Adient plc

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question and answer session of the call. To ask a question during that time, please press star followed by number one. Today's conference is being recorded. Any objections, you may disconnect at this time. Now I'd like to turn over the meeting to Mark Oswald. Thank you. You may begin.

Thank you, Angela. Good morning and thank you for joining us as we review add-ins results for the second quarter of fiscal year 2020. The press release and presentation slides for our call today have been posted to the investor section of our website at adiant.com. This morning, I'm joined by Doug DelGrosso, Adiant's President and Chief Executive Officer, and Jeff Stafal, our Executive Vice President and Chief Financial Officer. On today's call, Doug will provide an update of business, followed by Jeff, who will review our Q2 financial results in more detail. 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 these forward-looking statements. Please refer to slide two of the presentation for our complete state harbor statement. In addition to the financial results presented on a gap basis, We will discuss the non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliation to these non-GAAP measures to the closest GAAP equivalent can be found in the effectiveness of our full earnings release. This concludes my comments. I'll now turn the call over to Doug.

Doug? Okay. Thanks, Mark, and good morning. Thanks to our investors. as investors, analysts joining the call this morning, spending time with us as we review our second quarter results. I hope you and your families are staying safe and healthy in these difficult times. Turning to slide four, let me begin with a few comments related to our recent developments. I'll then focus the majority of my comments around COVID-19, specifically what we're doing today, steps we've taken and will continue to take to mitigate the impact of the pandemic, Addie's preparation and ability to restart our operations, and finally, Addie's expectation for the industry as we move past the current crisis. On top of slide four, you can see Addie's headline financials, which, when you exclude the impact of COVID-19, were solid and built on the momentum established in late 2019 and Q1 2020. These results further demonstrate the improvement phase of our turnaround plan was accelerating and ahead of schedule. Sales at $3.5 billion were down about $700 million versus last year Q2. Just over $500 million of the volume decrease was attributed to lost production associated with the pandemic. Adjusted EBITDA increases to $211 million, up $20 million year-on-year. Excluding the appropriate approximate $100 million impact from COVID-19, earnings were on pace to eclipse last year's second quarter by $120 million, a similar outperformance the company achieved in the first quarter of this year. Also worth noting, our year-to-date pre-cash flow, which is essentially breakeven improved by over $200 million versus same time period a year ago, Improved earnings lowered CapEx for primary drivers of the improvement. In the bottom box, we've highlighted on a high level the proactive actions Addient took to help protect the financial health of the company as the impact of the pandemic intensified as the quarter progressed. These included the implementation of cash conservation initiatives, actions to bolster Addient's cash and financial flexibility including the successful issuance of 600 million senior secured notes and the development of restart procedures to ensure our operations are ready to reopen with proper safety protocols in place. We're on each of these in a minute. Finally, before leaving this page, I'd like to highlight and thank the EDIEN team members who work tirelessly to provide support to their local communities through various manufacturing initiatives. mainly the design and production of face production in 3D printing for parts for face shields. Turning to slide six, let me expand on a few key points. I plan to go through these slides relatively quickly. I know you've had a chance to download the materials, and I'd like to leave ample time for Q&A at the end of this call. The current global automotive environment remains uncertain, although as we look to China, we are encouraged All of Addiant's 79 plants are open. In fact, 45 plants are running two shifts. All of Addiant's customers are up and running. Plants in Wuhan and Hubei have opened with SGM building 2,000 vehicles per year. Another encouraging data point relates to Addiant's profitability through the ramp-up production. Because the team acted quickly and decisively to improve on variable costs, margins have returned to normalized levels in the first month since production resumed. We've taken the proven China playbook and applied it to Europe and the Americas, beginning with significant actions to improve our variable costs and reduce our cash burn, while at the same time developing detailed plans to reopen with COVID big G precautions in place. Speaking of reopening, in Europe over the past week, 10 days, certain of our customers have resumed production. Some quick stats. Approximately 20 of our jet plants are in production, with various rates of pulling from OEs ranging from 30% to 100%. We expect 80% to 90% of the OEs will be in production by the end of the month. The UK is expected to be the last country to restart. In North America, customer restart plans continue to evolve after certain delays. Limited restarts are planned for the weeks of May 4th and May 11th. We anticipate meaningful restarts to occur the week of May 18th. In addition, given Mexico's shelter in place order is still in effect, suppliers and OEs will need to navigate through the added layer of complexity. We are in daily discussions with our customers and suppliers to ensure successful launch. Turning to slide seven, we provide a snapshot of the current environment in China, which we hope signals a likely path for Europe and the Americans in the coming months. I won't read all the bullets, but I wanted to point to a few key highlights. First, China business activities are gradually resuming. Almost all supermarkets, retail, Entertainment are open with foot traffic close to normal. And public transit ridership returned to 90%. Specific to the auto industry, as mentioned, all OEMs have opened. Nearly all dealers are open for business. Sales are progressing in a positive direction. In fact, early data suggests retail sales between April 1st and April 25th is comparable to last year's levels. representing a big improvement from March. And finally, we're seeing a strong mix of business that benefits Adyen, as the premium brands and Japanese OEMs are outperforming the overall market. Slide 8 illustrates the steps we took in China during the shutdown period to reduce our break-even and improve our variable cost structure. These actions, such as flexing headcounts, postponing new investments to reduce capital spend, Driving VAD initiatives and optimizing engineering resources, to name a few, resulted in our business maintaining 10% EBITDA margin despite an 18% drop in volumes. We've taken the China playbook and applied it to the rest of the global operations to manage costs, preserve liquidity, and protect Adian's long-term health. Flipping to slide nine, we outlined the cash conservation actions we've taken to reduce our monthly cash burn rate down to about $179 million per month. This monthly rate is based on production environment experienced in April, which was essentially zero in Europe and North America. These actions are significant and reach across all parts of our organization. Club plan actions were executed quickly and included on a compensation front. Employees have taken a 20% salary reduction plus an additional 10% salary deferral in the U.S. Myself and my direct reports are taking a full 30% salary reduction. On top of that, I'm deferring the rest of my salary until mid-July. Outside the U.S., E-band employees are taking an approximate 20% reduction in salary. We've also worked with union and employee groups globally to achieve salary reductions throughout Europe, Mexico, South America, and parts of Asia. Likewise, we've reduced costs at our plants and JVs by furloughing direct and salary plant workers, delaying merit increases, reducing engineering costs, and identifying subsidy opportunities from local governments. To further reduce the cash burn, we've delayed investments that are not critical to keeping our plants operational. Jeff and the finance team are closely monitoring our receivables, and JP dividends to ensure timely collections. I won't spend a lot of time on slide 10, but I then say in addition to measures within our direct control, Addient is also investigating cash conservation opportunities as a result of government stimulus. Moving to slide 11 and our restart plans, important to remind you that from the beginning of the crisis, Addient assembled an operational leadership team to manage through the challenges regions. The collaboration was extremely helpful when developing our global restart guidelines. Since China has a proven playbook, we used those procedures as a framework. The detailed procedures are posted on the ADEON's website. Bottom line, ADEON's business operations are prepared to restart, which includes not only providing a safe work environment for employees, but also leveraging the co- From a commercial perspective, one of the initiatives we took a few weeks ago was to send a developed list of cost reduction ideas to all of our customers that could be acted upon immediately, and we'd be willing to share the benefit associated with that. In addition, we've taken the opportunity to sweep all of our open commercial issues prior to restart with our customers, using these extraordinary times to push towards resolution. Some of the premium customers that I'll say we had an enhanced relationship with, we've gone and asked for special terms post-restart to improve liquidity. And on the opposite end, with certain customers where we had a non-profitable situation, we've taken this opportunity to exit the business. The COVID situation behaves similar to 2009, 2010, and anticipating customers will reduce or delay launches and new programs Turning to slide 12, there's no doubt pandemic has created economic unrest for the consumer. We're cautiously optimistic that the stimulus being put into the market will help drive consumption. We've seen and heard many different options that are being explored, such as cash for clunkers in the U.S. and in Europe, potential softening of CO2 compliance requirements in Europe, and incentives to advance alternative propulsion vehicles. And it expects to benefit from any one of these alternatives, as we're essentially agnostic with regard to powertrain mix. In addition, vehicle manufacturers are combining spring selling season advertising with expanded incentives, ranging from 0% financing, payment to pearls, and first responder discounts to persuade consumers now is a good time to buy a car. Finally, before turning the call over to Jeff and flipping to slide 13, despite being encouraged with the efforts to stimulate demand, we're also taking a realistic approach that the post-restart consumption will be down and corresponding volumes will be down. As such, we're taking additional actions to further flex our cost structure to improve earnings and cash flow in this new sales environment. I think of this in three phases. The first phase is survival, whether it's a storm phase. We've taken steps to do just that, many of which we shared with you this morning. The second phase is resizing the business to be profitable and cash flow positive in a lower sales environment. I don't view the lower sales environment as the new norm, but it will likely be with us for a period of time. Hence, Etienne is taking steps This includes accelerating plans to turn around our SSNM business. When the industry fully recovers, phase three, we anticipate that the actions we've taken to resize the business and lower the cost base will enable Addiant to emerge as a stronger company with earnings and cash generation comparable to those of our closest peers. With that, I'll turn the call over to Jeff so he can take us through Addiant's financial performance for the quarter.