Welcome to the Adient First Quarter Financial Results Conference Call. The lines have been placed in a listen-only mode until the question-and-answer session. Today's conference is being recorded. Now, I'll turn the call over to Eric Deighton. Sir, you may begin.

Thank you, Shirley. Good morning, and thank you for joining us as we review Adient's results for the first quarter of fiscal 2024. 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 Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business followed by Mark, who will review our Q1 financial results and outlook for the remainder of fiscal 2024. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These 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 2 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 Jerome Dorlack.

Thanks, Eric. Good morning. Thank you to our investors, prospective investors, and analysts joining the call as we review our first quarter results for fiscal year 2024. Turning to Slide 4, let me begin with a few comments related to the quarter. As we began fiscal 2024, the company maintained its laser focus on business performance, including launch, execution, and continuous improvement. The team navigated challenges from strike-related production disruptions while maintaining focus on the day-to-day operational execution that is driving the business forward. Despite the challenges in the beginning of the quarter, the emphasis on operational execution and cash management actions allowed us to successfully navigate any short-term impacts. Turning to Adient's key financial metrics for the quarter, which are shown on the right-hand side of the slide. Revenue for the quarter, which totaled $3.7 billion, was down about 1% compared to last year's fiscal quarter, first quarter. Adjusted EBITDA for the quarter totaled $216 million, up 2%. The UAW strike in certain of our North American customers ultimately impacted Adient by approximately $125 million in sales and $25 million in EBITDA. Adient ended the quarter with a strong cash balance and total liquidity of $990 million and $1.9 billion, respectively. We continue to drive the business forward, winning both new and replacement business with customers that are expected to drive continued margin improvement in the coming years. We are demonstrating our ability to add value to customers through our engineering capabilities, manufacturing footprint, and process discipline. As the production environment became clearer following the resolution of strike-related production disruptions, the company resumed its return of capital to shareholders through its balanced capital allocation strategy. We deployed $100 million towards share repurchases within the quarter, which Mark will talk more about in a moment. Again, our commitment to returning capital to shareholders is an important part of our balanced capital allocation strategy. The last point on the slide shows we've released our 2023 Sustainability Report, highlighting several accomplishments and commitments, marking our path toward a long-term sustainable transformation. Turning to Slide 5 and further on that point. Since we began publishing our annual sustainability report four years ago, a lot has changed. As both the environment in which we operate and our ESG development has evolved, our goals have evolved as well. One thing that has not changed is our commitment to have a long-term sustainable transformation focused on limiting our negative environmental impacts on the planet and focusing on social and economic changes to create a better environment for everyone. The sustainability report outlines how we are aligning our strategic priorities to where our sustainability activities can deliver the greatest impact, including our ongoing focus on product design to support our sustainability goals and those of our customers as well. You can see on the slide a number of highlights and accomplishments achieved in fiscal year 2023. I won't read each of these, but these examples reflect the milestones as we advance our sustainability mission focused on products, processes, and people. We've included a link to the full report. Please take a few minutes to see the progress we've made in our sustainability journey and the commitments we intend to deliver on in the future. Now turning to Slide 6. Let's examine our business wins and launch performance. As you can see on Slide 6, we highlight several of the important recent and ongoing launches. Although the production environment in the Americas was disrupted in the quarter, our process discipline and execution enabled us to effectively execute on launches, including launches in our JIT, foam, trim, and metals business that support the deepening levels of vertical integration in the business that we are winning. We successfully navigated the delays caused by strike-related production stoppages at our customers that caused certain program starts to be delayed. The team continues to maintain process discipline, which is key to managing the number and complexity of launches scheduled for this fiscal year. Now turning to Slide 7. As usual, several recent new business awards are highlighted here. These new business awards once again represent a strong mix of customers, geographies, and various levels of electric, hybrid, and internal combustion engine platforms. It's also important to note our deepening levels of vertical integration and recent wins. More than 90% of business awarded by sales volume in the last fiscal year contained some level of vertical integration in foam, trim, and/or metals. This continues and advances a trend starting in fiscal year '22 driven by our deep expertise in engineering, logistics, purchasing, and operational execution that allows us to drive value for Adient and our customers when we control a greater portion of the seating value chain. I'd like to especially highlight a new business sourcing on a BEV program that is supported by our Bridgewater Interiors joint venture. As a reminder, BWI is a successful diverse joint venture that we have been involved in for more than 25 years. We're particularly proud of this partnership and the competitive advantage it brings to Adient, along with our Avanzar joint venture, which is also a diverse JV. Flipping to Slide 8. We've talked about the emerging trend that we're seeing in increased seating content as an opportunity recently. Customers in China specifically have reimagined the vehicle interior around creature comforts like deep recline, long rails, massage, and sound in the seat, to name a few. Safety features like delta seat and pelvic crash management are becoming increasingly relevant as the comfort features change the cabin interior configuration. Sustainable innovations like non-leather seating surface materials and low carbon steel are driven by both ESG goals and cost reduction efforts. These trends represent an opportunity for Adient, but also increase a level of complexity that we will have to manage. As content increases, we see that the JIT assembly environment can become increasingly complicated unless properly managed. We demonstrated a few of our strategies for driving process efficiencies to investors recently at our Plymouth Tech campus, as well as at a recent conference. Our ES3 process leverages available knowledge to create opportunities and value for our customers, which can identify opportunities for reducing operational waste, engineering simplification, and network optimization. By leveraging the metals business that we own, we can assemble seat, back frame, and cushion pan modules in our existing footprint and enable labor, freight, and inventory efficiencies that not only reduce carbon footprint but also cost. It's essential that we own the metals real estate to execute on this particular opportunity. We are able to share these efficiencies with our customers in order to manage the increasing complexity while driving financial benefits. It's important to note that we have modular assembly processes planned to go into production during this fiscal year. We are continually evaluating and improving how we operate the business. The key takeaway is that ES3 encompasses a range of benchmarking, continuous improvement, and VA/VE practices that give us the ability to demonstrate opportunities for both our customers and Adient that enable us to deliver our commitments on business performance. Turning to Slide 9 now. Pending the end of fiscal year '23, there were reasons to be cautious and conserve cash. With the strike looming at the time, our strategy was to prepare our balance sheet for a longer-term production disruption in the Americas. As the uncertainty around the length and breadth of production disruption was resolved, we were able to get a clear line of sight on our ability to generate cash. With cash in the balance sheet and good clarity around free cash flow for the year, the company returned $100 million to shareholders via repurchases, totaling approximately 3 million shares. Our capital allocation plan remains balanced. We're committed to returning capital to shareholders while also balancing the cash needs of the business. Our ability to improve margins, generate cash, and prudently manage our balance sheet was recognized by both S&P Global and Moody's recently. The company's corporate credit ratings were upgraded by both in recent months. Our balance sheet strength and financial performance also enabled us to amend and extend our Term Loan B subsequent to the quarter. Safe to say that our confidence in the company's ability to generate cash, along with the flexibility we've built into the capital structure, is expected to underpin significant returns to our shareholders.

Thanks, Jerome. Let's jump into the financials on Slide 11. Adhering to our typical format, the page is formatted with our reported results on the left side 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 either one-time in nature or otherwise skew important trends in the underlying performance. For the quarter, the biggest drivers of the difference between our reported and adjusted results were related to purchase accounting amortization and restructuring and impairment costs. High level for the quarter, sales were approximately $3.7 billion, down about 1% compared to our first quarter results last year. Lower volumes, primarily in the Americas resulting from strike-related production stoppages at our customers, were partially offset by positive FX movements between the two periods. Adjusted EBITDA for the quarter was $216 million, up 2% year-on-year. The increase is primarily attributed to benefits associated with improved business performance. These benefits were partially offset by the impact of lower volume and mix, and to a lesser extent, the negative impact of currency movements between the periods and timing of material economics. Let's break down our first quarter results in more detail. Starting with the revenue on Slide 12, we reported consolidated sales of approximately $3.7 billion, a decrease of $39 million compared with Q1 fiscal year '23. The primary driver of the year-on-year decrease was lower volume and pricing, around $95 million including about $36 million of lower commodity recoveries. The favorable impact of FX movements between the two periods benefited the quarter by $56 million. Focusing on the table on the right-hand side of the slide, Adient consolidated sales were lower in the Americas and Asia Pacific, while sales in EMEA grew by about 1%. America’s market performance was primarily driven by key platforms that were impacted by strike-related production stoppages, like the RAM, Wrangler, and GM's midsize SUVs, as well as program launches that were taking place in the quarter, such as the Tacoma. In Europe, the top-line benefited from new program launches and favorable program mix, which was offset by certain planned program exits. In China, the end of production of certain programs and model year changeovers resulted in lower year-on-year sales. Important to note, we still expect to outpace regional production in China on a full-year basis. Moving to Slide 13, we've provided a bridge of adjusted EBITDA to show the performance of our segments between periods. Big picture, adjusted EBITDA was $216 million in the current quarter versus $212 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. Improved business performance was the primary driver of these results, benefiting the quarter by $39 million. Looking deeper within that bucket, the biggest positive driver was improved net material margin of $30 million. In addition, freight costs were $23 million improved year-on-year, as well as improvements we saw in labor and overhead. Partial offsets within business performance were launching tooling costs, as we manage increased launch volume and complexity, as well as the timing of engineering spend and other one-time SG&A costs. I'll note that SG&A cost comparison is driven in part by certain asset sales in the year-ago period that did not repeat. All in all, a quarter very much in line with our internal expectations, driven by continued strong execution. Similar to past quarters, we've provided our detailed segment performance slides in the appendix of the presentation. High level for the Americas, improved business performance was the primary factor driving positive results. Business performance was driven by increased net material margin, inclusive of the benefit of the restructured pricing agreement at our KEIPER joint venture, lower freight costs, improved labor and overhead performance, and partially offsetting these benefits were increased launch and tooling. In EMEA, the year-on-year comparison was influenced by several factors such as improved net commodities, favorable currency movements, improved business performance, partial offsets within business performance were higher SG&A costs, as certain one-time benefits recognized last year did not repeat, as well as the timing of customer launches, which drove engineering and launch spend. Moving on, interest expense is still expected at about $185 million, given our expected debt and cash balances as well as interest rate expectations. Note that the recently completed Term Loan B actions were planned and contemplated within our previous guidance. Cash taxes continue to be forecast at about $105 million. For modeling purposes, tax expense is estimated at $115 million. CapEx, largely based on customer launch schedules, is forecast at $310 million, no change from the November guide. And finally, our free cash flow is expected at $300 million as the calls for cash remain stable. Again, no change from November. With that, let's move to the question-and-answer portion of the call.

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

Good morning, everybody. I had a couple of questions. It's really nice to see the acceleration in share repurchases. Could you just remind us, is your minimum cash position still $700 million, which would imply maybe almost $300 million of excess cash now? And if you do achieve the $300 million of free cash flow, can you remind us how much you would earmark towards share repurchases versus debt, because it looks like you could actually complete your $430 million remaining authorization while still staying in the leverage targets?

Yes. Thanks for the question, Rod. I do think that we could run the company with, say, $700 million of cash. That said, we also look at the overall macro environment, right, to see whether there are certain times that we want to run with a little extra cash. The way I think about the capital allocation this year, Rod, is we are off to a strong start with the share repurchases. We expect to generate more cash. We do have to balance that, though; we do have some 3.5% notes that we have to take care of this year, amounting to about $130 million. There could be an opportunity to reduce a bit of our higher-priced debt. So, again, I'd look at it as a balanced approach there.

It does look like something like this pace is achievable even with the $130 million for what it's worth. The margins are improving despite labor headwinds, transactional headwinds, and you in fact mentioned that performance is a net positive. Could you just remind us of the impact of labor and transactional headwinds and what actually is mitigating that to achieve the positive performance?

Yes. So, let me start and then Jerome feel free to jump in. So, you're absolutely right. Business performance continues to improve. And we said all along, Rod, that business performance continues to be positive or needs to be positive to offset the challenges or the macro external headwinds such as labor inflation, etc. We had indicated before that we thought FX was going to be about a $60 million headwind this year. We're still in that camp where we sit today, which means we have to get better in terms of our continuous improvement and operational efficiencies.

And with respect to your question, Rod, what's enabling some of that is when we talk about things related to ES3 and some of the things highlighted, when we're actually with you around modularity, looking at activities like long-distance jet, remapping our supply chains in concert with our customers, and not just the standard blocking and tackling, but really redesigning the way we conduct core business and taking large chunks of labor efforts and relocating them to lower-cost countries or eliminating them altogether, so we can leapfrog and get out of the day-to-day trench warfare and actually take significant actions is what's enabling these changes. We see more of it rolling into 2024 and continuing into 2025 and 2026.

Our next question comes from John Murphy with Bank of America.

Obviously, there's been an all-out melee that's broken out around ICE versus EV and what's going to happen regarding penetration rates and volumes here. Jerome, I just wonder if you could kind of run through as simply as you can, what your relative exposure or content potential is on an ICE versus an EV and how much it impacts how you think about capital allocation and the business in general?

Yes. I think when we think about content between ICE and EV, it really varies by region. In the Americas, when we think ICE versus EV, it's generally a push for us. If we just look at our platforms, in which platforms we have ICE versus EV, where we see an acceleration is in China. In China, when we go to market on the EV side, especially with NIO and Xiaoping, where they have highly contented EVs, the NIO high-end and the Xiaoping high-end EVs, we see almost a 2x or 3x multiplier compared to the average content per vehicle level in China. That's why, if you look at penetration by dollar, it's almost 2x in the EV market in China; that's just because of content per vehicle there. We've talked a lot about features like pelvic crash management, belts to seats, massage systems, sound in seats, and those features are now being transitioned into Europe and the Americas. Our capital deployment has been very strategic, leveraging existing infrastructure for EV platforms and expanding the ICE platforms without incurring new fixed costs.

Yes, that's incredibly helpful. And then just a second question, with the JVs being rebalanced and repriced, can you just remind us your exposure in totality for the consolidated and unconsolidated business, your exposure to the Chinese domestic manufacturers?

Yes. Right now, it's about 40/60, John, so about 40% exposed to domestic manufacturers, 60% to foreign ones. While we've indicated though that if you go out over the next three years, that flips. Based on our business wins and what we see launching over the next two to three years, it becomes 60% exposed to local domestic manufacturers and 40% to foreign.

Our next question comes from Emmanuel Rosner with Deutsche Bank. Your line is open.

Thank you very much. My first question is around the expectation for the outlook for growth of the market this year. In your slide discussing the fourth-quarter performance, there was a lot of volatility around it and various impacts around program launches and some platform mix. I'm curious if you could just discuss at a high level how you think about this for the balance of fiscal '24?

Yes, I'll start and then hand it over to Mark to finish. We still expect for the entire year to be, I'd say, flattish from a growth perspective over the market, just looking at how we balance between the regions. China, as we've said, we still expect China to significantly contribute positively to overall growth over the market, despite where we were at in Q1. The Americas will be down versus the market, Europe down versus the market, and Asia really kind of flattish versus the market. This is due to certain launches in particular Toyota Tacoma and other shifts taking place. The bottom line is that we expect some impact from launches in the Americas, along with winding down programs with non-profitable customers in Europe.

I think that was a good summary. Just to reiterate, China is the growth engine for us, and so we're still expecting about 500 to 600 basis points of growth over the market there.

And then shifting to the margin outlook, about 70 bps of improvement is anticipated. Obviously, your framework over the number of years, let's say, three years, was for about 3 points of improvement. To get the balance of it beyond what you're guiding for 2024, is there a specific timeline around it? Do some of these actions take specific time like unwinding of programs, or is there an opportunity to accelerate this would be my question?

So, we still firmly believe this business has the potential to achieve an 8% margin. The timeline for that requires evaluating certain ICE platforms and metals programs. As we go through our strategic planning cycle, we'll come back to you with insights on the levers to pull to achieve that 8% margin target.

Our next question comes from Colin Langan with Wells Fargo.

In the past, you've mentioned a figure of about $500 million of unprofitable business that needed to roll off. Is that business now delayed? And is that going to be delayed now, instead of ‘25, ‘26, more like ‘26, ‘27? Additionally, in your overall comments, you sounded a little more positive on metals, talking about how we're doing the whole system integration, and having metals is important. Is your long-term view of that business becoming a bit more optimistic?

Yes. You're correct. Certain of that metals business that we were planning to roll off in '25, '26 has been extended as our customers expanded certain of their ICE programs. We'll evaluate how long they want to run these programs and its impact on our strategic plan. There are favorable aspects of the metals business we have targeted over the past few years which have proven beneficial in terms of modularity, and our ability to provide efficient solutions.

Yes. Adding to Mark's comments, certain assembly sequences in our metals business are proving valuable, particularly in modular solutions. We've transitioned to production this year, which is proving beneficial. We expect to leverage our position in metals to accelerate our growth potential. However, specific programs that were anticipated to roll off need revisiting.

Got it. And regarding the guidance, are there any commercial recoveries in guidance? It feels like most suppliers have been expecting some level of recoveries. Is that driving some of the performance? And any update on commodities?

Absolutely, we are expecting recoveries as part of our business performance. However, these are often lumpy throughout the quarters. From a commodities perspective, there was a $10 million benefit as we started the fiscal year, but the timing of those recoveries was uneven.

Our next question comes from Joseph Spak with UBS.

Maybe just picking up there because, obviously, in North America, the results in the quarter, especially the margin, were really strong, even stronger ex-strike at closer to 6%. But it seems like the timing of those recoveries helped a bit. How much of that was unusual with the lumpiness, and what should we expect in terms of a sequential decline?

Clearly, there will be timing with the commercial recoveries. I wouldn't take my Q1 accent as a benchmark for commercial recoveries in Q2. We do expect year-over-year margin expansion, even ex-strike.

The Americas business in general experiences a lot of lumpiness, which is why we don't provide quarter-to-quarter guidance. Even with the strike impact, we expect to see expanding operating margins year-over-year driven by business performance in the segment.

On growth, it seemed like there were a couple of conflicting statements. You mentioned some underperformance in China in Q1, but expect significant outperformance for the year. How do you reconcile the short-term underperformance with a positive growth outlook?

It's all about the launches. Our Q1 was the fourth quarter of the calendar year, and certain customers were performing very strongly to meet their year-end targets. We expect the pacing and cadence of our launches to improve significantly through Q2 and Q3.

Thank you. Our next question comes from Dan Levy with Barclays. You may ask your question.

I wanted to go to the slide in which you talked about some of your new wins. Specifically, I don't think you've talked in the past about BYD. This is I think the first time we've seen a BYD win for you. Given BYD's significance in China, can you discuss this win and what you might expect going forward?

This win demonstrates our ability to provide value to customers in our components segment. Without diving into specific details on BYD's supply chain, we understand they have a portion of seating produced in-house and we aim to show how we can add value on the components side. This signals our entrance into working directly with BYD, and we expect to leverage such key partnerships moving forward. Additionally, through our KEIPER joint venture, BYD is a significant customer, which contributes to our overall performance.

As a follow-up, I want to ask about the mix, specifically in North America. With prices where they are, and potential for a negative shift in the mix in the industry, how would that impact your path to 8% margin?

It's de minimis. The mix between high-end and low-end vehicles is not going to be the enabling factor in achieving that 8% margin.

I agree with Mark. The overall volume stability will be the most critical factor for achieving that margin target.

At this time, I'm showing no further questions. I'll turn the call back over to the speakers.

Thanks, everyone, for joining the call. I appreciate it. We'll be available for follow-ups as necessary throughout the day or afterwards. Reach out to me or Mark. We'll be happy to take any other questions. Thank you very much.

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