Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation first quarter 2023 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 floor over to Ed Lowenfeld, Vice President, Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for LEAR's first quarter 2023 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 first quarter financial results. 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, which highlights key financial metrics for the first quarter. They're start of the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 12% to $5.8 billion, and core operating earnings increased 43% to $263 million. Adjusted earnings per share increased 54%, $2.78 per share. Slide six outlines key highlights from the quarter. Both seeding and each systems had significant growth over market and higher margins as compared to last year. In seeding, we are excited to announce that the conquest award we mentioned on our last earnings call is for the Wagoneer and Grand Wagoneer. They will be producing complete seats and key thermal components for these vehicles, with production beginning later this year. This conquest award is another example of Lear's strong reputation for quality, operational excellence, and product execution as we expand our strong relationship and partnership with Stellanus. In these systems, we continue to increase momentum in electrification with additional awards for two of our innovative products. Stellantis recognized our advanced technical capabilities as the premier supplier of high-performance battery disconnect units and selected Lear to supply the BDU for a new electric vehicle. We continue to increase our inter-cell connect board backlog with the award of additional volumes from General Motors to support their Altium battery platform. Our customers continue to recognize Lear for innovative technology and quality. For the sixth consecutive year, we are recognized as the supplier of the year for General Motors. I'm excited that we completed the acquisition of IGB, which will play a key role in expanding our thermal comfort systems business and increasing our market share and margins in seating. I want to thank everyone that supported this transaction. There was a lot of hard work and significant time spent to close this deal. I couldn't be more proud to welcome the IGB team to the Lear family. Slide 7 provides a business profile of IGB and highlights the benefits of the transaction. IGB brings new technologies to Lear, including active cooling, steering wheel heating, and occupant detection sensors. This transaction also complements the product capabilities we acquired from Kongsberg and adds scale to our growing thermal comfort systems business. IGB has a well-balanced customer base consisting of many of the world's largest global OEMs. This acquisition is the latest and final piece of our comprehensive thermal comfort strategy to extend Lear's leadership as the most vertically integrated automotive seat supplier, increase market share, and further strengthen our industry-leading margin and return profile. Lear is the only company with this expertise to complete incomplete seats, as well as comprehensive thermal comfort systems capabilities. These unique capabilities will drive transformation of the thermal comfort systems market by creating innovative designs that will improve performance, efficiency, and comfort while reducing weight and cost. On slide eight, I will walk you through the evolution of our thermal comfort systems product strategy. Today, many OEMs design and source each thermal component individually and package them together by layering them on top of each other. Several of these features rely on sub-components that are redundant, increasing the number of parts and requiring more space for packaging. The acquisitions of Kongsberg and IGB, as well as the work we have done internally over the last 10 years developing N2 seating, provide a broad-based capability to improve this model. At the time, leveraging best practices across the combined organization will improve efficiency and increase flexibility in our manufacturing facilities. Following the Kongsberg acquisition, our team has been working diligently to design more efficient thermal comfort modules by combining common functions across multiple components. For instance, we're developing a system that integrates ventilation with the lumbar and the massage modules. We also are developing innovative solutions to move thermal comfort components closer to the occupant by integrating them directly into the trim covers. This will improve the performance of thermal comfort systems by increasing the speed to sensation for the occupant. This also reduces the size of packaging within the seat, which facilitates integration of these features into the rear seats. Another innovative product we developed is FlexAir. a foam alternative that is 100% recyclable. Flex air reduces CO2 emissions by up to 50% and mass by up to 20% compared to traditional foam used in today's applications. These innovations are gaining traction with our customers. We currently have 15 development projects in process on 41 different car lines with seven OEMs for our various thermal comfort systems. Because our customers recognize the benefit of more efficient thermal comfort systems, they have begun to grant sourcing control of these products to Lear. Since Lear is the only JIT supplier with these capabilities, the additional sourcing control is limited just to us. This gives us an advantage in the marketplace, and we can provide higher performing and more efficient solutions to our customers. The final phase of our strategy is to combine our component modular solutions with our flex air foam alternative and trim cover capabilities. To develop a fully integrated seat module by incorporating all of the thermal comfort components into an efficient modular design, we can drive significant part reduction and mass savings while enhancing the comfort for the occupant. These improvements will further reduce the cost of thermal comfort system to our customers while increasing the value proposition for their corporation. Slide nine provides a pro forma outlook of our combined thermal comfort portfolio. The addition of the IGB product portfolio gives us strong market position in each of the key thermal comfort categories. We estimate we have a top three market position for each major product. Pro forma 2022 revenue for the combined TCS business is $550 million. We expect this to grow to approximately $800 million by 2027. Revenue growth will come from a combination of industry factors and innovation. The overall thermal comfort market is estimated to grow over two percentage points faster than the vehicle production. With improved packaging, better performance, and reduced costs, we are confident that the market will grow more quickly as take rates increase and these products proliferate beyond the luxury segment and into the rear seat applications. Historically, our customers granted sourcing control for thermal comfort components on about 30% of the JIT programs. Given our increased capabilities, our opportunity to direct this sourcing has grown. Seven major customers have granted us 100% sourcing control for future thermal comfort systems. The unique competitive advantage we have developed in thermal comfort systems allows us to provide a better value proposition for our customers which our competitors cannot match. Longer term, in addition to driving higher market share, we believe that our thermal comfort system strategy has the potential to drive our overall seeding profitability above our current 7.5% to 8.5% margin target. Turning to slide 10, I will highlight some key business awards from the first quarter. The conquest win for the Wagoneer and the Grand Wagoneer is a significant program that was included in our three-year backlog we announced in February. We also won an award to provide seats on a second program launching in late 2024. We estimate that combined revenue for these two programs could reach approximately $600 million in 2027. Since 2019, we have won $2 billion in conquest awards. That's a big number, Frank. Thank you. Given our strong pipeline of conquest opportunities we are pursuing, we expect this momentum to continue and result in additional market share gains. For eSystems, we continue to win awards in electrification as well as for high voltage and low voltage wiring on several EV platforms. The pace of new business wins in eSystems this year is well ahead of where we were last year at this time. Just last week, we were awarded the BDU for the new Stellanus electric vehicle. This win solidifies our position as one of the leaders in high performance BDUs. The additional volume awarded by General Motors for the ICB is another example of their confidence in our technical capabilities and increasing the value of our overall program. Our expected 2025 revenue on the platform has increased to $50 million to over $100 million. We had expected this program to generate annual revenues of approximately $150 million. With the added volume, we now see peak revenue reaching $250 million. I'd like to turn the call over to Jason for the financial review. Thank you, Ray.