Adient plc

Welcome and thank you all for standing by. At this time, 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 also being recorded. If anyone does have any objections, you may disconnect at this time. And I would now like to turn the call over to Mr. Mark Oswald. Thank you. You may begin.

Thank you, Sue. Good morning, and thank you for joining us as we review Adiant's results for the third quarter of fiscal year 2021. The press release and presentation slides for our call today have been posted to the Investors section of our website at adiant.com. This morning, I'm joined by Doug DelGrosso, Adiant's President and Chief Executive Officer, Jeff Stafile, our Executive Vice President and Chief Financial Officer, and Jerome Dorlak, Executive Vice President and Head of America Seating. On today's call, Doug will provide an update on the business, followed by Jeff, who will review our Q3 financial results in outlook for the remainder of the 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 discuss. 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 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 comment. I'll now turn the call over to Doug. Doug?

Great. Thanks, Mark. Good morning. Thank you to our investors, prospective investors, and analysts joining the call this morning as we review our third quarter results for fiscal 2021. Turning to slide four, let me begin with a few comments related to our third quarter. As we anticipated heading into the quarter, the ongoing supply chain disruptions related to semiconductors, and resulting in customer production stoppages combined with escalating commodity prices provided a difficult operating landscape for the industry and Addient. I'll dig deeper into those macro pressures in just a minute. Despite the many challenges, the Addient team remained focused and successfully executed items within our control, while at the same time took proactive actions to lessen the impact of the production stoppages and lost sales. Starting on the left-hand side of the slide, at-ance revenue for the quarter was $3.2 billion, up significantly from the $1.6 billion reported in Q3 fiscal 20. Last year's results, as you're aware, were significantly impacted by vehicle production shutdowns across Europe and Americas due to COVID-19. Although revenue increased year-over-year, this year's top line was also impacted by significant headwinds, specifically the numerous production stoppages at our customers due to semiconductor supply disruptions. Adjusted EBITDA for the quarter totaled $118 million, and as pointed out on the slide, this included just over $50 million in premiums and temporary operating inefficiencies, again, primarily driven by chip shortages and unplanned production stoppages. Edient's June 30th cash balance totaled $1 billion, I'll point out that the cash balance does not include about $270 million held in other assets, as a deposit related to certain assets is acquiring from the YFAS joint venture as part of our China strategic transformation. In addition, about $190 million of cash was used during the quarter to repay a portion of the company's debt. Finally, speaking of debt, Edian's gross and net debt totaled just over $3.7 billion and $2.7 billion, respectively. Approximately $180 million of principal debt prepayment occurred during Q3. Jeff will provide additional color on Edian's financial results, including our capital structure, in just a few minutes. Achieving the results just discussed was hard fought, especially considering the near perfect storm of temporary headwinds that impacted the industry in Adian. These included supply chain disruptions and unplanned production stoppages, increased freight costs, significant increases in commodity prices, and continued costs associated with COVID-19, just to name a few. Rather than dwell on the negatives, the team looked ahead and began to implement actions to help lessen the impact. On the right-hand side of the slide, we've highlighted certain of those proactive measures. Actions taken included pulling ahead preventive maintenance, reallocating our resources between plants, implementing involuntary, voluntary layoffs at our plants in the U.S. and Canada, forced vacations for impacted salary team members, and keeping very tight controls on discretionary spending, including travel, which is essentially limited to launch activities and hiring. The list shown is not exhaustive, but should provide you an idea of how the company continues to drive the business forward, essentially executing on actions that are within our control. Turning to slide five, let me shift gears slightly and spend a few minutes discussing the current operating environment, as the factors shown on the slide are really dominating and influencing the business near term, as evidenced in our Q3 results. First, despite the many negative headlines, there are a number of positive influence impacting the industry, including Consumer demand, which remains extremely strong. Vehicle inventories, which are at near or historic levels and will continue to drive strong production for several quarters as manufacturers look to rebuild inventory. Vehicle mix, which remains strong as manufacturers continue to protect production of their most profitable trucks and SUVs. And finally, COVID treatments and vaccines are generally driving the reopening of many economies We continue to watch closely as certain variants, such as the Delta variant, could result in disruptions along the way. That said, in focusing on the headwinds column, there are a number of headwinds which we view as temporary that are masking or limiting the full benefit of the positive influence just discussed. They include ongoing supply chain semiconductor shortages, which continue to result in production downtime at our customers. As seen with our Q2 and Q3 results, these unplanned production stoppages are leading to premiums and operating inefficiencies across our network. That said, for fiscal 2021, we estimate supply chain disruptions and resulting loss production, operating inefficiencies, premium rate, et cetera, will have a net impact on the top line of about $1.1 billion and adjusted EBITDA by approximately $300 million. I wish I could tell you this will be limited to 2021. Unfortunately, as shown in our call-out box on the far right, the visibility of our customers' production schedules has not improved over the course of the past few months. Discussions and commentary from our customers suggest improving supplies of chips and production schedules in the coming weeks and months. Unfortunately, we continue to experience very short notice of production downtime. And it's likely this trend will continue through the rest of our fiscal year and even into 2022. Also, having a significant impact on the business, as mentioned in our Q2 earnings call, continues to be escalating steel and chemical prices. As noted on the slide, steel prices in the Americas are up approximately three times versus the beginning of the year. And although has certain mechanisms and pass-through agreements with our customer, they were never intended to cover movements of this magnitude for this long of duration. For 2021, we estimate the net impact to be about $80 million consistent with what we shared in our Q2 call. Although these items appear to be temporary in nature and should lessen over time, they are placing a significant amount of strain on the near-term business. The question remains, When will these pressures subside? Our best guess is the supply chain disruption and increased commodity costs will likely persist as we enter 2022. Jeff will dig deeper into the impact the rising commodity prices is having on Adiant in his prepared remarks. Turning to slide six, shifting back to the theme of executing actions within our control, let me provide a few comments related to Adiant's long-term objectives. First, we are on track with our strategic transformation in China. This includes, among other agreements, the termination of the YFAS joint venture and the acquisition of an additional 50% equity interest in CQYFAS, resulting in us owning 75% interest in CQ and 100% equity interest in the YFAS Long Feng. I hope to share news of the completion of the agreements in the not so distant future. As a reminder, Addiant is expecting cash proceeds of about $1.54 billion after tax with the first tranche of proceeds collected at the closing and the remaining proceeds collected prior to the 2021 calendar year end. The completed transaction will enable Addiant to drive our strategy in China independently which is expected to result in a variety of benefits, including capturing growth and profitable and expanding segments, improving the integration of the company's China operations, and allowing for more certain value realization relative to the status quo, where cash and value are generated from dividends at entities not in audience control. As mentioned in March, we expect to remain a leader in China market, essentially a position on par with and among the top three complete-seat suppliers in the market. Based on our estimates, this equates to a market share of just under 20 percent. Equally exciting, and as part enabled by the China transformation, is the work underway to transform Addion's capital structure. As mentioned earlier, during QG, we paid down the final $160 million in principal of the company's 7 percent first lien notes. In total, so far in fiscal 21, the company has prepaid approximately $840 million in debt. When combining the 7% note paydown, the prepayments made to the European Investment Bank Loan, I'd also remind you the company made $100 million of voluntary debt prepayments at the end of fiscal 2020, bringing our total voluntary debt paydown to $940 million. since the beginning of the capital structure transformation in Q4 fiscal year 20. Add-in's capital structure has a lot of flexibility and callability remaining. We expect to continue our deleveraging efforts upon completion of the China transaction and collection of the related proceeds. Whether it's the longer-term strategies just discussed or the day-to-day initiatives, such as improving our plant operation and flawlessly executing on launches, Addion is executing actions within our control despite the macro headwinds that are temporarily impacting the industry. The continued push to improve the business has had a positive impact on our relationships with customers as well. We've seen Addion's customers recognize value-added product and process initiatives. At the bottom of the slide, we've included a few awards recently received, including Stellantis Best Supplier Competitiveness Award, Toyota's Superior Supplier Diversity Award, GM's Excellence in On-Time Shipping Award, and finally, the Outstanding Quality Launch Performance Award from Nissan. I mention this recognition only to provide proof points that the team continues to execute on many fronts, continually looking for ways to drive the business forward. Turning to slide seven, let me provide a few comments and add in business wins and how we're strengthening our leading market position. What hopefully has been clear is that we reported our key wins over the last several quarters is the fact that adding continues to focus on capital allocation, return on capital when targeting new or incumbent business wins, and it's not limited our ability to secure new business. Our year-to-date win rate for both targeted new business and targeted incumbent business is tracking in line with our expectations. We've highlighted a number of recent program wins here, including a number of key replacement wins this past quarter, including Toyota Tacoma, Mercedes A-Class, Mercedes GLA, and the Nissan Patrol. In addition to these replacement wins, Etient also secured new SUV program with Xiaoping in China and the new EV CUV platform at Honda. It should be noted that our recent wins awards include a good mix combination of jet, foam, trim, and metals business. As our new book of business continues to launch, we expect the balance-in, balance-out platforms to further enable margin expansion. Turning to slide eight, 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 we're heading into the final few months of the fiscal year, and the team continues to focus on process discipline around launch readiness and has driven a very high level of performance, especially considering the launch load and the complexity of launches that were planned for this year. In addition to the number of launches and complexity, the disruption to production schedules presented another layer of challenges to the team successfully managed through, though. Again, a testament to the discipline around our processes. We have no intention of letting up and look forward to finishing the year strong with the launches that are in process and scheduled to begin entering fiscal 2022. Before turning the call over to Jeff, flipping to slide nine, let me just conclude my remarks with a few comments about Adian's guiding principles. These principles are intended to drive Adian forward while focusing on what's most important, the key drivers, customer, quality, people, community, and financial discipline guide and inform our business strategy and our culture. As pointed out today, remaining focused on these drivers enable the team to drive the business forward, even while operating in a challenging environment we're currently facing. I'm proud of what we've accomplished. I'm excited about what lies ahead. And with that, I'll turn the call over to Jeff to take us through Etienne's third quarter 2021 financial performance provide a little bit more color on what's expected as we wrap up 2021.