Lear Corporation

Good morning, everyone, and welcome to the Lear Corporation fourth quarter and full year 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 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 conference call 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 fourth quarter and full year 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. 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.lears.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 recommendations for the future. As detailed in our State of 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. First, Ray will review highlights from the year and provide a business update. Jason will then review our fourth quarter and full year financial results and provide our outlook for 2026. 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 our key financial metrics for the fourth quarter and full year 2025. They delivered a 5% increase in revenue in the fourth quarter, generating $223.3 billion for the full year. Sorry, $23.3 billion in the full year. Core operating earnings were $1.1 billion, or 4.6% of net sales for the full year. Adjusted earnings per share was $12.80, a 1% increase from 2024. This is our fifth consecutive year-over-year increase. Operating cash flow was $1.1 billion of free cash flow, and free cash flow was $527 million in 2025. Slide six summarizes key financial and business highlights from the fourth quarter and full year. Our strategic priorities continue to drive execution across four key areas. 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 our sustainable value creation with disciplined capital allocation. We made progress towards our goals in both seeding and e-systems by finishing the year with some of the most significant new business awards in Lear's history. In seeding, we were awarded the complete seats for a major truck program from an American-based automaker. the largest seating conquest award on record. General Motors awarded Lear the complete seats for their large SUVs and full-size pickup trucks to be produced at Orion Assembly starting in 2027. This award continues Lear's long history as GM's seat supplier for full-size pickup trucks and SUVs while supporting GM's expansion of their U.S. manufacturing footprint. Our China team continues to grow business with domestic automakers. In the fourth quarter, we secured several complete seat programs with Chang'an, Dongfang, and Leap Motor, and a thermal comfort award with BYD. I couldn't be more proud of the team for securing these critical awards that demonstrate how we are extending our global leadership position. In eSystems, we continued our strong momentum with new business awards for nine wire harness programs and several electronics and connection system programs across all major regions, including the Volkswagen Group in Europe and South America, and key Chinese automakers such as BAIC, Geely, and SAIC. For the full year, we secured over $1.4 billion in eSystems business awards, our strongest performance in over a decade. and the second highest annual total in LEER's history. These awards will benefit from our operational improvements we have made, driving improved margins as it launches in future years. Our strong operating performance continued to the fourth quarter, with both segments exceeding expectations. For the full year, we generated approximately $195 million in net operating performance. translating to 60 basis points in seeding and 110 basis points in these systems. Our best year of positive net performance is a testament to our commitment to operational excellence and the benefits we are catching from our investments in digital tools, automation, and restructuring. The capabilities we are developing through IDEA by Lear are a growing performance differentiator. 2025 marked a pivotal year in our digital transformation. We extended our partnership with Palantir and launched the inaugural LEAR fellowship, the first program of its kind in our industry. Our first cohort completed the intensive 12-week training in the fourth quarter. In 2026, we're expanding the program with a second cohort focused on European operations and globally thereafter. Our operational excellence and quality leadership continue to earn recognition. They achieved more top four finishes than any other supplier in the J.D. Power 2025 USC Quality and Satisfaction Study. In these systems, our multi-year quality improvement initiatives delivered results. Customers awarded us with a record 11 quality awards. Our foundation and operational excellence drives our quality and cost advantages. leading to new business and conquest wins while expanding margins in both segments. Automotive News recognized our innovative zone control module with a 2025 PACE award. This award-winning technology will launch on the BMW new class architecture this year. In China, we took operating control of two joint ventures supporting several programs for BYD and Ceres. These consolidations also allow us to leverage our full operating capabilities and will drive growth in 2026 and beyond. Last February, we acquired StoneShield Engineering to enhance our wire harness automation capabilities. In just one year, we rapidly scaled StoneShield's technology from Europe to our operations in South America, Mexico, and the U.S. The combination of our profitable growth in seeding in these systems supported by idea-driven productivity advances fuels efficient cash flow conversion. That cash supports our disciplined capital allocation and enables us to accelerate our share repurchase program. We repurchased $325 million in shares during 2025, significantly exceeding our initial $250 million target. Combined with our dividend, we returned almost $500 million to shareholders. Turning to slide seven, I'll provide more detail on our Key Onshoring and Conquest Awards and how they demonstrated our ability to extend our global leadership and seating. There was awarded the contract to supply complete seats for General Motors full-size SUVs and pickup trucks at the Orient plant projected to launch in 2027. Adding Orion extends Lear's strong partnership with General Motors, supporting their premier programs across the entire footprint. The largest seeding conquest award in Lear's history is for a truck program with an American automaker, displacing the incomplete seed suppliers for multiple plants. Our industry-leading automation capabilities and superior quality performance were key factors that enabled us to win this business. We will share additional details for this award at the appropriate time. Our strong customer relationships, proven execution, and extensive U.S. manufacturing footprint give us a distinct competitive advantage. By investing in automation and designing capital specifically optimized for our manufacturing processes, rather than relying on off-the-shelf solutions, we've enhanced operational efficiency, reduced costs, and accelerated our speed to market. We also continue to win conquest awards in other regions, including China. For BMW, we will supply seats for vehicles that were previously exported to Asia. We will also support future production on the C11 for LEAP Motor. These on-shoring and conquest awards will provide future growth while solidifying LEAR's differentiation and leadership mission in seating. Slide 8 illustrates the significant progress and market leadership we have achieved in thermal comfort. Through our strategic acquisitions of Kongsberg and IGB, combined with our organic development work on modularity, Lear has become the only seed supplier with a complete portfolio of thermal comfort solutions. From individual components to fully integrated systems, this vertical integration capability enables us to deliver innovative solutions to meet the demands of each of our customers. Our value proposition for our customers is driving growth. To date, we have secured 33 awards for innovative thermal comfort solutions, including our ComfortFlex modules, our ComfortMax Seed systems, FlexAir foam alternatives, and Intu applications. These awards will generate combined average annual revenue of approximately $170 million at peak production. This is not a proof of concept. Nine programs are already in production and generating revenue today, with 14 additional launches secured for 2026. An inflection point for thermal comfort. Customer's acceptance is broad and diversified, spanning 15 automakers across all key regions, North America, Europe, and Asia. We're the only seat supplier with the scale, technology, and integration capability to meet the accelerating demand for thermal comfort and innovation. We also recognize that some of our customers prefer to maintain their traditional sourcing strategies, purchasing individual components rather than integrated systems. Our complete suite of products allow us to serve these customers as well. Awards won in 2025 for core components will generate a combined average annual sales of $80 million. Our flexibility and vertical integration make Lear the only supplier capable of meeting customers' needs, whether they seek cutting-edge full modularity innovative solutions or traditional individual components. Turning to slide nine. We highlight our industry-leading commitment to automation and digital transformation. Our industry-first facility for fully automated assembly of ComfortFlex, ComfortMax, and FlexAir products demonstrates more than a decade of strategic investment in automation through both acquisitions and organic development. We've built proprietary capabilities in vision systems, material handling, and purpose-built capital that enable us to develop solutions our competitors cannot replicate by simply purchasing off-the-shelf robots and cobots. Product innovation and process improvements have allowed us to reduce seating 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. You can see the advantage reflected in the awards we just discussed today. Our digital transformation is accelerating as we enter into 2026. Last year, our Palantir Foundry platform reached over 17,000 users and generated more than 300 custom applications. We're deepening our AI capabilities through our global LEAR fellowship program. With our second cohort, of the 12-week program launching in Europe earlier this year. These digital tools are delivering measurable results, enabling us to transform operations and respond rapidly to industry volatility. I'm going to share a couple of examples with you. The first one is cycle time deviation. This tool provides real-time shop floor performance data, allowing us to make immediate adjustments. For instance, we can quickly identify bottlenecks. like specific equipment failures and reallocate resources accordingly. We've developed this across 100% of our North American and European just-in-time facilities, achieving a 3% to 5% efficiency gain. This generated $10 million in savings in 2025, and we expect $15 million this year as we roll it out globally. The second example, is our tariff tracking solution. When tariffs were announced in early 2025, we had 150 trucks carrying thousands of parts crossing borders daily. We needed to identify each part's HTS code and USMCA certification status, a massive undertaking. Our team partnered with Palantir to build an enterprise-wide solution in just 10 days. This tool provides real-time tracking, automatically applies HTS codes, checks USMCA status, and categorized tariff designations. The result, we recovered nearly 100% of our tariff costs within the year and accelerated cash reimbursements from our customers. Our commitment to automation, AI, and digital tools is driving tangible operating performance and positioning Lear years ahead of our competition. Slide 10 demonstrates how we delivered on key commitments we made at the beginning of the year. In seeding, we secured multiple conquest awards through the year, including three significant wins I highlighted earlier. In these systems, we won significant conquest business in wiring with both American and key global automakers, as well as with Stellanus for the Jeep, Cherokee, and Wrangler platforms. Our thermal comfort awards will help drive future growth in our seeding business, and our strong relationships with Chinese domestic automakers continue to deliver new business wins. Our idea by LIRA initiatives and our investments in automation generated $70 million in savings for the full year. Earlier in the year, we identified additional near-term opportunities by focusing on restructuring actions. As a result, we achieved $85 million in restructuring savings for the full year, $30 million more than our original target of $55 million. The consolidation of our two joint ventures, as well as Changes in production schedules led to slightly higher hourly headcount than originally projected. However, we still reduced our global hourly headcount by 7,000 this year and by 22,000 over the last two years. As a result of relentless focus across the entire company, our full-year net performance savings was a record $195 million, 56% above our original target of $125 million. This contributed 60 basis points to net performance to seeding and 110 basis points to eSystems. As a reminder, our net performance figures are after absorbing costs primarily from contractual price reduction agreements with our customers and any changes in commodities, transactional FX, and labor rates. Delivering this level of operational improvement in a year of significant industry volatility and production disruption is a remarkable accomplishment by the entire LEAR team. I'll turn you to slide 11. We continue our commitment to expanding margins and generating long-term revenue growth. As we begin 2026, we have a robust pipeline of conquest opportunities in both seeding and e-systems. some of which resulted from a number of delayed sourcing decisions as our customers continue to adjust their footprint and product strategies. For eSystems, we have seen increased customer engagement in wire harness sourcing. And we have several key opportunities that we expect to be awarded in the first half of this year. We continue to see significant interest from our customers for our innovative modular seat products. These opportunities, along with our core thermal comfort products, will drive growth in our component's business. The strong relationship with our local teams with our key domestic Chinese automakers are driving new business opportunities. With our current backlog and additional sourcing wins, we expect more than 50% of our revenue in China to be from the Chinese domestic automakers next year. The continued investments we are making in idea and automation Projects are expected to generate an additional $75 million of savings this year. We also see significant opportunities from our restructuring investments. The savings from the actions we put in place last year, combined with the actions planned for this year, are expected to total $80 million. You will continue to see the benefits from these actions come through in the net performance we report on a quarterly basis. In 2026, we expect to deliver 40 basis points of net performance in seeding and 80 basis points in these systems. The introduction of these scorecard metrics in 2025 allowed our investors to hold us accountable and track our progress. We remain committed to once again delivering on these key metrics and drive sustainable growth and improve margins in both segments. Please turn to slide 12, which shows our 2026 and 2027 sales backlog. As a reminder, our sales backlog includes awarded programs net of any lost business and programs rolling off. It excludes pursued business, net new business in a non-consolidated joint venture, and the roll-off of the discontinued product lines in these systems. In 2026, we expect approximately $60 million of net new business Seed is expected to deliver about $740 million, driven primarily by the key launches listed on the slide. E-Systems is expected to experience a headwind of about $140 million in 2026, primarily due to the roll-off of the Ford Escape, the Corsair in North America, as well as the Focus in Europe. However, this is partially offset by key new launches. In 2027, we expect approximately $725 million in net new business, with approximately $465 million in seeding and $260 million in eSystems. The $1.325 billion two-year backlog provides a solid foundation of growth. The makeup of our backlog is strengthening as approximately half of our revenue is from new programs driven by ICE vehicles. Our China growth is led by domestic automakers, which represents approximately 85% of our consolidated backlog. Additionally, our non-consolidated joint ventures have approximately $550 million of backlog, 55% of which is with Chinese domestic automakers. This two-year backlog provides a solid foundation for growth, and when combined with the expected new business awards in 2026 will allow us to accelerate growth into 2028, 2029, and beyond. Now I'd like to turn the call over to Jason for the financial review. Thanks, Ray. Slide 14 shows key performance highlights from 2025 that position us to deliver profitable growth in 2026. We finished the year strong in Q4, supported by both revenue growth and operating execution. Old company sales increased 5% year-over-year, reflecting the addition of new business in both segments and the impact of commercial recoveries. Adjusted ETFs grew by 16%, driven by our reduced share count due to our share repurchases, as well as a lower tax rate relative to last year. Seeding sales outgrew industry production by 2 percentage points, driven primarily by positive volume on their programs in North America and China, and despite a one percentage point drag due to reduced JLR bonds. eSystems margins improved by 30 basis points as compared to 2024 due to our strong operating performance. As a result, we met or exceeded our key 2025 initiatives. We delivered record net performance of $195 million. We started the year with a target of $125 million, increased it by $25 million on our second quarter call, and outperformed the $170 million target that we had established during our last earnings call. The strong operating performance contributed 60 basis points to seeding and 110 basis points to eSystems margins, exceeding our targets of 40 and 80 basis points respectively. Strong free cash flow of $527 million enabled us to repurchase $325 million of shares, $75 million above our initial $250 million target. The momentum generated in 2025 sets the foundation for continued execution in 2026. At the midpoint of our guidance, we expect year-over-year increases across the board for revenue, operating income, margins, and free cash flow. Our two-year backlog now stands at $1.325 billion, an increase of $125 million from our initial estimate given last quarter. giving us confidence in our commitment to meet or exceed our key growth and margin improvement targets. Given our strong cash generation profile, we expect free cash flow conversion above 80%, and as a result, we are targeting share repurchases of more than $300 million in 2026. We remain focused on discipline execution, margin expansion, cash generation, and delivering value to our shareholders. Slide 15 shows vehicle production and key exchange rates for the fourth quarter. Global production increased 1% compared to the same period last year. Production volumes were flat in North America and declined by 2% in Europe, while volumes in China were up 3%. The U.S. dollar weakened against both the Euro and the RMB. Turning to slide 16, I will highlight our financial results for the fourth quarter of 2025. Our sales increased 5% year-over-year to $6 billion, excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures. Sales were up 2%, reflecting the addition of new business in both of our business segments, partially offset by lower volumes on their platforms. Our operating earnings were $259 million compared to $258 million last year, driven by positive net performance and our margin of credit backlog. partially offset by lower volumes on their platforms. Adjusted earnings per share were $3.41 as compared to $2.94 a year ago, reflecting the benefit of our share repurchase program and a lower tax rate relative to last year. Fourth quarter operating cash flow was $476 million compared to $681 million last year due primarily to the timing of working capital. Slide 17 explains the variance in sales and adjusted operating margins for the fourth quarter in the seeding segment. Sales for the fourth quarter were $4.4 billion, an increase of $222 million, or 5%, from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and investors, sales were up 3%. Due to the addition of new business, such as the Series M7 in China and the Volkswagen Terra in South America, partially offset by lower volumes on their platforms, including several JLR programs. Adjusted earnings were $263 million, up 6 million, or 2%, compared to 2024, with adjusted operating margins of 6%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, partially offset by strong net performance in our margin-accrued backlog. Slide 18 explains the variance in sales and adjusted operating margins for the fourth quarter in the eSystems segment. Sales for the fourth quarter were $1.6 billion, an increase of $51 million, or 3%, from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down 2%, driven by lower volumes on their platforms, including GM electric vehicle platforms in the Colorado and Canyon in North America, as well as several JLR programs in Europe, partially offset by the addition of new business, such as the GM XT5 in Asia and the Volvo EX30 in Europe. Adjusted earnings were $84 million at 5.3% of sales, compared to $77 million in 5% of sales in 2024. Higher operating margins were driven by a strong up-performance, a margin-of-freedom backlog, and the impact of foreign exchange, partially offset by the reduction of volumes on their platforms and the impact of acquisitions and divestitures. Slide 19 explains the variance in sales and adjusted operating margins for the full year in the seeding segment. Sales for 2025 were $17.3 billion, an increase of 61 million or 0.4% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down less than 1% due to lower volumes on their platforms, including several JLR programs in Europe and several Mercedes programs in North America and Asia, partially offset by the addition of new business, such as the Series M7 and Xiaomi Su7 in China, as well as the Cupra Terramar in Europe. Adjusted earnings were $1.1 billion, down 1% compared to 2024, with adjusted operating margins of 6.4%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, partially offset by stronger performance in our margin and creative backlogging. Slide 20 explains the variance in sales and adjusted operating margins for the full year in the eSystems segment. Sales for 2025 were $6 billion, a decrease of $108 million, or 2% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down 5%. The decline in sales was driven by lower volumes on their platforms, including GM electric vehicle platforms and the Ford Escape in North America, and several JLR programs in Europe, as well as the wind-down of discontinued product lines. partially offset by the addition of new business, such as the Renault 4 and 5 and the Citroen C3 and C3 aircraft in Europe. Adjusted earnings were $293 million, or 4.9% of sales, compared to $310 million and 5.1% of sales in 2024. Lower operating margins were driven by the reduction of volumes on their platforms and the wind-down of discontinued product lines, partially offset by strong net performance, and our margin created backlog. Slide 21 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full-year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules, and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down 1% on a linear sales-weighted basis driven by lower volumes in our largest markets, North America, Europe, and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.16 per euro and an average Chinese RMB exchange rate of 7.1 RMB to the dollar. Slide 22 provides detail on our outlook for 2026. Our revenue is expected to be in the range of $23.2 to $24 billion. At the midpoint, this would be an increase of $351 million, or 2%, compared to 2025. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, our revenue would be down 1%. Core operating earnings are expected to be in the range of $1.03 billion to $1.2 billion. At the midpoint, this implies an increase of 5%, compared to 2025. Adjusted net income is expected to be in the range of $645 to $765 million. Restructuring costs are expected to be approximately $175 million to support our footprint rationalization actions as we continue to reduce excess capacity and improve manufacturing costs through automation and by shifting our footprint to lower cost regions. Capital spending is expected to be approximately $660 million to fund our new vehicle launches and investments in automation. MIR's strong focus on generating cash allows us to maintain a strong balance sheet while making organic and inorganic investments to strengthen our business, as well as to continue funding share repurchases. Our outlook for operating cash flow for the year is expected to be in the range of $1.2 to $1.3 billion, And our free cash flow is expected to be $600 million at the midpoint of our guidance. The midpoint of our outlook is consistent with our free cash flow conversion target of over 80%. Slide 23 walks our 2025 actual results to the midpoint of our 2026 outlook. Year over year, revenue is expected to increase by $351 million, driven by new business and the positive impact from foreign exchange as well as the recovery of tariff expenses. We expect overall company-adjusted margins to improve by 10 basis points, driven by strong net performance and our margin-accreted backlog. Positive net performance primarily reflects the benefits from our Idea by Lear initiatives and savings from restructuring actions, with wage inflation, customer contractual price reductions, and higher launch and engineering costs, largely offset by material cost reductions from our suppliers cost technology optimization, commercial recoveries, and normal plant efficiency programs. Seizing operating margins are expected to increase 10 basis points to 6.5%, reflecting strong net performance in our margin accretive backlog, partially offset by the impact of lower volumes on existing platforms. The system segment is expected to increase operating margins by 10 basis points to 5%. driven by continued performance improvements, partially offset by the impact of lower volumes on existing platforms, the wind-down of discontinued product lines, and the build-out of the Escape and Coursera in our backlog. We have included detailed walks to the midpoint of our guidance for seeding and eSystems in the appendix. We expect net performance to contribute 40 basis points of margin improvement in seeding and 80 basis points in eSystems in 2026. reflecting the positive momentum in our automation and digital investments, as well as our restructuring actions. Moving to slide 24, we highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4%, and our debt structure has a weighted average life of approximately 11 years. In addition, we have $3 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth, and returning excess cash to shareholders. Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe the best near-term use of excess cash is to prioritize share repurchases and our sustained dividend. At this time, we do not see a compelling, significant strategic acquisition opportunity in either segment that would deliver superior returns. In 2026, we are targeting over 80% free cash flow conversion, which will enable us to buy back at least $300 million worth of stock with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. Since initiating the share repurchase program in 2011, we have repurchased $5.9 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends. Our current share repurchase offer has approximately $775 million remaining, which allows us to repurchase shares through December 31, 2026. Now I'll turn it back to Ray for some closing thoughts. Thanks, Jason. Please turn to slide 26. In closing, 2025 was a year where we delivered on our commitments and advanced our strategic priorities. We delivered solid financial results and secured critical new business awards despite persistent industry and macroeconomic volatility. This performance positions there for sustained growth and margin expansion going forward. Our key wins underscore our competitive advantages. The Orient Facility Award with General Motors and the largest conquest win in Lear's history were driven by our leadership in quality and automation, capabilities that are very difficult to replicate and increasingly valued by our customers. We delivered on our key growth and margin improvement scorecard metrics for 2025, demonstrating our ability to execute on our commitments. This execution gives us confidence as we look ahead. Looking to 2026 and beyond, we see measurable progress against each of our strategic pillars. Our pace of business wins will support our continued growing leadership in seeding. Our momentum in these systems demonstrates our progress to improve the profitability of that business. IDEA continues to expand and enhance our ability to deliver strong operating performance and serve our customers with innovative products and manufacturing solutions. It is all resulting in strong cash flow generation that enables us to continue rewarding shareholders while supporting our strong balance sheet. 2025 was a year when we built credibility by consistently meeting or exceeding our commitments. This track record provides strong momentum as we enter 2026. And we are confident in our ability to grow revenue, operating income, margins, and free cash flow to continue to drive value for our shareholders. And now we'd be happy to take your questions.