Adient plc

Welcome to Addion's first quarter fiscal year 2023 earnings call. At this time, all participants are in listen-only mode until the question and answer session. If you would like to ask a question over the phone, please dial star 1. 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.

Thank you, Danielle. Good morning, and thank you for joining us as we review Addion's results for Q1 fiscal 23. 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 Jerome Dorlak, our Executive Vice President and Chief Financial Officer. On today's call, Doug will provide an update on the business, followed by Jerome, who will review our Q1 financial results and outlook for the remainder of fiscal 23. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Doug and Jerome, 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-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?

Great. Thanks, Mark. Good morning. Thank you to our investors, prospective investors, and analysts joining the call this morning as we review our first quarter results for fiscal 2023. Turning to slide four, let me begin with a few comments related to the quarter. As expected, heading into fiscal 2023, the overall operating environment appears to be trending in a positive direction. However, I'd still characterize the environment in Q1 as choppy, with certain external influences trending favorably and other influences appearing stubbornly persistent, placing downward pressure on the industry. With regard to the positives, It was encouraging to see softening steel, energy, and freight costs. FX movements also trended favorably. While these metrics signaled we're moving in the right direction, other challenges, such as the resurgence of COVID-19 in China, elevated labor costs, tight labor availability, and tightening central bank monetary policies continue to cloud the outlook. Visibility remains murky. That said, on balance, the many puts and takes resulted in a quarter generally in line with our internal expectations. Adding into key financial metrics for the quarter can be seen on the right-hand side of the slide. Revenue for the quarter, which totaled $3.7 billion, was up $219 million compared to last year's first quarter. Adjusted EBITDA for the quarter totaled $212 million, up $66 million. Addient ended the quarter with a strong cash balance and total liquidity of $900 million and $1.9 billion, respectively. In addition to Q1 fiscal 23 improved year-on-year financial results, Addient continues to execute actions within its control to position the company for sustained financial success. These actions include, but are not limited to, the team's intense focus on launch execution, cost and operational improvement, and customer profitability management, winning new business across the various regions, customers, and platforms, which, over time, are expected to strengthen our leading market position, not to mention support improved margins and earnings. The team is also executing actions to provide value-add to add-in stakeholders every day. whether that's our customers, suppliers, or employees. These efforts have been validated repeatedly with numerous industry and customer recognition awards, including most recently Automotive News Champion of Diversity Award, Top Employer 2023 certification by the Top Employer Institute for , and recognition in China from FAWVW for our quality performance. Finally, Adiant continues to make progress at building a sustainable future. The details of our many ongoing ESG initiatives as well as our fiscal year 2022 accomplishments are included in the company's recently published sustainability report. Turning to slide five and commenting further on the topic, the 2022 sustainability report highlights, among other things, how Adiant is Reducing its Scope 1 and Scope 2 absolute greenhouse gas emissions, which, as shown on the lower right-hand side of the slide, are down 25 percent compared with our baseline year for fiscal 2019. Implementing innovative seed solutions, including materials and processes in our metals, plastic, foam, trim, and complete seed products that promote a circular economy and helps Addiance customers meet their ESG goals. Enforcing policies and practices that protect human rights in accordance with the UN Global Compact, and encouraging our suppliers to adopt similar business practices. And advancing diversity, equity, and inclusion through employee training opportunities, inclusive hiring, and employment development processes, and employee-led business resource groups. In fact, recognizing a diverse and inclusive workforce environment has been part of Etient for years. For more than two decades, the company has been involved in successful, diverse joint ventures with Detroit-based Bridgewater Interiors. We are particularly proud that this forward-thinking, unique joint venture has stood the test of time and continues to grow and remains a viable venture for our customers. One additional milestone to mention during Q1 fiscal year 23, the science-based target initiatives validated Adiant's near-term greenhouse gas emissions reduction targets, affirming Adiant has established a clear pathway to achieving its emission reduction goals. We realize reaching the company's full potential cannot be achieved without firmly integrating sustainability into our core Adiant operation in order to become the foremost sustainable automotive supplier. We've included a link to the full report. Please take a few minutes to see the progress we've made in our sustainability journey and the commitments we intend to deliver in the future. Turning to slide six and seven, let's take a look at the business wins and launch performance. As you can see, slide six highlights a few recent wins. and it continues to successfully navigate the choppy operating environment and related commercial discussions while winning new and replacement business. The programs highlighted represent a good mix of wins across ICE and various levels of EV powertrains, new entrants, and legacy customers, as well as deepening levels of vertical integration including complete seat, foam trim, and metals. One of the programs highlighted is the recently awarded Toyota RAV4 replacement business in China. Also worth noting, NIO's new Alps vehicle platform was awarded to Adiant, strengthening the company's position with the growing Chinese domestic OEMs. Alps is NIO's latest sub-brand, marking an entrance into the mass market outside of the premium luxury space. One final highlight to mention, as noted in the call-out box to the right, Addient is pleased to have provided complete seat or components to all three 2023 North American Car and Truck of the Year winners, Acura Integra, Ford F-150 Lightning, and Kia EV6. Flipping to slide seven, 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 that launches currently underway are progressing in line with our expectations. The launches and platforms shown not only impact Etion's just-in-time facilities, but span across our network of foam, trim, and metals facilities. The team continues to focus on process discipline around launch readiness has driven a very high level of performance, especially considering the launch load and complexity of launches that are planned for the year. We have no intention of letting up. Before turning the call over to Jerome and turning to slide eight, let me continue with a few comments related to the current environment and how it's evolved over the past few months. If you recall, entering fiscal year 23, Adiant expected the overall operating environment to improve in 23 versus 22. That expectation has not changed based on what's transpired in our first quarter. That said, certain of the underlying assumptions around variance influences that were expected to have a significant impact in ADDIAN's 23 results have shifted. As you can see on the slide, we laid out certain positive and negative influence that we navigated entering the year. Any of the positives include Many of the positive influence remain intact, such as adding self-help initiatives, the benefits from the balance in, balance out of new programs, the impact of supply chain disruptions, which are still placing downward pressure on the industry, but trending in the right direction. Commercial settlements with our customers, which encompass a variety of transactional items, including recovery of inflationary costs, continue to be successfully negotiated. I would note that as certain inflationary pressures soften, the absolute level of recoveries needed to achieve our 23 earnings commitment will be reduced, which is good news. Think of that as de-risking our plan. Lastly, although we continue to forecast a year-on-year tailwind from increased vehicle production, the magnitude of benefits have moderated given the recent revisions to production forecasts. In China, for example, S&P recently lowered the forecast by approximately 500,000 units in the March quarter versus their December forecast. Given Adiant's September 30th fiscal end, the expected recovery, which is largely recalendarized into December quarter, will benefit our fiscal year 24, not fiscal year 23. On the right-hand side of the slide, just a few comments that we are seeing. and expecting from the three key markets. In the Americas, we continue to monitor potential softening of consumer demand, primarily driven by rising interest rates, which ultimately impacts affordability. That said, our customers have not signaled through their production forecast to us that this is the case. We believe inventory rebuild combined with a likely increase in sales initiatives should support the current vehicle build assumptions for the remainder of fiscal 23. In China, we're monitoring return to work absenteeism post-Lunar New Year's, given the potential resurgence of COVID. At this time, absentee remains very low. Most of our facilities now have either low single-digit of cases or no cases at all, and we're managing them as normal absenteeism. Although vehicle production was revised down in our fiscal second quarter, as I just mentioned, we believe solid economic growth in the absence of COVID restrictions will support improved production beginning in the back half of the year. For Europe, the outlook remains bleak. lacking positive catalysts for the near-term and long-term. In fact, based on S&P forecast, vehicle production is not expected to return to pre-COVID levels in the foreseeable future. With that as a backdrop, the team is working on plans to improve the company's operating and financial performance in the region, assuming production remains at these depressed levels. Actions will be broad-based, encompassing our operations above plant costs, future capital spending, et cetera. I'll provide additional details as the plan takes shape. Bottom line, we're focusing on executing our strategy, which we're confident will drive earnings, margin, and cash flow growth in 23 and beyond. With that, I'll turn the call over to Jerome to take us through Addion's first quarter 2023 financial performance and provide our current thoughts on what to expect as we progress through the remainder of fiscal 23. Thanks, Doug.