Thank you for standing by and welcome to the Q1 FY '20 Earnings Call. Today’s conference is being recorded. If do you have any objections, please disconnect at this time. [Operator Instructions] I would now like to turn today’s call over to Mark Oswald. Sir, you may begin.

Thank you, Jacqueline. Good morning and thank you for joining us as we review Adient’s results for the first quarter of fiscal year 2020. The press release and presentation slides for the call today have been posted to the Investor section under our website at adient.com. This morning, I am joined by Doug DelGrosso, Adient’s President and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today’s call, Doug will provide an update on the business, followed by Jeff, who will review our Q1 financial results and 2020 outlook. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Doug and Jeff, 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 those forward-looking statements made on the call. Please refer to Slide 2 of our 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 to these non-GAAP measures to the closest GAAP equivalent can be found in the Appendix of our full earnings release. This concludes my comments. And I will turn the call over to Doug. Doug?

Great. Thanks, Mark, and thanks to our investors, prospective investors, analysts joining the call this morning, and spending time with us, as we review our first quarter results. Turning to Slide 4. Similar to previous earnings calls, I will start a quick review of Adient's recent developments and key highlights. First, Adient reported strong Q1 financial results. The results build on the positive momentum established in the second half of last year and demonstrate that an improvement phase of our turnaround plan is solidly on track. Sales at $3.9 billion were in line with internal expectations. Adjusted EBITDA increased to $297 million, up $121 million year-on-year. This marks the fourth consecutive quarter of sequential improvement and the first quarter of year-over-year improvement since our fourth quarter of 2017. In addition to the benefits associated with our turnaround actions, which accounted for much of the improvement, the quarter also benefited from certain items, namely the resolution of various commercial settlements that tend to be lumpy between periods. Jeff will expand on this in just a few minutes. Moving on, adjusted earnings per share for the most recent quarter were $0.96 versus $0.31 per share last year. And finally we ended the quarter with $965 million of cash on hand. Outside of our strong financial results, the team also made portfolio moves, selling its RECARO Automotive Seating business. The sale further demonstrates Adient's commitment to the core business and focus on capital allocation. Besides RECARO, Adient announced an agreement this morning with our joint venture partner Yanfeng to restructure the existing joint venture relationships. This includes the sales of 30% ownership stake in Yanfeng Automotive Interiors to Yanfeng for $379 million. We also agreed to extend the term of our YFAS joint venture to December 31, 2038. The extension demonstrates Adient's continued…

Thanks, Doug, and good morning, everyone. I will start my comments on Slide 9. And adhering to our typical format, the page is formatted with the reported results on the left and our adjusted results on the right hand side of the page. We will focus our commentary on the adjusted results, which exclude special items that we view as either one-time in nature or otherwise skew important trends and underlying performance. For the quarter, the biggest drivers of the difference between our reported and our adjusted results relate to an asset impairment related to the write-down associated with the expected sale of Adient's 30% stake in YFAI, a loss associated with the sale of our RECARO Automotive Seating business, purchase accounting adjustment, our amortization and to a lesser extend restructuring costs. Details of these adjustments are in the Appendix of the presentation. Sales were $3.9 billion, down 4% year-over-year excluding the impact of FX. Adjusted EBITDA for the quarter was $297 million, up $121 million or 69% year-over-year and is more than explained by improved business performance across Americas, EMEA and Asia. Included in the results are roughly $30 million of commercial settlements from various customers that tend to be lumpy across quarters; and another, call it, $10 million in tax credit at various JVs in China. I will have more on these items as we walk through the segment results. Finally, adjusted net income and EPS were up significantly year-over-year at $90 million and $0.96, respectively. As you can see, the improved operating results were partially offset by higher tax rate in this year's first quarter versus a year-ago. As we've discussed, our tax expense is higher in the current year due to booking valuation allowances in several geographies in the second half of fiscal '19. Now let's…

Jacqueline, if we can take the first question.

Absolutely. [Operator Instructions] Our first question comes from John Murphy of Bank of America. Your line is open.

Good morning, guys and congrats. Again a lot done this quarter. Just first on the Yanfeng transactions. I’m just curious why you're pulling the trigger on this now? Is it something, Doug, that you kind of started working on once you got there and it just took some time to get it done, or what was really the impetus for doing this right now?

Okay, John. Just so -- first of all, good morning and thanks for calling in. Which transaction specifically?

The Yanfeng transactions on the JVs.

Okay. Just wanted to make sure. It's a little [indiscernible]. So as Jeff mentioned, the opportunity arose as we look to renew our YFAS joint venture in China. That’s been a tremendous asset for the company. We were in talks with YF and we were looking to find a way to take that relationship to the next level. We felt that, that was best served as we built the relationship not only extending in China, but also looking towards our mechanism business to see how we could globally leverage that business. As part of that discussion, we've been looking for opportunities to extract cash out of China to our advantage. YFAI became an opportunity for us and because that’s not really a core business on the interior side that we participate in, we just felt the timing makes sense to go after it. So that’s generally how the stars aligned, if you will, and we're really excited about the opportunity to continue to build that relationship with YF. I don’t know, Jeff any other comments?

No, I think you hit it well. Just as you look at YFAI, we talked about that being non-core in finding that opportunity, but John if you look here, it was very important for us to extend the joint venture with YFAS, highly successful and expanding that relationship with AYM, just dovetails right in with the plan, Doug has outlined, to improve the cash flow of this business by taking some of the emphasis off of the mechanisms business that’s historically used a lot of capital and hasn’t necessarily had a great return. AYM has really done the opposite, they’ve had great returns, we own 50% of that business, so this allows a nice harmony and it all kind of came together. It took a while to get together. So it's not like we just worked on it this quarter, but it's been in the making for a while.

And maybe if I can follow-up on the AYM side. I mean, it sounds like this is allowing you to maybe rationalize the -- your core consolidated structures business a bit faster. Is there the potential there could be asset sales from your core business into the AYM JV that might raise more cash or is that kind of a -- sort of a no-no?

No, that’s not a no-no. That’s something we will look. This is the first step. We think there's more that can be done. Nothing announced today, but that’s something we will -- absolutely we would be looking at.

Okay. And then, Doug, just as we think about the margins, I mean, you got ways to go to grind to sort of peer or "normalized" margins. But this quarter kind of showed you’re making some real definitive progress on some of the issues of premium freight excess cost and launches issues. I mean what is kind of your thought process as to when you might be able to get to "normalized" peer margin? Is this something that's still going to take 2 to 3 to 4 years as you’re rolling off some of the old bad contracts, or is it something you get to maybe sooner than that?

Well, if we take some of the macro environmental issues out of the equation, to answer your question, I think we've made good progress. I still think this is a multi-year journey, we're not changing that time horizon as a result of our Q1 performance. But it is clearly demonstrating when we focus on the basics from a launch in operational performance and meet our customers' expectation that we really change the environment with our customers and we can get a lot more done. So that’s always been our approach, stabilize and meet our customers' expectations from a delivery performance quality and then that opens the door for us to engage with them, I will say, commercially and also on a cost side of the equation. So still multiyear, but we're pretty satisfied with the performance that’s reflected in Q1.

Great. Thank you very much.

Thank you.

Thanks, John.

Thank you. Our next question comes from Joseph Spak of RBC Capital Markets. Your line is open.

Good morning, everyone. Thanks for taking the question. I guess, just to start on the commercial settlement, it sounds like what you're saying is this is lumpy, this is based on some recoveries and sort of contractual recoveries, is that right? And this is not a result of some of the other sort of commercial settlements you've talked about and going back to customers and trying to sort of reprice some of the contracts?

It's both. As we’ve always said, there's been a backlog of issues that were difficult to close out with our customer because we have performance issues that were in our control standing in the way. So as we’ve addressed our performance issues, that's allowed us to come and engage with our customer and resolve some of the backlog, if you will. The other element is a function of the way the calendar and fiscal year end, and we get a lot of things done at the end of our customers calendar year that benefit us in our first quarter fiscal year. So it's both, if you will.

Okay. In the remaining China JVs, your guidance, I think, like if you -- on an apples-to-apples basis, it's kind of steady. But one quarter was much stronger than expected, and there was sort of that $10 million tax credit. So it implies some significantly lower implied margins in the seating JVs over the course of the year. What's driving that? And is that a sort of a more new normal rate to think about in China?

It's a little bit of the latter. So we align our forecast with what our customers provide us for the immediate. And then we look at IHS to give us an idea what we can expect to -- beyond the releases that we have with our customers, or what our stated customers' volume are projected to be. Part of it is mix. We have customers like SGM and Ford, who have been struggling in the market that takes that number down. But that really defines most of it [indiscernible] side. I don’t know, Jeff, do you have any additional comments.

Yes. Joe, I would say, for the most part as we look at China it's got pretty high decremental margins, it's pretty -- it's strong business. So as we predict weaker sales environment that’s going to drive some margin reduction, mostly just because of the decremental side. I would say, what we’re seeing in Asia largely has been a volume story and not really a margin story, but to some degree there's a mixed story within that margin. SGM, Doug, mentioned, is a key customer. It's also significantly -- presumably to be impacted pretty heavily, about 20% of their productions is in Wuhan in China. So as we look at -- going forward, that’s an important customer for us, but in general, what we projected here is mostly driven just by volume expectations in the market.

Okay. And quickly on the AYM portion of the JV actions. How long does it -- will it take for them to get set up on mechanisms? And can you offload or, I guess, you like outsource business to them, or is this more for go-forward contracts?

So they …

Yes, yes and yes is probably right. Well, they have -- they essentially provide all of our mechanisms in the China market today and …

So they're set up today?

… they’re are well today. In fact they’re incredibly well set up today. They have a plant in China that is world-class at not only supplies, the majority of our product in the region also exports to Europe and North America quite well.

Okay. Thank you.

Thank you. Our next question comes from Dan Levy of Credit Suisse. Your line is open.

Hi. Good morning.

Good morning.

Taking questions. Just wanted to follow-up again on the commercial settlements here. How should we think about how many more contracts you have that really need to be repriced? And just what's the -- if they’re reprices, it's just for like a one-time annual benefit or is this for the duration of the contract? Just trying to get a sense of the sustainability of these benefits into out years? And how much more you have to reprice within your contracts and programs?

Yes. Dan, before Doug talks about some of those other points, let me just maybe get a little bit of a primer on sort of the commercial settlements for us. We have obviously enormous number of contracts with our customers that have volume components that have all kinds of different components that impact the price our customer pays to us. And we also have productivity or price reductions that we estimate that we will give to them through the year. What you’re -- what we're talking about here for the most part in this commercial settlements is routine activity of the company that happens year in, year out. If you go back and look at history, we had these since the beginning of time. But they tend to be lumpy and we're trying to basically emphasize that comment here. We tend to make an estimate, let's say of what productivity number we might give to a customer and as we get to the end of the year with the mix of all the other commercial issues, we either overestimate or underestimate where that is. What we tend to be is, we tend to be a bit conservative as a company on this. So we generally as we reach the final conclusion with each of these customers, which typically happens at the end of our -- at the end of the calendar year we tend to have a bit of a benefit. So in our first quarter fiscal year, historically, our accruals would sort of suggest this over time is pretty consistent. We get a similar type benefit. You just can't annualize it through the period and that’s we’re trying to really emphasize here and calling it out.

And maybe if I can just further that. What I would add to it, a year-ago we had a lot of unresolved contractual issues with our customer for the most part, those have been addressed. What I will say as we move forward and its somewhat the nature of our business is, our product tends to change quite a bit. And that creates opportunity for us to engage with our customers and offer solutions that could benefit our bottom line. That’s just the nature of the Seating business. That’s something we’ve recommitted our activities to support. So when we talk about VAVE, that's not just necessarily running workshops to find ways to take cost out of, that’s an important part. It's also telling our customers where there's real value in the product based on our assessment of the market and benchmarking their product into what we takes most valuable and then operating mid-cycle solutions that otherwise they wouldn’t be investigating. And that's really our focus as we move forward is continuing to drive value. Many of our customers are looking for ways to take cost out of the Seating product to address some of their needs. Many of our customers are looking to move away from controlling that value chain and giving us the opportunity to control it, if we can offer a better commercial proposal for them. So it is kind of a continuous activity that we've recommitted ourselves to that our regional groups understand and our customer groups understand. And so when we talk about closing that gap to our peers, a lot of it will be a result of just being more commercially savvy with our customers.

Okay, great. Thank you. Second question. Your organic growth, revenue growth in quarter was minus 4%, but that's actually a couple of points better than what light vehicle production did in the quarter. And you’ve now had a couple of quarters, a handful of quarters of organic revenue outgrowth versus the market, it's lumpy, but it's still outgrowth. And this is even with what should be downsizing of SS&M. So can you just give us a sense of what's happening in your organic growth or the incremental content? Is it just better platform exposure? And what might this tell us about how to think of in the future your relationship of organic growth versus LVP, call it the outgrowth, setting aside what's going to be the likely impact of future downsizing of SS&M, which I suspect we haven't really seen yet in the revenue results.

Okay. So it's certainly -- a lot of it has to do with mix. And one of the great things about our revenue portfolio of products is we have great mix to SUV, light truck, luxury customers. And as that mix -- as the market mix turns in that direction, that certainly gives us benefit and that’s particularly true in the Americas, where we're well-positioned in the light truck market. I think that’s part of the answer. If we look at -- we’re not releasing the projected backlog, because our relationships with our customers have significantly improved, our performance has improved, we've resolved commercial issues, we feel very confident about our backlog. The numbers we typically talk about is incumbent business that we continued with. And we're operating, in the case of China, it can get a 100% and the high 90s everywhere else in the world. So we feel good longer-term that, that backlog continues to come on. I think that really covers -- I think it answers your question. Any additional comments to that, Jeff?

No.

I guess that’s how we would look at it.

There is no sort of backlog, air pocket or anything like that when we've heard of some of your competitors talk about conquest business, it sounds like, you're saying that you’re winning all the JIT business, the backlog is intact. There's no future air pocket that make her between now versus when these rewins that you’ve talked about occur. Is that a fair assessment to this relationship, is that [multiple speakers].

That’s a fair assessment. The only disclaimer I would put on that is the comments we made in our formal remarks that there are business that we're taking a hard look at, and if we can't put together a thoughtful financial projection and gets us a return on investment, then we’re prepared to walk away from that. At this stage, nothing to announce. But that's, again, a different attitude I think we have when we look at new business opportunity. Nothing sacred. And we weigh each opportunity, each customer in each region for each product different. They’re not weighted equally and we take that all into account before we decide whether we want business or not.

Okay. Thank you.

And Jacqueline can we take our last question from Bryan.

Yes. Our last question comes from Brian Johnson of Barclays. Your line is open.

Two questions. First on the SS&M licensing and arrangement with Yanfeng. Does this open up the possibility to engage in value engineering discussions with North American and European customers about moving sourcing mechanisms to China, or to …?

In fact, we’re already doing that. That was happening independent of this, we just think bringing these businesses closer together allows us to make buy decisions even within our existing asset base to decide where its best to put business. I think we’re more aligned today the way we think about that, engaging our purchasing organization than historically we’ve been. So we’re making those moves as we speak and have been making them, say over the last year plus.

And in terms of the impact on supply chain logistics, just a smoothment for the JIT factories, what’s the customers' reaction to those suggestions?

Typically -- well, first, our operations in China with AYM are outstanding operations. Many of our customers know them either from their relationship through China or as a result of the products that we shifted them through our JIT plants. So there are no entity. For certain products they're very cost-effective, and so that's taken into consideration. We always take into consideration extending supply -- our supply chain and the logistics costs and currency risk etcetera associated with that. So that's all baked in to the cake, if you will. And when we can bring forward a -- an attractive business proposal taking all those issues into account, we are pretty transparent with our customers, they understand the benefit that they will receive and they are usually very much aligned with the decision and support it.

And effectively they’re producing the same parts that we’re. We design these together. Remember, it's our JV, so it's common. We both produce the same recliner 3000 series. They’ve just been able to do it at a lower cost, but the output of the product is the same. So for the customer its -- yes.

Yes and one additional point. We also operate a technical center through AYM. So this is not just the traditional low-cost country sourcing. They’ve got a lot of technical prowess. They can support the customers in region beyond just manufacturing side of things.

Great. Thank you, Brian. And Jacqueline, it looks like we’re at the bottom of the hour, so this will conclude the call this morning. If anybody did not get their chance to ask questions, please feel free to reach out, Jeff and I will be available today. Thank you.

Thanks, everyone.

Thanks, everyone.

Thank you for your participation in today’s conference. You may now disconnect at this time. Have a wonderful day.