Adient plc

Welcome to the Adiant fourth quarter financial results conference call. Your lines have been placed on a listen-only mode until the question and answer session. At that time, if you'd like to ask a question, you may press star one. Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now I'll turn the call over to Mark Oswald. Sir, you may begin.

Thank you, Shirley. Good morning and thank you for joining us as we review Adiant's results for the fourth quarter and full year fiscal 2023. 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 Q4 and full-year financial results. In addition, Jerome will provide you with the company's initial outlook for fiscal 2024, 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 GAAP basis, we'll 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 comments. I'll now turn the call over to Doug. Doug?

Great. Thanks, Mark. Good morning. Thanks to our investors, prospective investors, and analysts joining the call this morning as we review our fourth quarter and full-year results for fiscal 2023. Turning to slide four, let me begin with a few comments related to the quarter and a few about Adiant's full-year successes, starting with the numbers. You can see Adiant financial performance as highlighted by certain key financial metrics in the box on the right-hand side of the slide. Adiant finished the year strong, delivered improved year-over-year earnings growth in Q4 fiscal 23, underpinned by the relentless focus on execution, operational excellence, and better-than-expected production volumes versus internal expectations at the beginning of the quarter, and despite labor-related work stoppages at certain customers. ADAN's fourth quarter results continued to build on positive momentum established earlier this year. For the most recent quarter, revenue, which totaled $3.7 billion, was up $79 million compared to last year's fourth quarter. Adjusted EBITDA totaled $235 million, up $8 million year-over-year. And finally, Adiant ended the quarter with a strong cash balance and total liquidity of $1.1 billion and $2.0 billion, respectively. Given the uncertainty surrounding the timing and magnitude of the loss production due to the strike-related work stoppages, Adiant executed actions to preserve cash and liquidity as we progressed through the quarter. For the full year, Adiant delivered on its commitment to increase earnings margin and free cash flow versus fiscal 22. Jerome will expand on the full year 2023 fiscal year results in just a moment. Ad ant successes in 2023 extended beyond our strong financial performance. A few examples include the team's execution of day-to-day processes that enable world-class launch execution, continuous operational improvements, and thoughtful cost reductions. Winning new business across various regions, customers, and platforms are expected over time to strengthen our leading market position, not to mention support improved margins, and earnings. The team is also executing actions that provide value add to our Adiant stakeholders every day, whether that's our customers, suppliers, or employees. A variety of customers and automotive industry awards reinforce Adiant's commitment to excellence. The company and its employees were recognized with approximately 60 awards in fiscal 23. Highlights include GM Supplier of the Year Award, J.D. Power Award for receipt satisfaction, and many more, as you can see. I mention these awards as proof points that the team is operating at very high levels across the company. The accomplishments in fiscal 23, both financial and operational, are even more impressive considering the challenging external headwinds that impacted the industry and add-in. including labor inflation and availability, the strengthening dollar, and a still fragile supply chain. The company's unwavering focus on our strategy enabled us to successfully navigate these challenges and position Adiant for future success. Speaking of challenges, in turning to slide five, I wanted to provide a quick update on how the UAW strike here in North America and its impact on Adiant. To begin with, we look at production disruptions through two lenses, the near-term impact and the potential longer-term negative effects the strike could have on the industry. Near-term, the strike has impacted adding just-in-time operations as well as our component plants. With the strike beginning late in our fiscal year, the negative impact was limited in fiscal 23. Call it around $30 million in sales and under $5 million in EBITDA. As the strike extended and began to impact other edient facilities, including JIT and other component plants, the impact increased. We're encouraged. Progress has been made over the past week to 10 days to settle the strike. That said, given the timing, edient's new fiscal year, the work stoppage is through October and early November. have undoubtedly had a bigger impact on fiscal 24 compared to the limited impact on ADEON's fiscal 23 results. Through early November, we estimate the impact on our 2024 sales in EBITDA have been approximately 125 million and 25 million, respectively. Jerome will have additional commentary related to the impact of the strikes on fiscal 24 with his prepared remarks. As you would expect, the company moved quickly to lessen the negative impact. We've listed a few of the actions on the right-hand side of the slide. I won't read through the list other than to point out the company went into cash conservation mode and reduced or eliminated non-discretionary spending early in Q4. Given the duration of the strike, we are concerned about lingering downstream impacts to the industry, especially related to supply chain and its ability to run production at rate when called upon. The financial health of lower tier suppliers and labor availability are just a few. In addition, risks or repercussions related to the increased labor costs at D3, such as the typical playbook to extract value from the supply base, the ability to maintain existing and future product plans, and the ability to complete against lower-cost manufacturers, especially Chinese manufacturers that not only have a lower cost base, but new products that are extremely well-contented and desired by consumers. No doubt, concerning on many levels, that said, and yet similar to prior external headwinds, has and will continue to execute actions to lessen the impact of these negative pressures. Turning to slide six, you've heard us mention on several occasions that Adian's focus strategy is a key enabler to our success at driving the business forward and navigating through external challenges. The key tenets of the strategy are laid out on the left-hand side of the slide. As a reminder, the top four tenets has helped drive strong business and financial performance in both fiscal 2022 and 23. At the bottom of the slide, you'll see a fifth tenant embracing and leveraging a shift in industry dynamics. When looking ahead, we feel it's imperative that Adiant adapt to the evolving auto industry, an industry that is being influenced by a number of factors, including the pricing and affordability of EVs versus traditional ICE platforms, which is clearly impacting the pace of EV adoption here in North America. In fact, as you're aware, certain traditional manufacturers have recently announced various retiming of EV launches to align with demand. Radiance processes, which focus on acid reuse and flexibility, enable the company to meet the EV or ICE production requirements. In other regions, namely China, the industry is being reshaped by the growth and influence of the Chinese domestic auto manufacturers. In addition, access to technology and innovation is taking place through global partnerships versus in-house capabilities. The one constant, the importance of being cost competitive. Recognizing these shifts resulted in us fine-tuning the company strategy going forward to ensure that we have the right vision to create additional value to Adiant stakeholders. Speaking of value creation and turning to slide seven, One exciting trend that has begun to emerge, especially in China, is added content within seating. Presently, China is bringing a vehicle concept to the market that is very different from traditional auto manufacturers with a focus on electronics, functionality, ADAS, and interior configurations around creature comfort. Adiant's zero-gravity seat, built to balance the ultimate in comfort by keeping safety in mind, is an example of the kind of innovation that these new players are generating. Longer term, as advanced driver assistance systems and comfort features become more prevalent, and as seating solutions intersect with passive safety systems, seating content is expected to outpace vehicle production as OEMs adopt this innovative new interior configuration and features. Although green shoots of this added content are primarily in China, Today, we're optimistic that the trend will cascade into other regions. Important to note, Adiant's ability to provide innovative solutions for our customers in China with speed and world-class execution are critical to our past and future business wins with this customer group. Turning to slides eight and nine, now let's take a look at our launch performance and new business wins. As you can see, slides eight highlight a few of EDIAN's in-process and upcoming launches, and it continues to execute at a high level on launch performance. The programs highlighted represent a good mix of wins across EV powertrains and ICE powertrains and are diversified across a number of segments, including SUVs, luxury, mass market, and contain a high level of vertical integration across complete seat, foam, trim, and metals. I'd also like to point out that these launches include a number of innovative technologies that are being well received by our customers, including our zero-gravity seat, which increases ergonomic comfort and body pressure distribution, and Chang'an's E12 in China. As you can see at the bottom of the slide, we've provided some commentary on what you can expect for fiscal 2024 with respect to volume and complexity of launches. Generally speaking, volume and complexity are up in the Americas, Europe, and Asia, outside of China versus last year. Despite that fact, I'm confident we'll maintain our focus on process discipline across launch readiness, driving similar results or better versus 2023. Flipping to slide nine, the strong operational execution and launch performance as well as innovation I just talked about are foundational for new business wins. A few program awards are highlighted on the slide, and it's noteworthy that these programs include a high level of vertical integration of both bone, trim, and metal components, as well as the JIT business. We continue to secure our replacement business. We're winning our fair share of new business, leveraging our existing footprint. And we're having success winning business while navigating the difficult macro conditions and related commercial discussions. Before handing the call over to Jerome with slide 10, let me conclude with a few comments related to our initial thoughts on 2024. To begin, Addion's focused strategy continues to drive the business forward. Our fiscal 2023 financial and operational results, in addition to our year-to-date results, provide positive proof points. The team delivered many accomplishments last year that were hard fought, especially considering the external operating environment. Although we're confident that positive momentum will continue into 2024, we're also aware the new year will likely bring a unique set of challenges and obstacles to navigate. The few that most of you have commented on include temporary production disruptions that are nearing resolution, concerns related to supply chain and the ability to run at rate, restart of production in the Americas, the impact of FX movements, stubbornly high interest rates that are likely to be in place through the midterm, and uncertainties around consumer demand. Similar to prior years, Adiant has and will continue to develop and execute contingency plans to help mitigate and lessen any potential impact. I'm confident combining our resolve with an unwavering commitment to the company's Focus strategy, we will continue to drive the business forward in 2024, further positioning Adiant for sustained success, ultimately driving increased value to all of our stakeholders. With that, I'll turn the call over to Jerome to take us through Adiant's fourth quarter and full year 2023 financial performance and outlook for 2024.