Lear Corporation

Good morning and welcome to the Lear Corporation fourth quarter and full year 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send your 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 fourth quarter and full year 2023 earnings call. Presenting today are Ray Scott, LEAR President and CEO, 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 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 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 update. Jason will then review our fourth quarter financial results and our full year 2024 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. Please turn to slide five, which highlights key financial metrics for the fourth quarter and full year 2023. There generated record revenue in 2023 of $23.5 billion, an increase of 12% from 2022. Core operating earnings grew by 29% to $1.1 billion. Adjusted earnings per share was $12.02, an increase of 38%. Operating cash flow improved by 22% to over $1.2 billion, and we exceeded our free cash flow conversion target of 80%. Slide 6 illustrates key business and financial highlights from 2023. The acquisition of IGB increased our thermal comfort capabilities and allowed us to accelerate development of our modular seating solutions. Customer interest continues to grow. We have 15 projects in process with 11 customers to replace individual components with modular solutions. 12 of our customers have agreed to allow Lear to source the thermal comfort components for 18 different complete seat programs. This control allows us to grow the sales of our thermal comfort products and continues to differentiate our complete seat systems from competitors supporting further market share gains. We successfully launched production of the complete seats for the Wagoneer and the Grand Wagoneer, an unprecedented conquest award that we took over mid-program. In these systems, we won over $1 billion of new business awards for the third consecutive year and are making progress on diversifying our customer base. We won significant awards with General Motors and Stellantis. We won our first wiring program with BMW. And we received additional awards from a large global EV OEM, as well as Renault and Geely. Total company sales were a record, while our core operating earnings improved year over year for the fourth consecutive quarter, driven by continued improvement in each system's margins. Our strong performance in cash conversion allowed us to accelerate the pace of share repurchases. Through the second half of the year, we repurchased over $175 million worth of stock in the fourth quarter for a total of $313 million in 2023. Industry publications continue to recognize Lear for our excellence in quality and culture. Including our most recent award last week when Fortune magazine named Lear as one of the most admired companies for the eighth consecutive year. Slide seven highlights some of our upcoming key launches in seating. We have launches in all of our key regions with a wide range of customers. In 2020, the 2024 launches include a combination of next generation vehicles replacing outgoing models where we are the current supplier, as well as several brand new vehicles. In addition to assembling the complete seat, we provide a variety of vertically integrated components such as foam, trim, and thermal comfort products. The Hyundai Santa Fe is the first vehicle with a production application for our Flex Air, a fully recyclable foam alternative. FlexAir will be utilized in the Santa Fe's third row cap rest. We have a long-standing relationship with Hyundai and are their largest independent seat supplier with about 40% of their external business. We have several launches for BYD this year, including the Sea Lion, as we continue to expand with this fast-growing Chinese automaker. Turning to slide 8, I will touch on key product launches in these systems. Several programs are launching with Lear's high voltage and low voltage wiring and connection systems, as well as key electronic components across all of our key regions. We continue to grow with Volvo. We supply wiring and electronics on several nameplates across their CMA and their SPA2 platforms. Electronic sets of the high power junction box are leveraged across both hybrid and fully electric vehicles, providing a balanced exposure across these growing powertrains. Later this year, our BDU will launch on the RAM 1500 Rev, solidifying our position as a leader in high performance BDUs. 2023 was our third straight year with over $1 billion of business awards in these systems. Approximately 80% of those awards are programs that are new to Lear, which will further grow and diversify our business over the coming years. Turning to slide nine, I will illustrate key LEAR developed innovations we are bringing to market this year. Late last year, we began delivering production parts for the inter-cell connect board to support GM's launch of the Altium platform. Volumes for the ICB will grow with the launch and ramp of additional Altium-based vehicles. We're leveraging our engineering expertise along with our molding and stamping capabilities to pursue opportunities to supply ICBs to additional customers. We anticipate these programs will be awarded later this year. Proceeding, we are launching two new sustainable products in 2024, FlexAir and RenewNet. The first commercial application of our FlexAir material will be for the calf rest in the all-new Hyundai Santa Fe. The 29 development projects we have with 13 OEMs for application of FlexAir throughout the vehicle seating system is evidence of the tremendous customer demand for this very innovative new product. FlexAir is 100% recyclable, alternative to molded urethane cushion. It provides up to 20% reduction in weight and up to 50% reduction in carbon dioxide emissions. Its open-air structure has better cooling and ventilation characteristics than urethane, further improving the performance of our thermal comfort modules. FlexAir is an attractive, sustainable alternative for the roughly $4.5 billion foam market, which we believe will support continued growth of our component business. There's exclusive license for automotive applications, along with 190 patents we have filed creates a competitive moat around this very innovative technology. We're also starting production for RenewNet. which is launching with three different OEMs this year. Our suede alternative is the first to market automotive textile that is fully recyclable at the end of its life. We are seeing tremendous interest from our customers for sustainable alternative fabrics. Renew Knit is also a finalist for the Automotive News Pace Award. Once again, demonstrating our ability to develop and bring innovative products to market and add value for our customers. These innovative products combined with LEER's competitive positioning as a leader in seeding will allow us to achieve our revenue growth targets while continuing to increase operating margins and financial returns. Now please turn to slide 10, which shows our 2024 to 2026 sales backlog of approximately $2.8 billion. As a reminder, our core sales backlog includes only awarded programs. net of any lost business and programs rolling off. It excludes pursued business, net new business in our non-consolidated joint ventures, and the roll off of the discontinued product lines in these systems. Due to the slower pace of the industry transition to electrification, we now anticipate lower volumes on several of our key customers' new programs as compared to what we assumed last year. By continuing to win new business, we have maintained a three-year backlog that is a similar size to that last year, despite the significant changes in volume assumptions. The $2.8 billion backlog is roughly in line with last year's backlog and is well balanced across the three years. 2025 is impacted by the assumed roll-off of several ICE vehicles that may or may not come to fruition, depending on the pace of the EV transition. At $800 million, the third year of our backlog is higher than a typical third year. We expect that to increase further as customers continue to source new programs launching in 2026. In addition to the consolidated backlog, the 2024 through 2026 sales backlog at our non-consolidated joint ventures continues to grow. Our three-year backlog at our non-consolidated joint ventures increased approximately 70% from last year to about $650 million. The growth is largely driven by the continued business wins with BYD, which represents more than 50% of our non-consolidated backlog. We continue to win new business with a diverse set of customers, and the appendix of the presentation is a breakdown of our total sales by customer for 2023. and our expected distribution in 2027. It illustrates the continued diversification and growth we have with key customers such as BYD, a global EV OEM, and so on. Now I'd like to turn the call over to Jason for a financial review. Thanks, Ray.