Adient plc

Welcome to today's conference call. 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 at this time. I will now turn today's meeting 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 Q3 financial results and our outlook for the remainder 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.

Jerome Adams Thank you, Mike. Good morning, everyone. Thank you for joining us today. Today, we will review our strong third quarter results, which demonstrate the Adiant team's commitment to continuous business performance improvement and the strength of our operating model. Before we get into results, I want to share our perspectives on the current tariff climate. As I have mentioned previously, we saw the industry work together to overcome historical shocks like the great financial crisis, COVID, and supply chain shortages. In our view, tariffs are different, and we believe they will result in a reset of the competitive landscape with definitive winners and losers. We see Adiant as a winner and beneficiary from the current tariff policies and onshoring dynamics. In a few minutes, I will share additional thoughts and proof points on how we are approaching and capitalizing on these growth opportunities arising from U.S. onshoring. As we began to discuss in last quarter's call, we are focused on leveraging our unmatched footprint and capabilities and are working collaboratively and proactively with our customers to add value. Our approach is paying off as customers are increasingly awarding new business to Adyen. I will walk you through new business wins, including net new business from our customers' U.S. onshoring initiatives. We also remain dedicated to being good stewards of capital and continue to execute our balanced capital allocation plan. I will walk you through these topics in more detail and then turn it over to Mark to review Q3 financials and our updated guidance for the fiscal year. Moving on to slide four. As we expected, our positive first half momentum continued into Q3 with improved business performance versus a year ago across all regions. allowing us to more than offset ongoing customer volume and mixed headwinds in EMEA and Asia, as well as net commodity headwinds. In the 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 60 basis points, and grew adjusted EBITDA by $24 million to $226 million. Tariff rules and values continue to be fluid. As we have worked through our second quarter of new tariffs, we continue to believe that Adiant has ample degrees of freedom to mitigate impacts through resourcing of components and customer negotiations. Last earnings call, we shared that our gross monthly exposure to incremental tariffs at that time was approximately $12 million. Given policy changes in recent weeks, today that figure is closer to $4 million. In short, we believe the tariff expense is manageable and we continue to find solutions proactively working through the issue with our customer base. The company's ongoing operational excellence combined with innovative seat solutions are helping us win significant new business across all regions, including new business driven by U.S. onshoring. I'll walk you through some of our new business wins in a few slides in more detail. Before we go there, I want to acknowledge the Adiant team for their dedication leading to multiple awards recognizing Adiant's effort to drive outstanding quality, efficiency, and customer service. Some examples of recent awards include GAC Toyota's Quality Collaboration Award, multiple GM Supplier Quality Excellence Awards at our sites globally, and Ford Supplier of the Year. As I've commented before, external validation of the value we provide and how we operate the business speaks volumes. I am proud that our team continues to win broad-based customer and industry recognition. And I'd also like to thank our customer for their continued trust in Adyen. Without you, the business would not be possible. We are focused on delivering best-in-class quality, value, and service to our customers. It is this type of behavior and execution that is allowing us to win on-shoring net new business with some of our Asia-based OEMs, including the Nissan Rogue, which we will supply additional volumes coming from Japan to our Murfreesboro, Tennessee facility, as well as another Asia OEM that is moving production from Canada to the U.S. In addition to these on-shoring wins, we have one significant new conquest business in Europe and the U.S. with the Mercedes-Benz C-Large. In Asia, we continue to grow with the likes of BYD and other EV leaders. The company generated strong free cash flow of $115 million in Q3 in line with internal expectations. As we have previously commented, we typically generate positive free cash flow in the second half of the year. Importantly, we have maintained a strong cash balance of $860 million and ample liquidity of $1.7 billion. Our free cash flow supported $50 million of additional share repurchases in the quarter bringing our total repurchases so far this fiscal year to $75 million. We're approximately 4% of our outstanding shares. Mark will get into our outlook in more detail in a few minutes. Given our positive momentum and mitigating actions we're jointly taking with our customers around tariffs, we expect a strong finish to fiscal year 25 and are increasing our guidance for revenue and adjusted EBITDA to $14.4 billion and $875 million, respectively. Now let's discuss how the Adiant business is progressing at a high level from a regional perspective on slide five. As a general comment, while we remain intensely focused on business performance and efficiency, we have been deliberately pursuing profitable new business by leveraging our competitive advantage of an innovation consistently strong operational execution, and a world-class footprint. In the Americas, we continue to benefit from strong business performance and margins continue to expand from incremental efficiencies driven by automation, innovation, continuous improvement, and engineering cost out. As I mentioned earlier, we are focused on navigating tariff dynamics and driving value for our customers. By doing so, we are beginning to realize growth opportunities. From an expense perspective, we believe the tariff impact is manageable. In Q3, if you recall, we experienced a net headwind of approximately $4 million in the quarter, down from $9 million in Q2 when tariffs began to go in effect at the end of the second quarter. We believe tariff expenses are manageable based on our understanding of the current tariff policies. Our objective going forward it continues to be to mitigate most of these expenses. In EMEA, we are seeing improving business performance and strong execution, including restructuring benefits, combined with the expiration of underperforming metals contracts beginning in fiscal 26 into 27 as significant self-help tailwinds. Importantly, we believe we have ring-fenced cash restructuring costs in the region over the next two to three years. We are starting to see some signs of industry volume stabilizing in the region and given our self-help measures over the next few years, we believe we can achieve mid single digit EBITDA margins in EMEA. We are also seeing several new key business awards in the region that will strengthen our top line performance in the out years. In Asia, the team continues to execute at very high levels and drive strong business performance. Margins have expanded this year and growth in the rest of Asia nearly offsets lower sales volumes in China in the quarter. While we continue to experience near-term pressure on China revenue, we believe this to be temporary as new business with local China OEMs is 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. Rapid adoption of innovative seating solutions such as zero-gravity and mechanical massage seats, and mega-mobility trends such as smartification and electrification are driving content growth. Our Asia business remains profitable and cash-generative. In short, Adiant continues to consistently execute while demonstrating agility to our customers. We are capitalizing on emerging growth opportunities. Now let us turn to slide six and talk about onshoring growth opportunities in the U.S. Earlier this year, as tariff policy rose to prominence, the Adiant team proactively performed a deep dive analysis of our customers' U.S. footprint and compared that to our facilities, differentiating between unibody and body-on-frame capacity. We identified overlapping footprints and proactively approached our customers with solutions to support their onshoring needs. These proposals are in various stages of consideration by our customers. The key takeaway is we are leveraging our competitive advantages to win new business, Our strategically advantaged footprint allows us to service our customers and align as opportunities emerge. Our customers appreciate our track record of execution and strong quality. And lastly, we are being recognized for our customers for our solutions-orientated leadership and our partnership approach on the issue. Edian's U.S. presence is an enabler for future growth. As I will get into on the next slide, we have proof points that we are announcing today with our new onshoring winds with our Asia-based customers. Adiant is competitively advantaged with a U.S. production footprint of 75% of total North American production compared to our nearest competitor with approximately 55%. From what we know today, we estimate approximately 600,000 units of annual vehicles could be onshore to the U.S., We expect to get more than our fair share of this opportunity with minimal incremental investment. Moving on to slide seven, we continue to prioritize winning the right business and executing successful launches. Our business awards this quarter demonstrate tangible growth from U.S. onshoring, significant new conquest wins, and EMEA underpinning stabilization in the region, and growth in China, including new business with BYD and other EV leaders. I want to take a moment to highlight new business with one of our Asia-based OEMs that I mentioned earlier. This business is currently produced in Canada. Production will be moving to the U.S. and includes JIT, foam, and trim. And with Nissan, we are currently supplying seating for the Rogue from our Murfreesboro, Tennessee facility, and the customer will be moving incremental volume from Japan to the U.S. I want to thank both of these customers for their trust in Adiant with an accelerated launch timeline. We expect additional customer onshoring announcements will be coming, which will open up more opportunities for add-in. In EMEA, we are very excited about supplying the Mercedes-Benz C-Large Complete Seat. This is a conquest win and represents stable, high volume and a program which will start production in fiscal year 28 and will be additive to our volumes in the region. This is also a full-value chain win, which includes JIT, foam, trim, and metals. This win also includes production in the U.S., highlighting our ability to provide global solutions to our customers. Also in EMEA, we recently won new complete seat business on the Volvo EX40. In Asia, we have won significant trim business with BYD on the Denza D9. We continue to cultivate our relationship with fast-growing China-based OEMs. We've also won complete seat business with Toyota on the 560B, which is a seven-seat multi-purpose vehicle expected to launch in the India market. This is another example of how we're helping our Asia-based customers globalize. As you can see on the right-hand side of the slide, we're launching several key platforms around the globe. These programs are a testament to our high level of execution on multiple launches and our ability reform on safety, quality, and on-time delivery metrics for our customers. Finally, moving on to key factors, we as a management team want you to come away with that differentiate Adiant from other suppliers on slide eight. The Adiant team achieved strong momentum in Q3, and we expect this to continue into Q4. The team is committed to consistently strong execution and support of our customers while demonstrating their resiliency and the ability to quickly pivot and overcome macro challenges. Etienne possesses a world-class global footprint and continues to drive value to our customers wherever they do business around the world. We see significant U.S. onshoring opportunities requiring minimal capital investment, and we are starting to see those opportunities come to fruition. We are winning new business in Europe and Asia. We believe we have tremendous runway for earnings growth and free cash flow generation. Lastly, Add-In has also demonstrated a balanced approach to capital allocation. In Q3, Add-In repurchased 4% of its shares and has nearly acquired 15% of its total shares outstanding since our buyback program began a couple years ago. And we are committed to continue to be good stewards of capital. Now I'd like to turn it over to Mark to take you through our financial outlook.