Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation's second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that 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 second 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.leer.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 LEER's expectations for the future. As detailed in our state 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 second quarter and provide a business update. Jason will then review our financial results and provide an update on the 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 second quarter of 2025. They delivered $6 billion of revenue in the second quarter. Core operating earnings were $292 million, and our total company operating margin was 4.8%. Adjusted earnings per share was $3.47. Our operating cash flow was $296 million in the quarter, and our second quarter financial performance was generally in line with the second quarter of 2024 for all of our key financial metrics. Slide six summarizes key financial and business 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, growing our competitive advantage and operational excellence through IDEA by Lear, and supporting sustainable value creation with disciplined capital allocation. The momentum of positive net performance we delivered to start the year continued to the second quarter. contributing 45 basis points to seeding and 70 basis points to each system's margins. Efficiency improvements and savings from our investments in restructuring and automation are driving durable operating performance in both segments. Through the first half of the year, we delivered 85 basis points of net performance in seeding and 110 basis points in each systems. Although macro uncertainty remains, our confidence in our business enables us to to restore our full year guidance. Our strong operating performance is expected to continue through the second half. As a result, we are increasing our full year net performance outlook by approximately $25 million to more than $150 million. Our strong free cash flow in the quarter and confidence in our long-term outlook allowed us to reinstate our share repurchase plan. We repurchased $25 million of shares in the quarter. and $50 million in the first half, while maintaining our dividend of 77 cents per share. Yesterday, we completed the refinancing of our $2 billion revolver, extending its maturity through July of 2030, further strengthening our liquidity position. The last two years, we have partnered with Palantir to develop real-time data analytics and streamlining our manufacturing administrative processes. We extended our agreement for a long-term partnership to continue to enhancing our digital and operational capabilities, which are driving efficiency gains in our manufacturing facilities and administrative functions. We continue to win new business in both segments. In seeding, we won a key conquest program in Asia with BMW, and we won key conquest awards in North America for seed components on the Ford 150, F-150 and F-250 pickup trucks. Our modularity strategy continues to drive new business. In the quarter, we won two Comfort Flex and one Comfort Max seat award, including a key program with a luxury EV automaker, combining heat, ventilation, and pneumatic lumbar, and massaged into the surface materials. We now have 24 total awards for ComfortFlex, FlexAir, and ComfortMax seat applications that will generate over $150 million of average annual revenue. In China, we won several awards with domestic Chinese automakers, such as FAW, Leap Motor, and Xiaoping. In these systems, we continue to win new business, including key conquest wire awards with a large global EV automaker. These programs start later this year, illustrating our ability to quickly launch new business. Our awards in these systems for the year are already approaching $1 billion in annual sales, with several additional opportunities expected to be sourced in the second half of this year. Slide 7 provides an update on the key metrics to track our progress on expanding margins and generating long-term revenue growth. Proceedingly won a conquest award in Asia with BMW and expect to quote additional conquest opportunities in the second half of this year and into 2026. The quote pipeline remains very robust and although the pace of new awards is improving, we continue to see some delays in sourcing as customers reevaluate their plans based on recent changes to trade or regulatory policies. In these systems, over 25% of our year-to-date awards have been for conquest business, including the two key programs for the top global EV automakers during the second quarter. Customer interest in our innovative modular seat products is growing. Three additional awards brings our total to 24 programs for comfort flex, comfort max seats, and flex air products. Our strong relationships with Chinese domestic automakers continue to deliver new program wins. We will supply complete seats for several programs with FAW, Leaf Motor, and Xiaoping in China. The FAW award is the second conquest program with FAW this year. We continue to be selective in our business as we quote different Chinese domestic automakers to ensure we are partnering with customers that have a long-term sustainable future. We're only pursuing high-quality programs that can generate strong risk-adjusted returns in excess of our cost of capital. Investments in IDEA by Lear and our automation projects generated about $30 million of savings in the first half, with benefits expected to compound over the year. Restructuring investments contributed approximately $30 million in savings in the first half, Efficiency improvements in our operations allowed us to reduce our global hourly headcount by 4,400 in the first half, despite an increase in headcount due to the consolidation of our joint venture in China completed in the first quarter. Since the end of 2023, we have reduced our global hourly headcount by nearly 20,000, or 11%. The strong first half performance results on our scorecard metrics are the key enablers to improve margins and drive long-term growth in both segments. Slide 8 provides an overview of our partnership with Palantir. Over the past two and a half years, we have leveraged Palantir's foundry, AIP, and large language models to build robust real-time data management solutions. Adoption has been strong. with more than 11,000 users driving over 175 active use cases across our organization. A key area of impact has been the work on the tariff response. Once new tariffs were enacted, our teams quickly developed a fully automated tariff data management system. This system enabled us to provide our customers with real-time documentation, speeding up the invoicing process while providing insight into our greatest mitigation opportunities. Beyond back office improvements, Foundry has delivered significant value to our manufacturing operations. Foundry supports dynamic line balancing, optimizing throughput and efficiency on the shop floor in our just-in-time seating plans. The platform's multilingual capabilities enabled us to quickly standardize our processes globally. This partnership is complimentary to our acquisitions and the investments in automation we have made over the last several years. We look forward to building on this momentum in the years to come. Most importantly, it is our Lear team members who are driving these innovations and delivering measurable results. We are approaching enterprise-wide adoption and developing institutional knowledge that gives us a first mover advantage in the automotive industry, which will be difficult to replicate. Turning to slide nine, I will provide more detail on our operational and commercial actions driving our strong performance. We have increased our investment in restructuring to accelerate our footprint rationalization actions and reduce costs. We are prioritizing investment opportunities with the shortest payback periods to drive cost savings that will grow over time. As a manufacturing integrator, we are leveraging the key competencies we have built and acquired over the last several years. to expand our automation capabilities through our facilities. By designing and utilizing purpose-built capital, we have developed proprietary solutions at a lower cost that will be difficult for any competitor to replicate. Our automation in the complete seat assembly plans, such as end-of-line testing, finesse, sequencing, and other applications, is driving significant efficiency gains. We are expanding the use of these systems more broadly in our facilities, starting in our highest cost regions. We are excited to open a new industry-first facility that will support the launch of automated ComfortMax seat assembly. We have fully automated the assembly of these modules, ensuring that no one touches the trim cover from the moment it is unpacked until the complete module is ready for shipment. This facility will be located right here in Michigan. In addition to our ComfortMax seat automation, this facility will be used to produce additional U.S. content, including FlexAir, our innovative foam alternative. Our product innovation and process improvements in seating have enabled us to reduce costs for new programs by 200 to over 500 basis points. This durable cost advantage will allow us to increase our industry-leading seat margins and continue to separate ourselves from our competitors. The investments in restructuring and automation contributed approximately $60 million in savings in the first half of this year. And we estimate we will drive an additional $90 million in savings in the second half of this year. Our eSystems team continues to improve efficiencies in our wire plants. June was one of the best efficiency months for North America wire since early 2019 due to our strong focus on execution in those operations over the last several quarters. Commercially, we are renegotiating pricing on existing underachieving programs. For future programs, we're reestablishing contract terms that will help us mitigate downside volume risk going forward. We're implementing stair-step pricing that will ensure strong returns at various volume levels for higher risk programs. Some customers are willing to prepay for capital, especially for some of the vehicle programs that have higher riskier consumer demand profiles. There is being selective about the programs and customers we pursue. We are focused on bidding on programs that will generate higher risk adjusted returns. We continue to build long-term relationships with our customers. Our focus is to pursue and grow business with the highest quality automakers and platforms. Our operational and commercial actions are driving consistent strong net performance and highlight our ability to execute our strategy in any macro environment. These strategic initiatives are enabling us to continue to expand our margins in both segments going forward. Now I'd like to turn the call over to Jason for a financial review.