Q4 2020 Sensata Technologies Holding PLC Earnings Call
Good day and welcome to the Sensata technologies fourth quarter, 'twenty and 'twenty earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your touch.
Two and soon to withdraw your question. Please press Star then two please note. This event is being recorded and now I'd like to turn the conference over to Mr. Jacob Sayer, Vice President Finance. Please go ahead.
Thank you, Jason and good morning, everybody I'd like to welcome you to <unk> fourth quarter, 'twenty and 'twenty earnings Conference call. Joining me on today's call are Jeff Cotai and side, as CEO, and President and Paul Bowers and get.
And as long as Chief Financial Officer and.
And to the financial results press release, we issued earlier today, we will be referencing a slide presentation. During today's conference call and PDF of this presentation can be downloaded from some thought as investor Relations website.
And we'll post a replay of today's webcast. Shortly after the conclusion of today's call.
As we begin I would like to referenced and side of Safe Harbor statement on slide two during this conference call. We will 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 and such statements.
Factors that might cause such differences include but are not limited to those discussed and our forms 10-Q, and 10-K as well as other subsequent filings with the SEC.
On slides three and four we showed some thought as GAAP results for the fourth quarter and full year 'twenty and 'twenty.
We encourage you to review our GAAP financial statements and 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 operating segments.
On slides 13, and 14 of the presentation, which are the primary measures management uses to evaluate the business.
Jeff will begin today's call with key highlights from our business during the fourth quarter and full year 'twenty and 'twenty will then provide an update on recent progress and our key electrification and smart and connected megatrends and growth areas.
Paul will cover our detailed financials for the fourth quarter of 'twenty, and 'twenty, including organic and market outgrowth by business unit, our segment reporting and corporate expenses and balance sheet progress and the quarter and provide financial guidance for the first quarter and full year 2021, well then take your questions. After our prepared remarks now I will.
I'll turn the call over to Sensata as CEO and President Jeff Go day.
Thank you Jakob and welcome to the call everyone.
I'd like to start with some summary, and thoughts on our performance as outlined on slide five.
The rebound from a commercial lockdowns and quarantines instituted by governments around the world and in response to COVID-19 earlier. This year continued in the fourth quarter.
Our response to that rebound and enabled our revenue to grow 15% and the quarter sequentially.
Two $906 5 billion.
Consistent with the updated revenue guidance that we provided on January eight and significantly higher and what we had anticipated during our third quarter earnings call.
This growth is a testament to our leading positions and our strength and flexibility of our manufacturing model.
I'm proud that we were able to capitalize quickly on improving markets and support our customers as they return to higher levels of production during the quarter.
I'd like to recognize the agility and hard work and our entire team and achieving these strong results.
Looking at our performance year over year, we continued to deliver strong market outgrowth for.
For the fourth quarter of 2020, we produced 990 basis points of outgrowth and our heavy vehicle off road business and 970 basis points of outgrowth and our automotive business.
Continuing the trend we saw in the third quarter inventory and the supply chain and and our customers finished goods has continued to come down and.
Try and most pronounced in automotive.
This sets us up very nicely for revenue growth of 2021.
Our full year 2020, we delivered market growth above our target ranges for both heavy vehicle off road and Automotives.
We are confident that we will sustain our growth for 2021 and the range of 600 to 800 basis points for heavy vehicle off road.
And 400 to 600 basis points per automotive.
Consistent with our long term goals and supported by our new business wins.
So the Sada today is and a strong financial position, we generated a record 240 billion and free cash flow and the fourth quarter and conversion rate of 178% adjusted net income.
And $453 million for the year, our conversion rate of 130% and.
And we are taking several steps to further enhance our financial position and flexibility.
We continue to benefit from incremental savings from the restructuring program announced last summer day.
These actions generated savings of 12 million and the fourth quarter and we are expected to generate and they are expected to generate annualized savings of 60 to 65 billion.
And 2021.
While market uncertainty and supply chain risk remain our business and customer visibility has improved significantly and.
And we have reinstated and full year 2000, and 'twenty one financial guidance today.
Later this quarter, we intend to redeem our $750 million six and a quarter notes due in 2026, which will lower our overall cost of capital.
During the fourth quarter, we closed more than $145 million and new business wins.
And yes to more than $465 million and new business wins for the year.
This is higher than our five year average of $440 million and solidifies our ability to continue to deliver market all growth in the coming years.
We believe our success and closing a higher level of new business wins in 2020, despite the disruptions caused by the day and pandemic clearly demonstrates and mission critical nature ups and <unk> products.
Finally, as I will discuss in more detail momentarily, we continue to invest and our megatrend growth initiatives and achieved a meaningful milestone and electrification by acquiring lithium balance.
And this brings and lithium balances and battery management capabilities in house, expanding important E mobility system offerings, and heavy vehicle and industrial applications and.
And enlarging our position with the within the if all day energy management solutions space.
And smart and connected we began installing sensors and vehicle area network changes loans on our first fleet customers and equipment and <unk>.
<unk> revenue was recurring subscription basis.
We are pleased that this business is gaining significant momentum with.
And I was quoting activity growing dramatically with future fleet customers.
Moving to slide six some sort of takes a holistic view of electrification and its impact on the markets we serve.
We've expanded our capabilities and the E mobility space beyond components and deliver hardware and software systems.
And the acquisition of Giga back positions and saw that as a leading provider of high voltage protection on Evs and charging infrastructure.
We are broadening our focus beyond automotive to E mobility applications and heavy vehicle and charging infrastructure as.
And as well as.
And to broader industrial and grid applications. This is because we see a great deal of customer need which is insider is uniquely positioned to address.
During the fourth quarter, we closed another 40 billion and electrification and new business wins, bringing our annual total to 180 million income.
Including four of our top five Ngos and 2020.
We are increasing our capabilities and charging infrastructure and smart grid applications, including our recent acquisition uplifting and balance.
Moving to slide seven we are expanding the electrification solutions, we provide for critical applications across all the end markets we serve.
But especially in automotive.
And it aligns well with the fast growing interest and production of electric vehicles around the world.
Today, the rapid introduction of new energy.
And do electric vehicles to the market provides a tailwind to sensata revenue growth our content Dev's represented eight represents a 20% uplift and content and value as compared to incur all combustion engine vehicles.
This content uplift is derived from a broad array of sensata sensors and other components that we designed into battery electric vehicles.
Some of these are carryover from internal combustion vehicles, such as great pressure and tire pressure sensors.
While others are unique to each such as contact <unk> and electric motor position sensors.
We have broadened and deepened our portfolio to support this expanding market segment.
And 2020, our EV related revenue represented approximately 5% are automotive.
And market.
As compared to E vs, representing approximately 3% of vehicles manufactured globally. So we feel confident we can grow along with the accelerated growth.
Vs.
To date, we have closed new electrification business with many of the largest and most innovative automotive Oems around the globe with logos are shown on this slide.
We are proud to have existing business or design wins on future E vs. With nearly every automotive OEM with and announced E V launch.
Helping these Oems and launched the next generation of E. DS represents a significant growth vector for some sort of electric vehicles increase in number and become a larger percentage of the total vehicle fleet worldwide.
As part of our holistic approach to electrification since sadat seeks to be a partner of choice for heavy vehicle and industrial Oems transitioning to electrified solutions as well.
We recently acquired and lithium balance after a two year collaboration that began and what we acquired a minority stake and this company.
Over that time, we have jointly won business with new electric truck and bus designs and with several Oems that bring over $250 of content per vehicle to sensata.
Battery management solutions, and heavy vehicle and industrial applications will represent an incremental $500 million up serviceable market person startup by 2030.
In addition to battery management systems for heavy vehicle and industrial applications lithium balance also provides battery energy storage solutions and the result of brand that will establish and Sato toehold and this very fast growing space.
Which is estimated to exceed $6 billion and addressable market by 2030.
On slide nine I want to provide and update on the meaningful milestone, we achieved and our smart and connected megatrend initiatives during.
During the quarter, we began to rollout our first smart and connected installation with a top 25, North American fleet manager.
Demonstrating our ability to move from selling hardware to providing data insight on a monthly recurring subscription model.
Several additional fleet trials are also moving toward commercialization this year.
We've gained significant momentum with more than 140 billion and total contract value having been quoted.
Representing more than $45 million and potential annual contract value with flop with five fleet managers.
And our expanded offering now includes the deployment ups full stack solutions that help unlock value for fleets.
Including functionality such as a vehicle area network cloud based data analytics and insight delivery web.
Web portals mobile apps and integration with third party and telematics service providers.
We're pleased by the increase interest and continue to believe that our smart and connected fleet management initiatives opened 6 billion and addressable market for Sensata by 2030.
Reaching reaching and then expanding commercialization with this exciting solution demonstrates its power to dramatically improve safety and reduce cost across commercial truck fleets.
In addition, and the newer equipment space, we expect to close incremental new business with several leading heavy vehicle Oems. This year building upon close to 100 million and new business wins closed to date.
For smart and connected solutions as.
As we capture more of this 1 billion addressable market and the OEM space, we are confident that our new business wins will convert into revenue and.
OEM productions production commences.
In closing I'm pleased with the progress against the megatrend initiatives and this progress supports our increased investment in this area as we pursue these large fast growing market trends.
We intend to continue our efforts to expansion sort of solutions for these areas organically and through third party collaborations and through acquisition as appropriate.
As I've said before we see numerous opportunities to utilize our strong financial position.
Our engineering capabilities supply chain and customer relationships to meaningfully and large our addressable markets through organic efforts as well as bolt on acquisitions within these mega trends.
I'll now turn the call over to Paul.
Thank you Jeff.
Key highlights for the fourth quarter and.
And on Slide 11 include revenue of 906.
$5 million.
And increase of $7 one per cent from the fourth quarter of 2019.
<unk> revenue increased five 3%.
And foreign currency increased revenue by one 8%.
And sequentially from the third quarter.
<unk> revenue increased 15%.
Reflecting our strong response to the continued rebound and our markets.
You'll recall that on January eight update and our revenue guidance for the fourth quarter.
Throughout the quarter, we saw continued strengthening.
Especially within our global automotive heavy vehicle and industrial end markets.
In addition to a revenue uplift from foreign exchange rate movements and.
And those contributed to the higher revenue performance in the quarter than we anticipated in late October.
Adjusted operating income was $195 6 million and increase of one 6% and compared to the fourth quarter of 2019.
Primarily due to higher revenues savings from cost reduction programs and favorable foreign currency.
Firstly offset by elevated costs, resulting from the COVID-19 pandemic.
Higher incentive compensation aligned to improve financial performance and high.
Their spend and support megatrend and growth initiatives.
During the second quarter, you'll recall that we announced a series of actions destruction reduce our semi variable cost by about 10%.
Achieve and expected 60 to 65 million and annual savings.
We achieved the targeted 12 million savings from these programs and the fourth quarter and expect to achieve.
We'll annualize savings starting in 2021.
Adjusted net income was $134 7 million.
A decrease of four 9%.
Compared to the fourth quarter of 2019.
Largely due to higher interest expense from our new bond issuance.
During the third quarter of this year.
Adjusted EPS was <unk> 85 cents in the fourth quarter.
Decrease from $4 five per cent.
To the prior year quarter.
Now I will discuss our performance by end market and the fourth quarter of 2020.
And as outlined on slide 12.
Overall, we reported and organic revenue increase of five 3% year on year.
Against and overall end market decrease of approximately $2 four per cent.
Representing market outgrowth from 770 basis points for Sensata.
Our heavy vehicle off road business posted an organic revenue increase of 16, 2%.
Representing 919 basis points of outgrowth as compared to six 3%.
And and market growth.
Our China on road truck business continued to post better and expected growth from accelerated adoption and a six emissions regulations.
For the full year 2020, and we delivered 880 basis points of outgrowth and heavy vehicle off road business.
Higher and our long term targeted range of 600 to 800 basis points.
Our automotive business posted an organic revenue increase of four four per cent.
Automotive production remained and high level during the quarter.
Creating broad supply chain supply chain challenges, while OEM customers.
Work down their inventories, which altogether and creating a five.
Four per cent negative impact on revenue.
Our automotive business produced market outgrowth, and 970 basis points and the fourth quarter.
Led by continued new product launches and emissions.
Electrification and safety related applications and systems.
For the full year 2020.
We delivered automotive outgrowth and 690 basis points.
Once again higher than our long term target range from 400 to 600 basis points.
Looking ahead lower inventory levels.
And automotive customers, especially in North America.
That's what's up well for strong growth in 2021.
Our industrial business increased.
Seven 7% organically.
Global industrial end markets returned to growth and the quarter.
Strong growth and heating.
Insulation and.
Air conditioning.
And finally <unk> applications and.
In addition to supply chain restocking.
Benefit and our industrial business.
Okay.
Our aerospace business decreased 24, 8% organically.
Reflecting reduced OEM production.
And much lower air traffic.
Which has negatively impacted our aerospace aftermarket business for most of the year.
New product launches, primarily in the defense space, partially offset the significant aerospace market declining.
This quarter.
Now I'd like to comment and the performance of our two business segments and the fourth quarter of 2020.
Starting with performance same thing on slide 13.
Our performance sensing business reported revenues of 689 million and.
And increase of eight 9% compared from same quarter last year.
Excluding the positive impact from foreign currency of 2% per.
Performance sensing organic revenue increased six 9%.
On a sequential basis performance sensing revenue grew 18, 6% from the third quarter and its customers maintain a high order rate through the quarter.
Sequentially from the third quarter, our automotive business reported an increase of 17%.
And our heavy vehicle off road business reported increase of 23%.
Demonstrating the accelerated rebound and both of these markets.
Performance sensing operating income was $185 1 million.
And increase of seven 9%.
Compared to the same quarter last year.
And with operating margin of $26 90 per cent.
The increase and segment operating income was primarily due to higher revenues.
Savings from cost reduction actions.
Favorable foreign currency.
Somewhat offset by elevated costs caused by the COVID-19 pandemic.
Sequentially performance sensing generated incremental margin of 31% and the higher revenue.
Underscoring since all of its profit potential associated with rebounding and markets.
As shown on slide 14, sensing solutions reported revenues of $217 5 million and the fourth quarter.
From 2020 and.
And increase of one 7%.
And that's compared to the same quarter last year.
Excluding the positive impact from foreign currency and one one per cent.
Sensing solutions organic revenue increased 6%.
On a sequential basis sensing solutions revenue grew.
And for 9% from the third quarter.
And as customers ramped up production through the quarter.
Sequentially from the third quarter, our industrial business reported an increase of 4% and are.
Aerospace business reported an increase of 11%.
Sensing solutions operating income was $70 7 million and increase of two 3% from the same quarter last year.
With operating margin of $32 five per cent.
The increase and segment operating income was primarily due to higher revenues.
And from cost reduction actions and favorable foreign currency.
Somewhat offset by elevated costs related to the COVID-19 pandemic.
Sequentially sensing solutions generated very strong incremental margins.
And the higher revenue and from productivity gains.
On slide 15, corporate and other costs not included in segment operating income were $69.
6 million and the fourth quarter of 2020.
Excluding charges added back to our non-GAAP results corporate and other costs were $58 5 million and.
And increase of $12 million from the prior year quarter.
Primarily due to higher global incentive compensation costs and.
<unk> and improving financial performance.
And higher design and build business development spending to support our megatrend growth initiatives.
Somewhat offset by savings from cost reduction initiatives.
Items added back to non-GAAP corporate operating expenses include restructuring related and other costs and.
Financing and other transaction costs.
Megatrend investments were $8 8 million during the fourth quarter.
And increase of $1 5 million from the prior year quarter.
We currently expect approximately $50 million to $55 million and megatrend related spend in 2021.
The design and develop differentiated sensor rich and data insight solutions.
We enter new markets develop new business models.
And design and new product categories, and fast growing and transformational megatrends vectors of electrification.
And smart and connected solutions.
Slide 16 chosen and started fourth quarter 2020 non-GAAP results.
Adjusted operating income was up one six per cent compared from same quarter last year.
While the adjusted operating margin decreased 110 basis points to 21 six per cent.
Which is near the top of our peer group and represents an attractive operating income margin profile.
The decrease in both adjusted gross margin and adjusted operating margin largely reflects the elevated costs, we have experienced due to the impact.
The COVID-19, pandemic and the related operating and productivity challenges.
We acted early during the pandemic to reduce our cost structure, while continuing to invest and mega trends and are shaping our end markets that we believe will enable us to deliver long term sustainable growth.
Incentive compensation costs have also increased.
Aligned to the rise in operating income as our end markets recovered from the low point and the second quarter of 2020.
Adjusted net income declined four 9%.
Compared to the same quarter last year.
The decrease largely reflects higher interest expenses related to our bond issuance and the third quarter of this year.
And higher taxes due to jurisdictional profit mix.
Finally, adjusted EPS was <unk> 85 cents down force Sims.
Four 5% and this compares to the fourth quarter of 2019.
And as a decrease and adjusted net income was.
And was partially offset by the benefit from share repurchases.
And intervening periods.
And as shown on slide 17, we generated a record 240 million and free cash flow during the first quarter.
Representing a 178% conversion rate of adjusted net income.
And finished the year with a 16 day reduction and inventory days on hand.
This brings free cash flow generation to $453 million for the full year.
Representing 130% conversion rate.
For 2021, and we expect free cash flow conversion of approximately 85 per cent.
Our capital expenditures for full year 2020 from $107 million in line with guidance.
For full year, 2021, and we expect capital expenditures to be and a range of $160 million to $170 million.
A more normalized level as compared to 2020.
And sort of the net debt to EBITDA ratio was three two times at the end of December.
Which is within our target operating range of 2535 times.
During the first quarter of 2021, and we have the opportunity to call and 750 million and senior notes due in 2026.
Which paid $6, two 5% and annual interest.
And our intention to repay those notes later in the first quarter.
To reduce our interest expense.
And that assumption is built into the financial guidance, we are providing today.
We are providing financial guidance for the first quarter of 2021 and as shown on slide 18.
As a result from improving economic conditions, and greater stability and customer order patterns, we expect to generate revenue between 875 million and.
915 million for the first quarter of 2021.
Representing a reported revenue increase between 13% and 18%.
Compared to the first quarter of 2020.
At the midpoint of guidance.
We expect net foreign currency will increase revenues year over year by approximately $17 million.
Excluding the impact of foreign currency, we expect and organic revenue increase of.
From 11% to 16% and the first quarter.
Youll recall.
And we called out approximately 20, and 25 million of inventory that was built by our customers largely automotive Oems and the first quarter of 2020.
That inventory build now reverses and acts as a headwind.
Year over year growth comparisons to the first quarter of 2021.
Our current flow rate was approximately 93% of.
Of the revenue guidance midpoint for the first quarter.
We continue to monitor leading economic indicators and third party forecast.
Form our view of future demand.
One headwind affecting our outlook is the expected impact.
From a global microchip shortage.
Entire auto supply chain is currently experiencing that.
That we expect will add 25 and <unk>.
The basis points to our operating costs and the first quarter.
Including this expense.
We expect to report adjusted operating income between $166 million and.
$182 million.
At the mid point operating income margin is expected to be 22%.
And the impact of foreign exchange.
On the bottom line, we expect reported adjusted net income between 100 and $622 million.
Which would represent an increase of 27% 47 per cent.
Compared to the first quarter of 2020.
We expect to report adjusted EPS between <unk> 67 and 77.
Which include a one and negative impact from foreign currency at the guidance midpoint.
At the bottom of slide we have provided a margin walk from the first quarter of 2020 to the first quarter of 2021.
This includes expected impacts from the semiconductor shortage.
Increased COVID-19 related costs.
Increased incentive compensation from employees.
Increased megatrend and investments and the impact of foreign exchange.
And <unk> core business is strong.
And with 400 basis points of margin improvement expected from operating leverage on higher revenues and net.
Net productivity gains including savings from.
Cost reduction actions.
Operating income margin reflects a very strong 40% incremental profit on the incremental revenue from.
From the same period a year ago.
We are providing financial guidance for the full year 2021, and as shown on slide 19.
For the full year 2021.
And the degree of market uncertainty remains.
And we're planning for a continuation from recent rebound and the economic and business conditions.
Accordingly, we expect to generate revenue between $3 45 billion.
And $3 $5 75 billion for the full year 2021.
Representing a reported revenue increase between 12%.
And 17% you from here.
At the midpoint of guidance.
We expect that foreign currency price revenues year over year by approximately $64 million.
Excluding the impact of foreign currency, we expect and organic revenue increase of 10% to 15% and 2021.
We expect to report adjusted operating income between $695 million and $755 million.
Which includes the expected impact of our global Microchip shortage and.
And expected, 25% to 50 basis point and cost.
First half of the year.
At the midpoint operating income margin is expected to be 29%.
Excluding the impact of foreign exchange on the bottom line.
We expect reported adjusted net income between $488 million.
$544 million.
This would represent an increase of 40% to <unk> 56 per cent compared to 2020.
We expect reported adjusted EPS between $3 six and.
And $3 42.
Which includes a negligible impact from foreign currency at the guidance midpoint.
At the bottom of the slide we provided a margin walk from 2019 to 2021.
The show up margin comparison to a pre pandemic period.
And fluctuating revenue and how.
The greatest impact on our operating income margins.
Covid related costs incentive compensation for employees megatrend and investments and foreign exchange have also had a meaningful impact on our operating income margin.
And so on its core business remains strong.
And our like for like basis absent these additional costs.
2021, operating income margin would be higher than 2019 and somewhat revenue.
On slide 20, we provide our estimates for OEM production growth for 2021.
And as compared to 2020.
North America automotive automotive production.
As expected to rebound sharply this year.
And as the industry seeks to address record low inventory levels at the end of 2020.
Global automotive production is expected to and is expected to grow 13%.
And our revenue weighted basis. Moreover, all of our end markets are expected to grow and 2021 and.
And these assumptions underpin our outlook for strong revenue and earnings growth and the coming year.
And some.
Thought and delivered an excellent financial finished in 2020.
Despite an extremely challenging environment throughout the year.
We expect this strong performance to continue into 2021.
As demonstrated by the financial guidance, we're providing today.
Driving this performance is our continued ability to achieve our growth targets.
Including a secular long term market outgrowth targets of 400.
600 basis points for our automotive business.
600 to 800 basis points for and heavy vehicle business.
Now, let me turn the call back over to Jeff for closing comments.
Thanks, Paul.
Wrap up with a few key messages as outlined on slide 21.
And sort of has responded very well to the rapid improvements and many of the end markets that we serve which demonstrates the strength flexibility and reliability of our organizational model.
Which enabled us to capitalize on the end market demand recovery.
Our ability to respond quickly to shifting demands as well as will position us very well as a trusted resource for our customers.
We are delivering attractive and market outgrowth, and we remain confident and our ability to continue to deliver this attractive and market outgrowth into the future based upon our strong levels of new business wins.
We continue to deliver solid free cash flow and.
Moreover, record cash generation of $140 million.
And the fourth quarter, which demonstrates and Sato is resilient and.
Financial model and operating discipline.
We continue to invest and our Megatrends and other growth initiatives that are opening large and rapidly growing opportunities first and sought out across all of our end markets.
We are making excellent progress as evidenced by the rollout of our first commercial fleet adoption for smart and connected solutions and <unk>.
Acquisition of looking at balance, which expands our electrification offerings and.
And by the $180 million and new electrification business wins and 2020.
We continue to believe that the overall market environment may provide interesting opportunities to further strengthen our portfolio through a strategically important value creating acquisitions.
In addition, we are pursuing 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 and growth opportunities and our people.
And finally I'm excited about Sensata has 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 are incorporating ESG areas into our strategy to help ensure the long term sustainability and success of the company for all of it and stakeholders.
Look forward to reporting more and this topic and the future.
I'd now like to turn the call back to Jacob.
Thank you, Jeff given the large number of listeners on the call. Please limit yourself to just one question each and if we.
Have time, we'll circle back for follow up questions as we're in different locations today and feel free to direct your question to either Jeff and Paul directly.
Jason would you please begin the Q&A.
Yes. Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press star and then two.
Our first question is from Scott Davis from Melius Research. Please go ahead.
Hi, good morning, guys.
Hey, Scott.
Scott.
Good morning.
The megatrend spend the $50 to $55 million should we think about that as kind of the new normal is a long term run rate or is that more likely to grow with revenues over time or is it more of a kind of a couple of years, you've gotta catch up and then it settles down a little bit or.
Just how do you guys thinking about that number.
Yeah, and so it's a great question, Scott and it's gonna be success driven.
And opportunity driven and so given the progress that we experienced in 2020, we believe that that activity earned and incremental investment.
I would tell you that we will monitor it closely we're not approaching this from a standpoint out and we budgeted that money and that's how we're going to spend it will we will monitor our progress very closely quarter to quarter against the initiatives and the objectives that we've set out that.
Allows for that spend we understand our responsibility to make sure that we're looking after and long term growth of the company and so.
Right now and that's what we're planning to spend in 2020, but we'll we'll continue to provide huge amounts of transparency to that spend and the success that we're able to achieve based upon that spend to our shareholders and adjust accordingly. Thanks.
Thanks Scott.
Yeah.
The next question is from Craig hit and Buck from Morgan Stanley. Please go ahead.
Great. Thanks, and I kept for all the color on the EV.
And I guess, just starting there you mentioned a number of new component and specific to a b and b. It around breaking E. Motors, just curious kind of where do you think you're seeing the most traction and some of these applications and then I can see through the breadth of the Oems you announced and.
That it's broad based but just any particular region right now where you feel like Youre seeing the best traction for EPS.
Yeah, Craig so.
Just to set the context, obviously I think everybody is feeling this a trend associated with electrification and driven by government regulation and consumer pull is it is a trend that's accelerating and and we've.
Observe that for several years here and made sure we've invested in it.
The point that we wanted to make very clear and our comments is that a lot of the content we have.
On combustion vehicles ports over.
So it isn't as though there is a discontinuity and complete loss of all of the opportunities that we see on the combustion side of half or more of that content applies and at Ava apartment, but we've also invested organically and E motor position and others positioned sensors and others.
We've adapted Inorganically and gigabyte and high voltage contactor is lithium balance with battery management systems.
And the trend in terms of Evs I think that we're seeing clearly is more pronounced and Europe and China.
But again you have to look at the segmentation of the electric vehicles in China. There are more lower end vehicles in terms of the penetration and we don't believe long term, that's where the market will go will go towards longer range shorter charge time vehicles, that's the future of electric vehicles, and our view and that's the target market that we're going at.
After.
And we're seeing that.
The trend of mbo opportunities pretty globally that the slide that you saw in terms of the number of customers that we're engaging with.
Is it is very broad and we're doing that on purpose because candidly, we believe that our customers have a opportunity to really continue to grow here, but the true winners in terms of the market are unknown and so we're casting the net very wide to make sure that we're serving all of the customers that are.
Making those products.
Thanks, Craig.
The next question is from <unk> from Bank of America. Please go ahead.
I think you are.
You have the drag from semi shortages on margin is that a function of higher prices of components that youre alluding to and the first half or is there a function of lower production that you anticipate and and his first half basically a reasonable way to think about this at the moment.
Why can't that sort of last longer and if I could Jeff just given the importance of this electrification trends that you alluded to if you could just maybe give us some sense of how you expect for Sensata.
The split of this to be and maybe a two year or a five year timeframe between the opportunities.
From a heavy vehicle standpoint versus autos that'd be great. Thank you.
Sure. So on the first on the semi question.
And the cost is a combination of pricing and increased logistics costs, given the short supply chain. So everything's.
Expedited freight to make sure that we can keep things open and running for our customers and again that this is a pretty broad based industry trend I would I would note that.
Although the semi shortage electronic shortage is most acute the reality is the supply chains across the world not just what's inside I think we're doing a great job managing through this but very on a very global basis, a very broad basis are stretched thin right now with the increased demand.
And the challenges associated with capacity with keeping plants open with with our labor shortages and COVID-19 related risk, but I think that.
We have as a company demonstrated really strong resilience there on your question associated with electrification. Our view is that clearly nearer term the penetration of electrification will be more broad and light vehicle.
We're not stopping there and we noted in our prepared comments that lithium balance brought the opportunity to be able to go after or heavy vehicle and bus applications as well.
And our view is that more and bus I think will become electrified bud and heavy vehicle the power requirements and I will take a longer period of time to migrate toward evs, but we're focused on those markets because we think that it although behind light vehicle. It will happen over time, and we want to make sure that we have.
And offering to be able to serve that.
Thanks, Bob.
The next question is from Mark Delaney from Goldman Sachs. Please go ahead.
Yes, good morning, and thanks very much for taking the questions I was hoping you could speak more on lithium balance and I understand it's a company known for some time, but maybe talk a little bit more on their technology and and after I had to work with them. What what led you to want to complete the acquisition and you.
If you could also maybe speak to the financial dimensions of what the imbalance so what kind of revenue.
Revenue and earning day packages and expect starting out and in Nebraska and out of the margin profile and lithium balance may look longer term and compare to the corporate average.
Sure.
And I originally about two years ago, we acquired 25% of this company we saw the trend toward.
And electrification accelerating you know that we had and inorganic or excuse me and organic effort around wireless battery management. So we reached out to them to build out our capability more broadly on battery management, which obviously has a hardware component, but has a pretty significant software component as well.
And so that's that was the original view of the synergy between the two companies clearly.
Given where electrification is gone and the content opportunity on Wired battery management.
We pursued the acquisition of the balance of this company and it's a small business.
But it has great potential.
And our market size of over $500 million.
And by 2030, so it's a it's an exciting opportunity for us in terms of expanding beyond just components into that space and as we've highlighted we had early strong success in terms of Ah.
A win with a heavy vehicle customer.
Way beyond just a component but around battery management.
We're excited about that the margin profile is pretty consistent we've often talked about the fact that as we go beyond a center component into systems and it may not be at shouldn't sort of margins, but it will be differentiated margin and it will help growth for their company and.
And so yet to be determined as that business grows it's a small business today.
As that business grows we're very confident it will have differentiated margins and when it becomes a bigger part of the business will be more specific in terms of the margin profile that we're experiencing there hopefully that helps thanks mark.
The next question.
<unk> is from Sami chatter G from J P. Morgan. Please go ahead.
Yes.
Hi, Good morning, Thanks for taking my question this is better and for summit.
And just ask a question on the container gain and Youre coming off a year off from any strong content gain and outperformance in 2020, so as we look to 'twenty and 'twenty, one and how should be think about the tragic tree of diet and in terms of key drivers as we look into 'twenty and 'twenty, one I think in 'twenty and 'twenty will benefiting from China and emissions.
Standards and that being a big part of the story. So in terms from <unk> is going to be more with EV story in 'twenty and 'twenty. One how is that going to change any color that would kind of from thank you.
Sure. So just as a summary, I think we've quoted some of these statistics by top fourth quarter, companywide and 770 basis points of market outgrowth.
For the full year or 600 basis points, so at or above what we've quoted as being the target ranges and and that's four years running now right. So the thing and Thats really important about the outgrowth is that because we're a long cycle business, we get a lot of visibility to that is remember during 2020 and we.
Called out third quarter that we were going to see a little bit of debt and our outgrowth and that's exactly what happened.
It tends to be a little lumpy, but we're confident in the long term growth given the engagement, we have with the customers, but most importantly, the mbo wins that we have and the pipeline of those which are driving engineering work for ultimate launches, it's very broad based right. So it's no one thing that's creating.
Incredible opportunity in terms of content growth, but as we've talked about it it's the drive around regulation globally, it's the drive around consumer preference globally, which which drives customer product portfolio Road maps.
Net we engage with them on to make sure that we're helping them whether it be increased fuel efficiency on a combustion engine or longer range on an electric vehicle or safer application.
And piece of agro equipment, there are literally dozens if not hundreds of drivers.
And there were some chunky ones implementation of T. P. M S.
Different jurisdictions around the world our rollout of <unk>.
Yeah exhaust gas recirculation applications, they tend to fan out over time, but there are dozens of trends that are allowing us to be confident and that trend long term.
Thanks, Phil and thank you.
The next question is from Matt Sheerin from Stifel. Please go ahead.
Yes. Thanks, good morning, everyone, Jeff I just wanted to ask.
Turning your full year guidance, which we certainly appreciate and as you know several of your peers.
It had been reluctant to guide beyond Q1, just because of lack of visibility and a lot of moving parts.
So just wanted to ask you about your visibility are you getting.
A better sense of order flow from from your customers and your revenue guide contemplate.
Hiccups in terms of production at your customers.
And any issues beyond the operating costs that you talked about but in terms of top line being impacted by the ship shortages.
So yeah we.
We had.
Pretty good discussions internally regarding full year guidance, you know that and our business we have.
Really good long term visibility of revenue are certainly within a quarter, we quote our fill rate and 93% higher than we normally are in terms of our fill rate in the quarter.
But even beyond the quarter, we get a pretty good feel.
And <unk>.
Supply chain shortages have.
It resulted in a situation, where we've really doubled down on the engagement with customers because in some instances, we placed and longer term orders on the supply chain and therefore, we've gone to our customers and asked for.
Longer term visibility and commitment from them so that adds to our confidence.
But overall.
We've factored in.
And some.
Conservatism on the full year, given that things may happen. You'll note I think you all know that IHS brought down some of the full year numbers from a light vehicle standpoint, given the supply chain shortages and.
We're following along and and using similar expectations on that clearly if there is a major disruption and major lockdowns will need to re look at it but based upon what we're seeing right now.
We feel very confident and demand situation and you highlighted it I think the bigger concern is broader supply chain. Both at our customers. There are some other suppliers and with Sada, if we're going to focus on what we can control within our own business to make sure that we deliver for them to the extent there's demand.
Thanks, Matt.
The next question is from Amit dairy on Ani from Evercore. Please go ahead.
Thanks for taking my question.
Jeff you touched on and.
Incrementally better attractive M&A opportunities and I was hoping you could perhaps just remind us how do you think about M&A in terms of the focus area deal sizes, and really how much leverage I'd be comfortable running with on our balance sheet and if.
If you could also just touch on the second topic, the megatrend and initiate it I appreciate the opex flow to you folks at providing book.
Is there a way to think about how much revenue contribution you would get and come to 'twenty one from those.
Sure.
Let me try to hit on several of those topics. So let me hit on M&A first and then I can come back to the megatrend.
Net revenue contribution and so on the M&A front.
We absolutely believe that there will be opportunities and our pipeline is quite full our capital allocation process will continue to be very balanced.
But.
Associated with M&A and buyback, but right now the focus is on M&A to drive the strategy, which will which will drive accretive growth for the company as we pursue opportunities in these fast growing market segments that we've identified.
Electrification and on smart and connected.
And so we'll continue to keep you updated on that but that is the focus area right now in terms of leverage where we're comfortable at the same range of leverage we've talked about more bolt on acquisition.
And we're very comfortable with the leverage range that we've given we've done a lot in terms of earnings growth that drives that leverage down.
Which we're pleased about but that's the range and that's how we're quoting right now in terms of the megatrend.
We will keep you posted I mean, we talked about that.
Net revenue that's generated today and our automotive business associated with electrification of 5% of that revenue when only 3% of the fleet.
<unk> is coming from electrified vehicles. So we are very confident and the.
The tailwind will experience and that trend occurs.
And we'll provide some more transparency in terms of the revenue that's being generated and associated with.
Both the electrification trend, but also the smart and connected trend as they become bigger components of the overall business.
Thanks, Amit.
The next question is from Steven Fox from Fox Advisors. Please go ahead.
Thanks, Good morning, Jeff I was just curious you've talked a lot about electrification can you just obviously your ice programs arent going away overnight and you sort of talk about your outgrowth prospects. There and then how you manage sort of the shift in your business.
Transferring from and ice dominated business to electrification without it hurting the overall revenues.
Yes, So you said it right and B.
Combustion engines not going away.
Bob right now, but many companies have made some very bold statements gm's announcement that they won't make combustion engines beyond 2000 and at 35.
This trend is accelerating and.
And we're prepared for it and that's a positive thing for us, but having said that you point out a very important point. There is continued content growth on combustion engines because between now and 2035, there are mandates regarding fuel efficiency and other C O T O.
Two emissions and other safety related requirements that will drive content will continue to drive content.
So we're thinking about that in terms of our R&D allocation.
We're thinking about that in terms of which opportunities we pursue.
And we're kind of our support our customers in terms of their roadmaps and help them migrate along this curve from combustion engines to electrified platforms and again not just in auto and H B O R and industrial applications and I will do the same thing and and and.
And they make a big portion of the NV OS that we've won $180 million of our 465 relate to electrification, but the balance relate to other applications safety and emissions related applications. So it's still a meaningful part of the business and we're going to focus on it and manage through this transition and a very thoughtful way along with our customers.
Thanks, Steve.
The next question is from Nick Todorov from Longbow. Please go ahead.
Yeah, Thanks, and good morning, everyone you guys I think relative to the last quarter. It looks like Mega trends investment and the outlook for 'twenty and 'twenty. One have increased if that is true maybe can you talk what's changing day are you, maybe seeing acceleration and the smart and connected given the quicker turnaround and those programs and I think Jeff you talked to.
And those quotes and just related to the smart and connected is that $45 million per year for five customers, that's about $9 million to $10 million per progress with customer is that the average size and how should we think about the smart and connected wins. Thanks.
Yes.
The trend on our website.
And the megatrend spend.
We ended the fourth quarter at eight and I think $8 8 million of megatrend related spend so.
Clearly and uptick.
Supported by the progress that we're seeing both on smart and connected and on electrification.
I think all of our callers and all of our investors would agree that these trends are just inevitable and we need to make sure that we're investing heavily and that's always a incredibly difficult balance for a long cycle business and we take it very seriously we're investing shareholder dollars today and future revenue.
Ladies and.
And so we wanted to again provide the transparency on that so you don't.
And I've confused the core business and.
The results of the core business, but it is an area that we believe.
Makes sense to continue and invest in and I mentioned to Scott earlier.
Yes, all of our spend will be success and market opportunity driven and we will keep you updated in terms of the progress.
And the specific question regarding the annual contract value.
$45 million and it clearly depends on size of fleet right not all fleets are similar in size and when you were talking about.
Building out the applications and serving up data across it.
<unk> fleets and larger fleets the annual contract value could could vary.
Pretty dramatically across those.
And you can imagine we're starting with top 25, so that makes sense in terms of focus for us.
But it's a it's a meaningful opportunity that we're excited about and we're looking forward to giving you additional updates in terms of our progress as we go forward.
Thanks, Nick.
The next question is from David Williams from Loop capital. Please go ahead.
Hey, good morning, and congrats on the quarter and I. Appreciate you letting me ask a question here.
Just wanted to kind of dig into the maybe the geographic trends in terms of the EBIT dollar content and how that differs maybe in China, where you have the low end vehicles versus maybe and North American electric vehicle.
Any sense in terms of the 20% uplift and how that would maybe break down between geographies.
Yeah.
And perfectly there. The reality is we're going to have lower content on vehicles that are lower range longer charge time vehicles.
So if you think of the class a vehicle that has an 800 mile range, where we have less content on those.
Versus the average of 50, right, which we've quoted and 20% uplift from our average combustion engine environment.
But in China for instance, where there are longer and vehicles there is more content.
And so it tends to be less about that geographic location and it's more about the type of vehicle that we're being designed into and the content and them. Obviously when you go outside of light vehicle into heavy vehicle applications.
Other bus and on road truck type applications and the content goes up much more dramatically.
And so and as well on energy storage and other applications. When you start to think about.
Components, but also battery met Wired battery management systems, and the content opportunity really is significantly higher and not at the volumes.
Light vehicle, clearly, but we are and a fortunate position to be able to.
And leverage the scale and capability, we get in that high volume light vehicle market to those other market segments that are growing.
Very rapidly as well.
Thanks, David.
The next question is from Christopher Glynn from Oppenheimer. Please go ahead.
Thank you good morning.
Going back to slide nine again for six P M.
You know OEM market 1 billion, you got a pretty robust 200 million wins to date in terms of the fleet market opportunity of 6 billion.
Curious to hear a little more about that bridge and status focus for further M&A and focus.
And so prior to the Mega trend of investment.
Yes, absolutely and clearly there is a much bigger market and the retrofit world, but this was born out of our OEM relationships.
Right. So as the Oems have started to implement tire pressure monitoring which was legislated requirements are regulated requirement and we realized and our OEM customers realize that you needed a vehicle area network to capture that data and also to allow for a seamless truck to trailer link and.
And the smart and connected initiatives and then we went and started researching it and engaging with fleet managers, because theres a whole bunch of vehicles out there whole bunch of logistics equipment out there that is in need of this essentially becoming Iot youre, getting and smarter and and become safer and.
More efficient. So this is an area along with electrification that will continue to focus from a inorganic standpoint.
But as well, it's a it's a big chunk of our megatrend spend from an organic standpoint as well.
Thanks, Chris.
The next question is from Brian Johnson from Barclays. Please go ahead.
Yes. Thank you.
And I talked a little bit more about like that.
And then and you can kind of think about the content. Obviously they argued from making Eric This is 20%.
And so if you price uplift I assume that contemplates.
The whatever content and the engine block and transmission and stuff going away, but I think as you kind of think about the E V specific components, what's your expectation for market share and.
And profit pool in those EBIT specific components versus the ice components that aren't being carried over.
Yeah, great Great question, so low.
Let me start by saying that the 20% uplift that we've quoted.
It's not we're not done.
So this is the story hasn't been written yet in terms of all of the needs that Oems will have as they rollout more of these vehicles. So we're clearly aiming for more than 20 per cent uplift and I just wanted to start there both through organic efforts more.
Success in terms of commercial activity, but also through organic efforts so more to come on that but we're going to keep at it.
In terms of market share.
Competitors that we see and these markets are they're different but there is that the dynamics are different right. So there tends to be.
The three to five capable competitors.
And each of these applications that we're talking about high voltage contactor is as an example, we don't see the typical competitors and we see and our pressure environment, but we see the same competitors, it's the Panasonic and <unk>.
He has a high voltage contactor.
Offering Hong pause and China, China opportunity are a China company LSI assets, a Korean supplier of high voltage contactor. So the dynamics and the competitive nature are very similar they are really hard and doing mission critical applications. So youre tend not to see hundreds of competitors.
And so long winded way of saying, we would expect similar market shares we always aim for number one or number two slot and the in the market and I think that we're heading certainly in that direction from a profit pool standpoint component level very similar margin.
Margins are higher and AFP.
But similar margins.
That we would see and our other component business.
Which is different from what I quoted earlier, when you start to get higher and the stack. If you will into battery management systems will continue to believe we will see differentiated margins, but perhaps not at the same level of margin that we would see it.
The content side of our product offering.
Thanks, Brian.
The next question is from Jim Suva from Citi. Please go ahead.
Thank you and just one question Jeff.
Chip shortage, how long it will.
We will lap them.
Do you have visibility into that you know or like when the auto production and slows down in July and August without them. All the time for everything to catch up where do you think will be resolved before then.
Oh, that's right.
And the tough question.
The right now the expectation is that.
Depending on how demand.
And from Oh, it's not just an auto phenomenon and its broader demand for chips right. So.
So as that evolves during the year. The hope is that second half of the year will be.
Less challenging that we're experiencing right now based upon that demand and capacity profile that exists.
Summer shutdowns and if they do have shutdowns and the automotive space always provide a little bit of a breather for for folks to catch up a little bit but.
Our expectation is similar to what I think you've quoted that second half of the year, we will get a little bit of a breather in terms of some of these shortages.
<unk> is driving that as well expectation of vaccine rollout and a little bit of.
Flexibility on that front will help as well as the year progresses.
Thanks, Jim.
The next question is from Luke junk from Baird. Please go ahead.
Good morning, Jeff I was wondering if you could give us.
Rough breakdown is it $50 to 50 million $55 million excuse me and Mega trend spending in 2021, if I remember right. It was a little bit more weighted to smart and connected and 2020 and as we look at the incremental spend here can you just give some color on what you were leaning into.
Yes, it's still.
And.
Leaning in on the smart and connected from it out and from a.
And investment and organic investment standpoint.
And is a little bit higher and and the electrification side than it was in 2020, though so not quite at parity, but certainly and the majority on the smart and connected side and.
The smaller portion of the on the electrification side.
Thanks Luke.
The next question is from Joseph Spak from RBC capital markets. Please go ahead.
And thanks very much.
And I noticed you're guiding free cash flow for 'twenty, 1% to 85% conversion, which I think is at the higher end of what you've.
Historically targeted and and you know capex.
Capex is clearly going higher and my guess is there's probably a little bit of working capital investment to support the sales the sales and Opex.
Did something change there or are there additional efficiencies or do you have sort of a new target on conversion.
Paul do you want to grab this one I think.
You described it well.
We do expect to be more efficient on the working capital side, So a big improvement and inventory this year and we've been struggling with inventory days and the last couple of years. He finally cracked the code here and I think we're much better trajectory going forward, you're right. We're gonna have to invest a little bit to support the growth, but I don't know I think we should expect conversion better than you saw in the last few years, which was and the high seventy's.
And so.
Low eighty's with would be a good outcome and what we're anticipating for 'twenty one.
Okay. Thanks, Joe.
The next question is from David Kelley from Jefferies. Please go ahead.
Hi, Good morning, guys I was hoping you could provide some more color on the 5% OEM inventory impact and autos.
Going back to the third quarter, there was a discussion of channel inventory normalization and.
First we were curious as to the drivers of the incremental work down in Q4, but also how you see channel inventory today it would be great.
Yes.
So.
It was an interesting year Q1 inventory build in the supply chain.
Given how quickly demand dropped they weren't able to shut the spigot off quick enough and they built inventory and then its clearly and the second half there was and depletion of inventories and as it is.
A data point, North America and automotive.
Vehicle inventory was 48 days ending the year.
And I can't remember the last time, we saw 48 days.
Data, we experienced and talked with folks who are buying vehicles are vehicles are selling yet.
List price. So there is there is a higher demand and they can make vehicles right now and that is having the impact of.
And.
Tightening up the supply chain, but that certainly the north American vehicle.
Inventory is a is a very valid data point and it's consistent with what we're hearing from customers in terms of what theyre seeing and their inventories more broadly and the supply chain.
Great. Thanks, David.
The next question is from Michael Phillips from there and bird capital markets. Please go ahead.
Hey, Good morning, guys. Just a quick question on the vehicle area network, you guys, saying that you know the first roll out on a small number of trucks and trailers, we will use the <unk> as the first sensing application you know what.
And we see as the opportunity beyond T. P. M S.
And that smart and connected universe, what other sensing applications do you see on those platforms and and maybe what the content opportunity could grow from on an annual basis. Since it is supposed to be and SaaS type business model.
And so.
We've talked about two other parameters that are T care abouts for fleet managers that we're focused on from an organic standpoint.
And that includes a load management also understanding not only total load in the trailer, but also the distribution of that load for safe distribution of the low job growth for safe travel and the second area is around wheel and sensing so that's essentially monitoring.
Barry.
Two <unk>.
Prevent downtime I'm on the road and so short of doing regularly scheduled maintenance on that or in addition to doing a regularly scheduled maintenance understanding what's going on on the wheel and.
To predict.
Potential failure of a bearing is another area and we announced last year that we had a product that we developed in conjunction with hendrickson.
To be able to break that sensing parameter to market, but those are the three that we're starting with but as you can imagine once you have a captive piece of equipment.
With your vehicle area network on it with a connection to the cloud with.
Network that can analyze data and the opportunity is pretty broad in terms of adding either others and sort of sensors or acquired capabilities or third party collaborations and to bring more sensors to enrich the data profile of of what were offering here. So.
More and more to comment and obviously every time you add more data.
More data right and you start with adding a central to collect that data and you bring into their cloud the value proposition increases for the fleet. So.
The pricing would be commensurate with that expanded offering.
Thanks, Michael.
The next question is from Joseph Giordano from Cowen. Please go ahead.
Hey, Good morning. This is Robert in for Joe. Thanks for taking my question I just had a quick one on <unk> I just wanted to dig into your expectations for 2021, I see you have a.
Market up six announced growth like 600, 800 bps I'm, just wondering what's going to be driving that outgrowth. This year is going to be changed from my China six emissions do you see any other.
Opportunities there and then any sense of like geographic puts and takes of where you expect to outperform more.
Yeah. So.
It feels really good to be and and Haynesville, where our market. That's turned the corner on growth right and this has been a market that started declining way before COVID-19 hit.
Middle of 2019 and started to decline in terms of just a market downturn.
And we've been dealing through that and.
And that and the first quarter of this year, we're starting to see a turnaround on many of those.
Certainly across the overall market and the first quarter, we're expecting about 15% market growth.
And as you look at the full year across the globe word that tapers, a little bit a little bit less but.
Just call it 6%.
Plus market growth.
And across the World now, where we're seeing geographic impact.
Clearly.
And first quarter, we're seeing and everywhere other than European on road.
And the full year Interestingly, what has been a big driver of growth, which is China will start to turn down and we will start to get into more difficult comps, but all the other markets North America and European on road and construction, all pars and positive market comparisons 2021 versus 'twenty.
And China would be down a little bit versus 2020.
Thanks, Joe.
The next question is from William Stein from Truest. Please go ahead.
Hey, guys. Good morning. This is Joe on for will and thanks for taking my question.
Acknowledging that this is far from a normal demand environment I'm just it looks like the Q1 guide is roughly mid single digits below normal seasonal is that just a pull in from Q4 or is there some conservatism baked in there and then if you could just comment on <unk>.
Inventory levels, specifically at tier one customers. Thanks.
Yeah.
It's a good question, but I'm, a little bit of and at a loss I mean things have been so volatile it's hard to sort of look at normal seasonality.
I wouldn't say that.
Clearly, we're seeing some some good growth.
In terms of first quarter versus first quarter of last year, but the seasonality aspects of it and in terms of how that demand would normally play out is a little bit harder honestly, it and be able to speak to.
And as we sort of get to a little bit more consistent trend.
We will get back to that more normal seasonal trends and we would see and the business.
And.
Thanks, Joe.
The next question is from Rod Lache from Wolfe Research. Please go ahead.
Hi, everybody.
I had another easy question.
You mentioned that the EBV specific content is on the longer range faster charge vehicles, which makes sense.
Given that give the giga back and and other technologies you have obviously a lot of those are higher and luxury like that that the teslas and the take Kansas at the world.
We're just wondering if youre seeing and similar 20% uplift and and content on the high volume.
S market vehicles with low longer range that are rolling out like the <unk> of the world are those that are being contemplated and.
And where do you see a similar content and and margin opportunity for those mass market cars.
Yes, so yes.
Yes, I think we do right and so.
And I.
I don't always a tribute long range to luxury.
I think that there is some segmentation that's occurring there where youre going to see more vehicles go to log ranch, even though they may not be historically considered to be a luxury vehicle, but I understand your point on that.
We don't see any specific.
Irrigation in terms of mass market in terms of content clearly some of the companies that are producing larger vehicles are larger numbers of vehicles. You know that we are suppliers to them right and you saw a list on there and.
And so we're.
That's the purpose of including the customer list is to essentially at the broad.
Engagement that we have across the market with many of the if not all of the Oems that are producing electric vehicles.
Thanks, Rob.
This concludes our question and answer session I would like to turn the conference back over to Jacob Sayer for any closing remarks.
Thank you Jason I'd like to thank everyone for joining us today.
And so there will be participating and several upcoming virtual investor conferences during the first quarter, including those sponsored by Goldman Sachs Barclays Wolfe Research Bear and Byrd Morgan Stanley and Truest capital and so it's going to be busy calendar. We look forward to seeing you at one of those events or on our first quarter earnings call late in April.
Thank you for joining us this morning, and your interest and some sort of fish and you can now and Nicole.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
And.
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Yes.
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