Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation third quarter 2024 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 Tim Brumbaugh, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's third quarter 2024 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 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 LEAR's expectations for the future. As detailed in our Safe Harbor Statement on slide two, our actual results could differ materially from those 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, RAVE 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 financial guidance. Finally, Ray will offer some concluding remarks. Following the formal presentation, we'd be happy to take your questions. I'd like to invite Ray to begin.

Thanks, Tim. Please turn to slide five, which highlights key financial metrics for the third quarter of 2024. Lear delivered $5.6 billion of revenue in the third quarter, despite a very challenging production environment. Core operating earnings were $257 million, or 4.6% of net sales. Adjusted earnings per share was $2.89, an increase of 1%, driven by the benefit of our share repurchase program. Operating cash flow was $183 million in the third quarter, and free cash flow was $51 million. Slide six summarizes key business and financial highlights from the quarter. Total company revenue outperformed the market by three percentage points, with sales in both segments beating the industry. Five percentage points in each systems and three percentage points in seeding. Revenue outperformed industry production in each of our major regions. During the quarter, we repurchased $209 million of shares and paid $43 million in dividends. We continued to repurchase additional shares throughout our quiet period, achieving the full-year $325 million target communicated in our second quarter earnings call. Adjusted earnings per share grew by 1% in the third quarter, driven by the benefits of our share repurchase program, despite the decline in the industry production. In China, our strong relationship with the domestic automakers led to significant new business awards in the quarter. In seeding, we won several new awards with BYD, Xiaomi, and Ceres. The new programs combined are expected to generate average annual sales of over $100 million. In these systems, we will be supplying wiring for several upcoming platforms to the Dong Feng Group. Our first ComfortFlex module launched in July with Vogel. By combining heat, ventilation, and massage components into a more efficient solution, we reduced the thermal comfort part numbers shipped to the Just-In-Time assembly plant by 50%, and our system enhanced the end customer experience by improving pressure and sensation to the occupant by 30%. Interest for our ComfortFlex solutions continues to grow. During the quarter, we were awarded our second program with a premium European OEM. We will provide the heat and pneumatics as well as other components in a comfort flex module. For Hyundai, we will be providing steering wheel heat combined with hands-on detection sensors. Our innovative products continue to earn recognition from key industry groups. The zone control module our eSystems team developed was named an Automotive News Pace Award finalist. Its highly configurable software increases the ability to scale. The unique design improves the flexibility to adapt to changes in the wire harness connectors, enabling increased automation for manufacturing. The first generation models are expected to launch in 2025 with plans for a broader adoption. Lear continues to lead the J.D. Power U.S. Seed Quality and Satisfaction Study with eight top awards, more than double the awards of any other seed supplier. Lear swept the premium car category and won an additional top three finish in the premium SUV category. These awards, once again, solidify our leadership and quality. Turning to slide seven, I will provide an update on the initiatives we are pursuing to achieve long-term sustainable revenue and earnings growth through innovation in both our products and our processes. Our customers are reassessing their powertrain strategies to align with customer demand while meeting regulatory requirements. Our product portfolio is largely powertrain agnostic, allowing us to win new business for any new vehicle. Chinese domestic automakers continue to gain market share. Leveraging our relationships with key customers to win new business has been a priority for both seating and e-systems. Our new business wins with BYD, Xiaomi, Ceres, and the Dongfeng Group are a result of this effort. New programs with Leap Motor, NIO, and Xiaomi were key contributors to our backlog this quarter. We are seeing additional opportunities as these automakers are looking to grow globally. Our focus on innovation and automation through Idea by Lear is driving growth opportunities for our products while further reducing our manufacturing costs. The internal design and superior execution of our new capital deployment in our facilities allow us to bring products to market quicker while reducing the cost. The efficiency actions we have taken, along with the investments in automation and restructuring, have us on track to reach our headcount targets for the year. eSystems has already achieved its 6% reduction target, and seeding is on pace to meet or exceed its 8% target. Much of the improvement is coming from our most labor-intensive products, such as cut and sew, wiring, and other component facilities, largely in Mexico, as well as from our footprint actions in Europe. In seating, the interest from our customers for our ComfortFlex and ComfortMax seat products continues to grow. The launch of the first ComfortFlex module and additional business wounds illustrates the progress we have made. Our list of opportunities for ComfortFlex, ComfortMax, and FlexAir has grown to 62 projects with 22 OEMs, an increase of 40% since the end of 2023. These projects will enable us to achieve our $1 billion revenue target for thermal comfort by 2027. Learview is our AI-based proprietary vision system technology. Leveraging the software capabilities we have acquired over the last several years, LearView enables us to use low-cost, off-the-shelf cameras to develop vision system solutions for many applications across both businesses. Our first application for LearView enhances our trim defect detection to improve consistency and quality in our just-in-time plants. We have identified additional opportunities to utilize LearView, such as for wire connection detection and other end-of-line testing applications. We continue to expand the use of FIGORA automated leather cutting technology and are extending the use of Palantir cloud-based operating systems, Foundry, for digital reporting. Our teams continue to develop new use cases for the Foundry software to improve real-time decision making on the plant floor. In these systems, our focused product portfolio has helped improve margins over the last two years. The growth of the connection systems capabilities we acquired through MNN has been a key driver of that improvement. We continue to expand our vertical integration opportunities and extended our footprint to serve the European market. The new innovations we are developing in our core products such as our PACE award climate zone control module will continue to drive growth in these systems. The flexibility we are designing into our products allows us to increase the use of automation. further improving the cost structure. To offset labor inflation, we continue to aggressively shift our wiring operations to new lower cost manufacturing locations. We are leveraging our footprint in North Africa to supply the European markets. In North America, we are moving more wire operations to Honduras. Today, our headcount is about 60% in Mexico and about 40% in Honduras. We expect a shift to 40% in Mexico and 60% in Honduras over the next couple of years. Our focus on product process innovation, combined with restructuring our footprint to reduce excess capacity, has us well-positioned for any production environment. Slide eight highlights Lear's growth with Chinese domestic automakers. Lear has 30 years of automotive experience in China. Over that time, Lear has strengthened his local presence, built strong relationships with key customers, and has become the clear leader in luxury seating. We continue to grow with key established customers such as BYD, Geely, Chang'an, and the Dongfeng Group, and see additional opportunities with emerging automakers such as Xiaomi, NIO, Leap Motors, and XFeng. The new business wins with BYD are consistent with our target of supplying approximately 30% of their seats in the next few years. The portion of our total revenue from Chinese domestics grew from about 20% in 2021 to roughly 30% in 2024. During that time, our total revenue in China grew from about $4 billion to approximately $5 billion, despite the significant shift in market share from the multinational automakers to Chinese domestic OEMs. By 2027, we expect our revenue to grow on average 6% annually to approximately $6 billion. As a result, the portion of our revenue coming from Chinese domestic automakers is expected to approach 50%. China continues to be an important market for Lear, and our relationship with the key domestic automakers is driving consistent growth. And now I'd like to turn the call over to Jason for the financial review.