Q3 2020 Lear Corp Earnings Call
Good morning, and welcome to the Lear Corporation third quarter 2020, <unk> earnings Conference call.
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I would now like to turn the conference over to Alicia Davis Senior Vice President of corporate development and Investor Relations. Please go ahead.
Thanks, Andrea good morning, everyone and thanks for joining us for many years third quarter 2020 earnings call presenting today are ways that we are president and CEO and Jason Cardiome Senior Vice President and CFO. Other members of near senior management team, including Frank Orsini, President of our seating division and color.
You know President <unk> E systems Division also have joined us on the call follow.
Following prepared remarks, we'll open the call for Q you can find a copy of the presentation that accompanies these remarks at I.R.W. Dot com.
He begins I'd like to take this opportunity to remind you that as we conducted the call we will be making forward looking statements to assist you in understanding your expectations for the future as detailed in our safe Harbor statement on slide two our actual results could differ materially from these forward looking statements due to many factors discussed in our latest 10-K and other peer.
Reatta quick works.
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 todays call is on slide three first Ray will review highlights from the quarter and provide a business update James Jason will then review our third quarter financial results and provide a full year 2020 outlook finally were able offer some concluding remarks following the formal presentation, we would be happy.
Be to take your questions now I'd like to invite Wade said again [laughter] [laughter].
Felicia and good morning, everyone.
Please turn to slide five I'm going to provide some business highlights we posted a strong financial results in the third quarter, but.
Both of our business segments recording margins in the high 7% range.
Our sales grew faster than industry production, with especially strong growth over market and new systems of 12 percentage points.
In March in an abundance of caution we drew $1 billion on our revolving credit facility.
In the third quarter based on our strong cash flow generation and our confidence in the business, we repaid all amounts outstanding on our revolver.
Were also recognized by JD power for the quality of our seats, we want to first place awards. This year and we see more top three rankings than any other seats supplier.
And earlier this month, we were proud to announce our pledge to continue our efforts to help create a cleaner environment.
By 2030, we're targeting to use 100% renewable energy he cut carbon emissions in our manufacturing plans by 50%.
And by 2015, we aspire to be carbon neutral with net zero missions.
Looking at our performance this quarter I couldn't be more proud the team and their accomplishments during these very challenging times.
Please turn to slide six I'm or provide a brief update of our industry, leading seating business in seating, which is our largest business with 75% of our total sales we have a demonstrated record of delivering strong margins and significant free cash flow.
The investments we have made to increased vertical integration and develop new technologies at driven profitable growth and increased market share.
As the chart shows our financial performance in seating has been very consistent either.
Even with lower volumes in recent years and during program change over cycles.
Looking forward, we are very well positioned to benefit from the secular trends are them up a bit.
Being a market leader in luxury seating and with a strong position in the European D market and then higher content see you visa issue visas globally.
We have the most complete capabilities of any seats supplier and a long history of operational excellence.
Our customers continue to choose leer as evidenced by our $700 million in net conquest awards this year.
As discussed in our second quarter earnings call, we're continuing to invest in new technologies to expand our competitive advantage is within this that and within the segment. Two examples of our advanced product technologies that continue to gain traction with customers already are into seating and configure plus.
Into isn't intelligent seating system that provides advanced solutions for wellness comfort sound and safety.
Interest is continuing to grow from our customers and we have been awarded in advanced technology production contract.
And engineering development programs are underway with multiple multiple global Oems.
It gets bigger plus.
Our tethered less electrified rail system will launch in 2021, and 2023 with two global automakers.
Our seating team has done a remarkable job separating lear from the competition extending our clear leadership position in this segment.
Okay Slide seven shows our east systems portfolio simplified into three focus product areas.
Electrical distribution and connection systems.
Electronic systems and software and connected services today about 75% of our business is in electrical distribution and connection systems.
With the balance in electronic systems, we expect the relative mix of our business in electronic systems to increase over the next several years as the industry shifts to electric vehicles and connected cars.
I will talk more about this in a few minutes.
We have a long history in electrical distribution and connection systems with capabilities to produce products, both in low voltage and high voltage applications.
We also have many years of experiencing experience producing and innovating in electric systems.
We were the first to bring printed circuit Board junction box technology to market and 989.
And in 2012, we received a pace award for our development of the first salvo stay junction box.
Today, we are the only tier one supplier with a full range of capabilities and expertise to be a full architecture solution provider.
For both electrical distribution systems and power electronics.
Building upon our rich heritage in body electronics, we are concentrating our efforts in electronic systems on power distribution battery management and onboard charging systems for electric vehicles.
As was a high high performance computing gateway and Fiveg communication modules.
In addition to embedded software that enables our electronic systems hardware, we've enhanced our position in software only offerings through the acquisitions of zibo and EXL.
Software within the vehicle is rapidly growing as a key element of technology innovation as well as a cost effective way to provide new features and functions.
Our global team of software engineers is working to expand capabilities in vehicles vehicle networking control algorithms cyber security and can connectivity platforms and protocols.
Slide eight depicts the key components required for high voltage electrical architecture.
As described on our last earnings call, we have narrowed our east systems electrification portfolio based on a detailed analysis of the market.
We have targeted specific areas. We are we have the right to win in which allow which have a strong growth potential in order to leverage or our keep our capital in our engineering investments.
Well. They are this includes high voltage wiring and connection systems power distribution boxes onboard Chargers, DC, DC converters and battery management systems.
Similar to the approach we have followed in our body electronics business, we're concentrating on providing our customers with tailor made solutions for difficult problems.
Our strategy is to focus on niche areas, where we have deep expertise such as network architecture power distribution and power management.
We also are investing in areas to move up the value chain from component specialist to broader systems and domain experts.
Overtime, we expect the vehicle electrical architecture will ball is more content is integrated into multi purpose boxes and as software replaces some of the functionality in today's architectures.
As these trends develop we will continue to be laser focused on customizing product solutions to help our customers achieve faster charging times and longer vehicle regions.
Turning to slide nine I want to highlight the significant growth rates expected in the electric vehicle market.
Good day for hybrid and electric vehicles account for 9% of all vehicles produced globally over.
Over the next five years the market for these vehicles is expected to more than triple.
While many auto suppliers have legacy products that will shrink with the decline of the internal combustion engine, there's product portfolio in both seating any systems is powertrain agnostic.
The story gets even better for Lear as the shift to electric vehicle provides unique content growth opportunity.
We see an opportunity for our east systems content to increase over three times.
Our low voltage wiring in connection system content will remain largely intact with the shift to electric vehicles.
Then engine harness will no longer be needed the electric vehicle still require low voltage wiring and connection systems for many other applications.
They are stands to benefit from growth in the market regardless of the propulsion system involved.
Slide 10 shows what these positive trends could mean for Lear.
This year, our electrification related sales are forecasted to be about $250 million.
By 2025 weeks expect our sales will grow to approximately $1 billion sale.
Sales growth in our electrification business through 2025 is expected to add 300 basis points to our growth rate in our overall you systems business.
We've already booked approximately 70% of the $1 billion in sales expected the 2025.
And based on our pipeline and our average win rate, we're very confident we will meet this target.
We are experiencing increasing levels of quoting activity for electric vehicles. We're also seeing opportunities to expand our customer base, both with traditional customers in some of the newer ERP companies.
Electrification is a platform that we expect will continue to improve our customer diversification.
His architectures are being redefined this opens the door from there to both broaden its customer base and accelerate growth in new systems. This short period of time, we have been very successful growing our electrification business, which is driving significant E systems growth over market.
Looking at our 2025 estimate sales mix electrification, we expect that about 60% of our business will be electronics with the remaining 40% in high voltage wiring in connection systems. This.
This is largely consistent with our product mix today.
We are at the beginning of the curve on EBITDA adoption. We believe this drives a significant opportunity for Lear as the automakers need supplier partners that have expertise to help them participate in the growing TV market.
There has a long history of close collaboration with its customers as a full service supplier with significant resources, we have design engineering and manufacturing capabilities as well as the ability to source and supply parts across the globe as the market continues to mature both established Oems and new.
EDI companies will need partners likelier to be successful.
Now I would like to invite Jason to review, our third quarter financial results.
Thanks, Ray Slide 12 shows vehicle production key exchange rates for the third quarter during the quarter Global vehicle production was down approximately 900000 units or 4% compared to 2019.
The majority of the production declines occurred in Europe, where production was down 8% and in Asia outside of China.
In North America year over year production was up 1% as Oems continue to rebuild inventories depleted during the cold weather related shutdowns, China production was up 9% second consecutive quarter of strong growth following coated related production shutdowns in the first quarter.
From a currency standpoint, U.S. dollar weakens against major currencies.
Slide 13 highlights our financial results for the third quarter as Ray noted earlier, our business has performed very well in the quarter.
Our sales increased 2% to $4.9 billion incurred.
The increase in sales versus last year was driven by the strong backlog in both segments, which more than offset the impact of lower global production volumes.
Core operating earnings were $327 million down 11 million slightly.
The slight reduction in earnings was primarily due to the impact of lower industry volumes, which was largely offset by the margin accretive backlog and positive operating performance.
Adjusted operating margins were 6.7% for the quarter.
Adjusted earnings per share were $3.73 up 5% from year ago, primarily reflecting a lower effective tax rate.
Third quarter free cash flow was $474 million compared to 193 million in 2019 imply.
The improvement in free cash flow, primarily reflects favorable working capital in the quarter.
Slide 14 explains the third quarter year over year variance in sales on adjusted operating margins in the seating segment.
Sales in the quarter were $3.7 billion down 1% from the third quarter 2019.
Leading margins were 7.8% compared to 8.2% last year, reflecting lower volumes, partially offset by positive net performance.
The positive performance was driven by a combination of lower SGN and manufacturing costs, including improvements, resulting from our investments in restructuring as well as strong execution by our operating and commercial teams in a very challenging industry environment.
More than offset by selling price reductions and ongoing incremental costs associated with covance. Thank you.
Slide 15 explains the third quarter year over year variance in sales and adjusted operating margins in our systems segment.
Sales in the third quarter were $1.2 billion up 9% from the third quarter of 2019, reflecting our strong backlog, partially offset by lower volumes.
Growth over market was particularly strong in new systems at 12 percentage points, reflecting added content of the F series Super duty and the ramp up of the land Rover defender as well as new electrification and connectivity business coming online with Volvo Julie and audit.
These systems margins for the quarter were 7.7% the increase in margins reflects backlog that came in above segment margins and the impact of positive operating performance. This was offset partially by the negative impact of lower industry volumes.
Despite the challenging operating environment, we continue to make progress on our overall is systems margin improvement plan.
We have improved margins on underperforming programs and our backlog rolling on has been accretive to margins and while we are continuing to make significant incremental engineering investments to support our strong pipeline of new business, we have narrowed our product focus which will lessen the impact on near term margins.
While the improvements we have made thus far has been largely offset by the significant decline in industry volumes.
And ongoing cost associated with operating our plants during COVID-19 Pan endemic.
As industry volumes recover we're confident that the changes we are making to this business will result in improved margins.
Please turn to slide 16, where I will provide an update on our financial position.
During the third quarter, we repaid $1 billion that we had drawn on the revolving credit facility in March and in an abundance of caution following the emergence of galvanizing.
With the strong free cash flow generation in the third quarter, we ended the quarter with $3 billion in total liquidity, including our untapped $1.75 billion revolver and cash on hand of 1.25 billion.
As shown on the upper right quadrant of the slide we have a low cost flexible debt structure and no significant near term debt maturities.
With improved free cash flow performance in the third quarter, we took the opportunity to unwind some of the austerity measures that we put in place earlier this year during.
During the quarter, we repaid salary that had been deferred by our nonmanagement employees and its industry conditions remain stable. We plan to do the same for the rest of our employees later this year.
With respect to capital allocation, our first priority remains investing in our core businesses through capital expenditures. We will also consider bolt on acquisitions, but believe our businesses are well positioned we remain fully committed to maintaining investment grade credit metrics we.
We also remain fully committed to returning excess cash to shareholders.
Turning now to slide 17.
March 26, we withdrew our 2020 outlook due to the significant level of business uncertainty caused by the COVID-19 pandemic.
Over the last few months industry conditions have stabilized somewhat so we've decided to provide full year 2014 guidance. However, uncertainties surrounding COVID-19 still exist and our outlook could be significantly impacted by industry disruptions beyond our control.
Slide 17 shows the key assumptions for global vehicle production volumes and key currencies that form the basis of our 2020 full year outlook.
We base our production outlook on several sources, including internal estimates customer production schedules NHS forecasts.
Our full year production outlook, which is shown on the slide implies fourth quarter global production that would be 8% lower than the fourth quarter 2019.
From a currency perspective, our 2020 outlook assumes an average euro exchange rate of $1.13 per euro and an average Chinese RMB exchange rate of seven RMB to the dollar.
The fourth quarter, our outlook assumes an average euro exchange rate of $1.15 per euro.
Slide 18 provides our financial outlook for 2020.
Due to continued uncertainties about how the COVID-19 pandemic could impact our business, we have protected for some modest disruption to our operations within our guidance ranges.
To the extent that there are no disruptions our financial results should be closer to the high end of the range.
The same time is important to note that our guidance ranges do not assume any broad COVID-19 related production shutdowns in the fourth quarter.
Our sales guidance $16.35 billion to 16.65 billion.
Core operating earnings are forecasted to be in the range of $520 million to 580 million.
At the midpoint of the guidance this implies margins in both business segments of approximately 7%, reflecting a 4% sequential decline in revenue from the third quarter of this year.
Full year free cash flow is forecasted to be in the range of $125 million to 175 million.
Apply in free cash flow in the fourth quarter of approximately 150 million to 200 million now I will turn it back to Ray for some closing thoughts.
Thanks, Jason.
Now turning to slide 20 this.
The steps that we took to prepare our plans to safely ramp up production. Following the COVID-19 related shutdowns and to position. The company for success resulted in significantly improved third quarter financial results, Although we still face uncertainty related to cold. The 19, I am confident that we have the right team in place to navigate through these very challenging times.
We have a strong balance sheet, a long history of operational excellence, a strong a strong strategic positions in both of our business segments.
Both businesses are poised for continued profitable growth and as I discussed our east systems business is particularly well positioned to benefit from the trends in electrification.
We will continue to make targeted strategic investments that position Lear for continued market leadership and drive long term value for our shareholders now we'd be happy to take your questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
And our first question comes from Joseph.
RBC. Please go ahead.
Hi, Thanks, good morning, everyone.
Just first question.
No on the implied fourth quarter guidance.
It looks like you've taken a more conservative approach to some of the industry outlooks maybe.
Maybe in Europe and China.
Just wondering.
If you could comment on that and what you are seeing that that leads you to forecast that mark.
Yes Bonnie.
Can't take a broader look and then Jason can kind of add a little bit of the details of what we're looking at is when I break it up into two different areas. One you have demand, which is very strong I think every customers is really doing a nice job of.
Replenishing their inventories and so the demand is very strong and from my perspective, I know that from our plants were running extremely well we've done a nice job of getting back up and running however on the supply side I do see that the supply side Holistically is very fragile and there is a lot of things.
Things that are at risk right now I think we've seen most recently some of the government restrictions even some of the shutdowns by by country Chihuahua now isn't a red status and still on discussions in respect to what that might mean.
In the short term right now I mean, 60% capacity, however that could even dropped further there's.
Theres this whole supply chain is interconnected so even though like I said, we're very confident in how our plants are running we've done a really nice job of I've been in the facilities have seen how they're running.
No absenteeism still seems to be an issue throughout the supply base and so there's just there's some things that we still are hesitant about that they are still in front of us even for the fourth quarter.
But like I said I break it up into two issues demand very strong the supply chain very fragile and there is some obviously some things have happened recently, they're going to put more pressure on that supply chain, Jason dry a little bit yeah. I think first of all we withdrew guidance earlier in the year.
When the COVID-19 pandemic started and and so we think it's important when we reinstated guidance to be a bit conservative or cautious just given all the uncertainty.
Ray outlined so we are confident in the demand side, it's really a question of whether the supply base and the Oems can hold it together here through the end of the year and and perhaps are there wont be meaningful disruptions and we'll be fortunate and we come out closer to the high end of the range we certainly.
That would certainly benefit us.
Regardless of where we end up in the range I think both season and our systems businesses are going to perform well and even at the midpoint.
Which has the global industry down 8% both businesses are around 7% operating margins and at the high end, they're going to be in the mid sevens and closer to what we saw in the third quarter. So I think it's a bit cautious, but we're hopeful that.
It will favor the high end of that range.
Thanks, Thanks for that color. The second question is on the thanks for the information.
These systems and your electrification exposure or sorry, 250 million go into a 1 billion in five years.
Maybe just talk a little bit more about how the investment looks like to be able to achieve that like how much has been done already and is it about scaling some and investment.
Or just more of that investment do you think you need to come on line as the sales grow and I guess from both in R&D and Capex perspective.
Yes, so really we've been investing in this portfolio of products over the last several years and we've ramped up that investment from last year to this year and even within this year. We've gradually stepped up our engineering investment looking at the fourth quarter, we have another step up in investment in engineering and.
Looking out to next year, while we're still finalizing our plans we see a sequential increase in engineering I wouldn't say, it's as meaningful as what we've seen historically, it's it's probably 40 50 basis points of margin headwind any systems sequentially from the third to the fourth quarter and in a similar.
Sure.
Sequential impact from the fourth quarter to or from the full year of this year to next year.
So I think you know as as that business scales up that that impact on engineering will will diminish and I think as we kind of grow into that billion dollars revenue it should stabilize.
Couple of years out Joe had.
But it looks like from your meeting your walks right that the backlog is finally coming or is coming on it.
Higher margin in the base business so.
That should help offset some of that investment.
Yes, I think longer term, we're optimistic about the margin profile of that business and in our backlog. Our overall has been accretive to segment margins.
Both in the third quarter, and we see that again in the fourth quarter and looking out to next year. So.
We're optimistic on that front as well thank you very much.
Our next question comes from Rod.
Of Wolfe Research. Please go ahead.
Good morning, everybody.
Just wanted to start just with a just a question on seating it looks like it had growth over market of around two points in the quarter and I would have been.
Expected that mix looks pretty good and I was wondering if you could just give us some color on how that looks.
I presume that the mix will be even better and as you look out to Q4 with the comp against the GM strength any thoughts on what's going on for growth there.
Yeah, and so a couple of things.
First of all the fourth quarter growth over market and seating does look really really strong on the back of the North America and Jim in particular, Nonrecurrence the strike, we'd expect almost 5% growth over market.
In the fourth quarter in seating.
It was a little light one 2% and in the third quarter and that was really a function of Europe.
More than anything and and so I think a couple of our larger customers in Europe were a little slower to restart and ramp up production of JLR was a little bit light in the quarter, It's a really important customer big business for us.
In seating in Europe.
And and that Nissan both kind of weighed on that growth over market.
Figure for seating in the third quarter.
The two biggest factors Brad.
Thank you for that.
I had two questions on E systems. So number one does getting to this mid seven 7.7% margin in E systems now.
Trying to get you back on track to your original target of 10%.
By 2022 can you talk a little bit about the bridge. There you saw some cost savings I believe in and ill.
Obviously, a lot of backlog coming in here in a decent incrementals and then if you do get to that billion dollars of high voltage by 2025.
Can you just put some context around what would be addressable market be or what would your market share be roughly.
In that time frame.
More broadly.
Yes, Rob.
Take a step back on this one but it's a good question because I do believe we have tremendous momentum and if you recall, we talked about some.
Steps, we are taking to get back on track and it wasn't that long ago, we talked about obviously.
Putting a team in place and.
Great team, we've done that the teams in place and Carlos busy on the team are doing a remarkable job and we're seeing that was.
Not just momentum in the margin overseeing that was our growth and the opportunities that are being presented in front of us as far as future growth and we also talked about customer diversification. We talked about that was one part of the business that was important we hit we are doing a nice job of diversifying our customer base, but it also requires.
Our investment and we are going to stay steadfast and investing in those customers because as a key part of our growth.
Part of our business, but also de risking how we look at our business and in this short period of time. This is whats amazing 2016.
Three customers represented about 60% of our overall business and by 2024, it's already down to 45% in the overall business is growing so they're doing an incredible job of diversifying our customer base. We also talked about getting very focused on our business and we spent the last.
18 months really narrowing down our focus in an area that we believe we have the right to win and Thats really paying off so we have really focused capital in engineering needs on products that we believe will be successful on not just from a profitability standpoint from a growth standpoint, and that's in place now today and then in addition to it we talk.
About the vertical integration and I'll tell you that is happening quicker than I could imagine and I think on the last call I mentioned $50 million of vertical integration of connectors and.
And that will launch with in.
The next year about how much above 70% of that will launch in that over the next year and so that's going along really well well a lot along with.
New business wins in connectors, and so we have an incredible momentum and I just want to like us It take a step back and we're seeing that right now in the performance the team did a great job 12% over market.
From a growth perspective, the margins are not only stabilizing or improving the new business Thats rolling on is accretive to our margins today. So we're very confident and comfortable where we're at I think in respect of some of the things going forward. If you want to give a little bit of the insight there I think it'd be helpful. Yes. So when we originally talked about that 700.
I have to 10% margin progression over three years that was last year and so as you mentioned rod that would have been in 2022, we would have.
Shoot that I think the biggest question Mark is industry volume in terms of the building blocks that were working on improving margins on underperforming customers.
Vertical integration that rate just described the change in mix of the business improving the margin profile all those things are on track.
In some cases, a little bit ahead of schedule. So the real question as to when we get to 10% I think is more question when industry volumes more fully recover.
That late 22 early 23, I'm not quite sure but.
As far as the things that we can control within that progression. We're well we're on track in terms of the the overall size of the market and what we're going after and what that $1 billion represents.
I think we're not necessarily trying to grow with every customer.
Every subset of that opportunity Weve talked about high voltage wire and connection systems being about 40% of that that business and power electronics, representing 60% of that business.
It's probably going.
Going to be a 30 40 billion dollar global market, but we're not going to try to sell to all all Oems on all product lines. So I think that our share of high voltage wire and connection systems will will approach. The same share that we have in the low voltage side, which has been 6% I think it will take some time to to grow into that but I think thats a reasonable target for.
That part of the business.
Okay. Thanks for that and just to clarify I think you had like a $115 million of remaining cost savings, but if we did that was for the overall company I believe but if we think about E systems, specifically the additional engineering spend versus cost reduction is that kind of a wash and the big upside comes from.
Some of that.
Some of those initiatives that you talked about including the new business launches the vertical integration.
And overall market growth.
Yes, I think over time, the those cob cobot related costs will diminish and that will be less of an impact and you'll see the full benefit of all those actions reflected in the margin I.
I think if you look at just next year.
Planning at this point that some of that cold and related costs will continue to weigh on on margins a bit next year, although it will diminish significantly.
From what we've seen this year and I'd say.
You take CNG systems together, our anticipated restructuring savings would more than cover the the impact of the ongoing health of costs that coupled with our our customer recovery.
Of those costs.
All right. Thank you.
Thanks.
Our next question comes from John Murphy of Bank of America. Please go ahead.
Good morning, everybody good.
Turning to slide eight.
Hey, first question rate.
Slide 10.
I mean, you have software executives is not on this slide and so I'm. Just curious is this really just finally in focusing on electrical execution opportunity.
Or is something sort of changing strategy, where software connected services is being meaningfully deemphasized or overtime relative to what you've been talking about.
Well I think.
I think both were focused on connectivity electrification I think the significant shift that we've seen.
I think it was very similar to what happened was seaview as UBI market is coming as very fast and I think I talked about a slowdown during cold Bud I'll.
Our quoting activity has customers repositioning in working remotely, but since since the emergence and the customers re engaging.
The pickup in quoting activity that we've seen in electrification is significant and so I think what we're trying to highlight here is not a de emphasis does certainly in electronics, a connectivity, but an EPS emphasis on the importance and where we play with electrification in Jason's point, we're not we're not focus.
Across the board.
As a maggots here trying to sell a black box, we're very concentrated in a boat cheek type way to help our customers solve problems and thats what weve seen.
Really since the emergence of coal that is our customers are coming to us in very unique ways and asking for solutions to some of their issues relative to electrification and so we think it's important to show what's going on in electrification and I think thats only going to continue to increase in what we want to.
Be.
Specific in is the areas, where we're participating in those areas are very important because are creating value for our customers and to create value for Lear, obviously from a growth perspective and its right in our wheelhouse.
Okay, but it's not meant to deemphasize software connected services right. This this this slide I just want to make sure going forward.
Perfect.
Yeah.
When I look at Slide 14, 15 days I Wonder if you could sort of unpack that the bar there of volume mix and other really just trying to understand.
Mix in price in there what those mandates in the quarter because I think following robs question.
Six.
You seem like it was very strong in the third quarter, but particularly for you would you be even stronger.
In the fourth quarter, and I think theres some significant questions about your fourth quarter.
Implied guide being relatively very.
Very conservative, particularly when you consider this mix. So if you could just on pack pricing mix in that that column for seating and electronic sounds like 14 15.
Yes, it really hasn't been a meaningful impact.
On pricing in either segment as we mentioned, we more than offset that with our our cost reduction program.
And recovered the cost.
Okay and with operating this colder environment so.
That price equation.
Equation is working for us in the third quarter, and we see that continuing into the fourth in regards to mix and how that may impact.
The business I think you're right. The setup is great for the fourth quarter, particularly in seating we had a significant impact associated with the GM strike last year and so our north American sales will be up in seating year over year in our our more vertically integrated GM full size truck seating sale.
We will be up and so the.
The underlying guidance for margin in seating is more than a 100 basis points better than last year, reflecting that that favorable mix.
Nothing really remarkable in terms of the mix to talk about.
System side, our guidance does assume that sales will actually be up.
In the fourth quarter, even at the midpoint.
In these systems were expecting growth of the market could be as much as 14 points.
Many systems in the fourth quarter really on the back of.
Strong backlog mainly.
Okay, and then maybe to follow up on entries in if you think about some of the cost of dirty costs that are our.
CB back or being reversed.
Which is only fair to the people that for the burden there.
Is that a significant headwind sequentially from the third quarter to the fourth quarter and how should we think of it that third.
Third quarter fourth quarter, and maybe going into 2021.
Yes, I think if you look at the impact of Cove, It and the offset plan. The net effect of that in the fourth quarter will be slightly better than the third quarter. So I think the the cost of operating in that environment come down faster than the cost reduction programs reversing themselves. So there is a modest benefit sequentially looking out to next year.
It's.
A bit more complicated lots of moving parts, but theres a significant portion of the cost of the cost reduction program that we deployed earlier in the year that will reverse itself next year.
And so there may be a slight overhang of net cost related to coal, but as we think about 2021, but again, we're right in the middle of our planning process and and so.
We'll have more to share on that certainly in January when we issued guidance.
Okay and then just lastly, if you could remind US you said the high voltage.
Good for vehicle could be three X what the low voltage is could you sort of remind us what the dollar numbers are there roughly yeah can show.
Yes, so we see it in a full electric vehicle that theres about $2000 of added content opportunity for us about a quarter of that or $500 would be high voltage wire in connection systems. The other three quarters or $1500 would be on the power electronics side and Thats. If we if we sold everything.
On a car line that we are capable and oftentimes rolling can be sourced portions of that you could see an onboard charger battery management system could be in the 3% to $600 range of content on an individual car line, but the total available concert on power electronics would be up to $1500 for us.
Okay, and the base and the basis for that on low voltage side on a relative basis would be about 700 bucks that what you're saying, yes, we've talked about $700. Historically, that's really kind of our Europe, and North America CPV for low voltage wiring and connection systems.
Think globally, it's probably more like 650 and.
On our car lines and that will probably be $50 or so lower full electric vehicles. So there is a modest offset on the mobile side.
Okay, great. Thank you very much guys.
Yes. Thanks.
Our next question comes from Brian Johnson of Barclays. Please go ahead.
Hi, Tim This is Jason So we'll dreyer on for Brian I wanted to.
We've kind of rounded out the discussion a little bit around the.
The the disclosures and slide you you put out but maybe maybe just a follow up how helpful commentary on the content per vehicle as as we look out to mid decade, though and maybe just throwing it on on the content that you have when we look at the Pie chart electronics versus versus connection systems and.
The wiring.
Look at that and higher sales mix I was wondering if you could help us with.
Within that billion dollars, how much do you expect to be specifically software related I think on the electronics side at least right now most of your products have some element of embedded software as we scale.
Our electronic battery management systems et cetera to the software content increase and how.
How much of that the product in mid decade, what percent of that is going to be software and then Joe.
Just to remind us I don't think there's any software side software content on.
Hiring side, but if you could just sort of clarify that would be helpful.
Yes, well, let me take just a little step back on this and obviously, it's a very exciting time in the auto industry. Its a.
And like we've never seen before and having two segments like we have both in seating in these systems were well positioned when thinking about reconfigurability in smart seats, and those type of things and so and in E systems same thing it is changing quickly and you're asking a good question in when we think about software we have both our embedded in our.
Our non embedded software in both of those are changing quickly, but second I want to take a step back here because it is an exciting time in both segments and give you a little bit I got Frank Orsini here and then Karl Esposito here. They are on the front lines working what's going on with our customers and I'd like to give you a more fulsome.
Discussion around what we're seeing not only within our products, but the changes in the future applications of seating in these systems to your particular points way Frank if you could give a little bit insight to what you're seeing in seating and Carl if you could talk a little bit about software and how embedded software is changing and how we are really defining software.
Where in some of the changes you've seen from the customers with respect to how they're coming to us looking for different solutions because it is changing dramatically.
Thank you Ray and good morning, everyone. This is Frank Orsini speaking.
So from a seating perspective info.
In particular to technology, we're very focused on differentiating our product lines through innovation and Ray mentioned in his presentation. We have a couple of very good examples of that.
Into seating, where we're embedding intelligent technology into our seat systems through four key pillars of wellness safety comfort and sound is an excellent product for us and then configure plus where we have the electrified rail system in seating. Both these technologies are really good examples.
How innovation is giving us early access to our customer development programs as a matter of fact rain I was recently in the design studios with one of our largest customers literally in the clays working through how these technologies can be implemented for production applications, but just dialing in a little bit on bulk so into seating for example provides tremendous.
Content and value to the end consumer in the vehicle.
Our wellness pillar, where we use biometric sensing technology to detect heartened respiratory rate is directly correlated to driver stress and drowsiness detection, which is an advanced safety technology for our customers is very sophisticated technology. It's a combination of hardware software and algorithms, but the into seating product is is really going to be.
Great in the future.
And then there is configured plus yeah.
Figure plus the Z electrified rail system as we mentioned, but it's also a combination of the rail system with a patented cassette technology, which allows us to attach the seats to the rails. Its first to market. It's a pace award winning technology and its been completely developed in house with our E systems team I think the highlight is.
Truly is the fact that it's a tethered to assist them and what that really means is that the seats are not hardwired to the vehicle.
The seats are connected to the rails through our cassette system.
And that creates a platform for reconfigurability repositioning of the seats within the interior cabin and ultimately flexibility I think the benefits to US are the fact that if you can power. The rails you can powered to see if you can power. The seats you can add content and some of the content could be a heat and cool systems airbags things of that.
Feature which provides the CPV opportunity to Lear, and certainly provides margin outperformance opportunity as well, we booked about $100 million in sales through 2023 with two global customers on configured plus are really excited about what it means to us in the future.
So I guess just to wrap up on seating innovations doing a lot for us in the seating segment, it's it's helping drive our growth it certainly expanding and deepening our competitive moat and it's also allowing us to continue to build on our customer relationships and ultimately thats translating into growth opportunities both in our standard business and conquest awards so with.
That I'll hand, it over to Carlos.
Great.
Software is a really important part of our overall health system strategy and this will play out over the next five to seven years, our system hardware products are increasingly dependent on embedded software to perform their functions and the quantity and level of software.
<unk> continues to increase as the computing power capabilities, increasing our product.
Your processes are battery management system may have over a million lines of software quantity.
Quantity of soccer increases for each new generation of products that we create for our customers.
I mean, if you will go through a similar transformation that I ever saw my time in the aerospace industry transition from hardware based on knowledge is.
Analogy with.
The levels of software integration.
Just as it used to be done to separate boxes will be transformed into software.
The number of software only our piece from our customers depending on the customer view architecture for either us supplying software to the customer independently or us integrating people software into our computing hardware. So we're seeing good.
Opportunities for most offer.
We're positioning ourselves to be ready for this transition by making our software more affordable modular extensible to offer customers towards having either in bed software solution were independent software functionality solution. So we're seeing both changes that play out in the next two years in terms of how we're winning in the marketplace.
And what differentiates E systems, I really season, three areas, the strong customer relationships strong product capabilities and our flexible business model.
Two recent examples of this one the technical running business related we recently had customers come to us exclusively to help them solve very difficult technical and compressed schedule application program involving high voltage our management and the relationship really brought the customer to us our capabilities enabled us to design a solution for the challenger.
Billy and scheduling that their needs.
We were able to design a high performance solution meet their demanding product returns at a very accelerated timeframe really proud about the engineering team and the customer team working together with our customers to solve these problems and make a great product.
Second examples where we were able to solve the business problem for our customers. They typically need a new source of supply for multiple programs and get a relationships and execution track record, enabling ask us to solve problems for them our ability to vertically integrate complements hill to improve our ability to execute as well as grower and expand our business.
Probably had a flexible business approach.
The ability to transfer that new business away from a competitor to Leer I think where these are great. Examples of how the relationships opened the door capabilities expertise enable execution success in our flexible business model work for our customer.
[music].
Yes, Thanks, Carol Thanks, Frank.
Again, just you can see how excited we are with the dynamics and the changes that are going on Intel's space and having two business segments that are interconnect, but also perfectly aligned for the changes that we're seeing with technology and innovation are key to our success going forward.
Okay, Great color Tim appreciate it thank you.
Yes.
Our next question comes from David Kelley of Jefferies. Please go ahead.
Hey, good morning, everyone, maybe just to start a question for Jason.
Could you update us on your capital allocation thoughts, maybe what you would be looking for to reinstate the dividend or bring back the share repurchase program here.
Sure, Yes, and we've talked about this a little bit in the prepared remarks. So first of all our overall priorities on capital allocation remain the same were going to invest in the business through capex to support growth in both segments to protect our competitive positions.
We're going to look at tuck in M&A to further strengthen both segments were going to maintain our investment grade balance sheet metrics and then lastly, we're committed to returning cash to shareholders and we've talked about this on the prior earnings call.
It was a big deal for us to suspend the dividend and our shareholders.
Participated in the austerity plan that we put in place and we've been unwinding that austerity plan throughout the third quarter and into the fourth quarter as the industry conditions improved what we said we're looking for is some signs of stability consistency in that and ability to generate free cash flow on a consistent basis quarter to.
Quarter, and we're just getting started on our 2021 planning process. We're nearly complete we're but we're not done but we look at kind of a wide range of outcomes for next year.
But even in kind of the worst case scenario or lower end of that range, we see an ability to generate consistent free cash flow quarter to quarter next year. So the backdrop for reinstating the dividend is certainly in place ultimately, it's a decision that our boards going to make it we're going to be talking about that with them.
Throughout the remainder of the year, but it's really important for us to get back on track with that.
Okay got it that's helpful. Appreciate it and then maybe just a follow up you had the last couple of quarters you have highlighted the some of the connector content content ramp in the wins that you've got the space.
Just curious a couple of things here first do you find your selling connectors as part of a broader you systems like solutions said or is dark connectors being sold more on a component basis. And then also was curious to hear if you're winning more and high voltage versus low voltage and the connector space.
Karla said, okay, we're seeing actually both we're seeing the vertical integration, where we're able to integrate the components internally as part of our local to Jan and high voltage wiring harnesses as well as external distribution sales third parties externally. So we're seeing both and we're seeing a greater focus on.
Both of those channels will be internally as well as external.
Okay got it thanks, guys everyday.
If I can just add to Carl's comments and it's true I think what we are seeing is the customers have opened up significantly I think it was somewhat of a closed door before the catalogs, which were somewhat closed our opening and thats, probably the significant shift in and the flexibility I think why I was surprised at how quickly we guide.
In Indentified 50 million of vertically integrating our own components.
That happened quicker than I expected because of the willingness from our customers. Our customers are looking for value propositions and that's exactly what we deliver and this is an area that we believe we can continue to create value for our customers and then with the introduction of new applications with either flat wire or high power.
Power, we're perfectly aligned in has some incredible.
Designs that.
Create value for our customers to so just very optimistic and and so far things have been going really well.
Great. Thanks again appreciate it.
Our next question comes from Emmanuel Rosner of Deutsche Bank. Please go ahead.
Yes, good morning, everybody.
Hi, good morning.
Thank you so much for all the color on what you will be focusing on within.
These systems and whats in the portfolio.
Just to dig a little bit deeper on this just curious about your I guess the rational of feed lots of FIFA on the choices that you need and want to emphasize that the infrastructure and as part of that I'm also interested in some of these like trying to components.
Trends for automakers insourcing versus outsourcing and shown interest in about the integrated power modules battery management system and to what extent that may or may not have influence your decision of what you're focusing on.
Well, let me.
To give you a broader overview and I think you know this we discussed it before but we spend a significant amount of time studying the markets and we extended the markets. We studied our capabilities and competencies within our components and looked at the investment required with the type of returns that we would expect.
And so after 18 months of doing a significant amount of work in granular detail down to where we believe we have the right to when it will be most successful that's that's really what the outcome. The deliberate in how we narrowed our product offering and I think in addition to that we were looking at where the.
Customers.
We're headed in understanding how their needs and where we can create value for our customers. We are aligned and so theres a significant amount of work. We took this obviously very seriously spend a lot of time understanding our competencies capabilities and aligning goals with the customers' future needs and where we believe we can grow profitably. So there was a two.
Commence my time and effort there and I think Carol can you elaborate a little bit on some of the granular.
Granular competencies and capabilities that perfectly aligned us with the customer that would be helpful.
Looking at the portfolio and driving the strategy the technology trends have been moving in the direction is expected more software more electronic power that fits our investment thesis and our differentiation and we're focused on those areas. We can be successful I kind of think about the portfolio a little bit granular perspective, you know electrical distribution system as we grow that.
In business accelerating expansion of terminals connectors engineered components and increasing that vertical integration to.
To drive the margin expansion, we're mapping the portfolio higher speed signals higher speed connectors higher voltages higher power density than we really differentiate ourselves from a power density and power handling capability with our high voltage connectors and have customers coming to us for that technology.
Location.
We certainly bring area in high growth areas were focused on areas were application we advanced technologies.
Mmm business model and also where we can differentiate higher power densities integrate our products in unique ways to combine products to reduce the delayed improve the charging time right.
Range the vehicle.
Integrations and power capabilities that we have there help differentiate us on the line.
Try side, we see higher speed computing faster in vehicle networking.
After networks and there we have a great longstanding tradition of domain controllers that continue to increase their computing capability and that lets us put more software endless computing platforms and use connectivity to help differentiate from a software and services perspective. So we're really excited about the focused areas that we have investments in the growth opportunity.
Yes.
Okay I appreciate the color.
Two additional clarification, if I may.
Just in terms of the what's embedded in the fourth quarter guidance again, so you assume any industry production Ben eight cents at the midpoint by Geo So assuming no broad shutdowns from Covance. So are you assuming mouth shut downs I guess I'm I'm, just not completely clear around where what are you seeing donate versus hedges down down three I guess what sort of.
The street scenario, we contemplate.
Yes. It would include modest disruption, but I think certainly what were seeing unfold in Europe as a particular concern.
In some of the locations, where we operate in Europe. There is are there already and posing some lockdowns.
I think in North America as Ray mentioned, the state of two hour Chihuahua within Mexico, just re establish the red.
Red status, and which limits the ability to fully staff.
Operate plants there so.
It's not so much a specific call on one customer one program one region that is more of a broad.
General concern and.
Again as Weve reestablished guidance you know after had been pulled at six months ago. We thought it was important to be cautious and simply explain our assumption. So.
If if you have a more bullish outlook on how things will turn out this quarter. This quarter you can certainly model that appropriately which tried to give you the building blocks do that.
And I appreciate it and just a final quick clarification. So on each of those margins you've given us a lot of the pieces and very encouraging to see that was a refocus on specific products that would certainly help with the engineering cost.
And I I believe that during the quarter at September Conference, you said that a good way to think about it for 2021 or E systems margins was 7% to 8% is that did I understand it right is that still the case on the Senate is volume dependent but just want to make sure that the right incentives.
Yes, I think the biggest question Mark is volumes and Emmanuel it's a little bit early to talk about.
Our outlook for 21 and that level of specificity, but I can say that outside of volume the underlying trends in terms of performance in that segment are all positive and and so you will see some tailwind benefit coming into the into next year on the performance side youre going to see a bit of a headwind on the engineer.
Our inside and the biggest variable would be volume certainly we would look to expect industry volume to be up year over year, it's a matter of how much.
But if you said, it's going to be up 10% of the guidance that says it up 14% you get you get to that volume level you start to.
I have a level of industry.
Production that support something in the Sevens certainly.
Great. Thank you so much.
Thanks.
Our next question comes from Mark Delaney of Goldman Sachs. Please go ahead.
Yes, good morning, thanks for taking the questions.
Open to discussion more breadth is the comments you made about being able to serve both some of the newer about startups as well of course as your existing established Oems can you talk a little bit more about what sort of engagements. The company has with some of these newer startup companies and how does that business ops.
Trinity compare.
Some of these new startups, which I think there could be an opportunity to provide some additional services for for newer types of companies.
Yeah, I think that first of all there's there's literally more than 100 potential new we view players out there. So we're not going to try to sell to all of them, but we're looking for is partially where are the traditional Oems partnering with new TV players that I think provides a little bit of the same.
Sort of backdrop and Thats.
A little bit less risk associated with investing with them. There are certainly some very well capitalized newly these start ups that we have won business with what we're looking for there as well.
Well capitalize lower risk.
They are providing some of the investments support upfront drew.
Directly so we're not going to try to sell to every new EDI player, but there are certainly a handful that look appealing to us and I think in a broader sense and what we're seeing is obviously there is limitations on resources and capital investment and our customers are balancing that today and there's a tremendous amount of emphasis on TV in.
And other technologies connectivity autonomous and other things are going on Reconfigurability, the vehicle and so what we're seeing across all customers, including the new ERP players is that need to partner and they need partners that have the solutions that we have and one thing that is what I believe is.
Unique about Lear is our ability to be agile and flexible that we build designs that fit particular platforms. All platforms are not the same and each customer is different in respect to their strategy our ability to come in and offer a very flexible design with scaled components across.
What we consider to be the base.
Properties is very appealing and so and we have this and we've had this history of being very customer focused obviously focused on profitable growth but.
Being very focused on creating a value proposition and that is something that I've been seeing across all of our customers, where they're coming to us and we have examples where they're coming to us and asking us to solve very very challenging problems in in doing so we're winning the contracts and having that ability to be flexible and I think this is important.
There's a lot of mega suppliers out there that offer a black box design in this kind of the take it or leave it. This is what we offer yep. We can scale. It. Yes. This is what weve design, but the architectures are built that way the architectures are billed for the need to be flexible and so what we're seeing is partnering with and we're very selective to like Jason.
And said, we're going to be chasing a lot of different quotes and I think it's important when we talk about what the quoting activity. We see those are very selective quoting activities. We don't go. After every single platform every single customer we are very selective on where we position ourselves for the best returns and the best.
Future growth and so those partnerships are important and so we are seeing them with the traditional Oems today and now we're seeing a pull from what would be considered the new entrants in the new EDI players and and we've been successful we're actually winning business with both on and we continue to see that type of relationship being established.
We can create a value proposition being very agile and flexible.
Very helpful. Thanks for the commentary on the other topic I was hoping to discuss more was on on BMS and thanks for all the comments on on your electrification outlook.
Electronics outlook got a number of companies are trying to go after the BMS markets. It could you talk a little bit more about where you think differentiates their solution.
Including whether it's wired or wireless.
Any any color about how much BMS may make up of the $1 billion target that you articulated for 2025.
Sure. This is Karl again, so battery management systems have been an important product for us for over 10, plus years and we have multiple programs. Both in production and also new programs in development and I think a couple of things that differentiate us around the battery management systems. One is around the flexibility and choices that we give customers we have not only the wired solutions.
We have wireless products on our road map and if that customer discussions about wireless technology.
We have also innovation on our connection systems in terms of getting into the battery pack in the battery cell connections to reduce the amount of wiring in the batteries cells and simplify that that's one thing that wireless consult but we can also solve that challenge a different way with some of our flat flexible circuits and cables technology. So.
We're really.
Able to provide our customers with a lot of different technology options to solve the problems that they have and also we will see a trend towards more software only solutions and battery management space and so as we're positioning our software investments that we've made with millions of lines of software and battery management systems to be more affordable to be able to be flexible and where how we host that software fund.
Optionality. So I think it's really nice that we can offer our customers a lot of different choices to solve different problems, depending on the vehicle architecture and unique needs.
Thank you very much.
Okay.
Our next question comes from.
<unk> of credit Suisse. Please go ahead.
Hi, good morning.
Good morning.
Hi.
Good.
By asking about that.
Operator can you just help us understand salt point outgrowth in the third quarter and I think you cited 14 points in the fourth quarter.
I think you've talked about structurally six points of that growth for that business and I know quarterly output can be lumpy, but is there something in the threeq and fourq.
Outgrowth that can be extrapolated going forward or is this really just your nics in the period, and just particularly favorable and can't be extrapolated.
Yes, I think we've been a little bit cautious we're super excited by the performance for the third and fourth quarter, it's really the backlog the way it kind of played out this year was backend loaded. So we had $113 million third quarter I think it's a similar number in the fourth quarter. That's the biggest driver part of it.
Kind of plays into the Lumpiness you described there.
Hi, the program volumes.
Products, where we have a lot of content and so we do have a handful of programs that have seen significant volume improvement year over year. So it's more of a mix driven.
The opportunity, but I think we just think about the 6% plus growth over market target. We've established longer term I think you're seeing the underpinning of that related in electrification driving about half of that and I think that there's upside to that certainly as we look at the adoption rate.
And with with the views that that's going to be a major component looking forward over multiple years that would cost.
Modeling sort of that what we've seen year to date, which is about 10 or 11 point growth above market and 14 in the fourth quarter that not necessarily what we're signaling for each quarter next year.
Okay, and then just just to be clear as far as.
The launch business that you have in backlog EPS coming on.
Right now what we saw in Threeq and Fourq you how much of that is electrification.
Yes, so our electrification business. This year is about 250 million in revenue and I think it grew by roughly a 100 million or so this year so within our backlog with the substantial part of that looking out to next year. We've got another $150 million of backlog rolling out that's going to be up a 400 million.
And our plus business for us and we look at next year.
Okay got it and then just a question on.
21, and just restructuring.
More broadly we.
Yes, we've seen a pretty robust volume recovery and I know you've been proactive about restructuring, but the question is is there risk that maybe that to proactive restructuring that you.
Industry recoveries more significantly and now we're talking about.
Potentially Bakken 2019 levels by 22 is there any risk that you're potentially under staff have ample booklet footprint in place or do you think that you still have ample capacity in place that even if the volume should shoot stacker snap stack that you can still.
Comedy.
All of that volume.
Yes, we certainly have ample capacity in place we're not concerned about that in a lot of cases, what we did is we accelerated closure of the facilities and capacity, we took out and move to lower cost locations.
To help.
The near term cost structure and and so it's not so much.
Page in our capacity you look out over two to three years from what we are planning previously its just accelerating taken out some of that higher cost capacity, particularly seating. This year a couple of plant closures in North America, and then you systems in Asia. The three plants that we are closing there and we talked about I think on the last earnings call.
Great. Thank you.
Yes.
Our next question comes from Chris Mcnally of Evercore. Please go ahead.
Thanks, so much Steve.
Two quick ones one on properties and one one tech question. So the supply chain issues that you've mentioned a couple of times on the call just wanted to clarify that regard to just whether there's production issues in Q4, as you mentioned and in Europe, and so is the production issues. There is there is no.
Two or tier three issues that would affect your.
Actor.
Yes, something unique to me or in terms of that risk on the supply chain side, it's more of a general concern and his bowl, whether our customers will be impacted by restrictions imposed in certain countries.
Or whether the labor disruption in the supply chain in general from restrictions imposed.
What impact the availability of components certainly.
Kyle brings teams are working around the clock.
Turning to the supply chain and as Ray said earlier.
It is fragile in the industry in general to set up a specific call around a particular issue that we have more of an industry issue.
Perfect Super clear and then again appreciate all the detail on on the EDI components I mean, if I just try to summarize and look at this is page eight your top five.
Fair to say that in that that growth going forward sort of from the 250 to 792 billion that is wire harness skill.
The great majority of that is if you did over 50, 50% of the of the high voltage business.
Yes, so we see the high voltage wire in connection systems at 40% roughly of the portfolio five years 2025, an EPS the same as what it is today I mean within literally within a percent or two.
So we see the mix between that and power electronics roughly stable.
That's great and if I could just squeeze one in on in terms of market share do you see in high voltage that within those businesses. If we just stay within harnessing and connection that you have a higher market share in E than you do in in non high voltage. So it's sort of a a net net benefit.
Sherri.
I think overtime, we would have a similar market share, but in our current projection that under $10 billion.
It's a little bit lower than our current low voltage architecture.
Perfect. Thanks, so much guys.
Thanks.
Our next question comes from Mike.
Oh Baron capital markets. Please go ahead [noise] good.
Good morning, guys. Thanks for taking my question I'll, just make it really brief could you give us an update around conquest wins in the in the seating business. Please.
Yes, I mean, I think the last time, we gave an update it was with the.
$700 million of conquest wins, but we still have.
Between the end of the year and probably first quarter, some significant opportunities for conquest wins, and I think I would.
Categorize that as probably being awarded in the first quarter of next year. So we still we have done a really nice job this year.
Due to a number of reasons I think some of these programs have been kind of push back a little bit, but still we see some.
Opportunities that are in front of us for continued conquest success.
Between the end of the year and probably more likely the first quarter of next year.
Understood. Thanks appreciate it.
Thank you.
Our last question comes from time Kelly of Citi. Please go ahead.
Great. Thanks, Good morning, everybody just a couple of quick ones.
So just first hoping to get an update on on on Cibolo customer engagements and also how you're thinking about the prior it was $5 billion addressable market by 2025 any update there would be helpful.
Yes, just Doug.
Couple of things one obviously during cold, but there is some slowdown of engagement with some of our customers just because of the transition going remotely those type of things and just suspending some investment from our customers.
Temporarily create a little slowdown however, I will tell you is that when we've talked about it were originally a 25 million vehicles were now 46, 40 deployed and 46 million vehicles.
What's been interesting during this this cold situation is you should do is up significantly 80% since January and 200% growth quarter over quarter in the third quarter. So I think a lot of that's because of the contact list transactions and people really wanting to.
Do things more remotely within their vehicles in.
What's been good as Weve been established a couple new partners through a new partner with reef the largest parking operator in North America for contact with parking.
Payment that just was established which is a continuation of our you know a broader range of housework connecting with our customers and again, so we've seen some very positive signs.
Respect to just.
Probably a smart they don't really think there has been a change from that billion dollar market. We described historically thats, where we are.
So.
That's very helpful. Then maybe just a last quick one for Jason just kind of alluded to it I just want to make sure I'm clear on it.
We think about the gains in the backlog and so forth.
It just kind of go forward growth over market.
Over the next couple of years still fair to think of seats is around four or five key system 68, or should we think about a little bit differently now.
Yes, I think if you look out over a five year period those growth rates are still what we're targeting north of 6% in north of 4%.
Seating, respectively, and I think we're even more encouraged of late with the growth potential of electrification really supported about half of that.
Just by itself the new system, so, yes, thats still intact.
Great very helpful. Thank you.
Thank you.
Okay, well I think thats, good and probably only one left on the call now in Lear team and just want to again reiterate my appreciation for all the hard work, it's been one challenging year, but your performance really showed well in the third quarter I know, we'll we'll finish strong with everything that we can control that's in front of us and I just want to say, thank you to the team and appreciate.
Everything you're doing so that's it.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.