Welcome to the Adient Second Quarter Financial Results Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Mark Oswald. Sir, you may begin.

Thank you, Shirley. Good morning, and thank you for joining us as we review Adient's results for the second quarter of fiscal 2023. The press release and presentation slides for our call today have been posted to the Investors section of our website at Adient.com. This morning, I'm joined by Doug Del Grosso, Adient's President and Chief Executive Officer; and Jerome Dorlack, our Executive Vice President and Chief Financial Officer. On today's call, Doug will provide an update on the business followed by Jerome, who will review our Q2 financial results and outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Doug and Jerome, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. The statements are based on the environment as we see it today, and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to slide two of the presentation for our complete Safe Harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. This concludes my comments. I'll now turn the call over to Doug.

Great. Thanks, Mark. Good morning. Thank you to our investors, prospective investors, and analysts joining the call this morning, as we review our second quarter financial results for fiscal 2023. Turning to slide four, let me begin with a few comments related to the quarter. First and foremost, Adient's operational execution, positive commercial momentum, and a strong focus on containing costs continue to drive the business forward. Adient's second quarter results provide very positive proof points of these actions, which can be characterized as solid, building on the positive momentum established earlier this year. The company's key financial metrics for the quarter can be seen on the right-hand side of the slide. Revenue for the quarter totaled $3.9 billion, up $406 million compared to last year's second quarter. Adjusted EBITDA for the quarter totaled $215 million, up $56 million. In addition, Adient ended the quarter with a strong cash balance and total liquidity of $826 million and $1.8 billion, respectively. Speaking of cash, the strong cash balance reflects the impact of certain opportunistic strategic transactions executed during the quarter, namely, the use of $30 million to repurchase just under 760,000 shares of the company's common stock, enhancing our previously announced capital allocation plan. And the use of $100 million, combined with proceeds from $1 billion in new US senior notes issuances, to pay down about $750 million of euro notes due 2024 and pre-pay $350 million of Adient's Term Loan B. Jerome will review the additional commentary on these actions during his financial review. This is no doubt a very good start to the year, as we reached the halfway point. Although we are closely monitoring certain external headwinds, such as soft auto demand in China and increased steel prices in the Americas, we expect the positive momentum to continue into the second half of 2023 based on the current environment. I will talk about the environment as we see it in greater detail in just a minute. In addition to Q2 fiscal year '23 solid and improved fiscal on-year financial results, Adient continues to execute actions within its control and position the company for sustained success. These actions include, but are not limited to, the team's intense focus on launch execution, cost control, operational improvement, and customer profitability management. Winning new business across various regions, customers, and platforms are expected over time to strengthen our leading market position, not to mention support improved margins and earnings. The team is also executing actions to provide value-add to Adient's stakeholders every day, whether that's our customers, suppliers, or employees. These efforts have been validated repeatedly with numerous industry and customer recognition awards, including most recently, GM Supplier of the Year, Renault Korea Motors Supplier of the Year, and seven J.D. Power awards for seat satisfaction for Adient China, among other customer recognition. Finally, Adient continues to make progress at advancing its commitment to build a sustainable future. We recently highlighted our sustainable product offerings as part of our goals to drive environmental, social, and economic change. Jerome had the opportunity to meet with several investors to share with them certain of Adient's sustainable seat solutions. We've highlighted a few on slide five. On the slide, you'll see product offerings that are currently in the marketplace or are being developed for future discussions with our customers. It's important to point out that Adient's innovative solutions span across our portfolio and touch each of the company's core components, such as foam products, which not only drive comfort but also remove urethanes from vehicles, eliminating volatile organic compounds. The innovative seat back panel reduces vehicle weight and frees up room for occupants. Adient's ultrathin technology, when combined with the soft back panel, delivers occupant space and leverages room underneath the vehicle. This allows for more battery packaging. On average, this award-winning technology frees up 40 to 60 millimeters of packaging space for batteries, enabling our customers flexibility to increase battery size by up to 10%, thus allowing for more battery electric vehicle range. On the structural side of the business, Adient has partnered with H2 Green Steel. In fact, we're in the launch phase with one of our customers to incorporate this low-carbon steel. And finally, leather alternatives, as virtually all OEMs are working to reduce or eliminate leather content to improve sustainability, increase quality, and reduce costs. Solutions include plant-based and recycled alternatives, to name a few. The solutions and benefits just mentioned go beyond sustainability; mass reduction and lightweighting offer OEMs greater range in battery electric vehicles, cost savings by eliminating certain leather materials in favor of less expensive alternatives, and cost-optimized solutions that unite sustainability and cost efficiency. Bottom line, Adient's sustainable product solutions provide significant environmental benefit with cost efficiency in mind. Turning to slides six and seven, let me now take a look at our business wins and launch performance. As you can see in slide six, we've highlighted a few of Adient's recent wins. Adient continues to successfully navigate and balance the current operating environment and related commercial discussions while winning new and replacement business. The programs highlighted represent a good mix of wins across the electric vehicle powertrain and internal combustion engine powertrains, diversified across a number of segments, including SUVs, luxury, and mass-market while containing a high level of vertical integration across complete seat, foam, trim, and metals. On the right-hand side of the slide, I listed a few observations from my recent trip to Shanghai. Despite the negative headlines associated with the China market today, the visit was a good reminder that the long-term outlook remains bright. A few points that stood out to me include: China remains the world's largest auto market, and I don't see that changing. Chinese OEMs are expanding their share significantly across all price segments. In addition, exports out of China are growing, with that growth expected to continue. Adient's leading capabilities and strong market presence underpin our current and future success. We're seeing that today, especially when looking at our wins, and we are on track to achieve our fiscal year 2023 sourcing target of more than $1 billion across Chinese NEV startups and global manufacturers, including a significant amount of NEVs. This is expected to strengthen our leading position as we continue to grow in the market. Flipping to slide seven, as we typically do, we've highlighted several critical launches that are complete, in-process, or scheduled to begin in the near term. I'm happy to report that the launches currently underway are progressing in line with our expectations. The launches and platforms shown not only impact Adient's jet facilities but span across our network into our foam, trim, and metal facilities. The team continues to focus on process discipline around launch readiness, which has driven an exceptionally high level of performance, especially considering the launch load and complexity of launches planned for the year. And we have no intention of letting up. Before handing the call over to Jerome and turning to slide eight, let me conclude with a few comments related to the current environment and what we expect heading into the second half of our fiscal year. To begin, as expected, heading into 2023, the overall operating environment through Q2 has improved versus last year. I'd characterize the improvement to be fairly modest, driven by small quarter-on-quarter tailwinds concentrated in a few areas such as softening freight costs or better operating patterns at our customers, driven by easing supply chain constraints as opposed to broad-based improvements. In fact, a number of persistent external influences and risks exist that continue to apply downward pressure on the industry and Adient's near-term results. Increased labor and rising steel prices in North America are a few examples. With that as a backdrop and based on what we know today, the left-hand side of the slide highlights certain key influences and how we expect those influences to impact Adient's H2 results versus our first half. On the plus side, we will continue to execute actions that are within our control, such as self-help initiatives and benefits associated with stability and improvement in our customers' production schedules. Influences that we believe will be fairly neutral H2 to H1 include vehicle production, where expected improvements in North America are forecasted to be largely offset by modestly lower production in the rest of the world. Energy, freight, and labor economics are presently forecasted to run fairly in-line with the levels experienced to date in 2023. Continued commercial settlements to help offset rising input costs with our customers. And finally, Adient's balance is also expected to be generally consistent with H1 results, as our prior year business wins are launched fairly consistently throughout the year. Lastly, at the bottom of the slide, you can see rising steel costs in North America and concerns over consumer demand, especially in China, as the biggest worry beads heading into the back half of the year. The team remains focused and is executing actions to manage through these obstacles. On the right-hand side of the slide, here are a few comments on what we're seeing and expecting from our three key markets. For the Americas, I view the market as fairly stable; improving customer run rates and modestly higher production driven by continued inventory build are expected to provide a slight tailwind as we progress through 2023. As you would expect, we'll continue to monitor potential softening of consumer demand, primarily driven by rising interest rates that ultimately impact affordability. That said, our customers have not signaled through their production forecast to us that this is the case. In China, auto demand remains soft despite unprecedented price cuts. The soft demand combined with rising inventory heightens concern for downward revisions to production schedules in the coming months. Given this environment, the team is aggressively flexing our variable costs, reducing fixed costs, cutting non-essential travel and expenditures, and driving further efficiencies into the business. For Europe, despite Q2 production modestly outperforming expectations heading into the quarter, the outlook for the region remains bleak, lacking positive catalysts for the near-term and longer-term. In fact, S&P is forecasting a significant reduction in Europe's production in Adient's second half of 2023. Given these low expectations, the Adient team continues to develop and execute actions designed to improve the company's profitability in the region. Flipping to slides nine and ten, which I will not comment on in great detail. The slides are fairly straightforward. We've illustrated why additional restructuring is necessary, and just as important, Adient's response. Two key takeaways on the slide: A number of external factors, including lower expectations for vehicle production in Europe combined with industry-specific trends such as a trend towards digital design validation are reshaping the auto sector. It's imperative that current and future business practices align with these changes. Although restructuring can be expensive, Adient has committed to being responsible stewards of capital when developing and executing the necessary actions. In fact, slide 10 is a recent example of how the company implemented an effective cost-efficient restructuring of our Board's facility in the Czech Republic. With that, I'll turn the call over to Jerome to take us through Adient's second quarter 2023 financial performance and provide our thoughts on what to expect for the remainder of fiscal '23.

Thanks, Doug. Let's jump into the financials on slide 12. Adhering to our typical format, the page is formatted with our reported results on the left and our adjusted results on the right side. We will focus our commentary on the adjusted results, which exclude special items that we view as one-time in nature or otherwise skew important trends and underlying performance. For the quarter, the biggest drivers of the difference between our reported and adjusted results relate to restructuring and impairment costs, purchase accounting amortization, and costs associated with our recent debt refinancing. Details of all adjustments for the quarter are in the appendix of the presentation. High-level for the quarter, sales were approximately $3.9 billion, up 12% compared to our second quarter results last year. Improving vehicle production in the Americas, Europe, and Asia (excluding China) were the primary driver of the year-over-year increase. Adjusted EBITDA for the quarter was $215 million, up $56 million year-on-year. The increase was primarily attributed to the benefits associated with higher volume and mix, improved business performance, and commercial recoveries. These benefits were partially offset by the impact of increased business operating costs and the negative impact of currency movements between the two periods. I'll expand on these key drivers in a minute. Finally, at the bottom line, Adient reported an adjusted net income of $3 million or $0.32 per share. Let's break down our second quarter results in more detail. I'll cover the next few slides rather quickly as the detail for the results are included on the slides, and this should ensure we have an adequate amount of time set aside for the Q&A portion of the call. Starting with revenue on slide 13. We reported consolidated sales of approximately $3.9 billion, an increase of $406 million compared with Q2 FY22. The primary driver of the year-over-year increase was higher volume and pricing, around $519 million. The negative impact of FX movements between the two periods impacted the quarter by $113 million. Focusing on the table on the right-hand side of the slide, Adient's consolidated sales for each of Adient's major regions was generally in line with production, except in Asia, where the company strongly outperformed. Americas and Europe performed in line with the broader market, as customer production schedules and production volumes continued to make modest improvements through the quarter. In China, Adient's strong customer mix underpinned significant outperformance versus the industry production in the region. GAC, Daimler, and Hyundai led the charge. This outperformance is consistent with our Q1 results and expectations heading into the year, as the benefit from new program launches is taking hold. In Asia, outside of China, Adient benefited from programs that launched last year and are now running at rate, and the launch of recently won target business in Japan. With regards to Adient's unconsolidated seating revenue, year-over-year, results were down about 5% adjusted for FX. In China, where a majority of Adient's unconsolidated sales are derived, the year-over-year decline is attributed to lower production at the company's unconsolidated joint ventures, partially offset by improved volume and sales at our unconsolidated joint ventures in the Americas and Europe. Moving to slide 14, we've provided a bridge of adjusted EBITDA to show the performance of our segments between periods. The bucket labeled corporate represents central costs that are not allocated back to the operations, such as executive office communications, corporate finance, and legal. Big picture adjusted EBITDA was $215 million in the current quarter versus $159 million reported a year ago. The primary drivers of the year-on-year comparison are detailed on the page and are consistent with what we expected heading into the quarter. Positive influences include $84 million associated with increased volume and mix. Improved business performance also benefited the quarter by $29 million. Looking deeper within that bucket, the biggest positive driver was improved net material margin of $56 million. In addition, lower freight costs provided a $5 million benefit. Partial offsets within business performance were utility and wage inflation, which negatively impacted the quarter by $29 million and increased launch costs, driven by the quarter's heavy launch load weighed on the comparison by $3 million. It is important to note that certain inflationary pressures, such as elevated labor and utility costs, are being partially offset by the improved net material margin resulting from commercial discussions with our customers. Other factors that weighed on the quarter included a net $39 million headwind from commodities, driven primarily by the timing of recoveries and a non-recurring favorable inventory revaluation in FY22 due to higher commodity costs. FX weighed on the quarter by $5 million. SG&A performance, which was adversely impacted by the non-reoccurrence of certain compensation-related austerity measures taken in FY22, as well as the timing of engineering spend to support the quarter's launch load weighed about $9 million. And finally, $4 million of lower equity income. It is important to note that Adient's Q2 fiscal 2023 EBITDA contains non-recurrent net benefits totaling about $8 million that should be removed from our ongoing run rate. The benefit was largely associated with an insurance settlement. A similar-sized settlement was included in last year's results, which is why the year-over-year comparison is not impacted. Stripping out the non-recurrent insurance benefits, all in all, Adient's second quarter was very much in line with our internal expectations. Similar to past quarters, we provided a detailed segment performance slide in the appendix of the presentation. High-level for the Americas, several positive factors drove the year-on-year increase and included improved volume and mix, improved business performance driven by increased net material margin, aided by commercial recoveries, and to a lesser extent, the restructured pricing agreement at our KEIPER joint venture. Other positives within business performance included improved freight costs. Although the team made progress on labor and overhead efficiencies, this was more than offset by the negative impact of increased labor costs. Also partially offsetting the benefits in the quarter was the non-recurrence of certain compensation-related austerity measures since late last year. Launch costs were also elevated, driven by the timing of launches. Outside of volume and business performance, FX and commodities were a slight benefit, whereas SG&A costs weighed on the quarter. In EMEA, the year-on-year comparison was influenced by several factors such as improved volume and mix, improved business performance driven by increased net material margin aided by commercial recoveries, and improved launch and ops waste. Partial offsets within business performance included the negative impact of increased labor and utility costs and increased freight costs. Outside of volume and business performance, the year-on-year comparison was adversely impacted by commodities, primarily by the timing of recoveries and nonrecurring favorable inventory valuation in FY22 due to higher commodity costs. In Asia, the year-on-year improvement was driven by the benefit of higher volumes and mix, primarily related to the improved production in the region outside of China, improved business performance with improved material net margin, and lower freight costs leading the way. These benefits were partially offset by lower equity resulting from lower volumes at our unconsolidated JVs in China and our restructured shareholder agreement impacting our KEIPER joint venture, FX, and a temporary increase in SG&A costs to support our growth initiatives. Let me now shift to our cash, liquidity, and capital structure on slides 15 and 16. Starting with cash on slide 15. I'll focus on year-to-date results as the longer timeframe helps move some of the volatility in working capital movements. Free cash flow, as defined by operating cash flow less CapEx, was $53 million. This compares to an outflow of $102 million for the same period last year. Key drivers impacting the comparison include the higher level of consolidated earnings driven by improved volumes and a modestly better operating environment, timing of commercial settlements, lower interest paid driven by the reduced level of debt between the two periods, and a lower level of accrued compensation. These benefits were partially offset by typical month-to-month working capital movements, the timing of tooling recoveries, and VAT deferrals and payments. One last point to call out on the slide: Adient continues to utilize various factoring programs as a low-cost source of liquidity. At March 31st, 2023, we had $206 million of factored receivables versus $181 million at the end of Q1 FY23 and $269 million at September 30th, 2022. Flipping to slide 16, as noted on the right-hand side of the slide, we ended the quarter with about $1.8 billion in total liquidity, comprised of cash on hand of $826 million and $973 million of undrawn capacity under Adient's revolving line of credit. A very good outcome, even more impressive when you consider the quarter-ending cash balance reflects the impact of a few strategic actions recently executed. Specifically, the execution of our enhanced capital allocation plan, which resulted in the company using about $30 million of cash to repurchase just under 760,000 shares of Adient common stock. Of that, I know approximately 48,000 shares with the cash outlay of just under $2 million settled in early April after the quarter closed. That's why the cash statement will show $28 million related to repurchases and not the full $30 million. And second, $100 million of the cash used in conjunction with the proceeds from a $500 million secured note issuance and $500 million of unsecured note issuance to refinance a large portion of the company's 3.5% euro notes that were set to go current in August of this year and to prepay $350 million of our Term Loan B, which had a cost at the time of 8% plus. Speaking of debt, Adient's net debt position totaled about $2.5 billion and $1.7 billion, respectively at March 31st, 2023. The refinancing extended the average tenor of Adient's debt portfolio to approximately five years versus three and a half years prior to the actions. The actions implemented during the quarter demonstrate Adient's commitment to maintaining a strong balance sheet while executing actions to enhance our capital allocation plan. With that, let's flip to slide 17 and review our outlook for the remainder of fiscal 2023. As Doug mentioned, through the first two quarters of 2023, Adient is off to a solid start, on track to achieve its 2023 plan. That said, we're not sitting idle. The second half of 2023 will no doubt have its share of obstacles that need to be navigated, such as soft demand in China and elevated steel prices in North America, which we've discussed earlier. On the plus side, we continue to expect the overall operating environment to progress in a positive direction, albeit at a modest pace. With that as the backdrop, based on Adient's results through March and current market conditions, including revised production forecasts and FX assumptions for the year, we currently forecast the following: Adient's consolidated sales to land at about $15 billion, which is equal to our previous guide. For adjusted EBITDA, we continue to forecast approximately $850 million, including equity income of about $70 million. That implies, albeit modest improvement in Adient's second half results versus H1, excluding the nonrecurring insurance settlement, as driven by a few key influences. First, benefits associated with an improving operating environment and production in North America. Second, the timing of commercial recoveries in H2 relative to H1. Lastly, continued execution of certain continuous improvement actions that realize full benefit in the latter half of the fiscal year. Unfortunately, these benefits are almost fully offset by lower H2 production in Europe and China and an increase in certain input costs, including elevated raw material costs in North America impacting predominantly the company's fourth quarter. Our current forecast for these headwinds is between $10 million and $20 million. One more item to note before moving on: Given the timing of commercial recoveries in the Americas, which is more tilted towards H1 and the lower production forecast for Europe in Q3 versus the quarter we just completed, we expect Adient's Q3 EBITDA to settle at or about the same level as the quarter just completed around the $200 million mark, excluding the benefits associated with the insurance recovery. Moving on, interest expense given the recent debt refinancing as well as interest rate expectations is now forecast at $180 million. Cash interest, which is also called out, is forecast at $145 million. The lower level of cash interest is primarily driven by the timing of the first interest payment on the new bonds, which is set for October 15, 2023, after the close of Adient's 2023 fiscal year. Cash taxes are now expected at $95 million versus the previous guide of $90 million. The modest uptick is a result of the opportunity the company has to dividend certain monies out of Asia. CapEx, largely based on customer launch schedules, is forecast at $300 million, no change from the February guide. Finally, given our earnings expectations combined with the lower level of cash interest now expected, we forecast free cash flow of approximately $215 million for the year, up from the previous guide of $200 million. With that, let's move on to the Q&A portion of the call. Operator, can we have our first question?

Thank you. We will now begin the question-and-answer session. Our first question comes from Emmanuel Rosner with Deutsche Bank. Your line is open; you may ask your question.

Thank you so much. First question is on China, and I think you're obviously raising the potential risk of downward revisions to production schedules there based on how demand has been playing out and inventories. Are you seeing any risk in terms of some of your launches there either being pushed out or downward revisions? I think this year's strong growth of the market that’s concentrated in your outlook has a lot to do with new launches and I'm wondering if the current environment is pushing some automakers to revise some of these projections down?

Yeah. Thanks, Emmanuel. I appreciate the question. Nothing really material on the launch status. Jerome and I were both in China recently, and we had pretty in-depth launch reviews with the team. Right now, everything is for the most part on schedule. I think what we're seeing more of is that products that have been in the market for a while are seeing changes in production schedules, consistent with S&P forecasts. As we committed on, it feels like the market is waiting to return, with all the price cut activity causing consumers to pause and wait for that to settle out.

Understood. And then as a follow-up, just hoping to clarify what is embedded in your 2023 EBITDA outlook for net commodities and inflation, net of performance?

In terms of I guess, Emmanuel, just trying to get a bit more clarity on that.

Just so in the walk from 2022 to 2023, how much will commodities be a headwind or tailwind and how much are you expecting inflation net of performance to be on a full-year basis?

Yeah. I mean, on the full-year...

Yes, Emmanuel, it's Mark. What we've indicated in the past, right, we didn't give specific markets on that bridge. But what we did say is when I looked at 2022, for example, those results were impacted by about $100 million of what I'd call transitory costs, right? Those were the inefficiencies of production schedules. We're seeing that actually lessen as we expected, as we entered the year. So you pick a number; do we think that's going to be half, probably a pretty good number there, so maybe $50 million versus the $100 million. The inflationary costs, we just label that as sticky, right? So that was another $100 million last year that impacted us. We did indicate that because of labor costs this year that was increasing versus last year. However, we are getting commercial recoveries for that. So you're probably net-net with the transitory costs and sticky costs again. You're probably looking at a couple of $100 million impacting the year-on-year, but again, we're getting those commercial recoveries from the customers. So it's really more focused on how are we going to exit this year and how is the setup for 2024 going to shape based on what commodity prices are expected next year, based on the commercial recoveries to date, etc. So hopefully that helps.

Okay.

Thank you. Our next question comes from John Murphy with Bank of America. Your line is open; you may ask your question.

Good morning, guys. I just wanted to ask on mix, maybe sort of short-term and long-term. If you look at slide 14, you guys are highlighting positive $84 million from volume and mix in the quarter. I'm just curious if you can give us a breakdown between what is volume and what is mix. But more broadly, how much have you benefited from what has been a very strong mix in the industry? And is there significant risk, as we step forward later this year into the coming years when mix may deteriorate to some degree, at least from an automaker level? And then second, kind of along those lines, on slide five, you highlighted all this great product focused on ESG. But then on weight savings real stuff, not just even marketing stuff, really improvements in your product, are you able to get paid more for those seats that have less weight or are more ESG friendly, or is that just part of the general product improvement over time that's needed?

Yeah. Thanks for the question, John. With respect to the first one on volume and mix, I mean, when we think of volume and mix, for us, what really matters, and we've said this in the past, is the volume piece of it. So the mix doesn't... we're not really sensitive to whether it's an F-150 base or an F-150 fully-loaded King Ranch. What we really care about is getting the volume piece of that. As your customer demand shifts and we see more entry-level vehicles versus higher-end vehicles, we're not as sensitive to that aspect of it. For us, what really matters is the volume piece of it. And so when we talk about pure volume, that's what we really care about is the volume. And I think we've been pretty transparent about that in the past.

Yes, thank you.

What I would say is go ahead. What matters to us is the regional mix. As we examine where our volume originates from a regional perspective, we are attentive to that. If you consider the performance of our various regions, clearly, as Asia recovers and we receive more volume from that area, it positively affects our regional mix. That’s why we are looking at the latter half of our year. We indicated that we have reasons to maintain our guidance based on that, particularly due to the regional mix component rather than a platform mix.

If I move to your second question regarding sustainable products, you almost have to look at each one individually. Whether they represent a cost reduction or a cost add, our focus essentially is to provide product solutions to our customers that are net neutral to the current cost structure that they have on their bill of material today. So we tend to package them and look at it from a vehicle perspective of the net benefit, and it could be a net benefit for them. That's why with ultrathin, we talked about increasing interior volume within the vehicle that allows it to displace that volume with additional batteries if that's what the customer ultimately wants. But really, when we look at our sustainable solutions, we aim to be net neutral. It does ultimately depend on the individual case.

And Doug, if I could sneak one other question in here on slides nine and ten, it seems like you're signaling that restructuring is really more an ongoing part of the business. You have some catch up to get your margins to target, but it seems that there is a consistent ongoing restructuring effort. What do you think we should think about for expense and cash outlays for the ongoing part of this, because it seems like it could be a permanent part of the business?

Yeah, I think historically we've always had roughly $100 million of restructuring in. We're not trying to signal anything beyond that in the go-forward, but we're taking actions as we see appropriate. We just recently announced an action on the SG&A front to reduce the amount of validation center capacity we had in Europe, for example, because we can do more of that digitally now than we historically had to do physically. We try to really use our footprint to our advantage to move work around to not only the necessary lowest-cost region sometimes but sometimes we'll move work in to offset having to take a heavy restructuring load, because we think we've got productivity in that facility that makes it competitive. So we're constantly rebalancing, but the quick answer is, right now, we're not signaling anything different than historically how our business has operated.

Thank you. Our next question comes from Rod Lache with Wolfe Research. Your line is open; you may ask your question.

Good morning, everybody. Mark, I kind of lost you on the 2023 bridge because I think you might have misspoken on the inflation, but maybe just to simplify things, if we take a step back, I think at the start of the year, you guys expected a $200 million headwind from material economics and labor and a few other things. And you had something like $250 million of expectations for operational performance recoveries and lower inefficiencies. So it looked like a little bit of a tailwind net-net. I'm hoping you can give us a sense of excluding volume, whether the positives and negatives are now more neutral because of the steel issue. And Jerome, on the steel, if I recall correctly, you had a similar issue maybe a year ago, and you ended up mitigating that with recoveries. Is there any reason why that would change?

So I can address both of those points, if you'd like, Rod. Regarding the first one, in March, we see that when we examine the overall impact from material costs, our ongoing expenses, and the commercial recoveries, it will result in roughly a $100 million headwind for us this year, taking into account all components. I don't believe this has changed from what we've previously indicated. The new factor in this equation is the recent increase in steel prices. Specifically, we've observed that steel prices in North America have risen from $650 per ton to $1200 per ton, which we discussed last month in New York. This rapid increase will affect the timing of our recovery in the indices; it will come back to us, but it requires time to work its way back through our system.

Hey, and just secondly on the European comments you made, I think peripherally concerning China. What's the typical payback on European restructuring that you typically see? And when you think about to the extent that some of the production commentary is driven by exports from China, do you see yourselves as sufficiently hedged with enough exposure within China to the exporters, or do you still have to consider some negatives there?

Yeah, regarding payback, typically, the payback on European restructuring is a two-year timeframe. That's on average. Now, certainly, the example we included in the deck was what we can be a bit smarter about how we handle that. That's a far better payback when we can bring business back into the organization to refill a plant that otherwise was scheduled to go dormant. With regard to China exports into the European market and what that ultimately means to us, I think it's a little bit more complex than just the direct math if those imports increase. Certainly, we hope we can benefit from that in our Asia business with that revenue and the returns on the revenue, even if it's consequential to Europe. But I think what we're seeing in Europe is we're able to balance our manufacturing footprint to mitigate a lot of the costs associated with it, where it's a direct impact to us. If we have a jet facility and our customer closes one of their assembly plants, that's what we were able to do, but that's not always going to be the case. So I think we're essentially saying we have to wait and see how that plays out over time. We're putting together certainly strategies to address best-case, worst-case scenarios. Historically, the markets run at $17 million; it's $14-ish million now. If that doesn't recover, what does that ultimately mean to us? But I think at this stage, it's too early to quantify and bake into our extended year outlook.

Thank you. Our next question comes from Colin Langan with Wells Fargo. Your line is open; you may ask your question.

Yeah, thanks for taking my question. To follow up on that; this is the second quarter you talked about the potential need to restructure in Europe. How should we think about this? Are you going to be taking small steps that would be incremental that sort of aren't going to be highlighted, or are you contemplating a larger-scale plan that we should be looking out for over the next year or two?

Yeah, you should think about it in small steps and incremental, not a large-scale restructuring of our business there. We took a lot of steps, I would say even pre-COVID, but certainly during COVID, to bring down our breakeven close to the levels we're operating at right now. So we think we're pretty well-positioned. Now if something that's currently not forecasted impacts the region, that's a different story, but right now, think about it as incremental, not large-scale restructuring.

Yeah, to support that, Colin, we've just announced our tech center in Kaiserslautern, which is now public. It's an incremental step. As Doug mentioned, we've implemented virtual validation that has made some aspects redundant, and we needed to take action in that regard. These are the types of incremental steps we are taking as we progress in Europe, rather than pursuing large-scale activities.

Okay. All right. Got it. And then not to circle back on steel again, but you did highlight fairly small numbers; costs are up $10 million to $20 million, unlikely to help assure. Guidance was held. So what is the sort of, I guess, slight positive offset that, and should you hold guidance if the commodity costs are up a bit?

I believe there is volume. You noticed the Q2 volume compared to what we had previously seen. Q2 EBITDA is also better than our earlier expectations, so we anticipate that volume will impact results positively. Additionally, there is some underlying performance within the business that is helping to mitigate that challenge.

Yeah, and back to the mix discussion; certainly volume in Asia is welcome volume from a mix perspective that we think might be able to offset that steel issue.

In the long run, it's not a concern; it’s really about the timing of when it will be reflected in our models. I don't want to speculate on when this will unfold, but in the latter half of our '24 fiscal year, it shouldn't pose a significant problem. There may be some carryover into our first quarter, and we expect to see the recoveries starting by the third and fourth quarters.

The one thing I would add is that it’s somewhat inherent to the Seating business. You cannot always view these issues in isolation because our commercial agreements with customers include their expectations regarding productivity, as well as our own expectations from our supply base on productivity since it is a highly transaction-oriented business. There are always opportunities for us to address and offset anything that falls outside the parameters of our usual commercial agreement. Therefore, when we experience significant spikes in inflationary pressures on commodities, we fully anticipate that over time we will recover those costs. It may affect us in one quarter, but typically, it will take another quarter for the recovery to be implemented.

Thank you. Our next question comes from James Picariello with BNP Paribas. Your line is open; you may ask your question.

Hi, guys. Just a clarification question to start off. What was the sequential guidance commentary on the third quarter EBITDA, fiscal third quarter EBITDA?

Yeah, you're referring to Q3?

Yeah.

Yeah, so around $200 million.

Okay.

If I look at APAC regions, do you expect improvement in industry volumes or is there uncertainty and caution in that perspective? So we essentially follow IHS. So if you look at what IHS says for Asia ex-China, I mean, it has volumes actually sequentially going down in Q3, what would our Q3 and Q4 fiscal year. And within China, it would say sequentially better Q3 and Q4 but not versus the first quarter. So really, back half in China, in particular, is lower versus first half. Our fiscal year first half versus our fiscal year second half using IHS volume. So really sequentially, actually lower second half versus first half, and that's, again, coming back to the $850 guide why we've said looking at that along with the European volume, which is sequentially lower first half over the second half, why we've guided to that $850 number.

Yes, okay. For the quarter though, IHS has almost an 800,000 unit improvement for China, but I can follow up with Mark and you can tell me that I'm confused. More higher-level question on the thermal comfort. And Adient positioning and how you view the competitive landscape within this particular vertical. Who you're aligned with from a supply chain perspective, and could it be an advantage as a Tier 1 supplier to have more of this context vertically integrated in-house? Just curious if you could share a perspective as just given the latest M&A efforts by your primary competitor.

At a high level, I believe that having this capability is beneficial. The definition of capability and competency is important. We consider ourselves capable and competent, although full vertical integration isn't necessarily required. From a mergers and acquisitions standpoint, I don't think it's the ideal approach due to the integration risks involved. We’re seeing that sometimes our customers take the lead, which can limit our growth since there are independent players in the market, and our customers often balance that. We also have strong engagement with independents, which allows us to partner and co-develop products to offer an integrated solution to automakers. We believe we are competitive in this regard. Specifically in China, we're focusing on organic development, collaborating with smaller Chinese suppliers at times, but also working independently, avoiding the M&A route. I see this in many areas of our business. Excessive vertical integration can have downsides. Our competency lies in effectively collaborating with partners to deliver solutions for our customers, and I feel confident in our current position.

Great. And surely, it looks like we're at the bottom of the hour, so this will conclude the call today. If there are any follow-up questions, please do not hesitate to reach out to myself or Eric this afternoon, and we'll be very happy to assist. Thank you.

Thank you. And this does conclude today's conference. We thank you for your participation. At this time you may disconnect your lines.