Lear Corporation (LEA) Earnings Call Transcript & Summary

All right. Good morning, everybody, and thank you so much for joining us for the session with Lear as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, and I'm the lead U.S. autos and autos analyst here at Deutsche Bank. We're extremely pleased to be joined by Lear this morning to talk to us about a bit of an update on the business and on the environment. Lear, as you all know, is a global leader in the supply of automotive seating, and electrical architecture, and a fast-growing player in electronics, vehicle electrification and connectivity. The company has recently made a number of senior acquisitions, while continuously working on repositioning its E-Systems segment for long-term growth. So we're very excited to hear the update today. And representing the company, we are pleased to be joined by Ray Scott, who's President and CEO and Jason Cardew, who is SVP and CFO. Thank you so much, both, for being here.

Yes. Thanks for having us. Thank you.

Great to be here.

So maybe just -- the format for this session will be a fireside chatter on some of my prepared questions, but certainly, we'll open it up also to all of you in the room to ask any of the questions you have. So we'll give you -- raise your hand if you have, we'll give you a mic towards the end of the session. But maybe just to kick it off Ray, would you like to start us off with some opening comments on the general state of the industry and the business?

Yes. It's a long time since I've probably been this confident in where we're at in the business. And I'd say that with still, there's challenges out there, but it's been a while since I think we've seen this type of clarity. The operations are running much better. Our plants now are receiving parts on a steady basis. And so the supply chain issues seem to have declined. Our customers are running much better as far as the intermittent downtime so that helps us out significantly. So from an operational perspective, we're able to do what we do best, and that's really get at our infrastructure cost and efficiencies within our plants and we're seeing those improvements. And from a consumer perspective, albeit has been challenging for the last 3 years on inflationary cost. The good news is our customers are now realizing what is transitory in some respects and what is longer-term fixed. And we're having really good conversations with our customers around fixing those longer-term problems. And make no mistake, I mean we're going after recovery on both the labor and the material side and those, those conversations are going well, particularly in seating because of how it's laid out with controllable and noncontrollable between E-Systems and Seating. And the acquisitions you just mentioned. When I think about acquisitions, we've been studying this for a long time, the IGB and Kongsberg acquisitions are going extremely well. It's all about people and culture, and it's a perfect fit between those 2 companies and Lear Corporation. And I'm looking forward to the Investor Day we're going to have at the end of this month. And I think it's really going to be helpful for investors or even investors are waiting on the sidelines to invest in there to understand what we're putting together and why we're going after these acquisitions to really build up our competencies and capabilities. So we're really excited about that. It's been spending a lot of time gearing up for that, and that's going to be a great day. And E-Systems, right now, we continue to win great business. We've simplified that portfolio. Over the last 3 to 4 years, we've really looked at that strategically and is paying dividends with growth. We have 2 consecutive years of $1 billion of backlog business, and we're outpacing where we're at last year. So we're targeting another $1 billion of backlog business in E-Systems. And in the second quarter is coming in above our expectations. And so it should round out a solid good first half for us. And so a lot of good things going on, still a lot of challenges, but I mean, I've never been this confident in what we can control in getting at what we can control and how we move the company forward.

Well, that's quite a way to embark things off.

Yes. Well, I do get to hear it every morning. So it's exciting. We've had 3 years of us going through what we've been going through, but to have clarity now in the areas that we can control is exciting.

Yes. So I guess maybe just diving into some of the details, how are things playing out so far for Lear in the second quarter versus earlier expectations? And then -- so both for Lear and then how you're seeing the production volume rebound playing out by region?

Yes. So when we -- on our first quarter earnings call, we didn't provide explicit guidance in the second quarter, but we did reaffirm our full year guidance. And what we had assumed at the time is that the second quarter revenue would be about $200 million lower then the first quarter of $5.650 billion and operating income around $230 million. What we're seeing now is a nice improvement, as Ray mentioned, production has stabilized somewhat. Volumes are coming in stronger. We're now seeing sales in the second quarter that are at or even slightly above the first quarter $5.850 billion to $5.9 billion. Company operating margins around 5%, so around $285 million, $290 million of operating income. So better than the first quarter in terms of margin and roughly in line or slightly better on revenue. So it's been good, particularly in Seating. We're a little bit ahead of the game on our commercial negotiations, and we're seeing the benefits of that. And some of it is a bit of a catch-up from the first quarter, but we expect to see Seating's margins that are between 7% and 7.3% in the second quarter. So a real strong second quarter, which essentially sets up a first half that's at about 7% in Seating. In E-Systems, we had expected margins to be flat from the first quarter to second quarter around 3.5%. They're coming in line with that, maybe a little bit better, 3.5% to 4%. It really depends on the timing of some of the commercial negotiations. Those are taking a little bit longer on the E-Systems side, but some of those have, have been brought to conclusion in the second quarter, and that's helping as well. So both businesses are really doing well in the second quarter. In terms of regional production, I think North America and China are kind of in line with what we expected, particularly on our platforms. And in Europe, that's been the kind of the pleasant surprise, we see that up about 10% now in the second quarter, whereas originally, we had expected it to be flat.

So, this is the main driver of maybe better performance than expected your...

Yes. That's the main driver on the revenue side. And then on the earnings side, it's a combination of that and the timing of the commercial settlements, commercial negotiations on inflation and commodity recoveries in Seating in the second quarter.

Very helpful. So I guess how do you -- how does your outlook for the rest of the year? First of all, as an assumption is LVP up 2% still your base case assumption on a customer weighted basis. And is this basically the customer schedules today? Or is there some conservatism baked in there?

Yes. So we're not going to provide an update to the full year guidance as we sit here today. But if conditions hold as we're seeing here in the second quarter and as we look out to the third quarter, 45 days from now, we'll be in a position to make that decision. But if the conditions were to hold at the current state that we're seeing, we would expect the full year production to be more like 4% to 5% higher year-over-year on a Lear sales weighted basis. So a couple of percentage points better than what we had embedded in our initial guidance for the year. And so -- and that, combined with a little bit of foreign exchange benefit and the Seating performance overall. We would expect revenue that's probably going to be $1 billion higher at the midpoint than what we have currently guided to. Again, if things hold up as anticipated in earnings and maybe $100 million higher than the midpoint that we previously guided to. Now some of the risk factors that we're still keeping a close eye on, and of course, the UAW and Unifor negotiations. You've already seen some strikes with some of the suppliers. I think it's reasonable to assume there will be some disruption that happens in the third and fourth quarter related to those negotiations. You have some weakness in China, some uncertainty on the production environment there. And in Europe, Germany slipped into a recession. So does that start to impact production volume. So those are the things that we're keeping in the back of our mind, but I think we can likely still raise guidance and have some protection for those events as well.

And just to be clear, on the negotiation piece, this is an indirect impact. It would be your customer schedules being impacted or you're talking about direct negotiations with the union right?

No, not our negotiations, our customers negotiations.

Okay. And I guess what -- since you brought the topic, I guess, what is the Lear or the supplier playbook, you sort of like deal with this? Is it just -- will you wait on to see until there is a disruption? Is there anything proactive or reactive that could be done?

Yes. We went through this, unfortunately, in 2019. So we have a little bit of experience with it. And so there's a number of temporary measures you can take to reduce costs to help offset the impact of it. But there's still obviously would be an impact on our business. If a customer goes down for a significant period of time. I think if you look back to 2019, it's about a $300 million revenue impact, primarily in Seating from General Motors extended to strike. So it just depends on which customers impacted the impact. Look GM is in our largest customer in North America be greater than Ford and Stellantis probably combined. So it just depends on which customer is impact to.

That's very helpful. I guess speaking of customers, have the recovery conversations been progressing, what is the magnitude of anticipated offset to inflation?

Well, the -- like I mentioned earlier, the customer negotiations have pivoted and then they're more favorable. And even though they're challenging negotiations, you still have to go through a process. And so there's 2 real elements that we're focused on. One, we continue to drive efficiency in our plan through automation, Industry 4.0 to just continue to be the most cost competitive supplier in the industry. But just as important, we have models that are put together that have a labor cost in there per head. And so what it is, is an adjustment to that particular part of the model as we moved forward. And those discussions are moving along. And what Jason mentioned what we're not going to do is short change, a negotiation get through a quarter. We want piece price recovery. We are going after the full amount. We understand that particularly in Mexico this is a longer term issue. This isn't a temporary increase that will reside over time but longer term. So we're negotiating right now. There is a process along with it. Some of those negotiations are moving faster on the Seating side. These systems has taken a little bit longer. But nonetheless, they're in parallel as far as how we're resolving those. So I think the good news is that the customers are realizing they were transitory, and we're seeing reductions in some of the commodity costs but there are costs that are longer term that need to be fixed. And we're making it very clear we need that fixed. And so those negotiations are going well, but we're going to be mindful that we have to fix it long term. And so I'm very positive we'll get to where we need to be. We'll get a fair reasonable settlement, but we're going to do it on a time line that makes sense for Lear Corporation.

I guess how much of these recoveries represent still an opportunity for 2024 and beyond? I think in the past, you've sort of quantified how much of it over the years is a cumulative in terms of headwind? How do you think about it here?

Yes. I think most of what we're going to accomplish this year will have a full year benefit this year that's similar in future years. Most of the negotiations center around recovery back to January of this year. There are some where we may have a later effective date and so there will be some carryover benefit from that. I think what I would point out is that the margins may be a little choppier than you would typically see because of the timing of these negotiations. Seating come in very strong in the second quarter as a result of that. We expect E-Systems to be higher in the second half than the first half as a result of those negotiations. So I think the right way to sort of think about modeling the operating margins in both segments longer term is to look at our full year guidance. So our prior guidance in E-Systems was 4.5% and Seating at 6.4% for the full year. I think based on the numbers I mentioned earlier, Seating is probably more like 6, 7 for the full year. And so as you kind of roll forward into next year, that's the right starting point to think about us building on into '24 and '25.

I think you have to look at the element 2 of this backlog, the strong backlog that we have is all quoted with inflationary cost as of today. And so when we -- like the WS program that we're launching, which was a mid-cycle that we -- was a conquest, when that we'll be launching in the third quarter of this year, has been modified for the costs that were impacting the material and labor. And so as we start rolling on this backlog business and the great news about if it's the battery disconnect units or the intercell connect boards or what we're seeing in E-Systems and Seating has all been requoted at today's cost structure. And so there's this time element that we're negotiating with our customer to get it resolved in the current piece price. But as backlog comes on, we anticipate that backlog to come on at a stronger margin profile because of the ability to recover the cost. And so that's one thing. We're not -- this backlog that we're winning is profitable. We're not chasing business. We don't have to chase business. We're in a very good position. I mean, our position in Seating is very strong. And E-Systems as we simplified this product portfolio to really focus on not competing against our customers is putting us in a really good position. And so we get a fair return with the cost included as it rolls on.

That's a great update. Maybe focusing on Seating a little bit. So first quarter growth over market was solid around 6%. What were the drivers of it? And do you view this as sustainable? I think you initially called for leasable adverse mix headwind for 2023, but then it turned out to be a fairly decent tailwind, I guess, in the first quarter. So what do you expect to see over the rest of the year?

Yes. Certainly, the first quarter was stronger than anticipated in what we had expected, particularly in North America, is that on our largest platforms, the growth would lag the market overall that basically happened. But in Europe, particularly with the Range Rover and the Land Rover Defender programs, which are 2 large seating programs, the volumes have been tremendous there. And so that, coupled with a little bit with Audi, Porsche and then Mercedes C class in China really drove that first quarter of growth over market in Seating. If we look at the second quarter, we do expect that to moderate a little bit. But overall, for the full year, that we had expected about 2 points of mix headwind. We're now thinking that's more like 1% to 1.5%. So that's part of why we're expecting the full year revenue to be a little bit higher, too. And longer term, the right way to think about Seating growth over market is what's happening with the backlog, what's happened with Conquest wins. And so we've had $2 billion of conquest awards over the last 4 years. You're starting to see those launch now. We had the BMW 5 and 7 Series are rolling on, the GM midsize pickup trucks in Wentzville at the Colorado and Canyon are launching now, 2 really important Conquest wins. And then as Ray mentioned, we've got the Wagoner and Grand Wagoner launching later this year. So a big portion of those conquest awards will be fully up and running by the end of this year. And if you look at our backlog, our 3-year backlog, we would expect that to contribute 3 to 4 points of growth over market as we look out over the next 5 years and beyond. And with the additional capabilities through thermal comfort, that's another catalyst for market share gains on the JIT side as well.

See speaking of which, so you recently completed the acquisition of I.G. Bauerhin, which comes on the heels of acquiring Kongsberg. What does each contribute to the thermal comfort strategy? And how do they help support your overall Seating portfolio?

Yes, that was -- those were 2 great acquisitions. And I think back -- it's been over a decade that Jason and I have been really putting together and think it through the strategy. And is kind of the combination is that we definitely needed design, manufacturing, engineering competencies to give us credibility and where we're taking thermal comfort solutions and systems as far as the seat heating. And it's been a great integration as far as those companies, but -- and I can't wait for the Investor Day because we're going to really roll out a vision of where we're going. And it's not a model that hasn't been unsuccessful in our industry or other industries as far as vertically integrating and creating a value proposition. But right now, we can add to the scale and success of what we can do with purchase components what we're going to do as far as driving manufacturing operations and efficiencies, what we do with transportation. So there's an immediate gain and pick up with what we're going to do with our margins, and so we'll talk a little bit about that at the investor conference. And Phase 2 is really that integration of the modular components. And that's going to be a benefit. And the last 1 is the modular components with trim and foam. And we've been on this journey for some time, and we've looked at partners, and we've looked at ways of getting at this solution through other types of partnerships or collaboration ratio. But the way you have to do it is really vertically integrate that. And I'll tell you, we already have 7 awards from our customers. And the way I look at this as far as success, how are the customers seeing it? And they've completely been awarding us programs that we have full control, design control and sourcing control.

And those 2 acquisitions, there are some complementary capabilities that came with each of them. So both have strong seat heating capabilities. The Kongsberg has the comfort system, the massage systems and lumbar systems. On the IGB side, it brought active cooling and additional cooling, seat cooling or venting capabilities. In addition to that, steering wheel heating, panel heating. So there's additional capabilities and as well as the electronic modules in that, the sensor for seating, which kind of ties into other things we're doing within too. So both brought an interesting combination of capabilities. And as Ray mentioned, this goes back 10 years. We try to do it organically, we invested in that. We made a small investment in a company called Tempronics to further expand our capabilities in seat cooling. But ultimately, we needed to have those capabilities internally. And we targeted those 2 companies specifically because of the capabilities that they each brought and the cultural set that Ray mentioned earlier. So it's been a long journey to get to this point, and we're excited now to see it and be able to execute the strategy there.

Now you have them, could this help drive margin expansion beyond the 7.5%, 8.5% midterm target for Seating?

Well, we did this to drive sustainability and improve margin. And so we absolutely believe that, that is what it's going to do. And I think we've been guarded on what we're showing. And from a competitive standpoint, at the Investor Day, we're really going to take the team through exactly what we're doing and why we're doing it. But the intent is that we believe that, that has been an area -- priceable features are great in seats, delivering option content that you talk about, we've had a design that reduces the part number count by 50%. And it improves efficiency as far as time to sensation by 40%, and it cuts weight by 20%. And then it obviously is more efficient from a cost standpoint. That -- why the customer is so overwhelmed in buying the product and giving us the sourcing control are all those reasons. And we think that, that's been an area of neglect that can improve significantly. And so like Jason said, we studied this for over 10 years. This wasn't just let's go buy IGB and Kongsberg. This is something that we targeted very, very specifically to enhance our margins and gain market share.

Yes. And if you look at structurally, if you look at the stand-alone players in that space, it's a 10% type operating margin business. And as we sit here today, it's roughly breakeven after including purchase accounting, we have a pretty clear path to 10% operating margins in that business over the next 4 years. And by '25, we expect it to be accretive to Seating sort of in that 8.5% range. And you look out to 2027 and beyond, we certainly see a path to getting beyond 8.5%, which has been sort of the historical ceiling on seat margins driven by these capabilities. And there's near-term benefits that we're seeing already through the acquisitions. There's a restructuring opportunity. There's administrative and manufacturing synergies, purchasing synergies, those will improve our outlook even going into 2024. So that's the immediate benefit. We're already in-sourcing programs. So that will benefit margins over the next 2, 3, 4 years. And then as Ray mentioned, the full kind of modularity strategy sort of plays out in 2027 and beyond. And it really becomes a catalyst for kind of the wave of growth in our seat business.

So I was going to ask you, what can you tell us about the upcoming Seating Day -- Investor Day, I think, on the 27th. But I guess you...

What you said, we're excited. I think what I can tell you is that, one, you're going to get to meet the team. I think that's important to understand the technical capabilities of the team and what we have in place as far as our engineering competencies. I think just as important, we're going to introduce some other things to -- as far as FLEXAIR, which is it removes CO2 emissions by 50% in foam pads. It's a completely different way of looking at foam within seats and a reduction of CO2 emissions of 50% is at a very similar cost base of what we're selling foam today. It's been a home run with our customers. And there's an integration part that goes with that foam and trim. We have ReNewKnit, which is a sustainable material that we're being very successful with our customers and selling that. So there are going to be other elements that we're going to put together for the investor group to understand where we're taking seating because it is a transition in how we're looking at seats. There's an immediate now we get to get at some margin enhancement, fix some parts of the business. But longer term, you get to really understand where we're taking seat. It's innovation, it's technology, it's different in how we're looking at it from how we're looking at automation within the facilities to how we're looking at the product. And when you see it, it's so simple as far as this makes a lot of sense, and that's what why we're having so much success with our customers. And then we'll talk a little bit more about the road of how we get the financial returns where they're headed and why they're headed there. And then we're going to have a great product display, where we're going to take everyone through the product. We're not displaying this product openly. We're being very conservative on how we're showing it. And then when you see the product, you're really going to have appreciation for where we're going and what we're showing the customers and it's very unique. And so I think there's a lot of elements here that are going to be very powerful when you come in and go through the Investor Day, and I think it's going to kind of culminate and understanding, okay, I get where they're at now, like what Jason said. I get where we're going in Phase 2, but I get where we're going in Phase 3. And I hope that everyone walks away going while there's immediate benefits today and longer term, it could be really powerful for the company.

Great. Looking forward. So shifting maybe to E-Systems. Can you remind us the size of the electrification opportunity for Lear? What's in the backlog, what's being quoted, then what can revenue look down the line?

Yes. So our electrification business last year was about $565 million of revenue in E-Systems growing to $750 million or about 33% this year. So it's a fast-growing portion of the E-Systems business. It is the primary catalyst of our growth over market in the near and medium term. We see that revenue of $1.3 billion in 2025, so another $550 million of revenue growth in '24 and '25. And maybe beyond that, there's a number of programs we're quoting now that could launch in that time frame and push the number up further. So it's a really important catalyst for growth in E-Systems. And we're starting to launch some of the programs in our backlog right now. We have -- we shipped our first GM Intercell Connect Board in the second quarter. So that business is ramping up. We have low voltage, high-voltage wiring with -- on the Polestar 3 launches later this year and beginning of this year. We have low-voltage and high-voltage wire and launching with a global EV OEM in North America and in Europe that we're really excited about. And we've got a nice portfolio with Nissan on the high-voltage side started launching last year and continues into this year. So we're excited about the electrification side of the business.

And the Polestar 3 parked in front of the building...

Yes. It looks you're up close.

Yes, it looks pretty good. And then so I mean you spoke about some of your recent and upcoming EV launches. Can you walk us through some of the latest awards on the E-Systems side, including the BDU on an upcoming Stellantis EV, they expanded volumes? You mentioned the Intercell Connect with Altium. What kind of opportunity does this presents over the midterm? And what is the quoting environment like in this?

Yes. Well, first of all, I mentioned that we kind of 3, 4 years ago, looked at the strategy with in E-Systems, and we're trying to be everything to everybody, and investing in a lot of different areas, but we really didn't have the right to participate. And so we've deemphasized areas and those are rolling off like lighting and audio on traction in [indiscernible] and all those DC/DC inverters. And we focused on areas that we have great competencies and capabilities, and we're not in direct competitive position with our customers because customers are in-sourcing key elements. And so what we looked at was PC and wiring and high-voltage and connection systems like plug boards and high-voltage connectors and engineered components like our acquisition M&N, has been extremely successful, far exceeds our expectations even with the acquisition targets were at. So that's going extremely well. In electrification, the quote [ queue ] is solid. It's strong. And we've become a strong within battery disconnect units. And I think we're going to have another announcement here. We just had the [ Stellantis ] announcement, we're we have more coming up in the summer time frame, because we're in negotiations with our customers right now, but we have a strong #1, #2 position, I believe, in battery disconnect units. And Intercell Connect boards with our overmolding capabilities, our high-voltage knowledge, our bus bar capabilities, it's put us in a really strong position. I think within the next several months we're going to announced another big OE award. And so the quote pipeline is strong. What's happened with our product portfolio, it's really been simplified. And we're very good. We're growing our business, and we're maintaining a very strong position. Like I said, that business that we're quoting is going to come on at target margins. So that's the good thing. As we start to roll off some of the other business, we start to get some of these commercial negotiations going and we start launching this new business, which we're investing in today, it's going to put us in a really good position. And so I'm anticipating that this year will be equally as good as last year with the backlog. 3 consecutive years of $1 billion of what we're looking for, right?

Let me ask on the -- I guess, the margin front then in E-Systems. So E-Systems margin came in around like 3.5% in the first quarter. I think in the earlier remarks, you were saying that the idea of second quarter being flat or it's sort of like still very much on track. What will be the drivers for sort of like the second half inflection to sort of hit the E-Systems target for the year? And then beyond 2023, what are the primary drivers towards reaching the, I don't know, 7%, 8% of target?

Yes. So starting with this year, we expect the second quarter to be 3.5% to 4%. So let's call it, the first half roughly 3.7%. It means the second half needs to be in the mid-5s. There's really 3 drivers to that. We expect volume and backlog to be stronger in E-Systems in the second half than the first half. It's kind of the opposite of seating. We're expecting sales to be a little bit lower in the second half than the first half. There will be some margin benefit from that. We had lower launch costs. So we had -- we changed our 2 of our largest platforms in E-Systems in the first quarter and into the second quarter, the Ford Escape and [ Corsair ] then the GM Colorado Canyon, 2 very large low-voltage wiring programs for us. So getting past that launch phase will benefit the second half of the year. And then the combination of commodity inflation recovery and the normal cost reduction programs that we put in throughout the year as an offset to our normal contractual price reductions with our customers that happened at the beginning of the year will benefit the second half margin as well.

And then I guess beyond that...

Yes. And then looking beyond '23, so if you say we're at 4.5% for the full year in '23, the path to 8% in that business over the next couple of years really volume is 250 basis points of that volume in backlog. The backlog has been rolling out at 10% to 15%. Volume has been rolling on typically 25%. So that's 250 basis points and then 100 basis points of margin is through that performance. So that's combination of moderating credit cost, the full effect of commodity recoveries. And then more importantly, the things that we're doing to improve performance in the business structuring our operations, improving capacity utilization, driving costs out of the operations. through the simplified model that we have in place in E-Systems. And that's 100 basis points of net performance over a 2-year period or 50 basis points a year is very similar to what we've done historically in that business. So we're confident we can deliver on that.

Right. And then maybe my final question, then we'll open it up to the room. Capital allocation, what are your priorities between M&A, buybacks, I guess, how do you prioritize it in your use of free cash flow?

Yes. First of all, we're super focused on improving free cash flow overall. The whole organization is focused on free cash flow conversion, and we see a meaningful improvement in free cash flow this year and into future years. So we'll have more at our disposal to allocate. And we don't really have anything on the horizon on the M&A side, maybe small tuck-in acquisitions that would support what we're doing in Industry 4.0. Yes, we've made some small $10 million to $20 million acquisitions in that space that have really help us in terms of our operational excellence capabilities. So we may do more in that arena. But nothing -- we don't see anything over the next couple of years, that's significant. IGB and Kongsberg were the keys that we needed to complete. Now we're shifting our focus back to returning cash to shareholders. We bought back a little bit of stock in the first quarter. We've continued that into the second quarter. as we have a line of sight to a higher free cash flow number this year, we'll look to accelerate that, buy back more this year. And then certainly, as we look out into the next couple of years, the buyback portion of the story will be meaningful, I think, for us overall.

Good to hear. So we're a couple of minutes late. Any questions in the room. Great. We got a question right in the front.

You guys did a portfolio review like you said 3, 4 years ago, took out lighting audio, some of the places you didn't want to focus on. It's been going very well. When you're sitting here today and you're thinking about the next 3, 4 years, for example, 1 of the things that is now getting more industry traction is zonal controllers and consolidating vehicle compute. Are there any capabilities, products that you think you could be incrementally investing more time in as you're thinking about sort of now the next phase of the next 3 years versus the last sort of big strategy review that you guys have done?

On control modules is something that we are competitive and that we continue to focus on. The actual central compute is an area that we're not focused on. I mean I think that's take enormous amount of resources and cost and investment that we don't feel is something that is within our wheelhouse, but the zonal control modules is an area that we're very competitive. And we're doing a nice job quoting business and our quoting business today. And I think the acceleration of some of the capabilities within, like I say, bus bars, the overmolding, the integrated battery disconnect units are areas of interest for us to continue to be competitive and probably continue to expand our margin in those areas. So those are areas that we're looking at. But by, like I said, by simplifying and we went through the product portfolio where we're trying to be everything to everybody and not necessarily being successful anywhere. And we're seeing that success play out where we're focused on areas where customers are not in-sourcing it or want to take or maintain that capability, and we're not competing with them. These are areas that are very selective to outsourced and at least are trending in an area of outsourced for our customers and so that we can create a value proposition. And it plays nicely even with some of our strengths with Seating. When we talk about the battery disconnect and the assembly and the manufacturing and the competencies allowed in the JIT world are very similar in the battery disconnect in those component business. So those are areas we're focused on it. And I think if things were to slow down right now, the quoting activity is an all-time high. And so right now, we're still in a very good position to continue to quote business across the board. And I think something to point out. I think at that meaning we also about customer proliferation or diversification. And we had one customer Ford Motor Company that was the majority of our revenue. We've done a great job diversifying our customer base. I mean, General Motors is going to be 1 of our bigger customers. Jag Land Rover, Volvo, Geely. I mean, it goes across the board now, we have a much better balance of customers that we're now able to have access to that we didn't have access to before. So we're now in the quote bid list. And now once you get in, and I'm hopeful that we're going to announce a new premium German OE here shortly of having access and getting a new award. So that's playing out really nice. So a lot of the elements that we put in place are playing out well. We have to continue to improve that margin. and we have the right path to get there. But I think as this new business rolls on, that's going to be a big part of it. And the other elements that Jason mentioned. So I'm very optimistic about that business.

Awesome. Looks like we're out of time. So Ray and Jason, thank you so much.

Yes, thank you.

Thanks, everyone.