Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation fourth quarter and full year 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please say no to 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 floor over to Ed Lowenfeld, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thanks for joining us for LEAR's fourth quarter and full year 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 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 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. Ray will begin with the business update, including 2021 highlights, key upcoming launches, and a review of our 2022-2024 backlog. Jason will then review our financial results and full-year 2022 outlook. Finally, Ray will offer some concluding remarks. Following the formal presentation, we'd be happy to take your questions. Now I'd like to invite Ray to begin.

Thanks, Ed, and good morning, everyone. Please turn to slide five. I'm going to provide a brief overview of our full-year financial results. 2021 was an extremely challenging year as global vehicle production was significantly impacted by the semiconductor shortages and the COVID-19 pandemic. Commodity cost pressure and low visibility from our customers, resulting in short-term production shutdowns, led to a very difficult operating environment. Despite these challenges, we reported sales of $19.3 billion and core operating earnings of $826 million, both of which reflect significant improvements compared to the prior year. I'm extremely proud of the Lear team for their performance in 2021. We delivered solid financial results, increased our backlog, and announced key strategic acquisitions and partnerships that will position the company for long-term success. Slide six summarizes some business highlights from the year. Our sales growth outpaced the market by eight percentage points in 2021, with strong growth over market in both seeding and e-systems. In seeding, we increased our market share to 25%. Nice job, Frank. Thank you. Reflecting new business wins in our leadership position in luxury seeding. We also announced the Kongsberg acquisition, which by adding capabilities in massage, lumbar, heating, and ventilation systems, will further separate Lear as a seeding supplier with the most complete component capabilities. We continue to identify additional opportunities to extend our leadership position in seeding to increase market share and improve our industry-leading margins. On the eSystems side, we completed multiple transactions to increase our capabilities in connection systems. These actions and other opportunities that we have identified and are pursuing will improve our competitive position in electrical distribution and support our plan to improve margins in eSystems. We're honored to be recently featured on the 2022 list of America's most responsible companies by Newsweek. Lear was ranked in the top 5% of all companies evaluated. This ranking is based on a holistic view of corporate responsibility across 14 different industry and is a testament to our industry leading ESG initiatives at Lear. We also received multiple awards in 2021 from our customers in various industry publications. Highlights including receiving the most J.D. Power quality awards in seating and three Automotive News PACE awards for innovation in these systems and seating. During 2021, we took several actions to improve our financial flexibility. In addition to increasing our revolver credit facility to $2 billion, we issued new lower-cost debt and extended our debt maturities. We also returned $207 million of cash to shareholders through dividends and share repurchases in 2021. Slide seven highlights some of our key product launches and seeding this year. In addition to the just-in-time assembly for each of these programs, we also are delivering multiple components for these launches including leather, fabric, structures, cut and sew seat covers, and foam. We believe that our position as the most vertically integrated seat supplier provides a competitive advantage by improving the quality of our products and offering a better value proposition for our customers. Our pending acquisition of Kongsberg Comfort Systems Business is consistent with other acquisitions we've made over the past decade to expand our seat component capabilities and add innovative technologies to further differentiate our product offerings. By adding priceable features like thermal comfort capabilities to our portfolio, we believe the Kongsberg acquisition will enhance both top-line growth and margins over time. This slide also highlights Lear's position as the leader in luxury seating, with six of the eight key launches on both new vehicles and key replacement vehicles for Mercedes, BMW, and Land Rover. Also highlighted on the slide are new EV launches and conquest wins. We have won over $1 billion in net conquest wins since 2019, and four of those programs are launching this year, including the BMW X5 in China, the Chevrolet Colorado, the GMC Canyon in North America, and the BMW 7 Series in Europe. Turning to slide eight, I will highlight key upcoming product launches in these systems. We had a great year of business wins in eSystems in 2021, with $1.3 billion of new business awards. This was our best year of new business wins since 2014, and it represents a 45% increase from our awards in 2020. Carl, nice job. Thank you. The industry outlook for electric vehicles continues to grow, and Lear is benefiting as about half of the new awards And these systems represent content on electric vehicles, including high-voltage wiring and connection systems, as well as power electronics. This trend is also apparent in our upcoming launches for this year, with six of our eight key launches, which will include content in new electric vehicles. Key wire launches include our first high-voltage and low-voltage wiring products with a major global EV manufacturer. Late this year, we also will be providing high and low voltage products on the most sophisticated and largest wiring harness Lear has ever produced. This award for an autonomous and electric passenger vehicle is a reflection of the trust that our OEM partner has in Lear's design and manufacturing capabilities in wiring. Working on this program, we have learned a tremendous amount about high complex data rich architectures and that experience will prove invaluable as we design and develop more sophisticated electrical distribution systems in the future. As a frame of reference, this wire harness has two to three times the number of circuits as a typical wire harness program. Key electronic launches include our award-winning battery disconnect unit on the GMC Hummer pickup, the first of many derivatives on GM's battery electric truck platform. and a 5G telecommunications unit for Great Wall that will eventually be used on multiple models as we move forward. Now, please turn to slide nine, which shows our 2022 to 2024 backlog of approximately $3.3 billion. As a reminder, our sales backlog includes only awarded programs, net of any lost business and programs rolling off, and excludes pursued business and net new business in our non-consolidated joint ventures. The backlog increased $475 million compared to last year, despite lower industry volume assumptions for 2022 and 2023. From a segment perspective, our backlog is split roughly 70% in seeding and 30% in eSystems. The $2.3 billion seeding backlog reflects over $1 billion of net conquest awards as well as new electric vehicle programs for Volvo, Mercedes, General Motors, BMW, Geely, and Renault. In these systems, the billion-dollar backlog is split roughly equal between electrical distribution, which includes connection systems, and electronics. Approximately 50% of the backlog in these systems reflects products that support electric vehicles. These systems backlog is well-balanced by customer and by region and will support continued diversification of our customer base. Well, not shown on this slide, the 2022 to 2024 sales backlog for our non-consolidated joint ventures is an additional $570 million. Total backlog including these non-consolidated joint ventures is approximately $3.9 billion, which is roughly equal to the highest total backlog in our history. Consistent with historical experience, we expect the third year of our backlog to continue to grow as there are several programs that we are pursuing that will launch in 2024. Hold on, Jason. I want to pause for a moment. I'm going to go off script. I just want to say a few words. It's tough for me to get through that slide and not thank Carl, Frank, for all the hard work. Your teams did an incredible job. And to all the Lear employees on the phone, I talk about it all the time. It's been a tough year. 18 months, two years. But to have this type of recognition, I say the only rewards that are important are the rewards that we get in backlog. Profitable backlog to this company gives me extreme confidence that we're doing all the right things and we're going to have a great future. So I want to pause, say thank you to all the Elyria employees on the team. This was one heck of an accomplishment. I couldn't be more proud of what you have achieved to have record Backlog is something special. And so, Jason, I'm going to turn it over to you for a quick financial review.