Lear Corporation

Good morning and welcome to the Lear Corporation third quarter 2026 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. 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 2026 earnings call. Presenting today are Ray Scott, Lear President and CEO, Jason Cardew, Senior Vice President and CFO, and Jared Fideli. Vice President of Finance for Seeding and E-Systems, who will succeed Jason as CFO starting in March. Other members of Lear's senior management team have also joined us on the call. Following the 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 these forward-looking statements due to many factors discussed in our latest 10K and other periodic reports. I also wanna 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 quarter and provide a business update. Jason will then review our third quarter results and Jared will provide an update on 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. Before I begin, I want to touch on the upcoming important change to the leadership of our finance organization. After more than 34 years of dedicated service to Lear, Jason Cardew has elected to retire. I want to thank Jason for his leadership, his commitment, and his many contributions to Lear. Jason and I have worked closely together for many years. and not only has he been a trusted partner, but he is also a dear friend. Jason, your next chapter is incredibly well deserved and I wish you and your family all the best. Jared Fideli will succeed Jason as the CFO effective March 1st. Jared has been with Lear for 23 years and has a broad global financial and operational experience. He has been working closely with Jason and me for many years and is more than ready to assume the role. Jared, congratulations. I look forward to continuing to work closely with you and I know you will continue to execute our strategy to deliver improved financial performance and value to our shareholders. Okay, with that, please turn to slide five, which highlights our key financial metrics for the third quarter. They're continued delivering meaningful year over year improvements across all metrics in the third quarter. Sales increased 2% to $5.8 billion despite global industry production declining by 2% on a linear weighted basis. Core operating earnings were $256 million, a 6% increase, in the fourth straight quarter of year over year improvement. Adjusted earnings per share reached $3.71, a 33% increase from the third quarter of 2025, accelerated by our robust share repurchases this quarter. We generated operating cash flow of $329 million and free cash flow of $158 million in the quarter. Slide six summarizes our key business and financial highlights for the quarter. Our four strategic priorities continue to drive our focused execution, extending our global leadership and seeding, expanding each system's margins, growing our competitive advantage and operational excellence through idea by layer, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both segments, generating approximately $3.9 billion of net business awards year to date, with approximately $3.1 billion in seating and approximately $800 million in eSystems. This represents an increase of $1 billion during the quarter, with eSystems on track for another year of over $1 billion of business awards. These seating wins in the quarter include the complete seat, foam, and heat for two programs with a North American automaker. One award is the replacement of a program we currently supply, and the second is a new award for a future program to support this customer's expansion of their product portfolio for the North American market. Our idea by Lear capabilities were instrumental in winning these awards. Lear is the number one seat supplier in India. During the quarter, we were awarded the largest complete seat program in our long history with Mahindra Mahindra. The award includes both replacement and incremental new business. Our new awards for Comfort Flex, Comfort Max, and Flex Air applications this quarter bring our modular and innovative seat product total to 47. The program with Mercedes is a conquest award, replacing current lumbar and massage components with a Flex with a ComfortFlex modular solution. Awards with Jag Land Rover include a FlexAir application as well as a ComfortMax solution integrating heat into the trim cover. Five modular projects launched during the third quarter and seven additional programs will be launching during the fourth quarter, accelerating the adoption of our modular solutions in the marketplace. Our momentum with the Chinese automakers continued in both segments. In seeding, we are awarded an upcoming program with a Chinese luxury EV automaker projected to launch in 2028. This program is currently projected to be sold in China and exported to other markets. BYD also awarded us two key programs as they expand their production in Thailand and Indonesia. We currently supply those programs in China. In these systems, we won a conquest award with JMC Ford Joint Venture, New Wiring Business with FAWBW, and two non-consolidated wire awards with BAIC, all in China. We continue to drive growth in our core eSystems products by securing electronics and wire conquest awards. The electronics awards is for power distribution box on a commercial and passenger van in Europe with a North American automaker. An additional Conquest Wire Award is with Honda in China. As we continue to grow with Japanese customers, we also retain an important wire program with Jag Land Rover in Europe. During the quarter, we released our annual sustainability report, providing an update on our Idea by Lear initiatives, as well as progress towards achieving our environmental stewardship, social responsibility, and governance goals. Our strategic focus continues to drive improved financial performance despite challenging industry conditions. Total company revenue increased 2% compared to the third quarter of 2025, reflecting growth over market of approximately 4 percentage points. Both segments outperformed the market despite headwinds from the roll-off of programs such as the Escape and Corsair and the wind-down of our non-core eSystems products. with seeding growing approximately four percentage points above market and East Systems approximately two percentage points above market, excluding the impact of the wind down business, East Systems growth over market was five percentage points. Operating margins expanded 20 basis points year over year for the total company, with East Systems margins expanding 60 basis points, driven by another strong quarter of 120 basis points of net performance. Seeding margins grew 20 basis points, driven by 40 basis points of net performance, keeping us on track to deliver our full year target. Our strong free cash flow generation allowed us to further accelerate our share repurchases. We repurchased $175 million of shares in the third quarter, completing our full year repurchase target of $350 million. As a result of our strong earnings growth and accelerated share repurchases, Our third quarter EPS increased 33% year-over-year. With our current authorization set to expire in three months, we increased our share repurchase authorization to $1.5 billion and extended it through 2029, reinforcing our commitment to returning capital to shareholders. Slide 7 provides a further breakdown of our progress on delivering long-term revenue growth and margin expansion. providing confidence we will achieve our full year targets. Over half of our year to date seeding awards have been for new or conquest programs, providing a strong foundation of future growth. In the quarter, we were awarded conquest programs with Stellantis in Europe and with Honda in Thailand, as we continue to build our relationships with Japanese customers. In these systems, approximately 70% of our year to date business awards have been for new or conquest programs. Continuing the trend from the first half of the year. During the quarter, wire conquest awards included programs in China with JMC Ford and Honda. The rollout of our thermal comfort modular solutions continues to gain momentum with the modularity and flex air winds in the quarter. The pace of business awards with Chinese automakers continues to accelerate. In seeding, our year-to-date awards are estimated to generate over $600 million of average annual revenue, up almost 90% from where we were tracking at the end of the second quarter. This reflects the growing momentum of our global wins with Chinese automakers, including with BYD in Thailand and Indonesia, following our second quarter award with Leap Motor in South America. In these systems, approximately 25% of our year-to-date awards are with Chinese domestic automakers, up significantly from 2025. We remain on track to deliver $75 million of ideal savings this year, with approximately $55 million achieved year-to-date accelerating through the end of the year, and are on track to significantly exceed our targeted restructuring savings. Our net performance continues to drive increased adjusted operating margins in both segments. Despite rising commodity and other input costs, seeding has generated 30 basis points of net performance through the first three quarters. And we expect a step up in the fourth quarter to deliver our full year target of 40 basis points. In these systems, we delivered a very strong 105 basis points of net performance through the first three quarters. We expect these systems to deliver positive net performance in the fourth quarter despite increasing copper and launch costs. A testament to our team's ability to execute. I want to spend a moment on slide eight, which provides an overview of our Orion, Michigan facility that will support three of GM's most important nameplates. The Cadillac Escalade, Chevrolet Silverado, and the GMC Sierra. The Orient facility, which represents a critical milestone in the execution of Idea by Lear technology roadmap, is the most tangible demonstration of how our strategy is redefining jet seat assembly, reinforcing Lear's position as the clear leader in seating and creating a path to future market share gains and sustainable profitable growth. Idea by Lear is our framework for reimagining how we operate, embedding innovation Digital tools, engineering, and automation into every layer of the processes. We've been building towards this facility, which integrates the technology and talent we have compiled through our targeted acquisitions and significant internal development to deliver something that, quite frankly, doesn't exist in the seating world outside of Lyric. Production in the state-of-the-art just-in-time seating facility begins next year. This facility is designed from the ground up with a digital foundation and automation embedded throughout from day one, not retrofitted. The financial impact is meaningful and immediate. We expect automation to reduce the conversion cost requirements by 10 to 15%. The more important story is what this represents strategically. Orion is the blueprint We intend to scale across our global seeding footprint to support our future key programs such as the Ford Super Duty. Each of the key technologies we are developing reflects a deliberate capability we've built or acquired and together they tell the story of what idea by layer looks like in practice. The first is what we call integrated inter-logistics. I want to be precise about the term because it goes well beyond traditional automated warehousing. Intelligent inter-logistics is the connected intelligence layer of the entire factory. It ties together inventory, material management, storage, and real-time decision making. From the moment a component arrives at our dock to the moment a finished seat leaves our facility. We really think about it across three dimensions. The first one is connected. This is about end-to-end visibility and control. Nothing moves without us knowing about it. At Orion, that means our overhead suspended material storage and delivery system is fully integrated into the production floor to track parts in real time. Our automated guided vehicles, or AGVs, keep the lines continuously fed with complete traceability. Our automated trailer loading sequencing closes the loop, connecting finished goods all the way through to the customer's shipment with precision and without manual intervention. From inbound components to outbound delivery, we see everything. The second dimension is intelligent. Visibility alone isn't enough. The system has to think and react. Advanced analytics are continuously driving decisions around inventory positioning, replenishment, and flow. Our 4D four directional storage system utilizes autonomous mobile robots or AMRs that navigate dynamically within the racking structure itself to optimize in real time based on production demand. Our raw component automated storage and retrieval systems or ASRS manage foam and trim storage. while our finished goods ASRS are both continuously informed by analytics and anticipating needs before they become disruptions. Both of these ASRS systems were developed internally by our ASI team, which is the company we acquired. We own the IP, we control the roadmap, and we can scale it across our global footprint. That is a genuine competitive advantage that cannot be easily replicated. Not only is our material handling intelligent, but so is our balancing of human capital. We are utilizing proprietary tools like cycle time deviation and dynamic line scheduling to make real-time adjustments to optimize the efficiency of our employees. The last one is autonomous. This is where the financial impact becomes most tangible. We are moving towards automated execution, meaning our people are focused on solving problems, not performing routine tasks. Robotic part loading is actively in production today, beating our lines and installing components with a level of consistency and repeatability that manual processes simply cannot match. Our AGV network operates without human direction. Our ASRS systems retrieve the position material without manual intervention. The factory increasingly runs itself, allowing our teams to focus on more value-added adjustments. Our automated smart ovens, robotic finesse, and end-of-line testing improve our process consistency, cycle time, and quality. They also improve the job satisfaction of our team. Interconnectedness is what the what is new at Auriem. We've been adding independent systems in our existing location, but the interconnectedness across multiple processes driven off demand will improve efficiency and inventory management due to real-time monitoring, analysis, and adjustments. Built by Lear's team and leveraging historical knowledge, our systems don't just reduce costs. They create a factory that sees everything, decides intelligently, and executes autonomously. What we built at Orion will become the blueprint for scaling productivity across our complete seating footprint. And with that, I'm going to turn the call over to Jason and Jared for the financial review.