Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation First Quarter 2025 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. I would now like to turn the conference call over to Tim Brumbach. Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's first quarter 2025 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'll 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 these forward-looking statements due to many factors discussed in our latest 10-K 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. Ray will review highlights from the quarter and provide a business update. Jason will then review our first quarter results and provide an update on the factors impacting our full year guidance. 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, Tim.

Please turn to slide five, which highlights key financial metrics for the first quarter of 2025. There delivered $5.6 billion of revenue in the first quarter. Core operating earnings were $270 million, and our total company operating margins improved to 4.9%, near our previously targeted exit run rate of 5%, despite a challenging production environment. Adjusted earnings per share was $3.12, Operating cash flow was a use of $128 million in the first quarter. Slide six summarizes key business and financial highlights from the quarter. As a reminder, our strategic priorities continue to be extending our global leadership position in seeding, expanding margins in these systems through our focused product portfolio, growing our operational excellence and competitive advantage through Idea by Lear, and supporting our sustainable value creation with disciplined capital allocation. Our execution on these key priorities enabled us to improve our operating margins in both seeding and e-systems, as well as for the total company in the quarter, despite the challenging market conditions. This improvement was driven by historic levels of positive net performance, contributing 125 basis points to seeding and 155 basis points to ease systems margins. Efficiency improvements, particularly in these systems, and savings from our investments in restructuring and automation in both segments are driving durable operating performance. This was our best single quarter of net performance since the second quarter of 2021. We're extending our global leadership position in seating, winning two new ComfortFlex programs and a new global seat program with the key Chinese domestic automakers. For Volvo, we will provide a comfort flex module combining ventilation and pneumatic lumbar support. We will also supply our combined steering wheel heat and hands-on detection module for a second program with Honda. This award illustrates how winning and validating a module for a customer can lead to the sourcing of additional programs. The performance improvements driven by our ComfortFlex modules are gaining recognition from third parties such as MotorTrend. In a recent review of the Lucid Gravity, MotorTrend noted the massage seats for both front passengers were nothing short of exceptional, offering a deeper and more therapeutic experience than most rivals. We supply the ComfortFlex module that combines heat, ventilation, and lumbar and massage for the Lucid Gravity. In China, we won several awards with domestic Chinese automakers, such as BYD, FAW, and Xiaoping. In April, we took operating control of one of our joint ventures in China, which supplies seats on two key programs for BYD. Consolidating this joint venture is expected to add approximately $70 million to our reported revenue for 2025. In each systems, we continue to win new business across all our focused product lines. The awarded business, totaling more than $750 million in annual sales, was the most in any quarter in more than a decade. In wiring, we won two key awards with Ford and BMW. For Ford, we won a large award for a program with production in North America, including conquest volume incremental to the portion we currently supply. We were awarded our third major wire harness program with BMW. launching in 2028, and building on the momentum we have with BMW. This is our first BMW Wear Award in China. Our teams continue to develop innovative solutions. This quarter, we were awarded a second generation battery disconnect unit with a key customer by providing an enhanced design relative to the current generation. Our innovation continues to be recognized by third parties. Our zone control module won a PACE award from Automotive News. Its highly configurable software increases scalability and enables flexibility in wire harness designs. I'd like to congratulate the team for this incredible honor. The first quarter results highlights our ability to execute our strategy in any macro environment. During the quarter, we repurchased $25 million worth of shares, demonstrating our confidence in our long-term outlook for the company. Slide 7 provides an update on the key metrics we introduced during our last quarterly earnings call, which investors can use to track our progress on expanding margins and generating long-term revenue growth. Proceeding, we still expect to quote up to $3 billion in conquest opportunities this year, with most programs awarded in the second half. While the quote pipeline remains robust, customers have delayed sourcing on some programs into 2026, And there could be more as customers reevaluate their plans based on the recent changes to tariff policies. In these systems, approximately 20% of our first quarter awards were for conquest business, including incremental content on the existing forward wire programs. We continue to pursue additional conquest opportunities. Customer interest in our innovative module seat product is growing. Two additional awards for our ComfortFlex modules bring our total to 21 programs for ComfortFlex, ComfortMax, SEED, and FlexAir products. And our robust pipeline of development projects will lead to further program wins. Our strong relationships with Chinese domestic automakers continue to deliver new program wins. We will supply complete SEEDs for several programs with BYD, FAW, and Xiaoping. in China and continued our discussions with BYD to support their global growth outside of China. The FAW award is conquest business and we are actively quoting additional opportunities with both FAW and Xiaoping as well as other Chinese domestic customers that we expect will be sourced in the coming quarters. Our first quarter performance was driven by strong performance across The key metrics we previously outlined as enablers to improve margins in both segments. Investments in IDEA by Lear and our automation projects generated $11 million of savings in the first quarter, with benefits compounding over the year. Restructuring investments contributed $12 million of savings in the first quarter. Efficiency improvements in our operations allowed us to reduce our global hourly headcount by 3,600 in the first quarter, primarily in Mexico and Eastern Europe. Since the end of 2023, we have reduced our global hourly headcount by nearly 19,000, or 10%. Our strategic actions drove our strong net performance in the quarter. We're on pace to deliver at least 40 basis points in seeding and 80 basis points of net performance in each system this year. And lastly, the 4.9% operating margin we delivered in the first quarter increases our confidence that we can continue to expand margins in both business segments over time. Turning to slide eight, the global trade landscape is shifting rapidly, and tariffs are at the forefront of these changes. I will provide an overview of our exposure and the proactive steps we are taking to mitigate the risk. Our exposure is primarily in two areas. direct exposure where we are the importer of record into countries with tariffs on the components and indirect exposure to the vehicle production that may be disrupted due to tariffs or softening demand. The tariff impact was minimal in the first quarter and we are working with our customers to ensure full recovery of the costs we incurred. Our direct exposure is primarily in Mexico and Honduras. On an annual basis, we import into the United States from Mexico approximately $2.8 billion of components where either Lear or suppliers provide the parts and Lear is the importer of record. These components are primarily trim and structures and seating and wire harnesses in these systems. Approximately 94% of the components imported into the U.S. from Mexico and Canada are U.S. MCA compliant. a significant increase from approximately 77% that were fully compliant at the end of 24, due to the work that we have done to ensure all compliant parts are certified. On an annual basis, we import approximately $625 million of components from Honduras, primarily wire harnesses in these systems, which are subject to the Section 232 tariffs. We already have customer commitments in place which cover more than 90% of the Honduras exposure and expect to complete agreements with customers for the remaining 10% in the coming days. Changes to North American production due to customer schedules or softening customer demand is our primary indirect tariff exposure. Approximately $1.8 billion of our 2024 North American sales was derived from vehicles exported to the United States from Mexico and Canada. Additional indirect exposure is on European vehicles exported to the US. Of approximately $8 billion of sales in Europe for 2024, about $1 billion or 13% were on vehicles exported to the US. We have taken proactive steps and moved aggressively to minimize our gross exposure. Our first step was to build a team of 60 individuals from across the organization focused on measuring our exposure through our supply chain development processes to track and report our costs and execute our mitigation actions. Our continued focus on automation and investments we made in digital tools such as Foundry have enabled us to quickly develop operational capabilities to track the impact of tariffs and support our commercial recovery plans with our customers. Our message to customers has been very clear. 100% of all tariffs must be recovered. At the same time, the team has worked very aggressively to provide solutions to minimize the overall exposure for our customers. Innovative designs, engineering changes, and alternative sourcing options can reduce the overall tariff cost. As the largest US-based automotive supplier, we continue to have conversations with the administration and other key elected officials to clearly explain how our supply chain has been optimized as well as the rationale for sourcing certain labor-intensive products from Mexico and Honduras. This ultimately ensures our customers can produce and sell vehicles at competitive prices in the U.S. market and globally. The evolving trade policy environment has clearly created uncertainty for the automotive industry. We're developing multiple planning and manufacturing scenarios to quickly respond to changes in trade policy. Our investments in automation provide us with a competitive advantage to grow capabilities we currently have in the US, such as injection molded components, stamping, foam, flex air, fabrics, and the assembly of battery disconnect units in their self-connect boards. While tariffs are impacting the entire automotive industry, there is taking proactive approaches to reduce the direct and indirect impact of tariffs through innovative solutions. And now I'd like to turn the call over to Jason for the financial review.