Adient plc

Welcome, and thank you for standing by. At this time, all participants are in listen-only mode until the question and answer session of today's conference. At that time, you may press star 1 on your phone to ask a question. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host, Mark Oswald. Thank you. You may begin.

Thank you, Danielle. Good morning, and thank you for joining us as we review Adiant's results for the fourth quarter of fiscal year 2021. 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 Stafile, our Executive Vice President and Chief Financial Officer. Also joining the call today is Jerome Dorlak, Executive Vice President of the Americas. On today's call, Doug will provide an update on the business, followed by Jeff, who will review our fourth quarter financial results and outlook for fiscal 2022. 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 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 gap basis, we will be discussing non-gap information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-gap measures to the closest gap equivalent can be found in the appendix of a referral earnings release. This concludes my comments. I'll now turn the call over to Doug. Doug?

Thanks, Mark. Good morning, and thank you to our investors, prospective investors, and analysts joining the call this morning as we review our fourth quarter results for fiscal 2021 and expectations for fiscal 2022. Turning to slide four, let me begin with a few comments related to our fourth quarter and 2021 fiscal year. Essentially, the fiscal year can be best described as a year of two halves. In the first half of the year, Adant delivered significant year-over-year earnings and margin improvement driven by the company's focus on launch, cost, operational improvements, and customer profitability management. Exiting our second quarter, significant macro pressures, including numerous unplanned production stoppages at our customers, primarily related to petrochemical and semiconductor supply chain disruptions, and rising commodity prices began to impact the industry and Adiant. These headwinds persisted throughout the second half of our fiscal year. Despite the many challenges, the Etient team remained focused on successfully executing items within our control. A few notable examples include the closing of our China strategic transactions and the significant progress made throughout the year on deleveraging our balance sheet. That said, the accomplishments achieved in fiscal 21 were hard fought given the very tough operating environment. On the right-hand side of the slide, you can see that the tough operating environment had a significant impact on our Q4 results. Addion's revenue for the quarter was $2.8 billion, down from $3.6 billion reported in Q4 fiscal year 20. The decrease was driven by the significant reduction in vehicle production year over year, combined with Addion's customer mix particularly in Europe. The lower revenue combined with premiums and temporary operating efficiencies resulted from unplanned production stoppages dropped right to our earnings with adjusted EBITDA declining $169 million year over year to $118 million in Q4 fiscal year 21. Cash was a bright spot, $1.5 billion as of September 30th. The cash balance includes 695 million of proceeds related to the first tranche of proceeds collected from the China transactions. Jeff will provide additional commentary and audience financial results including our cash and capital structure in just a few minutes. Turning to slide five, let me spend a few minutes discussing the current operating environment The factors shown on the slide are significantly dominating and influencing the business near term as evidenced by our Q4 and second half fiscal 21 results. On the left-hand side of the slide, we've listed several of the headwinds we're facing. No surprises here, as many of these macro headwinds surfaced at the end of our second quarter, including ongoing supply chain semiconductor shortages, which continue to result in production downtime at our customers, As seen with our Q3 and Q4 results, these unplanned production stoppages are leading to premiums and operating inefficiencies across our network, which, as you would expect, we're working hard to mitigate. For fiscal 2021, we estimate supply chain disruptions and the resulting loss production, operating inefficiencies, premium freight, et cetera, had a net impact on the top line of about $1.9 billion. and adjusted EBITDA by approximately $450 million. Unfortunately, the supply chain disruptions have not lessened as we've entered our new fiscal year. As shown in the middle column, 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 supply chip and production schedules could improve in the coming months. Unfortunately, there is no evidence of this happening at this time. As such, we're continuing to run the business with the assumption that the challenging operating environment will continue. Jeff will discuss our overall fiscal year 22 planning assumptions in his prepared remarks. These include our assumption that global vehicle production remains relatively flat year over year, up modestly in some regions, down in others. As such, it's likely unplanned production stoppages will continue leading to premiums and operating inefficiencies like those experienced in the second half of 2021. In addition to supply chain disruptions and unplanned production stoppages, elevated input costs such as commodity prices, freight and energy costs continue to place downward pressure on the near-term results. As noted on the slide, steel prices in the Americas continue to be approximately three times higher than at the start of the year. As mentioned on our Q3 call, although adding has certain mechanisms and pass-through agreements in place with our customers, they were never intended to cover the movements of this magnitude or generation. For 2021, we estimate the net impact was roughly $70 million, generally consistent with our earlier expectations. If we set aside the macro pressures and look at our core business performance, as highlighted on the far right-hand side of the slide, we're continuing to see an upward trajectory. A few points worth noting. In stabilizing the operations in fiscal year 19, we achieved approximately 500 base points increase in the company's adjusted EBITDA margin. Fortunately, we have about 400 points of headwinds masking the performance, roughly speaking, 50 base points from volume, 40 basis points from net commodities, and 100 basis points associated with temporary operating inefficiencies. The team is very much focused on driving down SG&A costs, executing both temporary and permanent actions, and our operating cost structure, engineering design efficiencies, and cost reduction implementations are all performing well. What has really emerged over the past several quarters driven by inflationary pressures are commercial issues that we're working to address. As mentioned, the macro pressures impacting the business in Add-In are believed to be transitory in nature. Based on this belief, Add-In has executed numerous actions to lessen the impact. In the middle of the slide, you can see examples, which include commercial negotiations with our customers to claw back the increased commodity prices over and above the contractual in place. If you recall, during a Q3 earnings call, we mentioned potential risk fiscal year 22 of about $200 million. Through the recent negotiations, we were able to reduce that exposure to roughly 125 million. From an SG&A perspective, we've executed targeted reductions in our workforce, implemented a salary reduction and stock replacement program at our executive level, and made other temporary benefit actions such as delaying merit increases in the 401 match in the U.S. To help lessen the impact of rising freight costs, the team is implementing changes to our pack density and optimizing our freight footprint based on open capacity. We've also experienced an acceleration in VAB efforts with our customers. Again, these are a few examples to illustrate Addiance is not standing still. It's important to remember from a historical view, our business has had little inflation. Customers have effectively priced on a value add. That said, the level of cost increases from multiple angles that we are experiencing today is unprecedented and requires either quick market correction or a change in customer pricing. If it's determined that the inflationary pressures are sticky, not transitory in nature, Alternative customer commercial solutions need to be negotiated. Switching gears and focusing on those actions within our control, let me provide a few comments on how the team continues to drive the business forward. First on slide seven, you can see that we're executing day in and day out. It starts with the back to basics mindset, improving every aspect of the business, as mentioned just a few minutes ago, the core business has seen significant improvements since 2019. Stripping out the temporary operating inefficiencies, the business is running well on many fronts, such as launch execution, lower ops waste, increased utilization, and reuse of capital, to name a few. EDIEN's Q1 and Q2 results this past year highlighted this improvement. We're also working hard to ensure the long-term outlook is bright by securing new and incumbent profitable business wins. We've done this at a very steady pace, and as we've mentioned on our calls throughout the year, this includes a very healthy portion of EV wins, which will continue to strengthen our leading market position. As noted on the slide, over 20% of the wins in fiscal year 21 relate to EV platforms. Program wins are a testament to the much improved relationship with our customers that we've nurtured over the past two to three years. Aided by the company's ES3 initiatives, ability to provide award-winning seed solutions, including innovative solutions for EV platforms, Adiant is quickly becoming the supplier of choice. In addition to blockading and tackling operationally and commercially, Adiant recognizes the company's full potential cannot be achieved unless we commit to positive environmental, social, and governance related business practices. During fiscal year 21, the company increased its commitment to ESG efforts with the adoption of science-based targets and KPIs. Details to be provided in the 2021 sustainability report due in January of 2022. Outside of the day today and turning to slide eight, we've made great progress in fiscal year 21 with regard to long-term strategic actions. September 30th, we announced the closing of our strategic transformation in China. The completed transaction enabled Etion to drive our strategy in China independently, which is expected to result in a variety of benefits, including capturing growth in profitable and expanding segments, improving the integration of the company's China operations, and allowing for more certain value realization relative to status quo, where cash and value are generated from dividends at entities, not in eddience control. We expect to remain a leader in the China market, essentially a position on par with and among the top three complete seed suppliers in the market. Based on our estimates, this equates to a market share of just under 20%. At closing, Etient received its first tranche of proceeds totaling $695 million. Not only do they, does the completed transactions in China allow us to chart our future in the country independently, but they also enable the company to accelerate its balance sheet transformation, which we view as another key accomplishment in 2021. During the 2021 fiscal year, the company executed approximately $840 million in voluntary debt paydown with the proceeds from China in the bank. We will further progress on deleveraging in fiscal 2022. Etient will continue to prioritize its capital allocations toward debt paydown until the company reaches its targeted leverage threshold of 1.5 times to 2 times net debt the EBITDA. Bottom line, we're executing and delivering on items within our control. Turning the slides nine and 10, let me make a few comments related to our business wins and launch performance to ensure enough time is allocated to Jeff and our expectations related to fiscal year 2022. I'll be brief with regard to these slides. As you can see, slide nine is our typical new business win slide highlighted A few of Adiant's recent wins. Bottom line for the quarter just completed similar to what we've disclosed throughout the year. The company has had good success in capturing new, conquests, and incumbent business. The win rates for fiscal 2021 were strong and in line with internal expectations. I already mentioned EV wins accounted for approximately 20% of our business booked in 21. A very good outcome as growth in this area will continue to strengthen our leading position. I'd also point out we're pleased with our seating solutions are delivering world-class products to our customers as evidenced by a number of recent J.D. Power awards for Adiant seats in the Ram F-150 and Mustang Mach-E. Flipping to slide 10, as we typically do, we've highlighted several critical launches that are complete, in process, or scheduled to begin in the near term. The company continues to focus on process discipline around launch readiness and has driven a high level of performance, especially considering the launch load and complexity of launches that were planned for the year. In addition to the number of launches and complexity, the disruptions to production schedules presented another layer of challenges the team successfully managed through. Again, a testament to the discipline we've instilled around the process. As you can see at the bottom of the slide, we provided some color on what you can expect from fiscal 2022 with respect to the volume and complexity of launches. Generally speaking, volume is up. This is primarily driven by launches that were delayed from 21 to 22. Complexity is mixed up slightly in the Americas and in China, relatively flat in Europe and Asia, excluding China. I'm confident we'll maintain our focus on process discipline around launch readiness, driving results similar or better versus 2021. Before turning the call over to Jeff and turning to slide 11, let me conclude with a few summary comments. As discussed and highlighted with this presentation, Adyen is executing many actions to provide the company for sustained long-term success. Advancing our back to basic strategy continues to be a key enabler going forward. We'll continue to drive the business forward despite the near term macro headwinds. No doubt the operating environment in 2022 will be difficult given the persistent challenges impacting the industry. That said, we'll continue to manage through the difficulties executing actions along the way to lessen their impact. The underlying fundamental of the industry remains strong. Once the near-term temporary headwinds abate, Etienne will be in well position to capitalize on the recovery. With that, I'll turn the call over to Jeff to take us through Etienne's fourth quarter 21 financial performance and provide additional detail on what they expect in the coming year.