Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation third 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. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for LEAR's third 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 the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before we begin, 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 into 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 provide an update on our full year 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, which highlights key financial metrics for the third quarter. There had another strong quarter with double-digit increases in sales and operating earnings. Total company revenue was $5.8 billion, a 10% increase compared to last year. Core operating earnings increased by 14% from last year to $267 million. Adjusted earnings per share increased 23%, and operating cash flow improved significantly to $404 million for the quarter. Slide 6 summarizes key highlights from the quarter. The third quarter marked our fifth consecutive quarter of year-over-year improvements in both revenue and operating income. Our seating team demonstrated their industry-leading operating capabilities by successfully launching the Wagoneer and Grand Wagoneer just-in-time programs. This was an important conquest win and an unprecedented mid-cycle transition of a very complex luxury seating program. Our thermal comfort integration and innovation continues to gain traction. During the quarter, we leveraged our strong relationship and were awarded our first ventilation program with General Motors. The customer response to our expanded thermal comfort capabilities has been tremendous. and we will continue to work with existing and new customers to add Lear content. Key third parties continue to recognize our leadership in quality and innovation. Lear once again received more than twice as many J.D. Power seed quality awards as any other supplier, including first place awards in both luxury categories. RenewNet, our fully recyclable suede alternative, that will start production next year was named as an Automotive News Pace Award finalist. In these systems, we continue to diversify our customer base with new wiring awards with Renault and Geely. Our strong performance allowed us to increase the pace of share repurchases. In the quarter, we repurchased approximately $75 million worth of stock, more than we repurchased in the first and second quarters combined. I couldn't be more proud of Lear team. Not only did they execute during the quarter, but their employees always support the communities where they live and work. The team in Morocco established a special fund to help those impacted by the devastating earthquake. Slide 7 provides more detail on the progress we have made in seeding. In addition to the launch of the Wagoneer and the Grand Wagoneer, we launched the seeds for the BMW 5 Series in Europe. Both vehicle launches were key conquest awards from competitors. We continue to grow with BYD with several current and upcoming launches such as the seat assembly for the BYD seal, as well as component sales such as leather for the BYD DENVA D9. Our leadership and quality and operational excellence once again was recognized by J.D. Power. Our four best in segment and nine total top three awards were more than twice as many as any other seat supplier. We are in first place in both luxury categories. The seats for the Porsche 718 won in the luxury car category, while the seats for the Range Rover Sports won in the luxury SUV category. In total, we have won four of the seven awards across the two luxury categories, further evidence of our leadership in this segment. For new knit, our fully recyclable suede alternative is gaining traction with both our customers and with third parties. Renew NIT will start production next year on three programs with three different OEMs. We're in discussions to expand Renew NIT to additional vehicle lines with these customers and have seen increasing interest from other customers. Momentum has increased rapidly and we see great opportunity for additional awards in the coming months. The level of innovation for Renew NIT. led to Automotive News to name it a PACE Award finalist for 2023. The winners will be named later next year. Slide 8 provides an update of the significant progress we are making in all phases of our thermal comfort strategy. We continue to optimize our manufacturing footprint and thermal comfort systems organization. Our new facility in North Africa provides a low-cost alternative to our current locations. To date, we have conducted technical reviews with our thermal comfort capabilities with 14 OEMs. Positive feedback from these reviews affirm our confidence in our strategy. The strong relationships we have built with our customers make it easier to drive growth opportunities for our thermal comfort components. During the quarter, we won a ventilation award with General Motors. This breakthrough win for Lear opens the door for additional growth opportunities for ventilation and other thermal comfort products with our largest seat customer. Once validated, our components can be sourced across an OEM's entire vehicle portfolio. Having sourcing control for the thermal comfort components allows for quicker proliferation, particularly for programs that we are just in time supplying. The interest level of our modular innovation has accelerated. Our timing is perfect, as our customers are looking for solutions to reduce our complexity and cost. while also offsetting the impact of elevated wage inflation. Today we have 21 development contracts for component modularity and FlexAir solutions. And we previously announced that we are on track to launch our first production application for FlexAir during the first quarter next year. Working with a premium European OEM, we combine pneumatic, lumbar, massage, heat, and ventilation into a single modular solution. We estimate this module will reduce part complexity by 50% in the just-in-time plan, while lowering cost and improving performance for the end consumer. We are on track to have this module fully validated by our customer by the middle of next year. The response for our complete seat modularity has been overwhelmingly positive. As a result, we are accelerating the timeline we expect to deliver this solution from 2027 to 2026. The initial results from the seven development projects in process for existing customers have been outstanding. Our complete seat module has significantly improved the thermal comfort performance when compared to individual components. The airflow from our ventilation systems increased by up to 55%. The heat solution increases the temperature by up to 85% more than the current solution after only one minute, improving the time to sensation. And we've increased the intensity of the massage system by up to 150% compared to the current component solution, allowing the module to provide a much more therapeutic experience. Our customers are looking for these solutions. We have been meeting with the customers at the top levels within the organizations, and the feedback has been extremely positive. The momentum has shifted from Lear pushing these concepts to our customers really pulling us and asking us to move faster and driving our internal organizations to implement our complete seed solution. Lear's module solutions will provide a cost savings opportunity to our customers while expanding seeding margins. Turning to slide nine, I will provide a new systems update. The third quarter marked our fifth consecutive quarter of year-over-year margin improvement in these systems. The increase in industry volume combined with our efficiency improvements in margin and creative backlog allowed us to achieve our highest operating margins in these systems in more than two years. Based on the midpoint of our current outlook, the second half margin this year is on track to be more than 100 basis points better than last year. The new connection systems plant in North Africa is currently producing pre-production components. This facility is key to expanding our engineering component capabilities and will support our new vertical integration opportunities in Europe, an important driver of our margin expansion plan. We continue to win new business in both wiring and connection systems. Key awards include a conquest award with Renault and an award with a new EV with Geely. These awards, along with the opportunities we are pursuing in the fourth quarter, keep us on track to achieve our third straight year of a $1 billion three-year backlog in these systems. The improvement over the last several quarters is a result of the strategy we developed in 2019 and implemented over the past three years by streamlining our portfolio to focus on high growth and high return products. and deemphasizing non-core product lines, we have optimized our resources and continue to win new business in our key product areas. There's still a lot of work to be done, but we continue to make meaningful progress towards our margin targets. Now I'd like to turn the call over to Jason for a financial review.