Good morning everyone and welcome to the Lear Corporation Fourth Quarter and Full Year 2021 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Ed Lowenfeld, Vice President of Investor Relations. please go ahead.

Thanks, Jamie. Good morning, everyone and thanks for joining us for Lear's fourth quarter and full year 2021 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-Q 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. Ray will begin with the business update including 2021 highlights, key upcoming launches and review of our 2022 to 2024 backlog. Jason will then review our financial results and full year 2022 outlook. 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 Ed and good morning everyone. Please turn to Slide 5. I am going to provide a brief overview of our full year financial results. 2021 was an extremely challenging year, as global vehicle production was significantly impacted by the semiconductor shortages in the COVID-19 pandemic. Commodity costs pressure and low visibility from our customers, resulting in short term productions shutdowns lead to very difficult operating environment. Despite these challenges, we reported sales of $19.3 billion and core operating earnings of $826 million, both of which reflects significant improvements compared to the prior year. I'm extremely proud of Lear team for the performance of 2021. We delivered solid financial results, increased our backlog and announced key strategic acquisitions and partnerships that will position the company for long term success. Slide 6 summarizes some business highlights from the year. Our sales growth outpaced the market by 8 percentage points in 2021. With strong growth over market in both seating and E-Systems. In seating, we increased our market share to 25%. The shelf rank. Reflecting new business wins in our leadership position in luxury seating. We also announced the Kongsberg acquisition, which by adding capabilities in massage, lumbar, heating and ventilation systems will further separate Lear as a seating supplier with the most complete component capabilities. We continue to identify additional opportunities to extend our leadership position in seating to increase market share and improve our industry leading margins. On E-system side, we completed multiple transactions to increase our capabilities and connection systems. These actions and other opportunities that we have identified and are pursuing will improve our competitive position in electrical distribution and support our plan to improve margins in E-systems. We're honored to be recently featured on the 2022 list of America's most responsible companies by Newsweek. Lear was ranked…

Thank you.

The industry outlook for electric vehicles continues to grow and Lear is benefiting is about half of this the new awards and E-systems represent content on electric vehicles, including high voltage wiring and connection systems as well as power electronics. This trend is also apparent in our upcoming launches for this year with six of our eight key launches, which will include content in new electric vehicles. Key wire launches include our first high voltage and low voltage wiring products with a major global EV manufacturer. Late this year, we also will be providing high and low voltage products on the most sophisticated and largest wiring harness Lear has ever produced. This award for an autonomous and electric passenger vehicle is a reflection of the trust that our OEM partner has in Lear's design and manufacturing capabilities in wiring. Working on this program, we have learned a tremendous amount about high complex data rich architectures and that experience will prove invaluable as we design and develop more sophisticated electrical distribution systems in the future. As a frame of reference, this wire harness has two to three times the number of circuits as a typical wire harness program. Key electronic launches include our award winning battery disconnect unit on the GMC Hummer pickup, the first of many derivatives on GM's battery electric truck platform and a 5G telecommunications unit for a Great Wall that will eventually be used on multiple models as we move forward. Now please turn to slide 9, which shows are 2022 to 2024 backlog of approximately $3.3 billion. As a reminder, our sales backlog includes only awarded programs net of any lost business and programs rolling off and excludes pursued business and net new business in our non-consolidated joint ventures. The backlog increased $475 million compared to…

Thanks Ray. Slide 11 shows vehicle production and key exchange rates for the fourth quarter. The ongoing component shortages significantly reduced global industry production for the third consecutive quarter, particularly in our two largest markets, North America and Europe. As a result, global vehicle production in the fourth quarter decreased by 13% compared to the strong fourth quarter in 2020. On a Lear's year sales weighted basis, global production declined by approximately 16%. From a currency standpoint, the U.S. dollar continued to weaken against the RMB and strengthened against the Euro compared to 2020. Slide 12, highlights Lear's growth over market for the full year as well as the fourth quarter. For the fourth quarter total company growth of our market was six percentage points with seating growing 7 points above market and E-systems growing 5 points above market. For the full year total company growth over market was a strong 8 percentage points with seating growing 9 points above market and E-systems growing 5 points above market. Growth over market in North America of 11 points for the year reflected the benefit of new business in both segments from Ford, Hyundai and Volkswagen and strong production in seating on GMs full size SUVs and pickups as well as Mercedes and BMW SUVs. In Europe, growth over market of 6 points was driven primarily by new business, as well as strong performance in the luxury segment and seating as well as new business and E-systems across multiple OEMs such as JLR, Audi, Volvo and Renault. In China growth over market of 2 points resulted primarily from new business with Ford seating and new business with Geely, Volvo, Great Wall, and Nissan in E-systems. Slide 13 highlights our financial results for the fourth quarter 2021 compared to 2020. Our sales declined…

Thanks, Jason. Turning now to slide 23. As we enter a new year, we continue to make investments to grow and strengthen our core businesses. We extend our advantage in operational excellence and develop and support our people. As always, we will continue to analyze our product portfolio to ensure we are making investments that will create the most value for our shareholders. In seating, we're going to integrate the Kongsberg acquisition which will further solidify our position as the leader in seating while bringing additional priceable content to our offerings. We believe this will enable Lear to improve the overall seat system performance by offering more efficient, lower weight and flexible packaging design solutions. We continue to identify additional opportunities to further strengthen our position in seating. In E-systems, our efforts will focus on continued growth in connection systems, which is a critical component to improving margins. We've made good progress improving our connection systems business last year, and we will be looking to identify additional value accretive investments in E-systems both organic and inorganic in 2022. Lear has a long history of aggressively managing its manufacturing capacity and cost structure. And we believe that semiconductor availability and other supply constraints will continue to impact industry volumes, while inflationary pressures throughout the supply chain will continue. Also, we do believe all of these issues will dissipate in the near to medium term. We are increasing our restructuring spending to increased flexibility, reduced costs and improve efficiencies in our operations going forward. These actions will ensure we are able to flex capacity with industry volumes and better position the company for future profitability. And now we'd be happy to take your questions.

Ladies and gentlemen will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Rod Lache from Wolfe Research. Please go ahead with your question.

Good morning, everyone. There are a couple of questions. Your guidance for 2022 I just wanted to clarify a couple things. On the top line, you've got 767 from volume, it’s about 4%. And I'm guessing that corresponds with your 6% volume guide minus 2% for price. And most likely your geographic mix is good but customer mixes or platform mix is not. Is that about right? And can you give us a sense of the how to think about that, particularly the geographic and customer mix. And second, on the earnings bridge, you've got 70 basis points of margin which if I'm, I just want to make sure I understand how you're portraying that margin bridge if we were to include the 425 of positive revenue then to get that magnitude of dilution, there would have to be like a negative 130 million correspondingly on the EBIT. Maybe you could just elaborate on that.

Yes, I'll start with the second question first. So yes, your math is pretty close. It's about $140 million between commodities and we're calling non-labor related inflationary impact year-over-year. So the recovery assumption embedded in there is that, we would offset about 75% of the total year-over-year impact -- the total impacts on a gross basis is about $575 million, Rod. In regards to your second question on the revenue bridge. Yes, you're right. Value mix also does include the effect of pricing, price downs as well as our offsets to price downs. So the net effect of that is less than 3%. But it is isn't that column of the of the bridge.

Okay, so just to clarify, Jason, I thought you had commented on something like a $65 million commodity impact maybe a little bit better than that. Maybe I misinterpreted that statement. And more importantly, if we think about the rate of margin improvement as we go forward, if it wasn't for this commodity impact, you'd be doing something like 130 basis points of margin improvement, not 60. Is that something we should be thinking about as we look forward to maybe 2023 assuming you get another increment of production and pretty good backlog? Are there other things that we need to think about viz-a-viz margins?

Yes. I mean just take a step back and just talk through commodities and what's happening there. Last year, we saw a $450 million gross impact, we recovered about 60% of that. The net impact is $185 million is a little more than 100 basis points for the company more in seating less in E-systems, about 60% of that was steel. And then 10% in copper, 20% of chemicals and 10% in leather hides, as we look at 2022 and what we were talking about several months ago, mainly related to steel, and copper and what we saw in those markets until maybe a lesser extent chemicals and hides really haven't changed much. And so as we look at 2022, the outlook for steel is actually a little bit better than we had anticipated at that point in time. And so again, the gross impact of roughly $575 million for this year and 140 million net only about 15% of that, or 20 million is steel. So we see the benefit of some additional pass through from last year's increase and better contractual terms on this year's steel exposure, coupled with what we believe is going to be declining steel prices throughout the year where the first quarter is sort of the peak impact, and then it works its way down throughout the balance of the year. Copper, chemicals and hides are a similar exposure to the prior year. The big difference for us this year is what we're seeing on components and yarn, resins, other components that we didn't see cost pressure on last year. And so what we're experiencing now is on components where we have contractual protection we're seeing suppliers trying to break those contracts. And our response to that depends on the nature of the supply…

Yes, I think Rod and Jason mentioned it, there has been a significant shift that we're seeing relative to the supply base. And it is we've been in this and we've been working with our customers worked with our suppliers for the last several years. And a lot of that was negotiated, the team did a remarkable job. And I think our purchasing team has done an incredible job of protecting production at the same time, negotiating what would be more transitory or temporary deals to get through a particular period of time and that's what we're seeing from the supply base was more temporary and things would from a commodity inflationary cost perspective to decrease over time. What we're seeing now is much more aggressive positions with a supply base looking for more fixed solutions and to Jason's point, we have a tremendous amount of detail within the cost structure in a tight network between engineering, our purchasing group, our commercial and logistics team that tied us together and really put it in front of the customer. 75% given whatever program is directed material. So we're seeing the negotiations go on, because we're in really three way party negotiations to solve those issues. And the aggressive behavior is getting to a point where it's stopped ship threats, with some of these directed suppliers. In E-systems, albeit it's not as high, we still have 30% to 40% of our purchase material is directed. And so like Jason said, that will be passed through to our customer. And there does seem to be the change where the tier twos and tier threes are in a position where it's financially, they don't have the ability to really produce parts going forward. So one is a solution to get them to produce parts…

Just to clarify, Ray it sounds like you're, you're optimistic about the ability to negotiate a recovery on that, as you get it out to next year. What specifically in seeding -- you gave the categories transportation, trucks, labor, things like that. But is it metals and mechanisms? Is it everything within the seating business where there's that magnitude of inflation, it's become more permanent?

Yes Jason, you want to kind of talk about the guidance perspective, obviously, we put in our guidance, what we anticipate both on the high and low end, as far as how we're going to get at it this year Rod. But I'd say sticky labor is one of the big ones that we're dealing with right now with capacity. With budget facilities, when you, like I mentioned you have hundreds of people standing around trying to build parts that's probably one of the most impactful from a cost perspective that we're negotiating with our customers when you've [capacidizes] to a certain level and then you have 1000s of employees sitting around and then you have to bring them back in 24 hours or 44 hours, 48 hours to sit around again, that is probably one of the more costly issues that we have to encounter from a quarterly perspective. And then from a commodity perspective, we talked about steel fortunately. Steel has gone down significantly but across the board like Jason mentioned yarn, obviously leather was as something impacts us this year, particularly in the first half, and chemicals are issues, but I wouldn't say as significantly large as what we see just running our facilities in the jet facilities.

See components that are made with steel and resins are where we're seeing the kind of stickier more permanent price increase requests. So even with steel coming down 30% North America from that peak, it's still more than double, its usual historical level. And so suppliers that, smaller suppliers that have a high percentage of steel as a component in their part is where we're seeing probably the most significant distress on the seating side and in the E-systems parts that are that are made with copper and resins combined, are where we're seeing pressure in addition to the obvious issues with microchips, suppliers, put your more three party discussions with our customers.

Okay. Thank you.

You're welcome.

Thanks Rod.

Our next question comes from Joseph Spak from RBC Capital Markets. Please go ahead with your questions.

Thanks. Good morning. I guess, I was wondering if you could give a little bit more color of the margins by segment that you expect and then specifically, in E-systems, I know you've talked in the past about incrementals on that volume, what's not really clear to me is sort of how much investment you're putting into E-systems and a wondering what that amount is for ‘22 and how that plays into the margins for that segment?

Yes. So the margin range for E-systems is sort of mid threes to a little less than 6%, from the low end to the high end of the guidance range. And the math is 4.7% at the midpoint, we're seeing good conversion on volumes in E-systems in the neighborhood of 27%. We're seeing good conversion on the backlog. It's converting at more than 10% and so the biggest margin headwind again in E-systems is going to be the net effect of these component commodity increases, which is about a little more than 100 basis points of headwind. And then to a lesser extent, our continued investment in engineering in that segment, but that's much less significant in terms of the basis point impact. If I kind of just step back and look at reading through this year, what E-systems margins look like out in a more normal volume environment, I think so at 4.7%, if you just add back volume at, say 89 million units, that's 2023's IHS forecasts that takes you to 7% by itself and then climb back third of the commodity impact and half of the premium cost. So we're continuing to incur that business already at 8%. And with our continued growth in connection systems over the next couple of years, there's a very clear path back to 8.5%. So I think what's really weighing on that segment is less about investment and more about the net effect of commodities and component costs increases.

Okay, thanks. And in seatings the margin range?

So in seating the margin range is sort of mid 6 to just over 7, 6.8% at the midpoint.

Okay. I guess the second question is just on within E-systems on [indiscernible], we heard from [Sam] yesterday, there was a canceled program with with [indiscernible] what's the update on [indiscernible] from full year perspective?

I have heard about that. Not sure what [indiscernible] is referring to. It's good down back to --

Okay. And is there an update just on the progress for that business? And how that sort of contributing to the go forward trend for E-systems?

Yes. So what we've done at this stage, Joe, is we've fully integrated that into E-systems and into the electronics business. And so essentially it's a little bit like some of the smaller acquisitions in electronics that we've had with XL, [orada] and others to just round out our software capability that's embedded on the electronic modules that we're selling. So not much of an update to provide specifically for you on that in terms of independent revenue or anything like that.

Okay, thank you.

Our next question comes from Dan Levy from Credit Suisse. Please go ahead with your question.

Hi, good. Good morning. Thank you for taking questions. I just want to go to your growth of the market, which I'm calculating over on a weighted basis versus your end market expectations. It's like one point of growth of the market. You just did eight points of growth of the market in 2021. So maybe you could just give us a sense of that eight points of outgrowth, how much of that was unique which will be subject to pay back so to speak. And then I think you mentioned some items on mix and changeover. You mentioned SuperDuty, but just why only one point outgrowth in 2022 and the outlook beyond 2022, still for something in the mid single digit range?

Yes, I'll start with the second part of that question first. Our outlooks longer term really hasn't changed in either segment. I think if you look back again 2019 through 2022, it gives you a better sense of the growth potential of both business segments of E-systems at six points of growth over market and seating at five. And so this year it's a little bit lumpy, because of changeovers and the benefit we had last year, particularly in seating with the very favorable mix, sort of reversing course. And I'll just give you a couple examples talked about the changeover in the prepared remarks in the E-systems and on the Ford SuperDuty, but in addition to that Expedition Navigator, another large platform, in that segment, the volumes are expected to be lower. In a North American market that were projected to grow at 12% -13% in seating, we have Daimler changing over there SUVs in Tuscaloosa, not the GLE, GLS. But the new vehicles that they're introducing, there's two electric SUVs that we'll be launching at the tail end of this year. And so their volumes are down year-over-year after a record year last year. Again in the North American market that is growing at 12% or 13%. So there's just some, it's just math at that point. In Europe what we're seeing in terms of the IHS projections, which underpin a lot of our assumptions on volumes is flattish or even lower volumes on some luxury platforms, Porsche, Panamera, 911 Baxter came in those platforms Audi, Audi Q3 is another one that comes to mind. Again in a region that is slated to grow 12% or 13%. So it's what you're seeing as the rotation back to mainstream vehicles. Now, that's the assumption we've made in our guidance.…

Okay, so just just to unpack one of the points there just to be clear this contemplate I mean GM is your largest customer I think there's something like 20% [indiscernible] they're out there saying volume growth of 25 to 30. Does this contemplate an outlook like that from GM?

So at the high end of the range, we have something that resembles what GM is talking about on certain platforms like the full size truck and SUVs. We've been a little bit more cautious at the midpoint of our guidance range and we're not reflecting the full customer projections at this point just given what we experienced last year and other platforms that had a lot of downtime last year, we've sort of assumed that is going to continue again because of the constraints in the marketplace. So the answer is yes and no. And that depends on the platform Dan.

Okay, great. Thanks. And then a follow up. And I think you touched on it a little bit here. But you mentioned in your deck that your seating market share is now 25%, up from 23%, I think your long term target is 27% or 28%. So maybe you could just unpack what is it that's driving continued market share gains in seating? Is it just, is it the vertical integration? Is it something on the cost side? What's driving the market share wins?

Well, I think it's a combination of a number of things. And we talked about this, going back 10 years plus, and we obviously invested in the business, to really be the most efficient, high quality producers of seats in the world. And we're very disciplined with our approach and still are very disciplined with our approach on how we look at business by customer, by region, by component so that we get a fair return on invested capital and position our business for continued success. I think what we're seeing now is one, we have an incredible reputation built on what I just mentioned of the investments that were made a long time ago of operational excellence and the continuation of Industry 4.0 in technology within our manufacturing plants to really have a superior manufacturing plan and in addition to that and I think what you've seen over the most recent three to four years is our investment in innovation and technology. And what we've done is, we've been able to differentiate ourselves as just a pure zip manufacturer, but bringing what we talk about value solutions for our customers. Kongsberg is a great example. We talked about intuitive seating, and really we've had engineering teams working on value propositions and solutions, with innovation to change thermal comfort. And so those type of technologies or innovations allow us access into early development programs. And Frank Orsini is the president of the seating group. And Frank and I have been in numerous meetings inside different customers design studios talking about technology. For example, configure plus, where you have electrified power rails, which is a combination of these systems, technology, innovation, and Carl's here to help us really differentiate our capabilities. So when you have those innovations and technologies, coupled with…

Got it. Thank you very much.

Yes.

And our next question comes from David Kelley from Jeffries. Please go ahead with your question.

Hey good morning, guys. Maybe a follow up on the earlier E-systems margin discussion, Jason. The 80 basis points of premium cost that that weighed on Q4, I was just hoping to get a bit more color on how you're thinking about that impact and trajectory into ‘22. And specifically in light of those semi in electronics and inflationary costs in the market and just also was hoping to get more color on some of the reception to potential pass through from your customers?

Yes. So starting with the cost of the premium costs we're expecting, that's what we incurred last year to continue again this year, a similar level of disruption, and resulting premium freights, as Ray said, sticky labor, and other inefficiencies impacting us sort of throughout this year. On the components side I think it depends on the nature of the supply arrangement and the component itself. So for example, with microchips, it’s generally a three party discussion between the customer and the supplier. And so it's really based on the availability of parts. And so the price increase has to be absorbed really at the customer level just to protect production. In the case of other directed supplier parts like terminals and connectors, again, it's more of a three party discussion. But beyond that, we are seeing inflationary pressures on other components where we control the sourcing, and that is having a fairly meaningful impact on these systems for the year. The commodity impact is about 107 basis points year-over-year. So while the premium costs those types of things haven't changed year-over-year the net effect of commodities after recovery has changed. Now, some of that, I think will get passed through in subsequent years. So some of this takes time, and you're trying to balance you are desire to grow the business and you're implementing cost reductions that maybe take time to fully offset the impact. So I think it's reasonable if you look out to next year that roughly a third of what we've incurred over the last two years in commodities should be offset and we'll continue to improve upon that, as the years go by. And ultimately everything we're quoting today really has kind of these higher cost levels factored in and so as new programs launch, we would expect that the margin profile would be in line with our typical margin spent on the underlying products going forward.

Okay, got it. That's really helpful. And maybe just a follow up on your point at that time, I'm going to pass through see if we take a step back at E-systems backlogs ramping nicely solid mix there. Is there anything structural that is changed the path to the 10% margin target you've talked about for 2024? Assuming, of course, we're back to some normalized level of LVP?

Yes. I think it's the combination of running at normal production rates so your capacity as a plant for certain volume, the customer has a planning volume, and then they adhere to it because they have availability of parts that coupled with some normalization on commodities and then also on premium costs, those are the factors that are holding us back. The things that we can control, we're doing very well with in terms of the net performance in the business, the growth and connection systems, all of those things are continuing to grow margins in line with what we had laid out over the last couple of years in terms of our longer term plan to get to 10%. So nothing, structurally is different than what we talked about previously.

Okay, got it. That's helpful. Thank you.

Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question.

Okay. Thanks for taking my questions. You mentioned earlier, the potential to claw back or your expectation that next year you will be able to claw back the commodity costs. I mean, are we talking the 185 last year and the 140 expected this year or part of that? How should we think about the good news we should be thinking about as you recover them?

Yes. I'd love to be able to give you that level of granularity, we've modeled some different things. And we're working hard to pass this through as quickly as possible and offset what we can't pass through through our own investments in restructuring and other performance drivers. But as I start to think about sort of ‘23, ‘24 what we're assuming is that roughly a half, a third to a half of that impacts we would see unwinding itself in ‘23. That's our target as we sit here today, but there's a lot of moving parts counts. It's difficult to put a pinpoint number on it.

And is that 185 or 140 we can add them together or did you get some of the 185 within this year?

I would look at those together. The cumulative effect on our business is 325 million unwinding over multiple years. And part of that scatter come through some normalization of costs. So steel for example after peaking at the end of September last year, it's down a third in North America. Suggestions are that it will, we will see more capacity coming online throughout this year and next year. So certainly over I'd say the next 24 months, you should see steel, maybe knock it back down to 2020 levels but certainly somewhere much closer to that zip code.

Okay. And in terms of growth over marketed some different numbers were discussed on a call. It's roughly about 10% growth, your assumption is 6%. markets. So your outlook is organically about 4% over market and it is one is that right? And then two, when I look at the slides, that volume slide is up four, so the backlog is really driving that above market growth. And I get the product mix. But why with geographies being higher in North America, Europe, those up 10%, won't that overwhelmed some of the product headwinds that you're highlighting? It seems to be underperforming the volume seems surprising when North America Europe are up 10 over 10.

Yes. So when we talk about growth of America, we do it on a sales weighted basis. So if the market we're talking about is growing faster than the 6% of the industry is growing, because as you point out, our two largest markets are growing at 12% and 13%. So the roughly call it a point of growth over market is relative to that sales weighted basis not the industry volume itself.

Okay. Got it. All right. Thanks for taking my questions.

You are welcome.

And ladies and gentlemen, our final question this morning comes from Brian Johnson from Barclays. Please go ahead with your question.

Thank you. And just a couple of questions. And again, around the topic of the day, and inflation and margins, I was and I apologize a bit confused in the discussion earlier about your relations with the tier twos and the tier threes. It's well known that you're less vertically integrated than the other competitor [in C] you mentioned some of those suppliers are struggling, but then how does that get reflected in the prices you paid? And in particular, you talked about moving to fixed price contracts, it would seem like more indexing that's directly tied to what the OEM paid would be the solution there. So just wondering how that plays out? And how, again, kind of thinking of ‘22, ‘23 margins, where that one's up?

Yes, I think Ray's reference to fixed versus temporary. It's just a reflection of kind of the underlying inflation rates you're seeing in the U.S. It's 7%. It's because labor is the biggest input to that. Eventually that works its way through to the prices of all products as you're seeing in the broader inflation rate. In terms of our level of vertical integration I think our level of vertical integration, if you look beyond structures is beyond what others have in the space. And so a lot of what we're seeing is on that tier three level components into our C component plants. So that could be wire and hog rings, it could be yarn, that's an input in fabric and even chemicals that are used to tap leather. So things that ordinarily don't move around much we're starting to see price increases and where we have contracts, but the suppliers are trying to break them. So it's ultimately it's a negotiation with the supplier and then a negotiation back to back with our customers to try and pass through what we can. We've tried to put a balanced view of that into our outlook, which at the same time includes stretch on our end to perform and restructure the business to offset what we can't pass through. So it's difficult to say what the impact is going to be kind of quarter to quarter throughout the year, but we know unbalanced. It's a challenging environment, that we've captured what we think is a fair view of that in the outlook. And we would expect to see unwinding of that as we look out to next year and beyond.

Okay, and just a quick follow up, if you think about the performance improvement walk typically, that's a Lear's strong point, in fact, in the past, and now you sometimes project started low margins, and they get worked up, is there any way to separate how much of that is the ongoing productivity and other re-engineering improvements versus the offset from inflationary wages and how that balance is working out?

Yes. I'm not going to get into that level of detail, Brian, and the components of our performance, but they are generally a combination of plant efficiencies, negotiated price downs from our suppliers through purchasing, CTO, and Vav on the commercial side, working with our engineering group and our customers to drive cost out and capture some margin benefit associated with that. Those are the primary drivers. We are seeing to your I think maybe the underlying point of your question, we are seeing an elevated level of labor economics in our plants which is lessening maybe that net performance beyond what it ordinarily would be. I don't have that specific detail in front of me to break out.

Okay, and are the OEMs receptive to recovery of inflationary labor costs for the years are the sub suppliers?

Yes, we were having some good discussions with the customers. And for the most part and again, I think, to Jason's point, there's a number of ways and you are right, we are very good at this, and this is something we take a lot of pride in is that we have a number of different actions. One, getting at the sticky labor, we're looking at how we can flex our different facilities. We have a very unique position, we talk about getting at our facilities in South America we're able to combine different product offerings like wiring really fits well with the sequencing of wiring in just in time or trim. So we've done a nice job of consolidating some of our plants to flex them, as we're seeing this persist, and we don't believe it's going to evaporate or go away in the near term. So we're going to take some of the actions on ourselves, and lower our cost. From a CTO cost technology optimization, we've queued up hundreds of millions of ideas. And those ideas are in front of the customer. We obviously validate them. We make sure that they understand, what we're trying to do what we're trying to achieve and those are great commercial solutions for us to offset costs. And then we have this just negotiation that we talked about. We have incredible transparency. Our teams, both teams in purchasing and E-systems and seeing are doing a remarkable job. And when Jason's talking about, we're talking about more of a fixed cost going forward, as opposed to solutions that are more temporary, in the price. We do have an enormous amount of transparency into the details when suppliers are bringing forward cost changes or cost price increases. And that's when we get into…

Okay, thank you, Ray.

Yes. Thanks. Okay, I think that's the last call. So I just want to conclude the call and again, say thanks to all the Lear employees. It was one heck of a year last year. Everyone did a great job. I am very optimistic about the future like I said. I think the backlog is just another indicator barometer target of what we're trying to achieve and profitable backlog is exactly the best accomplishment and safety from our customers. And so, thank you to the teams on the phone and look forward to seeing you soon.

Ladies and gentlemen with that we will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.