Good morning, everyone and welcome to the Lear Corporation First Quarter 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 conference call over to Ed Lowenfeld, Vice President of Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone, and thanks for joining us for Lear's first quarter 2021 earnings call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear 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. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our first quarter financial results and our full year 2021 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. Good morning, everyone. If you could please turn to Slide 5, I'm going to provide a brief overview of our first quarter financial results. The Lear team delivered strong results in the first quarter with sales of $5.4 billion in core operating earnings of $336 million, both up significantly versus last year. Lear sales grew faster than industry production by nine percentage points, reflecting above market growth in both of our business segments. Adjusted operating margin was 6.3% and EPS was $3.73. Slide 6 provides some business highlights from the quarter. I'm very proud of what the team accomplished this quarter. We successfully navigated supply chain shortages and related customer production shutdowns that made for a very difficult operating environment. At the same time, we remain focused on executing our strategic plan. Both business segments posted the strong growth above market in the first quarter. In E-Systems, growth over market was 10 percentage points, our fourth consecutive quarter of double-digit growth over market. In Seating, growth over market was nine percentage points. In late March, we acquired M&N Plastics, a manufacturer of engineered plastic components for automotive electrical distribution applications. This acquisition is consistent with our strategy to increase vertical integration in E-Systems. We also have been selected as a PACE award finalist by Automotive News for all three innovative technologies that we submitted for consideration, including our battery disconnect unit and our 5G V2X telematics control unit in E-Systems and our INTU Thermal Comfort technology in Seating. Having one PACE awards for the past two years and being named a finalist for three awards this year is a testament to our leadership position in automotive supplier innovation. Over the years, Lear has consistently supported the communities around the world where we do business. In the first quarter,…

Thanks, Ray. Slide 13 shows vehicle production and key exchange rates for the first quarter. During the first quarter global vehicle production increased by 14% compared to 2020. On a Lear sales weighted basis global production increased by 6%, the increase of 6% reflects Lear’s regional mix of business. The global increase in production was driven primarily by China, which was up 80% compared to last year. China's 2020 first quarter production was severely impacted by the pandemic. In North America, production was down 4% compared to a year ago, reflecting semiconductor shortages, as well as other supply chain disruptions. Production on our top platforms was down only 1%. In Europe industry production was flat with Lear’s top platforms up 4%. From a currency standpoint, the U.S. dollar weakened against our major currencies. Slide 14 highlights Lear’s growth over market in the first quarter. Sales grew above market in both business segments and across each of our major markets. Total company growth over market was 9 percentage points driven primarily by the impact of new business in E-Systems and favorable platform mix in Seating. Growth over market in E-Systems and Seating was 10 percentage points and 9 percentage points respectively. Growth over market in North America of 9 percentage points reflected the strong volumes of GM's full-size pickup trucks and SUV's as well as Ford and Mercedes SUVs. In Europe, above market growth of 8 percentage points was driven primarily by strong performance in the luxury segment and growth in electrification. Our growth over market in China, 10 percentage points reflected strong relative demand for luxury vehicles that benefited both Seating and E-Systems, as well as increased electrification business. The strong first quarter performance highlights that both business segments are well positioned to continue to benefit from key secular trends.…

So Jason, if you could please turn to Slide 22, despite a difficult operating environment, we posted strong results in the first quarter. We completed our first acquisition of the year in March, and we see additional M&A opportunities throughout the balance of the year and very proud of the recognition we received this quarter for innovation and supporting the communities where we live and work. I'm especially proud of the [Technical Difficulty] because the award they received was a combination of corporate support and the efforts from our employees to support the local community. They were chosen for more than 300 companies that applied for this award. We believe we have the right plan in place, and we were executing on the four pillars of our strategy to drive profitable growth and deliver superior returns to our shareholders. And now, we would be happy to take your questions.

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

Thanks everyone. Good morning. Rey, obviously really strong growth over market this quarter. I was wondering if – and I know this might be a little bit difficult, but maybe broad strokes, if you could sort of break it down even by segment, like how much is really pure content, how much do you think is your program mix or an exposure and how much is shared gains? Because, I know you mentioned some shared gains in the deck.

Yes, I think starting with Seating, the growth over market is really driven by the platform mix more than anything. So for example, in North America GM, full-size pickup trucks and SUVs had a very strong quarter and as well as the Ford Explorer, Mercedes, Geely. And those are highly contented vehicles as well. We didn't necessarily see a significant change in CPV on the platforms compared to what they're running before, but the fact that those platforms ran hotter than the market overall really benefited Seating. In Europe it was again platform mix proceeding with vehicles like the Porsche Taycan that did especially well and that really helped us. And in China, it was luxury vehicles with Audi, BMW, Daimler and that benefited both segments. In E-Systems, the growth of the market was really driven by the backlog and in particular electrification related products and products really globally in that segment. So it's not so much a richer CPV on individual platforms, but more the mix of vehicles that we happen to be on running better than the underlying market.

Okay. Thanks for that. And then the second question is – and you pointed to some additional pressures here over the balance of the year, maybe can you sort of quantify things like the steel headway or some inflation on some of the foam products in the seats? And then also well on the topic of commodities, I know you mentioned the copper pass through effect. How much did that weigh on the margins in the quarter and what do you expect that to be for the year?

Yes. So maybe to start with the last part of your question. So copper impacted E-Systems margins by about 25 basis points in the quarter. And we lock in copper three to six months in advance, and so there is a bit of a lag effect there, we see a more meaningful impact on the full year, copper is -- it will be about a 50 basis headwind for us year-over-year in E-Systems. On the steel side and in Seating and commodities generally, which really includes steel, it includes foam chemicals and to a lesser extent, leather hides, we saw a 50 basis point impact in the first quarter and we see that growing to about 60 basis points for the full year. So it has gotten a little bit worse than what we saw or anticipated earlier in the year and included in our guidance in February.

Thanks very much.

Thanks.

Our next question comes from Rod Lache from Wolfe Research. Please go ahead with your question.

Good morning, everybody. Just following up on Joe's question, curious if you anticipate recovering the headwind from raw materials that you're seeing right now and presumably some of the headwind that you're experiencing from the disruptions, in other words, should we be thinking that next year you might be able to achieve unusually larger incrementals, or should we be anticipating some investment in engineering or some of the growth initiatives you alluded to?

Yes, for commodity specifically, we would expect a tailwind heading into next year. Now on copper though in E-Systems, the dilutive effect of the pass through agreements that will remain – that doesn't reverse course, but the portion, the 10% of our copper by that, that we're responsible for – we would see that as non-recurring and perhaps even reversing course heading into next year. So in isolation, that will be a positive – commodities will be a positive year-over-year in both segments. We do expect to continue increasing our investment in engineering, E-Systems, so there will be a modest headwind for that heading into next year, but it's a little bit early to get into 2022 guidance discussion at this point, probably Rod.

Okay. And just two other things, one is Seating backlog in the quarter added about 1% to growth. Is there some lumpiness in this year's launches? What are you sort of looking forward to later in the year? And secondly, I wanted to just clarify your comments about Seating margins being higher and E-Systems being lower. You actually provided a few updates to margins over the course of Q1. So maybe you could just clarify which it – what was the reference point, that you're using for the higher and lower comment?

Yes. Okay, let's start with the backlog. There is some lumpiness there, Q1 is the lowest backlog quarter for Seating and then it grows throughout the year. If you had the launch of the Ford Bronco, for example, it was a big program in the seat business. In E-Systems, the backlog is kind of the same number quarter-to-quarter throughout the year. In regards to margins, the reference point is 7.4% for Seating and 7.2% for E-Systems. That's what we had assumed that the midpoint of our guidance range when we issued guidance in February, and I did talk about some developments throughout the quarter that were signaling some opportunities on the Seating side and some risk on the E-System side. So the biggest driver of that, maybe just take a step back and talk about more completely, what has changed since we issued guidance. Certainly the level of production disruptions have worsened, particularly for our E-Systems business. And if you look at the first quarter, we talked about a 7% impact on the overall company, but that was about 5% in Seating and 10% in E-Systems. And if we look at the second quarter, we're expecting that 7% to be more like 14% and the impact on each segment to roughly double as well from the first quarter, so something like 10% in Seating and 20% on the E-System side. So if you think about kind of sequentially, what you expect from us on the revenue side, we expect that the midpoint to see revenue that's down 9% sequentially from Q1 to Q2. We think that's the peak of the shortage impact and then we see a gradual recovery into the second half of the year from there. And so, if you look at a 9% reduction in the second quarter, Rod, that gets you to something like $10.2 billion of revenue in the first half, that leaves you at roughly $10.5 billion in the second half. So we had some shortage related disruptions continuing into Q3, and then we see the business sort of normalizing in the fourth quarter. And when we get back to more normal volumes in the fourth quarter, something that's closer to what we saw in the first quarter, we would expect Seating margin sort of in the 7.5% to 8% range and E-Systems in a range of 7% to 8%. And the reason for the wider range in E-Systems, one, the volume reductions given the variable margin of that business have a more meaningful impact on the operating margins, but perhaps more importantly as you're exiting the year, the timing of the commercial resolution in pass through of the commodity increases will ultimately determine where we exit the year. There may be some of that, that leaks into next year as well.

That's very helpful. Thank you.

You're welcome.

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

Hi, good morning, everyone. Thanks for taking my questions. Just wanted to follow up on E-Systems, was hoping to drill down a bit on the outgrowth we've heard from architecture and connectors suppliers that observed some pull forward and volumes in Q1, or even some channel replenishment. Just curious if you're seeing that as well, given your mix of electronic systems and software being I think mid-20% or so.

We haven't seen any of that, we generally are selling directly to the OEMs, in some cases we are selling to suppliers that then sell to the OEMs, but the impact of that would be very limited for our business just generally speaking.

Okay. Got it. Thank you. And then Jason, you referenced a couple times ongoing EV strength as a driver of the outgrowth in Europe. I was just hoping you could give us a bit more color as to the impact there and how you're thinking about visibility to the balance of the year for EV exposure, it seems like customers are focusing on that segment even in light of the component shortages. So any color there would be great.

Yes. So it's really a couple of different things going on in Seating, it's electric vehicle platforms that we're on, where they're holding up better than the market overall, as you've mentioned, customers are really investing in those platforms, protecting those platforms as they launch and as the market demand increases. So vehicles like the Porsche Taycan benefited from that. In E-Systems, it's more just the roll-on of the growth we have in electrification. If you recall our $900 million backlog in E-Systems over three years at about half of that $450 million of that is in electrification, so it's just the beginning of that rolling on. And it was particularly strong in the first quarter. And I think to your point, the customers are protecting those platforms maybe more than the other parts of their portfolio, and that's helped us. So vehicles like the Mustang Maki were very strong for us in E-Systems in the first quarter. And although we don't have high voltage content on that, we did benefit from higher volumes on an electric vehicle and low voltage content as well.

Okay, great. Thank you.

Thanks.

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

Hi, good morning, thank you for taking the question. First one, maybe you could just give us a sense of your underlying end market assumptions. I think we know all of you and some of the other suppliers out there even combination of the third-party forecasters and some of your own schedules. Maybe you could just give us a sense of how much your forecast is embedding. Some of the more draconian outlooks that are out there. How much of this is more customer specific versus more of an industry wide phenomenon? And maybe how much volatility you'd expect to that end market outlook of yours?

Yes. So of course we are using IHS as others do as one input in the thought process for our guidance. We also have good insight in both business segments with our customers in regards to their specific plans for the remainder of the year. So – and if you look at what the key customers have announced over the last several weeks, in terms of the second quarter in particular, we have a pretty good line of sight, it's volatile still, but we have a line of sight on a more meaningful reduction in the second quarter than I think IHS and others are projecting. And I don't think that's unique to our portfolio, it may impact E-Systems more than Seating, but on balance between the two, I think it will be similar to the market overall. So what we've assumed here at the midpoint is a global industry volume increase of 9%. I think IHS is at 12%, so we've embedded a 3% reduction in industry production to factor in what we're anticipating and expecting as further announced downtime that hasn't been publicly announced at this point. Is there a chance that things do a little bit better than that? Absolutely, there is a chance of that, but given the situation that we're seeing in front of us right now, we thought that was the right – struck the right balance. And at the low end of the range, it protects for roughly a 5% additional reduction from what customers have announced over the final three quarters of the year.

And given the significant stock replenishment that we have had in North America, especially in trucks, I assume there is no capacity constraint issues on your end.

No. There are no capacity constraints on our end. We managed to work very closely with suppliers and our customers to get through the first quarter without any direct disruptions to production. And that was no easy feat, that's for sure, there were shortages on foam chemicals that Frank and the Seating team fought through and certainly microchip related shortages and the E-System side that Carl and his team worked their way through. Just as a frame of reference, the electronics business of Lear is a relatively small business when you look at the full book of business, it's 5% or 6% of our total portfolio. So there isn't as much direct exposure for us as some of the others in the space.

Great. And then my second question is on Seating specifically. I think it's been largely accepted that Seating is not a product that automakers want to insource with some of their exceptions to make a lot more sense for an automaker to go get seats from yourselves or one of your competitors, given you have all the scale and competences. But we did see, I think it was a month or two ago, an announcement between VW and Brose for a seating JV. So I guess my question is, is there any shift in philosophy by automakers toward seat and sourcing or how they're approaching seating because I just thought that was an interesting announcement.

Yes. Actually, we see just the opposite. And I think the particular article that you're referencing is – my understanding is, actually it's a divestiture of what was in-house in a combination with Brose. So just kind of reflecting their willingness to exit, what was in-house. And I think generally what we're seeing is, there is been a number of situations where customers direct a significant part of the bill material. We're seeing that the customers now are willing to look at that differently, not necessarily a full service design or outsourcing, but much more flexible when it comes to opportunities to create value. And I think when we talk about the investments that we're making in Seating, it’s aligned with how our customers are looking at creating value within the Seating space. Like, we talked about thermal comfort. We believe that an integrated solution of components in a more modular concept creates a significant value proposition for our customers. And they're absolutely forward-leaning. And matter of fact, I was on a call yesterday, who has one of the premier German OEs. And they're looking for solutions on where we can help them. And having that, when we talk about the need to be vertically integrated and have expertise, you can create solutions that create a value proposition from a cost, quality and delivery standpoint. And so we're actually seeing customers looking at different options that are much more forward in that they want to outsource more. Because again, they have a tremendous amount of investment going on in other parts of their business and where they did have it in source, they're looking at reallocating those engineers, or at least the investment required to players that can still deliver a value proposition. So we've been happy to see the change that has been occurring with our customers.

Great. Thank you.

Thank you.

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

Good morning guys. Just wanted to ask a first question on Seating. I mean, how you're talking about mix makes a lot more sense to me, based on what we all know what's going on in the markets. But we haven't heard that quite as explicitly from other Seating suppliers, they haven't highlighted mix as quite as strong. Is there something else that might be going on in other parts of the market where mix might not be as helpful for Seating? It just seems kind of like an odd set of circumstances we're hearing from some other folks. And then also, how much higher when we were talking about margins on Seating, are you kind of thinking, I mean, it's – I mean, there is – I mean, you talked about 7.4% plus, but I mean, you just did higher than that in the first quarter. So, I mean, how should we be thinking about the actual sort of levels above that 7.4% you talked about?

Yes. Maybe I'll start with the last part of that question and Ray or Frank can talk about the first part. In terms of the operating margin, we intentionally stayed away from providing a pinpoint number and really that's because of the – of two things, the magnitude of the disruption that's going to take place in the second quarter. We see a meaningful reduction in volume in the second quarter, and depending on how that plays out by platform and how the second half plays out by platform that can have a pretty significant impact on margins. The other key point is how the timing of our commercial negotiations around commodity inflation and other component price increases that we're dealing with and disruption costs that may be caused by a customer that has shut down or supplier that shut us down. And so that will impact margins in both segments. We expect Seating to be meaningfully above the 7.4% for the full year, given all those puts and takes. But I don't want to put a precise number on it, but you felt comfortable saying John by the fourth quarter, things will settle down to a point where we're solidly between 7.5% to 8% similar to what we did in the first quarter. In terms of the mix and what others are saying, for us, it's more platform mix as opposed to mix within a platform and take rates of certain features within platforms. So it's being on the right platforms for this market, that we’re benefiting more than anything there. I don’t know if…

Yes, I just – I think we have the largest seat producer on premium platforms and during this particular time, they're doing everything they can to protect those platforms. So I think the great examples of the T1 with General Motors, Mercedes with the crossovers. I mean, what we're seeing in being on those premium platforms is really helping Seating because those are the ones that all costs they're protecting. So in some case, even reallocating components to make sure that business is running. And obviously it's a premiere platform, but it's also a premium prep platform, but it's also something that we're doing internally too to make sure, like Jason mentioned, knocking on wood. We have not this year shut down a customer due to supply shortage or material that we're responsible for. So, I think the teams have done an excellent job of having insight, communicating with the customers, understanding where their priorities are– and in some cases, making sure we're prioritizing along with that customer to ensure that those vehicles are being manufactured. And so, it's a combination of the work that the team is doing here and what our customers are doing to protect their premium platforms.

That's helpful. Then just the second question, I mean, with everything that's going on right now, there is not a been a lot of discussion around wants disruptions, but it's kind of hard to believe that there wouldn't be. So is that impacting E-Systems or is that potentially even impacting Seating? And is this just sort of, based on what you're hearing these sort of just tape delays? Or are there any other kinds of more draconian, launch disruptions that are going on right now?

We haven't seen any delays that are meaningful on launches. In fact, I think generally speaking customers are protecting those programs to the detriment, maybe to some other older vehicles that are slower selling in the market. And so our backlog outlook is precisely the same numbers, what we saw back in February. And in fact, the first quarter maybe came in a little bit stronger than we thought any system specifically.

Okay. That's helpful. And then just lastly, on M&A, you alluded to vertical integration being part of the focus, I kind of always thought of it is a little bit more focused on tech, so something shifting there or what's the focus of M&A?

Well, I think it's a combination. We talked about the need to vertically integrate in wire harnesses. And I think M&N Plastics with some of their superior injection molding capabilities really opens a door for us that was somewhat closed. And there's a number of components that we outsource that are accretive in respect to margin. And those are controllable components, meaning we can source ourselves. So that's a simple make versus buy. That was a great acquisition. We believe we can accelerate the growth of that capability and competency, which will help to the bottom line of margin expansion within E-Systems. As far as innovation, absolutely, we – like I said earlier, with what we're doing with electrification. And I’m as equally as excited with what we're doing in Seating. I think the expansion of price features our customers are looking at different value propositions and having innovation that's embedded in components is absolutely essential. And I think it ConfigurE+, we are the only – it's a proprietary technology innovation, because we were able to take the capabilities in E-Systems and apply it to a track systems, we electrified or powered the rails. So now you can send signal, data, power through the seats, through a rail system that gives you incredible flexibility. And we're getting an incredible amount of pull. So it's a combination of both. And I think they're subtle in some respects, but very important to how we see innovation in tuck-ins where it expands our margin or at least it grows our margin profile in electrification.

Okay. That's incredibly helpful. Thank you very much, guys.

Thank you.

Our next question comes from Brian Johnson from Barclays. Please go ahead with your question.

Yes. Two questions. So on the Seating side of the business, we've long been accustomed to backlog coming in at lower margins. Can you just confirm when you look at the E-Systems business and I know you've said this is strategy, it does look like the new businesses rolling on initially with decent margins.

Yes. In both business segments, the backlog was accretive to the underlying segment operating margins. And we're generally seeing that through the balance of the year. It should be right in line with the segment margins or maybe slightly higher on a full year basis as well. So some of the issues that we dealt with in prior years where we saw some programs rolling on lower than the programs they've replaced, for example, that phenomenon has largely played out and we're generally seeing programs roll on in line or better than our segment margins.

And second question, just building on your description of the electrical architecture meeting with the seat in those rails, your competitor yesterday talks about a decent amount of traction they're getting in BEV vehicles. Can you talk about what you're doing with BEV vehicles? Have one level seat or seats, but there are subtle differences in that rail system would actually seem to be an interesting option for an EV maker.

Yes. I'm going – Frank Orsini's here, and he's working that very specifically. So I'm going to have him comment on that.

Sure. Thanks Ray. Yes, Brian. So we're seeing a lot of traction in the EV area. For us, it's a great opportunity. We're talking right now about the ConfigurE+ system, which is, it's a fantastic opportunity for EVs, autonomous vehicles and things like that. But when it comes specifically to the EV market itself, now we have a lot to offer. So we're focusing heavily on lightweight structures, opportunities and materials that we're using sustainable surface materials for those products, which are very appealing to our customers. And then, of course, the future is extremely positive for the INTU product offering that Ray referenced. I just want to hit on that one more time because the thermal comfort technology that we're working on right now, as we mentioned, it directly applies to the EV products. Because it does help in terms of efficiently heating and cooling the occupant versus inefficiently heating and cooling the entire cabin, does provide a benefit to the overall vehicle architecture power draw. So we have that ability to do that. And we're winning business. I mean, we've been very successful in the EV market, the BEV market. And I have a list of over 20 programs that we've won over the last couple of years, and many of them are in launch mode and we'll be launching over the next couple of years. We're seeing a lot of success. And I do believe it's being fueled by our technology and the product offering that we have. And that's where into Seating is completely aligned with that market trend.

Yes. So, we looked at it and Frank knows this with the recyclability, we have some incredible properties, hopefully we'll announce here soon within the seat world. There are recyclable. We believe that's a big part of the electric story and it has to be a big part of our story. So that's where our investment dollars are going right now. And then when I talk about this modular concept, it is geared around electric vehicles where you can actually gain efficiencies through this heat and cool system and be able to satisfy the customer's needs within the seat. And this ConfigurE+ like Frank mentioned, we are building it into battery vehicles today because of the complexity of the floor and where the battery is mounted. It offers a great solution to give flexibility of the seat. So we do believe that even though we talk agnostic that between ICE and BEV with seating, we think the seat itself is going to change and that's where we're focused. And so we keep hitting on these innovation and technologies because we do believe they are the difference that it's going to differentiate our seat system relative to the electric vehicle.

And just a very quick follow-up, is there any regulatory account of the parasitic loss of HVAC in the either European, Chinese or U.S. range estimates? Obviously, a lot of controversy, especially about one OEM about the difference between real range and government estimated range. And it seems like your solution would help with real range, but I wonder if it helps with the regulatory standard of range.

I'm not going to speculate on it, I'm not sure. But your follow up on that question, but I'm not familiar with that – the answer.

Okay. Thanks.

Our next question comes from James Picariello from KeyBanc Capital Markets. Please go ahead with your question.

Hey, good morning, guys.

Good morning.

Within the top line guidance, you raised $450 million. Can you just break out what attributes to commodity pass through? Because I'm just trying to get a sense for the revenue and EBIT revisions taken together, right. Revenue up $450 million, EBITDA up $10 million, just any color on the factors in play would be helpful.

Yes. In terms of the overall bridge on revenues, you talked about the disproportionate impact of production disruptions on E-Systems versus Seating and that's part of what's going on in terms of the operating margin impact because of the higher variable margin in E-Systems. So we have revenue down about $250 million on the volume line in E-Systems and up about $325 million in Seating. So the mix of those two is higher revenue of $75 million, but slightly lower operating income. And then you have another $200 million for the company in foreign exchange that converts that as a segment margins. And then lastly, the commodity pass-through is $175 million when you compare it to what we guided to earlier in the year. So FX and commodity is the lion's share of the revenue change. And then in terms of the operating bridge, did a couple pieces there, but the commodity impacts about $50 million. I talked about the change by segment earlier. And then we've offset that through favorable operating performance, more on the Seating side than on E-Systems of roughly $50 million as well.

Got it. No, that's super helpful. As we think about Seating's mixed benefit, based on the models that are getting prioritized, right, the key platforms Lear has exposure to it, all of that makes sense. But is there any way to think about what this could entail from a headwind standpoint, once industry production does normalize? I mean, maybe the simplest exercise would be Seating delivered nine points of outgrowth versus target of four points. So maybe it's a five point headwind at some point in the future. Just curious your thoughts on that point.

Yes. So the good news, I think for us on this is the biggest driver is the GM full-size pickup trucks and SUVs, and their inventory levels are below historic levels well below. And so, I think that this above market growth in Seating, that story continues into next year and beyond just because of the importance of that platform. There may be a partial offset to that on some of the other platforms that are driving it on the luxury side, maybe there's half of that kind of steps back a bit. But we would expect a temporary benefit from mix on our above market growth in Seating. In fact, if you look at the full year, I think at the beginning of the year, we were expecting two to three points of growth above market in Seating. And now it's probably six to seven points of growth above market. Unfortunately, on the other side, because of the disproportionate production disruptions on key platforms and customers within E-Systems, we expected nine to 10 points of growth above market there. And it’s more like three to four points as we see it today.

Thank you.

You’re welcome.

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

Hi, good morning, everybody.

Good morning.

Good morning.

First question on Seating, I think a big part of the success last year had to do with Conquest business. Could you update us on how things have been going so far this year? And then also still on the topic of, I guess, market share opportunity in Seating. So your larger global competitor has announced a little while ago, divestment of its interest in this Chinese JV, which has dominant market share in China, any implication in terms of the market share opportunity for you in the region?

Okay. I almost forgot the first part of that. I’ll talk about the second one. First of all, to the situation of the divestiture of the partnership between, I believe, Yanfeng and Adient is what you’re referring to. That to me, and I don’t know all the details of it, puts us in a very good position. The combination of those two companies in China was a formidable competitor and the combination of relationships and manufacturing processes and scale was something that we had to go up against. And so now that they’ve divested the partnership and it’s more of an equal share 20%, 20%, 20%, we feel that the playing field has been leveled. And that’ll give us 100% shots at being competitive there. So that opened up the door. I think equally as important is, we’ve had to compete against both of those players and the combination of those competitors. And now Adient has to compete against Yanfeng on a global basis and Yanfeng is going to compete against Adient. And they know each other pretty well, which we’ll see how that works though. But I think the short answer is yes. A pretty good day for Lear Corporation when they divested of that partnership. And I think to the first question, well…

Yes. In terms of the new business of Lear and Conquest wins specifically, we had $700 million of net Conquest awards last year and $300 million the year prior to that. Last year was an especially strong year. And if we were to speculate on what we can achieve this year, and in future years, it would be closer to what we achieved two years ago, roughly $300 million would be a reasonable target. Sourcing of Seating is pretty lumpy and so there hasn’t been any meaningful Conquest awards in the first quarter. But we’re actively competing on some of those platforms that will be sourced throughout this year.

Okay. That’s helpful. And then also a market share question then on the E-Systems side. I wanted to drill down a little bit more on your Slide 9 and the strategy to position E-Systems for the future, focusing specifically on the power distribution. Do you see an opportunity to have higher market share overall – overtime in high voltage power distribution versus the one that you have currently in low voltage? And if so, what will be the drivers of that?

Yes. It’s a good question, Emmanuel. And it’s pretty exciting. And like I said, first of all, low voltage, it’s amazing how our customers have opened up the catalog. We’ve never seen or experienced anything like this on the connection systems. And like I mentioned, it’s up to $250 million this year, both what we can do in-house and then what the customers are asking us to quote. So that’s opening up. And I think what’s an interesting point to reference is, when we think about high power and we’ve always had this catalog that we’ve had to deal with it, 80% of it was somewhat defined, limiting our ability to get in on low voltage. On high voltage connector systems, only 20% of it is defined at this point. So what we’re doing is investing our engineering dollars and we’ve been very successful. We won an incredible piece of business with Volkswagen recently on the plugboard, which was something that we believe very similar to the battery disconnect is once you’re on a platform that opens up multiple platforms and across multiple brands within Volkswagen. And so, we see opportunities there. We’re seeing increased quoting activities year-over-year. I think from electrification perspective, we’re seeing 33% year-over-year from last year. And that that opportunity continues to really work well. And so, as far as the number, we haven’t given a number on what…

Our low voltage wire market share has historically been 6% to 7%, and we would see an opportunity to do better than that in high voltage. Again, on the back of this connector catalog opportunity that Ray referenced the fact that that’s not in a catalog and you have a chance to design that and compete head to head with others in that space without them having the benefit of a catalog to pull from.

And one thing that’s been nice is – I know there’s a lot of questions on in-sourcing, where customers want to do the engineering work, but wiring in engineer components has never been considered as far as the quotes that we’re getting. And what’s nice about it is, on low voltage, when talk about engineered components like we acquire M&N and companies like that is to get at that engineered percentage of the wire harness and high power, 50% of the wire is engineered components. So again, wide open, we're making the acquisitions and investing organically to make sure we're positioned to continue to grow in that area of high voltage learner.

Great. Thanks for the call.

And our next question comes from Itay Michaeli from Citi. Please go ahead with your question.

Great. Thanks. Good morning, everybody. Just two questions for me. Just first on, trying to kind of interpret the Q1 results in a broader context of Lear's earnings power and I guess, if we exclude the COVID impact, you've disclosed, I think the implies the margin may have been north of 8%. I think historically Q1 tends to be a little bit higher than a full year margins. Just curious as we think about the quarter's performance, it ended up were more normalized world, whether that kind of 8% plus is sort of indicative of the company's earnings power.

Yes. I think if I just isolate the premium cost and ignore some of the commodities that may be transitory and the volume disruptions, both businesses ran in the high 7%, so just under 8%. And I think if you look at seeding, we've talked in the past about 7.5%, 8.5% and that's really based on the mix of business that we have today in terms of the level of vertical integration, the capital intensity of the products in that portfolio. And so to the extent, we increased vertical integration through organic and inorganic growth on price full features, as Ray described earlier, that could nudge the margin up to the higher end of that range. To the extent, we're winning more businesses just in time with our component ready. It's going to skew to the lower end of the range. And I think that range is important so that we don't walk away from high return business that might be just in time only with our components. And at that range, we're earning well in excess of our cost of capital. We have a nice spread there. And so we're interested in any business in that range going forward. So we don't want to constrain that too much, obviously you take. And then E-Systems, we talked about being in the 7% range this year. It's going to be a little bit lower because of the volume reductions that we've experienced here. But as we accept the year, that's still, I think the right exit point 7% to 8%, and then into next year, our objective is to get that business to 8% plus 9% for the following year, and then back to 10% in 2024. And we still see a robust plan that we're executing against allowing us to achieve that.

That's very helpful. Maybe just a quick follow-up I apologize if I missed it earlier, but can you just talk about the pace of your bookings, quoting in Q1? Or things kind of gone back to normal or there still a fair amount of delays, just given the situation?

I think it's largely returned to normal. We had a good first quarter, again, particularly on the electrification side, we had $135 million of new awards, and that's an average annual number. I know other companies use kind of a program life number. So call that something like $600 million of awards, if you look in our program life. So we had a really strong start to the year in the systems. And seating, similar to our historical win rate and level of awards, about $0.5 billion of new awards in the first quarter, very little on the Conquest side, but good attraction overall in securing our replacement programs.

Terrific. That's all very helpful.

Thank you. And ladies and gentlemen, at this time, we're going to be ending today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Okay. Thank you. And I'd like to thank everyone for attending the call today and especially O want to thank the Lear team for an incredible quarter of the hard work. I know the teams are laser focused on making sure we do everything to protect our customers. And you guys did one heck of a job, managing that this quarter. And also recognize the team down in Juarez, Mexico for their outstanding recognition and what they accomplished and being recognized for it and also the special recognition that we got for innovation technology. We're driving this company focused on integrating innovation and technology. Being recognized by automotive news and others for our ability to continue to drive innovation is a special award. So thanks to the team, great job, I appreciate all your efforts. Thanks

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