00:04 Thank you for standing by, and welcome to today's conference. All lines will be in a listen-only mode for today's presentation until the question-and-answer session. [Operator instructions] The call is being recorded. If you have any objections you may disconnect at this time. 00:22 I would now introduce your conference host, Mr. Mark Oswald. Sir, you may begin.

00:28 Thank you, Catherine. Good morning, and thank you for joining us as we review Adient's results for the second quarter of fiscal year 2022. The press release and presentation slides for our call today have been posted to the Investors section of our website at Adient.com. 00:42 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, 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 Q2 financial results, and outlook for the remainder of the year. After our prepared remarks we will open the call to your questions. 01:07 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 these forward-looking statements made on the call. Please refer to slide two of the presentation for our complete safe harbor statement. 01:32 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 or full earnings release. 01:51 This concludes my comments. I'll turn the floor over to Doug. Doug?

01:54 Great. Thanks, Mark. Good morning and thank you to our investors, prospective investors and analysts joining the call this morning as we review our second quarter results for fiscal 2022. 02:06 Turning to slide four, let me begin with a few comments related to the quarter, continuing the trend established during the second half of fiscal 2021, numerous external factors including supply chain disruptions and resulting operating inefficiencies elevated commodity prices and increased freight to name a few continue to influence the industry and Adient's near term results. 02:30 As the quarter progress pressures intensified, primarily resulting from the conflict in the Ukraine and the widespread COVID lockdowns in China. Unfortunately, unlike commentary provided in the first quarter call signs of stabilization for the industry did not advance. In fact they took a step back bottom line, the operating environment remains very challenging. This is evident when looking at Adient's second quarter EBITDA result which contains approximately $160 million of lost volume, temporary operating inefficiencies and elevated commodity prices. 03:09 The $160 million contains approximately $10 million of temporary savings. Adient's key financial metrics for the quarter can be seen on the right hand side of the slide. Revenue for the quarter, which totaled $3.5 billion was about $440 million compared to last year's second quarter adjusted for portfolio actions executed in 2021. Adjusted EBITDA for the quarter totaled $159 million and as pointed out on the slide, included approximately $160 million in lost volume, temporary operating inefficiencies and premiums. 03:47 Again, primarily driven from the chip shortage and unplanned production stoppages. Adient's March 31 cash balance totaled approximately $1.1 billion, total liquidity was about $1.9 billion. We're very much focused on managing our cash and liquidity given the difficult operating environment the industry is facing. 04:11 Despite the…

17:45 Great. Thanks, Doug and good morning everyone. Let's turn to slide 13, and jump right into Adient's Q2 financial results. Adhering to our typical format, the page is formatted with our reported results in the left, and our adjusted results in 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 skew important trends and underlying performance. 18:12 For the quarter the biggest drivers of the difference between our reported and adjusted results relate to purchased accounting amortization, premiums in deferred financing cost associated with debt repayment, restructuring and an impairment associated with Adient's sole facility in Russia. The facility located in Togliatti, Russia is very small, in fact that operates as a Tier 2 trim supplier to other jet suppliers in Russia. The revenues and EBITDA associated with this operation are de minimis to Adient's overall results. Details of all the adjustments for the quarter and full-year are in the appendix of the presentation. 18:52 I'd also point out, similar to last quarter, within the appendix we've included pro forma results for each of the quarters in fiscal '21, adjusting for the numerous portfolio actions executed last year. We believe these pro forma adjustments provide helpful comparisons between the current year and the prior year results by adjusting the prior year to be on a consistent basis with the current one. 19:14 High level, for the quarter sales were $3.5 billion, down about 8% compared to our second quarter results last year or down about 11% 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 driven by supply chain disruptions. 19:36 Adjusted EBITDA for the quarter was…

33:44 Great. Thanks, Jeff. Throughout our call this morning, Jeff and I have highlighted numerous factors that continue to impact the near term results for the industry and Adient. Many of which are external in nature, as you know, a bleak or cloudy outlook for 2022. When digging deeper and isolating the influences into different buckets, we remain optimistic brighter days lie ahead. 34:13 First and foremost, Adient's foundation is strong and continues to strengthen. The team continues to progress our back to basic strategy, leading to improvements to our core operations. This is evident when looking at metrics such as ops waste, launch performance, et cetera. 34:33 Let me share a few facts and figures. In 2019 Adient's operations were experiencing many inefficiencies, in total, ops waste was an approximate $220 million headwind, significant progress was made in 2020-2021 despite the challenging operating environment. Further improvement is expected this year. In fact, if we annualize fiscal year 2022 year-to-date results Adient’s ops waste versus fiscal year 2019 levels have approximately halved. 35:15 With regard to launch performance, similar story. Adient's back to basics mindset and focus on process to enable sequential improvements in the company's launch metrics as we progress through 2020-2021 and again this year. This is especially significant given the challenging operating environment, which experienced COVID interruptions, part shortages, customer downtimes, et cetera, not to mention the increased complex program launches such as the F-150 Infinity QX60 to name a few that occurred during the period. 35:54 Adient's solid launch execution is a key enabler for us winning new conquest and incumbent business, which speaking up incumbent business Adient's win rate stands at 98% so far this year. We're clearly winning the business we set out to win. We remain focused on costs, the company's cost structure…

38:58 Certainly. [Operator instructions] The first question is coming from John Murphy, Bank of America. Your line is open.

39:12 Good morning, guys. The change in guidance seems like it's a little bit more in line with the market pressures that we're seeing from other suppliers and it seems a little bit more realistic and not too -- not too optimistic. So I'm just curious, Doug and Jeff, as you think about this, is there something different in your business versus other suppliers? I mean you, it might be calendar timing where the fourth quarter -- calendar fourth quarter is not in this guidance, where there might be some significant increase there. Is there any kind of fundamental difference that you think that you're seeing? And once again, I think your outlook is a little bit more rational than others, it might be a little bit too optimistic.

40:03 Yeah. I’ll point to. To me, one of the obvious difference is, John, appreciate the question, is the fact most of our revenue is just in time revenue. And certainly, the labor inefficiencies have been a big burden for us, particularly because our customers continue to release us, met higher volume levels than they ultimately produce, which hits us with a fairly significant amount of trapped labor. 40:39 So that's -- I would uniquely outline that as something that’s different than -- if you're not building sequentially you can build ahead, you can shut down, you can store an inventory. We have very little ability to do that even in our jet plants, most of them are building live and can store a few hours of inventory and then we have to shut down. I'd point to that, certainly, a good portion of our businesses in Europe, and as Jeff pointed out, the Ukraine conflict has been a significant drag on a year-over-year basis. Jeff, anything --

41:25 Yeah, no, I think especially that first point that Doug mentioned, our just-in-time nature and the really volatile call up schedules from our customers is why we haven't, I think, been reluctant to give a specific guide, a specific range because it moves so quickly and can move so quickly as those production schedules change really daily. 41:49 As far as maybe one other thing to point out, which isn't necessarily different than others, but we do have a lot of equity income coming in from China. And you saw a little bit of an impact in Q2, we saw -- in our fiscal Q2 you saw a lot of the North shut down through a lot of March. So are – just think of the FAW, the Volkswagen business up there was significantly affected. Beijing Olympics hit, we have a lot of business in Beijing area, servicing Daimler and Hyundai. So it's a bit of an impact in Q2, but I would expect it to be a bigger impact in Q3 as a lot of those shut downs extended into really today. And we sort of not expecting normalized operations to continue for a little bit. That's going to have some supply chain impacts, not just in China, but through other regions, not just directly through our supply chain, but we expect through some of our customers. So all of that makes it a little bit cloudy, a little bit uncertain and we try to build that into the commentary we provided you.

42:58 Okay. Then maybe just a follow-up on this. I mean, we're hearing from automakers their willingness to potentially store and take inventory from certain suppliers. So I mean, I guess, that dovetails with what you're saying about your business being jet and others being able to maybe run in store. Is that -- that's basically what you're talking about?

43:18 There are no run in store for us.

43:20 Yeah, that really doesn't work in this business. There is no -- no real way. It is the way we sequence into their facility, they can't store anything.

43:28 If they stop their production we have to call off our shift effectively.

43:35 The next question is coming from Rod Lache, Wolfe Research. Your line is open.

43:40 Good morning, everybody. The target of eliminating the margin gap versus competitors, unfortunately for us has become a little bit more ambiguous since everybody's margins moving around. But I was hoping you might be able to just dive into this slide 19 a little bit more for us, just so that we can square it with where you're -- what you're ultimately targeting. 44:13 So if we look at the $475 million of transitory cost, is it still around $300 million from volume and $150 million from inefficiencies. I thought that the net commodity include cumulatively there still a lot more. And maybe just in addition to that, if you could spend a little bit of time just talking about the timeline for the remaining $125 million of sticky stuff. Just because there is no -- historically there has been no mechanism for passing along utilities or labor and that kind of thing.

44:51 Yeah, I’m going to have Jeff walk through the detail on that. But just for clarification purposes, when we talk margin gap to our peers, it's not a sliding scale. When we think of it, we we've always said we wanted to get to that north of 7.5%, 8% is kind of how I think of what that margin gap is for the fact that we see depressed earnings doesn't mean we've recalibrated what that margin gap looks like. But that said, I'll let Jeff walk through some of the detail around it.

45:23 Yeah, let me help unpack it a little bit, Rod. And feel free to ask if I don't hit everything you need. But for the year, I’d just maybe take a look at 2022, just using a $700 million roundabout number, it's attracting equity income here roughly, that would be $625 million on a $14.2 billion, so 4.4% or so. If you look through the transitory and sticky cost, and you add those back in, within the transitory and I'll break that down a little bit more in a second, you have about $2.2 billion of what we think is lost volume. So the $14.2 billion in sales comes up to something around $16.4 billion and the $625 million kind of find its way up closer to about $1.2 billion. So you're north of 7.25 or so percent if we're able to recapture those. And there is some work to be done, but we've made a lot of headway on it. 46:24 And then, I guess, what's important to realize there is, that's not over staffing, there is still parts for our -- we return a little less than 20% of our portfolio every year as old business runs out and new business runs on. We have been focused heavily, and I'd say, increasingly on margin and new business launch and finding attractive new business to fill our facilities. We would expect opportunities as we continue to execute on that order book and deliver that to provide additional margin expansion. So that's a little bit of the road map, it's all been a little delayed and challenged with the operating environment, but that -- the components of it hasn't really changed. 47:09 Just as a little bit of a breakdown for you on the transitory cost bucket that $475…

48:46 So, just to clarify, on the sticky part of this, the $125 million, are you saying that you need kind of the roll-off and roll on of contracts and restructuring to mitigate that? Or do you anticipate that that kind of gets offset by price negotiations? And any kind of timeline for achieving this?

49:18 Yeah. So, our primary focus is to solve those issues in the near term. There are tough negotiations with our customers, because we just got up recent round on material economics, but we're not waiting for things to roll-on and roll-off and it -- to be built into future pricing. That said, it takes time to get done. Material economics probably took us almost a full year to get to where we're at today. And although we want them to be done sooner, if I were to give you a reasonable timeline, I'd say, that's about a 12-month cycle. And it assumes that there is not new issues that appear on the horizon that we have to deal with.

50:14 The next question is coming from Brian Johnson of Barclays. Your line is open.

50:19 Hey team, this is Jason Stuhldreher on for Brian. Maybe just kind of a somewhat housekeeping question first. Just around the -- what is now a $15 million exposure from raw mats for the full year. I mean, it seems -- I think the first two quarters were even higher than that, so it implies that there may be a tailwind in the back half of the year, did I get that right? 50:43 And then if there is a tailwind in the back half of the year, does that tailwind assuming spot prices stay where they are right now, carry into 2023? And I guess maybe just the detail that would be helpful is, is your limited exposure this year a function of you signing contracts for these items, early on in the year and for lower prices but next year. Is the new contract is going to be higher prices and there may be a headwind or is it more OEMs are willing to kind of meet you where the prices are right now and those prices from the OEMs are going to continue into next year and you may still recover it.

51:23 Yeah. At the risk of same. It's all of the above, it is kind of all of the above. So generally speaking, when we look into the future we typically assume that pricing is going to stabilize to where it's at as we predict. So, if there is a decline in the market that's generally good news for us the way our contracts are structured. If it increases, then it's really a function of when we cut our contracts for steel, for example, and how that compares to our customer adjustment that we've made some progress at, I'll say, closing the gap between them as we pointed out, that helps mitigate that. But you really have to be much more specific with an assumption and then how does that crank out for us over the course of the year. I don't know, Jeff, you probably want to add to that.

52:28 Maybe just a couple of specifics on it. In the back half of the year very slight tailwind. We had -- if it ends up around a $15 million headwind for the year, we expect a little bit of tailwind year-over-year, but just in the kind of single-digit character.

52:48 The challenge you look. Your question about what does it mean for next year is a really good one. We tend to lock into our prices on a supply standpoint a couple of times a year and it depends on region. But we tended -- we are fortunate to have done that before -- right before the war in Ukraine or conflict in Ukraine initiated. Is prices for steel jumped up quite a bit after that? We'll see where those fall through. So a lot of this is really going to depend on where that steel measure moves as we probably move into the summer and into the later summer of what it means for next year. We should be able to give you a little bit more guidance on our next phone call. But right now it's pretty cloudy. That market is pretty volatile, right now.

53:40 Okay, that's helpful. And maybe just -- maybe another kind of high level question somewhat related to that. As you guys are at least through this year have been very protected on material. Steel plus 70% recovery, it looks like your foam chemicals are even higher than that. So I was wondering if you could just kind of comment on, of your bill of materials how much is passed troughed to the OEM, where either they kind of directly buy it? And then on the hook for the price or is sourced by you and -- but has that contractual pass-through? How is that evolved in kind of the quotes, you're talking about right now versus some of your -- some of the quotes historically. 54:31And I guess what I'm wondering is, it seems like suppliers are all kind of opening up the black box for the OEMs here. To a lot of extent that's already been done, but I was just wondering if you sense any changes to industry margins or industry ROIC as it relates to kind of more protection on your material and then kind of being valued. Specifically on the value-add that you bring [indiscernible] and whatnot. But if that dynamic perhaps changes any of the margin or ROIC framework for this industry or for you guys specifically.

55:12 Yes. Maybe just a few high-level responses to the questions. So when you think about our BOM, you should think about 50% is directed and 50% we control of our total material buys is a good number. Generally, what we would say is, when we are vertically integrated we think the margin on our business is superior to when it's directed. The main reason for that is not just the integrated margin on the component levels, but we think when we control the supply chain better or when we have greater control over the supply chain we manage it more effectively than our customers do when they direct it. 56:07 And as we navigated through this year one thing we continuously press on with our customers is, in many cases if they allow us to make changes to directed suppliers we think we can offset a lot of the cost impacts associated. And with our global footprint we constantly find opportunity to reduce cost or mitigate cost increase with our customers. So we just generally, think it's a better equation. As the seating business has transformed, evolved if you will over the last few years, our customers took a lot more control over the BOM. And I clearly think that they're are now starting to realize that they don't have quite the network from a manufacturing footprint available to them to mitigate some of these costs. So we constantly remind them that they should give that to us and some of our customers we pointed out, Toyota and the Camry for example sees that benefit and sources in that direction with us.

57:34 Our last question is coming from Dan Levy of Credit Suisse. Your line is open.

57:40 Hi, good morning and thanks for taking the questions. First, I know that in the past you've talked about one of the levers you have to mitigate pressures is the dynamic of VAVE. So maybe you can go a bit more into the mechanism of how VAVE works right now. And how significant of an offset you have with VAVE in your discussions with customers?

58:14 Yeah. It's really depends on the customer, their willingness to engage and their willingness to share some of the savings. What we found most recently is, it's a far more effective tool these days than historically it has, because they're looking for ways to mitigate some of the pressures, even if contractually they don't feel that there are obligated pressures put upon them that as we pointed out, our business model, our value-added business model really didn't comprehend this type of inflationary pressures. 58:57 So I think there has been a healthy increase in engagement. Again, we pointed, I'll go back to Toyota who recognize that they were extremely engaged, we use it as an effective tool to mitigate a lot of the cost increase that we're seeing experience. We kind of hold them as the best model. But I would say across the board our customers are far more effectively engaged. Where we run into some issue and again this is going back to the earlier question about 50% of our BOM is control that means 50% of our VAVE ideas won't necessarily manifest in the cost reduction or cost offset for Adient. 59:58 So we constantly fight that battle with our customers. But maybe -- hopefully, that's a little bit of color that better help you understand how we work the equation.

60:12 No, that's helpful. Thank you. And then just as a follow-up, given the greater macro uncertainty, I think it's fair to assume that any additional capital allocation actions in terms of return of cash to shareholders pushed out. But maybe you can just give us a sense of what you need to see in terms of market conditions to engage the idea of cash return? And then maybe where are we in terms of debt pay downs? Thank you.

60:51 Yeah. So it's a great question. The uncertainty right now where we see our customers calling off quite a bit and the situation in China has -- and I should say in Europe has certainly made us probably slowed down a little bit or take a pause. Although we will repay, as I mentioned, that EIB note this quarter. But as you look forward, we do think there's going to be, I think, eventually there's going to be a bounce back, there is clearly demand out there, but there's a lot of uncertainty, but as that starts to flow through and we start to see more normalized production schedules from our customers that we can rely on, we start having visibility, and we start hitting some weeks and maybe month or two of some normalcy and consistency there. I think we can reopen those discussions. 61:45 We know our earnings will bounce back quickly, we talked about the impact of what these lost sales were, $790 million for the quarter, we did $2.2 billion for the year. As those come back in that will really be sort of pure cash flow that comes to us and we can be confident then to start to be more aggressive get to our 1.5 to 2 time target or at least know that we're in side of it and start doing some actions, especially with our share price where it is today. It's something that's talked about a lot and we'll certainly be central focus as the world starts to come into a little bit more order.

62:27 Great. And Catherine, I'm showing we're at the bottom of the hour. So, this will conclude our call today. If you are still on the line and have not been able to answer your questions, please feel free to reach out to me. I'll be more than happy to accommodate. Again thank you for joining us this morning.

Thanks everyone.

62:43 This will conclude today's conference. All parties may disconnect at this time.