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Sensata Technologies Holding N.V. (NYSE:ST)
Q1 2021 Earnings Call
Apr 27, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Sensata Technologies First Quarter 2021 Earnings Conference 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 would now like to turn the conference over to Jacob Sayer, Vice President, Finance. Please go ahead.

Jacob Sayer -- Vice President, Finance

Thank you, Andrew, and good morning, everyone. I'd like to welcome you to Sensata's first quarter 2021 earnings conference call. Joining me on today's call are Jeff Cote, Sensata's CEO and President; and Paul Vasington, Sensata's Chief Financial Officer.

In addition to the financial results, press release we issued earlier today and 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'll post a replay of today's webcast shortly after the conclusion of today's call.

As we begin, I'd like to reference Sensata's Safe Harbor statement on Slide 2. During this conference call there will be 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 in such statements. Factors that might cause differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K, as well as other subsequent filings with the SEC.

On Slide 3, we showed Sensata's GAAP results for the first quarter 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 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 12 and 13 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 first quarter of 2021. He will then provide an update on our recent progress in our key Electrification and Smart & Connected Megatrend growth areas. Paul will cover a detailed financials for the first quarter of 2021, including organic and market outgrowth by business units, our segment reporting, and provide financial guidance for the second quarter and updated guidance for the full year 2021. 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, Jeff Cote.

Jeff Cote -- Analyst

Thank you, Jacob, and welcome, everyone. I'd like to start with some summary thoughts on our performance during the first quarter of 2021 as outlined on Slide 4. The business recovery we experienced during the second half of 2020 gain steam during the first quarter, our agile response to increased demand through 22% revenue growth from the prior year period, a record $942.5 million.

We delivered $198 million in operating income during the quarter, an increase of $61.4 billion and a 130-basis-point expansion in margin from the prior year period. This growth is a testament to our leading market positions, and the strength and flexibility of our manufacturing and commercial model. We continue to capitalize on improving markets that 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 Xirgo has enabled us to raise our financial guidance for the full year. I'd like to recognize the innovation and hard work of our entire team in achieving these strong results.

Looking at our performance year-over-year, we once again delivered strong market out growth. For the first quarter of 2021, we produced a 1,070 basis points of outgrowth in our Heavy Vehicle Off-Road business and 910 basis points of outgrowth in our Automotive business.

Sensata is in a strong financial position. We generated $77 million of free cash flow in the first quarter, and we took additional steps to further enhance our financial position and flexibility. During the first quarter, 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 and 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 million. This solidifies our ability to continue to deliver strong outgrowth in the coming years.

In Smart & Connected, we closed the previously announced acquisition of Xirgo Technologies on April 1st, 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 million in the first quarter from $6 million in the first quarter of last year. These investments will allow us to pursue significant market opportunities. We've also achieved a meaningful milestone in electrification through a joint venture with Churod 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 impact on the markets we serve. Electrification is not just about electric light vehicles to us, but it includes heavy vehicles and charging infrastructure, necessary to support this ecosystem. We see additional opportunities in industrial and grid applications, some of which are more nascent today. Sensata is already a leader -- a leading provider in high voltage protection on EV 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 Churod Electronics extends our electrical protection capabilities to mass market EVs and other electrified equipment worldwide. Churod will contribute access to its ceramic, high-levitation contactor intellectual property. These contactors are optimized for medium voltage applications in the 150A to 400A range common in mass market vehicles. They will also dedicate engineering resources and contribute manufacturing equipment to the JV. Sensata will contribute $9.5 billion and dedicated application engineers and sales people, and we plan to consolidate the financials of the JV in our P&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 billion by 2030. 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 an exciting business win with new commercial EV powertrain supplier, Hyliion; an EV commercial truck manufacturer Workhorse, extending our electrification efforts.

During the first quarter, as previously announced, we completed the acquisition of Lithium Balance to add battery management systems to our product capabilities. We are 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 billion in addressable market for Sensata by 2030.

Moving to Slide 7, we are expanding the electrification solutions we provide for 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 and content value, as compared to the internal combustion vehicles of similar class. Its content uplift is derived from a broader array of Sensata sensors and other components that we designed into battery electric vehicles, in many cases, using the same underlying technology product families that we use in internal combustion vehicles. Additionally, certain sensors carryover directly from internal combustion vehicles such as brake pressure or tire pressure sensors. We also design additional sensors or devices unique to EVs such as contactors and electric motor position sensors. We are broadening and deepening our portfolio, our product portfolio to support this expanding market. 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 to continue to grow over the next 10 years, even with the shift of type of vehicles produced.

In addition, while the Electrification applications that we serve represent a smaller market today, they're expected to grow very rapidly until they become in even larger opportunity than internal combustion engines for Sensata by 2030. As a result, we are expecting a doubling of our Automotive addressable market by 2030.

On Slide 8, I want to provide an update on another meaningful milestone we achieved in our Smart & Connected initiative. We closed the acquisition of Xirgo Technologies on April 1, and welcome the Xirgo team, its capabilities and its customers to Sensata. Xirgo is a leading telematics and data insight provider for fleet management across the Transportation and Logistics segments. They bring a comprehensive suite of telematics asset tracking devices, cloud-based data insight solutions as well as emerging sensing applications and data services. Xirgo is complementary to, and meaningfully extends Sensata's organic Smart & Connected solution for commercial fleet managers. It is consistent with Sensata's strategy to move beyond serving vehicle OEMs, and engaging with the broader Transportation and Logistics ecosystem. Xirgo expands our Smart & Connected addressable markets to $15 billion by 2030 by adding cargo, container and light vehicle fleet management to our Heavy Vehicle OEM as fleet focus.

Xirgo is a fast growing business. It is expected to generate more than $100 million in annualized revenue in 2021 and grow in excess of 20% per year over the next several years. We already have committed orders for more than 80% of the revenue we expect Xirgo to generate for the balance of 2021. Xirgo is also very profitable, with 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 insight solutions 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 to supply chain and customer relationships, to meaningfully enlarge our addressable markets through organic efforts as well as bolt-on acquisitions, and partnerships within these Megatrends.

I'll now like the turn the call over to Paul. Paul?

Paul Vasington -- Chief Financial Officer

Thank you, Jeff. Key highlights for the first quarter as shown on Slide 10, include record revenue of $942.5 million, an increase of 21.7% from the first quarter of 2020. Organic revenue increase 18.8% and changes in foreign currency increased revenue by 2.9%. Adjusted operating income was $198.1 million, an increase of 44.9% compared to the first quarter 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 support Megatrend growth initiatives, higher incentive compensation aligned to improved financial performance. Adjusted net income was $137.6 million, an increase of 65.4% compared to the first quarter of 2020, largely due to higher revenues, improved operating performance in the quarter. Adjusted EPS was $0.86 in the first quarter, an increase of 62.3% versus the prior year quarter.

Now discuss our performance by end markets in the first quarter of 2021 as outlined on Slide 11. As I mentioned a moment ago, we reported organic revenue increase of 18.8% year-on-year. This compares with overall end market growth of approximately 10.9%, representing market outgrowth of 790 basis points for Sensata.

Our Heavy Vehicle Off-Road business posted an organic revenue increase of 32.8%, representing end market growth of 22.1% and 1,070 basis points of market outgrowth. Our China on road truck business continued to post better than expected growth from the adoption of NS VI emissions regulations. And we are also benefiting from a wave of larger mechanical operator controls be installed in new offered equipment. So past three years, basically has delivered an average 780 basis points of market outgrowth.

Our Automotive business posted organic revenue increase of 19.3%. Automotive production rebounded in the year ago period, growing 10.2% our Automotive business market outgrowth of 910 basis points in the first quarter led by continued new product launches and power chain emissions, safety, electrification related applications of business. For the past three years, Automotive has delivered an average 560 basis points of market outgrowth.

Our Industrial business increased 16.8% organically as global industrial end markets continue 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% organically reflecting reduced OEM production and much lower air traffic, which continue to negatively impact our Aerospace aftermarket business. New product launches for [Phonetic] defense, partially offset a significant aerospace market decline this quarter.

Now I'd like to comment on performance of our two business segments in the first quarter of 2021, starting with Performance Sensing on Slide 12. Our Performance Sensing business reported record revenue of $714.5 million, an increase of 25.6% compared to the same quarter last year. Excluding the positive impact from foreign currency of 3.2%, Performance Sensing organic revenue increased 22.4%. Performance Sensing operating income was $195.8 million, 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 first quarter on higher revenue as compared to the prior year period.

As shown on Slide 13, Sensing Solutions reported revenues of $228 million in the first quarter versus 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 $66.9 million, an increase of 18.4% the same quarter last year with operating margin of 29.3%. Like Performance Sensing the entries, the segment operating income was primarily due to higher revenues and savings from cost reduction actions. Somewhat offset by elevated cost from the industrywide semiconductor chips shortage, Sensing Solutions generated incremental margin of 46% in the first quarter of higher revenue, as compared to the prior-year period.

On Slide 14, Corporate and Other costs not included in segment operating income were $68.6 million in the first quarter of 2021. Excluding charges added back to our non-GAAP results, Corporate and Other costs were $61.8 million, an increase of $8.6 million from prior year quarter, primarily due to higher research and development and business development spend to support our Megatrend growth initiatives of higher global incentive compensation costs aligned to our improving financial performance. Before we expected approximately $55 million, the Megatrend related spent in 2021 to design, develop, differentiated sensor rich and data insight solutions for the fast-growing and transformational Megatrend vectors electrification in Smart & Connected.

Slide 15 shows Sensata's first quarter 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 in 21%. The increase in both adjusted gross margin and adjusted operating margin largely reflects the rapid increase in revenue from depressed levels, experienced last year due to the impacts of COVID-19 pandemic. We acted early during the epidemic to reduce our cost structure or continuing to invest in Megatrends, or shaping our end market that we believe will enable us to deliver long term to found the growth. We've included an operating income margin walk for the first quarter of 2020 to first quarter of 2021 showing a margin benefit from increased volume in productivity as well as the impact of certain cost increases including costs associated with the global shortage of semiconductors, the COVID-related costs, higher incentive compensation costs, and improved investments in our Megatrend initiatives.

As shown on Slide 16, we generated $77 million of free cash flow during the first quarter, 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 first quarter 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 million to $170 million. Sensata's net debt to EBITDA ratio was 2.9 times at the end of March. So 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 asking further acquisition.

We are providing financial guidance for the second quarter of 2021 as shown on Slide 17. As a result of improving economic conditions shown our outgrowth and the acquisition of Xirgo, we expect to generate revenues between $960 million and $990 million for the second quarter of 2021, representing a reported revenue increase between 67% and 72% compared to the second quarter of 2020. At the midpoint of guidance, we expect that foreign currency will increase revenues year-over-year by approximately $23 million. Excluding the impact of foreign currency, we expect an organic revenue increase of 58% and 63% in the second quarter. Our current fill rate is approximately 96% of the revenue guidance midpoint for the second quarter. Our fill rate appears stronger as compared to previous quarters. And some customers have extended their order lead time in order to better ensure supply.

We expect to report adjusted operating income between $195 million to $205 million. At the midpoint, operating income margin is expected to be 28.5%, which includes a 150-basis-point increase in our operating costs for the global semiconductor chips shortage, basically the entire auto supply chain toward other sectors.

On the bottom line, we expect to report adjusted net income between $134 million to $144 million and adjusted EPS between $0.84 and $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 on the second quarter of 2020 to the second quarter 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 second quarter of 2020 included one-time savings of approximately $22 million from furloughs and temporary salary pay cuts.

We are increasing financial guidance for the full year 2021, as shown on Slide 18. For the full year 2021, while a degree of market uncertainty remains and in particular the impact of the industrywide semiconductor shortage, we are anticipating a continuation of improved and stable economic and business conditions. We are also anticipating the return of normal seasonality, which included sequentially lower revenue in the third quarter as compared to the second quarter and probably higher fourth quarter revenue, as compared to the third quarter. In addition, our financial guide now includes financial contribution of Xirgo. Accordingly we now expect to generate revenues between $3.675 billion and $3.865 billion for the full year 2021, representing reported revenue increase between 21% and 20.6% year-on-year.

At the midpoint of guidance, we expected foreign currency will increase revenues year-over-year by approximately $58 million. Excluding the impact of foreign currency, we expect an organic revenue increase of 16% to 21% in 2021. We expect reported adjusted operating income between $755 million and $805 million, which includes the expected impact of the global semiconductor chips shortage now anticipated to continue throughout the year. At the midpoint, operating margin is expected to be 20.8%. On the bottom line, we expect reported adjusted net income between $509 million to $557 billion. We expect reported adjusted EPS between $3.20 with $3.50, which includes a $0.03 increase from foreign currency at the midpoint guidance.

At the bottom of the slide we provided an operating income margin walk of 2020 to 2021 to show the moving pieces impacting margins, while improving and associate productivity have a great impact on our operating income margin, 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 provided our revised estimates of 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 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 had communicated in February. These market assumptions are [Phonetic] our current outlook for higher revenue in earnings this year.

In sum, Sensata delivered an excellent first quarter despite broad supply chain disruptions. We expect a strong performance to continue through 2021 as demonstrated for the financial guidance we're providing today. Driving this performance is our continued ability to achieve our growth targets, including the secular long market outgrowth targets, 400 basis points to 600 basis points for our Automotive business, and 600 basis points to 800 basis points for Heavy Vehicle Off-Road business.

Now let me turn the call back to Jeff for closing comments.

Jeff Cote -- Analyst

Thank you, Paul. Let me wrap up with a few key messages, which are outlined on Slide 20. Sensata has responded very well through the rapid improvements in many of our markets demonstrating the strength, flexibility and reliability of our business in organizational model, which enabled us to capitalize on the recovery in end market demand. 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 attractive end market outgrowth into the future based upon our strong levels of new business wins. We continue to invest in Megatrends and other growth initiatives that are opening large and rapidly growing opportunities for Sensata across all our end markets. We are making excellent progress in Electrification, as evidenced by our new business wins as well as the acquisition of Lithium Balance in our joint venture with Churod Electronics, which extends our electrification offerings.

In Smart & Connected, we are very pleased to have completed the acquisition of Xirgo Technologies, and to welcome that team and that customer base to Sensata. 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 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 on-standing mission to help create a clear, 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'd like to turn the call back to Jacob.

Jacob Sayer -- Vice President, Finance

Thank you, Jeff. Given the large number of listeners on the call, let's try to limit yourselves to one question each please. Andrew please assemble the Q&A roster.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Craig Hettenbach of Morgan Stanley. Please go ahead.

Craig Hettenbach -- Morgan Stanley -- Analyst

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 in activity there, if you can just expand on that?

Jeff Cote -- Analyst

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 is are 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 that there are roadmaps -- product roadmaps associated with more products that our customers already have that will 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.

Jacob Sayer -- Vice President, Finance

Thanks, Craig.

Operator

The next question comes from Samik Chatterjee of JP Morgan. Please go ahead.

Unidentified Participant

Good morning, guys. This is Vignesh [Phonetic] on for Samik Chatterjee. Thanks for the update. Can you hear me?

Jeff Cote -- Analyst

We can. Yes.

Unidentified Participant

Yes. So, if you could give me some color on the Churod Electronics joint venture. Is there be an incremental market you'd be looking to address for Churod or this is step toward solidifying market share per gigawatt?

Jeff Cote -- Analyst

Yes, so let me touch on the Churod 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 there are queues as we work with them. So it's a key product capability that they bring. And as I've mentioned, it adds this new voltage average 150 to 400, which is something we've talked about is not having addressed with the acquisition of GIGAVAC. We were focused on the higher voltage applications, which we continue to believe will be the future for electric vehicles, but there is 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. If 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 portion of the profits associated with this. 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 are excited about the future in terms of what this JV can bring to us as combined company for both us and for Churod. Thanks for the question.

Operator

The next question comes from Wamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan -- Bank of America -- Analyst

Yes, thank you. Congrats on the strong execution. 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 be it seems to be about -- upside seems to be about $80 million for the second half, but earnings seem to be somewhat down on an 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.

Jeff Cote -- Analyst

Yes. Great, Vamsi. I'm going to address the semi shortage and then Paul can address the guidance and profitability related questions. So on the semi side obviously, at this point instance an industry challenge, not a Sensata specific one, I would say that. I think there were many that we're hoping that this would dissipate a little bit in terms of concern been 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 mind-next year 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 of the thing I would mention is that, there is a bigger impact associated with standard basics. And given, it's -- we're not immune to this, right? We were impacted by the shortage. But because of the large proportion of our products are specific designs, we have customized A6 [Phonetic]. And so, when there is customized [indecipherable] there is very specific manufacturing capacity that setup for business. So I think that because of that high level of design in customization, we may be feeling a little bit less of this been some maybe is associated with those that pull on more standard [Phonetic]. Part of the business model, it's not something we plan to do, but it's a fortunate benefit associated with a very designed in nature of our product categories. Paul, why don't you hit on that?

Paul Vasington -- Chief Financial Officer

Yes, Wamsi, just try and keep it simple, we laid out what the impact which absorbed would be for the year. It was about a 1%. And it's mostly around logistics effect today. Its supply chain and it's compressed; so expedite inbound and outbound to serve our customers. When you look at the margin profile for the year, first half and second half were pretty flat. And if you look at year-over-year, when you start on fuel there and you look at the conversion of [indecipherable] incremental revenue year-on-year, you adjust for the acquisitions, currency and chip shortage, we're running an incremental margins in the mid-40. So I think it's very strong performance. I think it's good for activity, good operating leverage, good cost management in the midst of a very disruptive semiconductor supply chain shortfall.

Jacob Sayer -- Vice President, Finance

Thank you, Wamsi. Great questions.

Operator

The questions the next question comes from Mark Delaney with Goldman Sachs. Please go ahead.

Mark Delaney -- Goldman Sachs -- Analyst

Yes. Good morning. Thanks for taking the question. There were many of details you can provide and whether the higher outgrowth that Sensata reported in the Other segment and being sold through relevance in inventory. Yes. And I think investors are asking about the potential for inventory being built up of electronic components because, perhaps Auto OEMs were stuck waiting for semi-chips to arrive, but there are still buying products like sensors and contactors, or maybe they just want to be building up buffer of electronic products more broadly, given some of the uncertainties related to the global supply chain? Thanks.

Jeff Cote -- Analyst

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 third-party indications regarding overall demand an look at things like IHS estimates of vehicles, production and sold, we look at PMI indicators, which are record high in Europe 62, US is 59, China is still in a positive territory. So there are a lot of indications associated with one would drive raw demand for our customers' products. So those are all quite strong. We're seeing no indication that there is any meaningful supply chain even replenishment or build up. Other than maybe in the Industrial segment, we see a tiny bit, but the indication I would give you is if you look at North America's automotive vehicle days, we were at 39 days at the end of the first quarter, we were 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 these two be emphasized that make sure we serve our customers, and we'll continue to report on that. But the shorthand and short story is we're not seeing any meaningful build up in the supply chain at this point.

Jacob Sayer -- Vice President, Finance

Thank you, Mark.

Operator

The next question comes from Luke Junk with Baird. Please go ahead.

Luke Junk -- Baird -- Analyst

Good morning, Jeff. Hoping you could talk about the Xirgo deals, especially any initial feedback that you've gotten with fleet customers? I know it's still early, but I'm wondering about the thesis around channels to market playing out thus far as you start to engage with those customers?

Jeff Cote -- Analyst

Yes. So we just closed on April 1st. Obviously, we had some engagement with them, but we are very careful during that period where we were waiting for regulatory clearance. But, you know that we've worked with them for 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 associate with Smart & Connected for the last 18 months to two years. And this is squarely in that point. There is a lot of complimentary aspects 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 -- 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 three 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% of 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 are their customers, or our customers, or 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 more in detail what we're seeing.

Jacob Sayer -- Vice President, Finance

Thanks, Luke.

Operator

The next question comes from Matt Sheerin with Stifel. Please go ahead.

Matt Sheerin -- Stifel -- Analyst

Yes. Thanks, and good morning. I just wanted to ask another question regarding the strengths 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 '19 and into '20 was in the down cycle, and there were just talk about an up cycle investment cycle. Is that what you're seeing or is it just a rebound off of the bottom here?

Jeff Cote -- Analyst

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 first quarter expansion, pretty meaningful expansion at all markets other than European on-road, which was still down about 14% versus more of the first quarter of last year, but broadly, 22% market recovery across the HVOR market. And then coupled with what is just really, really strong outgrowth, over 1,000 basis points of outgrowth given acceleration and continued investment or roll-out on a variety of programs that our customers have. NS VI in China has obviously an impact. But Paul mentioned in the prepared comments also the continued migration from mechanical controls to electronic controls. So all these investments that we've made over the past three, four and five years, and the trends that were occurring in HVOR are benefiting us in addition to the market recovery that we're seeing. Ultimately driving, what is a 35%, 36% growth year-over-year and obviously Q2 was even greater 110% 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, and it's down a tiny, maybe 1% versus Q2 of last year. And similarly on the full year, we see 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 '20.

Jacob Sayer -- Vice President, Finance

Thanks, Matt.

Operator

The next question comes from Jim Suva with Citi. Please go ahead.

Jim Suva -- Citi -- Analyst

Thank you. And great results and outlook. When you mentioned your fill rate was like in the 90% is quite high. Does that impact pricing for your company products in margins? What I mean by that is, do customers actually pay the same amount, or pay a little bit more, or little 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 over time shift or does it just simply not work in that way? Thank you.

Paul Vasington -- Chief Financial Officer

So, I think -- this is Paul. I'll take it Jim. It does not affect pricing specifically. We're not charging what people get in the front of the line. We're operating under our purchase orders or contracts that we have with our customers. Definitely stronger or see on the industrial side, a faster fill rate in the learning there that our customers are ordering sooner in the process to ensure that they get securities probably they are looking for. For the matter, really, it's really an ordering behavior more than pricing or any other economic behavior. We serve all the demand that we can for our customers that recently ordered. We're going to serve it. And so it would -- it could get 100% if everything was ordered by the time we have this earnings release, specifically not the case and we're normally in the -- have been running in the low '90s. So this is a little bit higher, but it's been identified as to why based on our interactions to our customers.

Jacob Sayer -- Vice President, Finance

Thanks, Jim.

Operator

The next question comes from Michael Filatov with Berenberg Capital. Please go ahead.

Michael Filatov -- Berenberg Capital Markets -- Analyst

Thanks for taking my question guys. Just a quick one on Churod. I understand that 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. So I'm wondering how does this Churod acquisition change that content outlook for you guys in China, and what that will look like going forward?

Jeff Cote -- Analyst

Yes. You're hitting on one of the major necessities why we did this joint venture. It's about expanding the product capabilities and it's a capability set that candidly is just -- and higher demand in China right now when I would expect it would be for the next 10 years 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 market that we serve and clearly we're having those conversations as well. But just -- listen when every automaker out there has a different product strategy in terms of how they're going to go about this and more capability we can bring both in the form of products and engineering capability is going to make it a better environment for us to be able to participate. And this definitely has the potential to drive the content per vehicle in China. It's a very positive direction. So that's where we are on that one.

Michael Filatov -- Berenberg Capital Markets -- Analyst

Thanks.

Jacob Sayer -- Vice President, Finance

Thanks, Michael.

Operator

The next question comes from Joe Giordano with Cowen. Please go ahead.

Robert Jamieson -- Cowen & Company -- Analyst

Hi guys. It's Rob on for Joe. Thanks for taking my questions. And just two quick ones from me. First, given the strong 1Q and full-year guidance, I just wanted to see, given that production excellence 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 you have from orders to see in the last few quarters that you've been unable to ship, I believe you've all been under shipping relative to production the last few quarters. Thank you.

Jeff Cote -- Analyst

This quarter, we actually don't see much inventory dislocation. It was pretty balanced. So when we look at our revenue and we try to unpack it, depend on Automotive, which I mean [indecipherable] look at production, we look at our outgrowth, which is our content growth which we tracked by partner with -- plus launching a new platform. And again pricing has been in. And so the math worked out quite well, where we were serving the market and we're also outgrowing the market base in our business plan while launching the new business plan in quarter. So pretty balanced quarter. In the past, we've seen some inventory impact that affected our revenue, but it was muted in Q2. In terms of serving demand, we're serving, I think the team has done an unbelievable job in the current condition to serve the demand without [Phonetic] -- and our fill rate is the best indicator we can provide in terms of what's the demand is and our ability to serve that demand at the point in time.

Jacob Sayer -- Vice President, Finance

Thanks, Joe.

Operator

The next question comes from Amit Daryanani with Evercore ISI. Please go ahead.

Amit Daryanani -- Evercore ISI -- Analyst

Good morning. Thanks for taking my question. I just -- I want to go back to the calendar '21 EPS guide. And I guess, as I think about it versus 90 days ago, where you picking up the guide about $0.11 or so. But the q1 will be at low loss $0.14. And then I think FX reserve goal in my math will add about $0.10 or $0.11 versus 90 days ago. So it is -- in my head, I would have thought, Jeff, you would raise the EPS guide by $0.25, not $0.11. Maybe just touch on what are some of the offsets that are not enabling that expansion? And then on the semiconductor shortages, 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 customer to offset some of these challenges over here?

Jeff Cote -- Analyst

So Amit, I mean, the bigger fault is the chipper shortage around some of the $30 million. And it certainly adds somewhere in that $75 million revenue, about 20% I think currency is a little bit favorable. But -- and you call those out. But the biggest issue is the chip shortage, right. So that's impacting our costs you called it out. We had about $8 million to $10 million or so in the first quarter and have another $30 million in the rest of the nine months. And it's also impacting our ability to hit some of the productivity goals that we are looking for because we're dealing with a very compressed supply chain and amount in many cases. And so we're not able to get at some of the things we wanted to work on that. We saw a clear line of sight by saving. 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. Like we adjust for acquisition and the chip shortage and investment in Megatrend and FX, we're in the Megatrend were in the mid-40s, conversion of revenue, on top of revenue. I think it's a really strong performance. And we tried to lay it out in the [indecipherable] due to commercial provisions to [Phonetic] let you understand how the margins progressing to 2021.

Paul Vasington -- Chief Financial Officer

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 the 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.

Jeff Cote -- Analyst

I mean that's 20 basis points to 50 basis points in the first quarter. And so in the second quarter and obviously it's much higher than that, more than -- in the percent and --

Jacob Sayer -- Vice President, Finance

Thanks for the question Amit.

Operator

And is there time for an additional question?

Jeff Cote -- Analyst

One more, I think, Andrew. Thank you.

Operator

Okay. And that question will come from David Williams with Loop Capital. Please go ahead.

David Williams -- Loop Capital -- Analyst

Hey, thanks for squeezing me and fairly appreciate it. And just wanted to ask on the Heavy Vehicle side, if there is any dynamics there that you think maybe is driving that, is there any of the infrastructures maybe spending from a North American perspective? Or how do you think about that in terms of potential upside as we kind of move through some of these stimulus packages that we're seeing throughout the global economy?

Jeff Cote -- Analyst

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 three months ago. And I do believe that infrastructure spend and a variety of factors are driving there. 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 three months ago. The Aerospace is down, a little bit from what we expected three 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%, 17% market growth. And I do believe that infrastructure spends 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.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Jacob Sayer for any closing remarks.

Jacob Sayer -- Vice President, Finance

Thank you, Andrew. Sorry. We were not able to get everyone's call. But we want a lot people to get on today. I'd like to thank you everyone for joining us this morning. Sensata will be participating in upcoming virtual investor conferences, including those sponsored by Oppenheimer, JP Morgan, and Evercore, during the second quarter. As Jeff mentioned, we're also funding a teach-in about our Smart & Connected initiative, including Xirgo's quarter [Phonetic], and we'll share details of that event soon.

We look forward to seeing you at one of these events or on our second quarter earnings call in late July. I thank you for joining us this morning and for your interest in Sensata. Andrew, you can now end the call.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Jacob Sayer -- Vice President, Finance

Jeff Cote -- Analyst

Paul Vasington -- Chief Financial Officer

Craig Hettenbach -- Morgan Stanley -- Analyst

Unidentified Participant

Wamsi Mohan -- Bank of America -- Analyst

Mark Delaney -- Goldman Sachs -- Analyst

Luke Junk -- Baird -- Analyst

Matt Sheerin -- Stifel -- Analyst

Jim Suva -- Citi -- Analyst

Michael Filatov -- Berenberg Capital Markets -- Analyst

Robert Jamieson -- Cowen & Company -- Analyst

Amit Daryanani -- Evercore ISI -- Analyst

David Williams -- Loop Capital -- Analyst

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