Item 1. Business
ITEM 1. BUSINESS
The Company
The reporting company is Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us." We are a global industrial technology company that develops, manufactures, and sells sensors, electrical protection components, and other products that are used in mission-critical systems and applications that create valuable business insights for our customers and end users. For more than 100 years, we have been providing a wide range of customized, sensor-rich solutions that address increasingly complex engineering and operating performance requirements to help our customers solve their most difficult challenges. We serve customers in the automotive, heavy vehicle and off-road ("HVOR"), fleet management, industrial, clean energy, and aerospace industries. We present financial information for two reportable segments, Performance Sensing and Sensing Solutions.
Our sensors are used by our customers to translate a physical parameter, such as pressure, temperature, position, or location of an object, into electronic signals that our customers’ products and solutions can act upon. Our electrical protection component portfolio is comprised of various switches, fuses, battery management systems, inverters, energy storage systems, controllers, and software, and includes high-voltage contactors and other products embedded within systems to maximize their efficiency and performance and ensure safety.
Original equipment manufacturers ("OEMs") are facing ever-increasing mandates, due to regulation and consumer demand, to make their products safer, cleaner, more efficient, more electrified, and increasingly more connected. Our sensors are being used by our customers in applications to address these demands, including those that help industrial customers introduce new energy-efficient and environmentally friendly motors, compressors, and heating, ventilation and air conditioning ("HVAC") systems; transportation customers to meet the standards of emissions and pollution-control legislation; and fleet managers to proactively monitor the location and performance of their vehicles. We consider these capabilities to be core to our historical success and will continue to be significant drivers of market outgrowth in the future. We use the term "market outgrowth" to describe the impact of an increasing quantity and value of our products used in customer systems and applications, above normal market growth. It is only loosely correlated to normal unit demand fluctuations in the markets we serve.
We have long-standing relationships with a geographically-diverse base of leading OEMs and other multinational companies. In geographic and product markets where we lack established relationships with customers, we rely on third-party distributors to sell our products. We have had relationships with our top ten customers for an average of 30 years. Our largest customer accounted for approximately 6% of our net revenue for the year ended December 31, 2021.
Business Strategy
Our business strategy involves leveraging certain new and emerging technology trends, which complement our existing product offerings, to deliver products that are used in mission-critical systems and applications that create valuable business insights for our customers and end users. Each of these trends, which we refer to as “megatrends,” is expected to significantly transform the industries in which we operate. Refer to Megatrends elsewhere in this Item 1: Business for additional information related to the new and emerging technology trends that we consider key to our strategies. These megatrends are also creating greater secular demand for our products, resulting in growth that exceeds end-market production growth in many of the markets we serve, a defining characteristic of our company.
We believe the medium- to long-term outlook for internal combustion engine powertrain products will evolve with the advent of more environmentally friendly vehicles that rely more heavily on Electrification and other adjacent technologies. Accordingly, we are focusing on expanding our market share on electrified platforms, including sensors, electrical protection components, and battery-energy storage systems as full solutions. Many of the components and subsystems that we have historically developed and produced will play a significant role in this expansion, but we will also seek strategic partnerships and acquisitions to accelerate the growth and transformation of our product portfolio. By entering such relationships, we obtain access to new technologies and solutions, which we can leverage with our existing expertise to optimize and expand our product portfolio.
We are seeking to expand our products and business, and to accelerate market share in other areas that we believe will experience high growth in the future, such as deployment of Internet of Things (“IoT”) solutions for buildings, factories, warehouses, and light- through heavy-duty vehicles, particularly in fleets. This is driven by the need for smarter and more connected sensors that collect, analyze, and provide insights into the operations of a piece of equipment or vehicle in order to
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improve its operations, making it more productive and efficient. Within IoT, one of our main areas of focus is the Sensata Insights business, in which we deliver data insights across heavy, medium, and light vehicle fleets; supply chain and logistics including cargo, container, and warehouse segments; and high-value stationary asset monitoring. Our data-driven insight, connectivity, and prognostics provide solutions that increase overall productivity and operational efficiency.
We also recognize the potential market impact of autonomous vehicles and advanced driver-assistance systems ("ADAS"), and we are developing sensors to facilitate development of this market by manufacturers of vehicles (light-duty and medium-duty passenger car vehicles, heavy-duty on and off-road) and material handling equipment. We believe that adoption of driver assistance technologies is a growth area – whether mandated by government legislation (such as the pedestrian safety requirements in the European Union (the "EU")) or adopted by OEMs ahead of regulations.
Our strategies of leveraging core technology platforms and focusing on high-volume applications enable us to provide our customers with highly customized products at a relatively low cost, as compared to the costs of the systems in which our products are embedded. We have achieved our current cost position through a continual process of migration and transformation to best-cost manufacturing locations, global best-cost sourcing, product design improvements, and ongoing productivity-enhancing initiatives.
The table below sets forth the amount of net revenue generated by our end-markets, reconciled to total net revenue, for the years ended December 31, 2021, 2020, and 2019:
For the year ended December 31,
(In thousands) 2021 2020 2019
Net revenue:
Automotive $ 2,062,407 $ 1,751,370 $ 2,028,983
HVOR 829,852 508,061 559,479
Industrial, HVAC, other 793,812 649,980 685,664
Aerospace 134,735 136,167 176,505
Total net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631
Megatrends
New and emerging technology trends that are expected to significantly impact our customers and our business strategy include Electrification and Insights.
Electrification
Our objective with the Electrification initiative is to become a leading and foundational player in electrification components and sub-systems across broad industrial, transportation, and stationary energy storage end-markets and to be a comprehensive solutions provider in select end-market segments. These components and solutions will support a future that is more environmentally sustainable and efficient and include: (1) clean energy transportation components for electric vehicles, charging stations, and chargers; and (2) mission-critical high-voltage components and subsystems combined into high value energy management or energy storage solutions. Throughout this Report, we use the term “electric vehicles” to reference hybrid, plug-in hybrid, and battery-electric vehicles, unless otherwise specified. The Electrification initiative provides a significant opportunity for us to expand the use of our sensors and electrical protection component portfolio within the automotive, HVOR, industrial, and aerospace industries.
Our transportation addressable markets are large today and growing, with expectations that they will continue to grow over the next 10 years. In addition to transportation applications, manufacturers of bikes, material handling equipment, marine vessels, and aircraft are also addressing ever-tightening greenhouse gas emissions regulations and taking advantage of falling battery costs and increasing energy capacities of lithium-ion battery cells to provide electrified solutions to their customers.
Applications in internal combustion engine vehicles make up most of our current transportation addressable markets. While the Electrification applications that we serve represent a smaller portion of these markets today, they are expected to grow rapidly until they become a larger opportunity for us than internal combustion engines by 2030. Our content in electric vehicles represents, on average, a 20% uplift in content value as compared to internal combustion engine vehicles of a similar class, resulting from the broad array of sensors and other components that are designed into electric vehicles. Looking forward, we estimate that our content per electric vehicle is on a path to double that of an internal combustion engine vehicle within five years.
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We provide many of our innovative and differentiated components such as braking, tire, and environmental control from traditional internal combustion engine vehicles for use in electric vehicle applications. Specific to electric vehicles, we also provide and are developing several components that enable safe and efficient operation of electrified platforms such as high-voltage electrical protection, advanced temperature sensing, highly-sensitive electric motor position, and next-generation current sensing. In addition, as transportation customers seek to extend the range of batteries and improve the efficiency of electric vehicles, they are incorporating electrical subsystems, which require additional sensors to monitor, control, and optimize what is happening within the vehicle. Thanks to capabilities we have added via acquisition, we can provide our customers with not only components, but also either the subsystem of assembled components to manage battery charging in the form of a power distribution unit or the full energy storage system, including battery management and a customized battery pack.
Within Electrification, we also address the needs of the charging infrastructure necessary to support the electrification ecosystem. We see additional opportunities in industrial and grid applications, some of which are more nascent today. Sensata is a leading provider of high-voltage protection on electric vehicles and charging infrastructure and we seek to be the partner of choice for HVOR, industrial, and aerospace OEMs transitioning to electrified solutions. We also intend to participate in other areas of the evolving market that enable Electrification to become more widespread.
To better pursue clean energy components and system opportunities, in the third quarter of 2021, we reorganized our Sensing Solutions operating segment, moving the portion of our electrical protection product category that includes high-voltage contactors, inverters, and battery management systems to a new business unit, Clean Energy Solutions. This business unit will focus largely on the industrial and stationary, commercial and industrial energy storage end-markets. Applications include e-bikes, stationary charging infrastructure, battery-energy storage, and renewable energy applications. With the acquisition of Spear Power Systems ("Spear") and Sendyne Corp ("Sendyne") as described in Business Combinations included elsewhere in this Item 1: Business , we are expanding our portfolio with energy storage systems and electrical sensing products to augment offerings to existing end-markets as well as provide for new end-markets and applications. These acquisitions broaden our capabilities in battery management systems and high-voltage contactors introduced with the previous acquisitions of Lithium Balance and GIGAVAC, LLC ("GIGAVAC"), respectively.
Insights
Our objective within the Insights megatrend initiative is to become a leader in delivering data-driven insight, connectivity, and prognostics to commercial fleet operators and asset managers, by providing solutions that increase overall productivity and operational efficiency. The Insights megatrend initiative addresses a large and fast-growing market opportunity to deliver data insights across heavy, medium, and light vehicle fleets; supply chain and logistics including cargo, container, and warehouse segments; and high-value stationary assets monitoring. These fleets and other owners require data on the location and operation of their assets in order to monitor the health of their equipment, lower maintenance costs, optimize operations, and improve safety. Within these markets, we provide hardware and services that enables a variety of end use applications, including vehicle tracking and on-board vehicle diagnostic data to monitor vehicle health; the provision of vehicle data to enable usage-based insurance offerings; critical data on tire pressure for heavy duty trucks and trailers that results in lower fuel costs; cargo capacity data for trailers that increase the operational efficiency of fleets; video telematics offerings that provide event analysis and in-cab monitoring to prevent and lower the cost of incidents; and visibility to where assets are located across the supply chain.
Leveraging Sensata’s long history and expertise in sensor development, Sensata Insights’ portfolio includes a full-stack offering of sensors, cameras, vehicle area networks, telematics gateways, cloud solutions, and data services. We collect data from cameras and wireless sensors measuring information such as video telematics, tire pressure, cargo capacity, and a variety of other sensing parameters along with related vehicle system information. We then communicate this valuable data from our telematics and video telematics devices to the cloud via Application Programming Interfaces for integration into our customers’ enterprise systems. Through cloud-based mobile applications and web portals, this data delivers actionable insight to drivers, maintenance workers, and back-office personnel – allowing participants in the ecosystem to proactively monitor the health of their vehicles, conduct proactive maintenance, optimize fleet operations, and enhance driver safety. As an independent third-party technology provider, we serve multiple channels to market including partnering with telematics service providers, resellers and carriers, and serving fleet operators directly.
As discussed in Business Combinations included elsewhere in this Item 1: Business , we acquired Xirgo Technologies, LLC ("Xirgo") and SmartWitness Holdings, Inc. ("SmartWitness") in fiscal year 2021, expanding our capabilities to provide data insights to transportation and logistics customers through telematics, video telematics, asset tracking devices, and other cloud-based solutions. With the acquisition of SmartWitness in the fourth quarter of 2021, we formed Sensata Insights, a business unit
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organized under the HVOR operating segment, to drive growth of our smart and connected offerings to the transportation market, including both those developed organically and through the acquisition of Xirgo and SmartWitness.
Our objective in the broader Industrial IoT/Digitization of Buildings, Factories & Warehouses trend is to become a leader in smart sensing and edge intelligence with solutions in machine health and asset management. The digitization of buildings, factories, and warehouses represent fast-growing opportunities that we believe will drive new business wins and market outgrowth for our industrial business.
Business Combinations
We completed various acquisitions in fiscal year 2021, summarized in the table below:
(In millions) Segment Purchase Price
Acquisition Date Performance Sensing Sensing Solutions Cash Estimated Contingency
Lithium Balance (1)
January 29, 2021 X $ 27.2 $ —
Xirgo April 1, 2021 X $ 401.7 $ —
Spear (2)(3)
November 19, 2021 X $ 105.8 $ 8.6
SmartWitness (2)
November 19, 2021 X $ 204.2 $ —
Sendyne (2)
December 8, 2021 X $ 25.1 $ —
__________________________
(1) Step acquisition completed on the date indicated
(2) Purchase price accounting is preliminary
(3) Contingency estimated as of the date of acquisition, subject to change
Lithium Balance
On January 29, 2021, we completed the acquisition of Lithium Balance, a leading battery management system provider. This acquisition advances our electrification business and strategy in the clean energy markets. This acquisition, along with the previous acquisition of GIGAVAC, LLC (“GIGAVAC”) in 2018, helps position Sensata as a leading provider of mission-critical high-voltage protection on electric vehicles and in the charging infrastructure. The addition of Lithium Balance further expanded Sensata’s portfolio to offer battery management solutions to a variety of vehicle OEMs and integrated energy storage solutions to commercial and industrial customers.
Xirgo
On April 1, 2021, we completed the acquisition of Xirgo, a leading telematics and data insights provider across the fleet transportation and logistics segments. This acquisition represented a meaningful milestone in our Insights megatrend initiative, greatly expanding our ability to provide data insights to fleet transportation and logistics customers, by serving telematics service providers, fleet management solution providers, and fleet operators themselves. Xirgo brings a comprehensive suite of telematics and asset tracking devices, cloud-based data insight solutions, as well as emerging cargo capacity and video sensing applications and data services. This acquisition is consistent with our strategy to move beyond serving vehicle OEMs and engage with the broader fleet transportation and logistics ecosystem. Xirgo is complementary to our focus on heavy-duty fleets, while also meaningfully extending our presence with customers across the cargo, container, cold chain, usage-based insurance, and light-vehicle fleet management markets. We have included these offerings, which serve our Insights megatrend initiative, as part of Sensata Insights.
Spear
On November 19, 2021, in support of the Clean Energy Solutions business unit, we acquired Spear, a leader in electrification solutions, developing next-generation scalable lithium-ion battery storage systems for demanding land, sea, and air applications. This acquisition advances Sensata's Electrification portfolio and strategy into new clean energy markets. Spear expands on Sensata’s acquisition of Lithium Balance in battery management systems and GIGAVAC in high-voltage contactors and provides energy storage solutions for OEMs and system integrators in fast-growing end-markets that offer significant growth opportunities. With this acquisition, we added the capability to provide full battery-energy storage systems for select industrial transportation end-markets.
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SmartWitness
In addition, on November 19, 2021, we acquired SmartWitness, a privately held innovator of video telematics technology for heavy- and light-duty fleets. SmartWitness expands the capabilities of Sensata Insights into high-growth video telematics applications, providing access to applications that will drive adoption of traditional and video telematics solutions. SmartWitness’ solutions comprise proprietary software and hardware purpose-built for telematics service providers, providing a complementary fit with our Sensata Insights business. Since its founding in 2007, SmartWitness has been a pioneer in video telematics that expands on traditional offerings to include contextually aware data capture that enhances the monitoring of vehicles and their surroundings to increase safety and lower insurance costs for fleets.
Sendyne
On December 8, 2021, we acquired Sendyne, which provides new, innovative, and differentiated technologies and products in the electrification space. Sendyne’s electrification components are used to solve key current and voltage measurement and isolation challenges. Current sensing and isolation monitoring devices are critical components of electric vehicles, charging stations, high-voltage distribution units, and full energy storage solutions that are an important piece of the electrification of many industries.
Refer to Note 21: Acquisitions of our audited consolidated financial statements and accompanying notes thereto (the "Financial Statements") included elsewhere in this Report for additional information related to the acquisitions of Xirgo, Spear, and SmartWitness.
Performance Sensing
The Performance Sensing reportable segment, which accounted for approximately 75% of our net revenue in fiscal year 2021, represents an aggregation of two operating segments, Automotive and HVOR. It primarily serves the automotive and HVOR industries through development and manufacture of sensors, high-voltage solutions (i.e. electrical protection components), and other solutions that are used in mission-critical systems and applications. Examples include those used in subsystems of automobiles, on-road trucks, and off-road equipment, such as tire pressure monitoring, thermal management, electrical protection, regenerative braking, powertrain (engine/transmission), and exhaust management. Our products are used in subsystems that, among other things, improve operating performance and efficiency, contribute to environmentally sustainable and safe solutions, and provide data-driven insight, connectivity, and prognostics to commercial fleet operators and asset managers.
Customers
Our customers include leading global automotive, on-road truck, construction, and agriculture OEMs, the companies that supply parts directly to these OEMs, which are known as Tier 1 suppliers, various aftermarket distributors, and fleet transportation and logistics customers. We believe large OEMs and other multinational companies are increasingly demanding a global presence to supply sensors and electrical protection components for their key platforms worldwide. As our customers develop common global electrified platforms to drive scale and efficiency across their global markets, we are well positioned to serve them with our global manufacturing and technical centers. Fleet transportation and logistics customers are demanding data-driven insight, connectivity, and prognostics to increase overall productivity and operational efficiency. We are also seeing the importance of new ‘startup’ OEMs grow as market disruptors and Sensata’s flexibility, speed, expertise, and global footprint provides these new entrants with a supplier/partner capable of meeting their demanding requirements. We provide all of our customers with the worldwide technical and manufacturing presence to enable their success around the world.
Markets
The global sensor market is characterized by a broad range of products and applications across a diverse set of market segments. According to an October 2021 report prepared by Strategy Analytics, Inc., the global automotive sensor market was $21.3 billion in 2021, compared to $20.3 billion in 2020.
As the markets we serve continue to drive improved safety, efficiency, and performance, we are well positioned to grow in this expanding market. Our solutions are present in a wide variety of transportation systems and subsystems playing a critical role in ensuring the functionality and safety of a vehicle’s operation. Within the combustion and electrified propulsion architecture we provide various sensor solutions (e.g. electric motor position, gasoline direct injection, oil pressure monitoring, fuel delivery, and various others) that enable superior functionality, efficiency, and optimized performance to reduce environmental impact. As electrification proliferates, the ability to protect the vehicle systems/sub-systems from high-voltage power sources becomes of critical importance, a need that our electrical protection portfolio (i.e. high-voltage contactors) addresses. Our chassis (e.g. tire management solutions), thermal management (e.g. pressure plus temperature sensing), and safety (e.g. braking and
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electronic stability control) sensor/product solutions all play critical roles in enabling the safety, improved performance, and increased efficiency and range of both electrified vehicles and internal combustion engine powertrains.
Applications we serve require close engineering collaboration between us and the OEM or their Tier 1 suppliers. Solutions are designed to meet application-specific requirements with customer specific fit, form, and function. As a result, OEMs and Tier 1 suppliers make significant investments in selecting, integrating, and testing sensors as part of their product development. Once our solutions are designed into an application, we are well positioned as the incumbent supplier for the application due to the high degree of sensor customization and application/vehicle platform certification. This results in high switching costs for automotive and HVOR manufacturers once a sensor is designed into a particular system or platform. We believe this is one of the reasons that sensors are rarely changed during a platform life-cycle, which in the case of the automotive industry typically lasts four to six years. OEMs and Tier 1 suppliers look to partner with suppliers that have a proven track record of quality, on-time delivery, and performance, as well as the engineering and manufacturing scale/resources to meet their needs over the multi-year lifecycle of these highly engineered vehicles and systems. As electrified and increasing autonomy-level transportation platforms continue to evolve and grow, we expect OEM and Tier 1 suppliers to continue to require sensing partners that can continue to meet their increasing needs for mission-critical sensors and solutions enabling their global vehicle strategies. We continue to drive investments in new technologies, competencies, and solutions that will enable our customers' success as they pivot toward an electrified world. Transportation industries provide some of the largest markets for sensors, giving participants with a presence in these markets significant scale advantages over those participating only in smaller, more niche industrial and medical markets.
Market Trends
Net revenue growth from the automotive and HVOR sensor markets served by Performance Sensing has historically been driven, we believe, by three principal trends, including (1) growth in the number of vehicles produced globally, (2) expansion in the number and type of sensors per vehicle, and (3) efforts toward commercializing higher value sensors. In addition, we believe that the automotive and HVOR sensor markets are, and will continue to be, substantially impacted in the near term by current megatrends, including Electrification and Insights.
Light vehicle production : Global production of light vehicles had consistently demonstrated steady annual growth for most of the decade prior to 2019, when it started to decline. Fiscal years 2020 and 2021 were both depressed production years due to the impact of the COVID-19 pandemic on global markets. Fiscal year 2020 was hardest hit, with global production of light vehicles declining approximately 16% from fiscal year 2019. In fiscal year 2021, global production of light vehicles increased about 1.2% from fiscal year 2020 according to third-party data. This moderate increase from fiscal year 2020 was muted due to global supply constraints, including shortages of semiconductor components as discussed elsewhere. We expect global production of light vehicles to increase approximately 7% in fiscal year 2022, remaining somewhat constrained as a result of global supply chain shortages, which we expect to lift slowly throughout the year.
On Road Truck Production: Global production of heavy-duty trucks had also demonstrated consistent growth prior to fiscal year 2019, but it declined in fiscal year 2020. Global production of heavy- and medium-duty trucks in the markets we serve increased approximately 20% in fiscal year 2021. We expect global HVOR production to remain flat in fiscal year 2022.
Number of sensors per vehicle: We believe that the numbers of sensors used per vehicle (both light and heavy) will continue to be driven by increasing requirements in vehicle emissions, efficiency, safety, electrification, and comfort-related control systems that depend on sensors for proper functioning, such as electronic stability control, tire pressure monitoring, advanced driver assistance, and advanced combustion and exhaust after-treatment applications. For example, government regulation of emissions, including fuel economy standards such as the National Highway Traffic Safety Administration's Corporate Average Fuel Economy requirements in the U.S. and emissions requirements such as "Euro 6d" in Europe, "China National 6" in China, and "Bharat Stage VI" in India, require advanced sensors to achieve these performance metrics. Sensors are a key enabler for a vehicle’s systems and sub-systems to meet the ever-increasing requirements in a vehicle’s operation.
Increasing safety requirements and needs for electrification are also key trends driving increased sensor content in vehicles. These trends are driving advanced braking systems as they transition from traditional hydraulic brakes towards electromechanical braking and regenerative braking systems, thus driving additional content in pressure and force sensing. Furthermore, electrified vehicles are driving more sophisticated thermal management systems to control heating and cooling systems throughout the vehicle and additional content in battery management systems to optimize drive range and safety in electrical protection as battery voltages increase. In addition, growth in the connected vehicle market is driving an increasing number of sensors in vehicles. This increase includes increases in commercial and light vehicle telematics and video telematics adoption.
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Higher value sensors: We believe that our revenue growth has been augmented by a continuing shift away from legacy sensors to next generation, value-rich sensors and related solutions that include controllers, receivers, and software and will continue to grow as our sensors get "smarter" with more embedded algorithms. As we strive to increase the value we bring to the market and our customers, we are continually looking to bring solutions to our customers that drive the next generation vehicle enhancement in electrification, safety, and reliability through our engineering solutions combined with increased data insights that are derived from these sensing solutions. Our ability to provide our customers with not only sensing and electrical protection solutions but also insights into the systems/sub-systems we serve increases the value of our offering and enables improved performance, safety, efficiency, and environmental impacts. Our focus on delivering enhanced value through our mission-critical solutions to the market positions us to drive profitable revenue growth as the market demands continue to evolve.
New Technology: Automobiles and heavy vehicles continue to evolve with new alternative technologies being developed to make these vehicles more efficient, reliable, financially viable, and safe. We believe that this trend has the potential to drive growth in our business for the foreseeable future, particularly in the areas of Electrification, Insights, ADAS, and autonomy. Moreover, we believe our broad customer base, global diversification, and evolving portfolio provide the foundation that will allow us to grow with these megatrends across a diverse set of markets.
For example, we expect this growth to include content growth in both hybrid and electric vehicles. Hybrid vehicles require systems and sensors to drive high efficiency across the powertrain, managing better diagnostics, more efficient combustion, and reduced emissions. As the level of electrification within a vehicle continues to increase, it drives the needs for new solutions to optimize the systems/subsystems to allow for optimal performance. One area where we clearly see this trend is in thermal management and climate control, where our market share is high and continues to increase. This is driven by the need for high efficiency control of thermal management in battery-electric vehicle heating and cooling systems as vehicle manufacturers look to drive increased vehicle range where the thermal loads on the vehicle become critical to manage. As long-range plug-in hybrid and full battery-electric vehicles gain market share, multiple instances of efficient thermal management across the battery, electronics, and cabin systems are required to protect and manage the vehicle, which drives additional core Sensata sensor and electrical protection content available in the market today.
Safety and efficiency systems are also evolving on electric vehicles. New and emerging energy recuperation technologies, such as regenerative braking, require additional sensing content to manage and efficiently switch between traditional braking systems and regenerative braking. Additionally, semi-automated vehicles containing advanced driver assistance systems benefit from more efficient and faster electromechanical braking systems, driving additional sensor content to control these brakes. Each of these systems enable more efficient use of energy, enabling greater electric vehicle range.
Our GIGAVAC high-voltage electrical protection products augment our electrical protection portfolio to address many of the needs in electric vehicles as voltage systems continue to increase. As system voltages increase, the burden on the systems and subsystems to properly control and protect the vehicle from electrical failure becomes mission-critical and is where our solutions play a critical role. Our electrical protection solutions safeguard the expensive electronics used to power the vehicle and allow for an increase in power levels to improve charging times.
Adoption of more advanced sensing technologies is also a key market trend, as fleet operators and owners demand more sophisticated information about trucks and trailers, which is driving demand for tire pressure, cargo capacity, and other sensing applications. Also, participants across the supply chain ecosystem are increasingly adopting IoT solutions to provide them with (1) tracking/visibility to where assets or goods are in the supply chain, (2) more advanced applications such as predictive algorithms on estimated time of arrival and sensors that can provide information on condition of the goods (temperature, humidity, etc.), and (3) event analysis and in-cab monitoring through video telematics to help prevent and lower the cost of incidents.
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Product Categories
The following table presents the key products, solutions, applications, systems, and end-markets related to the product categories produced in Performance Sensing:
Key Products/Solutions Key Applications/Systems Key End-Markets
Product category: Sensors
Pressure sensors
Speed and position sensors
High temperature sensors
Vehicle area networks
Data collection devices and software Thermal management and air conditioning systems
Powertrain
Exhaust after-treatment
Suspension
Braking
Tire management solutions
Operator controls
Radar solutions
Data insights
Usage-based insurance
Battery packs
Charging systems
Automotive
HVOR
Product category: Electrical protection
High-voltage contactors/fuses
Battery management system
High-voltage junction units
Electrical protection
Electrical powertrain
Battery management Automotive
HVOR
The table below sets forth the amount of net revenue generated by our product categories in Performance Sensing, reconciled to total segment net revenue, for the years ended December 31, 2021, 2020, and 2019:
For the year ended December 31,
(In thousands) 2021 2020 2019
Net revenue:
Sensors $ 2,796,819 $ 2,171,364 $ 2,489,644
Electrical protection 41,882 35,366 41,273
Other 9,207 17,080 15,099
Performance Sensing net revenue $ 2,847,908 $ 2,223,810 $ 2,546,016
Competitors
Within each of the principal product categories in Performance Sensing, we compete with a variety of independent suppliers. We believe that the key competitive factors in the markets served by this segment are product performance in mission-critical operating environments, quality, service, reliability, manufacturing footprint, and commercial competitiveness. We believe that our ability to design and produce customized solutions globally, breadth and scale of product offerings, technical expertise and development capability, product service and responsiveness, and a commercially competitive offering, make us well positioned to succeed in these markets. We are experts in the applications we serve, enabling us to provide industry leading solutions to our customers.
Sensing Solutions
Sensing Solutions, which accounted for approximately 25% of our net revenue in fiscal year 2021, primarily serves the industrial and aerospace industries through development and manufacture of a broad portfolio of application-specific sensor and electrical protection products used in a diverse range of industrial markets, including the appliance, HVAC, semiconductor, factory automation, water management, and charging infrastructure markets, as well as the aerospace market, including commercial aircraft, defense, and aftermarket markets.
Some of the products and solutions the segment sells include pressure, temperature, and position sensors, motor and compressor protectors, high-voltage contactors, solid state relays, bimetal electromechanical controls, power inverters, charge controllers, battery management systems, operator controls, and IoT solutions. Our products perform many functions including prevention of damage from excess heat or electrical current, optimization of system performance, low-power circuit control, and power conversion from direct current ("DC") power to alternating current ("AC") power. We believe that we are a leading supplier of electrical protection products in the majority of the key applications and systems in which we compete.
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Customers
Overall, our customers include a wide range of industrial and commercial manufacturers and suppliers across multiple end-markets, primarily OEMs in the climate control, appliance, semiconductor, medical, energy and charging infrastructure, data/telecom, factory automation, and aerospace industries, as well as Tier 1 aerospace and motor and compressor suppliers. Customers of Clean Energy Solutions include OEM system integrators, lithium ion battery packers, and distributors.
Markets
Demand for our sensor products is driven by many of the same factors as in the transportation sensor markets: regulation of emissions, greater energy efficiency, and safety, as well as consumer demand for new features. Gross Domestic Product growth is a broad indicator for demand for our consolidated industrial markets over the long term. We use Purchasing Managers' Index to gauge short-term trends in the industrial, appliance, and HVAC markets we serve.
We continue to focus our efforts on expanding our presence in all global geographies and serving our global customers in a highly efficient and cost-effective manner. Our customers include established multinationals as well as local producers in markets such as China, India, Eastern Europe, and Turkey. China continues to remain a priority for us because of its export focus and the increasing domestic consumption of products that use our devices.
Clean Energy Solutions serves a broad range of industrial, transportation, and stationary energy storage end-markets with applications such as e-bikes, stationary charging infrastructure, battery-energy storage, and renewable energy applications. Our go-to-market approach leverages existing channels and also includes new channels.
Product Categories
The following table presents the significant product categories offered by Sensing Solutions and the corresponding key products, solutions, applications, systems, and end-markets:
Key Products/Solutions Key Applications/Systems Key End-Markets
Product category: Electrical protection
Bimetal electromechanical controls
Circuit breakers
High-voltage contactors/fuses
Battery management systems
Energy storage systems
Motors, compressors, pumps
Home appliances
Lighting
Commercial and military aircraft
Marine/industrial
Data and telecom equipment
Medical equipment
Recreational vehicles Aerospace/defense
Industrial
Appliance and HVAC
Marine
Medical
Energy/solar
Product category: Sensors
Position sensors
Pressure sensors
Temperature sensors
Operator controls
Data collection devices and software
Vibration/gas/acoustic sensors Motors, compressors, pumps
Hydraulic machinery
Motion control systems
Commercial and military aircraft
IoT solutions
Motor/platform controllers Aerospace/defense
Industrial automation
Appliance and HVAC
Marine
Energy
Product category: Other
Inverters
Thermal management systems
Brushless DC motors Recreational vehicles
Mobile power
The table below sets forth the amount of net revenue generated by our sensors and electrical protection product categories in Sensing Solutions, reconciled to total segment net revenue, for the years ended December 31, 2021, 2020, and 2019:
For the year ended December 31,
(In thousands) 2021 2020 2019
Net revenue:
Electrical protection $ 593,259 $ 468,635 $ 532,358
Sensors 230,364 209,244 223,282
Other 149,275 143,889 148,975
Sensing Solutions net revenue $ 972,898 $ 821,768 $ 904,615
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Competitors
Within each of the principal product categories in Sensing Solutions, we compete with divisions of large multinational industrial corporations and companies with smaller market share that compete primarily in specific markets, applications, systems, or products. We believe that the key competitive factors in these markets are product performance, quality, and reliability.
Technology and Intellectual Property
We develop products that address increasingly complex engineering and operating performance requirements to help our customers solve their most difficult challenges in the automotive, HVOR, fleet management, industrial, clean energy, and aerospace industries. We believe that continued focused investment in research and development ("R&D") is critical to our future growth and maintaining our leadership positions in the markets we serve. Our R&D efforts are directly related to timely development of new and enhanced products that are central to our business strategy. We continually develop our technologies to meet an evolving set of customer requirements and new product introductions. We conduct such activities in areas that we believe will increase our long-term revenue growth. Our development expense is typically associated with engineering core technology platforms to specific applications and engineering major upgrades that improve the functionality or reduce the cost of existing products.
An increasing portion of our R&D activities are being directed towards technologies and megatrends that we believe have the potential for significant future growth but relate to products that are not currently within our core business or include new features and capabilities for existing products. Expenses related to these activities are less likely to result in increased near-term revenue than our more mainstream development activities.
We benefit from many development opportunities at an early stage for several reasons: (1) we are the incumbent in many systems for our key customers; (2) we have strong design and service capability; and (3) our global engineering teams are located in close proximity to key customers in regional business centers. We work closely with our customers to deliver solutions that meet their needs both today and in the future. As a result of development lead times and the embedded nature of our products, we collaborate closely with our customers throughout the design and development phase of their products. Systems development by our customers typically requires significant multi-year investment for certification and qualification, which are often government or customer mandated. We believe the capital commitment and time required for this process significantly increases the switching costs once a customer has designed and installed a particular sensor into a system.
We rely primarily on patents, trade secrets, manufacturing know-how, confidentiality procedures, and licensing arrangements to maintain and protect our intellectual property rights. While we consider our patents to be valuable assets, we do not believe that our overall competitive position is dependent on patent protection or that our overall business is dependent upon any single patent or group of related patents. Many of our patents protect specific functionality in our products, and others consist of processes or techniques that result in reduced manufacturing costs.
The following table presents information on our patents and patent applications as of December 31, 2021:
U.S.
Non-U.S.
Patents 352 536
Pending patent applications, filed within the last five years 106 238
Our patents have expiration dates ranging from 2022 to 2042. We also own a portfolio of trademarks and license various patents and trademarks. "Sensata" and our logo are trademarks.
We use licensing arrangements with respect to certain technology provided in our sensor and electrical protection products. In 2006, we entered into a perpetual, royalty-free cross-license agreement with our former owner, Texas Instruments Incorporated, which permits each party to use specified technology owned by the other party in its business. No license may be terminated under the agreement, even in the event of a material breach.
Raw Materials
We use a broad range of manufactured components, subassemblies, and raw materials in the manufacture of our products in both our Performance Sensing and Sensing Solutions segments, including those containing certain commodities (e.g. semiconductors, resins, and metals), which may experience significant volatility in their price and availability due to, among other things, new laws or regulations, including labor laws and the impact of tariffs, trade barriers, and disputes, and global economic or political events, including government actions, labor strikes, suppliers' allocations to other purchasers,
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interruptions in production by suppliers, increased logistics costs, changes in foreign currency exchange rates, and prevailing price levels.
It is generally difficult to pass increased prices for manufactured components and raw materials through to our customers in the form of price increases. Therefore, a significant increase in the price or a decrease in the availability of these items could materially increase our operating costs and materially and adversely affect our business and results of operations. However, the impact of the global supply chain shortages, including production delays on a vast and varied number of products across industries and geographies and increased procurement and logistics costs, are unprecedented. Accordingly, we are actively working with our customers to share the inflationary burden of these factors. In addition, where possible, we are working to adjust our long-term supply agreements, strengthen our relationships with our suppliers, increase inventories on hand, increase visibility into long-term supply and demand, and accelerate the use of alternate materials to increase supply chain visibility.
Despite these efforts, as discussed in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations (the "MD&A") included elsewhere in this Report, these shortages have impacted our margins in fiscal year 2021, and we believe that these impacts will continue throughout fiscal year 2022. If the impacts of these shortages are more severe than we currently expect, it could result in further deterioration of our results, potentially for a longer period than currently anticipated.
Seasonality
Because of the diverse global nature of the markets in which we operate, our net revenue is only moderately impacted by seasonality. Sensing Solutions experiences some seasonality, specifically in its air conditioning and refrigeration products, which tend to peak in the first two quarters of the year as inventories are built up for spring and summer sales. In addition, Performance Sensing net revenue tends to be weaker in the third quarter of the year as automotive OEMs retool production lines for the coming model year. Our Sensata Insights business within Performance Sensing tends to peak in the last quarter of the calendar year as customers exhaust their annual capital budgets.
Human Capital Resources
As of December 31, 2021, we had approximately 21,300 employees, of whom approximately 9% were located in the U.S. and approximately 56% of whom were female. Approximately 120 of our employees were covered by collective bargaining agreements. In addition, in various countries, local law requires our participation in works councils. We believe that our relations with our employees are good. We also engage contract workers in multiple locations, primarily to cost-effectively manage variations in manufacturing volume, but also to perform engineering and other general services. As of December 31, 2021, we had approximately 2,200 contract workers on a worldwide basis.
Our employees, whom we refer to as Team Sensata, are responsible for upholding our purpose – to help our customers and partners safely deliver a safer, cleaner, more efficient, more electrified, and increasingly more connected world – and embody our values in all aspects of daily work. Our corporate values are the essence of our identity, provide a level-set foundation, and are a key way we are able to improve our culture. Our values are passion, excellence, integrity, flexibility, and working together towards common goals, which we refer to as "OneSensata."
In September 2021, we published our first Sustainability Report, which shares our environmental, social, and governance ("ESG") strategies, performance, and goals that support our vision of creating a safer, cleaner, more efficient, more electrified, and connected world. One of our key areas of prioritization as identified in the Sustainability Report relates to empowering our workforce, through promoting a culture that values inclusion and diversity and prioritizes employee well-being and safety, while supporting our communities and suppliers. A summary of additional content of the Sustainability report can be found in Sustainability Report included elsewhere in this Item 1: Business and the full report can be found on our website at www.sensata.com/sustainability .
Diversity, Equity, and Inclusion ("DEI")
We believe in treating all people with respect and dignity. We strive to create and foster a supportive and understanding environment in which all individuals realize their maximum potential within Sensata, regardless of their differences. Each employee has the personal responsibility to maintain a respectful and inclusive workplace.
We believe that each person brings unique and valuable skills and perspectives due to their varying backgrounds and experiences. An inclusive culture is fundamental to innovation and problem-solving. It is the policy and practice of Sensata to hire and employ individuals without regard to age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, political affiliation, race, religion, sexual orientation, socio-economic status, and veteran status or other characteristics that make our employees unique. This policy applies to all terms and conditions of employment
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including recruitment and selection; compensation and benefits; professional development and training; promotions; transfers; social and recreational programs; reductions in force; terminations, and the ongoing development of a work environment built on the premise of gender and diversity, equity, and inclusion. We have published our goals for diversity in our Sustainability Report, issued in September 2021, as discussed in Sustainability Report included elsewhere in this Item 1: Business .
Our employee resource groups (“ERGs”) are company-sponsored groups of employees that support Sensata’s inclusion, diversity, and equity goals and objectives, by fostering awareness, respect, and inclusion within the workplace. They support our commitment to creating and sustaining a diverse workforce, a culture of inclusion where everyone can thrive, encourage different perspectives, thoughts, ideas and create a sense of community. Our ERGs exist to benefit and advance their group members by working strategically, both internally and externally. They also help contribute to Sensata's market success. In addition, our senior leadership benefits from ERGs by providing: exposure to emerging and high potential talent; acquisition of cultural knowledge; a direct line of communication to employees who face challenges from not being a part of the workplace majority; development of diversity management skills which directly link to Sensata’s success; and active contribution to the broader DEI strategy. As of December 31, 2021, we had eleven ERGs globally focused on the following areas — gender equity, generational diversity, cross-cultural appreciation, Black/African American, Hispanic/Latinx, and Asian/ Asian-American & Pacific Islander heritage, and LGBTQIA+ Pride.
Learning and Development
We believe that in order to continue to be successful in executing on our business strategy, providing a broad range of learning and development programs and opportunities will continue to be important. In 2017, we launched our online global learning management system, "Sensata Learning," that enables employees to access instructor-led classroom, virtual classes, or self-paced lessons. As of December 31, 2021, we had delivered more than 67,000 hours of training spanning various required learning and professional development topics and many courses specifically on diversity, inclusion, and ethics. We have a robust talent and succession planning process and have established specialized programs to support the development of our talent pipeline for critical roles in management, engineering, and operations. On an annual basis, we conduct a leadership review process with our chief executive officer, our chief human resources officer, and our business and functional leaders.
Social and Human Rights Matters
We have policies related to our position on various social and human rights matters, including child labor, forced labor, human trafficking, health and safety, non-discrimination, and environmental matters. Each of these policies can be found on our website at www.sensata.com. Sensata’s human rights expectations apply to all of our personnel, business partners, and other parties directly linked to our operations, products, or services. Sensata is committed to respecting the United Nations Guiding Principles for Business and Human Rights (2011) and its principles within our operations and supply chains.
Sensata is committed to responsible corporate practices in the area of human rights and working conditions and aligns with practices recommended by industry standards such as the Global Automotive Sustainability Practical Guidance and the RBA Code of Conduct, which incorporates the International Bill of Human Rights, namely the Universal Convention of Human Rights (1948), the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights and its two Optional Protocols (1966).
Sensata also adheres to the principles set forth in the fundamental International Labor Organization ("ILO") Conventions, namely the Forced Labor Convention (1930), the Minimum Age Convention (1973), the Worst Forms of Child Labor Convention (1999) and ILO Declaration on Fundamental Principles and Rights at Work (1998). The working conditions of our employees are, at minimum, in compliance with internationally recognized labor standards and the laws of the countries we operate in. When national law directly conflicts with international human rights standards or does not fully comply with them, Sensata will seek ways to respect internationally recognized human rights.
Employee Engagement
Our long-term success is dependent on hiring, retaining, training, rewarding, and engaging employees for the long-term. We strive to retain and engage employees by providing competitive pay and benefits packages and a challenging and rewarding work experience. We want our employees to feel connected to the business and company strategy, our purpose, and what we are doing to add value to them, our customers, and our investors. Our ability to create an environment where ideas are shared freely is fundamental to ensuring our employees reach their true potential, which grants us the ability to innovate. Each person brings unique value no matter their gender, race, age, education, or place of birth. We believe an inclusive culture is vital.
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We focus our employee communications on continual engagement, providing them with updates and offerings, including education and awareness about their overall benefit offerings at Sensata. To remain competitive, we regularly review our benefit offerings with external advisers with deep industry expertise in risk insurance, health insurance, and other employee benefits for advice and market expertise. We are committed to providing comprehensive and competitive benefit packages that attract, retain, and enhance the well-being of our employees. Our benefits include an array of quality health and income protection benefits to protect employees and their family’s health. Some benefits are provided automatically at no cost to employees while other benefits are shared between the employee and Sensata.
The health, safety, and well-being of our employees are a high priority for us and an integral part of our values. We consider safety a core value that is embedded in the decisions we make across the company to protect our employees, business partners, and local communities. We consciously build a culture of safety by modeling the behaviors we want our employees to adopt. At Sensata, we also recognize the importance of supporting our employees’ health and well-being. Our goal is to provide comprehensive and competitive benefits that consider whole-person well-being by supporting their physical, financial, and emotional wellness. To do this, we incorporate a whole range of health and wellness issues that our employees may confront and provide targeted support accordingly toward the best possible outcomes.
Ethics
We have adopted a Code of Business Conduct and Ethics governing the conduct of our personnel, including our principal executive officer, principal financial officer, principal accounting officer, and controller, and persons performing similar functions. Our Code of Business Conduct and Ethics is modified from time to time and is available on the investor relations page of our website at www.sensata.com under Corporate Governance. We have a three-part annual training covering the topics discussed in the Code of Business Conduct and Ethics on Sensata Learning, our online global learning management system.
We hold an annual "Integrity Week," which focuses on integrity as a core value of the organization and for the key priority of "Operating Responsibility," as outlined in our Sustainability Report. By sharing best practices and stories from their professional journeys, various teams at Sensata illustrate how integrity is not just about doing the right thing but how it is intrinsic to delivering value and sustainability for our company, environment, and communities.
We believe our management team has the experience necessary to effectively execute our strategy and advance our product and technology leadership. Our chief executive officer and business leaders average approximately 25 years of industry experience. They are supported by an experienced and talented management team who is dedicated to maintaining and expanding our position as a global leader in the industry. For discussion of the risks relating to the attraction and retention of management and executive management employees, see Item 1A: Risk Factors included elsewhere in this Report.
Sustainability Report
In September 2021, we published our first Sustainability Report, which shares our ESG strategies, performance, and goals that support our vision of creating a safer, cleaner, more efficient, more electrified, and increasingly more connected world.
Our sustainability efforts focus on four key areas of prioritization against which we will measure progress:
• Empowering our workforce : We promote a culture that values inclusion and diversity and prioritizes employee well-being and safety, while supporting our communities and suppliers;
• Innovating for Sustainability : We develop products and technology solutions that help create a safer, cleaner, more efficient, more electrified, and increasingly more connected world;
• Protecting the Environment : We focus on building products that reduce environmental impact and improve technological efficiencies while optimizing and reducing our operational footprint through energy, water, and waste reduction;
• Operating Responsibly : We consider transparency and accountability as fundamental in everything that we do, guiding our approach to governance, risk management, and ESG.
As described in the Sustainability Report, we conducted a materiality assessment to identify the ESG issues that were most important to our business and stakeholders. We identified the following key issues and set corresponding goals as follows:
◦ DEI : Our goal is to reach (1) 30% female representation in manager and above roles worldwide and (2) 25% racial/ethnically diverse representation in manager and above roles in the U.S. by 2026;
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◦ Energy and Emissions : Our goal is to achieve carbon neutrality in our operations by 2050 and reduce greenhouse gas emissions intensity by 10% by 2026;
◦ Responsible Sourcing : Our goals in this area are by 2026 to (1) achieve 75% response rate on our responsible sourcing campaigns and (2) achieve 100% sourcing of conflict minerals and Cobalt from smelters that are conformant with the Responsible Minerals Assurance Process or equivalent standard.
Environmental and Governmental Regulations
Our operations and facilities are subject to numerous environmental, health, and safety laws and regulations, both domestic and foreign, including those governing air emissions, chemical usage, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We are, however, not aware of any threatened or pending material environmental investigations, lawsuits, or claims involving us or our operations.
Many of our products are governed by material content restrictions and reporting requirements, examples of which include: EU regulations, such as Registration, Evaluation, Authorization, and Restriction of Chemicals ("REACH"), Restriction of Hazardous Substances ("RoHS"), and End of Life Vehicle ("ELV"); U.S. regulations, such as the conflict minerals requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and similar regulations in other countries. Further, numerous customers, across all end-markets, are requiring us to provide declarations of compliance or, in some cases, extra material content documentation as a requirement of doing business with them.
We are subject to compliance with laws and regulations controlling the import and export of goods, services, software, and technical data. Certain of our products are subject to export regulations of the various jurisdictions in which we operate (“Controlled Items”). The export of many such Controlled Items requires a license from the applicable government agency. Licensing decisions are made based on type of product, its destination, end use, end user, the parties involved in the transaction, national security, and foreign policy. As a result, export license approvals are not guaranteed. We have a trade compliance team and other systems in place to apply for licenses and otherwise comply with import and export regulations. Any failure to maintain compliance with such regulations could limit our ability to import or export raw material and finished goods. These laws and regulations are subject to change, and any such change may limit or exclude existing or future business opportunities, require us to change technology, or incur expenditures to comply with such laws and regulations.
Compliance with environmental and governmental regulations and meeting customer requirements has increased our cost of doing business in a variety of ways and may continue to do so in the future. We do not currently anticipate material capital expenditures during fiscal year 2022 for environmental control facilities. We also do not believe that existing or pending legislation, regulation, or international treaties or accords, whether related to environmental or other government regulations, are reasonably likely to have a material adverse effect in the foreseeable future on our business or the markets we serve, nor on our results of operations, capital expenditures, earnings, competitive position, or financial standing.
Available Information
We make available free of charge on our Internet website ( www.sensata.com ) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our website and the information contained or incorporated therein are not intended to be incorporated into this Report.
The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov . The contents on, or accessible through, this website or our website are not incorporated into this filing. Further, our references to the URLs for the SEC's website and our website are intended to be inactive textual references only.
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