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 one on your phone. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the meeting over to Michael Heifler. Thank you, sir. 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 Q2 financial results and our outlook for the second half of our fiscal year. 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's my pleasure to turn the call over to Jerome. Thanks, Mike.

Good morning, everyone, and thank you for joining us today. We will review our strong second quarter results, share our perspectives and analysis on tariffs, and explain how we are addressing the situation through leveraging our global footprint and working with our customers to add value. High level, the Adiant business model is strong and resilient, and our team has built positive momentum going into the second half of fiscal 2025. I will walk you through these topics in more detail and then turn it over to Mark to review the Q2 financials and dynamics for the balance of the year. Turning now to slide four. Our positive momentum accelerated in Q2 with improved business performance versus a year ago across all regions, allowing us to mitigate ongoing customer volume and mixed headwinds in EMEA and Asia. In Americas, we outperformed industry volumes and saw strong year-over-year margin improvement as we drove additional efficiencies and had favorable comparisons with last year's heavy launch calendar. As a result, we were able to improve total company adjusted EBITDA margins by 40 basis points. We achieved 233 million of adjusted EBITDA. Importantly, Q2 results underscore the Adiant team's deep commitment to operational excellence and solid execution and demonstrate the resilience of our operating model during times of volume pressure and macro volatility. In fact, looking at our Q2 performance over a three-year period, our EBITDA results have improved by 18 million, and our margins have expanded 90 basis points on 300 million of lower sales. While lower customer volumes have played a significant role, We have also made a conscious decision to focus on more profitable business and to invest in innovation, automation, modularity, and other efficiency measures. This strategy is paying off with a stronger, more profitable business that is well positioned to take advantage of future volume improvements. Free cash flow in Q2 was in line with internal expectations, reflecting normal seasonality and timing differences between Q1 and Q2. Importantly, we ended the quarter with a strong cash balance of $754 million and $1.6 billion of liquidity. The company's ongoing operational excellence combined with innovative seat solutions are helping us win significant new business across all regions. I'll walk you through some of our new business wins in a few slides. External validation of the value we provide and how we operate the business speaks volumes. and I'm proud that our team continues to win broad-based customer and industry recognition. We are focused on delivering best-in-class quality, value, and service to our customers. Notably, we have earned our fourth consecutive GM Supplier of the Year Award, with GM recognizing our transparency and clear communications. We also won the Excellent VA Achievement Award from Toyota Motor Inc., North America for excellence in optimizing value by improving performance and reducing costs. Hyundai Motor Group awarded Adiant the best supplier award for ESG management. Also, Adiant China won 11 J.D. Powers seat quality awards. Mark will get into our outlook in more detail in a few minutes. Given our positive momentum and mitigating actions, We are taking around tariffs. We are reiterating our fiscal year 25 guidance for revenue and adjusted EBITDA, excluding potential tariff-related volume impacts. That said, let's discuss the tariff landscape, Adyen's exposure, and our action plan. Beginning on slide five, tariff rules and values continue to be fluid. but based on our current interpretation, EDIT has multiple degrees of freedom to mitigate impacts through resourcing components, engaging with customers to find lower-cost alternatives, and where there is no alternative, negotiating a resolution. We are targeting 100% cost offsets or recoveries with all customers. As we begin to look at our exposure, appreciate that we do not ship complete seats into the U.S., that would fall under Annex I. Our exposure arises from parts such as recliners, seat transmissions, headrests, electrical components, et cetera. Importantly, nearly 95% of add-in parts produced in Mexico and Canada and shipped to the U.S. are USMCA compliant, and nearly all of those parts are not listed in Annex I and therefore not subject to those tariffs. Adyen's key advantage is our unmatched global footprint, which provides us enormous value for our customers in these circumstances, as we're able to quickly resource parts from different locations to significantly reduce tariff exposure. As you can see in the chart on the upper right-hand side, our largest exposure are from goods coming from China and Mexico. We believe, based on current tariff interpretation, our gross monthly tariff exposure is approximately $12 million, $9 million excluding purchases that are directed by our customers. We have already resolved 75% of our gross position and have road mapped the remaining 25% and are working closely with our customers to close that gap. Turning now to slide six, as I mentioned earlier, we are targeting 100% resolution. Our objective is to work with all our customers to create value for them and to reduce overall tariff exposure, in addition to providing long-term, sustainable solutions. Our general view is that historical shocks like the Great Financial Crisis, COVID, supply chain shortages, et cetera, were acute crises that the industry collectively worked through to get back to normal. But tariffs could drive a fundamental reset with definitive, winners and losers. We see Adyen as a winner through these changes and are looking for opportunities to grow our business. I would point you to our strengths, including our resourcefulness as scrappy problem solvers, best in class global manufacturing footprint, our diversified customer relationships, our joint venture network that allows us to quickly help our customers pivot. By leveraging our global footprint, utilizing modularity and adding more value in the USMCA zone, we are significantly lowering our tariff exposure. For example, we are assembling a front seat back frame made in Mexico with an imported recliner mechanism, and by adding to that a seat cushion frame produced within the USMCA zone, we are driving a favorable outcome for our customers. Some other examples of opportunities we are currently working on with customers include localizing headrest mechanisms currently coming from China, sourcing those into the U.S., and resource and recliner mechanisms from China to either Mexico or Germany. We are also in a strong position to support complete seats for certain of our Japan and German customers who are localizing production into the U.S. In summary, our tariff exposure appears to be manageable. The biggest uncertainty is the magnitude of the tariff impact on volumes. I'll talk more about that later. Next, let me walk you through some of the regional dynamics on slide seven. First, in the Americas, we continue to expand margins and benefit from strong business performance. Our volume mix performance relative to the industry has been strong as key launches in 2024 are now at full run rate. As mentioned earlier, we are focused on navigating tariff dynamics and driving value for our customers. By doing so, we believe we will capitalize on growth opportunities. We are already seeing certain customers onshoring production. Finally, we are realizing benefits from low margin business rolling off, such as certain metal platforms, and we expect further margin improvements in the future. In EMEA, we are gaining momentum and seeing improving business performance, including realization of restructuring benefits. The region is winning key programs with European customers, as well as developing opportunities with China-based OEMs as they localize. With regards to FX, we have seen some headwinds from cross-currency exposures, primarily related to the Polish lotto. While production volumes in the quarter were lower, we are seeing more stable production schedules overall. As we have shared in previous quarters, we have been monitoring the situation closely in the region. Given industry headwinds in Europe, combined with the decline in our share price, we have determined a triggering event has occurred, and we have recorded a $333 million non-cash goodwill impairment this quarter. In Asia, the team continues to drive strong business performance while we expect near-term pressure on China revenue We believe this to be temporary as new business with local China OEMs are expected to drive growth. Our strong relationships and footprint in China are helping us win more business this year, and we expect to capitalize on China OEM growth abroad. In short, we see strong business performance mitigating near-term volume mix and headwinds, as well as macro uncertainty. Next, let me turn to new business wins and launches on slide eight. We continue to prioritize winning the right business and executing successful launches. Our business awards this quarter demonstrate further growth with China local OEMs and enhancement to our global customer relationships. I would like to highlight the new business with FAW Hongqi H5, which is a complete seat system, as well as the replacement complete seats for the Kia K5 midsize sedan, and the replacement business on the RAM 1500 for metals and foam. As you can see on the right-hand side of the slide, we are launching on several key platforms around the globe. Underpinning our new business wins is our high level of execution on multiple launches. We continue to perform on safety, quality, and on-time delivery metrics for our customers. Turning to slide nine, we are leveraging our emphasis on product innovation and automation to support our customers. This is a large enabler of growth with China OEMs globally. Our recent expansion of Addian's China Technical Center in Chongqing reinforces our leadership in electrification and smartification, driving developments of innovation and automotive seating solutions. We are developing cutting-edge automation equipment and processes utilized in Adiant operations around the world, including automated cobots, AI visual inspection, automated steaming and sewing, and more. This is a key differentiator for Adiant to support local China OEMs as they expand their footprint outside of China. Additionally, Adiant's first mechanical massage system was successfully launched with GAC's Trumpy's new PHEV model M8 during the 2025 Shanghai Auto Show. The mechanical massage system is a first of its kind, innovative product that more effectively relieves occupant fatigue versus traditional pneumatic massage. We have a video embedded in our earnings deck that I would encourage you to watch. We believe these investments will strengthen our growth momentum with China-based OEMs and enable business wins beyond China and Southeast Asia and European markets. We are also seeing significant BYD and export growth through our Kuiper joint venture today. We continue to win business with domestic and China OEMs, which represent approximately three quarters of our new book of business in China. And finally, moving to our key takeaways on slide 10. The Adiant team achieved strong Q2 results and we are seeing positive momentum though there is significant certainty around volumes in H2 due to tariff policies, which I will speak to later. Tariff headwinds appear manageable, and we have a comprehensive action plan to mitigate those headwinds with more than 75% already achieved. We are executing plans to drive value to our customers and capitalize on opportunities. We remain committed to driving higher levels of business performance to mitigate those headwinds And Adyen has a solid track record of successfully managing through turbulent times and has a strong balance sheet and liquidity with no near-term debt maturities. We intend to capitalize on opportunities arising from changing industry dynamics. Now I'd like to turn it over to Mark to take you through our financials and our outlook.