Good morning everyone and welcome to the Lear Corporation’s Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] We also like to note that today’s event is being recorded. At this time, I would like to turn the conference call over to Ed Lowenfeld, Vice President, Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning everyone. And thank you for joining us for Lear's third quarter 2022 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 up 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 the 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. First Ray will review highlights from the quarter and provide a business update. Jason will then review our third quarter financial results and our full-year 2022 outlook. Finally, Ray will offer some conclude remarks. Following the formal presentation, we'd be happy to take your questions. Now, I'd like to invite Ray to begin.

Thanks, Ed. Now please turn to Slide 5, where I will provide a brief overview of our third quarter financials. Our financial results improved significantly in the third quarter, reflecting higher production volumes and our strong new business backlog. Sales increased 23% to $5.2 billion and core operating earnings more than doubled to $235 million. Operating margins improved in both seating and E-Systems to the best levels in over a year, with further improvements expected in the fourth quarter. Operating cash flow improved to $252 million in the third quarter, reflecting higher earnings and improved working capital management. Slide 6 outlines recent key business highlights. Lear’s sales outperformed the industry again in third quarter. And year to date, we have grown faster than the market by 4 percentage points, reflecting outperformance in both business segments. In E-Systems, we recently announced the most significant new electrification award to date. We will supply General Motors with a proprietary battery disconnect unit for all battery electric truck derivatives and GM's Ultium battery platform through 2030. We also continue to receive recognition across our business segments from leading industry publications. In the latest J.D. Power 2022 Seat Quality study, Lear received more than twice as many awards as any other seat supplier and one-third of the total awards granted. This is the second year in a row we have far outpaced our competitors and another indication of our leadership position in operational excellence and quality. We won an Automotive News PACEpilot award for ConfigurE+ with zonal safety technology. This smart wireless technology, which is the first ever passive safety system designed for removal seating automatically activates safety features in the second and third row of the vehicle based on detected location of the occupants. This solution further strengthens our PACE Award winning ConfigurE+ product…

Thank you, Rick. Slide 10 shows vehicle production and key exchange rates for the third quarter. Gold production was up 29%, compared to Q3 2021 and up approximately 25% on a Lear sales weighted basis. Volumes were higher in each of our key markets with North America up 24%, Europe up 20%, and then China up 35%. During the quarter, U.S. dollar strengthened significantly against the euro and the RMB impacting our financial results, primarily on a translation basis. Slide 11 highlights Lear's growth over market. For the third quarter, total company growth over market was 1 percentage point, driven primarily by new business in both segments. These systems grew 2 points above market, while seating grew just slightly above the market for the quarter. Through the first three quarters, Lear has grown 4 points faster than the market with seating growing 4 points and E-Systems growing 3 points over market. If you look at the last three years, both business segments have grown at an average rate of 6 points above the market. The 6 points of growth of our market in seating has been achieved through market share gains and new program awards reflected in our backlog, as well as favorable platform mix. We estimate that our backlog in 2020 through 2022 represents approximately 4 points of Seating's growth over market, and favorable platform mix represents the balance. We anticipate continued market share gains and strong backlog over the next two years, but would not anticipate the favorable mix to continue. Turning to Slide 12, I'll highlight our financial results for the third quarter of 2022. Our sales increased 23% year-over-year to $5.2 billion. Excluding the impact of foreign exchange, commodities and acquisitions, sales were up by 26%, reflecting primarily higher production on Lear platforms and the addition…

Thanks, Jason. Please turn to Slide 20, which highlights how Lear strategically position to drive value for our shareholders. Our product portfolio is powertrain agnostic, well-positioned for the shift to electrification, but also poised to continue to benefit from the production of ICE vehicles. Both of our business segments have outperformed industry growth rates by 6 percentage points over the past three years. We are the leader in automotive seating with a growing 25% market share. Lear is the largest provider of seats for luxury vehicles and we have consistently been recognized by J.D. Power as the quality leader. Our financial returns and seating lead the industry and we are investing in innovation to further separate Lear as the leading seating supplier. Electrification and other added content in the vehicle will drive growth in these systems. And we expect margins to grow as we increase scale and vertical integration across our portfolio of products. We are winning significant new business through innovative products such as the BDU, and the ICB, and are identifying additional opportunities across these product lines. We have a long history of driving operational excellence, and we will continue to improve manufacturing flexibility and efficiency across our operations. We have a strong balance sheet with no near-term debt maturities and have locked in a low cost debt structure that protects us from rising interest rates. We are targeting 80% cash conversion and have programs in place to return excess cash to shareholders through quarterly dividends and share repurchases. As we work through the challenging industry conditions, we are proactively taking steps to position Lear for future success. I couldn’t be more proud to lead the Lear team and want to thank all of our employees for their dedication and hard work. And now, we'd be happy to take your questions.

[Operator Instructions] Our first question today comes from Joseph Spak from RBC. Please go ahead with your question.

Thanks so much, everyone. Ray and Jason, I guess, I first wanted to, sort of dive into some of your comments on mix? And how do you expect that to play out right now into 2023? It sounded like you didn't really expect it, some of the benefit you've seen to continue. It was obviously even a little bit of a headwind in the quarter. So, maybe you could just talk a little bit more about that and maybe if you could quantify the impact you see for next year that would be helpful?

Joe, it's probably a little bit early to provide pinpoint guidance for next year, but the point of that – sharing that slide with investors today was really just to quantify how much of our growth over market in seating over the last three years has been a result of platform mix and customers prioritizing their most profitable platforms and how that's benefited our seat business. And so, what we've experienced over the last three years is roughly 2 points of that growth over market has been driven by mix. And just to give you an example, the GM full size truck and SUV platform, I think the volumes are higher in 2022 than they were in 2019 in a North American market that's down significantly over that time period. Also some of the luxury platforms, the Audi Q5 for example is up over that time period. So, we would expect to see continued strength from those platforms that are still great platforms for our customers, but we wouldn't expect to see continued growth consistent with say, the North America market growth rates overall over the next couple of years, not sure that benefit unwinds, but it's unlikely to continue at that pace. It's really the primary point we wanted to communicate.

Okay, got it. And then just as a second question, I was wondering if you could update us on some of your conversations with your customers on recoveries maybe within each segment, how much within that volume mix other was – was some of the recoveries and if you can, sort of talk about whether that was in period or retroactive and how we should think about that dynamic going forward?

Yes, I think if you look at – probably the best way to look at that is, we're – if you're thinking about how to model next year? If you look at our second half outlook, most of the commodity recovery in the second half of the year does relate to the second half, but in the seating business in particular, there's about a 30 basis point margin benefit for commodity recovery that we’ve received in the second half that relates to the first half. And so, if you look at our guidance for the full-year, we have seating in the second half of the year at 6.7%, just under 7% in the fourth quarter. And if you strip out that 30 basis points, it's more like 6.4% being, sort of the right launching pad as we go into next year. In E-Systems, it's fairly clean with some of that same timing benefit and commodity recovery being offset by the revaluation of our copper inventory. And so, we have assumed margins in the second half of the year in E-Systems of 4.3% and would expect that to be, sort of a good launching point for 2023 for modeling purposes and then do the math in the company overall, it's roughly 4.5% in the second half of the year is what we've embedded in our guidance. And then maybe Ray, if you want to elaborate on the recoveries.

Yes. As far as the conversations with the customers, and I think, Joe, heard me say this before. Last year, we obviously were in for different negotiations at different points and even earlier this year. And I think the majority of the customers were in a mindset of these are more transitory and kind of wait and see on getting some of these things resolved where I believe right now the majority of our customers are more in-line with a general policy and guidelines for how they'll resolve it. And so, I think that's a very constructive and positive move in respect from our perspective. Now, there are different areas that we are going to have to drive efficiencies, labor being one that we have to work on labor and some of the labor cost, but some of the more fixed cost, the inflationary cost, the commodity costs have been defined in either some type of share agreement or recovery agreement. And so, I see that as a very positive move. Even though there's a lot of work still to be done, at least generally the customers are more willing to sit down and negotiate on a longer-term basis. And I also think that combined with that, you can solve these issues and it depends on how you respond to your customers and with threats or other ways of getting the customer to pay shutdowns, those type of things that we're seeing other customers – or other suppliers to behave – behaviors as far as how they're getting at the negotiations. We've taken our approach that let's balance this thing, let's work with them, let's collaborate, let’s – and we have a tremendous amount of VAV CTO as we call it negotiation that we can work into cutting costs. along with solving some of the [piece price] [ph] issues and then obviously focused on growth. So, we've taken a much more balanced approach, but the good news is the customers are much more willing to look at guidelines or policies that they've put in place for resolving these things. And that's been a very positive move that I've seen from the customers over a pride say the last six to eight months.

Okay. And sorry, just to be clear, in those sales walks for the segments like in E-Systems, the recovery, that commodity bucket is where those recoveries are, that's not just straight, the straight sort of movement in copper. It also compensates you for other inflationary costs you may have incurred?

Yes, that's correct. They're both in that bucket. And just to answer Joe real quick to clarify my comments regarding the second half operating margins, the company overall in our guidance would be at 4.7% and it'd be about a 20 basis point, sort of out of period recovery the company overall. So, as you're looking at modeling for next year, the right launching point would be about 4.5% for the company.

Okay. Thank you very much.

And our next question comes from John Murphy from Bank of America. Please go ahead with your question.

Good morning, guys. I just wanted to follow-up on that question from Joe on the recoveries. I mean, it sounds like the automakers have been a lot more understanding about the volatility in their schedules and the problems that that's created from you. So, just curious, what kind of recovery you're getting from that? And then also when do you see these schedules stabilizing? I don't think in the current releases, you believe that there's going to be stabilization maybe in the near-term or maybe you do when you actually get stabilization as opposed to maybe even rail recovery in absolute terms?

I think the recovery, we're actually seeing some of the recoveries. I think as I mentioned earlier, each customer has different policies and each customers are treating these recoveries slightly different, but they are recognizing that there needs to be a mechanism for recovery. And there might be timing elements that are ways that we would resolve it because there is a direct correlation in some respects to allocation or supply issues based on how we're negotiating some of these settlements either with directed suppliers or with our own sourced suppliers. So that recognition of resolving it is, I think a very positive change from our customers. In respect to how – again, I think we're still seeing allocation problems. We're still seeing shutdowns in respect to our customers around the world and we're seeing those things in different ways. And so, I haven't seen a significant shift. I wish I could sit here and say that I'm very optimistic about the second or third or fourth quarter next year. I think these type of allocation issues are going to be with us for the short to mid-term and maybe all the way through next year. So, I don't see that changing significantly from where we're at today.

Maybe just to follow-up on that. I mean, if we're in a somewhat constrained environment and it seems like demand is reasonably okay at least relative to the supply, a question around mix might be or sort of that speculation around mix might not be that bad just because we're so constrained. I mean, how do you, I mean how do you think about mix going negative? Do you think that like volumes need to be up 10%, 20% for mix to go negative? And if we see something that's 5% to 10 % up that mix might still be pretty darn strong for you? Just how do you think about that go forward?

Yes, I think that's the right way a look at it. If there is a more significant industry recovery, say, 8%, 10%, 12% over a couple of years in North America and Europe. That's where there could be a little bit of unwinding of the mix benefit that we enjoyed for the past three years. If it's 2%, 3%, 4%, 5% and that range certainly going to be less pronounced and maybe not a factor at all.

Okay. And then just lastly on the BDU, I mean, it sounds like you – that goes through 2030, you're kind of highlighting that's a longer-term program, but as we start thinking about that as being, sort of more of powertrain as opposed to electrical system or seating, those contracts have traditionally been, sort of 7 years to 15 years as opposed to, sort of 4 to 5, right? I mean, it spans two to three product cycles, vehicle product cycles as opposed to one product cycle. So, do you believe as you get into the electrical system more around the powertrain specifically that you might have a lot longer-term contracts and the economics might be a lot better for you because like you said you can work on these efficiencies for a longer period of time?

Yes, I think that's why we were very specific in how we are describing that because it is a unique type of contract, particularly around the difference between seating in these systems. And that's exactly the intent is that working in a very collaborative way with General Motors, we're able to drive out efficiencies over a much more longer-term and we understand exactly our vision of where we're going to be out to 2030. And so, those type of contracts are exactly the type of expectation I think we have internally because the investment that's required, the type of capital outlay that we're putting in place and the longer-term vision, so we can really scale that properly and get the benefits that our customers are looking for and then what we're looking for as far as a fair return. So, we couldn’t be more excited about that BDU. It was a really nice bit of work that the engineering team did here at Lear Corporation along with exclusive collaboration with General Motors to really get it at an efficient system and that's exactly how we're looking at it. And those capabilities that we have with the patents and the technologies and the way we're automating that facility can help us across multiple customers too.

Great. Thank you very much guys.

Thanks.

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

Great. Thanks for taking my questions. Any update on the commodity headwind for the year? I think last quarter you said it was 155 million net and 720 million gross, are those still the same numbers? Any update there?

Yes, 155 million, that number is still where we're at. What we have seen is a little bit of movement between seating and E-Systems both in terms of the gross impact and the net impact. So, seating is about 10 million better than we had thought when we sat here on the second quarter earnings call and in E-Systems is about 10 million [worse] [ph] on a net basis and that's really a result of steel coming down a little bit and that's benefiting seating. And then in E-Systems seeing the effect of – one, the capital revaluation of the inventory in the quarter, which also has an impact on the second half overall. And then also some component cost increases that we're working through negotiations with our suppliers on and the commercial recovery associated with those. We've seen some movement there as well, but overall, on a net basis, it's unchanged, Colin.

And on a growth, the 720 seems a little high when I look at Q4?

On a gross basis, it's come up a little bit as well. So, that's still a decent number, but it may be as much as $10 million to $15 million higher than that.

Got it. And you mentioned very clearly that the base exiting this year second half is 4.5%. How should we be thinking about the puts and takes into next year from this space? I mean production in the second half is actually a little bit higher than the full-year. Is there more help from production schedule stabilizing next year? And is there going to be more help into next year from cost savings from some of the pricing or is that kind of already in your second half numbers? Just trying to think about how we should think about that?

Yes, I want to be careful not to get into two detail a discussion on 2023 and providing guidance, but I can share a couple of comments that should be helpful. One was the run rate as we exit the year. The other, I think if you look at our backlog, we announced a backlog for 2023 of [1.450 billion] and another 600 million in 2024. So, $2 billion of business rolling on over the next two years. We have seen a little bit of movement in the backlog number itself. This year lower volumes maybe slower ramp ups and some of the new programs that have launched. And so, we're 135 million lower this year on our backlog and we see a similar phenomenon next year where that backlog number is going to be a little bit lighter than what we had previously anticipated, but it'd still be a strong number for the company overall, particularly over that two-year period. I think 2 billion over 2023, 2024, so something that investors can expect to see. So, I think that that will provide a benefit. Our margins on our backlog are rolling on at or above segment margin targets in both seating the E-Systems. We expect that to continue and that will be a tailwind for next year. If you look at commodities, certainly we've seen, kind of a mixed bag. Steel in North America has come down by more than half from its peak. So, that's a positive. Europe steel has come down, but not nearly as much. So, a little more uncertainty around that. Copper has come down by $1 and so we should see a modest benefit from that next year, but on the oil based commodities, we're still seeing a lot of pressure there. So, foam chemicals, yarns, things like that resins, which impacts both segments. I think we'll continue to be a factor next year and while maybe not a headwind, it certainly won't be a tailwind as we look out to next year. You will see some benefit from the restructuring program we have in place, but as you highlighted, Colin, some of that is also reflected in our second half run rate. So, at this point, it's probably all we're comfortable sharing for next year. It's difficult to say, what's going to happen in the production environment, but as we highlighted in our prepared remarks and Ray talked about a moment ago, we're still seeing customers shut down on short notice. We're still seeing the effects of the chip shortage at our operations. And then lastly, I guess, foreign exchange, the strong U.S. dollar certainly going to weigh on revenues for next year. And I'm not sure as I look at the analyst expectations for next year that that's been factored in yet year-over-year that would likely be a bit of a headwind, particularly on the revenues, not so much on margins.

All right. Thanks for taking my questions.

You're welcome.

Our next question comes from Emmanuel Rosner from Deutsche Bank. Please go ahead with your question.

Thank you very much. Maybe just picking up where you just left [indiscernible] on Colin's question. One additional factor I think you had mentioned in the past was your goal to try to recover some of these unrecovered commodities from the last few years over a number of years going forward, is that something that you would still view as a tailwind as we move into 2023?

Yes. We've talked, Emmanuel, about half to two-thirds of that unwinding through a combination of recoveries and moderation of the commodity costs themselves. So, the recovery portion of that, there should be a modest improvement still as previously communicated over the next two years and some of the commodities where there's a longer negotiation period or lag on the recovery. Some of our European steel programs leather, some of the leather contracts had a little longer lag period or take longer to negotiate. So, some of those should benefit us in 2023 and 2024.

Okay, understood. And then just rewinding back on the quarter itself and apologies if I missed it, I joined a little bit late. It seems like your earnings and performance played out quite a bit better and what you maybe were previewing sometime in September at a conference. Can you maybe go back over what played out better than expected? And to what extent is sort of like sustainable trend?

Yes, there are two things happened. One, production held up a little bit better than what we were anticipating. So, I think when we spoke at that conference, we were mired in some very recent announcements from customers that were weighing on production schedules and that it did improve a bit towards the very tail-end of the quarter, that's one. The second is, the timing of some of our commercial negotiations really both in seating and E-Systems benefited the third quarter. And so, some of the things that we had anticipated happening in the fourth quarter ended up getting pulled into the third quarter and that improved the results in both segments. And that's also the reason why we're holding guidance for a full-year as opposed to raising it on the stronger than expected third quarter.

Okay. That's very clear. And then, one just final point of clarification. So, in your slide about gross over market in – on Slide 11, and again, apologies if I missed that earlier on, but so I guess a little bit softer than what you're generally targeting. It seems like this was impacted by unfavorable platform mix. This is not something that you would expect recurring on a go forward basis. It seems like are you still targeting the 4% and 6% growth above market looking at?

Yes, I think if you look long-term at both segments, 4 points of growth over market in seating and 6 points of growth over market in E-Systems is still the right way to model it. Over the next two or three years, you may see some moderation in that seat growth rate because of the mix benefit we've enjoyed over the last three years. And so, I'm not sure if you caught the first question of one of your colleagues had – it was on that topic, but I'll just give you the same example. Again, the GM full size truck production in 2019, compared to 2022, it's increased over that time period and the North America market has declined. And so, that's a mix benefit to us. And so, what we've said is that roughly 2 points of the growth of our market over the last three years in seating has been attributable to that mix benefit. I’m not suggesting it will unwind necessarily, but I wouldn't expect it to continue. And if there is a very strong recovery in industry production, particularly North America and Europe over the next three years, then I think that there will be some unwinding of that. There's a limit to how much some of those platforms could go up because customers have run them near full production over the last two years despite the shortage of components. They've prioritized those products. And so, that's what we're trying to communicate Emmanuel.

Okay, great. Thank you very much.

You're welcome.

And our next question comes from Mark Delaney from Goldman Sachs. Please go ahead with your question.

Yes, good morning. Thanks very much for taking the questions. I think it was the first quarter when the company raised its 2025 electrification target to 1.3 billion and I think about a billion have been awarded at that point. And as you think about some of the bookings you've been able to announce, including the BDU and in particular, but some others as well. I mean, it would seem like there's perhaps some upside potential to that 1.3 billion target based on the awards strength. So, hoping you could give some more color on that.

Yes, Mark. That's exactly right. So, year to date in electrification, we've had more than $400 million of new business awards that's annual revenue. And we had targeted 500 million for the year. So, we're a little bit ahead of that pace that we were looking for. And if you look at the 2025 targets that we raised from 1 billion to 1.3 billion earlier in the year, we see a very clear path to 1.3 billion and slightly beyond that at this point based on that General Motors Battery Disconnect Unit awards and the INTERCELL CONNECT BOARDS award earlier in the year. Those two things taken together likely push us above the 1.3 billion in 2025.

That's helpful. And then you mentioned the LEAR FORWARD strategy in your prepared comments. I was hoping you could share some more color on what sort of financial implications there could be perhaps in terms of margin improvement as you fully execute on that program? Thank you.

Yes, Mark, we'll talk more fully about that and the fourth quarter earnings call and we issued guidance for next year, but some of the more encouraging aspects of the projects from my standpoint point are the – what we're doing in Morocco and Mexico where we're taking a fresh look at our capacity utilization and our manufacturing strategy, both in terms of how we oversight those facilities in the region and whether there could be more shared overhead across segments, but also the capacity utilization effects of the lower industry volumes over the last couple of years, sort of ringing out some of that excess capacity and using that as a lever to reduce new CapEx to support programs that are launching over the next two and three years.

Yes, I can't tell you – we're going to go through – we have internal targets here that we'll express externally at another time, but right now, the discovery that we're going through, obviously, we had a pilot program down South America that worked extremely well. And when you look at the opportunities that we've identified already, we have teams in Morocco and teams in Mexico right now sharing best practices so we can get at these immediately. But the shared resources between these systems and seating is a significant opportunity for us. The working capital in the inventory and what we're going to do and share with transportation, transportation loads, how we're looking across, each one of the different divisions has already – we've been able to recognize opportunities there in a free cash flow, a particular situation and capital. And that's just not the capital that we have on the ground today where we're looking at reusing capital, but extending capital life and then also reusing buildings and facilities that we have, so we don't have to make the future investments as we're looking at potential situations heading into next year. So, we have a team on this, a dedicated team, a Lear team, some of the best individuals in the company are focused on this crossing both the different divisions and we have internal targets that we're marching to, and we're going to hit those numbers, and we'll share more about our findings and what we're targeting in the 2023 guidance when we're going to disclose that.

Thank you.

Our next question comes from David Kelley from Jefferies. Please go ahead with your question.

Hi, team. This is Gavin Kennedy on for David Kelly. Good to see your electrification and connection systems traction today. For Connections Systems specifically, is it still tracking towards 500 million in 2022 and 1 billion by 2025? And if so, any incremental color on what you're bidding on and where you see the biggest opportunities would be great?

Yes. So the 2022 outlook is still really around 500 million. If you look out to 2025, I think we talked about 900 million to 1 billion, depending on how much inorganic growth we've had. And so, we don't have any inorganic opportunities on the near-term radar. So, if you exclude that, I think – and you look at what's happened with foreign exchange rates and industry volume outlooks for this – that time period I think they're in Europe and North America, for example, [25%] [ph] is something like 13% or 14% lower than what we saw at the beginning of the year. That may weigh on the number a little bit, but I think in terms of the new business wins, the organic growth that we had targeted were right on-track and perhaps a little bit ahead of schedule with the INTERCELL CONNECT BOARDS award and the magnitude of that.

I think just to add to that, we laid out a very specific plan in 2019, a strategic plan and what we're going to do in these systems and we're marching right along that path and I couldn't be more proud of what we've accomplished. And despite some of the industry challenges, maybe not reflective in the margins at this time, but when you take a step back, we’ve strengthened the organization. We brought in very selective individuals that are focused on key elements of our business. We talked about realigning the business around not just product around ROIC, but region and customer and that's intact and in place, did a very comprehensive product portfolio where we're trying to be everything to everybody and we've narrowed our scope and we've looked at where we have the right to win and we've defined it very clearly power distribution, [indiscernible], very selective electronics. And man, I couldn't be more excited about how we're winning in each one of those different areas. And what we talked about was how we're going to expand margins. It was really that growth, fixed, exit strategy or mentality. And that's exactly what we're doing. We're de-emphasizing parts of our business and winding it. We're fixing parts of our business that we have in place right now with our customers and then we're growing in the areas that we've talked – we've touched on. And the other element that we touched on was this customer diversification. It's amazing how quickly we've moved from one customer that represented anywhere from 30% to 35% of our overall E-Systems business at one point to a much more balanced customer portfolio where in the future General Motors could be our largest customer represented where we really didn't have a lot of business.…

Thanks. That's really helpful context. And then in regards to acquisitions, which you just mentioned, you mentioned in the prepared remarks that you don't want to anticipate any additional M&A in the near term. Is this simply a digestion phase given the number of acquisitions to date? And then looking out a year or two, what potential M&A opportunities would encourage Lear to get more acquisitive? Thank you.

Right now, we've done a nice job with, I consider, to be smart tuck-in acquisitions, a convert acquisition in seating with thermal comfort was a home run. I mean, that's a great company. It gave us immediate credibility. Like I said, we won multiple programs now having that in-house capability, not working with outside companies to win the thermal comfort designs and more importantly sourcing that design. And so, obviously bringing that in-house was a big one. Obviously, we're still going through the process of IGB with active cooling and some of the other elements that I think will complement what we did with Kongsberg. And so that one's in the pipeline right now. We got to finish that one. That's hopefully will be done by sometime next year first quarter maybe or hopefully sooner, but that's going to continue to complement what we're doing with thermal comfort because I absolutely believe what we're doing there and how that's going to differentiate Lear and help us really expand our margins because it really is something the customers are interested in, not just our OE customers, but the end consumers on a much more efficient system when we talk about time to sensation and we cut right through that. And when we talk about what's important is the element that we've done organically is this polyethylene or this [flex air] [ph] that is revolutionary. It's first to market, it changes the whole firm context of what we're doing as far as recyclable. I mentioned earlier, [indiscernible] CO2 emissions by 50%. The combination of those with foam and trim in the thermal comfort is good. And then, E-Systems, I think we did a nice job with M&N. We're doing a nice job of organically investing and what I said is vertically integrating the components from molded capabilities and Busbars. And if there is any area right now, and again, it'd be a continuation of small talk and would be and just continue to secure our industry leading operational excellence in smaller things like Industry 4.0. We're really looking at how we can create a modular system that is much more flexible, agile, and gets at some of the customer needs and changes, but also protects our core competency, which is operational excellence. But those would be smaller.

Great. Thank you.

And our final question this morning comes from Chris McNally from Evercore. Please go ahead with your question.

Thanks so much team and apologize for the monotonous question here at the end. I'm going to ask about commodities and growth over market. So, on commodities, specifically looking at E-Systems, 210 basis points year-over-year in Q3, I think on the last call you had talked about almost 95%, sort of the commodity it would come in the first half. And I'm just curious if we focus on E-Systems because I think it's such a big part of the story is the margin increase. How much of the hit down raw materials is still lagged as opposed to – you already know that you're going to have the recovery coming in the next two quarters based on contract and how much is you actually have to go out and negotiate price from here? So, that's the first one.

Yes. So the – half of the commodity impact for E-Systems was the copper revaluation in the quarter. And so, it really inflated the margin impact. And then you'll see the benefit of that over the next several quarters as we consume that inventory and our copper costs go down. The other half is related to component cost increases. And there we've been in negotiations for much of the year. It isn't so much new to the third quarter as if you look at it on a year-over-year basis, there was very little in the third quarter of last year that impacted us. And if you go – if you fast forward from Q3 to Q4, we do expect some moderation of that. And so, it's a combination of the copper revaluation, sort of inflating the number and just the timing of our negotiations both, the suppliers and customers. And if you look out to next year, I wouldn't expect that level of headwinds certainly to continue. And I would expect that over time we'll see that moderate overall.

Appreciate you putting that together. That makes sense. And then growth over market completely understand the discussion, particularly around seeding, think about, sort of 4% backlog growth no longer having that bump above that because of mix, but if we look at Q3 where you had specifically in North America a negative growth over market, I know there's a lot of weird things when the volume is up so much. Should we expect though that even in the short term growth over market and seeding gets back to, sort of that 3%, 4% or is there anything next quarter or two where the mix is still an issue because we are still seeing pretty good production schedules on some of those platforms that you spoke about into Q4? So, proceedings in growth over market get back into the positive in the fourth quarter.

Yes, it can get back to a positive number in the fourth quarter and I think you'll see less mix impact, but you could see some mix impact continue in the near-term, say over the next couple of quarters.

Okay. So, maybe just something slightly less than 4%. Okay. Thanks so much team.

You’re welcome.

Thanks.

And ladies and gentlemen, at this time, we're going to end today's question-and-answer session. I'd like to turn the floor back over to Ray Scott for closing comments.

Yes, thanks. Well, I'm sure that the Lear employees are the ones still on the phone and I just want to extend my appreciation and thank you for a great quarter. And again, I want to thank you for working with our customers to create a value proposition, the BDU, the ICB, the [Seat team] [ph]. Just thank you for working with the customers in a collaborative way and I think the results speak for themselves. Appreciate all your hard work and dedication and appreciate it. Talk to you later. Bye.

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