Lear Corporation

Good morning and welcome to the LEER Corporation's second 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. And please note today's event is being recorded. At this time, I'd like to turn the floor over to Ed Lowenfeld, Vice President of Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thanks for joining us for LEAR's second 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 up 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 LEER'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 10Q 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 second quarter financial results and our full year 2021 outlook. Finally, Ray will offer some concluding comments. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin.

Thanks, Ed, and good morning, everyone. If you could please turn to slide five. I'm going to provide a brief overview of our second quarter financial results. In a very challenging environment marked by component shortages and significant production disruptions, the Lear team delivered solid results in the second quarter, with sales of $4.8 billion and core operating earnings of $233 million. Our financial performance improved significantly versus last year, when the global pandemic led to extended production shutdowns in North America and Europe. Adjusted operating margin in the second quarter was 4.9%, and earnings per share was $2.45. Slide 6 provides some business highlights from the quarter. I'm very proud of what the team accomplished. For the second quarter in a row, we successfully navigated supply chain shortages and related customer production shutdowns. Lear sales growth outpaced the industry by 11 percentage points in the second quarter. We continue to focus on executing our strategic plan, which includes developing innovative products and technologies across both business segments, and investing in our manufacturing operations to extend our competitive advantage in operational excellence. Our backlog is growing, driven by new business wins in both seeding and eSystems. I will comment further on some of these product wins on the next few slides. We're honored that Lear was named as General Motors Supplier of the Year for the fourth consecutive year and for the 20th time overall. In addition, we received an Overdrive Award from General Motors for developing innovative second row seating functionalities in the GM's full-size trucks and creating the Lear Safe Work Handbook and sharing it with the industry. In May, we released our updated sustainability report. highlighting our growing portfolio of green technologies, achievements in diversity, human rights, and governance, and our ambitious climate change goals. During the quarter, we began to repurchase shares for the first time since suspending share repurchase in early 2020. We spent $31 million on share repurchases in the quarter, and since the end of the quarter, we have repurchased an incremental $40 million worth of stock. Our balance sheet and financial flexibility remains strong, and over the last few months, Moody's and Fitch upgraded Lear's credit rating outlook. With respect to capital allocation, we have a balanced plan that includes organic investment, inorganic investment, and returning excess cash to our shareholders. Turning to slide seven, our seeding business performed extremely well despite challenging industry conditions. Our sales grew well in excess of the market, reflecting our strong position in SUVs, CUVs, and luxury vehicles. And margins remained strong despite significant downtime across the industry. In seating alone, production downtime in the second quarter related to semiconductor shortages reduced our sales by approximately $660 million, or 15%. Despite the lower volume, and the unpredictable schedules, seeding posted 7.3% adjusted operating margins, demonstrating the strength and resilience of this business. We continue to move forward on key launches in the quarter, including the Ford Bronco, where Lear was awarded a full-service supply contract and is responsible for designing and engineering the complete seed system. We also are excited about the new plant we are building in Detroit. to supply seats for General Motors' battery electric truck programs. This plant is expected to be one of Lear's most energy efficient plants in North America. Awarded battery electric truck programs to date include the GMC Hummer EV pickup and the GMC Hummer EV SUV. Slide 8 highlights our eSystems business where innovation and technology is driving new business awards and receiving industry recognition. Earlier this year, two new products designed by our eSystems team were named PACE Award finalists. First, the battery disconnect controls all power switching in and out of the battery pack. Lear's new design incorporates breakthrough thermal management innovations, which improves the efficiency of large and high performance electric vehicles. The first commercial application of this technology will be launched later this year on the GMC Hummer. In coming years, we will be bringing our BDU to market on multiple derivatives on GM's Altium platform, including the Chevrolet EV Silverado. We also are pursuing opportunities on strategic EV platforms with other customers. Secondly, Lear's 5G V2X telematics control units removes the need for shark fin external antennas on many vehicles today. By integrating up to 10 antennas into the printed circuit board, our design reduces complexity and improves styling capabilities and aerodynamics, which is particularly important for EVs where every element that increases range is critical. We have received interest from numerous customers to commercialize this technology. We also are designing and developing electric architectures for autonomous vehicles with two major OEMs. The amount of electrical distribution content in these vehicles far exceeds anything we have previously produced. Our quoting pipeline across these systems business is strong. In addition to the high voltage opportunities related to growing EV market, we also are seeing significant business wins on the low voltage side of our business. Increasing features continue to drive higher circuit counts. which we expect will more than offset any wiring content reductions related to optimized architectures. We continue to make progress winning business on electric vehicles with 55% of our year-to-date awards on EV platforms. Our connection systems growth plan is on track. Year-to-date we have won an incremental $45 million of commercial and vertical integration awards. Through a combination of vertical integration, new business awards, and the M&N Plastics acquisition, we are expecting this business to grow at a 10% CAGR from 2019 to 2022. We continue to pursue additional acquisitions and partnerships in connection systems to accelerate our growth. The recently announced IMS Connector Systems Partnership will increase our access to specialized high-speed data connectors. which will prove more important as vehicle data requirements continue to grow. I am very confident about the long-term growth prospects in these systems. Our backlog is strong. Content opportunities are growing, and we remain on track for six percentage points of growth over market for the next several years. Now I'd like to invite Jason to review our second quarter financial results and full year outlook.