Q1 2020 Earnings Call
[noise]. Thank you for standing by and welcome to the Q1, that's why 20 earnings call. Today's conference is being recorded if you do you have any objections. Please disconnect at this time all lines will be on to listen only mode until the question Inter segment at the end of today's conference at which time you May proceed star one on your Touchtone phone to ask a question I guess.
It is star one if you would like to ask a question I would now like to go didn't turn todays conference you Mark Oswald Sir you may begin.
Thank you Jack one good morning, and thank you for joining us as a review audience results for the first quarter fiscal year 2020, the press release and presentation slides for the call do they haven't posted to the Investor section on our website at <unk> Dot com.
This morning, I'm joined by don't know girls, So, having president and Chief Executive Officer, and jumps to file our executive Vice President and Chief Financial Officer on today's call Doug will provide an update on business probably by Jones for review, our Q1 financial results in 2020 problems.
After our prepared remarks, well open the call your question.
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 answer they and their important risks and uncertainties. We caution you that our actual results could differ materially from those forward looking statements made on the call. Please refer to slide to our presentation for complete Safe Harbor statement.
In addition to the financial results presented on a GAAP basis, we'll be discussing non-GAAP information that we believe is useful in evaluating the companies operating performance reconciliations to non-GAAP measures to the closest GAAP equivalent can be found in the appendix or full earnings release. This concludes my comments I'll turn the call over.
And Doug.
Okay, Thanks, Mark and thanks to our investors perspective investors analysts Tony in call. This morning, and spending time with US as we review our first quarter results turning to slide four.
Similar to previous earning calls I'll start off with the quick review it adds recent developments in key highlights.
First adding reported strong Q1 financial results the results build on the positive momentum established in the second half of last year and demonstrate that improvement base. Our turnaround plan is solidly on track.
Sales at 3.9 billion would you mind with internal expectations adjusted EBITDA increased to 297 million.
$121 million year on year.
This marks the fourth consecutive quarter sequential improvement.
The first quarter of year over year improvements since our fourth quarter 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 just a few minutes.
Moving on adjusted earnings per share for the most recent quarter were 96 cents versus 31 cents per share last year.
Finally, we ended the quarter with 965 million of cash on hand.
Outside of our strong financial results. The team also me.
Portfolio moves selling its for Karl automotive seating business.
Sale further demonstrates and its commitment to the core business and focus on capital allocation.
Besides Ricardo adding it announced an agreement this morning with or joint venture partner, John thing to restructure the existing joint venture relationships.
This includes the sales of 30% ownership stake.
Automotive interior fiance for $370 million.
We also agreed to extend the term of our White House, Yes joint venture to December 31st 2038.
Since you have to demonstrate and he is continued commitment to the partnership and the region.
In addition.
We agreed to sell certain happens and other intellectual property exclusively used interceded mechanism business anyway for $20 million.
And finally at it and young same degree to amend anyway, I'm joint venture agreement uptake anyway assistant scope to allow.
I'm to carry out in seating mechanism.
So in an outside People's Republic of China PRC.
Oh PRC enough PRC customers.
Yeah, he intends to leverage anyway, and expanded presence in the global seeding mechanism market has continued rightsizing our own metals business.
These actions are important.
Not only do they further our position for long term success.
Sales to demonstrate the company's commitment to driving shareholder value.
[noise] from a product innovation standpoint earlier this month, we purchased pieces and partner with electronics leader LG and to see us to display our 19 vehicles interior.
Interior showcase the integration of LG electronics technology with our future facility solutions.
That address trends in mobility, such as economists and somebody autonomy is driving.
We're pleased with our collaboration LG potential opportunities it creates.
Overall, the team successfully executed on many fronts during the quarter.
The strong start to fiscal 2020 lays a solid foundation for the company to deliver on its full year commitments.
In fact, the operations steadily improving driving earnings and cash flow growth combined with the proceeds strategic actions just discussed.
We're expecting to accelerate a portion of our debt pay down later this year.
Turning to slide five just a few points related to.
New business wins and launch status.
You can see from the examples highlighted on the less adding continues to win new and replacement business.
Selected wins demonstrate solid mix across regions as you bees and luxury platforms, such as large as you see from Europe .
The junior G., So Romeo kit.
Pictured in the Middle Ford Mustang Mochi.
Speaking of the Mustang Mckee, it's worth noting as we called out on the slide a significant number of program wins within China EMEA in the Americas.
Our E platforms.
Next we presently hold approximately 70% market share of the market in Europe .
As our customers continue to develop and launch new and alternative propulsion platforms.
And its leading market position is expected to strengthen given the diversification of power trains.
Turning the right hand side Thislife, we've illustrated a variety programs that were recently launched scheduled to launch the coming months, including the Nisa lead Toyota Tacoma Cadillac Cts five program, which was launched at our VW I facility in Lansing, Michigan and the Tesla model three.
Launched in China.
Bottom line, our focus on large management has resulted in significant improvement in launch execution.
The Cadillac Cts I've watched and our BW wife facility achieved a flawless launch score card we call. It zero zero hundred hundred 90, which breaks down to.
Zero safety incident zero customer reach us, 100% on time deliveries under Senate achievement of financial targets within 90 days from started production.
In addition, I'd like to mention certain of the launches that we called out last quarter.
Separately Onyx and the Toyota accrual in South America also achieved flawless launch scorecards and were recognized by our customers.
That's that's one model three launches another success story worth mentioning given the compressed timing of the programs complete seat business was awarded adding joint venture way up a ABS in July 29 gene.
With the first batch of seats deliberate in late December .
Yes.
I think its focus on adherence to proven process.
These enables a successful launch despite start production occurring just six months posts program Awards.
Turning to slide six.
And the progress, we're making on the turnaround plan.
As mentioned on our last earnings call the company candidates.
Transition to the improvement phase of our turnaround plan, having stabilized the business in 2018.
Underpinning the earnings and cash flow growth reported this.
Morning, Floridians first quarter and expected to continue through 2020.
Our four focus Harris launch management operational improvement continued cost reduction and commercial discipline.
Please report plan itself stay on track.
Specific proof points include first related to launch management.
Team's focus around change management enhance readiness and program reviews, and able to significant improvement in launch performance over the past several quarters.
Flawless launch scorecard on CTP five discuss moments ago demonstrates the significant year on year improvement achieved in the Americas.
The improved performances translated into significant reduction in launch costs down in the Americas EMEA approximately 14, 15%.
Respectively year on year.
In addition to launch management team has made solid progress improving operating performance.
Several of our manufacturing locations.
The improved performance resulted in significant you're on your reduction in premium freight dropping over 85% City Americas EMEA combined in Q1.
2020, compared with last year.
ABS waste is trading in a similar direction declining 35% in the Americas close to 30%.
In EMEA year on year.
But in ups ways containment cause.
Our also down significantly in both segments.
Outside of the progress made through operational improvements maintaining a strict focus on cost. It's also contributed audience improving financial results.
Our media initiatives designed to take material costs out of the system continues to accelerate.
In fact, we increased the number of customer engagements in the region.
Regional benchmarking centers located in our technical centers. During Q1, we completed 20, plus workshops across the Americas EMEA.
Which included customer suppliers.
In metal.
In Asia over 1000, new the ideas were generated from workshops and internal reviews.
129 projects move from actions to implement it.
Opportunities reduce has taken a spend remains focused for the team the changes made an organization structure last year.
Continued to provide further opportunities to rightsize, our above plan structure.
Point of reference.
That ends full time equivalent headcount.
In 2018 was down about 4% hurt with.
2018.
This translates into approximately $40 million.
Your gross savings for the company.
Lastly, having a disciplined approach to where we allocate capital.
Whether it be or a program or customer is helping to drive profitability.
As we look to close the margin gap with our peers it may be necessary to walk away from certain programs and customers that are unprofitable.
This commercial discipline this focus both on existing.
In future programs.
That's very bottom of the page we included various improvement proof points for metals business.
That's just business being run as part of.
[noise] reportable segments.
Whether its Americas, EMEA or Asia, it's not surprising to see the case, it's heading in the similar direction.
To those we just covered for total area.
Adjusted EBITDA for total plans improved $30 million versus Q1 last year on costs are down upon premium freight as though and ops ways as 60 significantly reduce.
These metrics indicate we're having in right direction.
One final point as it relates to reporting of our metals business since our reportable segments are being run.
Maximize the segment's profitability.
Isolating the performance of the priors metal business has become increasingly difficult.
For example, as we take actions to reduce our planned cost dromon, Michelle are making decisions to improve the profitability.
They are overall segment in many instances actions taken do not involved in person, that's 100% dedicated to seats or metals.
It is likely a resource supporting the overall business.
We recognize the need to continue to provide you with appropriate proof points to give you confidence the turnaround plan is progressing and we'll continue to do that.
Essentially like we just discuss.
Unfortunately, providing additional detail will that be possible.
But that said our commitment to bring the business to cash flow positive by 2022 remains intact and we're on track to do just that.
Turning to slide seven.
I thought this slide would be the reminder, both internally and externally it wasn't company is driving for.
It's simple we're executing actions to increase shareholder value.
Began last year as we stabilized the business improved relationships with our customer.
As we exited fiscal 2019, we transitioned to the improvement based on the turnarounds of course is underpinned by our specific focus areas of launch management.
Operational improvement cost reduction.
Just one.
Although it's early days or second half performance in 2019 in recent first quarter results demonstrates the company is solidly on track.
With a stabilized then leave Karoubi.
As expected earnings and cash flow growth are materializing.
In addition, well positioned to execute additional actions to further enhance shareholder value.
Such as portfolio adjustments.
During our relationships in China.
And accelerating debt repayment to name just a few.
No doubt we're off to a head start we realize there's a lot of.
Go ahead.
Before turning the call over the job just few comments on how additive is addressing challenges presented.
By the serious carotid virus first and foremost the health and safety of our employees is always any into top priority.
To ensure the stirring the virus outbreak, we've implemented a variety of safety measures, including.
Restrictions on business travel to from and within China, and the APAC region.
Oh, you know our offices in China until February 10th.
Clients, what the government extending the Chinese new year holidays in February .
[noise] implementing an office annotation program, an unforeseen strip hygiene protocols for employees.
We continue to closely monitoring the situation.
And while the to have these guideline as appropriate.
In addition, we formed a global response team to ensure a coordinated contingency plans in place proactively monetary any impacts related to customer suppliers and joint venture relationships.
Fires any estimate on specific impacts, adding as business, it's too early to forecast.
We're working with our customers and suppliers to remain aware.
And connected to their efforts and the outbreak continues as more cheat details and information become available.
Slide updates as appropriate.
With that I'll turn it over to jobs. So we can take us through adding its financial performance for the quarter what to expect as we progressed through the rest of fiscal years.
Thanks.
Thanks, Doug and good morning, everyone I'll start my comments on slide nine.
And in hearing to our typical format.
The pages format as reported results in the last in our adjusted results right sized age we will focus our commentary on the adjusted results exclude special items that we view as either onetime in nature or otherwise skew important trends and underlying performance.
For the quarter the biggest drivers of the difference between our reported in our adjusted results related to an asset impairment related to a write down associated with the expected sale of ideas, 30% stake and why.
Loss associated with the sale of our car automotive seating business.
Purchase accounting adjustments or amortization and to a lesser extent restructuring costs details of these adjustments are in the appendix of your <unk> 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 were 69% year over year and there's 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 the tend to be lumpy across quarters.
And another call it $10 million and tax credit.
At various jvs in China.
I'll I'll have more on these items as we walk through the segment results.
Finally, adjusted net income and EPS were up significantly year over year $90 million.96, respectively.
You can see improved operating results were partially offset by higher tax rate and this years first quarter versus a year ago as we've discussed our tax expenses higher in the current year due to booking valuation allowances in several geographies and the second half of fiscal 19.
Now, let's break down our first quarter results in more detail starting with revenue on slide 10.
We reported consolidated sales of $3.9 billion, a decrease of $222 million compared to the same period a year ago.
Lower volume and mix across North America, Europe , and Asia impacted year over year results by approximately $179 million.
As a side note in North America, the impact of the GM labor strike impacted results by about $55 million.
In addition, the negative impact of currency movements between the two periods, primarily in Europe impacting the quarter by $43 million worth, noting the call out of the bottom of the slide consolidated sales in China were up 6% year on year, well ahead of the vehicle production in China, which was up approximately 1%.
Unfortunately aligned with internal expectations discussed with you in November significant volume declines in Thailand, Japan, and South Korea more than offset trends performance in the APAC region.
With regard to adding an unconsolidated seating NSS, an m. revenue driven primarily through our strategic JV network in China sales were up about 4% when adjusting for FX again, outpacing the 1% increase in China's vehicle production over the same period.
Sales for engines for unconsolidated interiors recognized through our 30% ownership stake in yacht Bang automotive interiors were down 3% when adjusted for FX important to note about half of this business is conducted outside China.
Moving to slide 11.
We've provided a bridge of adjusted EBITDA to show the performance of our segments between periods.
Bucket labeled corporate represent central costs that are not allocated back the operation such as executive Office Communications corporate finance legal in marketing.
Big picture adjusted EBITDA was $297 million in the current quarter versus $176 million last year.
Corresponding margin related to the $297 million adjusted EBITDA was 7.5%.
Approximately 330 basis points versus Q1 last year.
Excluding equity income as noted at the bottom of the slide our margin increased 260 basis points year over year to 4.8%.
Although the team made significant progress during the quarter as demonstrated by the year over year improvement. These raw results do not reflect the desired level of profitability for the business. The team remains focused on executing the turnaround plan to drive audience margins best in class.
The year over year improvement in adjusted EBITDA is largely drove the driven by improved business business performance in the Americas EMEA. In addition, lower S. unit cost to America EMEA combined with an increase in equity income in Asia benefited the quarter.
On a side note. This is the first quarter of year over year improvement since the fourth quarter of 2017.
Sequentially, what the fourth quarter of 2019, how do you have Q1 performance improved by $82 million.
The fourth consecutive quarter of improvement and further evidence that operating environment in Americas, and EMEA continues to improve.
Finally, Americas EMEA assets, and then business progress in a positive direction with plants manufacturing resolves improving just under $40 million versus last year's Q1, and approximately $14 million better compared with fourth quarter of 2019.
Similar to past quarters. We've included detailed bridges for our reportable segments, which consist of Americas, EMEA and Asia on Slide 12, 13 14.
Turning to slide 12, and the Americas.
Adjusted EBITDA increased to $94 million up $51 million year on year on year corresponding margin of 5.1% was up 290 basis points versus last year.
Business performance led the way improving $40 million year over year.
The key drivers within this buckets included improved watch ops waste in freight, which together totaled about $18 million and commercial which also improved by $18 million year over year.
Component of commercial would include various routine customer settlements, which tend to be lumpy nature between quarters. During the quarter, we resolve that backlog of open issues with a variety of customers. These settlements are common, especially towards the end of the calendar year as our customers close out there their own year.
That's beginning with US another strong contributor in the quarter as Americans benefited from a reduction in net engineering increased efficiencies and the deconsolidation of AD in aerospace.
Partially offsetting these benefits with the negative impact of lower volume and mix can be largely explained by the temporary impacts the GM strike.
Now turning to slide 13, and discussing Emeas results.
Overall, adjusted EBITDA increased to $49 million with a corresponding margin of 3.1% of $47 million, while margin improved 300 basis points, respectively year over year again, good progress that significantly below optimal levels like.
Because substantial improvements in launch ops ways and freight combined with positive commercial actions drove a 44 million dollar improvement in business performance.
The media team also worked hard to reduce Esther unit costs, which improved $12 million compared with Q1 of last year.
Lower volume and mix, partially offset these benefits.
Finally, turning to slide 14 in our Asia segment performance.
For the quarter, adjusted EBITDA was $177 million worth $23 million higher than compared with Q1 2019.
Equity income increased $26 million driven by approximately 10 million benefit associated with tax credits at various geographies and $5 million commercial settlements. In addition improved operational performance both at the seating Jvs and why it by contribute to contributed to the increase.
In equity income.
Important to remember equity income as historically strongest in Q1, our fiscal Q1, mirroring the series seasonality of China's vehicle production pattern.
We continue to expect a significant reduction heading into fiscal Q2, primarily driven by lower vehicle production.
It's running the Chinese new year holidays, as well as the developing impact in the current a virus mourner outlook in just a minute.
In addition to equity income business performance increased by about $9 million year over year, driven primarily by improved material margin.
Lower volume and mix combined with higher engineering costs associated with the current locked schedules for partial offsets.
Now I'll, let me shift to our cash and capital structure on slide 15.
On the left hand side the page, we break down our cash flow adjusted free cash flow defined as operating cash flow less capex was $148 million for the quarter.
121 million dollar improvement in adjusted EBITDA.
Improved trade working capital and a 53 million dollar reduction in capital spending.
Between the two periods explained the vast majority of the increase in free cash flow versus last year.
Working capital as mentioned on several of our past calls and noted on slide tends to be quite volatile throw at it throughout each quarter.
However over the course of the year the impact generally tends to balance out.
Also note that our factoring in Europe was approximately $50 million higher at December 30, Onest that at September Thirtyth.
Our capital spending the year over year decline is partially related to the timing of our customers launch plans as well as an increased scrutiny or spending the teams are working closely to it to identify opportunities to reuse capital where appropriate.
As a result, we're expecting to spend lessen capital.
Capex this year versus prior expectations more on that Matt.
As you can see on the footnote we continue to break out capex by segments.
On the right hand side of the page, we detail our cash and debt position.
At December 30, Onest 2019, we ended the quarter with $965 million and cash cash equivalents gross debt and net debt total rebellions, having 154 million and 2.789 billion respectively on December 31st.
Worth mentioning there are no near term maturities. Thanks to the refinancing completed last may.
Speaking of the refinancing.
Last time, we intentionally increased the company's liquidity to ensure the team had appropriate funding to execute the turnaround plans.
With our turnaround plan firmly rooted in gaining momentum and as evidenced by the several quarters of improving operating and financial results. We're confident we can continue to execute the plan with a lower level.
Morning.
As we move through the next couple of quarters, we'd expect to pay down between 100 $200 million of debt using the excess liquidity residing on our balance sheet.
Now moving to slide 16.
And just a few comments on the strategic transactions, we recently announced and how those actions offer additional opportunities to strengthen the balance sheet.
First the divestiture over Caro automotive seeding.
As you know Ricardo served a niche market, providing low volume of specialty seeding the business was essentially break even.
Realizing we'd be we need to make significant investment in next generation products and incur restructuring costs to improve its profitability, we elected to divest the business, which is very consistent with our commitment to our core business and focused on capital allocation.
The strategic actions with Yanfeng announced earlier this morning major components of the agreements include.
The sale of audience, 30% ownership stake in Wi Fi to young Fang.
Although the partnership we have with young things highly valuable valuable strategic the interiors business is not core to add again, we said in the past that we'd be open to monetizing the investments if the opportunity arose and we have now found such an opportunity.
The sale price was $379 million and if you recall you were expecting equity income from want from the why or why the total approximately $45 million for fiscal 2020.
Which $17 million was included in our Q1 results.
By the way, we expect a little to no tax leakage on this transaction.
We also agreed to make amendments to the why and joint venture agreement as a reminder, hey, why and as a 50 50 joint venture with John thing that was formed in late 2013 to produce mechanisms such as Recliners tracks height adjusters and locks.
I mentioned the JV agreement includes the sale of mechanism patents and other intellectual property to a why am for $20 million.
While I am a license such IP back at against our royalty free basis, and a change in a why EMS business scope to allow a why am to carry out as mechanisms business, both inside and outside of China.
This change in business scope is significant as Adam intends to further leverage a why EMS expertise going forward.
Sourcing a larger portion of adding metals to this high quality low cost business.
Allow us to accelerate the rightsizing our metals business.
And finally, Anthony on thing agreed to extend the JV agreement with why I pay us to December 30, Onest 2038. This extension demonstrates a strong commitment to the partnership in region.
In summary, these actions strengthen our valuable relationship with young Fang demonstrates our continued commitment to the core seating business and disciplined approach to our capital allocation, especially as we as we pivoted to become less capital intensive with the Rightsizing of our metals business as noted on the slide we expect to do you.
Expect to use the approximate $400 million and proceeds to de lever the balance sheet. This amount is incremental to the 100 $200 million debt Paydown discussed on previous slide.
Now turning to slide 17, I'll continue with few comments on what to expect as we progress through the remainder of 2020.
I know many of you may be tempted to take our Q1 results and multiply by four to get a revised full year estimates I wish it were that easy, but unfortunately there are several.
Or certain macro factors and and specific headwind that prevent us oh prevent that from being the case.
Lets break down the specifics starting with revenue, we expect to full year to settle between 15.6 billion and 15.8 billion. Although the range has not changed from our previous estimates certain other components have shifted namely related to the divestiture of Carl for the balance of the year, but it's largely offset by.
Increasing production expected at GM as they work to make up loss volume associated with the labor strike.
Also important to note as previously communicated second half 2020 revenue is expected to be 400 of $500 million lower compared with the first half driven by lower industry volumes and the impact of several product launches, including the Florida Onefifty Ram various Nissan programs in north and.
America Volkswagen's I'd for various Daimler programs and the PPSA Citroen see for cost so in Europe .
For adjusted EBITDA the cells starts the year combined with further benefits expected from our turnaround plan underpin the upward revision to between 870 910 million versus our previous expectations of between 80 20 860 million.
The new adjusted EBITDA range reflects a $30 million decreased equity income, resulting from the announced sale of Wi Fi as we do not plan for a core equity income or Wi Fi on a go forward basis.
The midpoint of our guide is approximately $80 million higher than the previous guidance on an apples to apples basis.
Important to point out planned decline in revenue in the second half of 2020, both in our consolidated and unconsolidated Jvs is expected to partially offset continued operational improvements in both America meal.
Further impacting our balancing your earnings launch load in second half year, which is biased towards programs to carry relatively high decremental margins.
Speaking of equity income, we now expect equity income will range between 235, and 245 million factoring in our Q1 results and announced sale of Wi Fi.
As a reminder, we continue to expect equity income will mirror seasonality patterns of China's vehicle production strongest in Q1, followed by a substantial decline add into fiscal second quarter, which tends to be impacted by lower production surrounding the Chinese new year holiday in fact, we're expecting an approximate $70 million reduction.
Equity income in our second quarter compared with the quarter just completed.
A forecasted 500 million dollar reduction.
In sales.
China in Q2 versus Q1 is the primary driver. In addition, we will not record Wi Fi income equity income decreased dimension.
One more point on China, the macro environment is very uncertain at this time given the current a virus the impact of the virus on the economy is currently unclear and our guidance. Therefore does not include any prolonged or a significant impact. However, we continue to monitor the situation closely and update our planning assumptions as appropriate.
We better understand it impacts to the industry and Adams.
Moving on interest expense has been revised lower to approximately $190 million. This estimate does not take into consideration the accelerated debt Paydown discussed earlier as a large majority of the pay downs will be dependent on the closing of the Wi Fi transactions, which we expect will take place before the end of our 2020 fiscal year.
Cash taxes in fiscal 2000 are still expected to range between 100 $210 million similar to last years level.
Important to remember net operating loss carry forwards can offset income as profits increase so cash taxes on Adams operations should remain low even as profits are increasing.
With regard to add ins effective tax rate in for modeling purposes, our rate in the high 30% range is still appropriate we'd expect that rates fluctuate on a quarterly basis due to the valuation allowances and our geographic mix of income.
Based on our first quarter performance and given our intense focus on cash flow. We now expect to capital expenditures to settle in the 440 $460 million range.
And finally, one last item for your modeling, we expect our improved operating profit and reduce capital expenditures or result in a positive free cash flow for the year.
With that let's move on the question and answer portion of the fall.
But if we can take the first question.
Absolutely and again as a reminder, if he would like to ask a question it its star wine and record your name.
Our first question comes from John Murphy of Bank of America. Your line is L band.
Good morning, guys and congrats on getting a lot on this quarter.
And just just first off on the Inc. Thank transactions Im just curious why you're pulling the trigger on this now is it something Doug that you kind of started working on once once you got there and it just took some time to get it done or what was really the impetus for doing is right now.
Okay, John just so.
Good morning, Thanks for calling in which transactions specifically.
The anchor bank transactions on the Jvs I just want to make sure it's a little.
Garbled Sue.
As Jeff mentioned.
The opportunity a rose as we look to re new are or why.
Venture.
In China.
That's been a tremendous asset for the company.
We were in talks with layouts and we were.
We were looking to.
Find a way to take that relationship to the next level.
We we felt that that was best serve.
As we build the relationship.
Not only extending in China, but also looking towards our mechanism of those as to see how we can.
Globally leverage that business.
As part of that discussion.
We've we've been looking for opportunities to to extract cash on China.
To our advantage of Wi Fi became an opportunity for us.
And because that's not really a core business on the interior side that we participated.
We just felt but the timing makes sense to go after it.
So it's generally you know.
How will the stars aligned.
And.
And we're really excited about the opportunity to continue to build that relationship Wyeth I don't know Jeff any other comments.
Well.
Just as you look at why Fi, we've talked about that being noncore and fighting that opportunity but.
John If you look here it was very important for us to extend the joint venture was why pay offs highly successful and and expanding that relationship with a why I'm, just dovetails right and with.
The plan.
Doug as outlined to improve the cash flow of this business by taking some of the.
Asus off of.
Mechanisms business, that's historically used a lot capital and hasn't necessarily had a great return a why on its really does the opposite they've they've had great returns we own 50% of that business. So this allows a nice harmony and it all kind of came together I took a while to get together. So it's not like we just worked on it this quarter, but it's it's been in the making for a while.
And maybe if I can follow up on the why Im side I mean, it sounds like this is allowing you to maybe rationalize the your core consolidated structures business a bit faster is near the potential there could be asset sales from your core business in today, why yam JV that might raise more more cash or is that kind of a sort of a no no.
No. That's that's not enough that's something we'll we'll look at.
This is the first stuff, we think there's more that can be done.
Going to announce today, but something will absolutely be looking at.
Okay, and then just Doug just as we think about the margins I mean, you got to a ways to go to grind to sort of peer or quote unquote normalized margins, but this quarter kind of showed you're making some real definitive progress on some of the issues of premium freight excess costing launch launches use I mean, what it's kind of your your thoughts.
So as to when you might be able to get to quote unquote normalized pure margin to the something it's still going to take two to three to four years as you're rolling off some of the old bad contracts or is there something you'd get to maybe sooner than that.
But we take some of the macro.
Well issues out of the equation answer your question.
I think we've made good progress I still think this is a multiyear journey, we're not changing that time horizon.
As a result of our Q1 performance.
But it's clearly demonstrating what we focus on the basics.
From a launch and operational performance and meet our customers' expectations that we.
We really changed the environment with our customers and we can get a lot more done so thats, we spend our approach.
Stabilize.
And meet our customers' expectations from.
As a delivery performance quality.
And then that opens the door for us to engage with them.
I'll say commercially.
And also on a cost.
Side of the equation, so so multiyear.
But were.
Pretty satisfied with performance that's reflected in Q1.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes some kelsay Joseph Spak RBC capital markets. Your line is up and.
Good morning, everyone. Thanks for taking my question.
I guess.
Just to start on the the commercial settlements.
It sounds like what you're saying. This is this is lumpy. This is this is based on some recoveries in sort of.
Contractual rig recoveries is is that 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.
Up it's it's both of them as we've always said theres been a backlog of issues that we are difficult to close out with our customer because we had.
You know performance.
Issues that were in our control standing.
In the way so as Weve.
Addressed our performance issues, that's allowed us to come and engage with our customer and resolve some of the.
That backlog if you will.
The other element is a function of the way the calendar in fiscal years and.
And we get a lot of things done at the end of our customers calendar year that benefit us and our first quarter fiscal year.
So it's it's both.
If you will.
Okay in the region, meaning 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 for the 10 million tax credits, so and apply some significantly lower implied.
Margins in this in the seating jvs over the course of the or what's driving nod and is that sort of a sort of a more new normal rate to think about in China.
It's a little bit of a ladder so.
We aligned our forecast with what our customers provide us for the immediate.
And then we look at.
Hs to give us an idea of what we can expect to the releases that we have with our customers or what are seen as customers volume are projected to be.
Our dependence mix.
We have customers like as Jean.
And for who.
Been struggling in the market that takes that number down.
But.
It really defines phosphate FX aside of Chinese additional comments, yes, Joe I would say you know for the most part as we look at China is.
It's got pretty high decremental margins it's.
Yes, it's a strong business so as.
We predict weaker sales environment, that's going to drive some margin reduction, mostly just because the detrimental side I'd 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 mix story within that margin.
SGN, Doug mentioned as a key customer it's also significantly presumably could be impacted pretty heavily about 20% of their productions in Milan.
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 on the 80, why I'm portion of the JV actions, how long does it will take for them to get set up on mechanisms and can you off load or I guess, you like outsource business to them or is this more for go forward contracts.
So they just Justin yes.
Well you know they if they essentially provide all of our mechanisms in the China market today, and that's where they are set up today. They are very well today of FX are incredibly well set up today. They have a plant in China that is a world class, notably supplies.
Majority of our product in reach it also exports to Europe and North America.
Well.
Okay. Thank you.
Sure. Thank you. Our next question comes from Dan Levy of Credit Suisse. Your line is open.
Hi, Good morning, 40 acres for taking questions.
Just wanted to follow up again on the on the commercial settlements here.
How should we think about how many more contracts you have that really need to be.
Repriced.
And just you know what's the.
If they're reprices, it's just for like a onetime 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.
Dan before before Doug talked.
Our talks about some of those other points, let me just maybe get a little bit about primer on certain commercial settlements for us we we have.
Obviously enormous number of contracts with our customers.
That have volume components that have.
All kinds of different components, it impacts the price our customer pays to us.
And we also have productivity or price reductions that we estimate that will give to them through the year. What your talk what we're talking about here for the most part and as commercial settlements is routine activity of the company that happens you're in your out I go back and I look in history. We've had these big.
King of time, but they tend to be lumpy and we're trying to basically emphasized that comments 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 ended the year with mixed of all the other commercial issues, we either overestimate or underestimate where that.
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, which you should these customers, which typically happens at the end of our talent or at the end of the calendar year.
We tend to have a bit of a benefit so in our first quarter fiscal year historically in our accruals with sort of suggests this over time is pretty consistent we get a similar type benefit you just can't annualize it through the period and that we're trying to really emphasize here in calling it out and maybe if I can just further that's what what I would.
To add to it.
[laughter] is.
Okay.
A year ago, we had a lot of unresolved.
Contractual issues with our customer for the most part that wasn't been addressed.
What I will say as we move forward and it's somewhat the nature of our business as a.
Our product.
Tends to change quite a bit and that creates opportunity for us to engage with our customers and Bob for solutions.
That can benefit our bottom line, that's just the nature of the seating business, that's something we've re committed.
Our our activities to support so when we talk about the that's not.
Necessarily running workshops to find ways to take cost out of an important part it's also telling our customers where theres real value when the product.
Based on our assessment of the market and and benchmarking their products and to what we pigs, most valuable and that offering.
Good cycle solutions that otherwise they wouldn't be investigating.
And 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.
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's kind of a continuous to activity that we remain committed ourselves.
To that or regional groups understand and our customer groups understand.
And 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 gross revenue growth in quarter was minus 4%, but that's actually a couple of points better than.
Then what the 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.
Of SSM. So can you just give us a sense of what's happening in your organic growth or into the incremental content is it's just better platform exposure you know and what might this tell us about how to think of in the future your relationship of organic growth versus LDP call.
Let the a you know the outgrows.
Setting aside what's going to be the likely impact that future downsizing of SSM, which I suspect we haven't really seen yet in the in the revenue results.
Okay. So.
Hi.
It's certainly.
A lot of it has to do with mix.
One of the great things about our revenue portfolio products is we.
We have great mix to as UBI light truck.
Luxury customers.
And as that mix.
As the market mix turns in that direction that certainly gives us.
Benefit that's particularly true in the Americas, where we're well positioned in the light truck market I think thats part of the answer.
If we look yes.
We're not.
For leasing that project backlog.
Because our relationships with our customers.
Secondly, improved performance has improved.
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.
Piece that China, it could get a 100% and the high Ninetys everywhere else in the world. So we feel good.
Longer term, but that backlog continues to come on.
I think that really covers.
You know.
I think answers your question.
Any additional comments to that John.
I guess at though if you look at it.
And there's no sort of.
You know backlog air pocket or anything like that when we heard of some of your competitors talk about conquest business. It sounds like you're saying that you're winning.
All the jet business the backlog is intact theres no future at air pocket that maker between now versus you know when these re wins that you've talked about occur as that is that a fair assessment. So this from a success is that fair assessment the only.
Disclaimer I'd put on that is the comments, we made and in our formal remarks that.
There are business that we're taking a hard look at and if we cannot.
Putting together a.
A thoughtful financial projection that gives us and return on investment.
You know that more prepared.
Walk away from that.
At this stage nothing to announce but.
That's a different attitude I think we have when we look at new business opportunity nothing sacred.
And we way each opportunity each customer in each region for each product.
Different theyre not weighted equally and we take that all into account before we decide whether.
We want business or not.
Okay, great. Thank you Sam in Jaclyn, we take or last question from Brian.
Yes, our last question comes from Brian Johnson of Barclays. Your line is open.
Two questions.
First on the assets to them licensing.
Yeah. Thanks.
This open up the possibility that gauge in value engineering discussions with North American and European customers about moving sourcing mechanisms to China or to is in fact, we're already doing that what's happening independent. Thus, we just think good bringing these business.
This is closer together.
Allows us to.
To make make buy decisions, even within our existing asset base.
The decide.
Where where it's best to put business I think were.
We're more alliance today, the way, we think about that engaging their purchasing organization.
Starkly, we've been so we're making those moves as we speak.
And making them.
Over the last.
Your clubs.
And in terms of the impact on supply chain logistics.
Yes.
Factory, what's the cuts Ms reaction, but I would suggest.
Typically.
Well first our operations in.
With a way up our outstanding operations many of our customers.
No the of either from their relationship through China or.
As a result of products that we shipped to them through our chip plants. So there are no editing.
The.
For certain products, they are 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 et cetera associated with that so thats all baked in to the K Cup you will.
And when we can bring forward a.
Attractive business or pull fall.
Those issues and new account.
Were pretty transparent with our customers they understand the benefit that overseas and they're usually very much a line.
And then and supportive.
And effectively they're producing the same part that we are we designed these together remember it's our JV. So it's common.
We both produced the same recliner 3000 series, they've just been able to do it lower cost, but the output of the products. The same so for the customers.
Yeah.
One additional point, we we also operate technical center through a way. So this is not just.
You know the traditional low cost country sourcing they've got a lot of technical prowess.
They they can support the customers and region.
Yeah, just manufacturing side of things.
Great. Thank you, Brian and Jack when it looks like we're at the bottom of the hours. So this will conclude the call. This morning, if anybody does not get there chance. That's question. 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 had a wonderful day.