Adient plc

Thank you for standing by and welcome to the Q1 FY20 earnings call. Today's conference is being recorded. If you do have any objections, please disconnect at this time. All lines will be on a listen-only mode until the question and answer segment at the end of today's conference, at which time you may press star 1 on your touchtone phone to ask a question. Again, that is star 1 if you would like to ask a question. I would now like to go ahead and turn today's call over to Mark Oswald. Sir, you may begin.

Thank you, Jacqueline. Good morning and thank you for joining us as we review Adiant's results for the first quarter of fiscal year 2020. The press release and presentation slides for the call today have been posted to the investor section on our website at adiant.com. This morning, I'm joined by Doug DelGrosso, Adiant's President and Chief Executive Officer, and Jeff DeFile, our Executive Vice President and Chief Financial Officer. On today's call, Doug will provide an update on the business followed by Jeff, who will review our Q1 financial results in 2020 outlook. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Doug and Jeff, 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 those forward-looking statements made on the call. Please refer to slide two of our 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 to 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 turn the call over to Doug.

Doug? Okay. Thanks, Mark. And thanks to our investors, prospective investors, analysts joining the call this morning, and spending time with us as we review our first quarter results. Turning to slide four. Similar to previous earning calls, I'll start off with a quick review of Addium's recent developments and key highlights. First, Addium reported strong Q1 financial results. The results build on the positive momentum established in the second half of last year, and demonstrate that an improvement phase of our turnaround plan is solidly on track. Sales at 3.9 billion went in line with internal expectations. Adjusted EBITDA increased to 297 million, up $121 million year-on-year. This marked the fourth consecutive quarter of sequential improvement and the first quarter of year-over-year improvement since our fourth quarter of 2017. In addition to the benefits associated with our turnaround actions, which accounted for much of the improvement, the quarter also benefited from certain items, namely the resolution of various commercial settlements that tend to be lumpy between periods. Jeff will expand on this in just a few minutes. Moving on, adjusted earnings per share for the most recent quarter were 96 cents versus 31 cents per share last year. And finally, we ended the quarter with 960. cash on hand. Outside of our strong financial results, the team also made portfolio moves, selling its Recaro automotive seating business. The sale further demonstrates Etienne's commitment to the core business and focus on capital allocation. Besides Recaro, Etienne announced an agreement this morning with our joint venture partner, Yan Feng, to restructure the existing joint venture relationships. This includes the sales of 30% ownership stake in Youngfang Automotive interiors to Youngfang for $379 million. We also agreed to extend the term of our YFAS joint venture to December 31st, 2038. The extension demonstrates Andy's continued commitment to partnership and the region. In addition, we agreed to sell certain patents and other intellectual property used in our seeding and mechanism business to AYM for $20 million. And finally, Adiant and Yongfei agreed to amend the AYM joint venture agreement to update AYM's business scope to allow AYM to carry out its seeding mechanism business both in and outside of the People's Republic of China, PRC, for both PRC and non-PRC customers. Adiant intends to leverage AYM's expanded presence in the global seeding mechanism market as we continue to right-size our own metals business. These actions are important. Not only do they further our position for long-term success, they also demonstrate the company's commitment to driving shareholder value. From a product and innovation standpoint, earlier this month, we participated and partnered with electronics leader LG at the CES to display our AI-19 vehicle interior. The interior showcased the integration of LG's electronic technology with our feature mobility solutions that address trends in mobility, such as autonomous and semi-autonomous driving. We're pleased with our collaboration with LG and the potential opportunities it creates. Overall, the team successfully executed on many fronts during the quarter. The strong start to fiscal 2020 lays a solid foundation for the company to deliver on its full year commitments. In fact, the operation steadily improving driving earnings and cash flow growth, combined with the proceeds of the strategic actions just discussed, we're expecting to accelerate a portion of our debt pay down later this year. Turning to slide five, just a few points related to new business wins and launch status. As you can see from the examples highlighted on the left, adding continues to win new and replacement business. The selected wins demonstrate the solid mix across regions, SUVs, and luxury platforms, such as a large SUV from Toyota, a junior Jeep, the Alfa Romeo Kidd, and pictured in the middle, Ford Mustang Mach-E. Speaking of the Mustang Mach-E, it's worth noting, as we called out on the slide, the significant Number of program wins within China, EMEA, and the Americas are VEB platforms. In fact, we presently hold approximately 70% market share of the VEB market in Europe. As our customers continue to develop and launch new and alternative propulsion platforms, ADAN's leading market position is expected to strengthen given the diversification of powertrains. Turning the right-hand side, of the slide, we've illustrated a variety of programs that were recently launched or scheduled to launch in the coming months, including the Nissan LEAF, Toyota Tacoma, Cadillac CT5 program, which was launched at our PWI facility in Lansing, Michigan, and the Tesla Model 3 launched in China. Bottom line, our focus on launch management has resulted in significant In fact, the Cadillac CT5 launched in our BWI facility achieved a flawless launch scorecard. We call it 00190, which breaks down to zero safety incidents, zero customer rejects, 100% on-time delivery, 100% achievement of financial targets within 90 days from start of production. In addition, I'd like to mention certain of the launches that we called out last quarter. The Chevrolet Onyx and the Toyota Corolla in South America also achieved flawless launch scorecards and were recognized by our customers. The Tesla Model 3 launch is another success story worth mentioning. Given the compressed timing of the program, the complete seat business was awarded to Addion Joint Venture YFAS in July of 2019, with the first batch of seats delivered in late December of that year. Adding its focus on adherence to proven process needs enables a successful launch despite start of production occurring just six months post program award. Turning to slide six and the progress we're making on the turnaround plan. As mentioned on our last earnings call, the company began its transition to the improvement phase of our turnaround plan, having stabilized the business in 2019. Underpinning the earnings and cash flow growth reported this morning for Addion's first quarter and expected to continue through 2020 are four focus areas. Launch management, operational improvement, continued cost reduction, and commercial discipline. To complete the report, the plan is southly on track. Specific proof points include first related to launch management. The team's focus around change management, enhanced readiness, and program reviews enabled a significant improvement in launch performance over the past several quarters. The Flawless Launch Scorecard on the CT5, discussed moments ago, demonstrates the significant year-on-year improvement achieved in the Americas. The improved performance has translated into significant reduction in launch costs down in the Americas in the near approximately 40 and 15%, respectively, year-on-year. In addition to launch management, the team has made solid progress improving operating performance at several of our manufacturing locations. The improved performance resulted in significant year-on-year reduction in premium freight, dropping over 85% for the Americas, and it may have combined in Q1 2020 compared with last year. Ops waste is trending in a similar direction, declining 35% in the Americas and close to 30% in EMEA year-on-year. With in-ops waste, containment costs are also down significantly in both segments. Outside of the progress made through operational improvements, maintaining a strict focus on cost has also contributed to EDIM's improving financial results. Our VABE initiative, designed to take material costs out of the system, continues to accelerate. In fact, we increased the number of Customer engagement in the regional benchmarking center is located in our technical centers. During Q1, we completed 20-plus workshops across the Americas and EMEA, which included customers, suppliers, JIT, and metal. In Asia, over 1,000 new VAD ideas were generated from workshops and internal reviews. 129 projects moved from action to implemented. Opportunities to reduce SG&A spend remains the focus for the team. The changes made in our organization structure last year continued to provide further opportunities to right-size our above-plant structure. Point of reference, Gedeon's full-time equivalent headcount at the end of 2018 was down about 4% compared with 2018. This translates into approximately $40 million a year gross savings for the company. Lastly, having a disciplined approach to where we allocate capital, whether it be for a program or customer, is helping to drive profitability. As we look to close the margin gap with our peers, it may be necessary to walk away from certain programs and customers that are unprofitable. This commercial discipline is focused both on existing and future programs. At the very bottom of the page, we included various improvement proof points for our metals business. Since this business is being run as part of the reportable segments, whether it's Americas, EMEA, or Asia, it's not surprising to see the KPI is heading in the similar direction to those we just covered for total add-in. Just at EBITDA for total plans improved 38 million versus Q1 last year. Launch costs are down, outbound premium freight is down, and ops waste has been significantly reduced. These metrics indicate we're heading in the right direction. One final point as it relates to reporting of our metals business, since our reportable segments are being run to maximize the segment's profitability, isolating the performance of the prior's metal business has become increasingly difficult. For example, as we take actions to reduce our club plan costs, Jerome and Michelle are making decisions to improve the profitability of their overall segment. In many instances, the actions taken do not involve a person that's 100% dedicated to seeds or metals. It's likely a resource supporting the overall business. We recognize the need to continue to provide you with appropriate proof points to give you confidence the turnaround plan is progressing, and we'll continue to do that, essentially like we just discussed. Unfortunately, providing additional detail will not be possible. With that said, our commitment to bring the business to cash flow positive by 2022 remains intact, and we're on track to do just that. Turning to slide seven. I thought this slide would be a good reminder, both internally and externally, of what the company is driving for. It's simple. We're executing actions to increase shareholder value. It began last year as we stabilized the business and improved relationships with our customer. As we exited fiscal 2019, we transitioned to the improvement phase of the turnaround. This, of course, is underpinned by our specific focus areas of launch management, operational improvement, cost reduction, commercial discipline. Although it's early days, our second-hand performance in 2019 and recent first quarter results demonstrates the company is soundly on track. With the business stabilized and steadily improving, and as expected, earnings and cash flow growth are materializing. In addition, we are now positioned to execute additional actions to further enhance shareholder value, such as portfolio adjustments, levering our relationships in China, and accelerating debt repayment, to name just a few. No doubt we're off to a good start, but we realize there's a lot of work ahead. Before turning the call over to Jeff, just a few comments on how Adiant is addressing challenges presented by the serious coronavirus. First and foremost, the health and safety of our employees is always Adiant's top priority. To ensure this during the virus outbreak, we've implemented a variety of safety measures including restrictions on business travel to, from, and within China in the APAC region, closing our offices in China until February 10th in compliance with the government, extending the Chinese New Year holiday to February 9th, implementing an office sanitation program and enforcing strict hygiene protocols for employees. We continue to closely monitor the situation and we'll adapt these guidelines as appropriate. In addition, we formed a global response team to ensure a coordinated contingency plan is in place for actively monitoring any impact related to customers, suppliers, and joint venture relationships. As far as any estimate on specific impact adding in business, it's too early to forecast. We're working with our customers and suppliers to remain aware of and connected to their efforts as the outbreak continues. As more details and information become available, we'll provide updates as appropriate. With that, I'll turn the call over to Jeff so he can take us through Cadian's financial performance for the quarter and what to expect as we progress through the rest of fiscal year 20.