Welcome to Adient’s Third Quarter Earnings Call. At this time, all participants are in a listen-only mode until the question-and-answer session of today’s conference. [Operator Instructions] I would like to inform all parties that today’s conference is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Mark Oswald. Thank you.

Thank you, Danielle. Good morning. And thank you for joining us as we view Adient’s results for the third 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. 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 Q3 financial 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 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. 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. This concludes my comments. I’ll now turn the call over to Doug.

Great. Thanks, Mark. Good morning. Thank you to our investors, prospective investors and analysts joining the call this morning as we review our third quarter results for fiscal 2022. Turning to slide four, let me begin with a few comments related to the quarter. Continuing the trend experienced throughout 2022, numerous external factors, including supply chain disruptions and resulting operating inefficiencies, COVID lockdowns increased freight and labor availability to name a few, continue to influence the industry and Adient’s near-term results. Despite encouraging signs some of the negative factors began to moderate towards the end of the quarter such as widespread COVID lockdowns in China. The headwinds had a significant impact on Adient’s third quarter results. Specifically, Adient’s EBITDA, results for Q3 contained approximately $175 million of lost volume and temporary operating inefficiencies. This included 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 up about $60 million compared to last year’s third quarter adjusted for portfolio actions executed in 2021. The adjusted EBITDA for the quarter totaled $143 million, as pointed out on the slide, including $175 million in lost volume, temporary operating inefficiencies and premiums, again, primarily driven by unplanned production stoppages at our customers. Adient’s June 30th cash balance totaled just under $900 million. Total liquidity was about $1.7 billion. I’ll point out that this cash and liquidity position, which includes the impact of fully repaying our European Investment Bank Loan during the quarter is a proof point, the company has successfully balancing its commitment to strengthen our balance sheet, while maintaining ample liquidity to navigate through the challenging operating environment. Despite the continued difficult operating environment, Adient continues to execute actions within its…

Great. Thanks, Doug, and good morning, everyone. I’ll begin on slide 11 and jump right into Adient’s Q3 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 excludes 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 purchase accounting amortization and restructuring and impairment cost. Details of all adjustments for the quarter and full year are in the appendix of the presentation. I’d also point out that and similar to last quarter 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. We believe these pro forma results provide helpful comparisons between the current year and the prior year results by adjusting the prior year to be on a consistent basis with current. High level for the quarter, sales were $3.5 billion, up about 7% compared to our third quarter results last year or about 2% compared to last year’s performer results. Similar to the past few quarters, the most recent quarter was significantly impacted by loss production, primarily driven by supply chain disruptions. Adjusted EBITDA for the quarter was $143 million, up $25 million year-on-year as reported or up $18 million compared to last year’s pro forma results. The increase is primarily attributed to benefits associated with improved business performance, commodity recoveries and to a lesser extent movements in FX. These benefits were partially offset by the impact of lower volume and mix, as well as inflationary pressures on freight…

Thank you. [Operator Instructions] Our first question today comes from Rod Lache with Wolfe Research. Your line is now open.

Hey. This is Shreyas Patel on for Rod. Just maybe following up on the last point you’re making. So, if you listed about $80 million of potential FX headwinds, energy costs could be higher than the $30 million, freight could be higher than the $90 million. And so, I just wanted to clarify that is incorporated in the scenario to that you listed on page nine. So even with those headwinds and a flat production environment, you could still have higher EBITDA, is that the right way to think about that? J Yeah. I mean, there’s obviously a lot of different directions all these things could play out. But our best guess right now is under that scenario is that we’d still expect to see improved earnings next year.

Okay.

I would say a big piece of that assumption is, we have normalized the production build even on a flat year-over-year with our customers. So a lot of the inefficiencies we experienced this year don’t repeat next year.

Understood. Okay. And then on slide 17, you listed a number of potential positives and negatives. I just wanted to -- putting aside the increase in production, just how to think about the balance in and balance out of new business. I know that’s been an ongoing initiative and I just wanted to get an update of that. And also, as we think about the -- and then as we think about the production environment in Europe, we’ve been hearing some concerned about potentially weaker volumes into the second half of the calendar year and any -- just trying to give an update of what you’re seeing on the ground at the moment? Thanks.

Yeah. Well, with regard to the balance in and balance out, although we haven’t quantified specifically other than we’re fairly confident at least from a market share standpoint. We’re maintaining our position from a revenue standpoint. So we’re feeling good about that. We’re winning what we want to win, as we outlined in the presentation. I would say, incrementally, the balance in, balance out, is favorable for us. The new business coming on, we think will be better than the business that’s exiting, that’s been kind of the last part of our plan as we’ve been more disciplined in how we win new business and how we price that business on a go forward basis. With regard to Europe, I don’t know that we claim to have a clear crystal ball on what’s going to happen. Certainly, if you look at what our customers are saying, they are expressing some level of confidence that they can continue to operate their facilities, despite some of the concerns around energy availability. I think, the big question is, what -- what’s happening with the consumer and if the consumer really active in the market and purchasing vehicles. Certainly, most recently, that’s all been constrained by some of the conductor availability, unconstrained, I think, it’s really a function of what happens in the energy market and what that does to consumer confidence or durable goods. I don’t know, Jeff, any…

Right.

… additional thoughts on that? It’s a little bit of wait and see. It’s not a wait and see from what we’re going to do and how we anticipate preparing for it. But it’s hard to see what’s going to happen in the market.

Okay. Thanks.

Thank you. Our next question comes from Emmanuel Rosner with Deutsche Bank. Your line is now open.

Hi. Thank you very much. Good morning. I wanted to ask you about some of the commentary on your slide nine, and in particular, I think, your quantification of some of the inefficiencies you’ve been incurring this year, both as a result of volume, as well as the ones that are not volume related. So first, could you please just size up again for us on a full year basis, included in your guidance? What are -- what is the total magnitude of the inefficiencies or that look like a different bucket? I assumed that they correspond to what you have on the side of slide nine? And then maybe explain in your sort of like broadly in your two scenarios, I guess, what you think would come back, are they more stable and what would actually require volumes to go up in order to get those back?

Yeah. I’ll start Doug and you can jump in. But we quantify -- we’ve talked about around $600 million of impact this year. You can think about two-thirds of that or $400 million is roughly related to volume. We think volume around $2.3 billion lower than it would have been in -- the way we sort of measure that is essentially looking back to 2019 or so where volume had been when it was in the low $90 million global production environment versus around the $80 million units we are -- we have been in the last couple of years. So that’s a bit how we get into the volume element and sort of what are -- what the impact is. We do expect in 2023 that that would be better and I’ll get to, if we’re in that scenario, two situation on this page in a moment. The other $200 million is, you can call it, equally divided into things that we called sticky cost, which are some of these costs that as they rose in 2021 and now in 2022, such as freight or utilities costs and labor, where -- it’s about 100 of it is that. We’ve been working hard with our commercial teams to, one is, finding offsets in our business, putting VAVE ideas to drive that and find offsets for our customers. But fundamentally, as we’ve always said, we’re a value-added model and when some of these input costs go up like this, there’s going to have to be an impact to our ultimate customer. So we are working in cases with our customers to offset much of those. And then about $100 million or that remaining $100 million is, call it, from the supply chain inefficiencies themselves. All those production stops and starts that Doug talked about, make up that other part. As we look into a flat environment next year, where we would expect as a lot of that $100 million to go away, we would expect, maybe not all the way down to zero, but, certain, a good portion of it. And we’d also expect that a lot of the maturity of the plans we’ve put place -- put in place on some of the sticky costs that drive from our own actions to some customer related pricing issues would put a bigger dent in that as well. So that gives us the confidence for the improved scenario in fiscal or for next year, even if volume is relatively steady. But we would expect…

Okay.

… and I think IHS had some improvements in volume forecasts for next year. Not all the way back to where we were in 2019, but starting the process to get there.

Okay. That’s super helpful. And just to clarify on the volume piece, so $400 million. Is that the same as the incremental margins you would expect on the higher revenues…

Yes. Yeah.

…or this is separate?

No. That’s just really the contribution pull-through from that higher revenue.

Okay. Understood. And then in terms of thoughts from your discussions on the recoveries from customers, so you’ve been really incredibly successful on the materials piece with essentially almost no headwinds left on a full year basis. But, I guess, still left with decent amount of like, non-materials, inflation. I guess, can you just update us on the progress of these, like, are you asking for, one-time recoveries on some of these things becoming more part of the contract on a go-forward basis? What’s the outlook for dealing with this going forward?

So, yeah, across the Board with all of our customers, we’re actively engaged on be it energy cost or premium freight, we’re having some level of success on that front. And we anticipate over time that, we could want 100% offset. The question is just what that time line is to accomplish that? We focused heavily on materials that spiked first, that takes time to resolve and in the end, we were successful there. So I would anticipate we’ll have some level of success, either getting it in a one-time form or somehow building that into our future contracts. The other thing you need to keep in mind is, as we start production on a new contract, we tend to have the opportunity to level set all the input cost, and adjust of pricing, as we go into start up production there. So that’ll be a piece of it as well. It really varies with each one of our customers, how we get there. But to Jeff’s point, in a value-added pricing model and with this kind of high fluctuation in costs, it needs to be addressed and we’re pushing hard to get that resolved.

Great. Thank you.

Thank you.

Thanks, Emmanuel.

[Operator Instructions] Our next question comes from Colin Langan. Your line is now open.

Oh! Great. Thanks for taking my questions. Just want to follow up on the Europe question. I mean, are you seeing cuts to schedules now or are you just seeing risk that those get cuts. I mean, are you seeing customers already cut? I guess, trying to gauge how imminent of an impact slowdown in Europe might be?

Yeah. So we’re still seeing cuts to schedules, albeit at a lower rate than we experienced in the midst of the --the height of the semiconductor constraint. So some of that we referenced in our formal comments that gradually improves. I think, the next wave of concern is more energy availability related. We would not experience that type of disruption. That’s all, I don’t want to say anticipated, but certainly, we’re risk profiling what likelihood that may occur. So we’re not experiencing anything on that front at this time.

Okay. That makes sense. I mean, to follow up on that, I mean, do you have risk to some of those natural gas expose reason -- regions or countries, and is that a big input in your sort of metals business, I would just suppose with the where the biggest risk would be in terms of being able to produce that natural gas?

Yeah. I -- we do have some risk. Quite frankly, the way I think about it is, as COVID did, it’s not so much our ability to manage it, is the whole supply chain, and the fact that, that could potentially be disrupted and that’s outside of our control. So, yeah, we have risk. I’m more concerned about our customers ability to operate and then I’m even more concerned about the whole supply chain and their ability to get parts. If -- that could be really consequential as we’ve seen as a result of COVID. So that’s…

Okay.

…that’s how we look at it. Yeah. I mean, but you are right, our metals business, we have metals plants in Germany, that could have some risk and we’re taking some steps there to mitigate that. But I’m always confident that we can probably work our way through it. It’s just what we can’t control.

And just lastly, you mentioned, to be cautious about analyzing Q4 sort of 57 [ph] at the midpoint of guidance. I got them in the -- you listed sort of positive and negative. Is there any sort of like pricing recoveries from higher prior periods that are skewing that higher? What are sort of the unusual things that should be impacting that Q4 margin that you got to be weary of using?

Yeah. Well, there’s a few things. One is we still have a fair amount of production disruption that we’re forecasting, which we do think gets better in 2023. We have -- the mix of how those customer recoveries come in for the year aren’t equal. So we kind of make that point and just not analyzing it. So it’s just not, in general, trying to analyze any particular quarter for us is somewhat difficult, because especially in this environment, where we have a lot of, we’ll say, negotiations with our customers to deal with a lot of these rising input costs. They fall unevenly through the quarters.

Okay. Thanks for taking my questions.

Yeah. Thanks, Colin.

Thanks, Colin.

[Operator Instructions]

Great, Danielle. It looks like that is all the questions that we had lined up today. So that’ll conclude the call this morning. Just a reminder to everybody that’s on the line, if you have any follow up questions, please don’t hesitate to reach out, we are more than happy to address those questions and have a follow up meeting. Again, thanks, everybody for your time this morning.

Thank you.

That concludes today’s conference. Thank you all for participating. You may disconnect at this time.