Good morning and welcome to the Sensata Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jacob Sayer, Vice President Finance, Investor Relations, and Sensata Technologies. Please go ahead.

Thank you, Andrew. Good morning, everyone. I welcome you to Sensata's Fourth Quarter earnings conference call. Joining me today are Jeff Cote, Sensata's CEO and President, and Paul Vasington, Sensata's Chief Financial Officer. Along with the financial results press release we issued earlier today, we will reference a slide presentation during this call. You can download the PDF of this presentation from Sensata's Investor Relations website. This conference call is being recorded, and we will post a replay webcast on the Investor Relations website shortly after the call concludes. At the start, I want to mention Sensata's Safe Harbor statement which is on Slide 2. During this call, we will make forward-looking statements about future events for the company's financial performance that involve risks and uncertainties. Actual results may differ significantly from the projections mentioned. Factors that could lead to such differences include those discussed in our Form-10-Q and 10-K, as well as other filings with the SEC. We encourage you to review our GAAP financial statements alongside today's presentation. Most of what we discuss will relate to non-GAAP financial measures. Our GAAP to non-GAAP financials and reconciliations are included in our earnings release and presentation appendices. The company provides details of its segments' operating income on Slides 8 and 9 of the presentation, which are the main metrics management uses to assess business performance. Jeff will start with highlights from our business during the fourth quarter and full year 2021, and provide an update on our key electrification and insights strategic growth areas. Paul will present the detailed financials for the fourth quarter of 2021, including revenue growth and market outgrowth by business unit, as well as financial guidance for the first quarter and full year 2022. After our prepared remarks, we will take your questions. Now, I will turn the call over to Sensata's CEO and President, Jeff Cote.

Thank you very much, Jacob, and welcome everyone. I'd like to start with some summary thoughts on our strong performance during the fourth quarter and full-year 2021 as outlined on Slide 3. While automotive production declined substantially during the quarter compared to the prior year due to supply chain shortages, we responded effectively to deliver our customers' orders against strong consumer demand and produced solid financial results for shareholders, delivering $935 million in revenue, a growth of 3.1% from the prior year period, above the guidance range we provided in October. We once again produced strong market outgrowth, well above our target range. As a company, we delivered 800 basis points of outgrowth during the quarter and 960 basis points for the year. Since 2018, on average, we have produced 640 basis points of outgrowth annually. This demonstrates Sensata's secular growth potential and the vital role we play for our customers. Paul will discuss our strong revenue outgrowth in more detail. Sensata was awarded a record $640 million of new business wins during full year 2021, nearly half of it coming from our megatrend growth factors. We expect these new business wins to translate into Sensata's future revenue outgrowth. Sensata's revenue outgrowth to market is increasingly driven by our rapidly growing positions in the megatrend areas of electrification and Insights. We continue to invest in these growth initiatives, both organically and inorganically. Xirgo and Smart Witness expanded our capabilities in the telematics and Insights ecosystems. While Lithium Balance, joint venture, Spear Power, and Sendyne added to our differentiated electrification product and solution offerings. During the fourth quarter, we benefited from our resilient, flexible, and focused organization that continues to successfully navigate the ever-changing supply chain landscape and deliver on our customers' needs. We are working diligently to limit the effects of supply chain challenges, including working with our customers to offset these costs commercially. Despite these elevated costs, we delivered $198 million in adjusted operating income during the quarter, representing 21.1% in operating margin for the fourth quarter. Full-year revenue grew by 26%. Operating margins for the year were 21.1%, and adjusted EPS grew by a very impressive 61%. I'd like to recognize the innovation, agility, and hard work of our entire team in achieving these strong results. And you may recall Sensata published its first sustainability report in September, and we're very proud of our progress in these areas. Virtually every product Sensata makes today resulted in a cleaner, safer, and more efficient world. We also take our responsibility to reduce carbon emissions from our own operations and our supply chain seriously. To that end, we established specific goals in each area of environment, social, and governance in line with leading companies around the world, and we made good progress in 2021 against these goals. For example, Sensata's board of directors is now 36% diverse, and we are investing $3.3 million in energy-saving capital improvements during the coming year. We will report out on our continued progress in an updated sustainability report later this year. Moving to Slide 4, Sensata is making excellent progress in winning new business in electrification components, subsystems, and full turnkey solutions. In part because we take a holistic view of electrification and its growing impact on all the markets we serve. During 2021, we saw a dramatic uptick in the amount of new electrification business awarded to Sensata, amounting to $270 million in annual future revenue. We are discussing with customers additional opportunities representing a future pipeline of over $1 billion in potential new electrification business. Revenue from electrification efforts across our business was $260 million in 2021, including automotive, heavy vehicle off-road, and clean energy solutions. We are expecting a greater than 50% increase in revenue in 2022 from these efforts, and electrification revenue in automotive is expected to grow over 70%, supporting our view that battery electric content per vehicle reaches two times that of internal combustion engine vehicles within five years. As an example of the expansion of sensing and electrified solutions, we were awarded new e-motor temperature and position sensing business with a large European OEM, representing over $30 of content per electric motor. And this content doubles in vehicles with dual motor configurations. During the quarter, we acquired Sendyne to add their differentiated current-sensing, isolation-monitoring, and simulation technology to Sensata's expansive offerings. These are critical components in transportation, as well as industrial high voltage energy storage architectures. On February 22nd, we'll webcast a teach-in, covering our electrification product and solution set and customer use cases so listeners can gain a better understanding of the rapidly evolving market, our offerings, and our go-to-market strategies in these key growth factors for Sensata. We hope that you can join us. On Slide 5, we share an update on our continued progress in Sensata Insights. The Insights initiative addresses the large and fast-growing telematics space, and we're pleased by the traction we are gaining. As evidenced by the value added nature of our solutions, we were awarded new business worth $37 million during 2021, and we have identified a pipeline of more than $200 million in potential future business wins, that we're discussing with customers. The Insights growth initiative generated $75 million in revenue during 2021, and is expected to grow by greater than 100% in 2022. An example of a large recent win includes a tire pressure and gateways solution that will be installed by a leading heavy-duty trucking firm with a total contract value of $17 million. This solution enables the fleet to remotely monitor tire condition across their trucks to streamline their maintenance efforts, saving money while also preventing accidents and roadside events. I'm also pleased by the progress we've made in quickly integrating Smart Witness into our Insights business, and we are already winning business on a combined basis. Smart Witness' video solution comprised proprietary software and hardware purpose-built for telematics service providers, and they were given an innovation award at the recent Consumer Electronics Show. In summary, I'm really encouraged by our continued progress in these Megatrend growth initiatives. As I've said before, we see numerous opportunities to utilize our strong financial position, engineering capabilities, supply chain, and customer relationships to meaningfully enlarge our addressable markets through organic efforts, as well as bolt-on acquisitions and partnerships within these areas. Now, I would like to turn the call over to Paul.

Thank you, Jeff. Key highlights for the fourth quarter as shown on Slide 7 include revenue of $934.6 million, an increase of 3.1% from the fourth quarter of 2020. Adjusted operating income was $197.6 million, an increase of 1% compared to the fourth quarter of 2020, primarily due to acquisitions and favorable foreign currency, somewhat offset by lower organic volume and higher megatrend spend. For the full-year 2021, record revenue at $3.8 billion represented an increase of 25.5% over 2020. Adjusted operating margin of 21.1% represented an increase of 260 basis points from the prior year, and adjusted earnings per share of $3.56, an impressive increase of 61.1% from 2020 and the same level of earnings per share we set in 2019. Now, we'd like to comment on the performance of our two business segments in the fourth quarter of 2021, starting with Performance Sensing on Slide 8. Our Performance Sensing business reported revenues of $685.1 million, a decline of 0.6% compared to the same quarter last year. This was driven primarily by the 16% market decline in automotive, offset by our substantial market growth of 520 basis points in automotive, and 1700 basis points in heavy vehicle, off-road, as well as revenue from acquisitions. Automotive customers appear to have consumed a small amount of inventory built earlier in the year. Performance Sensing operating income was $185.6 million with operating margins of 27.1%. Segment operating income increased due to acquisitions and favorable foreign currency offset by the impact of lower organic volume. As shown on Slide 9, Sensing Solutions reported revenues of $249.5 million in the fourth quarter of 2021, an increase of 14.7% as compared to the same quarter last year. This was driven primarily by growth in the industrial markets and strong market outgrowth, including the launch of new industrial electrification applications. Sensing Solutions operating income was $74.5 million, an increase of 5.4% from the same quarter last year, with operating margins of 29.8%. The increase in segment operating income was primarily due to higher volumes, partly offset by higher supply chain costs. On Slide 10, corporate and other operating expenses not included in segment operating income were $72.8 million in the fourth quarter of 2021, excluding charges added back to our non-GAAP results. Corporate and other costs were $61 million, an increase of $2.5 million from the prior-year quarter, reflecting higher research and development and business development spend to support our Megatrend growth initiatives. We currently expect between $60 and $70 million in Megatrend-related spend in 2022 to design and develop differentiated, sensor-rich, connected data solutions for the fast-growing and transformational megatrend vectors of electrification and insights. As shown on Slide 11, we generated $117 million in free cash flow during the fourth quarter. Free cash flow was impacted in the quarter by our decision to increase raw material purchases in order to maximize production flexibility given the widespread part shortage in our supply chain. For the full-year 2022, we expect free cash flow conversion to be approximately 80% of adjusted net income. And we expect capital expenditures to be in the range of $165 million to a $175 million. Sensata's net debt to EBITDA ratio was 2.8 times at the end of December, near the bottom end of our target operating net leverage range. Sensata's primary use of cash on hand is to acquire businesses that will extend our position within our key growth factors of electrification and insights. We expect our net leverage ratio to decline to 2.2 times by the end of 2022, excluding the impact of further M&A. In addition, we resumed our share repurchase program in the fourth quarter, purchasing $48 million worth of shares, and the board has recently issued a new share purchase authorization in the amount of $500 million. We're providing financial guidance for the first quarter of 2022, as shown on Slide 12. Our expectations are based upon the end market outlook as shown on the page. We are more conservative regarding global light vehicle production in the quarter, down 9% versus down 2% on a revenue adjusted basis. The revenue components of our guide include market, outgrowth, completed acquisitions, and foreign exchange. We do not expect supply chain inventory to unwind during the quarter. Our current fill rate is approximately 96% of the revenue guidance midpoint for the first quarter. At the midpoint, adjusted operating income margin is expected to be 18.5%, which includes the impact of lower organic revenue in normal price movements when compared to the same period last year. We're making good progress offsetting increased operating costs associated with global supply chain challenges. With customers, we continue to face rising material and labor inflation. In addition, we are increasing investments for growth in Megatrend-related areas, as well as in our recent acquisitions, which will have lower margins than our core business as we invested rapid scale in these new growth vectors. Sensata's adjusted operating margins typically declined sequentially from the fourth quarter to the first quarter due to annual pricing changes from customers and this year are further impacted by rising inflation. This decline is typically offset by productivity improvements throughout the balance of the year, and we expect this to be the case again in 2022, particularly as revenue growth through the year. We're also providing financial guidance for full-year 2022, as shown on Slide 13. Our expectations are based upon an end market outlook that I will discuss in a moment. Revenue growth between 8% and 12% includes the impact of markets, outgrowth, acquisitions, and foreign currency. We do not expect the roughly $90 million of inventory built in the automotive supply chain during 2021 to reoccur in 2022. At the midpoint, adjusted operating income margin is expected to be 20.7%, which includes buying leverage and productivity more than offsetting price and input cost inflation impact and increased investments for growth. On Slide 14, we provide our estimates for OEM production growth for 2022 as compared to 2021. We currently expect automotive production to increase approximately 7% this year. Once again, our outlook is more conservative than current IHS automotive production estimates as we see production constraints from global supply chain shortages lifting slowly through the year. As Jeff highlighted earlier, Sensata's organic revenue outgrowth to the market as shown on Slide 15, has grown annually since we set those targets at the end of 2017. On average over that time, the company has delivered 640 basis points outgrowth, and last year we delivered 960 basis points of outgrowth. Looking forward, we are simplifying the outgrowth target to the accompanying wide targeted 400 to 600 basis points of revenue growth above market. And for 2022, we expect to be at the top end of that range. Each of our businesses will continue to contribute to that total, some higher and some lower in any period. So that in aggregate, we reflect the value of our innovative engineered solutions for all customers through revenue that grows faster than underlying markets. In addition to the organic revenue growth over market, we also intend to grow by acquiring businesses that give us access to fast-growing differentiated applications that address our customers' needs. Our long-term target is to acquire new revenue streams that add an additional 400 to 600 basis points of inorganic revenue growth each year. Our acquisition engine is warming up; we achieved 250 basis points of acquired revenue growth last year, rising to 370 basis points in the fourth quarter. Now let me turn it back to Jeff for closing comments.

Thank you, Paul. And let me wrap up with a few key messages as outlined on Slide 16. Sensata's business and organizational model is strong, resilient, and reliable. We deliver mission-critical, highly-engineered solutions required by our customers. We aim to outgrow the markets we serve in total by 400 to 600 basis points per year. We are confident in our ability to sustain this attractive end market outgrowth based on our record levels of new business awards and our large and expanding pipeline of new opportunities. We continue to invest in our megatrend growth initiatives that are opening up large and rapidly growing opportunities for Sensata across all our end markets. We are making excellent progress in Electrification and Insights, both organically through strong new business wins and inorganically through bolt-on acquisitions or joint ventures. We are targeting adding 400 to 600 basis points of inorganic revenue growth annually. We will continue to innovate on behalf of our customers, solving their hard-to-solve engineering challenges, enhancing electrical protection. We will also continue to provide differentiated, Electrification and Insights solutions to our broad array of customers. Solving these mission-critical challenges enables Sensata to continue to deliver industry-leading margins for our shareholders while also increasing investments in our growth opportunities and our people. And finally, I'm excited about Sensata's long-standing mission to help create a cleaner, safer, and more connected world, not just for our customers' products but also through our own operations. We believe we are meaningfully contributing to a better world. We're on our way to achieving the targets laid out in our first sustainability report, bolstering the long-term sustainability and success of the company for all of its stakeholders. We look forward to reporting more about our progress in these areas in future updates. Now, I'd like to turn the call back to Jacob.

Thank you, Jeff. We'll now move to Q&A. Given the large number of listeners on the call, please limit yourself to one question each. Andrew, go ahead and start the Q&A roster.

We will now begin the question-and-answer session. If you are using a speaker phone, please pick up your handset before pressing the keys. Again, please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question comes from Wamsi Mohan with Bank of America. Please go ahead.

Yes. Thank you. In your last call, you had called for about $9 million in supply chain headwinds year-over-year in the fourth quarter, and it seems like it came in much lower, impacting you by just a penny headwind. Why was it so much better than expected, and why is that benefit not flowing into the first quarter where it seems to be hitting you relatively hard again, if I'm interpreting your comments and numbers correctly? Thank you.

Hello. This is Paul. I think we've done a better job than expected around trying to recover costs from customers, and so that's worked out quite well. But the costs keep rising, and so we're chasing it a bit. And so as we look at the first quarter, material prices and conditions around labor have continued to rise. We continue to work with customers to recover a large portion of that cost. But in the first quarter to bear impact and throughout the rest of the year, we have a number of different productivity initiatives that we have to fall back those impacts on, which continue to improve the performance of our sites, restructuring out costs, and being more cost-effective, and also the benefit of volume leverage as we see revenues growing sequentially through the year. So you can see a big step-up in Q2, Q3, and Q4, and that's with the supply chain starting to soften up a bit and getting better supply from customers and our customers from our suppliers. And our customers are also seeing better supply conditions.

Thank you, Wamsi. Can we have the next question, please?

The next question comes from Scott Davis with Melius Research. Please go ahead.

Good morning, guys.

Hi Scott.

Hey Scott.

I have a question that might be a bit lengthy, but I hope it's not too much. The four acquisitions you made seem intriguing. Could you provide some insights on the gaps they addressed, how they're being integrated, and your plans for further integration? Additionally, I'd like to hear your initial thoughts on what you find positive about those deals. I'm looking for a bit more detail on this.

Sure, Scott. I'd be happy to explain. The acquisitions are designed to enhance our portfolio in key megatrend areas. Over the past few years, we have clearly identified IoT and Electrification as our primary focuses. We have been investing in these areas through our megatrend funding, and our M&A strategy is aligned with these segments. We approach our acquisitions incrementally rather than all at once, so it's not about just filling gaps; it's about strategically building our portfolio based on customer feedback and market trends. Each opportunity we identify adds value to our solution offerings, guiding our market approach and capabilities. Regarding integration, that's an important aspect because the businesses we’ve acquired differ significantly in terms of the solutions they provide and their target markets. Our core business involves long-cycle OEM operations, whereas the Insights opportunities, particularly with large fleets, can demand a quicker response. Therefore, we are managing these acquired businesses as separate units with distinct general managers, ensuring we retain the talented individuals we brought on board and maintaining our market execution. As for initial expectations, we anticipate substantial growth from these acquired areas. In 2022, we projected over 50% growth in Electrification and over 100% growth in Insights. This growth reflects a combination of organic and inorganic contributions and is a testament to the team's efforts in a short time by concentrating on these sectors. We believe this justifies a heavier investment in 2022, which is reflected in our megatrend spending guidance for the year. I apologize for the lengthy response, but I appreciate the chance to share these insights.

Thanks, Scott. Can we have the next question, please?

Yes. The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning, everyone. I wanted to talk about the $640 million of the net new business wins, up quite a bit over the prior year. Maybe you had some nice, chunky wins in there, but Electrification’s really coming on for you. Just curious if you think you can replicate that number or if a little more volatile path over the next couple of years is more in the cards.

Yes, thank you, Chris. We're really excited about it. It's great to acknowledge the significant number of wins. I want to mention that this acceleration occurred throughout the year, which is impressive, especially considering the cost inflation challenges mentioned by Paul and our efforts to engage with customers for recovery. Fortunately, this hasn't affected our ability to secure business with them. The acceleration shows we had 465 base last year and an average of 400 in the prior three years. As the business expands, we should see natural growth, but the new business opportunities are increasing at a faster rate as we concentrate on these Megatrend areas. We provided some insight into the opportunities available, particularly in Electrification, where we are targeting over a billion dollars in businesses. While we won't capture all of that, we have over $200 million in opportunities tied to Electrification and Insights, alongside other core business pursuits. We aim to maintain our goal of achieving 400 to 600 basis points of outgrowth moving forward, and we are optimistic about the success we are experiencing.

Thank you, Chris. Can we have the next question, please?

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

Yes. Thanks. Good morning. I wanted to just ask a clarification question regarding your commentary of inventory build customers. I think you talked about $90 million. Is that still a headwind that you're seeing this quarter? I think you said that you don't see it playing out in 2022. I just want to clarify that.

Sure. This year, we shipped about $90 million more to customers than our production. That was a positive factor for us. We cater to our customers based on their orders, but we don't expect this to happen again next year. It's important to note that this $90 million will be a year-over-year challenge for our revenue. In the fourth quarter, which is part of that $90 million figure, our analytics suggest that customers consumed some of the inventory that had accumulated earlier in the year.

Thanks, Matt, for the question. Can we have the next question, please?

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

Yes, good morning and thanks very much for the opportunity to ask a question. I'm hoping to talk a little bit more on the investments the company is making to target any fast-growing areas and the impact it's having on margins. I think the '22 margin talks about a 90 BPS headwind. Could you be a little bit more specific on the buckets that add up to that 90 BPS megatrend, I think, is a big part of it, but seems like there's some others. But at a higher level, when do you think the company will be at a point where it's making these very important investments but also where margins would actually start to expand as revenue grows? Thank you.

Certainly. Mark, I'll address the commercial aspect and the rationale behind it, after which Paul will elaborate on the investment and its impact on margins. The growth rates from 2021 to 2022 across various specific growth factors should demonstrate that investing in these areas is a valuable endeavor. Additionally, the amount of new business we are securing and the percentage stemming from these growth factors should serve as confirmation. We are indeed witnessing this through increased customer engagement and opportunities. However, we recognize the necessity to provide our investors with proof that this additional investment is justified for the growth of the business moving forward. This aligns with the direction our customers and industries are heading. It's a significant opportunity for us, and I believe we have shown strong early indicators that this initiative is gaining traction and is a worthy investment.

I completely agree. The 90 basis points reflect both the increased investment in the Megatrend, which we've highlighted, and the effects of the acquisitions that, as I mentioned earlier, have lower margins than our core business. This means there will be some margin dilution for a while as we scale up. However, I believe this is the right investment strategy. The evidence is in the new business opportunities, and the technology we are pursuing presents significant revenue potential in key growth areas we are focusing on. Over time, as these businesses grow and we develop modular designs to leverage volume, they will become much more profitable than they are at present, which aligns with our overall strategy. Historically, this approach has proven to be very successful for us.

Thanks, Mark, for the question. Can we get the next question, please?

Yes. The next question comes from Samik Chatterjee with JPMorgan. Please go ahead.

Great. Hi. Thanks for taking my question. I guess I wanted to ask on the inorganic M&A revenue growth target of 400 to 600; clearly that implies you have to do what you've been doing already to some extent. So I want to kind of get your thoughts around it. Is it you acquired a fair amount of assets recently that you're targeting to try and keep the size similar, trying to do more of the same, or are you trying to sort of now look at larger size acquisitions? And maybe if you can talk about the pipeline, how you think about that pipeline shaping up between automotive related to maybe other segments that are non-auto. Thank you.

Yeah. Glad to address that. So the focus is going to be in the Megatrend areas, right? So we haven't provided any surprises during 2021. We've talked about Electrification and Insights being the focus area in the acquisitions, and the joint ventures that we've done have been in those areas. So we're going to stay focused on that. Our goal is serial M&A, so it's not lumpy. That does not mean that if a great opportunity comes along that's more sizable we wouldn't entertain that, but that's not the focus area for us. It's to make sure that every year we can show some level of growth; 400 to 600 basis points is the target against this inorganic growth initiative in the focused areas to drive our strategy. It's going to stay financially disciplined. So we're not going to do deals just to get to that, and we're going to be very transparent regarding our progress. And it took some time to build the funnel. Right? So we really started this in late 2020 in terms of our serial M&A strategy. We executed against 2021 with some deals growing in the year, and then some later in the year. So we were able to achieve 2.5% in organic growth in 2021. Obviously, the lapping effect of those transactions results in about 2.5% already baked for 2022, which is in the guide that we provided, but the guide does not include or assume any additional M&A. If we do M&A, that will be in addition to what we've produced there, and that's what we're going to execute against and continue to try to stay focused on doing just that.

Thanks, Samik, for the question. Next question, please?

Yes. The next question comes from Steven Fox with Fox Advisors. Please go ahead.

Hi. Good morning. I was wondering if you could dig into your thinking on the markets for '22. I know you don't want to give any specific outgrowth there, but maybe sort of where you think you're benefiting from outgrowth generally. Thanks.

We believe company-wide we will be at the higher end of our range of 400 to 600. HVOR has been a significant area of growth for us due to various market trends and our offerings in that sector. We expect HVOR growth to continue. However, we anticipate the global HVOR market to remain relatively flat this year. In the first quarter, we expect a sharp decline of about 13% to 14%, which varies by market. Nearly all the markets we serve are down slightly in the first quarter, with China on-road experiencing a more substantial decline than other categories. For the full year, we expect modest growth everywhere except in China on-road. This provides further insight into the HVOR business.

Thanks, David, for the question. Can we get the next question, please?

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

Good morning, everyone. I wanted to clarify on the past recoveries in auto. Are these visible to you with a defined start date? Do you know that price kicks in in the second half or something like that just on, based on these discussions on averages? And is there a certainty that those discussions have already crystallized into something, and it's just the timing of when that kicks in?

Let's separate the two topics. When it comes to the productivity our automotive customers expect to see annually, this typically occurs at the start of the year. Companies anticipate a certain level of productivity and price reductions to begin at that time since we benefit from being on those platforms for five to ten years or more. Regarding the recovery, our commercial teams collaborate with our supply chain to comprehend the rising costs we are facing, including material and logistics costs per customer. We utilize this information to work with our customers to share part of those costs, with a preference for a greater contribution. This process is well-integrated within our business to present to customers. As Jeff mentioned, we navigated through numerous supply chain shortages and urgent customer demands for products. We're now shifting towards a more long-term perspective on these costs. Rising expenses are likely to persist, and we are adopting a different commercial strategy to secure better pricing over time to align with the higher cost base we expect to endure for a while.

Thanks, Joe, for the question. Can we get the next question, please?

Yes. The next question comes from Michael Filatov with Berenberg Capital Markets, please go ahead.

Hey guys. Thanks for taking my question. I was wondering if you could provide a little bit more quantitative detail around some of the cost headwinds you're expecting to experience in 2022, right? I mean, there's everything from material cost inflation to logistics and labor costs. Is there any way you could maybe quantify those buckets in terms of the headwinds you're expecting this year and maybe how you anticipate offsetting those? I know you just talked a lot about recoveries and maybe commercial negotiations but also specifically on those commercial negotiations at the start of the year, was there any really material change you were able to accomplish with those negotiations?

As outlined in the presentation, we maintain our confidence in our model; our guidance indicates that we expect some improvement in margins due to increased productivity. This encompasses various factors, including pricing and other initiatives aimed at enhancing our cost structure. Thus, we anticipate expanding our margins through productivity gains. The primary challenge we face is related to materials, as rising prices are not unexpected and are widespread, with suppliers taking advantage of the supply chain situation to increase their prices. This is having the most significant effect. We are, as mentioned, collaborating with customers and examining internal strategies to address these increasing costs. Additionally, labor costs have also surged globally, with variations depending on the region. This creates another challenge, necessitating increased productivity at our manufacturing sites to counteract the climbing expenses. We have solid plans in place to enhance productivity, and there are numerous initiatives we are actively pursuing to achieve the desired outcomes we shared with you today.

Thank you, Michael, for the question. And we, next question, please?

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

Thanks for taking my question. I apologize if this is addressed already. But when I think about the 200 basis points the margin dropped that's embedded in the March quarter guide you to volume and productivity, I believe, is there a way to decouple this and talk about how much of the headwind and productivity issue, the supply chain issue versus volume? And then as you ramp this up throughout the year, I think it's all our margins in from mid 18% to 21%. What's an EBITDA margin expanded? Is that this productivity inefficiency is going away or volume kicking in? To really break those two up, that would be really helpful.

I’m glad to assist. Each year, we adjust pricing for our automotive customers, typically resulting in lower rates compared to the previous year. This sequential decline from Q4 to Q1 reflects patterns we've observed over the last decade. However, material costs are increasing, leading us to anticipate new pricing from suppliers in addition to growth investments, which are critical for our future. This includes the businesses we've acquired and an increase in Megatrend spending from $12 million to an additional $3 or $4 million in Q1. These are our primary factors. Over time, as we maintain a 21% margin business, growing volumes will significantly enhance our profit contributions without necessitating many fixed costs. This allows us to leverage volume scale, which we expect will be evident throughout the year. Many of the initiatives we're implementing to generate better cost savings are set to begin yielding results, and we expect to see significant progress in that area.

Thanks, Amit for the question. Can we get the next question, please?

Yes. We have a follow-up from Chris Snyder with UBS. Please go ahead.

Hey, sorry. I just want to follow up on my previous question. You guys kind of talked to 70% auto electrification growth versus around 40% EV unit growth. So, that content per vehicle growth that we're seeing, is that more so driven by a higher revenue pie on these next wave EVs that are coming to market? Or is it more so driven by a similar revenue pie, and you're just taking much higher share of that? So thanks for letting me hop back in.

Yes, absolutely, Chris. So the former, right? The scope of the opportunity set that we've identified that we can serve for our customers is bigger. The share that we're experiencing is pretty similar. Our goal is to be number one or number two in the particular application or a path to get there. That has not changed. We want to be a leader. And so it's really about the size of the pie becoming bigger given the capabilities that we have as an organization to help our customers deliver on this interchange in their markets. So that's where we are. Thanks, Chris.

Thanks Chris for that. Can we get the next question please?

Yes. The next question comes from Joe Spak with RBC Capital. Please go ahead.

Thanks. Just maybe on the outgrowth and sort of tying some of the commentary together, I know you're talking four to 600 basis points of outgrowth overall. But given that the Electrification businesses primarily related to automotive, it would seem and your 50% growth you're talking about like an EV target of about a billion seemingly Mednet Gade. What type of outgrowth specifically in auto is embedded in that?

Yes. Our auto outgrowth has generally been at the upper end of the 400 to 600 basis points range we previously mentioned. I anticipate that as we increase our market penetration with new applications, we'll continue to achieve the higher end of that range in the automotive sector. It may fluctuate slightly based on product launches, and that's why we are considering the overall company outgrowth. We'll keep tracking the new business opportunities we secure with customers, as they are the best indicator of the long-term growth we expect in these sectors. Given the number of new business opportunities we've secured, we are confident in our ability to maintain this growth.

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, Operator. I'd like to thank everyone for joining us this morning. Sensata will be participating in upcoming investor conferences sponsored by Barclays, Wolfe, Berenberg, and Morgan Stanley during the first quarter. And as Jeff mentioned, we also expect to offer a webinar on our Electrification initiatives on February 22. So we look forward to seeing you at one of those events or on our first quarter earnings call in late April. Thank you for joining us this morning and for your interest in Sensata. Andrew, you may now end the call.

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