Lear Corporation Stock

All right. Good morning, everyone. For those that don't know me, I'm Andrew Percoco. I lead Autos Research here at Morgan Stanley. And up next, pleased to be joined by Ray Scott, President and CEO of Lear; Jason Cardew, CFO; and then Brian -- or Jared Fedele, sorry, Vice President of Finance of Seating and E-Systems. So thank you guys for joining this morning.

Maybe just to kick us off, Ray, if you want to give us a general update in terms of what you're seeing in the business, how the year has gone and kind of how you see the business transforming over time, and then we can kind of continue the conversation from there.

Yes. Thanks. It's great to be here, and it's hard to believe it's already middle of September. But looking back at this year, one, I couldn't be more proud of the team. We -- first half of this year was record revenue, $12 billion plus, continue to execute on our core operating income improvement and what we're doing there. EPS up 23%. So really delivering on the measurables we've put in place. And when I think about where we're at, it's been this transformation within our manufacturing processes around IDEA by Lear.

We opened up the advanced manufacturing center this year, which has just been incredible for not just the investor group, but also our customers. And having one location where we can really display our technologies and what we're doing in the manufacturing environment around automation and the digital transformation has been special. And that's really helped us with growth. And you think about the growth in the most recent announcements that we've had with the Ford 250, 350 program, one of the, I think, legendary programs in North America that is going to be great for our business long term.

The most recent award that with the Audi business that we just announced, and we're continuing. We just had the largest India win that we've ever had in history with Mahindra & Mahindra since our Q2 earnings announcement. So the wins continue, and they're very strategic, very selective, very specific on where we really want to grow, how we want to grow with which customers we want to grow. So the combination of what we're doing with technology innovation, not just on the product side, but I think equally as important on the manufacturing side, is really starting to take shape with our customers with growth.

And so the recognitions we get with the Supplier of the Year, both in Seating and E-Systems, I just -- I believe, confirms what we're doing and how we're differentiating ourselves. So we still have a lot of work to do in the remainder of this year, but I'm proud of the accomplishments that we've managed already this year.

That's great. And maybe, Jason, for you, if we just zoom in a little bit in terms of the quarter and I think U.S., at least the demand in the U.S. has held up better than I think anyone is expecting it to. But obviously, this is a global business. China dynamics is obviously very much in flux. So can you guys just help us think about the setup as you see it today relative to maybe what you framed a few weeks ago on the earnings call? And what are some of the puts and takes that you're maybe seeing across the business for the third quarter?

Sure, Andrew. We shared a framework of our third quarter outlook on our second quarter earnings call. We expected revenue of $5.8 billion to $5.9 billion, Seating margins in the low to mid-6s and E-Systems margins in the low 4% range. And the quarter is playing out essentially in line with what we had anticipated at that point in time. As you highlighted, there's been a very resilient market here in North America, some weakness in China. You look at retail sales in China were down 21% in July, 23% in August. So that's certainly presenting some pressures on volumes in the China market.

But as we sit here today, we're right in line with that framework, maybe a little towards the low end in terms of the revenue, closer to $5.8 billion than $5.9 billion, but really solid performance by the team on the things that we can control and execute on. And as Ray said, we're continuing to hit on all cylinders, both in terms of growth and performance.

That's great. And on the inflationary side, I think we've heard from some of your peers and some of the OEMs that, that continues to be a pressure for the business. But from your perspective, I understand most of your costs have some level of pass-through, but any updates in terms of what you're seeing there? Maybe it's more of a fourth quarter dynamic than it is a third quarter dynamic, but just curious how you -- how the inflationary environment has kind of shaped up versus your prior expectations and how that might impact the P&L over the next few quarters?

Yes. I think over the last 10 years, we've worked very hard to put in place pass-through mechanisms with our customers, and we've largely insulated ourselves from the direct impact of that. Sometimes there's a timing lag. We don't see anything in terms of the current market dynamics on inflation that will impact the outlook for the second half of the year at this stage, though.

Okay. That's great. And then, Ray, you brought up some of the recent wins that you've had in your initial remarks. You've obviously shown clear progress in terms of the significant conquest wins that you've had across both Seating and E-Systems. Maybe just talk a little bit about what -- why you've been able to win some of those awards? What are you leading with to essentially get some of that business to Lear? And what are customers essentially looking for at this point when they're thinking about giving out programs to suppliers? And I'm also curious how that differs by region. North America versus China versus Europe, I'm assuming all have slightly different approaches to how they look at the market. So how are you kind of approaching it from your perspective?

It's a good question, and we've done a remarkable job. And I think this really is the credibility that we want to make sure that we are communicating to the investor group. And it is around the investments we've made. And so the Audi win, the Ford new business that we won, the NCAR, the truck business that we won in wiring are really around this focus that our customers have around technology and innovation. And the domestic Chinese have really, I think, sparked a change, not just with the domestic Chinese and how they think about technology specifications, the ability to drive different modular concepts for efficiency, customer preferences, weight, all the different ingredients that our customers are looking for to improve their products are aligning with what we've been at for 10 years.

This journey we've been at to really change our manufacturing process around automation and the digital transformation has really started at a perfect time. So the work that we put in place, the importance of us having an advanced manufacturing center in place where we can show what's in production and what is the next generation of technology that will be implemented in our manufacturing plants have been the key. And so as we go through our customers right now, the alignment has been perfect. We've been at this journey and now our customers are looking at how we can change specifications, how we can get at these changes with the manufacturing plant to really change efficiencies within their products.

And so they do a tremendous amount of work. The amount of work that when we go through these quote processes and the feedback we get from our customers on, you are truly doing things that your competitors are not doing. And their need for that innovation and technology is at an all-time high. And so we're being very selective. I think what's important, what we learned as EVs really collapsed in North America was how we select programs, the programs we go after have a legacy to them, of a consistency in volume. When we're going to invest capital, we want to make sure we're betting on the right platforms, right programs by region.

And so we've been very selective on these programs that we're winning. So we won $2.9 billion, $2.3 billion of that is in Seating, $500 million plus is in E-Systems. E-Systems had arguably the best awards last year of $1.4 billion. So us being very selective, being recognized as having this ability to have technology as a differentiator has really paid off. And this Audi business, which I think it was interesting, I think about it all the time, there's a lot of skepticism around can you really change the model itself, the sourcing model, from directed to your control. Audi, we have sourcing control over the comfort features. So we have a ComfortFlex system that will combine lumbar and massage.

And when we bought IGB and Kongsberg, we needed that engineering capability. So when others talk about a modular solution, if you're using other components that are not yours, it's not a true modular solution the way we define it. That's what's differentiating us. And so having 45 contracts, that's so important to the credibility that we talk about and how we're differentiating ourselves. And so I mean, I could talk about this all afternoon.

You could take the rest of the session.

Yes, yes, I could. Because it's important when we think about our growth strategy and as we start to launch these programs in '28 and '29, I think investors should really think about the type of programs that we're investing in and how we're winning that business. And it is around the investments we've made. IGB, Kongsberg, as I mentioned, the product side, what we did with WIP Automation, the partnerships we have with Palantir, what we're doing with automated taping with BMW that will launch later this year is all around technology in our manufacturing plant. So we're now having the evidence that backs up the investments we've made over the last 10 years.

Yes, that's great. And maybe on that piece on the innovation that you guys have obviously focused heavily on, it seems like that would align itself with how fast the Chinese OEMs move, right, and the innovation cycle that they operate on. But at the same time, I know you guys have talked about how you're slightly under-indexed to some of the export volumes that we're seeing, and that's obviously where most of the volume is going right now. Just talk about that kind of push-pull and why maybe you aren't more exposed to some of those volumes, just given the level of innovation that you're able to bring to the table, which I would probably argue is better suited to be aligned with some of the Chinese OEMs versus maybe some of your peers that haven't moved as quickly on kind of the innovation around some of the products that you provide.

Yes. Well, so we have targets. Right now, we're about 45% of our domestic Chinese business with a target of going to 50% next year. And we have a clear path to get there. I don't think that's going to be a problem. You're right. Right now, the under-indexing of what is being exported is a very focused strategy of ours to change. And I think with the things that you're mentioning is that we do have these capabilities to produce parts much quicker, to go to market much faster. The thing that we discovered, too, is as we acquired these companies and integrate these companies, on a JIT facility, for example, we manufacture now 80% of our own capital at a 20% to 30% discount to what we are acquiring and buying before that.

And so we're much faster to market, much more capable to get our own technology on the floor for our customers. And we're seeing that with the domestic Chinese. And so it's been a big focus of ours. I think you'll start to see that change as our targets start to change and we start to realize that there's going to be opportunities. And I also think longer term, when we think about the domestic Chinese, policies are going to change. As domestic Chinese are starting to onshore, the Leapmotor in South America was a great win for us. I mean, so we're starting to see -- and I just got a note today about picking up additional domestic Chinese. I can't talk about it right now, but hopefully soon, like we can talk about it that we're starting to see as they onshore, our capabilities work out perfectly for them. And so those new wins, I think, are going to continue for the remainder of this year and into next year.

Yes. And those -- and to Ray's point, the relationships, and it starts with the leadership we have in China, too. And the moves Ray made back towards the end of 2023, when you kind of put Seating and E-Systems under one strong leader, you see this momentum being picked up. And if you take a step back, prior years, our COEM revenue was 33% domestically, and then we go to 44%, and we have a line of sight to over 50%. And we've got this local team for the local market, which is incredible because you know the intricacy of how fast the market moves. And due to this, we picked up a lot of share. And we're the clear leader in luxury in China right now in the domestic market.

So we dominate in the mid to the upper end of that section. And back on the whole export question, it's a tough question to answer right now. And if we were to kind of look at where we're at today, I would say we're under-indexed. But the reason for that is historically, when the exports were going, it's on the lower end of the market. And so now they're at the mid to the high end. So this is a big opportunity for us. And these relationships the team has built in China with the COEMs domestically is going to help us as the export out. And going back to the $2.9 billion the business we won, the net new business awards, $520 million of that was with the domestic COEMs.

So those relationships help as you go out. And from a margin standpoint, from the profile of the COEMs, how do they align to the global margins, just to touch on that for a second, they're in line with our segment targets that are out there. And the team is -- and Ray has mentioned, Jason has mentioned, we're very strategic on who we want to work with and why we want to work with them because we have to make sure we get a return in excess of our cost of capital.

And the #1 driver for margin is the level of vertical integration. And the one benefit we have is obviously the [indiscernible] of vertical integration we have. But the COEM sourcing model goes to the Tier 1s, and they allow to source Tier 2, Tier 3. So if you've got those capabilities, you have the ability to grow your margins. And so that's why we're selective with certain customers that we want to focus on to grow.

Yes. That's great. And I was going to ask about margins, but it sounds like the pricing environment is relatively healthy for those programs. It's not something that's decremental to margins. And the reason I bring it up is because I think there's a big debate in the industry around as you presumably win more business with the Chinese OEMs, that is potentially cannibalizing something, whether it's in Europe or South America with the local OEMs. Is that margin accretive? Or is it destructive to the overall profitability of the business? And it sounds like as you sit here today, it's, I guess, net neutral is the way you kind of frame it, in a positive, negative. It's kind of a neutral for you?

No, it's 100% correct. And that's why we're so strategic with the customers we work with. And if you take the South American example, what a lot of people don't realize, in South America, we're the leader in market share. So we're the #1 from a Seating standpoint. And so what we're able to do, particularly on the Leapmotor award that we had is bring Leapmotor in. We already have the overhead structure. We already have the capacity to bring them in.

So you're doing it from a capital-light standpoint, which also helps from a return. So we see this as a big avenue as the Chinese continue to localize. And we've already won with Chinese as they localize in Europe. So as they continue to localize, particularly in South America, we've got a heck of a leg up right now from a margin standpoint, from a capital standpoint, from a production standpoint.

And then what's the pace of that localization? Is it happening quicker than you expected, slower than you expected? Or like what's their incentive to do it versus just continuing to export without some massive policy change in Europe? Just curious from your perspective, how quickly that's been moving?

Yes. It depends. It's -- honestly, it's region by region specific, and it all depends on the regulations. I mean we've been in talks with the COEMs, particularly with our local team in China and with our global teams. And there's a handful of customers that want to localize and there's another handful that are going to keep on the export. But right now, it's going to be export until something happens from a policy standpoint that changes that.

Yes. That makes sense. I do want to shift gears a little bit to 2027. I know we're still a few months out and a lot could change between now and then. But I think on the last -- on the second quarter call, you guys kind of highlighted that you see a lot of growth coming in 2028 and '29 based on your backlog, but 2027 is a little bit more of an in-between year with some of the roll-offs within the portfolio. If you could just kind of double-click on that a little bit between E-Systems and Seating in terms of that portfolio contribution, the growth that you're seeing. And ultimately, like what should give us confidence that 2028 and 2029 will see the level of growth that you've articulated?

Yes. Starting with 2027, we -- on the second quarter earnings call, we provided a lot of detail on our outlook, which it's a little bit early in the cycle to do that, but we thought it was important because we felt like there were some dynamics within our portfolio that the sell-side analysts and other investors may not appreciate, and we took the decision to be a little bit more forward leaning in the level of detail we shared. And so despite the very strong backlog that we have for 2027 with over $700 million of new business rolling on, we do expect limited growth in 2027. And that's really a function of the continued roll-off of the E-Systems non-core products that we were exiting.

It's the peak year of that roll-off. We had $235 million of revenue that rolls off next year. There's about $250 million in the 3 or 4 years after that. So it's far and away the most significant year in terms of the impact of that. And then you have program-specific or customer and platform-specific issues that are weighing on our outlook for revenue next year. And we had several customers that had really strong years this year, and I highlighted all those details on the call. I won't go back through each of those, but that's kind of the other component that offsets the impact of the backlog rolling on and the dynamic between the 2 segments is pretty similar.

In terms of the 2028 and 2029 outlook, and I think Ray touched on a little bit of this in his opening remarks. I think what should give investors confidence in our ability to achieve that level of growth that we've articulated for '29, which is getting back to that 3 to 4 points of growth over market is the quality of the programs that are in that backlog. If I just look at the Ford Super Duty, the Audi Q8, BMW NCAR, just these handful of programs taken together between Seating and E-Systems, that's more than $1 billion of backlog that's rolling on in 2029. So these are programs with a long history of success in the market, and we have a high degree of confidence that those are going to launch on time and at the volumes that we've embedded in the backlog.

The other thing we've done is we've looked out at 2028, '29, '30 is we've taken a very conservative view on how market share changes between our traditional customers and the Chinese are going to play out. If you look at Mobility Global, I think they have the Chinese market share growing by 4 percentage points globally from 2026 to 2030. We've built our plan around 6 points of market share shift. So we've really tried to sort of derisk that outlook and build confidence first for ourselves and then for investors in our ability to deliver that level of growth in 2029.

On top of all the backlog that we've already secured, we have a very strong pipeline of additional opportunities, conquest opportunities that Frank and Nick and the 2 segments are working on that we think will be realized over the next 6 months and further bolster that 2029 backlog. And we would expect at the end of this process that 2029 will be a record backlog year for the company, again, both because of the quality of the programs that have already been awarded and the line of sight we have to new business awards there, too.

That's great context. And on the non-core exits, it sounds like next year is kind of the peak, but do you feel like you have your hand around -- is there anything else, I guess, in the portfolio when you think about that, that could add to either 2028 or 2029. Just curious like how thoroughly you've gone through the portfolio to make sure you've got your handle on kind of what you're going to be rolling off and the time line in which you're going to be doing that?

Yes. And we really made those decisions 3 or 4 years ago in terms of the portfolio, and we spent a lot of time looking at the return profile of those products in the electronics portfolio, not just the current programs, but next-generation programs. And that's when we took the decision to exit audio and lighting and some of the commoditized power electronics like onboard chargers, where we just did not see a return in excess of our cost of capital in the next generation of products. We're very comfortable with the portfolio as it sits today, and we don't anticipate any changes there. We're winning business in the remaining electronics portfolio, and they're good programs with good customers, returns in excess of our cost of capital, and that will fuel growth in that segment over time.

And I think it's important, too, going through all that, that the continuation of -- when you think about the business wins we've had and 50% of that is conquest or new programs. And we still have requests from our customers today that bring us in like very familiar with E-Systems where we picked up a percentage of the T1 wiring that we'll launch later next year. And so those opportunities are still there. We're still talking to different OEMs right now about different opportunities that could present themselves in a '27 or '28 timeframe based on some of the challenges that they're faced with.

So we don't consider that, but I still see those opportunities in front of us, and we're still having discussions that are very similar to what we did with the Grand Wagoneer with Stellantis and taking that program over what we just recently were awarded on the E-Systems business in the mid-cycle, taking over a portion of that business. So those conversations are still going on. And it's to my earlier point of our customers are in a position where they are looking at things differently. And that does lead to opportunities for us, both with the domestic Chinese and with the traditional OEMs.

Yes. And from a margin standpoint for E-Systems, is it the portfolio wind down that essentially -- is that the only thing that's required to get the margins closer in line to some of your peers? Like what else needs to be done for the margin profile in that business to look closer to some of the peers that we all can see publicly?

Yes. So it's a combination. One, the plan that we put in place several years ago, which is more like 3 or 4 years ago on really focusing on core products that we know we can generate what is a fair return. We absolutely can and will generate a fair return. And so that roll-off next year is important because I think you're going to see a lot more clarity on the new business that we're winning and how it's coming on accretive. And so that's a big part of it, but also the continued work. The team has done a remarkable job of our net performance.

When you look at the net performance in these systems, the net performance, it's been remarkable. So we had some of our own issues in-house that we needed to fix, particularly here in North America. And you're starting to see that trajectory and that change within the operating improvements within those plants. And so we have more work to do. We are nowhere near satisfied with where we're at. So we have a lot more hard work to do within our own house. But you're going to see a lot of clarity on how we position ourselves on the product [indiscernible] we can generate fair returns. And as that business starts to launch, you're going to see the accretive nature of that business because of the profitability of those programs.

And I think if you compare us to a competitor that has higher operating margins there, the key differentiating factor in addition to everything we've outlined is if you look at the scale and volume of the programs in the portfolio. And so that's the reason we're focusing on programs like the Ford Super Duty, like the GM full-size SUV program. If you go back to 2017, '18, we had the highest operating margins in the wire business. And at that point in time, the Ford C2 platform was our largest platform. It was a 1.9 million unit global platform, fantastic business for us. And that platform is 500,000 units now.

So we have to both fix and improve our customer diversification and target these high-quality, high-volume programs that have a consistent track record of producing at high volumes. The scale benefit you get is not just on the manufacturing side, but it's also on the engineering side, the program management side, the commercial oversight of those programs. And I think that's the key distinction between the 2 companies in terms of the margin profile of the wire business. And I think all the things that were outlined in terms of where our future growth is focused will begin to close that gap.

That makes sense. And is there anything else you want to add to E-Systems like when we think about capital allocation priorities. Obviously, you're winding things down that were lower margin. But I'm just curious from a vertical integration standpoint, from a product standpoint, there's anything that is out there that is attractive from a margin accretion standpoint from -- or from just a customer acquisition standpoint, customers saying, "Hey, I want you to have this. It would be nice if you have that just to complement what you have in E-Systems. Just kind of curious if there's anything out there that you...

Yes. I don't think there's anything of any significance as far as significant acquisition in E-Systems that we have what we need on the product side. But these tuck-in acquisitions that we've made, particularly around automated taping, the most recent acquisition that we had in E-Systems was beautiful. I mean quickly recognized, we are recognized as the leader in automation within taping within our manufacturing plants. And so it gave us a significant leg up on a great program with BMW. And so we will be the leader in automation within taping. So if there's other acquisitions, it would be around how we're looking at transforming our manufacturing process around automation and digital changes.

The cycle time deviations, the things that we're doing with cameras, the things that we're doing with automation are really starting to accelerate. And from a cost perspective, too, it's lower capital. It's much more efficient. We're driving the cost down to the product itself, change the specifications with our customers that help us redesign how we think about different components. So if there was, it'd be just a small, I think, acquisition within the continuation of what we're doing around being a manufacturing integrator and being recognized as a pure manufacturing integrator.

And we are making investments, organic investments in connection systems. That's the highest margin subset of the E-Systems portfolio. And as Ray said, we have all the capabilities that we need. It's about making investments in that product line that is leading to growth opportunities, both on the top line and operating margins in that segment.

And then when it comes to automation, you've talked about the lights-out production in Germany. You've got the advanced manufacturing integration center in Rochester Hills. Like when should we think about that being rolled out to a broader set of your footprint and more of your facilities globally? What's the time line and when that gets integrated more broadly across the footprint?

Well, we've been at it for some time. And so these are business decisions that we make based on returns and it makes sense on the product cycle, where are we at in the timing, when is the end of life, those type of things, where we -- by region for -- if we have low-cost labor versus the investment in higher-cost regions. And so we're going to continue with that. What you're seeing is a much broader application and platform initiative like with our Orion facility, what we're doing for General Motors. That will be state-of-the-art. That's 100% across our manufacturing facility. And so we'll continue with a step-by-step where it makes sense on a return perspective.

But the newer plants that we're putting in place are state-of-the-art, most advanced manufacturing plants in the world, particularly in our just-in-time facilities. And I think what you'll see the evolution of the continued development like with the automated taping for BMW in our Honduras facility. So you're going to continue to see those things, but those are based on business returns, too. And so they have to generate a good return for us to invest. And so we'll continue both the acceleration of a complete platform within a facility as we launch new programs but the continuation of smaller good returns for us. I mean we did a great job. Last year was $70 million of savings in IDEA. This year, we're scheduled to have our target of $75 million. It's just been amazing how we continue to transform our plants and get the good returns that we need for our facilities.

That's great. And then maybe shifting gears a little bit. The other topic of the day in the sector is non-auto growth opportunities and some of your peers have expressed some business wins, whether it's energy storage, robotics, humanoids. Curious what your thoughts there are in terms of what's the opportunity set for you guys? And what's the realistic time line for it to even move the needle for the P&L for your business? Just curious your latest thoughts there.

Well, first of all, there's no one that thinks about how we can create shareholder value more than me and studying even in our core business, our core business has been the focus. It's been the core of how we're going to generate good returns for our investors. But with that said, I'll say this, we are doing more than just investigating. When you think about the 800-volt needs in independent power solutions, not just in data centers, but in other solutions and other industries, we have an incredible capability that's very unique, not just on the manufacturing side, but our technical capabilities on engineering.

And so there is a pull there. Like I said, we're more than investigating. We do have partnerships or NDAs signed, some things that we're doing to continue to evaluate. But before we have anything of any significant announcement, we want to make sure that we've studied this thoroughly. We understand this is not going to be a distraction from our core business. We have to continue to hit the targets we put in place for our investors, but there is opportunity there that we're continuing to review. And at this time, we don't have an announcement, but we're not going to limit ourselves to just automotive, if there's a good place for us to fit where we can get really good returns. And where I'm kind of looking at is an independent power solution, both for data centers and for other industries.

And when you looked at those solutions, like how much rework or reengineering of your technology is needed for that market? And because I think there's a concern that it's going to require a lot of capital. It's going to require a lot of expertise and a lot of time, and that might be a 5- to 7-year journey. And who knows where we're going to be in 5 to 7 years on the data center opportunity. So as you -- again, I know you have nothing to announce, but as you've kind of gone through that process, what do you think...

Those are the things that we absolutely go through. I mean that is the question that we're going to get the answer to, is that we're not going to put capital -- $1 of capital into something that isn't going to generate returns, and we're not going to continue to invest in areas where we don't have a meaningful ability to use or share investments or capabilities that we have in-house today.

And so there -- like I said, there's a lot of complementary aspects of what we do with power management within the EV world that really can help and our manufacturing expertise is an area that can be very helpful. But we're not going to double down in capital in an area that is a what if. And so those are things that we're studying. But it does seem relatively positive at this time. But until we have a clear path on how we're going to generate fair returns for our investors, we're not going to go down that path.

It's good to hear. And I guess balancing that with -- you raised the buyback for the year. You've got a significant amount left on the authorization. Can you just reframe or -- reiterate or reframe your capital allocation priorities over the next year or 2, obviously, keeping in mind that there are some other maybe strategic opportunities on the horizon that you might want to keep some capital on the balance sheet to make sure you can attack those when they come to fruition. But just curious if it's changed at all or, yes.

Yes. Just real quick, one, we're in a great position. We have a solid balance sheet. And so we're mindful of that. I think what we've done to date, we're small acquisition, tuck-in acquisitions are really differentiating us and we're being recognized as a pure leader in automation and digital transformation within our manufacturing plant, has worked. We get great returns on those investments we made in place. And so I don't see any significant changes.

We talked a little bit about if there's adjacencies or other areas that we can grow, but we're going to make sure we're very mindful of those opportunities, better be real, and they better be much more short term in how we think about returns as opposed to a 5- or 10-year with everything else we have and are focused in our industry today. So I don't see any significant changes, making sure we'll be mindful of our cash and giving that back to our investors.

Yes. We're very focused on free cash flow generation. And if you look at the outlook we provided for this year, well north of our 80% free cash flow conversion target. And that's supporting a more aggressive approach to share buybacks. We increased our plan for share buybacks from $300 million to $350 million on our last earnings call. And given the pullback in the stock price over the -- after the earnings call, we've taken full advantage of that to really accelerate share repurchases. We'll largely complete the $350 million in the third quarter and take another look at free cash flow or excess cash in the fourth quarter and make a decision on whether to further increase that.

That remains a priority for us. And it's supported the earnings per share growth that Ray talked about, 23% earnings per share growth in the second quarter, 12% or so for the full year this year, 64%, I think, over the last 4 years from '22 to '26. So that combination of even modest earnings growth combined with share repurchases has really fueled solid earnings per share growth for the business.

That sounds great. Well, I appreciate your time. Thanks for joining us today, and thanks, everyone, for listening in.

Thank you.

Thank you, Andrew.

Good morning, everyone, and welcome to the Lear Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, today's event is also being recorded.

At this time, I'd like to turn the floor over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's Second Quarter 2026 Earnings Call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com.

Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. As detailed in our safe harbor statement on Slide 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 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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

Now I'd like to invite Ray to begin.

Thanks, Tim. Please turn to Slide 5, which highlights our key financial metrics for the second quarter. We are continuing its momentum in the second quarter, delivering meaningful year-over-year improvement across all metrics. Sales increased 3% to $6.2 billion driving record first half revenue of over $12 billion. Core operating earnings were $313 million, a 7% increase in the quarter and approximately 9% for the first half of the year. .

Adjusted earnings per share reached $4.28, a 23% increase from the second quarter of 2025. Building on the strong growth we delivered in the first quarter. Operating cash flow increased 55% to $461 million, with free cash flow increasing 69% to $288 million for the quarter.

Slide 6 summarizes our key business and financial highlights for the quarter. We continue to execute on each of our 4 strategic priorities: extending our global leadership in Seating, expanding E-Systems margins growing our competitive advantage and 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 $2.9 billion of business awards year-to-date, with more than $2.3 billion in Seating and over $500 million in E-Systems.

Over 50% of this business is for new and conquest programs. Our leadership in Seating continued this quarter, highlighted by a significant set of awards with audio. Two of the programs are conquest wins of existing vehicles in Europe. -- and the third is for a future program in North America. In addition to complete seats, each program includes ComfortFlex application, combining our lumbar and message. FlexAir will also be incorporated into the third row of 1 vehicle. Winning these awards required an extraordinary effort. Ultimately, it was our industry-leading automation capabilities combined with our track record of quality and efficiency that secured these wins. One of our largest awards in recent history.

Additional seating wins include complete seats for a Hyundai program in North America as well as Comfort Flex awards with BMW and a North American EV automaker. In total, we won 7 new awards for Comfort Flex and Flex are applications this quarter, bringing our total modular and innovative seed product awards to 45 Automotive News recognized Lear's leadership by naming our modular Thermal Comfort Systems, a finalist for 2026 PACE Award.

Our momentum with Chinese automakers continued in both segments. Leapmotor awarded us a complete seat program for their expansion into South America, an important win as Chinese automakers grow their global footprints. In E-Systems, we continue to drive growth in our core products by securing a wire harness awards in a luxury Chinese automaker and BAIC. We continue to accelerate our capabilities through IDEA by Lear. Particularly in automation and digital tools. During the quarter, we opened our Rochester Hills advanced manufacturing integration center, hosting both customer visits and our first investor visit, with an overwhelmingly positive response. This facility showcases some of our key product and process innovations while serving as a working manufacturing facility.

Notably, the FlexAir award announced today will be produced there. The progress we have made across these strategic pillars is driving our financial performance. Our strong first half has given us confidence to raise full year guidance for revenue, operating income and free cash flow. We will cover the specific revisions later in the call.

Growth over market was approximately 2 percentage points for the total company in the quarter despite headwinds from program roll-offs such as the Escape and the Corsair and the wind-down of our noncore E-Systems products. Seating grew approximately 3 percentage points above market. Total company margins expanded 20 basis points year-over-year, while E-Systems margins expanded a significant 90 basis points, driven by a strong 155 basis points of net performance.

Seating net performance was 40 basis points, in line with our full year target. These efforts collectively drove free cash flow growth of $117 million in the quarter. which supports our capital allocation strategy, focused on accelerated share repurchases. We repurchased $100 million of shares in the second quarter. bringing our repurchases in the first half of the year to $175 million.

Given our strong cash flow and first half execution, we are raising our full year repurchase target to at least $350 million. The combination of strong financial results and disciplined capital allocation continues to drive consistent earnings per share. Our second quarter EPS increased by 23% year-over-year. reflecting our continued commitment to creating value for our shareholders. Our second quarter outperformance and full year guidance raise are a direct result of our consistent execution across our key strategic priorities.

Slide 7 provides a further breakdown of our progress on delivering long-term revenue growth and margin expansion. Nearly half of our year-to-date seating awards have been for new or conquest programs providing a strong foundation for future growth. In the quarter, we secured the most significant Seating conquest opportunity in our 2026 pipeline with the Audi business win. Our remaining 2026 pipeline is robust, including several new and conquest opportunities. Over 90% of the year-to-date business awards in E-Systems have been for either new or conquest programs.

In the quarter, Lear was awarded a replacement wire program with Renault, which included additional content previously supplied by another supplier. Several key new and conquest opportunities are expected to be awarded in the second half of this year. The rollout of our Thermal Comfort modular solutions continues to accelerate. The 7 wins this quarter bring our total ComfortFlex, ComfortMax and FlexAir Awards to 45, with 17 programs currently in production and an additional 11 launching by year-end.

Our strategic focus on Chinese automakers continues to generate new business. The Leapmotor award marks our first win with a Chinese automaker in South America, opening additional opportunities we are currently pursuing in that region. In E-Systems, we secured awards with a luxury Chinese automaker and a nonconsolidated award with BAIC. We remain on track to deliver $75 million in IDEA savings this year. having achieved approximately $35 million in the first half with savings expected to build in the second half. Restructuring savings from last year's investments Combined with actions this year are expected to total $80 million. Through the second quarter, we have generated $50 million in savings, more than half of our full year target.

Our first half net performance keeps us on track to achieve our full year margin expansion targets. Seating delivered approximately 25 basis points in the first half. while E-Systems is ahead of their full year target, having generated approximately 100 basis points. Our IDEA by Lear savings and efficiency gains are expected to accelerate in the second half to help us achieve our full year net performance targets, which supports margin expansion in both segments.

Turning to Slide 8. I will provide an update on 2 key initiatives that highlight the strength of our IDEA by Lear framework. During the quarter, we opened our advanced manufacturing integration center in Rochester Hills, a facility to showcase our industry-leading capabilities in automation and digital tools across both seating and the systems. The transformation began with the installation of our fully automated ComfortFlex in ComfortMax, seat and flex air assembly lines. Customer feedback was extremely positive, but we envision something bigger. We expanded the center to highlight examples of automation we are deploying across our global facilities. While some are prototypes, several are production-ready and being rolled out across many of our manufacturing plants today.

We added displays showcasing digital tools and automation of components in both Seating and E-Systems as well as just-in-time seating assembly. One highlight of the tour is a demonstration of our automated wire taping capability technology we gained through the acquisition of StoneShield. To put this into context, nearly 20% of our direct labor in wiring is in tape application alone. It is one of the most attractive areas to automate and one of the most difficult. We are planning to launch the first production application next year.

In Seating, we are highlighting our 2D and 3D automated sewing capabilities. Like taping and wire harness assembly trim cover sewing is a labor-intensive operation. We have over 18,000 employees in our trim cover sewing operations globally. So the opportunity is significant. Automated tune flat sowing is in production today. We have over 200 automated sewing cells globally, reducing our labor in these applications by 50%. And 3D selling is more complex. But by combining our material handling expertise and our manufacturing integration capability, we believe we have a path to an automated solution.

To bring in our just-in-time automation story to Rochester Hills, we installed cells demonstrating our automated seat finesse and end-of-line testing capabilities. Globally, we have over 50 automated seat finesse cells and over 40 end-of-line testing cells either in production or being deployed, delivering a combined $14 million in annual savings. Since the beginning of June, we have hosted 11 customer meetings in an initial investor visit, and the feedback has been outstanding. Customers have told us directly there's no automotive supplier in our product segments doing more to accelerate the use of automation than Lear. The Automotive News PACE judge is also toward the facility to see our automated ComfortFlex and ComfortMax lines firsthand, which was instrumental in Lear being named a finalist for a 2026 PACE Award.

IDEA by Lear is truly a global framework, deployed across all regions and both segments. I want to share another example of that leadership. During the quarter, we successfully piloted a lights-out shift, using 12 fully automated injection molding machines at our connection systems plant in Wismar, Germany, producing low-voltage and high-voltage connectors.

Lights out-automate automation of this kind is only possible when digital tools and automated inspection and packing systems are fully integrated to monitor and manage the process in real time. This is exactly what idea by Lear enables. This is a powerful proof point, demonstrating the art of the possible when our full suite of manufacturing integration capabilities is brought together to enable a new operating model. We will continue to refine these solutions and pursue additional opportunities for similar automation across our portfolio of products. Our commitment to automation, AI and digital tools is driving real tangible operating performance. positioning Lear years ahead of our competition. I couldn't be more proud of the work that we've done and the team has done to continue to extend our leadership position and look forward to demonstrating it to additional customers and investors in the months ahead.

With that, I'll turn it over to -- turn the call over to Jason for a financial review.

Thanks, Ray. Slide 10 shows vehicle production and key exchange rates for the second quarter. Global production was flat compared to the same period last year and was down less than 1% on a Lear sales weighted basis. Production volumes were flat in North America but decreased by 2% in Europe and 4% in China. U.S. dollar weakened against both the euro and the RMB.

Turning to Slide 11. I will highlight our financial results for the second quarter of 2026. Our sales increased 3% year-over-year to $6.2 billion. Organic sales were up 1%, reflecting the addition of new business in Seating. Core operating earnings were $313 million compared to $292 million last year, driven primarily by strong net operating performance.

Adjusted earnings per share were $4.28 a as compared to $3.47 a year ago, reflecting higher earnings and the benefit of our accelerated share repurchase program. Second quarter operating cash flow increased to $461 million up from $296 million last year due to higher core operating earnings and an improvement in working capital. This improvement was partially driven by a reduction in inventories as our idea by Lear initiatives continue to improve inventory management as well as from the timing of tariff payments and rate cuts.

Slide 12 explains the variance in sales and adjusted operating margins for the second quarter in the Seating segment. Sales for the second quarter were $4.6 billion, an increase of $150 million or 3% from 2025. Organic sales were up 2%, reflecting the addition of new business, including the Series M6 and M7 in China, the BMW iX3 in Europe and the Jeep Cherokee in North America, partially offset by lower volumes on it platforms in China. Adjusted earnings were $312 million, up $13 million or 4% compared to 2025 with adjusted operating margins of 6.7%. Operating margins were flat compared to last year as the benefit of net performance in our margin-accretive backlog were offset by lower volumes on Lear platforms and the impact of foreign exchange.

Slide 13 explains the variance in sales and adjusted operating margins for the second quarter in the E-Systems segment. Sales for the second quarter were $1.6 billion, an increase of $28 million or 2% from 2025. Organic sales were down 2%, driven by lower volumes on Lear platforms, including several VW programs in China and the Mustang Make in North America, as well as the build-out of the Ford Escape, Focus and Lincoln Corsair reflected in our backlog. Adjusted earnings were $91 million or 5.8% of sales compared to $76 million and 4.9% of sales in 2025. Operating margins -- higher operating margins were driven by a strong operating performance, partially offset by the build-out of the programs in our backlog and the wind down of discontinued product lines and lower volumes on their platforms. E-Systems net operating performance exceeded our initial target through the first half, demonstrating strong execution across the segment. We expect this positive momentum to continue through the remainder of the year.

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 and mobility global forecast. At the midpoint of our guidance range, we assume that global industry production will be down less than 2% on a Lear sales weighted basis compared to 2025, down from 1% in our prior outlook, primarily due to lower production assumptions for China, partially offset by higher volumes in North America. We have adjusted our currency estimates, which now assumes an average euro exchange rate of $1.16 per euro and an average Chinese RMB exchange rate of RMB 6.82 to 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. Our strong financial results in the first half of the year give us confidence to increase our 2026 outlook for net sales for operating earnings and free cash flow from the midpoint of our prior outlook. The primary adjustment to the midpoint of our guidance are as follows: Revenue is now expected to be approximately $23.8 billion or 1% higher than our previous guidance of $23.6 billion. Our operating earnings are expected to be approximately $1.14 billion or 2% higher than our prior guidance of $1.15 billion. Operating cash flow is expected to be approximately $1.3 billion, and our free cash flow is expected to be approximately $640 million at the midpoint of our guidance, a $40 million increase reflecting higher earnings and improved working capital.

Slide 16 compares our July 2026 outlook to the midpoint of our prior outlook. We increased our revenue midpoint by approximately $165 million, driven by higher production volumes and Lear programs, favorable foreign exchange and commodity pass-through impacts partially offset by the effects of changes in U.S. tariff policy. The midpoint of our core operating earnings outlook has increased by $25 million to $1.14 billion with operating margins of 4.8%. And -- the improvement is primarily due to higher production volumes on Lear platforms. We've included detailed walks to the midpoints of our guidance for Seating and E-Systems in the appendix.

Slide 17 compares our second half outlook to our first half actual results for sales and core operating earnings. We are forecasting the midpoint of our to be approximately $11.7 billion down $289 million from our first half actual results, primarily driven by 3 factors: lower volumes from seasonal shutdowns in the third quarter, particularly in Europe, fewer production days due to Lear's fiscal calendar and planned downtime associated with the changeover of GM's full-size trucks.

These revenue headwinds are expected to be partially offset by the addition of new seating business and the nonrecurrence of the onetime adjustments to reverse EPA-related tariff recoveries and the application of import adjustment credits applied retroactively and recorded in the first quarter. The midpoint of our second half operating income outlook is $529 million. with operating margins of 4.5%. The reduction in operating income reflects the expected impact from lower volumes on Lear platforms, partially offset by strong net performance driven by Idea initiatives, restructuring savings and commercial negotiations. Detail walks to the midpoints of our second half outlook for Seating and E-Systems are included in the amendments.

Moving to Slide 18, we highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4%, and our debt structure has a weighted average maturity of approximately 11 years. In addition, we have $3 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders.

During the second quarter, our strong cash flow enabled us to accelerate our share repurchases to $100 million worth of stock, bringing total repurchases for the first half of the year to $175 million and we continued to repurchase additional shares throughout the quiet period. For the full year, we plan to repurchase at least $350 million worth of stack. Since initiating the share repurchase program in 2011, we have repurchased $6.1 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends. Our current share repurchase authorization has approximately $600 million remaining, which allows us to repurchase shares through December 31, 2026.

Now I'll turn it back to Ray for some closing thoughts.

Thanks, Jason. As we reflect on the second quarter, I'm very proud of what our team has accomplished. We delivered record first half revenue of over $12 billion, grew our core operating earnings by approximately 9% and increased our adjusted earnings per share by 23%, all while navigating a dynamic and uncertain operating environment. Our results this quarter demonstrate the strength of our strategy and the quality of our execution. We are winning meaningful new business with Audi, Leapmotor and with customers around the world, while simultaneously expanding margins, accelerating automation and returning significant capital to our shareholders. IDEA by Lear is not a future initiative. It is delivering real measurable results today from our advanced manufacturing integration center in Rochester Hills to light out pilot in Wismar, we are proving that Lear is years ahead of our competition in operational excellence. We entered the second half of 2026 with confidence. We have raised our full year guidance, we have momentum in both segments, and we have a clear and disciplined path to creating long-term value for our shareholders, our customers and our employees.

We will now open up the call for your questions.

[Operator Instructions] Our first question today comes from Dan Levy from Barclays.

Thank you for taking the questions. I wanted to start with the question of just unpacking first half to second half, and I see on Slide 17, thank you've laid out some of the dynamics if we just do some of the back of the envelope on the implied volume decline and what you're getting versus performance, it does imply sort of a steeper decremental margin on that lost volume. So maybe you can just unpack why that volume piece is so heavily outweighing the performance? And maybe just any other comments on what other might be within that performance? What are you assuming in sort of the EPA tariff refunds, et cetera?

Yes. Dan, if you look at the change in operating income relative to sales first half to second half, it does appear to be heavier downward conversion than you would ordinarily expect. And there are some unusual factors that are driving that even outside of volume backlog and the wind down you have, for example, the impact of the tariff refunds. So you have a $190 million higher revenue in the second half versus the first half just because of that with no earnings attached to it.

But if you just sort of combine that volume mix, backlog wind down together, the sales reduction is about $664 million. And the downward conversion on that is still a bit heavy at 25% or $167 million. And if you unpack that into sort of the basic building blocks of that, you have your typical variable margin conversion on both the volume reduction and the wind down, partially offset by the backlog rolling on at or above our segment average margins. And so what's happening there as you have, for example, with our new business with Audi in Europe, you have a new facility, you have a new fixed cost structure. And so you have that volume rolling on at segment margins. and you have volume reductions on existing platforms rolling off a variable margin at the variable margin. And so the combination of the 2 is what's leading to that a bit heavier than ordinary conversion.

I think that the other thing to highlight here, too, is this first -- in the first half to second half dynamic is there's 2 unique factors that are particularly impacting the second half. We have one is the change in our fiscal calendar, which ended up putting more workdays in the first quarter and fewer work days into the fourth quarter just as we roll forward our typical 4-4-5 calendar. That was the impact that resulted from that. And we highlighted that on our first quarter earnings call where we benefited a little bit on the volume line as a result of that.

The other factor is GM's changeover of the full-size pickup that starts in the second half of this year. And so that's a heavily vertically integrated platform -- and so that -- the conversion on that is a little bit heavier than, say, an average program in our Seating business.

And so I think the other important point, looking at first half to second half is that once you work through the impact of lower volumes, partially offset by the backlog is that there is strong net operating performance factored into the second half outlook with 55 basis points of improvement sequentially -- both business segments have sequential improvements in operating performance that we're anticipating. And so the momentum that we have built carried into this year from a strong finish to last year and the strong performance in the first half of this year. we see that continuing in the second half of the year. So we do expect that to be positively impacting the second half of the year. And your follow-up question was on the IEEPA tariffs. Can you just repeat that? I missed the last part.

I think -- it was just the impact of IEEPA, but I think you addressed that as far as the refunds piece. As a follow-up wanted to ask the margin question zooming out. But I think the challenge that you've had in the past is you put up very good net performance, but there's just been number of different issues between volume mix that have weighed down the margins. And so I guess, zooming out here, what is the potential now for finally, net performance to begin to outweigh volume mix dynamics and to grind that broader margin outlook higher? And maybe you could double-click specifically on E-Systems is where I think last month, you talked about path to 8% that was somewhat volume dependent, but it sounds like there's a few things going on there.

Yes. I think we were anticipating a question on this, and I'm going to go into a little bit more detail than the question you've just asked. We're in the middle of our planning process for 2027. So obviously, we're thinking about the revenue outlook for next year and margin outlook in both businesses, not just next year but over the next several years. And so a subset of this will be what we see specifically for E-Systems.

But let me just kind of take a step back and talk about what we're seeing in terms of our outlook for growth and what that may mean for margins longer term in both businesses. We have tremendous positive momentum with new business awards and conquest words in both business segments. The strategy that we outlined several years ago and been executing against that is has really been validated through the new business awards that we've announced over the last several earnings calls. What we're doing with Idea by Lear has positioned us as the clear industry leader in Seating, through both product and process innovation and our intense focus on quality, cost and our manufacturing footprint in E-Systems has led to important new business awards in that segment as well.

Our customers have clearer strategies for their future products. And as a result, the cadence of sourcing is stabilized and more closely resembles what we experienced before sort of that start-stop transition of the industry from ICE to EVs. And as a result of that, we have more clarity in our 3-year outlook for revenues, and we plan to return to our historical practice of providing a 3-year backlog with our fourth quarter earnings call and our initial 2027 guidance early next year. As we sit here today, we see a very robust 2029 backlog, very likely better than either '27 or '28 backlog, which collectively are also looking robust.

On our fourth quarter earnings call, we announced the North America Truck Conquest award and seeding the largest in our history, -- plus the GM Orion, full-size truck and SUV award. On our first quarter call, we announced the GMT1 SUV Wire Award and the key Electronics award with a North American OEM. On this call, we announced the key award with Audi both conquest and new. And over the last 3 earnings calls, we've announced a significant number of new awards with the Chinese OEMs in China and outside of China. On the last call, we said our 2026 to '28 backlog had improved by $400 million from what we had on contract at the start of the year. That's still the case, perhaps maybe a bit more weighted towards '28 than '27 as we initially saw it.

But with all that said, the full benefit of the strategy and the resulting new business awards will really show itself in 2029. 2028 will also be a pretty solid year. But 2029 is the year where a lot of this new business launches and the full revenue and earnings power associated with that will show up. Sort of offsetting that robust backlog in the near term, we have a few factors to work through. We have the wind down of the noncore electronics products you highlighted sort of obscuring the net performance in E-Systems. That's $90 million of revenue that goes away this year, $235 million next year that will weigh on the 2027 revenue outlook.

We also have a little bit of a challenging setup on production volumes on key programs, which, again, we're in the middle of the planning process, and this will continue to be fluid. But just a couple of things to highlight there. And if you look at Mobility Global's forecast, I think you'll see this as well. JLR's had a fantastic year recovering from that cyber impact last year that disrupted their production Ford on the Explorer and Stellantis with the Jeep Grand Wagoneer also had really strong years. So collectively, I think we expect those 3 platforms to pull back a bit going into next year. you heard General Motors' comments about the full-size truck and SUV volumes being sort of flat next year with this year as they change over to the new model and launch Orion before going higher in 2028.

And lastly, you've seen significant weakness in the China domestic market through the first half of this year in some of our important European customers have talked about lower volumes in that market. So as we finalize our revenue outlook for next year, those are just a few examples of what we're working through. And of course, other changes could be announced between now and the end of the year. For example, I wouldn't be surprised to see try and step in and do something to try and repair the weak demand environment that exists in that market.

Now on the margin side, and what we're seeing coming into -- going into next year and beyond, Frank and Nick's teams have made tremendous progress on idea savings, restructuring savings and other after collectively have us on track to meet or exceed the 40 and 80 basis points of net performance in C&E systems, respectively, this year. We have a very robust pipeline of new opportunities and we expect another 40 and 80 basis points in C&E systems net performance next year. And that net performance underwrites a multiyear plan of margin improvement in E-Systems in particular. We're not happy with where margins are right now in that business.

We've made meaningful progress in the first half of the year. We do have the fact that the wind down of products that we exited plus the build-out of the escape course are focus sort of offsetting the benefit of net performance. But as we get through that sort of next couple of years, complete the wind down, you'll be able to more fully see the margin power potential in the systems of net performance. And so it's not likely in '27, but as you progress through that '27, '28, '29 time frame, we do expect steady improvement in operating margins, any systems in particular and really for the company overall.

Our next question comes from Joe Spak from UBS.

Thanks, Jason, and that is incredibly detailed. So maybe just shifting gears a little bit back to '26. I know you provided a lot of sort of the changes in the outlook now versus prior and half-over-half. I guess now versus prior, though, is compared to February, and I know you sort of had already previously talked about sort of the change in tariff recoveries. Was there any sort of change there? Is the half-over-half benefit on tariff recovery is really just a function of like it's less of a headwind half over half. And then maybe finally, like previously you talked about $400 million of cushion on either side of the guidance and how you raised the bottom end. So some of that cushion is taken away. But would be curious to sort of get your sense of what type of cushion you think is left in the full year view?

Sure. Starting on the tariff side, it's really the refunds that we recorded in the first quarter that related to 2025, both on the IEEPA tariffs and then the export credits. And so -- the only thing that's changed with tariffs in our outlook is the impact of the 301 tariffs and 122 tariffs were -- are about $40 million less than what we had assumed. So now the year-over-year impact on revenue is about $40 million more than it was previously. Nothing else has changed in terms of how it impacts earnings. It's just a mechanical impact on revenue.

In terms of the guidance, I think what you outlined is exactly what we had said previously. The only thing that has changed, Joe, from sort of mid-second quarter and from our first quarter earnings call, is the magnitude of the weakness in China. And so that is really influencing the magnitude of our guidance raise. And had it not been for the sort of pervasive weakness in that market, we likely would have raised guidance a little bit more today and also probably would have felt better today about the high end of the guidance range. And you just look at domestic sales in China, they're down 20% through the first half of the year. I think as the first half is playing out, the expectation was that by the time you get to the middle of the year and into the second half of the year, there would be an improvement in demand in that market and a recovery in sales.

And what we've embedded into our guidance is continued weakness in China in the second half of the year, particularly on our global customers, but also, in certain cases, and select Chinese automakers as well. And so that's probably the biggest thing that has changed. And in terms of where we end up within the range that we're guiding to today, I think that's probably the biggest wildcard. If China steps in and does something to incentivize vehicle purchases, and volumes recover, that could push us back towards the high end of the guidance range.

We've seen incredible resilience in the North America market, particularly on the truck side. So if that also could drive us to the high end of the range. And then the low end of the range is in place to protect against perhaps economic weakness stemming from the continued conflict in Iran and the impact that, that may have and vehicle purchase decisions in North America or Europe because of affordability or other associated reasons.

So that's what we've tried to protect for at the low end of the guidance range. And we think as we sit here today, we're pretty balanced at the midpoint. We're hopeful that some changes happen that drive us towards the high end, and we've protected for maybe some unexpected begins at the low end.

Okay. And then, Ray, you mentioned the let motor win in South America, and you sort of -- I think you alluded to some also potential future business there. And I'm just curious, like my assumption would be that you've got some existing and maybe excess capacity in South America. So -- is this sort of an opportunity to sort of refill some of those facilities there? Or is there additional investment needed like major investment needs, I guess, to sort of take on that business?

No, there's no major investment required. We do have capacity that's available to us. But I think something that's been an important ingredient that not only Leapmotor, but with Audi was our capabilities, our technology or innovation. I think we've done a really nice job of -- with the Chinese and with the traditional OEMs to separate ourselves, when it comes to efficiency, our customers at this point, obviously, there's a lot of pressure on cost innovation, implementation of speed to market. And everything that we've been really developing internally through acquisitions, organic positioning ourselves with human capital around software development, digital tools and capital helps us.

And so yes, there's -- it's not going to be a major investment because we do have open capacity. But in addition to that, one of the right spots is just the recognition we're getting from our customers is the Audi win was -- I mean equally as important as 1 of the wins we talked about earlier this year. It was a significant win, and it was really valued from Audi's perspective and based on our capabilities. And I think generally, I used the word survival mentality in a lot of respects in the most diplomatic way that we can, but the companies that are differentiating themselves with technology. It's very attractive to the Chinese OEMs.

And now more importantly, even to the traditional OEMs, and it's really how we've been able to think separate ourselves. So there was a simple answer to your question, but I did want to expand on it because there's a lot that's going into how the OEs are looking at the supply base differently and the needs that they have for technology. And so the importance of what we've been investing in over the last 10 years around digital AI tools and automation couldn't be more important and critical to how our growth is, and Jason mentioned it, man, I'm happy where we're at with our growth. And you look at contracts in hand, starts in '28, '29 and '30 mean we're in a solid position of real strong growth. And so -- the teams here right now, we're continue to push it. They're doing a great job. I think there's going to be more good news in the second half. We just have to lock down those contracts.

Just to add one thing to Ray's comments on the award of Leapmotor in South America we are the, by far, the largest seat supplier in that market. We do have capacity. In this particular case, we motors will be building this vehicle in Stellantis facility where we have the seats today. And so the capital investment is pretty limited. As a result of that, we have the capacity in place. And this is the first program of what may be several programs ultimately that can be produced in the same just-in-time footprint that we have today. .

Our next question comes from Itay Michaeli from TD Cowen.

Just -- just a couple of follow-ups. First, just on the second half outlook in China. I was hoping you could maybe quantify a bit more roughly as to kind of how you're thinking about the assumptions for domestic sales there and production in the midpoint of your guide. It looks like overall volume mix, second half is down 6% year-over-year. Just be curious how much of that is tied to China?

Yes. I think the biggest challenge that we see is in the China market. Historically, the fourth quarter is very strong in China. So it's tempers the weakness that I'm describing somewhat. But what the Chinese automakers have done has supplemented the weak demand in the domestic market with a ratcheting of exports. And so the Chinese automakers are exporting more than the global automakers from that market. Although the global automakers also export from that market, and that helps to offset maybe some of the weak domestic demand.

But I think the China market is what we're most focused on as we sort of assess the range of outcomes for the balance of this year. And so we have built into our guidance a continuation of the weakness that we saw in the first half of the year continuing into the second half of the year.

Now what we didn't talk about and it didn't include in the material, but in our nonconsolidated joint venture joint ventures in China. We do see a bit of an offset to that. We actually saw revenue growth in the second quarter in our nonconsolidated JVs. And so if you look at growth over market on that basis rather than just a consolidated business, there's a little bit of an offset, and that's highly concentrated with Chinese OEM business for us. So I expect weakness to continue in the domestic market. I don't have any specific figures to share with you.

I guess maybe one other data point that's sort of embedded in our outlook is continued share shift from traditional customers to the Chinese automakers. And as we revised our guidance for the year, that the percentage market share change went from roughly 1.5% this year to 3%. And so when we came into the year, we expected global customers to lose about 1.5% share to the Chinese. And now we've embedded 3%. So we've tried to capture what's happening in that market, but it's very dynamic.

And I think another important point there is we have been very successful at growing with the Chinese automakers we've got $550 million of new business awards year-to-date. So what's that almost 20% of our new business awards have been with the Chinese automakers and less than 10% of our revenue today is with Chinese OEMs. So a disproportionate share of our growth is with the Chinese automakers, which I think helps us longer term, we're well on track to get to 50% of our revenue being with the Chinese automakers in 2027, and then that inflects much higher as you kind of work your way through the long-range planning time horizon, say, over the next 3 years.

So I think we're doing the right things. We're focusing on the right customers -- we certainly could grow faster with them if we chose to, but we're protecting returns. Our return expectation is unchanged. The margin profile of our business in that market is relatively unchanged and strong -- and that's sort of the way we're looking at that market.

That's very helpful. As a quick follow-up, maybe zooming out in a couple of years, as your kind of backlog begins to kind of inflect in '28 and then, of course, '29 I was hoping you could maybe dimension roughly kind of how we should think about the company's organic growth capabilities. And I know it's still early. And also just kind of how you're thinking about kind of CapEx to revenue through that time period?

Yes. I think if you look out to that '28, '29, '30 time frame, what we're seeing at this stage is the potential to return to our historical growth above market profile, so call it 3 or 4 percentage points of both above market. We're still in the planning process. There are still a lot of moving parts. It's a dynamic market, but we're targeting to get this business back into that range. And if you look at all the business awards that we've achieved over the last 3 quarters, that positions us to achieve that in that time frame. And so -- what was the follow-up question. You have 1 more subset to that, I think I missed.

Just the CapEx intensity through that ramp?

Yes, we don't see a meaningful change in our CapEx footprint. It's held steady -- as we look at this year, 2.8%, I think, is in line with our 5-year average, 10-year average. And really, what's happening there is we're investing more in automation and we're offsetting that through efficiencies as a result of all of our acquisitions of manufacturing integrators. We've reduced the cost of our equipment by 20% or more through those acquisitions. And so that sort of netting off the impact of our stepped-up investments in Automate.

To point out if I can, just to continue with that, what Jason was saying, it's important to talk about how we are looking at capital through the acquisitions that we've made, ASI, Stone Shield, you name it, over these last 10 years, we've really discovered a way to get that capital in a different way. One, we're seeing significant reductions in our capital cost because we're actually manufacturing our own capital for purpose-built use within our plants that we secure only for Lear Corporation, which has helped us significantly. I think of it almost like a product through how we engineer costs out. So it's much, much more efficient. Two, -- and I just had a review with Nick and the team and Frank has been very similar. We have modular capital stations where we can flex those. And we've talked about how we flex them across different product portfolios with our customers. We can also flex those across multiple different plants within our internal use.

And so we're getting much better at it. We've seen significant improvements already, like Jason just mentioned, 20%, but the capital is just with our own organic capabilities through acquisitions have really opened our eyes and how we're looking at capital long term and Jason mentioned that, we've still got more work to do on the long-range plan, but I'll see significant changes there, if not reductions.

Our next question comes from Colin Langan from Wells Fargo.

Any color on how we should think about margins sequentially playing out? You kind of mentioned with maybe the GM launched, does that have a more adverse impact in Q3 than normal? And then maybe it starts to normalize as the launch goes underway in Q4? Any unusual volatility we should think about Q3 to Q4?

Yes, Colin, I think that the normal seasonal reductions in revenue and volumes that we see in the third quarter will weigh on the third quarter margins in both segments. We're not providing a pinpoint guidance by quarter today, but I can sort of frame up the way we're looking at the third quarter. We would expect revenues to be $5.8 billion to $5.9 billion in the quarter. And that would be about a $150 million increase in revenues year-over-year. We expect Seating margins in the low to mid-6s in E-Systems in the low 4s. So both segments and total company margins would be up on that basis, they'd be up slightly from the prior year.

With the production schedule is fairly well set at this point, our ongoing commercial negotiations will be the biggest swing factor that determines where we come out in the quarter. And as we usually do, we'll provide a mid-quarter update at investor conference this quarter will be in September. And so we can fill in with some additional color there.

So what that means is Q3 margins will be lower than the fourth quarter as we sit here today, primarily as a result of just that lower revenue due to the summer shutdowns in Europe and maybe to a lesser extent, on the commodity side with copper and E-Systems where we benefited in the first half of the year through revaluing that inventory. And in the third quarter, you had sort of that gap before you get the recovery for the higher copper prices, which will show up in the fourth quarter. Those are kind of the key factors in the third and fourth quarter to think about. .

Okay. That's very helpful. And just a lot of discussion on China. And the risk of them sort of taking a lot of share from Europe. Any color today, where do you stand with the locals in China? And are you on a lot of the vehicles that are being sort of imported export -- sorry, exported out of China today? Is that an opportunity or a threat as that happens?

Yes. As we sit here today, we're at 44% of our China revenues with the Chinese automakers. That grows to 50% or more next year and continues on an upward trajectory beyond that. We are very focused in we're -- again, we're in the middle of our long-range plan process, but we are very focused on targeting Chinese programs that are -- that have an export element to them. We do have business within China today that is exported out of that market to Europe and elsewhere with the Chinese automakers and with non-Chinese automakers.

But that is I would say we're a bit under-indexed on the export front, just given our customer mix and the customers that are exporting from that market. So in the near term, it's a bit of a risk I think longer term, we've got a good plan to close that gap and it becomes an opportunity ultimately.

And then I think as the market evolves, it's likely that we see more localization of production Certainly, if you look at what the EU is saying, what they're seeing in South America and Brazil about restricting or penalizing imports over time that production will be localized. We still believe it's the right thing to do to focus on programs that are exported because incumbency would help as those programs are localized, but your footprint in the regions they're localized too, is also important. So -- those are some of the factors we're thinking through as we plan for the impact of Chinese automakers displacing traditional customer.

But I think it's important, and we've executed this plan. We've talked about our strength around technology innovation around the manufacturing that we believe that we can still win with the traditional OEs even though their market share might be shrinking. We're growing with those, and we've proven that. I mean to the conquest wins we've mentioned, both in E-Systems and Seating.

And we also believe that we'll win very selectively with the domestic Chinese, and we're doing that. We're very strategic in how we look at it, knowing that policy changes and other things could impact the exporting volume that we're seeing today. So we spend a lot of time on strategy longer term in that particular area on growth. And I think that has really proven to benefit Lear Corporation.

And the other one that we've said is that with the Japanese OEMs, there seems to be a door that's open that we're taking advantage of, and we continue to see opportunities that we'll be able to grow our business. So I think between those 3, and we've said this consistently, we believe that we'll still have a very strong backlog, and that's exactly what we're producing. And so we have executed that plan. We will manage it based on returns and how we think strategically different OEMs will play out as far as volume and success in the marketplace.

And I think the combination of patients, our technology innovation, the way we're separating ourselves we're executing to what we said we'd do a year ago. And so even though there's particular threats in the market, we're delivering on what we committed to our investors on our growth plan around good return business within each region.

And our final question today comes from Emmanuel Rosner from Wolfe Research.

I actually have 2 questions. I wanted to come back on your comments at the beginning of the call around some of the puts and takes for growth and cadence of growth over the next few years. I understand that obviously, a lot of this backlog is more '28 and even more '29, wave it than '27. But it sounded a little bit like your maybe talking down '27 revenue expectations in a way. And I just want to make sure that I understand exactly your message. So your backlog gets published for next year's it was like $725 million.

Maybe there's a little bit more now from a portion of the extra $400 million that you've been winning since then. There's some electronics wind out. But look, consensus is sort of like looking for maybe, I don't know, $700 million of revenue growth in 2027. Are you basically saying that production, especially based on the underlying platform could be less than flat and then with the wind down, et cetera. Are you looking at just limited organic growth into next year, but then acceleration later on?

I think your last comment is right. It's -- we do expect limited growth in '27 despite the more than $700 million backlog for the reasons you just articulated, and then returning to growth above market in '28 and even more so in '29. And I think -- in terms of 2027, you've got the wind down, which we just kind of reconfirm what the impact of that is for next year. So for your awareness and investors' awareness. But also wanted to highlight some of the headwinds on production volumes that could impact us next year.

We're early in the planning process. There's lots of moving parts subject to change, but I did we did want to make it clear that we had some strength on a number of platforms this year that are important to us. JLR is an important customer in both segments. They've had an unusually strong year Range Rover, Range Rover Sport, founder across the board, fantastic year. And if you look at mobility Global's forecast, you get a sense of what's expected for next year.

So I just don't want investors to miss that as they're thinking about what to expect from Lear next year. While at the same time, I don't want investors to lose sight of the remarkable momentum and progress that we have in terms of new business awards in both business segments on the right platforms with the right customers and just the tremendous upside that exists with that as well. And so it's -- that's what we were trying to explain in terms of how we answered that question, Emmanuel.

Yes. No, that's very clear. And then I guess longer term, then, so this Audi win today and any way to frame it for us, both in terms of start of production, maybe sort of like magnitude of either volume or revenue, I think that it was post a piece of it was either conquest, but a of that is sort of like new business. And I believe at some point during this quarter, you were sort of framing it as something that could be nearly as large as the your all-time record wins from a couple of quarters or so ago. So just any framing there in terms of the opportunity, even though it's longer term, it would be helpful.

Yes. So that launch is towards tail end of '28 and programs ramp up through '29 and into' '30. One of the 3 programs, I think, launches in 2030. And in terms of magnitude, we don't want to put a pinpoint number on it, but it's about 75% is large as our largest conquest award that we announced at the end of last year. So it's multiple hundreds of millions of dollars of revenue. I'll say that. without putting a specific number on it, and the biggest backlog impact will probably be in '29 for that program.

Yes. Just I think the remaining people on the phone right now, Lear team around the world, I just want to, again, thank you for an incredible quarter, an incredible job of great wins accomplishments, both in E-Systems and Seating across the board. You guys continue to keep delivering IDEA by Lear is differentiating Lear in a completely different way with how we're performing on net performance, how we're performing in our manufacturing plants, our administrative offices around the world and also how we're really differentiating ourselves with true growth opportunities with new business wins.

So thank you for a great quarter, and let's get to work on the second half. Thank you.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

A session with Lear as part of Wolfe Research Autos and Mobility Conference. My name is Emmanuel Rosner. I'm the lead autos analyst here at Wolfe Research. I'm extremely pleased to have with me today, Lear's CEO, Ray Scott; and Lear's CFO, Jason Cardew.

Lear, as you all know, is one of the leading global Tier 1 suppliers built around two main businesses, Seating, where Lear is a clear market leader, and E-Systems, which is the electrical and electronic distribution arm. Lear is also at the forefront of leveraging AI and automation, driving significant cost efficiencies. And it has had a strong start to the year, a record run of conquest wins across both segments and a full year outlook that the team has so far left unchanged. So to discuss these dynamics and more, thank you so much for being with us. I look forward to the conversation.

Yes. Thanks, Emmanuel. It's great to be here.

Maybe as we begin, Ray, can you give us a general update on the business?

Yes. Well, Emmanuel, we just had a town hall meeting yesterday because I really wanted to discuss with the team and say thank you to the team for all the things that we've accomplished. It's hard to believe it's 6 months into this year. But we had a good first quarter. Obviously, we're in a position to have a solid second quarter. We're in a really good position financially. But I think what's really important is the new business wins. And what I want to do is really thank the team because it's really been outstanding. We ended last year, I was talking about a major conquest win in Seating with a North American OEM for some truck business. We secured that, we were able to announce that with the fourth quarter earnings call. And then equally as important with the next earnings call, we announced significant wins in E-Systems. And so I feel very comfortable and confident that we're on the cusp of another major announcement here.

We've a lot work to do still with this particular OEM, but that's -- it's coming together nicely in Seating. So going from the Seating awards to the E-Systems awards to hopefully not in the too distant future, we could have another major announcement in Seating. And so things are going extremely well. The backlog or the pipeline is still very strong, $5 billion in Seating, $2 billion in E-Systems, won supplier of the year. And this has been something that I really wanted to talk to the team about globally because for the first time in Lear's history, both E-Systems and Seating were recognized as the best supplier supporting General Motors globally. And so it was a very unique opportunity for me to recognize the team because I think it really shows how we're separating ourselves not just from a performance perspective, but from a customer perspective, really focusing on the customer delivering what the customers are looking for and really continuing to execute at a level that exceeds our expectations.

And so I couldn't be more proud of what we've accomplished already this year. And I think -- and you mentioned a little bit about this, but the continuation, the adoption of technology innovation in our manufacturing plants and our products. Emmanuel, we've been at this for 10 years. It's interesting all the buzzwords to talk about AI and the digital transformation and automation within the manufacturing plant. We've been securing and acquiring great companies over that 10-year span with ASI, InTouch, the Thagora, WIP Automation, IGB, Kongsberg, all putting us and most recently, StoneShield with the automation of taping in our wire harness plants. All that is coming together really nice. And we're just at our facility in Rochester Hills. I extend an open invitation to Emmanuel. Love to have you out there. I'd love you to see it because I think that's what's really differentiating our company.

We have two great product divisions, but at the heart of what we're doing is technology and innovation around manufacturing. And it's designed for our personal uses. And so it's an area that we've been able to accelerate. I think last year, and why we're putting ourselves out there for our investors. We really drove $75 million of improvements or $70 million last year, $75 million is the target this year. So we continue to really pressure the company around continuing to drive efficiency, improvements within our manufacturing plants. But this Rochester Hills facility really illustrates, and we've had customers come through. The feedback we're getting is, boy, no one's really getting at it the way you're getting at it. And I really believe it's a defensible moat. It's something that you can't replicate.

We've been at this for 10 years. Why I extend the invitation Emmanuel to you. I think it'd be really important for you to see what we're doing because when you see it at the core, what's in production, how we're driving technology, how we're really transforming the digital AI capabilities within our plants really becomes clear. And these are things that are not in theory. They're in our manufacturing facilities today. And so things like the Orion facility that we're putting up in Michigan later this year will be the benchmark. It will have all the latest technologies. The new facilities we're putting in components, what we're doing within wiring are really changing the way you think about manufacturing. And I think about this way, maybe it's the right adjective or not, but our diversification of manufacturing capabilities are very unique. From E-Systems to Seating, we have a broad understanding of how to manufacture under all kinds of different applications.

And when you bring technology innovation that is organic through acquisitions or organic investments we've made, it revolutionizes the way you think about the manufacturing plant and the products. And so the combination of technology and manufacturing capabilities are really coming together. And that's what really excites me right now is that, now we've talked about this for some time, but we have now 38 contract awards with modular components and flex there. The awards that we're winning in Seating are focused on technology and innovation. I've talked about it before, where the North American OEM did an audit of our capabilities and technology and awarded it on the fact that we can produce at a different rate, a different efficiency, different quality level.

And so we have a lot more work to do, Emmanuel. I said this to the team yesterday. I'm really proud of what we've accomplished in the first 6 months. We've got another 6 months. And we got next year, we got the following year. We're not content with where we're at. And we have to constantly push this industry that we're in, call it, survival mentality with a focus on how you survive and make sure you're driving technology is working. I'm happy where we're at. Like I said, that we have more work to do, but I really like to extend an invitation Emmanuel for you to see what we're doing because I think you would have a really good understanding how we're differentiating ourselves.

Yes, that sounds good. I'm looking forward to it. And then focusing maybe on the current quarter, you recently reiterated that the second quarter is shaping up to be strong. Can you just remind us how you're tracking for revenue, margins, free cash flow for Q2 and touch upon some of the puts and takes in the second quarter versus the start of the year maybe?

Sure. Yes, the second quarter is continuing to track in line or slightly better than how we initially saw it at the start of the quarter. We expect revenues of $6.1 billion to $6.2 billion in the second quarter with operating income at $300 million or just above that. Free cash flow, I think, has been a particular highlight. It's approaching $250 million in the second quarter. So significant positive free cash flow, which is really allowing us to accelerate our share repurchases this year. Initially, we planned on buying back $300 million. I think we're on track now to buy back $350 million. And through the second quarter, it looks like we'll be at about $175 million of share repurchases. So we're being pretty aggressive to take advantage of the strong free cash flow to return that cash to shareholders.

In terms of operating margins, we expect E-Systems to be around 5.4%, maybe a little bit better in the second quarter and Seating to be in the mid-6s. Both of those could be a little bit higher, depending on how some of our commercial negotiations turned out here late in the quarter. The first quarter margins were higher in both segments. But you may recall, we had this kind of unique issue with the tariff refunds, the accounting for that. So we had $175 million reduction in revenue that had no corresponding impact on earnings. And so Seating and E-Systems margins were a bit inflated in the first quarter as a result of that 20 basis points in Seating and 40 basis points in E-Systems.

And then also in E-Systems, we did benefit from the run-up in copper prices. We revalued our inventory, and that benefited the first quarter. And so you strip those out and that largely kind of bridges the first quarter and second quarter operating margins. In regards to the production environment, and how we see that here in the second quarter, things are tracking in line overall. North America has been stronger than expected for us. Europe is largely in line. And Asia has been a little bit weaker. There were some one-off issues with supplier disruptions in Korea. There was a fire at a supplier and certain platforms in China have been a little bit lower than anticipated, but that's been offset by the strength in North America. And again, we're sort of in line with what we expected in terms of revenue in the quarter.

Yes. Great. That's extremely helpful. Turning back to the new business then. You announced $400 million in incremental new business wins in the first quarter. You indicated some conquest wins like the GMT1 SUV for some of the wiring come in mid-cycle. Can you just touch upon the new business bidding environment, and why you think you're winning a conquest business in both segments?

Yes. I think they're slightly different between the two segments, but we have been extremely successful with these conquest wins. And like I said earlier, the pipeline is still very deep, but we still see opportunities in. I mentioned, we're in the process right now of quoting a significant platform that 50% would be conquest and the other 50% would be new business. And so it would be great backlog for us. And so we're doing everything we need to do to secure that. And hopefully, over the next several weeks, we'll be able to make an announcement, but we feel like we're putting ourselves in a good position. I think in Seating, like I mentioned, right now, with what's going on in the industry, particularly around being cost competitive, driving technology, looking at your business differently. Our customers are really paying attention to the capabilities we put in place.

The modularity success that we've had is very unique. We bought Kongsberg and IGB for the reason to integrate components into a singular design. And I know modularity is used in a lot of different ways and is defined differently even by some of our competitors, but the way we're looking at it is reengineering products for modular components that drive efficiency and cost out. And that's really accelerated. And I know we differentiate ourselves there because we are the only ones designing those products. We have over 200 patents on it. And every time I talk to Jason or Frank in Seating, they tell me we've got a new win. And so what was 29 is now 38 wins.

And so I think we're differentiating ourselves there just because we're the only ones that can really design products because we have the engineering capabilities. The IGB, Kongsberg acquisitions were absolutely essentially necessary for us to be successful. The technology that we're putting in our manufacturing plants, and why the open invitation is there, Emmanuel, I think you have to see what we're doing in the plants. That's 10 years of us really looking at how you build capabilities and capital within the plant for manufacturability around automation and digital transformation. And so the acquisitions we've made have allowed us to accelerate that. And the first thing we did, we're not selling this externally, and we're keeping it all internally.

We manufacture our own capital now. So in a typical plant where we would maybe manufacture 20% of the capital, we're now manufacturing up to 80%. It's very purpose-built capital for our own consumption, and we're retaining that. When the customers, and we quote these programs, and they're very sophisticated when they come through an audit. They understand that we have a different way of assembling products within our plants, and we're much more competitive. And so I think that's been very successful. And E-Systems -- we've really went through, and you've seen it where we've focused our product portfolio in areas where we can be successful. And we have a roll off of some different types of business right now that we didn't have a long-term success or think it will be successful long term.

But we've really minimized the portfolio where we think and actually believe we can get a great return. And that's really helping us. And the continuation of some of the competitive elements that are out there right now. There's some strategic elements. There's others that are having quality issues. There's others that are having issues that are allowing us to gain access to quotes. That's the fact. And so the win that we had on the T1 was very unique. And I think it is very representative of continuing to execute to the customers' expectation. The supplier of the year, I think, backs that really in a strong way in how we're performing and then just continuing to deliver where we can. I mean, supplier of the year was last year, we have to execute this year. We have to execute next year.

So the pipeline in E-Systems is still really strong. We had more wins in China in the first quarter in E-Systems than we had all last year. And we had a strong award cycle in E-Systems for $1.4 billion. And Emmanuel, what's important is, I absolutely know in my mind that we're going to continue to drive and expand margins in E-Systems and Seating. And the new business, as we quote, is at our target margins. And so it's important to think about, from an operations perspective, we're fixing the business. We've seen great improvements in the operation, both commercially, and what we're doing in the manufacturing plant. But equally as important as we talk about these new business awards, they roll on with accretive margins. And so we're not chasing business. I want to be clear on that. We have targets internally that we are going to stay disciplined to.

It's important that we expand our margins. It's our #1 goal. It's above everything else. But the new business that we're quoting is at target margins and is accretive to the margins we have today. And so we have to continue to work. We're not happy where we're at by any stretch in both businesses. We've got to continue to expand margins. But the pipeline is really deep, and we're putting ourselves in a good position. And I hope over the several weeks, I have another announcement, but we got some work to do on that one.

And just, Emmanuel, two comments to add to Ray's comments. One, the sourcing environment has finally normalized after a couple of years where there's a lot of uncertainty around our customers' plans with their powertrain strategy. And now we've returned to a nearly normal sourcing cadence. And so I think that's one reason you're seeing sort of a pickup in the new award dollar values that we're talking about in terms of what happened at the end of last year and the start of this year. And also I just want to point out the $400 million of awards that we talked about in the -- on the first quarter earnings call, that's the benefit to our 3-year backlog, '26, '27, '28, and $250 million of that will benefit our 2026 and '27 backlog, a little bit of that to the tail end of '26, but the bulk of that is in 2027. So that momentum that we had in the fourth quarter and the start of the year is really continuing. And as Ray mentioned, we were close on a couple of additional awards, but we've already seen some meaningful progress on the near-term backlog that we had announced on our fourth quarter earnings call through these awards.

Okay. That's great color. And I guess just zooming back on that T1 SUV, Ray, you emphasized how the conquest win was significant basically for Lear. The CEOs of Aptiv and Versigent, they responded pretty forcefully to this and in particular suggested that might be lower content or also lower margin build-to-print. Can you speak about the return and capital hurdles on this type of business? And if there is any difference versus the rest of the business?

Yes. Well, first of all, I'm surprised it got as much play as it did. It must have hit a sore spot or something. It was a win for us that I was extremely excited about. I thought it was a great win for Lear Corporation. And when we look at -- and we do both, Emmanuel, we fully engineer and design harness assemblies for all of our customers, including General Motors. And we have build-to-print contracts with our customers, too. So what we do is we ensure that we're there for our customers in any type of solution. And what we look at is returns. I mean each have pros and cons from our perspective. We have build-to-print contracts that do extremely well financially. And we have full engineered programs that we manage that do extremely well financially. And so at the end of the day, we look at returns, we look at where our customers need us as far as growing our business and the type of application and the platforms.

But I think it's important to understand, particularly on that program. That is a very unique program. I mean, to be sourced that business on that platform in that time frame. I think the smartest decision by our customer is build-to-print. It minimizes risk. And the thing that we want to do right now is be successful. At the end of the day, it's all about execution. If it's build-to-print or if it's a full engineered wire harness program, we have to be successful because I know that we can keep delivering for General Motors or other customers that it puts us in a really good position to win more business. And so listen, I think the build-to-print is great. It minimizes risk. It gets us good returns, and it puts us in a great position to continue to win business. And so I don't see downside to it. And we don't differentiate between those two different types of products between engineered or design responsible versus non-design, it's all about returns with us, and we have to expand margins.

And I think, Emmanuel, just to add to Ray's comments, the key distinction between the two is oftentimes the level of investment. So you think about engineering investment, CapEx, working capital, those were impacted by design responsibility and the complexity of harness. And so you would expect a program where you have design responsibility, and that's very complex to have a larger upfront investment and you would expect higher margins as a result of that. But if you look at the return profile of our current portfolio, it's very similar between our build-to-print programs and our design responsible programs. There really isn't much difference in the return profile. And got one distinction on a program where you have early design involvement, it does give you an advantage in terms of sourcing your own connection systems.

And so that's attractive to us. We have a great connection systems portfolio. And so that is one advantage. It's not to say that you couldn't ultimately put your connection systems on a program that's built-to-print, but it's harder. And so we typically do see higher margins where we're more vertically integrated. But just looking at a high level, the big driver is the level of investment in the program that determine the margin, but the return profile itself is very similar.

And on the Seating side, you announced the award for the Orion facility and expanded its U.S. footprint. How well is Lear positioned to capture additional onshoring business opportunities?

Yes. Well, first of all, I thought that was a great win. It really was. In some respects, it was a conquest win, how we're positioning ourselves onto the platform. And it can remain -- and we remain the Tier 1 supplier on the T1 truck business for seating. So as they expand their product portfolio and their volumes will continue to expand our revenue dollars. And so it was a great win. I mentioned earlier too, Emmanuel, it's going to showcase the best of the best capabilities here in our facility. So it's going to become a showcase for us as far as technology innovation around IDEA by Lear. And as we look at the continuation of onshoring, we have a number of different opportunities that are being presented, and we're reviewing and quoting. But they all come with different scenarios under different types of returns. And so we'll continue to "monitor." We'll be very strategic in our approach to the onshoring.

There are opportunities that are being presented today that we are reviewing and quoting with our customers, but they're all not equal. And so we look at them slightly different. There's capital that could be in a particular location that may not make sense for us to compete against or other areas regarding the platform itself that we're not necessarily interested in because of risk. And so we monitor that. But I think on a broader approach, we continue to stay focused. We have 26% of the market share today. We have a target of 29%. We continue to see opportunities with not just the traditional OEMs around the world as we continue to expand and win conquest and new business opportunities with those customers, but with the domestic Chinese and with the Japanese. And so we're still focused on our overall market share target. We've been successful early out of the gate, particularly with the traditional OEMs.

We continue to win in our quoting with the domestic Chinese, and we think the door is open with the Japanese OEMs. And so I think we're in a really good position, but we look at it broader. And each different quote, each different platform, each different customer, there's different risks that we take into consideration. But at the end of the day, we feel like we're in a really good position to continue to grow market share.

Let's turn to your full year outlook and guidance. It sounded like the midpoint of your guidance incorporate quite a bit of conservatism. I think you said that you would have been a beat and raise in Q1, if it wasn't for the Middle East uncertainty, and that none of the $400 million midpoint to high end or $400 million low to midpoint protection had been used through the first half. And then recently, it sounded like you're more confident that you may raise your full year outlook on the second quarter call. So I guess, what are the puts and takes? And is that indeed the case?

Yes. As we sit here today, with a strong first quarter and strong second quarter, it certainly puts us in a good position to raise our full year guidance. And we'll go through our typical process, which includes talking to customers, looking at sales data, looking at inventory levels, talking to our global teams, and -- but all indications are, at this point, we don't see a need for the low end of that guidance range. And so we would likely be in a position to raise the midpoint based on what we know today and maybe take out all or certainly a significant portion of the low end of that guidance range. And so nothing has changed from what we said last week. There's been some talk recently about weakness with certain customers in certain markets, but our latest reviews with the team here suggests that the full year is sort of tracking in line with what we've said publicly last week at another conference, sort of between the midpoint and the high end of the guidance range.

And so we're particularly confident in free cash flow. And I mentioned that again at another conference last week where the midpoint of our guidance range was at $600 million. We definitely see room to bring that number up, and that's supportive of a little bit more aggressive around share repurchases. And so I think the business is performing at a real high level operationally, commercially, and that's fueling the confidence that we have that we should be in a position to formally raise guidance on the second quarter earnings call.

And I guess within that, how should investors think about the first half to second half bridge? I think you flagged some -- the usual Europe downtime in Q3, the fourth quarter calendarization dynamic, but will continue to cost savings and accelerating backlog, would that basically provide an offset?

Yes. Those are the sort of puts and takes as I think about the first half to second half. We do expect revenues in the second half to be a little bit lower than the first half as a result of what you described there with the typical summer shutdowns, particularly in Europe and maybe to a lesser extent in North America and then have production come back in the fourth quarter, and revenues in the fourth quarter will be similar to what we saw in the first and second quarter of the year. So we do expect about $400 million lower revenue due to volume/mix backlog wind down, all those pieces taken together from the first half to the second half, offset by about $200 million of kind of nonrecurring tariff refunds that impacted revenue.

So net-net, something like $200 million lower revenue in the second half of the year. And then offsetting the impact of the volume reduction or lower production volume assumptions would be the benefits of our performance improvement programs. And that combination of our traditional programs on efficiencies in the plants, supplier negotiations, commercial negotiations but also the continued benefits of ramping up idea related savings in digital and in automation as well as restructuring. So that's the basic framework first half to second half.

And as part of that, the net performance dollar target that you've highlighted is $135 million, 40 bps in Seating, 80 bps of margin in E-Systems after a record almost $200 million in 2025. Can you help us frame the long-term cost savings opportunity? Is this year's run rate a reasonable run rate over the next few years?

Yes. I think that as we look out at this year, we're very confident in delivering the 40 and 80 basis points in Seating and E-Systems net performance, respectively. Looking at 2027, in the pipeline of opportunities that are in process and on track for implementation next year. We're comfortable continuing with that level of performance, commitments to investors for next year. So a similar profile next year with 40 and 80 basis points in Seating and E-Systems, respectively. As we move out into '28 '29, we're in the early stages of our annual long-range plan process. And we do see a similar level of savings in that time period. But we also have a stronger backlog, particularly in '28, '29.

And so there's some engineering investments to support that in '28. There's some launch costs associated with that higher level of backlog, new facilities that we're putting in place that may weigh on that number a little bit moving out into that time horizon. But I think the key point is we're continuing to generate improvements in the run rate that are sustainable and durable in both Seating and E-Systems. And so I think that underpins our margin expansion plans in both segments. And then as the backlog strengthens in that longer time horizon '28, '29, you see the benefits of the backlog rolling on at or above segment margins. And I think a really important point to make is, when we think about the level of savings we're generating through IDEA by Lear, it's -- as we launch new facilities, we're embedding those ideas in production at the start of production. So margins will be a little bit higher. Of course, we're sharing some of that with customers to motivate the sourcing decision, but the balance of that we're retaining.

So over time, we would expect maybe the savings derived from automation to diminish because they're showing up in the backlog as our backlog converts at a higher level. And I think there's three examples just really quickly to talk through that are driving the savings that we're seeing in that performance and idea within that. One is the cycle time deviation project in our just-in-time seat facilities. And where we've deployed that, we've seen an efficiency improvements of 3% to 5%. We had $10 million of savings last year, that grew to $15 million this year. We're continuing to roll that out globally. That could be as much as $25 million next year, so an incremental $10 million opportunity.

Another area which we just reviewed again yesterday at our automation centers what we're doing with automated sewing. And think about how labor-intensive our cut and sew operations are. We have roughly 18,000 employees that sew trim covers and about 10% of that sewing is 2D sewing. And we have in production today, automation of 2D sewing. So we believe we can automate 100% of that over time.

The more complicated automation is 3D sewing. We've reviewed some technology yesterday, and we're making great progress there. I think we're the only ones doing this. We think that ultimately 5% to 10% of our 3D sewing, which makes up the bulk of the employment in our cut and sew plants will be automated longer term.

And then the last one, which Ray alluded to with the StoneShield is automated taping, and we reviewed that as well. And 15% to 20% of our headcount in our wire facilities are involved in taping. That's the most labor-intensive portion of the wire harness assembly. And we see an opportunity to reduce cost through automation. It's one of the more challenging automation projects that we have. But the partnership with StoneShield and ultimately, the acquisition of StoneShield, bringing that capability in-house is really accelerating the path to do just that. And we have the first program launching next year with automated taping. And so that's a really exciting opportunity. So those are just three examples. And we have lots more, as Ray mentioned, on display at our Rochester Hills facility, and I think seeing it in person really brings to light just the magnitude of this opportunity that we're on the cusp of achieving. So we're very excited about the runway we have in front of us to generate savings through this IDEA-by-Lear initiative.

And Emmanuel, like I mentioned, those are acquisitions. We consume those internally. And so we don't share those. Those are not something that you buy in the open market. Everything that we're designing is for our own use. And so we're doing it with the intent to be much more efficient, much more focused on our manufacturing processes, but solving solutions that will revolutionize the way you think about the manufacturing process itself. And so that's where I mentioned earlier on. I couldn't be more excited. We are really connecting the dots at an accelerated pace. And so we have examples, but they'll continue to expand our margins, too.

Okay. Great. And then so maybe focusing on E-Systems longer-term picture. I think in the past, you've characterized E-Systems as an 8% plus margin business. Obviously, it's faced significant headwinds in recent years, including the EV not playing out as hoped. What are the key actions Lear is taking to expand the E-Systems margin back to generating returns above the cost of capital? And then if I could sort of put that inside that as well, a follow-up to a question I asked on the earnings call, which is -- and obviously, one of your newly independent North American competitor is printing these already, these kind of like 8%, 8.5% target EBIT margins. What do you see as the main delta between your performance and that of those peers?

Well, first of all, we're not satisfied with where we're at, Emmanuel. I think the E-Systems division and business is really good business, and we are tracking to where you mentioned some -- a competitor may be mentioning their margins are at. And we believe, without question, we will get there, and we can get there. I think when you think about E-Systems, we've done a lot of different things, obviously, simplifying the portfolio with a great step in the right direction. We had invested and done a great job of winning new business in EVs. And obviously, the decline of the EV market here, particularly in North America we took a step back with the capacity we had installed, the inefficiencies that we're trying to commercialize or at least negotiate with our customers because of volume, so we did take a step back.

And then we've repivoted, rethought through the product portfolio. I think last year's business wins is an example of what we can do. I've said this before. We're not chasing business. The business that we're winning is at the target margin that you're suggesting, and where we believe we can get to. Right now, we're still continuing to work the operations. We have some issues that we're still managing through. We've seen some good improvements. The trajectory is on the right trajectory. I think the team is doing a great job operationally. We are working hard in -- primarily in Mexico and that we've seen great turnarounds within our Mexico operations. Commercially, we still negotiate the most part of the deals, but we still have some commercial settlements we're working on with our customers, but a smaller portion of that. So the operation part of that is the continuation of improvement in expanding our margins.

But I think equally as important, as we mentioned, is as we roll on new business, the one business we're launching with domestic Chinese later this year heading into next year. We have the '27 launch with General Motors and then the continuation of the new backlog that's going to be launching that will be at an accretive margin. And so the combination of those are a simple way of thinking about where we're at with the business. But nothing that we haven't managed before and nothing that I would sit here and say it's going to set us back. We have everything in front of us to get the job done. I'm happy where the team is pushing the margins. And we have -- but we have more work to do. We're not happy where we're at. We absolutely believe we can get there.

I think, Emmanuel, it's important to highlight. We are expanding margins this year in E-Systems, albeit modestly based on the midpoint of our current guidance, and that will be a little bit better when we update our guidance for the full year. And we're expanding them even with two pretty significant headwinds. The negative backlog resulting from Ford building out the Escape, Corsair, and Focus was a pretty significant program for us, plus the wind down of products that we took the decision to exit is still the right decision. But that's impacting revenues. The peak of that impact is in '26 and '27. It's about $350 million of business rolling off over that time period. And so as I think about getting back to 8%, there's really three key drivers to that. One, as Ray just described, continuing to execute operationally and commercially achieving the 80 basis points in that performance this year, next year and beyond.

Second is returning to growth. So once we get through this wind-down period, and you start to see the benefits of all this business we're winning, rolling on at or above segment margins. And then the third is, I think, improving customer mix. And if you look at the business we're targeting and the programs that we've won over the last couple of years, with the F-250 with Ford, a program we're on, but we also conquested some additional content on that at the start of last year in E-Systems. We have the T1 SUV that we've won. So we're targeting programs that have appropriate scale, long history of success in the marketplace, more stability around volumes as a result of that. And then lastly, growing with the Chinese domestic automakers and not all of them, but targeting -- we've got 8 to 10 that we're particularly focused on that we think have the clearest path to long-term success and to returns for us in excess of our cost of capital. So those are really the three kind of key drivers to getting us back to 8% and closing that gap with our competitor, which I think is very achievable over the next several years.

Great. Then maybe just to conclude, I think, Ray, you recently said there's no M&A alternative today that creates more value than buying back our own stock. And so is that still your capital allocation strategy? And what would have to change, whether it's valuation, availability, balance sheet for Lear to pursue an acquisition in either Seating or E-Systems?

Yes. Well, I think first of all, we study and review and think through any different ways we can create value for our shareholders, that's the #1 thing. And at a particular moment that I said that there was nothing on the horizon that would make sense, but we're always looking at opportunities that would make sense for our shareholders and studying those in a way that could be strategic or could change the way we look at an acquisition. We have been focused at this point on our capital allocation. It's been very disciplined, and it's worked for us with the tuck-in acquisitions to accelerate our technology and innovation, but I do believe I've said this before, too, Emmanuel.

I believe the dynamics in this industry are going to create consolidation. I think it's necessary. I think there's too much capacity out there. I think -- and I don't just mean from a supplier perspective, I mean, from an OEM perspective, too. We're going to see changes that are going to be necessary to be more efficient across the board. And so that's why we keep a close eye on what's going on. We want to make sure that we're monitoring opportunities that could present themselves that would make sense for our investors. But I do believe the dynamics in the industry have shifted in a way that it's going to take, and it will be necessary for consolidation in certain areas and with certain OEMs to really drive efficiency within our industry.

That's great. Great place to end. So thank you so much. I really appreciate all your time and insights. We look forward to keep monitoring the progress on those awards and on the operational front. So thanks again. And thanks, everyone, for joining.

Great. Thank you.

Yes, happy to kick off the next session with Lear today, I'm pleased to have Jason Cardew and the President of Seating -- well, CFO, everybody sorry, I assume people know the CFO and the President of Seating Frank Orsini, sorry. Lear is a global leader in Seating and wiring. The company has been quite a roll year-to-date. I think in Q4, you announced a large pickup win in Seating. And then in Q1, you had another large win in wiring with the GM large SUVs.

So maybe you want to -- how is Q2 trending from -- any color maybe to kick off on how the quarter is trending so far. We've seen S&P has actually lowered production forecast so far, it seems like hasn't had a major impact on other companies. What are you seeing?

Sure. Yes. I think that the momentum that we talked about on the first quarter earnings call and the fourth quarter earnings call that you referred to, that positive momentum really continued into the second quarter. Both businesses are performing at a high level operationally, commercially. It's being recognized by our customers as well. We had the GM Supplier of the Year event a few weeks ago, and we have a lot of history with GM on the Seating side. I think we've won 25 Supplier of the Year Overdrive Awards with them. But we also won our first GM Supplier of the Year award and our wire business. And I think it's just a validation of all the progress that we're seeing internally in terms of the performance of the business now being recognized by the customer and right on the heels of the award, as you mentioned, T1 SUV wire award that we announced on the first quarter earnings call. So it's just really a lot of positive momentum with the business.

In terms of the second quarter outlook, we framed up our expectations for the second quarter, during our first quarter earnings call, we talked about revenue between $6.1 billion and $6.2 billion. Operating income sort of in line with the first quarter, right around $300 million or a little bit better than that. With Seating margins in the mid-6s and E-Systems in the low 5s. Everything is on track in the second quarter, consistent with that, maybe a little bit better. There's some ongoing commercial negotiations that could swing the number a little bit. But we feel comfortable sort of reaffirming our -- what we had committed to for the second quarter. E-Systems might be a little bit better than what we suggested maybe as high 5.3% or 5.4% but generally on track.

In terms of the production outlook for the balance of the year, as you mentioned, S&P lowered their forecast. We're really not seeing any meaningful changes in production schedules from our customers. North America has been particularly strong. Europe is sort of in line with what we've expected. There's been a couple of pockets of weakness in Asia, some supplier disruptions, a fire at a supplier but pretty negligible overall. So in general, I'd say second quarter is on track and the full year as well.

And on the first quarter earnings call, we talked about a desire to increase our guidance, and we held off for another quarter just because of the uncertainty around the war and general economic concerns in the second half of the year. But as we sit here today, we're continuing to feel even more confident that when we have our second quarter earnings call, we'll be revising guidance up probably take the low end of the range out and we still see our outlook for the full year sort of trending between the midpoint and the high end of our guidance range. So I'd say we're in a really strong spot right now.

I thought last quarter, you said on the call were trending on that range officially?

Yes.

You started off, I think it was 5.1% was the margin in Q1. The guide for the year is only 4.7%. So what drove that sort of strong margin? And how should we think about cadence for the rest of the year. I think your initial guide had volume and wind down headwinds more than offsetting the performance. Is that the right framework in the second half?

Yes. The framework that you described is unchanged. But in terms of the margin in the first quarter, there were a couple of anomalies, and we talked about that in the first quarter earnings call. We had the tariff refunds, which reduced revenues by $175 million. And so that led to about 20 basis points of margin benefit in Seating and 40 basis points in E-Systems. So that sort of inflated the headline margin for the quarter.

In addition to that, we benefited in the first quarter from revaluing our copper inventory as copper prices have come up. And so moving into the second quarter, we see the effects of higher copper prices, kind of weighing on E-Systems a little bit. There's another revaluation of inventory in the second quarter because coppers has continued to go up, but it's less impactful than what we saw in the first quarter. So net-net, it is a sequential headwind from the first quarter to second quarter in E-Systems.

In terms of the first half to second half, the basic framework that we're seeing at this point is we see lower margins in the second half of the year, driven by the normal seasonality, the downtime in Europe primarily a little less so in North America, which will impact the third quarter negatively. The tariff refund that benefited the first half of the year won't recur, obviously, in the second half of the year. So that will be a headwind. And then those will be partially offset by a continued ramp-up of our performance program. So net performance will be better in the second half of the year than it was in the first half of the year, we're on track to deliver our 40 and 80 basis points of net performance in Seating and E-Systems, respectively. So you'll see some benefit from that in the second half of the year, too.

Can we go back to the commodity, the copper and the other raw materials. You just mentioned so there's another reval in Q2, but then there's also going to be -- is there a timing lag? Should we think about that? And then how big of an impact are you expecting from raw mats for the full year, does it all wash out by the end of the year with recoveries? And maybe if you could just remind us what is your hedging on the raw mats.

Yes. So 2 points to make on commodities. Certainly, commodity costs are higher year-over-year. Steel and copper are both up more than 30% year-over-year. We -- that's one point. I mean it is impacting the industry overall. The second key point though is we have really changed our contractual relationships with our customers over many years. And so 90% of that is on an index or other customer recovery program. And so the net impact to us is pretty minor. We have $20 million of net impact embedded in the guidance for the full year. Our initial guidance had $10 million and that increased to $20 million. And so I think that as you think about commodities more broadly, the bigger question maybe is on how it may impact affordability of vehicles and volumes ultimately.

But in terms of how it impacts Lear directly, it's a pretty minor impact because of those indexing agreements we have in place. Yes, there is a lag effect to some of those. And so that second quarter and third quarter, we'll see a little bit of a headwind in both businesses, maybe more in E-Systems and copper in Seating and then that will normalize again in the fourth quarter.

Got it. Maybe you can talk about business and autos typically, it's pretty sticky, but you've had some pretty big wins. I think as I mentioned upfront, you won sort of the Orion facility for GM SUVs. And then also thinking about any color on what is driving this sort of new wins? Where do you think is causing it? Are the automakers may be more open to changing suppliers? Is it technology? And any notable wins since Q1 that you could highlight? .

Yes, I'll take this one, Colin. And again, thank you for having us. We appreciate the opportunity to be part of the conference. From a new business awards perspective, it is a competitive environment, but our goal is always to provide a value proposition to our customers. And when we think about that value proposition, we think about a number of things. One, leadership and cost competitiveness and the strategy that we have of IDEA by Lear which is deploying digital and automation technologies and solutions across our entire enterprise are helping us create a cost advantage to the tune of 200 to 500 basis points. And we're seeing that with the business that we're winning and the quoting that we're doing in the market right now.

You also have to have a technology-driven product portfolio, and we have that. We have that within E-Systems. We have it in Seating and in particular, the work that we're doing in thermal comfort with our modularity strategy is really supporting some of our growth strategy. The other thing that's becoming more important right now is speed to market. It's very important in Asia. But it's becoming more important in all aspects of our business and everywhere we compete.

So if you think about it, Lear is the only company in Seating and in our product lines with these systems where we have vertically integrated in our CapEx. And we have intentionally acquired companies and capabilities over the last several years to put ourselves in a position where we can manufacture or integrate 80% plus of what goes on our shop floor in a JIT environment, and that's creating a 20% to 30% cost advantage for us as we quote and win business.

So year-to-date, we're at about $1.6 billion of awards in Seating. Some of those have been conquest awards. The pipeline for growth remains very rich right now. There's over $5 billion of opportunities in front of us right now that we're going to be quoting and about half of that is new opportunities and half of that is replacement. And our team recently just did a very good job of locking down one of our key platforms in North America with a North American customer, and we'll be able to talk about that in a little more detail on a future date, but it's a very good win for our team. And I think we're just extremely well positioned to not only grow but compete and win in the environment that we're in right now.

Did you say you have 200 to 300 basis point cost advantage?

200 to 500. 200 to 500 basis point cost advantage.

In Seating, in wiring or....

In Seating.

And then the win you indicated that's a replacement locking in an important replacement win?

Yes. It's a replacement business, yes.

How about when it comes to onshoring, the Japanese, Koreans, I think over the next few years, have plans based on tariffs to bring more to the U.S. Those are historically not the easiest customers, particularly the Japanese to penetrate with. Do you think you have meaningful opportunities? Do you think you could sort of launch some of those localization opportunities?

Yes. I think onshoring in general is an opportunity for Lear. And if you just take a look at onshoring as a topic, it really is heavily based on our OEM customers deciding where they're going to manufacturer in the U.S. and what products they want to bring production back to the U.S. from. So for us, Colin, there's a number of factors that go into those sourcing decisions. Some of it is where the customers are located. There's a factor of where suppliers are located around those assembly plants. And then the supply chain that's in place for some of these products as they transfer from Europe or Asia or Mexico back into the United States. So when you think about that, for the most part, there's a net neutral effect of production just shifting within regions. But for us, it represents some opportunities, as you mentioned, with certain key customers.

So just a mention on that, we are actively working with a number of European OEMs right now on onshoring opportunities. You mentioned Korean and Japanese from a Korean perspective, Hyundai is taking a look at their U.S. footprint and taking a look at what those opportunities are. We're going to participate in that quoting activity. As a matter of fact, we're 40% of Hyundai's seating business outside of their in-house capabilities. So we're a big player with Hyundai, and we will be participating, as I mentioned, in some of those product offerings in the U.S.

And then Japanese OEMs for us is a big focus right now. It's a category that we want to grow and expand in. We have some positive momentum right now with a business award that we had in China for a seat complete project with Toyota that took place this year. We have a big tech show with Toyota in July of this year in Japan. So we are looking at how we can support Japanese OEMs plans to onshore production back into the United States. Overall, we have 26% market share of the seating industry, and we're targeting 29%. And a lot of that progress will be made as we quote that $5 billion pipeline and land some of that business in the future. So onshoring is one of many opportunities for us to get to that market share objective that we have.

And you referenced the Orion success. I think that's a great example of a true value proposition. When I said that earlier, and the goal is to create value for both companies. I think we did that for General Motors. When we proposed our latest and greatest technology for our manufacturing facility in Orion. And our speed to market was a factor there as well. So I think onshoring in general for Lear, for Seating and E-Systems is an opportunity for us.

Yes. Just Colin, I'll add on the E-Systems side, we have a new opportunity with the Japanese automaker. We can't talk about the specific customer program. But this would be a new customer for E-Systems and wire in North America. It will take probably the balance of the year and into next year to go through the validation and sourcing process. But it creates a new pocket of opportunity for us to grow the wire business longer term as well. And that's a result of some of the onshoring that the Japanese are doing, but also the Japanese automakers rethinking their supply chain where, in some cases, they're bringing product out of Asia that they want to localize in the North American market. .

That makes sense. Maybe on the margin side, I think before COVID, Seating was over 8% margin last year I think it was mid 6%. And I think at your Investor Day a couple of years ago, it was 8.5% was the target. What are the key drivers getting to over 8% or 8.5%?

Yes. When we established that target, the outlook for production volumes was a little bit different than what we're seeing right now. I think it's -- that was a 2027 objective and the North American and European markets are 6% or 7% lower than what we had estimated. So that's really a factor that's weighed on our ability to achieve that target. In the mid-6s, our seating business is generating returns well in excess of our cost of capital. It's a great business, generates a lot of cash. We're not satisfied with where we're at. We do see room to expand margins. But it is a high-return business for us as it sits today in the mid-6s. The biggest catalyst for margin expansion in Seating in the next 2 or 3 years is going to be a combination of net performance, we generated more than 40 basis points in net performance last year. We've guided to 40 basis points this year. We have a line of sight on 40 basis points again next year. So a pretty consistent track record of significant positive net performance.

And then our backlog. I think this year, margins benefit by 25 basis points from the rollout of a very robust backlog. We have a strong backlog again next year. So those are going to be the two primary drivers of recovering margins and achieving the longer-term objective that we had articulated 3 years ago. But again, I think that in the mid-6s and sort of progressing to mid-7s, that's going to be a very high return business. I think the other just kind of overarching support for margin expansion is the cost advantage that we've built that Frank mentioned, the 200 to 500 basis points. Now some of that is shared with customers as we secure new business, but the balance of it is showing up in the margins on the backlog as those new programs launch. So those are going to be the primary catalyst to improve margins in Seating.

Got it. IDEA by Lear benefits have already started to materialize. I think you had $70 million in '25, $75 million is expected this year. Any examples of the automation and digital tools that you're implementing? And how do you see these benefits sort of growing over time? .

Yes. I'll start here, and then Frank is going to cover this question. I think in addition to the numbers you just mentioned, the $70 million last year and $75 million this year, there's another layer of savings that is showing up in the results in our new programs that are launching, particularly when you're launching a new facility. So this year, for example, we have the Audi Q7 and Q9 program which we took from a competitor a few years ago that's launching now. So a brand-new facility in Eastern Europe, where the full suite of our automation capabilities has been deployed when we launch Orion next year, it will be a further step forward in terms of the level of automation that we're able to incorporate in the program.

And then we had announced on the fourth quarter earnings call, the North America truck conquest win, which has 2 facilities that will launch in '28, '29 or later in that time period where we can -- we'll have enough time to deploy the full suite of automation capabilities, and you'll see the full effect of IDEA by Lear embedded in the financial results of those facilities as they launch. And so while the savings are important in the near term in terms of the $70 million to $75 million last year and this year, the real impact, I think, is higher margins on the backlog as it ramps up and new programs roll out.

And I think I would just add to that, maybe it would be helpful to define what IDEA is for the audience so that everybody can understand what the strategy is. But IDEA is an acronym that stands for innovative, digital, engineered and automated. Innovative in both our products and how we manufacture them. From a digital perspective, we're really looking at how we can deploy AI and digital capabilities to improve the entire enterprise at Lear. Engineered really starts with the process of engineering and how we're utilizing AI tools to be more efficient, but it also refers to how we are designing our products for automation and automated is about deploying those automation strategies onto our shop floor so that we're not only becoming more efficient as an operation, but we're creating a world-class shop floor for our employees, which includes ergonomic improvements, safety improvements and reliability of our production process.

So I mentioned earlier, we've been acquiring companies to build these in-house capabilities. 8 companies over the last 7 years. And the goal has been to build capabilities in digital manufacturing and automation solutions. And as you asked, I'll give you a couple of examples, Colin, of what that means. So just beginning with digital, we've deployed digital technology to help us do a couple of things: one, hit our net performance targets and expand margins but also to improve free cash flow. Two examples there. Cycle time deviation is a platform that we deployed around the world, where we're able to collect live data off the shop floor equipment, so that we can make decisions on how we dynamically balance our lines or improve our operation from a process optimization standpoint. And where we've deployed those technologies, we've seen efficiency gains of up to 5% in those just-in-time manufacturing facilities.

The other place that we're using digital tools is for inventory transparency and getting a really clean look at what the material pipeline visibility looks like between our just-in-time manufacturing facilities and our component facilities but also into the supply chain as well. And that's helping us optimize days on hand. It's helping us improve inventory accuracy and ultimately improving working capital and free cash flow. So digital is a key part of our strategy, and we have about 20,000 users on our digital platforms, and we have about 300 active projects right now. Those are just two examples of what we're doing.

From an automation standpoint, I think I'm most excited about what we're doing with our Rochester Hills, advanced manufacturing and integration center. And we've talked about this a little bit publicly, but it is a state-of-the-art facility that really highlights a lot of the automation capabilities that we're building around the world. And just to give you an example of a few of the items that you can see in Rochester Hills, we have automated wire taping, automated 2D and 3D sewing from a just-in-time manufacturing perspective, we have automated seat fitness, automated end-of-line testing and validation. And all of those types of technologies, Colin are what's helping us generate that 200 to 500 basis point improvement.

But really what is a true highlight within the facility is what we've done with thermal comfort modularity, where you see the full power of our IDEA strategy coming to fruition, where we have completely reimagined what thermal comfort can look like in a seat system by reducing the part numbers, reducing the complexity by 50%. And every one of those components were designed into a new module that doesn't exist today. And then that module is being incorporated into our trim covers, all of that is being done with 100% lights-out manufacturing. There isn't a single person that touches the production of the module or the incorporation of the module into the trim cover. So it's truly first-to-market technology that we've put in place. We recently had an opportunity to host a customer event out there we had over 70 people attend and it was with a North American customer, and the feedback was really positive. I mean they haven't seen anything like what we're doing compared to our competitive set in the market.

And we're excited too because we're going to be hosting investor meetings later in June, and we're excited to host everybody that we can get there to see the facility, and we'd love to have you come as well. There's a lot to see at that location, and we're really excited to host you soon.

Maybe switching to China and Europe. The Chinese OEMs have clearly have been taking a lot of share, particularly in the local market, and now they're taking a ton of share in Europe. What is your strategy with the locals in China? I think you were roughly 44% of revenue last year, and I think you're targeting over 50% by 2027. Is that still on track? And any color on the landscape in that market? It's always historically been. Well, it's getting more competitive it feels like from an outside perspective. Are you -- how should we think about margins in that region and how you could hold up?

Yes. Maybe I'll start and Frank can add on to my comments. First of all, we are on track to achieve the greater than 50% share with -- of our business in China with the Chinese OEMs in 2027. We were up 44% last year. And so that trend is on track. In the first quarter, we announced a very strong performance with new business wins with the Chinese, we had $280 million, $140 million in Seating, $140 million in E-Systems. And just to put that into context, we only had $120 million of wins in E-Systems with the Chinese automakers for all of last year. So we got off to a great start. That momentum continued in the second quarter. We had $180 million of wins so far in the second quarter. So really strong performance with the Chinese, with Geely and many others.

In terms of the margin profile of that business, I know some have talked about that shifting of share within China from traditional customers -- traditional global customers to the Chinese OEMs has weighed on margins. We're not seeing that impact our margins in the Asia region in both segments are holding consistent with what we've seen in the past. Again, as a frame of reference, our Seating margins in China are a little bit higher than the segment average overall. And E-Systems, they are in line with the segment. And the biggest factor is really that impacts the operating margins and any business that we have in China on the Seating side is the level of vertical integration. So a just-in-time seat program with a Chinese automaker versus a traditional Western OEM. The margin profile is the same. The level of vertical integration is ultimately going to determine if the margins are higher than the segment average or in line with it.

And so we're -- we've made some changes to our approach to the China market. We announced back in 2023 that we had consolidated the leadership of that region under Charles Chang, who's run our seating business for many, many years. He now runs our E-Systems business. And I think that change that we made in his relationships with customers in China has really had the biggest impact on the business for us in E-Systems and led to the growth that we announced both last year and the first quarter of this year. So a lot of positive momentum on our business with the Chinese overall.

Yes. And I would say China is a very dynamic growth market right now, that does represent a lot of opportunities for Lear Corporation. And recently, Ray Scott, our CEO, and myself and Nick Roelli, who runs our E-Systems business, we had an opportunity to go to Beijing, for the auto show and see how the market is evolving. And it was remarkable. I mean, there were over 1,400 vehicles displayed throughout the entire show. I think the total of new product launches was just over 180 that were on the floor for the exposition. So truly remarkable. And really it comes down to our Chinese OEM customers are growing, and our traditional customers in China are launching new products to compete in that market. And all of that is very positive for Lear. If you think about it, our goal is to grow with the Chinese OEMs within China and within Asia as they expand. But especially as they look to grow in Europe and South America in different locations. As they plan their global expansion goals and objectives, we want to be a part of that as well.

But we're also going to continue to support all of our traditional OEMs as they launch new products in China, in particular. And because of that, I think we're really well positioned to grow. Like Jason mentioned, we have a very experienced leadership team out there that have excellent relationships and are helping us accomplish our growth objectives, and we've been operating in China for over 30 years, but we're also very cost competitive in that part of the world.

Everything we're doing with IDEA that I mentioned a minute ago, all the digital strategies, all the automation strategies that we're also deploying in China and in Asia. And this speed to market dynamic that is making us very competitive is very key in China. Our Chinese OEMs and partners want to launch product very quickly. And those shortened life cycles are real. We see products launching in under 12 months in some cases. So our ability to integrate our own capital into our manufacturing facilities as a catalyst for us, moving quick in the market.

And we're also being smart about the shorter life cycles. We're putting multiple customers into one manufacturing location, we're creating flexible manufacturing lines that can produce more than one OEM product. So we're being very, very smart about how we're deploying capital and allocating capital to all these opportunities.

The other thing I would say is in China, in particular, you have to have a winning product portfolio there as well. And we have that. We have zero gravity seating. We were in production with that back in 2022. We have multiple platforms and customers on that product line. Our thermal comfort business is taking off there. We have a lot of content that's going into the Chinese OEM products as well as into applications like second rows where heat and cooling and lumbar and massage are becoming more important for that market.

And one thing that we noticed at the Beijing Auto Show is autonomy is becoming a very key focus for a lot of Chinese OEMs. And we have a lot of great technologies that will support autonomous driving, whether it's health and wellness through our INTU seating product lineup or even reconfigurability with products like Configur+ and things of that nature that we have in the market today. So I think in terms of our ability to compete and win in that part of the world, we're extremely confident that we can do that, especially with the team that we have in place.

Got it. following your announcement of the T1 SUV wiring win, there was definitely some interesting back and forth with your competitor suggesting you want it as a build-to-print, and therefore, a lower margin business. Can you help us understand the distinction between build-to-print and co-developed programs? And where this win in your view, falls on that spectrum.

Yes. So it is a build-to-print program. It's an extremely important program for us. We don't really have a bias towards engineered programs versus build to print our focus is more on finding the right programs and customers to target. And you see that with the F-250 wire award last year, where we have a portion of that program today, and we're expanding our business with Ford on that platform in the next generation. And now you see it with GM and the T1 SUV taking a portion of that business. So we're really targeting high-quality programs that have a long track record of success.

The biggest difference between the two, if you're controlling the design and engineering work, you're going to have more investment upfront, the margin might be a little bit higher, but the financial return profile of the business is the same. And ultimately, it's a customer that's going to decide if they want to engineer the electrical architecture, if they want suppliers to do that. And I would say there has been a general transition away from suppliers controlling that engineering work and to the customers controlling it. So more of our business, I think, is going to tend to be build to print.

We do have programs where we control the design with General Motors. We have the Colorado Canyon. I think the biggest factor in why this is a build-to-print program is the fact that it launches next year. So it wouldn't make sense to have the engineering source changed. So we're super excited about that award. We've worked hard to build our relationship with GM on the E-Systems side. We have a great partnership with General Motors. They're our largest, most important customer for the company overall. And we're really looking forward to continuing to grow that relationship now on the E-Systems side.

That's helpful. On E-Systems, you've talked about improving the margins. I think you had some targets of 8% to 10% in the past. I mean how should we think about that? And maybe how does the wind-down business impact hitting those targets? And how long does that wind down continue?

Yes. So when we -- on our fourth quarter earnings call, when we updated the backlog and our wind-down estimates, we talked about $350 million of wind down between 2026 and 2027, around $120 million this year and the balance next year. As we sit here today, it looks like the wind down will be a little less impactful this year, a little bit more so next year. But on a 2-year basis, those numbers are holding up. That is a factor that's weighing on operating margins this year as well as the negative backlog, which is the result of Ford building out the Escape and Corsair and the Focus, which was a $260 million revenue headwind for us.

As we look out to '27, we do see a positive backlog again in E-Systems, likely more than the wind-down impact. So getting back to either at least revenue stability or growth. And then looking out to '28, '29 and '30, we see meaningful revenue expansion in E-Systems, and that will support margin expansion in that business. In the meantime, we're generating 80 basis points in that performance each year in that business. And so that is leading to higher margins this year than last year. We expect 2027 margins again to increase on a year-over-year basis. So we do have a lot of positive momentum there, but additional revenue growth supported by our strong backlog will certainly help accelerate that margin expansion.

Maybe just to wrap it up, how about buybacks? I think you've talked about over $300 million. How should we think about the cadence of the year from that perspective.

Sure, Colin. And one of the points I failed to make in my opening comments was just how strong free cash flow has been to start the year. We're going to generate more than $200 million of free cash flow in the second quarter. We'll be more than $200 million positive free cash flow for the first half of the year. So we're off to a stronger start than last year. We're increasingly confident in delivering our full year free cash flow outlook of $600 million at the midpoint. The $300 million of buybacks was sort of aligned with the low end of our free cash flow guidance range. And so now as we gain confidence in generating $600 million or more for the full year, we look to increase share buybacks, probably more likely $350 million now than $300 million. We bought back $75 million in the first quarter. We're on track to buy back at least $75 million in the second quarter. So the balance of that would be in the second half of the year.

Okay. All right. That's great. All right. Thank you very much. Thanks. We'll wrap it up there. Thank you.

Good morning, everyone, and welcome to the Lear Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's First Quarter 2026 Earnings Call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us on the call.

Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future.

As detailed in our safe harbor statement on Slide 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 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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

Thanks, Tim. Now please turn to Slide 5, which highlights key financial metrics for the first quarter. Lear started the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 5% to $5.8 billion and core operating earnings grew by 10% to $297 million. Adjusted earnings per share was $3.87, a 24% increase from the first quarter of 2025 and our highest quarterly EPS since Q1 2019. Operating cash flow improved significantly to $98 million for the first quarter.

Slide 6 summarizes some of the key business and financial highlights from the first quarter. Our strategic priorities remain focused on 4 key areas: extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage in 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 Seating and E-Systems. Our most significant E-Systems award, which we announced in March was with General Motors, where we will supply wire harnesses for the full-size SUV program starting late 2027. This is a major new win for Lear on a key GM platform. Our execution track record and automation capabilities gave GM the confidence to award a portion of this program mid-cycle. This award positions Lear to win additional content on subsequent generations of GM's full-size SUV platform.

During the quarter, our E-Systems team was also awarded the power distribution module for next-generation electrical architecture with a key North American automaker. Our power distribution module proactively detects electrical issues to help ensure critical systems continue to operate. This capability is essential across all powertrains, particularly as new vehicles adopt software-defined architectures, electrification and advanced driver assistance technologies. This award leverages our PACE award-winning technology and establishes Lear as an industry benchmark and trusted leader in this fast-growing strategic segment.

Another key award in the quarter was for a high-voltage power distribution unit with Audi for a new program in North America, continuing our momentum in power electronics. These awards build on the reputation that we have been developing across our customer base. As these new programs launch, our E-Systems revenue will improve customer diversification. We are accelerating our growth with Chinese automakers in both segments.

In E-Systems, our collaboration with seeding to leverage key relationships as well as investments designed to strengthen our local engineering capabilities enabled us to secure wire harness awards that will generate consolidated average annual revenue of $140 million, surpassing our new business awards with Chinese automakers for all of 2025 in just the first quarter.

Key wins include Conquest awards with Dongfeng and SAIC as well as new business with Geely. These programs launch as early as mid-2026, and are accretive to our 2-year backlog we announced in February. In Seating, we secured complete seat awards with BAIC, Dongfeng and Geely in China. That will also generate average annual revenue of approximately $140 million, a portion of which is in our nonconsolidated joint ventures. In addition, we are in a strong position to secure business with 2 Chinese automakers expanding their production in Brazil.

We also continue to see additional opportunities with Japanese automakers. In the first quarter, we were awarded a new program to supply complete seats for FAW Toyota in China through one of our nonconsolidated joint ventures. In seeding more broadly, the PACE awards for our thermal comfort modularity is accelerating. In the quarter, we won 4 new awards for ComfortFlex and ComfortMax Seat solutions, bringing the total to 38 for these innovative products, 2 awards are with BMW and Asia, one combining lumbar and massage and another combining heat, ventilation and seatbelt reminders.

We also won our first module awards with Audi in Europe, combining lumbar and massage and our ComfortMax Seat solution with Geely in Asia. Two programs launched during the quarter with 12 additional programs launching through the rest of this year. These awards extend our leadership in Seating and also customer adoption of these modular solutions. We expect adoption rates will continue to accelerate as these solutions become more pervasive.

Many of these new business awards launched this year and next, particularly those in China, where the time from sourcing to launch has significantly accelerated. This increase in our 2026 and 2027, 2-year backlog is approximately $250 million, improving our near-term growth outlook in both business segments. We are accelerating the capabilities we are developing under our IDEA by Lear framework, particularly in automation and the use of digital tools.

Progress is being made at our Rochester Hills advanced manufacturing integration center, where we will showcase some of our key product and process innovations and we continue to implement these capabilities into our current manufacturing processes. The Orion facility supporting GM's expanded full-size SUV and pickup truck production is utilizing idea from Lear from the start. Leveraging our process-related acquisitions, approximately 80% of our capital is being developed and deployed in-house, including 100% of our advanced robotics and vision systems. This demonstrates how we are using IDEA to reduce manufacturing costs and improve profitability from day 1 rather than implementing cost savings initiatives over the life of the program.

In E-Systems, we validated and launched 2 differentiated wire automation solutions, internally developed by our most recent acquisition, StoneShield. These solutions deliver near specific competitive advantages by improving cycle time and productivity in seal insertion and heavy gauge crimping.

It was a strong quarter both commercially and financially. Revenue in the quarter increased 5% year-over-year, with growth in both segments even after the reduction in revenue resulting from changes in tariff policy as well as the impact from the end of production of the Ford Escape focus in [ Lincoln Caser ]. Stronger conversion on higher volume and continued momentum in our underlying net performance drove improved margins in both segments and for the total company.

Free cash flow improved by $205 million in the quarter, allowing us to take advantage of the attractive stock price and accelerate our share repurchase program. In the first quarter, we repurchased $75 million of shares and continue to repurchase shares throughout the quiet period, putting us on pace to buy back over $300 million in the year. This combination of strong financial results and our disciplined capital allocation plan has driven consistent earnings per share growth. Our first quarter EPS increased by 24% year-over-year, a truly remarkable accomplishment by the team and a clear indicator of the value we are generating for our shareholders.

Slide 7 provides an update on key metrics to track our progress on expanding margins and generating long-term revenue growth. The pace of awards is normalizing after several years of delays as customers adjusted their production portfolio strategies. This gives us a much better visibility into our pipeline of future opportunities.

In the quarter, we secured several conquest awards for seat components such as surface materials. The pipeline for complete seats awards is concentrated in the back half of the year, very similar to the pattern we saw in 2025. For E-Systems, we're seeing increased conquest opportunities in wire harnesses, particularly as competitive landscapes have shifted significantly due to strategic actions and operational performance of key competitors.

In the quarter, we won 3 Conquest awards for wire programs, 2 in Asia and 1 in North America. Two of these awards were for wire harnesses previously supplied by a key competitor. We also won a small conquest award in electronics for a second North American automaker. These wins will generate approximately $200 million in average annual revenue and represent about 1/3 of our increased 2-year backlog. We see additional conquest opportunities expected to be sourced throughout the remainder of the year.

Awards for our thermal comfort modular solutions are accelerating. New wins with Audi and Geely bring us to 17 unique customers for ComfortFlex and ComfortMax Seat solutions. Notably, approximately half of the revenue from this quarter's thermal comfort awards will come from modular solutions. The collaboration between Seating and E-Systems, combined with the strength of our local teams continues to drive new business with Chinese automakers.

In the quarter, we won new business in both segments with the same customers like Dongfeng and Geely, clearly illustrating the synergies between our 2 business units. Our continued investments in IDEA and automation are expected to generate an additional $75 million in savings this year. The first quarter delivered approximately $17 million in savings, putting us well on track to achieve our target, with savings expected to build throughout the year.

Our teams continue developing innovative methods to drive efficiency. For example, our Seating team held a global inventory workshop during the quarter to leverage digital tools that will improve supply chain and inventory efficiencies, ultimately enhancing future free cash flow generation.

We also held our Lear AI Olympics in North America. Over 400 hourly and salaried operation employees participated, generating more than 100 AI projects with solutions throughout our manufacturing value stream. This grassroots [ event ] exemplifies Lear's innovative culture empowering employees to identify and drive the efficiency improvements in all facets of the business. As IDEA continues to mature, we see our employees developing and participating in new and innovative future events.

Restructuring savings from last year's investments, combined with actions planned for this year are expected to total $80 million. In the first quarter, we generated $26 million in savings, giving us a strong start towards our full year target. Our first quarter net performance puts us on track to achieve our full year margin expansion targets. 40 basis points for seating and 80 basis points for E-Systems. Despite higher engineering and launch costs to support our growing backlog and a challenging year-over-year comparison our Q1 net performance exceeded expectations.

Slide 8 illustrates the significant shift in our customer mix in China. In the first quarter, we secured $280 million in business awards with Chinese automakers across both Seating and E-Systems, ranging from complete seats and thermal comfort solutions to wire harnesses. The speed to market with the Chinese automakers is significantly faster than in other regions. We are seeing a request for quote to sourcing to launch cycles completed within the same calendar year. This accelerated pace drove a portion of our $250 million increase in our and 2027 backlog from recent business wins.

Strategically, these wins validate the organizational changes we made in 2023 to bring Seating and E-Systems under the same leadership and better align how we serve Chinese automakers. The collaboration between our Seating and E-Systems teams in that region, combined with strengthening our local engineering capabilities is helping us win across both segments often with the same customer.

Our ongoing rigorous review of the Chinese automakers, competitive positions and product strategies, both inside and outside the country is a cornerstone of our strategy. We are focusing our resources on the customers that have the greatest long-term potential for market success and pursuing programs with the highest risk-adjusted returns and strongest margin potential.

As Chinese automakers expand both within China and globally, we believe this integrated leadership model positions Lear to capture a large share of that growth with a broader, more competitive product offering. Chinese automakers continue to expand production outside of China, particularly into Europe and South America. We are in a strong position to secure business with 2 Chinese automakers expanding their production in Brazil which we expect to be awarded within the next coming months.

We're actively pursuing additional opportunities globally with BYD, Leapmotors, among other Chinese automakers. While we maintain a strong profitable business with multinational customers in China, our new awards with Chinese automakers are aligning our customers' revenue mix with the country's market share dynamics. We expect China automakers to represent more than half of our 2027 China revenue. And with that, I'll turn the call over to Jason for the financial review.

Thanks, Ray. Slide 10 shows vehicle production and key exchange rates for the first quarter. Global production on a calendar basis decreased 3% compared to the same period last year. Lear's fiscal calendar resulted in 4 additional production days this quarter compared to last year, which will be offset in the fourth quarter.

On a Lear fiscal basis, production increased by 3% in North America and 4% in Europe, while China was down 5%. As a result, global vehicle production was up 3% on a Lear sales weighted basis. The U.S. dollar weakened against both the euro and the [indiscernible].

Slide 12 summarizes the revenue impacts from recent changes to the U.S. tariff policy. Turning to Slide 11, I'll highlight our financial results for the first quarter of 2026.

Our sales increased 5% year-over-year to $5.8 billion. Organic sales were up 3%, reflecting higher volumes on Lear platforms and the addition of new business in Seating. Core operating earnings were $297 million compared to $270 million last year, driven by higher volumes on Lear platforms and favorable foreign exchange.

Adjusted earnings per share were $3.87 as compared to $3.12 a year ago, reflecting higher earnings and the benefit of our accelerated share repurchase program. First quarter operating cash flow was $98 million compared to a use of $128 million last year due to higher core operating earnings and improvement in working capital and payments related to commercial settlements for EV plans.

Now turning to Slide 12. Slide 12 summarizes the revenue impacts from recent changes to the U.S. tariff policy. Although there is no earnings impact, we felt that the complexity of changes in U.S. tariff policy and significant impact on revenues warranted further explanation. There were 2 significant changes to the tariff regime that are expected to result in lower revenue, both on a year-over-year basis and relative to our February outlook.

Further OEMs are now receiving import adjustment credits, based on a percentage of MSRP for vehicles assembled in the U.S. These credits can be allocated down the supply chain, allowing suppliers to import components effectively tariff-free. As a result, we had lower pass-through revenue from tariff reimbursements in the quarter, which we expect to continue going forward as well as from a onetime adjustment for credit supplied retroactively. This will also improve cash flow by eliminating the timing lag between paying tariffs and receiving customer reimbursement.

Second, the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act or IEEPA. As those tariffs are refunded, we will return the proceeds to customers who had previously reimbursed us. In anticipation of those refunds, we recorded a onetime adjustment in the first quarter to reverse EPA-related recoveries that had previously been recognized as revenue. In 2025, we recognized $194 million in revenue due to the recovery of tariffs we paid during the year.

Our February full year 2026 outlook included a $100 million year-over-year revenue tailwind from tariff recoveries based on the assumption that there would be no changes to the tariffs in place at the time. In the first quarter, the onetime reversal resulted in a $175 million year-over-year revenue reduction, which when combined with the application of customer credits, led to a $243 million reduction in revenue from what was assumed in our February outlook.

For the full year, we now expect a $285 million year-over-year revenue reduction driven by the onetime adjustment in the first quarter as well as tariff free imports using customer allocated credits throughout the remainder of the year. This represents a $385 million revenue reduction from what was assumed in our February outlook.

The magnitude of these revenue impacts with no corresponding effect on earnings is a testament to the team's ability to achieve full recovery of tariffs in both 2025 and 2026. Our strong track record of navigating tariff policy changes and protecting earnings gives us confidence in our ability to continue to mitigate impacts regardless of the policy environment.

Slide 13 explains the variance in sales and adjusted operating margins for the first quarter in the Seating segment. Sales for the first quarter were $4.4 billion, an increase of $253 million or 6% and from 2025. Organic sales were up 3%, reflecting higher volumes on Lear platforms such as the Jeep Grand Wagoneer and the Ford Explorer and Lincoln Aviator in North America as well as the addition of new business, including the Series M7 in China, the [ BMW iX3 ] in Europe and the Jeep [ Cheri ] in North America.

Adjusted earnings were $305 million, up $25 million or 9% compared to 2025 with adjusted operating margins of 6.9%. Operating margins were higher compared to last year, primarily due to higher volumes in the mix of production by program, a margin-accretive backlog and net performance, partially offset by the impact of foreign exchange.

Slide 14 explains the variance in sales and adjusted operating margins for the first quarter in the E-Systems segment. Sales for the first quarter were $1.4 billion, an increase of $9 million or 1% from 2025. Organic sales were flat as higher volumes on Lear platforms, including the Ford Expedition, Bronco Sport and Lincoln Navigator in North America were offset by the build-out of the Ford Escape focus and [ Lincoln Corsair ] reflected in our backlog. Adjusted earnings were $86 million or 6.1% of sales compared to $74 million and 5.2% of sales in 2025. Higher operating margins were driven by increased volumes on Lear platforms net performance and the impact of foreign exchange, partially offset by the build-out of the programs reflected in our backlog.

Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down less than 2% on a Lear sales-weighted basis driven by lower volumes in our largest markets, North America, Europe and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.17 per euro and an average Chinese RMB exchange rate of RMB 6.91 to the dollar.

Slide 16 reaffirms our outlook for 2026. Our first quarter results were strong, and the second quarter is trending favorably, putting us on a trajectory to deliver results between the midpoint and high end of our guidance range. However, given the uncertainty around the overall global macro environment and potential impacts from the conflict in the Middle East, we felt it was prudent to simply maintain our full year outlook at this time, essentially protecting for the risk of these events impacting global industry production in the second half of the year.

Moving to Slide 17. We highlight the value created through the execution of our disciplined capital allocation strategy. Over the past 4 years, we have returned more than $1.8 billion to shareholders through share repurchases and dividends, consistently reducing our share count each year. From 2021 to 2025, cumulative revenue per diluted share grew 36% while adjusted earnings per diluted share increased 61%, with steady growth in both metrics every year over this period.

This performance significantly outpaced both the S&P 500 and the S&P 1500 Auto Components Index. Despite this consistent execution and outperformance, our valuation multiple significantly lags that of the S&P 500. We believe this disconnect reflects an underappreciation of our future earnings power, strong cash flow generation and disciplined capital returns in an industry experiencing modest growth in production.

Given our current valuation and confidence in our ability to enhance long-term shareholder value, we believe the best near-term use of excess cash is to continue prioritizing share repurchases and our sustained dividend. We remain focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders.

In 2026, we are targeting free cash flow conversion of more than 80% which will enable us to buy back at least $300 million worth of stock with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. As we drive growth and margin expansion, the resulting strong cash flow and our disciplined capital allocation strategy will continue to generate shareholder value. Now I'll turn it back to Ray for some closing thoughts.

Thanks, Jason. Please turn to Slide 19. The first quarter was exceptional, demonstrating the strength of our strategy and our ability to execute. Our commercial success continues the momentum from 2025, including the major Conquest truck program and the GM Orion plant awards in Seating and the $1.4 billion of business awards in E-Systems, our first quarter key business wins, such as the major GM full-size SUV wire harness award, key power distribution module wins and growth with Chinese automakers increases our 2-year sales backlog.

More importantly, the near-term success winning new business awards, combined with significant opportunities to secure new business throughout the remainder of 2026, positions both businesses to generate sustainable revenue growth over the next several years. IDEA by Lear continues to differentiate us. Our automation capabilities are key drivers of new business wins, enabling us to launch its speeds previously unprecedented in the industry. While our competitors are trying to catch up, we'll be creating the next generation of solutions, further widening our advantage.

Financially, first quarter results were strong across the board. Revenue up 5%; core operating earnings up 10% and adjusted EPS up 24% to $3.87, the highest quarterly EPS since quarter 1 2019. Free cash flow improved by $205 million, enabling us to repurchase $75 million in shares, putting us on pace for over $300 million of buybacks in 2026.

We're on track to deliver our full year net performance targets, 40 basis points in Seating and 80 basis points in E-Systems. The pace of new wins and strong pipeline position us for long-term success. And now we'd be happy to take your questions.

[Operator Instructions]. And our first question today comes from Dan Levy from Barclays.

Wanted to first start with a question on the revenue outlook. You're cutting -- there's a negative impact from tariffs. There's a lower LGC outlook -- there's a little bit of positive offset from FX. I think you're talking about some positive backlog. Maybe through the moving pieces that allow you to maintain the outlook. And in fact, I think you sort of gave some implied commentary that there's potentially even some upside on that piece, I interpreted that correctly. So can you just walk us through the moving pieces on the revenue side?

Sure, Dan. Just from a revenue perspective, you've highlighted the key drivers pretty well. So we have the reduction in revenue due to the changes in tariff policy, which is $385 million. And that's largely been offset by 2 things. One, foreign exchange. So the change in assumptions around the euro and the RMB, amongst others, and then also the impact of commodity and other pass-throughs to customers and the most notable change there is around copper, but we've also seen commodity increases with foam chemicals with steel.

And so there's a pretty meaningful increase in revenue with no corresponding earnings impact as we pass through those adjustments, mostly on a 1-quarter lag. So there is a small leakage from an earnings perspective. And then in terms of the industry volume assumptions, first of all, we recognize S&P adjusted the overall industry, but we obviously have we don't sell every program in the industry. If we look at our mix of programs, there are actually some programs that S&P increased their full year outlook on.

So we have favorable mix. It's offsetting a portion of that lower industry volume. And then we also have the benefit of the new business awards that launched starting in the second half of the year. So there's a small incremental revenue from the backlog that also helps offset that industry volume.

Great. Second, if we could just double click on the margins, please. You just did your best quarterly margin, I think, in something like 5 years. I know that there's some nuances there that are going on with tariffs and happening there. But the guidance does imply a decrease in margins for the subsequent quarters. Maybe you could just walk us through the margin dynamics what would drive driving this implied decline in margins? Or is that some form of conservatism?

Why don't I go first here, Dan, and Jason can talk a little bit about it. But I think one is Jason in his narrative talked a little bit about it. I just think given the uncertainty around how we're looking at the second half of the year, and that can go in a lot of different directions, we're probably conservative if things play out differently. And I'll tell you right now, I talked about the momentum and how I felt about this year.

Now we have the actual facts in front of us is how we're performing. If you think about E-Systems, E-Systems has done a great job. We had some operational issues. We had some issues relative to the decrease in volume here in North America around the EV market. I feel really good that, that -- the majority of that is behind us. The operations are running significantly better. So from a sustainability and durability perspective, the margins in E-Systems are at a better place.

In Seating, we're doing a really good job of, particularly in Europe, around some of the other very similar situations around volume, cleaning that up. And so we started the year off strong. I think we're just -- looking at the second half, and I think it's a lot of narrative around and not just us, but what's the second half bring with the situation that's going on with Iran and inflation and what demand is.

But I feel really good about the things that we can control. I think it would have been an absolute beat and raise. But I think we're just being a little bit cautious given some of the things that we're being faced with that are outside of our control. But the things we are controlling mean I'll tell you, we crush, I talk about momentum, now to be able to back it up. What we did in Seating with the truck award, the conquest wins validated our modularity and our technology around automation and the digital changes within our manufacturing plants.

And then for -- we're right behind that with this major conquest win on a mid-cycle program. That's very rare opening that door on the T1 platform mid-cycle, putting us a great position for the next-generation T2 platform on a very popular product line. And the wins that we saw in China were exceptional. And so I feel the momentum. I feel really good operationally how we're performing both segments and the wins were exceptional. And so -- that's from my head's at. I think we're just being a little bit mindful of what we're being faced with outside of our control.

And Dan, I'll give you a couple of data points to help round that out as well. I think it's important to note that the first quarter margins benefited from this change in tariff policy so that reduction in revenue creates a little bit of an artificial boost to the margins in the quarter. It was about 20 basis points in Seating and 40 basis points in E-Systems.

We also had a little bit of a benefit from commodities in E-Systems in the first quarter, just the way we account for the copper revaluation as copper prices have come up and then that kind of unwinds itself through the balance of the year. So very strong first quarter, but there are a couple of nuances there that I think are important to highlight.

Looking at the second quarter, we have a pretty good line of sight now on production schedules and our operating plans. And we feel like the second quarter is going to be strong as well. We expect revenue sort of $6.1 billion to $6.2 billion in the second quarter. As I look at that year-over-year, we'd be up about 2%, so roughly $100 million year-over-year in the second quarter.

Looking at each of the business segments, we expect seating margins to be sort of in the mid-6s and E-Systems to be in the low 5s. E-Systems would be up a little bit from last year and Seating would be down to flat compared to last year. And we also see strong net performance in both business segments in the second quarter, 40 and 80 basis points is our full year guidance that's similar to how we see the second quarter playing out. And we also expect very strong free cash flow in the second quarter, likely $150 million or maybe a bit more than that.

And so the second quarter is set up pretty nicely. So then that leads to the obvious question, why aren't you raising full year guidance. And Ray, I think, explained it pretty effectively. It's really a bit of conservatism on our part. And you may recall from the fourth quarter earnings call, what we talked about when we talked about the full year, we said that are -- the high end of our guidance range effectively represents what our customers' production schedules are and how we see the year playing out.

And then at the midpoint, we had $400 million of revenue protection. And then another $400 million at the low end of the guidance range for the unexpected or deterioration in the market that we're not currently seeing, but we protected for that nonetheless. We haven't used really any of that protection through the first half of the year.

So if things hold together, we're tracking between the midpoint and the high end of the guidance range for the full year. And I think that would help sort of smooth out the progression of operating margins throughout the balance of the year and would make a little bit more sense overall.

And I just want to reinforce one 1 point that Ray made around execution. I've been here for 34 years. I've seen good performance and bad performance over that time period. And I would say, right now, what we're seeing in both Seating and E-Systems is the best execution operationally probably in 10 years. And I think it's not just in the segments overall, but it's in every region and every subsegment. And we haven't had that in quite some time.

Now we're not happy with where our operating margins are today. There's lots of room for improvement, particularly on the E-Systems side. But that consistent execution, operational discipline really is a key enabler to achieving not just the 40 and 80 basis points of that performance that we see this year in Seating and E-Systems, respectively, but into '27 and beyond.

And I think it's just important to highlight that the performance of the team has added another level today than where it was a year ago, 2 years ago, 5 years ago. It's really it's really a strong performance across the board. So that's what really gave us mixed feelings about whether to adjust the full year outlook. We have so much confidence and so much momentum. We really wanted to raise sort of take the low end of that guidance range out.

But with all that's happening with the uncertainty around Iran, as Ray mentioned, we thought it was prudent just to hold serve for now and provide an update. We'll have a chance at the end of the second quarter and a couple of public investor events to provide an update on how Q2 is playing out, and we hope to provide a little more color again on the full year at that point.

And our next question comes from Colin Langan from Wells Fargo.

Just wanted to follow up on the comments so I understand. You mentioned that tariffs helped margins in Q1. Is that just because the accounting is more skewed on the sales impact in Q1 versus the rest of the year? And then also, you mentioned that copper actually helped margins on E-Systems in Q1. That kind of surprised me a bit because I thought copper prices were kind of all over the place, they might actually be a headwind. So why would copper have actually helped in Q1?

Yes. So I'll start with that and then move back to tariffs. So the way we account for copper and value our inventory, if there's a large change in the copper price, we revalue our inventory. So that led to a step-up of the inventory and it benefits the cost of sales in the quarter. That was partially offset by the higher copper prices and the lag of recovery, but it was a tailwind in the quarter.

In terms of the -- in regards to the tariffs, so we had the full value of this refund for 2025 tariffs all recorded in the first quarter. So we had $175 million of refunds between the IEEPA tariffs and the use of credits that our customers have given us, which apply retroactively to last year. It's about $70 million or a little less in IEEPA tariffs and $106 million and the 232 credits that we're able to apply refunds -- apply for refunds. And so that's the disproportionate impact on the first quarter revenue and margins as a result of that.

Okay. That's helpful. And then just since we're talking about raw material. Can you remind us what your hedging is on copper, in particular, and steel and other resins and other commodities? And is there an impact in the guide for a little bit of a pinch on some of those?

Yes. So we don't hedge commodities, Colin, but we do have back indexing agreements in place pretty much across the board now. The vast majority of copper, steel, bone chemicals, leather are all on pass-through agreements. In certain cases, with steel, for example, the customers are buying that steel for us. So we see no impact from that.

In other cases, there is a 1 quarter lag or 2-quarter lag. And so we are seeing across the board increases in commodity costs, but the end result in terms of the earnings impact is pretty negligible. It's about $10 million worse than where we were sitting here on the fourth quarter earnings call for the year, but it's a pretty modest impact.

Our next question comes from Joe Spak from UBS.

Ray, I wanted to go back to some of your comments, you talked about some change in competitive dynamics and wiring. And I was wondering if you could spend a minute talking about how you're positioning Lear to take advantage of that. And I know you mentioned some conquest wins, which sounds pretty exciting. But like from your perspective, is it better to win conquest business or sort of really go after some of these new architectures? Like do you have a preference there? Again, maybe I have a follow-up, but I'll pause there.

Well, I think it's a combination of both, really. I think the conquest opportunities have presented themselves over the last really 6 months. I think I've been hinting at this or talking about it, the amount of requests we've got for mid-cycle or next generation. And so that is something that's relatively new. I think it's a combination of maybe strategic directions with other companies or performance.

Quite candidly, I think we've gotten a lot of requests for quotes because of the lack of performance. And again, I've always said that the entry, the ticket to get into quote is you have to perform every day around quality, delivery, you have to meet the customers' expectations. And so those are more of a recent anomaly that I'll say that continue to persist that we still have a significant amount of opportunities that -- the electrical opportunities when we think about the newer platforms is part of what we just announced, too.

Some of these new electronic awards are very strategic. They're placed right where we have really good capabilities and competencies where the customers spend a lot of time with us and our capabilities in the electronic wins to come in at a higher margin than what we'd be looking at as far as our overall target margin too. So they're coming on in a very good accretive level as we start to launch them.

And so it is a combination -- the third element I'll say is this new ability to gain access to the domestic Chinese. I was just in China last week. It's really amazing to me the amount of opportunities we're seeing, not just in Seating, I mentioned Seating, but in E-Systems. We had a dinner with a key customer and we expanded the relationship to include commercial trucks, both in Seating and E-Systems. And so that door is more of a recent area to it.

We've had more wins in this quarter hopefully, we have the same success we had at the last call, right when we got off, we had 2 significant awards in China right after the call. But I see that as a really nice opportunity for us to continue to grow. And I think it has been the combination of what we've done from a leadership organizational perspective, but that door is open, and we're seeing significant opportunities.

So I am excited. It is very rare. When we get these conquest wins are mid-cycle, that is -- they don't do that because they're happy and content. They're doing it very strategically, very -- it's very intentful -- and our job on that T1 is to deliver. And I think when that door is open, I hope we can take advantage of it post delivery and continue to expand our position on the next generation of that platform, but that was very strategic.

And what's good about all this is that we have target margins. We're competitive. We're hitting it at what we believe is absolutely acceptable return for our company. So it shows that the automation, the digital changes we're making in our manufacturing plan both across electronics and wiring is very competitive. Our reputation as a leader for quality and delivery. And so I'm excited where we're at these systems. But it is across a lot of different areas, not just the conquest wins that are current, but also a new generation of electrical architecture.

Great. And then, Jason, maybe if I could, just 2 quick, I guess, housekeeping. One, like I appreciate all your comments sort of like margin expansion sort of cadence throughout the year. But like just help me think about in the quarter because I know you sort of mentioned extra days, extra volume. Did that also help the margin, like you got a little bit more sort of fixed cost leverage? Or is it really just a dollar thing?

And the second question is just with the metals, Section 232 tariff change, like I don't think there's any change there, but it's a little confusing because you start looking at some of the parts like there's definitely elements of wiring that are sort of listed in there. So maybe you could just sort of confirm that auto wire harness aren't really impacted from the change or if they are, that would be great to know as well.

Yes, Joe. So there really is no new tariffs that are impacting us other than you have the Section 122 tariffs replacing the IEEPA tariffs and that -- that's a little bit of a wash, maybe it's a little bit lower overall. But that has been factored into the updated commentary around the impact of revenue for the full year due to tariffs.

In regards to your question about the additional workdays, yes, that would benefit the quarter on a year-over-year basis. It really shows up kind of on the volume line, volume overall, I think, was about $190 million and roughly 2/3 of that is a result of the additional workdays with the balance being higher volumes on a normalized basis. And I think it's important to point out that, that was a positive development for us in that we [indiscernible] full year negative volume mix factored into the initial guidance, and the first quarter was off to a positive start relative to that. So even normalizing for the Workday difference. It's still a positive trajectory relative to what we had anticipated when we issued our initial guidance.

So just on the shape of the year margins, I mean, if I'm following, right, like you've got to have greater expansion in the -- over the next 2 quarters because I'm assuming there's a give back in the fourth quarter just on the calendar. Is that the right shape of the year?

Yes, that's exactly right. And I think -- so you have -- if you think about first half, second half, you have your normal kind of seasonality in the third quarter, where you're going to have downtime in Europe. And then you have typically a strong fourth quarter, particularly in China historically is very strong in the fourth quarter.

And so that may be a little more tempered for us on a year-over-year basis as a result of the change in the calendar and the impact on the number of workdays in each quarter relative to the prior year.

Our next question comes from Mark Delaney from Goldman Sachs.

I think we're a 2-year net back I think the 2-year that backlog was $1.325 billion at the end of last year, and you spoke about the new awards adding $250 million. I believe that is all scheduled to ship for 2027, but maybe you could share more on where the backlog now stands. Is there any other puts and takes to it besides the [ 25] 0 and just in terms of the linearity, if you can confirm that the incremental dose all ship in '27?

Yes. So there is a little bit of the $250 million that will hit in 2026. And given the volatility of customer plans, I didn't want to put a pinpoint number to it, but it is positive within 2026 as well. And that is sort of a comprehensive look at the overall change in the 2026 backlog and 2027 backlog. So it includes some timing changes and other assumption changes are embedded in that.

And if we look at it on a 3-year basis, if you were to include 2028, where some of these awards show themselves more fully it's about a $400 million increase in our 3-year backlog. We didn't provide a starting point for 2028, but overall, over that 3-year period, the awards received in the first quarter increased the backlog over that time period by $400 million.

So it was an incredibly strong start to the year. And as Ray pointed out, the sort of new development, particularly in China, is just how short the development windows are and the gap in time between award and launch is much shorter than what we're historically accustomed to seeing. And so we're excited about the opportunity to continue increasing the '27 and '28 backlog with awards that happened throughout the remainder of this year.

And then I wanted to also talk about the competitive landscape you already mentioned the momentum that we was seeing with Conquest opportunities in wire systems, but maybe you could give an update on Seating. And I asked because last quarter, you announced the largest Conquest award in the company's history in the Seating side, and I think that was driven in part by the automation capabilities that Lear has.

So with that award on the seating side now in place and maybe what it shows for the industry more generally with what Lear can deliver. I am hoping if you can you have an update about whether or not it's generating additional interest from other auto OEMs that may also want to take advantage of what Lear can provide.

Yes, we'll extend the call. There's a lot going on and particularly in Seating. And I think it's important and why and how we're communicating this. Yes, the award you mentioned was very important on that truck platform because it did validate the work we've been doing for 10 years.

I think the way we differentiate ourselves, if you can think through all the different acquisitions, what's important, we talk about manufacturing our own capital how we have a modular system, how we're looking at automation and digital changes on the [ plant ] floor is very attractive to all of our customers. And that win was a significant win because it was based on everything I just mentioned. And you think back through [ IGB, Coburg ], in touch, Swift automation, the most recent acquisition in E-Systems, ASI, M&N, I mean the list has been -- we've been doing these great acquisitions for over 10 years to really build the competencies and capabilities that we have.

And now in a world where automation and digital or the buzz word, we've been building on that for over 10 years, and we're really putting it in place. And so I think what's important and how we track ourselves before we still really started communicating this externally that we had to have contracts, proof points that this is real.

The 38 contract wins are because we are vertically integrated and we manufacture the module itself down to the lumbar. We're not partnering or we don't have supply agreements. We -- the customers see the real value in that. And that helps us expand our margins and help our customers with efficiencies and purpose and use within the vehicle.

So when I was in China, like I said last week, it was amazing that the content that's going in the vehicles and the need for speed to accelerate technology within the seats. And when you have the vertical capabilities like we have we can meet their timing, we can meet their specifications and the requirements that they're looking for, for adaptability and customer preferences.

And so I think through everything that we've done and we've built this innovation center around really to showcase it to our analysts and our investors. The customers have seen it. You're seeing in production use automation of a modular system that's in production. And so it's amazing how that is adapting because right now, the timing couldn't have been better, really.

We thought about this 10 years ago, but every one of our customers the domestic Chinese are accelerating speed to market and really wanting to make sure that they're driving a competitive seat system. The traditionals are really trying to understand how they can get to that and we're showing them what we're doing. We're doing it both with the domestic Chinese and here at home with North Americans and Europeans. And so we're being very selective, too.

The Orion was a very targeted approach that we will have all of our best capabilities in that facility for automation and digital tools. What we're doing with the innovation centers can, again, to replicate into speed to market within our production facilities. And so it is picking up momentum. I was hesitant when we talked about all this, and we have 38 contracts within the modular arena.

We're the only one doing a modular system where we vertically integrate our own components. And so it's a differentiator for sure. And like I just mentioned, Frank has done a great job now in Audi in Europe. Obviously, we're in North America. So as this becomes more prevalent, our customers have some -- and we're somewhat concerned around I want to see it in production first.

Now that's in production, we can take production parts and show them and then walk them through a line, and that's what they did with the truck business we got. They went through an audit, they saw our facilities and every one of our customers are coming back and this is no joke. They're telling us, I've never seen this. We just had a major OEM come through our facility in Rochester, and they said there's no see company doing what you're doing.

And again, think about the time that we've been doing this. It's over 10 years. We've acquired specific skill sets that have been integrated, just that integration takes time. And now we're, I think, at full momentum of what we're seeing. And so we're going to be selective. I think the Orion, and that was a conquest win too because we had a competitor that had a plant sitting right there, and we won that business. we're going to be selective on customers, how we position ourselves, how we invest in a particular platform, but we're definitely differentiating ourselves.

And that's one thing we have to do a better job of. We talk about it here is how we explain that because it is not a fancy marketing slogan with a bunch of words on a piece of paper explaining I do modularity. This is real. We're in production. We vertically integrate. We have the components and the automation side and our manufacturing plants is incredible. And so it really has taken off. And I'm excited.

I think like I said, particularly with the domestic Chinese, they're pushing the market to think differently. And so the timing couldn't be better for what we've been kind of really putting in place over 10 years.

Again, we can extend the meeting. I can keep talking on this. I'd love to have everyone out to Rochester Hills. You have to see what it is, and that's in production. And that's not theory. That's production parts that are built in an automation facility around digital tools that are 100% going into production.

Next question comes from James Picariello from BNP Paribas.

Can you speak to the content and margin opportunity for E-Systems as we think about OEMs transitioning to domain centralized architectures. I assume a portion of it's not all the wiring awards you called out this morning or on this type of platform. Like for many folks on the outside looking in, the headline features of these next-gen electrical systems called for dramatic reductions in copper and overall wiring content.

It's a much more simplified design. I know it's not at face value. I know it's a lot more complicated than that. So can you speak to the positive features of these next general electrical systems as it pertains to your E-Systems business.

Well, yes, I think a couple of things. One, we've mentioned these electronic modules that we won. They're smart they're specifically used on these new architectures. And we've really set, I think, or put ourselves in a leadership position. We'll be able to announce a little bit more about the platforms and what we want as we work with our customers. But those are really the leading edge type systems, electronic systems for this architecture referring to, and so we're in a very good position there.

I think the continuation of what we're doing with wiring, we do get asked, we have not seen significant changes in wiring, by the way. I mean, I think there's different alternative materials, things that they're trying to do. I think design upfront, we work closely with BMW. And when I talked about the wins that we got were around early development of the harness upfront.

That's a big key ingredient into how you can really save and really look at cost savings within the harness program because it's usually day after design that gets put into the vehicle. But we worked with BMW upfront. We put our automation tools in place so we could actually get at a more efficient design. But the changes to the wiring, you see more and more content add. We're just in China last week. It's amazing with LIDAR and what they're doing with their architectures that are becoming very complex around features. And so it's a balance.

We are working with alternative materials, what we're doing with alternative designs. We see it's a combination of those type of applications. But when we think about the next level of architecture, where we've really done a nice job is on the electronics capabilities that we have, and we keep announcing these new programs. They're very, very unique to our capabilities, and it put us in a good position, I think, to be a leader in that area within the new architecture.

Got it. No, that's so helpful. I really appreciate that color. And then just to clarify on the tariff recovery reversal. The February outlook embedded a full year revenue reduction of [ $385 million], and now it's less -- and now it's better by [ 100], it's only [ 285]?

No, no, that's first the outlook. Okay. No. My question is, on a year-over-year basis, it's a $285 million reduction, but you're keeping your revenue range intact. Is that just better FX predominantly that's a positive offset to that year-over-year hit?

Yes, James, it's primarily FX and the pass-through in commodities, particularly copper, that's where the biggest impact is in terms of the copper price change from our original guidance and the pass-through mechanisms that we have in place. and then, to a lesser extent, steel foam chemicals and other commodities that are on these pass-through mechanisms. So that, in addition to FX is largely offsetting the impact of the reduction in revenue due to the tariff accounting.

And our final question today comes from Emmanuel Rosner from Wolfe Research.

So a question on the longer-term potential for E-Systems and in particular, margins. So one of your larger competitors just became an independent company as opposed to being part of a larger one. And that has put a pretty big spotlight on the fact that they're very profitable. It's very solid margins. And with a goal to improve those by another like 200 basis points over the next 3 years.

To what extent is there a similar opportunity for Lear? Is there a different business mix or reasons why you basically couldn't get there? Like what are some of the structural differences and what is the potential for Lear?

Saying that we just took that -- took business from that big competitor and wanted at a competitive price that we get and are going to make fair returns when we look at returns. So we can compete with anyone, and we can generate very similar returns.

Like I've mentioned before, we've had some, I'll say, operational things, challenges that we've been working on, particularly down in Mexico, particularly around the EV. We did a great job of winning significant business in EV and we've been working through the volume reductions, both commercially and operationally. The operation turnaround led by Nick and the team down in Mexico have done a great job.

So we have really good business within E-Systems. We had some pockets that we have to clean up that were within our control. The business we're winning is accretive, and we believe that is on pace to continue to get us good returns in E-Systems. So we don't see anything that's going to be inhibiting us to grow our margins. And that's why we put net performance on there.

We're confident that we'll continue to expand our margins in E-Systems. There's a pace to it because we have some programs that are lower from an assumption standpoint with volume or inflationary costs that we didn't completely catch up with commercial negotiations. But I've never -- Jason said I never -- I haven't felt this good about E-Systems and the operational performance and what we're doing until really this last quarter.

And so I feel good where we're at with these systems, Emmanuel. And we can compete against anyone out there, and we've proven it. And I think at a good return. And so there's nothing that prohibits us except for some of the operational things I touched on that we got it -- we got to stay focused on and continue to clean up. Jason mentioned that we're operating at a much better level.

We still have room to continue to improve. We're not there. That's going to continue to improve our margins. And so I think another thing that I think was maybe Achilles heel was our ability to grow. Well, we're growing. I mean, we have $1.4 billion of awards last year in E-Systems after we pivoted away from what was the North American EV decline. That was a great year, and they're not the shoot, and we crushed it, more Chinese awards than we had all last year in E-Systems, and we got a great pipeline right now. And so I'll kind of turn it over to you, Jason, you want to --

Yes. I think the only thing I would add to that, I think that they do have a scale advantage. I think you have to also look at the portfolio of programs. You may recall, when our E-Systems business was at its peak performance. We had a large program, 2 million unit program globally that allowed for a unique scale advantage and higher margins.

I think they may enjoy a similar phenomenon that skews the margin profile a little bit. But as Ray mentioned, we're super excited about the combination of continued net performance of 80 basis points a year and then getting back to growing the top line after digesting what happened with EVs, particularly in North America and the decision that we made to exit certain products.

And as you get into '27 and '28, you start to see that positive inflection from these new business awards starting to exceed the impact of the wind down of the products we exited. And so then you get that -- the combination of net performance plus the effect of volume mix backlog wind down is a positive number. And when you take those 2 together, I think that's when you see the meaningful move higher in E-Systems margins.

That's great color. One quick follow-up on growth over market. I know a lot of different puts and takes in there in general, not just the backlog, but obviously, mix and geographies and stuff. What would be -- would the backlog sort of improving and some of these new things launching even later this year, what would be your best guess on when growth of a market could turn more positive for the time line?

Yes. I think if we look at the full year for Seating, we're expecting positive growth over market this year. And E-Systems is negative primarily because of the build-out of the Escape, Corsair and focus swaying on the top line. And so I think as the year progresses, our growth profile improves, particularly in China, we had negative growth over market in the first quarter in China, which was largely driven by Seating.

E-Systems actually had positive growth over market and in the first quarter in China. As we look at the balance of the year, the first quarter for our China growth over market is the trough, and it does improve based on our volume assumptions and the backlog improvements that we highlighted that improves throughout the year. So we're -- we feel really good about how that market is playing out for us. And for the full year, we think we're pretty close to neutral in China on a growth over market basis.

So after last year being negative and certainly the way we exited last year, that's a positive development. And the momentum is even more important because it's not just this year. As you look out to next year and beyond, we see an opportunity to grow in line with that market. and to have a revenue base that more closely resembles the underlying market share of the customers in that market.

Okay. Just for the team, again, thank you. We talked about coming out this year with momentum, and we definitely have it. You guys all your hard work. You keep reinforcing what that momentum looks like in a quarter. I mean, it was a great quarter, great performance. Thanks to the team around the world, the growth opportunities, the contract wins were incredible.

And so I appreciate all the hard work. We've got a lot of work to do. We've got a lot of things that we're focused on that we can control, as you know, man, we got some great momentum you guys. And so let's keep it keep the focus, keep the momentum going. Thank you for a great quarter.

And with that, ladies and gentlemen, the conference call has concluded. We thank you for attending today's presentation. You may now disconnect your lines.

We'll kick off our company-specific series here today. We're really, really excited to have Lear with us, one of the top global seating suppliers and also a player in vehicle electronics. Lear typically generates a ton of cash, pays a good dividend, buys back a ton of shares and make strategic bolt-on acquisitions. And we're very happy to have Ray Scott, Lear's President and CEO; as well as Jason Cardew, Senior Vice President and Chief Financial Officer. We also want to thank Tim Brumbaugh for also attending the conference and being a great resource for us.

So Ray, Jason, thanks a lot for joining us today.

I'd just like to start off by asking if there's an update on Lear generally and how things are progressing as we sort of approach the end of the first quarter here. What is your view on the production environment? Auto industry volumes are expected to decline modestly for the full year. Do you have any different assumptions across the different various regions where Lear operates but I just wanted to get a little bit of an update on how the first quarter may be progressing. Yes.

Yes. Well, thanks for having us on this St. Patty's Day and being here and talking about the business. I appreciate everyone in attendance. One, we feel really good. Despite what's going on in the Middle East, we haven't seen anything of any significance impacting our business. And on the earnings call -- the fourth quarter earnings call, for those that listen, I was very optimistic and very positive with the momentum we had established in '25. And I still believe we're in the same position today. 2025, we produced $200 million in net performance. That's really an important measurable on how we look at our business, how we're performing with restructuring IDEA by Lear, our operational performance, still feel really good on where we're at.

We have a target this year. We achieved last year's target, beat our last year target significantly, and we've established a really solid plan this year for $135 million of improvement in net performance. And I still feel that we're in a very good position to beat that number. We talked about growth last year and Conquest wins. We had a significant win with the Orion facility, the onshoring with General Motors with the SUVs and full-size pickups. There was a competitor that did have a facility in that location. We were able to go in there and really through our innovation and technology, really secure that business, remain the sole supplier of the T1 seat business.

We also won the largest Conquest win last year with a major North American OEM for their truck business. They'll launch in later 2029 but it was a significant conquest opportunity for us. There was 2 different competitors that we won their manufacturing facilities. And we won it based on our technology through automation and the digital enhancements we're making in our manufacturing plants. I mentioned that the customers that are very sophisticated on looking at how you're doing it, we talk about having a 200 to 500 basis point competitive advantage with the capabilities we put in place, the companies we've acquired around automation, robotics and AI and the digital tools we're implementing in our plants but they came in and audited our facilities, where we're actually using the production capabilities today, how we're getting there, very detailed reviews of our plans for our manufacturing plants. We're very impressed. And across every functional group, it was unanimous in the award for Lear Corporation.

So that's a significant win. What that did was really drive what we're talking about in theory through this technology capability of where our customers are headed through modularity and capabilities within the manufacturing plant. So a really significant win for us. And in E-Systems, we had the decline in EVs. We've seen what's happened with our OEM customers here in North America. We pivoted nicely and had $1.4 billion of wins last year and a good chunk of that in conquest wins. And what was exciting after the earnings call, right after the earnings call, I was like, man, we should just pause a little bit. We had some great conquest wins in Asia and China, really -- Jason will talk a little bit about it. That will launch later this year. And so what we're seeing is the speed to market really benefiting Lear Corporation. And so we'll launch 2 significant programs this year with Chinese OEMs.

And then we just recently were awarded with a North American customer, a significant platform that we'll launch later next year. And we can't talk about that one. When we get approval, we'll talk a little bit more about it, but it was a major conquest win. So that's new news. And again, it just validates the momentum I talked about on the earnings call. And so we're going to continue -- we focus. We -- with the discipline on driving profitable growth and then making sure we're expanding our margins in a relatively flat to down market.

And both of those are going extremely well, and we're going to continue with our capital allocation. We've targeted $300-plus million of share buyback. So despite what I mentioned earlier, what's going on with the geopolitical situation, which we haven't seen anything of any significance, we're doing really well and feel really good about where we're at.

And Alex, I'll just add a couple of points to Ray's summary there. In terms of the impact of these new business awards in wire, it's really pretty significant, about $250 million in average annual sales just in the 3 awards that we've received between the earnings call and today. And so -- and about $100 million of that is in China. And so we had $120 million of awards in wire with the Chinese domestics all of last year on the wire side. And this year, we've got $100 million just in the first quarter. So we're off to a really great start. The momentum around growth is really continuing in E-Systems.

In terms of the outlook for the quarter, we didn't provide formal guidance but we did share a framework of what we expected in the first quarter on the earnings call. We talked about revenue of about $6 billion and operating income of $260 million, Seating margins in the low 6s and E-Systems around 5%. And pretty much across the board, we're seeing a little bit better outlook at this stage than what we shared on the earnings call. Volumes have held up, but our performance has improved from what we saw just 45 days ago or so. And so now we expect Seating margins to be approaching 6.3%, 6.4%, maybe a little bit better depending on how some of our commercial negotiations play out for the balance of the year and E-Systems margins of around 5.5%, maybe a little bit higher. There's a little bit of a nuance that I want to just explain so investors are not surprised by it. But the way the tariff regime is playing out, it will lead to lower revenues for us than what we had embedded in the guidance in the first quarter and for the full year.

So you have a couple of things happening. You have our customers sharing the export credits that they receive with us, allowing us to import without paying tariffs. And so last year, you may recall, we had about $200 million of tariff costs. We got full recovery for that. So that was both in the revenue line, and then there was no impact in terms of earnings. For this year, a portion of that is going to unwind because you have not just export credits allowing us to import tariff-free but our customers had credits from last year that they've now granted us that we can pursue recovery on a retroactive basis.

I don't want to get too far into the weeds but the net effect of all of that is going to lead to a reduction of revenue somewhere between $100 million and $200 million in the first quarter. And so the headline number may be a little bit lower than what we had initially guided to but it's for a good reason. In the end, the most important change that comes with the new tariff regime is that these export credits allow us to avoid paying the tariff and having to seek recovery. Now you just avoid that upfront. And so there's a cash flow benefit that we expect to see. I'm not going to put a pinpoint number on it but last year, we had a cash flow headwind for that 1 quarter lag on the tariff recoveries that impacted last year's free cash flow.

Sorry, just one follow-up on that. So revenue is a bit lower on the tariff and then operating income, no impact to...

Yes, no impact on operating income. And then just to round out the comments on the quarter, we're expecting to be at least at $270 million, probably a little bit higher. We still have some commercial negotiations that are in process that could move that up a bit. I don't know exactly how those will play out in the last couple of weeks of the quarter but we're feeling pretty darn good about how the year is starting out.

Yes. No impact.

And that's really also allowed us to get off to a bit of a faster start on our share repurchases than what we've done in the last couple of years. So we're on track to buy back $65 million to $75 million in the first quarter to ensure that we remain on track for that $300 million or more for the full year. And that $300 million, just to kind of level set on that, that target is based on the low end of our free cash flow guidance range, which was $550 million to $650 million. So to the extent we get to the midpoint or higher, we would expect to do a little bit more than the $300 million.

That was really helpful. Jason, if you could maybe double-click on China a bit. That is the most dynamic market we're seeing globally. You've got kind of heritage domestic players that are maybe a little bit out of favor and you've got some of the bigger domestic players are just blowing up with tons of demand. How is Lear positioned within the Chinese market? You've navigated very well, and we're just curious of why you're doing so well in China.

Yes, it's a very important market, and we have an incredible team on the ground that is looking at this very strategically. And we've done a nice job. I mean the most recent awards that we just mentioned with -- is Geely and SAIC, and we have relationships with every one of the major customers. And where we've done a really nice job is our innovation and technology. One thing with the Chinese domestics that they -- particularly in the, say, the C and D segments in the premium areas of the business, the capabilities we have around thermal comfort, the ability to have modular components, how we're delivering innovation on the plant floor is something that is very, very critical to the Chinese OEMs. And it's why we've been so successful. We're the leader in premium products within the China market, and we continue to -- continue to see that those opportunities grow.

And we're also seeing a continuation of those thermal comfort features going across different car lines to differentiate their own vehicles, and that gives us additional opportunities. And so we have been very successful. And I'd say most recently, we've been extremely successful with our E-Systems business. I mean these 2 conquest wins are launching later this year. And that's what I love about the speed to market. We've usually go on the cycle of what is a 3-year launch cadence. We're launching much faster. And our ability to launch products fast to market really differentiate us.

And I think one thing that we're being very selective on and strategic on is as the Chinese OEMs start to embed themselves outside of China, looking at who's going to be successful, what the product lineup is, how they're looking at onshoring or localizing suppliers. And we're not going to go after a price game where you're just chasing it down to the bottom. We believe we can differentiate ourselves because of our innovation and technology where others can't. And so we are going through that. We look at this frequently. We study it where we want to position ourselves, who we want to position ourselves with, who we think the winners are going to be, what segmentation are we looking at? And we've been, like I said, very good at getting nice returns in the luxury segments, and that's really what our focus has been. But this new evolution of E-Systems growth has been really somewhat surprising but refreshing because it's because how we can deliver with speed to market and technology.

I think the other point I'd add is that we made an organization change in 2023, where we put the head of our Seating business over E-Systems. And that -- we're starting to see the results of that. We had the $120 million of wins with the C-OEMs in wire last year, another $100 million to start this year. And so his leadership, his relationships with the customers there has been extremely important. Now we're still underrepresented in the market on C-OEMs. We ended last year with 44% of our revenue was with the Chinese automakers. And so we're a little bit under-indexed relative to the market overall. We are on track to meet or likely exceed the 50% target that we established for 2027. And these new business wins likely accelerate our path to getting to at least 50% Chinese domestic customer representation within our China business.

And we were extremely successful last year, both in Seating and E-Systems. I think we had almost $800 million of new business awards with the C-OEMs in Seating and over $100 million in E-Systems. So strong momentum in that market, but very targeted. As Ray said, we're spending a lot of time as a leadership team studying that market, studying platforms and customers, trying to understand their export penetration in different markets, how those vehicles are going to perform in the markets they're targeting, both within China and outside of China and not going after everything, but being very targeted in what we pursue.

So the 50% target for the Chinese domestic share within your Chinese business, where you now used to 40%...

44% last year, will probably be a little bit higher than that this year and 50% is what we're expecting next year is what we had shared a couple of years ago as a target. We're ahead of that. So we'll be in the low 50s in '27.

Those are big moves. It's great.

Yes.

So I wanted to talk about IDEA by Lear. So the benefits have already begun to materialize, I think, contributing $70 million in 2025, $75 million expected in 2026. What are some examples of automation and digital tools you're implementing? How will those investments impact the capital intensity of the business? And how do you foresee the benefits growing over time?

Yes. For those that aren't aware, IDEA by Lear really is a cultural change that we've institutionalized in our company. It's innovation, it's the digital. It's the engineering, which is critical to how you look at the manufacturing and the automation. And so hence, IDEA by Lear. And it's really gained incredible traction within our company. And we've been at this for 10 years. I mean we've been really working how you look at the manufacturing plants, how you combine engineering product advancements for automation and digital change and efficiencies in the manufacturing plants.

And so we've also -- at the same time, we've organically grown our in-house capabilities. We have over 700 people dedicated to IDEA by Lear, the digital changes and the automation and the robotics in our manufacturing plants. We have over 600, I'll call it, user cases right now that we're implementing around the world that we've been very successful. So last year's target was very, very important to us to really identify and talk to investors and analysts on the success that we're having. And we have $75 million of savings that we're going to see this year, and I see that moving quickly.

At the same time, we are moving organically. We went out and we acquired companies that help us really advance and accelerate our capabilities. And so on the product side, we acquired Kongsberg and IGB. We had to have the engineering capabilities to really construct and design our own in-house modular concepts for automation of a thermal comfort solution, which we did. We have it up and running, and it's in place. And then we acquired several leading technology companies. ASI, which is really focused on the key ingredients for online material handling and inventory management through robotics and digital enhancements. Thagora, which is really a software program about nesting and capabilities of driving better utilization with our leather and even our textile because it's very complementary.

We have inTouch, which we -- that's all end-of-line capabilities for automation through visual systems, camera systems, lasers, other capabilities that were in-house and inTouch. And we launched our first end-of-line successful program with the Jeep Wagoneer, and now we're spreading that across all of our facilities. There's a significant savings in the manufacturing plants. And then we just recently announced StoneShield, which is one of the most labor-intensive parts of wire harnesses, the taping. And now we're up and running and have seen very, very good success with that right now. And WIP Automation, which is -- we're writing our own AI algorithms and software to continue to help with detection systems, other quality systems within our plant.

So I want to separate. We had our organic strategy and have been at this for 10 years, and we've done a really nice job of great tuck-in acquisitions that are getting an accelerated payback for us, even better than what we anticipated. And so now just to give you a couple of examples on how we have been successful. One is cycle time deviation. We're up and running with foundry. We've talked about it with Palantir. It's incredible applications where we're looking at cycle time, real time, being able to save -- this is real money, 3% to 5% of balancing the line in real time. We're spreading that across all of our plants. Last year, we saved $10 million on this tool within our manufacturing plants. And this year, we have targeted $15 million.

The tariff recovery process that we went through, it was amazing what we did with our software capabilities and how we got at that extremely quick. And anything, even if we have to reverse and get credits on how we're going to move forward with those inside capabilities is going to help us. It's helping in non purchasing, production purchasing. There's a lot of different examples that we've been successful at. And in addition to it, we built this innovation center. And again, I think the important thing is one thing is to talk about it. Another thing is to have it in production. And we have key modular components in production today.

We're not just advertising, here's the advertising. It's important that investors understand where we're at. And I always say, it doesn't matter showing a pretty advertisement or a marketing screen on what you're doing. It's about contracts. It's about POs. In our modular concepts, our thermal comfort, we've won 35. I got to get this right because every time I'm out, we're talking about new contracts, purchase orders. Of the modular ComfortFlex, ComfortMax, FlexAir. Those are real. I mean it was $80 million that we won in component business last year, $170 million, and Jason will talk a little bit about it, of real production contracts in the modular concepts that we've talked about, real production PO.

So we're moving fast. We just had a really good review. And if anyone is in Michigan, I'm going to invite you out to our Rochester Hills facility. We had a head of a major OEM purchasing come through our facility. We showed them a couple of different facilities. And she walked out and she said, "I've never seen -- there isn't a seating company that is doing what you're doing. I need to get my CEO back here." And so we are hitting on all the -- I think the key ingredients that they're talking about they want their suppliers to think about with technology, innovation, quick to market, manufacturing capabilities on the platform around automation, digitalization, modular concepts, that's where you really get the savings. That's where you really see the benefit.

So this 200 to 500 basis point competitive advantage that we have is real. And we're being very selective on how we pick and choose different programs, really looking at the longevity or traditional production rates of what the program look like, and that's where we're placing our bets. And so right now, it's going extremely well. We have more work to do. We're still continuing to look at different opportunities. But if there is an acquisition out there, they're going to be just like the ones that we've been seeing, these smaller tuck-ins that get us really quick paybacks and accelerate our need to change our manufacturing plant floor.

I'd just add a couple of points to Ray's explanation on IDEA by Lear. There's questions about how that impacts the capital intensity of the business. And we continue to run this business with 2.5% to 3% of revenue on CapEx each year. And I think this year's guidance, we're at 2.8% or $660 million. And our CapEx is a little bit higher this year than last year but that's largely driven by the Orion award and facilitizing that plant to get ready to launch next year with General Motors. We're spending about $150 million on CapEx related to automation and IDEA by Lear this year. We spent about $115 million last year.

We continue to see really strong paybacks in Seating, 1 to 2 years. In E-Systems, it's a little bit longer given the lower labor rates but 2 to 3 years. So we have a lot of attractive opportunities within automation. But IDEA is broader than that. It's a combination of the digital benefits that we're achieving through foundry and other tools as well as automation. Last year, 2/3 of our savings were through automation but 1/3 of it was through the digital side, which has very little investment. That investment is effectively fixed and in place in the run rate and has been for the last 2 years. And now we continue to generate new savings off of that investment that we started a little bit more than 2 years ago. So I think that we have a lot of momentum in this area, and this is a key -- is really a key factor for us in driving that sustainable 40 and 80 basis points of net performance in C and E-Systems, respectively, over not just this year but next year and into the future.

Yes. I think it's important, Jason mentioned, though, when we can actually manufacture our own capital, what this has been an area, I think, has lacked a lot of attention is that there's capital that's out there for universal consumption that it's not built for purpose-built capital for specific needs on the plant floor. That's where manufacturing integration when I talk about that is so critical. we have those capabilities, that is the actual capital that we're manufacturing in-house. It's very specialized for our own consumption, and we don't share it. And customers come in and say, listen, can you share this with your -- no, we're not sharing it with anyone. We're going to keep it in-house. And even the companies that we acquired, we canceled the contracts with any one of our competitors so we could keep all that technology and innovation in-house.

And to give you an example, I've used this before, is when we put -- launched the plant in Detroit for the Jeep Wagoneer, we manufactured almost 80% of the capital at a significant savings of 20% to 30%. And it was specifically built for our consumption and our needs around manufacturing and around automation and around the digital enhancements. And so we're keeping all those very selective capabilities in-house, and we're seeing a savings.

Now what we've established now that we've seen this I think capital has somewhat been -- I don't want to say neglected. You do a good job of purchasing what you're using on a universal spectrum. But now that we have purpose-built capital for us, this 20% to 30% savings, I think we're scratching the surface. Now we have like what we call a VAVE team working on capital, which used to focus on the product side, and we have these queues of different ideas that can save the customer money. Now we're working on the capital side that I think we're going to continue to see reduction in our capital spend.

And I think Jason is absolutely right. I want to be very clear on that, that we're looking at paybacks. And we're seeing paybacks that when you're seeing less than 2 years with a great IRR or a great return, that's what we're pushing. And so we re-prioritized a little bit of how we're looking at restructuring last year to get the greater payback sooner. But now we're seeing a queue of ideas that we can continue to see great savings through idea. through our cultural changes and through what we have implemented with our capital deployment.

So I think there's more. I'm excited, like I said, about this year. I think it's a matter of connecting the dots. When you have 260 different manufacturing plants, you have a great idea is how quickly you can do it because you still have the plants running, you still have to deploy the capital. You still have to engineer the product in some cases but it's prioritizing that and getting at the quickest returns and making sure they're being prioritized in a way that we can implement them this year for next year's benefits.

Maybe I wanted to just pivot to the EV slowdown that we've seen and the demand just isn't in North America materializing as we kind of predicted it a few years ago, you guys have been very nimble of being able to navigate. What are some of the biggest challenges you have or opportunities in this kind of EV shift?

It's really just the way we're looking at it at this point, it's a lost opportunity and disproportionately impacted E-Systems. We did anticipate meaningful growth, particularly in our electronics business, through the battery disconnect unit programs that we were awarded with General Motors and with Stellantis on the RAM BEV. That program has been canceled and the volumes, obviously, in the full-size electric trucks are meaningfully lower than what was anticipated. So it did lead to a challenge in our growth narrative in E-Systems.

When we initially embarked on our portfolio rationalization strategy in E-Systems, what we had anticipated at that point is that the growth in EVs would offset the wind down of the products that we decided to exit. And so obviously, the EV growth didn't fully materialize, although there is still some benefit in Europe and China where there is more demand, particularly in the U.S., it didn't materialize. And so that's kind of exposed the impact of the products that are winding down.

But you're right, I think we pivoted quickly, and that's helping us secure some of the new business wins that we just announced this morning. We have some excess capacity in highly competitive low-cost regions that allow us to capture business maybe at a little higher margin than we ordinarily would. And we have had significant success in new business awards in the E-Systems side and on the Seating side.

So I think the biggest challenge over the last 18 months was really around the product planning process at our customers. The lack of demand for EVs really forced them to rethink their product strategy, and that led to a lot of delays in program awards and program sourcing. We finally saw towards the tail end of last year that logjam break free a little bit. And that led to the important awards that we announced in Seating at the end of the last year. And we're seeing that momentum continue into this year, a return to a more normal sourcing cadence and gives us a little bit more confidence and visibility on what the medium-term, longer-term growth potential of the business is and allows us to really leverage the cost advantage that Ray talked about that we built on the Seating side and to take share in both Seating and E-Systems through conquest opportunities.

So we're seeing a lot of great growth opportunities. I think we've finally bottomed out the EV volumes. So there's really not any risk left. I mean the volumes are very negligible in the U.S. in this year's outlook. So we bottomed out. We're at the trough and now we're building back up.

Makes a lot of sense. So I wanted to dig a little more into margins. So -- and I think some of this plays off of the IDEA by Lear that you were talking about earlier. But at the beginning of the year, you guided for margin growth despite a decrease in production volumes. Can you just maybe walk us through what drives this expansion? What are the upside and downside scenarios to your assumptions? What is the incremental margin each segment can achieve if volumes are a little bit better than expected?

Yes. So Alex, as you just highlighted, we did guide to higher margins in both segments this year versus last year and for the company overall. And that's really underpinned by the net performance commitment that we've made. And that's the basic business equation that we start each year with. You have customer price reductions contractually or otherwise, you have inflationary increases on wages and overhead. And then you have our normal cost reduction toolbox of commercial negotiations, plant efficiencies, purchasing negotiations with our suppliers. And then you add on to that what we're doing with IDEA by Lear and restructuring. And that portion is really what's driving the 40 and 80 basis points of net performance. The rest of the business equation is sort of a wash. And then you're seeing the benefits of restructuring and IDEA by Lear fall through to the bottom line.

Now unfortunately, we've seen lower volumes on existing Lear platforms and the impact of the wind down of products that we're exiting in E-Systems that's offset a portion of that. But the net result is a modest improvement in operating margins this year in both segments. And I think just kind of going back to what we talked about on the fourth quarter earnings call, we tried to be very balanced in our approach to setting the guidance range. And if our customers can produce what they want to this year, if the Middle East conflict or other factors don't disrupt that, that's sort of what's embedded in the high end of the guidance range.

Some level of disruption and new issues that maybe aren't on the radar screen is what takes you to the midpoint and then protecting against maybe some economic weakness on the low end of the range. And so as we sit here today, the way the first quarter has started and our customer production schedules out into the second and third quarter now, that's all trending in the right direction, sort of see revenue in the kind of midpoint to high end, similar to what we saw when we issued guidance on the fourth quarter earnings call. I'm not resetting guidance but I'm saying as we sit here today, absent any continuing effects from the conflict in the Middle East, if that's extended, then obviously, that may change things. We're not ignoring that obvious issue.

But the core business itself and the way our customers are performing would suggest revenues are going to be pretty strong. And you heard Ray talk about what we're doing on that performance. We expect to meet or exceed the targets that we established there. And so if revenues do come in above the midpoint of the guidance range, we typically convert at 15% to 20% on that. Now some of that may be backlog revenue. Ray talked about one of the Chinese OEM awards that we received in water that actually launches this year. That's typically going to roll on at 10% to 12% as opposed to your variable margin on existing program being sort of 15% to 20%.

And of course, a lot of it depends on which programs are increasing and decreasing. So the mix of programs can have an impact on the variable margin, the underlying profitability of the program, the nature of how the volume comes off or is added, if it's a short-term disruption and you're not able to take the labor normally variable cost out, that could impact the level of vertical integration we have in both in C and E-Systems can impact that variable margin. But all things equal, on average, it's going to be in that 15% to 20% range.

Just one quick one on capital deployment. So I think current liquidity is enough to operate the business. Leverage is at target levels. You're on track to deliver $550 million to $650 million of free cash flow in 2026. Share repurchases are a big part of it. Can you just remind us your capital allocation priorities? I think you briefly touched on acquisitions but just remind us how we should be thinking about that.

Yes. I think that this is a little bit of an underappreciated part of the Lear investment thesis and the way we create value for shareholders. We have consistently returned excess cash to shareholders through share repurchases. And so first, I'll just start out with kind of the framework itself. Our first priority is investing in the business through CapEx. So supporting the programs in production to improve our competitive position and the growth that we have in the backlog. After that, it's tuck-in acquisitions, Ray listed off the 4 or 5 acquisitions we've done on the manufacturing integration and automation side. We'd love to do more of those sort of $10 million to $20 million transactions. They're not significant in terms of cost but they are significant in terms of the impact on the business.

And then beyond that, we don't see any significant acquisition opportunities that would provide a better return than buying back our own stock. And so the remaining excess cash that we're generating in the business is going to be returned through dividends, which is a consistent dividend of just over $3 a share today and then the balance is through share repurchases.

And over the last 3 years, we've returned more than $1.5 billion to shareholders through dividends and share repurchases. We took out 5% to 6% of our shares, both in 2024 and again in 2025. We're on target to do that again this year. So I think we're creating real value through our share repurchase program. And when we talk to our -- some of our largest investors, this is something that they're very focused on. And I think there are some new metrics that we can share with investors more broadly on a future earnings call to help really illustrate how impactful this can be.

One is revenue per share. We are growing revenue per share over the last 3 years, in line with the S&P 500 and well above our peer group. We're growing earnings per share by almost 50%. I think it's 47% over the last 3 years. That's a result of both the earnings growth of the business, but also the benefit of our share repurchase program. So it's a meaningful contributor to the value that shareholders can expect to see from Lear in the coming years, too.

Maybe we want to open it up to the audience for a moment.

Question towards the back.

Congratulations on the execution in the last couple of years. If the Middle East conflict persists, and we see that dynamic of high oil prices and then the flow-through into other commodities and so on, maybe just a quick reminder of your pass-through some of the delays in that in terms of lags, just as a reminder of if this does persist for 4 to 8 weeks and not 4 weeks, that type of dynamic. And then from your perspective, is that the more manageable part and the bigger issue is demand destruction in terms of what could happen from an economic standpoint. And maybe just kind of how you're kind of preparing for that in terms of the flexibility of your business model.

Yes. I agree with that characterization. And so we have been -- we've worked diligently over the last 7, 8, 10 years now to put pass-through mechanisms and indexing agreements in place. And so for the vast majority of the commodities that we buy, they're on either a direct pass-through where the customer is responsible for the purchase or there's a 1-quarter lag. In some cases, there may be a 2-quarter lag. But for the most part, things like foam chemicals, it's generally a 1-quarter lag. And so if the spike in oil leads to higher chemical prices, you could see a modest impact in 1 quarter but that should be about it. Obviously, we're watching more closely what happens with demand.

And I think that there's not a lot you can do at this point in time other than study the market and be aware of what's happening, build the playbook or reopen the playbook that we have that we've used pretty much consistently over the last 5 or 6 years, whether it's COVID, the chip shortage, EV decrease.

I think what's -- say good and bad, the bad is obviously what's going on in the East. The good is from a Lear perspective is that through everything we've seen from COVID to the chip crisis, to labor economics to commodity increases to the EV decline, we've done a nice job of going in and really rereviewing contracts and purchase orders. And so there might be a lag in some respects on how we look at recovery if commodity increase.

I think the question that you have on demand, I think we could all -- we're all reading the same stuff and trying to understand what's going to happen there. But internally to the things that we can control, we've built a number of, I'll say, key mechanisms that protect us. And it's through everything we just mentioned. And so I do feel better on how we'll protect ourselves. We -- like I said, we're seeing minimal impacts from supply disruptions, those type of things. But we've seen some of this before in some respects in other areas that we can apply the tools that we have in place. I think foundry is a great tool that we're using right now to get ahead of some of this stuff.

And then the contracts that we've kind of reestablished with our contract with our customers should, in some respects, protect us. There might be a lagging issue but we've done some of this before. And so I feel good on the things we can control. It's the question that you have that I think everyone has is what's really going to happen with what demand looks like around the world. And I don't have that answer. But I know that the things that we can control, we're doing a really nice job in reviewing all of that right now, looking at different potential issues and then trying to divert or reevaluate how we're positioning ourselves, but it's good right now.

Just a quick follow-up on that. What you do control is the pace of the stock buyback. So when you think about this uncertainty now, how do you think about that dynamic of...

We just talked about this.

Yes, I think you may have walked in just after we -- yes. So we're on track to buy $65 million to $75 million back in the first quarter. And so we're well ahead of the pace that we ran at last year where we started off a little slower than ramped up. And if we see a dislocation in value, we will take advantage of that. And we typically don't generate cash in the first quarter, just kind of the normal cyclicality of the working capital side of the business. But the second quarter should be a little bit better. We do have the revolver. We are committed to the $300 million, and that sort of aligns with the low end of our guidance range. And so if we do more earlier, then that's, I think, would be the right thing to do to take advantage of this.

Well, perfect. I think that is all the time we have. I want to thank Ray and Jason for an excellent conversation, and thank you all for attending. So thanks again.

Thank you. Thank you.

Exciting stuff. Thank you.

Good morning, everyone, and welcome to the Lear Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's Fourth Quarter and Full Year 2025 Earnings Call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us.

Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com.

Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. As detailed in our safe harbor statement on Slide 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 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

The agenda for today's call is on Slide 3. First, Ray will review the highlights from the year and provide a business update; Jason will then review our fourth quarter and full year financial results and provide our outlook for 2026; finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin.

Thanks, Tim. Please turn to Slide 5, which highlights our key financial metrics for the fourth quarter and full year 2025. Lear delivered a 5% increase in revenue in the fourth quarter, generating $223.3 billion for the full year -- sorry, $23.3 billion in the full year. Core operating earnings were $1.1 billion or 4.6% of net sales for the full year.

Adjusted earnings per share was $12.80, a 1% increase from 2024. This is our fifth consecutive year-over-year increase. Operating cash flow was $1.1 billion of free cash flow and free cash flow was $527 million in 2025.

Slide 6 summarizes key financial and business highlights from the fourth quarter and full year. Our strategic priorities continue to drive execution across 4 key areas: extending our global leadership position in Seating, expanding margins in E-Systems, growing our competitive advantage and operational excellence through IDEA by Lear and supporting our sustainable value creation with disciplined capital allocation.

We made progress towards our goals in both Seating and E-Systems by finishing the year with some of the most significant new business awards in Lear's history. In Seating, we are awarded the complete seats for a major truck program from an American-based automaker, the largest Seating conquest award on record.

General Motors awarded Lear the complete seats for their large SUVs and full-size pickup trucks to be produced at Orion Assembly starting in 2027. This award continues Lear's long history as GM seat supplier for full-size pickup trucks and SUVs, while supporting GM's expansion of their U.S. manufacturing footprint. Our China team continues to grow business with domestic automakers.

In the fourth quarter, we secured several complete seat programs with Changan, Dongfeng and Leap motor and a Thermal Comfort Award with BYD. I couldn't be more proud of the team for securing these critical awards that demonstrate how we are extending our global leadership position.

In E-Systems, we continued our strong momentum with new business awards for nine wire harness programs and several electronics and connection system programs across all major regions, including the Volkswagen Group in Europe and South America and key Chinese automakers, such as BAIC, Geely and SAIC.

For the full year, we secured over $1.4 billion in E-Systems business awards, our strongest performance in over a decade and the second highest annual total in Lear's history. These awards will benefit from our operational improvements we have made, driving improved margins as it launches in future years.

Our strong operating performance continued to the fourth quarter, with both segments exceeding expectations. For the full year, we generated approximately $195 million in net operating performance translating to 60 basis points in Seating and 110 basis points in E-Systems, our best year of positive net performance.

This is a testament to our commitment to operational excellence and the benefits we are capturing from our investments in digital tools, automation and restructuring.

The capabilities we are developing through IDEA by Lear are a growing performance differentiator. 2025 marked a pivotal year in our digital transformation. We extended our partnership with Palantir and launched the inaugural Lear fellowship, the first program of its kind in our industry. Our first cohort completed the intensive 12-week training in the fourth quarter.

In 2026, we're expanding the program with a second cohort focused on European operations and globally thereafter.

Our operational excellence and quality leadership continue to earn recognition. Lear achieved more top 4 finishes than any other supplier in the J.D. Power 2025 U.S. Seat Quality and Satisfaction Study.

In E-Systems, our multiyear quality improvement initiatives delivered results. Customers awarded us with a record 11 quality awards. Our foundation and operational excellence drives our quality and cost advantages, leading to new business and conquest wins while expanding margins in both segments.

Automotive News recognized our innovative zone control module with a 2025 PACE award. This award-winning technology will launch on the BMW new class architecture this year. In China, we took operating control of 2 joint ventures supporting several programs for BYD and Series. These consolidations also allow us to leverage our full operating capabilities, and will drive growth in 2026 and beyond.

Last February, we acquired StoneShield Engineering to enhance our wire harness automation capabilities. In just 1 year, we rapidly scaled StoneShield's technology from Europe to our operations in South America, Mexico and the U.S. The combination of our profitable growth in Seating and E-Systems supported by idea-driven productivity advances fuels efficient cash flow conversion.

That cash supports our disciplined capital allocation and enables us to accelerate our share repurchase program.

We repurchased $325 million in shares during 2025, significantly exceeding our initial $250 million target. Combined with our dividend, we returned almost $500 million to shareholders.

Turning to Slide 7. I'll provide more detail on our key Onshoring and Conquest Awards and how they demonstrated our ability to extend our global leadership in Seating.

Lear was awarded the contract to supply complete seats for General Motors full-size SUVs and pickup trucks at the Orion plant projected to launch in 2027. Adding Orion extends Lear's strong partnership with General Motors, supporting their premier programs across the entire footprint.

The largest Seating Conquest Award in Lear's history is for a truck program with an American automaker, displacing the incumbent complete seat suppliers for multiple plants. Our industry-leading automation capabilities and superior quality performance were key factors that enabled us to win this business. We will share additional details for this award at the appropriate time.

Our strong customer relationships, proven execution and extensive U.S. manufacturing footprint give us a distinct competitive advantage. By investing in automation and designing capital specifically optimized for our manufacturing processes rather than relying on off-the-shelf solutions we've enhanced operational efficiency, reduced costs and accelerate our speed to market.

We also continue to win Conquest Awards in other regions, including China. For BMW, we will supply seats for vehicles that were previously exported to Asia. We will also support future production on the C11 for Leapmotor. These Onshoring and Conquest Awards will provide future growth while solidifying Lear's differentiation and leadership position in Seating.

Slide 8 illustrates the significant progress and market leadership we have achieved in thermal comfort. Through our strategic acquisitions of Kongsberg and IGB combined with our organic development work on modularity, Lear has become the only seat supplier with a complete portfolio of thermal comfort solutions.

From individual components to fully integrated systems, this vertical integration capability enables us to deliver innovative solutions to meet the demands of each of our customers.

Our value proposition for our customers is driving growth. To date, we have secured 33 awards for innovative thermal comfort solutions, including our ComfortFlex modules, our ComfortMax Seat systems, FlexAir form alternatives and INTU applications. These awards will generate combined average annual revenue of approximately $170 million at peak production.

This is not a proof of concept. Nine programs are already in production and generating revenue today, with 14 additional launches secured for 2026, an inflection point for thermal comfort. Customers' acceptance is broad and diversified, spanning 15 automakers across all key regions: North America, Europe and Asia.

We are the only seat supplier with a scale, technology and integration capability to meet the accelerating demand for thermal comfort and innovation.

We also recognize that some of our customers prefer to maintain their traditional sourcing strategies, purchasing individual components rather than integrated systems. Our complete suite of products allow us to serve these customers as well. Awards won in 2025 for core components will generate a combined average annual sales of $80 million.

Our flexibility and vertical integration make clear the only supplier capable of meeting customers' needs, whether they see cutting-edge full modularity innovative solutions or traditional individual components.

Turning to Slide 9. We highlight our industry-leading commitment to automation and digital transformation. Our industry-first facility for fully automated assembly of ComfortFlex, ComfortMax and FlexAir products demonstrates more than a decade of strategic investment in automation through both acquisitions and organic development.

We've built proprietary capabilities in vision systems, material handling and purpose-built capital that enable us to develop solutions our competitors cannot replicate by simply purchasing off-the-shelf robots and cobots. Product innovation and process improvements have allowed us to reduce Seating costs for new programs by 200 to over 500 basis points.

This durable cost advantage will allow us to increase our industry-leading seat margins and continue to separate ourselves from our competitors. You can see the advantage reflected in the awards we just discussed today. Our digital transformation is accelerating as we enter into 2026.

Last year, our Palantir Foundry platform reached over 17,000 users and generated more than 300 custom applications.

We're deepening our AI capabilities through our global Lear fellowship program, with our second cohort of the 12-week program launching in Europe earlier this year.

These digital tools are delivering measurable results, enabling us to transform operations and respond rapidly to industry volatility. I'm going to share a couple of examples with you.

The first one is cycle time deviation. This tool provides real-time shop for performance data, allowing us to make immediate adjustments. For instance, we can quickly identify bottlenecks like specific equipment failures and reallocate resources accordingly. We've developed this across 100% of our North American and European just-in-time facilities, achieving a 3% to 5% efficiency gain.

This generated $10 million in savings in 2025, and we expect $15 million this year as we roll it out globally. The second example is our tariff tracking solution. When tariffs were announced in early 2025, we had 150 trucks carrying thousands of parts crossing borders daily. We needed to identify each parts HTS code and USMCA certification status, a massive undertaking.

Our team partnered with Palantir to build an enterprise-wide solution in just 10 days. This tool provides real-time tracking, automatically applies HTS codes, checks USMCA status and categorize tariff designations. The result, we recovered nearly 100% of our tariff costs within the year and accelerated cash reimbursements from our customers.

Our commitment to automation, AI and digital tools is driving tangible operating performance and positioning Lear years ahead of our competition. Slide 10 demonstrates how we delivered on key commitments we made at the beginning of the year. In Seating, we secured multiple Conquest Awards through the year, including 3 significant wins I highlighted earlier.

In E-Systems, we won significant Conquest business in wearing with both American and key global automakers as well as with Stellantis for the Jeep Cherokee and Wrangler platforms. Our Thermal Comfort awards will help drive future growth in our Seating business and our strong relationships with Chinese domestic automakers continue to deliver new business wins.

Our idea by Lear initiatives and our investments in automation generated $70 million in savings for the full year.

Earlier in the year, we identified additional near-term opportunities by focusing on restructuring actions. As a result, we achieved $85 million in restructuring savings for the full year, $30 million more than our original target of $55 million. The consolidation of our 2 joint ventures as well as changes in production schedules led to slightly higher hourly headcount than originally projected.

However, we still reduced our global hourly headcount by 7,000 this year and by 22,000 over the last 2 years.

As a result of relentless focus across the entire company, our full year net performance savings was a record $195 million, 56% above our original target of $125 million. This contributed 60 basis points to net performance to Seating and 110 basis points to E-Systems. As a reminder, our net performance figures are after absorbing cost primarily from contractual price reduction agreements with our customers and any changes in commodities, transactional FX and labor rates.

Delivering this level of operational improvement in a year of significant industry volatility and production disruption is a remarkable accomplishment by the entire Lear team.

Now turning to Slide 11. We continue our commitment to expanding margins and generating long-term revenue growth. As we begin 2026, we have a robust pipeline of Conquest opportunities in both Seating and E-Systems, some of which resulted from a number of delayed sourcing decisions as our customers continue to adjust their footprint and product strategies.

For E-Systems, we have seen increased customer engagement in wire harness sourcing, and we have several key opportunities that we expect to be awarded in the first half of this year. We continue to see significant interest from our customers for our innovative modular seat products. These opportunities, along with our core thermal comfort products, will drive growth in our components business.

The strong relationship with our local teams with our key domestic Chinese automakers are driving new business opportunities. With our current backlog and additional sourcing wins, we expect more than 50% of our revenue in China to be from the Chinese domestic automakers next year.

The continued investments we are making in IDEA and automation projects are expected to generate an additional $75 million of savings this year. We also see significant opportunities from our restructuring investments.

The savings from the actions we put in place last year, combined with the actions planned for this year, are expected to total $80 million. You will continue to see the benefits from these actions come through in the net performance we report on a quarterly basis.

In 2026, we expect to deliver 40 basis points of net performance in Seating and 80 basis points in E-Systems. The introduction of these scorecard metrics in 2025 allowed our investors to hold us accountable and track our progress. We remain committed to once again delivering on these key metrics and drive sustainable growth and improved margins in both segments.

Please turn to Slide 12, which shows our 2026 and 2027 sales backlog. As a reminder, our sales backlog includes awarded programs net of any lost business and programs rolling off. It excludes pursued business, net new business in a nonconsolidated joint venture and the roll-off of the discontinued product lines in E-Systems.

In 2026, we expect approximately $60 million of net new business. Seatings is expected to deliver about $740 million, driven primarily by the key launches listed on the slide. E-Systems is expected to experience a headwind of about $140 million in 2026, primarily due to the roll-off of the Ford Escape, the Corsair in North America as well as the Focus in Europe. However, this was partially offset by key new launches.

In 2027, we expect approximately $725 million in net new business with approximately $465 million in Seating and $260 million in E-Systems. The $1.325 billion 2-year backlog provides a solid foundation of growth. The makeup of our backlog is strengthening as approximately half of our revenue is from new programs driven by ICE vehicles.

Our China growth is led by domestic automakers, which represents approximately 85% of our consolidated backlog. Additionally, our nonconsolidated joint ventures have approximately $550 million of backlog, 55% of which is with Chinese domestic automakers. This 2-year backlog provides a solid foundation for growth. And when combined with the expected new business awards in 2026 will allow us to accelerate growth into 2028, 2029 and beyond.

Now I'd like to turn the call over to Jason for the financial review.

Thanks, Ray. Slide 14 shows key performance highlights from 2025 that position us to deliver profitable growth in 2026. We finished the year strong in Q4 supported by both revenue growth and operating execution. Total company sales increased 5% year-over-year, reflecting the addition of new business in both segments and the impact of commercial recoveries.

Adjusted EPS grew by 16%, driven by a reduced share count due to our share repurchases as well as a lower tax rate relative to last year. Seating sales outgrew industry production by 2 percentage points, driven primarily by positive volume on their programs in North America and China and despite a 1 percentage point drag due to reduced JLR volumes.

E-Systems margins improved by 30 basis points as compared to 2024 due to our strong operating performance. As a result, we met or exceeded our key 2025 initiatives. We delivered record net performance of $195 million. We started the year with a target of $125 million, increased by $25 million on our second quarter call and outperformed the $170 million target that we had established during our last earnings call.

The strong operating performance contributed 60 basis points of Seating and 110 basis points to E-Systems margins, exceeding our targets of 40 and 80 basis points, respectively. Strong free cash flow of $527 million enabled us to repurchase $325 million of shares, $75 million above our initial $250 million target.

The momentum generated in 2025 sets the foundation for continued execution in 2026. At the midpoint of our guidance, we expect year-over-year increases across the board for revenue, operating income, margins and free cash flow. Our 2-year backlog now stands at $1.325 billion, an increase of $125 million from our initial estimate given last quarter, giving us confidence in our commitment to meet or exceed our key growth and margin improvement targets.

Given our strong cash generation profile, we expect free cash flow conversion above 80%, and as a result, we are targeting share repurchases of more than $300 million in 2026. We remain focused on disciplined execution, margin expansion, cash generation and delivering value to our shareholders.

Slide 15 shows vehicle production and key exchange rates for the fourth quarter. Global production increased 1% compared to the same period last year. Production volumes were flat in North America and declined by 2% in Europe, while volumes in China were up 3%. The U.S. dollar weakened against both the euro and the RMB.

Turning to Slide 16, I will highlight our financial results for the fourth quarter of 2025. Our sales increased 5% year-over-year to $6 billion. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were up 2%, reflecting the addition of new business in both of our business segments, partially offset by lower volumes on Lear platforms.

Core operating earnings were $259 million compared to $258 million last year, driven by positive net performance and our margin-accretive backlog, partially offset by lower volumes on Lear platforms. Adjusted earnings per share were $3.41 as compared to $2.94 a year ago, reflecting the benefit of our share repurchase program and a lower tax rate relative to last year.

Fourth quarter operating cash flow was $476 million compared to $681 million last year due primarily to the timing of working capital.

Slide 17 explains the variance in sales and adjusted operating margins for the fourth quarter in the Seating segment. Sales for the fourth quarter were $4.4 billion, an increase of $222 million or 5% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were up 3% due to the addition of new business such as the Series M7 in China and the Volkswagen Tera in South America, partially offset by lower volumes on Lear platforms, including several JLR programs.

Adjusted earnings were $263 million, up $6 million or 2% compared to 2024, with adjusted operating margins of 6%. Operating margins were lower compared to last year, primarily due to lower volumes in the mix of production by program, partially offset by strong outperformance in our margin-accretive backlog.

Slide 18 explains the variance in sales and adjusted operating margins for the fourth quarter in the E-Systems segment. Sales for the fourth quarter were $1.6 billion, an increase of $51 million or 3% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 2% driven by lower volumes on Lear platforms, including GM electric vehicle platforms in the Colorado and Canyon in North America as well as several JLR programs in Europe, partially offset by the addition of new business, such as the GM XT5 in Asia and the Volvo EX30 in Europe.

Adjusted earnings were $84 million or 5.3% of sales compared to $77 million and 5% of sales in 2024. Higher operating margins were driven by a strong outperformance, our margin-accretive backlog and the impact of foreign exchange, partially offset by the reduction of volumes on Lear platforms and the impact of acquisitions and divestitures.

Slide 19 explains the variance in sales and adjusted operating margins for the full year in the Seating segment. Sales for 2025 were $17.3 billion, an increase of $61 million or 0.4% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down less than 1% due to lower volumes on Lear platforms, including several JLR programs in Europe and several Mercedes programs in North America and Asia, partially offset by the addition of new business such as the Series M7 and Xiaomi SU7 in China as well as the CUPRA Terramar in Europe.

Adjusted earnings were $1.1 billion, down 1% compared to 2024 with adjusted operating margins of 6.4%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, partially offset by strong underperformance in our margin-accretive backlog.

Slide 20 explains the variance in sales and adjusted operating margins for the full year in the E-Systems segment. Sales for 2025 were $6 billion, a decrease of $108 million or 2% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 5%.

The decline in sales was driven by lower volumes on their platforms, including GM electric vehicle platforms in the Ford Escape in North America and several JLR programs in Europe as well as the wind down of discontinued product lines, partially offset by the addition of new business, such as the Renault 4 and 5 and the Citroen C3 and C3 Aircross in Europe.

Adjusted earnings were $293 million or 4.9% of sales compared to $310 million and 5.1% of sales in 2024. Lower operating margins were driven by the reduction of volumes on Lear platforms and the wind down of discontinued product lines, partially offset by strong outperformance in our margin-accretive backlog.

Slide 21 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down 1% on a Lear sales weighted basis, driven by lower volumes in our largest markets: North America, Europe and China.

From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.16 per euro and an average Chinese RMB exchange rate of RMB 7.1 to the dollar.

Slide 22 provides detail on our outlook for 2026. Our revenue is expected to be in the range of $23.2 billion to $24 billion. At the midpoint, this would be an increase of $351 million or 2% compared to 2025.

Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, our revenue would be down 1%. Core operating earnings are expected to be in the range of $1.03 billion to $1.2 billion. At the midpoint, this implies an increase of 5% compared to 2025.

Adjusted net income is expected to be in the range of $645 million to $765 million. Restructuring costs are expected to be approximately $175 million to support our footprint rationalization actions, as we continue to reduce excess capacity and improve manufacturing costs through automation and by shifting our footprint to lower-cost regions.

Capital spending is expected to be approximately $660 million to fund our new vehicle launches and investments in automation. Lear's strong focus on generating cash allows us to maintain a strong balance sheet while making organic and inorganic investments to strengthen our business as well as to continue funding share repurchases.

Our outlook for operating cash flow for the year is expected to be in the range of $1.2 billion to $1.3 billion, and our free cash flow is expected to be $600 million at the midpoint of our guidance. The midpoint of our outlook is consistent with our free cash flow conversion target of over 80%.

Slide 23 walks our 2025 actual results to the midpoint of our 2026 outlook. Year-over-year, revenue is expected to increase by $351 million, driven by new business and the positive impact from foreign exchange as well as the recovery of tariff expenses. We expect overall company adjusted margins to improve by 10 basis points, driven by strong net performance in our margin-accretive backlog.

Positive net performance primarily reflects the benefits from our IDEA by Lear initiatives and savings from restructuring actions with wage inflation, customer contractual price reductions and higher launch and engineering costs, largely offset by material cost reductions from our suppliers, cost technology optimization, commercial recoveries and normal plant efficiency programs.

Leasing operating margins are expected to increase 10 basis points to 6.5%, reflecting strong net performance in our margin-accretive backlog, partially offset by the impact of lower volumes on existing platforms. E-Systems segment is expected to increase operating margins by 10 basis points to 5%, driven by continued performance improvements, partially offset by the impact of lower volumes on existing platforms, the wind down of discontinued product lines and the build-out of the Escape and Corsair in our backlog.

We have included detailed walks to the midpoint of our guidance for Seating and E-Systems in the appendix. We expect net performance to contribute 40 basis points of margin improvement in Seating and 80 basis points in E-Systems in 2026, reflecting the positive momentum in our automation and digital investments as well as our restructuring actions.

Moving to Slide 24, we highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4%, and our debt structure has a weighted average life of approximately 11 years. In addition, we have $3 billion of available liquidity.

Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders. Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe the best near-term use of excess cash is to prioritize share repurchases and our sustained dividend.

At this time, we do not see a compelling significant strategic acquisition opportunity in either segment that would deliver superior returns. In 2026, we are targeting over 80% free cash flow conversion, which will enable us to buy back at least $300 million worth of stock with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities.

Since initiating the share repurchase program in 2011, we have repurchased $5.9 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends. Our current share repurchase authorization has approximately $775 million remaining, which allows us to repurchase shares through December 31st, 2026.

Now I'll turn it back to Ray for some closing thoughts.

Thanks, Jason. Please turn to Slide 26. In closing, 2025 was a year where we delivered on our commitments and advanced our strategic priorities. We delivered solid financial results and secured critical new business awards despite persistent industry and macroeconomic volatility. This performance positions Lear for sustained growth and margin expansion going forward.

Our key wins underscore our competitive advantages. The Orion facility award with General Motors and the largest Conquest win in Lear's history were driven by our leadership in quality and automation, capabilities that are very difficult to replicate and increasingly valued by our customers.

We delivered our key growth and margin improvement scorecard metrics for 2025, demonstrating our ability to execute on our commitments. This execution gives us confidence as we look ahead. Looking to 2026 and beyond, we see measurable progress against each of our strategic pillars. Our pace of business wins will support our continued growing leadership in Seating. Our momentum in E-Systems demonstrates our progress to improve the profitability of that business.

IDEA continues to expand and enhance our ability to deliver strong operating performance and serve our customers with innovative products and manufacturing solutions. It is all resulting in strong cash flow generation that enables us to continue rewarding shareholders while supporting our strong balance sheet. 2025 was a year where we built credibility by consistently meeting or exceeding our commitments.

This track record provides strong momentum as we enter 2026, and we are confident in our ability to grow revenue, operating income, margins and free cash flow to continue to drive value for our shareholders.

And now we'd be happy to take your questions.

[Operator Instructions] And our first question today comes from Dan Levy from Barclays.

I wanted to start out first, if you can just talk about the Conquest win and more so in the context of your broader aspiration to get your Seating share up to, I think it's 29%? When you look at that alongside what you're doing with TCS, do you still have that line of sight? Is it further upside? And maybe what is it that's driving these incremental wins? Is it superior cost, is it that maybe there is some weakness across some of your competitors? Maybe you could just unpack that a bit, please?

Okay. First of all, that Conquest win I think was significant, first of all, the largest Conquest win in our history, and I'd argue Seating's history. But there's a lot of focus on innovation and technology. There is a specific -- I think we strategically really focused that platform. And the OEM was really focused on technology, both on the product side in the manufacturing side. And I think it's important to note that.

And so having the innovation center that we recently announced here being able to take customers through that, demonstrating that this is in theory, this is actually in use in production, in different manufacturing plants, demonstrating our wins, I always talk about the strategy around modularity and that we are really reluctant to really start talking about modularity until we had a contract, a production win.

And when we got that, we started talking a lot more openly about what we are doing and changing the actual product itself that was designed more efficiently from a cost standpoint, from a customer perspective, but more equally as important from a manufacturing adjacency perspective around manufacturing integration with just in time.

And so what that win did, and I'd give you the feedback, the feedback I got from that particular OEM was, "You won across the board. Every functional group was unanimous in the decision for Lear." And that's rare. I mean the decisions we get can be mixed. You could have certain groups that support, some that don't, but at the end of the day, to have a unanimous decision across every single functional group within a particular customer was very unique.

And I think secondly, it validated at the right time what we've been talking about. And it was focused on innovation and technology at a manufacturing level with product design that was very unique. And so we've acquired IGB, Kongsberg. It's been a great integration. We've been able to really take those products and integrate them into a modular solution. You have to have that engineering capability.

You can't partner with anyone. We found that you have to have it. The acquisitions we've been doing for 10 years along automation, I mean we are a manufacturing integrator. We've actually brought that in-house. And so our ability to manufacture capital that has very unique capabilities you can buy cobots and robots, those are commodities and talk about it that you're doing automation.

But where you differentiate and I'm even a little leery, we have a picture here of our innovation center, I don't want to show too much because is really revolutionary in how we're getting at this from a manufacturing perspective. So one, I think that win, yes, it's significant in the size of the win from a manufacturing perspective, 2 different manufacturing plants, significant.

But it was more on the fact that our innovation and technology won it, not on the performance of the competitors that were in place. It was the OEM is really looking to change the supply chain around technology. And so your second question, why we've been at this well over a decade on how we're going to look at innovation on the manufacturing and the product side being tied together was all a part of our growth strategy.

And so having that validation. We're seeing a lot more, I'll say, openness with some of the domestic Chinese were around innovation, technology. That's imperative. I think that's why we've been successful. So we still have a very aggressive target on growth. We believe that 29% is something that we absolutely is reasonable and something we can achieve because of our technology innovation.

We believe we can continue to grow with the traditional OEMs, even if their market share might be shifting. We also believe we have great innovation technology to grow with the domestic Chinese and you're seeing that. Year-over-year, it's been incredible. And we think there's significant opportunities with the Japanese. And we're starting those relationships and getting in around technology and innovation.

So we're not backing off our target. We think it's very reasonable. I'd tell you, that award was very satisfying, not just from a growth perspective, but it validates our strategy in a number of different key ways. And so we'll keep pushing. I talked a little bit about how -- I think we did a great job in '25.

We're not where we need to be. We know we have a lot of work to do. We need to continue on E-Systems, we need to continue on Seating, but boy, we have some momentum. We really have momentum. And so we're not backing off that target of market share.

Great. As a follow-up, I wanted to ask about the net performance. And it seems like you're actually talking -- you initially, I think, downplayed some of the expectations on the magnitude net performance we can see in '26 relative to '25, but looks like it's going to be fairly comparable. Maybe you could just help us unpack what inning you're in on some of these automation savings, restructuring savings? I don't mean to -- you just gave your '26 outlook today, but how much more is there beyond what you've outlined for 2026?

Yes, I think as we look out to '27, '28 and beyond, we see a similar level of opportunity in terms of net performance, and we're committed to delivering that 40 and 80 basis points, again, not just in '26, but in '27 and beyond. And the mix of what will drive that is likely to shift as we get into '27 and '28, where there may be a little bit less in terms of restructuring savings in '27 than what we've enjoyed here in '25 and in what we expect in '26.

But the level of savings we expect from the digital and automation side under the IDEA umbrella, we expect will continue to grow. And the fellowship program that we started last year we've reviewed the initial projects that came out of that, and it's remarkable. And so we see an opportunity to really build momentum after a strong '25, a good start to '26 and see that number in the benefit from IDEA-related projects really increasing further in '27 and '28, and that will provides the primary support for that kind of reoccurrence of that 40 and 80 basis points of that performance growth year-over-year.

Our next question comes from Colin Langan from Wells Fargo.

Any color how should we think about the cadence of earnings as we go through the year, particularly with some of the T1 downtime in Q1 and later in the year?

Yes. We're not providing pinpoint guidance for the first quarter, but we -- we're a month into the quarter. We have a pretty good line of sight on customer production schedules. And the year is off to a, I would say, a fairly strong start. And we see the first quarter shaping up pretty similar to how we exited the fourth quarter.

So revenues in that $6 billion range, operating income around $260 million. The mix between segments is likely to be a little bit different. We had a very strong fourth quarter in E-Systems. We do expect a modest step down there. You have the impact of the Escape, Corsair building out. We had a very strong quarter commercially in the fourth quarter.

So in terms of the margin by segments, we would expect Seating to be in the low 6s and E-Systems right around 5%. So we expect the year to get off to a solid start, and we don't expect or require sort of a hockey stick of improvement throughout the year to hit the full year guidance that we provided today.

The first quarter is sort of in line with how we see largely in line with how we see the year playing out. Now as the year progresses, you mentioned some downtime on the T1, the first plant will be going through a changeover that does weigh on volumes, particularly on the Seating side.

So there'll be a little bit of choppiness from that. But we expect that we can get off to a good start in the first quarter. And as we normally do, Colin, we'll provide an update at an investor conference later in the quarter and how things are progressing there.

Got it. That's very helpful. Any color on -- you mentioned on the slide on-shoring. It sounds like the major congrats on the big win, but it sounds like that was a Conquest that was already here. How -- any way to size the onshoring wins you have? And then what is the potential of when these get actually launched? How quickly can some of these onshore actually come in? Can they actually even help '27 at this point or is all kind of bidding on '28-'29?

In terms of the onshoring, the Orion award will benefit '27. And we're using [ S&P ] volumes to sort of model the backlog impact of that. And we're -- we've included $75 million in our Seating backlog in 2027 attributed to that. So there's some cannibalization of existing program volumes and other plants but there is some upside there, we believe, as a result of that additional capacity GM is putting in place.

We don't see a lot of -- additional onshoring sourcing activities that would benefit '27. I think that's more likely '28 and '29, where you would see the effects of that, that sourcing play out. We've talked in the past about, for example, Mercedes putting production of another program here in U.S., as one example.

So those are going to happen a little bit later. And we're sort of taking these onshoring opportunities one at a time. It was very important to secure Orion, and we accomplished that in the fourth quarter, and now we'll move on to the next opportunity as this year progresses.

Yes. I think to talk about how we're looking at this is One, what's come out early on between Conquest and Onshoring. It was absolutely targeted in something that we desired and we went after and everything we focus on is getting good returns and it has reliable history, good production volume, something that we want to put our capital dollars and invest in, in a way that we get a good return.

And so every single onshoring opportunity doesn't look the same to us. And there's some that will make sense to us where we think we can get and drive like, for example, on this Conquest win, new technology that is going to be introduced into the industry in a very selective strategic way with a good history of volume that is a brand that's well recognized.

Others, we may focus on the component part of the business and focus on other parts of onshoring that makes more sense to us. And so I think you asked the timing, if I had to put it in an analogy of sports, we're probably in the fourth inning. I feel pretty good because I think we hit a couple of grand slams, Dingers out of the park, but we're going to be cautious and smart about how we look at this, but we're going to be focused on what is best for Lear. And we'll go at it every time we get an opportunity to look at what that business looks like. And so it's early, but I like the position we're in right now.

Our next question comes from Joe Spak from UBS.

On the large Conquest win, I was just wondering if you could help us like our back-of-the-envelope math suggests that could be like $400 million or $500 million annual revenue. Just want to make sure we're in the right ballpark. And also, that's not in that '27 backlog, right? That program starts beyond that. I just want to confirm that and when you think you might need to start spending some capital for that huge win?

Yes, Joe, that program is outside of the backlog window. That would launch at the tail end of '28 and really benefit '29. And we don't want to speak specifically about any individual program, as we mentioned in the prepared remarks until the appropriate time, but what we can say is that between Seating and E-Systems, we had about $800 million of Conquest awards in 2025, so a really strong year of taking share in both Seating and Wire from competitors.

And as we look out to 2026, we have about $1.5 billion of Conquest pipeline opportunity in Seating and about $600 million in E-Systems. So significantly more than what we've historically seen on the E-Systems side and maybe more of a typical year in terms of the seating opportunity. But we do see opportunities to continue taking share in both the jet business and in our Wire business.

And I think it's important, like I mentioned earlier, is that we're being very strategic in how we're looking at the future growth opportunities. We learned quite a bit from the EV volume reductions here in North America, particular programs and the risk profile they may bring. The program that we're focused on are -- have a long history, a great brand, great volume.

And where we invest that type of innovation technology is going to get nice returns. And I think equally as important, I was excited with Seating, E-Systems, I'll tell you, a $1.4 billion second to another year where we had a particular program, it was a large program in the year, a great year.

And everything that we're targeting in E-Systems is that target or above margins. And so the backlog, as it comes in, should be healthy from a margin perspective. And what it did was -- why '25 was so important? Like I said, it gives us credibility. Our net performance and what we're doing operation is outstanding. We've got work to do. We're not where we need to be. I'll be very clear on that. I tell the team that all the time.

But I like the momentum we have on the net performance. The growth equally is important because we're very -- we're in a competitive position, but we're winning business at healthy margins and that's what it's all about. We're not going to chase business. We're not going to chase programs that are risky. They don't have that history of longevity or volume. We're being very selective on what we go after.

And that's what I keep mentioning is that it gives us an opportunity because of our innovation and technology, particularly in Seating, to really focus on what we think is important growth, programs and platforms globally.

Great. Actually, Ray, you just touched on part of my second question, which is we've seen some meaningful amount of dollars from the OEMs for some canceled programs, mostly related to EVs. You've obviously invested some capital for those programs.

Can you just help us understand like are those discussions done? Are they ongoing? Is there any payments towards you embedded in your '26 outlook?

Yes. I would say, Joe, that the major negotiations are largely complete, and we do expect some cash benefit and that's embedded in the guidance for this year as those agreements are finalized and paid out. And there was some benefit to our net performance in the fourth quarter, that was probably the biggest positive surprise from our mid-quarter update was the magnitude of those settlements relative to what we had expected.

They came in a little bit stronger than what we embedded in our guidance and what we provided to investors in terms of an update in December. But there aren't significant additional opportunities that we see beyond that impacting 2026. I think we're largely complete on the most significant of those negotiations.

Just a quick follow-up. Is that -- when we look at your walk, is that in that other $265 million? Is that where you're placing some of those recoveries?

Yes. There is some deferred revenue associated with those agreements that shows up in that Other, both in the fourth quarter and for '26.

And our next question comes from Emmanuel Rosner from Wolfe Research.

Great. Just a couple of quick follow-ups to earlier questions. First, on the cadence, it sounds like the first quarter is off to a pretty strong start, but then you also flagged that there may be some choppiness around some of the T1 downtime. Are you -- based on your schedule, are you seeing some of that downtime not in Q1 and sort of like in potentially future quarters?

Yes. I think it's more in the third quarter in terms of the change over the first T1 facility where we'll see the lower volumes more in the second half of the year than in the first half of the year.

Got it. And then my second follow-up was there was not much mention at all of commodities and copper, in particular. Can you just remind us how do you think about a potential impact? I know that, obviously, most of it is passed through. But just how should we think about impact on this year?

Yes. We've worked hard over the last number of years to put indexing and pass-through agreements in place pretty much across the whole suite of commodities that impact our business. And so you're not going to see much impact in terms of earnings from changes in commodity prices, but you could see some choppiness in revenues.

We've assumed $5.25 for copper for the year, which I know is a little bit lower than the current market price. That's almost $1 higher than last year and it's slightly higher than what we experienced in the fourth quarter. So if it does remain at $6, there would be some additional revenue, but very little change in earnings.

Most of those indexed agreements are on a 1-quarter lag, so you could have a blip in 1 quarter, but afterwards, that has passed through.

Similar agreements in place for steel, largely insulated from fluctuations in steel costs. And overall, I think the commodity impact for the year, which is embedded in our net performance, is about a headwind of about 6 basis points. So it's pretty nominal.

Our next question comes from Itay Michaeli from TD Cowen.

Great. Just have a follow-up -- a couple of follow-ups on Page 20 -- Slide 23. On the roughly $800 million drag from volume mix this year, hoping you can give a bit more color about the drivers there? And also whether that includes some JLR recoveries after the disruption of last year?

Yes. Itay, short answer is yes, it does include the recovery with JLR. We've largely aligned our guidance with the S&P forecast, and so there are several kind of drags on the volume line for us that I can highlight provide a little bit more color.

We talked about the changeover on the GM full-size pickup trucks, the first programs impacted by that. So that is one of the factors. We also see significantly lower volumes on the GM electric vehicle platforms, consistent with what they've announced. I think also in Europe, while we do see the benefit of higher volumes with GLR, we do see lower volumes on a number of customers that we would attribute to a combination of share displacement, the Chinese taking share in that market as well as maybe a little bit lower volume on exports to the U.S. because of tariffs, so we see lower volumes, for example, with Porsche, Stellantis, Nissan as some examples of that.

And then in China, we do see lower volumes on some of our traditional customers with Audi and BMW to a lesser extent GM and Ford and that's partially offset by some growth with BYD and Geely. Now that volume impact is largely offset by our strong backlog for the year. And I would -- at this stage of the year, I would characterize the volume assumptions as maybe shading towards the conservative end of the spectrum, particularly the way we're seeing the year start off here in the first quarter.

I think that if you look at S&P's outlook, they may be underestimating how the European automakers respond to the Chinese threat in the European market and adjust prices. We've heard customers talk about that publicly. We also think that the underlying strength in the U.S. market may be not fully captured in the S&P outlook, and so you could see a little bit more improvement there.

And what we try to do is to have a wide enough range to capture those types of things at the high end of the guidance range and then the low end of the range sort of captures the unknowns. Are there new trade and tariff-related disputes? Is there something that leads to structurally weaker demand than what we're anticipating?

And as we sit here today, I feel pretty good about the midpoint and above. But just given what we've been through the last several years, I just think it's appropriate to have some caution built in and protect for that at the low end of the guidance range.

Our next question comes from Mark Delaney from Goldman Sachs.

Yes. You mentioned a number of TCS programs and progress you're making there. I'm hoping you can put that into context. And is TCS revenue still tracking to the $1 billion 2027 target you previously had and with a 10% EBIT margin?

Yes. We're excited about the success and progress we're making with Thermal Comfort with the 33 awards that we've talked about, those programs beginning to launch last year and really inflecting even higher this year. With all that being said, the $1 billion target remains in place. We're pushing the timing of that out a little bit.

And that business is impacted by the same factors that impacted the rest of the company, most notably the lack of demand for electric vehicle platforms and how all those programs that were in the pipeline were canceled or launched at lower volumes.

And so that will weigh on the '27 number, but that business is growing. We still have confidence in achieving both the $1 billion of revenue and the 10% margin target. But we are pushing that out a little bit at this stage, Mark.

Yes. I think the good news is, and we talked about was now that we have this in production and it's gaining traction, we're not quoting against that -- we don't -- I haven't seen anyone that we're quoting against. So we're the only ones that can produce -- we talk to full modular assembly of comfort -- Thermal Comfort products.

And so I think as a read-across goal and as they look across their own platforms, we're going to be able to accelerate our own awards. But it feels really good where we're at 33 different awards. This new innovation center we put up, I think, is really the customers we are bringing through when they can actually touch and see and feel it is really helping.

And like I said, it really helped us with this large Conquest win we got. When we walk the customers through that facility and they got to understand what's in production, man, it really hits home. And so -- in order to continue to push it. I feel really good where we're at. Jason mentioned some of the volume collapses on the EVs where we had awarded programs and some of the delays, but still feel really good where we're at and what we're doing and how it's differentiating ourselves.

And it's interesting. We went back and kind of looked at the customers and where they're at, there's different customer strategies. And like I said, you have some that are still really focused on common architecture, single sourcing of components, so we can do a great job there. But the bulk of them are in this hybrid between manufacturing and product design around innovation, and that's where our sweet spot is.

And we can still more of the, I'll call it, innovative kind of pushing the boundary of innovation, we can support those modular concepts. And so we can hit every one of our customers and in those 2 buckets I just talked about with hybrid and the further developed innovation customers. We're the only ones that we're quoting those type of solutions. And so I feel really good where we're at.

That's all helpful. One other question for me was a follow-up on the Conquest business, and congrats on the award you were able to announce today. You previously talked about $3 billion of Conquest opportunity in Seating. I'm hoping you could put the progress you have now into context with what's been won and what might still be available as you think about the Seating Conquest opportunity set specifically?

Yes. I think at the start of last year, there was a total opportunity of $3 billion in that. As we sit here today, we talked about $800 million of net Conquest awards in both Seating and Wire together, that's now been completed.

We have $1.5 billion pipeline of Seating Conquest opportunities for this year. So we had a good year, we had a great year in '25, and I see continued opportunity in '26. And those 2 taken together put us on track to achieve that 29% market share over time.

Yes. I think, again, last year, we talked about quite a bit the pipeline and what we're quoting in some of the canceled, delayed or pushed out programs, and that's resulted even into this early part of this year. I feel really good about E-Systems where they're at.

We've got some good Conquest opportunities in front of us. Hopefully, in the next call, they'll make some announcements.

And Seating, I think, will be similar to this year where a lot of those will extend into the second half. But again, the pipeline is rich. And like I said, we're being very, very selective and strategic on where we're placing our bets and where we're going to invest our dollars. And so with this innovation in Seating and how we're differentiating ourselves, I think it's going to continue to keep us in a good position.

But I think equally as important E-Systems. We're seeing a lot of opportunities like I talked about in the Wire business. And so a lot of that's Conquest. And so it'll be -- it's a first half, second half, first half with E-Systems, I think we'll have some announcements. In the second half, I think we'll continue to have good announcements in Seating.

Okay. That's it for the Q&A. I just want to, again, talk to the team that's on the phone. Again, you've heard me say this: Great 2025. Our net performance almost $200 million, best performance in the history of Lear Corporation, all driven by your hard work. I know this year is going to be equally as tough, but I know -- like I always say we're built differently.

We're built with that competitive attitude to continue to beat the numbers that we put in place and exceed expectations. New business wins, you guys know how happy I am about what you guys achieved. We're differentiating ourselves. We're doing it through innovation technology. The business that we're going after is very selective and it's going to get us good returns as we launch that business.

IDEA by Lear, we talked about it, and you guys continue to blow me away with the things that you're coming up with capital, nonproduction purchasing, purchasing components, it's across the board from free cash flow to inventory levels to OI. I think we're just scratching the surface. I know we got connected dots on a lot of different things, but man, you guys are doing a great job. And this value creation process that we're introducing throughout the company and really been focused longer term on strategic applications, a good business is going to be great, all making us a stronger company.

So thank you for everything you did in 2025. Little differently, I'm looking forward to a great year in 2026.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Okay. Thank you, everybody, for joining us. My name is Mark Delaney, and I cover U.S. autos and industrial tech. And it's my pleasure to be hosting Lear for this session at the GS 17th Annual Industrials and Autos Week.

With us from Lear, we have a great lineup. We have Jason Cardew, SVP and CFO; Jared Fedele, VP Finance, Seating and E-Systems; and Mike Shanlikian, VP Finance, Corporate FP&A. Thank you all for coming.

Thanks for having us.

Thanks for having us.

Thanks for having us.

Let's jump into the questions. And I thought with an industry question, we could start off, and Jason, I can direct this one to you perhaps. There's been a lot of volatility in the industry around potential supply chain disruptions and customer-specific events such as the cyberattack on JLR and the Novelis fire. And given that backdrop, can you share your current views on how the quarter is shaping up?

Yes. Sure, Mark. And just before I start, I just want to take a brief moment and introduce Jared Fedele and Mike Shanlikian. We were here this week for operations reviews and thought it would be a great opportunity for our 2 top operational finance leaders in the company to speak with investors today. So I look forward to sharing the stage with them today.

And I appreciate, Mark, again, you accommodating us here. We always enjoy participating in this conference in London. It gives us a chance to connect with our team in Europe at the end of the year and really worked out well. And so in terms of the fourth quarter and how we see it shaping up, just a reminder, when we provided guidance on our third quarter earnings call, we expected full year revenues of $23 billion, operating income of $1.025 billion and free cash flow of $500 million.

And that midpoint of our guidance range really protected for further disruption from either Nexperia or perhaps a shortfall in JLR's restart of production after the cyberattack and also the lingering effects of supply chain issues with the Novelis fire. And as the quarters progressed, in all 3 cases, things have held up pretty well. And so the quarter is tracking favorably to the midpoint of our guidance.

As we sit here today, we're somewhere between the midpoint and the high end of the guidance range. So both businesses are on track to outperform the midpoint of the guidance. And on the free cash flow side, we've seen real strength here in the fourth quarter. That's allowed us to continue buying back stock at a very accelerated clip.

We now expect to buy back more than $300 million for the full year. And we had talked about buying back at least $300 million on the third quarter earnings call. So that's tracking favorably. In terms of operating margins, Seating in the fourth quarter looks like it's going to be 6% or a little bit north of that.

E-Systems will be in the low 4s. And so again, a little bit better than what we had anticipated as the disruptions that we talked about haven't been as impactful. And from a business standpoint, we've had a great quarter. We -- particularly in E-Systems on the growth side, we've had a series of new business awards since the third quarter earnings call, we talked about $1.1 billion in annual sales and new business awards this year.

That's now $1.3 billion or a little bit north of that. So we've had several high-value additional awards since the earnings call, and that's a near record for us in E-Systems. And on the Seating side, we've had 3 additional ComfortMax, ComfortFlex, FlexAir awards there so that now we have 31 awards since we introduced those new products after the acquisition of IGB and Kongsberg.

So that's also tracking favorably. So all this really sets us up, I think, for some positive momentum heading into 2026. We're not going to provide pinpoint guidance at this point at this stage, but similar to what we talked about on the third quarter earnings call, we do expect revenues to be higher next year, earnings to be higher next year and operating margins overall in the company to be higher next year as well. So good momentum in the business.

That's some great news. Thank you for sharing those updates and glad to hear how the quarter is developing. And maybe we could pick up on that and talk a bit more on production trends by region. Have there been any surprises relative to your expectations? And any early views you'd want to share on 2026, including the extent to which customer production impacts that you've seen in '25 may be recovered?

Yes. So let me comment on 2025 first, Mark, and then I'll comment on 2026. So initially, we were concerned about the combined impact of the JLR cyberattack and ramp-up plan, also the Nexperia chip issue and then whether Ford and Stellantis would be able to deliver on their Q4 production in light of the Novelis issue.

Fortunately, a majority of those risks have been mitigated, giving us really good momentum as we go into year-end. And as Jason highlighted, that's part of the reason why our guidance is trending between the midpoint and the higher end of the range. So it's a pretty good outcome for us so far.

Now with respect to 2026, as we sit here today, S&P is expecting that global production is going to be lower about 1% on a Lear sales weighted basis. Looking at it by region, they're expecting North America to be lower about 2.5%, Europe to be relatively flat and then China to be lower about 1.5%.

So we're still working through our planning process. But we think that's a very reasonable entry point looking at 2026. Now that also kind of highlights that there's a potential modest volume mix impact going into 2026. We don't think it will be as significant as 2025. And if nothing else, we'll have the reversal of the JLR impact as well as Novelis on Ford and Stellantis.

And as Jason highlighted, we're not here to provide guidance. We'll do that in our fourth quarter earnings call. But we just want to reiterate once again that we do believe that our revenue, our earnings and our margins will be higher in 2026 versus 2025.

And Mike, just to make sure I understood what you were referring to when you talk about volume mix, you mean kind of just the types of vehicles that OEMs are making? Or do you just meant your OEM exposure?

Yes. Mark, I'll respond to that. And so you may recall this year, we've had a pretty significant mix headwind in our -- on our platforms relative to the market, and that was really compounded by what happened with the JLR cyberattack and the Novelis fire disproportionately impacting us just because JLR is such a large customer in both segments for us.

And then Ford in E-Systems, in particular, is our largest customer. And so that negative mix that we experienced this year, we see that moderating next year, if nothing else, because of the reversal of those 2 issues.

Okay. Helpful. Maybe we could talk about automation. I mean it's been such an important focus for Lear. You've acquired a number of companies to enhance your automation efforts, including StoneShield and WIP. You're also partnering with Palantir. Could you speak to where the company is on the journey of its automation efforts, including where it's making progress, what's to come? And what might be hard to automate at least with current technology?

Yes. This is an area that we're particularly excited about, Mark. We've been methodically executing a strategy around product and process innovation. On the process side, we've had 5 acquisitions over the last nearly 10 years, ASI, InTouch, Thagora, WIP and StoneShield. And that's really transformed our ability to deploy capital and automation in our assembly plants. And now with our partnership with Palantir, which is nearly 3 years old at this point, we're just progressing on the digital transformation side of that equation as well.

And it's amazing the way the company has embraced the foundry tool. It's a powerful tool. And our latest development is the fellowship program we have with Palantir. But it is -- it's become institutionalized in the company. We have 14,000 users and 250 different applications or digital tools that have been built on the foundry platform.

It's a low-code software development platform that we can use across our business. It helps with data consolidation, data analytics. It leverages all the large language models from OpenAI to Gemini, Claude and Grok and whatever is to come next.

And it's really not just impacting manufacturing, it's impacting product development and engineering, purchasing and the administrative processes. It's helping us on the operating income side and also on free cash flow and what it's doing with inventory management. And I think the best way to just demonstrate how impactful it is to talk through a couple of examples.

So Mike is going to talk through an example of where we've deployed this on the manufacturing side in our chip plants. And then Jared is going to talk about what we've done on the administrative process side with one example in particular. And this deployment of foundry in just on an overall basis has been a key contributor to that $70 million of savings we've achieved this year in IDEA by Lear and the $65 million to $75 million we're anticipating in '26 and '27, we have a clear line of sight and a list of road map of projects that are in process that we're investing in now that will facilitate achieving that task. So Mike, why don't you talk about what we're doing just on the manufacturing side?

Yes. Thanks, Jason. So within foundry, we have a tool that we call cycle time deviation. And what cycle time deviation does is it provides us real-time data on our shop floor performance, putting us in a position to make real-time changes and improve our processes and become more efficient.

Like -- so for example, we're able to quickly identify bottlenecks that are in our process that, for example, could be caused by equipment failure and we're able to quickly make those changes so that we can continue to be more efficient. We've deployed cycle time deviation 100% across North America and our European just-in-time facilities with a plan to deploy it in our global just-in-time facilities by mid-2026.

Now we started this journey in Europe last year, but we have seen a meaningful improvement this year as we deployed it in North America and Europe with savings of about $10 million annually. We've seen on average 3% to 5% efficiency gains from this tool. And as we deploy it globally next year, we expect the annual savings of $10 million to increase to about $15 million.

And Jared, if you could, on the administrative side.

Yes, sure. It's been a tremendous tool, as Jason and Mike have highlighted. And what we've been able to do has been fantastic. So I was being put in charge of the tariff policies that we had. So when the tariff started kicking in and just to paint some pictures on what we were faced at the time, at the time the tariff policy was kicked in, we had about, say, 150 trucks that would cross the border every day, hundreds of parts, thousands of parts potentially crossing the border every single day that's out there.

And what we're faced with was trying to apply all the HTS codes, looking at pulling USMCA certifications over and everything. It was a huge undertaking for the team. It was killing the team. So we sat down with our internal team and with the Palantir team. And we put together basically this concept, this enterprise solution and took it from concept to completion in 10 days.

And so now what we have is real-time information. When the parts cross, we apply the HTS code. We are able to take the USMCA certification, apply it. If it doesn't have a USMCA certification, it buckets it into whether it's an IEEPA, reciprocal Auto 232 tariff.

So it's something that can't be replicated that other suppliers don't have. And on top of all this, we've been able to write LLM, these large language models that communicates to us. If there's a discrepancy, we can use that to communicate to our customers and the supply basis if we're missing anything.

So what has it done for us? It is real tangible results. It's a reason we're able to get 100% recoverability on all our tariff costs. It's actually you're seeing cash come in. our customers are extremely pleased with the fact that it's auditable. The information we can give them is real time.

They can see daily, weekly what they want to see and what's crossing. And it's extremely, extremely powerful. And we can crack the joke now, but at the time the policies came out, we had all these consultants come to us. And we always laugh. We think it would have taken the consultants 10 days to put together the pack to present to us. We're able to take this from the speed to value, right, from concept to completion in 10 days, and it's been a hell of a tool we've been able to use.

No, those are some fantastic examples and really helps to illustrate all the discussions you guys have had on this broader topic for a while now. So thanks for that. Maybe we could just double-click with one more on this. And you mentioned the $65 million to $75 million of savings annually from these broader set of initiatives. Anything you can share in terms of typical payback period on those investments?

Yes. So just in terms of our broader portfolio of IDEA projects, which includes automation and some of these digital projects as well. A typical automation project now is a 1.5- to 2.5-year payback. For the first phase of our deployment of automation in our highest cost just-in-time facilities, the paybacks were less than a year to 1.5 years.

And now as we move into more difficult areas to automate, the payback stretch out a little bit, but still very attractive paybacks and financial returns. And on the digital side, the payback is unbelievable. There's very little investment that we've made in this foundry partnership, and there's very little additional variable costs associated with it. So as we build these applications using that tool, the payback is immediate.

Very helpful. Maybe we can speak more on the Seating business, and the company has spoken about how automation as well as your regionalization efforts are potential drivers of Conquest business in Seating. What is Lear seeing on its ability to convert on these opportunities? And has the total Conquest opportunity of $3 billion changed?

Yes, Mark, I think we've clearly established our position as the leader in Seating. We have the best operating margins and financial returns in the business, the highest quality as evidenced by J.D. Power scores.

We've grown our market share to 26% over the last decade or so, and we have established a target of getting to 29% and Conquest awards are a key enabler to that in addition to growth with the Chinese domestic automakers and our Thermal Comfort portfolio leading to additional growth.

In terms of the Conquest opportunities specifically, at the start of the year, we did talk about a $3 billion pipeline. As we sit here today, we've had about $150 million of Conquest awards in Seating this year. And our current pipeline is $2 billion of new opportunities that we expect to be sourced over the next 12 months.

We're not going to win all of that business, but it will be a key driver of our market share and growth ambitions in Seating. And it's really underpinned by the cost advantage, the cost, quality and speed-to-market advantage that we've built through our investments in product and process innovation. And the feedback we're getting from customers as we're quoting these Conquest opportunities has been fantastic.

They clearly recognize what we've done to differentiate ourselves in terms of cost and quality in our manufacturing plants. And while we're not going to break any news today on a big Conquest award, we're getting very close on one that we've been working on throughout this year. These are difficult complex decisions for our customers when they switch suppliers on an important program.

So we're really close on one large opportunity there that we hope to talk about on the fourth quarter earnings call. And in terms of the onshoring opportunity, we have Seating business in Korea and Europe and Mexico, where our customers are looking to onshore production into the U.S. And there's -- each of those sourcing opportunities is in a little bit of a different position in terms of the time line of completion.

There's one in particular with a large North America OEM that we're very close on. I don't want to front-run the customer on that. Again, we look and expect to be able to talk about that on the fourth quarter earnings call. But we remain confident that we're going to be able to at least protect the share that we have and perhaps extend our market share through the onshoring initiatives.

In addition to the Conquest opportunities, we see great growth with the Chinese automakers. We had -- we're ramping up business with Seres on the M7 program. We have business with them on the M6 and the M8 program as well. That's a fast-growing customer.

We recently consolidated a joint venture where that a portion of that business resides. We have a great portfolio with Xiaomi. The SU7 has been just an absolute hit for us. Volumes have been far in excess of what we had anticipated when that program was awarded. And we've also now won some business on the Xiaomi Kunlun platforms, which are a group of vans and SUVs, which will be launching in 2026 and 2027, mostly in a nonconsolidated JV.

And so we continue to win business with both of those growing customers and with BYD as well. So that's another kind of key enabler to growth in Seating in the years to come.

Thank you for all those updates on the Seating business. And I think in your opening comments, Jason, you talked about some awards you've seen even just in this quarter, I think maybe you said 3. Please correct me if I had that number wrong. Were those more new programs? Or were those some of the Conquest business you just spoke to?

A little bit of both. With one customer, we had a Thermal Comfort award where we had a portion of the Thermal Comfort content and we added content that was taken from a competitor as part of a ComfortFlex system that we will be launching with that customer.

Okay. And you actually were just referring to some momentum in China. So that I know has been a big focus for a number of suppliers, including Lear. Maybe you can put that into perspective for us. You've been targeting to reach 50% of China revenue from domestics in 2027. Just kind of level set us where you stand with some of the progress and some of the momentum you just spoke about.

Yes. Sure, Mark. I'll be happy to answer that. So it all starts, honestly, with the leadership we have there in China and in Asia. And we have a solid local leadership for the local market that's a big factor in driving growth and what we're seeing in the market, not only understanding the market, but the speed to market and the nuances of being able to bring in all our vertical integration capabilities on top of that.

From a target standpoint, and we've talked about this in the past, the target we had for Chinese OEM, Chinese domestic growth was around 37% in 2025. We're actually around 40% today, up from the 33% that we had last year. And in addition, the 50% target that you mentioned, Mark, for 2027, I'm happy to say here today that we are actually above that as we sit here today.

So the relationships that we're able to build that Jason mentioned on some of the Xiaomi, BYD and Seres is really paying benefits. And the change we made in leadership, we took the leader in 2023, the leader of our Seating business and put them over Seating and E-Systems. You're now seeing that growth on E-Systems as well with Geely, with Great Wall, with Dongfeng, DPCA and FAW.

So this is leading to wins now on the E-Systems front. So I'm very, very excited for what's happening in China with our team and our leadership as they continue to build the relationships. And then they're also able to pull in our full on suite, our vertical integration that we have capabilities sitting in China as well, which is key.

When you have -- when you can factor in this comfort, quality and speed in China, that's a launching pad that we're able to have for growth. And we're seeing these wins, and we're seeing this pick up throughout the year. So like I said, very proud, very excited for the team in Asia and China to watch this growth happen.

That's helpful. And on the China opportunity, the company had consolidated 2 of its Seating joint ventures in China this year. How is Lear thinking about further consolidation going forward? And what impact might that have on margins in Seating?

Yes, you're right, Mark. We did have an opportunity to take operating control of 2 JVs earlier this year. And the reason, the rationale for taking operating control is we want that direct customer communication. We want to be able to talk to the customer to meet the customers' needs, actually allows us to drive our best-in-class operational efficiencies that are out there.

And everything we're doing from an IDEA by Lear with the digitization, automization, we're able to talk to the customers through the direct communication and put these initiatives in to help improve margins that are out there. And every business, everything we're doing in China, we have the financial discipline to make sure we're getting a return in excess of our cost of capital.

So all these relationships and being able to consolidate, to your point, in Q1, we took operational control of a JV, our BYD JV that does the Han L and Tai 3. And in Q2, we're able to take operational control of the Seres JV, which is the M5, 6, 7,8 that Jason mentioned as well.

And for 2026, this is going to add about $160 million to the backlog numbers that Jason gave in the Q3 earnings call. So -- and we look forward to continue to see this grow with the relationship. So we'll always work with our partners, Mark, to see what we want to do from a consolidation standpoint. We got to make sure it's with the right customers. And with the backdrop that whatever we're going to be doing, we're going to make sure we have the financial wherewithal and the discipline to take anything that we are able to improve and have returns greater than our cost of capital.

And Mark, just to clarify one point, the $160 million of Seres backlog is part of that $1.3 billion or $1.2 billion of backlog that we announced for 2026 and 2027. So it's a big portion of that, the $600 million of that backlog that's in 2026.

Okay. And then just on a global perspective, TCS has been an important part of the opportunity for Lear. You already spoke about some of the progress the company has seen there. But as you think about ComfortFlex and ComfortMax, just any more comments around how that product has progressed?

Yes. Mike is going to start out, and then I'll finish up on this one.

Yes. Thanks, Mark. So we continue to build or gain or build momentum with our Thermal Comfort Systems portfolio. 2026 is a critical year for us as we continue to scale both ComfortFlex and ComfortMax. We currently have 9 programs that are in production with 12 programs that we're planning to launch in 2026.

And then the more we get these technologies into the marketplace, the more our customers will embrace the opportunities. And then also, I do want to highlight that we did just recently open our industry-first fully automated facility for ComfortFlex, ComfortMax and FlexAir. And with that, I'll let Jason give us some more color on that facility.

Yes, Mark, this is something that I think Ray talked a little bit about on the third quarter earnings call, and we're excited to be able to bring investors into that facility sometime next year. We -- as Mike mentioned, we've launched that facility now. In fact, Ray had a staff meeting there this week on Monday. So the whole team was there to check in on the progress, and it was really remarkable to see what we've been able to do.

On the ComfortFlex and ComfortMax, the biggest challenge that we had was how you automate the handling of soft parts, so trim covers, heater mats, massage and lumbar bladders. That was the greatest challenge that we had. But through the combined capabilities that we acquired through the acquisitions we talked about earlier today on the process side and our own product engineering capabilities in-house, we were able to fully automate that assembly process.

So there is not one direct labor employee that touches the material from the inception of the process to the end of the process. And it's -- the equipment that's in place is production intent equipment. It's not prototype equipment. We still have some work to do on the cycle time of the process, but it's getting very close already.

The production equipment that is in the facility will be used on a ComfortMax program that launches in 2028. And it was just really remarkable to see that and FlexAir as well. We have our first full FlexAir assembly line in place in that same facility. So we're excited to show that to investors as well.

And so those initial FlexAir programs are launching in kind of low-risk applications, [indiscernible] things like that. Now we have awards that are close on the third row application. And then from the third row, we'll move to the second row. So it's really a chance to disrupt that the seat cushioning space in general and replace what is a challenging product environmentally with a much better, lighter weight, higher performing system in the market.

That's great. Thank you for all those updates on Thermal Comfort. Maybe we could have a couple of questions on the E-Systems segment. The company commented on its third quarter call that it expects E-Systems to have a negative $100 million backlog in 2026 compared to the February outlook of positive $170 million. What's the driver of that? Lear has also spoken about the impact to E-Systems from wind-down electronics business. How much additional revenue headwind would investors expect from this aspect?

Yes. And I think, Mark, the biggest kind of overarching driver has been the reduction in demand for electric vehicles, particularly in the North American market. And that disproportionately impacted E-Systems. Now you can contrast that with the remarkable success we've had this year in Conquest awards and new business awards. It started with the F-250 wire award in the first quarter of this year that we announced, which had both a replacement component, but additional harnesses beyond what we have currently.

And now, as I mentioned earlier in this conversation, we have $1.3 billion of new business awards in E-Systems. So we have great momentum that we'll see benefiting '28, '29 and '30 in the E-Systems business. But to answer your question directly in terms of the backlog, that $270 million change in the 2026 backlog, it's really driven by 3 factors. The first was Stellantis' decision to cancel the full electric Ram REV truck. So we had the battery disconnect unit on that product is not coming to market.

The second change was Ford's decision to build out the Escape and Corsair in the U.S., which was a large important program for our E-Systems business. And then the third, which is a little less of an impact, but important nonetheless, lower volumes on some of the new EV platforms in the U.S. like the Acura ZDX or the early build-out or cancellation of that program.

So those 3 things taken together really explain the bulk of what's changed. With that said, we still have some exciting programs that are ramping up or launching next year. We have the continued ramp-up of the Volvo EX30 wire in Europe. In addition to that, we have business with the global EV OEM, additional business with them in North America that's ramping up next year.

So even though we've got some headwinds there in the near term, there are some green shoots of growth that we're seeing as well. In terms of the wind down, we took that decision back in 2022, 2023 to wind down certain noncore products where we did not see a path to sustainable returns in excess of our cost of capital, the biggest of which was our audio and lighting business, and we've been ramping that [Technical Difficulty] may be profitable today. But as we look at the next generation, the combination of the engineering investment required and the weak return profile of those product categories led us to the decision to exit those products entirely.

And so in terms of the impact on the next couple of years, we've talked about this earlier in the year, and our estimates are still the same. It's about $350 million of wind-down impact between 2026 and 2027 with $160 million or $165 million of that in '26 and then the balance in '27. The total umbrella of wind down remaining is about $570 million. So the bulk of it comes out in '26 and '27. There's a little more than $100 million in '28, and then it's just very small impacts in the years beyond that.

Okay. And that's all very helpful context and some revenue headwind. But maybe we can talk about margins in E-Systems. To what extent do you think the company can see some margin expansion in part given some of the focus and automation efforts? And just any more color on the margin trajectory you see in E-Systems over the next couple of years?

Yes. This year, obviously, we took a bit of a step back with the impact of lower production volumes on key platforms. A lot of that we had anticipated at the start of the year, but that was compounded by the downtime that JLR took from the cyberattack and the impact of the Novelis fire on boards production. And so it offset or overwhelmed the impact of net performance.

We had a great year in the areas where we can control our performance. We had 75 basis points of net performance in E-Systems this year. We're not at all satisfied with where we're at in terms of operating margins in that business, but we are increasingly confident that we can grow margins even in a flat volume environment, in a flat revenue environment for the next several years.

We see 80 basis points of net performance in 2026 and 2027, really leveraging everything we're doing in IDEA by Lear. But we also have restructuring opportunities, which have a great payback in E-Systems. We're continuing to shift from Eastern Europe to North Africa, for example, in our European business, and that's generating significant improvement in the business year-over-year.

And we do have a positive backlog that starts up again in 2027 that has margins that are in line or accretive to our overall target margins in E-Systems. So over time, growth will be an enabler or a contributor to margin expansion in E-Systems. But in the near term, the net performance initiatives are going to be the key driver as we look at margins over the next couple of years.

Very helpful. Maybe we could finish up with capital allocation. How should investors think about Lear's capital allocation priorities?

Yes. Our capital allocation priorities remain consistent. We're going to invest in the business first through capital expenditures to support the competitive position in both Seating and E-Systems. And beyond that, some modest tuck-in acquisitions like we described earlier with -- on the manufacturing integration and automation side, sort of those $10 million to $25 million type deals that are -- have generated fantastic returns for us.

We don't see any transformational M&A at this point in time. So the remainder of our free cash flow generation is going to be returned to shareholders through our dividend and share repurchases. And as I mentioned at the start of this discussion, we're now going to buy back a little bit more than $300 million this year on the heels of this strong free cash flow performance we're seeing in the fourth quarter.

Well, unfortunately, we are out of time. I'd like to give a big thank you to the entire Lear team, Jason, Mike and Jared, I really appreciate you joining the conference.

Yes. Thank you, Mark. Appreciate it.

Good morning, everyone, and welcome to the Lear Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

At this time, I'd like to turn the conference call over to Timothy Brumbaugh, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's Third Quarter 2025 Earnings Call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear's Senior Management team, who also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future.

As detailed in our safe harbor statement on Slide 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 for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.

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

Thanks, Tim. Now please turn to Slide 5, which highlights key financial metrics for the third quarter of 2025. Lear delivered $5.7 billion of revenue in the third quarter, an increase of 2% from the third quarter of 2024. Core operating earnings were $241 million our total company operating margin was 4.2%. Adjusted earnings per share was $2.79 and our operating cash flow was $444 million in the quarter, one of our strongest operating cash flows in our history. Our third quarter financial performance was at the higher end of our expectations.

Despite the significant impact of a cybersecurity incident that disrupted production for one of our key customers, [indiscernible] for the entire month of September. Excluding the impact of Jagan Rover disruption, total near third quarter core operating earnings and operating margins would have been higher than the prior year. Jason will provide an additional -- the additional details on the impact of this disruption to our third quarter results and our full year outlook.

Slide 6 summarizes key financial and business highlights from the quarter. As a reminder, our strategic priorities continue to be extending our global leadership position in seating, expanding margins in E-Systems, growing our competitive advantage and operational excellence through Idea by Lear and supporting sustainable value creation with disciplined capital allocation. The momentum of positive net performance we delivered in the first half of the year continued through the third quarter, contributing 50 basis points to [indiscernible] and 95 basis points to E-Systems margins. This performance was remarkable, considering the third quarter of 2024 was also very strong, making a very tough comparison for the year.

It is a testament to our commitment to operational excellence and the benefits we are capturing from our investments in digital tools, automation and restructuring. Through the third quarter of the year, we delivered 70 basis points of net performance in Seating and 105 basis points in E-Systems. Our operating cash flow of $144 million was one of the highest third quarter in Lear's history, second only to the third quarter of 2020, which was viewed by working capital fluctuations resulting on the impact of COVID. Our cash flow generation allowed us to accelerate our share repurchases, which totaled $100 million for the quarter, while maintaining our dividend of $0.77 per share.

The solid momentum we experienced in the quarter enabled us to raise the midpoint of our full year free cash flow outlook. It has not been for the impact of the Jag Land Rover Jagan disruption, we would have further increased the midpoint of our revenue and free cash flow and increased our operating income outlook. We continue to extend our leadership in operational excellence through IDEA by Lee initiatives. To advance our employees understanding and applications of digital and AI technologies, we have launched the Lear fellowship program with Palantir. This 12-week intensive training will engage 90 Lear team members from across functions, including IT, engineering, finance and purchasing, empowering them to harness AI capabilities to address real business challenges.

This is the first such company-focused fellowship program for Palantir. They are excited to work with Lear because our company-wide commitment to use digital and EI tools to rapidly improve our business and manufacturing process and further improve our cost structure. I couldn't be more excited about the potential of this program, and I will be directly involved to gain the firsthand view into this transformative possibilities of these tools that they offer. We continue to win new business in both centers, any systems, we have been awarded approximately $1.1 billion of business year-to-date. This is the fourth year of the last 5 years where Lear E-Systems has generated over $1 billion of business awards.

In Seating, we won new business with several automakers, including awards with BMW, Ford Motor Company, Nissan, Hyundai and Jag Land Rover, as well as awards with key Chinese domestic automakers. Our modularity strategy continues to drive new business. In the quarter, we won 4 ComfortFlex awards, including a conquest award with Hyundai, and awards with BMW, Leapmotor and Seres. During the quarter, we took operational toll of our second joint venture in China this year. The joint venture supplies key programs for Seres. Consolidating this joint venture is expected to add approximately $75 million to our reported revenue for 2025 and a significant growth in 2026. In E-Systems, key business wins include 8 water awards, among which our conquest awards for [indiscernible] and 4 awards with Chinese automakers.

We also received 2 new electronic awards for power distribution boxes on Ford Motor companies F3s trucks. For the third straight year, Lear led the J.D. Power U.S. Seat Quality and Satisfaction Study with 7 top 3 finishes. And our customers continue to recognize us for our dedication to quality and performance, Ferrari honored layer with their highly coveted fearless organization award, recognizing us as a trusted supplier due to our commitment to transparency and reliability and dedication to quality. Nissan also recognized Lear for our industry-leading quality by granting us their 2025 Global Quality Award as well as their 2025 Global Quality Award in North America. During the quarter, we published our 2024 sustainability report, providing an update on our commitments to sustainability and governance.

Slide 7 provides an update on the key metrics to track our progress on expanding margins and generating long-term revenue growth. In Seating, we won conquest awards for complete seats in Asia and South America, as well for seat components with several automakers across multiple regions. In E-Systems, we won 2 conquest wire awards with Steans in North America and the third conquest award with a key Chinese automaker. Awards for our innovative modular seat products continue to grow. We received 4 additional awards during the third quarter, including a conquest award combining Lumbar and seat suspension for Hyundai.

Our other solutions combine heat and our foam comfort layer for BMW and heat was seatbelt reminder functionality for both Seres and Leapmotor. These additional wins bring our total to 28 programs for ComfortFlex, ComfortMax seat and FlexAir Products. Our strong relationships with Chinese domestic automakers continue to deliver new business wins. In Seating, we won 5 complete seat awards with BAIC, Seres, Dongfeng, Leap Motor and SAIC. Four of our wiring awards in E-Systems were Chinese domestic customers. IDA by Lear and our investments in automation generated $20 million of savings in the third quarter, keeping us on track to deliver approximately $70 million of savings for the full year.

Restructuring investments contributed approximately $25 million in states in the third quarter, positioning us to achieve $85 million of savings in the full year. As a result of our strong operating performance, we are increasing our full year net performance outlook from $150 million to $170 million. This reflects the positive momentum in the benefits of both idea by Lear investments and restructuring actions. Our global hourly headcount reduction is 3,400 through the third quarter. Despite an increase in headcount due to the consolidation of our second joint venture in China, we anticipate the fourth quarter restructuring actions will allow us to approach our target by the end of the year.

We continue to outperform our scorecard metrics. These strong results are key enablers to improve margins and drive long-term growth in both segments.

On Slide 8, I'll highlight the strategic opportunities emerging as automakers accelerate their U.S. production plans. We are currently in advanced discussions with a North American automaker who is looking to increase volume on 1 of their signature platforms here in the United States. We believe the award is imminent, and we will provide an update when it's appropriate. We view this as first as several incremental opportunities while estimates vary, the total addressable market for increased U.S. production is significant. Automakers continue to announce commitments to increase their production footprints in the United States.

We are currently in active discussions with multiple OEMs, including a luxury European automaker leveraging their existing U.S. facility, several Asia-based manufacturers expanding their footprint and North American automakers adjusting their portfolio to supply both Seating and E-Systems content. Lear is well positioned to maintain or increase our market share due to the shift. Our strong customer relationships proven execution and extensive U.S. manufacturing footprint gives us a distinct competitive advantage.

By investing in the automation and designing capital specifically optimized for our manufacturing processes rather than relying on the off-the-shelf solutions, we enhance operational efficiencies, and we reduce our costs and we accelerate our speed to market. We remain the only supplier to have launched a full seat assembly plant in under 9 months in the U.S., a testament to our agility and operational excellence. We see the [indiscernible] trend as a multiyear growth catalyst and a compelling opportunity to drive incremental revenue and margin expansion while supporting the administration's goal of increasing U.S. manufacturing.

Slide 9 provides an update on 2 of our key pillars of our idea by Lear strategy. Our process innovation, leveraging digital tools and automation is transforming our operations enhancing our competitiveness and delivering meaningful value creation. Lear's relentless focus on being the industry leader in technology-driven operational excellence is accelerated by our partnership with Palantir. The Lear fellowship program is a strong endorsement of our culture to embrace operational excellence. Today, we have over 14,000 users fully embedded on the foundry platform. driving performance across more than 10 global centers of excellence.

We've deployed over 250 digital tools and AI use cases across product engineering, material purchasing, manufacturing, testing and inventory management. each contributing to smarter, faster and more efficient decision-making. Over the past 7 years, we've acquired 8 companies, each focused on advancing product and process innovation. Our global automation and digital team now includes more than 700 specialists. We've developed proprietary AI tools like [indiscernible] GlobalScan and LearView. [indiscernible] GlobalScan uses exclusive algorithms in automation to optimize the cutting patterns for our leather hides. LearView is a vision system that enhances our defect detection capabilities and ensures proper color and motion of our seats amongst other end-of-line function tests. And we built the industry's first automated assembly of our FlexAir, ComfortFlex and ComfortMax systems to demonstrate our innovative manufacturing capabilities to our customers. and eventually to our investors in a production setting.

By integrating approximately 80% of our capital which is designed specifically for our manufacturing processes into our complete seat operations at a 20% to 30% cost advantage, we have a significant competitive advantage in both efficiency and scalability. These efforts are already delivering results. We expect approximately $70 million in cost savings this year with an additional $65 million to $75 million of savings annually in 2026 and '27. In addition to the cost benefits, these initiatives improve working capital and free cash flow. Our product and process innovations improve our underlying cost structure, resulting in stronger financial returns for new business quotes.

These tools also enhance the safety, quality and ergonomics of our world-class operations and improve employee retention. Our digital and automation strategy is not just about operational excellence, is a key driver of our long-term value creation. I'd like to turn the call over to Jason for a financial review.

Thanks, Ray. Slide 11 shows vehicle production and key exchange rates for the third quarter. Global production increased 4% compared to the same period last year, driven primarily by higher year-over-year production in North America and China. Production volumes increased by 5% in North America, 1% in Europe and 10% in China. The U.S. dollar weakened against the euro and was flat against the RMB.

Turning to Slide 12, I will highlight our financial results for the third quarter 2020. Our sales increased 2% year-over-year to $5.7 billion. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 1%, and reflecting the impact of the JLR production disruption, lower volumes on other layer platforms and the wind down of discontinued product line systems, partially offset by the addition of new business in both of our business segments.

The JLR disruption reduced our revenue by $111 million in the quarter. Core operating earnings were $231 million compared to $257 million last year. driven by the impact of the JLR production disruption and lower volumes on other their platforms, partially offset by positive outperformance in our margin-accretive backlog. The JLR disruption, including the impact of trapped labor, reduced our core operating earnings by $31 million in the quarter. Adjusted earnings per share were $2.79 as compared to $2.89 a year ago. reflecting lower adjusted net income, partially offset by the benefit of our share repurchase program.

Third quarter operating cash flow was $444 million, a significant increase to the $183 million generated last year. due to improvement in working capital, partially offset by lower core operating earnings. Slide 3 explains the variance in sales and adjusted operating margins for the third quarter in the Seating segment. Sales for the third quarter were $4.2 billion, an increase of $138 million or 3% from 2024. Without the JLR disruption, sales would have increased 5% year-over-year.

Excluding the impact of foreign exchange, commodities, tariff recovery, acquisitions and divestitures, sales were up 2% due to higher volumes on Lear platforms, including the Ford Explorer and Aviator as well as the DM full-size trucks and SUVs in North America, the Hyundai [indiscernible] in Xiaomi Seven in Asia and the addition of new business, such as the BYD Type-I and the Series M7 in China and the Citron C3 aircraft in Europe, partially offset by the impact of the disruption to JLR's production.

Adjusted earnings were $261 million, flat compared to 2024 with adjusted operating margins of 6.1%. The Operating margins were lower compared to last year, primarily due to lower volumes in the mix of production by program, including the disruption of JLR, partially offset by strong net performance in our margin-accretive backlog. We Slide 14 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, a decrease of $42 million or 3% from 2024. Without the JLR disruption, sales would have been down approximately 1% year-over-year.

Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 7%. The decline in sales was driven by the JLR disruption and lower volumes on Lear platforms including GM electric vehicle platforms in the Florida Scape and [Corser] in North America in the Audio6 and several Volvo-Geely programs in Asia as well as the wind down of discontinued product lines partially offset by the addition of new business such as the Renault 5, the Citron C3 and C3 aircraft in Europe. Adjusted earnings were $60 million or 4.2% of sales compared to $74 million and 5% of sales in 2024.

Lower operating margins were driven by the reduction of volumes on Lear platforms including the disruption of JLR and the wind down of discounted product lines partially offset a strong net performance in our margin-accretive backlog.

Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our future outlook. We have updated our production assumptions, which are based on several sources, including internal estimates, customer production schedules and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be up 2% compared to 2024 or flat on a Lear sales weighted basis driven primarily by lower volumes in our largest markets, North America and Europe. From a currency perspective, our 2025 outlook assumes an average euro exchange rate of $1.13 per euro and an average Chinese exchange rate of RMB 7.21 to the dollar.

Slide 16 provides an update to our full year 2025 outlook. Our current outlook assumes no changes to current tariff policies or significant industry-wide disruptions due to Nexperia or other supply constraints. The primary adjustments to the midpoint of our guidance are police. Revenue is now expected to be approximately $23 billion or 1% higher than our previous guidance of $22.8 billion. This increase is driven by a favorable volume on their platforms, foreign exchange and the impact of the consolidation of the seating joint venture in China, partially offset by the JLR production disruption.

Core operating earnings are expected to be approximately $1.025 billion, unchanged from our prior guidance as higher volumes on our platforms and further improvements to net performance are offset by the impacts of the JLR disruption. We are increasing our outlook for restructuring costs by $20 million to reduce excess capacity and lower our structural costs. At the same time, we are reducing our outlook for capital spending by $30 million. Operating cash flow is expected to be in the range of $1 billion to $1.1 billion, and our free cash flow is now expected to be approximately $500 million at the midpoint of our guidance a $30 million increase, reflecting improved working capital, including better inventory management and lower capital spending, partially offset by higher restructuring costs.

Slide 17 compares our October 2025 outlook to the midpoint of our prior 2025 outlook. Revenue is expected to increase by approximately $230 million primarily due to higher production volumes on Lear programs, favorable foreign exchange and new business growth at a recently consolidated Seating joint venture, partially offset by lower JLR volumes. The midpoint of our core operating earnings outlook is expected to remain unchanged at $1.025 billion with operating margins of 4.5%. While higher volumes on existing le platforms, an increase of expected net performance from $150 million to $170 million of positive contributors, these benefits are offset by the impact of the JLR production disruption.

Excluding the lower JLR production, the midpoint of our operating income outlook would be approximately $70 million higher and our full year margin would be above 4.7%. We have included detailed walks to the midpoints of our guidance Seating and E-Systems in the appendix.

Moving to Slide 18, we highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. We do not have any near-term outstanding debt maturities. Our earliest debt maturity is in 2027 and our debt structure has a weighted average life of approximately 12 years. Our cost of debt is low, averaging less than 4%. In addition, we have $3 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders.

Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe best use of excess cash is to prioritize share repurchases and our sustained dividend. At this time, we do not see a compelling strategic acquisition opportunity in either segment that would deliver superior returns.

During the third quarter, our strong cash flow, enabled, us to accelerate our share repurchases to $100 million worth of stock, and we continue to repurchase additional shares throughout our quiet period. We increased the midpoint for our full year free cash flow outlook and are on track for conversion of approximately 80%, providing capacity to repurchase additional shares in the fourth quarter, exceeding our original $250 million target for the year.

Now I'll turn it back to Ray for some closing remarks.

Thanks, Jason. Please turn to Slide 21. Our third quarter results demonstrate our relentless focus on areas of the business we can control, is eroding our structural profitability of the company. Unfortunately, the disruption of Jag Land Rover, one of our key customers in both segments obscured the underlying progress we are making to grow our revenue and strengthen our margins. We continue to win new business across our product lines in both segments, particularly in China. We still see significant opportunities in a robust pipeline.

Our focused investments in restructuring and automation are resulting in strong operation -- operating performance and will drive margin expansion in both segments. Our strong focus on generating cash will allow us to achieve approximately 80% free cash flow conversion, and we remain committed to returning excess cash to shareholders. While it's still early to provide a specific outlook for 2026, we see several positive tailwinds over the next 2 years. These include the nonreoccurrence of the Jag Land Rover disruption, a strong and positive backlog and continued benefits from our nation and restructuring investments.

In addition, the business solutions emerging from the Lear fellowship program with Palantir are expected to significantly enhance operating efficiency and reduce cost across the organization, including within our administrative and headquarter functions. Looking further ahead, our robust pipeline of opportunities, especially those driven by customers' onshoring efforts position us for additional growth in 2017 and meaningful growth beyond. I couldn't be more proud of the team's third quarter performance, and I'm excited about the opportunities ahead.

And now we'd be happy to take your questions.

[Operator Instructions] Our first question today comes from Dan Levy from Barclays.

I appreciate the disclosure for the fourth quarter on the JLR assumptions, and it seems like Nexperia, you're not really assuming anything. Maybe you could just talk about what the impact might be or what's embedded related to the Ford Stellantis Novelis issue and just sort of any other broader supply chain issues when they be seeing does the guide fully reflect these points knowing that Nexperia is a bit of a wild card?

Yes, Dan, we were a bit cautious in our volume and production volume assumption for the fourth quarter, and it's really a combination of if there's additional risk related to the Novelis issue if there's a slower ramp of JLR's production restart. And if there's a modest disruption due to next period, that's sort of captured in the range. So absent any meaningful change in those 3 issues. We would expect revenues to come in closer to the high end of the guidance range.

And so you could say we sort of have $150 million of revenue protection from the high end of the midpoint for those issues and then another $150 million from the midpoint to the low end. And I will say that there is about $55 million of impact for the Novelis related production disruptions impacting both Board and Salantos. That's embedded in the guidance. So would have to be something incremental to that. Anything that's been announced is captured in the guidance.

And I will say that, generally speaking, JLRs restart and ramp-up of their facilities has really been a remarkable effort on the part of the customer and the supply chain just going from 0 back to approaching full production here in a relatively short period of time. So it's been pretty impactful for the company, but they've done a great job so far in getting their lines back up to rate. They're not all the way there yet. But we think by the end of November, they will be.

Great. As a follow-up, I wanted to ask about Ray, you made a comment at the end of your prepared remarks about just some early considerations on 26. And specifically on backlog. And I know you'll give us a more defined set of backlog comments when you report 4Q -- but maybe you could just give us a sense, given the moving pieces that we've seen here on how tariffs and reshoring may be shifting some of the production plans or how EV has shifted plans in North America. Is there still opportunity to have a healthy backlog in 2016? Or is it possible that given some of these shifts, there's still a bit of an air pocket as automakers sort of figure out their product plans, given the uncertainties here?

Well, no, it's something, obviously, we've been dealing with it for over some time. It is it is starting, and we are seeing some stabilization in our customer plans for timing and volume on new programs, which is good in the industry I don't think is not yet back to a normal what we've seen historically sourced cadence, but we are heading in that direction. So I feel we're in a much better position to evaluate where we're at with '26, '27 and beyond.

And in addition to the onshoring and the new program announcements by our key customers provides additional opportunities like you mentioned, for incremental new business awards, GM with the additional volumes in Orion and Fairfax and Ford Motor Company is adding volume on their Super Duty and their F-150 pickup trucks [indiscernible] with new derivatives now on the Grand Wagoneer and the new midsize trucks, we do see catalysts for better sourcing environment and growth potential that will be meaningful for 2027, '28 and '29, but even before we consider those longer-term opportunities, and I think we have put ourselves in a very good position, like I said, to not just maintain our market share on those announcements, but even grow.

We have increased confidence in our 2026 and 2027 backlog and which we expect will be approximately $1.2 billion. And that is after the net impact of canceled delayed any programs such like the cancellation, what was the original RAM route and the delay of the hybrid version. The build-out of the Escape and the Coursera are in our the backlog number I'm mentioning as far as the net number. And the later -- the late launch of the 7 and Q9 are considered in that, and that's been almost a 12-month delay. So we still have a strong backlog in '26 and '27 despite all those significant changes or canceled programs. And so we're very optimistic on how we're looking at growth. And Again, the new programs that we are currently quoting, particularly the onshore volumes, we expect will improve in the 27 time frame and beyond.

And so I think perhaps more importantly, we continue to get very positive feedback from our customers on our automation and digital efforts. I think that's something that is very important. As our customers are considering onshoring, footprint is a key criteria, but they're looking at how they're going to change in the technology innovation that is going to go into these facilities. And so the timing could have been better for us to have this complete automated facility that we have in Rochester Hills to really go through and experience our technology and that the continuation of what we've done on the digital side is very impressive. And in some cases, we're getting incredible feedback from our customers.

And so there's a lot of different things that were still going on. I was hopeful we'd have some announcements by now. but we're following the process of being respectful of our customers and what they're at. But I do feel very good about the feedback we're getting from our customers. on those opportunities. And the systems, I think we've done an excellent job. We have a lot more work to do. We're not -- by any stretch happy on where we're at. I think Nick and the team are doing an excellent job of expanding margins. And we've done a nice job this year, like I said earlier, the $1.1 billion of awarded business and most recently, the new awards we're getting now with the domestic Chinese is critical. And most recently, we just got requests from several OEMs on potential conquest opportunities. And that was very surprising to get those requests.

And so those are things I'm not going to get ahead of myself on those, but I see some very constructive, good signs from our customers and continued growth in E-Systems. And so we will discuss a little more formal and update our backlog on the fourth quarter earnings call. But I feel really good. And again, I think we have a solid backlog right now given all the canceled programs, delayed programs, what we've done. I feel better where the customers are at now. I think they've really sized up their portfolios, we have a good understanding of where they're at. And that's our net number, and we have a lot more opportunities.

Like I said, hopefully, by the end of the year, early next year, we'll have some of these onshoring announcements, but I think from a technology innovation, automation, we put ourselves in a very, very competitive position to win some good business there. And so I'm very optimistic and positive on what we're doing with growth.

Our next question comes from Joe Spak from UBS.

I guess maybe 1 clarification here. On Slide 7, you're showing like you're ahead of the net performance targets year-to-date versus sort of the annual one. So I just want to understand, is that -- does that mean there's some bad guys in the fourth quarter because of some of the volume headwinds you're pointing to? Or are you trying to sort of imply that you're just running ahead and there might be a little bit better performance that you could go out for the year?

Yes. That's effectively what's implied in the full year guidance. And so we had a particularly strong third quarter, Joe, on that performance and some of what we had anticipated on commercial settlements, commercial negotiations that were planned in the fourth quarter were pulled into the third quarter, and it's about $10 million that we were able to pull ahead. So is a little stronger than anticipated, and then that's offset in the fourth quarter. And then the other factor impacting sort of that sequential performance from the third quarter to the fourth quarter. We have some higher engineering spending and that's a combination of spending and the timing of customer recoveries, particularly in the systems where we had really strong new business wins this year and we're ramping up the engineering resources to support the programs. That's a factor.

And then on just salary compensation, this is the time of the year where we have our annual compensation increases. So the fourth quarter reflects some additional costs relative to the third quarter. And then that's partially offset by some incremental performance through restructuring and idea by Lear. So those are sort of the net puts and takes. And again, I think I would characterize the guidance as appropriately conservative given the other factors I listed a moment ago in response to Dan's question with JLR, Nexperia and Novelis. And absent deterioration in those 3 areas, we would expect to outperform the midpoint -- we do have an investor conference we're participating in, in early December, and we look to provide an update for investors at that point in time and how things are tracking.

Okay. And then maybe just on some of the backlog commentary, right? I guess I just want to make sure. I thought -- I heard the $1.2 billion number. Was that a $26 million, $27 million combined number? I just want to -- maybe we could clarify that. And then also related to some of the wins, and I know you even sort of talked about series win on distribution boxes this quarter. I think you've already won some thermal. I know you've previously expressed some optimism that more can be done on the seat side, but I think that you had mentioned some of the sourcing decision for that program has been delayed. I'm just wondering if you have an update specifically there, whether that program has been wood yet?

Yes. So maybe I'll start, and then Ray can answer the second part of the question. So to clarify, the $1.2 billion is, in fact, the 2026 and 2027 number. At this stage it's roughly 50-50 between the years, so roughly $600 million in each of those 2 years. And so we had not previously provided a 2027 backlog at the start of the year when we updated 2025 and 2026 and a lot has happened. And we just felt like we had shared a lot of the headwinds impacting '26 and '27 with the program cancellations and programs that are ending production like the Escape and course here. But we hadn't talked about all the positives, which we've had significant new business awards in that '26 and '27 time frame in both business segments that helped to offset it.

We also have the benefit of this new business with Series in China as a result of taking control of the joint venture. They're excited about the growth potential of that. as well. So I think on balance, all things considered, we're pretty happy with where we're at and we feel like we have some additional upside for some of the sourcing in onshoring that has yet to take place that may impact the sort of tail end of '27 and maybe more so '28 and '29.

The process, albeit it's been longer than what we anticipated. I kind of look at 2 different buckets. One is the onshoring opportunities that we're engaged with different OEs throughout the U.S. and European customers, and obviously, the North American customers and looking at opportunities there. And those are taking, which I think is the right process a lot of tech analysis, what we're going to do with automation, how we're going to lay plants out, how we're going to set up facilities near their facilities. Those are all very constructive, and I'm very confident that those are going in the right direction.

The conquest wins or opportunities that we've talked about are equally, I think, is balanced as far as opportunities, and they're still available. They just through the process has taken a little bit longer than what we would originally targeted. But nonetheless, it hasn't changed our optimism around our ability to win some really good conquest opportunities and then also the onshoring relative to some of the different OEMs I've mentioned. And so it's just taking a little bit longer.

I was hoping that Jason mentioned in an investor conference, we're going to go at. Hopefully, you can let a little bit out there. But if not, as it's coming out and it's appropriate and we get approval from our customers to announce it, we'll make sure that you know.

Okay. One really quick follow-up, just to make sure we're properly covered.That's the consolidated backlog numbers you're talking about, correct? Or does that include some...

Yes, that's just the consolidated.

Our next question comes from Mark Delaney from Goldman Sachs.

I guess One topic I wanted to start with was around the increased ability to do automated manufacturing in the U.S. and you spoke about just how automated this new facility is. And so as you think about doing more work in the U.S. and hopefully supporting some of these programs that you referred to, could you just talk about the margin implications? I mean, I think clearly, labor costs tend to be higher in the U.S., but there's so much automation. So as you do that kind of a business, locally is that supportive of the near- and medium-term margin targets for the company?

Yes. I think that looking at the onshoring opportunity, specifically we're seeing operating margins that are very similar to our North America business. And so the automation is helpful in terms of being able to offset maybe the higher cost of labor between Mexico and the U.S. And then that affected that may be a little higher but with the resulting benefit being strong operating margins in those facilities. And so -- and then on the conquest award sort of the same story.

We see leveraging automation and our unique position with automation and our digital strategy as a way to earn higher returns on our seat business that we're conquesting and use that as a catalyst to expand returns or protect returns. And our overall return in Seating are industry-leading now. So part of it is maintaining that level of ROIC that we have achieved pretty consistently over the last 10 years in the seat business. And so we don't see a real shift in terms of ROIC, may have a little bit higher operating merchant to fund the added investment, though.

I think it's important too, I mean, we emphasize this, how we're differentiating ourselves in the focus on not just product. We've really focused on the disruption of the purchasing model, and that's taking some time, but 28 significant awards with ComfortFlex, ComfortMax, and FlexAir. That's a significant change in the purchasing model or what they've typically done. And so that is something that we're going through and there's a significant savings and opportunity there and the way we're automating it. So it's tied to the manufacturing facility. And the acquisitions we've made, I think we've got to look at -- we've been at this for over 10 years. And the timing is very good for the technology innovation that we brought in.

You cannot gap this out and catch up in any reasonable time. This is something we've been working on for a long period of time. And we're being recognized from our customers. There's feedback that we got that they're looking out at technology innovation within the supplier base and we had a significant advantage over our closest competitor. And we're going to just keep pushing the gas on that. I mentioned that by having these in-house capabilities in building very purpose-built capital allows us to significantly take the cost down. That's very important. We're manufacturing our own capital now.

Historically, we would buy 90% of our capital, a very generic, very standard, very across the board, use of capital. we're very purpose-built. And just like you think about VAVE or cost savings through engineering designs on the product side, that whole opportunity exists, and we're seeing it. And I say 20%, 30%, we're going to push that even harder. So we're seeing our capital numbers come down significantly. And I think the important ingredient here with our domestic Chinese that are pushing timing and now what we're seeing here with onshoring, the speed to delivery we can get at that.

It's very important to keep bringing up the most recent launch that we had here in the U.S. and being able to launch that in 8 months. That's because we have full control. So I think about a full-service manufacturing integrator, and there's not a lot of companies out there. we're benchmarking different companies and there are some great companies that we look at and say, okay, we got to gap that out. We have to prove that. But from product design to manufacturability, we have the elements.

And so as we're having -- why I'm so confident is the feedback we're getting from the customers. And again, a lot of this is about retention, the employees love the technology on the platform. We get great feedback on job satisfaction, the ergonomics, the ability to see better around inventory levels and how we can really focus on working capital. This is an action when we look at our cash flow and what we're doing.

These all benefit everything you want to check off. And so having a leadership position in that the timing couldn't be better. And I guess that I'm optimistic. We were going to wait until we get the appropriate feedback from our customers on these awards. But I think that will just lead me to more evidence on everything we're doing is in a constructive good way, disrupting how you think about just-in-time seating. And you can have others that talk about what they have now, but having that ability to have it in-house is a differentiator.

We'll stay tuned for December 4. Hopefully, I get some news there at the conference. My second question was on net performance. I think Jason, last quarter, you described an expectation net performance in 2026 could be replicated relative to what you were seeing in '25. And at the time that was $150 million. So you look into '26 and think about net performance, is the $150 million level you've been expecting 90 days ago still reasonable framework at this point or any data that you can share on your net performance thoughts for next year?

Sure. I think just to clarify, what we've said is that we believe that what we can -- we had established a target for net performance in the business for this year, 40 basis points and seating basis points in E-Systems, and that we could replicate that in 2016 and again in 2027. We've done better than that this year. As we're building our plan for next year, we'll provide more details on that, but I think it's north of $100 million of net performance in that range. If you again achieved 40 and 80 basis points in CE systems, respectively, as we look out to next year. It's a key margin expansion catalyst for the business, and we're confident that we can continue to repeat the performance that we saw this year, maybe not to the $150 million or $170 million level now that we've had embedded in this year's outlook. We're certainly going to work towards achieving that. But I can say with confidence that we're we can generate 40 to 80 basis points, 40 in seating systems of net performance in 2026.

And I think it's important, we put those metrics out there because they really are driving us. And we are going to expand our margins in both business segments. That is the focus. That is the focus, and we're trying to illustrate with the ability to execute how we're getting at that. And having that confidence, what we're talking about is I think introducing idea by Lear and what we're doing prior to that really illustrated what the company can do. Our culture is built around getting at us. And so I think it's a baseline for how we see this year, but we're very confident in what we're going to be able to deliver next year. And it is going to be about expanding margins in both business segments.

Our next question comes from Emmanuel Rosner from Wolfe Research.

I appreciate all the color on the onshoring opportunities. Any way to dimension this for us in terms of addressable market, either in terms of volume or revenue? Like how many units are you sort of seeing customers looking to potentially bring to the U.S. and what sort of time frame?

I think the way that we can dimension it as we've established and communicated a market share target in Seating, for example, growing from 26% to 29%. And we've said that we believe the onshoring on balance will support our market share or expand our market share. So I think it's premature to get into specifics around revenue dollars or units of production in terms of what will be done in the U.S. given the state of the discussion with customers, I think that level of granularity would be misplaced at this point, Emmanuel.

Understood. And then I appreciate also the color on the backlog. It's certainly encouraging to see some wins for 2027. Can you also give us a sense of potentially the breakdown between your 2 product lines Seating versus E-Systems within that? And how this. How should we think about growth over market for E-Systems progressing from here between maybe the end of the wind down at some point and then some of these big wins that you have mentioned?

Yes. So if we look at next year, Seating backlog is expected to be north of $700 million and E-Systems is right around negative $100 million. And so the biggest factor driving that next year is the balance out of the escape Poser and getting wind down of a focus and in Europe $230 million, $240 million of revenue that goes away on those kind of key platforms. We do have -- just to talk a little bit about eclogcomposition in both business segments next year. We have the audience Q7 and Q9, which is that the Series M7 in the Jeep Cherokee here in North America. Those are the big 3 programs that drive the bulk of the Seating backlog next year, but we also have some growth with BMW on their new Class [indiscernible] program, and we have some growth with a global EV OEM with BAIC and with BMW.

These systems, we also have growth with the global EV OEM that rolls on next year. That was a conquest win for us. We have the continued ramp-up of the Volvo EX-30 in Europe. This is a great program for us. And then we have electronics business with JLR, which we -- I'm sorry, with BMW, which we talked about when we announced our PACE award zonal control module with BMW that ramps up next year, and you see kind of the full impact of that production starting more in 2027 and 2028. That's the single biggest program over the next 2 years. rolling on in E-Systems.

As you highlighted, we are still digesting the wind down of product lines that we're exiting in E-Systems. Those numbers are consistent with what I shared on the prior earnings call. And so it's about $350 million over 2026 and 2027. And so that's certainly going to weigh on growth over market over that time period. And then in 2028, you start to see and in '29, the benefits the Conquest awards and new business growth opportunities that we've won this year and are pursuing throughout the balance of this year and into next year, like the F-250 where a portion of that was replacement business, but there's a significant portion of that was conquest.

And we have several other opportunities that we're quoting right now in wire that would be Conquest opportunities and lead to further growth in that window. And so the near-term growth of the market is going to be weighed down by the wind down of the programs and the roll off of that [indiscernible] program.

Just very quickly a clarification. So the this wind down in E-Systems that would already be included in the small negative backlog in 2026? And then would you talk about the breakdown of the backlog between businesses in 2017, please?

Yes. I think I'll save the 27 detail for the fourth quarter earnings call. It's more balanced in '27 than in '26. Again, in '26, the systems backlog is negative, and that's independent of the wind down of the electronics business that we've spoken about in the past.

Our next question comes from Colin Langan from Wells Fargo.

Just as we think about 26 margins, you mentioned this year, the starting point, excluding JLR would be 4.7%. And then there's $65 million to $75 million of automation savings. Is that the right way to think about as we step into next year, the baseline is 4.7 and then you have the $70 million-ish of additional help. Any other factors that I should be considering? Or is that the right starting point?

Yes. I think it's early, obviously, to provide pinpoint numbers for next year, and we're still deep in our planning process. But you hit on some of the key puts and takes as we look out to next year. And I think the right way to model 2026 for Lear, the right exit rate to use for that is kind of the JLR adjusted operating margin of 4.7%, and that's why we thought it was important to share that with investors today. Looking at the S&P forecast, they're calling for lower production, particularly in North America, I think, down 2.5%. We haven't concluded our view at this point, but we're trying to use conservative volumes for our planning process in order to get the cost structure aligned and our margin improvement plans set based on that relatively conservative set of assumptions.

And from there, you can overlay the benefit of our backlog, offset a little bit by the E-Systems wind down and the benefit of our net performance improvements, which will be hire any systems than Seating. So kind of summarizing all of that at a very early stage here. We do see revenues higher next year and earnings higher next year. We see margins higher in both segments, probably a little bit more on E-Systems.

Just -- I mean, summarize it. We're -- it's everything we're doing, I feel really good about the work we're doing around this net performance and what we're doing with Idea by layer. I think the -- the topic that I brought up with this continued partnership with Palantir and what they brought to us with the fellowship program, I think, is really going to get us -- I think we've done a great job operationally in manufacturing, but now you're really getting at our administrative offices and our headquarters, those type of things are going to only continue to allow us to get at our cost structure.

So we're going to expand margins in both business segments. I see that the results, what we're doing in our plants, what we're doing operationally, what we're doing with cash flow, very confident. And I think we have some great tailwinds despite some of this unfortunate customer downtime, that's going to really push us into 26. And so we're going through it. The team, Nick and Frank are here. We all know it. We're going to expand margins and get more efficient, and we got the tools to do it. So I'm confident, and I think we have some good tailwinds heading into '26 despite everything else going on.

Got it. And then just lastly on buybacks. I think you commented that there's sort of no big M&A on the table. And the pace in the quarter, just $100 million, I think your commentary implies another $100 million. Is that maybe the pace we should consider that most of the cash flow starts getting allocated to buybacks? Or is that reading too much into the outlook?

No, that is clearly what we are signaling here in the balance of this year and into next year. We think that's the best use of our excess cash. And we're targeting about $300 million in the fourth quarter. We had a program in place to buy throughout the quiet period. I think we've bought almost $50 million through the month of October, and we're going to continue through the balance of the fourth quarter. If we have a line of sight on a free cash flow number beyond the midpoint, we may buy back a little bit more even. We're going to be very opportunistic with our buyback program, and we see that continuing into next year. Now we do have our a Board meeting in November where we discussed capital allocation. And so ultimately, that's a Board decision, but that is our current thinking.

Yes. But we're focused on that cash. I like this quarter, the $444 million and I love some of the things that we're putting in place around working capital and inventory levels. It's continuing to improve, and we're going to continue to push the team because cash is important, and we're going to continue to drive good results there.

Did you just say $300 million in Q4 in buybacks or $100 million, maybe I'm not sure if I missed here.

$300 million for the year.

And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Ray Scott for any closing remarks.

Yes. Thank you. And I'm sure the Lear team is on the phone. I just want to again extend my appreciation and thank you for a great quarter. I know we've got a lot to do to finish up the full year, but I know like I say, we're built differently. I know will we get at it, and we're going to not to see out of the park. So I appreciate everything you did in the third, and looking forward to what we're going to achieve in the fourth. Thank you.

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

All right. Yes, really happy to have the Lear team joining us today. We have Frank Orsini, Executive Vice President of Seating; and Jason Cardew, Senior Vice President and Chief Financial Officer. We're going to give Lear management a chance to kind of address and provide a little market update and trading update heading into the end of the third quarter.

And then we're going to focus a lot of the discussion around automation and seating and kind of how Lear is taking advantage of new technologies to produce some margin as this industry doesn't get any easier, but if you have more tools and use AI to help improve your efficiency across your operations, that's going to make a really big difference.

So maybe, Jason, over to you just to kind of kick things off, any statements you want to make upfront.

Yes. Thanks, Adam. And I appreciate the opportunity to speak to the 2 investors today and for you hosting the conference. As you just alluded to, we're really excited to talk about some of the progress we've made in automation and our digital platform. I think it is a true differentiator for us as we move forward.

At the start of the year, we laid out a couple of metrics that we thought were really important to share with investors around growth and margin expansion. And on the growth side, it was focused on key conquest opportunities, some really attractive platforms that we're pursuing as well as growth with the Chinese domestics.

And we've made a lot of progress in both fronts. In the first quarter, we announced the award of the F-250 wire program. A portion of that was conquest. That was really important. And then on the Seating side, we have a number of conquest opportunities that Frank and the team are having very productive discussions with our customers on.

So we expect to have an update later in the year on those opportunities. So on the growth side, I think we're progressing well. On the margin side as well, we highlighted this net performance target at the start of the year was $125 million of earnings expansion through net performance. And on the second quarter earnings call, we updated that to $150 million, and we remain on track to deliver that to the business.

And the things that we can control is really progressing well. You may recall that we reported earnings pretty early in the cycle before the EU trade deal was announced before South Korea, the South Korea trade deal was announced before there was clarity on how the copper tariffs were going to be applied.

And so we were, I think, appropriately conservative in our guidance at that point. As we look at the second half of the year, it's on track to come in a little bit better than what we had anticipated. Production is holding up. Demand in general is holding up. Inventory levels on our key platforms are in a good place. And so we're a little bit more optimistic about the second half as a result of that.

Now there have been a couple of kind of one-off issues on the mix side that have hurt the third quarter a bit with GM's downtime in Silao, for example, and then more recently, JLR's cyberattack impacting their global production. They haven't been able to build vehicles for the last 2 weeks. So that has impacted us as well.

With all that being said, we see full year revenue tracking towards the high end of our guidance range. And so that would lead to second half revenues just a little bit below $11.5 billion, $5.7 billion in the third quarter, $5.8 billion roughly in the fourth quarter.

Operating income is tracking sort of in between the midpoint and high end of our guidance range. So positive from the converting on the higher revenue, partially offset by the mix issue I alluded to, some very highly vertically integrated platforms that have been down a bit in the third quarter, but we expect that to come back in the fourth quarter.

In terms of Q3 specifics, we're sort of expecting operating income in the $230 million to $240 million range. We did factor in two full down weeks for JLR in that there's another two weeks, which is all that's left in the quarter, maybe on the lower end of that range if they restart production next week, we're probably closer to the high end of that range.

So I think the second half is really playing out a little bit better than we had anticipated at this point.

Great. I'm going to -- we're going to get into some more operational targets. I want to go straight to automation actually, just since you teed it up. And we got Frank here to also kind of delve into the -- how you're using these tools on the seating side, and we can bring in any other topic.

But what is your broad view just for the audience on how AI will impact the auto industry and how Lear is using AI tools. at a high level, talk about that existing tools and kind of your direction of travel on automation, and then I'll kind of delve a little deeper.

Perfect. Well, I'll lead this portion of the discussion, and thanks again, Adam, for having us today. It really means a lot to be here with you guys. As far as automation, and I'll get to the AI topic because it's also an important topic. For Lear, we've been on more than a decade-long journey of really establishing our company as a leader in integrated automation and digital manufacturing.

And I know that a lot of our competitors get on stages very similar to this, and everybody talks about automation. But what I'd like to do is get a little more specific about where I believe Lear is really differentiating our capabilities against the competition. And I know how we're attacking this topic, and I think it's very important.

So there's no other auto supplier in our competitive set that has bought 8 companies in 7 years. And our goal with those acquisitions was to create product and process innovation around how we would automate. So we've been very intentional with our strategy. And again, that's 8 companies that we brought into the portfolio.

The other thing that we've done that I think is transformational is we've partnered with Palantir, who's the best in the industry when it comes to digital platforms and certainly great AI capabilities. But that, Adam, provided a first-mover advantage for us in these extremely important categories of digital platforms for our companies, digitization of the manufacturing process and everything like that.

So -- and that's all inclusive of AI. But great cultural fit between us and Palantir. We think they're the best in the industry and partnering with them, I think, puts us at a very strong competitive advantage. The other thing that we've done at Lear is through the acquisitions and organically, we've built a tremendous amount of talent, specialized talent around areas like automation, data science.

We've been working very hard on manufacturing integration of all of our systems and equipment and then, of course, the algorithms that we've been working on to support our AI platforms. The other thing that Lear brings to the table that none of our competitors do is we can build 80% of our capital at a 20% to 30% cost competitive advantage for our customers. And the most important part of that is we are building what we call purpose-built capital.

And what we mean by that is all the work that we've been doing in the design of the products for automation and then the equipment and the integration, to your point, of how we bring those solutions to the shop floor, it's completely specific to Lear and what we're designing into our automation strategy.

So it really does separate us. And then the last thing on automation, and then I'll jump to AI here. Ray mentioned this on our last earnings call, but we are putting an advanced manufacturing and integration center in our backyard in Michigan. The goal of that facility is to highlight what lights out manufacturing looks like.

And the progress has been amazing, what we've been doing with Thermal Comfort systems and the modularity strategy that we have. The equipment and the production process that we put in place is 100% automated for that product. And we're going to be able to demonstrate that at our location in Rochester Hills.

And that will be something that we'll be bringing customers to, which I think will be very helpful to demonstrate our capabilities. We'll be inviting the investment community there as well and then, of course, for our employees. So automation for us is extremely critical, and I think we're doing a lot to differentiate.

On the AI topic because this is a very important topic, from a Lear perspective, we look at digital platforms overall, and we look at how AI will benefit our strategy around digital platforms and bring capabilities to those digital platforms. So, what we're doing right now is we are integrating digitization and AI capabilities into every aspect of our business.

So, it's in how we engineer the products and how we design them. It's in how we purchase material. It's in how we manufacture our products. As I mentioned, that's a big focus for us. Testing and validating our products is very important, and we're using data platforms and AI capabilities there as well.

And then how we continue to drive free cash flow and have a broader visibility over the pipeline, how material is moving, how we're buying and storing inventory and things of that nature is really helping us. The other thing that I think Lear has done over the last several years is differentiate our capabilities by developing in-house AI systems and algorithms and things of that nature.

So we've talked in the past about a couple of products that are very interesting. One is Lear View where we have our own proprietary algorithms around vision systems for how we manufacture our products, and that technology is being deployed globally. And I think actually last year on the stage, we talked a little bit about Thagora and what a great acquisition that was.

And Thagora is all based about vision systems and AI and algorithms that are allowing us to nest and cut our leather more efficiently than anyone else in the industry. So again, another differentiation in terms of how we're competing. But the real goal here is to redefine what the future of manufacturing is going to look like. And in our world, it looks like more efficient shop floors.

It's less space requirement, less overhead requirements for our future. It's about producing a quality product on a reliable production system. And it's also about having a safe and ergonomic shop floor for our employees. So when I think about the advantages that we're bringing to the table for our customers and our shareholders, it's really around cost competitiveness on a different level.

It's speed to market and it's world-class shop floors. And we've captured that cost competitiveness range depending on the complexity in the particular program, somewhere between 200 to 500 basis points of improvement. So I think it really puts us in a different position in terms of how we're competing and how we've really embraced and leveraged these capabilities to differentiate our company.

Yes. And Adam, just to add a couple of comments to Frank's comments there. I think in terms of the financial impact of that, certainly, the longer-term benefit is much greater than what we're seeing near term, but it is impacting our financial results this year. We have $65 million of savings. So of that $150 million of net performance, $65 million as a result of these efforts. We see that continuing to ramp up $65 million to $75 million a year next year and again in 2027.

And the full benefit is more easy -- more readily apparent when you're starting a new facility. So it's one thing to transition an existing manufacturing process and add automation. But as we've launched new facilities, for example, last year, we launched a new seating facility in Europe and one in China for the BMW 5 and 7 Series, and that brought the full arsenal of automation capability that we had in place at that point in time.

Next year, we're launching a new facility in Europe with Audi for the Q7 program, which is going to be the next-generation of these manufacturing processes. And the programs we're quoting now, these conquest opportunities that we have, which Frank alluded to, where we see a 200 to 500 basis point advantage relative to the competition, we'll see the full suite of these initiatives driving that level of cost improvement.

So while it's relatively modest at $65 million to $75 million a year for the next several years, as these new programs launch, the impact grows significantly. And on the cash flow side, Frank mentioned briefly this inventory pipeline project we have. That is allowing us to reduce inventory levels. I failed to mention in my opening remarks, we are seeing an improved outlook for free cash flow, likely something north of $500 million for the year.

That's allowed us to really accelerate the share buyback program that we have in place. And we bought or will buy back about $100 million here in the third quarter, a similar amount likely in the fourth quarter or maybe a little bit more than that. So we talked about $250 million of share buybacks for the year.

We're likely going to be able to do more, again, as a result of these efforts to improve working capital and drive free cash flow and then return that to shareholders.

And Jason, how has this changed your CapEx outlook? I mean you have to -- there are costs to achieve and acquire these technologies that you then implement upfront. So how do we think about how this changes CapEx? Or how do you think about payback periods?

Yes. Generally, what we're seeing, particularly in our high-cost facilities is a 1- to 2-year payback on these automation efforts. So the payback is very attractive. These are great investments. And while it has led to higher CapEx generally, it's not really moving the needle in terms of our total CapEx as a percentage of sales, we sort of...

From reallocation?

Yes. So it's more reallocation plus benefiting from, as Frank described, that purpose-built equipment. So we're building the equipment more efficiently, 20% to 30% less than when we were buying it on the outside. And so we see CapEx as a percent of sales right around 3% as we look out over the next several years, so still capital-light business.

I got a couple of questions here before I turn to William. But William, I want to talk about one of Williams PA investments, Palantir, you mentioned -- it's his hit rate is not amazing, but it's pretty good. Tell us about that relationship. Who approached who? What's it like working with Palantir at the risk of giving away secrets because everyone else want to work with them, too. But just tell us what they're like and how they took your systems and data and helped you make decisions that create better outcomes.

Do want to take a run?

You mentioned the culture is the same. I'm like really?

Well, there -- it's similar in that we're both extremely passionate about innovation and moving fast. And the culture between even Ray, our CEO and Alex is really strong. And we started working together on a couple of projects, Adam, and really started building out what the total opportunity was. And Palantir is great to work with.

I mean they bring a lot to the table in terms of capabilities and talent that they're supporting us with. And we've supported all of that with what we believe to be one of the best use cases in the industry where we're really trying to separate as a Tier 1 automotive provider and making sure that we have the best technology and capabilities.

So we're looking at projects in the administrative functions to help take cost out. We're absolutely focused on the shop floor, and it's heavily centered around live data on the shop floor that allows us to make fast decisions on whether it's dynamic line balancing, cycle time deviations and how we're manufacturing our products. And that live data is unmatched in the industry in our opinion, and it's absolutely competitive.

And they're across the organization. It's not just limited facilities, it's not a pilot. They are -- they're embedded.

We're 2 years into this. Yes. It's fully embedded in our organization. I think that's part of the cultural fit that they saw, and we saw. They saw how quickly we were willing to scale this platform globally, and we're seeing tremendous benefits from it. I'll just give you one easy example. Frank alluded to the administrative side.

When the tariff announcements were made, we were able, within 10 days to build a system within foundry to take the data from our customs brokers and translate it into a commercial claim with our customers, 10 days to build the system and present an auditable document to our customers in terms of the cost.

And that's led to purchase orders coming out quickly. We're starting to collect cash already on tariffs. We could not have done that in the past. I mean we've had consultants come into us into our company and talk about putting a program together to facilitate this.

It will take them 10 days just to develop a proposal. We were already fully implemented with the system by that point in time. So it's really transformative. And I think we had a leader in our European seat business that was the first to embrace this, and that was the pilot, and that was really the start of last year where we started to deploy it in our just-in-time seat facilities.

And it's really allowed us to reduce labor time in our just-in-time plants, improve efficiencies 2% to 5% across the whole system. So the impact is massive and the potential is great.

And we have 11,000 users company-wide working within their foundry platform for digitization and their AI capabilities are excellent as well. So a good choice, William.

Yes. And I think the other point, too, so we have 10 of the highest kind of highest potential projects that have been separated within all the work we're doing with Palantir and Frank and Nick his counterpart on the E-Systems side have built these global centers of excellence where that team is responsible for deploying each of those 10 technologies across the whole 240-plus manufacturing facilities we have globally.

So it's been a great initiative. And we're not too far away from probably announcing some additional exciting developments in that partnership.

All right. One more for me on this because I'm just kind of -- you mentioned automotive -- automating a module assembly and kind of bringing in some customers and showing them what you're doing. Presumably, this very low scale, more demonstration, proof of concept, right?

I'm curious, a, who are your benchmarks? I mean, from my seat, Autoliv gets mentioned a lot and you increasingly in the same breath with them, which is a good thing because Autoliv's, they're a damn good company. And they've got -- they did things in automation that no one believed in terms of their initiators and module assembly here in high-cost countries, taking a lot of labor out and bringing in great results and doing what -- just executing.

I don't know if they were a benchmark, if they were -- how close were you to be seeing what they do? And then what other benchmarks do you see? And then in terms of really scaling these things? And then how long would it take for -- what's your outlook for you getting from a kind of demonstrating proof of concept to really integrating like fully automated module or almost fully automated module assembly into your broader operation?

Yes, I think you're right. Autoliv is a benchmark in this area, and that's a company we have studied and learned from. And I think, Frank, maybe talk about what we've done with this ComfortMax automation and where we're at in terms of the deployment of it. It's -- I mean, we're maybe a couple of years away from it being in a production facility, but...

Yes. So actually, Adam, it is -- what we're putting into that facility is actually production-intent equipment with production cycle time performance. So it's not a prototype situation. It is really built around integrated manufacturing and full automation.

So to Jason's point, there's 2 product lines in our TCS strategy, ComfortFlex and Comfort Max. Comfort Max is when we take our TCS technology and put it all the way into the trim cover. And what this process is doing right now is it's taking all of the components, lumbar, massage, heat, vent, cooling, all of that goes into a module.

That module then gets put into a trim cover. It's fully automated. So our cycle times are good. We're going to continue to make improvements, but it's a full functioning end-to-end lights out application of what real manufacturing can look like with real automation.

What's the human degree in the loop? How about...

Zero human -- what would that operation before the automation? What would the pre-automation human componentry be in terms of either people or labor as a percentage of the costs?

Yes, dozens and dozens of people. I mean each station would have had a number of people working on them, and there's over 20 stations in the process. So it's true automation. And it was all intentional, like I said earlier, it starts with the product design, though. A big part of this, Adam, is...

You wouldn't be able to do...

Yes. The design has to evolve. All of our design and engineering around the products themselves was about complexity reduction. We redesigned every component of the lumbar system and the massage system. So the way we approached it was design for automation, then we created equipment around it.

And then we laid out the entire manufacturing strategy and process around it. And it truly is impressive, and the team has done an absolutely amazing job. So, we'll be able to walk you guys through that as we get closer with dates in the future.

William. I think we talked a lot about the cost side of automation. It's very obvious, the cost savings of automation, but does it even help on the revenue side, your ability to win new business, improve that you're more reliable and maybe scale a little bit better than maybe some of your competitors?

Yes, absolutely. And I think that's extremely important right now. We're helping our customers solve this affordability issue. Cost is a key area of focus for our customers and speed to deployment as well. And this helps in both regards. Just as an example of what we did a couple of years ago when we took over the Grand Wagoneer Wagoneer seats from a competitor, 9 months from the time of the award to the time we launched that JIT facility at full volume, not during the changeover, not during a mid-cycle change, literally Friday to Monday, switched from one supplier to us and launched at full volume.

In fact, at a volume level that our competitor wasn't able to achieve throughout the first 2 years of the program. So I think that's a perfect proof point of how all these technologies and capabilities that we have built can lead to revenue growth opportunities.

I think as we're pursuing these conquest opportunities with a number of customers and important programs, the feedback we're getting from customers is that we are, in fact, at a significant cost advantage relative to our competitors.

So, what that allows us to do is meet our customers' price targets, help them lower the cost of the vehicle and at the same time, continue generating returns well in excess of our cost of capital, which the seating business has done for a very long time.

Maybe talk about some of those conquest wins a little bit better. And where are you gaining share? And I guess when you break up the reasons why people are moving from your competitor to you, do you think it's more of the cost side?

Do you think it's some of the seating innovations that you talked about, ComfortFlex, ComfortMax? Do think it's a combination of the 2? What do you think is driving those conquest wins?

Yes. I think initially, the main driver is our cost and quality advantage. And so as an example, again, this 5 and 7 Series win that we had with BMW in Europe and in China was really a result of that. And that business has launched and met the financial return objectives that we had established.

I think longer term, the developments that Frank alluded to in ComfortMax and ComfortFlex and in automation will be a catalyst for just-in-time seat growth as well. But that's the way the customer product cycles work, it's going to take a few years before you see that really impacting revenues in a significant way.

In the meantime, we've had $150 million or so of Thermal Comfort awards since the acquisitions, and we continue to win new business based on this advantage that we've built from a design and manufacturing standpoint.

Maybe talk a little bit more about China. So I know you have significant business at BYD, with Xiaomi, I think you're on the SG7. I don't think you're on the YE7, but you're on the SG7. How do you assess the quality of some of the Chinese EVs that you're on today versus some of the EVs you're on in the West. And then as you're winning new business with the Chinese, what do you think your advantage is?

Yes. I think growing with the Chinese domestics is essential for us. We're under-indexed in China right now, about 40% of our revenues with the Chinese domestic automakers. We see that growing to 50% in 2027, maybe a little bit beyond that.

And it's really driven by the success we've had with customers you alluded to BYD, Xiaomi, we are on the SU7. That program has far exceeded the volume expectations that we had at the time of award. There are several other programs we're in the quoting process right now with Xiaomi.

We have a good business with Xiaopeng as well. We're both on the seating and the E-Systems side. We're growing with Leap Motors. We're growing with Geely and others. And more importantly, I'll just highlight for a second, we made an organization change in Asia about 2 years ago. The leader of our Seating business who's been with us for 20 or 25 years, fantastic leader in the region with great relationships with the Chinese domestics.

We now have him running both Seating and E-Systems in the region, and it's leading to growth opportunities on the E-systems side, on the wire side, where we were maybe a little bit underrepresented with certain customers like Changan, for example, or DFM.

That leader running both businesses has opened up a new kind of pipeline of growth opportunities for us in China. And the Chinese are having great success in the European market. And so it's -- I think the latest stat I saw roughly 20% of the production in China was exported in the last month.

And so what we're focused on is looking at customers and programs where we see the greatest potential for volume, whether it consumed domestically or exported. And we're also winning business and pursuing business with BYD outside of China. We're in the quote process right now for seats in Turkey and both Seating and e-system content in Brazil with BYD.

So I think some of the points that Frank alluded to and we talked about a moment ago in terms of our pace of innovation, the Chinese move quickly. I think that they've had a demonstrated success and built an advantage on certain car lines from an affordability standpoint that's led to the volume growth there.

I think they have an appreciation for our ability to move at that same pace deploy automation and innovation and be cost competitive. And the financial returns on our business with the Chinese domestics has been good. So it's working.

Just one second on that point. Do you think that the U.S. and European legacy automakers can narrow the gap to China on those areas of speed and iteration?

Yes. I think I want to be careful here and not speak on behalf of our customers, of course.

That's why I'm checking your body language than anything.

Yes. No, we're seeing changes in the way our customers are developing vehicles. You saw Ford's announcement a month or so ago as an example of that. So I do think that it's essential that they take steps to close that cost advantage that the Chinese have built. And I think that they will achieve that.

In the meantime, we're super focused on growing with the Chinese domestics and better kind of reflecting the overall global market share of all of our customers in our respective businesses.

Maybe more a longer-term question. There's obviously been a lot of growth of the Chinese domestic OEMs. I'd say the supplier complex in China, though, is a lot more underdeveloped. How do you think about the threat of Chinese suppliers potentially disrupting your growth in Europe and domestically in China?

Frank, do you want to start on the seating side?

Yes. I would tell you this, William, that market has always been competitive for us. Jason kind of referenced with 30-plus years, we've been operating and competing with local suppliers for the Chinese domestic OEM business. We've been successfully growing that business during that time frame. And Jason just mentioned something that's very important.

Our vertical integration in Asia is -- we're the most vertically integrated seat company in the world. But in Asia, we also have full vertical integration. And if you want to compete in that environment, you have to have speed and cost. It has to be 2 of your key goals. And our product portfolio is second to none in terms of technology.

We have the full complement of TCS out there. We've been winning a lot of business with innovation like zero gravity seating and things like that. So we have a very strong product portfolio to compete from. We've got -- our vertical integration makes us very competitive.

And I think you can't understate this important piece that the relationships are very important, and our leader out there has incredible relationships with a very talented and capable team with a ton of experience. So the combination of all that is, sure, it's a very competitive environment, but we're doing quite well.

As Jason mentioned, we're growing with every key player in that market, and we see that continuing, especially as they expand globally. It's a big opportunity for us. You mentioned South America, Turkey, there's some big wins.

In terms of the competitors specifically, in China, we have roughly 18% market share there. I think the Yanfeng, Adient and Lear have a similar level of market share there. We've competed successfully against the local Chinese suppliers on the seating side. I don't see a real issue or challenge there, particularly.

And on the wire side, it's a series of very small private suppliers for the most part. So there aren't large competitors in our e-Systems in the wire business specifically that we see as really disrupting us, particularly outside of China. Really none of them have branch outside of China and none of them really have the scale to compete.

What we see in terms of competitors in wire is really the traditional competitive set. It's Aptiv, Yazaki, Sumitomo, the large global players in China and outside of China continue to be the primary competition.

Just want to see if there's a question, just come for air for a second. Any questions from the audience? 2 minutes left. With just a couple of minutes left, I wanted to kind of hit on a bunch of topics kind of more rapid fire, if that's all right?

[ Probably ] but you don't ask me about Taylor Swift.

Can I ask you about that. I moved on to Lady Gaga. Lady Gaga is like my obsession now as my team will tell you, share a little bit about me. You didn't know. Frank, buy, sell, hold, humanoids?

Buy.

Okay. Why?

It's the future. And it's a very compelling opportunity for all of us. I think it's something that's developing. I think it's something that we're seeing a lot of progress in that area, and we're doing some pilot projects with it towards the end of the year and early next. So it's very intriguing.

Buy, sell, hold. Mexico.

I'd say buy.

Okay, elaborate?

Yes. I think that Mexico is a crucial source of low-cost and talented labor for our most labor-intensive business. I think it's essential for protecting the competitiveness of vehicles built in the U.S. to have access to lower-cost labor.

If you think about vehicles built in the U.S., they're competing against vehicles built in Japan that use low-cost labor from the Philippines, for example, or competing against vehicles built in Europe that have access to North Africa.

So if the U.S. manufactured vehicles are going to remain competitive, not just for the U.S. market, but for export purposes, Mexico is an essential part of that equation.

A couple more for you. Buy, sell hold, China OEMs coming to the U.S. market in some way over a 10-year period of time?

I think I'd say over a 10-year period, it's reasonable to assume there's going to be some involvement of the Chinese in this market. You're already seeing small examples of that, whether it's Polestar building vehicles here in the U.S. I think that Stellantis with their relationship with Leapmotor could use capacity.

Just as an example, I have no insight specifically on that, but those types of things seem to make sense where you do have pockets of excess capacity in the U.S. that could be repurposed for producing Chinese domestic or Chinese vehicles.

Frank. eVTOLs or aviation buy, sell, hold?

What was it?

Aviation, eVTOL, urban air mobility, drones with seats.

Yes. Probably by because I think in a way, all of this technology is going to evolve, Adam. You don't want to be shortsighted on what the art of the possible is on some of these things. And I do think that there's a lot to play out in that area, but it will be very interesting to participate in the future.

All right. Just last one for me. What's your favorite seat of any car. I know they're all great. I know every seat that you make is great.

That's a dangerous question.

But if you had to like -- if you had to be in a 12-hour journey, okay, what would be the seat? What's the model? What is it? How -- what's the massage feature?

Oh my. The advancements that we've made in comfort and technology is off the charts, like the Zeekr seat that we're doing in China right now is absolutely amazing, but put me in a Ferrari seat any day of the week. And I promise you, you'll drive 24 hours in that vehicle, and you'll feel beyond comfort with all the technology we're doing.

Jason, Frank, thanks for your time.

Thank you.

Thank you.