Lear Corporation

Good morning and welcome to Lear Corporation fourth quarter and full year 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Alicia Davis, Senior Vice President, Corporate Development and Investor Relations.

Please go ahead. Thanks, Kate. Good morning, everyone, and thanks for joining us for LEAR's fourth quarter and full year 2020 earnings call. Presenting today are Ray Scott, LEAR President and CEO, and Jason Cardew, Senior Vice President and CFO. you can find a copy of the presentation that accompanies their remarks at ir.lear.com. Following prepared remarks, we will open the call for Q&A. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding LEAR's expectations for the future. As detailed in our safe harbor statement on slide two, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-K and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on slide three. First, Ray will review highlights from the quarter and full year and provide a business update. Jason will then review our fourth quarter financial results, 2021 outlook, and 2021 through 2023 backlog. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now, I'd like to invite Ray to begin.

Thanks, Alicia, and good morning, everyone. Now if you could please turn to slide five. I'm going to provide a brief overview of our fourth quarter and full year financial results. We finished the year strong with sales of $5.2 billion and core operating earnings of $330 million in the fourth quarter. Adjusted operating margin was 6.3% and EPS was $3.66. For the full year, sales were $17 billion and core operating earnings were $614 million. I'm very proud of everything the team accomplished during a very challenging year. We delivered solid operating performance, won significant new business in both business segments, and continued to execute on our key strategic growth objectives, which will position the company for long-term success. Slide six provides some 2020 business highlights. Their sales grew faster than industry production by six percentage points, reflecting above market growth in both of our business segments. Our eSystems business, which grew 10 percentage points faster than the market in 2020, is benefiting from the shift to electric vehicles, a trend that we expect will support significant above market growth for the next 10 years and beyond. Despite a slowdown in the overall quoting activity in 2020 related to the pandemic, Today, we are announcing $2.8 billion of backlog, which reflects conquest wins in seeding and significant new awards in electrification. Jason will discuss the backlog in more detail later in the presentation. Last year, we won business on significant electrification platforms, including the highly complex battery disconnect unit with General Motors for the GMC Hummer EV and a plug board connector for Volkswagen modular electric vehicle platform that connects the battery to several high voltage wire harnesses. The engineering work we are doing on these programs for GM and Volkswagen is expected to create opportunities to win additional business as derivatives are added to these new EV platforms. We also won business with a customer who requested not to be named to provide high voltage and low voltage wiring harnesses for a new electric vehicle launching this year. Finally, we received over 60 awards in 2020, including the J.D. Power Quality Awards in Seating and the PACE Award in E-Systems that we noted earlier in this year, recognizing Lear for our ESG efforts, operational excellence, innovation, quality, and safety. Slide 7 highlights a few of our key program changeovers in seating, as well as new program launches that are part of our 2021 backlog. Over the last 10 years, we have made targeted investments to increase our vertical integration capabilities. As a result, we have the most complete capabilities of any seat supplier, which is apparent in the diversity of our products we are launching in 2021. In addition to our traditional JIT business, we make components such as leather, fabric, foam, and structures, both for internal use and for sale to our seating competitors. These component capabilities combined with our Intu suite of technology products allow us to partner with our customers early in the vehicle design and development process, providing us with a distinct competitive advantage as we bid on new business. Also of note this year is the launch of our first Configure Plus product for the new Volkswagen commercial van in Europe. We have another Configure Plus program launching with a North American OEM in 2023, and many other OEMs have expressed interest in this technology. We also are exploring additional applications for our Configure Plus technology beyond the traditional automotive, such as for the last mile delivery service providers, logistic providers, and autonomous vehicles. Slide 8 highlights key upcoming eSystems launches, which, in addition to our traditional product lines, includes new electrification and connectivity business. Our electrification launches include nine separate programs across Europe, Asia, and North America. I will talk more about our product focus areas and electrification on the next few slides. Slide 9 highlights Lear electrification product portfolio and shows how this business has developed since we were one of the industry's first suppliers of high voltage wiring and charging systems for over 10 years now. In 2008, GM chose Lear to supply the electrical distribution system for the Chevy Volt, where we developed the first mass market onboard charger and supplied high voltage wiring and connectors. By 2010, we were supplying five customers with electrification content. Over the past few years, we conducted an extensive study of the market, concentrating on growth prospects and competitive dynamics. Through these efforts, we've identified the product segments where we can leverage our core capabilities and generate attractive financial returns on a sustained basis. This exercise culminated in Lear choosing three product families on which to focus, power electronics, battery management systems, and high voltage wiring and connection systems. Today, Lear is the only tier one supplier with the full range of capabilities and expertise to be a full architecture solutions provider for both electrical distribution systems and power electronics. Using our vast experience We can integrate different functions in different pieces of the electronics in the vehicle, reducing weight and increasing efficiency, which translates into longer EV ranges and faster charging. And the trend towards highly integrated power electronic solutions plays well to our strengths, and we can offer different pieces of that portfolio in unique ways to solve customer needs. Most high voltage connectors are being customized for applications to support unique designs at each OEM. These connectors require greater complexity and leverages our position as the provider of the highest power density solution in the industry. As the industry transitions to electric vehicles, we're in a strong competitive position and stand to benefit as high power connector catalogs develop over time. Battery management systems are increasingly critical components for electrical vehicles that ensure that the battery is operating as efficiently as possible, which maximizes driving range. These highly software-intensive products have millions of lines of code, and our experience here, combined with our domain knowledge, will be invaluable as software continues to replace hardware in the electrical architecture. In 2021, we will be providing electrification content to 17 different customers on over 90 vehicle models, reflecting significant expansion and diversification of our customer base. Based on business we have already been awarded, we will have a very active launch schedule for the foreseeable future. I'm really excited about the opportunities this provides for our eSystems business. Okay, slide 10 depicts the key components required for a high voltage electrical architecture. which we reviewed in detail in our third quarter earnings call. We're showing the slide again today to reinforce how we have narrowed our focus on the areas where we can best leverage our core competencies. As shown earlier in the presentation, we have upcoming launches in all of these product areas. On slide 11, we highlight the growth potential in electrification. In 2020, electrification sales totaled $270 million. This year, we expect this business to grow to almost $400 million, and within three years, we expect the business to grow to $700 million. All of this business has already been awarded. Looking out a little further, we are targeting $1.4 billion of business by 2026, which would represent a 32% compounded annual growth rate in electrification from 2020, and will contribute three percentage points of growth over market for each system overall. This growth reflects both traditional customers who are investing in this new electric vehicle offerings as well as companies new to the industry. As shown here, annual quoting activities for electric vehicles continues to accelerate. We expect quoting activity in 2020 will increase throughout the year as we pursue additional opportunities with existing new customers. Win rates on pursued business are targeted in the 25% to 35% range. That is consistent with our historical levels, which will result in a continued growth over market for our eSystems business and for Lear overall. As OEMs increasingly commonize their new vehicle architectures, we find those awards to be particularly valuable. We are engineering and manufacturing components such as the main battery connectors and the battery disconnect units that are being designed in the customer's basic battery packs. Engineering unique designs, executing for our customers, and providing differentiated technology is expected to support future growth as these core elements are reused for different vehicles on common architectures. We are working with many potential customers, including new electric vehicle companies and technology enablers, such as battery makers, to show them the value of our technology offerings. Our many years of experience in electrification and the family of products we have developed provides a platform for growth with companies entering the vehicle electrification market. Recently, we secured a new electric vehicle customer who valued our experience, capabilities, and the ability to ramp production quickly, integrating both wiring and connection systems and building on our global footprint. While this NEV manufacturer has asked us to keep this program confidential, We expect similar opportunities to present themselves going forward as startups and established OEMs prioritize industry expertise, engineering capabilities, and speed of market. Now I'd like to turn the call over to Jason for a financial review.