Lear (LEA) Q3 2026 Earnings Call Transcript

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DATE

Friday, Oct. 30, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Raymond E. Scott Jr.
• Senior Vice President and Chief Financial Officer - Jason Cardew
• Vice President of Finance for Seating and E Systems - James Fidale
• Vice President, Investor Relations - Timothy Brumbaugh

TAKEAWAYS

• Revenue -- $5.8 billion, representing 2% growth year over year despite a global industry production decline of 2% on a Lear weighted basis.
• Core Operating Earnings -- $256 million, a 6% increase from the prior year and the fourth consecutive quarter of year-over-year improvement.
• Adjusted EPS -- $3.71, growing 33% year over year driven by higher earnings and the impact of the share repurchase program.
• Seating Segment Revenue -- $4.3 billion, reflecting 2% organic growth supported by new business on platforms for BMW, Mercedes, and Audi.
• E-Systems Segment Revenue -- $1.4 billion, an increase of 1% from the previous year primarily due to higher volumes on Jaguar Land Rover programs.
• Net Business Awards -- $3.9 billion year to date, consisting of $3.1 billion in the Seating segment and $800 million in E-Systems.
• Growth Over Market -- 4 percentage points, with the Seating segment outperforming by 4 percentage points and E-Systems by 2 percentage points.
• Operating Cash Flow -- $329 million, down from $444 million in the third quarter of 2025 due to higher tooling investments and working capital timing.
• Free Cash Flow -- $158 million, compared to $307 million in the same quarter last year, reflecting increased capital expenditures.
• Share Repurchases -- $175 million, bringing the year-to-date total to $350 million and completing the full-year target ahead of schedule.
• Repurchase Authorization -- $1.5 billion, representing a new authorization extended through Dec. 31, 2029.
• Adjusted Operating Margins -- 4.4%, a 20 basis point expansion year over year driven by strong operational execution and net performance.
• Restructuring Savings -- $95 million, increased from the previous $80 million target to reflect additional optimization actions taken to offset volume declines.
• Three-Year Core Backlog -- $2.25 billion, with more than 70% of the value derived from new or conquest programs.
• Capital Spending Guidance -- $660 million for the full year, focused on automation and the digital build-out of the Orion, Michigan, facility.
• Full-Year Revenue Guidance -- $23,350 million to $23,750 million, narrowed from previous estimates to reflect lower production schedules in China.
• Full-Year Core Operating Earnings Guidance -- $1,080 million to $1,200 million, maintained as management expects restructuring savings to offset revenue headwinds.
• Chinese OEM Revenue Mix -- 44% of regional revenue currently, with a strategic goal to reach 55% or higher within the next three years.
• Idea by Lear Savings -- $55 million achieved through the first three quarters, on track to meet the full-year target of $75 million.
• Total Liquidity -- $2.9 billion, including $889.4 million in cash and cash equivalents as of the end of the quarter.
• Automation Cost Reduction -- 10% to 15% in conversion cost requirements at the new Orion facility, serving as a blueprint for global seating operations.
• Cost of Debt -- 4% on average, with a weighted average maturity of approximately 11 years.

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RISKS

• Fidale warned that "consumer demand and production schedules continue to deteriorate" in the China domestic market, which led to a reduction in the full-year revenue outlook.
• Cardew noted that "copper has run up continuously throughout the year" and is expected to be a headwind for the company in 2027.
• Management noted that global production was down 2% on a Lear weighted basis, with North America declining 5% and China declining 7% during the quarter.

SUMMARY

Lear Corporation (NYSE:LEA) reported year-over-year growth in revenue and core operating earnings for the fourth consecutive quarter despite a contraction in global automotive production. Management reported that the company achieved a total growth over market of 4 percentage points, led by new program launches and conquest awards in both Seating and E-Systems segments. The company stated it is on track to deliver its full-year earnings guidance through operational execution and restructuring savings, even as it lowered revenue expectations due to weakening demand in China. Management also highlighted the upcoming launch of the Orion, Michigan, seating facility, which integrates proprietary automation and digital logistics to reduce conversion costs.

• Strategic facility blueprint: Scott stated, "What we have built at Orion will become the blueprint for scaling productivity, across our complete seating footprint."
• Growth with Chinese automakers: Management reported that year-to-date awards with Chinese automakers reached $600 million in average annual revenue, a 90% increase since the end of the second quarter.
• Electronics conquest awards: The company won a power distribution box award for commercial and passenger vans in Europe with a North American automaker.
• Leadership transition: Jason Cardew will retire as Chief Financial Officer, with James Fidale set to succeed him on March 1.
• Japanese customer momentum: Management noted new wire conquest awards with Honda in China and Thailand, expanding the company's footprint with Japanese manufacturers.
• Modular seating expansion: The company has secured 47 programs for its modular seating solutions, including recent ComfortFlex awards with Mercedes.
• Restructuring focus: The company increased its restructuring cost outlook by $25 million to further optimize its cost structure and position the business for long-term profitability.

INDUSTRY GLOSSARY

• ASRS (Automated Storage and Retrieval Systems): High-density computer-controlled systems for automatically placing and retrieving loads from specific storage locations.
• Conquest Award: A contract win where a supplier replaces a competitor on an existing or future vehicle program.
• GOM (Growth Over Market): A metric measuring the company's revenue growth relative to the change in vehicle production in the markets it serves.
• IDEA by Lear: An internal framework focusing on Innovation, Digital tools, Engineering, and Automation to improve manufacturing productivity.
• JIT (Just-In-Time): A manufacturing system where parts are delivered exactly when they are needed in the assembly process to minimize inventory.
• Net Performance: The net financial impact of operational improvements and manufacturing efficiencies minus cost increases from labor, utilities, and other inputs.
• Xevo Market: An in-vehicle commerce and service platform providing connected services for cloud and mobile applications.

Full Conference Call Transcript

Operator: Good morning, and welcome to the Lear Corporation Third Quarter 26 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. This time, I would like to turn the floor over to Timothy Brumbaugh, Vice President, Investor Relations. Please go ahead.

Timothy Brumbaugh: Thanks, James. Good morning, everyone, and thank you for joining us for Lear's third quarter 26 earnings call. Presenting today are Raymond Scott, Lear President and CEO Jason Cardew, Senior Vice President and CFO and James Fidale, Vice President of Finance for Seating and E Systems, who will succeed Jason as CFO starting in Mark. Other members of Lear's senior management team have also joined us on the call. Following the prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.leer.com.

Before Ray begins, I would like to take this opportunity to remind you that as we conduct this call, we will be making forward looking statements to assist you in understanding Lear's expectations for the future. As detailed in our Safe Harbor statement on Slide 2, our actual results could differ materially from these forward looking statements due to many factors discussed in our latest 10-K and other periodic reports. I also want to remind you that during today's presentation, we will refer to non GAAP financial metrics. You are directed to the slides in the appendix of our presentation the reconciliation of non GAAP items to the most directly comparable GAAP measures.

The agenda for today's call is on Slide 3. First, Raymond will review highlights from the quarter and provide a business update. Jason will then review our third quarter results and James will provide an update on our full year guidance. Finally, we will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I would like to invite Raymond to begin.

Raymond E. Scott Jr.: Thanks, Timothy. Before I begin, I want to touch on the upcoming important change to leadership of our finance organization. After more than 34 years of dedicated service to Lear Jason Cardew has elected to retire. I want to thank Jason for his leadership, his commitment, his many contributions to Lear. Jason and I have worked closely together for many years. And not only has he been a trusted partner, but he is also a dear friend. Jason, your next chapter is incredibly well deserved, and I wish you and your family all the best. James Fidale will succeed Jason as the CFO effective March 1.

James has been with Lear for 23 years and has a broad global financial and operational experience. He has been working closely with Jason and me for many years. And is more than ready to assume the role. James, congratulations. I look forward to continuing to work closely with you and I know you will continue to execute our strategy to deliver improved financial performance and value for our shareholders.

Operator: Okay.

Raymond E. Scott Jr.: With that, please turn to Slide 5. which highlights our key financial metrics for the third quarter. Lear continued delivering meaningful year-over-year improvements across all metrics in the third quarter. James increased 2% to $5.8 billion despite global industry production declining by 2% on a Leer weighted basis. Core operating earnings were $256 million, a 6% increase. In the fourth straight quarter of year-over-year improvement. Adjusted earnings per share reached $3.71, a 33% increase from the third quarter of 2025, accelerated by our robust share repurchases this quarter. We generated operating cash flow of $329 million and free cash flow of $158 million in the quarter. Slide 6 summarizes our key business and financial highlights for the quarter.

Our 4 strategic priorities continue to drive our focused execution extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage operational excellence through Idea by Lear, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both segments. Generating approximately $3.9 billion of net business awards year-to-date. With approximately $3.1 billion in seating approximately $800 million in E Systems. This represents an increase of $1 billion during the quarter. With these systems on track for another year, of over $1 billion of business awards. The Seating wins in the quarter include the complete seat foam, and heat for 2 programs with a North American automaker.

1 award is the replacement of a program we currently supply and the second is a new award for a future program to support this customer's expansion of their product portfolio for the North American market. Our Idea by Lear capabilities were instrumental in winning these awards. Lear is the number 1 seat supplier in India, During the quarter, we were awarded the largest complete seat program in our long history with Mahindra. The award includes both replacement and incremental new business. Our new awards for Comfort Flex ComfortMax, and FlexAir applications this quarter bring our modular and innovative seat product total to 47. Program with Mercedes is a conquest award.

Replacing current lumbar and massage components with a ComfortFlex modular solution. Awards with Jaguar Land Rover include a FlexAir application as well as a ComfortMax solution integrating heat into the trim cover. 5 modular projects launched during the third quarter and 7 additional programs will be launching during the fourth quarter. Accelerating the adoption of our modular solutions in the marketplace. Our momentum with the Chinese automakers continued in both segments. In Seating, we were awarded an upcoming program with a Chinese luxury EV automaker projected to launch in 2028. This program is currently projected to be sold in China and exported to other markets.

BYD also awarded us 2 key programs as they expand their production in Thailand and Indonesia. We currently supply those programs in China. In E Systems, we won a conquest award with JMC Ford joint venture, new wiring business with FAW, EW, and 2 nonconsolidated wire awards with BAIC all in China. We continue to drive growth in our core E Systems products by securing electronics and wire conquest awards. The electronics award is for a power distribution box, on a commercial and passenger van in Europe with a North American automaker. An additional conquest wire award is with Honda in China.

As we continue to grow with Japanese customers, we also retained an important wire program with Jaguar Land Rover in Europe. During the quarter, we released our annual sustainability report. Providing an update on our Idea by Lear initiatives as well as progress towards achieving our environmental stewardship social responsibility, and governance goals. Our strategic focus continues to drive improved financial performance despite challenging industry conditions. Total company revenue increased 2% compared to the third quarter of 2025. Reflecting growth over market of approximately 4 percentage points. Both segments outperformed the market despite headwinds from the roll off of programs such as the Escape and the wind down of our non core E Systems products.

With Seating growing approximately 4 percentage points above market and E-Systems approximately 2 percentage points above market, Excluding the impact of the wind down business, E-Systems growth over market was 5 percentage points. Operating margins expanded 20 basis points year-over-year for the total company. With E-Systems margins expanding 60 basis points. Driven by another strong quarter of 120 basis points of net performance, Seating margins grew 20 basis points driven by 40 basis points of net performance, Keeping us on track to deliver our full year target. Our strong free cash flow generation allowed us to further accelerate our share repurchase repurchased $175 million of shares in the third quarter.

Completing our full year repurchase target of $350 million As a result of our strong earnings growth and accelerated share repurchase our third quarter EPS increased 33% year over year. With our current authorization set to expire in 3 months, we increased our share repurchase authorization to $1.5 billion and extended it through 2029. Reinforcing our commitment to returning capital to shareholders. Slide 7 provides a further breakdown of our progress on delivering long term revenue growth and margin expansion providing confidence we will achieve our full year targets. Over half of our year-to-date Seating awards have been for new or conquest programs providing a strong foundation of future growth.

In the quarter, we were awarded conquest programs with Stellantis in Europe and with Honda in Thailand. As we continue to build our relationships with Japanese customers. In E-Systems, approximately 70% of our year-to-date business awards have been for new or conquest programs. Continuing the trend from the first half of the year. During the quarter, wire conquest awards included programs in China, with JMC, Ford and Honda. The rollout of our thermal comfort modular solutions continues to gain momentum with the modularity and FlexAir wins in the quarter. The pace of business awards with Chinese automakers continues to accelerate. In Seating, our year-to-date awards are estimated to generate over $600 million of average annual revenue.

Up almost 90% from where we were tracking at the end of the second quarter. This reflects the growing momentum of our global wins with Chinese automakers. Including BYD in Thailand and Indonesia, following our second quarter award with LEAP Motor in South America. In E-Systems, approximately 25% of our year-to-date awards are with Chinese domestic automakers. Up significantly from 2025. We remain on track to deliver $75 million of ideal savings this year. With approximately $55 million achieved year-to-date, accelerating through the end of the year and are on track to significantly exceed our targeted restructuring savings. Our net performance continues to drive increased adjusted operating margins in both segments.

Despite rising commodity and other input costs, Seating has generated 30 basis points of net performance through the first 3 quarters. and we expect a step-up in the fourth quarter to deliver our full year target of 40 basis points. In E-Systems, we delivered a very strong 105 basis points of net performance through the first 3 quarters. and we expect E-Systems to deliver positive net performance in the fourth quarter despite increasing copper and launch costs. A testament to our team's ability to execute. I wanna spend a moment on Slide 8. Which provides an overview of our Orion, Michigan facility that will support 3 of GM's most important nameplates. The Cadillac Escalade, Chevrolet Silverado, and the GMC Sierra.

The Orion facility, which represents a critical milestone in the execution of Idea by Lear technology roadmap. it is the most tangible demonstration of how our strategy is redefining JIT seat assembly. Reinforcing Lear's position as the clear leader in seating and creating a path to future market share gains and sustainable profitable growth. Idea by Lear is our framework for reimagining how we operate. Embedding innovation digital tools, engineering, and automation. Into every layer of the processes. We have been building towards this facility which integrates the technology and talent we have compiled through our targeted acquisitions and significant internal development to deliver something that, quite frankly, does not exist in the seating world outside of Lear.

Production in the state of the art just in time seating facility begins next year. This facility is designed from the ground up. With the. with a digital foundation and automation embedded throughout. From day 1. Not retrofitted. The financial impact is meaningful and immediate. We expect automation to reduce the conversion cost requirements by 10% to 15% The more important story is what this represents strategically. Orion is the blueprint we intend to scale across our global seating footprint to support our future key programs such as the Ford Super Duty.

Each of the key technologies we are developing reflects a deliberate capability we have built or acquired, and together, they tell the story of what Idea by Lear looks like in practice. The first is what we call integrated our logistics. I wanna be precise about the term because it goes well beyond traditional automated warehousing. Intelligent interlogistics is the connected intelligence layer of the entire factory. It ties together inventory, material management, storage and real time decision making. From the moment a component arrives at our dock to the moment a finished seat leaves our facility. We really think about it across 3 dimensions. The first 1 is connected. This is about end to end visibility and control.

Nothing moves with without us knowing about it. At Orion, that means our overheads suspended material storage and delivery system is fully integrated into the production floor to track parts in real time. Our automated guided vehicles or AGVs keep the lines continuously fed with complete traceability. Our automated trailer loading sequencing closes the loop. Connecting finished goods all the way through to the customer's shipment with precision. And without manual intervention. From inbound components to outbound delivery, we see everything. The second dimension is intelligent. Visibility alone is not enough. The system has to think and react. Advanced analytics are continuously driving decisions around inventory positioning, replenishment and flow.

Our 4D 4-directional storage system utilizes autonomous mobile robots or AMRs that navigate dynamically within the racking structures itself to optimize in real time based on production demand. Our raw component automated storage and retrieval systems, ASRS, manage foam and trim storage. While our finished goods ASRS are both continuously informed by analytics and anticipating needs before they become disruptions. Both of these ASRS systems were developed internally by our ASRS team, which is the company we acquired. We own the IP, we control the roadmap, and we can scale it across our global footprint. That is a genuine competitive advantage that cannot be easily replicated.

Not only is our material handling intelligent, but so is our balancing of human capital. We are utilizing proprietary tools like cycle time deviation and dynamic line scheduling to make real time adjustments to optimize the efficiency of our employees. The last 1 is autonomous. This is where the financial impact becomes most tangible. We are moving towards automated execution, meaning our people are focused on solving problems, not performing routine tasks. Robotic part loading is actively in production today. feeding our lines and installing components with a level of consistency and repeatability that manual processes simply cannot match. Our AGV network operates without human direction. Our ASRS systems retrieve and position material without manual intervention.

The factory increasingly runs itself allowing our teams to focus on more value added adjustments. Our automated smart ovens robotic finesse and end of line testing improve our process consistency, cycle time and quality. Also improve the job satisfaction of our team. Interconnectedness is what is new at Orient. We have been adding independent systems in our existing location. But the interconnectedness across multiple processes driven off demand will improve efficiency and inventory management due to real time monitoring analysis and adjustments. Built by Lear's team and leveraging historical knowledge, our systems do not just reduce costs, they create a factory that sees everything decides intelligently, and executes autonomously.

What we have built at Orion will become the blueprint for scaling productivity, across our complete seating footprint. And with that, I am going to turn the call over to Jason and James for the financial review.

Jason Cardew: Thanks, Raymond. Slide 10 shows vehicle production and key exchange rates for the third quarter. Global production was down 2% compared to the same period last year. Production volumes declined by 5% in North America, and 7% in China, while volumes in Europe were up 1%. US dollar strengthened against the euro, but weakened against the RMB. Turning to Slide 11, I will highlight our financial results for the third quarter of 2026. Our sales increased 2% year over year to $5.8 billion Organic sales were also up 2%. Primarily reflecting the addition of new business in Seating. Our operating earnings were $256 million compared to $241 million last year, driven primarily by strong net operating performance.

Adjusted earnings per share were $3.71 as compared to $2.79 a year ago, reflecting higher earnings, and the benefit of our share repurchase program. Third quarter operating cash flow was $329 million compared to $444 million last year, due to higher tooling and engineering investments and the timing of working capital. Year to date, operating cash flow is higher compared to 2025, driven by improvements in inventory management through our Idea by Lear initiatives, as well as the timing of tariff payments, and recoveries. Slide 12 explains the variance in sales and adjusted operating margins for the third quarter in the Seating segment. Sales for the third quarter were $4.3 billion, an increase of $76 million or 2% from 2025.

Organic sales were also up 2%. Reflecting the addition of new business, including the BMW iX3, Mercedes GLC EQ, and Audi Q7 in Europe, the Series M6 in China, and the Jeep Cherokee in North America, and higher volumes on JLR platforms, which were negatively impacted by the cybersecurity attack during the third quarter last year, partially offset by lower volumes on Lear platforms in China, and North America. Adjusted earnings were $274 million, up $13 million or 5% compared to 2025. With adjusted operating margins of 6.3%. Higher operating margins were driven by strong net performance and a margin accretive backlog partially offset by lower volumes on new platforms.

Slide 13 explains the variance in sales and adjusted operating margins for the third quarter in the E Systems segment. Sales for the third quarter were $1.4 billion, an increase of $17 million or 1% from 2025. Organic sales were up less than 1% driven by higher volumes on Lear platforms, including several JLR programs in Europe partially offset by the build out of the Ford Escape Focus and Lincoln Corsair reflected in our backlog as well as the wind down of discontinued product lines. Adjusted earnings were $69 million, or 4.8% of sales compared to $60 million and 4.2% of sales in 2025.

Higher operating margins were driven by strong net performance and higher volumes on Lear platforms, partially offset by the build out of the programs in our backlog and the wind down of discontinued product lines.

Jared Fidale: James will now provide an update on our full year outlook. Thanks, Jason. Slide 14 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full year outlook. Our production assumptions are based on several sources, including internal estimates customer production schedules, mobility global forecast. At the midpoint of our guidance range, we assume that global industry production will be down 1% on a Lear sales weighted basis compared to 2025. A slight improvement from down less than 2% in our prior outlook primarily due to higher volumes in Europe, partially offset by lower production assumptions for China.

We have adjusted our currency estimate which now assumes an average euro exchange rate of $1.15 per euro and an average Chinese RMB exchange rate of 6.80 RMB for the dollar. Slide 15 provides an update to our full year 2026 outlook. Our current outlook assumes no changes to current tariff policies or significant industry wide disruptions. In recent weeks, we have seen reductions in production schedules across several customers, particularly in China. We have reduced our full year 2026 outlook for net sales to reflect these changes.

However, our strong operational execution savings from our additional restructuring actions and anticipated resolution of ongoing commercial negotiations are expected to offset the impact of lower volumes as well as rising costs from commodities and other inputs. Therefore, we are maintaining our full year outlook for core operating earnings. We increased our outlook for restructuring cost by $25 million, reflecting additional actions we are taking to further optimize our cost structure and position Lear for stronger long term profitability. We have adjusted our outlook for operating cash flow and free cash flow to support this investment.

We move through the remainder of the year, we will continue to monitor the China domestic market where consumer demand and production schedules continue to deteriorate. Slide 16 compares our October 2026 outlook to the midpoint of our prior 2026 outlook. We reduced our revenue midpoint by approximately $225 million driven by lower production volumes on Lear programs particularly in China, and the impact of foreign exchange partially offset by increasing supplier pass through due to the rising commodity costs and commercial recoveries. Core operating earnings outlook as savings from our restructuring actions and improved net performance is expected to offset the impact of lower production volumes on Lear platforms.

Moving to Slide 17, we highlighted our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4% and our debt structure has a weighted average maturity of approximately 11 years, In addition, we have $2.9 billion of available liquidity. Our capital allocation priorities remain consistent: We are focused on generating strong cash flow. Investing in the core business to drive profitable growth and returning excess cash to shareholders. During the third quarter, our strong cash flow enabled us to take advantage of our undervalued share price and repurchase $175 million worth of stock.

This brought year to date repurchases to $350 million, achieving our increased full year target ahead of schedule. Since initiating the share repurchase program in 2011, we have repurchased $6.3 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends. In September, Lear's board increased the share repurchase authorization to $1.5 billion and extended the authorization period through December 31, 2029. Reinforcing our commitment to return cash to our shareholders. Now I will turn it back to Raymond for some closing thoughts.

Raymond E. Scott Jr.: Thanks, Jason, James. Sounds great. Thank you. Was another strong quarter, continuing our track record of consistent execution and progress. Despite a global production environment that contracted 2% on a Leer weighted basis, our team delivered $5.8 billion in sales. Expanded margins in both segments, grew core operating earnings for the fourth consecutive quarter. Our resilience is the result of a focused strategy and a team that knows how to execute. The breadth of our business wins in this quarter demonstrates our global reach and competitiveness.

From our largest complete seat award in India, to BYD programs in Thailand and Indonesia and modular seating solutions with Mercedes and Jaguar Land Rover we are winning in the markets with the customers that matter the most for our long term growth. Our year to date net business awards now stand at approximately $3.9 billion and the pipeline of new opportunities remains very robust. In these systems, the transformation of our portfolio is evident. With approximately 70% of our year to date awards coming from new or conquest programs. And Q3 margins expanding 60 basis points year over year. We are demonstrating that our focused portfolio strategy is working.

The wind down of our non core products is nearly behind us. And what remains is a stronger business with a significant runway ahead. And perhaps the most exciting development this quarter is what we shared about our Orion facility. This is idea by Lear in action, not a 10% to 15% and sets a new standard for what a seating facility can be. The technologies we are deploying at Orion from intelligent, inter logistics to autonomous material handling AI powered quality inspection, our proprietary, scalable and represent a genuine competitive moat that will be difficult for others to replicate. And we continue to return meaningful capital to our shareholders.

Completing our $350 million repurchase target ahead of schedule and expanding our authorization to $1.5 billion through 2029 reflects both the strength of our cash generation and our conviction in the long term value of this company. As we head into the fourth quarter, we recognize the challenges ahead. From commodity pressures to softness in the China market. These are dynamics we have successfully navigated throughout the year. And our team has the tools, talent, and track record to continue to execute. We are maintaining our full year outlook for operating income and remain confident in our ability to finish the year strong. Now we will go ahead and open up the call to questions.

Operator: We will now begin the question and answer session. You are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to join the question queue. And our first question today comes from Dan Levy from Barclays. Please go ahead with your question.

Dan Levy: Hi. Good morning. Thank you for And Jason, congratulations James, congratulations to you as well. Thanks, wanted to start with a question on the sales outlook, and particularly with what is happening in China. there is been a number of quarters now where you have underperformed. And I think this is similar to some of your other peers out there, But maybe you can give us a sense of within China, what the path is to finally starting to see growth in line with the market? I know you are saying that you are targeting 50% domestic mix, but the issue is industry is at, call it, 75%+ I know you talked about some winning some programs here.

But at what point do you finally start to have China be in line? And maybe you could just unpack you know, the underperformance. Is it just this customer mix? Is it competition? what is going on in China? And how is this fixed?

Jason Cardew: Yeah. Thanks, Dan. I think you know, first, I think it is important to point out that as we look out to next year and beyond, the strategy that we put in place over the last several years will really improve the profile of our business in China. With the Chinese OEMs globally. You know, in terms of what happened in the in the third quarter, there is a couple factors that weighed on that growth or gross under market in China. A significant portion of our revenue in China with the Chinese OEMs is in our non consolidated joint ventures. And so if you account for that, you know, that business actually grew in the quarter.

And, that would you know, eliminate more than half of the negative growth over market in the quarter. So there are parts of the business there that are performing in line or even better than the market. And I think the other point that is weighed on our business in the near term is the level of exports know, out of the China market as the domestic demand has weakened this year. And we have talked about this in the past. We are under indexed on exports. And that is primarily because the exports today have really focused on primarily the lower end of the market where we are underrepresented. We have a very strong business particularly in luxury.

In China and the higher ends of the market. And I think over time as the export mix shifts to higher ends of the market, we will better reflect the market overall in terms of the ratio of exports in our business. I think that there is a lot of evidence that we have shared this year that again that our strategy for growing with the Chinese automakers and in China and globally is working. You know, we had $900 million of our $3.9 billion of new business awards this year, you know, 23% of the new business awards this year was the Chinese automakers. Only 8.5% of our revenue today consolidated and non consolidated is with Chinese OEM.

So we are clearly seeing a growth inflection point with the Chinese automakers. That will benefit the business longer term. We have talked about this year and last year our share of revenue within China that is with Chinese OEMs is 44%. So, yes, we are under indexed there. That grows to 50% and or a little bit above that next year. We see a path to 55% and beyond. If you look out 2 or 3 years, and include the benefit of the new awards that we have announced this year. And so all signs point to our business more closely reflecting the mix that is represented in the market in China.

And I think that there are some regulatory changes that are coming over the next several years that will encourage more localization for the Chinese And we are seeing, you know, good performance in terms of our wins with the Chinese OEMs as they localized. We had LEAP motor in South America we announced last quarter. And then we had the 2 wins with BYD this quarter. But, James, why you talk about some of those regulatory changes that we think will change the composition of exports going forward?

Jared Fidale: Yeah. Sure. Sure, Jason. Yeah. And you are correct. There are a few factors in potential regulations that have come up that are. We look at favorably from our standpoint. And then first is a potential regulation We have talked about it on the Industrial Accelerator Act. that is the IAA and something we have been monitoring closely. And this is that made in Europe act, and that is being discussed in the EU that would potentially put a threshold on local content rules. Second, there is that hybrid export cap in Europe where China and The U.

And the EU are expected to agree to limit hybrid exports out of China of 350 thousand vehicles annually starting on December first of this year, which could help aid in the acceleration of the localization with the COEMs. In Europe. So. And then. And finally, there is 1 more starting on April 1, 2027. China's gonna lower the value add tax export rebate for new energy vehicles to 9%, down from 13%. So in simple terms, you know, China's lowering the rebate in which they give to the OEMs for exporting nevs. And so all these regulations, it plays to our favor.

And mixed with our strategy in China, winning with the COEMs and the relationships we have built over the last 30 years, it is gonna be a positive as we continue to grow and gain market share within and now outside, as Jason mentioned, with LEAP Motors and BYD already outside of China.

Jason Cardew: So just the net of that do you feel confident that given everything that we are seeing in China that eventually when your larger backlog comes online that you can eventually return to more meaningful growth? I know 2027, you have sort of talked that down, but the 2028-2029 period, I think you have given some upside numbers there. Yeah. As we said at the last call, we see 2029, this business returning to significant growth above market with both segments getting back to the historical targeted range, 3% to 4% in seating and 4% to 6% in these systems.

And, you know, 1 of the updates we wanna provide today is on the backlog just to continued progress we are making with new business awards is increasing the confidence level we have and the strength of that 3 year backlog. James, why do not you provide an update on that?

Jared Fidale: Sure. And you are you are correct. We do feel good about the trajectory of our backlog. And now, obviously, now we are not giving official backlog update on the call. The recent wins we have communicated, it really reinforces our confidence in the long term growth outlook. I will shed some color on this. Now in Seating, the most notable awards include significant conquest awards. We have talked about Audi in Europe, North America with Ford Super Duty, along with complete seat awards. We just mentioned LEAP Motors in South America and additional wins with the C-OEMs.

Awards in India now with Mahindra Over half of those year to date awards have been for new or conquest programs in Seating, providing kind of that foundation for future growth. Then in E Systems, we secured important new awards with Renault, Stellantis, BAIC, General Motors, and multiple Chinese automakers. And more importantly, over 70% of our year-to-date E-Systems awards come from the Conquest business. from new or conquest business. And, based on what we know right now, knowing that the timing of launches can move, and more importantly, new awards can be sourced from now until when we report our 3 year core backlog is about $2.25 billion.

Jason Cardew: The key is with our backlog, we have been very selective on the profile and the quality of the business we are going after and winning. Every program has been scrutinized to make sure it is returning in excess of its cost of capital We are not chasing business to win business. You know, if you look at the Ford Super Duty jet and wire business, the Audi JIT business, T1 SUV wire, the JIT at Orion, Just these handful of programs taken together, Dan, you know, between Seating and E Systems, makes up more than 70% of our backlog that is rolling out over the 3 years.

So these are programs that have a long history of success in the market, We have a high degree of confidence that those are gonna launch on time at the volumes that we have embedded in our backlog. So momentum's building, and more importantly, the quality of the awards is there, and the pipeline remains robust as we sit here today. So team's doing a really good job.

Raymond E. Scott Jr.: Let me weigh in on this Dan, because this is important, and I know we are focused on China. But we have laid out a plan, and we have talked about it for some time now. We have looking at the domestic Chinese and what you know, what was going on with market share gains throughout the world. But you know, we said, listen. We can still win with the traditional OEMs as they are shrinking, and we have done that. I mean, it. it is remarkable. I sit here and I have an enormous amount of confidence when I hear from the team both Nick and Frank, the conquest wins we are getting.

And to James's point, how we are being very selective after I will say, high quality wins. Programs that we have a high confidence in if they are going to run. They are not a 1-and-done program that we have all experienced over the last several years, but the high confidence that always. The customers are putting a tremendous amount of effort and energy and money in and that is where we are betting and putting our dollars. The second thing is, I was just in China last week, You know, it was it was incredible, and remarkable different in respect of what is going on the ground in China.

They are looking for companies that have profitability, technology, and innovation. We are taking the next step They are concerned about some of the domestic Chinese around their profitability. because they are not profitable. And so a strong company that has a global floor like we have, man, was just really attractive. Every meeting that we had, every dinner that we had, every, you know, event that we went to, was you know, another reassurance of our technical capability really mirrors well as they increase into the upper ends of the, luxury markets. And that is where we participate. that is where we play really nice.

And the third leg of this thing that we have been talking about for years now is a continuation of the Japanese customers. You know, we have been somewhat limited I would love to see that door opening. You know, what we are talking about here is you have the traditional OEMs that we are gaining and conquesting and gaining market share, which is beautiful. The Chinese that now they are starting to the luxury and technology focused type of components around these systems, and seating, you are seeing that accelerate. Then we have the Japanese growth that we mentioned on the call. So I am very confident.

I love where we are at. it is all been about tracking net performance. The team's doing a remarkable job in net performance. that is important to really show the sustainability we have despite whatever challenges we have. But equally as important, is how we look at that backlog. And that is 1 of our strong points right now. I am very, very confident in our backlog. I mean, I feel really good. And I got Nick and Frank in here too, and we got more work to do. We got a robust pipeline. Right now of quotes and we are gonna push through it and continue to, gain more market. Share across those 3 different elements I mentioned.

So I think it was a good question. I do not want to overly focus on China because we are hitting it all different cylinders when we talk about those 3 different areas.

Dan Levy: Great. Thanks. I will pass it on.

Operator: Thank you. Our next question comes from Joe Spak from UBS. Please go ahead with your question.

Joe Spak: Thanks. Good morning. And echo that congrats to both Jason and James. Maybe 1 just shorter term and then 1 longer term. You did not really tighten your operating income range for this year. And if we sort of look like up versus down, it is like 2.2% for the fourth quarter. So just given that we have seen some changes to schedules recently here in the fourth quarter, was wondering if you could try to hone in on sort of where you think you are tracking at least for the year within that range.

And then on those if we continue that into sort of like at least early 27 where we are also seeing some maybe revisions to schedules, how you are thinking about 2027 right now?

Jason Cardew: Yeah. Starting with the outlook for the fourth quarter, it is a little bit wider range than we ordinarily would have and we just decided to leave it intact sort of, you know, from the prior guidance. At this stage. The factors that will determine where we fall within that range and what we are focused on really continued flawless execution operationally as we have seen over the last really 2 years in both Seed and E Systems. Very strong operating performance. We have a number of commercial negotiations, as you might imagine, that could swing the number 1 way or the other. And that is another reason for the range.

And the deterioration in the demand in the China market is the other key factor. And really that change in our production outlook on our platforms in the China market is what drove the revision of our revenue guidance. 90 percent of the $256 million shown on the slide is in China, and then there is a little bit in Europe. So it is a dynamic market. It has been. There has been very weak domestic demand in China throughout the year. it is accelerated a bit over the last several months and we try to protect for that with that wider range. As we sit here today, our best estimate is the. Is right at the midpoint.

But the factors I outlined, you know, ultimately determine where we fall within that range and then we have an investor conference in December where we will provide an update on how the quarter's tracking at that point. In terms of 2027, you know, we provided a lot of color on the last earnings call. We were probably a little bit early relative to others, and I know others have provided updates in this reporting cycle. And the building blocks that we outlined in terms of what would drive revenue growth and what some of the challenges were on specific platforms. You know, nothing has changed. Nothing in the Outlook for the.

For this year really has an impact on our view on 2027 on the revenue side. And on the earnings side, you know, the 40 and 80 basis points in that performance that we articulated in Seating and E-Systems respectively. Are still tracking or right on track We do expect to do a little bit better than that in both segments this year. We did a little better than that last year. So the momentum is clearly there operationally. And we are we are increasingly confident in being able to deliver that net performance next year as well.

So between now and February, we will work through the final assumptions around production volumes and the timing of launches and solidify guidance and provide that in February.

Joe Spak: Thank you. And Ray, the Orion commentary is super interesting, and you mentioned it is blueprint for global seating. So maybe just some commentary on how easy or how long you think you could sort of scale that across the enterprise? And is there are there any parts of the world where there might be something structural that would actually prevent you from accomplishing what you are doing in?

Raymond E. Scott Jr.: Well, I am glad you asked this question because it is I think, 1 of the most significant part of our strategy that we have been developing over 10 years to have that footprint. And we are obviously learning along the journey, but how we can scale that? We have been know, through idea by layer, implementing production environments, you know, changes to our manufacturing plants. So we have been getting at some of it, but to have a full scale ground up facility like what we are doing in Orion is very unique.

And I think as we set up the next plants, like we talked about with the heavy duty with Ford Motor Company, will be, you know, exactly, but probably at another level. And so I focus when I say scaling, particularly around the brand new plants, on the new plants that we are putting up for our customers. There are elements that we continue to learn that we are going to continue to improve our net performance. I think the foundation of what we talk about with sustainable margin and how we are offsetting some of these, external costs is through what we are doing. And so some of them are very easily replicatable, like cycle time deviation, for example.

We were able to scale that across the majority of our manufacturing plants and get at a significant opportunity and savings within our plants globally. So there is some that are very easy and there is no think you mentioned a roadblock or inability for us to get at. Some of them are more, I think, around the ability to get at it because production is running. And having the time, the downtime, to get in and make the capital adjustments. And so they are all somewhat different in how we look at it, but the majority of them, we can get at.

We already have plans to get at. that is all part of our how we are looking at capital, how we are looking at investments, the payback time frame, those type of things. But you know, 1 thing that I mentioned, what is great about this is when we acquired these companies, for example, like ASI and the others, we are manufacturing becoming a manufacturing integration leader. And we can we can control our own destiny when it comes to capital. So we manufacture our own capital, which is very unique and we can design it just like we design products with a cost savings intent.

And so we are seeing significant reductions in how we look at our capital and invest in our capital and how we get a much better cost of our capital. So said a lot there, but glad you brought the Orion facility. Why wanna get that out there? Because we have been differentiating ourselves It is very unique. No 1 has it. In my narrative, it says, hard to replicate. I think it is almost near impossible to replicate unless you go buy the companies we bought, and that is been a 10-year Jason, we have been at this for 10 years. Yeah. 10 years.

And so it is it is great to see what is going just out at the Orion facility a couple weeks ago. I cannot wait to have you out there and others because you are gonna see a game changing event when it comes to how you think about just in time and how we think about modularity. You have to buy the companies particularly as you vertically integrate You have to own the lumbar company. You have to. Well, our acquisitions have been intentional. And now we are starting to see it. 47 contracts when we talk about comfort Flex, Comfort Max, Flex Air, it is. You know, it is not where I wanna be. I am never happy.

I want to sell more, and Frank's sitting here. Some of it is been delayed programs, things that are going on with our customers. But, man, this thing started to take off. And I remember 2 years ago, 3 years ago when investors, analysts were saying, man, you are gonna have to change the whole model. And exactly what we are doing. We are changing the model around how you think about sourcing a seat system and how you manufacture a seat system. So yeah, I could talk about this for hours. I will leave it at that.

Operator: Thank you. Our next question comes from James Picariello from BNP Paribas. Please go ahead with your question.

James Picariello: Hey. Good morning, everybody. Can How can we start to think about the commodities bridge for next year, both from the top line recovery and net EBIT? Perspective. I know it is early, but just curious on your prelim thoughts there. Regarding Seating Metals exposure and E Systems Index copper. And then for this year's tariff reversal impacts, to revenue, can you confirm the portion that was truly 1 time and represents an arithmetic tailwind to revenue next year? Thank you.

Jason Cardew: Yeah. I guess, it is if you wanna start with the last part of that question, I think we provided the nonrecovery portion of the tariff revenue last. that is embedded in the guidance for this year, and it is 200 million or so. Correct. that is correct. So that would be non. Non recurring, the refunds from last year. And our go forward tariff costs are very modest because most of our tariffs are avoided through the customer offset credits. And so we do not see it as a significant issue going forward. Terms of commodities, it is been a significant issue for us this year in terms of the gross impact.

But, you know, we have a long history of indexing and pass-back agreements that we put in place know, going back 6, 7, 8 years. And so the vast majority of that has been passed through. We have over $300 million in gross impact this year, and the net impact is only about $10 million. Looking out to next year, certainly copper has run up continuously throughout the year. And we have benefited a little bit in terms of the revaluation of our inventory as that has increased that will be non recurring. So that will be a little bit of a headwind for next year.

But all of those components that are embedded in commodities are part of the 40 and 80 basis points of net performance, So whatever we see in terms of leakage and commodities, we are offsetting through our performance activity and we remain confident in meeting or exceeding the 40 and 80 basis points in that performance again next year. And Seating and E Systems respectively.

James Picariello: that is really helpful. Thank you. And then just as we think about restructuring savings, that are clearly showing through this year, Is there a sizing of what that restructuring savings number could be for next year? I know we already have the automation savings in place for 27. Thank you.

Jason Cardew: Yeah. I think we increased the level of savings we are going to achieve this year in restructuring I think, from $80 million to $95 million in the guidance here. And the investments we are making here in the fourth quarter will continue to benefit next year. The paybacks continue into next year. If you just look at restructuring overall, there are projects that have no payback because of program has ended production and you are you are restructuring capacity out with no future benefit. And then there projects where we are embarking on know, labor arbitrage or other cost reduction opportunities. And those typically have about a 1.5 to 2.5 year payback.

And those are the projects that we are really focused on you know, in the fourth quarter here and then into next year to ensure that have the most competitive footprint for the long term. And in the meantime, it is a. It remains a key contributor to that net performance narrative. Know, that we have seen this year and expect to continue to see next year. Thank you. Yeah.

Operator: And our final question today comes from Rajat Gupta from JPMorgan. Please go ahead with your question.

Rajat Gupta: Great. Thanks for taking the question. You know, just wanted to, you know, touch on, like, the 2027 outlook or just preliminary outlook. I know you have given a lot of color on the revenue dynamics, some of the China pressures. Also, like, some of the performance you know, benefits that expect to remain on track. I am just curious, if there are any offsets we should think about particularly from, like, some of the wind down business that you are seeing. You know, if you look at the eSystems bridge this quarter, the detrimental seemed pretty high on some of the backlog and the wind down.

I am just curious how we should think about those puts and takes in the 2027 margin bridge And I have a quick follow-up.

Jason Cardew: Yeah. Again, Rajat, we have provided a lot of color on our view on 2027 on the last earnings call, and we will wait 'til February to the full guidance. But what we typically see on, you know, on the wind down is, you know, that is converting in the 20% range. It depends on the program within that Backlog typically is converting in the 10% range and volume and mix on Seating and E-Systems tend to be 15% to 25% rate, you know, in that, rate of conversion. Depending on the level of vertical integration on the program. The underlying profitability of the program. So that is-- But that is the typical range.

And I think those ranges in terms of how we convert on the backlog growth into next year and the wind down impact for next year as well as the production changes on our platform should basically hold within that range.

Rajat Gupta: Understood. And then. And just, like, you know, anything we should keep in mind when it comes to, you know, you know, just available capital, for return? This year versus next from a restructuring standpoint? I know CapEx is a bit heavy this year. With Orion and the automation build. I am curious, like, any meaningful changes we should expect, you know, as we head into 2027. Thanks.

Jason Cardew: Yeah. Again, we will we will save the pinpoint guidance for next year on that. But what I will say is that our priorities around capital allocation remain consistent. We are gonna focus on investing in the business first through CapEx and tuck in acquisitions if they become available. We do not see anything of scale in terms of the on the M&A side. And we are gonna continue returning our excess cash to shareholders through share repurchases and dividends. I think 80% of the free cash flow we generated this year will be returned to shareholders through share repurchases and dividends.

I see that level of capital return to shareholders continuing into next year And we look forward to providing more color on the specific guidance on the fourth quarter earnings call. Understood.

Rajat Gupta: Thanks for the color and good luck.

Jason Cardew: Yeah.

Raymond E. Scott Jr.: Just, again, well, he was. you are still around. We will still be able to see you. So we will get into this. I do not wanna get emotional right now. But just to the team, I think probably leader members are still on the phone. Just want to say thank you. Another outstanding quarter going on, a lot of dynamics in marketplace, but we continue to stay focused on what we can control Great job, Nick, Frank, to the teams and the operations. Great wins. I appreciate all the hard work, and you did a nice job with the narrative today. Tried to mess you up, but you did a great job anyway. So, thank you.

Thanks to the team. Appreciate all the hard work.

Operator: And with that, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

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