Adient plc

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. During the question and answer session, please press star 1 on your phone. Today's conference is being recorded. If you have any objections, you may disconnect. I will now turn the conference over to Mike Heifler. Thank you. You may begin.

Thank you, Denise. 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 at 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. Mark will then review our Q1 financial results and provide insights on our outlook for the rest of 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 those 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's my pleasure to turn the call over to Jerome. Thanks, Mike.

Good morning, everyone, and thank you for joining us today. Today we will review our first quarter results and share additional insights into the industry landscape and how we see fiscal 2025 shaping up. In addition, we will give you a high-level overview of current business developments and then turn it over to Mark to review the financials on our full-year outlook. Turning now to slide four, we are off to a solid start in fiscal 2025 with improved business performance versus a year ago, allowing us to mitigate ongoing customer volume and mixed headwinds. As a result, we were able to contain decremental margins to approximately 12% below our typical 18% on a 5% year-over-year decline in revenue. We achieved 196 million of adjusted EBITDA and generated 45 million in free cash flow. As we signaled on our Q4 call, we anticipated significant headwinds in our fiscal first quarter, owing to inventory destocking at our major Detroit-based customers in the Americas and ongoing European customer production mix headwinds. In Asia, we experienced soft demand from our core customer base in China, including luxury and Japanese OEMs. In this market, we also saw a promising new startup cease operations. I'll discuss the industry dynamics in China in the next two slides. All things considered, the quarter was in line with our internal expectations. We also continued to allocate capital in a disciplined manner and bought back another $25 million of stock in Q1, bringing total share repurchases so far in fiscal 25 and 24 to $300 million. Our balance sheet remains strong with ample liquidity, including $860 million of cash on hand at the end of Q1. I'm also proud to share that we have released our 2024 sustainability report, where we have highlighted several notable accomplishments, which I will go over shortly. We have received excellent customer feedback from many of our investors and our customers on our ongoing sustainability focus. Moving to slide five, let me walk you through some of the regional dynamics we have been observing and navigating through. First, in the Americas, as expected, we saw customers successfully reduce inventories, particularly in the full-size pickup truck segment. The industry is in a far better position entering calendar year 25 with an improving SAR and healthier stock levels. In fact, December auto sales of $16.8 million were the highest seasonally adjusted annual pace since May of 2021. With normalized inventories, current selling rates appear to support forecasted production schedules in calendar year 2025. As we mentioned last quarter, key customer launches that were slow to ramp during most of fiscal year 24 have been producing at full run rates, giving us a tailwind this year. Last point on the Americas, we continue to evaluate potential tariffs and have been developing plans to mitigate impacts if imposed. Turning now to EMEA. Industry conditions remain challenging with strong production headwinds and program delays from economic and political uncertainty around electrification policies. lower exports, and increasing competition from Chinese imports in entry-level segments despite new tariffs. Our multi-year restructuring plan in Europe remains on track with activities ongoing. As a reminder, we expect savings from these actions to continue to ramp up through 2027, and we anticipate about a third of these savings to be realized in fiscal year 25. Lastly, we continue to monitor customer restructuring developments and will align our production and capacity accordingly. We are actively shaping our European footprint for a smaller market and future localization of new players. Looking at Asia, macro conditions remain challenging. Despite a tough backdrop, the region continues to generate double-digit margins and strong free cash flow. In the quarter, our China sales underperformed the overall market. I will get into more details on that in the next slide. Although sales were softer, our China operating performance remained strong, and the team was mostly able to offset lower contribution margin. Additionally, in Asia outside of China, we significantly outperformed the overall market due to new program launches ramping up. Turning to the next slide, let's dive deeper into what's going on in China. Based on current outlook, we see China revenue flat to slightly declining in fiscal year 25, primarily driven from unfavorable production mix from increasing export and local OEM volume. Challenging market conditions that emerged in late calendar year 24 have continued into calendar year 25 with underlying auto demand continuing to soften outside of short-term scrapped schemes. Government stimulus has been modestly effective, but mostly in entry-level segments where Adiant has minimal content. Additionally, competitive pressures have intensified, leading our traditional European luxury and Japanese-based customers to reduce their fiscal year 25 production targets. We have seen several OEMs cancel programs and one of our targeted new entrants has ceased operations, potentially signaling the early stages of industry consolidation. Market share gains by BYD and growth of exports have bolstered the overall China production outlook. S&P's China production forecast for calendar year 2025 calls for 3% year-on-year growth. However, digging a bit deeper into that, Including BYD and exports where we have less consolidated entity content, production is expected to be down about 5%. It is worth noting, however, that we have significant component business with BYD through our Kuiper joint venture. We are also supplying components for BYD in Thailand, and our commercial teams are bidding on significant new business with BYD in China and elsewhere throughout the world. While near-term macro headwinds and customer mix pressures exist, adding it remains a supplier of choice with both domestic and Western OEs. We are continuing to leverage our technical capabilities, leading product innovations, and high content expertise, coupled with our domestic and global footprint and local knowledge to win new business with local OEMs, driving profitable growth in the next two to three years. As a proof point, in fiscal 2024, we won new and replacement business with about $1 billion of annual revenue. 90% of this business is with local OEMs, much of which launches in fiscal year 26 and 27. Approximately half of this is all new revenue. In addition, given the challenging backdrop this year, the Adiant business model is proving resilient, and the team is mitigating lost contribution margin on lower consolidated sales by executing profit improvement actions, such as cost reductions and commercial initiatives. Bottom line is that we are taking actions to grow rapidly with local China OEMs. Even with pressure from declining foreign OEM customers, our China business remains highly profitable and cash generative. Our Asia segment, of which China is a key market, achieved greater than 14% adjusted EBITDA margins in Q1. Moving on now to slide seven, we are prioritizing winning the right business and executing successful launches. Our business awards this quarter demonstrate further growth with China local OEMs and enhancements to our global customer relationships. It is worth highlighting the new business with Mercedes on the E-Class platform. You were successfully able to conquest this business from a global incumbent. It includes the front seat and rear seat jet, rear seat frames, armrests, headrests, foam, trim, and other functional parts. An excellent win for our China team. In Asia, we are launching a high level of new programs. In Q1 alone, we had 16 programs launched in the region, and we have more than 70 programs launching in the balance of the year. we have a healthy flow of upcoming launches beyond fiscal 25. We see strong momentum in the region, which resulted in part from our innovative capabilities to drive an outstanding customer experience while also maintaining a competitive business case. As you can see on the chart, these WINS are vertically integrated complete seat systems that are comprised of JIT, trim, foam, and in some cases, metals, whereas accretive to the business case. This is a key enabler to improving margins. Underpinning our new business wins is our high level of execution on multiple launches. We continue to perform on safety, quality, and on-time metrics for our customers. Moving on now to slide eight, we are focused on driving sustainable growth into our business and reducing our impact on climate change. We strive for responsible use of natural resources by improving energy efficiency in our operations and reducing the carbon footprint of our finished products and developing processes that protect our planet's natural resources. EDIENT is pursuing the use of sustainable materials, products, and circular economy by identifying materials and manufacturing methods that minimize our environmental impact and promote a circular approach to product development. I want to recognize the Adiant team for their accomplishments in 2024, including a 38% reduction in scope one and scope two greenhouse gas emissions from our base year, 29% utilization of renewable electricity, and a strong commitment to a diverse supply base and an inclusive workplace. Finally, now moving on to our key takeaways on slide nine. The company continues to drive higher levels and improved business performance, which has helped to mitigate some of the macro pressures. The adiant operating model is enabling the company to maintain its earnings and free cash flow guidance, which Mark will get to in a minute, despite incremental FX headwinds and softer customer production volumes in China and EMEA. The Americas continues to expand margins. The Asia region continues to have strong margins and free cash flow and continues to win new business with local China OEMs, while EMEA continues to execute on its multi-year restructuring plan. And finally, management is committed to generating cash and creating value for Adian's stakeholders. Now I'd like to turn it over to Mark to take you through our financials and outlook.