Adient plc

Welcome to ADN's third quarter financial results call. I would like to inform all participants that your lines have been placed on a listen-only mode until the question and answer session of today's call. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mark Oswald. Thank you. You may begin.

Thank you, Amanda. Good morning, and thank you for joining us as we review ADN's results for the third 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 Stifile, our Executive Vice President and Chief Financial Officer. On today's call, Doug will provide an update of the business, followed by Jeff, who will review our Q3 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 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 our presentation for our complete state harbor statement. In addition to the financial results presented on a gap 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 for our full earnings release. This concludes my comments. I'll now turn the call over to Doug.

Doug? Thanks, Mark. Good morning. Thanks to our investors, prospective investors, and analysts joining the call this morning, spending time with us as we review our third quarter results. 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 turnaround plan. First off, the team remains laser focused on the plan while navigating through the global pandemic. We continue to implement actions to ensure the plan progresses in a positive direction. When looking at our results, you'll see operational improvements are driving down waste and inefficiencies. Financial slides within Jeff's section illustrate how our improved business performance partially offset the significant COVID headwinds. The team is exercising commercial discipline, resulting in new business winds with a higher return on capital versus outgoing programs. I'll expand on this point in a few minutes. Our launch performance continues to make significant strides with an extremely important as we head into critical launch quarters. We're proactively executing measures to take out structural costs to ensure the cost base is aligned with our expected smaller industry. And finally, we're moving closer to closing the two previously announced strategic transactions. The approximate $500 million of our cash proceeds will strengthen our balance sheets and help drive our total liquidity position higher, exiting fiscal 2020. Essentially, we have our hands on the wheel. and continue to drive initiatives that are within our control. That said, turning to slide five, our third quarter results were significantly impacted by COVID, where you saw industry production essentially at zero across Europe and Americas in April and slowly resumed operations in May and June. We've highlighted a few of ADEON's headline financials since ADEON's financial performance is highly dependent and correlated to vehicle production. Our results mirrored the overall industry, essentially zero sales in April, with steadily improvement into May and June. Sales at $1.6 billion were down about $2.6 billion or 60% on a year-over-year basis. I mentioned sales were essentially zero in April. The exit rate for the quarter was about 75%. The pre-COVID levels were both EMEA and the Americas. Just at EBITDA was a loss of $122 million, driven by the significant reduction in sales. We estimated the impact of COVID around $400 million for the quarter. The team did a very good job flexing costs. Unfortunately, the capital intensity of our business makes it difficult to offset fixed costs in the environment we were managing through. As production ramped up throughout the quarter, our earnings and margins progressed in a positive direction. With regard to cash, we ended the quarter with just over 1 billion of cash on hand and 1.2 billion of total liquidity. Important to note, cash was significantly impacted by approximately 500 million temporary level trade working capital headwinds resulting from the restart of our operations across Europe and the Americas. We expect that a majority of these headwinds will reverse as we move through Q4. As far as the $1.2 billion of liquidity, we expect that we will be at a quarterly low point. In fact, total liquidity is expected to exceed $2 billion by the end of September before factoring any potential debt repayment as a combination of additional JV dividends proceeds from our previously announced strategic transactions and the reversal of working capital headwinds mentioned earlier will help drive Addian's total liquidity higher. One other point worth calling out, the value of Adiant's strategic joint venture network was highlighted in Q3 as the company collected approximately $240 million in cash dividends in the quarter. Year-to-date, JV has contributed around $250 million with an additional $30 million expected in Q4. Turning to slide six, let me spend a few minutes discussing the current state of Adiant's operation and restart status, first in the APAC region, In China, the market continues to provide encouraging data points. Cadian's China operations have returned to pre-COVID levels. In fact, more than 50% of our plants are running two ships. China auto sales year-over-year volume continues to grow and improve sequentially. Cadian's performance has outpaced the market, driven by our favorable customer and platform exposure, as premium OEMs and Japanese OEMs have performed extremely well during 2020. Outside of China, certain Asian countries are showing early signs of market recovery. We expect that trend to continue in the coming months. In Europe, the market is recovering, but at a slower pace compared to recoveries in China and the Americas. Essentially, all of Addian's operations have restarted, with the exception of the small chip facility in the UK. The operations revamped production. Addian sales improved month over month in Q3, essentially, 0 in April to about 75% of pre-COVID levels in the quarter. Based on current customer release schedules, we expect that rate to continue to improve as we move throughout the fourth quarter. Important to note, given production is not fully returned to pre-COVID levels, EDI continues to flex cost structure, utilizing furloughs and short time work as appropriate. We recognize the benefits associated with these programs will lessen over time and have taken that in a minute. In the America, all of the add-ins in JV plants have restarted production, similar to Europe. Add-in sales have improved sequentially as Q3 progressed and exited the quarter at about 75% of pre-COVID levels. Customer releases for trucks and SUVs are running extremely strong. In some instances, productions for certain platforms have returned to pre-COVID levels. While this is an encouraging sign, we remain cautious as rising COVID levels in southern US and Mexico and restrictive rules in the Chihuahua region in Mexico at risk to the production environment. Turning to slide 7 and shifting gears, let me address a common question related to new and existing business awards that continue to bubble up when meeting with our investor base. Specifically, are we losing business to our competitors? Simple answer. Our focus on capital allocation and return on capital is driving profitable business awards, both new and incumbent business. We've studied and reviewed adding in profitability by customer, by platform, by plan, basically slicing and dicing the data. What's clear is certain businesses and platforms have consistently failed to earn an appropriate return The team's focus on ensuring an adequate return is realized over the platform life as a key driver in determining which platforms we keep and which platforms we're comfortable walking away from. Over the past 12 months, we've successfully replaced approximately $700 million in consolidated revenue from an incumbent business with a negative return profile with new business awards. including conquest business with significantly better returns. You can see a few examples on the right-hand side of the slide. In addition, our solid execution and value-add initiatives are driving additional opportunities to quote and win profitable new business. We're excited about Gedeon's book of business that we'll be launching in the coming years. It's an important component of enhancing our margin profile. Speaking of launches and turning to slide eight, we've highlighted several critical launches, including the Ford F-150, Adiant's second largest platform by revenue. Over the past several quarters, launch management has been a specific focus area, helping to drive Adiant's improved operational and financial results. In adhering to a robust process around change management, enhanced readiness and program reviews, and early escalation of potential issues, made a significant impact. Over the past several quarters, we've called out several platforms, including the Cadillac CG5, Chevy Onyx, Toyota Corolla, Nissan LEAF, for achieving flawless launch scores, which we define as 00-100-190, 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. We're not here to declare victory today. Rather, we mention these examples as evidence of the team's hard work and preparedness for the upcoming launches. Turning to slides 9 and 10, let me conclude my comments with an update on the actions that are being taken to execute and position Adiant for long-term success. As we discussed in our Q2 earnings and in subsequent investor meetings, Adiant took quick experienced across Europe and the Americas as a result of the pandemic. Many of these actions, such as furloughing our direct and indirect employees at the plant, enacting salary reductions and salary deferrals above plants, suspending 401ks, just to name a few, were temporary in nature. As any operations restarted in production, increased in Q3, the benefits associated with these measures were reversed. Addressing the company's cost base with structural, more permanent measures is essential as we look to create stronger, more profitable business, especially given Addie's expectation of a smaller industry next year versus fiscal year 19, and the company's extreme focus on capital allocation and return on capital. The right-sizing actions identified that are being executed include the above plant measures within our operations. The goal is simple, reduce add-ins break-even point, be free cash flow break-even or better in fiscal year 21, even though vehicle production is forecasted to be below pre-COVID levels. We have a lot of work ahead of us to achieve that target, but we're well on our way. In fact, we've identified and are in the process of executing cost reductions between 75 and 100 million versus 2019. Then our central functions and regions. Slide 10, we've provided a few examples of these actions that have been announced. I won't read through the actions, but as you can see, the measures are far-reaching, impacting above-plant plants and joint venture operations. Certain of the actions identified can be executed rather quickly, such as force reductions that impact our Americas regions and central functions. In late May, four actions implemented in Asia earlier this year Other measures have a much longer lead time, such as significant reduction in personnel planned in Europe. As noted in the middle of the slide, in July we began negotiations with Works Council in Germany to execute force reductions impacting approximately 500 engineering and bug plant personnel. The reductions are estimated to result in annual labor savings of about $40 million. It's important to note a portion of the relates to flexing of the cost baselines. In other words, the prevention of margin degradation. Given certain of the actions will be implemented in fiscal 21, we only achieve a partial benefit next year. Full run rate savings are expected for fiscal year 22. Given the size and magnitude of the measures being implemented, we do expect to have an elevated level of restructuring costs running through our financials in the coming quarters. The team is currently finalizing our fiscal 21 plan. Once completed, we'll be able to provide you an estimate of the size and timing of the charges and the cash outlays associated with these measures. In the end, significantly lower cost base combined with continued operational improvement and a strengthening platform portfolio is expected to result in stronger, more profitable business. Essentially, further positioning, adding in for long term success, With that, I'll turn the call over to Jeff so he can take us through Eddie's financial performance for the quarter.