Lear Corporation (LEA)

Investor Day 2018

← View all transcripts

Jun 27, 2018

Ladies and gentlemen, please welcome Joel Elsesser. All right. Good afternoon, and thank you for joining us for Lear's first ever Investor Day. I'd like to extend a special welcome to everyone that was able to join us here in Southfield, Michigan at our Global Product and Technology Center. I also want to welcome those of you joining us remotely via the web. We have a full afternoon planned for you today, including a tour of some of our exciting new products and technologies. But before we get to the agenda, I have a couple of housekeeping items. Here's our safe harbor statement. Our presentation and related discussion today will reference forward looking statements that are subject to the risks that we outline in our Form 10 ks. Also during the presentation, we will refer to non GAAP financial measures. Reconciliations to the corresponding GAAP financial measures are included at the end of the presentation. Okay. Turning to today's agenda. In a moment, our CEO, Ray Scott, will come up and give a strategic perspective on Lear, including our vision for the future. Then you'll hear from our two division presidents, Frank Grossini for Seating and Janine Hanley for E Systems. Both Frank and Janine will be joined by some key members of their respective teams. Following the two division presentations, we're going to take a quick break, and then Mandy Rice, Vice President of Advanced Sales and Product Technology, will highlight some of the significant opportunities that we see related to the convergence of our two product segments. Finally, Jeff Vanest, our CFO, will provide an overview of our financial performance and a summary of our outlook. Following the presentation, the team will assemble as a panel to take your questions before we proceed to the tour. Okay. With that, we're going to kick things off with a short video that perfectly introduces this event and depicts the spirit and the passion of the Lear team. At Lear, we always seek and develop innovation while focusing on the future and the possibilities ahead. We are proud and excited to present to you the future of Lear. Every great leap forward, every advancement in science was the result of a person who wanted to make things better, to improve the world for the rest of us, to build a bridge over the river they had already crossed. These are people with a vision. People who don't think outside the box because they were never in the box in the first place. People who look at roadblocks and see opportunities, who approach life with a sense of wonder at what might be, people who are never satisfied with best in class. It's what being driven is all about. It's not just making the world a better place for ourselves, but making it better for everybody. Because we believe that opportunities come along every day, that new ideas are everywhere, and that innovation is for everyone. Lear. Where passion drives possibilities. Love that video. Welcome. Thank you for coming for those that are here in person and thanks for joining us via the web. This is our first Investor Day and welcome to our Global Product and Technology Center. Before I get going and talk a little bit about the team and what we're going to accomplish today, I would like to welcome three Board members here: Kathleen Legacci, John Foster and Greg Smith. Thank you so much for supporting us and kind of being here at our first Investor Day and what we're going to accomplish. But I got to before I get going, I want to tell you how excited we are as a team. We have a lot we want to accomplish today. We're going to go through a number of key issues, but the team is really going to rock it. And we're going really accomplish a couple of things as far as what I want to do today is give you access to the incredible talented team we have at Lear Corporation, give you some insight to our strategy and our outlook for our business, talk about the industry trends and the growth drivers, demonstrate our financial strength and give you some insight to our products with innovation and technology because there are a lot of things moving and we're really excited about our position going forward with innovation and technology. In my presentation, I want to discuss three main drivers for profitable growth: our industry leading talent and the culture of operational excellence our focus on investment and our financial disciplines our unique product capabilities, which are perfectly aligned with the industry growth trends that we're seeing moving forward. So the first thing I want to touch on is our outstanding team. Not only are they a very talented team, but you can see a very handsome team. But first, I'm going start off with Janine Hanley. I think a lot of you have met Janine Hanley. Janine Hanley is our Senior Vice President and President of our E Systems Group. Janine has been with us for almost twenty four years. She's incredible when it comes to business acumen, a very strategic thinker. And if we think back to originally who headed up our electrification group back in 02/2009, it was Janine. And so she's back at home and she's going to take that division to new heights. The next one I want to introduce is Frank Orsini, our Executive Vice President and President of our Seating Group. I think a lot of you know Frank. He did an incredible job with our E Systems business, taking it under his vision to brand new heights and record performance. And I'm absolutely confident he could do the same thing in Seating. The next one I want touch on is, and I think a lot of you know, Jeff Van Jeff Van Ess Ess. To me is by far the best CFO in the industry. He has done an outstanding job for Lear Corporation. And underneath Jeff, he has an incredible financial team. And the last one I want to introduce is the new addition to our team, John Asmeyer. As we talk about innovation, technology and where we're taking the business, we now have a head of CTO, our Chief Technology Officer, John. And John is going to get up later on before Q and A, introduce himself, his experience and really what he sees at Lear Corporation, really what attracted him to Lear Corporation at this particular time. I will let Janine and Frank go through their team members and talk about their qualities. As you will see throughout the day, our financial discipline and history of operational excellence is ingrained in our culture and present in every facet of our business. This slide summarizes the key elements of our value creation strategy. First and foremost, we are targeting to grow our sales above industry production and our earnings faster than sales while generating significant cash flow. We have been following a balanced capital allocation plan of investing in the business, maintaining investment grade credit metrics and returning excess cash to our shareholders. This has been a successful formula, and Jeff will talk a little bit more about our track record in his presentation. What I would like to focus on is our very positive outlook for continued profitable growth over the next five years. We've invested billions of dollars over the past decade to improve our product capabilities and cost structure. A few of our key metrics are shown on this slide. And overall, I believe we are in the strongest competitive position in our one hundred plus year history. And this gives us a tremendous cost and overall competitive advantage, at the same time building up an incredible product lineup, which you'll see later, which the teams are going to talk in a lot more detail and we'll have a product display that we can walk around. We have two high performing business units that have achieved record growth with earnings growing at an even faster pace. Our margins are among the best in our peer group in both segments, and we are confident with our financial discipline that those operational margins are sustainable. Our unique strengths and product capabilities will allow us to continue to drive profitable sales growth. Today, we are going to show you our unique position in both business segments. Like I said earlier, we are absolutely confident in the sustainability of our margins in both business segments. We believe this because we have put tools and disciplines in place that deliver those results. We measure every program, customer, region and product based on returns on invested capital and have strict requirements that will earn us acceptable returns. We will not accept business that does not meet these financial thresholds. Now we've had this in place for a while, and we have done all this while growing our backlog to $4,000,000,000 As evidence of this, our return on invested capital has grown over the last several years and now stands among the highest in the automotive sector. Everything we do is focused on shareholder returns. This slide shows our track record of value creation. Since 2011, we have increased our market cap by approximately $9,000,000,000 based on consistent earnings growth, strong free cash flow and a history of returning cash to our shareholders. We have consistently delivered superior returns to our shareholders. Even with this incredible performance, we believe our best days are ahead of us, and you're going to see that today. We have the best team in the industry, a culture of operational excellence, financial discipline and a value proposition focused on technology and innovation. The last topic I want to cover is our product alignment with the industry growth and megatrends that we're seeing. In Seating, we have consistently been the leader in profitability while growing faster than any of our major competitors. We are the world's leader in luxury seating with a 40% share. We are also well positioned in the fast growing and high content crossover and SUV segment. And over 90% of our sales backlog in seating is in this important segment. We have the most complete seat component capabilities, including unique capabilities in leather and the overall seat craftsmanship. Importantly, our E Systems business provides electronics and software expertise that give us a competitive advantage in developing intelligent seat applications for the future. In these systems, Lear is a global leader in vehicle electrical systems architecture. We also have leading capabilities in high power electrical systems, vehicle connectivity applications, as well as significant software and cybersecurity expertise. We are the pioneer in smart junction box technology, and today, we are the leader in smart electronics. We produce the industry's most sophisticated connected gateway and communication modules for several Audi and Porsche vehicles that launched this year. The global automotive industry is strong and growing, and two of our product segments are perfectly aligned with major trends: global production growth led by the emerging markets growth in crossover and SUVs growth in the luxury brands electrification, connectivity, mobility, configurability. Our products are perfectly aligned with these trends and will help accelerate Lear's growth going forward. Auto industry production is projected to grow at about 2% per year, reaching 106,000,000 vehicles by 2023. This growth is being driven by emerging markets, which are expected to be responsible for 90% of the overall growth in the next five years. Lear is well positioned in these regions in both of our product segments with engineering and manufacturing capabilities supporting all of our products. The mix of vehicles to high content crossovers and SUVs has been changing quickly and it puts us in a really good position, particularly in our seat business. The higher seat content crossover in SUVs is the fastest growing segment globally, and these vehicles continue to gain share in all major regions. More than 70% of the global industry growth over the next five years is expected to come from crossovers and SUVs. And there's room for additional growth as this segment still well represents less than half of the industry production in all regions and one third or less in both Europe and India. Another important trend is the continued growth in luxury vehicles. This is the highest content segment of the market and Lear is the market share leader in seating for premium brands. As I stated earlier, we have 40% of this market. The content per vehicle in this segment on average is more than double that of the overall market and can range up to several times the industry average for the highest end vehicles. Most new innovative features are introduced through the luxury market and our strong relationship with these customers puts us in a great position to introduce our intelligent seat. Okay. I'm going go a little bit off script on this because I love what we're doing here. Sorry, Mandy. May instill a little bit of your thunder. Mandy does a much better job, but this is something that we really created at Lear Corporation. And I believe without question, the Seed is going become a smart device. And we are currently developing with our customers modules that hit on the key areas that we as consumers should be interested in. The BioBridge that will read your heart rate, understand if you're drowsy. The sensors and the technology and innovation is something that we create here at Lear. Dynamic safety, where we can actually move, and you'll see it on the product tour, we can actually move the seat in a way that protects you as a consumer in the event of a front end impact or a rear impact or other collisions within the vehicle. Modular heat and cool systems. Right now, our customers have a problem with the HVAC. You're literally trying to cool the environment or heat the environment for spaces that aren't being occupied. It's very wasteful. We're developing a system that will heat to your personal preferences or cool to your personal preferences. Why ruin that whole infrastructure with inefficiency? And that efficiency is needed in other applications to run the vehicle, other applications within the vehicle. And you'll see it on the tour as we go through the product. Sound zone. This is one that we have a module and again, our capabilities allow us to design these technologies and embed them in our core capabilities and manufacturing products. Sound zone. Right now, you have to listen to a center stack. We have mobility, rideshare, customer preferences. You should be able to listen to your own music, take your own phone call, take your own text within your own seat tied to your smart device. And you're going to see the actual applications that we're developing with our customers today. Proactive seating. A seat that actually moves your anthropometric measurements. Adjust your personal preference regardless if you have a bad back for posture or comfort or if it's a sport mode. This is the type of technology that we're developing. And I'm going to tell you, when we look at this thing, and I know there's a lot of, and I say imitation is the greatest form of flattery, a lot of our competitors are talking about what they're doing, you have to ask yourself a question. Every one of these technologies that we're talking about to make this happen, we have those capabilities with these systems. And so when you look at, do they have cybersecurity? Do they have software engineering and the ability to write algorithms and programs? Do they have WiFi capabilities? Do they have cellular and Bluetooth capabilities? Do they have superior audio capabilities to make these things happen? What we're talking about is setting up modules that could be sourced independently and somewhat indifferent from the JIT world where we can go across multiple different applications within the seats. And this is what's great. We're all consumers and customers. These are benefits we'd all like to see. So we're creating a space that doesn't exist today with our customers that are going to make our lives easier. Sorry, went off script there a little bit, but I love what we're doing here. It's exciting. Really exciting stuff. One of the megatrends that is expected to drive tremendous growth for our E Systems business is electrification. Over the next five years, a number of vehicles with some level of electrified powertrain is projected to grow 40% annually. By 2023, an estimated 27 of all vehicles produced will have an electrified powertrain, with China and Europe leading the way with 60% penetration rates. Looking even further ahead, electrification trend grows to approximately half of all vehicles produced in 2028. The incremental electrical content opportunities for Lear is anywhere between $300 for a 40 volt mild hybrid vehicle to $2,000 to a full electric vehicle. Another megatrend driving electrical and electronics growth is vehicle connectivity. Lear has been the leader in vehicle connectivity. And through organic investment and acquisitions, we have strengthened our capabilities in wireless technologies. It is estimated that nearly two thirds of the vehicles produced globally in 2023 will be connected. Lear is well positioned to take advantage of this trend. We just launched the industry's most sophisticated connected gateway and communication module in several Audi and Porsche vehicles. And we are quoting those applications across multiple platforms for the Volkswagen Group. We have delivered a leadership position in automotive cybersecurity as well as V2X infrastructure. The shift towards shared mobility is driving increased content opportunities for both product segments. In seating, reconfigurability is offering more flexibility in mobility applications. Again, I'm going go off script here because I love this too. You're going to see this on the product display, but when we purchased Grupo Antelene, we had a rail system and a cassette that allowed you to reconfigure the seat within the vehicle. When we got that application and those products, we brought our eSystems team in and we advanced it. It's very sophisticated now. We power the rails. And so think about it. There's a lot of talk about what the future of mobility and rideshare can look like in the future. You're going to have to have an opportunity to have replacement seats or flexibility, reconfigurability, set the vehicle up differently. Well, our powered rails allow you to be tetherless. No wires. The power and the terminals connectors go into the rail, allowing you allowing you to give power to that seat for safety options, for comfort and feature options, for increased content features within the vehicle itself. And we also believe that when a vehicle is on the road for seventeen hours, you're going to need to actually have replacement parts, either refurbished parts or replacement seats altogether. And so this allows you to do this. What we did was we designed a rail system in the vehicle that gives you a number of different configurability options within the vehicle and is powered. We own those patents. We own those intellectual property rights. And you're going to see that today. And what's great about this is there's a lot of, in theory, what the future could look like. We're going into production with the Volkswagen Group in 2020. And the interest on this from our competitors or from our customers has been enormous. So as soon as it's that me too concept, as soon as the customer has this type of application or feature in their vehicle, our rest of our customers are saying, how do I get this into our vehicle? Very unique. And what the team is doing is they're designing the next generation of this feature already. So we're not just sitting on what's a powered rail system that offers a brand new feature into the market. We're on to the next generation of features that are going to take us even further. Sorry, had to go off script there a little bit. Love that too. We are in a great position. Both of our core businesses are in markets that are growing faster than industry production. All of these trends, which I just reviewed, will continue to drive growth in both of Lear's business segments. In the year 2023, the combined addressable market for Lear is over two ten billion dollars This is my last slide. I want to give you our outlook of the business. In 2023, Lear sales outlook will be over $30,000,000,000 and we project continued operational margin expansion for the company to 8.5% or better based on the faster growth in our higher margin E Systems business. We are very confident in our outlook. We are we absolutely believe that we are we have the best team in the industry, and we continue to build on that team. Focusing on operational excellence, remaining disciplined to our financial metrics and driving a value proposition focused on technology and innovation will continue to drive these results. Today, you're going to have the opportunity to have access to some of our most talented people in the company. I get to review this daily. It's exciting, the technology and innovation. And I absolutely believe after you hear what type of offering and technology and innovation that we're delivering to our customers, you're going to be as confident as we are in our future. So at this time, I would like to introduce Frank Orsini, the Executive Vice President and President of Seating. All right. Well, thank you, Ray, and good afternoon, ladies and gentlemen. My name is Frank Orsini, and I'm the President of our Seating business at Lear Corporation. Today's presentation will provide a general overview of our Seating business, our growth outlook and why we believe we are positioned for future success in the market. You'll also hear from key executives of our management team who will cover our product technology and why we believe we will capitalize on future industry trends. David Kaziak, Vice President of Global Seat Engineering, has more than thirty years of automotive experience in seating. David will present our core engineering capabilities for us. And Mandy Rice, Vice President of Advanced Sales and Product Technology, has more than twenty five years of automotive experience. Mandy will cover the topic of convergence. This slide does a very nice job of outlining our competitive market position. We have a high performing seat business with a world class manufacturing and technical footprint. We are positioned to grow profitably while maintaining strong margins. Our technology is absolutely second to none and completely aligned with industry megatrends. As feeding systems become more intelligent, hardware and software solutions will become more important. The product convergence that is taking place between our Seating business and our E Systems team gives Lear a unique market position and truly separates us from our competition. There is no other seating company in the world that has a state of the art in house technology partner like we do with our eSystems team. This slide provides some general information about our Seating business. We have a world class manufacturing and technical footprint located around the world, servicing our global customer base. We also have an incredible team of professionals that design, manufacture and commercialize our products on a daily basis. Our team is without a doubt, the absolute best in the entire industry. And at $16,500,000,000 in sales, we are the fastest growing and most profitable seat company in the world. So this slide highlights our global business segmentation. As you can see, our business portfolio is very balanced. We are not dependent on any one customer, product segment or region to deliver sustainable results. This slide shows our global market share broken down by region. As you can see, we have a strong competitive position in every market that we operate in. Our global market share is 23% and growing. This slide illustrates our top programs in every major automotive market in the world. It gives you a good sense for our deep product and customer diversification. Our products are in a wide range of vehicle segments, everything from trucks and CVs to luxury and performance vehicles. I really love this slide because it gives you a sense for the complexity of our seating business. Seat systems are highly engineered products. We have an incredible team of engineers, chemists, scientists, doctors and metallurgists on staff to help design the best seats in the world. A typical seat system is comprised of many different components, metals, chemicals, surface materials, literally thousands of components coming together with harmonic precision to deliver the most comfortable and crafted seats in the industry. And there's a reason we are the leader in luxury and performance seating. Our level of vertical integration and complete product knowledge uniquely positions Lear Corporation as the most capable seat manufacturer in the world. Ray and I are often asked if our customer sourcing trends are leaning towards build to print or full service supplier contracts. And recently, we have seen a shift in some of our customer sourcing strategies more towards full service supplier contracts. Many of our customers are moving engineering resources to areas of the business like autonomy, connectivity and electrification. Our customers are looking to Lear Corporation to design and engineer their complete seat systems. Today, I'm very proud to announce that Ford Motor Company has selected Lear as their full service seat supplier on the all new Ford Bronco program that we'll be launching in 2020. This slide lays out the size and scope of our global component business. We have a very strong market presence in every region of the world with a low cost footprint that positions us very well for future growth opportunities. The margin sustainability is a topic that comes up quite often. We are very confident that we can sustain our margin performance. Over the years, we have positioned our seat business for sustainable success. We have consistently invested in our footprint, our technology and our people. Lear's financial discipline drives sustainable performance, and our backlog is very strong. Every customer, product and region must stand on its own. Every program in our backlog must earn its right to capital allocation based on an investment thesis that each business case must return in excess of its cost of capital. And we also have a number of opportunities for margin expansion as well. Market growth in luxury and utility vehicle segments continue to outpace the industry. Technology adoption will also provide opportunity. Structures in South America are two areas of the business, while both profitable. We are working to improve performance, which will drive long term margin sustainability. Operational excellence is in our DNA. We will continue to drive performance, which will help reinforce margin sustainability moving forward. Recently, there's been a lot of discussion around the topic of automotive structures. Having global competency in structures and mechanisms is an absolute must to deliver world class seat systems to the automotive industry. Make no mistake, structures is a tough business, and it requires a very disciplined strategy to be successful. Our operating philosophy is part of our competitive advantage. Today, I will share some key operating principles that have allowed us to perform successfully in a very challenging part of the business. At Lear, we have a very targeted investment strategy focused on product innovation, footprint leadership and manufacturing capabilities. We also have a very disciplined commercial strategy centered around return on invested capital. Our structures business must stand on its own. Unlike our competitors, we do not view structures as a grow at all cost business. Lear's investments are tied to profitable growth. Our growth strategy is centered around high value components that are aligned with industry megatrends. We are targeting areas like recliners and tracks for reconfigurability and second and third row seating structures to support crossover and SUV market growth opportunities. Experienced leadership is also very important. We have a proven track record of operational excellence led by a very strong global team. This next slide lays out a number of growth opportunities for our seat business. First of all, our quote pipeline remains very strong, which is supported by a global seat market that is expected to grow from $68,000,000,000 to $80,000,000,000 over the next five years. There are numerous market opportunities for growth as well. The luxury market continues to grow. The CUV and SUV market segment is also outpacing industry growth rates, and approximately 90% of our backlog is on these high contented platforms. Emerging markets like China, India and South America will continue to grow. And in particular, China represents our largest opportunity where utility and luxury vehicle segments will drive tremendous growth opportunities for Lear Corporation in the future. And as we have done in the past, we will continue to look for acquisitions that complement our business model, add capabilities that align with industry megatrends and help diversify our overall business. We will continue to gain market share, and technology will support future growth opportunities for us as well. One of the things that excites me the most about our business are the industry megatrends that will shape the future of the automotive industry. Intelligent seat systems will play a very important role in all of these industry megatrends that are on this page. Reconfigurable seat systems that function on electrified rails are perfectly aligned with the industry megatrend of shared mobility. Seating is the first point of connectivity with the occupant. Lear's hardware and software technology is enabling connectivity solutions such as heart rate monitoring, personalized sound zones, and safety systems that react and reposition the seat in the event of a potential collision. Lastly, seat systems will play a very important role in electrified vehicle platforms. Lightweight seat solutions will serve to extend battery range. The HVAC system is a tremendous power draw on the vehicle architecture. Intelligent climate modules that interface with the HVAC system will provide an optimized climate solution as opposed to inefficiently heating and cooling the entire cabin. Now you're going to see all these technologies and many more on our product tour today, and you'll understand why we are so optimistic about our future growth opportunities. I have to tell you, I'm 100% confident that our world class product technology is creating an incredible platform for us to continue to grow our business. And now with that, I'd like to welcome David Kaziak, our Vice President, Global Seed Engineering, to the stage. Thank you, Frank. As Frank said, I'm David Kaziak, and I'm responsible for leading the global technical seating team. Lear's engineers develop complete seat systems, seat components and innovation for our customers. Today, I will cover Lear's seat engineering network, some key products and capabilities. And finally, I will show you some truly inspiring examples of how we bring these together to deliver high performance, highly crafted and innovative systems seat systems. This slide demonstrates both the complexity of the seating business and how our engineering team is aligned to support that. Since there's a lot of information here, I'd like to highlight a couple of key points. First of all, seats are high-tech systems. Seats are the only vehicle subsystem that have to balance comfort, style, personal preference, package and safety. Seats are high value, highly contented and are rapidly evolving to meet increasing customer expectations. To be an industry leader in seating, you need to be world class in products and in capabilities. The Lear technical team is located in 25 centers around the globe. We've launched product in 22 countries, six continents. Our team is made up of over 3,000 engineers representing more than 30 technical disciplines from mechanical engineering to organic compound scientists. Additionally, we have the ability to draw support from 2,500 E Systems technical colleagues. In total, Lear's Seating technical team has over twenty one thousand years of experience. Okay. I'd like to take a minute and show you some of Lear's core products in our portfolio. We are completely vertically integrated in every major seating component in the automobile, including complete seat systems, structures and mechanisms, surface materials. At Lear, we're taking our core components, we're adding intelligence, we're embedding technologies, and we're innovating into modular solutions that can go anywhere in the world today. Only Lear is completely vertically integrated in every major seating system. In the next few slides, I'd like to give you a little bit more detail on some of these products and capabilities. Starting off with structures. Our customers expect we have structures capability. This is because many of the OEMs are still using a full service supplier model. And structures knowledge is a minimum required competency. Structures are safety critical components. All of the load flows through the structure. And it's mandatory to understand load management. Frank explained our business strategy for structure success. We are also using our capabilities to approach this business differently. For example, we've developed our ecosystem that can be built in a unique hub and spoke model with significantly less capital. We have a Lear analysis tool for performing system evaluations. We simulate every aspect of the structure before we ever build it apart. And this allows us to optimize the system. Our capabilities set us apart. Moving on to surface materials. Lear is the only seat supplier with capabilities in both leather and fabric. These capabilities, along with core technologies, allow us upfront access to customer studios and the opportunity to solve problems for them, such as thin profile seating or proactive seating, a Lear technology advancement that Mandy Rice will explain during her presentation. Our capabilities are not only important on advanced projects, it's also important throughout the product development cycle. Let me just give you a real simple example. Eliminating wrinkles in a seat. Simple problem to solve. In fact, it's quite complex and it requires a deep knowledge of how the components within the system interact together. Contours in the seat, material characteristics, lamination type, the material properties are all interrelated. And only Lear has the expertise and complete system capabilities to efficiently solve problems like these. Historically, seat completes were a combination of foam, trim, foam trim and structure. Seat complexity is growing. Today, when we talk seat completes, we have to talk sensors, semiconductors, software, modules, HVAC, sound systems and core comfort products. Seat system engineering is the complete integration of all those components and a trade off between packaging, performance, cost, and weight. It's almost a mix between an art and a science, and not everybody can do this. We design complete seat systems for every market segment in the world, from emerging markets to luxury vehicles, from subcompacts to full size trucks. This is what sets Lear apart. On these next two slides, I'd like to show you some examples that demonstrate Lear's seat capabilities. The Range Rover Autobiography is one of the most highly contented seat systems on the market today, offering the highest level of comfort, craftsmanship, and convenience in the industry. If that's not impressive enough, the entire program from kickoff to production was twenty five months. That's 30% faster than world class timing today. There's no other seating supplier capable of developing a seat like this. You'll see one in the showroom today when you walk around. The next example I would like to highlight is the new GM full size, truck and how our customers came to us with a challenge to help reduce weight and cost in the vehicle. In this case, we got involved with our customer thirteen months earlier than suppliers historically would. We took a holistic approach. We combined our broad range of capabilities, and we were able to achieve a seven kilogram mass savings, reduce the cost of the system and introduce Lear innovation resulting in priceable content. Some examples of key innovations include a unique second row in seat storage system and an innovative acoustic sound barrier. Again, without the full capabilities and understanding of all the components, this would not be possible. We know we are developing the right products and capabilities because our customers are telling us. First, in the form of recognition. See just a list of some of the recognition we received in 2017. Secondly, our customers are trusting us with their most critical projects. For the past thirty years, the pace of change has been relatively slow. Because of this, some have even viewed seating as a commodity. Things are changing like never before. Seats are becoming more intelligent, more personalized and evolving at a rapid rate. With our capabilities, we are uniquely positioned to adapt to these changes. You'll see more when Mandy Rice presents on convergence. Our competitors say they never lose an award because they don't have enough capabilities like our E Systems division, which we draw upon when developing new technologies. They might not be losing, but I promise you, we're winning. We are winning the development contracts, and we're winning the programs that follow with over 20 Intu seating advanced technology products across 10 global OEMs. I'd now like to introduce Janine Hanley, Senior Vice President and President of E Systems. Well, you've just had the opportunity to hear about our exciting and powerful Seating business. And now I'm very excited and proud to be able to present to you our E Systems business. I'm going to talk about the highlights of what we believe our competitive advantages in E Systems and also our confidence in the growth outlook provided by Ray Scott earlier today. And then after I'm done, you get to hear from two key executives on our team. Steve Rober, our Vice President of Electronics Engineering, he has been with us in that role for four years. Prior to that, he ran the automotive micro business at Prescale and spent another twelve years before that combined with Motorola and Continental and automotive electronics and sensors. His knowledge is deep, and we're incredibly lucky to have him as a leader on our team. Bill Presley, Vice President of Engineering for Electrical Distribution Systems Engineering and Operations. Bill has been with us for ten years in a variety of leadership positions in engineering and product management. Before that, he spent fourteen years at FCA in different engineering as well as operational roles. And again, incredibly lucky to have Bill's talent on the team, and you'll see his passion for not only the product, but the systems expertise that we hold from the architecture standpoint that falls under his responsibility. So I look forward to having you hear from them. What I want to convey to you today, and we'll several slides, is our advantage in E Systems. Not only do we have a strong global presence for each and every customer all over the world, but we're positioned perfectly for the fastest growing markets, and we have an extremely strong alignment with the megatrends with our technology and product portfolio. Also, we have a unique business model. We're flexible and we're targeted. We're flexible because, yes, we have a core portfolio, hardware, systems, software. But we're flexible in that we'll customize it for each of our customers, which not all of our competition will do. Targeted. We're targeted because we do not compete everywhere. But where we do decide to focus our investment dollars and our talent, we compete at the highest levels. But we never compete with our customers. And again, that's a differentiator for us. Also, in addition to our product portfolio and specific technologies, we have a class defining systems expertise that it's not just enough to bring the capability, you have to bring it at the right value proposition. I look forward to hearing more about that when Bill presents later. And then finally, another key point. With the spin off of Aptiv and Delphi Technologies, that left only Lear E Systems as the only supplier in the world that provides the full range of electrification through electrical distribution through power electronics. We're one of one, and you'll hear that again in the presentation. So just to give a broad overview of our business. E Systems, we're 70,000 team members strong. And with 51 precision manufacturing sites and 30 global engineering centers, we're everywhere we need to be for our customers to compete anywhere in the world. We're also well diversified. With 76% of our revenue now outside of North America. And from a customer standpoint, although we enjoy very strong relationships with North American customers, we're now at a point where over 50% of our revenue comes from customers that are based outside of The U. S. From a product diversification, you can see over here on the chart that about 74% of our product line is what we will call electrical distribution systems. I'll talk a little bit more about what's included in that product category, with the remaining 26% electronics. This is just a snapshot of some of our key platforms at E Systems. And again, as Frank talked about earlier, you can see the breadth of our reach. What I'd like for you to take away from this is you see the full range of compact vehicles to sedans, luxury SUVs, all the way up to pickup trucks. Also represented as a full range of electrification from low volt all the way up to full battery electric vehicles. Right now, today, we have electrification content in production or being developed with 15 different customers on 40 different platforms. So it's big, it's real, and it's right now. I wanted to take a minute to dive a little bit further in just the technology portion of our capability and to show to you and to highlight to you the breadth of our talent. We have a broad group of specialists all over the world dedicated to R and D, application development and partnering with our customers where they need us to be. So we've broken out for you, in particular, where we're doing our work on connectivity and electrification. The key to take away from here is where we are where we need to be for our customers. We're also where we need to be to attract and retain key top talent. Now we've amassed this expertise, both organically as well as through a recent acquisition and we were acquisitions, and we remain extremely focused to continue to growing our bench and our depth in our portfolio here. We're going to talk more about product later when Bill and Steve come up, but I just wanted to give you an overview of how we think about our business and our products. First of all, in electrical distribution systems, this is the full range, as I said before, of low to high voltage systems and wire harnesses, power distribution and terminal connectors for that range. When we talk about electronics, course, we have interior body control modules. We also have capability in wireless vehicle access. We do controls for audios as well as exterior lighting. That's in addition to the power electronics capability we have for electrification and the suite of connectivity systems for connectivity modules, the advanced connected gateway modules. Talking about our growth and the confidence we have in the growth that Ray outlined for you earlier. When you think about the industry megatrends, Lear E Systems is right in the sweet spot. We're right where we need to be to capitalize on future content growth, electrification and connectivity. We all know these are some of the fastest growing marketplaces in our industry today. Before I dive into electrification and connectivity, and I'm going to in just a minute, it's worth taking a step back to slice through to see what it means for Asia. Asia is a megatrend in itself. The absolute growth, obviously, as we all know in this room, cannot be denied. So how you're positioned for it and aligned for the megatrends is extremely important. For all of the reasons I've already said, we're positioned to gain our fair share in Asia as well with our capability with 15 different manufacturing facilities and nine technical centers in Asia alone. What's important is the customer behavior. And in particular, with the domestic Chinese OEMs, we're seeing a significant pivot. They're ready to take their share of the marketplace. And what they're looking for are partners that are going to help them leapfrog and get there. They're looking away from their domestic supply chain base, and they're looking for suppliers that bring to them the full system for improved quality and feature content and suppliers that bring technology. That's a significant opportunity for us. Specific to electrification, when you think of just the next five years, not over the long range, it gets even bigger, but just the next five years, there's 10,000,000 vehicles alone that will be added just in China. So what are we doing about that? We're doubling down in China, and we're going to open our second electrification engineering center there this year to continue to grow our base and to capitalize on that opportunity. When we talk about connectivity, I'm sure many of you know that China has gone on the offensive. They've said they want to be the leader in cellular V2X as well as five gs capability. Right now, today, we're launching a system that incorporates the leading network access device in our communication module for the Chinese market to be first to market with the best performance. Now taking a step back and looking more broadly electrification and connectivity again, just in the next five years, electrification will be its own $30,000,000,000 marketplace. That's outside of all the other core markets. We're the only supplier right now, as I've already said, that does the whole range of the architecture. Ten years ago, we were the first to launch a mass produced onboard charger. We started with a three kilowatt. Today, we have the full range. We have three, seven and eleven kilowatt production programs and are even working on development on a 22 kilowatt, and Steve will talk in even more detail on that. But we're not stopping there because we believe the future is wireless. And we're proud to say with our partnership with Qualcomm's Halo technology, Lear E Systems is the leading Tier one to integrate this wireless charging seamlessly with our customers. Connectivity. Again, in five years, this will be a $10,000,000,000 marketplace, and it will grow exponentially from there, as we all know, as autonomy grows even more share over the coming years. But forget about the future again today, we're launching the industry's first 4.5 gs system. We're launching it with Audi and Porsche across nine different nine plates, and we're in the leadership position today, but we're not new to connectivity. For almost two decades, we've been in a leadership position with gateway modules, which really provide the baseline and the foundation for connection into the vehicle. And we've had an aggressive investment strategy. We've invested in cybersecurity, DSRC and cellular V2X and of course, most recently, our advanced vehicle positioning acquisition of Ekso. So today, right now, not in the future, we're quoting, as previously stated, dollars 1,000,000,000 worth of business in 2018 in electrification and connectivity. So we've talked a lot about our baseline of where we're at today, how we've invested for the future. But at E Systems, the way we're looking at it and attacking it is the future is right now. So you can see why we have incredible confidence in the growth outlook for the business that Ray provided earlier. And now without further ado, I'd like to hand it over to the technical experts to explain in more detail. And we'll start with Steve Rober, Vice President, Electronics Engineering for E Systems. Steve? Good afternoon. As Jeanine introduced, my name is Steve Rober. I'm responsible for Electronics Engineering here at Lear. I wanted to give you an overview not just of the electronics technology that we offer, but also how we interface with our customers and just as importantly, how we interface with the other groups here at Lear between the wire harness group and the seating group and how our technology applies to the applications that they're working on currently. We have 1,200 engineers globally, of which half are software engineers, and of those, 400 of those are in Asia. And those support six manufacturing facilities. The global footprint that we have for engineering supports global customers and global platforms that they're developing. The industry has gone through some fundamental shifts in the last five years for electronics that they're going towards more global platforms, but they're also going towards more, what we call, domain controllers. So instead of introducing a piece of electronics to control a single function, they're introducing these domain controllers, which will actually control exactly what I said, a domain. So in this case, a body domain, a powertrain domain, a safety domain. And we're working with our customers on that. From our product line standpoint, I want to give you a little bit of an overview before I go into the connectivity and the electrification. If you look on the upper left, the body domain controllers. As I said, we've seen this shift in the industry going from the individual functions of the body control to this domain control. That reduces the cost and allows customers to actually introduce more functions for that same price point. Also, base technology that we use applies, as Mandy will talk about, as we have experience in seating sensing, seating control, that applies to some of the convergence technology that she'll show you in a few minutes. Our exterior lighting control. One of the things that we have done in our electronics control has been headlight control. And you would think that's not a very exciting business. And once upon a time, that really wasn't. You were turning headlines headlights on or off. The new generation, which we actually launched with Daimler last year, the pixel light control, uses 84 LEDs to shape the beam. So instead of having a single light turning on and off or motors to level the headlight or turn around corners, We actually shape the beams with this system. And why that's important is it's not just about controlling those individual LEDs. It's actually taking input from the vehicle itself in terms of when you shape the beams, you can highlight and accentuate road signs. You can notch out the lights for oncoming cars or a car that's in front of you. And I don't want to steal any more of Mandy's thunder, but as we get into things like active safety, what this does is we've learned a lot about taking information from those vehicle sensors that are processed in the vehicle and applying it for that active safety in addition to just this headlamp control that I'm talking about. The vehicle wireless access, the next point I wanted to talk about, is more than just simple key fobs and opening and closing your door. This has actually become a safety not a safety, but a security critical function in the vehicle where we've had to introduce different measures to avoid people from being able to actually mimic the key fob and basically steal the vehicle. Jaguar Land Rover recently won an award for the security level of their passive entrypassive start system. And it was based on ultra wideband technology that we delivered as part of our system to them. The smart junction boxes. This is actually dealing with the power distribution system in the vehicle. We have won an industry PACE award taking simple fuse boxes and actually migrating those to a solid state control of the power distribution in the vehicle combined with some of the body electronics. And Bill will talk about that a little bit more, but it enables us to actually architect the power distribution systems in a much more efficient manner. The audio domain controllers, again, referring back to some of the stuff that Mandy will be talking about. Historically, we had delivered amplification systems in the vehicle, and it was part of a sound generation of that vehicle. As we move to those audio domain controllers, again, controlling an entire system, the high end audio domain controller that we'll be launching next year has got over 25 individual cores running software that interoperates within the system to do things like generate all the sound in the vehicle, but also to do things like active noise control of the road, the wind noise, the engine noise. So it actually acts to shape that sound within the vehicle, but not just in the vehicle itself. This technology also applies, and again, referring back to Mandy, the sound zone work that we do as part of our work with the seating group. We shape that sound inside the vehicle to the individual passengers' requirements. The last two pieces I wanted to talk about and the main two pieces here are, as Janine referred to, our electrification and our connectivity portfolio. To cover electrification first, we have a very broad portfolio of products that we offer for the electrification of the vehicle. And starting with our distribution systems of our terminals and connectors and wires. And again, it's not just doing point to point connections on this, but it's understanding the power flow in an efficient manner in the vehicle and helping our customers architect that. We've taken some of that understanding of the power flow in the vehicle and actually reduced that to a lot of the products that we offer in electronics. A lot of what you think about for electrification is the traction inverter, which controls the motor, and the onboard charging system. We deliver leading edge onboard charging system based on what we've learned, especially from this power distribution system. A few years ago, a technology leading power density was one liter per kilowatt. We're actually delivering now less than 0.6 liters per kilowatt. And again, as Janine said, moving from the 3.3 kilowatt to the seven to the 11. The traction inverters for the motors, the same types of things. The latest traction inverters that we're doing as part of a belt integrated starter generator actually reaches 96% to 98% efficiency at points in the operating curve, again, among the industry leading. Both of those technologies are still growing as we change the technology of the semiconductors we use. Rather than what we would consider to be standard semiconductors, there's a lot of discussion in the market of moving to silicon carbide and eventually gallium nitride, both of which give you more efficiency in the system. We're currently working on silicon carbide and we actually have production deliveries of that in about eighteen months. Key to the electrification portfolio as Lear is not just things we do, but things we don't do. We do not deliver the batteries themselves nor the electric motors to our customers. Those are technologies that there's other people in the market that are very specialized in understanding those technologies. But what we do is we actually take our battery monitoring technology, combine it with the batteries that are out there, again, to deliver an efficient system in terms of charging profiles and discharging profiles to balance the power capability in the batteries and to make sure that they're operating at peak efficiency. Similarly, for the traction inverters and the electric motors, as I said, we don't deliver the electric motors, but we're actually working with customers now on mechanically integrating that traction inverter and the motor to deliver a lower cost overall system. Taking all of these pieces together, you can also combine for different levels of efficiency based on different requirements in the market. Some customers actually want to integrate things like DC to DC converters, which actually translate between the different voltages in the vehicle integrated with the onboard charger. Some want to keep them separate. We do different things for different customers. We have the building blocks, efficiently deliver a full system based on what the individual customer needs are. The result of this, as Janine said, we are already on 16 platforms for electrification, and we'll be launching 10 more in the next year. This is a slide that most people in the industry have seen of for the predictions of the level of electrification. I've been in this industry now for about twenty years and I feel like each year for the last fifteen years, people have said, in ten years, electrification will be a certain portion of the market. We're actually seeing that now with the growth and some of the things that have been going on, especially in Europe and some of the technologies introduced by companies in California. But if you look at the growth of the numbers of vehicles, equally important is the other curve I have up here, which is the growth of the total energy that the vehicle needs. So as you see the growth trends here in general and if you just look at some of the older designs, the Chevy Volt initially launched with, I think, a eight something like an 18 kilowatt hour battery. The new batteries are actually in the 75 to 100 kilowatt hours and that's driving technology on multiple fronts. It's driving the need to monitor and control those batteries, but it's also introducing the need for faster battery charging. And again, as Janine alluded to, we have production systems of three and seven kilowatt onboard chargers, but those higher battery capacities are driving the world and the industry to an 11 kilowatt system and to a 22 kilowatt. Additionally, you see a lot in the market now of fast charging. In order to really get customer acceptance of electric vehicles, the charging and the ease of charge and the speed at that charge happens is crucial. So the program that we just launched recently with Jaguar Land Rover not only has a seven kilowatt onboard charger from an AC to a DC, but it also incorporates 120 kilowatt DC to DC fast onboard charger. And we're currently working on a 200 kilowatt version of that. So again, all of these technologies are driving things to the next level. In the spirit of that adoption of the consumer to an electric vehicle, electric charging is actually one of the key aspects. And I wanted to leave you with a piece of technology that we're currently developing with our partners, Qualcomm. And this is the wireless charging system that Janine mentioned. So this removes the need to physically plug in your vehicle. There's actually a couple of systems like this that are being that are competing on the market. And you'll see some of the references to a circular or a DD technology. This is the DD technology. Qualcomm developed both internally and through some other developments this ability to transfer the power, the higher levels of power. BMW recently announced the production system of a 3.3 kilowatt onboard wireless charging system based on the circular. Again, this is the DD, but where this is better is it actually offers an increased height, up to 13 inches of height, especially for SUVs. And we've delivered 11 kilowatt systems on this and a total of about a total of six different OEMs that we've delivered this system to. But it's not just the power transfer. When you're dealing with this level of power, there's other things that you have to consider. That's safety and that's the vehicle basically the vehicle interaction. Where we've added our technology to the basic Qualcomm technology is adding that safety those safety factors in there where we look at foreign object detection. You can't leave a coin on the system. You can't have a living object, your neighbor's cat or something run across it. So you have to shut down in situations like that. Also, there's communication that happens between the charging station and the vehicle itself to know what the level of charge is and how the interaction with the vehicle is working. Those are the things that we've provided to this with this overall system. So again, a very important piece of technology, which we think will start at the high end, move towards the low and the mid or the mid and the low. But again, it will help accelerate the adoption of the electric vehicle technology. Connectivity. When people in the industry and general public talk about connectivity in the vehicle, what they normally think of is a cell phone connection to the vehicle or the insurance dongle that you put into your OBD port so that people can watch how you're driving. There's much more to it than that. In terms of the base technology, it's not just the cellular capability or the WiFi that you would think of. There's actually the dedicated short range communication, DSRC, vehicle to vehicle, vehicle to infrastructure, or potentially a cellular connectivity to the vehicle, a cellular vehicle to vehicle direct connection. Some of the companies in the West Coast are trying to break into the automotive market with that technology, but that's just the first step. The next step in this technology and the next step in actually making it work in a vehicle is actually integrating that into the vehicle, making all that information that you're transferring to and from the vehicle actually of use in the vehicle operations or updating the vehicle itself. The result of the work that we've done in these technologies is, as has been said a couple of times, is actually industry leading products both in terms of the communication module and the central gateway, this communication with the vehicle that I've spoken about. Starting with the communication module. This is launching now and it is the industry leading 4.5 gs system, which incorporates things like Ethernet and WiFi capability. On the other side of this, again, to integrate with the vehicle, we have what we call a central gateway, which actually takes that information from the cellular connection and provides functions like the over the air software updates that you've heard so much about. The data analytics, where you can analyze the data in the vehicle and either analyze it locally or ship raw data up to the cloud for a customer or an OEM to analyze. We provide this capability to our customers both in terms of the connectivity and the integration with the vehicle. But in this specific case of Audi and Porsche, they want to handle the cloud server side themselves. They want to control the over the air programming. They want to get their data and do analytics on it and basically control that portion. We do not want to compete with our customer in this range. But there are other customers that want us to have the ability to do that and we can supply and we do supply that capability. This design is by no means static because within two years, and we're working on it now, this 4.5 gs system will become a five gs system and also integrate the different levels of that vehicle to vehicle, vehicle to infrastructure capability that I talked about. The other piece on the connected gateway is the over the air reprogramming. That will be expanded to every physical piece in the vehicle. Every physical piece of electronics will be able to be updated. But also, not just updated, everything in the vehicle, you'll be able to capture data, analyze the data so that data analytics will actually increase dramatically in the next couple of years as this technology progresses. Now this ability to get the data in and out of the vehicle or move it in the vehicle is moot without the right architecture. And on this slide, I want to show you a little bit about how these and I said earlier, these domain controllers are changing. The fundamental vehicle architectures are changing. If you look right now, what you get are individual functions like a powertrain system, a safety system, an infotainment system. And the general architecture now is that our customers have added an infotainment system, which is where that cellular connection is. So if you want to get information to and from the vehicle, it's directly into that infotainment but it sort of takes a roundabout path to get to the rest of the vehicle. It's not the most efficient architecture. When it was introduced, it was innovative but now it needs to be upgraded. We're working with several customers, primarily Europeans but some in other regions as well, both here and in Asia, fundamentally change that architecture. What we're doing is introducing and expanding that central gateway to effectively be the master controller of the vehicle. Not only does it move data to and from the vehicle or within, but it actually does more coordinating between the systems. It acts as the connection point to the outside world for those basic cellular systems, but also those vehicle to vehicle communications and safety systems. And it acts as sort of the master to parse that information out to the rest of the vehicle. So it's a fundamental change to the architecture. It more looks like an advanced computer network now than it did a standard car with electronics ten years ago. And we're at the forefront of that working with our customers. Part technology of connectivity, and this is the last slide before I turn it over to Bill for the electrical architecture piece. One of the requirements we have now, and again, I left the electrification piece with a bit of new technology that we're working on. I'll repeat the same thing here. Fundamental to vehicle operation, both in terms of operation with each other and stand alone, right now, there's a need in the industry in GPS systems for lane level accurate measurement of a vehicle position. And as we get into autonomy, it becomes even more important that vehicles know absolutely where they are and relative to each other. One of the acquisitions that we have done in the last few years has been Exo Technologies. And they're a specialist in doing that vehicle positioning. There are several competing technologies on the market right now for this improved vehicle accuracy. The issue is most of them require extensive and expensive infrastructure, RTK, RTX type systems that are for a narrow focus, a narrow region, and they're expensive locally and they don't promulgulate globally. What this system does, and as David Kaziak alluded to, we don't just have engineers, we have scientists as part of the group. A couple of the people that we got with this technology actually worked on the GPS system, but it's not limited to GPS. It's GLONASS, it's, Beidou, it's Galileo. They actually do a better job and more frequent updates of predicting some of the errors and correcting for some of these errors in the system. For example, in a GPS system, you have the orbit error, which is only corrected fairly infrequently. We actually increase that update so we know where those satellites are. Also atmospheric disturbances act as a lens and actually skew and take the signal longer to reach your vehicle, which actually cause position errors. So we take the base technology that EXO has been working on, combine it with our software capability of over the air updates as those correction factors are done via the cloud and integrate that into the vehicle itself to give you a better position accuracy. We take it a step further and integrate with what we know in the vehicle itself of the vehicle speed, the position I'm sorry, the wheel angle, integrate that for dead reckoning to give you an overall system, which instead of being something like a 10 or a 15 meter inaccuracy in the measurement, down to an open sky requirement of 10 centimeters and an urban canyon environment of 50. So again, it's an example of how we've taken technology that we've either acquired, developed or partnered with, added our understanding of vehicle dynamics, vehicle integration and introduced the technology to customers. And with that, I'll turn it over to Bill Presley for Electrical Architecture. Good afternoon, ladies and gentlemen. Thank you for joining us. As Steve said, my name is Bill Presley, and I actually think electrical distribution systems are sexy. I'm going to talk to you a little bit today about electrical vehicle architecture and optimizing that architecture and the product portfolio that goes with it. And hopefully, when I'm done up here and we do our product tour, when you leave here, you'll look at your car and its electrical system in a completely different way. So that's really what I'm aiming for today. Okay? Before we get to that, I just want to give you a couple of fun facts about electrical distribution systems so that you understand the scale of what we're dealing with when we talk about electrical distribution systems. We have over 1,200 customer interfacing engineers working in 21 development centers around the world. Those engineers will manage 40,000 changes this year on two seventy seven programs globally while they launch 127 new products in 36 of our manufacturing facilities. So very complex, very dynamic, 40,000 changes. Those changes are largely driven by our customers reconfiguring systems and adding content and function during mid cycle actions or model year changes. So we have to remain very nimble and flexible as a manufacturer, but we have to stay disciplined in our engineering scope. We have to stay disciplined so that we're delivering robust product to the customer in the field. And we do engineer, ladies and gentlemen, 70% of the product we manufacture is engineered by Lear in house. That means we're providing logical and mechanical design services to the customer, and we're participating in the development of architectures that are a decade into the future. That ten years of vision puts us on the horizon. It gives us a firsthand seat of what the future holds and what technology and products are needed to fulfill those future needs. We are a full architecture solution provider. What that means is we have expertise in every one of the building blocks that are associated with the electrical vehicle and the distribution system. Some of them you're familiar with, like wire harnesses or the terminals and connectors. But what some people don't know is that our entire product portfolio is scalable all the way from the traditional 12 volt system up to the high voltage systems. Now that gives us a unique advantage. We're able to take a holistic view in the system and optimize that system to deliver dense functionality. As an example, you heard Steve Rober talk about the solid state junction box. What Lear did with that first to market innovation is we removed mechanical relays from the car and replaced them with solid state drivers. What that meant was that we could monitor and intelligently deliver the amount of current that was going to the system. So now we were able to downsize the wire because we didn't have to survive the mechanical fuse event because we knew exactly how much current would be there all the time. But when we downsized the wire, copper wasn't strong enough. So we had to come up with an innovation in conductors through alloys and claddings that maintain the strength but allow the conductor to work right in the system. Well, when that was done, don't you know the terminal didn't fit, so we had to reinvent something there. The point in me telling you that really long story is that an innovation in one building block of the architecture often drives or requires an innovation in another building block of the architecture. And if you don't have that in house expertise, you can't really drive that innovation. Janine said it earlier, right? And I'm going to say it again. We're one of one. Because we have expertise in every one of the core building blocks, we can make those trade offs and drive those innovations. If you don't have that in house expertise, you're participating in a part of the future of the vehicle architecture, but you're not driving the future of the vehicle architecture like Lear is doing today. So here's one of the questions I always get, and I know somebody's got it, is, but, Bill, isn't the future of electrical architectures going to eliminate wire harnesses? Aren't wire harnesses going to go away? So I'm going to hit that head on for you in a minute late in the presentation. We're going to talk about that. One of the demonstrations that you'll see in a product tour today is called the Lear Virtual Proving Grounds. The Lear Virtual Proving Grounds and the way it works is a trade secret. What it allows our engineers to do is simulate every electrical and mechanical aspect of the electrical distribution system prior to building a single part. Now why is that important? Well, there's two key reasons. One is time, one is complexity. Vehicle development cycles continue to rapidly shrink. Six, seven years ago, a development cycle was five years. Today, we're delivering vehicles new to market in less than thirty six months. And the second thing is complexity. Wire harnesses and electrical vehicle architectures are no longer batch built. They're tailor made. The customers are ordering only what they need in the vehicle architecture for the vehicle so that there's no giveaway or there's no penalty to the car for weight or space. So the key to optimization is to be able to rapidly and accurately simulate what impact your design decisions have on the vehicle. Our customers typically follow a build, test, rebuild, retest philosophy. What that means is they build a prototype, they physically test it, they see how it compares to the customer requirements, and then they modify it. Problem number one with that is time. A physical test failure can cost you three months in the development cycle. That means your customer is either going to the field with unvalidated product or it means you're asking them to delay the launch for three months, neither of which they really like. The second problem is the complexity I talked about. You can't possibly build every single variant on the car and test it. There's not enough time, and no customer in the world would accept that validation build. So the key to being able to that is what I said, is simulation. This technology could not be bought on the open market. We had to develop in house this technology, and it was another convergence between Seating and E Systems. We took finite element analysis expertise from seating. We built unique computational algorithms that were specific to electrical distribution systems. And then we built our own internal materials catalog to understand how the materials would behave in the car. And we wrapped all that up into the Lear Virtual Proving Grounds. And today, we have a state of the art defining tool set that allows our engineers to optimize every single aspect of the vehicle architecture. And it's not just our processes that are innovative. We're forward innovators. We're proactive innovators. We're constantly looking at the market to see what industry trends or what external trends are going to impact the vehicle. And we're turning those into megatrends that you've heard everybody talk about. But we're taking those megatrends and we're saying, what are the key functional characteristics that the future products of the world will have to have? As an example, everybody knows about shared mobility. Well, what that means is cars and trucks, they're going be on the road a lot longer. So you have to have product that can survive a much heavier duty cycle. Some of the things you'll see on the tour today are advanced technology that's available now. Things like adaptable power scaling, which utilize a feature based approach for power distribution. What that does is it reduces the size and the weight of the architecture, but it also makes the vehicle easier to assemble, so it gives our customers a better first time throughput. You'll also see our alternative conductor technology, which is enabled by our Leer scalable terminals and connectors. And you'll see that we've gone green. We're using natural fiber routing aids, biodegradable fillers, and we're recycling waste material. And we're using all of these things from and that's enabled through high speed data connection systems. The second thing that's happening is electrical centers, our electrical distribution is going from centralized to zoned. So they're taking those big fuse and relay centers everybody's used to seeing under the hood of your car or under the instrument panel, and they're distributing that throughout the car to the area or the zone that actually needs the power. They're doing this, both of these things, for one reason. We're trying to create more physical space in the vehicle itself. And the reason is, as electrification comes on board, it's going to add another layer of electrical content. As things like autonomy come on board, it's going to double the electrical content because you're going to see redundant systems throughout the vehicle to support, autonomous driving. So once you've laid out your architecture, it becomes a game of conductor selection because you're literally trying to wedge your conductors into the space that's left. Nobody says, I'm going to make this trim have a really weird shape so I can fit the wire. No, they tell the wire guy, get out of here, man. Right? The trim's got to look like this. So we're doing this trade off analysis all the time. So as an example, wire, been around for a really long time. It's pretty low cost. It's very reliable. You can change it very quick. It's very reconfigurable. We can rework wire harnesses to support our customers in the field, at dealerships, in their plants. But it doesn't package well. It is literally a round peg in a square hole. So in some instances, you're going to have to position yourself where real estate's at a premium. Flex circuits are a great answer to that. That's the one everybody's talking about today. Flex circuits are going to replace wire harnesses. Well, flex circuits, they package really well because they're nice and flat. You'll see some of them on our product over there when you do the tour today. But they're relatively expensive. And once they're in the car, they are very difficult to rework. They're very difficult to reconfigure. So if the customer has a problem, they've got a problem that they now have to come up with a new engineered solution in the field. We're looking at what we think the market penetration will be over the next ten years. The main point, the main takeaway is regardless of what that technology is, Lear has been enabling that technology for a long time. Flex Circuits, the one that's getting all the play now, the new one, we've been putting that in cars with our terminal and connector portfolio for terminal and twenty plus years. So it might be new to some, it's not new to us. And regardless of what the vehicle needs in the future, we're ready to deliver that. And that's important because every customer has a unique idea of how the vehicle architecture should be implemented. You can think of the vehicle as kind of a layered cake. There's going to be this 12 volt base system, but then on top of that, you're going to have layers. You might have a 48 volt mild hybrid. You might have a full electrical. You might have autonomous on top of that. The key to staying relevant is that your product needs to be scalable, meaning it has to be optimized for the usage to eliminate waste in the car, which usually takes the form of space or weight. And it has to be adaptable. You can't be a one trick pony. You have to be able to adapt to new terminals, to new architectures, to new technology. That's the key to staying relevant. And I got to tell you guys, as an electrical engineer by trade, I could not be more excited about being in the auto industry today because we are going to see a massive explosion of electrical content as human machine interfaces increase, as electrification increases, and as autonomy comes online. And I couldn't be more proud to be part of a company that has products and processes that are aligned to deliver the future today. So with that, ladies and gentlemen, thank you for your time. I appreciate it. All right, Bill. I think it's safe to say we all find electric distribution systems sexy now. We're we're gonna take a twenty minute break. Sorry about my voice. There's refreshments in the back, and then the restrooms are to your right, so through the craftsmanship center. It is about 02:00 now. So if everyone could be back in their seats by 02:20, we'd appreciate it. Thanks a lot. Ladies and gentlemen, our program will begin in five minutes. Ladies and gentlemen, please take your seats. Our program will continue. Ladies and gentlemen, please welcome Mandy Rice, Vice President, Advanced Sales and Product Technology. Good afternoon. I'm Mandy Rice, and I have responsibility for Advanced Sales and Product Technology for the Seating division. And I also have the exciting opportunity to lead our convergence team. Today, you learned about the strong performance and capabilities we have in seating and the tremendous opportunities that we have in E Systems. Both of these businesses clearly have bright futures on their own, but I'm here to explain why they are even better together. As industry changes and moves more toward greater electrification, connectivity and shared mobility, Lear's convergence perfectly positions us to deliver the most intelligent seat in the world. With our seating and e systems capabilities, Lear is transforming the seat into a smart device. And only Lear has the complete capabilities to make this a reality. And we know the market wants this because our OEM customers are already asking for it. Let me give you three quick examples. In a recent article, Nissan said that interiors are becoming increasingly important. They're looking to deliver beautifully crafted intelligent mobility, and Lear is making this happen. Audi is looking for different configurations for their interiors. Imagine if you could open an app on your phone and you could adjust the seating position to a work mode and ride back to the airport today with your colleagues. Lear can do that. BMW wants to create personal seating environments for their customers that are intuitive and connected with individual comfort preferences, and Lear has the solution. The Into Seat is a smart seating device that adapts to your personal preferences and connects you to the world. Here you see our suite of intelligent technologies, BioBridge, SoundZone, Dynamic Safety, Modular Heat and Cool, and Proactive Seating. Each one of these products will be sold as a modular system with technologies embedded within Lear's core capabilities. This product strategy allows us to commercialize these technologies independent of the seat supplier. Now let's talk more about each one in detail. As we move into the era of autonomous vehicles, safety continues to be of utmost importance. Our Lear connects with V2X communication technology helps vehicles sense impending collision, which activates the intelligent seat mechanisms to properly position the occupant in the vehicle and minimize injury. Other vehicle safety systems like airbags are reactive. MIRROR's dynamic safety is proactive, anticipating a safety event before it happens. This technology is particularly relevant as we start to think about how we will use vehicles differently in shared mobility applications. We won't always be sitting in standardized seating positions. We're has a dedicated team of safety and software engineers that are making our seats safer like no one else can do. One example of how seating and e systems are better together. BioBridge is Lear's smart biosensing technology. It uses Doppler and radio frequency sensing, which makes it non intrusive. You don't need to touch anything or wear anything, which makes the system extremely convenient. Think of it like a Fitbit in the seat, only better. It reads your heart and respiratory rates, and it also detects stress and drowsiness to help prevent driver distraction and promote safety. As our BioBridge technology advances, we will be able to transmit even more sophisticated medical data to your doctor if you wish using MIRRIS Connectus V2X communication technology through our secure network connection using MIRRIS cybersecurity expertise. MiR's proactive seating is our intelligent seat adjustment technology. It has preset modes like sport, comfort, wellness, and custom setting to adjust your individual needs. It also has intelligence and dynamically adjusts as you drive. So if you're driving your sports car around a sharp curve, there's proactive system will give you extra bolster support is to hold you in a seat. Or if you're taking a long road trip on the weekend in your SUV, proactive seating continually adjusts your lumbar to keep you comfortable throughout your drive. No more switches or fumbling around with the side of your seat. Mears Proactive Seating offers a simple, intuitive comfort solution to enhance your driving experience. As electric vehicles extend in range, the power demands in the vehicle must decrease. HVAC efficiency is becoming more and more important. Lear's modular heat and cool system is a personal climate environment that offers the perfect solution for HVAC optimization. There is no need to heat and cool the entire cabin when you can create a comfortable climate environment right within your seat. It is a beautifully crafted, self contained modular system that can be used on Lear seats or any seats in the industry as a perfect climate solution for electric vehicles. Lear's modular heat and cool system is an optimized, lightweight, power efficient system that adjusts temperature automatically using sensors and intelligence. Configure Plus is a state of the art rail system that is configurable and electrified. Lear acquired this technology through our Grupo Antolin seating acquisition and evolved it by adding electrified capability through convergence. This system allows for different vehicle configurations like a work mode, cargo mode, and a sleep mode. They're all right on target for shared mobility. Configured Plus has an untethered power system to add features like heat and cool and recline while still allowing you to rearrange the seats without having to connect or disconnect from the vehicle. Although Configurplus is ideal for the future of mobility, it is ready today. This product is already in production now and the electrified version will launch in 2020 with a major European OEM. SoundZone is a personal audio environment that provides each person in the vehicle with their own secluded connected space to either listen to music or watch a movie or take a personal phone call. You'll be able to experience Soundzone today on the product tour with Audi A6 with its noise canceling capabilities. Our seating and E Systems engineers work together to integrate the complex headrest system with the audio domain controller within the vehicle to create a seamless execution. No other automotive supplier has this type of in house expertise. Mirror Corporation is making this feat a smart device, and we're doing it now. Configure Plus is already in production with electric electrified version launching in 2020. Modular heat and cool solves a real industry issue with HVAC efficiency, and we're here has strong customer interest with seven advanced development projects underway. We have an advanced development contract with a major OEM for BioBridge who will be first to market, and we also have three additional OEMs who have in vehicle evaluation going on right now. All in all, Mir has over 20 advanced technology projects with 10 global OEMs, and this is something that only Mir can do. We know the industry is changing fast, but no other company has two powerhouse divisions like Seating and E Systems working better together today to make the intelligent states of tomorrow. Thank you. And now I'm pleased to introduce to you Jeff Van Ness, our Chief Financial Officer of Leer Corporation. Well, I hope you're feeling as good as we are about the possibilities within our Seating division, our E Systems division and even more importantly, the convergence of those two. As Mandy mentioned, my name is Jeff Vinesse, and I'm the CFO of Lear. Today's focus is primarily about showcasing our product and our technology and indicating how those products align with the various megatrends in the industry. What I'd like to do today is review our track record of superior performance, show how Lear has consistently outperformed our peer group, show you why we believe we are in the best competitive position in our history and then provide a longer term financial outlook for the business. This chart highlights our sales and earnings performance over the past five years. At a growth rate of 7%, our sales have grown 2x that of industry production. More importantly, earnings have grown much faster at an 18% annual rate, and margins have improved by over 300 basis points to 8.4%. Given our strong operating performance, our low leverage, our low effective tax rate and the benefits of our share repurchase program, our earnings per share have increased at a 25% annual rate. Lear has a strong history of converting earnings to cash. Over the last five years, we've converted 94% of our net income to cash. And since 2012, we've generated $4,300,000,000 in free cash flow. We've also deployed our capital in a balanced way. First, we've invested in the business. We've improved our footprint and product capabilities and further enhanced our product capabilities with seven strategic acquisitions. Finally, we've returned excess cash to shareholders through our share repurchase and dividend programs. Given this level of performance, we have consistently outperformed our peer group across every major financial metric. This chart compares our sales and earnings growth versus our peers since 2012. Over that time frame, our sales growth is 200 basis points higher than our peers. But more importantly, our growth in earnings and earnings per share is significantly better than our peer average. And across other metrics that drive shareholder value, our return on invested capital and free cash flow conversion have far outpaced our peer group. And over that same time frame, our shareholder friendly actions have returned more cash to shareholders as a percentage of our market cap. This level of performance simply does not happen. It's the result of investing in the business over the long haul, an unrelenting commitment to customer service and operational excellence, maintaining a constant focus on profitable growth and having the best team in the industry. Given our financial performance and track record of returning cash to shareholders, we have delivered superior shareholder returns. Over the last five years, our total shareholder returns are more than 2x better than S and P five hundred, our peer group, and better than most notable companies like Google and Apple. And that outperformance has continued through the first six months of twenty eighteen. However, despite that level of performance, Lear continues to trade at a discount to our peers. We believe that provides shareholders with a valuation opportunity as our revenue continues to grow, especially in E Systems, the company continues to perform, margins continue to expand and the company continues to generate significant amounts of free cash flow. As I said, we believe we are in the strongest competitive position in our one hundred year history and that the best days still lie ahead. This slide provides some perspective on where we were financially heading into the February and the significant improvements we've made over the last ten years. Over that ten year time horizon, sales have increased $4,500,000,000 annual operating earnings are over $1,000,000,000 higher, and we are now generating $1,200,000,000 in annual free cash flow. We've improved our geographic, vehicle segment and customer diversification. And now North America now accounts for less than 40% of our overall revenue. And in Asia, primarily China, accounts for nearly 20% of our annual revenue and 25% of revenue if you include nonconsolidated sales. And over this ten year time frame, our China sales have grown from $700,000,000 to over $4,000,000,000 As customer vehicle preferences have changed, Lear has benefited from the growth of CUVs and SUVs, which now account for about 45% of our overall sales. And now we're far less reliant on GM and Ford. Our top five customers now account for 60% of our sales versus 75% of our sales ten years ago. Our overall margin profile has improved three sixty basis points. Both our segments are operating at record levels. Margins have expanded in all regions, and our profitability is well balanced by region, by customer and by platform. Yet there are still opportunities for improvement in certain regions and product segments, such as our structures and mechanisms business and regionally in South America. Our current balance sheet is one of the strongest in the industry. At 500,000,000 our net debt is 25% of what it was in 02/2007. At 0.9x, our gross leverage ratio is less than one full turn of EBITDA. Our corporate credit ratings have improved significantly, and we are now investment grade with both S and P and Moody's. We have never been in a better financial position nor had more financial flexibility. In contrast, our number one seat competitor has leverage ratios that are actually worse than what Lear's was before the February. We see this as a competitive advantage as OEMs are increasingly looking at the strength of the balance sheet as part of the criteria for sourcing new programs. We do not believe a downturn is coming. Let me say that again. We do not believe a downturn is coming. However, what we wanted to do is provide a snapshot of the potential impact of a lower industry volume scenario. Here, we've modeled a 10% lower global volume scenario off our 2018 guidance. Under this scenario, our sales would be down $2,000,000,000 to approximately $20,000,000,000 which does not include the impact of about $1,000,000,000 of incremental backlog each year. After taking various mitigating actions, we would remain solidly profitable with overall margins in the mid-seven percent range. We would also continue to generate significant amounts of free cash flow. And given our current liquidity of more than 3,000,000,000 we will maintain our current dividend program and look to be opportunistic with respect to M and A and other potential opportunities. Now I'd like to review our financial outlook for 2018 and our targets for 2023. Although we do not provide quarterly guidance, I wanted to highlight some of the macroeconomic headwinds that we've seen thus far in the second quarter. A fire at a Tier one supplier, Meridian, shut down a number of OEM assembly plants for several days. In Brazil, there was a nationwide trucker strike. We've also seen lower pass car volumes, primarily with Ford and primarily with in China rather. Despite all that, we are very confident in our full year guidance, which remains unchanged from what we provided initially in the Deutsche Bank conference and then subsequently after our first year first quarter earnings call. At the bottom of this page, we've added a few additional items of guidance in red, other expense, equity earnings and noncontrolling interest, that we typically don't provide. It's intended to provide you with additional information to more fine tune your models. Ray has already previewed our 2023 sales projections in his presentation. Given an industry growth assumption of 2% and segment growth assumptions of 4% to 5% above industry in Seating and 6% to 8% above industry in E Systems, our 2023 sales are targeted to be over $30,000,000,000 which represents a seven percent annual growth rate. Operating earnings are targeted to grow at 8% annually, reaching approximately $2,600,000,000 in 2023. We will be able to grow the business while maintaining a margin profile of approximately 14% in E Systems and 8% in Seating. Company margins are targeted to expand to the mid-eight percent range, driven by E Systems growing faster than Seating and our HQ costs growing at a slower rate. We will continue to convert a high percentage of our earnings to cash. We expect free cash flow in the 2018 to 2023 time frame to be double of what it was in the 2012 to 2017 time frame. We're committed to maintaining an investment grade credit metrics and a balanced capital allocation, which includes continuing to invest in the business, investing in strategic M and A and returning excess cash to shareholders. Now I'd like to turn it back to Ray for some closing thoughts. It's the sun. Had to have a little Led Zeppelin, didn't we? Come on. A little cashmere. So you can tell we all got to select our own music to get the intro coming up the stage. But listen, great job, you guys. The team did an outstanding job. Thank you so much. And really, like I said, I appreciate you coming to our first ever Investor Day. And to really summarize, you got to see and have access to the incredible talent that's within Lear. And you'll see more talent on the tour within the product group. But you can see we're very well positioned from a team standpoint. We're going to remain very focused with what is at the culture of our company, our operational excellence. We're going to continue to stay focused on what we do best within the DNA of our company. We will not lose, and we're going to stay focused on our financial discipline, the metrics that drive this company to get the results that we've had over the last several years. And I think what you've seen today and what I get asked the question all the time, what is the biggest thing that I've seen as far as being the CEO of this company besides the great team is the incredible product, innovation and technology we have to offer. The best days that I have within this company are sitting in product and process reviews, and those are some of the most fun that we have is understanding what we have, the capabilities and where those opportunities are going to lead us. We have a tremendous amount of capabilities both on innovation and technology with these product groups that are aligned perfectly to these megatrends. So I hope you have an idea of the different products that we have. But with that, real quick before we get into Q and A, it's not just investment in the product and process. We're continuing to invest in this outstanding team. And I would like to bring John Asmeyer up to the stage and have him give you a little bit of insight about Lear Corporation and what you've seen so far. Come on up, John. Thanks, Ray. I had to play some better music. Sorry. Thanks a lot, Ray, and and thank you for this opportunity at Lear, which I believe is an opportunity of a lifetime for me. I'd like to briefly introduce myself and tell you a little bit about why I joined Lear. I'm a car guy that loves technology. And in the past twenty two years of my time in the automotive technology space, I've worked on all the coolest tech that's now finally becoming a reality, things like autonomous driving, connectivity, and electrification. I joined Lear from Samsung, where I led automotive strategy and innovation, which resulted in the acquisition of Harman as well as the launch of their Driveline autonomous vehicle platform. Previously, I spent nineteen years at Delphi. I established Delphi Labs at Silicon Valley and led their autonomous driving program, which demonstrated the world's first coast to coast road trip by an autonomous vehicle. So I'm passionate about technology and mobility. And I joined Lear because our industry is in a period of tremendous change, as you all know. And I believe Lear is well very well positioned as a Tier one player in all of its segments, and there's a lot of opportunity to do more. Firstly, Lear has the best leadership team that I've had the pleasure to work with, and I really truly believe that. But it also has outstanding financial performance, the ability to execute and excellent technical capabilities in all of the key megatrends affecting change in automotive. There's a lot of upside too. There's room for growth and there's opportunity to shape the future of mobility. And I'm excited about this opportunity because Lear has all the ingredients to invest, innovate, differentiate, grow and create value. Lear is a leader in seating, where more and more technology is being demanded by consumers, making it a key differentiator for the carmakers in today's market. And also in the future, as we see new car sharing, ride hailing and autonomous business models becoming mainstream, the value of technology and seating increases significantly. As you saw today, Lear is also a leader in electrification and connectivity, which will completely reshape transportation with safer, smarter and more efficient technologies. From Detroit to San Francisco, from Tel Aviv to Shanghai, we're witnessing a legendary 100 year old company transforming not only its future, but also the future of mobility. And I could not be more excited about the opportunities ahead. So I look forward to chatting with all of you today, and thank you very much. Thanks again, Ray. All right. If you guys give us a minute, we're going to set up some chairs, and then we're going to bring all the speakers back up for some Q and A. We'll do about thirty minutes on the Q and A. We're going to have two microphones floating around the room. So if you do have a question, just raise your hand, and someone will come to you with that. If you could, when you ask your question, please start with your name and your firm name for the benefit of the speakers. Okay. So let's just give them one more minute, and then we'll get started with the Q and A. JPMorgan. First question is if you could just talk a little bit more about vertical integration in Seating. So you've made some great acquisitions in recent years with Guilford Mills and Eagle, Ottawa. Are there any other interesting areas like seat heating and cooling or something else? And do you intend to continue to not want to get too deep into, say, structures, which is another obvious area? Let me answer the first part of that question, Ryan. Yes, I think the way we you can see the way we're looking at the seat system. And our focus has been on priceable features. We believe that the seat is going to become a smart device and we think there are some opportunities that will help accelerate those modules that we're looking at. There isn't a significant gap in what we have to offer. So the modules that we're developing for our customers today, and I think one thing to step back on the in two seating, we're really creating a space that doesn't exist today. And so some of the challenges we're developing these programs with our customers is really rewriting statements of requirements that are aligned with these modules. And we have the capabilities. So there isn't a significant gap in respect to something that we're looking for. I think in Seating, if there was a regional play, I mean, the acceleration, we see the opportunity in China. We feel that in respect to one of our competitors, there's an Achilles heel there having a good portion or 40% of that market or higher because we're seeing the domestic Chinese look at their share of wallet differently. They're becoming much more traditional in how they source. And so if we could accelerate that opportunity and accelerate that through manufacturing capabilities within China, that might be an area we'd be interested in. But there's nothing glaring that we need that can continue our growth strategy in Seating. In respect to taking on structures, we have what we believe is the capabilities within our own house of structures. I'm not going to go out and try to aggressively grow our structures business unless there's some negotiation that means a lot more. And what I mean by that is if we can pick up JIT business or significant other business, we might consider it. But and I hope we shared today with you, the opportunities in front of us are amazing. And I think if we just stay focused on what we can control as far as these growth engines, that's what we need to do. Getting distracted by someone else's problems is not where I want to take this company and the energy of this great team. Like for me, if I did the math right, it looks like maybe you're looking for about a $750,000,000 increase in operating earnings on about an $8,000,000,000 increase in revenue, which is something like a 9% incremental margin, which compared to in your 10% downside scenario slide looked like about an 18% decremental margin that was assumed there. So can you just talk about what is a normal course contribution margin at Leer? Does it look different from an incremental versus decremental perspective or from an electrical versus seating perspective, etcetera? Well, I think we'll see a margin profile as a whole, incremental margin of about 15 to 20%. There's some investment cost that goes along with having that significant amount of business coming on board, especially within our E Systems business. But we intend for the margin profile to stay in E Systems around that fourteen percent. Given the fact that there's more investment, it would require more return given the returns we need to support the cost of capital. And we continue to see our Seating margins longer term in that low 8% range. So we think we can continue to grow, as we've indicated, and still maintain a margin profile like that in each respective division. But in total, as we grow more in E Systems than we do in Seating and the HQ cost, if you will, grow at a much slower rate, our overall margin profile will increase. Hi, it's Richard Hilgert with Morningstar. Really great presentation. Thanks, everybody, A for putting that couple of questions for one for Frank and Janine. In respect to the growth that you see coming with revenues in each respective segment, what is the average dollar content of a complete seat today and a complete electronic system today versus because of the technology growth, the content growth, what it's going to be in 2023? And how much of that is part of the growth rates that we're seeing for each one of the segments? And then, Frank, you had mentioned about complete seat sourcing. And I'm wondering to what extent in both segments, not just seating, but how much is directed sourcing a part of that trend that you're seeing developing? And what happens with directed sourcing as time goes by? And then last question is for Jeff. You know, we're seeing so much of the technologies and software development and more technical engineers having come into the industry and somewhat of a shortage there. With your margin expansion that you're expecting, what are some of the offsets in some of the other margin areas of the business so that you can continue to spend in R and D to develop all of these technologies going forward? So I'll start with the seating questions then, and appreciate the question. From a content per vehicle standpoint, we've always said that the midpoint range right now is about $700 just over $700 We see that growing in the future to the mid 700 range. That's publicly what we've shared, and we still believe that that's still going to be the case. Now the thing I'll tell you is, as technology adoption comes on and some of the potential ranges that we showed with in two seating and things of that nature, where we range that from $2.50 to $7.50, we do believe there's further opportunity. A lot of this will come down to the technology adoption, how quickly it gets introduced to vehicles, how many seat systems in the vehicle will see the technology applied, and how many technologies per vehicle will obviously factor into all of that. But the CPV content for seating, we absolutely see growing to that mid-seven 100 range in that time frame. On the full service sourcing plans and the strategies there, that contract gives Lear Corporation the ability to source the components on the seat system. It absolutely factors into our strategy of vertical integration on very key components, where we want to control the system. On the structure side, we'll probably look at quoting some of that to see what the best opportunity is. As I mentioned, our strategy is around return on invested capital. And we want very solid returns in every aspect of the business. But it gives Lear the ability to control that sourcing. So what does that mean? That means that directed sourcing, we can shift that model more towards Lear components if that's what makes sense for us. Overall, directed sourcing is still a theme that's explored by many of our customers in all of our markets. But for the most part, full service contracts gives Lear Corporation the flexibility to decide where those components will reside. Okay. And then on the E Systems side, you know, there's a very broad range. So if you just think of, like, the base architecture, it can be anywhere from, let's say, 500 to 1,700. But then when you start to think about electrification, it can be as small as adding an incremental $50 or so for start stop, up to 300 on a mild hybrid, all the way up to $2,000, and there's incremental opportunity on top of that if you're adding on with a wireless charger for another 1,200, for instance. And just communicate now, some and a third layer on top of the Now you're adding the communications capability. Same thing. Lower end content could be around $65. It could go all the way up to $2.02 50 just for high end capability for over the air updates. And then, again, one day when we see, autonomy coming on, you could see this increasing even up to, let's say, $4.50 up on the super high end level of connectivity in both our communication modules and connected gateways alone. So a really broad range. An average probably doesn't do it justice, just to give one number. I think just to close on your third question with respect to how we're going to fund the additional investment. Lear historically runs very lean. That's kind of our DNA, and we'll continue to do that. That said, there is going to have to be some level of incremental investment to support the growth, especially in the technologies that we've highlighted today. That said, the amount of incremental investment will pale in comparison to the level of top line growth. So it will be incrementally more, but grow at a much slower rate than what our top line is. The other part of your question is with respect to where to find talented people, and I think you're right. It's getting harder and harder. And I know Ray has talked about this a number of times, kind of our approach towards that. Obviously, that's an issue. And that's not just a Lear Corporation issue, that's an industry issue. And when you talk about retaining and attracting talented software engineers, which is exactly what we're doing, bringing in specialized engineers. I mean, you look at the field of technical experts we have with some of these modulars that we're building and developing for our customers, electrification and connectivity, it takes a different way of looking at acquiring talent. And so we have cybersecurity office that we've opened in Ann Arbor. We have obviously our Southfield facility. We have Munich. We have Shanghai. Janine just announced a brand new facility that we're putting in Beijing. And so we're not looking at this thing Southfield centric. We have to look at this thing holistically. I mean, John, we're so excited about having John as part of this team. I think it shows our commitment to this innovation and technology. We've never had a Chief Technology Officer, and he just fits perfectly with this team. But John's in California. John's going to be in Israel. John's going to be in China. His team is going to be global in nature. And so we have this greater purpose in respect to we have core products that we're developing, but we also know that to retain and attract that type of talent, we're thinking dramatically different on how we do that. Now not being in a position where you're just trying to manage through difficult issues and you have these type of opportunities, the technology and innovation is a really attractive play for new employees coming to the company. I think John just elaborated a little bit because he sees what's going on and you say, that's a really good place to work and what they're doing as far as the product and where Lear is going to be five years from now. So we are looking at that and we're really flexible on how we look at bringing in talent into this company. Itay Michaeli over here from Citi. Maybe just start off with two financial questions. The first one, we think about the 30 basis points plus margin outlook through 2023. Maybe just talk a little bit about the cadence. Is that mostly pre-twenty twenty and post-twenty twenty? And then secondly, maybe if could just comment on the unconsolidated outlook through 2023 and then how might that affect the overall margins and profitability if you include that? Well, if you look at the cadence from it's pretty clear between 2017, including 2018 through 2020, it's really our backlog. And we do anticipate, as we have a history of is that third year backlog, by the time it comes into the first year, historically, at least over the past several years, has been double what we first announced. So we would anticipate that. So we would anticipate continuing to see a backlog of $1,000,000,000 to $1,000,000,000 a year fairly ratably over that time frame, maybe a little bit back or end loaded because of the timing of when some of these technologies are going to gain more penetration into the marketplace. And I think as we go through that, you'll see the margin profile continue to get higher as an overall company because the pace of E Systems growth is going to be greater than seating over that time horizon. And then just secondly, on the Smart Seat, can you talk a bit more about the content per vehicle opportunity in each of the five features? And then how much of this potential revenue is in 2023 versus maybe being beyond that? Frank, do you want to go ahead? Yes, sure. So we chose intentionally not to break down too much disclosure on that in light of the fact that this is public information from a pricing standpoint. What we've done is we've said that we believe that those five technologies can range between $250 and $750 per vehicle. And the way we looked at that was it really does depend on some of the the actual application of the technology. You know, some of it may see the driver's seat application. Some of it's in all four seats. If you stack the technologies and end up with BioBridge and the proactive seat system, now you're in the higher end of that range. But what we'd like for you to use for the modeling is somewhere between $2.50 and $7.50 for these technologies. Yeah. Let me elaborate a little bit on our strategy. We're probably conservative in how we look at the Smart C, but I'll ask you a question. What's great about this is not just our OEM customers, but we're all customers and we're in vehicles every single day. When you get into a vehicle and you can determine what body temperature you want, your personal body temperature, regardless if it's 80 degrees out or 20 degrees out, you can determine what you personally like as far as comfort as opposed to hitting 90 degrees or 80 degrees in the whole cabin and to to figure out if I'm at a comfort level. These are the and also the sound zone where you can actually get in and separate yourself into your own ability, connect it to your smart devices. These are features as customers and customers, I would think we all want. So to me, it's more of a me too approach that when we get these programs developed and we're conservative in how we look at it, our other customers are going have to really start pulling on that because you're going to have a vehicle that's in production that has that type of feature that I'm sure as customers, you say, why don't I just tell my seat what temperature I want my body? Why am I hitting buttons that have to go up and down? Or why can't I have the ability to connect to my smart device where I don't have to listen to a center stack and everyone has to listen to that phone call, I can take my own phone call. And the vehicle is right over there and I hope that you get in and understand what we're talking about because you can still communicate within the vehicle. So rideshare and all these type of technologies are going be perfect for the trends. And I think what's important too is we're building these in modules. And so it's a kind of a different approach from a business model standpoint, agnostic to JIT, meaning we can be flexible with these modules. So customers can ask for the intuitive seat holistically or they can pick different parts of the module that they prefer for their customers. So the range of CPV can change based on what customer preferences are. And so we're really excited about what's going on with those modular concepts. And it is becoming a pull from our customers, like I said, with, a number of these features that once they see it going in production and we announce a production award, it's that I need that too. Hi. This is Erminsus from Morgan Stanley. Janine, you mentioned that, you know, after the active Delphi spin, you're the only tier one player with complete electrical architecture capabilities. And the message here is you're better together, with electrical architecture and seating. But, I'm just trying to think through how core power electronics, for instance, is to the seating business. And on the flip side, the active Delphi spin perhaps puts pressure on other powertrain players to develop their own powertrain capabilities. So just curious how you're thinking about some of these capabilities within the business that may not necessarily be core to sort of the integrated product? I'll let Janine, your thoughts. Yes. Take a stab at that. And I think it's very important. I think, maybe for some reasons that aren't even as obvious, with these new technologies, it's not just about who has a product or says they have a capability. These customers are relying on partners that they can count on so that they're gonna deliver it and deliver technology through they understand how to work with them. They know how to get through their validation cycle. And what we've seen is where we've been asked a lot of times to work on these advanced products is because we have relationships on the other side of it. And as Bill talked about earlier today, putting it together in efficient package. You know, we've already talked about really huge CPV numbers. Right? So what what there's no doubt that the CPV is gonna increase, but they need to work with a partner who's gonna balance it along the way. And it you have to do it within the time window. And when you're negotiating with multiple different suppliers, you're only gonna be able to accomplish so much. So I there really is not only a performance advantage, a relationship and trust advantage, but there is an efficiency advantage where, of course, the content is going up, but you can still do it in the best way and the most efficient way. Let me add that comment, too. I think one thing that we've found, which has been shocking, is the amount of this unprecedented change in the opportunities. And I think if we were sitting here a year ago, we'd be telling you, wow, in the new technologies, we're quoting $400,000,000 and today, it's over $1,000,000,000 And one of our issues that we look at when we talk to the customers, we talk to the OEMs, they love our value proposition within E Systems. They actually value it. You have the mega tiers out there that, in some respects, are competing directly with our customers. And interested in how that is going to play out long term. Either somebody is going get commoditized or somebody is going lose. Where we have a value proposition is where our customers tell us over and over again is we love the space that you're in. And we've been rewarded with incredible growth. I remember when I was running E Systems, it was 1,600,000,000 in lost money and we're looking for direction. Now it's $5,500,000,000 and we have this incredible $2,500,000,000 of business we're quoting. And I just get reminded by our customers, and I'm thinking of just the comment on the non convergence of seating components, is that they love us in that space. And my concern is if even for a moment there was noise around us spinning off or getting rid of a particular component, that coating activity dries up. It dries up. And we've never seen this type of activity. And we have an incredible product lineup that's well positioned for that growth. And our customers are saying it's ours as far as making sure we're hitting numbers, we're competitive, we have the technology, we have the capabilities, we got to win it. But I'm concerned that all that would just lock up. We wouldn't have those opportunities. And one more, if I may. I talk to investors, one of the differences they bring up with you versus Aptiv, for instance, is the perception that Aptiv has a stronger connectors portfolio. So maybe you could sort of, help contrast and compare your portfolio versus some of your competitors just so we have an understanding of a better understanding of what you can do? Yes. They might have a more extensive portfolio just because their portfolio has been around longer, but we're investing significantly in developing new terminals and connectors, some of which you'll see on the tour today. And every one of the terminals and connectors that we're bringing to market are both adaptable and scalable, meaning they have unique selling points that's taking advantage of things like miniaturization and high durability because it keeps going back to what we're saying. With the constant increase in content, the old technology is old technology, and it's becoming obsolete very quick because it's becoming a real estate fight inside the car. So unless you're more compact, more efficient, and lighter, you're going to become obsolete relatively quickly. It's Joe Spak from RBC Capital Markets. I guess I first wanted to touch on structures in a slightly different way. You talked about your processes and your sort of commercial discipline. But what happens if an automaker now comes to you and says, in order to either win new business or even retain existing business you have, we're going need you to invest some capital to support the structures as well. I mean how do you view that analysis? Do you look at the program holistically? Are you willing to commit capital for the right programs? Yes. The customers have come to us and asked for help. And I think there's a lot in respect to structures that isn't just taking it at a particular price for return because structures are something that you really have to audit the manufacturing capabilities of that particular design. So again, like I said, we have a number of things that we're focused on that are creating greater value for our shareholders some type of build to print job in structures. So at this point, we've been reluctant to even engage in those type of discussions. Now with that said, I think that this issue is going to play itself out over the next second half of this year into next year. If you go back to Leer had some issues relative to some structures, we weren't immune to it. But our business was $1,400,000,000 and we had one plant. There's this $5,000,000,000 if that number is right, 5,000,000,000 consolidated and non consolidated structures business. That's a big issue. And so we're reluctant to take that on. Now new programs, what we're seeing is in the quoting queue of where those opportunities are presenting is the new program. No one wants to move a structures business mid model year. It's a lot of risk. Allocation wise and all Yes, totally. But the new programs that they're quoting, our customers are quoting is where we're seeing where we're going to take advantage of it. Jeff, just one for you. You put up the nice chart, pie chart that had how you spent the cash you generated, I think, from 2011 to 2017. 40% was returned via buyback, another maybe 20% or so to M and A. If we think about the cash you sort of laid out over the next time frame, 'eighteen to 'twenty three, would we should we expect that pie chart to look pretty similar? I think that if we had our choice, there'd be skewed in the other direction, more towards M and A. I think we'd be better served to provide value through investing in M and A versus shares. We're always out there looking for M and A. But if we had our choice, we would skew that probably complete opposite of one another. If we looked at them together, is that the amount of cash we should expect you to spend between the two? And you have a preference for M and A over buying back shares? We would have I would have a preference. I think we would have a preference towards M and A. Yes. If we were to prioritize this, obviously, invest back in the business and then some type of acquisition. Over here. David Leiker, Baird. You have a great message. Thanks so much for sharing it. Just a follow-up on that last question, Jeff, on the M and A side. Where would it focus? I know you don't want to get into details about it, but I mean there are some adjacent areas of signal processing. There's autonomous driving sensor portfolios and integrations there. There's more on the electrification. How would you characterize that? And what kind of scale do you think something Do want me to get that one? Mean I'll tell you what. I mean if we're to prioritize it, E Systems is our priority. I mean, like I said, we have a solid seat business right now. There might be some regional things that we may want to look at from an acquisition standpoint. But with E Systems, you you look at the market and the market size that we're going after, inductive charging, we believe that that's a great opportunity for us. Anything that would excel inductive charging, we believe in. The connectivity, the electrification. And even with these systems, look regionally, too. How do we accelerate our manufacturing footprint in China would be a priority for us. And so those are the type of acquisitions that we're going after because we are building incredible relationships with the domestics in China in respect to electrification, how can we accelerate that type of growth with those domestics. And so that is our priority as a company when it comes to acquisitions. Are there any products or technologies within E Systems that you feel you're a little bit behind on that that you would focus on more for acquisitions? As far as quoting business, no. I mean, there there's like I said, it's it's accelerating our our yes. We'd love to accelerate inductive charging. I think we'd love to accelerate our capabilities within wireless at a faster pace. But we have those capabilities today. So there's nothing that we're really missing. It's more of how do we accelerate it quicker to get at this growth. Thank you. To that end, Ray mentioned the most exciting time of his day is when we look at the products. It's always the question that gets asked, which is, okay, who do we need, what do we need, where do we need it to make sure that we can take that technology and put it in a vehicle? Colin Langan, UBS. You mentioned in your presentation that you're on 16 electrified platforms, 10 more are adding launching next year. Any color on how many are pure EVs and that you're supplying, the inverter, converter, the major dollar components? And also on the ones that are 48 volt, can you remind us what are the big dollar? I think you said it's about $300 of opportunity. What are the actual products that drive that dollar? Sure. So today, we are we didn't necessarily break it down by the type of technology that we have today. We do have a big presence in the charging systems, and we have leading efficiency in in that area as well. We do offer the DC DC converters and the inverter technology. Sometimes the converters are offered separately. Sometimes they're packaged within the converter or the inverter as well. When we talk about the 48 volt, similarly, in addition to the converter system that you talked about, there is an incremental content that's with the 48 volt system itself and the connector systems. So, you know, those are the primary components for that. When you're talking about the the different platforms, these aren't just wiring being added to the platform. These are actual other sub products, or is this included you're doing the high voltage cable as part of a contract? So when we're looking at electrification, it's the whole range of it. It's it's we have battery management electronics that we have on it as well as the cables, welded connectors, well as the power electronics. So when we talk about our numbers as well as the number of platforms, it's any or all of those products that are on the platforms. Got it. And can you talk on E Systems wiring overall? I've heard some pushback from your competitors that there's differences between build to print and systems that you're doing engineering. Do you think you do a lot more build to print than your peers? Do you think it's No, 90% of our programs are we engineer. So I've heard that too. That's wrong. Flat out wrong. We engineer our own programs. Think Bill can hit on this. I mean, I hit on that some right. 70% of what we're manufacturing, we've engineered in house. But we're also the engineering source on architectures, like I said, that are ten years in advance. So we're actually sitting with the customer inside their facilities, putting together logical solutions on the system side and then turning that into an actual physical manifestation. And what they like about us and why they come to us is things like the Lear Virtual Proving Grounds where we can demonstrate this is what the system impact will be to the total vehicle. So that's becoming something we're known for in the industry, and it's opening up customer bases to us that we haven't been a part of before just because of that capability. And just if I could squeeze one more in. Actually, you talked about in your part your presentation the risk of going to domain controllers and cutting out wiring. I just want to make sure I understood the takeaway there is that we're going to see less traditional wiring, but we'll make it up in dollar content on other components being added? Did I misunderstand that? No, I don't think you'll see less traditional wiring. If you go back to the chart we showed, there was kind of a percentage of penetration we see by circuit type. So as an example, we talked about flexible printed circuits being 1% of the market. We don't mean 1% of the cars in the market will have flexible printed circuits. We mean there are layers in the architecture. You'll have traditional wire and, say, flexible printed circuits that will exist simultaneously in a vehicle. But on a car that might have 3,000 circuits, 30 of those might be this flexible printed circuit, and you'll see them in areas like headliners or seats or A pillars where real estate is at a premium and that round bundle doesn't want to butt up against the flat surface to make the transition. Does that make sense? So the dollar content opportunity is not shrinking because of these higher dollar components. Is that not right? The dollar content of the electrical distribution system is going to continue to rise just because feature content is being added to the car. The trade off that you see in the circuit penetration that we talked about is going to be a result of physical space that's left in the car to actually package the electrical system. Great. It's Dave Tambrino from Goldman Sachs. I've a couple of questions. First, as we circle back to the margin expansion portion here. I think if I understood the presentations correctly, you should have a continued mix or increasing mix of software with the incremental hardware that you're putting in for all the features. And then in one of the responses earlier, you also said that revenue growth should outpace what that incremental spend growth is. So I'm just trying to understand how much conservatism or Leer conservatism is being baked into that 8.5% plus margin when you should have a higher mix of software content and less percentage of revenue spent on R and D? Yes. I think if you look at the 8.5% plus, it really is towards the low end of that 30 plus. It's So kind of like the right around 30. So to the extent it's above 30, we could potentially see both the margin expand and, pure dollars expand. So that's where the 8.5% comes from. It's basically winning at 14% in E Systems, let's say, going from five plus to eight plus and then Seating going from 16 plus to 22 plus with an 8% margin profile and HQ costs growing at in ZIP code of, let's say, 3%. So you throw all that math into it, and that's kind of where that 8.5 plus margin profile gets you to. Okay. So the underlying is there's upside there, just history of conservatism with your guidance? And it's five years from now. Understood. So then the second part of it, you showed your calculated ROIC for the overall business. Another one of your competitors on the Seating side showed they had about a 70% ROIC that's going down to 50% from some of the growth. Is it that drastic of a difference between the Seating business versus your E Systems business for what your return on invested capital is? E Systems, both are returning well in excess of our cost of capital. But if you look at the comparison of the two segments, E Systems is earning more in excess of our cost of capital than Seating is. Okay. And then just lastly, if I think about moving towards 2023 in your E Systems business, you talk about the over to air update capability, the VDAX deployments that you should be having. How much recurring revenue stream could you have as a percentage of that $30,000,000,000 target out in 2023? I'm sorry. I did you get the question? From a I don't think Dave, I don't think we understood the question. What trying to ask you is if you were, you know, giving OEM cost OEMs the ability for over the year updates and you're servicing them, you should be able to generate revenue that's occurring on an installed base of vehicle from that. And if you have significant amount of V2X deployments, particularly in China, they're looking to build that out, there should be recurring revenue associated with that. I'm trying to understand how much of your business in 2023 as a percentage of $30,000,000,000 could be a recurring installed base versus tied to production of vehicles. Right? Yes. It's a good question. And right now, our revenue forecast don't include that revenue stream. Right. Right now, we're talking just about the products that we offer. There's a potential for us to expand. I know with John, even in the first couple of weeks been here, we've already been talking about pairing our capabilities with other opportunities, but that's not That's not in our So probably more on the conservative side there in respect to what those revenues could generate. Thank you. Joe, think that's time. So we're going to do if I could, real quick, I think this is the last time we'll be up on stage that we're going to do the product tours, which we're really excited about. Again, I'd like to thank those that came here today in person. I'd like to thank the Lear team. I mean you guys did an outstanding job. Terry Tanuj, thank you for everything. RJ for setting up the facility. Really appreciate it. Again, I think we're going to close out the call with the web call right now. But again, I just want to remind you, like I said, we have an incredible team, very talented team. We're going keep adding to that incredible talented team in the areas that we focus on, which is innovation and technology. We're going stay diligent on our culture of operational excellence, and we're going to stay committed to our financial disciplines. What got us here as far as return on invested capital, it's the same business we're quoting under those same metrics, and we're growing that business. And we're going to continue to invest in our product and our innovation and technology and our talent. So thank you for your time. We really appreciate you joining us here today for our first Investor Day. So Joel, you're up.

• Slides