we provided the guide. I think the general view was that the chip shortage was going to dissipate by mid this year. That's clear that it's not happening given a lot of things, including high levels of demand that Those companies you're seeing right now. And so now we're factoring in that longer term impact associated with it.
And we had 20 to In the Q1 and 2nd quarter and obviously it's much higher than that in the percent and the dollars.
Thanks for the question, Adam.
And is there time for an additional question?
One more, I think, Andrew. Thank you.
Okay. And that question or question will come from David Williams with Loop Capital, please go ahead.
Hey, thanks for squeezing me in. Certainly appreciate it. And just want to ask on the heavy vehicle side, if there's any dynamics there that you Maybe is driving that. Is there any of the infrastructure maybe spending from a maybe North America perspective? Or how do you think about that in terms of So upside as
we kind of move through
some of these stimulus packages that we're seeing throughout the global economy.
Yes. So you cut out
at the end there, but I think the question was regarding the significant change That we're seeing in the HVOR market expectations versus even 3 months ago. And I do believe that infrastructure And a variety of factors are driving that. We mentioned Paul mentioned in the opening comments, the automotive demand actually is going down a little bit from What we thought it was going to be 3 months ago, the Aerospace is down a little bit from what we expected 3 months ago. Industrial is up a tiny bit, but the big mover here is HVOR. We had anticipated about 6% market growth.
Now it's 15%, seventeen And I do believe that infrastructure spend and other factors are driving that comp just in general confidence. So That's certainly what we're hearing from our customers and what we're seeing in the news and reading about. Thanks for the question.
Thank you. This concludes our question and answer session. I would like to turn Conference back over to Jacob Sayer for any closing remarks.
Thank you, Andrew. Sorry, we weren't able
to get to everyone's call, but we want to allow people to get on with their day. I like to thank everyone for joining us this morning. Sensata will be participating in upcoming virtual investor conferences, including those sponsored Zai Oppenheimer, JP JPMorgan and Evercore during the Q2. As Jeff mentioned, we're also planning a teach in about our Spartan Connected initiative, including ZERGO this quarter. We'll share details of that event soon.
We look forward to seeing you at one of these events or on our Q2 earnings call in late July. Thank you for joining us this morning
and for your interest
in Sensata. Andrew, you can now end the call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.