Welcome to the Adient Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode, until the question-and-answer session of today’s call. I’d like to inform all parties that today’s call is being recorded. [Operator instructions] I'd now like to turn the conference over to Mike Heifler. Thank you, you may begin.

Thank you, Sue. Good morning, everyone and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient'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 followed by Mark, who will review our Q3 financial results and outlook for the remainder fiscal 2024. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are 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 2 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. Thank you for joining us to review our third quarter results. We will also discuss the drivers for our revised outlook and reiterate our long-term commitment to creating sustainable value for our shareholders. Turning to Slide 4, which summarizes the third quarter. Adient's Q3 results were significantly impacted by the EMEA region, which experienced lower volume mix and weaker commercial recoveries. Americas and Asia performed generally in line with internal expectations. Our specific customer and platform sales have been affected much more than headline industry volume figures. For example, in the Americas, our top programs representing 60% of our volumes are down 8% this fiscal year, while S&P production estimates for the same period are up 3%. In EMEA, we are down 3% year-over-year versus S&P being down 1% year-over-year. We believe much of this underperformance is timing related to launches and specific customer inventory management. As Mark will note later in our presentation, we are starting to see signs of progress on certain launches. The Adient team continuous to quickly adapt to changing market conditions and declining vehicle volumes that we’ve seen across the industry. By diligently focusing on the factors that are within Adient's control, the team has continued to execute operationally driving consolidated business performance. Before turning to Adient's key financial metrics for the quarter, which are shown on the right hand side of the slide, I want to remind you that prior year's results benefited from recognizing a one-time insurance recovery of approximately $20 million. Revenue for the quarter totaled $3.7 billion down about 8% compared to last year's third quarter. Adjusted EBITDA for the quarter totaled $202 million down approximately 20% when adjusting for the insurance recovery. We have a high cash conversion business model that played out this quarter…

Thanks, Jerome. Let's jump into the financials on Slide 9. Adhering to our typical format, the page shows our reported results on the left side and adjusted results on the right side. We will focus our commentary on the adjusted results, which exclude special items that we view as either one time in nature or otherwise skewed important trends in underlying performance. Details of all adjustments for the quarter are in the appendix of the presentation. Important to note, year-over-year results were impacted by a one-time favorable insurance recovery in the prior year of approximately $20 million. High level for the quarter, sales were approximately $3.7 billion down about 8% compared to our third quarter results last year. Lower customer volume and the negative impact of FX movements between the two periods drove the year-on-year sales decline. Adjusted EBITDA for the quarter was $202 million down 20% year-over-year when adjusting for the one-time insurance recovery from the prior year. Adient reported adjusted net income of $29 million or $0.32 per share. I'll cover the next few slides rather quickly since details of the results are included on the slides. This should ensure we have adequate time for Q&A. Starting with revenue on Slide 10, we reported consolidated sales of approximately $3.7 billion, a decrease of $339 million compared with Q3 fiscal year '23. The primary driver of the year-on-year decrease was lower volumes and pricing of $285 million. The impact of FX movements between the two periods weighed on the quarter by $54 million. Focusing on the right hand side of the slide, Adient’s consolidated sales were lower in Americas and EMEA, while sales in Asia grew by about 1%, driven by a 6% year-on-year growth in China. In the Americas, lower sales were driven by lower volumes and a…

Thank you. [Operator Instructions] Our first question comes from Colin Langan with Wells Fargo. You may go ahead.

Hello. Great. Thanks for taking my questions. Maybe just to kick it off, I mean, if I look at the implied Q4, it implies a bit of a step up from year-to-date. So is that correct and what would be driving the longer Q4 results?

Yeah. Thanks for the question, Colin. You're absolutely right. If I move from Q3 to Q4, clearly, there's going to be the volume decline that we're looking at there, if you just look at what the revenue implied guidance is there. But it's offset really by the business performance. So when I look at business performance rate, we're going to see some better ops waste, tooling is better, and then obviously our continuous improvement initiatives will help the quarter. Net material margin also is going to be a positive, right? So if I look at just timing of commercial recoveries etc., then there's a little bit in net commodity. So in a large part, yes, outsized business performance versus the volume headwinds that we're expecting.

Got it. And then, it sounds like you're still sort of working on the 2025 plan, but maybe any update on I think about this time last year you talked about getting to the 8% long term target and I think 100 basis points for volume, 100 from recoveries and 100 from performance. Any color on where that stands and any color maybe on FX? I think the pace of it was a headwind this year. Does that help into next year?

Yeah. So I'll start and then I'll turn it over to Mark to maybe give some additional color. When we think about kind of the long term margin trajectory for the company getting to that 7.5%, 8% level, Colin (ph), I would break it into the three regions now really and how each of the three regions has performed against expectations and where those are coming from. Where we stand today, we've got -- what we think is really now kind of 200 basis points left to go after. And if you then go kind of region by region, the Americas is really on track to get there. They have still some metals portfolio business left to wind down in their portfolio, I guess. They have things to wind out with certain customers that are taking a bit longer because ICE programs have been delayed, really even as recent as last week meeting with certain customers. We now see a light at the end of the tunnel when those start to wind down in the '26 -- late '26, early '27 time period. And then it just comes down to getting those loss making programs out and the macro costs have really been recovered now. So it's largely a wind out of the portfolio in the Americas and we expect to see, they've gotten 100 basis points better this year. We're not here to give a 25% guide, but I would expect similar progress out of them next year as we move forward. If you then move to Asia or Asia Pacific region, for them, it's really about just holding serve and then expanding revenue. And as they expand revenue there, it's a natural tailwind for Adient. Just as they become a larger part of our portfolio. We just get…

Got it.

And then with respect to your question on the peso, we'll have more to say on that when we get to our ‘25 guide. I would caution you, I wouldn't start thinking about significant peso upside just because of, we have and we talked about this when we talked about the ‘24 guide. I mean, we have a layered hedge policy where we're layering on hedges throughout the year. And so we would have layered on ‘25 hedges during ‘24 when the peso would have been at 16.5 and 17. And so you shouldn't be thinking because the peso today is trading at 19.5 that we're going to have massive upside going into 25. You won't see the effect of a 19.5, if it stays at this level until we get into ’26 really. Just don't start thinking about massive upside at a 19.5 from that standpoint.

Got it. That makes sense. Thanks for taking my questions.

Thank you. Our next question is from Dan Levy with Barclays. You may go ahead.

Hi. Trevor Young on for Dan today. Just had a couple of questions here. But the first, I was going to ask on -- you highlighted the focus on asset reuse as a lever to drive the $25 million cut to your CapEx plan this year. I just wanted to see, if you could unpack this a little bit more and give a sense as to how this could be used as a lever going forward?

Yeah. So, thank you very much for the question. I think if you look at -- maybe if you start historically and then talk a little bit about the go forward piece of it. Historically, when we were heavily investing in particular into our metals business, I mean, we were spending capital in the $500 million plus range. And it was because we were really going out, we weren't leveraging our capital assets globally. We were really looking at metals in a siloed fashion and reinvesting into new recliner mechanisms, new track mechanisms, new product families and we had a very heavy capital bill. As we move forward now as a company, we've started to leverage our asset base globally. We've really looked at, as an example, press capacity globally. We started now where we've looked at Europe, which has obviously gone from a call it, a $20 million vehicle build, now it's, call it, $16.5 million and you just don't need that type of press capacity in that region. So we started picking up presses, moving them from Europe into the North America region. We're picking up recliner lines, moving them globally around the world now. We're moving track lines around the world now. And so that's when we talk about asset reuse, it's really looking at our asset base globally, particularly in the metals business and taking that burden and spreading it out across the world. And that's how we drive this capital bill down from a $500 million to a more sustainable $300 million level. And really taking this year looking at -- we thought it'd be 315 I think we're now down to the 285 range, that's how we've gotten that $25 million up. Again, just looking at customer program timing, looking at when PPAPs need to be submitted, looking at total asset placement around the world, where can we reuse it and really driving that to a more sustainable level of 300 and we do think that is kind of that long term run rate for the business. Will there be years where it's at 310, 315? Yes. Are there going to be years at 285? Yes. But it's going to be right around that kind of 300 range for the business.

That's really helpful. Thank you. Just as a follow-up, I know you've got the 3.5% note, I believe should be paid down in 4Q, I assume. In the past, you've talked about paying down some higher priced debt, but I guess just also in the past, I think you've talked about some M&A opportunities. I just wanted to get a sense with the share price where it is, if you're giving any additional consideration to buybacks as a weight in the opportunity set or if the plan that I guess framework is still the same in terms of priorities?

Yeah. Great question. And yes, you're correct. Those 3.5% notes come due here in August. So the intent is to pay those, use cash on the balance sheet to pay those down. We said all along that we're going to have a flexible capital allocation plan. We want to make sure that we could obviously invest in the business. We want to obviously return cash to the shareholders, we want to make sure that we have flexibility if an inorganic growth opportunity presents itself, right. And I think we're striking that balance today. I mean, if you look at what we've returned so far in terms of buybacks, $225 million you could probably assume that we're going to continue to repurchase as we move through the fourth quarter. Our free cash guidance here is 250. So pretty likely that we're going to exceed that amount of free cash being returned to the shareholders. So again, striking that balance, so nothing has changed in terms of our thought process there.

Awesome. I appreciate it.

Thank you. Our next question is from Joe Spak with UBS. You may go ahead.

Thanks. Good morning, everyone. Mark, maybe just to go back to some of the comments about the quarter and the implied fourth quarter guidance. It seems like one of the things, which I believe you mentioned that really hit, it seems like particularly Europe in the quarter was just sort of the very fast nature of the production cuts. And I think if you look at even quarter-over-quarter decrementals in EMEA, they were pretty severe. So it doesn't seem like sales get better in EMEA in the fourth quarter, but is your view just that with better planning the decrementals can be a little bit better or how -- what else should it [Multiple Speakers]

Exactly. So, as I called out in the third quarter, right, there was some short notice customer downtime that drives inefficiencies, right? So, it's some better planning there. We also know and have a better line of sight in terms of certainly commercial recoveries, right. Those we've said all along can be lumpy between quarters. So we have a good, what I'd say, line of sight in terms of what recoveries we're going after here in the fourth quarter. I can also look at some of my engineering spend, etc. So when I add those together, I see better business performance in EMEA for Q4.

And the other thing, Joe, and thank you for the question, is in Q3 and EMEA in particular, we had three customer launches that were taking place simultaneously and the customers were not executing very well. And so we had, I would call it, scheduled reliability on those three launches that was, I mean, sub 60%. And they were taking place in our one German site and two Czech sites that just our ability to manage that short time workforce was extremely, extremely limited.

Okay. Maybe just as a follow-up to that then, and it seems like what you're implying is at least quarter-to-date maybe customers are sort of hitting their plan schedule a little bit better, but if you can confirm that. And is there any way to dimensionalize the magnitude of the recoveries you're expecting in the fourth quarter?

Yeah. I would say that we are, as I indicated, there are green shoots that we're seeing with the customers launching not only here in the Americas but also over in Europe. So yes, we are seeing and dealing more comfortable now in the fourth quarter there. Really don't want to dimensionalize the recoveries other than know that or just say that we have that line of sight because again those barriers we go through the quarter, but feeling confident in terms of what we need to get and the progress to-date in terms of getting those.

Okay. If I could just sneak one more in. Can you just remind us with the exiting of third-party metal contracts, like, how much more is there to go? What's the size of that business now that you want to get out of?

I mean our total metals business, yeah, let's call it $2.5 billion, I mean of that third-party metals represents almost $800 million to $1 billion or so. I mean we have to wind off or call it balance in, balance out contracts of almost $800 million. That's -- it's not all wind off because there's some that are replaced with more profitable business. But you should really think about it of almost $800 million that's either being wound off or balanced in, balanced out.

Okay. Thank you very much.

Thank you.

Thank you. Our next question is from James Picariello with BNP Paribas. You may go ahead.

Hi, everybody. Just on that $800 million number in terms of the metals exit, is that a net $800 million in terms of the revenue reduction? Because you also mentioned that there's business coming in. I'm just wondering in terms of the net exit intention.

Yeah. I said, I mean net exit, we've never -- I'd say, given that number before, but I mean to kind of dimensionally frame it up, it's probably in the call it, $200 million to $400 million range, James?

Rolling off.

Rolling off.

Right. Okay. And as you think about Europe and the excess capacity in the region, navigating a lower LVP backdrop for years to come as you might frame it. In addition to restructuring actions, is there anything else strategic wise in terms of sharing capacity with others in the region? Just anything besides restructuring on the strategic effort in Europe? Thanks.

Yes. I mean, what I would say is, we are evaluating all levers available to us to create value for our shareholders, including pairing of operations, sharing of operations, combining of operations, anything that eliminates capacity or makes use of capacity in an economically feasible manner. And that's the process we're going through right now in a very lively and timely manner. I mean, Europe is, to be very clear, the most burning platform that we have as a company and it's the one that we spend the most time on. Because as you can see in the results, I mean, we're not satisfied with it. It needs to be addressed and it's something that is not going to resolve itself if you look at both the total vehicle volume production going -- it's going to remain depressed. The entrants that are coming into the region are going to take capacity out because of the imports along with our customer actions with the in sourcing that's taking place out there when new plants are being put down, they're doing seeding in house. Those announcements are public from that standpoint that are impacting not only us, but also our competitors, which is creating the excess seeding capacity in the region. And so anything that can create value is what we're evaluating from that standpoint.

Makes a lot of sense. Thanks.

Thank you. [Operator Instructions] Our next question is from John Murphy with Bank of America. You may go ahead.

Good morning, guys. This is Federico (ph) on for John. I just have a question on Asia. And so I think, Jerome, you said that China grew 6% in your consolidated sales and unconsolidated was 8%. And from what I remember, the unconsolidated sales are like 3, 4 times larger than the consolidated sales. Is there any reason why the unconsolidated business is growing faster and so much larger? Is it a strategic decision or it's just how the market behaves? Thank you.

Yeah. I would say that if I look at the unconsolidated sales as I indicated in my prepared remarks, there was a deconsolidation of one of our joint ventures that aided the year-on-year comparison there. I'd also say the customer mix is different, right. So, if I look at certain of my unconsolidated sales, right, whether it's my KEIPER joint venture over there. Obviously, they're exposed and have the business with BYD, some of the faster growing Chinese local manufacturers over there. So that [indiscernible] on a like-for-like basis. It’s really a customer mix. It is what I boil it down to as well as the deconsolidation.

Thank you.

Thank you. And at this time, there are no further questions. [Operator Instructions] And there are no further questions at this time.

Okay. Well, thank you everyone for joining us this morning. Feel free to give us a call if you have any additional questions and have a good day. Thank you.

Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect at this time.