Lear Corporation

Good morning, everyone, and welcome to the LEAR Corporation third quarter 2022 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. At that time, you may press star and then one to join the question queue. Star and then two will remove yourself from the list. We also ask that you We also like to note that today's event is being recorded. At this time, I would like to turn the conference call over to Ed Lowenfeld, Vice President of Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for LEAR's third quarter 2022 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 the 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. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our third quarter financial results and our full year 2022 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.

Thanks, Ed. Now please turn to slide five, where I will provide a brief overview of our third quarter financials. Our financial results improved significantly in the third quarter, reflecting higher production volumes and our strong new business backlog. Sales increased 23% to $5.2 billion, and core operating earnings more than doubled to $235 million. Operating margins improved in both seeding and east systems to the best levels in over a year, with further improvements expected in the fourth quarter. Operating cash flow improved to $252 million in the third quarter, reflecting higher earnings and improved working capital management. Slide six outlines recent key business highlights. Clear sales outperformed the industry again in the third quarter. And year to date, we have grown faster than the market by four percentage points, reflecting outperformance in both business segments. In eSystems, we recently announced the most significant new electrification award to date, where we will supply General Motors with a proprietary battery disconnect unit for all battery electric truck derivatives on GM's Altium battery platform through 2030. We also continue to receive recognition across our business segments from leading industry publications. In the latest J.D. Power seed quality study, they received more than twice as many awards as any other seed supplier and one-third of the total awards granted. This is the second year in a row we have far outpaced our competitors. And another indication of our leadership position in operational excellence and quality. We won an automotive news paced pilot award for configure plus with zonal safety technology. This smart wireless technology, which is the first ever passive safety system designed for removal of seating automatically activates safety features in the second and third row of the vehicle based on detected location of the occupants. This solution further strengthens our PACE award-winning Configure Plus product offering, which is in production today with Volkswagen. Configure Plus brings unparalleled safety, ease of use, and functionality to the vehicle seating. Utilizing long rails embedded in the floor, seats can be placed in any location with all mechanical and electrical connections secured automatically. During the quarter, we also joined Climate Group's RE100 initiative. By integrating our energy efficient playbook and renewable energy strategy across the company, we plan to source 100% renewable energy for electric powered consumption at our global sites by 2030. Slide seven provides an update on key initiatives in seeding. During the third quarter, we launched production at our new seeding assembly plant in Detroit. that is supplying seats for the GMC Hummer EV pickup truck being produced at GM's Factory Zero. This plant also produced seats for several other GM electric vehicle programs that will be produced at Factory Zero. The new facility was designed to be aligned with our Industry 4.0 and ESG strategies and will allow for scalable manufacturing and flexibility in production. ESG is one of LEER's four strategic pillars in an area of emphasis for our customers who are looking for the supply base for innovative solutions. In seeding, we have made significant progress developing sustainable solutions to differentiate Lear as a market leader. In recent months, we have won development contracts with two global automotive leaders for FlexAir. There's 100% recyclable non-foam alternative that will reduce CO2 emissions by 50%, mass by 20%, and improve breathability, which will improve comfort performance. Our Renew Knit sustainable suede alternative material is a first to market automotive textile that is fully recyclable at its end of life. Composed of 100% recycled plastic bottles, Renew Knit fibers are spun from polyester yarn and finished with a foam-free recycled fleece backing. This product will launch in seating and door panel applications with a premium automaker in 2024. Thermo Comfort Systems is Lear's newest division dedicated to developing full system seating comfort with complete modularity. By integrating our existing seating capabilities with Thermo Comfort Systems, we will extend our competitive advantage and leadership position in seating. Our system reduces complexity and cost while offering superior performance, efficiency, and comfort. Specifically, our newly designed seating system can reduce subcomponents by 50% and increase airflow by 40% directly to the occupant, which creates a better time to sensation. Our design focuses on heating and cooling the occupant rather than the entire cabin. which can help improve energy efficiency, resulting in improved battery range. With our thermal comfort system expertise, Lear is the only seating manufacturer poised to capitalize on the market trends in EVs, ride sharing, and second and third row comfort, while also achieving greater design, cost, production, and energy efficiency. Based on the benefits that our solution provides, several customers have recently awarded just-in-time contracts to Lear that include design and sourcing responsibility for the thermal comfort systems. We expect this trend to continue and will provide opportunities to increase our market share in both just-in-time assembly and thermal comfort solutions and improve seating's margins. Turning to eSystems on slide eight. I will highlight two products we developed for General Motors that are driving growth and electrification. Battery disconnect units are the primary interface between the electric vehicle's battery pack and the electrical system. Laird has produced BDUs for multiple customers, but the PACE award-winning BDU we designed for the GMC Hummer pickup enables high performance and leverages our energy-efficient design to improve range and produce faster charging. Lear integrated two battery disconnect units into one system, supporting two parallel 400-volt systems, enabling safe and rapid charging. The innovation features flat, flexible wires that quickly dissipate heat for improved thermal management and reduce component weight. We also are manufacturing key components in-house, such as bus bars and engineered components. The BDU achieves a 20% weight reduction, a 32% size reduction, and 135% improvement in power transfer as compared to traditional competitor offerings. GM recently awarded Lear the BDU on all full-size SUVs and trucks built on its Altium electric vehicle platform through 2030. GM's decision to source the BDU on a long-term basis allows Lear to invest in product and process innovations, which will drive improvements in cost and quality throughout the program life. We are investing in a new dedicated facility in Michigan to produce the BDUs and other electrification components. This site is expected to generate $500 million in annual electrification sales when it reaches full production. The second product I want to highlight are intercell connect boards, which are the electrical and mechanical connection system that brings individual batteries together into an integrated battery module to enable high voltage power for the vehicle. Multiple modules are combined to support various sizes of the Ultium battery packs, and depending on the individual vehicle platform battery size requirements, this can require up to 24 ICBs per vehicle. Our ICBs are produced through a fully automated assembly process, with approximately 60% of the components being manufactured by Lear. This level of vertical integration of highly engineered components, such as molded, stamped, insulated, and conducting technologies, including bus bars, positioned us to win this award. The initial award is expected to generate over 100 million in annual sales with production beginning in late 2023. Our technology is adaptable to technology roadmaps across evolving customers' needs, and we are pursuing additional business opportunities with a broad range of customers for this newly developed ICB product line. Now I'd like to turn the call over to Jason to review the third quarter financial results in more detail. Thank you, Ray.