Welcome and thank you for standing by for the Adient First Quarter Fiscal 2022 Conference Call. At this time, all participants are in a listen-only mode. After the presentation we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded. If you have any objections you may disconnect at this point. Now I will turn the meeting over to your host, Mark Oswald. You may begin.

Thank you, operator. Good morning and thank you for joining us as we review Adient's Results for the first quarter fiscal year 2022. 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 Doug Del Grosso, Adient's President and Chief Executive Officer; Jeff Stafeil, our Executive Vice President and Chief Financial Officer; and Jerome Dorlack, Adient's Executive Vice President of the Americas. On today's call, Doug will provide an update on the business followed by Jeff, who will review our Q1 results and outlook for the remainder of the year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Doug, Jeff, and Jerome, 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 2 of the presentation for our complete Safe Harbor statements. 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. This concludes my comments. I'll now turn the call over to Doug. Doug?

Great, thanks Mark. Good morning, and thank you to our investors, prospective investors and analysts joining the call this morning as we review our first quarter results for fiscal 2022. Turning to Slide 4, let me begin with few comments related to the quarter. As we anticipated heading into the quarter, the ongoing supply chain disruptions related to semiconductors and the resulting customer production stoppages combined with elevated commodity prices continue to impact Adient's first quarter. As the quarter progressed it was encouraging to see signs of stabilization emerge for certain of these headwinds. Specifically the softening of steel prices and the less volatile [indiscernible] loss for our customer production schedules. Like the green shoots that began to appear in the overall narrative has not changed, we continue to operate in a very challenging environment. This is evident when looking at Adient's first quarter EBITDA results which contain approximately $185 million of temporary operating efficiencies and commodity headwinds. Adient's key financial metrics for the quarter can be seen on the right hand side of the slide, revenue for the quarter totaled $3.5 billion was about $500 million compared to last year's first quarter adjusted for portfolio actions executed in 2021, As a reminder, the supply chain disruptions that have resulted in significant downtime at our customers began in late Q2 of 2021 and did not impact last year's Q1 results. Adjusted EBITDA for the quarter totaled $146 million and as pointed out on the slide included approximately $185 million in lost volume temporary operating inefficiencies and premiums, again primarily driven by chip shortages and unplanned production stoppages. Adient's December 31, cash balance totaled just under $2.1 billion and included approximately $625 million in net proceeds collected as the final payment associated with Adient's strategic transaction in China, which closed at…

Great, thank, Doug and good morning everyone. Let's jump into Adient's Q1 results starting on Page 11. Adhering to our typical format, the page is formatted with our reported results on the left and our 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 SKU important trends and underlying performance. For the quarter, the biggest drivers of the difference between our reported and adjusted results relate to purchase accounting amortization, restructuring, and a derivative loss in the Yanfeng strategic transaction. Details of all the adjustments for the quarter and the full year are in the appendix of the presentation. I'd also point out that within the appendix we've included pro forma results for each of the quarters in fiscal 2021 adjusting for the numerous portfolio actions executed last year. These pro forma figures attempt to show 2021 on a consistent basis or footprint with this year. We believe these serve as a helpful tool to compare our year-over-year results. High level for the quarter sales were $3.5 billion, down about 10% compared to our first quarter results last year, or down about 12% compared to last year's pro forma results. Similar to the past few quarters, the most recent quarter was significantly impacted by loss production, primarily related to supply chain disruptions related to semiconductors. Adjusted EBITDA for the quarter was $146 million, down $232 million year-on-year as reported, or down $179 million compared to last year's pro forma results. The decrease is attributed to the significant reduction in volume and mix and numerous temporary operating inefficiencies driven from the challenging operating environment. I'll expand on these key drivers in just a minute. Finally, on the bottom line, Adient…

Thank you, Jeff. As you just heard from Doug and Jeff, the operating environment remains challenging despite early signs of stabilization for certain headwinds. The team remains focused on launch execution and operational excellence. In fact, when stripping out customer shutdowns, and impact of certain customers not running at rate, we're performing at a very high level. That said, being able to run at rate, reduce excess labor, eliminate many of the inefficiencies, will ultimately be achieved when production stabilizes in a meaningful way. On Slide 17, we've identified a number of positive and negative influences that have the potential to improve or further disrupt the operations, and I'll walk through a couple of those. On the positive influences side, given the current execution of the operation, Adient will see benefits as our customers demonstrate the ability to run at rate consistently. In addition, if the labor market were to demonstrate stabilization particularly in the US, this would present additional tailwind for the operation. On the negative influences, we are carefully watching our customers and how they intend to ramp. If they continue to run as they have in Q1 their stop and start nature, this will present additional challenges to our operation. This leads to track labor and limited paths to recovery. The issue can be worked out in the longer term, but does present a short-term headwind. We are keeping a close eye on these factors and if necessary, we’ll make the appropriate adjustments to our operations to ensure we capitalize on the positive and mitigate the negatives. With that I will turn it over to the operator to move to the Q&A portion of the call.

Operator, if we could have our first question, please?

Thank you. Our first question comes from Rod Lache, Wolfe Research. Your line is now open.

Good morning, everybody. A couple of things, if you can just clarify for us. It sounds like the $30 million settlement that you called out and then that $10 million China price settlement were separate items, so I just wanted to confirm that cumulatively that was $40 million or whether that was one item of $30 [ph] million. And was this in your original guidance? And can you confirm that that’s separate from what you’re describing as, I guess, a better commodity outlook the $125 million declining to $95 million, that these are all kind of separate and discrete moving parts?

Yes, they are all separate and discrete, Rod. On the $30 million settlement that actually related to 2021, so that’s really just a comparison point. We called out last year when we talked about our Q1 performance that we had about $30 million of unusually high commercial recoveries, which we said don’t count on a continuing basis. As it related to the $10 million, that was this year and we called out, we had sort of an unusual settlement, unusual, something that wouldn’t necessarily reoccur, so we wanted to call that out, when you think of our $146 million that we had in EBITDA. There’s obviously a lot of negative things, those key events we talked about, but separately there’s this $10 million, approximately $10 million in China that we wouldn’t want you to include as you model forward earnings out. It was something we were planning to do this year, so it was embedded into our numbers which I think was your question. And again, that is all separate and distinct to the commodity impacts we talked about.

Great, thank you. And then just secondly, Doug you mentioned the balance-in, balance-out of contracts as being margin accretive. Can you maybe give us a little bit more color on that, and how we should think about the roll on and roll off going forward? And any update on just discussions with your customers? I think you had originally said that there’s like 30% of your commodity exposure is subject to negotiation. So, if commodities stay at current levels, what would be reasonable expectation as we think out and maybe even to next year on what you should be able to recover that you’ve been absorbing?

Sure. So, first, I guess right on your question of new business, I think it's consistent with what we've been communicating all along, that we had this three-prong approach to getting margins back to a level that is consistent with our peer kind of the adjusted EBITDA north of 8%. So, we stabilized from an execution standpoint, we were able to reprice where we could reprice and then the last piece of it was bringing on new business where we couldn't reprice a contract or reach some sort of commercial settlement. And so, what we’re trying to communicate is, we're consistent with that original plan that we had. We're on track to close that margin gap as we've been discussing for quite some time now. Associated with that is all the instability we have in the market right now that delays some of that, but fundamentally, we feel our business is on track towards that objective. With regard to commodities, it was a bit difficult to project, but I would say we've made good progress there on reopening discussions where we could to get resolution on just some extraordinarily high material economic increases. I would just say that, that levels out over really about a 12-month period where the way our contracts work, even without extraordinary measures, we get that recovery built back into our business in one form or another.

So just to clarify Doug, like between -- like last year, you had $70 million and now you've got another $95 million, so that's what you think over a 12-month period you'd be able to recover that? And secondly, do you have a number on just these legacy contracts that you're kind of waiting to replace or expire, like what's the magnitude of the drag from that, that we can be looking forward to replacing?

Yes. So relative to material economics, I would say that's a fairly good estimate of the $95 million taking maybe another 12 months to fully resolve, but that's really a function of where commodities move and what we negotiate. We're in the midst of negotiations as we speak on steel contracts on a go-forward basis. With regard to the drag on closing the gap on the contracts, I don't -- we've never really specified a number. We've specified a time frame. And that time frame has always been in the 20, 25-ish time frame that we resolve all elements of, I'll say, the commercial recovery replacement business, execution side of what we intend to do with the business to close that margin gap.

Okay. Thank you.

Yes. Thank you.

Thanks, Rod.

Our next question comes from Emmanuel Rosner, Deutsche. Your line is now open.

Hey, good morning. Two questions, if I may. The first one is on your Slide 5 and the very helpful regular update on some of the supply chain disruptions. So I think in your comments, Jeff, you were saying that, on a full year basis you would see some of these impacts from supply chain disruptions. COVID-19, freight cost, labor, all that stuff fairly consistent with the level that was seen in 2021, which was $400 million impact on EBITDA. And my question is, this as saying that means it's not an incremental headwind, it's just basically not a tailwind or headwind, just stable versus last year? And if that's the case...

Yes, pretty stable.

So that's great. And so if that's the case, what sort of environments or conditions will it take for you to start shipping some of these inefficiencies? Well, is it a volume recovery? Is it, I guess, what would we…?

We actually, yes good question, Emmanuel. I'd point you to Slide 17 and what Jerome walked through a bit, where we talk about the influences that could change the narrative. And it's those items on the far left-hand side of the page, we talked about it. I mentioned it in my comments, but right now, our -- we get releases from our customers three months before -- they're three months beforehand. And those are usually pretty good, and we have to staff through them. One of the challenges of being a just-in-time supplier is we have to match our customers' run rate. We have -- our customers essentially have missed that by a little over 20% on average, and it's not uniform by customer, by any means, but that's the average. That means we have too many people, and it means we have less volume going through, which is bad to begin with, but we run with a lot of inefficiencies. So that's something that really has to change. We talked about labor, and we talked about the stabilization of labor. We've seen last month, especially with Omicron going as rampant through the world as it did, it was causing huge absenteeism at our facilities, which created challenges for production and it wasn't just our facilities, it was the whole automotive chain. That needs to find stabilization. The inflation impacts that we have all read about, experienced in our own lives are definitely hitting our business. We talked about steel and foam chemical prices, but labor is a piece here. Global freight cost is a huge issue for us. We've done a lot to try to mitigate that, and we're working to mitigate all of these points, but those are all the things that we're fighting here. So while some things have gotten better, other things have maybe gotten a little bit worse, such as some of the labor and freight issues and that's what's creating this to be a very difficult environment to project in. But as those things unwind themselves, and we would expect they will over time, we see a big opportunity to improve the earnings from what we just experienced.

And can you quantify again how much of it is volume related? So if I were to assume that in fiscal 2023, volume was -- industry volume will start normalizing, volatility of production schedule will be more predictable, how much of the $400 million would you be able to get versus the piece that's more inflation-related where there may be sort of like fewer levers to expect…?

Yes. We would expect the volume piece to be about 300-ish and the inefficient to be a tick over 100 at this point or 125 or something like that.

Okay. That's super helpful. And then my second question is, would you be able to give sort of like a high-level puts and takes in your 2022 guidance? So essentially some sort of walk, because it seems like at the very least you have quantified a better commodities outlook than what you had before by the tune of $30 million. I think the equity income is playing up maybe sort of like $0 million to $10 million better, but obviously, your outlook is unchanged, and I understand there's a lot of sort of sort of uncertainty, so any way just sort of like frames like the year-over-year walk?

Yes. I guess I'd frame it like this is we -- because of the challenges here, and we have a hard time predicting forward, we just had, I think yesterday afternoon, I saw a bunch of reports where production was going out from our customers like this weekend, next week and forward into next month for a variety of issues with the customers, but mostly supply chain related, all that makes this a really difficult environment. So when we sat together and gave you our guidance for the year, we didn't feel comfortable providing the specific ranges that we normally would. This is normally a pretty predictable industry, but when our customers are having 20% plus variances to their production schedule, it makes it very difficult for us and especially with the just-in-time nature because we just can't go and build inventory. If we -- if people cancel ships, we end up just having people sitting around, and we're still paying them and we're still going through all that. So what we did here, we're three months into the year. We're still seeing all that uncertainty. We hear a lot of potential positive comments that maybe the forward production will start to improve, but we haven't seen it yet, and we're cautious when we put our numbers out. So yes, we had some benefits of around 30-ish or so on the commodity side. We've seen a little bit of improvement on the equity income side and starting to feel more stable around that. We're probably a little less certain around labor and some of those pieces. So all those just gave us a balance here that only three months into the year, it didn't make sense to try to sharpen the forecast for this year, but obviously, we're doing everything we can to continue to improve it, and we'd certainly expect that if the market continues on some of these positive influences that we articulated on Slide 17, that we would be able to show better results. It's just a little too premature right now and a little too uncertain for us to give much more concrete definition than that right now.

I understand. Thank you.

Yes, thanks Emmanuel.

Our next question comes from Colin Langan, Wells Fargo. Your line is now open.

Thanks for taking my question. Just a followup, sorry to ask, sort of again, but I think your original guidance for Q1, was it would be flat or slightly higher than Q4, and it seems to be a $70 million-ish higher? And then you mentioned the steel and JV slightly better. Should we think about -- there's something -- I think you mentioned labor, but anything that's materially worse or it's just more conservative so then why not changing the guidance outlook? Is there something maybe that...?

I mean, I'll start, and I'll let Jeff comment. I think it's more just the uncertainty of what we're seeing out there. And as Jeff mentioned, I mean, even as late as yesterday, we saw some fairly significant announcements from some of our customers, albeit the short term on disruptions to production schedules and so although our performance in Q1 exceeded our original guidance, as Jeff said, we just took a step back in preparation for this call and said, it's just too early in the year to change that guidance. There are some positive things that are developing, but the environment we're operating in is extremely fragile, whether it's, I would say the biggest factor that concerns us is just the impact of COVID and how disruptive it can be to our customers' ability to operate, and then that's further compounded by the semiconductor still being disruptive as well. And there's not a lot of clarity from our customers, though there's certainly positive comments being made by them. But we still know they're running on allocation and disruption in supply chain can occur at any time. And so we just said, we'll continue with the guide we have right now. There's positive and negative things that could develop and as the year plays out, we'll be more specific.

Okay. No, that makes sense. Can you clarify -- I'm not sure if I am misunderstanding the slides, there's like a $3 million headwind in commodities for Q1. That seems quite low particularly with the 95 for the full year. So I think you mentioned Europe ticking up, I guess, through the rest of the year. Any other factors or it seems, or am I not reading the slide right?

You're reading it right, Colin and a couple of things that hit us. I guess one is of the original 125, about 75% - just under 75% of it related to Europe. We enjoyed -- we had set kind of the perfect timing of when we put in steel contracts last year in Europe, and they expired on December 31. So just -- it wasn't until January where we started to experience the higher price in our European region, which is where we have a lot of metal. As you'll know, we have a lot of -- our mechanism platforms in our facilities in Europe, so that impact is pretty significant. We're doing things to try to mitigate everything down, but it was always sort of a balance or back three quarter weighted and we'll see how that all plays out. We're obviously still trying to work that number down, but it's heavily European influenced.

Okay. Thanks for taking my questions.

Yes, thanks Colin.

Next up, we have John Murphy, Bank of America. Your line is now open.

Hi, good morning guys. A first question, I mean, obviously, scheduled stabilization is most important here. But once we get beyond that, we think about natural recovery in volume. There's a lot of discussion from the automakers that, that will be somewhat negative for mix. So I'm just curious, once we get through this period of volatility, as you think about what's more important to the business from this starting point, is volume or mix more important to you? It seems like it might be volume, but just trying to understand.

Yes, it's volume.

It's volume.

Oh they -- okay, got you. And so there's no concern about what might be negative mix that's being indicated by automakers as things recover? That's not a...?

It worked by volume, yes.

Yes, it worked by volume. Okay, perfect, that's what I thought. Second, when you think about the three months schedules that you're being given, how fast are things changing? I mean, you're giving schedule three months out, but are they changing on a daily basis? And how short are the changes that you're getting? I mean, you're basically getting called by take tomorrow, we're just not taking seats or you made them, I mean just trying to understand how this volatility is really playing out?

Yes, good morning John, it's Jerome. Yes, I mean, we get notified within the day. And so I won't go into customer specifics, but even last week we were notified on a large platform. They ran out of a supply chain part from China. We had our people there. And at 9:30, we had to send them home. We brought them in our second shift and they didn't restart and we had to send our people home again. And that's all labor that we have to pay for, and there's no immediate means for recovery, we have to work it out. And the other part of that, I would say is, Jeff gave you kind of the three month figure that says from three months to what they actually build, there's about a 20% deviation. If you then say, what does the one month deviation look like? So just from what they tell me on October 1, I'm going to build for the month of October, there's anywhere from a 10% to 15% deviation. And so you try and manage that within, as Jeff said, a jet [ph] environment where you've got -- I have demand to be able to build that because I can't shut my customer down. But then when they don't pull, I'm stuck with that trapped labor. And that's really been the significant challenge that we saw in Q1, and we see that even continuing into Q2, just with the uncertainty that's out there, whether it's labor or chips or other supply chain influences.

And just on top of that, that's further exacerbated by the fact that you've got labor shortages right now. So we're having to run with fairly high levels of absenteeism pools just to run at the rate of our customers. So it's got a bit of a compounding effect there. And what's true in the Americas really is true for every region we operate. Obviously, each region slightly different, but it's that volatility is existing in every single region that we have, so it's pretty challenging.

Yes, it sounds like it. Then just on the EV boom, we're hearing obviously more about that all over the place. As you think about your content on EVs and the impact to your business, is this a net positive just from a content standpoint? I mean how do you think about that?

I think near term it's net slightly positive, but what I would say are the EVs that are in production today for the most part, are using conventional seating systems. As you look further out, and particularly with the new starts that are looking for a combination of EV with higher level of autonomous driving, that's where we start to see significant content increase. But that's a little bit further out as they transition into those vehicles and the full architecture change, 100% committed platforms to EV. Beyond that we're just seeing whether it's ICE or EV, content per vehicle in seating has continued to go up simply because they are multifunction vehicles. And so what that brings higher content as you get into articulating and increasing the number of passengers for vehicles, so that's all positive trend. But I think that's happening somewhat independent, whether what the propulsion system is. But we're pretty excited as you start to get a little bit further out and really the new technologies that will come in place, we -- and the amount of consumer feature content that will be driven into future vehicles, we see that as a pretty positive trend.

And just on the -- Jeff, just I want to follow up on the 9% 20, 25. Is there a call option on those? I mean, the tender is great to take these things out the expensive debt. But isn't there also another option to take out more if you don't get a good response to that tender? I'm just curious when that was or if there's something there?

We're just right ahead of it. So if those people who don't tender, we have the option to call them in mid-April.

Okay. So I mean the -- is the intention to take out the bulk of this? I mean what's the...?

Yes. We don't want those notes. It's a 9% note, we issued in the front end of COVID [indiscernible].

Sooner or later, that's gone pretty quickly.

Yes, correct.

Yes.

Thanks so much guys.

All right, thank you.

Thanks, John.

Operator, if we can have our last call from Dan Levy.

Yes, Dan Levy [Credit Suisse] our last call. Your line is now open.

Great, thank you. I actually wanted to ask first about the top line. You put up pretty good growth over market this quarter, I think it's like 7 points-or-so. I mean, you talked about you got the RAM win there. As you try to -- as you continue to downsize some of the unprofitable as of some Tier 2 business, one would think that your revenue is going to underperform the market, you are just not seeing this. So maybe you can talk about the underlying revenue outperformance and maybe you could just give us an update on where your market share is trending in seating today?

Yes. Well, obviously, we did not prepare specifics around that for today's earnings call, but that being said, we see the balance-in, balance-out of our business by region essentially consistent with our market share positions that we've operated with historically. The one exception I would point out is, we did lose a contract in Europe well over a year ago with one very specific customer that we've spoke to in the past, which will drop our European market share, but that's something that's more of an anomaly from revenue perspective, and we backfilled a lot of that business. So when I think about market share, I would say you should expect no major shifts in a negative. And then what really is going to be interesting to see what plays out is, how fast the new EVs come online and what opportunities that provides us for market share or content gain.

Great, thanks. And then just a followup on capital allocation. Once you're past the debt paydown, once there is maybe a little more visibility on the cash flows, is the preference for a dividend or a share buyback or would you consider both?

Yes, that's a great question. I mean as we look at our earnings prospects as we go forward, I think we're -- and we push to close the gap with Lear [ph], we think there's -- our share price is cheap. So if our share price remains cheap when we get to that point, that certainly would be an attractive thing for us to allocate capital towards, and I guess, as it relates to a dividend. I think with as much volatility out there, we've probably been a little cautious on that. But as we get to the free cash flow levels that we would expect to find, and we have a little bit more stability on the operating environment, it is something we'll certainly be discussing and I think would probably be in some of the plans that we'd put out for you at that time.

Hey, great. Thank you.

Yes.

Thank you, Dan.

Operator, it looks like we're at the bottom of the hour, so this will conclude the call. For those of you that are on the line that we didn't have a chance to answer your questions, please feel free to reach out. Eric and I will be here, and we'll be more than happy to address your questions at that time. Thank you.

Thanks, everyone.

Thank you. That concludes today's conference. You may now disconnect.