Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation first quarter 2021 earnings conference call. All participants will be in a 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 also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ed Lowenfeldt, Vice President of Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone, and thanks for joining us for LEAR's first quarter 2021 earnings call. Presenting today are Ray Scott, LEAR President and CEO, and Jason Cardew, Senior Vice President and CFO. Other members of LEAR's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. 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-Q 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 provide a business update. Jason will then review our first quarter financial results and our full year 2021 outlook. 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.

All right. Thanks, Ed. Good morning, everyone. If you could please turn to slide five, I'm going to provide a brief overview of our first quarter financial results. The Lear team delivered strong results in the first quarter with sales of $5.4 billion and core operating earnings of $336 million, both up significantly versus last year. Lear's sales grew faster than industry production by 9 percentage points, reflecting above-market growth in both of our business segments. Adjusted operating margin was 6.3%, and EPS was $3.73. Slide 6 provides some business highlights from the quarter. I am very proud of what the team accomplished this quarter. We successfully navigated supply chain shortages, and related customer production shutdowns that made for a very difficult operating environment. At the same time, we remain focused on executing our strategic plan. Both business segments posted strong growth above market in the first quarter. In these systems, growth over market was 10 percentage points, our fourth consecutive quarter of double-digit growth over market. And seeding growth over market was 9 percentage points, In late March, we acquired M&M Plastics, a manufacturer of engineered plastic components for automotive electrical distribution applications. This acquisition is consistent with our strategy to increase vertical integration in these systems. We also have been selected as a PACE Award finalist by Automotive News for all three innovative technologies that we submitted for consideration. including our battery disconnect unit and our 5G V2X telematics control unit in these systems, and our in-tune thermal comfort technology in seating. Having won PACE awards for the past two years and being named a finalist for three awards this year is a testament to our leadership position in automotive supplier innovation. Over the years, Lear has consistently supported the communities around the world where we do business. In the first quarter, we were one of a very select group of companies in Juarez, Mexico, that was recognized for our continued support in the areas of education, health, and community management. But before I move on to the next slide, I want to highlight that we are closely monitoring the near-term supply challenges and higher commodity costs facing the auto industry. Our purchasing logistics and engineering teams are laser-focused on managing through this period to support our customers and manage our costs. We expect these issues will be transitory, and as such, we are continuing to invest to strengthen our business during these challenging times. Turning to slide seven, I will share the strategy that we are following to drive sustainable revenue growth and profitability at Lear's. We took advantage of the downtime last year to refine our strategy, which we built around four key pillars. In seeding, we want to extend and build on our leadership position by focusing on investments in technology and innovation, both organic and inorganic, that expand our capabilities and priceable features. In eSystems, we are focused on accelerating growth in connection systems and electrification to transform the business. And our core is our expertise in operational excellence. And we plan to extend our leadership position by continuing to invest in automation to make our factories more efficient. The fourth pillar is around sustainability, investing in products and processes that benefit the environment, as well as investing in our people. Getting results the right way has been a big part of our leadership model for a long time. We firmly believe Doing the right thing for our planet and our people is not only the right thing to do, but will support long-term value creation. Slide 8 highlights key drivers of our strategy in seeding, which are focused on increased vertical integration, disruptive innovation, and operational excellence. Over the last 10 years, we have made targeted investments to increase our vertical integration capabilities. Today, we have the most complete capabilities and more product knowledge than any other seed supplier. Going forward, we want to build on these strengths by continuing to develop products and processes that can't be replicated and that further separate Lear from our competition. Disruptive innovation means creating or acquiring technologies that further differentiate our seeds with proprietary features and functionalities. These new innovative products will help us capture market share and support margin growth. One example of a disruptive innovation that is driving growth today is our Configure Plus product. We won a PACE award in 2019 and is launching this year on a new Volkswagen commercial van in Europe. Excitement around Configure Plus is very strong, and we have seen significant uptick in customer interest in this proprietary technology. We also continue to explore applications for this technology beyond traditional auto manufacturers. such as last-mile delivery service providers, logistics providers, and autonomous vehicles. Another example of disruptive innovation is our Intu thermal comfort technology, which, as noted earlier, was recognized by Automotive News as a finalist for a Pace Pilot Award this year. This is the first time that Intu intelligent comfort control software has been integrated into a complete seating system to anticipate and meet occupant heating and cooling needs. This technology also optimizes efficiency of the vehicle heating and cooling systems by reducing energy consumption. I will touch on our operational excellence in more detail later, but what it means for the seating business is creating another path to unlock incremental value through innovative manufacturing processes. Lear aspires to be the largest, most profitable, sustainable seating company in the world, and I absolutely believe we have the right strategy in place. On slide nine, I will describe how we are proactively positioning our eSystems business for the future. This strategy is a natural extension of the operating plan we have been executing in eSystems over the past several years. Similar to seeding, vertical integration plays a major part in the eSystems strategy, particularly as it relates to strengthening our electrical distribution business. We are focusing on organic and inorganic investments, such as the recently announced M&N Plastics acquisition, to expand our product offerings and engineered components, including connection systems. Our customers are opening up their connector catalogs, and we are seeing an acceleration in opportunities to increase vertical integration. Over the past year, we have been winning new business, and our quote pipeline has more than doubled to over $250 million, including both commercial awards and insourcings. The auto industry is going through a historic transformation with a shift to electric vehicles. Electrification is driving higher content per vehicle, and we are concentrating on particular product lines where we believe we have a competitive advantage and will be successful. Our battery disconnect unit launching on the new GMC Hummer is a great example of a product that we believe will lead to additional opportunities across General Motors' future battery electric trucks and electric light commercial vans. We also are rapidly expanding our high voltage connection systems to address the accelerating industry shift towards electric vehicles. One of the building blocks of our strategy to improve these systems business that we discussed in 2019 was further diversifying our customer base. As a result of these efforts, we have made significant progress growing our business with Volvo Geely, Volkswagen, and General Motors over the last several years. Slide 10 highlights the operational excellence strategy pillar, which impacts the entire Lear enterprise. Today, Lear has a competitive advantage as one of the auto industry's recognized leader in operational excellence. We intend to maintain our superior position by increasing the use of advanced automation through our operation. We have established a dedicated organization, and we're adding resources focused on accelerating the deployment of best practices throughout our companies. Evolving and improving technology is providing new avenues to use artificial intelligence and make our factories more efficient and reduce our overall engineering costs. Along with data analytics, we are investing in innovation to keep improving our manufacturing process and better optimize logistics in our supply chain. In addition to internal improvements, we are also identifying potential acquisitions to help accelerate our progress and ensure that the improvements we are making remain proprietary to Lear. By driving improvements in operational excellence across Lear, we will serve our customers better in terms of cost, quality, and delivery targets. And at the same time, this will benefit margins by optimizing our cost structure to reduce defects. Moving to slide 11, now we'll talk about our fourth pillar of our strategy, integrating ESG across all of Lear. Last year, we centralized oversight and management of our ESG functions. ESG aligns with our core values at Lear, which includes creating a culture of innovation and inclusiveness and getting results the right way. And our product portfolio is well aligned with socially responsible industry trends like electrification, vehicle safety, and connectivity. Last October, we announced our pledge to continue our efforts to help create a cleaner environment. By 2030, we are targeting to use 100% renewable energy and cut carbon emissions in our manufacturing plants by 50%. And by 2050, we aspire to be carbon neutral with net zero emissions. Our people are what makes Lear a special place to work. And we have logged 3.7 million hours of employee training to help develop over the past two years and improve leadership, teamwork, culture, and engagement. We continue to embrace diversity, equity, and inclusion throughout our organization to promote teamwork, creativity, and innovation. Our 2020 sustainability report will be released soon, and it will describe many of these ESG initiatives in more detail, as well as provide additional metrics supporting the progress that we are making. Now I'd like to invite Jason to review the first quarter financial results.