Adient plc

Welcome to Addion's fourth quarter 2024 earnings call. Parties will be in a listen-only mode until the question and answer session of today's call. I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mike Heifler. Thank you. You may begin.

Thank you, Amanda. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the investor section of our website, adiant.com. This morning, I'm joined by Jerome Dorlak, Adiant's President and Chief Executive Officer, and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Based on feedback from our investors, we have spotlighted our efforts in the AMEA and APAC regions as well as how we are driving overall future positive performance. Mark will then review our Q4 financial results and outlook for fiscal 2025. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, 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 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. And with that, it is my pleasure to turn the call over to Jerome. Thanks, Mike.

Good morning, everyone, and thank you for joining us to review our fourth quarter and full year results. We'll also discuss our fiscal year 2025 outlook, ensure additional information on actions we are taking in the EMEA region to set us up for long-term success, provide more details and perspective on our leading and growing business in China, and talk about recent developments in our use of automation and artificial intelligence to drive efficiencies. Turning to slide four, which summarizes the fourth quarter and full-year results. Add-ins Q4 results were solid against the difficult macro environments. The Adiant team drove strong business performance that offset customer volume headwinds. As a result, we were able to expand margins 30 basis points despite a 4% year-over-year decline in revenue. We held adjusted EBITDA flat at $235 million and generated over $190 million in free cash flow. We also continued to allocate capital in a disciplined manner and bought back another $50 million in stock in Q4 bringing total share repurchases in fiscal year 24 to $275 million, which allowed us to repurchase approximately 10% of our outstanding share count compared to the start of the year. To put that into context, nearly 100% of Addion's 24 free cash flow was returned to shareholders. With a strong fourth quarter, we finished the year slightly ahead of of our revised guidance. Moving to slide five, at the beginning of fiscal 24, we in the industry were expecting volumes to be a modest tailwind for the full year. We were also forecasting strong business performance, items that we can influence, of a positive 100 million. In fact, what occurred was much weaker than expected customer volumes, which was a $200 million which was a $200 million impact to the adjusted EBITDA compared to our initial guidance a year ago. The Adiant team was able to mitigate this contribution margin headwind with nearly $70 million of additional business performance. While we are not satisfied with our 6% total company EBITDA margins, I believe we are demonstrating the resilience of the Adiant business model and our ability to find offsets in the face of industry headwinds. Turning to the next slide, Mark will get into the details shortly, but the key takeaway for our fiscal year 25 outlook is that we expect continued strong company performance to offset lower industry volumes. Our outlook calls for roughly flat earnings in fiscal year 25 with solid free cash flow conversion. Our company performance are as follows. Adiant continues to win new business with China domestic OEMs underpinning solid growth in the Asia-Pacific region. And this growth is accretive to overall company margins, as we've discussed in previous calls. We're also driving significant cost savings through automation and modularity. I will expand on this in the next few slides. The team is focused on executing restructuring in Europe and finding additional efficiencies in the region. We have already announced actions and we continue to develop our plans around improving our business in that region. In 25, we expect the Americas to continue to expand margins and we'll start to see the benefit in the Americas from favorable balance in and balance out. This is expected to become a meaningful contributor to AMEA's regional performance as well in fiscal year 26. On slide seven, we frame the current conditions in the European market, which is exhibiting intensifying cyclical and secular headwinds. Key takeaways here are that S&P industry forecast calls for an additional 5% contraction in light vehicle production in fiscal 25. As we look out over the next few years, European volumes are not expected to return to pre-COVID levels due to lower exports, growing China imports, as well as reduced total addressable market for seeding systems as certain customers selectively insource. Our eyes are wide open to the challenging and changing realities in Europe, and we have been aggressively taking action and will continue to do so. Turning to slide eight, let's walk through the margin progression path for RMA business. In fiscal year 24, we took restructuring actions focused on right-sizing engineering and SG&A expenses, as well as improving plant efficiencies. During the year, we booked total charges of approximately $145 million in EMEA with expected net savings benefits of approximately $60 million annually by the end of 2027. As the situation in Europe continues to evolve, future restructuring will be aligned with customer production plans. While we have no specific additional restructuring to announce today, we do believe there's the potential for additional restructuring of a similar magnitude to what we booked in fiscal year 24 in total over the next few years. We are undertaking other near-term efficiency actions in Europe, including continuous improvement activities on the manufacturing floor, as well as negotiating commercial margin improvements with customers and suppliers. We've also been conducting a strategic review of our portfolio, including pairing of non-strategic businesses and focusing on reduced capital expenditures in the region. We will be consequential with both capital deployment in the region and the pairing of non-core assets. Lastly, we are leveraging our presence in customer relationships in China to target growth with Chinese OEMs as they localized into the EMEA region. Looking out to 25 and 26, we see weak market conditions persisting, and in fiscal year 25, we expect lower profitability in EMEA from volume and mix headwinds to only be partially offset by positive business performance from restructuring and other actions. The first half of fiscal year 25 is likely to be the low point of our margin recovery plan within the region. We expect the picture in Europe to strengthen in fiscal year 26 as we incur positive balance in and balance out, providing margin tailwinds as large, underperforming common-seat programs roll off, and we achieve additional positive business performance, including greater restructuring benefits. For additional perspective and to help your modeling, we expect our self-help in 26 from balance in, balance out, and restructuring to be a tailwind, all else equal, of 50 to 100 basis points. Bottom line, the company continues to execute actions designed to improve profitability within the EMEA theater. Turning to our China business on slide nine, we received a lot of interest from investors in better understanding our China business. We view our China business as the growth engine for the company. It is a center of excellence for innovation where we are developing cutting-edge, high-featured seeding systems, which we are cross-selling to customers in other regions and a competitive advantage in terms of future growth outside of China, given our strong relationships with China-based OEMs as they localize into other regions. Given our highly vertically integrated and operationally efficient business in China, growth in China will provide a natural tailwind for Adiant overall. When looking at Adiant's China business, it is important to understand that we have taken several key transformational growth actions in recent years to position the business for success and ongoing growth. We divested our remaining interiors business to Yangfang in 2020 and dissolved a significant JV and reconfigured other business ventures with Yangfang in 2021. These transactions unlocked $1.7 billion in cash proceeds, which allowed us to deliver our balance sheet. Importantly, they enabled us to shift course in China to focus on seeding growth with local OEMs, which we believe we would gain share. Since these transactions occurred, we've seen meaningful growth, cumulatively 30%, received significant dividends from our unconsolidated JVs of just under $200 million in total, and generated strong free cash flow. Turning to slide 10, we show our unmatched footprint in China, including 37 plants and three state-of-the-art technical centers. We've expanded our footprint in recent years to address growth opportunities with local OEMs, for example, Wuhan and Xinji. We're growing with Geely, NEO, Leap Motor, BYD, and many others. And outlined on slide 11, we've won business from six new customers in fiscal year 24 and expect approximately double-digit annual growth between fiscal year 24 and fiscal year 27. Last year, China generated $4.2 billion of consolidated and unconsolidated revenue. Similarly, we have growth with local Chinese OEMs across our businesses and expect our mix of revenue from Chinese OEMs to reach 60% of total revenue by the end of 2027, up from 40% last year. Turning to slide 12, we are prioritizing winning the right business and executing successful launches. Our business awards this quarter demonstrate further market share growth in China and enhancement to our global customer relationships. I would like to point out the win with Xiaomi, which resulted in part from our innovative capabilities to drive an outstanding consumer experience while also maintaining a competitive business case. As you can see on the chart, these wins are vertically integrated to include complete seat systems that include JIT, trim, foam, and in some cases, metals were decretive to the business case. This is a key enabler to improving margins. We've also won a complete seat program, excluding metals, in the U.S. with a U.S.-based SUV, electric SUV and pickup truck manufacturer. We've also won the new Chevrolet Bolt complete seat system. That represents a conquest win. In EMEA, we won the popular Volvo EX30 complete seat system as it's localized in the region. Underpinning our new business wins with our high level of execution on multiple launches. We continue to perform on safety, quality, and on-time delivery metrics for our customers. Turning now to slide 13, in keeping with our core principles of operational excellence, customer portfolio management, and accelerating automation to improve business performance, We announced this morning two key developments that we believe will strengthen our efforts around automation and AI. First, Adiant has launched an AI welding inspection tool with MindTrace aimed at significantly improving efficiencies. Adiant plans to expand these efforts globally. As part of our collaboration with MindTrace, Adiant made an investment with them in October. Enyan has also executed a joint development agreement with Kasland to develop automated sewing cells with advanced technology to reduce labor and increase accuracy of joining patterns, specifically focused on 3D. We are creating an automated assembly process as well for our new portfolio of non-traditional bonding of cup patterns. Automation continues to transform our operations by reducing costs where we see an opportunity in both direct and indirect labor savings, improving quality and accuracy, enhancing safety and ergonomics, increasing speed of operation, and achieving repeatable and reproducible results. Wrapping up now in slide 14. While we are not satisfied with our total company margin result, And our goal remains to achieve 8% EBITDA margins. The Adyen team delivered strong execution in fiscal year 24 from an operational and commercial performance standpoint against a challenging volume and macro backdrop. In fiscal year 24, we prudently balanced debt reduction and share buybacks via a disciplined capital allocation plan. Looking into fiscal year 25, we expect continued positive business performance and strong earnings in a lower customer production environment aided by restructuring, balance in, balance out, modularity, and automation. We continue to expect growth in APAC in China and more focus on partnering with strategic customers. We have a strong free cash flow conversion business model featuring efficient capital expenditures and ongoing low-cash taxes, and we expect to generate significant free cash flow in fiscal year 25. And finally, we are committed to being good stewards of capital and executing a balanced capital allocation plan with a focus on return of capital to our shareholders. With that, I'd now like to turn it over to Mark to walk through our fiscal year 25 outlook and our financials for fiscal year 24.