Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation fourth quarter and full year earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send 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 of Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's fourth quarter and full year 2022 earnings call. Presenting today are Ray Scott, Lear president and CEO, and Jason Cargill, 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 year and provide a business outlook, a business update, excuse me. Jason will then review our fourth quarter financial results and our full year 23 outlook. Finally, Ray will offer some concluding comments. Following the formal presentation, we'd be happy to take your questions. Now I'd like to evaluate it again.

Thanks, Ed. Now please turn to slide five, which highlights key financial metrics for the fourth quarter and full year of 2022. They're finished the year strong with our best quarterly results since the first quarter of 2021 and our fifth consecutive quarter of improved adjusted operating margins. Sales increased 10% to $5.4 billion, and core operating earnings increased 67% to $265 million. For the full year, sales were $20.9 billion and corporate operating earnings were $871 million. Adjusted earnings per share increased 10% in 2022 to $8.72 per share. Operating cash flow increased 52% to over $1 billion in 2022. reflecting improved working capital management and higher earnings. Our cash flow performance is already beginning to benefit from the LERA Forward Plan. Slide 6 outlines key business and financial highlights from 2022, as well as a small sample of the many awards LERA received. We made progress on strengthening our product portfolio and business outlook in both business segments. In seating, the Kongsberg acquisition positions Lear as the only seating supplier with in-house capabilities in heating, ventilation, lumbar, and massage. Since the acquisition of Kongsberg, we have been granted sourcing control on programs with seven customers and have won 30 new business awards on 22 platforms. Our leadership position in seating innovation, quality, and operational excellence is being recognized by our customers. who awarded us over $700 million of conquest awards in 2022. In these systems, we are selected by General Motors to supply our PACE award-winning battery disconnect unit on all their full-size battery electric trucks and SUVs through 2030. We also expanded our connection systems product portfolio to add inter-cell connect boards. We're actively pursuing additional business opportunities for both of these product lines. Sales growth in both business segments continues to exceed market growth, with five points of outperformance in 2022. Financial results improved each quarter in 2022, and we expect further improvement this year. Free cash flow conversion improved to 73%, and we returned almost $300 million of cash to our shareholders through our dividend and share repurchase programs. We continue to win accolades from various industry publications, including our most recent award yesterday when Fortune magazine once again named Lear to its most admired companies. Slide seven highlights some of our key product launches and seedings this year. In addition to the just-in-time assembly for each of these programs, we're also delivering multiple components for these launches, including thermal comfort systems, 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. Several Conquest programs are launching this year including the BMW 5 Series and the i5 in Europe, the Chevrolet Colorado, and the GMC Canyon in North America. and a major SUV program in North America that was awarded late in 2022, and that we will be launching a new facility in 2023. Lear's best-in-class quality and craftsmanship drives our leading market position in luxury seating, and we also have won significant new business on electric vehicles. Turning to slide eight, I will highlight key upcoming product launches in these systems. In 2022, we had another great year of new business wins in these systems that will continue to drive growth of our market of six percentage points, including about $500 million of business for electrification products, including high voltage wiring and connection systems and battery disconnect units. This year, we will be launching the award-winning battery disconnect unit on an additional GM BET derivatives, including the GMC Hummer SUV and the Chevrolet Silverado EV. In early 2024, we will begin to produce the BDU at our new facility in Michigan. This new production facility will generate $500 million in annual electrification sales when it reaches full production. Late this year, we will be launching production on our inter-cell connect board. Annual sales are estimated to grow to approximately $150 million by 2026, and we are pursuing additional opportunities across our customer base for this new product line. The body control module we are launching this year with the MINI Countryman will be the first of many launches across numerous BMW and MINI platforms. We have several other product launches for electric vehicles in North America, Europe, and Asia, some of which are highlighted on the slide. On slide nine, I want to provide an update on the four pillars of our strategy, which we initially shared with you almost two years ago. We assessed our strategic plan during the pandemic. with the objective to continue to position both seeding in these systems to achieve sustainable long-term growth in revenues, financial returns, and free cash flow generation as the industry transitions to electrification and recovers from the effects of the pandemic. We have made significant progress on each pillar of our strategy, and the actions we have taken to date will serve as a foundation of our plan to deliver long-term profitable growth. Over the past 10 years, we have made targeted acquisitions to increase our component capabilities in seedings. These inorganic investments coupled with investments in innovation and technology have resulted in steadily increasing our market share in seeding to 25%. Conquest wins have been a major factor driving market share gains. Since 2019, we are approaching $2 billion in conquest awards. which supports our mid-term goal of achieving 28% market share. Many of these conquest wins resulted from customers asking Lear to quote business because of our strong reputation for quality, operational excellence, and product execution. The recently awarded SUV program in North America that we'll be launching later this year is a good example. Configure Plus is the PACE award-winning Lear innovation that provides a wireless powered rail system that allows for easy repositioning of the seat in the vehicle. We are launching our second Configure Plus program this year on a Ford program. Other customers are showing interest in this product. And last month, Stellanus showed our technology in their new RAM 1500 Revolution BEV concept that debuted at the Consumer Electronics Show in Vegas. In eSystems, we completed a detailed study to prioritize products where we can create the most value for our customers by concentrating engineering and capital investments on fewer products. We paved the way to win major new platform awards for Lear's Battery Disconnect Unit and InterCell Connect Board. Later in the presentation, Jason is going to provide more details on how these programs will support sales growth and higher margins in eSystems. Just last month, we learned that one of our customers in Asia had independently audited all major global seating suppliers, and that Lear's quality was rated the best, especially for luxury seating. To ensure we remain the leader in quality and operational excellence, last year we established our Lear Forward Plan, which will improve operational efficiencies across our business. Over the past two years, we have made substantial progress on our ESG goals. We developed new products such as FlexAir and RenewNet in seedings to support our environmental goals. We also have improved energy efficiency in our operations and established aggressive climate goals to reduce carbon emissions and increase the use of renewable energy. These efforts, as well as increased communication in our sustainability report, have resulted in significant improvement in our ESG ratings and multiple awards from leading industry publications. Now please turn to slide 10, which shows our 2023 to 2025 backlog of approximately $2.85 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. We had a tremendous year of new business wins. Our combined backlog for 2023 and 2024 increased by 22% to $2.5 billion. And the 2024 backlog is a record for any single year. The seating backlog benefits from $1.2 billion in net conquest awards. Also of note is that over 75% of our seating backlog is for electric vehicles. In these systems, The three-year backlog consists of 63% in wiring and connection systems, with a balance in electronics. More than half of the eSystems backlog is for electrification products, led by battery disconnect units, high voltage wiring, and connection systems. Total electrification sales in eSystems in 2022 were $565 million, and we are on track to exceed our prior goal of $1.3 billion in 2025. which implies a 34% compound annual growth rate for the three-year period. Consistent with historical experience, we expect the third year of our backlog to continue to grow as there are numerous programs we are pursuing that will launch in 2025. While not shown on the slide, the 2023 through 2025 sales backlog at our non-consolidated joint ventures is an additional $380 million. I'd like to turn the call over to Jason for a financial review.