Lear Corporation (LEA) Earnings Call Transcript & Summary

Welcome back, everybody. Thanks for coming. Next up, we have Lear. It's one of the top global seating suppliers and a great player in vehicle electronics. It's a great business that typically generates a ton of cash, which is part of the reason we like it so much. It pays a good dividend, buys back a ton of shares and I think we'll get into this in the Q&A. Make some very interesting accretive strategic acquisitions that often fly below the radar screen for most investors. We're very happy to have Ray Scott, President and CEO here today; and Jason Cardew, SVP and CFO of Lear. So guys, thanks so much for joining us. We really appreciate you taking the trip.

That's great to hear. Thanks.

There's a lot going on here at the start of the year. There's always a lot going on in the auto industry. But I was wondering if you could just give us a quick update on business conditions as we're kicking off this year. It seems I think, things are going pretty well, but I'd love to hear your perspective of things and how it relates to your outlook for the year.

Yes. Well, I think every year especially over the last 5 years, brings its unique challenges. This year's no different. But we're very optimist. Like you mentioned, we've done some, I think, some great work over the last 5 years, really going after strategic acquisitions. In Seating, we've positioned ourselves as the most vertically integrated seat company in the world and really in last year -- midyear, I'll finalized the IGB acquisition. So it really rounded out our complete capabilities for thermal comfort systems and solutions. And since that point, we've won the majority of all of our business. It has been sourced with our ability to self source ourselves, those components. And so it's been a short period of time since that acquisition, but we've really made some, I think, significant steps moving forward. In Seating, we've done a really nice job of continuing to improve our market share. Last year, I talked about this unprecedented award with the Grand Wagoneer, Wagoneer business. That's a program that's never been sourced mid-cycle like that before. We're extremely successful for a lot of different reasons. One is the automation and capital that we put in the facility, but also our ability to really focus on operational excellence. In E-Systems, we've really focused on the product portfolio. I think we're trying to be everything to everybody, trying to really focus on a lot of different capabilities that really didn't make sense for us. So we really honed in the product focus around business that we could really make a fair return on it. And I think we've done a really nice job. You look at the last 3 years, we've had $1 billion of backlog in that business. And so our focus was diversify. The majority of our business was with Ford, even though we still want to grow with Ford, we're really diversifying our customer base. We're growing the business and very selective areas where we can get a fair return. And we just recently, just last week, got another nice book of business with BMW. And so the diversification continues to play out. The last part of our operational excellence is when these acquisitions, like you said, I think, have been overlooked in some respects. I mean ASI was a great acquisition, Thagora, InTouch. These are really helping our operations be very unique for Lear Corporation. I think why we're so successful with the Grand Wagoneer and Wagoneer was because of our operational success in what we're doing as far as implementing capital in our plans that superior to our competitors. And so even though there are challenges, we all have been dealing with them. I think where we're at in the position we put ourselves in is very solid going forward.

In terms of the financial outlook, John, you asked about. The year has kind of started out in line with what we had expected. Production is basically in line in North America, Europe and China with our expectations and our guidance. First quarter, similar to the historical pattern where you're going to see a little bit lower operating margin in the first quarter as you deal with the customer LTAs and another slog of wage inflation and throughout the year. Well, we will offset that. We do expect revenues to be up about 2.5% year-over-year in the first quarter. So modest growth, a little more growth in E-Systems and Seating in the first quarter, just given the way the production volumes have played out by car lines. In terms of margins, sort of flattish with the first quarter of last year, up slightly, with E-Systems higher and Seating in line with the prior year or maybe just slightly lower. So overall though, everything that we had anticipated happening in the first quarter is sort of playing out in line with those expectations and the full year is still intact based on what we've experienced so far. Now we have seen some modest improvement in the production environment. Last year, in the second half, there was a gradual improvement. But there are still disruptions, software issues with certain customers and the Red Sea disruptions in Europe. But as Ray said at the beginning, this is automotive. You're always going to have some challenges. So I wouldn't say it's particularly an onerous environment overall.

And one of the things, and I think we kind of asked about this on the last quarterly call, but I just wanted to go back to this. EV volumes are being pulled back, expectations and in some cases, ice volume is going up a little bit in response to that. But I mean in the schedules that you guys are seeing, is there a one-for-one replacement ?or as we go through the year if EVs are not 10% or 7%, that there might be some upside in -- not total volumes. But replacement on the ICB side, which might be good for the business as other programs run out. I mean what's your kind of take on that?

Well, we started seeing it in September of last year and really started pulling back our own capital, in respect to -- it was based on platform, car lines in regions because we are seeing significant differences between the regions. And so we're taking a very hard look at this back in September of last year, being much more aggressive with how we're deploying capital, where we deploy capital. And yes, it's continued. There's no question. From a customer perspective, I'm not talking to all the customers. They're still committed EVs. There's no -- that's still a solid position that they continue to reinforce, but it's the pace of the rollouts is what we're looking at right now. They've been very mindful of what they're looking at strategically. I still think there's going to be some strategic changes with some of our customers and how they're going to deploy hybrids or continuation of ICE vehicles. Now we haven't gotten anything -- Jason can talk a little bit more about what we've seen in the releases. But we haven't seen anything significant in respect to ICE vehicles being continued, but we are speculating that, that will happen.

Yes. I mean I would say that ICE volumes, in particular, have held up well. Again, we don't want to get out in front of our customers, but I think that they are rethinking the cadence of launches of programs on the EV side, maybe the volumes related to that. And I expect there will be a trade-off where maybe ICE programs get extended or volumes are a little bit higher. I think that's maybe more of a 2025 phenomena than '24 though.

One of the things you guys have talked about more and more lately is the potential for automation. And I think in the Seating business, there's kind of been a view that it's a little bit more labor-intensive cut and so assembly, your subassembly, assembly. Seats would be a hard thing to truly automate. But I mean, where do you stand on automation? And what's the potential for you guys over time?

John, this is where I get excited.

Let's get you excited.

I love this. I mentioned the acquisitions that we've gone after. They're very strategic, and we're going to have some more tuck-in acquisitions probably to be announced later this year because I think this is really where you differentiate yourself. We've been on this path, operational excellence, for well over 10 years. And the way we're looking at this year alone, you can look at some of the challenges that we're faced with, with labor inflation, double what it was, what the traditional wage increases have been over the last several years. So you have to solve this problem. And how we're getting at this thing is very specific to core operations within our facilities. And you look at trim covers, for example, 35% of our overall labor is in trim covers within Seating. 90% of it of wiring or E-Systems is in wiring. And so we're right now automating those areas within our facilities. I've been fortunate enough to be out traveling to China and New Mexico, into Europe, Eastern Europe, looking at our facilities and what we're doing. And what used to be the impossible is now becoming possible. And these companies that we're acquiring like ASI or InTouch or Thagora or our own organic technologies or capabilities, we're keeping in-house. And so these companies were selling their products externally. We're immediately reversing that and keeping those capabilities with visual systems, camera systems, laser systems, the ability to automate from -- right now, we're going to implement a system within our seat plants that from really finesse, all the way to installation within the customer's facility, there won't be a human being touching it. And so all these different ideas and concepts that we have in different facilities we're pulling together. And what that does is -- and I think the first question is, "Okay, you're going to be capital heavy." No, it's not. It's really -- the amazing part about this is we're actually getting capital numbers lower. If you look at our historical capital numbers, we were lower last year with the investments we're making. We're planning on being at the same pace of last year's number, which is historically lower than the previous year. So we're getting at this through agility, flexibility with our capital numbers. And it gives us enormous amount of success within our operations. I think what was great about the Wagoneer, Grand Wagoneer that was unprecedented to launch that in 8 months. It was primarily because of the people we have great people. What was the capital we installed Stellantis was able to increase their output significantly, helping them from a revenue dollar. I mean they were limited in what they could produce as far as the seats. That was what was slowing them down. And in the minute we took that over, our output increased significantly. And I'm convinced it was the capital we had on the ground. So when you have that as a differentiator, when you can walk a customer through a plant and say, "I don't want any of that old capital," I'm not going to take it. It doesn't work for us. We're going to install what we have as far as new technology capabilities that is much superior. That's the output you get. So we have a living example that this pays off. And then when we talk about trim covers and wiring, we're seeing reductions of 10% to 20% in labor at the facilities with the technology that we're putting in place.

In terms of the capital intensity of the business, we really focused through our Lear Forward Program last year and improving capacity utilization; buying more efficiently; and then leveraging these acquisitions, as Ray described, to lower our capital spending. And what we did is has poured some of that back into automation and we're able to sort of hold our level of capital intensity flat. If you look at our guidance for this year, we're again below 3%. So we think we can step up our automation investment while maintaining sort of that 3% or less as we look out over the next several years.

And we just had an operational summit where we pulled all leaders from around the world to share all best practices and how we can do this much quicker, think a little bit differently and drive accountability within our company because we have incredible ideas coming from the plant floor, in addition to what we're doing from a strategy perspective overall. We introduced what is called Idea by Lear, which is innovation. It's digital, it's engineered and automation. And those are kind of the pillars that we're going to run to, is that getting at that, I do believe, will differentiate all companies or companies that have it. I think there's going to be the have and have nots. And the companies that have and are very successful will be the winners.

And one of the things that sounds like it's happening with the acquisitions and sort of this massive improvement in process through automation is it sounds like you're able to more vertically integrate. And it sounds like the automakers are more open to use self-sourcing all sorts of parts and showing up with an almost complete seating system at their assembly plants. Has that really changed that much where you can actually really control the entire process, whether you're doing it all yourself or sourcing it directly so you can save money and save them money over time? I mean what is changing there? Because it does seem like there's a toggle that's just starting to be pulled here and might be even greater opportunity.

For all our best efforts and having a strategy that we've been working on for a long period of time, timing is everything. And there isn't a customer meeting I don't walk into right now because of the deployment of EVs and the cost that's costing our customers, they're looking for all solutions. And I think there's a time when they'd be much more risk adverse, and less -- okay, I hear you, but that's not necessarily what we're looking for. Modularity is like the buzzword. Then when we have a seat system, we talk about thermal comfort systems, I've seen a lot of different strategies and thermal comfort systems. But the solution that we came up with was with the intention to go to a modular seat system that could be, in some respects, agnostic to any other facility and you could have this spoken hub concept. And what that does is, obviously, it lowers the overall cost. It lowers the parts that we're producing. It's much more efficient because we're putting it at base surface. And so the vision was, how do you get to a modular concept. The seat itself has been designed for the ability to leverage components. That was the single reason. And it's somewhat thrown over to the JIT supplier and asked to put it together. Well, what we're doing is we're solving that problem. And so I think the timing could be better. So the customers I'm meeting with, when we talk modularity, they just perk up and they say, "Okay." So what does this mean? It means that we can take out significant costs out of the operations, one, from a labor perspective. Two, it gives you enormous amount of flexibility and it's a better system. And so I think some of it is fortunate that the timing is that every customer I walk into says, "How can you help me with cost? Here's how I can do it. And then we talk about the vertical integration, what we can do with different modular solutions within the system, they're much more receptive. And I think that's why we've seen this change when we acquired IGB. Having the manufacturing and engineering capabilities gave us enormous amount of credibility immediately. It wasn't like, "Okay, you can go work with any supplier you want." I get all that. But we tried that. It didn't work because you had this unfortunate conflict because each company is trying to protect their own value. And so when you acquire a company, you're really focused on the same goals. And if that means integrating harnesses and modules together into one where before it was I have to protect my own revenue dollar, that's gone. And so we've quickly been able to adapt to this idea of creating value through just reduction of components, getting a much better system out there and make it much more focused on a modular concept. And so the vision is that these components then will be integrated into the trim cover itself. And so having all the components with foam, all the thermal comfort solution components, and then the true cover is the answer. And so it's just they're more receptive. Like I said, timing is everything, and we're pushing it hard because I think they need solutions and they need help.

So in the short run, you're talking about volumes globally being flat. I think you're actually almost flat to slightly down leaning on IHS or S&P, whatever we want to call them as forecasters. They're both. But you're talking about margin expansion. Are these the kind of efforts where these are coming through fast enough that they're driving some of the margin expansion that we're expecting this year? Or are these things that are kind of on the [ come ] and get us to the long-term targets and potentially even above what you've talked about?

Yes. I think in terms of the margin impact of what Ray was describing, it's a little bit longer term. The near-term driver of higher margins this year is really our backlog rolling on at margins that are accretive in both segments, converting $1.2 billion backlog at about 11.5%, 12%. So that's the biggest catalyst for higher margins for us in the near term. We also do see what we call positive net performance. So every year, the equation that we're trying to solve is you have customer price reductions, you have wage inflation and offsetting that through our cost reduction programs, purchasing negotiations. And that is a net positive for us this year, about 15 basis points, more so in E-Systems than Seating sort of building on the margin improvement momentum from last year. As we look out to next year, we do see automation in '25 and '26, eventually reaching a point where that by itself can offset the full impact of wage inflation. That's the objective that we're pursuing. So relying less maybe on customer recovery and more on our own efforts to take cost out of our factors through automation. Long term, that will be a catalyst for margin expansion in both businesses.

And if we were to think about sort of dumb guys modeling, just very simply incremental margins, let's say, volumes are 2% or 3% higher than we're all expecting this year and you're going to flow through on revenue. I mean on core ongoing business, what should we think of on the operating...

Yes. So 15% to 20% conversion in Seating. A little bit higher than that in the systems. And we did guide to lower production volumes on our existing platforms this year overall. And so that's sort of the downward conversion and upward conversion as it comes back.

I mean our call said it might be a little bit better than that, but...

I hope you're right.

I hope you're right, too.

Okay. China is, obviously, a big topic from a Homeland perspective or a domestic market perspective but then potentially exports. As you see that market shifting and heading more towards domestics locally and then domestics from an export perspective. Can you talk about sort of your exposure, what you're seeing in the market? And what kind of opportunity there is there over time?

Yes. Actually, I was just there 3 weeks ago, meeting with some of our partners and our employees. And it's amazing how much it's shifted over the last several years. I think 60% of the vehicles on the road were EVs, a very diversified product on the road, and we've done an excellent job of growing relationships with the domestics on the ground. Jason, I don't know if you want to talk a little bit.

Yes. We have a strong business in China in Seating, we're either #1 or #2. It's really kind of Lear, Yanfeng and adding similar market positions in E-Systems on the wire side. We've got about 7% of the markets and the low-voltage wire so similar to our global market position. So we have a strong business in both segments in China. We have seen a dramatic shift from the traditional multinational OEMs to the Chinese domestics. And our business initially was largely driven by the multinational traditional OEMs in China. Historically, it was about 80%, multinational; 20%, Chinese domestics. This year, it's 70-30. Our backlog is kind of the inverse of that over the next 3 years. 2/3 of our backlog is with the Chinese domestic. So over time, you will see a pretty significant shift and our revenue will better reflect the market. Overall, maybe more so in seating than E-Systems, but both businesses have pretty good exposure to the Chinese domestics. BYD is a really important customer for us. I think we've got about 30% of their seat business. If you look out to 2026, they will be our, I think, second largest customer in Seating in China in that time frame. We're also growing with BYD outside of China. They awarded a seat program in Thailand. We're working with them in Hungary and in Brazil. Haven't been awarded the business, but we feel like we're going to win something in one of those markets as well. So as the Chinese domestics expand outside of China, we expect to participate in that as well.

So one question on that is, I mean, one thing that we've heard it's somewhat logical is that the Chinese OEMs may go global with their domestic supplier partners. I mean we saw the D3 do -- we've seen the Europeans do it, Koreans, Japanese do it, right? But I mean, given your presence with the domestics in China as they're going global, do they -- do you think they would prefer Yanfeng? Or other local suppliers or they view you as the local supplier that's going with them to the other markets? It seems like you can go both ways.

Yes. Well, we've had some very successful reviews already with the domestics outside of China, where they visit our facilities, where they're seeing what innovation technology we have. I think one thing that is important and obviously, the domestics in China in some respects, have an advantage. I think where they don't have an advantage on particular applications like innovation technology that we can bring. FlexAir is a great product that we have at Lear that cuts down 50% of all the polypropylene within foam pad. Foam pads are very durable. They're looking for innovative technologies. We know that's another one that's 100% recyclable material on the seat covers, ICBs and BDUs. So it's where you can bring that innovation to where you can actually offer a value proposition that helps them. And so I think being -- and having that vertical integration layer really helps us establish a really good relationship with the domestics outside of China. And we've had some outstanding reviews with our customers outside of China. And so we're hopeful that we'll be able to make some really positive announcements here outside of China, too, with these domestic players.

So from their perspective, you're not raising -- you're not flying the American flag. You're flying a multinational flag and you kind of fly under that radar it seems like it's...

Yes, we have a Chinese national team that runs the business and works with them very closely.

Yes. It seems like it's a huge opportunity for you guys. On Seating specifically, I think you guys have talked about 4 points about growth above our market from '23 to '27, right? We're now at '24. How much is there's opportunity to Chinese play into it? And how much other factors playing to it? Because I mean that clearly indicates you're gaining some market share from somebody somewhere over time. Is that -- how is that being driven?

Yes. So we still are benefiting from the Conquest awards that took place in seating over that kind of '19 to '22 time frame. Some of those programs are still ramping up, the BMW 5 Series and i5 in Europe and in Asia as an example of the Wagon or Grand Wagoner that we took over last year. So some of the market share gains are coming through those programs that were awarded. We have another conquest award that launches just outside of the backlog window with the European luxury OEM that we haven't announced, that we'll kind of continue that market share shift. So that's one catalyst to growth. The second catalyst is the thermal comfort capabilities and being able to deliver a lower cost system to our customers is helping us on the JIT side. It's just another factor that can help sway a decision on the JIT program decision by our customer. And then the component business itself is going to be a growth driver towards the tail end of that 4-year period and then really more beyond that. Both the components themselves, we're winning. For example, on thermal comfort on the IGB and Kongsberg award pace compared to what happened post acquisition. We're winning 25% more than those businesses were able to win on their own. So those businesses are growing faster than they would -- have had they remained private or in separate hands. And not just thermal comfort, but also as Ray described, FlexAir, is a catalyst for growth for us. Foam is a $4.5 billion market. We have less than 10% of that today. We see an opportunity to take -- for FlexAir to displace a significant amount of traditional foam over time, and we're the only ones that can produce that product. It's launching this year with Hyundai and the Santa Fe in a small-scale application, but we're working on development programs with customers globally there. So that would be another call.

I think the timing on that one is just that it's the validation. Hyundai jumped on it early, and I think they have aspirations to continue that across more product lines within their vehicles. But we're starting to see use for it in headline or door panels, not just seats, but other applications that really reduce the need for oil-based products. And so it seems like a no-brainer. When you walk in and everyone's talking about sustainability, environmental, be smart with what we're producing within the vehicle. And it's one of those products that just takes some time with validation. And so like Jason mentioned, it's being tested in other applications within the vehicle. It's just that being a little bit risk adverse at this time until they get it completely validated, but we're seeing a tremendous pull on that product line.

The last catalyst for growth in Seating is modularity. And so what we envision over time in selling modules to our competitors that are sourced by our customers. And we're on the cusp of our first award of a true module to one of our largest global customers and a program where we have the JIT. But it is a common system that can be applied to other programs that we don't have the JIT on. And so that's kind of the next area of focus to drive revenue growth in Seating is winning modules that would include the trim cover, the thermal comfort components, the foam or FlexAir is the seat cushioning material. And really that, I think, is the long-term path to continue to generate that 4 points of growth above market.

So all that 4 point sounds a little conservative, but we'll see how the year is on a roll. Doug, you had a question?

Yes, very impressive business in China that you've been winning. As we think about seats, we have a kind of more of a myopic view here in the U.S. on what a seat should be. I was trying to unveil a lot of this very competitive EV kind of like low price points. How do they look at seats as far as the totality of the vehicle? Do they look at it as a competitive advantage to have a very sexy, comfortable seat? Or is it more stripped down relative to some of the technology in the car, I guess that's a very big market.

Doug, that's -- like I said, I was there just 3 weeks ago, and it's amazing the quality and the craftsmanship and the content that these vehicles are searching for, that consumers within China are starving for more content, more features, more connectivity within the vehicle. So I was able to go through a number of different EV products when I was in China. It was -- what I walked away with was the impression of, "Damn, these things are nice." Quality is incredible. The content is unbelievable. And so they're looking for that upgrade that premium type segment to and the customers are demanding it. It's a significant shift from where I think they were just even several years ago. And so new products coming on. And their ability to launch products in a very short period of time. And so they're just constantly turning out new content within these vehicles to attract customers. And so I think that's going to only increase. And some of -- one of the reasons why we've talked about Thermal Comfort was they have limitations on how you can package content in because of how it's engineered. And by having a modular concept, you get a much thinner lower weight, lower cost feature. That opens up to not just a front row but to a second row or a third row, where they're definitely looking for content, heated elements or cooling elements or lumbar systems within the second row. And those have been somewhat limited because of how you can package it. So the design was always with the concept of how you take it from here to here, less weight and much more efficient when you talk about the customers' needs. And when you bring it to the surface, we're all customers, and we can appreciate when you bring that actual sensation to the surface for the customer, it's dramatically different for -- from a preference standpoint.

Good to know.

So even with some of these vehicles that they're putting a lot of content in. I mean it's what it sounds like. It's really interesting.

Yes. At least the ones they showed me. There's a lower level ones. We saw some of the BYD ones that they're talking about producing, but still, the quality was incredible. Really incredible.

And our business in Seating in China skews more to the luxury end of the spectrum, even within the BYD awards, it's the higher-end vehicles typically were succeeding.

So on the E-Systems side, we haven't heard as much sort of granularity on sort of growth above market and the targets there. I mean how do you think about that business? If you could just remind us how you think that's going to play out over the next 3 to 4 years for you?

Yes. We have a strong backlog in E-Systems. We've had 3 straight years of winning $1 billion of business, which is supported, our backlog, which is our 3-year backlog is $1 billion of new business rolling that we've established. Electrification has played a big part in that growth. That part of the business has grown dramatically over the last several years. It's now north of $750 million business within E-Systems, both the high-voltage wire connection systems and then the electronics products like the BDU, ICB and other products. And electrification are a key driver of growth in E-Systems. That's not the only way to grow any systems that we are, as Ray mentioned. At the beginning, we just won a second wire program with BMW. Last year, we won our first global wire program with BMW. So we've now won our second that's an important kind of driver of long-term growth in the wire business and an improvement in the risk profile of that business. Historically, it's been a business that was very reliant on Ford. It was our largest customer, still is our largest customer. But over time, we have grown with GM on the wire side, in Asia and here in North America. Now we're growing with BMW as well. And so low voltage market share gains is another key element of the growth plan in E-Systems. And we've grown that business at 6 points above market for the last 4 years, and that's our long-term objective as well.

Okay. That's helpful. And then on both of these businesses, I mean, you just kind of alluded to this on sort of some of the growth in the East is being driven by EVs. If we see this slowdown or this relative slowdown continue, hybrids backfill to some degree and ICE vehicles, potentially backfill to some degree. I'd imagine on the Seating business, you're somewhat powertrain agnostic, but I'd love to hear your kind of take on that. And then on the E-Systems side, particularly if we see swapping from EVs to hybrids, what that actually means? It might actually be a good guy for you. I mean, just curious on both segments how...

Yes. I mean, I would say both segments are powertrain agnostic. Now clearly, there's higher CPV in an electric vehicle in E-Systems than in an ICE vehicle. So it would impact growth, if there's a dramatic change in the long-term trajectory of the industry's transition from ICE to EV. But in the interim, as you mentioned, hybrids or plug-in hybrids take on a greater share of the market. There's more content in both of those powertrain types than in an ICE vehicle. So that's also helpful on the E-Systems side. Seating is truly powertrain-agnostic. It doesn't matter to us, which powertrain is going to be produced. There may be some longer-term benefits of some of the things we're doing with thermal comfort that could help, particularly with range on an electric vehicle, but largely it's powertrain agnostic.

Got it. I got a couple of lightning-round questions. We've got a few minutes left. I just want to check if there's any questions in the audience. We've got one right there.

So in Seating, you're placing a large emphasis on becoming vertically integrated, a key supplier, you're gaining share in a consolidated market. Can you talk about whether you're pricing power with your customers improving? And that the annual price downs that maybe you realized when you were just an assembly person is declining?

Yes. I would say that the pricing environment has always been super competitive in Seating. And one of the reasons for vertical integration is to give us more levers to pull to create value for our customers, more ways to offset the annual price reduction expectations that they have. I would say over time, the annual price reductions have moderated a little bit, particularly in this environment where we've dealt with commodity costs increasing. Now wage inflation running higher than it has historically, I think has led to maybe slightly lower customer price reductions. But as the OEMs are figuring out path to profitability with the transition from ICE to EVs, they are looking for design cost reduction ideas and in our vertical integration capabilities in Seating, I think, really uniquely positions us to develop those ideas for our customers.

Yes. I think like I mentioned earlier, I'm not seeing a change in what is the productivity request. It's more of the change in how they can get engineering change or BAV, whatever you want to call it, out of their overall systems. And so they're much more willing if it's proliferation or how you're going to take part numbers out or get at cost saves. That's why I said timing is everything. When you can go in and talk about Thermal Comfort System where you've designed it or on the modular concept that reduces parts by 50%, weights down time to sensation for the customer, significantly better. It's one of these solutions that, "Okay, here you go. You really want to test what you're talking about, let's go. Let's get to work."

Right. So just historically, if price cost was flat, you gave back 2 and you found productivity of 2, right? Going forward, is it -- is that price-cost positive now?

Yes. I mean we have a recent history of generating what I call positive net performance, maybe more so in E-Systems of late. They had more room for improvement. But we do expect to generate positive net performance in both businesses this year, it's 75 basis points in E-Systems think15. A little bit less than that in Seating, maybe 10 basis points of net performance. But looking out to next year, I think it's reasonable to target 50 basis points to 100 basis of net performance improvement in the business overall over the next several years.

I think we got time for one more here. And it's a high-class issue that you face. Balance sheet is in great shape, leverage is at the right level or on the low side. I think you're looking for $600 million to $750 million in free cash flow this year. Bank of America, we'd love if you take it to the bank, but I think investors want you to put it someplace else. So I mean where are the sort of the priorities for capital? You're highlighting all these opportunities. I mean if you think about it, internal capital, external capital, dividend and share buybacks or even some of these great strategic acquisitions? How are you thinking about all of this?

Well, let me lead. I think strategically, especially the acquisitions we've made in Seating and E-Systems, we're in a really good position. I think if there's going to be any more of these tuck-in acquisitions, would be around this Industry 4.0 or how we accelerate idea by Lear. And so that's an area that I think we have to continue to differentiate our company and continue to separate ourselves from our competitors. And so that's an area that I'm really focused on. Jason knows that I'm personally traveling to every single [ plant ]. It seems like every single week getting out and seeing these ideas, but how we accelerate that. But nothing, I would say, that's transformative or major. It's the smaller tuck-in acquisitions that we're doing a great job of just accelerating across our company.

Yes. And through our Lear Forward Program, we really focused on free cash flow generation last year and we saw a significant improvement there, improved capacity utilization, lower capital spending. And that free cash flow generation, we have used that to fuel our share repurchase program. The Board just approved an extension and increase of our share repurchase authorization to $1.5 billion out to 2026. We bought back about 4% of our shares last year. Based on our outlook for this year, we'd like to do something similar to that. We've continued buying back stock here in the first quarter. And so our priorities haven't changed. We'll continue to invest first organically in the business, tuck-in acquisitions, as Ray described, Thagora, InTouch, ASI. Those are $15 million to $25 million deals. They're very manageable and still allow us to return a significant amount of cash to shareholders through our share repurchase program.

That's a great note to end on. Ray and Jason, thank you so much for the time.

Really appreciate it.

Thanks so much for coming.

Thanks.

Thank you.

Thank you.