Welcome, and thank you for joining the First Quarter 2018 Earnings Call. At this time, all participants are in listen-only mode [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. I'll now turn the meeting over to Mr. Mark Oswald. You may go ahead.

Thank you, Jen. Good morning and thank you for joining us as we review Adient’s results for the first quarter 2018. The press release and presentation slides for our call today have been posted to the Investor section of our website at adient.com. This morning, I’m joined by Bruce McDonald, our Chairman and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today’s call, and consistent with past practices, Bruce will provide a few opening remarks, followed by Jeff, who will review the financial results in greater detail. At the conclusion of Jeff’s comments, we will open the call to your questions. Before I turn the call over to Bruce and Jeff, there are few items that 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 a complete Safe Harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we feel 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. This concludes my comments. I will now turn the call over to Bruce.

Okay. Thanks, Mark and good morning, everyone. And thanks for taking the time here to go through our first quarter results. As me mentioned a few weeks ago at the Deutsche Bank auto conference, the challenges and headwinds impacting our Seat Structures and Mechanisms intensified during the first quarter and has a significant impact on our financial results. In addition, when you look at our GAAP numbers, you'll see that we are impacted by like many other companies here to this quarter for the larger non-cash tax charge associated with our deferred -- re-measurement of our deferred tax asset. Although Jeff will go through our financials in more detail later on here in the call, maybe just on Page 4 I may just comment on a few key numbers. Our adjusted EBIT for the quarter totaled $163 million, which is down $120 million year-over-year, primarily driven by the performance within our Seat Structures and Mechanisms business. Looking at earnings per share is $1.06 in the most recent quarter is lower level operating performance to operate down to our bottom line. In terms of balance sheet and cash leverage, we ended the quarter with cash and cash equivalent on hands is above $390 million and a net debt to adjusted EBITDA 2.07x. Now clearly when we look at these numbers they are disappointing and quite frankly unacceptable. The Adient team is working hard to identify actions that we can implement to mitigate some of the challenges that we have in our business but also to put the resources and things that we need to put in place to get our metals business back on track. I'll comment on some of these profit enhancement opportunities that we like to identify later on here but first let me comment on a few recent…

Thanks Bruce. Good morning, everyone. Turning to our financial performance, as Bruce stated in his remarks Adient's first quarter results was both disappointing and unacceptable. The team is working with the sense of urgency to reignite a positive momentum. As you can see on Slide 10, the headwinds within seat structures and mechanisms had a significant impact on results. In addition to one-time charge primarily associated with the re-measurement of deferred tax asset also impacted our GAAP results for the quarter. Adhering to our typical format the page is formatted with our reported results on the left and our adjusted results in the right size. We'll focus our commentary on the adjusted results. These adjusted numbers exclude various items that view as either one time in nature or otherwise skew important trend and underlying performance. For the quarter, the newly enacted US tax legislation was the largest special item primarily related to the re-measurement of Adient's deferred tax asset, resulting in a provisional $258 million charge. Other adjustments include becoming Adient restructuring related charges and purchase accounting amortization. Moving on, adjusted EBIT and adjusted EBITDA fell $120 million and $103 million respectively in the quarter versus last year, driven on the large part by the operating performance within SS&M business. Meanwhile, adjusted equity income for the quarter was up $10 million compared with the same period last year. Although, overall growth was solid, there was a diversions emerging between the operating results of unconsolidated seating JVs and YFAI which I'll dig into in just a minute. Finally, adjusted net income and EPS were down just under 50% year-over-year and $99 million and $1.06 per shares respectively. While sales have come in our plan, we have faced unexpected operational and execution challenges namely in our Seat Structures and Mechanisms. I'll elaborate…

[Operator Instructions] And our first question comes from the line Colin Langan from UBS. Your line is now open.

Great, thanks for taking my question. Let me just start-off, it sounded like the metal issues initially were somewhat one-time in nature, things like expedited freight, your outsourcing component to get some produce, and now the forecast as the slide shows has headwinds going through all the way to the second half of the year. What is changed in the business? Is there something structural now and should we expect it to persist into 2019 and 2020? I mean it sound like a lot of your initial issue was more one- time in nature related to particular plant?

Yes, Colin. It's Bruce here. So I think a couple of things I just noted it takes some time to work through the containment cost that we have. So once we experience a difficulty there is a number of milestones the customers make us quite rightly make us demonstrate before we can sort of peel those resources away. I think we've tried to be realistic here. I mean we talked about continuing to experience problems with specialty steel and that's driving a lot of inefficiencies and when the guidance that we are giving here today, I would say we are being realistic in terms of what we think the usual one, usual items that we are going to face. I mean it came -- Q1 with a view that we were going to be down 60 and we were at 120 and so you should think about some of those things going away overnight. It's hopefully that will happen but I think we tried to put a better realism here in terms of what we think is going to happen. And as it relates to your comments about 2019 or still going 2019, clearly, we are very pretty comfortable with the launch related problems that we have or we are going to get behind us. With the resources that we are putting in place, we are certainly feel good about avoiding every occurrence in 2019 results. You think about especially if you look at the hits that we've taken in Q1 and Q2. We are going to have significant year-over-year improvements in the first half of next year. In terms specialty steel, we are working on bringing in an additional supplier or two, that's going to take us through the next couple of quarters and then it's just a question how long it takes for us to get testing done with our customers. But I think we'll get that issue behind us here in 2018. And then we do have a fairly elevated high level of engineering expense that's going through metal associate, some of this big global program and finishing up our track 3,000 and recliner 3,000 investments. So, again, the expectation is that we would have pretty significant reduction in engineering expense in the business next year. So I think kind of long answer but I think we tried to be realistic so that we don't disappoint here in the next few quarters in terms of the challenge that we face from an operational perspective but I think we feel that we get that businesses certainly back to the run rate that we had when went into this year in a few quarters from now.

And when you look at the Q4 number, is there an assumption that you still have to do expedited freight and additional labor cost or is that just --

It's fairly minor but the main reason for the sort of loss in the fourth quarter is really Q minus September and the quarter for us is really the impact that the business is pretty large in Europe and it's the impact of the summer shutdown. So it's our weakest quarter. So Q4 is not really good proxy for the run rate.

Got it. And just to clarify from your comments so you are still reaffirming the 2020 target which would imply like a 6.5% margin like JV income? Because looks like the guidance this year ex -JV income is about 3.5% and you would have 300 basis point under 2020 and what are the major levers that you could get up metals on that business?

So that's what we are talking about is coming back here sort of in the April timeframe with what the bars are to get there, Colin. I mean we are not locking away from our commitments. What we want to do here is over the next quarter sort of rebuild the metals plan up and they are same as like you saw in Jeff's chart things like operational improvement which we made across the organization. It was not a lever that we had planned on when we sort of built it up. So we'll come back in the April timeframe with the new ways to get there. But it will -- it's likely get involved some operational improvements elsewhere in the business, perhaps a better number in a bigger improvement in our SG&A structure because we are going to take cost out of structural and we'll stay out. Metals will definitely be something, we are not sure if it will be the one with 200 at this point in time. And then same thing with the size of the investments bar, we will sort of -- now that we let say we've kind of got in our cost base the investment that we need to get the business growing again. Now that we have the aircraft investment in our cost base, I think the size of the bar that we put in for investments likely going to be lower.

Thank you. And our next question is from the line of John Murphy from Bank of America. Your line is now open.

Good morning, guys. Just a first question it seems there were some illusion to some potential customer disruption along with the seat and mechanisms business. I was curious if there are any real customers that try to change or is there any sort of perception for customers that may impact sort of the ability to win new business or impact the backlog at all?

Yes. Its' a good question. I mean why don't I let Jeff talk about the customer and I should -- then I can maybe talk about the backlog implication, our relationship with our customer.

Yes. Hey, John. The customer disruption side of things, there is definitively charges, going back to some of the earlier question the things that kind of took us off guard, the broad turn of this business into sort of where we are sitting today did take us by surprise. There was --and we as we react to that there is certain other surprises of course that sort of mounted in the topic of what impacted our numbers to some degree were customer stoppages. We did stop few lines and certainly had a variety of rework as we struggle to get up to production rate from a bunch of launches. I guess the good news is we didn't necessarily have that focus in one particular customer. We did it with a few different customers. It not uncommon that in our space we would have a launch challenge, there are OEMs who experience launch challenge and some of these types of products. We just happen to have a number of them all sort of at the same time and as far as customer disruption, I guess Bruce can attest to it but as a result it we didn't necessarily have one customer that was singled out the customer reaction has been -- they have been focused getting through issues but I don't think it's impacted our long term ability to win business.

Yes, correct, I can confirm that.

And then sort of as you think about the actions outside of the seat business, I know you sort of mentioned potentially thrifting CapEx either in total sort of or in planning, I am just curious what magnitude you could think about there and if there are other sort of major cost initiatives that also maybe more sort of in cash thrifting or cash conversation or savings that you think you could put in place as a result of this. You kind of alluded that as well, but didn't really dimension it.

Yes. John, you could imagine that few things that we've done over the last couple of -- I guess we've been in sort of that mode for several weeks, months or month or so, now as these results have kind of become or come into our view, what we can do to offset our overall capital needs, we got to be careful on one side to make sure we are not saving capital that will cause a similar launch issues as we go forward. So that's probably the first priority for us to make sure as we are looking at those CapEx plans to make sure that nothing puts us into jeopardy in the future launch. But then beyond that I think we have opportunities. There is definitely we have as we've spun off from Johnson Controls we don't have -- our people are sort of scattered around a bit and from the facility standpoint we certainly need some space for slowing down or sort of modifying some of that investment is one but looking at areas where we can take some things that aren't program related for instance and move them, and that's something we are doing. And that's as you just look at all other things, we have a fair amount of opportunity I'd say in our working capital metrics. We have some long running issues where some people have paid us late and some systematic issue there we are pushing so really pushing hard on working capital and some of those things that plagued us for a while as well as just any kind of discretionary capital or discretionary expense is being very brutal on all of them.

And then just maybe lastly on raws. I mean obviously we understand what you are alluding to on steel and specially steel, you did mention foam and chemical being headwind and you truly be thinking is effectively oil derivatives or if you can sort of outline sort of relationships you have with the automaker as far as indexing and pass through and other sort of coverage you have for foam and chemical, raws.

Yes. Unfortunately it doesn't move as much towards the base oil price. It's an oil derivative but I got the -- what I am told is the production capability of it globally, there has been a big facility that came off line I think in Europe and as a result and this is like TDI and it's chemical but that go into foam. And while they are petroleum derivative, the supply issues have been more on production capacity of those particular chemicals that have shot up prices. As far as the dynamics of recapturing, it's similar dynamics to what we have in steel. We have a mix of straight indexing arrangement that go from one quarter to up to four quarters. And those are mechanical. And then we have other customers that required negotiations. But generally we are able to get recovery from them. It's just always in a lag so that $35 million that we projected at Deutsche Bank of commodity headwinds was primarily relating to foam chemicals. Although we've seen some elements of steel sort of increases and as we look in the European market in particular that play through we could have some additional steel inflation if the market continues to move in that direction.

And just any visibility on facility coming back on? Or is that something that's just offline and closed capacity?

I don't have the view. I ask, first thing focus at all the time, I do understand that it is something that could happen this year but I don't have any kind of time attached to it unfortunately.

Thank you. And our next question is from the line of Emmanuel Rosner from Guggenheim. Your line is now open.

Hi, good morning, everybody. Your slide number 16 is helpful in terms of understanding your current expectation for the metals business over the next few quarters. Can you maybe talk about what those expectations would have been as part of the previous outlook? The thing like I guess it puzzles me little bit is your first quarter was a miss by only about $60 million versus your own guidance but the outlook for the year is cut by about $300 million. So can you maybe talk about the before and after in terms of expectations for metals.

So, Emmanuel, a great question. And from where we sat when we gave the November 2nd earnings call and this data came to us, we obviously has seen, if you just kind of focus on this chart for a moment, we has been sort of relatively around flat line through until the fourth quarter where meaning we hadn't change too much versus our performance from the LTM June period. It got very negative in Q4. We were incurring and we could see on daily basis and obviously new, we were experiencing enormous amount of premium freight in particular. We were putting airplanes to deliver most of the part. We thought our production capacity and other activities would have quicker recoveries than they did, so built in $60 million of essentially those types of cost into our Q1. And then really assumed we kind of follow the same curve that you see that we had for the first three quarters of 2017. And maybe even marginally little bit better, we actually thought there would be some improvement in this business. And the team in that business has been projecting improvement in it as well. Obviously, especially as November continue to go and November results came in early December, we could see that the issues were more serious we thought that time to correct them were longer and thus that drove the additional I guess losses that you see for the rest of the year here. We do see it getting better. We are seeing improvement but just those improvements are getting back it to the 2017 levels quite yet that's what the team is obviously working incredibly hard to get that path and get to the-- I guess number of structural and different moves we are going to need and do it to recover from this business.

Okay. That's good color. And then just one follow up on the metals business as well. I do get your slide 7 and some of the fundamental changes that you are planning and making. And so one of them is being setting it up as a standalone operation. So I understand how -- that could obviously be helpful to fix it going forward. Is that also -- does also provide you as an option to dispose of the assets. Is that something that you would look as plan B?

Not really. I mean I was -- this is Bruce here by the way. I mean this is the business that certainly there is a lot of commentary out there around the business and fact that we've these problems before and I acknowledge that. But this is -- the capability that we have in this business are differentiating. And the challenge for us is to make this business is to get paid for it. Quite frankly, we get paid for the technology. Our customers need one lighter seat, they want -- they need more complex mechanisms in the second row practically around in the CUV side of thing right now. As we look at some of the trends and technology around new mobility, we see longer rail, we see swiveling seats and things like that. So these are things that we need to have to be a complete seat supplier. We've just, there is no point in sugarcoat that mean we've just really screwed it up in terms of the way we manage this business. I would tell you that we still have the proper discipline in place like if you think about the rest of our business, our seating business, and our just -in- time business foam and trim, I mean we can accommodate changes, rapid changes from the customers and duck and weave and impact that are relatively minor. We need to get back to the basics here in term of this the highly engineered part of our business where one and two years before production we need to have design signed off and the production design validated and a run rate demonstrated, much, much further before launching rest of our business. And I think one of the things that we historically not done a good job of doing here is having enough discussions with our customers much further back from job one and say, hey, we can't accommodate any more changes to the design, can't accommodate some of these features that changes or if we are going to make them, we have to have a discussion and how we are going to launch this product. And that's where we've said, we try to be customer friendly but we end up shooting ourselves in foot and we just can't keep doing this. So it's a business that's core to us that we need to fix. That we need to be the same size, that's a good question. Do we need to every thing that we do today? That's a good question. Do we need to sell metal component through better direct -- to our competitors? That's a good question. That we are going to answer and ask ourselves all three of those things. But whether we need to have the capability in-house, I think that something that we are convinced we need it.

Certainly. And our last question comes from the line of David Tamberrino from Goldman Sachs. Your line is now open.

Hey, thanks very much guys. Thanks. I got a one question and couple of follow ups for you. At the Detroit auto show you basically said half of the business of SS&M, a bit roughly half of is internal the other half goes to the third parties. Which part is the larger headwind today? Because it sounds like it's your internal SS&M business that kind of gets vertically integrating ahead of your customers? Is that correct?

Our two big launch issues, David, were actually -- we were supplying as a Tier 2 effectively to one of our competitors.

Got it. So as we think about that business and some of the comments that Bruce just made, what type of run down in years of run off would it take to exit some of that external third party businesses where you are Tier 2 supplier? We are talking two to three years lead time.

Yes. You can imagine that pretty much all of our business is sourced with two to three year lead time to begin with. So as we start to make some of those adjustments, there will be a bit of tail for us to have it out of our network. But in the meantime what we are going to be doing, that's not going to be the only lever obviously we can pull here. It's going to be looking hard on some of the pricing and then making sure we've been disciplined on change management. Bruce mentioned here on the just- in-time start of our business, we are very good as their change orders that we are able to get pricing for it. What we have is have a best discipline here while there are actually many more change orders that didn't happen on this program. We haven't gone in with the same level of discipline because where you really need to get that price is right as you're -- as the customer making the change; you really can't do it a year after the fact. That's an area we are making sure we are start up to succeed here. And that's going to be a part of -- as we are looking all of our future launches and programs that are coming down the pipeline to make sure we are keeping that discipline and putting that discipline into the system.

Got it. And just lastly for me, how critical to your aerospace investment and the build up of that business is the SS&M part of your equation right now? Because is this something where you could transition this kind of Tier 2 supplier position away and into that aerospace investment if you are able to win business over a period of time or is it not as important for the aerospace market versus automobile?

Well, it's -- I think it's very important and I think the thing that little bit difference is -- I mean I would think we have a substantial -- I don't know if you are worried about the tier product, we have a substantially different essentially a full flat business class seat, so it's substantially different product and part of our differentiator is a structure. So in that regard I would say it's quite critical but in the aerospace of side of our business, we are not -- this isn't something that would be tailored by customers. So we would love to have one seat structure then the tailoring would be around the trend and the foam so we wouldn't have like we have it in the market today. If you went into a pickup truck or SUV and you went looked at it, you took a party you find its different structure and mechanism portfolio depending on what the customer application is. In the aircraft side, it would be standard frame. So when we talk about all these launch difficulties and engineering changes, it's kind of one and done from an engineering perspective.

Okay. I think, with that we're up against the top of the -- the bottom of the average year. So maybe just a few concluding remarks, I mean thanks again everyone for dialing into our call. And clearly this isn't the way we intended to start 2018. I know our second year as an independent company. We know management team, myself, we have a lot of hard work to do to sort of deliver a set of numbers that are better than we are laying out here today. I can tell you that the team is going to work with the sense of urgency. We get the metals business back to stable position and that we are going to regain positive year-over-year momentum as quickly as possible. And we look forward to providing you with an uptick on your progress as we announced our second quarter numbers towards the end of April. So with that thank you everyone.

Thank you. And that concludes today's conference call. Thank you all for joining. And you may now all disconnect.